States and Cities Near Tentative $26 Billion Deal in Opioids Cases

The three largest pharmaceutical distributors and Johnson & Johnson are on the verge of a $26 billion deal with states and municipalities that would settle thousands of lawsuits over their role in the opioid epidemic and pay for addiction and prevention services nationwide.

An agreement could be announced this week but several people with knowledge of the talks cautioned that the deal could still fall apart or have significant changes.

The intensifying negotiations, which began more than two years ago, arrive as trials bear down on the defendants and addiction and overdose rates continue to mount during the pandemic.

Brokered by a bipartisan group of about 13 state attorneys general and lawyers for local governments, the deal still requires several steps before formal agreement, including voting on it by all parties in the litigation. It includes incentives to induce more plaintiffs to come on board, such as bigger up front payments. Unlike earlier proposals, however, this one appears to have the critical backing of more than 40 states and includes a sweetener of $2 billion in plaintiff attorneys’ fees.

The companies are the pharmaceutical giant, Johnson & Johnson, and the country’s major medical distributors — Cardinal Health, McKesson and AmerisourceBergen.

Cardinal Health declined to comment. The other distributors did not reply to requests for comment.

Johnson & Johnson said in a statement, “There continues to be progress toward finalizing this agreement and we remain committed to providing certainty for involved parties and critical assistance for families and communities in need.

The settlement is not an admission of liability or wrongdoing, and the company will continue to defend against any litigation that the final agreement does not resolve.”

The deal is contingent, in part, on an overwhelming majority of states and local governments that have sued, as well as those who have not yet filed cases, to agree to the terms.

A separate agreement between tribes and the companies is still being negotiated.

The settlement does not conclude all of the multifaceted nationwide opioid litigation, in which the first cases were filed in 2014. Lawsuits have been filed against three broad categories of defendants that represent the steps along the drug supply chain: manufacturers, distributors and dispensers, like pharmacies.

Many companies within these categories have yet to settle. Some manufacturing defendants, like Purdue Pharma and Mallinckrodt, have proceedings in bankruptcy court, and Teva and Allergan are on trial. Cases against pharmaceutical chains, such as CVS Health, Walgreens and Walmart, are even farther back on the runway.

According to lawyers familiar with negotiations, Johnson & Johnson, which made an opioid painkiller and a fentanyl patch and supplied opium-based ingredients to other drug manufacturers, would pay $3.7 billion in the first three years and $1.3 billion over the next six years. It had already shut down its supply business and discontinued its opioids, and agreed to refrain from selling opioids.

The distributors were accused by plaintiffs of having long turned a blind eye to outsized orders. Collectively the companies will pay $21 billion in 18 payments over 17 years. The fees of lawyers, who pursued and financed the costly litigation for years, will be deducted from the total figure and are expected to be paid more quickly than some funds for addiction treatment. The distributors also admitted no wrongdoing and, much like Johnson & Johnson, noted that they were participants in the supply chain for drugs that were federally approved and monitored.

The agreement would compel senior executives among the distributors to play an active role in establishing programs to monitor red-flag pill sales.

In exchange for the payments, the companies are demanding what is known as “global peace” — an agreement by plaintiffs to put down their litigating swords for good. The proposals will be voted on by representatives for 3,022 cases assembled before one federal judge, Dan A. Polster, in Cleveland, and the state attorneys general, who have the power to pursue the defendants in state courts, where several hundred other cases against the companies have also been filed.

The negotiations are being led by lawyers for the local governments as well as the states of North Carolina, Pennsylvania, Connecticut, New York and Massachusetts, among others.

The distributors as well as several manufacturers are in the midst of a trial in a case brought by the state of New York and two of its counties.

On Tuesday morning, Letitia James, the attorney general for New York, announced a $1.1 billion deal with the distributors to settle that case. That money would be a part of the overall $26 billion settlement, but so far, it is the only deal that has been formally agreed to. Payments to New York state could begin in two months, Ms. James said.

Compared to October, 2019, when four attorneys general announced the first iteration of a brokered plan, the latest offering includes more money, particularly for lawyers, and a clearer allocation structure to deliver settlement money to states and localities.

A persistent tension in the talks has been over the division of funds among states and local municipalities, including cities and counties. That type of rancor ensued after the Big Tobacco deal in 1998, when much of the settlement money was eventually diverted to balance state budgets. Local governments received a scant trickle.

The new settlement envisions a national formula for disbursing money to states and flexibility within each state to broker a deal with the governments of counties and localities so that the bulk of the funds are aimed at alleviating the opioid epidemic and preventing its recurrence.

Determining what each state would be paid was difficult, with states and counties elbowing each other, even as they were fighting with defendants. The allocation to each state now relies on extensive federal data and includes metrics like a state’s population, overdose deaths, opioid pill sales and disorders related to pain pill abuse.

The money remains a sharp point of contention for a handful of states that are not on board.

Most states will likely work up their own disbursement plans. Ohio, North Carolina, Arizona, Texas and Florida and others have already brokered internal, state-specific formulas. Last month, the New York legislature passed bills that would ensure that all funds from the opioid litigation settlement would go into a “locked box,” to be used only to address the crisis.

A critical lever in advancing settlement terms has been the high-stakes gamble of a trial. The distributors have been locked in trial in a West Virginia federal court and in a New York state court.

Johnson & Johnson, and other manufacturers, are on trial in California state court and just settled with the state of New York and two New York counties last month, on the eve of trial. The money for the New York settlement, $230 million, will be paid over nine years with an additional $33 million for lawyers’ costs and fees, that will be deducted from the national amount, if finalized.

Indeed one sticking point for years was attorneys’ fees. Innumerable lawyers contributed different amounts of work and during negotiations, they would fight with each other over who should get paid how much. According to the settlement, about $1.6 billion in fees and costs would be paid to private lawyers representing thousands of counties and municipalities, $50 million in costs, and about $350 million to private lawyers who worked for states.

Johnson & Johnson, widely known as a company that prefers to take cases to trial rather than settle, has faced rivers of adverse publicity in recent years. Last month, the United States Supreme Court let stand a $2.1 billion verdict against the company for asbestos deaths related to its talcum powder. The company was also battered by reports of rare cases of blood clotting and a neurological condition associated with its single-dose Covid vaccine and a recall of some of its sunscreens.

But plaintiffs also faced increasing pressure to settle, as legal costs mounted.

And most urgently, so did the numbers of people addicted to prescription opioid and street drugs during the pandemic. Last week, the federal government announced that 2020 saw a record number of overdose deaths from opioids, both illegal and prescribed.

Notably, the settlement funds are not intended to compensate families of the victims of the two-decade-long opioid crisis, during which at least 500,000 people died from overdoses of prescription and street opioids, according to federal data.

These cases were brought largely by state, municipal and tribal governments under a theory known as “public nuisance” — that the opioid supply chain companies were responsible for creating a disaster that interfered with public health. The remedy for a public nuisance claim is “abatement” — money for programs to reduce the “nuisance.”

While critics of the current settlement argue that the distributors have a leisurely 17 years to pony up their share, the deal’s defenders note that for programs like addiction prevention, education and treatment to take root, infusions of cash will be needed over a sustained period.

Sarah Maslin Nir contributed reporting.

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