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State, NYC to pay $540M to settle Medicaid fraud claims

WASHINGTON - New York State and City have agreed to pay $540 million to settle allegations they submitted false claims under the federal Medicaid program, the U.S. Justice Department said yesterday.

It said the claims involved reimbursement for school-based health care services, primarily speech therapy and transportation, provided to Medicaid-eligible children from 1990 to 2001.

The state will pay $440 million over time, partly in cash and partly by releasing its claim to payments withheld. The city's share of the settlement, $100 million, will also be paid over time, the department said.

The settlement represented a record federal recovery by the department for the Medicaid program, under which the federal government shares the cost of medical services for the poor and disabled with the states.

The programs at issue were developed jointly by New York's education and health departments to assist local school districts, counties and other schools in obtaining Medicaid reimbursement for covered diagnostic and health support services provided to students with disabilities.

The settlement resolved allegations the state passed on claims to the federal government for services it knew were not covered or properly documented, the department said.

It also resolved allegations that the city submitted claims to the state for speech services, and that the state then passed these claims on to the federal government for reimbursement.

The settlement stemmed from two lawsuits filed under the so-called whistle-blower provisions of the False Claims Act.

In New York, the city's corporation counsel, Michael Cardozo, said the settlement eliminated the risk of far greater payouts.

"This settlement reflects two years of hard work and negotiations among three levels of government and a careful weighing by the city of the risks of settlement versus those of litigation. We believe that we have ended this dispute in the most fiscally responsible way possible," he said.

Gov. David A. Paterson said the settlement also made fiscal sense for the financially strapped state. "We believe that this settlement requires payment of approximately $1 billion less than we could potentially have had to pay if the matter had gone to litigation," Paterson said.

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