CHARLESTON - A legal battle over West Virginia Attorney General Darrell McGraw's use of funds from a 2004 settlement with Purdue Pharma may soon be coming to a close.
The Charleston Daily Mail reported Thursday that the federal government is likely to get its share of the settlement money.
In 2004, the year of the settlement, the federal government supplied 78 percent of the money West Virginia used on Medicaid.
In return, 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.
Instead of giving 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.
In addition, private attorneys received more than $3 million in the settlement.
Chief Deputy Attorney General Fran Hughes -- who formerly served as general counsel for a national consulting firm that specialized in Medicaid financing -- told the Daily Mail in a telephone interview this week that she's not sure where the Attorney General's Office would get the full $2.7 million from if it does, in fact, lose its battle with the federal government.
She told the newspaper that McGraw's office has "some" money but not "enough" to cover the disallowance.
The state Department of Health and Human Resources -- one of the three agencies McGraw sued on behalf of -- also could find itself in a hole if the feds get their share of the settlement money, the Daily Mail reported.
The newspaper pointed to a decision by the U.S. Court of Appeals for the Fourth Circuit last year as evidence.
The Fourth Circuit ruled that the federal Centers for Medicare and Medicaid Services, or CMS, 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 court's ruling lifted a stay on an identical case -- the dispute over the $2.7 million.
McGraw, who didn't appeal the Fourth Circuit's decision to the U.S. Supreme Court, filed a motion for summary judgment in the $2.7 million case in October.
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," the attorney general's motion stated.
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."
However, McGraw argued 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."
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.
In its motion for summary judgment, the federal government wrote, "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."
Patrick Morrisey, McGraw's GOP opponent in the state's Nov. 6 election, responded to the Daily Mail report Thursday.
"Throughout this campaign, we have discussed why it is wrong for Darrell McGraw to pocket settlement money instead of returning it to the State Legislature and the taxpayers. Today, in a news article, we see just how problematic McGraw's self-aggrandizing policies can be on our state's most vulnerable citizens: recipients of Medicaid," Morrisey said in a statement.
"The article points out that McGraw's blunders will cost the state millions of dollars. But there is a larger issue at stake. It's not only the fact that McGraw is costing the state millions of dollars through his poor judgment and refusal to return settlement money where it belongs. Rather, McGraw's actions place the health benefits of our most vulnerable citizens and the elderly at risk."
He continued, "Ultimately, regardless of how much money McGraw ponies up from his slush fund to remedy his mistakes, the federal government will withhold the monies owed to it and will reduce the amount of monies available to the state to spend on Medicaid."
Morrisey said McGraw "fundamentally compromises" the Medicaid program.
"We simply can't trust him to serve as the general counsel to this important program anymore. It's time for someone who has experience, competence and good judgment on Medicaid matters," he said.
"I challenge Darrell McGraw to immediately set aside a reserve from current settlement funds he uses for self-promotion to ensure that no Medicaid beneficiaries are harmed by his poor judgment.
"McGraw won't debate, but perhaps he will direct some energy to helping the most vulnerable citizens and seniors in our state."