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Cuomo's Opioid Tax Revived by Federal Appeals Court
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Collection of pills in various shapes and colors
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A federal appeals court has revived a first-in-the-nation surcharge on opioid manufacturers and distributors that’s based on the amount of product they sell in New York, but those companies will be allowed to pass that cost down to consumers.

The Second Circuit U.S. Court of Appeals in Manhattan revived New York’s Opioid Stewardship Act in the decision, which was handed down Monday.

Richard Azzopardi, senior advisor to Gov. Andrew Cuomo, cheered the decision in a statement. The Opioid Stewardship Act was first proposed by Cuomo in his State of the State address in 2018.

“Since the beginning we’ve been seeking to hold these huge corporations accountable for the opioid crisis that they helped create and fuel,” Azzopardi said. “We commend the court for their thoughtful consideration of all the facts and are reviewing the decision.”

The law mandated that opioid distributors and manufacturers collectively pay $100 million each year to the state over six years, starting in 2018. The amount each company had to pay was supposed to be determined by the state based on its share of business in New York.

So, companies that controlled a larger share of the opioid market in New York would’ve had to pay a larger share of the $100 million fund, while businesses with a smaller stake would pay less.

Those funds were then supposed to be earmarked to be used for opioid treatment, recovery, prevention, and education services, according to the law.

But a federal judge, two years ago, struck down the law over a provision that was written to prevent opioid companies from passing the cost of the surcharge down to consumers. In other words, the law was supposed to prevent customers from footing the bill.

The so-called “pass-through provision,” was deemed unconstitutional by the judge, who said the rest of the law couldn’t stand without it.

New York appealed the ruling, which resulted in the decision handed down Monday. The Second Circuit wrote that the surcharge was valid as a way for the state to tax opioid manufacturers and distributors.

“We conclude that the primary purpose of the opioid stewardship payment is to raise revenue, not to punish or regulate the plaintiffs and other licensees who are required to make the payment,” the court wrote in its decision.

But the “pass-through provision,” the part that prevented opioid companies from passing the cost of the tax down to consumers, will still remain invalid because the state didn’t appeal that part of the decision.

That means that, while the state is allowed to collect the surcharge under the decision, opioid companies can raise costs for consumers to make up the difference.

The decision, in all, won’t make much of a difference. Cuomo and the state Legislature, last year, already approved a second version of the Opioid Stewardship Act without the “pass-through provision” to avoid another legal challenge.

The Healthcare Distribution Alliance, a coalition of opioid distribution companies that sued the state to have the law struck down, did not immediately respond to a request for comment on the decision.