The $10 Million Question
by admin on 09/10/08 at 1:14 pm
The State Journal
OxyContin Settlement Turns into a Pain for Attorney General
“We were the thread that unraveled the sweater,” state Chief Deputy Attorney General Fran Hughes said.
The West Virginia case demonstrated that a state could be successful in suing Perdue Pharma over the addictive qualities of OxyContin. Three years later, company officials agreed to pay 26 states and the District of Columbia $19.5 million to settle a series of lawsuits brought against it. Shortly afterward, those same officials pleaded guilty in federal court to misbranding the drug to play down its addictiveness and agreed to pay more than $634 million in restitution.
The state Attorney General’s Office viewed the $10 million settlement as one of its greatest victories. However, critics of state Attorney General Darrell McGraw now see it as one of his greatest liabilities.
Those critics are not questioning the substance of the lawsuit but rather how the $10 million was divvied up afterward. Roughly a third of the money went to the private law firms the office used to represent the state in court. The rest went into the AG’s Office Consumer Protection Fund that McGraw used to award grants to various causes and projects throughout the state.
McGraw has maintained that the grants are being used to fight substance abuse throughout West Virginia. His critics counter that what the fund is really about is getting McGraw re-elected.
“Twenty-eight years of controversy, and Darrell McGraw is at it again, spending $10 million from a settlement meant to help workers and the elderly,” says the announcer in a television commercial paid for by the Center for Individual Freedom, a Virginia-based nonpartisan organization that describes its mission as defending individual freedoms and rights. “Instead, (he is) divvying it up between his trial lawyer buddies and a fund only controlled by McGraw.”
The $10 million settlement has become the keystone in a campaign to boot McGraw out of office, and it is pretty much the only hot-button issue in what is turning out to be a relatively sleepy election season for statewide seats.
McGraw was the only incumbent listed as “vulnerable” in a recent analysis by Stateline.org of state attorney general races across the nation. The article’s author noted that McGraw had been nearly defeated when he last ran for re-election and that business groups are running a vigorous campaign against him.
A poll conducted in September found that McGraw, a Democrat, led his Republican opponent Dan Greear by 7.5 percentage points, although it also found that 9.5 percent of voters were undecided.
Still, McGraw’s political opponents are not his only critics. One of the strongest condemnations came earlier this year, when the Democrat-led state Legislature passed a new law requiring the Attorney General’s Office to report any funds it had received through court settlements. The federal government also is knocking at the door, saying it is owed millions of dollars from the settlement.
For the Attorney General’s Office, the questions surrounding how the $10 million was spent is a distraction from the good work it says its been doing for the people of West Virginia.
“It’s a red herring,” Hughes said. “This whole issue has been whipped up to try to divert people’s attention from the groundbreaking, award-winning work the office has done.”
Awarding Funds
The State Journal requested from the Attorney General’s Office a copy of the current annual budget for the Consumer Protection Fund, including a list of all disbursements made from the fund between 2002 and 2008 along with an itemized list of how the office distributed the $10 million settlement with Purdue Pharma relating to OxyContin. The request was made Sept. 26, but the newspaper has yet to receive documents detailing the dollars and cents.
“There’s just not a print out of who it was paid to,” said Attorney General’s Office Comptroller Joe Clay, about the budgetary request. “I’m having to go through books and books of information to get what you’re asking for, and it takes time to pull out, copy and put back.
“There’s six months that for whatever reason somebody’s misplaced.”
But by referring to press releases from various sources, some of the office’s settlement money can be tracked.
Thanks in part to OxyContin, the University of Charleston has a pharmacy school.
The largest grant so far awarded from the settlement fund was $500,000 to the private university for its pharmacy school. The Attorney General’s Office maintains that pharmacists are the front line of defense against doctor shopping and prescription medication abuse.
“It is education aimed at eradicating substance abuse,” Hughes said.
Other grants awarded by McGraw’s office include $10,000 to Charleston Black Ministerial Alliance for a program warning youth about drug abuse; $75,000 to the Kanawha Valley Fellowship Home for community-based drug treatment and education programs; $100,000 to the Mercer County Commission for a day report center; and a total of $90,000 to various Boys & Girls Clubs throughout the state.
McGraw himself makes the final decision on which programs and projects are awarded grants, Hughes said. The attorney general rarely grants interviews with the media, particularly with those media outlets he believes have been overly critical of him, but in a recent interview with the Charleston Gazette and in a meeting with lawmakers in January, he said the money is being appropriated in a manner dictated by the judge’s ruling in the OxyContin case and that most of the terms were spelled out by Purdue Pharma.
According to the settlement, the money was to be used for accredited medical education programs aimed at curbing prescription drug abuse, law enforcement training and community-based drug and diversion education programs.
Purdue Pharma was to provide the Attorney General’s Office a list of recommendations for how it wanted the money spent, which the attorney general was to take in “good faith” but was under no obligation to follow.
The issue for state lawmakers is that it has historically been the Legislature’s role to appropriate funding. While members of the other branches of government can recommend how the money should be spent, it is legislators who ultimately decide where the cash goes, which is one of the checks and balances in state government to ensure no individual has too much power.
The attorney general’s response has been that he has brought into almost $2 billion into the state through lawsuits and settlements in his 16 years in office, and 99.9 percent of that was under the control of the Legislature.
Critics see a larger problem.
They say McGraw has used the money mainly as a means of self-promotion. They point to what they see as a history of such abuse in which the attorney general has used settlement money to buy television commercials featuring him. In one case, funds were used to pay for a fleet of “mobile offices” that had McGraw’s name emblazoned on the sides.
“He basically converted the proceeds from the settlement into his own slush fund,” said Steve Cohen of West Virginia Citizens Against Lawsuit Abuse.
CALA has been one of McGraw’s most outspoken critics but also one that McGraw and his staff say is far from a disinterested party in seeing the attorney general defeated. Groups like CALA have sprung up in states across the nation and receive a large part of their funding from corporations and industry-backed groups, according to the Center for Media and Democracy, a nonprofit organization that tracks corporate public relations spin.
McGraw’s defenders say it is no surprise that corporate interests are campaigning against McGraw given what they say is his record of protecting consumers against corporate greed. Hughes said that it was ironic that the Center for Individual Freedom, another pro-industry group, is calling for more openness out of her office when it is currently suing the state to keep its list of donors secret.
Cohen said CALA has more than 30,000 members in the state, many of whom have contributed to the organization, sometimes as little as $5.
“Every state has their issues, and in our state it is the attorney general,” he said. He also said CALA advocates tort reform and the need to rid courtrooms of “junk science.”
Attorney Fees
Another criticism stemming from the OxyContin settlement was the awarding of $3.3 million to the private law firms that represented the state in the case.
The money came from the settlement and the portion to which the firms were entitled was spelled out in the judge’s order. The three firms are Cohen, Milstein, Hausfield & Toll of Washington, D.C.; DiTrapano, Barrett & DiPiero of Charleston; and G. David Brumfield of Charleston.
Critics say McGraw was simply awarding his political friends because at least some of the attorneys in the law firms had contributed money to McGraw’s past re-election campaigns.
Cohen also wondered why the Attorney General’s Office would need to bring in outside help if it already has its own legal staff.
“Why does he need to go outside to hire legal counsel?” Cohen said. “If there is a legal reason, he hasn’t given an explanation for it.”
Rudolph DiTrapano called the allegation that his firm bought its way into the lawsuit ridiculous. DiTrapano could recall giving $1,000 to McGraw’s campaign, which he said should be no surprise given he is the former chairman of the state Democratic Party and believes McGraw has done an outstanding job in office.
Also, DiTrapano said the Attorney General’s Office didn’t approach his law firm about filing the lawsuit. Rather, the D.C. firm approached his firm, and then the local firm took it to the attorney general, believing the state had a case against Purdue Pharma.
The issue of states appointing private legal counsel to argue lawsuits on the government’s behalf is larger than just the OxyContin case. Many states have entered into contingency fee arrangements with private law firms in an effort to save money while expanding their resources to bring cases to trial.
The trend has irked many in the private sector who see it creating a troubling bond between trial lawyers and government regulators. Last year, President Bush signed an executive order banning the use of contingency fee arrangements by the federal government, a move the U.S. Chamber of Commerce praised in a news release.
“No lawyer or expert witness should be able to pocket millions of dollars simply because he or she has the government as a client,” Lisa Rickard, president of the U.S. Chamber’s Institute for Legal Reform, stated in the release.
“These contingency fee arrangements create a perverse incentive, by combining the power of the government with the personal financial interest of some plaintiffs’ lawyers. Too often the result is millions of dollars of a government settlement or judgment going to trial lawyers, instead of victims.”
McGraw appointed the firms with the guarantee that they would receive a fee no greater than one-third of the money recovered from the lawsuit. Hughes said the law firms wouldn’t have received a penny had the case been lost.
She also said her office has high standards in place for any firm that represents the state. For example, firms that do defense work and have represented corporations the state sues can’t be hired as counsel. They also must be able to access capital of at least $500,000 and have the technical support and infrastructure needed to handle huge amounts of paperwork.
The real issue “is we have come up with a way to enforce the law that doesn’t cost the taxpayers anything,” she said.
Legal Representation
A final criticism over the attorney general’s handling over the OxyContin case is whom exactly his office was supposed to be representing.
Look at the paperwork, and the answer would seem to be obvious at first glance. McGraw brought the lawsuit on the behalf of three state agencies: the Department of Health and Human Resources, the Public Employees Insurance Agency and the Workers’ Compensation Commission.
But when the time came to settle the lawsuit, the three agencies were not at the bargaining table. They didn’t receive any of the settlement money, with the exception of $250,000 going to the DHHR.
To put it in perspective, it would be like a driver hiring an attorney to represent her in a lawsuit against the person who struck her car, then the attorney reaching a settlement with the defendant without consulting her and not giving her any money from the agreement.
The Attorney General’s Office says it’s not that simple because there is a fourth client it was representing: West Virginia citizens who became addicted to OxyContin. Those citizens were found to incur the vast majority of the damages, with three agencies incurring only a small amount of damages in comparison.
The fund was established to help citizens by supporting programs that would fight substance abuse and provide treatment to addicts.
“Our office did not keep one cent” of the settlement, Hughes said.
However, it turns out there also is a fifth client that believes it is entitled to some of the settlement money.
The federal Centers of Medicare and Medicaid Services, or CMS, found out in 2007 that the state had alleged harm to the state’s Medicaid program in its OxyContin lawsuit. CMS administrators wanted to know why Medicaid had not been reimbursed, and they threatened to withhold more than $4.1 million in Medicaid payments to the state to make up what they believed was the program’s share of the settlement.
The state DHHR appealed CMS’s decision to the U.S. Department of Health and Human Resources Appeals Board, which earlier this year ruled that CMS didn’t adequately justify why it is entitled to $4.1 million when there are three other plaintiffs in the case.
The Attorney General’s Office issued a news release shortly afterward, hailing the appeals board’s decision as a victory for the state. However, the office downplayed the most substantial part of the ruling: The board found that CMS was entitled to part of the settlement because the state had argued harm to its Medicaid program in making its case for the lawsuit.
In other words, the appeals board wasn’t questioning that CMS should recover money, just the amount it was asking for.
The appeals board also noted that the Attorney General’s Office was aware the federal government may be entitled to a share of the settlement, yet it had purposely attempted to skirt the issue without consulting CMS.
“In spending those funds, the State assumed a calculated risk that CMS would reject its legal position and successfully pursue a disallowance,” the board stated in its ruling. “We see nothing unfair about allowing the State to bear the consequences of running that risk.”
Those “consequences” could ultimately amount to a few million dollars, although both sides are currently working on what that amount may be. The Attorney General’s Office hasn’t spelled out where exactly the money would come from given that a large part of the settlement money already has been spent.
“At the end of the day, we can appeal this to federal court, and we think that ultimately we will prevail on the underlying merits of whether they are entitled to any money,” Hughes said.
