American Journal of Law & Medicine

Statutes aiding states' recovery of Medicaid costs from tobacco companies: a better strategy for redressing an identifiable harm?

"We're goin to take the Marlboro Man to court."

--Florida Governor Lawton Chiles(1)

I. INTRODUCTION

Despite overwhelming epidemiological evidence that cigarette smoking causes cancer, and that addictive nicotine in tobacco keeps smokers smoking, our legal system has yet to allow a recovery against the tobacco industry for the massive harms it knowingly causes.(2) Plaintiff smokers have sought recovery, only to be thwarted by affirmative defenses of assumption of the risk and contributory negligence, preemption of their claims by federal cigarette labeling laws, the difficulty of proving that cigarette smoking causes cancer, and the enormous resources of the $45 billion per year(3) tobacco industry.

After forty years of unsuccessful lawsuits against the tobacco industry, a new plaintiff has come forward. In 1994, Florida and Massachusetts passed legislation enabling the states to bring suit against the tobacco industry to recover Medicaid costs of treating smoking-related illnesses.(4) Because the states suffer an independent harm and do not merely subrogate the rights of cigarette-smoking individuals, their claims are not subject to the tobacco industry's defenses of smokers' assumption of the risk or contributory negligence, which have permitted the tobacco industry to prevail in previous suits brought by individuals. Claims that tobacco companies fraudulently misrepresented what they knew about the harms of smoking provide the states with a cause of action that federal cigarette labeling laws will not preempt. Recent scientific studies make the harms associated with smoking, and particularly those associated with nicotine, easier to prove. As such, there is speculation that these suits will be the ones to finally "bring down" the tobacco industry.

This Note addresses how these new statutes fit into the history of tobacco tort litigation, and whether they will alter the plaintiffs' losing streak against the tobacco industry. Part II provides a background of the topic. Part III is a legal analysis of the states' initiatives. Part IV examines the effect of other lawsuits and regulations on the states' suits. Finally, Part V concludes that Florida's and Massachusetts's efforts have a better chance of succeeding than prior lawsuits against the tobacco industry did.

II. BACKGROUND

A. HARM TO SMOKERS AND TO STATE AND FEDERAL GOVERNMENTS

Smoking provides some physical benefits to smokers.(5) Smoking cigarettes calms a smoker when he or she is in a stressful situation.(6) Smoking cigarettes can also stimulate a smoker when he or she is under conditions of low arousal induced by mild sensory isolation.(7) In addition, many smokers find that smoking helps them to control their weight.(8)

However, cigarette smoking also harms smokers in two significant ways. First, smoking tobacco causes illnesses including lung, larynx, mouth, esophagus, and bladder cancer; chronic obstructive pulmonary disease; coronary heart disease; and stroke.(9) Cigarette smoking is also a probable cause of infertility and peptic ulcer disease and contributes to, or is associated with, cancer of the pancreas, kidney, cervix, and stomach.(10) Second, tobacco contains the chemical substance nicotine, which the Food and Drug Administration (FDA) alleges is addictive.(11)

The interworking of these two harms means that millions of people may be addicted to a product that kills them. The magnitude of the problem is catastrophic. A recent study of smoking in developed countries published by the Imperial Cancer Research Fund in Britain, the World Health Organization, and the American Cancer Society estimates that smoking kills approximately three million people each year in developed countries alone.(12) The Centers for Disease Control (CDC) have estimated that smoking causes 400,000 deaths annually in the United States.(13) In 1990, approximately one-fifth of all U. S. residents' deaths were smoking-related.(14)

While the deaths themselves are certainly the overwhelming "costs" of smoking-related illnesses, the medical costs of treating these illnesses are also significant. The CDC estimates that smoking-related illnesses cost Americans approximately $50 billion for medical treatment in 1993, and that 43.3% of that cost was paid with public funds.(15) A large number of the people with smoking-related illnesses rely on Medicaid to pay their medical costs. Florida's Governor has claimed that the state's Medicaid costs of treating smoking-related illnesses has totaled more than $1.2 billion since 1989.(16) Thus, taxpayers shoulder a huge burden annually to provide medical care for smoking-related illnesses to Medicaid recipients.

B. REGULATION

Since the early 1950s, medical experts have reported that smoking cigarettes causes cancer.(17) Legislative responses to that correlation have been in the form of warnings to smokers, restrictions on manufacturers' advertising, and taxation of cigarettes. Legislatures have not, however, regulated the content of cigarettes(18) or banned their sale.(19)

In 1964, the U.S. Department of Health, Education & Welfare advised the Surgeon General of the correlation between smoking and cancer,(20) and in 1965, Congress passed the Federal Cigarette Labeling and Advertising Act,(21) requiring, among other things, that cigarette manufacturers include on their packages a warning that cigarette smoking may be hazardous to one's health.(22) Congress amended the warnings required by the 1965 Act to require stricter warnings in 1970(23) and 1984.(24) Cigarette advertising has also long been regulated. Congress first banned television and radio advertising of cigarettes in 1970.(25) In 1984, Congress required print advertisements and billboards to carry the same warnings as cigarette packages must carry.(26)

In 1995, the FDA made a bold regulatory move by proposing rules which would regulate the sale and distribution of cigarettes to minors, and which would regulate cigarette advertising aimed at minors.(27) This limitation to minors has been criticized as "more symbolism than substance."(28) However, the FDA argues that the regulation of cigarette sales to minors is especially important because most smokers start smoking, and become addicted by the nicotine in tobacco, before age eighteen.(29)

Perhaps more important than the regulations themselves is the FDA's broad statement of jurisdiction to regulate cigarettes. The FDA asserts jurisdiction to regulate nicotine in cigarettes and smokeless tobacco products as a drug, and those products as nicotine delivery devices.(30) The statement focuses on tobacco manufacturers' knowledge of nicotine's addictive quality, its effects on the smoker's mood, and its effectiveness as a weight control tool in establishing the manufacturers' "intent to affect the structure or any function of the body."(31) Although the FDA makes clear its intent to limit regulations to the sale and distribution of cigarettes to minors, and states explicitly that it will not seek to remove tobacco products from the market,(32) the importance of this assertion of jurisdiction is that it is broad enough to justify nearly any regulation of cigarettes. Even if the FDA's regulations are effective in the long run, however, they will not change the states' Medicaid costs of treating smoking-related illnesses in the very near future.

Although both the state and federal governments tax cigarettes,(33) this revenue is not a reliable or adequate means of paying for the Medicaid costs of treating smoking-related illnesses. This revenue is not reliable because the enormous and effective lobbying resources of cigarette manufacturers and tobacco farmers are used to oppose such taxes.(34) Also, the funds are not always earmarked to pay smoking-related Costs,(35) and even when they are earmarked, they can be diverted to other uses.(36)

In sum, the numerous attempts to regulate the tobacco industry have not effectively required it to take responsibility for the harm its product causes, and certainly have not allowed states a means to recover the Medicaid costs of treating smoking-related illnesses.

C. CASES

Professor Rabin reports that individuals have brought suit against the tobacco industry in an attempt to hold it liable for the harm caused by smoking since the case of Lowe v. R.J. Reynolds Tobacco Co.(37) was filed in 1954.(38) He groups tobacco tort suits into two waves.(39) The first wave of suits, brought during the 1950s and until the mid-1960s,(40) relied mostly on negligence and warranty theories.(41) They were unsuccessful largely because, from the start, tobacco companies "spare[d] no cost in exhausting their adversaries' resources short of the courthouse door."(42) Only a few of these first wave cases went to trial, and none resulted in a plaintiffs Victory.(43) The failure of plaintiffs' cases hinged largely on courts' refusals to hold manufacturers liable for the "unknowable" risks of smoking.(44) Professor Rabin suggests that today's courts might have found that the manufacturers had an affirmative obligation to engage in research because scientists had begun to link smoking to cancer, but that "most mid-century jurists resisted such expansive tendencies."(45) In 1965, the American Law Institute published the Restatement (Second) of Torts.(46) It included comment i to section 402A, which specifically exempts tobacco from applications of section 402A, unless some manufacturing defect makes it more harmful than the average consumer expects it to be.(47) Professor Rabin notes that, in a sense, comment i "sounded the death knell for the first wave of tobacco litigation."(48) The last reported first wave case was filed in 1962.(49)

The second wave of cases began in the early 1980s and continues today.(50) The second wave suits were viable due to a number of important developments that emerged after the end of the first wave. The Surgeon General reported in 1964 that cigarette smoking is an important public health hazard warranting remedial action.(51) In 1965, Congress enacted the Federal Cigarette Labeling and Advertising Act.(52) Public disdain for cigarette manufacturers had grown.(53) Toxic harm cases, especially the asbestos cases, had laid an important groundwork for possible suits against the tobacco industry.(54) Products liability law had generally come of age, plaintiffs' lawyers were optimistic that Restatement section 402A could be read to include strict liability for manufacturing cigarettes despite comment i, and theories of comparative fault were viable.(55) As in the first wave, however, the second wave has not yet resulted in a single plaintiffs Victory.(56) The decisive factors in the second wave cases have been the determination and the resources of the tobacco industry,(57) preemption of the claims by federal cigarette labeling law,(58) the difficulties of proving causation on an individual basis,(59) and arguments that plaintiff smokers assumed the risk of smoking.(60)

A third wave of tobacco litigation has begun. Since the summer of 1994, states have brought suit against the tobacco industry to recover Medicaid costs of treating smoking-related illnesses.(61) Many of these suits focus on the alleged fraud of the tobacco industry in withholding information from Congress.(62) Other suits have focused on the states' unique position of having incurred an independent economic harm as a result of the sale of cigarettes, without having undertaken the risk of smoking. Those suits are the focus of this Note, and are explained below.

D. STATUTORY RESPONSES BY FLORIDA AND MASSACHUSETTS

During the summer of 1994, in the midst of multiple state suits against cigarette manufacturers,(63) state demands for Medicaid waivers,(64) and a proposed federal comprehensive health care plan,(65) Florida and Massachusetts both passed statutes which permit the states to bring suit against the tobacco industry to recover Medicaid costs of treating smoking-related illnesses.

1. Florida

On May 26, 1994, Florida passed the Medicaid Third-Party Liability Act.(66) The controversy surrounding the law is illustrated by the Florida legislature's vote to repeal the bill twelve months after it was passed,(67) and by Florida's Governor's subsequent veto of the repeal.(68) The law seeks to assure that Medicaid will be the payer of last resort for medically necessary goods and services furnished to Medicaid recipients.(69) To achieve this end, it provides the state with a cause of action against a liable third party to recover the costs of providing Medicaid.(70) It also provides the state with four important advantages in such a suit. First, it provides that the state's cause of action is independent of any rights or causes of action of the Medicaid recipient,(71) and specifies that no action of the recipient shall prejudice the state's rights to recover under the Act.(72) Second, it provides the state an automatic subrogation of a recipient's right to sue upon receiving Medicaid assistance and an automatic assignment of the recipient's claims to the state.(73) Third, it enables the state to bring a class action without identifying each member of the class, including a special provision for recovery under a market share theory of liability, a liberal construction of causation and damages rules, and a provision that causation and damages may be proved by statistical analysis.(74) Fourth, it provides that "principles of common law and equity as to assignment, lien, subrogation, comparative negligence, assumption of risk, and all other affirmative defenses normally available to a liable third party are to be abrogated to the extent necessary to ensure full recovery by Medicaid from third-party resources."(75) Although the statute does not set forth a specific theory of liability, the fact that the statute addresses the traditional negligence tools of assumption of the risk, contributory negligence, and market share liability tailors it to a negligence theory of liability.(76)

Florida brought suit under the statute on February 21, 1995.(77) The tobacco industry and representatives of other industries have challenged the statute on constitutional grounds.78 A state circuit court judge upheld the constitutionality of the statute in June 1995, but he limited the state's potential recovery under the statute to the damages incurred since the law was enacted in 1994.(79) The Florida Supreme Court agreed to a fast track schedule to hear the appeal,(80) and the appeal was argued on November 6, 1995.(81)

2. Massachusetts

On July 10, 1994, Massachusetts passed a similar provision as part of its budget bill.(82) Like Florida's law, it provides (1) that the state is automatically subrogated to the rights of a Medicaid recipient for the full amount of the Medicaid services provided; and (2) a cause of action independent of any rights or causes of action of the recipient.(83) Unlike the Florida bill, however, it specifically addresses itself to suits against cigarette manufacturers.(84) Also, the Massachusetts statute does not go as far as the Florida provision does in modifying common law theories of recovery.(85) In signing the bill, Massachusetts Governor William Weld noted that he did not think that the bill changed any of the state's existing rights to sue.(86)

The tobacco industry challenged the Massachusetts statute by seeking a dectaratory judgment against Massachusetts in a suit filed on November 28, 1995.(87) Massachusetts filed suit against the tobacco industry on December 19, 1995.(88)

III. LEGAL ANALYSIS OF THE FLORIDA AND MASSACHUSETTS EFFORTS

1. CONSTITUTIONAL SOUNDNESS OF THE STATUTES

1. Florida

Florida industry associations, including the tobacco industry, have challenged the constitutionality of the Florida statute.(89) The complaint alleges that the Act violates the Florida Constitution because it denies access to the courts, violates the separation of powers doctrine, violates the title requirement for legislative enactments, and denies due process.(90) The complaint also alleges that the Act violates the United States Constitution Clause.(91) This Note addresses only the alleged due process violations of the United States Constitution.

a. Due Process Challenge to Retroactivity

The Tobacco Industry's Florida Complaint alleges that a retroactive application of the Florida Act would violate the due process guarantees of the United States Constitution by creating new duties without fair notice and an opportunity for manufacturers to change their conduct.(92) The Supreme Court has held that "legislation readjusting rights and burdens is not unlawful solely because it upsets otherwise settled expectations. . . . This is true even though the effect of the legislation is to impose a new duty or liability based on past acts."(93) While legislation is not unconstitutional solely because it is retroactive, it may be unconstitutional if the retroactivity does not pass rational basis scrutiny.(94)

In Usery v. Turner Elkhorn Mining Co., the Court upheld the application of a statute altering existing common law liability to actions taken before the effective date of the statute.(95) The statute at issue in Usery altered common law liability for mine workers' respiratory disease by creating presumptions that mine operators were liable for the workers' illnesses.(96) The Court upheld the retroactivity of the Usery statute because "the imposition of liability for the effects of disabilities bred in the past is justified as a rational measure to spread the costs of the employees' disabilities to those who have profited from the fruits of their labor-the operators and the coal consumers."(97) Thus, the retroactive application of a statute does not violate due process guarantees when it is a rational means of spreading the costs of an important social problem.

The Florida statute easily survives the Usery rationality test. Like the Usery statute, the Florida statute has the legitimate purpose of "allocat[ing] to the [cigarette manufacturer] an actual, measurable cost of his business,"(98) Florida's Medicaid costs of treating smoking-related illnesses.(99) The retroactivity of the statute is a rational means of accomplishing that purpose because the past payments that Florida seeks to recover are for harms allegedly caused by cigarettes produced by manufacturers in the past.(100) As was the case in Usery, this rational justification is sufficient to uphold the retroactivity against federal due process challenges.

b. Due Process Challenge that Alteration to Liability Lacks a Rational Basis

The Tobacco Industry's Florida Complaint also alleges that the Act is an unconstitutional denial of due process because it so alters traditional substantive and procedural protections of the common law as to impose arbitrary and excessive liability.(101) In other words, the challenge is that the statute's alteration of existing common law liability lacks any rational basis. However, in this case, the statute's provision for market share liability,(102) its elimination of state-law affirmative defenses,(103) its provisions for recovery of payments made on behalf of a class of Medicaid recipients,(104) and its provisions making causation easier for the state(105) are probably not too broad a means of attaining a legitimate state purpose.

To satisfy due process requirements, economic legislation must rationally further a legitimate state interest.(106) Here, the state has a legitimate interest in recovering Medicaid payments when a third party is responsible for the harm making the treatment necessary.(107) Thus, the inquiry turns on whether the statute's alterations to existing common law liability are a rational means of achieving the purpose of recovering medical costs from culpable third parties. Clearly, these provisions make it easier for the state to recover from the third parties it sues under this statute.(108) However, making suits easier for the state to win is not a rational means of achieving the state's interest if the suit assigns liability in an arbitrary way. Thus, the question is whether the specific alterations the statute makes to common law are a rational means of assigning liability for Medicaid costs to third parties. …

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