United States Court of Appeals 

for the Fifth Circuit ____________ 

No. 22-20659 

____________ 

United States of America, ex rel, Kent Vaughn, 

Plaintiff—Appellant, 

versus

Harris County Hospital District, doing business as Harris 

Health System; Harris County Clinical Services, 

Incorporated; Memorial Hermann Health System; 

Christus Health; Christus Health Gulf Coast; HCA 

Healthcare; HCA Gulf Coast Division Incorporated; 

St. Joseph Medical Center; Houston Methodist; Texas 

Children’s Hospital; St. Luke’s Episcopal Health 

System; Affiliated Medical Services; Baylor College of 

Medicine; UT Physicians, 

Defendants—Appellees. 

______________________________ 

Appeal from the United States District Court 

for the Southern District of Texas 

USDC No. 4:17-CV-2749 

______________________________ 

Before Graves, Higginson, and Ho, Circuit Judges.

James E. Graves Jr., Circuit Judge:

*

_____________________ 

*

 This opinion is not designated for publication. See 5th Cir. R. 47.5. 

United States Court of Appeals 

Fifth Circuit 

FILED 

December 14, 2023 

Lyle W. Cayce 

Clerk 

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Appellant Kent Vaughn brought a False Claims Act suit against Harris 

County, and other hospital and medical Defendants, alleging fraud against 

the government. Because the District Court found that Vaughn’s second 

amended complaint was substantially the same as publicly disclosed allegations, it dismissed the suit. We AFFIRM.

Background 

This appeal stems from Appellant Kent Vaughn’s False Claims Act 

(“FCA”) suit against the Appellees concerning Medicaid fraud. The 

Medicaid program is a cost-sharing program between the federal government 

and state/local governments, where the federal government pays at least 50% 

of the cost of each state’s Medicaid program. 42 U.S.C. § 1396d(b). States 

may offer additional supplemental Medicaid payments up to a federally 

established “Upper Payment Limit” (“UPL”), which is meant to get the 

reimbursement rates closer to the actual cost of providing care. Thus, the 

funding for the Medicaid program includes Medicaid reimbursements and 

supplemental payments. Some states, such as Texas, get funding from local 

governments to help with the state’s portion of Medicaid payments 

(“intergovernmental transfers”). In 1991, in order to stop state and local 

governments from shifting their contribution responsibilities to the private 

sector, Congress amended the Medicaid statute to exclude “non-bona fide 

provider-related donations” (“NBFD Statute”) from federal matching. 

42 U.S.C. § 1396b(w)(1). 

Here, Vaughn alleges that in 2008, the Appellees “engineered a 

scheme” to violate the NBFD Statute by collecting payments deemed to be 

“donations,” from private hospitals and submitting that payment as being 

entitled to Medicaid reimbursement in order to receive federal matching 

funds from the Government. This scheme, referred to as the Collaborative 

Program (the “Collaborative”), involved private hospitals paying as 

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“donations,” inflated medical staffing costs and expenses provided by 

medical schools at and for Harris County Hospital District (“HCHD”) 

hospitals. HCHD then used these “donations” as cost savings and increased 

the amount of funds to the State of Texas through intergovernmental 

transfers, to fund the state/local government share of the Medicaid program. 

The federal government would then accordingly match the amounts Texas 

received from HCHD, and the increased funds were made available for UPL 

payments to the private hospitals involved in the Collaborative. Vaughn 

alleges that all of the non-federal parties involved in the Collaborative 

benefitted because “the private-hospital Defendants knew they would 

receive back in Medicaid payments substantially more than they ‘donated’ 

to cover HCHD’s medical-staffing costs . . . the medical-school Defendants 

increased the amount they charged HCHD so that they received exorbitant 

payments . . . for their medical-staffing services [and] . . . HCHD’s hospitals 

saved the cost of medical staffing services, appeased the [medical school 

Defendants’ demands for higher pay], and were able to make increased 

intergovernmental transfers.” Vaughn alleges that this scheme was in 

violation of the NBFD Statute because the state and local governments did 

not cost-share with the federal government as the Medicaid program 

required, but shifted the financial burden to private hospitals who later 

recouped their contributions from increased federal funding. 

As a part of this scheme Vaughn alleges that the “federal 

contributions have been diverted away from supporting indigent and 

uninsured care” and instead have been “used to pay physician/provider 

salaries and medical-school faculty/staff expenses.” He states he learned of 

the Collaborative’s scheme when he was working for HCHD in 2010 as its 

“Associate Administrator of Provider Practices and Contracting.” During 

his employment, Vaughn attempted to make changes at HCHD to comply 

with the NBFD statute. However, after Vaughn was unable to achieve any 

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meaningful changes or oversight, in August 2014 he wrote a letter to the chair 

of HCHD’s Compliance Committee and HCHD’s CCO informing them that 

the medical-school Defendants had been charging for physician and medicaldirector services in excess of fair market value and that FCA violations had 

occurred and were continuing to occur. Afterwards, HCHD launched an 

investigation into Vaughn, and transferred him and his staff to the finance 

department. Vaughn was ultimately terminated by HCHD. 

Procedural History 

Appellant Kent Vaughn filed suit in August 2017 alleging that public 

hospitals, including HCHD, in concert with private hospitals in Harris 

County and other medical school Defendants, violated the False Claims Act 

by claiming and receiving excessive Medicaid funding. In April 2020, 

Defendants moved to dismiss Vaughn’s Second Amended Complaint. The 

magistrate judge recommended dismissing the claims because of the public 

disclosure bar and denying Vaughn’s request to file a third amended 

complaint. The district court adopted the magistrate judge’s order in full. 

Vaughn appealed. 

Standard of Review 

The court conducts de novo review of a district court’s order to dismiss 

under Federal Rule of Civil Procedure 12(b)(6). Walker v. Beaumont Indep. 

Sch. Dist., 938 F.3d 724, 734 (5th Cir. 2019). “To survive a Rule 12(b)(6) 

motion to dismiss, the complaint ‘does not need detailed factual allegations,’ 

but it must provide the plaintiff’s grounds for entitlement to relief—

including factual allegations that, when assumed to be true, ‘raise a right to 

relief above the speculative level.’” Taylor v. City of Shreveport, 798 F.3d 276, 

279 (5th Cir. 2015) (citation omitted). “We may affirm a district court’s 

order dismissing a claim under Rule 12(b)(6) ‘on any basis supported by the 

record.’” Id. (citation omitted). 

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Discussion 

I. False Claims Act 

The False Claims Act permits individuals who meet certain criteria to 

pursue damages on behalf of the government for false claims submitted to the 

government. 31 U.S.C. § 3730(b). Under this provision, the Government 

may elect to intervene with the action or decline to take over the action. 

Id. § (b)(4). If the Government elects not to proceed, the person who 

initiated the action may conduct the action. Id. § (c)(3). Whether or not the 

Government elects to proceed with the action, the individual who brought 

the action may receive a percentage of the proceeds from the action. 

Id. § (d)(1)—(2). The Act provides that: 

(4)(A) [t]he court shall dismiss an action or claim 

under this section, unless opposed by the 

Government, if substantially the same 

allegations or transactions as alleged in the action 

or claim were publicly disclosed— 

(i) in a Federal criminal, civil, or administrative 

hearing in which the Government or its agent is 

a party; 

(ii) in a congressional, Government 

Accountability Office, or other Federal report, 

hearing, audit, or investigation; or 

(iii) from the news media, 

31 U.S.C. § 3730(e)(4)(A). This section, deemed the “public disclosure 

bar,” seeks to “strike a balance between encouraging private persons to root 

out fraud and stifling parasitic lawsuits” based on publicly available 

information. Graham Cnty. Soil & Water Conservation Dist. v. United States 

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ex rel. Wilson, 559 U.S. 280, 295 (2010). The public disclosure bar applies 

“whenever qui tam relators bring a suit based on publicly available 

information.” United States ex rel. Colquitt v. Abbott Lab’ys, 858 F.3d 365, 373 

(5th Cir. 2017) (quoting United States ex rel. Jamison v. McKesson Corp., 649 

F.3d 322, 327 (5th Cir. 2011)). The Act provides an exception to the public 

disclosure bar for individuals who are the “original source of the 

information.” 31 U.S.C. § 3730(e)(4)(A). “Together, the public disclosure 

bar and its original source exception calibrate the incentives for individuals 

to bring qui tam suits under the False Claims Act.” Colquitt, 858 F.3d at 373.

“The purpose of the [] bar is both to promote private citizen involvement in 

fraud exposure while also ‘preventing parasitic suits by opportunistic latecomers who add nothing to the exposure of fraud.’” United States ex rel. 

Solomon v. Lockheed Martin Corp., 878 F.3d 139, 143 (5th Cir. 2017) (quoting 

United States ex rel. Reagan v. E. Tex. Med. Ctr. Reg’l Healthcare Sys., 384 F.3d 

168, 174 (5th Cir. 2004)). 

The court applies “a three-part test to determine whether this bar 

applies. It asks ‘1) whether there has been a ‘public disclosure’ of allegations 

or transactions, 2) whether the qui tam action is ‘based upon’ such publicly 

disclosed allegations, and 3) if so, whether the relator is the ‘original source’ 

of the information.’” Colquitt, 858 F.3d at 373 (quoting Fed. Recovery Servs., 

Inc. v. United States, 72 F.3d 447, 450 (5th Cir. 1995)). Under the test the 

court compares “the allegations contained in [the] original complaint with 

public disclosures available at the time the complaint was filed. If the 

complaint could have been synthesized from the disclosures, then we 

determine if the complainant was the original source of the disclosures.” 

Solomon, 878 F.3d at 143 (internal citations omitted). The parties do not 

dispute whether there has been a public disclosure, only whether Vaughn’s 

complaint is based on those publicly disclosed allegations. So we begin our 

inquiry at step two. 

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A. Public Disclosure Bar 

Vaughn argues that the public disclosure bar does not apply because 

the publicly available information did not (1) identify these specific 

Defendants; (2) address above-market payments and “other frauds”; or (3) 

show Defendants acted knowingly. The district court properly determined 

that Vaughn’s complaint was barred by the public disclosure bar because his 

complaint was substantially the same as allegations publicly disclosed. 

A Plaintiff’s FCA complaint is “based upon public disclosures if ‘one 

could have produced the substance of the complaint merely by synthesizing 

the public disclosures’ description of the joint venture scheme[.]’” Solomon, 

878 F.3d at 144. Thus, if the public disclosure was “sufficient to set the 

government on the trail of the fraud” then there will be “sufficient indicia of 

an FCA violation to bar a subsequently filed FCA complaint.” Id. The Fifth 

Circuit has adopted a test embraced by other circuits to determine if a public 

disclosure is “sufficient to set the government on the trail of fraud.” 

Under this approach, ‘the combination of X and 

Y must be revealed, from which the readers or 

listeners may infer Z.’ Z is an inference of fraud 

under the FCA, while X and Y are two required 

elements for the inference: ‘a misrepresented 

state of facts and a true state of facts.’ ‘The 

presence of one or the other in the public 

domain, but not both, cannot be expected to set 

government investigators on the trail of fraud. 

Id. (quoting United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 

645, 654—55 (D.C. Cir. 1994)). Notably, “[w]hen the elements of a 

fraudulent transaction are present in public disclosures, those public 

disclosures need not allege fraud in explicit language.” Id. at 145. The 

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information publicly available prior to Vaughn’s FCA complaint was 

sufficient to set the government on the trail of fraud. A disclosure by the news 

media in 2007 provided that “Federal officials are questioning the financial 

arrangements that allowed the private hospitals to claim the supplemental 

funds for the first time . . . . [and whether these arrangements represented] 

an impermissible quid pro quo between a private hospital and public entity.” 

Robert Garrett & Sherry Jacobson, Texas Hospitals Face End of Funding Plan 

Federal Officials Halt Payments Medicaid Officials Halt Payments that Ease 

Indigent-care Burden, Dallas Morning News (Oct. 6, 2007). 

Furthermore, contrary to Vaughn’s assertion, the same source identified that 

“private hospitals in 25 communities throughout the state, including Dallas, 

Houston, San Antonio, Austin[,] and El Paso, were able to generate $264 

million in local matching funds . . . to get the federal dollars.” Id. Another 

source, in 2008, identified the scheme that Vaughn claims in his complaint: 

[t]hese public-private agreements work like this: 

a taxing entity sets aside money – in some cases, 

8 percent of its tax levy, normally used for the 

indigent program – to be used as a match for 

additional Medicaid funds. With that match, the 

hospitals qualify to receive a higher 

reimbursement rate for treating Medicaid 

patients – roughly equivalent to what they 

receive for treating Medicare patients. That’s 

known as receiving the Medicaid ‘upper 

payment limit.’ In return, the hospitals, often 

through a nonprofit organization, take over 

paying bills for the county’s indigent residents. 

Melissa Mcever, Indigent Program Drawing Scrutiny: Area Officials: 

Partnership Helping Needy, Valley Morning Star (July 14, 2008). 

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Another media story in 2015 shows that the federal government was already 

on the trail of fraud: “federal officials questioned whether Texas hospital 

districts violate federal law by using money from private hospitals to gain 

federal matching funds for Medicaid and other needy patients.” Mary Ann 

Roser, State’s Medicaid Overhaul Draws Federal Scrutiny, Austin 

American-Statesman (Mar. 29, 2015). These examples are sufficient 

to show that the federal government was aware of the fraudulent scheme. 

Contrary to Vaughn’s assertion, the way in which the Defendants 

perpetrated the fraud (above market payments and non-indigent care) need 

not be alleged. See Solomon, 878 F.3d at 145 (“[t]he public disclosures need 

not expressly allege fraud. The question is whether the relator could have

synthesized an inference of fraud from the public disclosures.”). 

Accordingly, these public disclosures, and many others not described in 

detail here, allege facts that make a potentially fraudulent scheme readily 

identifiable. See id. at 146. Thus, the public disclosure bar applies, and 

Vaughn’s complaint may only proceed if he qualifies as an original source. 

B. Original Source 

An “original source means an individual who either (i) prior to a 

public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the 

Government the information on which allegations or transactions in a claim 

are based, or (ii) who has knowledge that is independent of and materially 

adds to the publicly disclosed allegations or transactions, and who has 

voluntarily provided the information to the Government before filing an 

action under this section.” 31 U.S.C. § 3730(e)(4)(B). Vaughn’s claims were 

not brought prior to the public disclosures and so only provision (ii) is 

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relevant here.1 While the Fifth Circuit has not opined on when an original 

source qualifies as having “materially added” to a public disclosure, 

decisions from other circuits prove instructive. In United States ex rel. 

Winkelman v. CVS Caremark Corp., 827 F.3d 201, 211 (1st Cir. 2016), the 

court observed that “an addition is material if it is ‘[o]f such a nature that 

knowledge of the item would affect a person’s decision-making,’ or if it is 

‘significant,’ or if it is ‘essential.’” Id. (citing Black’s Law Dictionary, 1124 

(10th ed. 2014)). “Our task is to ascertain whether the relators’ allegedly new 

information is sufficiently significant or essential so as to fall into the narrow 

category of information that materially adds to what has already been 

revealed through public disclosures. As the level of detail in public 

disclosures increases, the universe of potentially material additions shrinks.” 

Id. Similar to the public disclosure argument, Vaughn alleges that he qualifies 

as an original source because he (1) identified the specific Defendants; (2) 

alleged facts to establish Defendants’ scienter; and (3) alleged non-public 

facts showing a more expansive fraudulent scheme. None of the purportedly 

non-public information alleged by Vaughn “materially adds” to the publicly 

disclosed allegations. The district court was thus correct in finding that 

Vaughn does not qualify as an original source. 

First, the publicly available information identified Houston and Harris 

County as having been involved in these collaborative programs. Vaughn 

could not have materially added information on the identities of the specific 

Defendants when it was already known at least as early as 2004. 

Second, Vaughn’s assertion that his allegations of scienter materially 

add to the public disclosures lacks force. Vaughn alleges that the state and 

_____________________ 

1

 Whether Vaughn voluntarily provided this information to the Government is not 

disputed. 

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local governments did not cost-share with the federal government as the 

Medicaid program required, but shifted the financial burden to private 

hospitals who later recouped their contributions from increased federal 

funding. It defies logic to assume that Defendants were unaware that this 

arrangement was a potential violation of the law, when information and 

allegations about collaborative schemes such as and including this one were 

reported by the news media since at least 2004—2017. The court in 

Winkelman has likewise applied this logic: 

the allegations gleaned from [the relator’s] 

experience add nothing significant about CVS’s 

knowledge: every indication from the public 

disclosures was that CVS was fully aware that it 

was refusing to provide its [Health Savings Pass] 

prices to the Connecticut Medicaid program 

prior to the legislative change—and, indeed, 

adopted this firm position in spite of known 

doubts about whether this conduct was legal. 

Winkelman, 827 F.3d at 213. Accordingly, adding details as to the 

Defendants’ scienter cannot be said to be a material addition. 

Vaughn’s argument that he alleges a more expansive fraudulent 

scheme due to Defendants’ use of above market payments and non-indigent 

care likewise fails. The crux of the public disclosures unearths the possible 

fraud in enumerating a quid pro quo, or program where private hospitals 

provide services, money, and/or care in order to receive greater government 

funding. Vaughn’s specific theory on the Collaborative’s use of above market 

payments adds nothing significant to the public disclosures. Another source 

had publicly disclosed that “the controversy stems from a complex payment 

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system that served as a workaround for the non-public hospitals to put up 

their own matching funds . . . which the federal government initially intended 

to come from a local government source.” Matt Goodman, Breaking Down 

Why CMS Wants $27 Million Back from Dallas Area Hospitals, D CEO

Healthcare (Sept. 8, 2016). Here, “above market payments and nonindigent care” qualify as the complex payment system that serves as a 

workaround for local government sources to avoid cost-sharing with the 

government. In a case such as this one, it is not unexpected for a fraudulent 

scheme to involve some sort of payment manipulation. Vaughn’s “addition” 

therefore cannot be material. Importantly, “offering specific examples of [] 

conduct does not provide any significant new information where the 

underlying conduct already has been publicly disclosed.” Winkelman, 827 

F.3d at 212. Accordingly, Vaughn has not made any material additions to the 

public disclosure, and he thus fails to qualify as an original source. We move 

to Vaughn’s final argument on appeal, that the district court erred in denying 

him leave to file a third amended complaint. 

II. Leave to Amend 

 The district court denied Vaughn’s Motion for Leave to Amend 

holding that it would be futile, burdensome, and cause undue delay. Denial 

of leave to amend is reviewed for abuse of discretion. United States ex rel. 

Spicer v. Westbrook, 751 F.3d 354, 367 (5th Cir. 2014). The district court did 

not abuse its discretion in denying the motion. “The district court properly 

exercises its discretion under Rule 15(a)(2) when it denies leave to amend for 

a substantial reason, such as undue delay, repeated failures to cure 

deficiencies, undue prejudice, or futility.” Id. (citation omitted). Vaughn’s 

purported amendment would add additional facts about scienter, abovemarket payments and non-indigent coverage. But those facts do not 

materially add to what has already been publicly disclosed. Any such 

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amendments are futile. The district court therefore could have denied the 

motion on that ground alone; however, the district court also found that 

Vaughn had essentially rewritten his complaint and based it on a new legal 

theory after four years of litigation. So undue delay is another reason in 

support of denial of the motion. 

Conclusion 

For all of the foregoing reasons, the judgment of the district court is 

AFFIRMED. 

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