McGraw takes Medicaid withhold to federal court

By John O'Brien | Jan 21, 2010


CHARLESTON -- State Attorney General Darrell McGraw is challenging an appeals board decision to withhold $2.7 million in Medicaid funds that stems from a $10 million settlement with OxyContin-maker Purdue Pharma he engineered in 2004.

The federal Centers for Medicare and Medicaid Services planned to withhold more than $4 million because it felt it did not get its share of the settlement, but the Departmental Appeals Board lowered that figure to a little more than $2.7 million.

In December, McGraw filed suit against that decision in a federal court in West Virginia. CMS said it already had taken the $2.7 million from available Medicaid funds.

Of the $10 million, more than $3 million went to private lawyers hired by McGraw, and the rest was appropriated by McGraw. He gave the Department of Health and Human Resources $250,000 and much of the rest to day report centers for those convicted of non-violent crimes.

"Disregarding the West Virginia community from the allocation of settlement proceeds is arbitrary, capricious, contrary to law and contrary to the circuit court's order approving the settlement," the complaint says.

"It is fundamentally unfair to require DHHR to credit the federal government with $2,732,968.00 when DHHR received only $250,000 and the state Medicaid agency (Bureau of Medical Services) received none of the settlement proceeds."

McGraw's original complaint against Purdue Pharma listed himself, in a parens patriae role, as the lone plaintiff. An amended complaint listed three state agencies, including the DHHR, as plaintiffs.

McGraw argued to the DAB 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 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."

The board wrote that McGraw's attorneys had prepared at least one witness from each of the three plaintiff state agencies but none were mentioned as being designated to testify on the behalf of the class of individual consumers.

McGraw says the amount the DAB arrived at is "arbitrary and unlawfully intrudes on powers reserved to states."

McGraw is representing the DHHR in the challenge. The suit seeks a return of the $2.7 million.

Del. Jonathan Miller, a Republican, has asked through a Freedom of Information Act request why the financially strapped Public Employees Insurance Agency is not seeking a share of the settlement. It was one of the listed plaintiffs.

"There are budgetary issues," Miller said in July. "The attorney general is affecting our bottom line as we're approaching a budget cliff.

"(McGraw) is well known for his antics. That's an issue we've gotta address. If he goes off base and takes these settlements in the wrong direction, it causes problems we'll have to address in the Legislature.

"We haven't really wanted to get too involved with the issue. It's the big elephant in the room."

Chief Deputy Attorney General Fran Hughes admitted to the Legislature that the money was not given to the 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.

The Appeals Board also decided last year that CMS was entitled to $446,607 of McGraw's 2004 settlement with pharmaceuticals manufacturer Dey, Inc.

That case, which alleged the company improperly inflated the cost of its drugs and ripped off the state's Medicaid program (largely funded by the federal government), resulted in an $850,000 settlement. That money went to McGraw's Consumer Protection Fund and three state agencies.

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