、。
She said he was sick in bed, but it wasn't true.
Literal
She [topic-は] he [subject-が] sickness [from-で] is-sleeping [quotative-と] said [but-が], that [contrast-は] true was-not.
A two-clause sentence linked by clause-final が ('but'). 病気で uses で in its causal/state sense — 'because of being sick' or 'in a sick state.' 寝る in this context typically means 'is in bed' rather than 'is asleep.' それは picks up the previous statement and contrasts it with the speaker's evaluation.