Recent legal settlements struck by a group of state attorneys general with companies accused of creating and perpetuating the nation’s opioid crisis could force an unexpected outcome for Minnesota: ending of a batch of fees now paid to the state by those same companies.
If the pending settlements are approved by the state and 33 local governments, current fees on drug-makers and distributors — worth around $20 million a year to the state — would likely be all-but canceled under the terms of a bill passed by the Minnesota Legislature in 2019.
Health officials estimate that nearly 5,000 residents have died from opioid overdoses in Minnesota, with state and local governments bearing many of the costs associated with the epidemic, including law enforcement, treatment for addicts, and the caring of children of those affected by opioid addiction. Those governments sought to recover some of those costs with litigation modeled on the civil suits brought against tobacco companies in the 1990s.
But as the suits progressed through the courts, advocates for those who died from overdoses — or who continue to suffer the effects of addiction — pressed Minnesota lawmakers to transfer those costs from taxpayers to the industry immediately. And though the lawmakers trying to address the issue were well aware of the pending lawsuits, none were sure when a settlement might be reached, or for how much.
The final sticking point in those 2019 negotiations: how fees would be affected by legal settlements, if at all.
DFLers who controlled the state House saw the companies tied to the opioid crisis as deserving of high fees not tied to court settlements. But the Republicans who controlled the state Senate were reluctant to support what would be, for them, a rare fee increase. Licensing fees on the companies would go up substantially. And the price for getting GOP votes was the insertion of a clause that said the fees would eventually sunset, filling the funding gap until litigation forced the companies to pay for the epidemic’s costs.
At the end of the 2019 session, a compromise was reached that allowed a bill to be passed with bipartisan support and signed by Gov. Tim Walz.
Triggering the 2019 bill’s sunset provision
Under the old law, drug makers were charged a license application fee of $5,260 and an annual license renewal fee of the same amount. Under the new law, each fee jumped to $55,260. In addition, the law created a new yearly opiate product registration fee of $250,000 for larger companies, which are defined as those distributing 2 million or more units of the drug in the state.
The bill also said that once at least $250 million in settlement money is deposited in state accounts — but no sooner than July 1, 2024 — the application and annual license fees will go back to $5,260 and the registration fee will disappear.
That part of that deal could soon come into play due to the announcement of two major settlements in multi-state litigation against the industry. On July 8, Minnesota Attorney General Keith Ellison joined 24 states and the District of Columbia in a deal that will see the Sackler Family and their company, Purdue Pharma, pay $4.32 billion over nine years. Then, on July 21, Minnesota was part of a settlement with Johnson & Johnson and three large drug distributors that will pay out $26 billion over 18 years.
Minnesota’s share of the Sackler/Purdue settlement is estimated at more than $50 million over nine years. The second, larger settlement will see the state receive $337 million over 18 years.
The latter on its own is likely enough to trigger the fee sunset. There remains some question, however, about when the funds will flow to states and whether the $250 million would be deposited at one time to end the fees on the industry.
The settlement does require that significant amounts be “front loaded” in the first five years, according to the state office of the attorney general. But the state Office of Management and Budget says the money must be in hand, not pledged, before it will inform the state Board of Pharmacy to cut the large fees down to $5,260 a year. Most of the proceeds from the lower fee would still flow into the special opioid response fund.
How the 2019 deal got done
Senate Finance Committee Chair Julie Rosen, R-Fairmont, said last week that she couldn’t get the Republican caucus of the Senate to agree to the 2019 bill without tying the end of fees to settlements of lawsuits.
“It was a very difficult bill to pass, in that we were increasing fees,” Rosen said. “To get it through a Republican-held Senate there had to be some guarantee that this fee wouldn’t go into perpetuity.”
Rosen said the bill was passed before litigation was far from being settled, and lawmakers had no good estimate of what the state’s share would be. DFL negotiators offered to end the fees once settlements brought in $700 million. In the end, the bill settled on a much-lower number of $250 million.
“We wanted assurance that we had a large amount of money to do what we needed to do with the opiate recovery fund,” Rosen said. “This is a significant bill that has changed a lot of lives.”
Rep. Liz Olson, DFL-Duluth, led the negotiations for the DFL House majority. She said the final bill was not all that she had wanted, that compromise was needed in order to get it passed. She worried that if the fees would have ended after a relatively low settlement — only $150 million in one iteration — lawmakers would have done the hard work of agreeing on a fee structure with little to show for it.
Olson said the priority in 2019, as now, is to look “upstream” at stopping use of addictive painkillers in the first place and developing non-pharmaceutical pain management.
The fees in the 2019 bill were expected to raise $21 million a year, with some of the proceeds appropriated by the Legislature and the rest distributed by a new opioid epidemic response advisory council. In reality, the fees brought in just $13.5 million in 2020. That was enough to cover the appropriations made by the Legislature that year but not enough for the council to respond to any requests for funding from prevention and treatment programs.
This year, lawmakers passed legislation to further reduce the amount collected from the industry. The state now exempts makers and distributors of injectable opiates used in hospitals and opiates used for medication-assisted treatment of opiate abuse. Those changes will cut $1 million a year from the fee collections.
A continuing crisis in Minnesota
The state expects to put out a new request for proposals soon for money collected in the second year of the program. But according to the advisory council’s annual report, issued in February, the crisis is worsening. Prescriptions by doctors are down but between 2018 and 2019, the number of deaths from synthetic opioids rose from 202 to 298 with non-fatal overdoses rising from 1,949 to 2,823.
While the overall numbers of children needing out of home care are down from the previous year, there were still 2,557 children placed due to parental drug use.
The council also found large disparities in how the opioid crisis has affected the state. Native Americans are five times more likely to die from drug overdose than white residents of the state, according to data collected by the council.
Rosen said she’d like some of the new money to fund increased police interdiction of illegal painkillers. The fact that prescriptions are down but abuse is rising shows that the problem has moved toward the illegal market, she said. “That’s where we’re having a problem, and that’s where we need to place the attention,” she said.
But Rosen said she also hopes that with an influx of money, the state can “turn the advisory council loose” to recommend funding for more programs.
Sen. Chris Eaton, DFL-Brooklyn Center, is a member of the council. A leader in the push for the opioid response bill, Eaton lost her daughter Ariel to an overdose in 2007. She said her goal for the council is “to get the funds to smaller groups with boots on the ground without grant writers.”
Despite the state’s effort, opioid-related deaths are up 147 percent, Eaton said “We continue to fund traditional recovery projects that at best have a 30 percent recovery rate. Harm reduction projects are hard to get funded and are usually not supported by traditional recovery organizations. I am hoping that through the studies of our funding, we will discover new more effective ‘outside the box’ ideas,” Eaton said.
One of the proposed settlements involves drug-maker Johnson & Johnson and three drug distributors: Cardinal, McKesson and AmerisourceBergen. It would resolve suits by nearly 4,000 states and local governments. Part of the agreement would maximize the money going to any state if all of the governments in that state agree to it.
The states have 30 days to accept. Local governments have until January 1. If not all agree, the money flowing to those that do would be cut in half. “I await the final terms, but assuming they are acceptable, I encourage every Minnesota community to sign onto this agreement so that we can continue the process of healing and accountability,” Ellison said in a statement July 21.
At least one state has opted out of the deal. Washington Attorney General Bob Ferguson said he thinks the state will do better than the state’s $527 million share of the settlement if it takes the matter to trial. “The settlement is, to be blunt, not nearly good enough for Washington,” Ferguson said. “It stretches woefully insufficient funds into small payments over nearly 20 years, to be shared among more than 300 Washington jurisdictions.”