WASHINGTON (Legal Newsline) - The federal Medicaid agency recently finalized its decision to claim more than $18 million from a 2006 settlement reached by Michigan Attorney General Mike Cox.

The federal Centers for Medicare and Medicaid Services on Dec. 20 denied Cox's request for reconsideration of the decision, first reached in January 2009. CMS is taking what it considers its portion ($18,662,318) of a $49 million settlement between Cox and Specialized Pharmacy Services and its parent corporation, Omnicare.

Afterward, former Alabama Attorney General Troy King argued with CMS over the meaning of the decision in his last days on the job.

CMS provides funding to state Medicaid programs. When a defendant company has been found to have cheated the state program or settles those allegations, CMS can take its share of the recovery. The share comes in the form of a disallowance in the next appropriation of funds.

Cox filed an amicus brief in King's lawsuit against the CMS over a letter the agency wrote to state health officials in October 2008. The letter said CMS would begin claiming a percentage of civil penalties from settlements and verdicts.

King claims the letter amounted to a new administrative rule and should have been open to a notice and comments period. On Jan. 4, two weeks before leaving office, King submitted the decision on the Michigan issue to the judge presiding over his case.

"Among other things, CMS's reconsideration decision indicates that CMS is continuing to enforce the requirements of the SHO letter as they are written and that states who disobey the SHO letter's requirements do so at their own peril," King's attorneys wrote.

"It is also worth noting that, although CMS's reconsideration decision repeatedly refers to the contents of the SHO letter as mere 'policy,' in this litigation, CMS has formally abandoned its previous claim that the SHO letter qualifies for the 'general statement of policy' exception to the (Administrative Procedure Act's) notice-and-comment rulemaking requirements."

Approximately one-third of Cox's settlement with Omnicare reflected recovery of Medicaid funds, while the rest was classified as a civil penalty. Cox says the proper amount was paid to the feds, but CMS "tried to persuade" the State to pay it a share of the civil penalty.

CMS says its decision shows that the SHO letter is not a final agency action and not subject to the notice-and-comment period.

"(T)he Michigan reconsideration decision illustrates this point by making clear that the Michigan disallowance is grounded in, and authorized by, statutes and regulations, not the SHO letter itself," CMS's response to King says.

New Michigan Attorney General Bill Schuette can appeal the decision by taking the issue to the Departmental Appeals Board.

If the DAB upholds the disallowance, then Schuette could take the issue to federal court. West Virginia Attorney General Darrell McGraw has filed two such lawsuits against CMS.

Republican Luther Strange, who defeated King in a May primary, is Alabama's new attorney general. The lawsuit is in the summary judgment phase.

From Legal Newsline: Reach John O'Brien by e-mail at

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