Connecticut Seal

General Assembly

File No. 654

    February Session, 2016

Substitute Senate Bill No. 5

Senate, April 18, 2016

The Committee on Finance, Revenue and Bonding reported through SEN. FONFARA of the 1st Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT ESTABLISHING A SURCHARGE ON THE MANUFACTURE AND DISTRIBUTION OF OPIOIDS AND FUNDING FOR OPIOID ABUSE PREVENTION AND TREATMENT.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective January 1, 2017) (a) For the purposes of this section and section 2 of this act:

(1) "Commissioner" means the Commissioner of Revenue Services;

(2) "Controlled substance" means a controlled substance, as defined in section 21a-240 of the general statutes, in schedule II, or III, IV or V that is also an opioid;

(3) "Manufacturer" means a manufacturer of a controlled substance to be sold in this state, and includes, but is not limited to, a manufacturer of a controlled substance that is licensed in accordance with section 21a-246 of the general statutes;

(4) "Opioid" shall include opium, opiate, opium derivatives and opium poppy;

(5) "Pharmacist" means a person authorized by law to practice pharmacy pursuant to section 20-590, 20-591, 20-592 or 20-593 of the general statutes;

(6) "Pharmacy" means an establishment licensed pursuant to section 20-594 of the general statutes; and

(7) "Wholesaler" means a wholesaler, as defined in section 21a-240 of the general statutes, of a controlled substance to be sold in this state, and includes, but is not limited to, a wholesaler of a controlled substance that is licensed in accordance with section 21a-246 of the general statutes.

(b) There shall be paid to the Commissioner of Revenue Services by each manufacturer or wholesaler of a controlled substance a surcharge at a rate of six and thirty-five-hundredths per cent on its gross receipts for any controlled substance lawfully sold on or after January 1, 2017, to any of the following named persons located in this state: (1) A pharmacist or pharmacy; (2) a physician, dentist or veterinarian; (3) a person in charge of a hospital, incorporated college or scientific institution; (4) a person in charge of a laboratory; or (5) a registrant, as defined in subdivision (47) of section 21a-240 of the general statutes, who is permitted to purchase and possess such controlled substance under federal and state laws and regulations. Such manufacturer or wholesaler may itemize and collect the amount of such surcharge on any sale to a person described in subdivisions (1) to (5), inclusive, of this subsection. Any person described in subdivisions (1) to (5), inclusive, of this subsection may claim a refund of the amount of such surcharge, in accordance with section 2 of this act, whenever such person dispenses such controlled substance within this state to a beneficiary of (A) the Medicare Part D program as a covered benefit under the Medicare Part D program, (B) any other state or federal program under which such controlled substance is a covered benefit that is exempt from taxation, (C) a state-administered health or human services program, as defined in section 4-274 of the general statutes, or (D) a municipal plan that provides health benefits to employees or retirees or benefits for workers' compensation claims.

(c) Each manufacturer or wholesaler of controlled substances that lawfully sells such controlled substances to any of the persons described in subsection (b) of this section shall register with the Commissioner of Revenue Services not later than January 1, 2017, on forms prescribed by the commissioner and each registered manufacturer or wholesaler shall renew its registration with the commissioner annually, in such manner as the commissioner may prescribe. No manufacturer or wholesaler may engage in or transact business as a manufacturer or wholesaler of controlled substances to be sold in this state unless such manufacturer or wholesaler is registered with the commissioner in accordance with the provisions of this section. Any manufacturer or wholesaler that fails to register or renew such registration in accordance with the provisions of this subsection shall pay a penalty of one thousand dollars for each such failure, which penalty shall not be subject to waiver.

(d) Each manufacturer and wholesaler shall submit a return quarterly to the Commissioner of Revenue Services, applicable with respect to the calendar quarter beginning January 1, 2017, and each calendar quarter thereafter, on or before the last day of the month immediately following the end of each such calendar quarter, on a form prescribed by the commissioner, together with payment of the quarterly surcharge determined and payable in accordance with the provisions of this section. Whenever such surcharge is not paid when due, a penalty of ten per cent of the amount due or fifty dollars, whichever is greater, shall be imposed, and such surcharge shall bear interest at the rate of one per cent per month or fraction thereof until the same is paid. The Commissioner of Revenue Services shall cause copies of a form prescribed for submitting returns as required under this section to be distributed to persons subject to the surcharge. Failure to receive such form shall not be construed to relieve any manufacturer or wholesaler subject to the surcharge under this section from the obligations of submitting a return, together with payment of such surcharge within the time required. The provisions of sections 12-548 to 12-554, inclusive, of the general statutes and sections 12-555a and 12-555b of the general statutes shall apply to the provisions of this section in the same manner and with the same force and effect as if the language of said sections 12-548 to 12-554, inclusive, and sections 12-555a and 12-555b had been incorporated in full into this section and had expressly referred to the surcharge imposed under this section, except to the extent that any such provision is inconsistent with a provision of this section. Any moneys received by the commissioner pursuant to this section shall be deposited into the opioid abuse prevention and treatment account established in section 3 of this act.

(e) The Commissioner of Revenue Services shall notify the Commissioner of Consumer Protection whenever a manufacturer or wholesaler licensed pursuant to section 21a-246 of the general statutes has continuously failed to comply with the requirements of this section for a period of at least six months. The Commissioner of Consumer Protection may suspend, revoke or refuse to renew the license of a manufacturer or wholesaler who has continuously failed to comply with the requirements of this section for a period of six months or longer. The Commissioner of Revenue Services shall notify the licensing authority of any other state where a manufacturer or wholesaler is licensed whenever such manufacturer or wholesaler has continuously failed to comply with the requirements of this section for a period of at least six months.

(f) Nothing in this section shall exempt any person from the tax imposed pursuant to chapter 228d of the general statutes with respect to marijuana or other controlled substance, as those terms are defined in section 12-650 of the general statutes.

Sec. 2. (NEW) (Effective January 1, 2017) (a) Any person claiming a refund pursuant to subsection (b) of section 1 of this act shall file such claim in accordance with this section. Each claim for a refund shall be on a form prescribed by the Commissioner of Revenue Services and shall be accompanied by invoices or sales receipts or other statements of fact, under penalty of false statement, showing, to the satisfaction of the commissioner, the amount paid with respect to such refund, and any other information that is deemed necessary by the commissioner for the determination of such claim. Any claim for a refund with respect to a controlled substance sold by such person during any calendar year shall be filed with the commissioner on or before May thirty-first of the succeeding year.

(b) (1) The commissioner shall, not later than ninety days after receipt of any claim under this section, transmit all claims approved by the commissioner to the Comptroller, who shall draw an order upon the State Treasurer for payment. If the commissioner determines that any such claim is not valid, either in whole or in part, the commissioner shall mail notice of the proposed disallowance to the claimant and such notice shall set forth briefly the commissioner's findings of fact and the basis of disallowance in each case decided in whole or in part adversely to the claimant. Sixty days after the date on which it is mailed, a notice of proposed disallowance shall constitute a final disallowance except only for such amounts as to which the claimant has filed, as provided in subdivision (2) of this subsection, a written protest with the commissioner.

(2) On or before the sixtieth day after the mailing of the proposed disallowance, the claimant may file with the commissioner a written protest against the proposed disallowance in which the claimant sets forth the grounds on which the protest is based. If a protest is filed, the commissioner shall reconsider the proposed disallowance and, if the claimant has so requested, may grant or deny the claimant or the claimant's authorized representatives an oral hearing.

(3) The commissioner shall mail notice of the commissioner's determination to the claimant, which notice shall set forth briefly the commissioner's findings of fact and the basis of decision in each case decided in whole or in part adversely to the claimant.

(4) The action of the commissioner on the claimant's protest shall be final upon the expiration of one month from the date on which the commissioner mails notice of the commissioner's action to the claimant unless within such period the claimant seeks judicial review of the commissioner's determination in the manner provided for distributors pursuant to section 12-463 of the general statutes.

Sec. 3. (NEW) (Effective January 1, 2017) There is established an opioid abuse prevention and treatment account which shall be a separate, nonlapsing account within the General Fund. The account shall contain the amount of any surcharges collected pursuant to section 1 of this act and any other moneys required by law to be deposited in the account. Amounts in the account shall be expended only for the purpose of providing funds to the Department of Mental Health and Addiction Services to provide grants-in-aid for regional opioid abuse prevention and treatment programs pursuant to section 5 of this act.

Sec. 4. Subsection (d) of section 17a-450 of the general statutes is repealed and the following is substituted in lieu thereof (Effective January 1, 2017):

(d) The Department of Mental Health and Addiction Services is designated as the lead state agency for substance abuse prevention and treatment in this state, and as such is designated as the state methadone authority. As the designated state methadone authority, the department is authorized by the federal Center for Substance Abuse Treatment of the Substance Abuse and Mental Health Services Administration within the United States Department of Health and Human Services to exercise responsibility and authority for the treatment of opiate addiction with an opioid medication, and specifically for: (1) Approval of exceptions to federal opioid treatment protocols in accordance with the Center for Substance Abuse Treatment, (2) monitoring all opioid treatment programs in the state, (3) providing grants-in-aid to regional opioid abuse prevention and treatment programs that follow state and federal treatment protocols in accordance with section 5 of this act, and [(3)] (4) approval of Center for Substance Abuse Treatment certification of all opioid treatment programs in the state. The Commissioner of Mental Health and Addiction Services may adopt regulations in accordance with chapter 54 to carry out the provisions of this subsection.

Sec. 5. (NEW) (Effective January 1, 2017) (a) The Commissioner of Mental Health and Addiction Services shall provide grants-in-aid, within available resources, to one or more regional opioid abuse prevention and treatment programs in each mental health region established pursuant to section 17a-478 of the general statutes. The commissioner shall provide such grants-in-aid to programs that follow state and federal treatment protocols and shall allocate such grants-in-aid on the basis of regional need and demand for services. Each program that receives a grant-in-aid pursuant to this section shall provide services in a manner that reduces the stigma associated with opioid abuse prevention and treatment and minimizes client contact with the criminal justice system.

(b) Not later than January 31, 2018, the commissioner shall submit a report to the joint standing committees of the General Assembly having cognizance of matters relating to public health and finance, revenue and bonding concerning the grants-in-aid awarded during the calendar year commencing January 1, 2017. The report shall indicate the amount of the grants-in-aid awarded, the recipients of the grants-in-aid, any amounts remaining in the opioid abuse prevention and treatment account established pursuant to section 3 of this act that were not allocated as of December 31, 2017, and the commissioner's recommendations, if any, for amendments to the general statutes regarding the grants-in-aid program or regional opioid abuse prevention and treatment programs.

This act shall take effect as follows and shall amend the following sections:

Section 1

January 1, 2017

New section

Sec. 2

January 1, 2017

New section

Sec. 3

January 1, 2017

New section

Sec. 4

January 1, 2017

17a-450(d)

Sec. 5

January 1, 2017

New section

FIN

Joint Favorable Subst.

 

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 17 $

FY 18 $

Mental Health & Addiction Serv., Dept.

Opioid Abuse Prevention and Treatment Account (non- appropriated) - Revenue Gain

1.75 million

3.5 million

Department of Revenue Services

GF - Cost

115,500

64,000

Consumer Protection, Dept.

GF - Cost

91,457

177,914

State Comptroller - Fringe Benefits1

GF - Cost

54,701

96,620

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill results in the following impacts.

Opioid Gross Receipts Surcharge

The bill results in a revenue gain of $1.75 million in FY 17 and $3.5 million in FY 18 and annually thereafter by imposing a surcharge of 6.35% on the gross receipts of certain legal sales of schedule II through V controlled substances that are also opioids.

The bill is not anticipated to result in a cost to the state or municipalities, for health plans (including the state Medicaid program) or workers' compensation programs which provide pharmacy benefits. 

The bill's provisions appear to prevent pharmacists and other practitioners outlined in the bill from passing along the surcharge to individuals/carriers receiving/providing pharmacy benefits under a state or municipal program specified in the bill. To the extent the provisions of the bill impact the price of opioids available to state programs there may be a fiscal impact. 

“Opioid Abuse Prevention and Treatment” Account

The bill creates the “opioid abuse prevention and treatment” non-appropriated account into which the opioid 6.35% surcharge revenue will be deposited. The bill requires the Department of Mental Health and Addiction Services (DMHAS) to provide grants-in-aid to regional opioid programs using funds in the account. There is no cost to DMHAS to administer the grants-in-aid under the program.

Administration Costs

Sections 1 and 2 result in a cost to the Department of Revenue Services (DRS) of $134,671 in FY 17 and $89,562 annually thereafter. This consists of a one-time cost of $67,500 in FY 17 to establish the new surcharge, including updates to the online Taxpayer Service Center and changes to DRS' internal Integrated Tax Administration System for data capture and scanning, and postage costs. There are also on-going salary and fringe costs, which annualize to $64,000 (salary) and $25,562 (fringe) in FY 18, associated with one Revenue Examiner 1 for audit/compliance and to administer the refund provisions of the bill.

Section 1(e) of the bill results in a cost to the Department of Consumer Protection (DCP) of $91,457 in FY 17 and $177,914 in FY 18. The DCP would require a Paralegal and a Staff Attorney to schedule and conduct noncompliance administrative hearings. There are approximately 2,000 registered wholesalers and manufacturers of controlled substances registered with the DCP. Half of the registrants are located out-of-state. Assuming ten percent of the registrants are noncompliant during the year, this would result in approximately 200 administrative hearings.

The Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

Sources:

Meier, Barry and Bill Marsh, "Soaring Cost of Opioid Economy," NY Times, June 22, 2013

 

Congressional Budget Office, "Prescription DrugPricing in the Private Sector," January 2007

 

Kaiser Family Foundation

OLR Bill Analysis

sSB 5

AN ACT ESTABLISHING A SURCHARGE ON THE MANUFACTURE AND DISTRIBUTION OF OPIOIDS AND FUNDING FOR OPIOID ABUSE PREVENTION AND TREATMENT.

SUMMARY:

This bill creates a mechanism to fund opioid abuse and prevention programs in the state's five mental health regions. The mechanism has two components. One component imposes a 6.35% surcharge on the gross receipts of the legal sale of selected controlled substances, specifically (1) any schedule II controlled substance and (2) schedules III, IV, or V controlled substances that are also opioids (see BACKGROUND). The other component deposits the revenue the surcharge generates in a special account for funding opioid abuse and prevention programs.

The surcharge does not exempt anyone from paying the tax imposed on controlled substances and marijuana that are illegally acquired, transported, or imported into Connecticut (CGS 12-651).

Under the bill, Department of Consumer Protection (DCP)-licensed manufacturers and wholesalers of the selected controlled substances must:

Manufacturers and wholesalers that fail to comply with these requirements face penalties and interest charges.

Practitioners may claim a refund for surcharges they paid on the selected controlled substances they acquired from a manufacturer or wholesaler and subsequently dispensed to a beneficiary of:

The revenue the surcharge generates must go into a separate, nonlapsing fund the bill establishes to fund regional opioid abuse and prevention programs. The Department of Mental Health and Addiction Services (DMHAS) must administer the funds, awarding grants to programs that meet the bill's criteria. The DMHAS commissioner must report to the legislature by January 31, 2018 on the grants she awarded in 2017.

EFFECTIVE DATE: January 1, 2017

TAX ON SELECTED CONTROLLED SUBSTANCES

The bill imposes a 6.35% surcharge on the legal sale of the selected controlled substances on or after January 1, 2017. The surcharge must be collected and remitted by DCP-licensed manufacturers and wholesalers from the following practitioners: pharmacists and pharmacies; physicians, dentists, and veterinarians; people in charge of hospitals, incorporated colleges, scientific institutions, and laboratories; and others allowed to purchase and possess controlled substances (i.e., registrants).

Registration

Under the bill, DCP-licensed manufacturers and wholesalers of selected controlled substances must annually register with the DRS commissioner beginning January 1, 2017, which is also the bill's effective date. Those that fail to do so cannot manufacture or sell the selected controlled substances at wholesale. If they fail to register or renew their registration, they face a $1,000 fine, which the commissioner cannot waive, for each such failure. As explained below, manufacturers and wholesalers may lose their licenses if they fail to register or renew their registration for at least six months.

Collecting and Remitting the Tax

Manufacturers and wholesalers must collect the surcharge the bill imposes and remit it to DRS on a quarterly basis, beginning January 1, 2017. They may itemize and collect the tax from each practitioner, and they must remit the surcharge collected during each calendar quarter by the last day of the month following the quarter (e.g., surcharge collected during January through March must be remitted by April 30). Manufacturers and wholesalers that fail to do so must pay 10% of the surcharge due or $50, whichever is more, plus 1% interest per month or partial month until they remit the surcharge.

The DRS commissioner must distribute forms manufacturers and wholesalers must use to remit the surcharge, but failure to receive the forms does not relieve them of the duty to remit the tax. The commissioner must enforce the collection and remittance of the surcharge using the same powers and tools the law grants him to enforce the collection and remittance of the admissions tax (CGS 12-548—12-554, 12-555a, & 12-555b).

The DRS commissioner must also notify the DCP commissioner when a manufacturer or wholesaler continuously fails to comply with the bill's requirements for at least six months. Once notified, the DCP commissioner may suspend, revoke, or refuse to renew their license. The DRS commissioner must also notify the licensing authority in any other state where these businesses are licensed to make or sell at wholesale selected controlled substances.

Applying for Refund

The bill allows practitioners to claim a refund for the surcharge they paid on selected controlled substances they subsequently prescribed to a beneficiary of a health plan under which such substances are exempt from taxation.

To claim such a refund, a practitioner must file the claim on the form the DRS commissioner prescribes, along with invoices, sales receipts, or statements attesting to the amount of surcharge it paid on refundable sales. The practitioner must submit these documents under the penalty of false statement and provide the commissioner any information he needs to verify the claim. The practitioner must file the claim by May 31 of the year following the one in which the business paid the taxes.

The commissioner must act on each claim within 90 days after receiving it, notifying the comptroller of those he approves. The comptroller, in turn, must direct the state treasurer to process the payment.

The commissioner must also notify the practitioner if he disapproves all or part of the claim. He must do so by mail, stating his reasons for denial. The practitioner has 60 days to respond in writing, after which the notice is considered final. If the practitioner protests the commissioner's decision, the commissioner must reconsider it and, if the practitioner requests an oral hearing, decide whether to hold one.

After reconsidering the practitioner's claim, the commissioner must provide notice of his decision. He must do so by mail, again explaining the reasons for his decision. The practitioner has 30 days to appeal his decision to Superior Court, following the same steps fuel distributors must follow for appealing his decisions regarding the motor fuel tax (CGS 12-463). Otherwise, the commissioner's decision is final one month after the notice is received.

OPIOID ABUSE AND PREVENTION TREATMENT GRANTS

The bill establishes a separate, nonlapsing account within the General Fund for depositing the revenue the surcharge generates, plus any other money that must, by law, be deposited in the account. The account's funds can be used by DMHAS only to fund regional opioid abuse and treatment programs that follow federal and state treatment protocols.

The DMHAS commissioner can make one or more grants to these programs in each of the state's five mental health regions based on each region's needs and demands for service. Programs awarded grants must use the funds to reduce the stigma associated with such programs and minimize each client's contact with the court system.

The commissioner must report to the Public Health and Finance, Revenue and Bonding committees by January 31, 2018 on the grants she awarded in calendar year 2017. The report must (1) identify the grant amounts and recipients, (2) indicate the account balance as of December 31, 2017, and (3) recommend changes to the grants and the programs they fund.

BACKGROUND

Controlled Substances

Controlled substances are grouped in schedules I through V according to their decreasing tendency to promote abuse or dependency. Schedule I and II substances, which include opiates and most painkillers, are the most strictly controlled because of their high potential for abuse.

COMMITTEE ACTION

Finance, Revenue and Bonding Committee

Joint Favorable Substitute

Yea

37

Nay

13

(03/31/2016)

TOP

1 The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated active employee fringe benefit cost associated with most personnel changes is 39.94% of payroll in FY 17 and FY 18.