Reversing the trial court, the 15th Court of Appeals has held that the public disclosure exception to the Medicaid fraud statute applied to the claims of three qui tam relators for a share of $212.3 million settlement.
State of Texas v. Alexandra Alvarez, Joshua LaFountain, Dr. Christine Ellis, D.D.S. (No. 15-25-00034-CV; April 7, 2026) arose from qui tam actions brought by Alvarez, LaFountain, and Ellis against numerous Texas Medicaid dental providers alleging violations of the Texas Medicaid Fraud Prevention Act. They also sued Xerox Corporation and Xerox State Healthcare, LLC, which had a contract with the state to perform program administration of the Medicaid program, including the evaluation of authorization requests submitted by dental providers for orthodontic treatment. The suits alleged that Xerox “routinely approved Medicaid claims without verifying that the claims complied with Medicaid guidelines for reimbursement.” The state intervened in each suit and, in 2014, filed its own suit against Xerox for fraud. The state further reached an agreement with the qui tam relators to dismiss or abate their actions.
In 2019 the state and Xerox entered into a settlement agreement. The qui tam relators filed a joint motion in the state’s suit against Xerox for determination of their share of the proceeds. The state moved to sever the relators’ claims from its suit against Xerox, assuring the relators that it severance wouldn’t prejudice them. But when the trial court granted the motion and severed those claims, the state filed a plea to the jurisdiction. The trial court denied the plea. The state appealed, but the Austin Court of Appeals affirmed. On remand, the relators filed a renewed motion for a 17.5% share of the prodeeds. The state responded with an MSJ on several grounds, all of which the trial court denied. It then entered final judgment for the relators awarding $37,160,865, 17.5% of the state’s $212,347,800 settlement proceeds. The state appealed again.
In an opinion by Justice Farris, the court of appeals reversed. The state first claimed that the relators joint motion for a share of the proceeds didn’t state a cause of action and was barred by sovereign immunity. It argued that once the motion was severed, there was no cause of action under the TMFPA to recover the relators’ share. Concurring with the Austin court, the court determined that the relators’ joint motion was not a “suit” within the meaning for the Act, and that sovereign immunity didn’t apply because the Act authorizes a private relator seeking a share of the state’s settlement with a qui tam defendant to pursue “an alternative remedy [] in another procdeeding” with “the same rights in the other proceeding as the person would have had if the action had continued under [the qui tam provisions.” 36.109(a), Human Resources Code. The trial court thus didn’t err by denying the state’s claim of sovereign immunity.
Next, the state asserted that the relators’ qui tam claims were barred by the Act’s “public disclosure” provision. This provision blocks a qui tam action “based on the public disclosure of allegations or transactions in a criminal or civil hearing in which the state or an agent of the state is a party, in a legislative or administrative report, hearing, audit, or investigation, or from the news medi, unless the person bringing the action is an original source of the information.” § 36.113(b). According to the state, allegations against Xerox had appeared in “widespread news reporting, administrative reports, hearings, audits, and investgations.” Observing that no Texas court has yet interpreted this provision, the court turned to federal authority relating to an analogous provision in the Federal False Claims Act.
First, the court examined whether there had been “public disclosure” of Xerox’s fraudulent acts and determioned that there had been extensive investigation by WFAA of orthdonitic claims that didn’t meet Medicaid requirements. That reporting further implicated Xerox and the company’s dental director as being involved in approving fraudulent claims, sparking a Senate hearing on the matter. The reporting further “set out a true state of facts: Medicaid only covers braces in very limited circumstances that require specific approval.” It also “set out the misrepresented set of facts: Xerox was the private contractor charged with authorizing orthodontic claims, but under Xerox’s policy, its employees rushed through claims, approving claims whether they complied with Medicaid requirements or not.” No question, the court held, that “news reports public disclosed evidence of a fraudulent transaction by Xerox.” Second, the court found that the relators’ claims against Xerox were “based on” the public disclosures because “essentially the same scheme [of Xerox’s fraudulent conduct] was the primary focus” of those claims. This was also true of LaFountain’s claims of fraudulently approved claims for services other than braces because Xerox’s “general practice” had already been publicly disclosed.
The relators argued that because they were the original source of the information, the public disclosure exception didn’t apply. As to Alvarez, she didn’t assert in response to the state’s MSJ that she was an original source of information on which her allegations were based. That knocked her out. LaFountain alleged that he had direct and independent knowledge of Xerox’s fraud because he worked at a dentristy practice. He admitted, however, that he had no interactions with Xerox and got whatever information he had from a dentist who was conducting training for dentistry clinics. In short, he could not show that he had any “first-hand knowledge of how or why Xerox was approving claims, including whether approval was ‘without regard’ to Medicaid compliance (as he alleged).” Simply suspecting that fraud may be going on does not equal “direct and independent knowledge” of such fraud. Similarly, Ellis didn’t have any director and independent knowledge, either. She based on her “knowledge” on allegations that providers were submitting fraudulent claims, not that Xerox was improperly approving them. Moreover, she derived her knowledge from the state’s filing in her qui tam action against another provider, not Xerox. In short, her claims were based on speculation as well.
The court reversed the trial court and rendered a take-nothing judgment against the relators, holding that the public disclosure exception barred the relators’ claims for a share of the settlement proceeds.
