- Associated Press - Wednesday, March 12, 2014

HARRISBURG, Pa. (AP) - Pennsylvania Auditor General Eugene DePasquale said Wednesday his agency will audit the state Department of Health’s management of health-research grants financed by tobacco company payments that have been interrupted by an arbitration panel’s decision.

DePasquale said the audit will focus on five research facilities that have shared nearly $800 million in grants that the department has awarded over the past 12 years.

They are Children’s Hospital of Philadelphia, Children’s Hospital of Pittsburgh, Geisinger Clinic in Danville, Magee-Womens Research Institute in Pittsburgh and the Penn State Milton S. Hershey Medical Center in Hershey.

“We need to make sure we are getting the best health care outcomes possible with such a large investment,” DePasquale said.

That annual investment will be suspended for just this fiscal year unless the state attorney general’s office succeeds in overturning the arbitration award.

Advocates for leading health-research facilities have sharply criticized the ruling, warning that it would disrupt potentially life-saving medical research.

The major tobacco companies that joined the 1998 tobacco settlement received immunity from state lawsuits in exchange for promising to pay Pennsylvania and other participating states more than $200 billion for the cost of health care for smokers over 25 years.

At issue in the arbitration case is whether the participating tobacco companies are entitled to an estimated $180 million reduction in this year’s Pennsylvania payment because the state failed to collect required payments in 2003 from the sales of loose tobacco and other products by competitors that did not join the settlement.

The three former federal judges on the arbitration panel sided with the tobacco companies. The state attorney general’s office, which is challenging the ruling, argued that it incorrectly calculated tobacco sales and exaggerated the amount that the state needed to collect. A hearing was held Friday in Philadelphia’s Common Pleas Court.

Pennsylvania has earmarked its tobacco settlement money for health care. Of the roughly $320 million the state annually receives, $180 million covers discretionary services, including the research grants and smoking cessation programs, and $140 million is for mandatory services such as direct health care, said Jay Pagni, Gov. Tom Corbett’s spokesman.

Pagni said the administration has frozen $180 million in this year’s state budget, including the research grants, to offset the reduced payment if the challenge is unsuccessful.

The share of the tobacco money that helps finance health research is relatively small. Until the 2013-14 funds were frozen, the Health Department had allotted $42 million for 28 grant recipients, said spokeswoman Aimee Tysarczyk.

The annual tobacco settlement payment is scheduled to be made next month.

Pagni said he anticipates the state will receive its full payment in 2015.

“We have not been given any indication that future funding would be affected,” he said.

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