This is an excerpt from Medically Necessary, a health care supply chain newsletter. Subscribe here.
Top line: After years of negotiations, several major drug distributors have proposed a $21 billion settlement to resolve a large number of claims that they contributed to the opioid crisis.
AmerisourceBergen, Cardinal Health and McKesson announced the proposal last week. If enough states accept the proposal, the agreement would commit the distributors to paying out the settlement over 18 years. Here’s what each company would owe.
- AmerisourceBergen: $6.4 billion.
- Cardinal Health: $6.4 billion.
- McKesson: $7.9 billion.
In addition, the companies would also set up a clearinghouse of opioid distribution data from all three distributors. The states involved in the settlement would be able to use that data to prevent opioid misuse.
Drugmaker Johnson & Johnson, which sells opioids, was also involved in negotiating the deal. The company agreed to a separate settlement payment of $5 billion.
Next steps: Now every U.S. state, except West Virginia, which has already settled with distributors, and Washington, D.C., will decide if they want to sign on to the deal.
If the distributors decide enough states have joined to warrant moving forward, then other political subdivisions, like counties, will be able to sign on.
After cities and counties have an opportunity to join, AmerisourceBergen, Cardinal Health and McKesson will individually decide if it makes sense to move forward.
Backstory: These drug distributors are facing thousands of lawsuits — McKesson recently reported facing 3,200 — that allege the companies irresponsibly distributed opioids and contributed to the opioid epidemic.
In the fall of 2019, several state attorneys general proposed a framework for resolving many of those cases
That proposal requested $22 billion in cash and $26 billion to buy and distribute medication to help people stop using opioids. In February 2020, the distributors proposed an $18 billion settlement, but nearly two dozen states rejected that proposal, according to The Wall Street Journal.
By March 2021, McKesson reported that a broad settlement was nearly finalized and had already recorded a charge for the settlement on the company’s balance sheet.
“It stretches woefully insufficient funds into small payments over nearly 20 years, to be shared among more than 300 Washington jurisdictions,” Washington Attorney General Bob Ferguson said, according to a press release.
Following that rejection, the big distributors are scheduled to go on trial in Washington in September.
Philadelphia Attorney General Larry Krasner also blasted the deal, even though cities and counties haven’t had a chance to formally respond to the proposal.
“Any money Philadelphia receives from it will be too low in amount, too slow in payment or a no-show — it may not even arrive in Philly,” Krasner said, according to a press release.
Pennsylvania Attorney General Josh Shapiro accepted the deal. Krasner filed a lawsuit objecting to that decision and emphasizing that he wants to continue litigation against the distributors.
The markets: Investors welcomed the settlement. Share prices for all three companies jumped significantly in mid-July when Bloomberg first reported that a major deal was imminent.
- McKesson: Up 8% since announcement.
- Cardinal: Up 5% since announcement.
- AmerisourceBergen: Up 8% since announcement.
A report in Axios noted that the distributors won’t have a hard time paying the amount in the proposed settlement.
Axios’ Bob Herman said the distributors’ stock buybacks and dividends would more than cover the settlement payments. McKesson also raised its dividend about a week after the announcement.
What’s next? Attorneys general from 15 states were involved in the negotiations for the current proposal, according to Reuters.
However, thousands of states and local governments will likely need to sign on for the proposal to move forward.