Opioid distributors sue NY over "unconstitutional" surcharge
The lawsuit seeks to strike down a new law that mandates opioid manufacturers and distributors collectively pay $100 million each year to the state over the next six years.
A coalition of opioid distributors has sued the state of New York over a new law that imposes a surcharge based on the amount of business they do in the state.
The Healthcare Distribution Alliance filed the complaint in the U.S. District Court for the Southern District of New York last Friday.
The lawsuit seeks to strike down the law, which mandates that opioid manufacturers and distributors collectively pay $100 million each year to the state over the next six years. That money will then be used for opioid treatment, recovery, prevention and education services, according to the law.
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New York’s law was the first in the nation to impose such a surcharge, according to the state Division of Budget.
The distributors said in the complaint the law is unconstitutional because it unfairly places blame on them without due process.
“The Act singles out certain entities to bear this liability without adequately determining culpability,” the complaint reads. “It forces manufacturers and distributors, but not pharmacies or medical professionals, to pay for alleged harm resulting from a public health problem involving numerous actors.”
The distributors call that practice “trial by legislature” in the complaint, which was first reported by the Albany Times Union..
They blame that part of the bill on Gov. Andrew Cuomo, who has publicly blamed opioid manufacturers and distributors for worsening the state’s opioid epidemic. Cuomo has also suggested suing pharmaceutical companies over the crisis, which Attorney General Barbara Underwood said in May the state was preparing to do.
His efforts this legislative session against the opioid epidemic culminated in the Opioid Stewardship Fund. The law mandates each opioid manufacturer and distributor that does business in New York to pay a surcharge based on the amount of product they sell. The fund will total $100 million each year. Each company’s charge depends how big their share of the market is. So, if one opioid manufacturer or distributor sold 10 percent of the state’s opioids, they would pay $10 million, for example.
That presents a few problems, the distributors said in the complaint. For one, this year’s charges are based on last year’s sales, long before those companies knew they would be charged. The distributors said they had no way of anticipating such a charge so they could change their behavior to offset their cost to the state. That violates the Fourteenth Amendment, they said in the complaint.
It also leaves the amount of the surcharge they pay completely out of their hands, the complaint said. If a major opioid distributor decided to shift its business out of New York because of the surcharge, that would leave other companies on the hook for their share of the $100 million.
“If some entities are able to reduce their surcharges by moving transactions to New Jersey, Pennsylvania, and Connecticut, the financial burden on the remaining entities in New York will increase,” the complaint said.
They also are challenging a part of the law that allows the state Commissioner of Health Howard Zucker, who is named as a defendant in the lawsuit, to adjust a company’s reported share of the market without explaining that change. Any change in their share would affect the amount they pay.
The state law also barred companies from passing down the cost of the surcharge to consumers. The distributors said in the complaint that amounts to an unconstitutional taking under the Fifth Amendment.
The state Department of Health declined to comment on the lawsuit when reached Thursday. Cuomo spokesman Richard Azzopardi said the administration has not yet been served “but it’s no surprise that Big Pharma will fight tooth and nail to avoid responsibility for the opioid epidemic they helped fuel.”
John Calandra of McDermott Will & Emery in Manhattan is representing the Healthcare Distribution Alliance in the matter. He could not immediately be reached for comment Thursday.