RICHMOND, Va. -- West Virginia Attorney General Darrell McGraw is using a recent decision against the federal Medicaid agency to support his argument while he attempts to avoid causing a hole in his state's budget.

McGraw filed a notice of the decision from an Alabama federal court with the U.S. Court of Appeals for the Fourth Circuit, which he wants to overturn a lower court's decision that said McGraw should have paid more than $400,000 from a settlement with Dey LP to the federal Centers for Medicare and Medicaid Services.

Former Alabama Attorney General Troy King challenged a 2008 letter from CMS that was sent to state health officials and outlined a new procedure for paying CMS from monies recovered in state-filed Medicaid fraud lawsuits. One new rule said CMS would take a percentage of monies classified as civil penalties.

Much of a state's Medicaid budget is provided by the federal government through CMS, so the agency requests that percentage when a state secures a settlement or receives a jury award in Medicaid suits. If CMS feels it is shortchanged, it withholds that amount from its next appropriation to the state.

King alleged the agency did not go through proper rulemaking procedures, like a notice-and-comment period, when it issued the changes. A federal judge agreed earlier this year, and the federal government has appealed.

"The Alabama Decision confirms that because there was no statute, regulation, rule, written policy or guidance in existence at the time of the settlement in the underlying action imposing such (payment) duties upon the State, the (Departmental Appeals Board) exceeded its jurisdiction in upholding the disallowance against the West Virginia Department of Health and Human Resources and the District Court committed error in affirming the DAB," Assistant Attorney General Mary McQuain wrote May 3.

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