MONTGOMERY, Ala. (Legal Newsline) - Alabama Attorney General Troy King's dispute with the federal Medicaid agency over a Freedom of Information Act request may soon be resolved.
Once it is, King and the Centers for Medicare and Medicaid Services can continue to argue over a letter sent by CMS nearly a year ago that outlined changes in the way it would recover funds from settlements and jury awards in Medicaid recovery lawsuits.
As agreed upon by the two sides, CMS filed a motion for summary judgment in the FOIA dispute Sept. 29. Briefing will be completed Oct. 22.
At issue is one partially redacted e-mail among more than 1,700 pages of documents CMS provided King's attorneys.
The e-mail was partially withheld under Exemption 5 of the FOIA, which protects disclosure of inter-agency or intra-agency memorandums or letters which would not be available by law to a party in litigation with the agency.
Courts, CMS' attorneys say, have interpreted Exemption 5 as protecting all records that would be privileged in civil discovery.
The portions withheld are e-mails exchanged between U.S. Department of Justice attorneys and Department of Health and Human Services' Office of General Counsel.
"The FOIA Officer reviewed the document, released all reasonably segregable non-exempt
information, and withheld information that was protected by the deliberative process privilege
and the attorney work-product privilege," the motion says.
More than 1,700 pages of documents were also withheld.
U.S. District Judge Mark Fuller is presiding over both cases.
King is upset with the new requirements regarding what amount must be returned the CMS when a state files an action seeking recovery of Medicaid funds, a move popularized in suits against tobacco companies in the 1990s.
His FOIA request sought CSM records related to and considered during the decision to enforce new requirements.
"These new requirements provide that states must 'return' to the Federal Government not only those amounts attributable to the federal share of payments made by a state's Medicaid program, but also a significant portion of amounts attributable to fines and penalties (such as punitive damages) obtained as a result of states' efforts to prosecute those who defraud their respective Medicaid programs, with little or no help from the federal government," King wrote in the first complaint.
"Adding insult to injury, (a letter from CMS to the states) also requires states to make these payments to the Federal Government without regard to whether the state has actually received the amounts in question."
The Oct. 28 letter from the CMS to the states says they are not allowed to segregate portions of their recovery as out of the Federal Government's reach.
" The (Heath and Human Services) Departmental Appeals Board has long recognized the federal government's entitlement to its proportionate share of civil penalties assessed by states against providers or other entities," the CMS letter states.
It adds that recently enacted federal legislation "provides that the full amount of any State (False Claims Act) recovery serve as the basis for measuring the federal share."
In fiscal year 2008, the Federal Government provided nearly 68 cents of every dollar spent on Medicaid in Alabama. King wrote that the new requirements "will have a devastating impact on the State of Alabama and the low-income and disabled individuals served by the State's Medicaid program."
Potentially hundreds of millions of dollars are at stake, he said. The State sued 79 pharmaceutical companies in 2005.
Arising from those claims were a $2 million settlement with Takeda Pharmaceuticals and a $4 million settlement with Dey, L.P.
Larger amounts could be in question. In February, a jury ordered AstraZeneca to pay $215 million, though the award was reduced to $160 million. The original verdict provided only $40 million in compensatory damages, while the remainder was punitive damages.
AstraZeneca has appealed, and the State has not received any money yet.
In July, a jury ordered Novartis Pharmaceutical to pay $33 million and GlaxoSmithKline $80.9 million. Though both included no punitive damages, they have both been appealed and the State has not received any money.
"A State may not seek to recover merely the 'state share' of computed fraud damages unless appropriate federal and state authorities formally agree to sever the federal and state portion of the overpayment and pursue them as separate actions," the CMS letter says.
"If there is no formal agreement to sever, a state may not claim in a state FCA case that it is only recovering damages incurred by the State, but not the federal government. Nor may a state return merely the federal portion of 'single' damages and retain all other amounts, such as double and treble damages. The federal government is entitled to the applicable FMAP share of a state's entire recovery."
The CMS is currently locked in a dispute with West Virginia Attorney General Darrell McGraw over his handling of settlement funds.
McGraw settled his 2001 suit against Purdue Pharma, the manufacturer of prescription painkiller OxyContin, in 2004. The settlement was worth $10 million, with more than $3 million going to the outside counsel McGraw hired to represent the State.
The rest of the money has been given by McGraw to substance abuse organizations, angering some members of the state Legislature who feel only they should be able to appropriate state funds.
Originally, CMS sought to withhold more than $4 million from its next Medicaid appropriation, but that figure has been rejected as too high by the Departmental Appeals Board. A spokesperson for CMS recently said to expect a ruling by the end of the year.
From Legal Newsline: Reach John O'Brien by e-mail at firstname.lastname@example.org.