Deciding How to Spend Billions in Opioid Settlement Payments

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Public Finance Update - Sept. 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 opioid litigation funds. 

Money from the national opioid lawsuit has started flowing to governments and more cases continue to be settled or litigated. The cases have typically contained some guardrails for how that money is spent. Even so, there is a great deal of activity and advice being given from interest groups so that governments don’t repeat what happened with the tobacco settlement funds in the 1990s and 2000s, where very little of the money went toward public health.

Here’s what’s going on 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 gone out to 27 states. Pennsylvania has received the most so far ($40 million), followed by North Carolina ($29 million) and Tennessee ($23 million). All three of those states have received all, or nearly all, of their first-year payments. The money is released to states and localities on a rolling basis as they complete required steps to accept the funds. California, for example, has received $23 million, which represents just one-quarter of its year-one funds. Meanwhile Ohio, one of the states worst-hit by the opioid crisis, has not yet received any payments.

The national settlement resolves opioid litigation brought by states 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. According to the agreement, the distributors and Johnson & Johnson will provide for 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’s the largest collaborative case, it’s one among 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 policymakers to put safeguards around the money so that it goes toward prevention and recovery.

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

Not Repeating the Past

Aside from just the dire need, those on the frontlines of the crisis have been vocal about the opioid settlement money because of what happened following governments' landmark settlement with tobacco companies in 1998. That agreement gave states $246 billion during the first 25 years of the settlement, with payments continuing thereafter. But only a fraction of that money went toward actually defraying the public health costs of smoking. 

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

At the time, state officials said they believed any restrictions on how states could spend the proceeds would have likely been viewed as an unconstitutional infringement on legislators’ power of the purse. But since then, many have come to view that theory as faulty. What’s more, county governments—which pay for hospital systems and run health departments—saw little if any of the tobacco settlement money.

A generation later, things are different. In 2019, states reached their first major settlement with a drug 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. About $60 million went toward legal fees and the rest was slated for local governments.

In the years since, settlement agreements or judges’ rulings have created a dedicated fund from which opioid-related payments are managed, or mandated certain percentages toward treatment and prevention. For example, a Memorandum of Understanding earlier this year between McKinsey & Co. and West Virginia mandates that nearly one-quarter of the state’s portion of the $570 million national settlement go to local governments. It also calls for 73% to 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 get even more specific with how they spend the 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 Funds from the Opioid Litigation. The principles encourage practices like developing a multi-year budget plan, focusing on racial equity, spending on evidenced-based treatment and prevention programs, and transparency in reporting.

Sara Whaley, research associate in JHU’s Department of Health Policy and Management, said she and others are reaching out directly to states and localities about how to do a needs assessment, including evaluating how the overdose crisis is impacting communities, where there is ready 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’s not a magic wand that’s going to solve this crisis. So take that landscape analysis of what's happening, and ask, ‘What are we doing, what's working, and where can we leverage that?’”

Scaling Up What Works

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

The aim in Lake County is to leverage the opioid litigation funds to amplify what they’re doing in prevention, harm reduction and after care. For example, the county has a quick response team made up of individuals from the sheriff's office and behavioral health workers. The team visits a household where there has been an overdose to check in with that person and talk to them about their options for getting help and whether they’d like to do so. 

It’s an effective way of reaching people who need help, said Fraser, but each of the team members also has multiple other roles. “So that leaves a couple hours every few weekends to mobilize this team,” she added. “We need a dedicated team here day after day.”

To prepare for scaling up services like the quick response teams, Lake County Administrator Jason Boyd said the county plans to create a small steering group of front line workers, including representatives from public safety, first responders, the addiction and mental health services board, and the county department of child and family services. 

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