OLYMPIA — Companies that warehouse and resell prescription drugs in Washington state have for two decades gotten a preference that lowers their business-and-occupation tax rates.
But with the ongoing overdose crisis and lawsuits against drug-industry companies, Washington lawmakers are proposing bills to hike taxes on companies that distribute opioids.
Senate Bill 5940 has already drawn swift opposition from the business and health-care industries who say it would, among other things, raise drug prices for cancer patients.
Sen. Karen Keiser, D-Des Moines and the bill’s sponsor, said she wanted to prompt a discussion about the health-care industry’s role in the opioid crisis.
“We need to have every level take responsibility for what they have done,” said Keiser. “And every level is resisting that so far.”
Opioid overdoses killed more than 8,000 Washington residents between 2006 and 2017, according to a lawsuit filed last week by state Attorney General Bob Ferguson against the three largest opioid-distribution companies in Washington — AmerisourceBergen Drug Corp., Cardinal Health Inc., and McKesson Corp.
Ferguson’s lawsuit alleges that between 2006 and 2014, those companies shipped a combined amount of at least 269,000 suspicious orders. Orders are considered suspicious when they break standard patterns, like when a pharmacy begins ordering them far more frequently, or several times the amount it used to.
Distributors are legally obligated to halt suspicious shipments and report such orders to the Drug Enforcement Administration. Ferguson’s lawsuit alleges that by not doing that, the three companies violated the state’s Consumer Protection Act. Ferguson in 2017 also sued Purdue Pharma, an opioid manufacturer; the case is scheduled for trial later this year.
The tax proposals in Olympia would among others affect those three companies, which receive the preferential tax rate. The state’s standard business-and-occupation tax rate for manufacturers and wholesalers is 0.484 percent, according to a legislative analysis of SB 5940. But companies that warehouse and resell prescription drugs for human use pay a lower tax rate of 0.138 percent.
The preferential rate includes companies with warehouses in Washington, as well as some out-of-state resellers.
That tax preference was estimated to save companies nearly $30 million in the 2015-17 budget cycle, according to a 2013 analysis. That analysis recommended keeping the tax preference to help businesses stay on equal footing against the out-of-state competitors that didn’t pay any business-and-occupation taxes.
Keiser’s bill follows that advice and keeps the preference, but it would impose an additional tax of 37 percent of gross sales income derived from the business of reselling and warehousing prescription opioids. Keiser said she chose that percentage because that is Washington’s excise tax rate for marijuana, which in some cases is used medically.
Cardinal Health and AmerisourceBergen Drug did not respond to a request for comment. McKesson referred questions to the Healthcare Distribution Alliance, an industry association that counts all three companies named in Ferguson’s lawsuit as members.
A spokesman for the Alliance pointed to public testimony submitted last week in opposition to SB 5940, which called Keiser’s proposal “an arbitrary and excessive tax …”
“Applying such a tax on medically necessary medicines will compound costs throughout the entire healthcare supply chain, likely increasing the costs of opioid medicines for Washington patients who are seeking cancer treatment, hospice care, surgical procedures, and more,” according to the testimony.
Among others, the Association for Washington Business and the state Pharmacy Association also testified against the bill in the hearing.
Keiser acknowledged that her bill is already likely dead for the year in the face of such opposition. But the debate isn’t over.
This week, Sen. Reuven Carlyle, D-Seattle is introducing SB 5988, which would eliminate the preferential tax rate that benefits drug distributors. The bill would take revenue gained from rolling back the tax preference and redirect it to be used for opioid abuse treatment in high-need and rural areas.
“It is simply time to have the public acknowledgment that our policies matter in this area, top to bottom, not just in Washington, D.C.,” said Carlyle.
The Alliance in its testimony defended that tax preference as “proven to be an effective incentive to ensure pharmaceutical wholesalers maintain and expand operations in Washington …”
In an email, Matthew DiLoreto of the Healthcare Distribution Alliance defended the current tax preference as necessary because the reselling of prescription drugs is “a high-volume, high-value, yet very low profit-margin industry.”
The preferential rate, DiLoreto said, has allowed drug wholesalers to expand operations in the state and increase employment by nearly 200 percent in the past two decades.