Based on the clawback formula, California will be forced to pay the federal government $500 million in the 2005-2006 fiscal year, resulting in a net cost of $72 million to the state, according to the California Department of Health Services.

Kentucky Attorney General Greg Stumbo said the clawback will take $88 million in state funds from Kentucky`s cash-strapped Medicaid program in 2006 alone.

States sue on Medicare clawback
By Olga Pierce
Feb 4, 2006, 19:00 GMT

WASHINGTON, DC, United States (UPI) -- The attorneys general of California and at least four other states have said they will sue the federal government over the so-called clawback provision of the Medicare Part D drug benefit, which requires states to return to the federal government savings from the plan.

The formula used to calculate how much states owe will force them to shell out more than they save, California Attorney General Bill Lockyer said, amounting to an unconstitutional tax.

"The program may be profitable for drug companies, but it has been a disaster for seniors," Lockyer said. "We believe the federal law is unconstitutional. We are going to challenge it to ensure the state does not have to pay the federal government for a program that has more flaws than prescriptions."

Texas, Kentucky, New Jersey and Missouri have also indicated they would participate in a lawsuit that would be filed directly with the U.S. Supreme Court.

The states` legal challenges will argue the clawback provision is unconstitutional because it impermissibly infringes on states` legislative power by requiring them to pay for a federal program, imposes a tax on states, infringes on state sovereignty and imposes an invalid condition on the receipt of federal funds.