State Legislatures Explore Taxing Prescription Opioids to Raise Revenue for Prevention and Treatment

March 23, 2017|3:26 p.m.| KT Kramer

Since 2015, legislators in at least seven states, as well as Congress, have introduced 15 bills to finance substance use disorder prevention and treatment activities by imposing a surcharge, tax, or fee on prescription opioids. Although none of these bills have been enacted, it is a new approach that states are exploring to combat the opioid epidemic. Proponents of the measures claim that as the opioid epidemic is driven, in part, by the over-marketing and over-prescribing of opioid painkillers, raising dedicated revenue from those drugs to address substance abuse prevention and treatment is necessary. There are a variety of opponents to these bills as well. For example, patient advocates argue that price increases will be passed onto patients who need the medications to treat their pain, and it is unfair to make them subsidize the cost of treatment and prevention. Other groups have raised issues with the implementation of these bills since they would conflict with federal laws prohibiting taxes on Medicare Part D drugs.

Imposing Taxes, Surcharges, or Fees on Prescription Opioids

The states’ bills vary in their structure and approaches. The first difference is in the way the bills define the financing mechanism, either as a tax (KY HB 467 and MA HB 2633), a fee (MN SF 730, MN HF 1440, and WA HB 1505), a surcharge (CT SB 1130, CT SB 5 and CA AB 1512*), or an assessment (PA HB 1511 and PA SB 1213). In addition, the bills would adopt different fiscal approaches. The earliest bills, introduced in Connecticut and Pennsylvania, used an ad valorem approach. Connecticut’s bills would have assessed a 6.35 percent surcharge on a drug manufacturer or wholesaler’s gross receipts for any sales to an enumerated list of buyers including physicians, pharmacists, and hospitals. Pennsylvania’s bills would have imposed a 10 percent assessment on the purchase price charge to the initial buyer.

The bills introduced in 2017 would impose a unit tax or fee on prescription opioids. In Washington state the fee would be .05 cents, while in California, Kentucky, Massachusetts, and Minnesota, the tax or fee would be one cent.  States have also taken different approaches in defining the assessed unit. Kentucky’s bill would assess the tax based on an “opioid dose”, which is defined as “a single pill, capsule, ampule, liquid, or other form of administration available as a single unit.” Massachusetts’ bill would base the tax on milligrams of “active taxable opioid,” which is defined in terms of the state’s controlled substance act. The bills in Minnesota and Washington would use morphine equivalency as the basis for the unit.   

Several of the states’ bills would exempt or exclude certain opioids or patients from the added amount. Connecticut’s bills would have allowed a buyer from the enumerated list in the bill who has paid a surcharge to claim a rebate for opioids dispensed to certain patients or entities, including Medicare Part D beneficiaries, state-administered human services programs, or municipal health and worker’s compensation plans. Massachusetts’s bill would exempt medication-assisted treatment drugs from the tax, and sets up a process for patients who use opioids for cancer pain or hospice care to have the price discounted or the tax rebated. Pennsylvania’s bills would have excluded opioid products that are exported out of the state and products that are not subject to state tax under federal law.

All of the bills would direct revenues to substance abuse prevention and treatment activities and vary in the scope and specificity of the programs. The most common directives include grants to local government agencies or non-profits to expand access to treatment services (CT, KY, MA, MN, and PA) and education and outreach campaigns (KY, MN, PA, and WA). Other activities include financing naloxone purchases (PA and WA), expanding programs with criminal justice and law enforcement (KY and PA), and providing service to children whose parents have substance use disorders (MA and MN).

Although this novel approach has not been enacted, the bills illustrate the need for and challenge of finding sustainable and dedicated funding sources to implement a cohesive, comprehensive, and integrated response to the opioid epidemic. 

* The text of the California bill is currently unavailable, however, in a press release, Assembly member Kevin McCarty revealed that AB 1512 would impose a surcharge on wholesalers for drug addiction prevention, treatment and rehabilitation programs.

KT Kramer

KT Kramer, JD, MHA is ASTHO’s director of state health policy. She supports state and territorial health agencies to advance and strengthen public health through laws and policies.