Feds make case against W.Va. AG to 4th Circuit

John O'Brien Oct. 5, 2010, 11:54am


RICHMOND, Va. (Legal Newsline) - The federal government is again making its argument that West Virginia Attorney General Darrell McGraw gave the funds from a 2004 settlement to all the wrong parties.

The federal Department of Health and Human Services filed its response brief Sept. 27 in McGraw's appeal of the department's decision to claim nearly $450,000 it feels it was owed from the settlement.

That would come in the form of a disallowance of $446,607 in the feds' Medicaid funds appropriation to the State. The disallowance has been upheld by an appeals board and a federal judge in Charleston and is now before the U.S. Court of Appeals for the Fourth Circuit.

DHHS noted that McGraw and the private attorneys he hired to represent the State estimated that Dey LP, the defendant in the case, caused more than $950,000 of damage to the state Medicaid program. Dey settled for $850,000.

"West Virginia did not reimburse HHS for the federal share of its Medicaid overpayments or inform HHS of its settlement with Dey," the federal government's attorneys wrote in the brief.

"Instead, the State gave $750,000 to (the Public Employees Insurance Agency) - i.e., roughly five times the State's own damages estimate for PEIA - and gave the remaining $100,000 to the Consumer Protection Fund of the West Virginia Attorney General's Office."

The private attorneys hired by McGraw also received $250,000 for their work in the settlement. The case will have implications in a nearly identical one worth $2.7 million that has been stayed.

In 2004, the year of the settlement, the federal government supplied 78 percent of the money West Virginia used on Medicaid.

To calculate the amount it wanted to withhold, the federal government took 67 percent of the amount of the settlement because the original Medicaid damages estimate was 67 percent of what McGraw claimed was the State's damages.

The feds then took 78 percent of that amount. The Departmental Appeals Board agreed with the amount and rejected one of McGraw's other arguments.

"The Board also rejected the State's contention that the $100,000 that Dey paid to the West Virginia Attorney General's consumer protection fund 'should be treated as costs of legal work performed by attorneys of the West Virginia Attorney General's office in the lawsuit against Dey,'" the feds wrote.

"The Board explained that the consumer protection fund had not financed the State's lawsuit against Dey and, moreover, that Dey had made a separate payment of $250,000 in attorneys fees that CMS did not treat as funds subject to federal recovery."

The feds are also claiming $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.

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 the federal DHHS 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.

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

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