County to Get $1.3 Million in Suit : Litigation: Thirteen counties that sued California for alleged excessive penalties related to Medi-Cal applications will share in $7.5-million settlement.

Orange County will receive $1.3 million in the settlement to a lawsuit in which several California counties charged the state government with exacting excessive monetary penalties related to the delivery of local Medi-Cal services.

Under the terms of the agreement, a pool of $7.5 million will be shared by Orange and 12 other California counties that joined in the lawsuit against the state six years ago.

Deputy County Counsel Thomas C. Agin said Thursday that the agreement was reached late last week. The Orange County Board of Supervisors is expected to ratify the settlement at its meeting Tuesday.

Led by Riverside County, local governments claimed that they were being forced to pay millions of dollars in state-mandated penalties for submitting too many requests for low-income medical care that did not meet state guidelines under the Medi-Cal system.

For example, the state charged that counties submitted requests for reimbursement for people who did not qualify for Medi-Cal.

Agin said the penalties, which totaled about $5.3 million for the 13 counties, were levied between 1982 and 1987.

At that time, the counties claimed that state eligibility requirements for publicly assisted medical care changed so often that local governments could not effectively eliminate from the system applications that did not qualify for state aid.

“The problem during that period of time was that the rules were constantly changing,” Agin said. “The penalties were unfair because of the change in regulations, not because the counties were being sloppy. What was good one year sometimes didn’t apply in another.”

Duane Miller, a Sacramento attorney who represented the counties, said Thursday that the state’s concern was also that counties were somehow attempting to force the state to pick up the costs for processing faulty applications.

“In my career, I have done a lot of work representing counties and local governments,” Miller said. “In all of the decisions I have seen state government make (by penalizing the counties), this was far and away the most stupid. It represented a new low in the state and county relationship. There was no indication that counties were doing anything improper. It was so painfully clear.”

State officials could not be reached for comment Thursday, but Supervisor Gaddi H. Vasquez said the agreement represents a significant decision by the state. By paying the money, the state elected to forgo an appeal of a recent ruling by a San Francisco Superior Court that favored the counties’ position.

“This shows that the counties were in a pretty strong position, given the size of the settlement and that the state elected not to appeal the (Superior Court) decision,” Vasquez said.

“There was a pretty strong difference of opinion between the state and the counties, but there was unity on the part of the counties.”

According to the agreement, Agin said, the 13 counties are to be refunded virtually all of the penalties each paid into the system during the six years. Those refunds will also be supplemented by interest payments totaling about $2 million.

Of the 13 counties involved in the lawsuit, Orange County’s payout ranks second only to that of San Diego County--which is expected to receive $1.4 million, according to the settlement.

Other than paying attorneys’ fees and other expenses, the counties can use their share of the money in any manner they wish, Miller said.

In Orange County, news of any windfall is especially welcome because officials face the task of grappling with an unprecedented $93-million budget shortfall.

“It is always good news to get more money, especially from the state, at a time when the state seems to be raiding our revenues,” Board of Supervisors Chairman Harriett M. Wieder said. “I don’t think this alone will make much of a dent, but it could save a program.”