CHARLESTON, W.Va. (Legal Newsline) - In penalizing the State of West Virginia $2.7 million, a federal appeals board also recently wrote that state Attorney General Darrell McGraw was not representing individual citizens when he sued OxyContin-maker Purdue Pharma.

Instead, the Departmental Appeals Board wrote that McGraw was representing the three state agencies he listed as plaintiffs -- the same three agencies he has given little of a $10 million settlement.

McGraw's 2004 settlement paid more than $3 million to private attorneys and $250,000 to plaintiff Department of Health and Human Resources while the rest went into his Consumer Protection Fund. The Appeals Board ruled Oct. 29 that the federal Medicaid agency was owed more than $2.7 million from the settlement because the state's Medicaid program is largely funded by the feds.

"Five years after the $10 million settlement, the three plaintiff state agencies have received almost nothing, even though the agencies expected, and were entitled to, a significant recovery," said Richie Heath, executive director of West Virginia Citizens Against Lawsuit Abuse.

"And because of the Attorney General's deliberate attempts to withhold settlement funds, our state now must cover a $2.7 million shortfall in Medicaid funding at a time when one of the plaintiff state agencies is looking to cut the benefits of state employees due to budget shortfalls."

The other two plaintiff agencies in the suit were the Public Employes Insurance Agency and Workers' Compensation.

McGraw argued that there was a fourth plaintiff - the affected individuals in his state he was representing in his parens patriae capacity.

"We find no merit in this argument," the Appeals Board wrote.

"It is not evident from the record that the State was, at the time of settlement, seeking damages on behalf of individual consumers."

The board wrote that McGraw's attorneys had prepared at least one witness from each of the three plaintiff state agencies but none were mentioned as being designated to testify on the behalf of the class of individual consumers.

"Even assuming the State was seeking damages on behalf of individual West Virginia consumers, DHHR has provided no valid estimate of those damages," the decision says.

McGraw said he was simply following a court order when he distributed each of the four yearly $2.5 million payments.

Del. Jonathan Miller recently received a response from PEIA, which he is urging to seek its share of the settlement funds. The cash-strapped agency has been holding hearings on diminishing benefits to new employees.

Miller said court records show PEIA may be owed $400,000 from the settlement.

"To kind of paraphrase its counsel, they said they weren't involved in any settlement talks and didn't know about it until the settlement happened," Miller said. "McGraw assured them it would be taken care of.

"They're not asking for it. Another thing about this determination is that Workers' Comp and PEIA have a strong argument to go and get their money.

"I didn't get any indication from PEIA that they're going to push for it. I would hope something like this will push them in that direction."

The state Department of Administration has said ending the 72 percent retiree premium subsidy for new hires would cut down the PEIA's debt, now at $7 billion, according to a recent report in the Charleston Daily Mail.

"The agency heads of those agencies have a responsibility to get this money on behalf of taxpayers of West Virginia and the people they serve in those agencies," Miller said.

Heath said the Legislature should become more involved in the Attorney General's Office.

"The West Virginia Legislature should exercise its responsibility of overseeing the state's finances by reviewing McGraw's handling of the OxyContin settlement to determine why the Attorney General's office and the private attorneys appointed to file the lawsuit were the primary beneficiaries of the case," Heath said.

Miller agreed and admitted the $2.7 million is a small amount compared to the entire Medicaid budget, but "it still doesn't make it any easier to accept."

"Medicaid is for poor people. That's how they receive health care. That's how they go to the doctor's office and hospital," he said.

"This is $3 million taken from poor people. That's not good. It's not ethical, not moral, not legal. This is something McGraw was supposed to be against."

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