Side effects of the opioid tax

by Bill Hammond |  | NY Torch

Industry lawsuits filed against Governor Cuomo’s $100 million opioid tax, summarized in today’s Wall Street Journal, are raising fresh questions about the levy’s fairness and unintended side effects.

In one suit, a subsidiary of drug manufacturer Mallinckrodt reports that it is being billed 8.2 cents per tablet for a form of Oxycodone that sold for 4.7 cents per tablet. Yet the law forbids companies from passing the cost of the tax along to buyers, effectively forcing Mallinckrodt to take a loss.

“Basic economic reality dictates that if a generic manufacturer is guaranteed to lose money on its sale or distribution of an opioid medication in New York, it will abandon the New York opioid market completely,” the company said in its suit, according to the Journal.

The article further reports that “some companies are re-engineering their supply chain to avoid the new tax.” Among them is drug distributor AmerisourceBergen:

AmerisourceBergen told Mallinckrodt on Oct. 10 that it will no longer accept opioid shipments at its national distribution center in Columbus, Ohio, that are intended for New York, according to Mallinckrodt’s lawsuit. If others follow, Mallinckrodt said, manufacturers will bear the entire cost of the surcharge. Under the law, distributors that send drugs into New York from a central hub outside the state get hit by the surcharge, not the pill maker.

The industry also argues that the tax could jeopardize the availability of certain drugs for New Yorkers who legitimately need them, and could prompt New York-based pharmaceutical companies to move out of the state.

As proposed by the governor and approved by the Legislature this year, the tax applies to all opioid pain relievers sold into New York, with the exception of products sold to hospice providers and drug rehab facilities. The amount to be raised is fixed at $100 million per year, which is allocated to each company in proportion to its volume of sales after adjusting for the strength of various products. The first round of bills, covering sales in 2017, were sent to 75 companies last week, the Journal reported.

The Cuomo administration originally justified the tax on two grounds – that it would raise money for the treatment and prevention of drug abuse, and that it would create a “financial disincentive” for the overuse of opioids.

However, there was no commensurate increase in spending on drug treatment, meaning most of the new revenue is replacing existing funds that are now available to be spent on other programs – in effect, helping to balance the overall state budget.

Also, the law says the cost of the tax cannot be passed along to buyers – such as hospitals, clinics, pharmacies, health plans and patients – which would seem to negate any deterrent effect on overuse.

In a statement to the Journal, a spokesman for the governor offered another rationale for the tax – that it “helps hold big pharma responsible for the opioid crisis they helped fuel.”

As the article pointed out, however, the state is also suing opioid manufacturers and distributors for their role in the crisis. The industry contends the tax is “an improper end-run around resolution of that case.”

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