W.Va. AG might be done appealing $3.1M disputes with feds

John O'Brien Oct. 6, 2011, 6:56am


CHARLESTON, W.Va. (Legal Newsline) - West Virginia Attorney General Darrell McGraw appears to be ready to accept a ruling that he shortchanged the federal government nearly $450,000.

Both McGraw's office and attorneys for the federal Department of Health and Human Services signed a joint motion Monday to lift the stay that has been in place in McGraw's challenge of a withhold of Medicaid funds. The Centers for Medicare and Medicaid Services, a part of the DHHS, allots federal funds to states to use in their Medicaid programs.

CMS says McGraw wrongfully kept $2.7 million from his 2004 settlement with Purdue Pharma, the maker of OxyContin. CMS provides the bulk of dollars West Virginia spends on Medicaid and feels it should be repaid when a lawsuit alleging harm to the Medicaid program results in a settlement or award.

The U.S. Court of Appeals for the Fourth Circuit agreed in August, ruling that McGraw wrongfully kept $446,607 by not classifying the proper amount of the $850,000 settlement with Dey Inc. as Medicaid recovery.

The $2.7 million withhold had been stayed while that case was sorted out, since the arguments in the two cases are identical. McGraw still has the option to appeal to the U.S. Supreme Court, but voluntarily lifting the stay could mean that he will not. The two sides also proposed a briefing schedule.

In 2004, the year of the Dey settlement, the federal government supplied 78 percent of the money West Virginia used on Medicaid. CMS noted that McGraw and the private attorneys he hired to represent the State estimated that Dey caused more than $950,000 of damage to the state Medicaid program. Dey settled for $850,000.

The Fourth Circuit ruled that a "straightforward application of the Medicaid Act" shows that the feds had the right to withhold funds and that the amount was properly decided.

"Even if the federal government is entitled to a portion of the Dey settlement, West Virginia argues that CMS arbitrarily calculated the proper amount of the disallowance," wrote Judge Albert Diaz, a recent appointee of President Barack Obama.

"Notably, however, the state has not come forward with an alternative estimate ... CMS's calculation of the disallowance was elegantly simple. Drawing on West Virginia's own damages estimate from the Dey litigation, CMS merely multiplied the amount of loss suffered by West Virginia's Medicaid program by the percentage of funds that the federal government contributes to the state's Medicaid program.

"The resulting figure was $446,607. We fully endorse the (Departmental Appeal) Board's rejection of West Virginia's argument."

The federal government had argued that McGraw had not returned the settlement funds to the state Department of Health and Human Resources because it would have alerted CMS to a possible recovery.

"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 a 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.

McGraw's $10 million settlement with Purdue Pharma caused more of a controversy.

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. Private attorneys received more than $3 million in the settlement.

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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