Our firm assisted Bob Riley and Troy King when they were in office, on behalf of the State of Alabama, and obtained settlements and judgments for the State involving the false reporting of drug prices to the Alabama Medicaid Agency by the powerful pharmaceutical companies. During the latter part of Riley’s last term, the Federal government, acting through CMS (Centers for Medicare and Medicaid Services), made a demand on the State for payment of 70% of all of the funds received by the state whether by settlement or judgment. The State of Alabama refused to pay and cited Federal Regulations allowing the State to recover the costs of investigation and litigation and attorneys’ fees before it had to forward any “Federal Share” to the Federal government. Stated differently, the State of Alabama’s position was that the state would pay the required 70% of the “net recoveries” as prescribed by the Federal Regulations and that the “Federal Share” of any recovery the State obtained, but was not obligated to pay 70% of the entire recovery without accounting for the costs of investigation and litigation as well as attorneys’ fees associated with obtaining a settlement or judgment from the pharmaceutical companies.
The Federal Government disagreed, not only with Alabama, but with all other States that were litigating these same fraudulent pricing claims in their states. A declaratory judgment action was filed by Alabama in the United States District Court of the Middle District of Alabama and was assigned to Judge Mark Fuller. The suit set out the gross inequity of the Federal Government’s position.
In his February opinion, Federal Judge Mark Fuller ruled that the CMS letter sent to Alabama Medicaid constituted “final agency action” which made it reviewable under the Administrative Procedures Act (APA). Judge Fuller also found that notice and comment requirements under the APA applied to the letter because it “implemented,” but “did not interpret,” the Medicaid Act. Rules issued by an agency that are merely “interpretive” are not subject to APA requirements, the judge noted.
Judge Fuller ultimately found that the appropriate remedy for the APA violation, which he deemed a “prejudicial error” requiring remand, was to vacate the letter and he did so. The Federal Government appealed Judge Fuller’s ruling to the Eleventh Circuit Court of Appeals, but it never filed a brief of any kind with the Court. Recently, the Federal Government abandoned its appeal, leaving Judge Fuller’s decision intact. This should be a clear victory for Alabama and hopefully for all states that have been successful in suing the drug companies.
Interestingly, a similar action is pending in Michigan involving the very same issues. There had been a $49 million settlement in that state with Specialized Pharmacy Inc. A dispute arose between CMS and Michigan concerning the Federal share of that settlement. The settlement was broken down as follows: one-third represented “Medicaid dollars;” with two-thirds representing a civil penalty imposed under Michigan law. CMS took the position that Michigan was required to report to the Federal Government the Federal share of the entire recovery.
Michigan offered to pay CMS the Federal share of the $15,900,000.00 in the settlement attributed to Specialized Medicaid Overpayments. But in January 2009, CMS issued a disallowance of more than $18,600,000.00 and deducted that amount from Michigan’s Medicaid payment. Michigan asked CMS to reconsider its decision, but CMS denied the request.
The Michigan lawsuit specifically challenges the refusal by the Health and Human Services Departmental Appeals Board to hear an appeal of the CMS decision not to reconsider the $18,600,000.00 disallowance. That case is pending in the United States District Court of the Western District of Michigan.
It appears that the Federal Government viewed its chances on appeal concerning the issues discussed above to be better in the Sixth Circuit Court of Appeals than it would have been in the Eleventh Circuit. That may explain the government’s dismissal of the appeal from Judge Fuller’s decision. It could be that the government’s lawyers believed they would lose in the Eleventh Circuit, which was almost certain to have happened. Stay tuned.
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