Judge rules against McGraw, W.Va. budget to be shorted

John O'Brien Apr. 7, 2010, 12:33pm


CHARLESTON, W.Va. (Legal Newsline) - The federal government was right to withhold more than $400,000 from the state of West Virginia because of one of state Attorney General Darrell McGraw's settlements, a federal judge has ruled.

U.S. District Court Joseph Goodwin sided with the federal Centers for Medicare and Medicaid Services on March 31 in McGraw's challenge to a withhold of Medicaid payments to the state ordered in 2007. A Departmental Appeals Board had ruled CMS was owed $446,607 from McGraw's 2004 settlement with pharmaceuticals maker Dey, LP.

The decision may provide a preview for a similar case involving a much larger amount of money. McGraw is challenging a DAB decision that withheld more than $2 million in federal appropriations to the state Medicaid agency.

"West Virginia's theory in pursuing the pharmaceutical companies was built around inflated reimbursement rates that the State paid to pharmacies - which are 'providers' and which West Virginia's complaint labeled as such (claiming that Dey caused the State to 'overpay substantially' when it 'reimbursed providers for the drug')," Goodwin's decision says.

"The overpayments in this case were paid to providers pursuant to the Medicaid program. (CMS) is entitled to its share of those recovered overpayments regardless of the source of the recovery."

The settlement with Dey was worth $850,000 and settled claims the company harmed the state's Medicaid program, which is largely funded by the federal government.

McGraw sent $100,000 of the settlement to his Consumer Protection Fund, while none of the settlement funds went to the state Department of Health and Human Resources.

CMS says $750,000 McGraw gave to the Public Employees Insurance Agency was an amount much greater than the damages he claimed for the agency during litigation.

McGraw and CMS are also fighting over DAB deciding CMS is owed $2.7 million from McGraw's $10 million settlement with OxyContin-maker Purdue Pharma.

That dispute was filed months after the Dey dispute.

Chief Deputy Attorney General Fran Hughes has admitted to the Legislature that the OxyContin money was not given to the state DHHR, which administers the Medicaid program, because CMS would then be able to claim a share -- "We have arranged a methodology that has prevented the federal government from coming back and seizing money," Hughes said.

Hughes formerly served as general counsel for a national consulting firm that specialized in Medicaid financing.

CMS had sought more than $4 million, but the DAB adjusted its calculations to consider the more than $3 million in attorneys fees earned by private attorneys hired by McGraw to pursue the case, which alleged Purdue Pharma misrepresented the addiction capabilities of the painkiller OxyContin.

Rather than give the settlement funds to the state agencies named as plaintiffs, McGraw has used the money from the settlement on substance abuse programs around the state, as well $500,000 to the University of Charleston for a pharmacy school.

McGraw argued that there was a fourth plaintiff - the affected individuals in his state he was representing in his parens patriae capacity.

"We find no merit in this argument," the DAB wrote.

"It is not evident from the record that the State was, at the time of settlement, seeking damages on behalf of individual consumers."

McGraw did give $250,000 of the settlement to the state DHHR.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.

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