Feds May Claw Back Millions From Oklahoma's Opioid Settlement

Jul 5, 2019

The federal government is seeking its slice of Oklahoma’s recent $270 million settlement with Purdue Pharmaceuticals, and the bill could be millions of dollars.


The demand came in a June 12 letter from the Centers for Medicare and Medicaid Services. It argued part of Purdue’s payout was meant to cover alleged Medicaid fraud, which harmed federal and state taxpayers. 

“We are aware of the letter and are reviewing it,” wrote Alex Gerszewski, a spokesman for Oklahoma Attorney General Mike Hunter, in an email. “This will not affect state revenue,” he added.

Even within individual states, there are growing tensions over how opioid money will be allocated. When Hunter won Oklahoma’s settlement with Purdue in March, he agreed unilaterally to a plan for how the money would be spent.

The plan sends roughly $200 million to pay for an addiction research and treatment center at Oklahoma State University in Tulsa. The rest will go to local municipalities and pay lawyers hired by the state.

Oklahoma lawmakers were furious.

“Rose petals were not strewn in my path,” Hunter acknowledged in a speech before the Bipartisan Policy Council in Washington DC in May. “There was a great consternation with me going around the appropriations process.”

Now, the federal government is asking for all the documents that were given to the state Attorney General’s office related to Medicaid claims that may have been paid fraudulently. The state has until mid-October to provide them.

The letter also said because the state relied on decades of Medicaid claims data to help determine the amount of opioid-related damages, the agency is entitled to its share. It doesn’t mention the recent $85 million settlement the state reached with Teva Pharmaceuticals.

“They absolutely should have seen it coming,” said John Cogan, a health law expert, and professor at the University of Connecticut. “That’s been the rule in the Medicaid program since it started operating in 1967. It’s right in the Medicaid statute. If an overpayment has been made to a state, the federal government is going to recover it.”

When states recover penalties in Medicaid fraud cases, it is common for them to reimburse federal agencies for their share.

Medicaid is a government health insurance program for the poor, funded jointly by state and federal funds. For the current year, the federal government is picking up about 62 percent of the cost of Oklahoma’s $5 billion Medicaid program.

Under normal circumstances, the Oklahoma Health Care Authority, which administers the state’s Medicaid program SoonerCare, files quarterly reports and the federal government makes payments. If an overpayment is determined, then it’s simply taken out of the next quarter’s payment. Something similar could happen to the Purdue settlement.

If Oklahoma refuses to pay CMS their portion, then Cogan said, the agency will simply withhold the amount from their ongoing Medicaid payments.

“There’s a lot of money for them to withhold,” Cogan said.

CMS issued a guidance letter in 2008, explaining to states what to do if they receive any money due to Medicaid fraud claims.

“What that letter makes clear,” Cogan said, “is that if states are going to recover an overpayment, they need to be sure to recover both the state and federal portions because the federal government is going to ask for their share back.”

But the state has options. After the amount Oklahoma owes the federal government is determined, the state could appeal the decision through an internal process at CMS. If Oklahoma is unsatisfied with that decision, they can head to federal court.

Terri White, Oklahoma Department of Mental Health and Substance Abuse Services Commissioner, speaks as a State’s witness during the Johnson & Johnson opioid trial at the Cleveland County Courthouse in Norman, Okla. on Tuesday, June 25, 2019. She helped write the state’s $17.3 billion abatement plan.
Credit Chris Landsberger / The Oklahoman

The state could also choose to settle with the federal government, though it’s unclear how Oklahoma would pay for it.

“If Oklahoma owes a large amount of money, and they don’t want to risk losing it all in litigation, and CMS has some doubts about its ability to prevail on appeal, they may settle for a lower amount, and then that lower amount can be paid back over time,” Cogan said.

“They can settle it, they can litigate it, they can’t ignore it,” Cogan said. “That’s the bottom line.”

This issue could come up again. In ongoing litigation, Oklahoma is seeking more than $17 billion from drug giant Johnson & Johnson to abate the state’s opioid crisis. Cogan says if any Medicaid claims were involved in calculating that amount, the state can expect another letter from CMS.