Feds want a stay in McGraw settlement funds issue

By John O'Brien | Jul 26, 2010


CHARLESTON, W.Va. (Legal Newsline) - The federal government wants to stay proceedings in West Virginia Attorney General Darrell McGraw's challenge to a $2.7 million Medicaid withhold until a similar case is sorted out.

The U.S. Department of Health and Human Services on Friday asked U.S. District Judge Thomas Johnston to suspend McGraw's challenge until the U.S. Court of Appeals for the Fourth Circuit decides if McGraw owed the federal government almost $450,000 from a settlement with Dey, LP.

The federal Centers for Medicare and Medicaid Services 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.

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.

"Staying these proceedings until the Fourth Circuit resolves the case currently on appeal will serve the interests of judicial economy by allowing both parties to present a more focused discussion of the relevant legal and factual issues in light of Fourth Circuit precedent," attorneys for the federal government wrote.

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."

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.

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."

McGraw did give $250,000 of the settlement to the state DHHR.

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

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