In February of 2022, major drug distributors Cardinal Health, McKesson, and AmerisourceBergen, and drugmaker Johnson & Johnson, reached a settlement to provide about $26 billion for remediation of the opioid epidemic in exchange for states, U.S. territories, and Puerto Rico agreeing to drop future legal claims against the companies.1 In the terms of the settlement, Johnson & Johnson agreed to pay $5 billion over a maximum of 9 years and the drug distributors agreed to pay $21 billion over 18 years, with seventy percent of the settlement money earmarked for future opioid remediation efforts, including intervention, treatment, education, and recovery services. The settlement took effect 60 days after the settlement was reached.
In the National Income and Product Accounts (NIPAs), legal settlements are recorded on an accrual basis when the settlement takes effect. As a result, the $26 billion settlement ($104.0 billion at an annual rate) was recognized in the second quarter of 2022. The settlement was classified as capital transfers from corporate business to state and local government and to the rest of the world, recognizing the large one-time settlement that relinquishes legal claims against the companies and provides funds to states, U.S. territories, and Puerto Rico that will be used for future opioid remediation. The recording of a capital transfer in the national accounts does not affect GDP or net government saving but will increase net government lending or borrowing.
This transaction is presented in NIPA table 5.11U, lines 6, 43, and 50.