Tobacco Info

From Tobacco Info No. 1 - June 2010
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Medicare cost recovery lawsuits: can public health win?

By Janice Forsythe


Provincial governments across Canada are poised to take the tobacco industry to court to recover health care costs resulting from the treatment of illnesses caused by tobacco use.

Encouraged by a massive settlement in the US, Canadian provinces are ready to hold tobacco companies accountable for their actions.

Led by British Columbia, the provinces decided to use the approach adopted by the US Attorney General, which resulted in the 1998 Master Settlement Agreement (MSA) and yielded an initial $246 billion over 25 years, among other benefits towards tobacco control.

Before a province can launch its suit in Canada, legislation must be passed to give the province the authority to sue, and a way to manage the lawsuit. Legislation has the added advantage of not having a statute of limitations, which would limit how far back damages could be claimed.

As of this year, all 10 provinces have passed legislation that will allow them to sue the tobacco industry. None of the three territories, who fall under federal jurisdiction, have taken any comparable steps.

Suing the tobacco industry will be a lengthy process. The cost recovery process started with the passage of legislation in British Columbia in July 1997. BC’s lawsuit named Imperial Tobacco Canada; Rothmans Benson & Hedges; JTI-Macdonald; the Canadian Tobacco Manufacturers’ Council; and several foreign companies, including British American Tobacco, Philip Morris and R.J. Reynolds. The tobacco industry challenged the BC legislation all the way to the Supreme Court of Canada, and despite a few tweaks along the way, it was upheld. Most provinces have used BC legislation as a template because it has already passed the test of industry legal challenges.

The BC suit alleges that “cigarettes are a dangerous product which, when used as intended, cause illness and death in large numbers of smokers.  The magnitude of the health catastrophe caused by smoking cannot be overstated: 50% of smokers die from tobacco related disease,” and that “tobacco manufacturers failed to warn consumers of the dangers of smoking, marketed light cigarettes as safe and targeted children in their advertising and marketing,” this according to the Smoking and Health Action Foundation Non-Smokers’ Rights Associations’ report in March 2009 entitled Tobacco-Related Litigation in Canada. The BC trial is scheduled to begin in September 2011, although there could still be unforeseen delays.

New Brunswick and Ontario have since launched similar lawsuits. Quebec and Manitoba have announced their intentions to file suit, both likely in 2010. The other provinces have not yet stated their timelines. Although not all provinces have announced the amount of damages they are seeking, it is estimated that the provinces’ claims will be in excess of $100 billion, based on Ontario’s stated claim of $50 billion.

This is a huge amount, even to highly profitable tobacco companies, which are obviously worried.  The tobacco industry has long had a strategy to shift responsibility for their behaviour to others, such as smokers. Their latest tactic is to try to shift the blame to the federal government.

Big Tobacco blames the federal government

Tobacco companies have appealed to the courts to force the federal government to act as a third-party defendant that would have to pay their share of damages, if the provinces win. This legal manoeuvre is based on their allegation that the Canadian government has acted as a “senior partner” in tobacco sales by encouraging and being part of the development of so-called “light and mild” low-tar cigarettes (in the late 1960s as an attempt to make cigarettes safer), keeping tobacco products legal and collecting taxes on them for decades. The federal government  argues that the process would be inaccurate, and has filed a motion to the Supreme Court of Canada to be removed from the suit. The case will likely be launched in early 2011, and could either await a court judgment or be settled out of court at any point during the trial process.

Master Settlement Agreement

The main lesson from the US process is that there can be more than money on the table in any settlement negotiation. Not only did the US states reap financial benefits, but the MSA also:

- Led to new tobacco control measures such as a ban on tobacco sponsorships, elimination of cartoon characters in tobacco advertising and restrictions on youth access to tobacco (measures already in place in Canada);

- Created the American Legacy Foundation and dissolved three major tobacco industry lobby and front-group organizations;

- Created a state-level enforcement fund and a national public education fund;

- Put in the public domain over 40 million pages of previously secret tobacco industry documents, through the Legacy Tobacco Documents Library.

However, in retrospect, not everyone in public health sees the MSA as a coup for tobacco control. Many states have put the lion’s share of their financial settlement into general coffers, and use little of the money to reduce tobacco use, especially now that the economic downturn has left governments strapped for cash, and, companies have found new deceitful ways to market their deadly products.

If the time comes for settlement negotiations in Canada, to avoid the mistakes made in the US, it will be important to have the tobacco control community involved in the process.

According to Rob Cunningham, senior policy analyst with the Canadian Cancer Society, “Public health is a core factor behind the lawsuits. We mustn’t allow the tobacco industry to be successful in negotiating a deficient settlement,” adding that government needs to be ready to fight this before the courts.

Involvement of Canada’s world-renowned leaders in tobacco control in the negotiation process would help ensure that potential loopholes favouring the industry are found and closed before any settlement is finalized.

The potential benefits and impact on tobacco control in Canada could include:

- Significant financial impact on the industry, with bankruptcy an eventual possibility;

- Stiff penalties based on company’s future share of the youth market;

- Increased price of tobacco products as the industry passes on costs to smokers, leading to more smoking cessation and prevention of youth smoking;

- Internal Canadian industry documents forced into the public domain, which would allow them to be used to improve tobacco control policy;

- Improved public understanding of deceitful tobacco company practices, leading to better support for public policies regulating the industry.

But can public health really win?

Canadian tobacco companies are understandably nervous about these lawsuits and are taking all legal avenues at their disposal to thwart or delay the already lengthy process.

The arguments that tobacco companies are raising here were raised in the US, but to no avail. This gives provincial governments the confidence that, in the end, they can prevail. It is not a matter of whether the provinces will win, but of how much,” said Cunningham.

Janice Forsythe was the executive director
of the Canadian Council for Tobacco Control from 1992 to 1997.
She is currently principal consultant for Cypress Consulting in Ottawa.