This agenda item requests Council approval for the City Attorney to register the City with the “National Opioid Settlement” website established by the Federal District Court for the Northern District of Ohio and file a participation agreement by which the City would be agreeing to the terms of a proposed settlement agreement with the three largest wholesale distributors of prescription opioids. The participation agreement includes a release whereby the City agrees not to bring suit against those defendants for any damages the City may have incurred based upon their conduct. (the participation agreement form is attached.)
The agenda item is also asking for approval for the City Attorney to file a participation agreement in the settlement agreement with one manufacturer, Janssen and its parent company Johnson and Johnson, should the State of New Mexico decide to accept the J&J settlement agreement and become a “settling state” to that agreement. Currently the New Mexico Attorney General has only agreed to participate in the settlement agreement with the three distributors.
In 2017, more than 3000 Federal lawsuits filed by local and state governments against the manufacturers and distributors of prescription opioids were consolidated into a single “multi-district litigation” (MDL) case in the Federal District Court for the Northern District of Ohio. In July of last year, two proposed settlements were announced; one with three of the largest wholesale distributors (McKesson, Cardinal Health and AmerisourceBergen) and one with manufacturer Janssen Pharmaceuticals, Inc. and its parent company Johnson & Johnson. If the settlements are approved by a sufficient number of local and state governments nationwide, the three distributors will pay out $21B over 18 years. (The J&J settlement requires that it pay out $5B over nine years.)
The initial deadline for cities and counties in “settling states” to file participation agreements is January 26, 2022. The defendants will then have until February 25 to decide if a sufficient number of cities and counties have signed on to the agreements for them to proceed forward. The defendants have already determined that a sufficient number of states have accepted the agreements. (Approximately 50 out of 55 “states,” which includes U.S. territories and the District of Columbia, have accepted the terms of each of the settlement agreements.)
After various costs such as attorney’s fees are deducted, $19B will be available to be paid out to state and local governments around the country, regardless of whether it has sued one or more of the three distributors. The $19B is divided into a “base payments fund” of up to $10.2B and an “incentives payments fund” of up to $8.3B. The base payments fund is used to pay a guaranteed minimum amount to each state that agrees to the settlement. The incentives fund is to provide additional funding to states based upon the percentage of a state’s population represented by the cities and counties within the state that agree to the settlement. (The J&J settlement provides for J&J to pay $4.5B in damages, with up to $1.94B going to base payments and up to $2.3B going to incentive payments.)
Each state has been assigned a percentage (the “overall state allocation percentage”) of the total settlement based upon population and a “severity index” that factors in the amount of prescription opioids distributed within the state, the opioid overdose death rate, and the prevalence of diagnosed cases of Substance Use Disorder. New Mexico’s allocation percentage is 0.8557238713% which equals approximately $87.28M from the distributors’ base payment fund. The state could receive up to $71.025M from the incentives fund, but to receive that amount it will require that almost all of the cities and counties in NM agree to the settlement. (If New Mexico were a settling state in the J&J agreement, it would be entitled to $16.6M from the J&J base payments fund and up to $19.68M from the incentives fund.)
Once the annual payment to a state from each of the settlements is determined by adding the base payment and the incentives payment, the total payment to a state would be separated into three funds: 70% to an “abatement accounts fund,”, 15% to a “state fund,” and 15% to a “subdivision fund;” UNLESS the state obtains approval to distribute the funds differently. Most states have already developed plans to deviate from the 15/70/15 split and they generally provide more funding directly to local governments.
The subdivision fund is established to directly reimburse cities and counties and how it is to be distributed within a state is also based on population and the severity index formula. IF there is not an agreement between New Mexico cities and counties and the state or if the legislature does not mandate a different distribution, Gallup would entitled to 0.7722895935% of the NM Subdivision Fund and McKinley County would receive 1.0214669791%.
Applying those percentages to the distributors settlement, if New Mexico gets the maximum possible incentives, the total amount to be paid to NM would be approximately $158.305M ($87.28M in base payments plus $71.025M in incentives). If only 15% of that amount is put into the subdivision fund, it would be funded up to $23.745M ($158.305M x 15%). Gallup’s share, paid out over 18 years, would be approximately $183,386 and McKinley County’s would be $242,555. (The distribution amounts from the J&J settlement would be approximately 1/4 of those amounts, paid out over nine years.).
Unless New Mexico obtains approval for a different distribution, by default, 70% of the total funding would go to the abatement accounts fund that would be distributed according to the recommendation of an advisory committee that has “equal representation from the state and local levels.” An important component of the two agreements is that no less than 70% of the funding a state receives must be spent on programs to abate future opioid abuse and that are within pre-approved uses that include “a wide range of intervention, treatment, education, and recovery services.”
The attached chart show how the money from distributors’ settlement would be allocated. The third attachment entitled "Materials from the National Opioid Settlement website" contains further details regarding the two settlement proposals.
The two settlement proposals do not include a number of other companies that either manufactured or distributed prescription opioids at the wholesale or retail level (pharmacies). Purdue Pharma, a manufacturer, is in Chapter 11 bankruptcy. A deal requiring the company to pay up to $10B for harm caused by primarily Oxycontin was rejected by the bankruptcy judge last month, primarily because the deal protected the Sackler family members from further liability. Mallinckrodt, another manufacturer, is also in Chapter 11 bankruptcy. Prior to filing for bankruptcy, a tentative settlement agreement requiring it to pay $1.7B to resolve the claims in the consolidated MDL case was supported by almost all of the state and local government plaintiffs. However, a ruling in a separate Federal case finding it liable to pay “$640 million for retroactive rebates related to its multiple-sclerosis treatment Acthar” resulted in the company filing for Chapter 11 bankruptcy protection. Two other large manufacturers, Teva and Invidior, are also not parties to the settlement agreements
The other remaining large defendants, some of which have negotiated settlements with a handful of individual states and local governments, but are not parties to the nationwide settlement agreements, are the pharmacies such as CVS, Walgreens, and Walmart. Unless settlement is reached with those companies, their cases will proceed to trial.