ASSEMBLY THIRD READING

ATR Bill Id:AB 1468

Author:(McCarty and Gallagher)

As Amended Ver:September 6, 2019

2/3 vote. Urgency. Tax Levy

SUMMARY:

Requires a drug manufacturer or wholesaler that sells or distributes opioid drugs in this state to submit a report to the Department of Public Health (DPH) that details all opioid drugs sold or distributed in this state during the preceding fiscal year. Requires DPH to calculate the ratable share of a manufacturer or wholesaler, which is the individual portion of the collective sum of $50 million, to be paid by manufacturers and wholesalers as an opioid stewardship payment, into the continuously appropriated Opioid Prevention and Rehabilitation Program Fund (Fund) established by this bill. Requires DPH to distribute moneys from the Fund based on applications received from counties and non-profits for purposes of opioid prevention and rehabilitation programs based on needs. Requires DPH to report to the Legislature annually an expenditure plan consisting of recommendations and suggested spending priorities for the funds to be received and a report detailing how the funds distributed the previous year were spent including an evaluation of the impact of those funds on outcomes related to opioid prevention and rehabilitation. Adds an urgency clause to ensure the provisions of this bill take effect immediately upon enactment.

Major Provisions

COMMENTS:

Controlled substances and opioids. Through the Controlled Substances Act (Act) of 1970, the federal government regulates the manufacture, distribution and dispensing of controlled substances. Examples of Schedule II controlled substances include morphine, methadone, Ritalin, Demerol, Dilaudid, Percocet, Percodan, Vicodin, and OxyContin. According to data from the Controlled Substance Utilization Review and Evaluation System in 2017, there were 23.2 million opioid prescriptions dispensed in California.

Opioid use and societal burden of opioid abuse. Prescription opioids are involved in more overdose deaths than any other drug. According to the Centers for Disease Control and Prevention (CDC), overdose deaths involving prescription opioids have quadrupled since 1999. CDC found that from 1999 to 2015, more than 183,000 people died in the United States from overdoses related to prescription opioids. The CDC notes that the most common drugs involved in prescription opioid overdose deaths are methadone, oxycodone, and hydrocodone. According to the CDC, among those who died from prescription opioid overdose between 1999 and 2014, overdose rates were highest among people aged 25 to 54.

Opioid abuse imposes societal and governmental costs, such as increased health care costs for the treatment for opioid addiction and the health care effects of the opioids generally, premature death, increased prevalence of neonatal abstinence syndrome in babies born to addicted mothers, missed work, reduced productivity and correctional/law enforcement-related costs. There is no data specific to California on these costs. National estimates vary, depending upon the methodology. For example, the federal Council of Economic Advisers estimated the economic cost of the opioid crisis was $504 billion, or 2.8% of the gross domestic product in 2015. An October 2016 article in the journal Med Care entitled, "The Economic Burden of Prescription Opioid Overdose, Abuse and Dependence in the United States, 2013" found that the total economic burden is estimated to be $78.5 billion, with over one third of this amount due to increased health care and substance abuse treatment costs ($28.9 billion) and approximately one quarter of the cost is borne by the public sector in health care, substance abuse treatment, and criminal justice costs.

According to the Author:

The opioid epidemic is an ongoing and growing problem that desperately needs assistance for both prevention and treatment. The Fund will generate an important, on-going source of funding for prevention and treatment centers in order to save lives. The money collected will be distributed based on need and population. Dealing with the opioid epidemic requires a holistic approach and participation from all involved parties, including the drug manufacturers and wholesalers.

Arguments in Support:

The California Society of Addiction Medicine (CSAM) states that given the current prescription opioid misuse and heroin epidemic that is devastating many communities in California, and the fact that our state now suffers one of the highest numbers of annual opioid overdose deaths in the country, it is important that California address this growing public health crisis. Almost every segment of the health care delivery has some portion of blame for the opioid crisis. Other segments of the industry, including physicians, health insurers and regulators are now contributing toward solutions. Both distributers and manufacturers are also partially to blame as evidenced by one distributer's recent settlement with the state of West Virginia for $37 million for the over-supply of prescription opioids, and the guilty plea of one manufacturer for the crime of physician bribery to boost their product's sales. CSAM concludes by stating, it is time for this segment of the health care delivery system to step up and contribute to efforts to solve this problem.

Arguments in Opposition:

The Pharmaceutical Research and Manufacturers of America (PhRMA) states that it fundamentally opposes any proposal to tax the manufacture of prescription medicine. While the industry supports a comprehensive approach to addressing the opioid crisis, this bill would impose a tax on abuse deterrent formulations of opioids; these products are designed to prevent abuse. PhRMA states that requiring drug manufacturers and wholesalers to make changes to comply with the tax proposed may be preempted by federal law. PhRMA concludes by stating they appreciate any effort to control the opioid epidemic, but believe a tax on those prescription drug companies who are working to develop other remedies for pain management and abuse deterrent formulations is not a prudent next step.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, ongoing costs to DPH of approximately $5.8 million to administer the Fund. These costs would be covered by opioid stewardship payments into the Fund. Annual revenue into the Fund of approximately $44 million each fiscal year over six fiscal years. This revenue reflects opioid stewardship payments after DPH administrative costs are covered. DPH will distribute these to counties or local nonprofits or community clinics

VOTES:

ASM HEALTH: 8-5-2

YES: Wood, Bonta, Burke, Wicks, Limón, McCarty, Nazarian, Santiago

NO: Mayes, Bigelow, Flora, Ramos, Waldron

ABS, ABST OR NV: Aguiar-Curry, Rodriguez

ASM REVENUE AND TAXATION: 7-1-3

YES: Burke, Chu, Mullin, Petrie-Norris, Quirk, Luz Rivas, Ting

NO: Brough

ABS, ABST OR NV: Gray, Mayes, Melendez

ASM APPROPRIATIONS: 12-4-2

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Petrie-Norris, Quirk, Robert Rivas

NO: Bigelow, Brough, Diep, Obernolte

ABS, ABST OR NV: Fong, Maienschein

UPDATED:

VERSION: September 6, 2019

CONSULTANT: Judy Babcock / HEALTH / (916) 319-2097 FN: 0002121

ASSEMBLY THIRD READING

ATR Bill Id:AB 1468

Author:(McCarty and Gallagher)

As Amended Ver:May 8, 2019

2/3 vote. Tax Levy

SUMMARY:

Requires a drug manufacturer or wholesaler that sells or distributes opioid drugs in this state to submit a report to the Department of Public Health (DPH) that details all opioid drugs sold or distributed in this state during the preceding fiscal year. Requires DPH to calculate the ratable share of a manufacturer or wholesaler, which is the individual portion of the collective sum of $50 million, to be paid by manufacturers and wholesalers as an opioid stewardship payment, into the continuously appropriated Opioid Prevention and Rehabilitation Program Fund (Fund) established by this bill. Requires DPH to distribute moneys from the Fund based on applications received from counties and non-profits for purposes of opioid prevention and rehabilitation programs based on needs. Adds an urgency clause for the provisions to take effect immediately.

Major Provisions

COMMENTS:

Controlled substances and opioids. Through the Controlled Substances Act (Act) of 1970, the federal government regulates the manufacture, distribution and dispensing of controlled substances. Examples of Schedule II controlled substances include morphine, methadone, Ritalin, Demerol, Dilaudid, Percocet, Percodan, Vicodin, and OxyContin. According to data from the Controlled Substance Utilization Review and Evaluation System in 2017, there were 23.2 million opioid prescriptions dispensed in California.

Opioid use and societal burden of opioid abuse. Prescription opioids are involved in more overdose deaths than any other drug. According to the Centers for Disease Control and Prevention (CDC), overdose deaths involving prescription opioids have quadrupled since 1999. CDC found that from 1999 to 2015, more than 183,000 people died in the U.S. from overdoses related to prescription opioids. The CDC notes that the most common drugs involved in prescription opioid overdose deaths are methadone, oxycodone, and hydrocodone. According to the CDC, among those who died from prescription opioid overdose between 1999 and 2014, overdose rates were highest among people aged 25 to 54.

Opioid abuse imposes societal and governmental costs, such as increased health care costs for the treatment for opioid addiction and the health care effects of the opioids generally, premature death, increased prevalence of neonatal abstinence syndrome in babies born to addicted mothers, missed work, reduced productivity and correctional/law enforcement-related costs. There is no data specific to California on these costs. National estimates vary, depending upon the methodology. For example, the federal Council of Economic Advisers estimated the economic cost of the opioid crisis was $504 billion, or 2.8% of the gross domestic product in 2015. An October 2016 article in the journal Med Care entitled, "The Economic Burden of Prescription Opioid Overdose, Abuse and Dependence in the United States, 2013" found that the total economic burden is estimated to be $78.5 billion, with over one third of this amount due to increased health care and substance abuse treatment costs ($28.9 billion) and approximately one quarter of the cost is borne by the public sector in health care, substance abuse treatment, and criminal justice costs.

According to the Author:

The opioid epidemic is an ongoing and growing problem that desperately needs assistance for both prevention and treatment. The Fund will generate an important, on-going source of funding for prevention and treatment centers in order to save lives. The money collected will be distributed based on need and population. Dealing with the opioid epidemic requires a holistic approach and participation from all involved parties, including the drug manufacturers and wholesalers

Arguments in Support:

The California Society of Addiction Medicine (CSAM) states that given the current prescription opioid misuse and heroin epidemic that is devastating many communities in California, and the fact that our state now suffers one of the highest numbers of annual opioid overdose deaths in the country, it is important that California address this growing public health crisis. Almost every segment of the health care delivery has some portion of blame for the opioid crisis. Other segments of the industry, including physicians, health insurers and regulators are now contributing toward solutions. Both distributers and manufacturers are also partially to blame as evidenced by one distributer's recent settlement with the state of West Virginia for $37 million for the over-supply of prescription opioids, and the guilty plea of one manufacturer for the crime of physician bribery to boost their product's sales. CSAM concludes by stating, it is time for this segment of the health care delivery system to step up and contribute to efforts to solve this problem.

Arguments in Opposition:

The Pharmaceutical Research and Manufacturers of America (PhRMA) states that it fundamentally opposes any proposal to tax the manufacture of prescription medicine. While the industry supports a comprehensive approach to addressing the opioid crisis, this bill would impose a tax on abuse deterrent formulations of opioids; these products are designed to prevent abuse. PhRMA states that requiring drug manufacturers and wholesalers to make changes to comply with the tax proposed may be preempted by federal law. PhRMA concludes by stating they appreciate any effort to control the opioid epidemic, but believe a tax on those prescription drug companies who are working to develop other remedies for pain management and abuse deterrent formulations is not a prudent next step.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, ongoing costs to DPH of approximately $5.8 million to administer the Fund. These costs would be covered by opioid stewardship payments into the Fund. Annual revenue into the Fund of approximately $44 million each fiscal year over six fiscal years. This revenue reflects opioid stewardship payments after DPH administrative costs are covered. DPH will distribute these to counties or local nonprofits or community clinics

VOTES:

ASM HEALTH: 8-5-2

YES: Wood, Bonta, Burke, Wicks, Limón, McCarty, Nazarian, Santiago

NO: Mayes, Bigelow, Flora, Ramos, Waldron

ABS, ABST OR NV: Aguiar-Curry, Rodriguez

ASM REVENUE AND TAXATION: 7-1-3

YES: Burke, Chu, Mullin, Petrie-Norris, Quirk, Luz Rivas, Ting

NO: Brough

ABS, ABST OR NV: Gray, Mayes, Melendez

ASM APPROPRIATIONS: 12-4-2

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Petrie-Norris, Quirk, Robert Rivas

NO: Bigelow, Brough, Diep, Obernolte

ABS, ABST OR NV: Fong, Maienschein

UPDATED:

VERSION: May 8, 2019

CONSULTANT: Judith Babcock / HEALTH / (916) 319-2097 FN: 0000735

Date of Hearing: May 16, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1468

Author:(McCarty) – As Amended Ver:May 8, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes, until July 1, 2027, the Opioid Prevention and Rehabilitation Program Fund (Fund) to receive moneys from opioid manufactures and wholesalers based on their respective “ratable share,” as defined. Specifically, this bill:

1. Requires, beginning in fiscal year 2021-22, a manufacturer or wholesaler to annually submit to the California Department of Public Health (DPH) details on opioid drugs sold or distributed, including the total number of morphine milligram equivalents (MMEs) attributed to the sold or distributed opioids drugs.
2. Requires DPH, in consultation with the California State Board of Pharmacy, to calculate the ratable share of a manufacturer or wholesaler in a specified manner based on the number of MMEs and to notify the manufacturer or wholesaler of the value of their ratable share.
3. Requires a manufacturer or wholesaler to make quarterly payments to DPH of their respective corresponding ratable share of the annual $50 million “opioid stewardship payment.”
4. Establishes the Fund and specifies all moneys are continuously appropriated to DPH for distribution to counties or local nonprofit community-based organizations for the purpose of opioid prevention and rehabilitation programs.

FISCAL EFFECT:

1. Ongoing costs to DPH of approximately $5.8 million to administer the Fund. These costs would be covered by opioid stewardship payments into the Fund.
2. Annual revenue into the Fund of approximately $44 million each fiscal year over six fiscal years. This revenue reflects opioid stewardship payments after DPH administrative costs are covered. DPH will distribute these to counties or local nonprofits or community clinics.

COMMENTS:

1. Purpose. According to supporters, this bill helps expand medication-assisted treatment efforts by providing a sustainable, ongoing stream of funding to continue and expand local efforts to address the opioid crisis. The author argues that the proposed Fund will generate an important source of funding and that the opioid epidemic “requires a holistic approach and participation from all involved parties, including the drug manufacturers and wholesalers.”
2. Other state efforts. This bill is modeled after New York’s Opioid Stewardship Act, which established, beginning on July 1, 2018, the first-in-the-nation Opioid Stewardship program. This program aims to collect $100 million annually over the next six years. However, the program is currently in limbo following a US District Court decision ruling the program unconstitutional in part because of the ban on pass-through costs (a provision that was removed from this bill in policy committee).

In addition to the New York program, other states are exploring taxes or assessments on drug manufacturers and wholesalers to help fund efforts to combat the opioid epidemic. For instance, the Massachusetts governor has proposed a 15% excise tax on sales of prescription opioids.

1. Will the stewardship payment be passed to consumers? The Assembly Revenue and Taxation Committee notes in its analysis of this bill that manufacturers and wholesalers may pass the costs of this stewardship payment on to drug purchasers and health care consumers. However, if this does occur, one likely outcome is that insurers offset costs through increases in premiums affecting all health care consumers, regardless of whether they use prescription opioids. As the policy committee notes, this response would be in line with how health insurance typically works by spreading health care costs across the insured population.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: May 6, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 1468 (

Author:McCarty) – As Amended Ver:April 30, 2019

2/3 vote. Tax levy. Fiscal committee.

SUBJECT: Opioid Prevention and Rehabilitation Act

SUMMARY: Establishes the Opioid Prevention and Rehabilitation Act. Specifically, this bill:

1. Requires, commencing with the 2021-22 fiscal year (FY), and for each FY thereafter, a manufacturer or wholesaler that sells or distributes opioid drugs in this state to submit to the State Department of Public Health (Department) a report that details all opioid drugs sold or distributed by the manufacturer or wholesaler in this state during the preceding FY. The report shall include the following information:
   1. The name, address, telephone number, federal Drug Enforcement Agency (DEA) registration number, and license number of the manufacturer or wholesaler, as applicable;
   2. The name, address, and DEA registration number of the entity to which the opioid drug was sold or distributed;
   3. The date of the sale or distribution of the opioid drug;
   4. The gross receipt total, in dollars, of all opioid drugs sold or distributed;
   5. The name and National Drug Code (NDC) of the opioid drug sold or distributed;
   6. The number of containers and the strength and metric quantity of controlled substances in each container of the opioid drug sold or distributed;
   7. The total number of morphine milligram equivalents (MMEs) attributed to the opioid drugs sold or distributed; and,
   8. Any other elements relating to the sale or distribution of the opioid drug, as the Department deems necessary to determine the ratable share.
2. Requires the Department to estimate, based on available data, the number of MMEs attributable to opioid drugs sold or distributed by the manufacturer or the wholesaler in a FY for which the Department determines that the manufacturer or wholesaler failed to report required information. The manufacturers and wholesalers that comply with the reporting requirements shall receive a decreased assessment of their corresponding ratable share in the following FY, with the decrease equaling the amount that was overpaid in the current FY.
3. Requires the Department, commencing with the 2021-22 FY, and for each FY thereafter, to calculate the ratable share of a manufacturer or wholesaler. The Department shall calculate the ratable share in consultation with the California State Board of Pharmacy. The ratable share shall be calculated according to all of the following steps:
   1. The total number of MMEs attributable to opioid drugs sold or distributed in this state by the manufacturer or wholesaler for the preceding FY shall be divided by the total number of MMEs attributable to opioid drugs sold or distributed in this state by all manufacturers and wholesalers for the preceding FY, in order to determine the payment percentage for the manufacturer or wholesaler; and,
   2. The payment percentage shall then be multiplied by the opioid stewardship payment to arrive at the ratable share.
4. Provides, for purposes of calculating the ratable share, that the total number of MMEs attributed to opioid drugs sold or distributed by a manufacturer or wholesaler shall not include either of the following:
   1. The number of MMEs attributable to opioid drugs that are manufactured in this state but the final point of delivery or sale of which is outside the state; and,
   2. The number of MMEs attributable to buprenorphine, methadone, or morphine.
5. Requires the Department of notify the manufacturer or the wholesaler, in writing, of the value of the ratable share for the manufacturer or wholesaler.
6. Requires MMEs to be determined pursuant to a formulation that is issued by the Department and updated as the Department deems necessary to determine the ratable share.
7. Provides an opportunity for the manufacturer or the wholesaler to appeal the ratable share determination by submitting information to the Department explaining why the ratable share is erroneous or otherwise unwarranted. If the Department determines that all or a portion of the ratable share is not warranted, the Department may provide any of the following forms of relief:
   1. Adjust the ratable share if the payment has not yet been made;
   2. Adjust the assessment of the ratable share in the following FY by decreasing the ratable share by the amount that was overpaid in the current FY; or,
   3. Refund the amount that was overpaid.
8. Requires, commencing with the 2021-22 FY, and each FY thereafter, a manufacturer or wholesaler to make quarterly payments to the Department of the manufacturer's or wholesaler's corresponding ratable share of the opioid stewardship payment.
9. Requires that all ratable share payments, less the Department's administrative costs, be deposited into the Opioid Prevention and Rehabilitation Program Fund.
10. Provides that the opioid stewardship payment shall be equal to $50 million for each FY, and shall be used to calculate the ratable share for a manufacturer or wholesaler.
11. Reduces the opioid stewardship payment if the total number of MMEs that are sold or distributed in this state by all manufacturers and wholesalers during the 2021-2022 FY, or any FY thereafter, is smaller than the total number of MMEs sold or distributed in this state during the 2020-21 FY. The opioid stewardship payment of $50 million shall be reduced by a percentage equal to the percentage of the reduction in the total number of MMEs.
12. Defines "department" to mean the State Department of Public Health.
13. Defines "opioid stewardship payment" to mean the total amount to be paid into the Opioid Prevention and Rehabilitation Program Fund for each FY.
14. Defines "ratable share" as the individual portion of the opioid stewardship payment to be paid by each manufacturer or wholesaler.
15. Defines "opioid" as an opiate or any synthetic or semisynthetic narcotic that has opiate-like activities but is not derived from opium and has effects similar to natural opium alkaloids, and any derivative thereof.
16. Defines "opiate" to mean the dried, condensed juice of a poppy, Papaver somniferum, that has a narcotic, soporific, analgesic, and astringent effect.
17. Defines "distribute" or "distribution" to mean the delivery for sale of an opioid drug other than by administering or dispensing to the ultimate user, including intracompany transactions between any division, affiliate, subsidiary, parent, or other entity under complete common ownership and control.
18. Defines "wholesaler" as having the same meaning as provided for in Business and Professions Code Section 4043. "Wholesaler" excludes a chain pharmacy warehouse that engage only in intracompany transfers, not involving a sale, between any division, affiliate, subsidiary, parent, or other entity under complete common ownership and control.
19. Allows the combined sum of ratable share payments by the manufacturers and wholesalers to be less than the opioid stewardship payment in a FY if the Department makes adjustments to the ratable share of a manufacturer or wholesaler.
20. Imposes a civil penalty on manufacturers or wholesalers that fail to comply with the reporting requirements of this bill. The penalty may not exceed $500 per calendar day.
21. Imposes a civil penalty on manufacturers or wholesalers that fail to make a retable share quarterly payment. The penalty shall not be less than 10% of, and not greater than 300%, of the quarterly payment that is due.
22. Creates the Opioid Prevention and Rehabilitation Program Fund (Fund) within the State Treasury.
23. Requires that penalties be deposited into the Fund.
24. Requires the Department to distribute moneys in the Fund to counties or local nonprofit community-based organizations, including, but not limited to, community clinics on an annual basis for purposes of opioid prevention and rehabilitation programs, based on applications submitted by those counties or organizations that elect to participate.
25. Requires that the distribution of moneys in the Fund be based on county needs, using the most recent date of only the following information, as provided by the Department:
    1. The ratio of opioid overdose deaths per county population;
    2. The ratio of opioid overdose emergency department visits per county population; and,
    3. The ratio of opioid overdose hospitalizations per county population.
26. Provides that the provisions of this bill are severable, and provides that if any provision of this bill or its application is held invalid, that invalidity shall not affect other provisions or applications.
27. Provides that the provisions of this bill become inoperative on July 1, 2027, and are repealed on January 1, 2028.
28. Takes effect immediately as a tax levy.

EXISTING LAW:

1. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state. There is a complimentary use tax, imposed on the purchaser, on the storage, use, or other consumption of TPP purchased out-of-state and brought into California.
2. Requires every person engaged in the business of selling TPP subject to sales tax to apply to the California Department of Tax and Fee Administration for a seller's permit. Wholesalers, as well as retailers, must obtain a permit. Under the law, a person that engages in business as a seller in this state without a seller's permit, and each officer of any corporation that so engages in business, is guilty of a misdemeanor.
3. Provides a SUT exemption for medicines, when the medicines are:
   1. Prescribed by an authorized person and dispensed on a prescription filled by a pharmacist;
   2. Furnished by a licensed physician to his or her own patient; or,
   3. Furnished by a health facility for treatment pursuant to a licensed physician's order, or sold to a licensed physician. (Revenue and Taxation Code (R&TC) Section 6369.)

FISCAL EFFECT: Pending

COMMENTS:

1. The author has provided the following statement in support of this bill:

The opioid epidemic is an ongoing and growing problem that desperately needs assistance for both prevention and treatment. The Fund will generate an important, on-going source of funding for prevention and treatment centers in order to save lives. The money collected will be distributed based on need and population. Dealing with the opioid epidemic requires a holistic approach and participation from all involved parties, including the drug manufacturers and wholesalers.

1. Supporters state that "AB 1468 (McCarty) is crucial to the expansion of California's [community health center (CHC)] medication assisted treatment (MAT) efforts. CHCs are deeply affected by the continuing opioid crisis and have taken affirmative steps to address the opioid crisis, including a near doubling of providers licensed to prescribe medications for opioid use disorder. The high cost of, but low reimbursement for, comprehensive integrated MAT is still the biggest barrier to statewide adoption. This bill will provide sustainable, ongoing funding to continue and expand local efforts to address the opioid crisis."
2. Opponents state that "[n]othing in Assembly Bill 1468 will address the growing influx of illicit fentanyl and other synthetic opioids. The [Center for Disease Control and Prevention] has divided the opioid epidemic into three 'waves' with the current wave, the Rise in Synthetic Opioid Overdose Deaths, being the deadliest. Passing taxes with the stated purpose of lowering opioids in the market will deny patients prescription medications for their pain and force them to turn to heroin and synthetic opioids." Additionally, opponents state that "[t]axing opioids is an ineffective deterrence strategy and will have unintended consequences. A recent study by Matrix Global Advisors commissioned by Women In Government outlines the ineffectiveness of opioid taxes. Pills that are misused are mostly acquired from indirect sources which would not be deterred by the punitive effects of the tax. Taxing prescription opioids will also have no impact on the damage that illegal opioids cause in our communities. Taxes on prescription opioids have unique characteristics and do not operate like those imposed on tobacco, alcohol, or fuel and would be ineffective at discouraging misuse. Instead, the impacts of the tax would only be felt by the burden imposed on the health care sector."
3. Committee Staff Comments:
   1. Opioid epidemic: As noted in the Assembly Committee on Health's analysis of this bill, "[p]rescription opioids continue to be involved in more overdose deaths than any other drug. According to the [CDC], overdose deaths involving prescription opioids have quadrupled since 1999. The CDC found that from 1999 to 2015, more than 183,000 people died in the U.S. from overdoses related to prescription opioids. The CDC notes that the most common drugs involved in prescription opioid overdose deaths are methadone, oxycodone, and hydrocodone. According to the CDC, among those who died from prescription opioid overdose between 1999 and 2014, overdose rates were highest among people aged 25 to 54."
   2. Are manufacturers and wholesalers to blame for the crisis? If the number of lawsuits are any indication, it would appear that large opioid manufacturers bear the brunt of the blame. A number of suits have been filed against opioid manufacturers across the country. The suits are being brought by states, counties, cities, hospitals, union workers, and a host of other groups. In general, many of the cases focus on the manufacturers' deceptive marketing campaigns. In Oklahoma, a suit alleged that Purdue, maker of Oxycontin, was not honest about the dangers of the opioids, instructing sales representatives to downplay the addictive nature of its drugs. Plaintiffs believe that these deceptive marketing practices led to the deadly opioid crisis, which is why many states are now seeking to recover funds spent on treating opioid addition. Although these allegations do not appear to have been fully litigated in court, Oklahoma recently obtained a $270 million settlement from Purdue and the Sackler family.

Despite the settlement, other factors exist that promoted the escalation of opioid use. These factors include efforts to better manage chronic pain, lack of physician education on the use of drugs with high abuse potential, direct-to-physician marketing, culture of drug use and abuse, over-prescription of narcotics, expansion of drug cartels, and corporate greed, among others^[1]. Furthermore, a survey of 3,645 individuals found that 29% of those surveyed blame drug users for the nation's opioid problem^[2]. 19% blame physicians, 15% blame drug companies, and only 7% of those surveyed blame drug distributors.

• 1. Who pays the tax: The most recent amendments remove the provision prohibiting the manufacturer or the wholesaler from passing the cost of the tax on to purchasers and ultimate users. Removing the prohibition, however, does not mean that the tax will only be paid by patients who take prescription opioids. Some patients pay a flat co-pay while others pay a price that varies depending on the drug. According to one study of the New York opioid tax, which is similar to this bill, insurance companies are likely to respond to the tax on opioids by increasing policy premiums and passing additional costs on to consumers in the form of higher prescription copayments^[3]. To the extent insurance companies increase policy premiums, the cost of the tax is likely to be borne on a large segment of the population, including those that do not take prescription opioids. This is not surprising since health insurance is designed to spread cost of healthcare between users and non-users^[4]. However, the article fails to consider the fact that the general public is already bearing much of the financial burden. One study has estimated the burden on society at $78.5 billion^[5]. Specifically, the estimate found that over one-third of this amount is due to increased health care and substance abuse treatment ($28.9 billion)^[6]. To the extent the tax in this bill is borne across the healthcare industry, it is no different than what is already occurring.
  2. Negative externalities: This bill would impose a tax of $50 million based on the ratable share of a manufacturer's or wholesaler's sale of opioids in the state. If this tax were to work as envisioned, a steady source of funding would be made available for local addiction prevention and rehabilitation programs. Taxation can be used as a way to correct negative externalities borne by society. As an example, the tobacco tax, which is intended, in part, to decrease the consumption of tobacco products, does so by setting the tax equal to the social cost of the negative externalities. The author's staff, however, has stated that the intent of this bill is not necessarily to reduce the consumption of prescription opioids, but to establish a revenue source to fund prevention and rehabilitation programs. As noted in the Assembly Committee on Health's analysis of this bill, "[p]rescription opioid usage in the U.S. after increasing considerably from the mid-1990s to its peak in 2011, is now declining rapidly with the largest single year change in 2017 with a decline of 12% . . . . In California, there was a 17% decline in opioid prescriptions from 2014 to 2016." Although this bill may not directly reduce the consumption of prescription opioids, revenue generated by this tax will fund the ongoing costs associated with the opioid epidemic.
  3. Earmarking taxes: The modern criteria for tax design focus on efficiency, equity, and simplicity. These principles tend to favor broad-based taxes in order to minimize economic efficiency costs and maximize simplicity^[7]. Narrowly based taxes such as the one proposed in this bill are not used very often; but if one is to be enacted, a direct link between the tax source and the expenditure should exist. This link is based on the benefit principal, which states that people should contribute to taxation according to the benefits they receive from the government expenditure^[8]. As noted above, a link exists between manufacturers, marketing of prescription opioids, and the current opioid epidemic; but because the cost may be borne by a wide group of individuals who may not directly benefit from prevention and rehabilitation programs, the benefit principal does not appear to be satisfied. Furthermore, for the benefit principle to work in practice, all costs of a particular expenditure program should be fully funded, no more nor less, by the earmarked tax. It is not clear if the $50 million tax imposed by this bill is sufficient to fully fund all costs.
  4. Alternative funding: The Bipartisan Policy Center recently released on report tracking federal funds spent on combating the opioid crisis^[9]. According to the report, the federal government spent close to $7.4 billion in FY 2018. Most of the funding, about $5.5 billion, was provided through the Department of Health and Human Services. According to the report, The Substance Abuse and Mental Health Services Administration (SAMHSA) is one of the primary federal agencies charged with providing funding to address the opioid epidemic. SAMHSA administers the two main opioid grant programs: the State Targeted Response (STR) and the State Opioid Response (SOR) grants. STR awarded $500 million in FY 2017 and another $500 million in FY 2018. The SOR is a $1 billion grant program with a 15% set-aside for states with the highest rate of drug overdose deaths. Funds are generally used for treatment services, prevention, and recovery. Although state officials were appreciative of the funding, the report noted long-term concerns about being able to sustain programs with grants that require an annual appropriation. The report also mentioned that given the considerable federal investment in opioid funding, it is unlikely that a state will be able to replace this funding without a new dedicated state funding source. In the end, the report found that "sustainable funding is required to ensure that states can address the continuum of care for substance use disorders, as well as the consequences of addiction."
  5. Clarification: This bill requires manufacturers and wholesalers to submit to the Department a report that details all opioid drugs sold or distributed in the state. The ratable share is calculated based on the total number of MMEs attributable to opioid drugs sold or distributed in this state by the manufacturer or wholesaler for the preceding FY. It is unclear to Committee staff, however, if opioid sales can be counted twice. As an example, if a manufacturer sells opioid to a wholesaler that is located in the state and the wholesaler then distributes that opioid in the state, is the opioid counted twice? The author may wish to clarify the language to prevent the double counting of prescription opioids.
  6. Double-referral: This bill was heard in the Assembly Committee on Health on April 9, 2019, and passed that Committee with a vote of 8 to 5.

REGISTERED SUPPORT / OPPOSITION:

Support

County Behavioral Health Directors Association of California

CaliforniaHealth+ Advocates

County Health Executives Association of California

Opposition

Association for Accessible Medicines

Biocom

California Chronic Care Coalition

California Dental Association

California Hospice & Palliative Care Association

California Society of Health-System Pharmacists

Healthcare Distribution Alliance

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098

1. Richard deShazo, Backstories on the US Opioid Epidemic. Good Intentions Gone Bad, an Industry Gone Rogue, and Watch Dog Gone to Sleep, The American Journal of Medicine, 2018. ↑

2. Id. ↑

3. Lewis Davis, Economic Analysis of the NY State Prescription Opioid Tax, Union College, March 2018. ↑

4. Id. ↑

5. Curtis Florence, The Economic Burden of Prescription Opioid Overdose, Abuse and Dependence in the United States, Med Care, October 2016. ↑

6. Id. ↑

7. Rober Carling. Tax Earmarking: Is It Good Practice? The Center for Independent Studies (2007). ↑

8. Id. ↑

9. Tracking Federal Funding to Combat the Opioid Crisis, Bipartisan Policy Center, March 2019. ↑

Date of Hearing: April 9, 2019

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 1468

Author:(McCarty) – As Introduced Ver:February 22, 2019

SUBJECT: Opioid Prevention and Rehabilitation Act.

SUMMARY: Requires a drug manufacturer or wholesaler that sells or distributes opioid drugs in this state to submit a report to the Department of Public Health (DPH) that details all opioid drugs sold or distributed in this state during the preceding fiscal year. Requires DPH to calculate the ratable share of a manufacturer or wholesaler, which is the individual portion of the collective sum of $100 million to be paid by manufacturers and wholesalers as an opioid stewardship payment, based on the information reported. Requires, commencing with the 2021–22 fiscal year and thereafter, a manufacturer or a wholesaler to make quarterly payments, to DPH, of the corresponding ratable share of the opioid stewardship payment. Requires all ratable share payments, less refunds and DPH’s administrative costs, to be deposited into the continuously appropriated Opioid Prevention and Rehabilitation Program Fund (Fund) established by this bill. Requires DPH to distribute moneys in the Fund to counties on an annual basis for purposes of opioid prevention and rehabilitation programs based on county needs. Adds an urgency clause for the provisions to take effect immediately. Specifically, this bill:

1. Establishes the Opioid Prevention and Rehabilitation Act (OPRA). Makes OPRA inoperative on July 1, 2027 and repeals it as of January 1, 2028.
2. Defines several terms for the purpose of OPRA as follows:
   1. “Opioid stewardship payment” means the total amount to be paid into the Fund each fiscal year;
   2. “Ratable share” means the individual portion of the opioid stewardship payment to be paid by each manufacturer or wholesaler that is subject to this bill;
   3. “Opioid” means an opiate or any synthetic or semisynthetic narcotic that has opiate-like activities but is not derived from opium and has effects similar to natural opium alkaloids, and any derivatives thereof;
   4. “Opiate” means the dried, condensed juice of a poppy, Papaver somniferum, that has a narcotic, soporific, analgesic, and astringent effect; and,
   5. “Distribute” or “distribution” means the delivery for sale of an opioid drug other than by administering or dispensing to the ultimate user, including intracompany transfers between any division, affiliate, subsidiary, parent, or other entity under complete common ownership and control.
3. Requires, commencing with the 2021–22 fiscal year, and for each fiscal year thereafter, a manufacturer or wholesaler that sells or distributes opioid drugs in California to submit to DPH a report that details all opioid drugs sold or distributed by the manufacturer or wholesaler in this state during the preceding fiscal year.
   
4. Requires the report, to the extent permitted by federal law, to include all of the following information:
5. The name, address, telephone number, federal Drug Enforcement Agency (DEA) registration number, and license number of the manufacturer or wholesaler, as applicable;
6. The name, address, and DEA registration number of the entity to which the opioid drug was sold or distributed;
7. The date of the sale or distribution of the opioid drug;
8. The gross receipt total, in dollars, of all opioid drugs sold or distributed;
9. The name and National Drug Code of the opioid drug sold or distributed;
10. The number of containers and the strength and metric quantity of controlled substances in each container of the opioid drug sold or distributed;
11. The total number of morphine milligram equivalents (MMEs) attributed to the opioid drugs sold or distributed. Requires MMEs to be determined pursuant to a formulation that is issued by DPH and updated as DPH deems necessary to determine the ratable share; and,
12. Any other elements relating to the sale or distribution of the opioid drug, as DPH deems necessary to determine the ratable share payment under this bill.
13. Requires DPH, commencing with the 2021–22 fiscal year, and for each fiscal year thereafter, in consultation with the Board of Pharmacy (BOP), to calculate the ratable share of a manufacturer or wholesaler that is subject to reporting, according to all of the following:
14. Requires the total number of MMEs attributed to opioid drugs sold or distributed in this state by the manufacturer or wholesaler for the preceding fiscal year, as reported, to be divided by the total number of MMEs attributed to opioid drugs sold or distributed in this state by all manufacturers and wholesalers subject to this bill for the preceding fiscal year, in order to determine the payment percentage for the manufacturer or wholesaler;
15. Requires the payment percentage to be multiplied by the opioid stewardship payment; and,
16. Requires the product of the calculation in b) to be the manufacturer or wholesaler’s ratable share.
    
17. Prohibits, for purposes of the calculation of the ratable share, the total number of MMEs attributed to opioid drugs sold or distributed by a manufacturer or wholesaler from including either of the following:
18. The number of MMEs attributed to opioid drugs that are manufactured in this state but the final point of delivery or sale of which is outside this state; and,
19. The number of MMEs attributed to buprenorphine, methadone, or morphine.
    
20. Requires DPH to notify the manufacturer or wholesaler, in writing, of the value of the ratable share for that manufacturer or wholesaler.
21. Requires DPH, in any fiscal year for which a manufacturer or wholesale has failed to report information, to estimate, based on available data, the number of MMEs attributed to opioid drugs sold or distributed by that manufacturer or wholesale, and to assess to the other manufacturers and wholesalers complying a decreased assessment of their corresponding ratable share in the following fiscal year, with the decrease equaling the amount that was overpaid by the compliant manufacturer or wholesaler in the current fiscal year.
    
22. Requires the manufacturer or wholesaler to have the opportunity to appeal the ratable share determination by submitting information to DPH explaining why the ratable share is erroneous or otherwise not warranted. Permits DPH, upon receipt of this information, if it determines that all or a portion of the ratable share is not warranted, to do one of the following:
23. Adjust the ratable share if the payment has not yet been made;
24. Adjust the assessment of the ratable share in the following fiscal year by decreasing the ratable share by the amount that was overpaid in the current fiscal year; or,
25. Refund the amount that was overpaid.
    
26. Requires, commencing with the 2021–22 fiscal year, and for each fiscal year thereafter, a manufacturer or a wholesaler to make quarterly payments, to DPH, of the manufacturer’s or wholesaler’s corresponding ratable share of the opioid stewardship payment.
    
27. Prohibits a manufacturer or wholesaler from passing the cost of the ratable share payment to the purchaser of the opioid drug, including the ultimate user of the opioid drug.
    
28. Requires all ratable share payments, less refunds and the DPH’s administrative costs, to be deposited quarterly into the Fund established by this bill.
    
29. Requires the opioid stewardship payment to be equal to $100 million for each fiscal year, which is required to be the amount used to calculate the ratable share for a manufacturer or wholesaler.
    
30. Permits the combined sum of ratable share payments by manufacturers and wholesalers to be less than $100 million in a fiscal year, if DPH makes adjustments to the ratable share of a manufacturer or wholesaler pursuant to the ratable share determination.
    
31. Makes a manufacturer or wholesaler that fails to comply with the reporting requirements subject to a civil penalty not exceeding $1,000 per calendar day.
    
32. Makes a manufacturer or wholesaler that fails to make a ratable share payment subject to a civil penalty of not less than 10% of and not greater than 300% of the ratable share payment that is due.
    
33. Makes a manufacturer or wholesaler that fails to comply with the prohibition against passing the cost of the ratable share payment to the purchaser of the opioid drug subject to a civil penalty not exceeding $1 million per incident.
    
34. Establishes in the State Treasury the Fund, and requires all moneys in the fund to be continuously appropriated to DPH to carry out the purposes described in 19) below.
    
35. Requires DPH to distribute moneys in the fund to counties on an annual basis for purposes of opioid prevention and rehabilitation programs, as specified.
36. Requires distribution of moneys in the fund to counties to be based on county needs, using the most recent data of only the following information, as provided by the DPH:
37. The ratio of opioid overdose deaths per county population;
38. The ratio of opioid overdose emergency department visits per county population; and,
39. The ratio of opioid overdose hospitalizations per county population.

EXISTING LAW:

1. Requires DPH, in order to reduce the rate of fatal overdose from opioid drugs including heroin and prescription opioids, subject to an appropriation for this purpose in the Budget Act of 2016, to award funding to local health departments, local government agencies, or on a competitive basis to community-based organizations, regional opioid prevention coalitions, or both, to support or establish programs that provide Naloxone to first responders and to at-risk opioid users through programs that serve at-risk drug users, including, but not limited to, syringe exchange and disposal programs, homeless programs, and substance use disorder (SUD) treatment providers.
   
2. Prohibits a person from manufacturing any drug or device in this state unless they have a valid license from DPH.
3. Prohibits a person from acting as a wholesaler or third-party logistics provider of any dangerous drug or dangerous device unless they obtained a license from the BOP.
4. Requires persons located outside this state that: a) ships, sells, mails, and warehouses, distributes, or delivers dangerous drugs or dangerous devices into this state; or, b) sells, brokers, warehouses, or distributes dangerous drugs or devices within this state to be considered a nonresident wholesaler or a nonresident third-party logistics provider for purposes of licensure with the BOP.
   

FISCAL EFFECT: This bill has not yet been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, the opioid epidemic is an ongoing and growing problem that desperately needs assistance for both prevention and treatment. The Fund will generate an important, on-going source of funding for prevention and treatment centers in order to save lives. The money collected will be distributed based on need and population. Dealing with the opioid epidemic requires a holistic approach and participation from all involved parties, including the drug manufacturers and wholesalers.
2. BACKGROUND.
   1. Controlled substances and opioids. Through the Controlled Substances Act (Act) of 1970, the federal government regulates the manufacture, distribution and dispensing of controlled substances. The Act classifies into five schedules those drugs known to have potential for physical or psychological harm, based on three considerations: a) their potential for abuse; b) their accepted medical use; and, c) their accepted safety under medical supervision. Schedule I controlled substances have a high potential for abuse and no generally accepted medical use and includes drugs such as heroin, ecstasy, and LSD. Schedule II controlled substances have a currently accepted medical use in treatment, or a currently accepted medical use with severe restrictions, and have a high potential for abuse and psychological or physical dependence. Schedule II drugs can be narcotics or non-narcotic. Opioids are a class of narcotic drugs that include medications such as hydrocodone, oxycodone, morphine, codeine, and other related drugs. Examples of Schedule II controlled substances include morphine, methadone, Ritalin, Demerol, Dilaudid, Percocet, Percodan, Vicodin, and OxyContin. In 2017, there were 23.2 million opioid prescriptions dispensed in California, according to data from the Controlled Substance Utilization Review and Evaluation System (CURES).
      
   2. Drug distribution chain and the assessment in this bill. Under this bill, the “opioid stewardship payment” is assessed on opioid manufacturers and wholesalers that sell or distribute opioid drugs in California. The major opioid manufacturers and their respective opioid products include:
      1. Purdue Pharma (OxyContin, MS Contin, Dilaudid/Dilaudid HP, Butrans, Hysingla ER, and Targiniq ER);
      2. Endo Health Solutions (Opana/Opana ER, Percodan, Percocet, and Zydone generic opioids such as oxycodone, oxymorphone, hydromorphone, and hydrocodone products);
      3. Allergan (branded drugs Kadian and Norco, a generic version of Kadian, and generic versions of Duragesic and Opana);
      4. Teva Pharmaceutical Industries and subsidiary Cephalon (Actiq and Fentora);
      5. AbbVie Pharmaceuticals (Vicodin); and,
      6. Johnson & Johnson and subsidiary Janssen Pharmaceuticals (Duragesic).
         
         Drug manufacturers typically send U.S. Food and Drug Administration (FDA) approved medications (including opioids) to wholesalers. Wholesalers are licensed by the BOP and store the medication until it is delivered to pharmacies. Pharmacies may order prescription drugs from multiple distributors. The three largest wholesalers are McKesson, AmerisourceBergen, and Cardinal Health.
         
   3. Opioid use and SUDs. Opioids are a class of drugs that include the illegal drug heroin, synthetic opioids such as fentanyl, and pain relievers available legally by prescription, such as OxyContin, Vicodin, codeine, morphine, and many others.
      
      The California Health Benefits Review Program (CHBRP) states the estimated prevalence rate of opioid use disorder (OUD) in the U.S. is 0.891%, and CHBRP calculated that the prevalence rate is approximately twice as high in the Medicaid population (1.36%) as compared with the commercial population (0.654%) based on data from the Medicaid and the Children’s Health Insurance Program Payment and Access Commission. Nearly 22 million Americans are thought to have some kind of SUD. Of these individuals, 1.9 million are addicted to prescription painkillers, and an estimated 586,000 are addicted to heroin. In 2016, California had a drug overdose rate of 11.2 per 100,000 residents, but there is considerable variation by county. In 2018 the Department of Public Health (DPH) reported 2,196 opioid overdose deaths in California with 4,281 emergency department visits for all opioids (excluding heroin). Deaths as a result of fentanyl increased to 429 in 2018, up from 237 in 2016.
      
      For the past number of years, abuse of prescription drugs to get high has become increasingly prevalent. Results from the 2016 National Survey on Drug Use and Health found that 11.8 million people age 12 or older misused opioids in the past year, the vast majority of whom misused prescription pain relievers.
      
      Prescription opioids continue to be involved in more overdose deaths than any other drug. According to the Centers for Disease Control and Prevention (CDC), overdose deaths involving prescription opioids have quadrupled since 1999. CDC found that from 1999 to 2015, more than 183,000 people died in the U.S. from overdoses related to prescription opioids. The CDC notes that the most common drugs involved in prescription opioid overdose deaths are methadone, oxycodone, and hydrocodone. According to the CDC, among those who died from prescription opioid overdose between 1999 and 2014, overdose rates were highest among people aged 25 to 54.
      
      Prescription opioid usage in the United States after increasing considerably from the mid-1990s to its peak in 2011, is now declining rapidly with the largest single year change in 2017 with a decline of 12%. Decreases in prescription opioid volume have been driven by changes in clinical usage, which have been influenced by regulatory and reimbursement policies and legislation that have been increasingly restricting prescription opioid use since 2012. Opioid prescriptions declined by 10.2% per month from January to December 2017. In California, there was a 17% decline in opioid prescriptions from 2014 to 2016.
   4. Societal burden of opioid abuse. Opioid abuse imposes societal and governmental costs, such as increased health care costs for the treatment for opioid addiction and the health care effects of the opioids generally, premature death, increased prevalence of neonatal abstinence syndrome in babies born to addicted mothers, missed work, reduced productivity and correctional/law enforcement-related costs. There is no data specific to California on these costs. National estimates vary, depending upon the methodology. For example, the federal Council of Economic Advisers estimated the economic cost of the opioid crisis was $504 billion, or 2.8% of the gross domestic product in 2015. An October 2016 article in the journal Med Care entitled “The Economic Burden of Prescription Opioid Overdose, Abuse and Dependence in the United States, 2013” found that the total economic burden is estimated to be $78.5 billion, with over one third of this amount due to increased health care and substance abuse treatment costs ($28.9 billion) and approximately one quarter of the cost is borne by the public sector in health care, substance abuse treatment, and criminal justice costs.
   5. CURES. Existing law requires the Department of Justice (DOJ) to maintain CURES for the electronic monitoring of the prescribing and dispensing of Schedule II - IV controlled substances by all practitioners authorized to prescribe, administer, furnish, or dispense these controlled substances. Existing law requires dispensing pharmacies and clinics to report specified information for each prescription of a Schedule II, Schedule III, or Schedule IV controlled substance to DOJ. The purpose of CURES is to assist law enforcement and regulatory agencies in controlling diversion and abuse of Schedule II, III and IV controlled substances and for statistical analysis, education, and research. In addition, to prevent forgery of controlled substance prescriptions, California law also requires prescription forms for controlled substance prescriptions to be written on tamper-proof forms.
   6. New York Opioid Stewardship Fund (OSF). This bill is generally modeled after a New York law, which imposed a “stewardship payment” on manufacturers and distributors that sell or distribute opioids in New York. The total opioid stewardship payment under the OSF would be $100 million annually, and each manufacturer and distributor that sells or distributes opioids in New York would pay a portion of the total opioid payment amount based on that manufacturer’s or distributor’s share of the total MME sold or distributed during the preceding year as reported by the manufacturer or distributors. The OSF was created to support programs for opioid treatment, recovery, prevention, education and the New York prescription drug monitoring program. In July 2018, a lawsuit against the New York law was filed in court by Health Care Distribution Alliance arguing the statute was unconstitutional, failed to provide due process and the prohibition against passing on the cost violated the commerce clause. In December 2018, U.S. District Court Judge Katherine Failla declared New York’s law unconstitutional, in large part because the ban on pass-through costs would violate the Dormant Commerce Clause, which says states cannot pass legislation that favors state citizens and businesses at the expense of out-of-state citizens and businesses. On January 17, 2019, New York filed a notice of appeal. The first payments under the OSF were due on January 1 and were calculated based on 2017 sales. Mallinckrodt’s SpecGX, a generic drug maker, said in court papers it owed $1.2 million and drug distributor AmerisourceBergen Corporation estimated it would owe $22 million for its share under the OSF. In a 2019 budget bill, the Governor of New York proposed an excise tax on opioid manufacturers and distributors that unlike previous legislation would allow the costs to be passed down to purchases and patients.
3. SUPPORT. The Humboldt County Board of Supervisors (Board) states in support that Humboldt County has been deeply affected by the continuing opioid crisis with the second highest opioid overdose death rate in the state in 2017. This has resulted in a need for increased emergency medical services, increased demands on law enforcement, correctional and court resources as well as an increased need for community support and social programs. The Board states that while, Humboldt County has taken affirmative steps to address the local opioid crisis, including allocating substantial investments in treatment and harm reduction programs, these efforts continue to strain the county budget. Humboldt County concludes that this bill would provide sustainable, ongoing funding to continue and expand local efforts to address the opioid crisis.
4. OPPOSITION. In opposition to this bill, Biocom states that this bill sets the pooled amount to be collected on a pro-rata basis from “manufacturers or distributors at a fixed $100 million.” According to a recent Journal of the American Medical Association article, the number of new opioid prescriptions written from 2012 through 2017 has decreased significantly, with a 60% reduction in prescriptions that were written for more than a three-day supply. Moreover, 70% fewer were written for a greater than one week supply; both of these statistics are significant in determining possible prescribing patterns for drugs of abuse. Biocom states that this sets up a perverse system where if the state is successful in curbing total opioid prescriptions written, a manufacturer would be charged ever increasing assessment on significantly decreased sales. The Pharmaceutical Research and Manufacturers of America, also in opposition states the bill is drafted in such a way as to cause confusion about which companies are liable for paying the new tax. There are numerous references to “manufacturer or wholesaler” leading to speculation about who is ultimately responsible to pay the tax. They state that it is unclear who is required to comply with this bill.
   
   The California Pharmacists Association (CPhA), in opposition states that this bill will negatively impact community pharmacies and the patients for whom they provide care. While it appreciates the author’s intent to prohibit manufacturers and wholesalers from passing down the cost to purchasers, drug prices fluctuate substantially and on a daily basis. There is no way to ensure or prove that that drug price increases are not directly associated with this new fee. These increased costs to pharmacies will further limit patient access to medications. CPhA states that this new financial burden will cause pharmacies to not carry medications due to it being cost prohibitive to run a successful small business. Lastly, CPhA points out that the impact to patients is of grave concern as there are patients with a legitimate need for opioid medications.
   Finally, the Howard Jarvis Taxpayers Association (HJTA) states that while there is no denying that opioid abuse is a serious problem in California, every serious problem the state faces does not require a tax increase. HJTA believes the tax is also targeted incorrectly. The opioid abuse problem does not primarily lie at the distribution level, which is strictly controlled by the FDA. Not only is a tax an inappropriate solution, but a tax at the wrong level of the supply chain will be passed onto consumers. HJTA states that while the bill includes a provision that any costs as a result of the tax won’t be passed onto consumers, it is unclear who will enforce these provisions. HJTA concludes that this bill will make drugs more expensive for the majority of people who have legitimate reasons for using opioids.
   
5. OPPOSE UNLESS AMENDED. The California Retailers Association and the National Association of Chain Drug Stores have taken an oppose unless amended position. They state that as currently drafted, this bill institutes a tax on wholesalers of opioid medications. They argue the definition of wholesaler is overly broad and includes pharmacy distribution centers that while licensed as wholesalers, engage only in intracompany transfers between entities under complete common ownership and control. In conclusion, they request an exclusion from the provisions of the bill for licensed wholesalers who engage only in intracompany transfers as described above.
6. RELATED LEGISLATION.
   1. AB 1031 (Nazarian) requires the Department of Health Care Services (DHCS) to establish community-based nonresidential and residential treatment and recovery programs to intervene and treat the problems of alcohol and drug use among youth under 21 years of age. Requires DHCS to update its Medi-Cal billing codes to include specified services, based on whether those services are medically necessary. AB 1031 is pending in the Assembly Health Committee.
   2. AB 888 (Low) extends the requirement for a prescriber to discuss the risks associated with opioids to adult patients before issuing the first prescription for a controlled substance containing an opioid. Requires the prescriber to discuss the availability of nonpharmacological treatments for pain and to offer a referral for a provider of nonpharmacological treatments. Requires the prescriber obtain informed written consent. Removes an exemption for a diagnosis of chronic intractable pain and adds an exemption for a patient receiving hospice care. AB 888 is pending in the Assembly Health Committee.
   3. AB 1098 (O’Donnell and Wood) establishes procedures for the implementation and administration of programs funded by the Youth Education Prevention, Early Intervention, and Treatment Account aimed at providing substance abuse education and prevention programs and SUD treatment, including the identification of targeted outcomes with unspecified metrics, the establishment of a technical advisory committee, required information to be provided by applicants for program funding, and progress reports to the Legislature. AB 1098 also requires that an unspecified portion of funds be used to test innovative practices through pilot programs. AB 1098 is pending in the Assembly Health Committee.
   4. SB 445 (Portantino) requires DHCS to convene an expert panel on or before January 1, 2021, to advise DHCS solely on the development of youth SUD treatment quality standards, as specified. SB 445 would require DHCS, on or before July 1, 2022, to adopt regulations to establish youth SUD treatment quality standards, as specified. SB 445 would also define youth SUD treatment services as including any publicly funded direct services intended to treat SUD for individuals from birth to 26 years of age, inclusive. SB 445 is pending in the Senate Health Committee.
7. PREVOUS LEGISLATION.
   1. AB 2174 (Waldron) of 2018 would have required DPH, upon appropriation by the Legislature or receipt of adequate state or federal grant funding, and in consultation with stakeholders as appropriate, to develop, coordinate, implement and oversee a comprehensive multicultural public awareness campaign, designed to combat the growing heroin and opioid medication epidemic in the state. AB 2174 was held in the Assembly Appropriations Committee.
   2. AB 2384 (Arambula) of 2018, would have required health plans and insurers (excluding Medi-Cal managed care plans), to cover, at a minimum, one version of each specified medication-assisted treatment (MAT) and overdose reversal prescription drug approved by the FDA for OUD. AB 2384 would also have specified that its provisions would apply to an FDA-approved drug for use in MAT for OUD that an enrollee or insured is being prescribed as of January 1, 2019, or, for a new enrollee or insured, that he or she is being prescribed at the time of enrollment. AB 2384 was vetoed by the Governor.
   3. AB 2486 (McCarty) of 2018, was similar to this bill and would have required a drug manufacturer or wholesaler that sells or distributed opioid drugs to pay an opioid stewardship payment based on their individual portion of the collective sum of $100 million based on information reported to the DPH. AB 2486 was held in the Senate Health Committee.
   4. AB 2487 (McCarty), Chapter 301, Statutes of 2018, authorizes a physician, as an alternative to the mandatory course on pain management, to complete a one-time continuing education course of 12 credit hours in the subjects of treatment and management of opiate-dependent patients, including eight hours of training in buprenorphine treatment, or other similar medicinal treatment, for OUDs.
   5. AB 2741 (Burke) of 2018 would have limited all opioid prescriptions for minors to a maximum of five days, with exceptions, and require a prescriber to discuss risks related to opioid medication with the minor and the minor’s parent or guardian and obtain verbal consent prior to writing the prescription. AB 2741 failed passage in the Senate Business, Professions, and Economic Development Committee.
   6. AB 2760 (Wood), Chapter 324, Statutes of 2018, requires certain prescriptions for opioids to also include a co-prescription for naloxone or another drug approved by the FDA for the complete or partial reversal of opioid depression when specified conditions are met.
   7. AB 1512 (McCarty) of 2017 would have imposed a tax of $0.01 per milligram on the distribution of opioids and required the amounts collected to be used for addiction prevention and rehabilitation programs. AB 1512 was held in Assembly Revenue and Taxation Revenue Committee.
   8. SB 1109 (Bates), Chapter 693, Statutes of 2018, requires warning labels for opioid prescription drug containers; requires that the Opioid Factsheet for Patients be provided to athletes engaged in after-school youth sports; requires that prescribers discuss the dangers of opioid abuse and addiction with a minor patient or their parent or guardian prior to prescribing an opioid; and, requires that existing trainings for prescribers related to pain management include addiction risks associated with Schedule II drugs.
   9. SB 1229 (Stone) of 2018 would have required pharmacists dispensing any opioid medication to a patient or the patient’s agent for the first time to provide oral consultation before dispensing the medication and prohibits a pharmacist from dispensing the medication if the patient or the patient’s agent declines the consultation. SB 1229 was held in the Senate Business, Professions, and Economic Development Committee.
   10. SB 482 (Lara) Chapter 708, Statutes of 2016, requires a health care provider authorized to prescribe, order, administer, or furnish a controlled substance to consult CURES prior to prescribing a Schedule II, III or IV drug to a patient for the first time and at least once every four months thereafter if the substance remains part of the patient’s treatment. SB 482 also included exemptions consulting CURES, including while a patient is admitted to a certain type of facility, if a patient receives a non-refillable five-day supply or less prescription in conjunction with a surgery, and in the event of a technological failure or inability to access CURES.
   11. AB 40 (Santiago) Chapter 607, Statutes of 2017, authorizes an approved health care practitioner, pharmacist and any person acting on behalf of a practitioner or pharmacist to access information contained in CURES through a health information technology system (Health IT System), if the entity that operates the Health IT System meets certain requirements.
   12. AB 623 (Wood) of 2015 would have prohibited a health plan or health insurer from requiring the use of opioid drug products that have no abuse-deterrent properties in order to access abuse-deterrent opioid drug products; would have required pharmacists to provide a patient receiving an opioid drug product information about proper storage and disposal of the drug; and, would have mandated that a plan and insurer may not prevent a provider from prescribing a less than 30-day supply of opioids analgesic drugs and to provide coverage, if otherwise covered, for the less than 30-day prescription. AB 623 was held on the Assembly Appropriations Committee suspense file.
8. SUGGESTED AMENDMENTS:
   1. As currently drafted, the language applies to all wholesalers licensed under the BOP. This definition of wholesaler includes pharmacy distribution centers that, while licensed as wholesalers, do not engage in the sale of pharmaceuticals but rather serve as a warehouse or storage facility of a retail pharmacy chain. The Committee may wish to amend this bill to exclude a warehouse of a retail pharmacy chain if it engages only in intracompany transfers between any division, affiliate, subsidiary, parent or other entity under complete common ownership and control.
   2. As previously discussed this bill is modeled after the New York Opioid Stewardship Fund. A provision of that law was declared unconstitutional in District Court, in large part because the ban on pass-through costs would violate the Dormant Commerce Clause, which says states cannot pass legislation that favors state citizens and businesses at the expense of out-of-state citizens and businesses. That decision is currently on appeal. The Committee may wish to amend this bill by adding a severability clause. A severability clause states that the terms of a bill or contract are independent of one another so that should a court declare one or more of the provisions void or unenforceable, the rest of the contract will remain in force.
9. COMMITTEE COMMENTS.
   1. As written this bill repeatedly references manufacturers or wholesalers, making it unclear as to whether the bill applies to one or both of the entities. As the bill moves forward the author may wish to clarify who must comply with the requirements of the bill.
   2. In a February 2018, report by the California State Auditor on the revenues distributed to counties by DHCS under the Mental Health Services Act (MHSA) it was reported that local mental health agencies had accumulated $2.5 billion in unspent funds as of fiscal year 2015-16, $230 million of which should have been returned to DHCS for redistribution to other agencies. Additionally, since there was no guidance in how local mental health agencies should treat interest earned on MHSA funds, the agencies accumulated over $80 million in interest on unspent MHSA funds. As this bill moves forward, the author may want to consider establishing a framework for the OPRA to ensure accountability and oversight of the $100 million fund is established at inception.

REGISTERED SUPPORT / OPPOSITION:

Support

County Behavioral Health Directors Association

County of Humboldt

Opposition

American Cancer Society Cancer Action Network Inc.
Biocom
California Chamber Of Commerce
California Chronic Care Coalition
California Hospice & Palliative Care Association
California Life Sciences Association
California Manufacturers & Technology Association
California Pharmacists Association
Healthcare Distribution Alliance
Howard Jarvis Taxpayers Association
Pharmaceutical Research and Manufacturers of America

Analysis Prepared by: Judith Babcock / HEALTH / (916) 319-2097