CHARLESTON, W. Va. - While West Virginia Attorney General Darrell McGraw continues to hand out money, the state's Citizens Against Lawsuit Abuse says he may be putting the state's budget in a crunch.

The organization says McGraw's actions in 2004's Purdue Pharma settlement and subsequent appropriation controversy are damaging the state and deserve criticism.

"McGraw's conversion of lawsuit settlement dollars into, essentially, a political slush fund is an abuse of power," CALA President Steve Cohen said. "His diversion of these dollars for personal control jeopardizes federal funding for West Virginia's poor and disabled, and as such demands legislative scrutiny."

The federal Centers for Medicare and Medicaid Services wrote the state's Department of Health and Human Resources May 15, asking where its share of the $10 million settlement is. The CMS provides 73 cents of every dollar the state spends on Medicaid.

In McGraw's lawsuit against Purdue Pharma, he alleged that its drug OxyContin put a strain on the state's Medicaid program because it created addicts. However, he turned none of the settlement over to the state's DHHR, as well as at least $2 million to trial lawyers hired by McGraw to represent the state.

In February, Chief Deputy Attorney General Fran Hughes promised the Legislature that McGraw's office would stop appropriating the settlement funds on its own. She also said the money was not given to the DHHR because then the CMS could claim its share -- "We have arranged a methodology that has prevented the federal government from coming back and seizing money," Hughes said.

After the promise, though, McGraw continued to dole out money. More than $1 million went mostly to day report centers that are checkpoints for non-violent convicts.

Last week, he gave $75,000 to the Kanawha Valley Fellowship Home, a transitional home for males who are recovering from drug and/or alcohol addiction.

It's all part of a "rogue attorney general accountable to no one," according to Cohen. CALA adds the state could have to forfeit $10 million in Medicaid funds as a result.

Hughes, who previously served as general counsel for Human Services Management, a national consulting firm specializing in Medicaid financing, was not immediately available for comment.

It's not the first time CALA has claimed McGraw's handling of the settlement has done more harm than good.

Last year, Gov. Joe Manchin made cuts to the DHHR-run Aged and Disabled Waiver Program, which provide in-home nursing care to those who needed it. Manchin previously froze the program's budget at $60 million, then attempted to cut more than one-third of the 5,400 enrolled.

However, one man claimed the cuts discriminated against a certain group of disabled and filed suit. McGraw, who again represented the DHHR, then filed to intervene on behalf of the plaintiffs. Before McGraw had a chance to be working both sides of the case, Manchin gave in and nixed the cuts.

"West Virginia's Medicaid program may not have been short of funds to help our seniors if Darrell McGraw had turned over the share of the $10 million Purdue Pharma settlement which was owed to (DHHR) Secretary (Martha) Walker's department," Cohen said.

Controversy regarding the settlement kicked in when McGraw gave the University of Charleston $500,000 for a pharmacy school.

During the February hearing, Sen. Vic Sprouse of Charleston, a Republican, asked Hughes how McGraw decided where money should go and told her the office was acting on its own without consulting the Legislature, and she replied, "We act often like a private attorney that is holding money in trust for the benefit of a client."

Sprouse asked why the money did not go to general revenue or the Department of Health and Human Resources. Hughes answered that the state needs pharmacists to fight drug abuse, and there was no pharmacy school in the southern part of the state.

"It shouldn't be the Attorney General's office making that decision, to open a pharmacy school," Sprouse said. "Did DHHR say we don't want (the money)? Give it to U.C.?"

Hughes said, "I assume their attorney acted in their behalf at settlement negotiations. They were there and they signed off."

When asked if McGraw's actions constituted Medicaid fraud, Mary Kahn, spokesperson for the federal Centers for Medicaid and Medicare Services, responded, "We are currently discussing this issue with the state. I am not able to expand on that comment right now as there is no outcome to these discussions."

A letter sent from CMS Director Dennis Smith to Leonard Kelley, the Deputy Commissioner for the state's Bureau for Medical Services, says it has not received its portion of the settlement fund, nor was that portion withheld from the following year's federally-provided budget, as is done with these types of cases, Kahn said. The Bureau for Medical Services is a part of the state's DHHR.

"(T)o the best of our knowledge, no proceeds of this settlement have been paid or credited to the federal government as repayment of the federal share of Medicaid expenses," the letter says.

The CMS said last week it has not received a reply from the state's DHHR.