Amid opioid crisis, Texas subsidized drug distributor it's now investigating

In the early months of 2016, as U.S. overdose deaths were on track to break records and the number of Texas infants born addicted to opioid painkillers climbed steadily higher, Gov. Greg Abbott was courting a massive pharmaceutical company, McKesson, with a multimillion-dollar offer.

At the time, the two stories — Texas public health officials grappling with an overdose epidemic while the governor’s office worked on economic development — seemed unrelated. When Abbott announced he would give McKesson a $9.75 million grant from the state’s Enterprise Fund to woo the pharmaceutical distributor into expanding its operations in North Texas, he mostly received favorable news coverage for promising nearly 1,000 jobs to the local Irving economy.

But as the state and nation’s focus on the opioid crisis has sharpened in recent months, McKesson and other drug companies have come under legal scrutiny and the deal has put Abbott in an uncomfortable position.

Texas has since joined a multistate investigation into pharmaceutical companies, including McKesson, over whether they are responsible for feeding the nation's opioid crisis and whether they broke any laws in the process. Several Texas counties have moved to sue McKesson and other companies for economic damages, alleging that manufacturers downplayed addiction risks and their distributors failed to track suspicious orders that flooded communities with pills.

The state grant to McKesson, worth about $10,000 for each job it brought to North Texas, is the largest Abbott has doled out from the Enterprise Fund, the controversial deal-closing incentives program created in 2004 under former Gov. Rick Perry. No U.S. state or local government has publicly given McKesson a more generous grant since 2000, according to data compiled by Good Jobs First, a Washington D.C.-based group that tracks government subsidies and other economic incentives.

In statements at the time, Abbott said the company’s expansion would “serve as an invaluable contribution to the Texas economy.”

But if Texas decides to sue McKesson, as several of its counties have, lawyers for the state will likely argue the opposite has happened — at least in the context of the company’s distribution of opioids. Across the country, local and state governments have begun to argue they are bearing the financial burden associated with opioid addiction.

One state lawmaker suggested Abbott’s office should have more closely scrutinized McKesson’s record before issuing the grant — even though the grant happened more than a year before Attorney General Ken Paxton announced Texas was joining the multistate investigation.

“There needs to be better oversight here,” said state Rep. Joe Moody, an El Paso Democrat and member of the new House panel examining the opioid crisis. “You’re in the middle of the opioid crisis, and we’re issuing an enormous grant that comprises a significant amount of grants this company is getting across the country.” 

Abbott’s office did not respond to repeated requests for comment.

Faced with the lawsuits and investigations, McKesson — headquartered in San Francisco but with a sizable Texas footprint — has denied any wrongdoing and insisted it is trying to work toward halting the opioid crisis, not fuel it.

“Our partnership with the state remains strong,” said Kristin Chasen, a company spokeswoman. “We certainly agree that the opioid epidemic is a national public health crisis, and we’re cooperatively having lots of conversations with AG Paxton and the others involved in the multistate investigation.”

A nationwide emergency

Opioids are a family of drugs that include prescription painkillers like hydrocodone as well as illicit drugs like heroin. Last Thursday, President Donald Trump declared a nationwide emergency to address the surging human and financial toll of opioid addiction.

U.S. drug overdose deaths in 2015 far outnumbered deaths from auto accidents or guns, and opioids account for more than 60 percent of overdose deaths — nearly 100 each day, according to the U.S. Centers for Disease Control. That death toll has quadrupled over the past two decades. 

“Beyond the shocking death toll, the terrible measure of the opioid crisis includes the families ripped apart and, for many communities, a generation of lost potential and opportunity,” Trump said Thursday. 

In Texas, opioids have claimed proportionately fewer lives than in other states, and the growth of opioid-related deaths has been slower, according to U.S. mortality data. Still, the casualties in Texas — 1,107 accidental opioid poisoning deaths in 2016 — have seized the attention of state policymakers.

Last week, Texas House Speaker Joe Straus ordered lawmakers to form a select committee on opioids and substance abuse to examine an issue that he said has had a “devastating impact on many lives.” The announcement came after Paxton joined a 41-state investigation into whether a slew of drug manufacturers and distributors broke any laws in allegedly fueling the crisis.

“This is a public safety and public health issue. Opioid painkiller abuse and related overdoses are devastating families here in Texas and throughout the country,” Paxton said when he announced the probe in June.

Some Texas counties have already taken the drug companies to court.

In late September, Upshur County, population about 40,000, sued a slew of painkiller manufacturers and distributors — including McKesson. Seeking to recoup an unspecified amount in financial damages, the East Texas county argues the drug companies broadly “ignored science and consumer health for profits,” meaning the county “continues to spend large sums combatting the public health crisis created by [a] negligent and fraudulent marketing campaign.”

More specifically, the suit argues McKesson and other distributors “did nothing” to address the “alarming and suspicious” overprescription of drugs.

Bowie County, a rural slice of East Texas nudging Arkansas, has since joined the lawsuit, with other East Texas counties expected to follow. El Paso County is also mulling legal action, and Bexar County, home to San Antonio, has announced plans to sue.

In an interview last week, Bexar County Judge Nelson Wolff said he couldn’t immediately offer a complete list of companies his county would target, but “I’m sure McKesson is one of them.”

Wolff chuckled when asked about the company’s grant from the state. “That’d give us $10 million more that we could get out of their hides in our lawsuit, if you look at it that way."

In teaming up to probe drug companies, some experts suggest governments are following a playbook similar to one used during the 1990s to sue tobacco companies for their role in fueling a costly health crisis — an effort that resulted in a settlement yielding more than $15 billion for Texas alone.

“It’s like a polluter externalizing all his risk,” said Mike Papantonio, a Florida-based lawyer with experience in tobacco litigation. 

“He makes a lot of money because he pours the poison right into the river,” said Papantonio, who now organizes a legal conference for groups interested in suing pharmaceutical companies. “The shareholders love it, but then the taxpayers have to come back and fix it.”

“McKesson is a great company"

At the April grand opening of the new McKesson campus in Las Colinas, near Irving, local leaders gathered alongside Abbott and company executives for a ribbon-cutting at the $157 million, 525,000-square foot campus.

“McKesson is a great company,” Abbott said on the stage of a large meeting room at the newly renovated headquarters. 

“I am proud of the work McKesson is doing,” he went on, “and make a commitment of my own to continue to ensure Texas attracts further business and expanding enterprise.”

Beth Van Duyne, then the mayor of Irving, now a U.S. Housing and Urban Development administrator under Trump, defended the city’s decision to give the pharmaceutical company a more than $2 million incentives package on top of the state’s Enterprise Fund gift.

“Having to offer incentives is always a difficult decision to make, but as long as the return on that investment is strong, we can support it,” Van Duyne said in a video recorded from the grand opening.

Even though the promise of taxpayer funds came before Paxton launched his investigation, Moody, the Democratic lawmaker, said Abbott’s office should more carefully vet companies before granting them taxpayer money, and in McKesson's case, it should have considered the drug company's alleged role in the opioid crisis.

“We know there’s a problem with drug distribution. These drugs being taken out of the regular route, finding their way into other people’s hands — leading to deaths, leading to overdoses," he said, later adding, “I don’t think it’s unrealistic to ask that to be part of the evaluation at all. Part of the conversation of growing the economy is what types of companies, businesses do you want?" 

State Rep. Kevin Roberts, a Houston Republican and fellow member of the House panel studying opioids, said he did not know what went into Abbott’s decision making, so he couldn’t comment on the wisdom of the grant. But he agreed that the state should also consider wider issues when deciding which businesses are awarded grants from the enterprise fund.

“I do believe that there is some ethical responsibility in that process as well,” he said. “Just because things look profitable doesn’t mean you do them.”

The fact that McKesson got the state grant doesn't shield it from liability if Texas ultimately files an opioid lawsuit, Roberts added. “If General Paxton goes forward, the fact that they got a TEF grant does not excuse them.”

Pressure to act

McKesson is also facing legal challenges outside of Texas.

In a recent report to the U.S. Securities and Exchange Commission, the company noted an opioid-related lawsuit brought by the State of West Virginia and nine similar complaints filed in state and federal courts in West Virginia against McKesson and other large distributors. McKesson also listed a federal lawsuit in which the Cherokee Nation alleges the company oversupplied drugs to its population.

In January, McKesson agreed to pay $150 million and revamp its compliance procedures to settle a lawsuit brought by the U.S. Department of Justice after prosecutors alleged the company failed to detect and report “suspicious orders” of opioids.

The company paid $13.25 million to settle a similar Justice Department suit in 2008. McKesson did not admit wrongdoing in either case.

Chasen, the spokeswoman, said McKesson is “really proud of our controlled substances monitoring program today,” and the recent scrutiny addresses conduct “that was really far in the past at this point."

Chasen added that the company reports all orders "in real time" to the U.S. Drug Enforcement Agency, flagging suspicious ones. 

Mark Kinzly, a co-founder of the Texas Overdose Naloxone Initiative, which educates police officers and the public on overdose prevention, has been critical of the state’s mixed response to the opioid epidemic. In 2015, for example, Abbott drew the ire of Kinzly and other advocates when he vetoed a “Good Samaritan” bill that would have protected someone from prosecution, even if they possessed a small amount of drugs, when they called 911 to help a friend in the throes of overdose.

Abbott said at the time that the bill had an admirable goal but did not include “adequate protections to prevent its misuse by habitual drug abusers and drug dealers.”

Kinzly said Trump’s declaration of a national opioid emergency may lead more politicians to demonstrate support for expanding drug treatment programs. “That will put some pressure on Republican governors, I would imagine,” he said.

Trump, for his part, suggested Thursday that pharmaceutical companies remained in the federal government's crosshairs.

"What they have and what they're doing to our people is unheard of," he said. “We will be bringing some very major lawsuits against people and against companies that are hurting our people."