HCFA, States Wrangle Over Potential Tobacco Settlement Funds

WASHINGTON—The federal government wants a share of the $368.5 billion settlement worked out between the attorneys general of 40 states and the tobacco industry. The states say no. And the ultimate decision may rest with the Congress of the United States, adding another complicating factor to cementing the settlement agreement into law.

“Congress will take up the whole scenario next year,” said Mississippi assistant attorney general Trey Bobinger, an aide to the state’s attorney general, Michael Moore.

The states believe they have an agreement worked out with White House aides that funds from the tobacco industry will remain with the states so long as they are spent on specific programs, such as expanding children’s health care. Mr. Bobinger told Oncology News International. “We fully expect the While House will live up to that agreement.”

Mr. Moore filed the first of the state tobacco lawsuits, which was followed by others. These suits led to negotiations and eventually to a proposed settlement last June. Congress, however, must enact comprehensive legislation covering a number of tobacco issues before the settlement can become fact. In part, the state lawsuits sought to recover money lost from paying for the treatment of lung cancer and other smoking-related diseases among Medicaid patients.

A November letter to state Medicaid directors from the Health Care Financing Administration (HCFA) reminded the states that the federal government has a legal claim against a portion of the settlement payments.

“As described in the statute, States must allocate from the amount of any Medicaid-related expenditure recovery ‘the pro-rata share to which the United States (Federal government) is equitably entitled’,” wrote Sally K. Richardson, director of HCFA’s Center for Medicaid and State Operations.

Under current law, money from tobacco settlements must be treated like all other recoveries of Medicaid funds, Ms. Richardson said. However, any portion of a settlement unrelated to Medicaid claims by the states is not subject to a federal claim, she added.

Ms. Richardson did note that Congress will consider how to treat tobacco settlements as it crafts the comprehensive legislation needed to implement the settlement agreement, and that the “administration will work closely with States during this legislative process.”

The States Respond

The states’ response to Ms. Richardson’s letter suggests the working relationship with HCFA could be a bit adversarial. In a letter to President Clinton, the states expressed their displeasure with HCFA’s stance and noted that the National Governors’ Association (NGA) has declared, in the letter’s words, that its members “will strongly oppose federal efforts to seize state tobacco settlement funds.”

All the state attorneys general (except Alabama, North Carolina, and Virginia) signed the letter, plus those of American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the District of Columbia corporation counsel.

The NGA’s executive committee has also declared in an interim policy statement: “Whether the settlement is state-specific or part of a national agreement, the federal government is not entitled to take away from the states any of the funds negotiated on the states’ behalf as a result of state lawsuits. Any efforts by the federal government to seek to recoup federal costs must be distinct and separate.”

The attorneys general’s letter also emphasized that the state lawsuits “have served as a catalyst for change in an industry that has been widely perceived as untouchable” and that “the federal government has declined to bring its own suit against the industry.”

It added that the federal claim comes “despite the fact these recoveries will represent success in state suits, under state law theories, for a variety of claims unrelated to Medicaid payments.” The attorneys general said the states intend to use their damage payments for public health purposes and argued that their citizens are entitled to the benefits of litigation begun and pursued by the states.

President Clinton, in a letter to Gov. George Voinovich of Ohio, head of the National Governors’ Association, said that he would prefer to leave the decision up to Congress.