McGraw, feds seek judgment in $2.7M dispute

John O'Brien Oct. 18, 2011, 5:17pm


CHARLESTON, W.Va. (Legal Newsline) - With a loss in an identical case behind him, West Virginia Attorney General Darrell McGraw is again arguing over the amount being withheld by the federal government from the state's Medicaid program.

The U.S. Court of Appeals for the Fourth Circuit ruled earlier this year that the federal Centers for Medicare and Medicaid Services, which administers a large percentage of funds used by states on their Medicaid programs, was owed nearly $450,000 from McGraw's 2004 settlement with Dey, Inc. The ruling lifted a stay on an identical case - a dispute over $2.7 million.

McGraw apparently won't appeal the Fourth Circuit's decision to the U.S. Supreme Court, and he and CMS filed their motions for summary judgment in the $2.7 million case on Monday.

The Departmental Appeals Board's decision to withhold $2.7 million in Medicaid funds from the state "should be reversed and the case remanded for a calculation or reimbursement that accounts for the losses consumers suffered and for the statutory penalties to which the attorney general is entitled," McGraw's motion says.

It calls the disallowance amount arbitrary, capricious and an abuse of discretion. McGraw made the same argument in the Dey dispute, and the Fourth Circuit rejected it.

"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."

In 2004, the year of the settlement, the federal government supplied 78 percent of the money West Virginia used on Medicaid. The feds are claiming $2.7 million of McGraw's $10 million settlement with Purdue Pharma, the maker of OxyContin, should have gone to them, 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. 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.

The feds' motion for summary judgment said, "Permitting such manipulation would thwart a responsible partnership between the federal government and West Virginia in a program for which the federal government pays approximately 75 cents of every dollar spent in West Virginia."

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

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