AB 1512 (McCarty) as amended May 9, 2017, if passed, establishes the Opioid Addiction Prevention and Rehabilitation Act in California, and would impose a tax upon the distribution of opioids at the rate of $0.01 per milligram of active opioid ingredient. According to the Board Of Equalization “an estimated $88.1 million in fee revenues could be generated.”
The proposed California law requires the wholesaler to collect the tax from the manufacturer and requires the wholesaler to separately state the amount of the tax imposed by the provisions of this bill on the purchase order. The purchase order shall be given by the wholesaler to the manufacturer at the time of sale. The wholesaler will be required to remit the tax to the California State Board of Equalization (BOE).
The Assembly Committee Staff speculates that “If this tax were to work as envisioned, funding for local addiction prevention and rehabilitation programs would reduce future opioid addiction and use, which, in turn, would reduce opioid sales and funding for these programs. In a way, this tax functions almost as a Pigouvian tax (similar to the tax on tobacco products) although it is unclear if the purpose of the tax is meant simply to fund prevention and rehabilitation programs or if it is meant to decrease the use of opioids as a prescription drug. As currently drafted, this bill would accomplish both because a tax placed on the supplier will inevitably reduce opioid production and consumption.”
A Pigouvian tax is a tax levied on any market activity that generates negative externalities (costs not internalized in the market price). The tax is intended to correct an inefficient market outcome, and does so by being set equal to the social cost of the negative externalities.
However, unlike tobacco, opioids are predominantly paid by third parties other than the consumer of the opioid. In essence the tax will be paid by insurance carriers, self insured employers, and government subsidized health care plans. For the most part, consumers of opioid medications will not notice any adverse financial effect should this bill become law.
The California Council of Community Behavioral Health Agencies (CCCBHA) in support of the bill argues that this bill would provide critical resources needed to help end California’s opioid addiction epidemic. CCCBHA cites reports that show that three out of four heroin users began their addiction by abusing prescription drugs, that up to 25% of people who use prescription pain pills over the long term become addicted to these medications, and that ERs across the state are flooded with opioid-related patient emergencies. According to CCCBHA, this bill will provide counties with critical resources needed to interrupt the cycle of opioid and heroin addiction in California.
The Healthcare Distribution Alliance (HDA) in opposition, argues that this bill creates a new and onerous tax that will have a burdensome impact on the healthcare industry and ultimately the patient. HDA further argues that drug distributors and wholesalers do their part in the fight against drug abuse by maintaining highly secure facilities that are both state and federally inspected. Finally, HDA states that other states have considered implementing a similar tax, however after fully understanding the impact and unintended consequences these efforts have been abandoned. TEVA Pharmaceuticals argues that an additional tax will directly affect the health plans and ultimately the patients who require opioid medicines. The Pharmaceutical Research and Manufacturers of America (PhRMA) argues that this bill establishes a complicated, arbitrary regulation and tax on an already overtaxed sector.
The California Chamber of Commerce has listed this proposed law as one of its 2017 “Job Killer” bills. It claims the proposed law “unfairly imposes an excise tax on opioid distributors in California, which will increase their costs and force them to adopt measures that include reducing workforce and increasing drug prices for ill patients who need these medications the most, in order to fund drug prevention and rehabilitation programs that will benefit all of California.”
The Trump Administration has recently awarded grants for states to combat the opioid crisis. The funding, which is the first of two rounds, will be provided through the State Targeted Response to the Opioid Crisis Grants administered by the Substance Abuse and Mental Health Services Administration.