Stay ordered in $2.7M dispute between McGraw, feds

John O'Brien Aug. 4, 2010, 1:52pm


CHARLESTON, W.Va. (Legal Newsline) - A federal judge has granted a stay in West Virginia Attorney General Darrell McGraw's challenge to a withhold of $2.7 million in Medicaid funds that stems from one of his settlements.

On July 27, U.S. District Judge Thomas Johnston granted the federal government's motion to stay the case while a similar case is sorted out by the U.S. Court of Appeals for the Fourth Circuit. That case involves a nearly $450,000 withhold of Medicaid funds.

Once that case is resolved, McGraw and the federal Centers for Medicare and Medicaid Services will have 30 days to file their motions for summary judgment.

CMS says $2.7 million of McGraw's 2004 settlement with Purdue Pharma, worth $10 million, should have gone to it, since the lawsuit alleged harm to the state's Medicaid program, which is largely federally funded.

Rather than give the Purdue Pharma settlement funds to the state agencies named as plaintiffs, McGraw 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 Departmental Appeals Board wrote.

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

Chief Deputy Attorney General Fran Hughes has admitted to the state Legislature that the Purdue Pharma 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.

U.S. District Judge Joseph Goodwin has already sided with CMS over an $850,000 settlement with Dey. He said the State owed CMS $446,000, and McGraw appealed to the Fourth Circuit.

Goodwin asked off the Purdue Pharma withhold challenge in June. He delivered his decision on the Dey withhold challenge in March.

"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."

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