NEW YORK (Legal Newsline) - As 33 state attorneys general celebrated the largest multi-state consumer protection-based pharmaceutical settlement ever, a few of their colleagues were opposing the disclosure of certain medical records to the same company.

On Friday, outside counsel hired by those attorneys general will voice their concerns to a federal judge about a recent ruling in their case against Eli Lilly & Co., manufacturer of the prescription anti-psychotic drug Zyprexa. They claim their states' Medicaid programs paid for unnecessary prescriptions of the drug.

In the battle for medical records requested by Lilly during discovery, outside counsel hired by the attorneys general from Connecticut, Louisiana, Mississippi, Montana and New Mexico said their respective state laws should prevent Eli Lilly from viewing the disputed documents.

"The crux of the states' position is this: (1) Federal Rule of Evidence 501 mandates application of state privilege laws; and (ii) the more stringent state protections governing even redacted records trump the Health Insurance Portability and Accountability Act of 1996 (HIPAA), which by the Order's own analysis affords no protections to records redacted in compliance with HIPAA," a memorandum filed in opposition of the order on Sept. 29 says.

"Therefore, the order is clearly erroneous and contrary to law because it ignores the state law privilege protections applicable to the medical records Lilly seeks. Finally, certain states' laws with respect to the handling of records in the custody of the Medicaid agency prevent, or severely limit, their disclosure outside the Medicaid agency."

The states are disagreeing with a Sept. 24 order from U.S. Magistrate Judge Roanne Mann of the Eastern District of New York. She told the states to randomly select a statistically significant amount of records to turn over to Lilly, which will be bound to protect the information by a protective order.

Also, the names on the records given to Lilly will be changed.

"It bears repeating, then, that the records are in fact relevant to Lilly's defenses," Mann wrote.

"For example, as Lilly notes, the use of a statistically significant sample of Medicaid patient records can help to explain information obtained from Medicaid databases, and may provide 'information on potential confounding variables not found in the encounter.'

"It is plainly evident that, given the disputed issue of causation, disclosure of the medical records is 'reasonably calculated to lead to the discovery of admissible evidence.'"

Lilly agreed to pay $62 million to 32 states and the District of Columbia earlier this month to settle allegations that it promoted the drug for off-label uses and deliberately downplayed side effects, notably diabetes caused by weight gain. The company has also agreed to pay $1.2 billion in a settlement with 31,000 plaintiffs.

Lilly, in supporting Mann's decision, estimated the amount of money sought by the remaining states in the billions.

"Each of the states alleges that it reimbursed Zyprexa prescriptions that were not medically necessary, and four States also allege that Zyprexa caused Medicaid recipients to develop diabetes and related conditions," attorneys for the company wrote.

"The states' claims are fundamentally about the health and healthcare of their Medicaid recipients. It is uncontestable that medical records would be relevant, essential evidence if each state's claim only involved one Medicaid recipient.

"As Magistrate Judge Mann correctly found, the fact that each State's claim involves thousands of Medicaid recipients does not magically transform relevant medical records into irrelevant ones - it simply means there are many more relevant records."

Mann wrote that Connecticut, since its complaint alleged violations of the federal civil racketeering statute, can not cite state laws to protect the identities of its Medicaid recipients.

"And because there is no physician-patient privilege under federal law, the non-party records Lilly seeks in Connecticut's case are discoverable pursuant to an order of this court, with or without redaction," Mann said.

The hearing is scheduled for 2 p.m. in front of presiding Judge Jack Weinstein.

Other states with pending claims against Eli Lilly over the marketing of Zyprexa are Arkansas, Idaho, Pennsylvania, South Carolina, Utah and West Virginia.

The attorneys general for the state involved in the records dispute are Richard Blumenthal (Connecticut), Mike McGrath (Montana), Buddy Caldwell (Louisiana), Jim Hood (Mississippi) and Gary King (New Mexico).

Hood recently sued energy provider Entergy for not turning over records he deemed important to his investigation of the company's practices.

From Legal Newsline: Reach John O'Brien by e-mail at john@legalnewsline.com.