U.S. appeals court revives New York tax on opioid companies

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(Reuters) – A federal appeals court on Monday cleared the way for New York state to collect about $200 million from drug manufacturers and distributors by imposing a surcharge on them to defray the costs of combating the opioid addiction epidemic.

The 2nd U.S. Circuit Court of Appeals ruled a lower-court judge lacked authority to strike down the requirement that the companies collectively pay $100 million annually because it was tax rather than a regulatory fee or a punitive fine.

Industry trade group Healthcare Distribution Alliance, which along with the Association for Accessible Medicines and drugmaker Mallinckrodt (NYSE:MNK) Plc challenged the law in court, called the ruling disappointing. AAM said it was reviewing it.

The payments were owed under the Opioid Stewardship Act, which Democratic Governor Andrew Cuomo signed into law in 2018 to address the costs the U.S. opioid addiction epidemic imposed on the state.

The law marked the first time a state had sought to impose a tax or fee related to the epidemic on opioid manufacturers and distributors. Delaware and Minnesota have since adopted their own taxes and other states have considered similar legislation.

The New York law envisioned collecting $100 million annually from manufacturers and distributors of prescription painkillers based on their market share. Distributor AmerisourceBergen (NYSE:ABC) Corp, for example, has set aside $22 million to cover potential payments.

A federal judge in 2018 ruled that a provision barring the companies from passing on the costs of making the payments to consumers was unconstitutional and could not be severed from the rest of the law.

Following that ruling, New York enacted a new tax law that did not include the pass-through prohibition. The state consequently only revived the rest of the law, allowing it to collect $200 million based on 2017 and 2018 market shares.