McGraw, CMS spar over disputed settlement funds

By John O'Brien | Mar 2, 2010


CHARLESTON -- West Virginia Attorney General Darrell McGraw and the federal Medicaid agency traded barbs recently when responding to each others' motions for summary judgment in a dispute over settlement funds.

The Centers for Medicare and Medicaid Services said McGraw is trying to overcomplicate the matter, while McGraw called CMS's argument a "red herring." The two sides are arguing over a 2004 settlement with Dey, Inc., worth $850,000.

An appeals board ruled CMS was owed $446,607 from the settlement. McGraw's suit against Dey alleged the state's Medicaid program, largely funded by the federal government, was harmed.

"Because the federal government provided approximately 75 cents out of every dollar spent by the state's Medicaid program, quite a bit of that settlement represented recovered federal money," attorneys for CMS wrote.

"Rather than return the federal share of this money, however, West Virginia chose to use the payments from Medicaid to run up its damages for purposes of the settlement and then keep the entirety of the money as a windfall."

McGraw sent $100,000 of the settlement to his Consumer Protection Fund, while none of the settlement funds went to the state Department of Health and Human Resources.

The dispute between the two sides can supply a preview for a more well-known case. McGraw and CMS are also fighting over an appeals board deciding CMS is owed $2.7 million from McGraw's $10 million settlement with OxyContin-maker Purdue Pharma.

That dispute was filed months after the Dey dispute.

"The State's claim that this case is an attempt to force states to recover from entities whose fraudulent conduct causes overpayments from their Medicaid programs ignores the facts of this case," CMS wrote.

"Nobody from (the federal Department of Health and Human Services) forced West Virginia to file its lawsuit against Dey; in fact, HHS did not even learn of the lawsuit until nearly three years after it was settled."

McGraw says CMS is avoiding the real issue.

"The underlying dispute does not turn on cost principles applicable to Medicaid grants to states or when a state must attempt to recover an 'overpayment' and refund the federal share after liability for an 'overpayment' has been established," his office wrote.

"Rather, it turns on whether or not Congress, as a pre-condition to federal funding, unambiguously imposed upon states a duty to recover excessive unallowable payments to Medicaid providers from third parties, such as pharmaceutical manufacturers, who allegedly caused the excessive unallowable payments to the Medicaid provider, under any theory of liability, and further imposes a duty upon states to refund the federal share from such a recovery."

McGraw's office also criticized the three years it took CMS to initiate the disallowance of funding, which is how CMS recovers funds it feels it is owed.

CMS says the $750,000 McGraw gave to the Public Employees Insurance Agency was an amount much greater than the damages he claimed for the agency during litigation.

Chief Deputy Attorney General Fran Hughes has admitted to the Legislature that the OxyContin 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.

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

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