In the fall of 2020, The Center for Community Solutions, with support from the Mt. Sinai Health Care Foundation, released this report highlighting the history of the tobacco master settlement agreement and lessons learned from that experience. Last week it was announced that a settlement has been reached with four companies responsible in the supply chain of prescription opioids that lead to an opioid crisis in America. The settlement, in the amount of $26 billion, will be distributed across states and localities (that opt in, which Ohio has) to address the human, health and economic devastation of the opioid epidemic. This report outlines important lessons learned and recommendations for the state of Ohio as it develops a plan for allocating the settlement funds.
By: Ken Slenkovich
Prepared for The Center for Community Solutions
Executive summary
In 1998, Ohio and 46 other states settled lawsuits against the tobacco industry with what is known as the Master Settlement Agreement (MSA). The settlement’s primary goal was for states to recover Medicaid health care costs due to tobacco use. The language of the MSA allowed states to determine how they would use the funds. Right now, the State of Ohio and other local governments are pursuing settlements with several companies that manufacture or distribute opioid prescription medications. An examination of the terms of the MSA and looking at how Ohio utilized MSA money can provide guidance to ensure opioid settlement money is spent effectively to mitigate the ongoing opioid epidemic.
Recommendations and lessons learned
- The specific language of a settlement agreement is critically important.
- The redirection of settlement funds away from efforts to reduce tobacco use created long-term challenges for public health.
- The nation’s effort to reduce tobacco use was successful because it involved effective programming at the national, state and local levels.
- Settlement funds awarded to Ohio can be used to address the health and social costs related to addictive substances.
- Both primary prevention and addiction treatment programs must be supported by settlement funds in order to effectively reduce opioid abuse in the state.
- Counter-marketing campaigns and other educational efforts are effective strategies to reduce the use of addictive substances.
- Consumers and citizens who have been negatively affected by opioid misuse should be included in the planning and program development process to make sure funds are used effectively.On the one hand, the history of the Tobacco MSA documents the potential success of thoughtful, evidence-based approaches to public health. On the other hand, it shows how that success can be forever displaced by budget politics. The following report not only documents the history of the Tobacco MSA but also offers key insights into what policymakers, at both the local and state levels, should contemplate regarding a potential opioid settlement.
Ohio's response to the tobacco master settlement agreement
While pursuing a financial settlement of lawsuits brought against several opioid prescription drug manufacturers and distributors, the State of Ohio and local governments should consider lessons learned from Ohio’s previous settlement with the tobacco industry, the MSA. The terms of the MSA and the way Ohio utilized settlement money provides a unique opportunity to inform those involved in the current opioid settlement process. This analysis assumes that a primary goal of the opioid settlement effort is to provide a substantial financial resource to reduce opioid addiction in Ohio and diminish the harmful consequences this public health epidemic creates for individuals, families and local and state, public and private organizations. The historical overview, lessons learned, and recommendations contained herein are intended to provide guidance to achieve that goal.
In 1998, 46 states (including Ohio) entered into the MSA with the major tobacco product manufacturers. The primary basis of the settlement was for states to recover Medicaid health care costs incurred from tobacco use. Since individual states faced differing priorities surrounding tobacco’s harm, a singular national settlement left vague how settlement funds would be used. The MSA gave a broad range of discretion to the separate legislatures. As a result, states used the funds in a variety of ways, often with no relation to tobacco harm or tobacco use reduction.
In addition to the recovery provision for states, the MSA also provided funds to establish the American Legacy Foundation (now called the Truth Initiative) to support national tobacco use reduction initiatives, such as counter-marketing campaigns. The MSA also placed restrictions on the tobacco industry regarding certain marketing practices, including a prohibition on marketing products to youth. These national initiatives, together with tobacco use reduction efforts carried out by states and local organizations, have resulted in a steady decline in the rate of tobacco use nationwide.
In 1999, Governor Bob Taft and the General Assembly created the Tobacco Settlement Task Force in Ohio to develop recommendations for how the state should spend its MSA funds. The task force conducted a series of public meetings and deliberations and reviewed research and analysis before presenting its recommendations. The recommendations were based, in large part, on the U.S. Centers for Disease Control and Prevention’s Best Practices for Comprehensive Tobacco Control Programs, a guide for states that summarized the best available information at the time regarding programs shown to be effective in reducing tobacco use.
In 2000, Ohio adopted S.B. 192, which stipulated how funds from the MSA would be distributed and used in the state. The legislation, largely based on the task force’s recommendations, specified that all MSA funds would be deposited into the state treasury to the Master Settlement Agreement Fund (MSA Fund). It also created eight funds[1] in the treasury into which money would be transferred from the MSA Fund. The bill included language requiring at least some of the money from three of the funds to be used for activities tied to tobacco-related concerns.
The Tobacco Use Prevention and Cessation Trust Fund received approximately $330 million to be used by a newly created state agency, the Tobacco Use Prevention and Control Foundation (TUPCF). The TUPCF funds were deposited into an endowment that S.B. 192 stipulated must be used to reduce the tobacco use of Ohioans, focusing on residents in the following categories:
- Youth
- Minority and regional populations
- Pregnant women
- Others disproportionately affected by tobacco useThe Southern Ohio Agricultural and Community Development Trust Fund was to be deposited into an endowment fund to be used to assist Ohio’s tobacco farmers while they transitioned from growing tobacco to producing other agricultural products, and to mitigate any adverse economic effects that would result.
The Ohio’s Public Health Priorities Trust Fund was earmarked to support, among other things, the enforcement of state laws related to the sale of tobacco products to minors and the sale of tobacco products in vending machines.
From 2002 to 2008, the TUPCF was the principal organization by which Ohio utilized its MSA funds to support initiatives and programs intended to reduce tobacco use among Ohioans. The TUPCF was governed by a 20-member Board of Trustees. The board included Ohio’s Director of Health, Executive Director of the Commission on Minority Health, and Attorney General as ex officio members. Also on the board were eight health professionals, researchers, or representatives from health organizations (two appointed by the governor, two by the House Speaker, one by the House Minority Leader, two by the Senate President, and one by the Senate Minority Leader). The governor also appointed to the board one experienced financial planning and accounting expert, one experienced media and mass marketing individual, and one person from each of the following organizations: American Cancer Society, American Heart Association, American Lung Association, Association of Hospitals and Health Systems, Ohio State Medical Association, Association of Ohio Health Commissioners, and Ohio Dental Association. The board appointed an Executive Director who subsequently hired additional staff as necessary to carry out the mission of the TUPCF.
The TUPCF was registered with the State of Ohio and adopted the principles in Appendix A to guide its actions. The TUPCF funded the following primary activities: grants to local private and public organizations to implement community-based programs aimed at reducing tobacco use, support for local tobacco use reduction coalitions, a statewide counter-marketing campaign, a statewide youth-mobilization and educational program, and a statewide Tobacco Quit Line.
Private sector, third-party research organizations evaluated each initiative to determine its effectiveness. Results were regularly reported to the governor’s office and the General Assembly. The independent evaluations demonstrated that, overall, the funded activities of the TUPCF were effective in reducing tobacco use in Ohio. Between 2002 and 2009, the rate of smoking among adults in the state dropped from 27.6 percent to 20.1 percent—a 27 percent reduction.
How Ohio's MSA funds were diverted
By 2008, the economic effects of the Great Recession had significantly impacted Ohio. The unemployment rate spiked to 10.3 percent in 2009. The Governor of Ohio and state lawmakers addressed the situation by directing resources to stimulate the economy and save jobs. They tapped MSA funds that had been designated for tobacco prevention and control.
First, existing TUPCF funds were diverted to a job-creation fund. Then, when the TUPCF board took action to prevent the diversion, the state abolished the foundation. The TUPCF’s remaining funds were moved into the state’s general revenue fund. Next, the state treasurer’s office gained support from the governor and General Assembly to securitize future MSA payments. Securitization involved selling to investors capital appreciation bonds (CABS), backed by future MSA payments. The future payments would be used to pay back bondholders. In effect, the state sold its rights to future MSA payments in exchange for a lump sum. This action ensured that no future MSA payments would be available for tobacco prevention and control activities.
Note: See “Appendix 1” for a historical timeline of events.
Current opioid litigation in Ohio
Currently in Ohio, the state, cities and counties have all filed separate lawsuits against various entities in the pharmaceutical industry. The lawsuits claim opioid manufacturers and distributors used misleading marketing tactics that did not disclose the extent of the risk of addiction to their products. The local governments have filed in federal court, and their cases have been consolidated with lawsuits from more than 2,000 other entities from other states into the National Prescription Opiate Multidistrict Litigation (MDL). The MDL is being litigated in federal court in the Northern District of Ohio with Judge Dan Polster presiding. The State of Ohio filed lawsuits in the state court system with the Ross and Madison county trial courts. Ohio has not joined a multistate opioid lawsuit that some other states have formed.
The state and local governmental parties to the litigation have discussed what’s called the One Ohio Plan, a strategy to distribute the funds they expect to receive from a settlement with the pharmaceutical industry. The proposed plan calls for 15 percent of the funds to go to the state, 30 percent to go to local governments, and 55 percent to be deposited into a foundation to support ongoing opioid-use reduction initiatives. Recent reports suggest nearly all parties have agreed to the plan. The plan would presumably result in the state dropping its lawsuits and requesting that Judge Polster approve the One Ohio plan. If the judge agrees, it is not clear how that will impact the MDL. For example, it is not known if the plan will serve as a template for the MDL or if it will only be applied to Ohio’s cases.
Recommendations and lessons learned
A number of important lessons can be learned from Ohio’s experience with the MSA that are relevant to the current efforts of both the state and local governments to execute a settlement agreement with the pharmaceutical industry. To ensure that funds resulting from an opioid settlement will be effectively and permanently used to reduce opioid abuse, several factors must be thoughtfully addressed.
1. The specific language of a settlement agreement is critically important.
The language of the MSA made it possible, and in fact likely, that Ohio’s tobacco settlement funds could be diverted from their stated purpose of reducing tobacco use. The MSA left a broad range of discretion in the hands of state legislatures. As a result, states such as Ohio, used the funds in a variety of ways, often with no relation to tobacco harm or use reduction. By not including restrictive language, the court order allowed Ohio and other states to determine via the legislative process how the funds would be spent. That omission left the appropriation of settlement funds subject to political influences. As a result, when political priorities were redirected to address the economic crisis the state faced in the late 2000s, so were the MSA funds that had been designated for tobacco-use reduction. The architects of an opioid settlement agreement should include carefully worded language restricting how the funds can be used.
2. The redirection of settlement funds away from the goal of reducing current and future tobacco use created long term challenges in promoting public health.
The theory held that the tobacco industry should reimburse states for the massive costs they incurred through their Medicaid programs to treat individuals who were harmed by tobacco products. The states sought to reclaim financial damages done to them by the tobacco industry. A focus solely on reimbursement for past harm was not sufficient to establish a philosophical basis to use settlement funds to reduce and prevent future harm. The argument for an opioid settlement should include a clear statement that Ohio is seeking funds to mitigate future harm and not simply to get reimbursed for past damages. A settlement agreement can be structured to apportion funds between reimbursement for past expenditures as well as the need for present and future resources to reduce the impact of the opioid crisis. Such apportionment could be made a part of the final court order.
3. The effectiveness of the nation’s effort to reduce tobacco use was accomplished because it involved effective programming at the national, state and local levels.
Settlement of the opioid litigation should have at least two components: a) A national component that would consist of industry requirements and expectations (e.g., transparent marketing), together with settlement dollar amounts and the payout process to support national initiatives; and b) A state-specific component stipulating how the state would use the settlement proceeds. The courts in each state would then make orders incorporating both components. Use of settlement money would thereby be determined by the court and less subject to changes in political priorities in the future.
4. The establishment of the TUPCF was done in such a way that the organization was deemed by the Ohio Supreme Court to be a state agency, and thus, under the control of the state.
The designation of the TUPCF as a state agency enabled the governor and the legislature to dissolve it and utilize its remaining funds for different purposes than originally intended. An organization created by legislation, rather than by an entirely private incorporation process, can be eliminated by subsequent legislation. As the Ohio Supreme Court reinforced, a current legislature cannot encumber a future legislature. Therefore, rather than a state agency, any foundation created or contracted with to administer opioid settlement funds should be a private charitable foundation set up according to IRS guidelines. Further, all opioid settlement funds given to the foundation should be held solely by that foundation, thereby, preventing the state from redirecting those funds at a future time.
5. Settlement funds awarded to Ohio can be used to effectively address the health and social costs related to addictive substances.
Independent evaluation of TUPCF’s programming demonstrated that it did reduce tobacco use overall and prevent young people from starting up. This was due to at least three important factors: 1) significant funds were available to support the foundation’s mission; 2) legislation required the foundation to fund evidence-based programs; and 3) a multi-pronged approach was implemented. The following recommendations are intended to ensure that programs funded by opioid settlement monies would be effective in reducing opioid addiction:
a. Opioid settlement funds should be used to provide long-term support of addiction prevention and treatment initiatives. Like tobacco use issues, opioid abuse cannot be solved in the short term; a sustained, ongoing effort is required. A sufficient amount of opioid settlement funds should be legally protected in an endowment in perpetuity, regardless of whether the state receives a one-time payment or annual payments from the opioid industry.
b. Opioid settlement funds should be required to be used to support evidence-based prevention and treatment initiatives. The Substance Abuse and Mental Health Services Administration’s Evidence-Based Practices Resource Center and other recognized sources should be consulted to identify such programs. At the same time, the experience of the TUPCF also shows that innovative programs can produce positive results. Some settlement funds should be used to support innovative approaches to reducing opioid use.
c. The effectiveness of the TUPCF was due to its comprehensive, multi-pronged approach that included both community-based and statewide prevention and treatment initiatives. Opioid settlement funds should be similarly used to fund local community programs that are best implemented by local organizations, as well as statewide efforts, including counter-marketing and educational campaigns and treatment services.
6. Both primary prevention and addiction treatment programs must be supported by settlement funds in order to effectively reduce opioid abuse in the state.
Opioid medications will continue to be prescribed to patients for pain management for the foreseeable future, just as tobacco products have continued to be sold. Therefore, settlement funds should be used to provide treatment to current opioid users, as well as to support preventive measures aimed at reducing the number of future users.
7. Counter-marketing campaigns and other educational efforts are effective strategies to reduce the use of addictive substances.
Settlement funds should be permitted to be used for such efforts to inform and educate the general public, school-age youth, young adults, prescribers, pharmacists and others regarding the risks associated with opioid use.
8. To adequately inform how settlement funds will be used, consumers and citizens who have been negatively affected by opioid misuse should be included in the planning and program development process.
The opioid epidemic has placed an enormous financial burden on families, kinship care providers and the child welfare system. For example, Ohio has seen children who have lost one or both parents to an overdose or to incarceration and who have then had to be placed in the care of grandparents, other relatives, or the foster care system. A portion of the settlement funds should be allocated to support services that aid those who must care for individuals with opioid-use disorders, those in recovery, and those caring for child victims.
Appendix 1
Timeline of events
BIBLIOGRAPHY
America’s Health Rankings. Annual Report. Accessed March 24, 2020. https://www.americashealthrankings.org/explore/annual/measure/Smoking/state/OH
Health Policy Institute of Ohio. The State of Tobacco Use Prevention and Cessation in Ohio. June 2015. Accessed March 24, 2020. https://www.healthpolicyohio.org/wp-content/uploads/2016/03/PolicyBrief%5FTobacco.pdf
Legislative Service Commission. Tobacco Securitization. Accessed March 24, 2020. https://www.lsc.ohio.gov/documents/budget/127/mainoperating/greenbook/TOBACCO.PDF
Micah L. Berman 2019. Using Opioid Settlement Proceeds for Public Health: Lessons from the Tobacco Experience. Access March 24, 2020. https://kuscholarworks.ku.edu/bitstream/handle/1808/29336/Berman%5F2019%5FUsingOpioid.pdf?sequence=1&isAllowed=y
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Supreme Court of Ohio. Board of Trustees of Tobacco Use Prevention and Control Foundation v. Boyce. Accessed March 24, 2020. https://caselaw.findlaw.com/oh-supreme-court/1549779.html.
Supreme Court of Ohio. Board of Trustees of the Tobacco Use Prevention and Control Foundation, et al., v. Kevin L. Boyce, Treasurer of State, et al. Accessed March 24, 2020. http://supremecourt.ohio.gov/pdf_viewer/pdf_viewer.aspx?pdf=665090.pdf
Supreme Court of Ohio. Board of Trustees of the Tobacco Use Prevention and Control Foundation; American Legacy Foundation, et al., v. Kevin Boyce, Treasurer, et al. Accessed March 24, 2020. https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2010/2010-Ohio-6207.pdf.
[1] Tobacco Use Prevention and Cessation Trust Fund; Southern Ohio Agricultural and Community Development Trust Fund; Law Enforcement Improvements Fund; Ohio’s Public Health Priorities Trust Fund; Biomedical Research and Technology Transfer Trust Fund; Education Facilities Trust Fund; Education Facilities Endowment Fund; Education Technology Trust Fund.
