Big Pharma’s twist: Billions in opioid settlements convert into huge tax breaks

cardinalhealthlogo-300x110While too many Americans struggle with skyrocketing prescription drug costs, so much so that a $10 insurance co-payment may be lethally dissuasive, Big Pharma firms are seeking billions of dollars in taxpayer-funded benefits on giant settlements they made for their role in the opioid abuse and drug overdose crisis.

Johnson & Johnson and the “big three” distributors of prescription drugs — McKesson, AmerisourceBergen and Cardinal Health — have disclosed that they will take tax deductions on sums they will fork over to states, local governments, Indian tribes, and others that sued them over damages that they say occurred after they flooded the country with powerful painkillers, the Washington Post reported.

The four companies have agreed to pay between $5 billion and $8 billion each to reimburse communities for the costs they suffered in dealing with millions of deaths, addictions, and debilitations caused by opioids, their synthetic versions, and illicit drugs they opened the door to.

At the same time, however, those payments will let the companies claim anywhere from $974 million to $1.4 billion each in tax benefits.

The newspaper said that Cardinal, for example, considers its “opioid-related legal costs as a ‘net operating loss carryback’ — a tax provision Congress included in last year’s coronavirus bailout package as a way of helping companies struggling during the pandemic,” meaning it will reap an income tax benefit for settling claims of wrongdoing.

To be clear, as the Washington Post reported of the companies and the opioid epidemic:

“All four firms disavow any wrongdoing or legal responsibility. The companies have said they produced government-approved prescription pills, distributed them to registered pharmacies and took steps to try to prevent their misuse.”

Let’s also be clear about what led to the firms’ settlements, again, as noted by the newspaper:

“In 2019, The Post analyzed a database maintained by the Drug Enforcement Administration that tracks the path of every pain pill sold in the United States. The database shows that America’s largest drug companies distributed 76 billion oxycodone and hydrocodone pain pills across the country between 2006 and 2012 as the nation’s deadliest drug epidemic spun out of control. McKesson, Cardinal Health and AmerisourceBergen distributed 44% of the nation’s oxycodone and hydrocodone pills — the two most abused prescription opioid drugs — during that time.

“An investigation by The Post last year found that near the peak of U.S. opioid production, a Johnson & Johnson subsidiary was manufacturing enough oxycodone and hydrocodone to capture half or more of the U.S. market. The company also lobbied for years to help persuade regulators to loosen a narcotics import rule, allowing Johnson & Johnson’s U.S. subsidiary to produce rising amounts of opioids out of potent poppies harvested by its Tasmanian subsidiary, The Post found.”

The opioid crisis killed at least 450,000 Americans in the decade starting in 1999, federal officials say, and while it seemed to be receding, it has only surged anew during the coronavirus pandemic.

While this is the start of the tax season, and many of us will be rummaging through boxes of receipts and paid bills to prepare our returns, Big Pharma has armies of professionals to maximize its profits and minimize what it must pay Uncle Sam. They have dug into laws passed by Congress with urgency to deal with the coronavirus pandemic — and found a motherlode, the Washington Post reported:

“The ‘carryback’ tax break permits any company that lost money in 2018, 2019 or 2020 to apply those losses to previous, more profitable years. Some form of this provision has been permitted by the U.S. tax code for over a century to help businesses that face ups and downs to even out their taxes. The Cares Act raised the limit on the amount of losses companies can use to offset taxes and permitted them to apply those losses to earlier periods. Because the corporate tax rate was higher before 2018, companies with recent losses can increase tax refunds they received before that year by up to 67%. Cardinal estimated in August it expected to deduct $488 million from the expected opioid legal settlement. But in its Feb. 5 filing, the company said the amount probably would be higher in part because the Cares Act permitted it to carry back losses related to the opioid litigation to previous years when the tax rate was higher.”

This is galling and unacceptable, families victimized by the opioid crisis have said, and it has occurred with other Big Pharma opioid settlements, USA Today has reported.

In my practice, I see not only the harms that patients suffer while seeking medical services, but also the damages that can be inflicted on them by dangerous drugs, notably opioids. Big Pharma, doctors, nurses, insurers, and many others played their own awful roles in fostering a crisis that seemed to recede briefly but has surged anew due to the loneliness and isolation of those preyed upon by the powerful medications, and reductions in drug-fighting efforts that have occurred during the pandemic.

We need to step back up the counterattack on opioid abuse and drug overdoses. And we need to get far better control on the drug industry and its harmful high costs and practices. Big Pharma may never admit wrong, and it may discount or dismiss the settling of lawsuits involving the death and addiction of millions as just another cost of doing business. But we cannot accept the human toll of the nation’s broken health care system that allows rampant predatory, of which we get too many painful reminders almost daily. New published research has found that as little as $10 in so-called health care cost sharing — via prescription drug co-pays — can be, as Vox reported, a matter of life and death to too many Americans. As the news site said:

“Researchers at Harvard University and the University of California Berkeley examined what happened when Medicare beneficiaries faced an increase in their out-of-pocket costs for prescription drugs. They found that a 34% increase (a $10.40 increase per drug) led to a significant decrease in patients filling their prescriptions — and, eventually, a 33% increase in mortality. The rise in deaths resulted from people indiscriminately cutting back on medications when they had to pay more for them, including drugs for heart disease, hypertension, asthma, and diabetes. ‘We find that small increases in cost cause patients to cut back on drugs with large benefits, ultimately causing their death’ the authors — Amitabh Chandra, Evan Flack, and Ziad Obermeyer — wrote. ‘Cutbacks are widespread, but most striking are those seen in patients with the greatest treatable health risks, in whom they are likely to be particularly destructive.’”

So, let’s see: Our country can’t figure how to help the most vulnerable with a $10 co-pay, but it dishes out billions of dollars in tax breaks to Big Pharma. Please. We have a lot of work to do.

Patrick Malone & Associates, P.C. listed in Best Lawyers Rated by Super Lawyers Patrick A. Malone
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