State, County Settle Medicaid Billing Suit of Whistle-Blower

The state and Los Angeles County have agreed to pay $73.3 million to the federal government to settle allegations they improperly billed the Medicaid program for health services to some minors.

The claims were raised in a whistle-blower lawsuit filed by Gurubanda Singh Khalsa, director of financial services for the county Department of Mental Health. Khalsa, who still holds the position, will receive $1.36 million of the award.

In a suit filed in 1999, Khalsa alleged that he warned the county in 1998 that it had overbilled the federal Medicaid program by $7.5 million for health services to minors ineligible for assistance.

Rather than paying the money back, he alleged, his superiors and state officials “made false statements and records in order to conceal their obligation to return these sums to the federal government.” His lawsuit was filed under the federal False Claims Act.

As part of a settlement with the U.S. Justice Department, which took over the case, Los Angeles County will pay $6.8 million immediately, as well as $140,646 to Khalsa’s lawyers. The state will pay the U.S. government $66.5 million, plus $18.7 million in interest, over nine years beginning in July 2003.

The state and county deny wrongdoing.

The problems arose because of a “minor consent program” operated by the state as part of Medi-Cal, the state’s version of Medicaid, which provides health coverage for poor and disabled people. The program let minors, without parental consent, receive medical services related to sexual assault, drug or alcohol abuse, pregnancy, family planning, sexually transmitted diseases and mental health care.

When minors seek services through the program, state law bars authorities from contacting the parents about the application. As a result, the state cannot confirm family income. Without such proof, the minor’s care is not eligible for federal reimbursement.

“No one is saying this is a bad program. This is a great program,” said Brandon Wisoff, Khalsa’s lawyer. “But when the state of California enacted that program, they did it with their eyes wide open and they knew clearly that they couldn’t claim federal funds for those services.”

Principal Deputy County Counsel Anita Lee said the county was simply following the state’s lead in claiming the Medicaid payments. “The overpayment was not the result of fraud,” she said. “This is part of a larger misunderstanding between the state and federal government.”

In July 1998, the state told counties that such services were not reimbursable under federal rules, and Los Angeles County stopped billing for them and set aside a pot of money to repay the federal government for the mistakes, said David Meyer, chief deputy director of the county Department of Mental Health.

Regarding Khalsa’s allegations that the county dismissed his warnings and colluded with the state to cover up the billings, Meyer said: “I have no knowledge of that.”

State officials attributed the improper billings to “honest mistakes” made between 1988 and 1999. “The settlement resolves those mistakes, which were made in previous administrations,” said Barbara Yonemura, deputy director and chief counsel of the state Department of Health Services.

Yonemura said it’s too early to say whether the settlement payments--nearly $7.4 million annually, plus interest--will result in future budget cuts for health services. The payments are a fraction of the $26 billion the state spends on Medi-Cal annually.

Facing a budget deficit of $23.6 billion this year, Gov. Gray Davis has proposed cutting $758.3 million in general-fund payments for Medi-Cal.

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Times staff writers Evelyn Larrubia and Nicholas Riccardi contributed to this report.