April 13, 2020

Opioid Settlements: Some Lessons Learned from Big Tobacco

By Lynn M. Barrett, Esq., CHC, CCP, Barrett Law, PA, Weston, FL

Proposed Opioid Settlement: Purdue Pharma

In September 2019, Purdue Pharma (Purdue) announced its agreement in principle on a framework for a “landmark” opioid litigation settlement worth, by Purdue’s account, an estimated $10 billion.1 As proposed, the agreement would settle claims brought by 24 attorneys general, five U.S. territories and the Plaintiffs’ Executive Committee2 in the opioid Multidistrict Litigation (MDL). Allegations in the thousands of lawsuits that are part of the MDL as well as state litigation include claims that Purdue fueled the opioid crisis by, among other things, overstating the benefits and grossly misrepresenting the risks of the long-term use of prescription opioids for chronic pain.3 The proposed agreement came as Purdue filed for Chapter 11 bankruptcy protection, which would be a “next step in implementing this historic agreement in principle.”4 Pursuant to the agreement, the Sacklers, owners of Purdue, would contribute all of Purdue’s assets to a public trust or other entity established for the benefit of the claimants “and the American people.” The Board of Directors would be selected by the claimants and subject to the approval of the bankruptcy court, and the trust or other entity would potentially contribute tens of millions of doses of opioid overdose reversal and addiction treatment medications at low or no cost. In addition, the Sacklers would also personally contribute at least $3 billion as part of this plan. 

Critics of the proposal, including dozens of state attorneys general and law enforcement officials, believe that the Sacklers should pay far more than $3 billion since they benefitted from the alleged illegal marketing of opioids.5 This belief appears to have been bolstered by the results of an audit performed in December 2019 as part of the Purdue bankruptcy, which found that Sackler family members transferred over $10.4 billion out of the company since 2008, the year after Purdue and three of its top executives pled guilty to criminal charges involving the marketing of OxyContin.6 Some payments, the report indicates, were placed into trusts set up in the British Virgin Islands and Luxembourg, and $4.12 billion was distributed to the Sackler family.7

Proposed Opioid Settlement: Certain States

The next month, attorneys general in North Carolina, Pennsylvania, Tennessee and Texas announced that they were working on a proposed $48 billion global settlement that would resolve thousands of opioid lawsuits against three drug distributors, AmerisourceBergen, Cardinal Health and McKesson, and two drug manufacturers, Johnson & Johnson and Teva Pharmaceuticals.8 The settlement would include $22.25 billion in cash, most of which would be paid over the course of 18 years, and $26 billion in products and services, which would be distributed over 10 years. Of the $26 billion, Teva would provide $23 billion in generic Suboxone, a combination medication containing buprenorphine and naloxone and one of the main medications used for medication-assisted-therapy (MAT) for opioid addiction.9 Under the settlement’s general framework, the money allocated to each state would be divided, with 15 percent going to the state treasury, 15 percent going to the state’s local government(s) that filed lawsuits, and 70 percent going to a state fund aimed at addressing the crisis.

The potential $48 billion settlement, however, has been criticized by a number of individuals, including West Virginia’s Attorney General, Patrick Morrisey, who fears that the money would be divided based on each state’s population size rather than based on the extent of each state’s need, and New Hampshire’s Attorney General, James Boffetti, who is concerned that the money would be provided over too long a time period – up to 18 years - when states need the money now in order to abate the opioid crisis.10  At present, it appears that the proposed settlement has been put on the back burner, with its supporters admitting that many details and the mechanics regarding the distribution of funds received from any settlement would need to be determined.11

Even the last-minute settlement of the MDL’s first cases pursued against opioid drug manufacturers and distributors by Ohio’s Cuyahoga and Summit counties that were set to go to trial has the counties trying to determine how to allocate the $320 million settlement (provided in cash and products).12 While the counties have stated that they will use the money to fight the opioid crisis, they have not provided details of how most of the money would be spent. Cuyahoga County, which received 62 percent of the settlement funds,13 published its Opioid Crisis Mitigation Plan (OCM).That allocated $23,155,286 to the areas of opioid prevention, treatment, diversion and education.14 This, however, constitutes only “Phase One” of the OCM, which, Cuyahoga County states, will be further developed as more funds are released.15 Summit County released its “Opioid Epidemic Abatement Plan” which states that the funds received from the settlements will remain in Summit County “for the benefit of Summit County residents” and that an “Opioid Abatement Advisory Council” will be formed to recommend the programming and distribution of funds to address three priorities: opioid treatment, harm reduction and system coordination.16

Additionally, there is little doubt that Judge Polster, who oversees the MDL in Ohio, will continue to push for global settlements, an outcome for which he has openly advocated.17 As these settlements continue to be discussed and debated, questions arise as to how and to whom the money from the opioid settlements should be distributed and utilized, and who should make the decision.

In seeking to answer this question, it may be helpful to look to the “Big Tobacco” litigation and settlement for guidance.

The Master Tobacco Settlement: An Overview

It has been referred to as the largest civil litigation settlement in United States history.18 In 1998, 46 attorneys general, the District of Columbia and five U.S. territories signed a Master Settlement Agreement (MSA) with the four largest tobacco companies in the United States, Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, and Lorillard Tobacco Company, as well as the tobacco industry’s trade associations.19 The MSA put to bed years of litigation brought by states against tobacco companies alleged to have caused a myriad of smoking-related illnesses and diseases. It resulted in an agreement to pay the states and territories an estimated $206 billion over the first 25 years of the settlement to recoup costs associated with treating smoking-related illnesses.20 The MSA also put an end to big tobacco’s seemingly never-ending legal victories, with the tobacco companies reportedly having shut down over 800 lawsuits brought by individuals from the 1950s to the 1990s.21 Since the MSA was signed, approximately 40 additional cigarette manufacturers have signed it and are bound by its terms. (The original and subsequent signatories to the MSA are collectively referred to as the “Participating Manufacturers.”)22

Pursuant to the MSA, Participating Manufacturers were required to make “up front” annual payments for the first five years, beginning April 2000, for a total of $12.7 billion. In addition, Participating Manufacturers must make annual payments in perpetuity, which are tied to a “base amount.” This base amount was $4.5 billion in 2000 and increased every year until 2018. Beginning in 2018, the base amount no longer increased but will remain the same in perpetuity. These amounts are subject to numerous adjustments and offsets and are based on the Participating Manufacturers’ shares of national cigarette sales and shipments. In 2018, the annual payment was set at $9 billion.23

In addition to the monetary settlement payments, the MSA contains a number of significant prohibitions and restrictions on tobacco advertising and marketing, including the direct and indirect targeting of youth, the use of cartoon characters, branded merchandise and brand name sponsorships. As the National Association of Attorneys General Tobacco Center put it, “the MSA is responsible for raising a generation that has never seen ads of ‘Joe Camel,’” and kids are “now protected from the ‘smoking is cool’ advertising messages” previously used by tobacco companies.24 Interestingly, the Los Angeles Times reported in 2014 that by the late 1990s, more than 90 percent of schoolchildren knew who the Marlboro man, a rugged cowboy successfully used in advertising campaigns for Marlboro cigarettes beginning in the mid-1950s, was.25 The MSA also prohibits agreements to suppress health-related research as well as practices that attempt to hide negative information about smoking, including material misrepresentations about the health consequences of using tobacco.26 It additionally requires the Participating Manufacturers to make available online all non-privileged documents disclosed during the tobacco litigation as well as any documents produced in discovery in any federal or state civil action concerning tobacco and health.27  Finally, the MSA created a tobacco prevention foundation and disbanded key tobacco industry initiatives such as the “Tobacco Industry Research Committee,” which essentially was a public relations committee that would attempt to cast doubt on accusations linking cigarettes to poor health.28

According to its terms, the MSA was entered into to further states’ policies designed to reduce smoking in children under 18, to promote public health, to implement important tobacco-related public health measures, including enforcing the mandates and restrictions related to such measures, and to fund a national foundation dedicated to significantly reducing the use of tobacco products by children under 18.29 At the time of the settlement, state officials promised to spend a significant portion of the settlement money on programs to prevent children from smoking and to help smokers quit.30 Even though the MSA did not dictate how to spend the money, states promised that the money would be just the “first step” in their efforts to reduce tobacco use using the tobacco companies’ own money.31 In 1998 and 1999, for example, Indiana’s then-Governor Frank O’Bannon and then-Attorney General Jeff Modisett urged using much of Indiana’s share of the tobacco settlement for children’s health, with O’Bannon stating that the money “can go a long way toward preventing Hoosier kids from ever getting hooked on tobacco and toward helping our citizens stop smoking and recover from smoking-related illnesses”32 Similarly, Connecticut’s then-Attorney General Richard Blumenthal proposed legislation for spending the state’s $5.5 billion settlement with Big Tobacco. Under the proposed plan, 45 percent of the funds would go to education, prevention and cessation initiatives, 45 percent to health programs, and 10 percent would be invested in an endowment fund.33

The Master Settlement Agreement: How Has the Money Been Spent?

So, since the execution of the MSA, how have the states done in utilizing the billions of dollars they have received and are still receiving “to fight the evils of the tobacco industry?”34 According to the Campaign for Tobacco-Free Kids, an advocacy organization working to reduce tobacco use, over the course of the first approximately 20 years of the settlement (from fiscal year 2000 to fiscal year 2019), the states, collectively, have spent only 2.6 percent of the $425 billion received from tobacco-generated revenue on tobacco prevention and cessation programs.35 In fiscal year 2020, the states are expected to collect $27.2 billion from tobacco-generated revenue but will spend only about 2.7 percent ($739.9 million) on programs to help prevent children from using tobacco and to help smokers quit smoking. Although this is a very slight increase in spending from prior years, the amount represents less than a quarter (22.4 percent) of the total annual state funding recommended by the Centers for Disease Control and Prevention (CDC), which is $3.3 billion.36 In fact, no state appears to meet the CDC-recommended funding; the funding ranges from California providing 93 percent of the CDC’s recommended funding to Connecticut providing no funding. Thirty-three states and the District of Columbia are providing less than 25 percent of the CDC recommended funding.37

This disparate level of funding is interesting in light of the fact that tobacco use remains the leading cause of preventable deaths in the United States and that there are still approximately 34 million adult smokers.38  And while overall tobacco use has decreased since the MSA was signed, the percentage of high school students who use tobacco products has risen to its highest level in 19 years, largely due to the use of e-cigarettes.39 Approximately 6.2 million high school and middle school children used some type of tobacco products in 2019.40 This is occurring as tobacco companies are spending over $9 billion each year – which equates to $1 million per hour – to market tobacco products. For every $1 spent by states to reduce tobacco use, tobacco companies spend $12 on marketing.41 In fact, in 2017 the Wall Street Journal (WSJ) reported that “against all odds, the U.S. Tobacco industry is rolling in money.”42 Costs incurred from the hefty legal settlements and imposition on the industry of significant prohibitions and restrictions in the MSA, which some may have thought would cripple tobacco companies, did not, the WSJ reported. Tobacco companies found that increasing the prices of tobacco products “more than made up for falling volumes” of tobacco users.43

If the funding has not been used for tobacco prevention and cessation, where has the money gone? First, although the MSA provided the tobacco industry with immunity from future state and federal lawsuits in exchange for billions of dollars and the imposition of industry prohibitions and restrictions, it did not dictate how the settlement money should be spent. Although the lawsuits were brought by state attorneys general, most of the funds were placed in the states’ general treasuries, in some cases because the attorneys general did not have the authority or were reluctant to make funding decisions. Placing the settlement funds in general treasuries therefore made the money available for any purpose, as determined by the state legislatures.44 According to a Los Angeles Times reporter who covered the tobacco industry for many years, it “was understood without being codified into the agreement that  states would make a big investment in public health and tobacco cessation. They haven’t.”45 Rather, most of the money has gone elsewhere. For example, in 2014 it was reported that that millions of dollars were spent on shipping docks in Alaska, and on a public golf course sprinkler system and county building and jail in New York.46  Some states used the funds to fix potholes, to cover spending shortfalls, for tax relief and even to benefit the tobacco industry.47 For example, North Carolina used 75 percent of the funds for tobacco production, with funds going to private tobacco producers for tobacco-curing equipment, a tobacco auction hall, video production for a tobacco museum and plumbing for a tobacco processing plant.48  As Senator John McCain said at that time, “it was never [his] intention or understanding that the settlement  money would be used for building roads, prisons, or to simply inflate the government’s coffers.” Rather, “it was [his] understanding and intent that the money would be used primarily to fight the evils of the tobacco industry and to keep 3,000 kids a day from starting to smoke.”49

In addition to diverting tobacco settlement funds to a multitude of programs and projects that had no relation to the intended purposes of the settlement, after the MSA went into effect several states securitized their future tobacco payments in exchange for lump sum payments from private investors.50 This means that future annual settlement payments that would have been made to the states were instead turned into immediate upfront cash through the sale of “tobacco bonds” to investors; that is, states promised future MSA payments in order to receive cash right away.51 Reminiscent of Popeye’s Wimpy, who declared that he would gladly pay Tuesday for a hamburger today, the bond offerings provided states with quick money but at a price. First, the states received only about 40 cents on the dollar or less, with in some states receiving as little as 25 cents on the dollar. In addition, these states chose to defer all interest payments and make repayment dates as far as 50 years in the future. During this time, interest compounds on both the principal and the accumulating amounts.  At the end of this period, states will have to repay the entire amount due – which can be 76 times the amount the states borrowed through the issuance of the bonds.52

Meanwhile, unlike the states, two groups have or will realize considerable profit from these transactions: the investment bankers, consultants and lawyers who received an estimated $500 million in fees from putting together these deals, and bondholders who will reap a huge long-term profit.53 For example, approximately $22.6 billion in tobacco bonds were issued not long after the MSA was signed, but the states received only $573.2 million in cash. In 40 or 50 years, those states will have to repay an estimated $67 billion.54 Further, these high-risk bond deals were based on a number of assumptions that have turned out to be inaccurate. For example, one assumption was that the rate of smoking would decrease at rates lower than they actually have. The faulty assumptions have caused a greater gap to occur between what states will collect under the MSA and what they promised to investors in the future. These factors have led the states that issued tobacco bonds to be facing considerable debt issues.

So, what does this examination of the Big Tobacco litigation and settlement mean for the opioid litigation and potential settlements? Although there are likely a myriad of lessons learned from Big Tobacco that can be applied to the opioid litigation, three such lessons are discussed below.

Certain Lessons Learned from Big Tobacco

Lesson #1: Participation is Key

Perhaps one of the biggest lessons learned from the tobacco litigation is that “you have to be in it to win it.”55  What has become abundantly clear in the last 20 years since the settlement is that those who were not part of the tobacco litigation and signatories to the MSA generally failed to receive funds to reimburse them for costs associated with tobacco-related illnesses and diseases. Even many of those who participated in the litigation and signed the MSA did not, or were not able to, put safeguards in place to ensure that the funds were used for the intended purposes of preventing smoking and the use of tobacco products and helping smokers quit the habit. Accordingly, it may come as no surprise that hospitals, as well as other entities, have pursued their own opioid lawsuits in both state court and as part of the MDL.  By of the end of 2019, hundreds of hospitals had filed suit against opioid manufacturers, distributors and pharmacies seeking to recoup money they spent fighting the opioid epidemic through the provision of medical services, among other things. According to an analysis of 647 healthcare facilities in the United States. conducted by Premier, Inc., a healthcare improvement company, the total care for patients who experienced an opioid overdose resulted in $1.94 billion in annual hospital costs.56 If those hospital costs were to be extrapolated, Premier estimates that the total costs added to the U.S. healthcare system would  amount to $11.3 billion annually, or one percent of all hospital expenditures; $7.4 billion of this extrapolated amount would be borne by the federal Medicare and Medicaid programs, according to the analysis.57 Further, the Society of Actuaries examined several years’ worth of data and estimated that from 2015 to 2018 $205 billion in excess healthcare spending was attributable to three things: individuals with Opioid Use Disorder (OUD), families of those diagnosed with OUD, and infants born with neonatal abstinence syndrome (NAS) or neonatal opioid withdrawal syndrome (NOWS).58

Perhaps in light of the foregoing, hospitals have filed suit to recoup costs associated with their role in combatting the opioid crisis. Interestingly, those getting involved in opioid litigation – both plaintiffs and defendants - have widened over the last few years.  For example, at the end of 2017, local officials in West Virginia filed suit against The Joint Commission (TJC), which in 2001, the complaint alleges, teamed with Purdue, its affiliates and other opioid manufacturers, “to issue Pain Management Standards [ ] and other related documents that grossly misrepresented the addictive qualities of opioids and fostered dangerous pain control practices, the result of which was often the inappropriate provision of opioids with disastrous adverse consequences for individuals, families, and communities.”59  The complaint seeks, among other things, a declaratory judgment (1) requiring TJC to distribute corrective language concerning the Pain Management Standards and to distribute to healthcare organizations instructions that information contained in certain TJC publications inaccurately disclosed the risks of pain medication, (2) prohibiting TJC from soliciting or accept funding from a pharmaceutical company concerning any standards used to certify healthcare organizations, and (3) prohibiting TJC from jointly producing with a pharmaceutical company materials or programs related to any standards used to certify healthcare organizations.60 

Further, by the end of 2019, at least five school districts filed suit against many of the same opioid manufacturers, distributors and pharmacies that are defendants in the MDL and state opioid cases.61 These plaintiffs are seeking damages for, among other things, costs associated with special education, including special programs for children with opioid-related learning disabilities and for psychological counseling due to opioid-related family crises, costs associated with providing care for children whose parents suffer from opioid-related disability or incapacitation, costs associated with increased school security in all facilities of the school board district, and loss of tax revenue.62

Most recently, Judge Polster gave the green light to allow the Cleveland Bakers and Teamsters Health and Welfare Fund and Pipe Fitters Local Union No. 120 Insurance Fund (Funds) to continue with a lawsuit they filed in 2018 against opioid manufacturers and distributors by denying several motions to dismiss brought by these defendants.63 The plaintiffs, private third party payors who indirectly purchased, paid for, and/or reimbursed others for the costs of opioids for covered participants and their dependents, alleged direct and foreseeable injuries based on two theories. The first is that the defendants who marketed opioids misrepresented the safety and risks of their products so that the Funds would include the drugs on their formularies. The second is that by failing to report and prevent suspicious opioid orders and opioid diversions, the Funds were precluded from removing or limiting the opioid formulary status and caused them to incur the costs of excessive opioid prescriptions and treatment for opioid addiction, abuse and overdoses.64  As a result, Judge Polster allowed the suit to move forward. Clearly, it appears that these plaintiffs have learned - perhaps from reviewing the Big Tobacco litigation experience - that if they expect to receive funds to help recoup costs expended in connection with the opioid crisis, they have to jump into the litigation fray themselves.

Lesson #2: Have a Plan

Another lesson learned from the tobacco litigation is that any global settlement in the opioid MDL involving states and counties should set out in writing how the funds will be distributed and how they must be utilized: i.e., in connection with the opioid crisis.  Several proposals regarding how the funds should be distributed have been advanced in the last year. For example, one proposal sets out a distribution formula based on three factors: the number of pills distributed, the number of deaths from opioids, and the number of people with an OUD.65  Another proposal’s distribution formula would be based on four factors: state population, opioid deaths by state, opioid pills distributed by state, and levels of opioid addiction by state.66  While the distribution question is challenging, the question of how the funds should be spent appears, at times, to be overwhelming.

Nevertheless, in order to avoid settlement funds being used for non-opioid-related issues, the settlement should explicitly set out in writing that the funds must be used to combat the opioid crisis and to address opioid-related issues and that the funds cannot be repurposed for other, non-opioid-related reasons. In determining what those opioid-related purposes should be, the states may consider a number of alternatives, subject, of course, to their ability to do so based on their own laws, rules and regulations.   

First, similar to Oklahoma’s “Tobacco Endowment Fund” which was created in 2000 and which administers programs to prevent cancer and cardiovascular disease, both of which have been linked to smoking, a state could consider creating an independent trust or endowment. Opioid settlement funds would be placed in a trust or endowment which would determine how the funds should be spent, consistent with the intended purpose of combatting the opioid crisis, as set forth in and consistent with the settlement agreement as well as in the entity’s charter and governing documents. While the use of funds would be restricted to opioid-related purposes, the entity would have latitude to determine the funding priorities on an annual basis and establish the details of how the money would be allocated. OUD treatment, prevention and education should be at the core of the funding decisions. To assist with these decisions, the entity could create an Advisory Committee (such as the one established by Summit County, above) which could be comprised of a variety of stakeholders including, for example, healthcare providers, former opioid addicts and families of addicts, mental health and substance abuse professionals, community leaders and representatives from the Substance Abuse and Mental Health Services Administration (SAMHSA), the agency within the U.S. Department of Health and Human Services that leads public health efforts to advance the behavioral health of the country. These stakeholders could provide valuable input and insights as to where funds could best be spent.  In addition, transparency would be a critical component of this entity, which would be required to create periodic reports of its progress (not less frequently than quarterly), hold periodic meetings which would be open to the public to discuss its progress, and create annual reports which would outline how the funds were used and to whom they were to be given, whether the funding initiatives were successful, and what the funding priorities would be for the following year.

Alternatively, much like the state of Florida in 2006 and the State of North Dakota in 2008 in connection with the tobacco MSA, if the opioid settlement funds are placed in a state’s general treasury, a state, if permitted under its laws, could propose state constitutional amendments through ballot initiatives which would allow the citizens of the state to participate in directing their legislature how to spend all or a portion of the settlement funds.  In 2006, for example, Florida proposed a constitutional amendment, Amendment 4, “Use of Tobacco Funds,” which was passed by the voters and stated, in pertinent part:

To protect people, especially youth, from addiction, disease, and other health hazards of using tobacco, the Legislature shall use some Tobacco Settlement money annually for a comprehensive statewide tobacco education and prevention program using Centers for Disease Control best practices.67

Two years later, North Dakota proposed and placed on the ballot a statutory amendment concerning the use of the tobacco settlement funds. This amendment, which was approved by the voters, established a tobacco prevention and control advisory committee and an executive committee, developed and funded a comprehensive statewide tobacco prevention and control plan and created a tobacco prevention and control trust fund to receive tobacco settlement dollars to be administered by the executive committee.68  Of course, these constitutional and statutory amendments can be time-consuming and cumbersome, and the process of even creating such an amendment varies from state to state. Constitutional amendments, for example, can be accomplished through direct action of a state legislature, legislatively referred, or accomplished through a constitutional convention, or via a commission-referred amendment process.69

Despite the potential complexity involved in such a process, in December 2019 Ohio’s attorney general prepared a constitutional amendment designed to ensure that any opioid settlement funds will be used now and in the future to combat the opioid crisis. The proposal would create the “Ohio Recovery Foundation,” comprised of a board of directors, which would allocate funds to various opioid-related resources, and a board of investors, which would invest funds to ensure that the Foundation has sufficient financial resources to support itself well into the future.70 The attorney general suggested that a constitutional amendment was the only solution to ensure that the Foundation has “a guarantee of stability into the future,” since mechanisms such as statutes and executive orders can be more easily changed.71  Perhaps the attorney general placed “guardrails” in the proposed amendment in light of the experience of Ohio’s “Tobacco Settlement Endowment Fund,” into which the then-Ohio General Assembly allocated $235 million in 2000 to fund tobacco control programming.  Approximately 10 years later, Ohio’s then-governor and general assembly took almost all of the money out of the fund and directed that the funds be used to create jobs in the face of a slowing economy, thereby virtually ending the funding for tobacco control programs in the state.72

What these funding opportunities have in common is the desire to eradicate the opioid epidemic.  How this is done is open to a variety of possibilities, many of which are already being discussed and some of which appear to have been overlooked.  For example, settlement funds can be used to compensate victims of the crisis and their families.  To date, there have not been many funding proposals that aim to compensate these individuals. One possible explanation may be that, according to a study by the National Institute of Drug Abuse, the estimated rate of relapse for addicts in recovery is up to 60 percent.73 Another study, published in  the Irish Medical Journal, found that the rate of opioid addiction relapse is higher than for any other drug addiction, with as many as 91 percent of addicts in recovery experiencing a relapse.74 Given these statistics, some may feel that using settlement funds to help addicts may not be the most efficient use of money. Yet these individuals and their families need increased access to treatment programs, as well as therapy and family counseling programs. Also critical are programs that focus on the prevention of opioid use, including education on substance use disorders (SUDs) and OUDs, which should be provided to families as well as to schools and community treatment centers. Naloxone should be widely distributed to opioid users and their families, available in schools and community organizations and provided to all emergency medical personnel.  Funds could also be utilized to further research on OUDs, SUDs and the use of opioids and other analgesics to address chronic pain and on optimal pain management and risk mitigation strategies.75 The Association of American Medical Colleges is enhancing existing coursework in pain management and substance abuse and has worked to help pass legislation to address the national crisis by ending a freeze in Medicare support and adding 1,000 graduate medical education positions over the next five years in hospitals that have, or are in the process of establishing, accredited residency programs in addiction medicine, addiction psychiatry, or pain medicine.76

Lesson #3: Be Cautious When Considering Securitization

An additional lesson learned from the tobacco litigation is to be cautious if Wall Street comes calling to provide ways to obtain settlement funds quickly in exchange for the right to receive future settlement payments. Although funds are needed as soon as possible to abate the opioid crisis, as noted herein, the securitization mechanism did not work well for some of the states who traded their future tobacco settlement payments for immediate funds. According to ProPublica, an independent non-profit newsroom, the tobacco bond deals left states with billions of dollars of debt and now Wall Street firms are being paid by the states to unwind them.77 New Jersey, for example, was the first state to unwind a deal that would have repaid investors $1.3 billion in 2041. Rather than continue with this arrangement, the state agreed to pay $406 million of its tobacco proceeds beginning in 2017. As a result, rating agencies downgraded New Jersey for relying on “one-time fixes,” which made it more expensive for the state to borrow money. Barclays, the entity that handled the transaction for New Jersey, was paid $4.5 million.78

Big Tobacco and the Opioid Litigation

At first blush, it may appear that the decades of tobacco litigation and the finalization of the MSA were so long ago that they are of very little relevance to the current opioid crisis. For example, before states got involved, plaintiffs generally were individuals who suffered from a number of illnesses and diseases allegedly caused by tobacco use. Perhaps as a result, the cases were largely dismissed. Today, many of the plaintiffs include large health systems, school districts, and payors who are pursuing claims that are based, in part, on similar legal theories, but that are addressing different types of harm allegedly caused by the opioid defendants. In addition, in the Big Tobacco litigation states worked together to reach one global settlement which was intended (but may not necessarily have succeeded to the extent intended) to address issues of many of the stakeholders, including some of those who did not participate in the litigation. To date, the opioid litigation has not resulted in discussions that would address the issues raised by the variety of opioid plaintiffs. The likelihood of a global settlement that would encompass the number and variety of plaintiffs seems unlikely, as settlements seem to be moving forward in more of a piecemeal fashion. Despite these differences, the Big Tobacco litigation provides some very important lessons that can and should be taken into account as the opioid litigation moves forward.

While there are likely many more lessons to be learned from the Big Tobacco litigation and settlement, at least two of them may have already contributed to certain strategic decisions having been made in the opioid litigation. First, it seems that hospitals, school districts and third-party payors, among others, have understood that they have to jump into the litigation fray if they want to ensure they receive reimbursement for their costs associated with the opioid crisis. 79In addition, states are already proposing ways, such as the use ballot initiatives and trusts or endowments, to ensure that the proceeds resulting from a global opioid settlement will be utilized for the intended purposes of controlling and eradicating the opioid epidemic. In the event a global settlement is reached or as individual settlements continue to be entered into, states and other plaintiffs should also be cautious of embarking on a course of action to obtain “quick money” in exchange for overwhelming future payments and almost certain financial debt. Perhaps certain states will have realized that things that look too good to be true, many times are.

  1. Purdue Pharma Press Release, Purdue Pharma Announces Agreement in Principle on Landmark Opioid Litigation Settlement (Sept. 16, 2019), available at https://www.purduepharma.com/news/2019/09/16/purdue-pharma-announces-agreement-in-principle-on-landmark-opioid-litigation-settlement/.
  2. The Plaintiffs’ Executive Committee is a group of attorneys who are in a leadership position on behalf of the plaintiffs in the MDL See 2804 MDL Opiate Litigation, available at https://www.ohnd.uscourts.gov/mdl-2804.
  3. Id.
  4. In re: Purdue Pharm LP, No. 19-23649 (Bankr. S.D.N.Y. 2019). See also Purdue Press Release, n. 1.
  5. See Feeley, J., Church, S. & Bloomberg, Purdue Pharma’s $10 Billion Bankruptcy Plan to Settle Opioid Epidemic Claims Heads to Court, Fortune (Sept. 16, 2019), available at https://fortune.com/2019/09/16/purdue-pharma-bankruptcy-opioid-crisis-billion-sackler/.
  6. Feeley, J. & Larson, E., Sacklers Withdrew $10 Billion Out of Purdue, Report Finds, Bloomberg (Dec. 17, 2019), available at https://www.bloomberg.com/news/articles/2019-12-17/report-finds-sacklers-withdrew-10-billion-out-of-purdue-pharma. Notice of Filing Report of the Special Committee, In re: Purdue Pharma, LP, No 19-23649 (Bankr. S.D.N.Y Dec. 2019), available at https://s.wsj.net/public/resources/documents/Bankr.S.D.N.Y._7-19-bk-23649.pdf?mod=article_inline.
  7. Id.
  8. See, e.g., Attorney General Stein Press Release, Attorney General Josh Stein Announces $48 Billion Settlement Framework with Five Companies Over Opioid Epidemic (Oct. 21, 2019), available at  https://ncdoj.gov/attorney-general-josh-stein-announces-48-billion-settlement-framework-with-five-companies-over-opioid-epidemic/.
  9. Grinspoon, P., MD, 5 Myths About Using Suboxone to Treat Opiate Addiction, Harvard Health Publishing (Mar. 20, 2018), available at https://www.health.harvard.edu/blog/5-myths-about-using-suboxone-to-treat-opiate-addiction-2018032014496.  Medication-assisted treatment (MAT) is the use of medications in combination with counseling and behavioral therapies, which has been effective in the treatment of opioid use disorders (OUDs).
  10. Hals, T. and Raymond, N., Several States Wary of $48 Billion Opioid Settlement Proposal, Reuters Health News (Oct. 24, 2019), available at https://www.reuters.com/article/us-usa-opioid-lawsuits/several-states-wary-of-48-billion-opioid-settlement-proposal-idUSKBN1X315P.
  11. Id.
  12. Castele, N., 2020 To Be a Busy Year for Opioid Lawsuits, Ideastream E-News (Dec. 24, 2019), available at https://www.ideastream.org/news/2020-to-be-a-busy-year-for-opioid-lawsuits. Although the counties reached a settlement with the defendant drug manufacturers and distributors, no settlement was reached with the defendant pharmacies. Barring a settlement, a trial is expected to take place in October 2020.
  13. Castele, N., Cuyahoga, Summit Counties to Spend Opioid Settlements on Drug Treatments, Ideastream E-News (Oct. 10, 2019), available at https://www.ideastream.org/news/cuyahoga-county-readies-to-spend-23-million-from-opioid-settlements.
  14. County of Cuyahoga, Ohio, Cuyahoga County Opioid Crisis Mitigation Plan: Phase One (Oct. 2019), available at https://assets.documentcloud.org/documents/6466643/Cuyahoga-County-Opioid-Crisis-Mitigation-Plan.pdf.
  15. Id.
  16. County of Summit, Summit County Opioid Epidemic Abatement Strategy (Oct. 10, 2019), available at https://assets.documentcloud.org/documents/6466603/2019-Summit-County-Opioid-Epidemic-Abatement.pdf.
  17. Memorandum Certifying Negotiation Class, In Re: Nat’l Prescription Litig., no.1:17md-02804-DAP (Sept. 11, 2019).
  18. See Truth Initiative, Master Settlement Agreement, available at https://truthinitiative.org/who-we-are/our-history/master-settlement-agreement; Fisher, N., Opioid Lawsuits On Par to Become Largest Civil Litigation Agreement in U.S. History, Forbes Billionaires (Oct. 18, 2018), available at https://www.forbes.com/sites/nicolefisher/2018/10/18/opioid-lawsuits-on-par-to-become-largest-civil-litigation-agreement-in-u-s-history/#1f9d889a7fb4.
  19. The Master Settlement Agreement (Nov.16, 1998) can be accessed at https://www.industrydocuments.ucsf.edu/tobacco/docs/#id=srxc0047. Four states, Florida, Minnesota, Mississippi and Texas settled prior to the MSA and are not signatories to the MSA. (The settling states, territories and the District of Columbia, together with the four states who previously settled may collectively be referred to herein as “states.”)
  20. Id. See also Campaign for Tobacco-Free Kids, available at https://www.tobaccofreekids.org/. In addition to the estimated $206 billion from the MSA, the four states that settled prior to the MSA received a combined $40 billion.
  21. Haynes, G., The Dirty Story of How Big Tobacco Was Brought Down to Size, Vice UK (Nov. 5, 2018), available at https://www.vice.com/en_us/article/vba4zm/the-dirty-story-of-how-big-tobacco-was-brought-down-to-size.
  22. See Public Health Law Center, Master Settlement Agreement, available at https://www.publichealthlawcenter.org/topics/commercial-tobacco-control/commercial-tobacco-control-litigation/master-settlement-agreement.
  23. Master Settlement Agreement, supra n. 19. (At close to 100 pages, the MSA contains numerous provisions, many of which will not be discussed in this article.). See also Public Health Law Center, The Master Settlement  Agreement: An Overview (Jan. 2019), available at https://publichealthlawcenter.org/sites/default/files/resources/MSA-Overview-2019.pdf.
  24. According to its website, the National Association of Attorney’s General (NAAG) Tobacco Center specializes in matters relating to the 1998 MSA and is dedicated to helping the attorneys general of the signatory states interpret, implement and enforce the MSA. The website can be accessed here: https://www.naag.org/naag/about_naag/naag-center-for-tobacco-and-public-health.php.
  25. Pearce, M., At Least four Marlboro Men Have Died of Smoking-Related Diseases, L.A. Times (Jan. 27, 2014), available at https://www.latimes.com/nation/nationnow/la-na-nn-marlboro-men-20140127-story.html.  Notably, four of the actors who played the Marlboro man died of smoking-related diseases.
  26. Master Settlement Agreement, supra n. 19.
  27. Id.
  28. See SourceWatch, Tobacco Industry  Research Committee, available at https://www.sourcewatch.org/index.php/Council_for_Tobacco_Research.
  29. Master Settlement Agreement, supra n. 19.
  30. Campaign for Tobacco-Free Kids Press Release, On 20th Anniversary of State Tobacco Settlement (The MSA), It’s Time For Bold Action to Finish the Fight Against Tobacco (Nov. 26, 2018), available at https://www.tobaccofreekids.org/.
  31. Report by the Campaign For Tobacco-Free Kids and the American Heart Association, The Aftermath of the States’ Tobacco Settlement: A Mid-Term Report Card - A Record of Promises Broken and Opportunity Lost (April 30, 1999), available at https://www.industrydocuments.ucsf.edu/tobacco/.
  32. Campaign For Tobacco-Free Kids, Using Tobacco Settlement Funds For Tobacco Prevention Supportive Quotes From High-Ranking Officials, available at https://www.tobaccofreekids.org/assets/factsheets/0120.pdf.
  33. Id.
  34. Id.
  35. Campaign for Tobacco-Free Kids, supra n. 30. “Tobacco-generated revenue” consisted of $148 billion from the tobacco settlement and $277 billion from tobacco taxes.
  36. CDC, Best Practices for Comprehensive Tobacco Control Programs (Jan. 2014,) available at https://www.cdc.gov/tobacco/stateandcommunity/best_practices/pdfs/2014/comprehensive.pdfSee also Campaign for Tobacco-Free Kids, Broken Promises to Our Children, A State by State Look at the 1998 Tobacco Settlement 20 Years Later (Dec. 14, 2018), available at https://www.tobaccofreekids.org/assets/content/what_we_do/state_local_issues/settlement/FY2019/2018_State_Report.pdf.
  37. Campaign for Tobacco-Free Kids Press Release, New Report: As Youth E-Cigarette Epidemic Worsens, States Continue to Shortchange Prevention Programs That Could Help (Dec. 19, 2019), available at https://www.tobaccofreekids.org/press-releases/2019_12_19_statereport.
  38. Campaign for Tobacco-Free Kids, supra n. 30.
  39. E-cigarette companies can legally promote these using television and radio ads, billboards and sponsorships since they are not covered by the MSA. See Hughes, C., 20 Years After Settlement, Billions in Anti-Tobacco Funds Spent Elsewhere, UPI U.S. News (Dec. 3, 2018), available at https://www.upi.com/Top_News/US/2018/12/03/20-years-after-settlement-billions-in-anti-tobacco-funds-spent-elsewhere/8971543517818/.
  40. CDC Press Release, 6.2 Million Middle and High School Students Used Tobacco Products in 2019 (Dec. 5, 2019), available at https://www.cdc.gov/media/releases/2019/1205-nyts-2019.html.
  41. Campaign for Tobacco-Free Kids, A State-by-State Look at the 1998 Tobacco Settlement 21 Years Later, available at https://www.tobaccofreekids.org/what-we-do/us/statereport/.
  42. Maloney, J. and Chaudhuri, S., Against All Odds, the U.S. Tobacco Industry is Rolling in Money, Wall Street Journal (April 23, 2017), available at https://www.wsj.com/articles/u-s-tobacco-industry-rebounds-from-its-near-death-experience-1492968698.
  43. Id.
  44. See Hughes, C., 20 Years After Settlement, Billions in Anti-Tobacco Funds Spent Elsewhere, UPI U.S. News (Dec. 3, 2018), available at https://www.upi.com/Top_News/US/2018/12/03/20-years-after-settlement-billions-in-anti-tobacco-funds-spent-elsewhere/8971543517818/. See also  Wheeler, L., Squandered Big Tobacco Money a Cautionary Tale in Opioid Case, Bloomberg Law (June 19, 2019), available at https://news.bloomberglaw.com/health-law-and-business/squandered-big-tobacco-money-a-cautionary-tale-in-opioid-cases.
  45. Id. See also NPR, 15 Years Later, Where Did All the Cigarette Money Go?, All Things Considered (Oct. 13, 2013).
  46. Estes, J., How the Big Tobacco Deal Went Bad,  N.Y. Times (Oct. 6, 2014), available at https://www.nytimes.com/2014/10/07/opinion/how-the-big-tobacco-deal-went-bad.html.
  47. Id.
  48. Phend, C., Tobacco Master Settlement at 20 Years, MedPage Today (Nov. 24, 2018). See also Carr, T., Who Is Really Benefitting From the Tobacco Settlement Money?, citing a West Virginia Attorney General Alert (Feb. 3, 2016), available at https://www.lung.org/about-us/blog/2016/02/who-benefit-tobacco-settlement.html.
  49. Id. See also Campaign for Tobacco-Free Kids,  supra n. 32.
  50. Pudkul, C., How Wall Street Tobacco Deals Left States With Billions in Toxic Debt, ProPublica (Aug. 7, 2014).
  51. Id. Nine states, three territories, the District of Columbia and several counties that issued these bonds have promised to pay off the bonds at a cost of $64 billion.
  52. Id.; see also Estes, J., supra n. 46.
  53. Id.
  54. Id.
  55. Smith, R.J., The Santa Claus Killer, (2013), https://www.goodreads.com/quotes/1242946-you-have-to-be-in-it-to-win-it.
  56. Premier, Inc., Opioid Overdoses Costing U.S Hospitals an Estimated $11 Billion Annually (Jan.3.2019), available at https://www.premierinc.com/newsroom/press-releases/opioid-overdoses-costing-u-s-hospitals-an-estimated-11-billion-annually.       
  57. Id. The estimated amount that would be borne by Medicare and Medicaid assumes that the payor mix identified in Premier’s analysis (Medicare: 33%, Medicaid: 33%; commercial payors: 16%; uninsured: 14%; other: 3%) would remain constant.
  58. Report, Economic Impact of Non-Medical Opioid Use in the United States, Society of Actuaries (Oct. 2019). According to the CDC, NAS is a group of conditions that can occur when newborns withdraw from certain substances including opioids that they were exposed to before birth. Withdrawal caused by opioids during the first 28 days of life is sometimes also called neonatal opioid withdrawal syndrome (NOWS). See CDC, Basics About Opioids During Pregnancy, available at https://www.cdc.gov/pregnancy/opioids/basics.html.
  59. Complaint, City of Charleston et. al. v. The Joint Commission, No.2:17-cv-04267 (S.D.W.Va. Nov.2, 2017).
  60. Id.
  61. See, for example, Bd of Ed. of City of Chicago School District No.299 v. Cephalon Inc. et al, No.1:19-op-46042-DAP (D.C. Ill. Nov. 20, 2019).
  62. Id.
  63. Opinion and Order, In re: Nat’l Prescription Opiate Litig., No. 1:17-md-2804) (N.D. Ohio, Feb. 21, 2020). The benefit plans’ cases were consolidated into one lawsuit as part of the MDL and an amended complaint was filed on June 18, 2018.
  64. Id.
  65. Achenbach, J. et al, How Much Money Will it Take to Undo the Damage From Opioids?, The Washington Post (Oct. 30, 2019), available at https://www.washingtonpost.com/health/drug-industry-and-ravaged-communities-are-seeking-an-opioids-deal-that-wont-come-easy--or-end-the-crisis/2019/10/30/51bbb564-f773-11e9-a285-882a8e386a96_story.html.
  66. Id.
  67. Fl. Const. amend, art X, 27, available at https://ballotpedia.org/Florida_Amendment_4,_Use_of_Tobacco_Settlement_Funds_(2006).
  68. N.D.C.C Section 54-27-25,”The North Dakota Tobacco Use Prevention and Control Program Initiative” (Nov. 4, 2008), available at https://ballotpedia.org/North_Dakota_Tobacco_Use_Prevention_and_Control_Program_Initiative,_Measure_3_(2008).
  69. Id.
  70. Memorandum, Constitutional Amendment to Establish the “Ohio State and Local Government Opioid Crisis Recovery Foundation,” (Ohio A.G., Dec. 2, 2019).
  71. Id.
  72. News Release, Ohio Supreme Court Rules to Allow State to Dissolve Tobacco Cessation and Prevention Programs, Cision PR Newswire (Dec. 22, 2010), available at https://www.prnewswire.com/news-releases/ohio-supreme-court-rules-to-allow-state-to-dissolve-tobacco-prevention-and-cessation-programs-112324284.html.
  73. Nat’l Institute on Drug Abuse, Drugs, Brain and Behavior (2018), available at https://www.drugabuse.gov/publications/drugs-brains-behavior-science-addiction/treatment-recovery.
  74. America Addiction Centers Editorial Staff, America’s Addiction to Opioids: Heroin and Prescription Drug Abuse, available at Drugabuse.com.
  75. See, e.g., Nat’l Instit. of Health, Pathways to Prevention (P2P) Workshop Program, available at https://prevention.nih.gov/research-priorities/research-needs-and-gaps/pathways-prevention/role-opioids-treatment-chronic-pain.
  76. The Opioid Workforce Act of 2019, H.R .§ 314. S.B. § 2892 (116th Cong. 2019).
  77. Pudkul, C., How Wall Street Tobacco Deals Left States With Billions in Toxic Debt, ProPublica (Aug. 7, 2014), available at https://prevention.nih.gov/research-priorities/research-needs-and-gaps/pathways-prevention/role-opioids-treatment-chronic-pain.
  78. Id. 

About the Author

Lynn M. Barrett is a seasoned healthcare attorney with significant experience in matters involving federal and state healthcare laws and regulations, particularly those involving the Stark Law and the Anti-Kickback Statute. Prior to starting her own health law practice, Ms. Barrett served as General Counsel to one of the largest public health systems in the United States as well as Senior Vice President and Chief Compliance and Ethics Officer for a large multi-facility academic medical system. She has also worked in Partner and Associate positions in various large healthcare firms, as well as in-house counsel for for-profit, non-profit and public health systems.  For five years, Ms. Barrett was an Adjunct Professor for FIU’s Master of Healthcare Administration Program and is currently an Adjunct Professor at the Maurice A. Deane School of Law at Hofstra University. She is certified in Compliance by the Health Care Compliance Association and is designated as a Certified Compliance Professional by the Health Ethics Trust. She holds leadership positions in the American Bar Association Health Law Section and the American Health Lawyers Association. Ms. Barrett received her J.D. degree from New York University School of Law in 1991 and her B.S. from Carnegie-Mellon in 1986.  She may be reached at lynn@blhealthlaw.com.