Schuette, other AGs file brief in dispute with feds

John O'Brien Sep. 29, 2011, 5:00pm


ATLANTA (Legal Newsline) - Michigan Attorney General Bill Schuette and 13 of his colleagues are supporting the Alabama Attorney General's Office in its fight with the federal government over monies earned in Medicaid lawsuits.

Schuette's office filed an amicus brief in the lawsuit brought by former Alabama Attorney General Troy King and continued by his successor, Luther Strange. The lawsuit challenges rules laid out in a letter from the federal government to state health officials.

A district court ruled that the federal Centers for Medicare and Medicaid Services did not go through the proper rule-making procedures - like a notice-and-comment period - but has not enjoined CMS from acting on the rules in related cases.

"When a federal agency issues a substantive rule, it may not exceed what Congress permits it to do under substantive law," Schuette's amicus brief filed with the U.S. Court of Appeals for the 11th Circuit says.

Congress allows CMS to collect from the states a portion of the medical assistance the states may recover, but does not allow CMS to collect any portion of the states' non-Medicaid recovery."

The letter, sent in October 2008, said CMS would begin claiming a percentage of civil penalties from settlements and verdicts. The federal government funds the majority of each state's Medicaid program and already asks for the corresponding percentage from funds designated as recovery for state Medicaid programs. In 2008, CMS provided 68 cents of every dollar Alabama spent on Medicaid.

The decision can have multimillion-dollar consequences. King was trying to protect millions of dollars from lawsuits filed against 79 pharmaceutical companies in 2005. The State has taken in at least $89 million in settlements.

Michigan's interest in the issue stems from CMS' decision to take more than $18 million from a $49 million settlement reached in 2006 by former Attorney General Mike Cox and Omnicare. Cox filed an amicus brief in August 2010 supporting Alabama when the case was before U.S. District Judge Mike Fuller.

Approximately one-third of the Omnicare settlement was classified as a recovery of Medicaid funds, while the rest was determined to be a civil penalty.

"Because CMS is only the 'sorcerer's apprentice,' it can only require the states to repay the 'medical assistance percentage' of the Medicaid payments they recover," Schuette's brief says. "CMS has no authority to require a state to pay a share of recoveries other than for medical assistance, shielding civil penalties collected under state law from CMS.

"Because the SHO letter exceeds CMS' statutory authority, CMS should be enjoined from applying it to the states."

One of the attorneys general who signed Schuette's brief is West Virginia's Darrell McGraw, who is currently fighting CMS over settlement funds it determined it was owed from two of his settlements. He filed a notice of the district court decision with the Fourth Circuit, which was deciding his appeal at the time. Ultimately, the court sided with CMS.

The other attorneys general are Beau Biden of Delaware, Lawrence Wasden of Idaho, Derek Schmidt of Kansas, Jack Conway of Kentucky, Buddy Caldwell of Louisiana, Jim Hood of Mississippi, Jon Bruning of Nebraska, Catherine Cortez Masto of Nevada, Gary King of New Mexico, Scott Pruitt of Oklahoma, Mark Shurtleff of Utah and Rob McKenna of Washington.

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