Background
Xerox Corporation contracted with Texas to administer the Medicaid program, including reviewing prior-authorization requests for orthodontic treatment. Alexandra Alvarez, Joshua LaFountain, and Dr. Christine Ellis filed separate qui tam actions under the Texas Medicaid Fraud Prevention Act (TMFPA) in 2012, alleging that multiple orthodontists fraudulently submitted claims for Medicaid reimbursement and that Xerox, as the claims reviewer, fraudulently approved them without proper evaluation. The relators alleged that Xerox employees “rubber stamped” claims without verifying compliance with Medicaid eligibility criteria.
The State intervened in the relators’ suits and later agreed with them to abate their cases while the State pursued a separate action against Xerox. In February 2019, the State and Xerox settled for $212,347,800. The settlement agreement expressly referenced and resolved the relators’ underlying claims. The relators then sought a 17.5% share of the settlement proceeds ($37,160,865) in the State’s suit against Xerox. The trial court awarded this share, and the State appealed.
The Court’s Holding
The Fifteenth Court of Appeals reversed the trial court’s judgment and ruled in favor of the State on the critical issue of whether the public disclosure provision of the TMFPA barred the relators’ claims. The court held that prior WFAA news reports had publicly disclosed the fraudulent transaction alleged in the qui tam actions. Using the federal test for public disclosure (applied as guidance under the analogous federal False Claims Act), the court found that the news reports revealed both essential elements of the fraud: the true state of facts (Medicaid covers braces only in limited circumstances requiring specific approval) and the misrepresented state of facts (Xerox approved claims without proper review and encouraged employees to rush through claims without ensuring compliance).
The court found the news reports specifically named Xerox, described its role in failing to properly process claims, and revealed its policy of having employees prioritize claim volume over proper evaluation. These news articles, published between May and December 2011—before the relators filed their 2012 actions—were sufficient to trigger the public disclosure bar under Texas Human Resources Code § 36.113(b). The court rejected the relators’ argument that the timing of the State’s investigation was relevant to whether the bar applies, noting that the statute contains no such requirement and federal courts have interpreted similar provisions to focus on whether the government could have learned of the fraud from the public disclosures, not whether it actually did.
Key Takeaways
- Qui tam claims under the TMFPA are barred by the public disclosure provision when the underlying fraud has been disclosed through news media, even if the relators claim the reports focused on different aspects than their complaint.
- Federal jurisprudence interpreting the analogous federal False Claims Act’s public disclosure bar is instructive for interpreting the Texas statute, and the court adopted the three-part test: (1) whether there was public disclosure; (2) whether the qui tam action is based upon that disclosure; and (3) whether the relator is the original source.
- The “based upon” standard does not require that a qui tam complaint be entirely or solely derived from public disclosures; substantial identity between the publicly disclosed allegations and the complaint is sufficient to bar the action.
- A court may hear a relator’s motion for a share of settlement proceeds in the State’s separate action against the defendant, not just in the original qui tam suit, as the TMFPA provides that relators have “the same rights” in an alternative proceeding that the State pursues.
Why It Matters
This decision significantly limits the ability of qui tam relators to pursue cases based on publicly known fraud under the TMFPA. By applying federal False Claims Act precedent to interpret Texas’s public disclosure bar, the court established that relators must be among the first to identify and report fraud to maintain standing. If credible news organizations or government audits have already exposed the underlying scheme before a qui tam complaint is filed, the relators will be barred even if they independently developed their allegations. This incentivizes relators to act quickly upon learning of potential fraud rather than waiting to see if others report it.
The decision also clarifies that the TMFPA’s requirement that relators be “original sources” of information is not merely a technical hurdle but a substantive bar to claims that simply repackage publicly available information. The court’s holding underscores the balance between encouraging whistleblowers to come forward while preventing opportunistic late-comers from riding on the coattails of prior publicity. For defendants facing settlement with the State after public exposure of alleged fraud, this ruling reduces their exposure to relator share claims.