All Dollars, No Sense: The Opioid Crisis and the Bottom Line in America

Keith R. Higgons

Drug overdose is the leading cause of death for Americans under the age of 50, and sixty percent of those deaths are attributable to opioids. In America, the abuse of opioids has reached epidemic proportions.

Independent of the emotional toll addiction takes on family, friends and colleagues, it’s costly to the federal and state governments that have to deal with it. According to the United States Center for Disease Control (CDC) when you consider public healthcare, treatment facilities, law enforcement, criminal justice and jail expenses, drug abuse costs approximately $75 billion per year.

In the past twelve years, both the state and federal government have decided to hold drug companies and distributors accountable. Companies such as Cardinal Health, McKesson Corporation, Purdue Pharma and Janssen Pharmaceuticals (a subsidiary of Johnson & Johnson) are among this, but there are many more.

In some cases, these companies have been sued and reached sizable settlements with either the state or federal government, and sometimes both. But what is the settlement’s dollar impact to their bottom line? Did the $11.75 million dollar settlement from Costco Health in 2017 impact them significantly that year? In short, no. It was 0.59% of their $2 billion dollar net revenue.

Cardinal Health is an American multinational health care services company headquartered in the heart of America – Dublin, Ohio. It also happens to be the 14th highest revenue-generating company in the US. In 2017, Cardinal Health reached a settlement of $20 million dollars with the state of West Virginia for “not controlling the supply of opiates to the state.”

Between 2007 and 2012, in conjunction with other companies, Cardinal Health distributed an estimated 780 million hydrocodone and oxycodone pills to pharmacies in West Virginia. The West Virginia Charleston Gazette-Mail reported that this amounted to 433 pills per state resident.

Also in 2017, Cardinal Health reached a settlement with the U.S. Department of Justice that includes two separate fines: $34 million related to suspicious orders of controlled substances from its warehouse in Lakeland, Florida, and $10 million to resolve allegations from the US Attorney for the Southern District of New York that a company it acquired, Kinray Inc., didn’t report suspicious orders from pharmacies.

For the year 2017, Cardinal was hit with two settlements totalling around $64 million dollars. For that same year, they had earnings of $309 million on $32 billion in sales in the first quarter that ended Sept. 30, 2017. That accounts for about 21% of their earnings… for one quarter. Cardinal Health ended 2017 with $2 billion in cash.

After the settlements, Cardinal Health issued a statement denying the allegations. According to Columbus Business First, the company had settled because they wanted to help curb “the epidemic of prescription drug abuse.”

In 2017, deaths involving opioids in West Virginia were 49.6 deaths per 100,000 persons – three times the national rate of 14.6 deaths per 100,000 persons.

Headquartered in San Francisco, California, McKeeson Corporation distributes pharmaceuticals and provides health information technology, medical supplies, and care management tools. It’s one of the nation’s largest distributors of pharmaceuticals.

Like Cardinal Health in 2017, McKesson Corporation settled a lawsuit with the US government for violations of the Controlled Substances Act. The government claimed that they had failed to detect and report “suspicious orders” for controlled substances distributed to its independent and small chain pharmacy customers. Notably, these orders were unusual “in their frequency, size, or other patterns.”

The lawsuit covered the period from 2008 until 2013 – for its malfeasance, McKesson paid a $150 million dollar civil penalty. According to their annual report for 2017, McKesson Corporation had $49 billion dollars in revenue and $3.6 billion in net income. That $150 million dollar settlement represents 3.6% of their net income.

California has one of the lower death rates per 100,000. In 2017 it had dropped to 5.3, again versus the national average of 14.6 deaths per 100,000 attributed to opioids.

Perhaps the company most identified, and vilified, with this crisis is Purdue Pharma, the maker of OxyContin. Headquartered in Stamford, Connecticut, Purdue Pharma is a privately held company owned entirely by members of the Sackler family. As the company is not publicly traded, earnings for Purdue are speculative, but it’s reported that the companies earnings went from a few billion dollars in 2006 to about $37 billion in 2017.

The company is no stranger to setting large lawsuits for its product.

In 2007, Purdue settled a federal case for $600 million dollars, which remains one of the largest pharmaceutical settlements in U.S. history. The settlement included a $34 million dollar fine shared among the company’s president, top lawyer and chief medical officer for misbranding the potency and addictive nature of OxyContin. In addition to the $34 million dollar fine, the three heads were charged with a felony and given 400 hours of community service in drug treatment programs.

In March of 2019, Purdue Pharma settled a lawsuit with the state of Oklahoma for $270 Million dollars. The state claimed Purdue’s opioids contributed to the death of thousands of people. Since the company is private, there is no way to know what the gross or net revenue is for Purdue Pharma. However, using the estimated $37 billion dollars the company earned in 2017, the $270 million would represent 73% of that.

For years the Sackler family themselves lived a rather quiet life as they accumulated their wealth. Neither the family nor any individuals of the family had been personally involved in any lawsuits stemming from the opioid crisis. They only had public relation issues to deal with. Like in March of 2019, when the National Portrait Gallery and the Tate galleries in the UK announced they would no longer accept donations from the Sackler family. And then in the US, the American Museum of Natural History, the Guggenheim Museum and the Metropolitan Museum of Art all quickly followed by announcing they would no longer accept donations from the Sacklers.

At the same time that was happening, the Southern District of New York shattered the Sackler families personal immunity by filing suit against eight Sackler family members. Additionally, 36 states were in the process of suing Purdue Pharma with more than 1,600 lawsuits outstanding.

While the lawsuits work their way through the labyrinth that is the US justice system, the company has turned its attention to the global market. Their sister companies, Napp Pharmaceuticals and Mundipharma, sell their signature opioid products globally. Since Purdue Pharma consider themselves to be a “pioneer in developing medications for reducing pain” they’re also creating new drugs under different company names like Adlon Therapeutics and Imbrium that focus on pain management.

For the Sackler family and Purdue Pharma, the potential cost of settling these lawsuits is likely to be hundreds of millions, if not billions, of dollars, potentially involving settlements that are more than financially punitive. In the meantime, it’s business as usual.

Now these are just three companies – they’re hardly the only manufacturers and distributors of opioids.

To date, these lawsuits have settled with the companies “not accepting any responsibility.” That remains unlikely to change. Also unlikely to change is the lack of financial impact to these companies. In each of these cases, the dollar amounts settled impacted one year, while the companies had profited off the drugs for many years.

If you were to factor in all of the years for which they were settling the lawsuits, that number would be even smaller. For example, the $150 million dollar settlement McKesson Corporation paid represents 3.6% of their net income, for one year, yet the lawsuit covers six years. A closer look at their annual report includes their 2016 net income, which was $4.4 billion dollars. Combining their net revenue for those two years, then that $150 million settlement is cut in half and becomes 1.8% of their net income.

It’s a layered and complex issue that involves many hot button topics like healthcare, the pharmaceutical industry, addiction and, perhaps most of all, the marketing of these drugs.

Perhaps for the companies, the 130 people that die each day in America as a result of opioid related overdoses is just the cost of doing business. And the business is great.

What isn’t layered and complex about this is the fact that this crisis is impacting someone’s brother or sister or father or mother or son or daughter; and that’s not something that can be put on a balance sheet and calculated.

The opioid crisis in America shouldn’t be a zero sum game and it can’t just be about dollars and cents. It’s capitalism, so money matters, but it should be about dollars and sense.