McGraw settlement again irks feds

By John O'Brien | Dec 19, 2007


CHARLESTON - The federal government is unhappy with another settlement engineered by state Attorney General Darrell McGraw and is planning to make the state pay up.

For a second time, the federal Centers for Medicare and Medicaid Services has notified the state's Department of Health and Human Resources that it will be withholding Medicaid funds because it does not believe it was given what it was owed from a lawsuit settlement, DHHR spokesman John Law verified.

The CMS notified the DHHR last week that it will keep $634,525 from a future Medicaid payment to the State, though McGraw's office has said it will appeal the decision. It is currently appealing a $4.1 million withhold.

"We absolutely disagree with their point of view for a whole host of reasons," Managing Deputy Attorney General Barbara Allen told The Associated Press. "We do not believe this disallowance is proper."

The most recent dispute stems from McGraw's 2004 settlement with Dey, Inc. He had claimed the company inflated the prices of the prescription drugs it manufactured, thereby defrauding the state's Medicaid program.

The two sides settled for $850,000. The money was split among McGraw's own consumer protection and education fund, the Public Employees Insurance Agency, the old Workers' Compensation agency and the DHHR, which administers the Medicaid program in the state.

However, the CMS provides roughly 75 cents of every dollar the state spends on Medicaid. Since McGraw claimed it was the Medicaid system being cheated, the CMS says it should be entitled to the percentage it would provide on $850,000.

Dey is a U.S. affiliate of Merck KGaA, which is based in Germany. McGraw had claimed it submitted inflated average wholesale prices to organizations that pass them on to State agencies.

"Prices of prescription drugs are too high," McGraw said when he announced the settlement. "The state cannot continue to pay inflated prices for drugs which our citizens need.

"This settlement will help relieve the State's budgetary burden."

McGraw's other controversial settlement was 2004's $10 million agreement with Purdue Pharma, manufacturer of the prescription painkiller OxyContin. McGraw represented three state agencies in the suit, though he kept the settlement funds.

He has used the money on substance abuse programs around the state, as well $500,000 to the University of Charleston for a pharmacy school.

Chief Deputy Attorney General Fran Hughes admitted to the Legislature that the money was not given to the DHHR because the 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 earlier this year.

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

Private practice attorneys hired by McGraw to represent the State earned $3.4 million in the settlement. CMS arrived at its total of $4,143,075 million by taking the 74.65 percent (the rate of federal payment to the state for every dollar spent) out of $5.5 million of the settlement. That $5.5 million represents what the CMS feels should have been the equitable distribution of the settlement dollars among the three plaintiffs (the DHHR, the Public Employees Insurance Agency and the Bureau of Employment Programs) with respect to certain allegations involving Medicaid dollars.

McGraw's office is also representing the DHHR in its appeal of that decision.

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