(CN) – The 4th Circuit upheld the federal government’s decision to withhold Medicaid funds from West Virginia because the state failed to pay the federal government its share of a 2004 settlement.
The Centers for Medicare and Medicaid Services claimed that West Virginia owed it $446,607 from the state’s lawsuit against Dey Inc., a pharmaceutical company that manufactured and sold albuterol sulfate.
West Virginia filed a federal complaint on behalf of three state agencies – Department of Health and Human Resources, Public Employees Insurance Agency and Workers Compensation Division – in Charleston, disputing CMS’ claim to the funds.
The 2001 complaint against Dey alleged that the company artificially inflated the reimbursement value of certain drugs to increase its profits, in violation of the West Virginia Consumer Credit and Protection Act.
West Virginia’s state Medicaid program reimburses pharmacists for drug sales to Medicaid patients with reimbursement value based on the industry-defined average wholesale price (AWP) of a particular drug.
Dey agreed to pay West Virginia $850,000, of which $100,000 was allocated to the Consumer Protection Fund of the Office of the West Virginia Attorney General, Darrell McGraw. In turn, West Virginia released it from further claims arising from the alleged overpayment.
West Virginia’s PEIA received the other $750,000.
CMS learned of the Dey settlement in 2007 and informed West Virginia’s DHHR that it intended to withhold $634,525, which CMA maintained represented its share of overpayments made to pharmacists and other providers.
CMS lowered its claim to $446,607 prior to appearing before the HHS Departmental Appeals Board. CMS calculated the number by multiplying the settlement by the share of the state’s estimated damages allocable to Medicaid, and then multiplied that figure by the share of state Medicaid expenses covered by the federal government.
The board upheld this calculation, citing that “an allocation need only have some reasonable basis.” It also noted that West Virginia did not present an alternative calculation.
The Southern District of West Virginia upheld the agency’s decision, rejecting West Virginia’s argument that a disallowance was improper because Dey was a third party and not a provider.
The state argued in the Richmond, Va.-based federal appeals court that CMS misconstrued the definition of a “provider” and that CMS’ notice of disallowance constitutes a new rule that may not be imposed without notice-and-comment rulemaking.
A “provider” is defined as “any individual or entity furnishing Medicaid services under a provider agreement with the Medicaid agency.”
The court disagreed with the state’s contention that CMS’ definition of “provider” was not based on clear statutory text, calling the Medicaid Act’s statutes “plain and unambiguous” and saying West Virginia’s argument lacked textual basis.
The court’s decision may affect another 2004 settlement between West Virginia and Purdue Pharma, in which the federal government claims it is entitled to $2.7 million of the $10 million settlement.
McGraw used some of the money from the settlement for substance abuse programs throughout West Virginia, choosing not to allocate funds to DHHR, PEIA and WCD.The University of Charleston, located in the state’s capital city, received $500,000 for its pharmacy school. Private attorneys received more than $3 million.