Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-00282/USCOURTS-caed-2_04-cv-00282-1/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 31:3729 False Claims Act

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1 In addition to her FCA claim, relator alleges a slew of

related causes of action.

1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA,

ex rel. BEVERLY ENGLUND,

NO. CIV. S-04-282 LKK/JFM

Plaintiffs,

v. O R D E R

LOS ANGELES COUNTY, et al.,

Defendants.

 /

Relator, Beverly Englund, brings a qui tam suit against 

defendant, Los Angeles County, under the False Claims Act (“FCA”),

31 U.S.C. §§ 3729, et seq., alleging that the county made false

claims and/or conspired with others in order to receive unwarranted

funds under the Federal Medicaid Program (“Medicaid”).1 The United

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2 After filing a complaint under the FCA, a relator must

disclose her evidence of fraud to the Government. The Government

then has sixty days to intervene in the suit. 31 U.S.C. § 3730(b).

3 The Medicaid program in California is Medi-Cal, which is

codified at California Welfare & Institutions Code Sections 14000-

14198.

4 The federal government’s share, or “Federal Financial

Participation” (“FFP”), must be no less than 50%, and no more than

83% percent. See 42 U.S.C. § 1396d(b).

2

States has elected not to intervene in this suit.2 Pending before

the court is defendant’s motion to dismiss for lack of subject

matter jurisdiction. 

I. 

 BACKGROUND

 The Medicaid statute creates a partnership between federal

and state governments to fund health care services for the

indigent. 42 U.S.C. § 1396; 42 C.F.R. Parts 430, 440, 441, 447.3

To receive funds under Medicaid, a state must submit a state plan

that meets various federal requirements. Among these requirements

is that the state contribute specified amounts to Medicaid. 42

U.S.C. § 1396a. In California, the state’s financial participation

is approximately fifty percent.4

Medicaid typically requires eligible health care providers,

including counties, to be paid on a fee-for-service basis. 42

U.S.C. § 1396(a)(30)(A). The U.S. Secretary of Health and Human

Services may waive this requirement, however, if upon application

the State can demonstrate that, inter alia, the waiver would

promote cost-effectiveness and efficiency. 42 U.S.C. § 1315(a).

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5 Under the SPCP, California contracts with hospitals that

provide services to Medicaid beneficiaries at negotiated per diem

rates, plus supplemental payments as needed, in lieu of Medicaid's

traditional fee-for-service reimbursement. Under the SPCP, almost

all Medicaid inpatients must go to a SPCP contracting hospital. 

Cal. Welf. & Inst. Code §§ 14081 & 14087.

3

In 1982, pursuant to a federal waiver applied for and

received, the California Legislature established the Selective

Provider Contracting Program (“SPCP”) to ensure access to hospital

inpatient care for Medicaid beneficiaries in California and to make

the Medicaid program more efficient and cost-effective. Cal. Welf.

& Inst. Code, Article 2.6 ("Selective Provider Contracts"), §§

14081-14087.29. The SPCP was intended to achieve savings by

replacing the regulatory model with a competitive model.5

The SPCP authorizes a State agency, the California Medical

Assistance Commission ("CMAC" or "the Commission"), to negotiate

the reimbursement rates and supplemental payments with hospitals

that provide Medicaid inpatient services. CMAC meets twice a month

in open and closed sessions to consider new contracts and

amendments to existing contracts.

A. CALIFORNIA SAFETY NET HOSPITALS (OR DISPROPORTIONATE SHARE

HOSPITALS (“DSH”))

California’s health care system provides health-related

services to persons who lack health insurance or other coverage,

such as Medi-Cal, and cannot pay for care. In many cases, these

“safety net providers” belong to counties, which ultimately are

responsible for serving those with no other means of public or

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6 “DSH” institutions are hospitals that treat

disproportionate share of indigent and low income individuals. DSH

hospitals receive supplemental federal and state funds to help

subsidize the costs associated with providing care to indigent and

very low income uninsured individuals who are not eligible for

Medicaid coverage.

7 The program is administered by the state Department of

Health Services (“DHS”).

8 Cal. Welf. and Inst. Code § 14085.6 designates SB 1255

Program as the “Emergency Services and Supplemental Payments” Fund

(“ESSP”). ESSP is also referred to as Fund 693.

9 While SB 1255 is not a DSH program, it benefits largely the

same facilities and its funding is nearly identical. To be

eligible to negotiate with CMAC for SB 1255 funds, a hospital must:

1. be a contract hospital under the SPCP; 2. be a DSH Medi-Cal

provider; 3. demonstrate a purpose for additional funding,

including proposals for expanding or improving access to emergency

room and other health services; and 4. be licensed to provide basic

or comprehensive emergency services (or be a Children’s hospital

which provides emergency services in conjunction with another

hospital); or 5. be a hospital designated by the National Cancer

Institute as a comprehensive or clinical cancer research center.

Cal. Welf. & Inst. Code § 14085.6.

4

private support.6 Cal. Welf. & Inst. Code § 17000. One of

California’s programs to assist DSH Hospitals, is the SB 1255

program.7

B. THE SB 1255 PROGRAM

In 1989 the California Legislature adopted Senate Bill 1255

("SB 1255"), which created the SB 1255 Program (codified at Cal.

Welf. & Inst. Code § 14085.6).8 SB 1255 provides supplemental

payments to certain eligible DSH hospitals. Contracts with DSH

providers are negotiated by CMAC.9 The statute expressly provides

that the funding mechanism for the non-federal portion of the SB

1255 program will come solely from intergovernmental transfers

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10 Intergovernmental transfers are transfers of public funds

between governmental entities. The transfer may take place from

one government agency or level (usually a county, city, or hospital

district) to the state, or within the same level of government.

The Medicaid statute, as well as federal regulations, expressly

permit use of such public funds as the non-federal share of

Medicaid spending. See Section 1903(w)(6)(A) of the Social

Security Act (42 U.S.C. § 1396b(w)(6)(A)); section 1902(a)(2) of

42 U.S.C. § 1396a(a)(2)(2000); 42 C.F.R. § 433.51(b)(setting

conditions for use of local government funds). The states’ use

of IGTs has been part of the Medicaid program since 1965. In

essence, the state serves as the intermediary between that the

county and the federal government for the receipt of federal funds.

11 The matching federal funds are paid into the State

operated Health Care Deposit Fund ("Fund 912"), a fund established

by the State from which expenditures are made of state, county and

federal funds for health care and administration under this chapter

and Chapter 8 (commencing with Section 14200). Cal. Welf. & Inst.

Code § 14157. Money from Fund 912 is distributed by the State to

eligible claiming providers, such as defendant. The State's

financial participation is taken from Fund 693 and also deposited

into Fund 912. The CMAC then distributes payments to public and

private hospitals through negotiations.

12 There is no set formula as to the amount a given hospital

can receive, and by statute, the negotiations are confidential.

See Cal. Gov’t Code § 6254(g). 

5

(“IGTs”)10 voluntarily provided by the participating hospitals

(Cal. Welf. & Inst. Code § 14085.6(c)), which are matched by the

State with federal funds, and then remitted back to the providers

as supplemental payments.11 CMAC sets the amount to be received by

each participating hospital, and also recommends the size of the

IGT to be sent to the State by that government provider.12 

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13 The facts section is derived from relator’s second amended

complaint.

6

II.

FACTS13

From April 2, 2001 to July 30, 2002, relator, Beverly Englund,

was employed by the California Department of Health Services

("DHS") as a staff services manager with the Medi-Cal Operations

Division ("MCOD"). 

Englund alleges that defendant, Los Angeles County, made false

claims and statements in order to secure additional funding under

California Welfare & Institutions Code Section 14085.6,

approximately half of which were federal funds. She asserts that

defendant did not use the additional funding for a purpose under

the State's Selective Provider Contracting Program, but instead

expended most of the funding for non-healthcare purposes. She

alleges that the defendant “caused the State to make false records

and statements to get false or fraudulent claims by the State for

federal matching funds paid or approved by the Government.” The

fraudulent claims “caused the Government to pay the State hundreds

of millions of dollars in Medicaid funds that were then paid to

defendant and which would not have been paid, but for the

misconduct of Defendant.”

 The County is a health care provider that operates under the

SPCP waiver and submits claims to the State pursuant to agreements

with CMAC pursuant to the SB 1255 Program. Englund alleges that

the defendant knew that claims it submitted under the SB 1255

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14 As noted above, the matching federal funds are paid into

Fund 912, a fund "established by the State from which expenditures

are made of state, county and federal funds for health care and

administration. Money from Fund 912 is distributed by the State

to eligible claiming providers, such as defendant. The State's

financial participation is taken from Fund 693 and also deposited

into Fund 912.

7

program as negotiated with CMAC would trigger a chain of events

leading the State to make claims on the Government that would

result in defendant receiving and/or retaining funds from Fund 912,

“approximately half of which are federal Medicaid funds and

approximately half are funds from Fund 693.”14

 Relator alleges that each year since 1994, the State was

required to submit certification documents to the federal

government and that each such certification was false and known by

defendant to be false in a number of respects. Specifically, she

asserts that:

a. The expenditures by the State to Defendant under

the SB 1255 Program were not used to provide health care

and related remedial or preventive services to

qualifying individuals, including related social

services which are necessary for those individuals;

b. The payments from Fund 693 were not made for the

purposes of California Welfare & Institutions Code

Section 14085.6;

c. In negotiating contracts with CMAC, defendant did

not demonstrate a proper purpose for the funds claimed

under the SB 1255 Program;

d. The negotiator for CMAC did not consider the

criteria set forth in California Welfare & Institutions

Code Section 14083 in agreeing to the amounts to be paid

Defendant; 

e. Most of the federal funds reimbursed to the State

and then paid to defendant under SB 1255 were not used

for Medicaid inpatient hospital services. 

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15 The State submits a Quarterly Medicaid Statement of

Expenditures for the Medical Assistance Program (Form CMS 64) to

the government. The form identifies the payments that have been

made from Fund 912 and is used to reconcile the amounts paid from

Fund 912 with the federal funds transferred by the government for

those payments. 

8

 According to relator, defendant knowingly used the abovedescribed “scheme” to get the government to contribute Medicaid

dollars to defendant, which defendant then expended for

non-Medicaid, and even non-healthcare, purposes. Englund asserts

that from fiscal year 1997-1998 forward, the contract with CMAC

required that “[t]o the extent the County DHS has surplus funds

remaining at the close of the 2001/2002 fiscal year, all such

surplus shall be treated by the County of Los Angeles as a reserve

for the use of the County DHS in subsequent years.” She alleges

that in every year from 1994 through 2002 there was such a surplus

but that defendant has never treated such surpluses as a reserve

for County DHS. Rather, such surpluses were used for general

government purposes having little or nothing to do with Medicaid

or health care. 

Thus, it is alleged, that in each year since 1994, defendant

knew that it had received SB 1255 payments to which it was not

entitled. Yet, defendant did not notify the State of these

overpayments so that the State could accurately prepare Form CMS

64.15 Rather, defendant “knowingly caused” the State to make false

reports and certifications to the government on the quarterly Form

CMS 64 that the expenditures to defendant under the SB 1255 Program

were "allowable and in accordance with applicable implementing

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9

federal, state and local statutes, regulations, policies and the

state plan." Defendant remained silent while the State made false

claims to the government and defendant retained the excess payments

to which it was not entitled.

A. RELATOR’S DISCOVERY OF FRAUD

Beginning around May 2001, one of relator's duties at MCOD was

to oversee the preparation of invoices regarding claims made by

defendant under the SB 1255 Program, based on defendant's contract

and contract amendments. Englund alleges that defendant knew its

contract and contract amendments would serve as the basis for the

State's claim upon the government for FFP. In or about December

2001, relator began to suspect that defendant, in order to obtain

federal funds to which it was not entitled, had falsely represented

its need for additional funding of approximately $716 million under

the SB 1255 Program. 

 Relator's suspicions were initially based upon her belief that

defendant's proper Medi-Cal expenditures could not be as high as

reported, and was derived from information she obtained about Los

Angeles County's Medicaid financing practices. Her suspicions

increased through the following spring based upon her observation

of closed-session negotiations between CMAC and defendant in which

defendant demanded additional SB 1255 funding without demonstrating

a purpose for it, comments made in CMAC and MCOD meetings, and her

analysis of State and County documents, including review of

portions of secretly-negotiated contracts between CMAC and

defendant.

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10

Englund was concerned about signing invoices certifying that

the amounts claimed on the invoice had been expended by defendant

"in compliance with all terms/conditions, laws and regulations

governing its payment." She consequently inquired of others in DHS

as to what responsibility she had to ensure that defendant was

using the full amount of its SB 1255 Program payments on legitimate

Medicaid expenditures. She received no answer. Relator then

investigated further, reviewing as many claim schedules, invoices,

secretly-negotiated contracts and financial statements as she could

access. Based on this investigation, she came to the conclusion

that defendant was participating in a “scheme” to obtain

unwarranted funds that had been in operation for many years.

Relator alleges that by virtue of the scheme the government

has paid, and defendant (through the State) has received, hundreds

of millions of dollars in federal "matching" funds to which it was

not entitled. Relator stated that she informed her associates that

she felt uneasy with the situation, and left her job at MCOD as

soon as she was able to find another position.

At the time she left MCOD in July 2002, relator believed that

the SB 1255 Program would be included in a federal audit then in

process, and that she expected that defendant's scheme would be

uncovered. Relator has since learned, however, that the audit did

not address the allowance of the payments under the SB 1255 Program

or uncover the scheme, and believes that defendant has continued

to use the scheme to obtain inflated amounts of FFP.

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16 They state that “for purposes of this motion . . . the

County is content to have the court assume that the basic

propositions advanced by the relator (those as to which she

actually has presented some evidence, however speculative or

inadmissible) are correct. Repl. at 14.

11

III.

STANDARDS

Defendant moves pursuant to Fed. R. Civ. P. 12(b)(1),

contending that relators cannot surmount the public disclosure

limitation in the False Claims Act. Repl. at 14-15.16 

The party seeking to invoke the jurisdiction of the federal

court has the burden of establishing that jurisdiction exists.

KVOS, Inc. v. Assoc. Press, 299 U.S. 269, 278 (1936); Scott v.

Breeland, 792 F.2d 925, 927 (9th Cir. 1986). On a motion to

dismiss pursuant to Fed. R. Civ. P. 12(b)(1), the standards that

must be applied vary according to the nature of the jurisdictional

challenge. 

If the challenge to jurisdiction is a facial attack, i.e., the

defendant contends that the allegations of jurisdiction contained

in the complaint are insufficient on their face to demonstrate the

existence of jurisdiction, the relator is entitled to safeguards

similar to those applicable when a Rule 12(b)(6) motion is made.

See United States of America, ex rel. Marilou McKenzie and Ila Swan

v. Crestwood Hospitals, Inc., Civ. s-97-107 LKK/GGH (E.D. Cal.

1997). The factual allegations of the complaint are presumed to

be true, and the motion is granted only if the relator fails to

allege an element necessary for subject matter jurisdiction. Id.

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17 If the challenge to jurisdiction is made as a “speaking

motion” attacking the truth of the jurisdictional facts alleged by

the plaintiff, a different set of standards must be applied. 

Thornhill Pub. Co., Inc. v. Gen. Tel. & Elec. Corp., 594 F.2d 730,

733 (9th Cir. 1979). Where the jurisdictional issue is separable

from the merits of the case, the district is free to hear evidence

regarding jurisdiction and to rule on that issue prior to trial,

resolving factual disputes where necessary. Augustine v. United

States, 704 F.2d 1074, 1077 (9th Cir. 1983); Thornhill, 594 F.2d

at 733. “In such circumstances “[n]o presumptive truthfulness

attaches to plaintiff’s allegations, and the existence of disputed

material facts will not preclude the trial court from evaluating

for itself the merits of jurisdictional claims.” Augustine, 704

F.2d at 1077 (quotation omitted). On a motion going to the merits,

the court must employ the standard applicable to a motion for

summary judgment. Farr v. United States, 990 F.2d 451, 454 n.1

(9th Cir. 1993), cert. denied, 510 U.S. 1023 (1993). Relator

asserts that because the County has submitted multiple documents

that “intertwine its jurisdictional argument with the merits of the

case,” the court cannot resolve the jurisdictional question without

reaching the merits of the case itself. Opp’n at 6. Because

defendant has made it clear that its motion is a facial challenge,

relator’s argument that the court must reach the merits of this

matter is not well-taken. 

12

(citations omitted). A complaint will be dismissed for lack of

subject matter jurisdiction (1) if the case does not “arise under”

any federal law or the United States Constitution, (2) if there is

no case or controversy within the meaning of that constitutional

term, or (3) if the cause is not one described by any

jurisdictional statute. Baker v. Carr, 369 U.S. 186, 198 (1962).17

IV.

ANALYSIS

Defendant moves to dismiss this action pursuant to the public

disclosure jurisdictional bar under the False Claims Act. See 31

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18 The statute provides:

No court shall have jurisdiction over an action under

this section based upon the public disclosure of

allegations or transactions in a criminal, civil, or

administrative hearing, in a congressional,

administrative, or Government Accounting Office report,

hearing, audit, or investigation, or from the news

media, unless the action is brought by the Attorney

General or the person bringing the action is an original

source of the information.

31 U.S.C.A. § 3730.

19 The FCA imposes liability on a person who: 

(1) knowingly presents, or causes to be presented, to an

officer or employee of the Government or a member of an

armed force a false or fraudulent claim for payment or

approval; [or] 

(2) knowingly makes, uses, or causes to be made or used,

a false record or statement to get a false or fraudulent

claim paid or approved.

31 U.S.C. § 3729(a).

13

U.S.C. § 3730(e)(4)(A).18 I decide this matter based on the

pleadings, the papers filed herein, and after oral argument. As

I explain below, defendant’s motion must be denied. 

A. QUI TAM SUIT

 The False Claims Act ("FCA") imposes civil monetary penalties

for the submission of false claims to the government. To state a

claim under the FCA, relators must allege that defendant submitted

a claim for payment from the government, that the claim was false

or fraudulent, and that the defendant knew the claim was false or

fraudulent. See 31 U.S.C. § 3729(a).19 The injury suffered by the

United States under the FCA is "the difference between what the

government actually paid and the amount it would have paid in the

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14

absence of the fraudulent claim." Horizon West Inc. v. St. Paul

Fire And Marine Ins. Co., 214 F.Supp.2d 1074, 1077 (E.D. Cal.

2002)(Levi, J.)(quoting United States ex rel. Woodard v. Country

View Care Center, Inc., 797 F.2d 888, 893 (10th Cir. 1986)).

Liability under the FCA is based solely upon the creation or

presentation of false claims to the government, not upon the

underlying conduct used to establish the falsity of such a claim.

See 31 U.S.C. § 3729(a); United States ex rel. Hopper v. Anton, 91

F.3d 1261, 1266 (9th Cir. 1996).

B. FCA’S JURISDICTIONAL BAR

As noted, the FCA bars a qui tam action that is based on

allegations or transactions already disclosed in certain public

fora, unless the relator is the original source of the information

underlying the action. See A-1 Ambulance Serv., Inc. v.

California, 202 F.3d 1238, 1243 (9th Cir. 2000). In analyzing

whether a claim is barred under the FCA, the court must first

determine whether there has been a prior "public disclosure" of the

"allegations or transactions" underlying the qui tam suit. See Id.

(citation omitted). "If and only if there has been such a public

disclosure," the court then must inquire into whether the relator

is an "original source" within the meaning of § 3730(e)(4)(B). Id.

The question of whether the "allegations or transactions"

underlying the relators' fraud claims have been publicly disclosed

“requires two separate but related determinations.” See A-1

Ambulance Serv., 202 F.3d at 1243. First, the court "must decide

whether the public disclosure originated in one of the sources

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enumerated in the statute." Id. Public disclosure can occur in

one of only three categories of public fora: (1) in a "criminal,

civil, or administrative hearing;" (2) in a "congressional,

administrative, or Government Accounting Office report, hearing,

audit, or investigation;" or (3) in the "news media." Id. (quoting

31 U.S.C. § 3730(e)(4)(A)).

If there has been a public disclosure through one of these

sources, the court then determines whether the content of the

disclosure consisted of the "allegations or transactions" giving

rise to the relators' claim, as opposed to "mere information."

Hagood v. Sonoma County Water Agency, 81 F.3d 1465, 1473 (9th Cir.

1996). The substance of the disclosure, however, need not contain

an explicit "allegation" of fraud, so long as the material elements

of the allegedly fraudulent "transaction" have been disclosed. See

id. (citing United States ex rel. Springfield Terminal Ry. v.

Quinn, 14 F.3d 645, 654 (D.C. Cir. 1994)).

C. RELATOR’S ALLEGATIONS

In resolving motions such as that at bar, the court is

ultimately tasked with comparing the purportedly disclosed

information to the allegations of relator’s complaint. Before

turning to the required analysis, the court must revisit relator’s

allegations. Defendant contends that relator presents “a rapidly

moving target as to what, exactly, is the nature of the purported

fraudulent claim by the County.” In part, because of the

complexity of the Medicare system, relator’s pleadings leave much

to be desired in terms of clarity. Nonetheless, the court believes

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20 See Vermont Agency of Natural Resources v. United States

ex rel. Stevens, 529 U.S. 755 (2000). During oral argument, the

County conceded that even though the State could not be sued,

plaintiff could properly bring a claim against the County. 

21 As explained previously, under the SB 1255 program the

County transfers funds to the state through IGTs. The State then

must certify to the government that the funds will be utilized for

appropriate purposes, at which point the federal government matches

that amount. 

16

it can identify relator’s essential claim. 

As noted above, to state a cognizable claim under the FCA,

relator must allege that defendant submitted a claim for payment

from the government, that the claim was false or fraudulent, and

that the defendant knew the claim was false or fraudulent. See 31

U.S.C. § 3729(a). As defendant notes, because the state has no

liability under the FCA, relator could only sue the County, which

is a health care provider of the Medi-Cal program.20 Mot. at 1. 

 Because the gravamen of her claim involves a complex funding

scheme of supplemental Medi-Cal payments in which the State is the

conduit or intermediary through which the county obtains funds from

the United States,21 relator is forced to make a convoluted

argument based on her allegations that the County “caused the state

to make false records and statements . . . for federal matching

funds paid or approved by the Government.” Second Amended Compl.

(“SAC”) at 3. 

In her complaint, relator alleges that defendant has made a

false claim by virtue of the fact that “[d]efendant knows that the

claims it submits under the SB 1255 Program as negotiated with CMAC

will trigger a chain of events leading the State to make claims on

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22 Relator avers that “[m]ost of the federal funds reimbursed

to the State and then paid to Defendant under SB 1255 were not used

for Medicaid inpatient hospital services . . . and funds paid to

Defendant were improperly “reallocated” to non-healthcare

expenditures in violation of Appendix D to the CMAC contracts from

fiscal year 1997-1998 forward.” SAC at 12. 

17

the Government that will result in Defendant receiving and/or

retaining funds from Fund 912 . . . .” SAC at 7. She explains

that the County misrepresented information on the contract and the

contract amendment the county submits to the State in order to

receive SB 1255 funds. SAC at 10-13. As defendant points out,

relator essentially avers that the County has not directly made a

false claim to the federal government, but that its actions caused

the State to make the false claims on its behalf. Such a

contention would require the court to accept the argument that if

the State made a false claim to the federal government, then the

County made a false claim to the federal government. Because

defendant has not moved to dismiss on this basis, but apparently

concedes the propriety of such an allegation, the court will assume

that such a claim falls within the qui tam statute. 

From what the court can determine, the false claim that

defendant allegedly made to the State, which was consequently made

to the federal government, is that the funds which were disbursed

to it by the State under SB 1255 would be used to provide health

care and related remedial or preventative services when, in

actuality, the funds disbursed to it were “expended for nonMedicaid, and even non-healthcare purposes.”22 Although not

entirely clear from their complaint, the court clarified with

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23 See SAC at 9 (“After receiving payment of its claim from

the State, Defendant uses most of the SB 1255 disbursement for nonhealthcare purposes”); SAC at 10 (“The expeditures by the State to

Defendant under the SB 1255 Program were not used to provide health

care and related remedial or preventive services to qualifying

individuals . . . .”; SAC at 11 (“The payments from Fund 693 were

not made for the purposes of California Welf. & Inst. Code Section

14085.6"); SAC at 12 (“Most of the federal funds reimbursed to the

state . . . were not used for Medicaid inpatient hospital

services”); SAC at 12 (“Funds paid to Defendant were improperly

“reallocated” to non-healthcare expenditures in violation of

Appendix D to the CMAC contracts . . . .”); SAC at 12 (“Defendant

knowingly used the scheme . . . to get the Government to contribute

Medicaid dollars to Defendant, which Defendant then expended for

non-Medicaid, and even non-healthcare, purposes”). This

distinction is important to note because, as explained infra,

defendant moves to dismiss this complaint based on documents which,

at best, suggest that the IGT funds were not being used for proper

purposes, whereas plaintiff alleges that both federal and county

funds were spent on non-healthcare expenditures.

24 It appears to the court that many of defendant’s allegedly

public disclosure sources have little, if anything, to do with SB

1255 or the fraudulent scheme alleged by plaintiff. 

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counsel for relator during oral argument, that relator avers that

defendant misused both the funds transferred to the State by the

County (what defendant refers to as “IGT” funds), and the federal

matching funds.23

D. DEFENDANT’S TENDERED “PUBLIC DISCLOSURES”

 Defendant submits with its motion to dismiss numerous lengthy

exhibits with pages numbering in the hundreds, which it asserts

contains sources which have previously disclosed plaintiff’s

alleged fraudulent scheme.24 In some cases, defendant fails to

provide a specific page number or citation where the “public

disclosure” is contained. In other cases, the exhibit is not

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25 As the Seventh Circuit has aptly stated, "[j]udges are not

like pigs, hunting for truffles buried in briefs." United States

v. Dunkel, 927 F.2d 955, 956 (7th Cir 1991).

26 The court will not discuss the following, but provides

descriptions of the following documents for the purpose of

demonstrating their apparent irrelevance to the fraudulent

transaction alleged by relator: 

1. Wecker Decl., ¶ 12 and Ex. 4 - Defendant represents that

this document “disclosed and discussed the impact of IGTs and

net/gross operating incomes . . . with regard to which the SB 1255

distributions are made.” This exhibit is a request made by DHS to

extend funding for a Section 1115 Medicaid Demonstration Project.

The demonstration project made federal funds available to the

County in order to stabilize its public health system but appears

to have little to do with SB 1255. 

2. Morris Decl., Ex. 1. Defendant submits a GAO report which

investigates the Medicaid systems of Michigan, Tennessee, and

Texas. The report does not focus on or discuss California’s

Medicaid system, which is at issue here. 

3. Morris Decl., ¶¶ 8-9, Ex. 4. Defendant submits a

scholarly article that deals with DSH loopholes. The article does

not even mention SB 1255 and appears not to be relevant because SB

1255 is not a DSH program. 

4. Morris Decl., Ex. 5. Defendant submits a report completed

by the HCFA inspector general which describes how IGTs work in

certain states to enhance federal benefits. The report describes

the Medicaid systems in Alabama, Pennsylvania, and Nebraska.

California was not studied for the purposes of this report. Nor

does the report discuss SB 1255.

5. Morris Decl., Ex. 10. This exhibit is a review completed

by The United States’ Health and Human Services which examines how

IGT schemes operate in Alabama and Pennsylvania. The report does

not address SB 1255. Strangely, defendant concedes in its

opposition that the report does not address SB 1255, but still

files it with the court.

6. Morris Decl., Ex. 12. This exhibit is a statement made

by an official at HHS. The statement discusses the general problem

where States often do not match the federally-provided funds under

Medicaid. However, this report does not discuss the transaction

relator described in her pleadings.

Defendant also submits over 4 more lengthy exhibits for the

court’s consideration in conjunction with its reply brief. 

Plaintiff complains that this is improper because defendant makes

new arguments in reliance on these exhibits. Plaintiff moves to

strike any new arguments and accompanying exhibit. The court

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numbered.25 The court, therefore, will only discuss the documents

which, at the very least, discuss SB 1255.26 

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agrees with plaintiff and the motion to strike is GRANTED. No new

arguments or additional exhibits filed concurrently with

defendant’s reply brief will be considered by the court. “It is

improper for a moving party to introduce new facts or different

legal arguments in the reply brief than those presented in the

moving papers.” Lujan v. Nat’l Wildlife Federation, 497 U.S. 871,

894-95 (1990). Defendant also spends substantial time in its reply

brief discussing arguments which go to the merits of relator’s FCA

claim, which is not at issue for purposes of this motion. 

27 As I explained above, the first determination this court

must make is whether the alleged public disclosure “originated in

one of the sources enumerated in the statute.” United States of

America ex rel. Foundation Aiding the Elderly v. Horizon West Inc.,

265 F.3d 1011 (9th Cir. 2001). The court must then ask whether

there has been a public disclosure through one of those sources -

i.e., whether the content of the disclosure consisted of the

“allegations or transactions” giving rise to relator’s claim, as

opposed to “mere information.” Hagwood v. Sonoma County Water

Agency, 81 F.3d 1465, 1473 (9th Cir. 1996).

20

E. WAS THERE A PUBLIC DISCLOSURE?

The court turns to the three apparently potentially relevant

documents which defendant argues previously disclosed relator’s

false claim allegations.27 Defendant’s arguments are unavailing.

1. “Board Letters” (Rhind Decl., Ex. A)

Defendant tenders letters addressed to the Los Angeles County

Board of Supervisors from the Director of Health Services

encouraging the members to adopt an amendment to the County’s MediCal contract to facilitate the transfer of IGTs to the State. 

Defendant explains that these letters were related to and the

subject of Board actions taken at open public meetings, and which

were publicly available as of the date they were received by the

Board. Rhind Decl. at 2. Defendant avers that these letters were

available by telephonic or in-person request. Id. 

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There is no doubt that publicly-filed documents, readily

available to the public, and the subject of administrative

proceedings, fall within the ambit of “administrative hearing[s]”

under the FCA. Public board meetings certainly qualify as an

administrative hearing. See A-1 Ambulance Serv. Inc., 202 F.3d at

1244 (San Mateo Board of Supervisors proceedings qualifies as a

“hearing” within the meaning of the FCA). Further, documents filed

with an agency during administrative proceedings, which these

letters were, are also considered publicly disclosed. See Hagwood,

81 F.3d at 1474, n. 13. 

Nevertheless, the court must reject defendant’s assertion that

these letters disclosed relator’s claim. The Board letters

includes the following language: 

Purpose of Recommended Action:

Approval of this amendment [to the Los Angeles County

Medi-Cal inpatient hospital contract] will enable the

Department to secure SB 1255 Medi-Cal funding for Fiscal

Year 1998-99 to support Department of Health Services

(DHS) operations. The California Medical Assistance

Commission (CMAC) authorized this amendment at its May

27, 1999 meeting.

Justification:

Approval of Amendment No. 25 (attached) will result in

CMAC providing a total gross SB 1255 Medi-Cal Contract

supplemental distribution to the County of $625.0

million ($306.2 million net), to be made on or about

June 17, 1999, following an intergovernmental transfer

(IGT) of $318.8 million by the County to the State on

June 3, 1999.

CMAC is anxious to distribute the full $625.0 million by

June 30, 1999 so that these monies will be counted under

CMAC's Medi-Cal contracting waiver budget neutrality cap

for Fiscal Year 1998-99 and the County is equally

anxious to receive the proceeds prior to the end of this

fiscal year for cash flow reasons.

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Fiscal Impact:

The transaction will provide $306.2 million in

previously anticipated net funding to help finance the

Department's operations as provided for in the

Board-adopted budget for Fiscal Year 1998-99. . . .

Financing:

Under the SB 1255 program, the County must provide an

IGT to constitute the State's share of the $625.0

million gross Medi-Cal distribution. Accordingly, an

IGT of $318.8 million will be made to the State on June

3, 1999.

Rhind Decl., Ex. A (emphasis original).

Defendant argues that these letters are relevant because “it

is clear from the context of the document as a whole that “these

monies” refers to the net payment (the gross amount less the IGT).”

Repl. at 16. Defendant explains that the sentence, “Approval of

Amendment No. 25 (attached) will result in CMAC providing a total

gross SB 1255 Medi-Cal Contract supplemental distribution to the

County of $625.0 million ($306.2 million net), to be made on or

about June 17, 1999, following an intergovernmental transfer (IGT)

of $318.8 million by the County to the State on June 3, 1999,”

means that the County did not use its full gross SB 1255 payments

from the federal government (received as payment for services it

had rendered under its Medi-Cal contract with the state) to fund

health programs. The argument is not persuasive. The language the

defendant relies on hardly discloses that the County did not use

its entire SB 1255 funds for health-related purposes. Rather, it

appears to do no more than explain the gross amount of money that

defendant would receive from the federal government if it were to

transfer $318.8 million dollars to the state. 

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26 28 Indeed, the report is not even numbered. See n.25 supra.

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The Ninth Circuit emphasizes that the substance of the

disclosure need not contain an explicit allegation of fraud “so

long as the material elements of the allegedly fraudulent

transaction are disclosed . . . .” Horizon West, 265 F.3d 1011 (9th

Cir. 2001)(citation and quotation omitted). Here, the substance

of Englund’s allegations is that defendant did not use SB 1255

funds it received (both the county share and the federal share) for

health-related purposes. These letters fall far short of

containing the substance of relator’s averments. 

2. County of Los Angeles Comprehensive Annual Financial

Report (CAFR)(Hammond Decl. at ¶¶ 2-4, Ex. A)

Defendant also offers the County of Los Angeles’ annual report

for fiscal year 2001, a voluminous report numbering at least 75

pages, but defendant does not cite to any page numbers for its

contentions.28 Defendant argues that the report reveals that the

County did not use its full gross SB 1255 payments for health

services, Repl. at 16, and that “when the gross SB 1255

distribution is received from the State, the amount of the IGT that

was made in order to obtain that distribution is returned to the

County’s general fund.” Mot. at 12. There are numerous charts,

figures, and graphs which the court is unable to make sense of.

The court wishes to be clear that it is defendant’s burden to prove

its case as the moving party. However, from the court’s own

examination, it appears that there is one paragraph in the report

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which discusses SB 1255:

SB 1255 which became effective in 1990 established the

State Disproportionate Share and Emergency Services Fund

to receive contributions from public agencies. The

State then utilizes these funds to obtain additional

Federal matching funds. The total is then distributed

to the participants through a negotiation process 

. . . . For Fiscal Year 2000-2001, the county

contributed $372 million, and corresponding revenues

were $716 million. The county contribution to the State

is recorded as a health expenditure of the General Fund.

The revenue is recorded in the Hospital Enterprise Funds

as patient services revenue. Reimbursement to the

General Fund for the contribution is recorded as an

operating transfer from the Hospitals to the General

Fund (emphasis added).

Defendant argues that the CAFR discloses that “when the gross SB

1255 distribution is received from the State, the amount of the IGT

that was made to obtain that distribution is returned to the

County’s general fund.” Mot. at 12. This apparently refers to the

last sentence. That sentence, however, appears to be a memorial

concerning the County’s accounting practice, rather than a

revelation of the fact of complete reimbursement. Whatever the

quoted language means, it certainly does not directly reveal that

the funds received by the County were to be used for non-health

purposes. Indeed, the phrase “[t]he county contribution to the

State is recorded as a health expenditure of the General Fund”

appears to undermine defendant’s argument that the CAFR reveals

that the funds would not be used for health care purposes.

Moreover, the plaintiff alleges that both the IGT funds returned

to the defendant and some portion of the federal funds were not

used for health care purposes, an allegation clearly not addressed

by the CAFR. I conclude that there was no public disclosure made

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29 Wecker states that the attendees included employees of 

HHS. 

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in the County’s CAFR. 

3. Statements Made to HCFA Staff in a meeting about L.A.’s

Healthcare Crisis), Wecker Decl. ¶¶ 5-9, Exs. 1, 2

Defendant offers the declaration of Allan Wecker, the ChiefFiscal Programs for the County’s Department of Health Services.

Wecker explains that in the mid-1990s, the County of Los Angeles

was in the midst of a budget deficit, which led county officials

to meet with various officials in Washington, D.C. Wecker Decl.

at 2-3. On January 18-19, Wecker avers that he explained to

various federal attendees29 “the differences between ‘gross’ and

‘net’ revenues through disbursements from the State to the County

under the Medi-Cal programs known as SB 1255, as well as under

other Medicaid programs.” Id. at 4. He further avers that on

January 31, 1996, he met with officials in Washington regarding the

budget crisis and “made it very clear that only ‘net FFP’ (that is,

the State of California’s gross payments under SB 1255 and SB 855,

less the IGT amount originally provided by the County to the State)

was considered by the County to be supplemental revenue available

to the County for health care funding,” id. at 5, i.e., the IGT

amount provided by the county would not be used for health care

purposes. Defendant’s arguments fail for several reasons. 

First, defendant has not demonstrated that the meetings held

between county officials and the federal government officials 

constitute a “public disclosure.” In A-1 Ambulance, the Ninth

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Circuit held that a county public agency proceedings was an

“administrative hearings.” It did so, however, after reviewing the

nature of the hearings, public comment, and the distribution of

documents. The court noted that the hearings were “deliberate and

not incidental,” that it was “made open to public attendance and

actually invited, as well as received, public comment.” 202 F.3d

at 1238. Nothing in the Wecker declaration suggests that the

meetings relied on by the defendant was of such a character.

Defendant contends that the meetings constituted a “disclosure”

under the FCA because the County made such disclosures “directly”

to the federal government. At best, such a contention goes to the

issue of whether there was a fraud, a merits issue, and not to

whether there was a public disclosure. In any case, as I explain

below, the court need not resolve whether the Washington D.C.

meetings constitute an acceptable category of fora under the FCA.

 Although Wecker claims that he made clear that only the FFP

would be available for health care services, and the federal

government was then made aware that the IGT funds (the amount the

county transferred to the state) were not used for such purposes,

this statement does not characterize the entire fraudulent scheme

alleged by relator. While it is true that the allegations need not

specifically identify the fraud at issue, Horizon West Inc., 265

F.3d at 1016, the “fraudulent scheme” relator allegations involve

the defendant misusing both the funds transferred to the state and

the federal matching funds. Here, Wecker only states that the IGT

funds were considered not to be revenue available to the County for

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health care funding. Wecker Decl. at 5. For all the above

reasons, I conclude that the declaration is insufficient.

For the reasons stated above, defendant’s motion to dismiss

is DENIED.

IT IS SO ORDERED. 

DATED: August 30, 2005.

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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