Deciding how to spend billions in opioid settlement payments

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Public Finance Update – September 6, 2022

Hello and welcome back to the Route Fifty Public Finance Update! I’m Liz Farmer and this week I’m looking at what’s in store for the billions of dollars in funding for opioid litigation.

Money from the national opioid lawsuit has begun to flow to governments, and more cases continue to be resolved or litigated. The cases have typically contained some safeguards on how that money is spent. Still, there is a lot of activity and advice from interest groups that governments not repeat what happened with tobacco settlement funds in the 1990s and 2000s, where very little money went to public health.

This is what is happening so far with the opioid funds.

This summer, the first payments from the national opioid settlement were sent to governments, and as of September, $310 million has been sent to 27 states. Pennsylvania has received the most so far ($40 million), followed by North Carolina ($29 million) and Tennessee ($23 million). All three states have received all, or nearly all, of their first year payments. The money is released to states and localities on an ongoing basis as they complete the necessary steps to accept the funds. California, for example, has received $23 million, which is only a quarter of its first year funding. Meanwhile, Ohio, one of the states hardest hit by the opioid crisis, has yet to receive any payments.

The national settlement resolves opioid lawsuits brought by state and local governments against the three largest pharmaceutical distributors: McKesson, Cardinal Health and AmerisourceBergen, and manufacturer Janssen Pharmaceuticals, Inc. and its parent company Johnson & Johnson. Under the agreement, distributors and Johnson & Johnson will make payments totaling $26 billion, with more than $23.9 billion available to fund efforts to stem the crisis.

The national opioid lawsuit has been years in the making, and while it is the largest collaborative case, it is one of hundreds as states and localities have sought accountability from other opioid industry stakeholders.

Over the years, health policy advocates and frontline recovery workers have urged lawmakers to protect money so it goes toward prevention and recovery.

“Right now, it’s been like trying to empty Lake Erie with a teaspoon,” said Kim Fraser, executive director of the Lake County, Ohio, board of mental health and addiction services. “We haven’t had the tools and resources to do what we really need to do at a scale that can start to turn the tide.”

Don’t repeat the past

Aside from dire need, those on the front lines of the crisis have spoken out about opioid settlement money because of what happened after governments’ historic settlement with tobacco companies in 1998. That settlement gave states $246 billion during the first 25 years of settlement, with payments continuing thereafter. But only a fraction of that money went to defray tobacco-related public health costs.

Most of the revenue disappeared into state general funds, and according to a 2007 Government Accountability Office report, states appropriated about 23% just to balance budgets and cover shortfalls. States have also used the funds for education and infrastructure projects by issuing so-called tobacco bonds, which are repaid through their annual tobacco settlement payments.

At the time, state officials said they believed any restrictions on how states could spend the revenue would likely have been seen as an unconstitutional infringement on lawmakers’ power. But since then, many have come to view that theory as flawed. What’s more, county governments, which pay for hospital systems and run health departments, saw little or none of the money from the tobacco deal.

A generation later, things are different. In 2019, the states reached their first major settlement with a pharmaceutical company when Purdue Pharma and the Sackler family, which owns Purdue, agreed to pay $270 million to the state of Oklahoma. About two-thirds went toward establishing the National Center for Addiction Studies and Treatment at Oklahoma State University in Tulsa. Around $60 million went to legal fees and the rest was earmarked for local governments.

In the years since, settlement agreements or court rulings have created a dedicated fund from which opioid-related payments are administered, or mandated certain percentages for treatment and prevention. For example, a Memorandum of Understanding earlier this year between McKinsey & Co. and West Virginia mandates that nearly a quarter of the state portion of the $570 million national settlement go to local governments. It also asks that 73% be used to create a foundation to receive, manage and disburse the funds; help facilitate collaboration between local governments; and provide guidance on the strategic responses outlined in the MOU.

Some want governments to be even more specific with how they spend funds. Last year, a coalition of more than two dozen organizations coordinated by the Johns Hopkins Bloomberg School of Public Health released its Principles for the Use of Opioid Litigation Funds. The principles encourage practices such as developing a multiyear budget plan, focusing on racial equity, spending on evidence-based treatment and prevention programs, and transparency in reporting.

Sara Whaley, a research associate in the Department of Health Policy and Management at JHU, said she and others are reaching out directly to states and localities about how to do a needs assessment, including assessing how the overdose crisis it is affecting communities, where there is easy access to treatment and recovery services, and where there are gaps.

“Twenty-six billion dollars sounds like a lot of money, but spread out over 46 states over 18 years it’s really not that much,” Whaley said. “It is not a magic wand that is going to solve this crisis. So take that big picture of what’s going on and ask yourself, ‘What are we doing, what’s working, and where can we take advantage of that?’”

Extending what works

Meanwhile, other litigation continues. In Ohio, a federal judge in August awarded $650 million in damages to Lake and Trumbull counties in a landmark lawsuit against national drugstore chains CVS, Walgreens and Walmart. Lake County officials said coordination with crisis response personnel is a crucial part of preparing for the opioid funds the county ultimately gets from that case (which is expected to be appealed) and others.

The goal in Lake County is to leverage opioid litigation funds to amplify what they are doing in prevention, harm reduction, and aftercare. For example, the county has a rapid response team made up of people from the sheriff’s office and behavioral health workers. The team visits a home where there has been an overdose to speak with that person and talk to them about their options for getting help and if they would like to do so.

It’s an effective way to reach people who need help, Fraser said, but each of the team members has other roles as well. “That leaves a couple of hours every few weekends to mobilize this team,” she added. “We need a dedicated team here day in and day out.”

To prepare for expanded services like rapid response teams, Lake County Manager Jason Boyd said the county plans to create a small steering group of frontline workers, including public safety representatives, first responders, the board mental health and addiction services, and the county department of children and family services.

“We’ll be more specific, looking at things like: Do we need more treatment space? And if the answer is ‘yes’, what are the details that need to follow?” he said. “We want to put on the board our plan of attack going forward and make sure we hit a home run right out of the box.”

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