AmerisourceBergen, one of the biggest pharmaceutical distributors in the United States, told investors that it has found a way to stop paying a New York tax on opioid sales meant to help slow the epidemic — but confirmed that it will continue supplying those drugs in the state.
The Chesterbrook-based company disclosed Tuesday that it estimates it will make a $22 million payment to New York's "opioid stewardship" fund, which was created through a law passed this year. New York officials say it's the first program of its kind in the country: a $100 million annual fund, intended to combat the opioid epidemic by collecting money from manufacturers, distributors, and importers. A company's payment into the fund is based on its share of opioids that are sold or distributed in the state.
The Opioid Stewardship Act took effect in July, as drugmakers and distributors faced a mounting pile of lawsuits and investigations about their alleged role in contributing to a public health crisis that has drained local government resources, and taken tens of thousands of lives. More than 72,000 people died from drug overdoses in 2017, the Centers for Disease Control and Prevention estimates.
The Healthcare Distribution Alliance — a trade group whose members include AmerisourceBergen — has challenged the stewardship law in court as unconstitutional and "punitive," arguing that it singles out pharmaceutical companies to bear liability for a complex epidemic.
Distributors like AmerisourceBergen — which generated $153.1 billion in revenue and $4.5 billion in profits last year — buy medications from drug manufacturers, and sell and deliver them to customers that include pharmacies and hospitals. The New York law applies to opioid sales going back to 2017, and the first payments from companies are due Jan. 1.
AmerisourceBergen's estimated $22 million payment covers the period from Jan. 1, 2017, to Sept. 30, 2018, according to filings with the Securities and Exchange Commission. But that payment "is not expected to be a normal, recurring" operating expense, the filings said.
"Recently, we changed our operating business model in terms of how we receive opioid prescription drug inventory in our New York distribution centers," outgoing chief financial officer Tim Guttman said during the company's quarterly earnings call Tuesday. "This change essentially eliminates our New York opioid tax liability going forward."
While the company has apparently found a way to avoid paying the Empire State tax in the future, that doesn't mean it's cutting off opioid supplies there.
"We are continuing to supply opioid-based products to customers in New York," a spokesperson for AmerisourceBergen said. She declined to elaborate further on what the logistics changes entail. "Outside of that, we'll need to stand on the information provided publicly" during the earnings call, she said.
The stewardship law requires licensed companies to report transaction data for opioid sales and distribution to New York's Health Department, which then determines what companies owe the state. A guidance document from the department emphasizes that the amount a company must pay is "based on the initial transaction in the distribution chain when opioids are first sold or distributed within, or into, New York."
The lawsuit brought by the industry's Healthcare Distribution Alliance argues that one reason the law is "unfair" and "arbitrary" is because the portion a company owes to the annual fund isn't totally within its control, but rather, can go up based on the business decisions of other companies.
"For example, if manufacturers and distributors restructure their transactions to avoid New York, the surcharges of the remaining licensees will increase," the lawsuit says. "If some licensees are able to reduce their surcharges by moving transactions to New Jersey, Pennsylvania, and Connecticut, the financial burden on the remaining licensees in New York will increase."
New York Health Department spokesperson Jill Montag did not address questions about whether the department has heard from AmerisourceBergen, or other companies, and whether they intend to change their business operations to avoid the fund's requirements. "The department cannot comment further due to pending litigation," she said.
AmerisourceBergen also reported this week its costs for opioid-related litigation and investigations: $12.1 million for the fourth quarter, and $61.5 million for its past fiscal year. Manufacturers and distributors are facing more than 1,000 lawsuits from local governments and other groups seeking damages over the epidemic. Many of the suits are consolidated in federal court in Cleveland, where the first bellwether trials are scheduled to begin next September.