Trump administration defers $1.3 billion in Medicaid payments to California amid fraud investigation

In its latest effort to crack down on fraud in federal healthcare programs, the Trump administration is deferring $1.3 billion in Medicaid payments to California, Vice President JD Vance announced Wednesday.

The measure, which follows the deferral of more than $350 million in Medicaid reimbursements to Minnesota earlier this year, was among several anti-fraud measures the administration unveiled Wednesday.

The others include reviewing every state’s Medicaid Fraud Control Unit, which is tasked with investigating and prosecuting fraud among Medicaid providers, and placing a six-month nationwide moratorium on new enrollment of hospice and home health providers in Medicare.

While the administration has been criticized for focusing its anti-fraud efforts primarily on Democratic-led states, Vance insisted that its intentions are not political in nature.

“We want to protect Medicaid. We want to protect Medicare,” Vance said at an event on the White House campus. “But we can’t do that if the states that are administering those programs are allowing those programs to be fleeced by fraudsters.”

However, Vance and Centers for Medicare and Medicaid Services administrator Dr. Mehmet Oz criticized several blue states, including California, Minnesota, New York and Hawaii, for not taking fraud seriously enough. If all states don’t step up to prosecute fraud through their Medicaid Fraud Control Units, they could lose their federal support for the program, which totals nearly $500 million.

State attorneys general received letters from the Department of Health and Human Services Office of Inspector General on Wednesday about its stepped up oversight of the state units.

“Noncompliance with your MFCU obligations can take your State’s entire Medicaid program out of compliance,” read a letter to California Attorney General Rob Bonta, which CNN viewed. “This means your failure to do your job as head of the MFCU has put all of your State’s Medicaid funds in jeopardy.”

The Wall Street Journal first reported on the letters sent to state attorneys general.

The announcements come the day before Vance is scheduled to visit Maine to discuss the administration’s moves to combat fraud – which has become a talking point for Republicans as they head into the midterm elections in November.

President Donald Trump referenced Maine as a hotbed of fraud in his State of the Union address in February.

Oz that month sent a letter to Maine Gov. Janet Mills, a Democrat, citing concerns about the state’s Medicaid-funded treatment program for children with autism and demanding information about what the state is doing to identify and prevent fraud, as well as to recover stolen or misspent funds. Mills called the effort a “political attack.”

Maine’s Senate race, where GOP Sen. Susan Collins is running for a sixth term, is expected to be among the most competitive races this year.

California has been in Oz’s sights for months. The administrator has filmed several videos in the Los Angeles area alleging widespread fraud among hospice providers and demanded information from Gov. Gavin Newsom, a Democrat who has frequently tangled with the Trump administration.

Oz has become one of Trump’s top lieutenants in the battle against fraud. He estimates that fraud, waste and abuse in federal healthcare programs total $100 billion. His efforts largely focus on areas that have seen large increases in billing or in providers participating in the programs.

CMS is scrutinizing billing from California providers who are outliers in terms of size – “numbers so big you can’t imagine anyone billing for these numbers of patients and that much for each patient,” Oz said Wednesday.

“So we’re asking California to clarify for us how it got there,” he continued, noting that the growth of spending in personal care and home services is twice the rate of the average of the rest of the US.

The agency is also investigating expenditures for undocumented immigrants.

Newsom’s office pushed back on Oz’s claim of potential fraud, arguing that billing for supportive services in homes has grown because the state is focused on minimizing the number of people sent to nursing homes.

“We hate fraud. But that’s NOT what this is,” the office posted on X. “Vance and Oz are attacking programs that keep seniors and people with disabilities OUT of nursing homes. Pretty sick.”

At least one Medicaid fraud expert questioned how effective withholding funds would be in fighting fraud.

“It’s not at all clear how deferring $1.3 billion will actually reduce fraud against California’s Medicaid program or help the millions of Californians who rely on Medicaid for access to care and protection against medical debt,” said Andy Schneider, research professor at Georgetown University.

California is not the only state with potential fraud problems, particularly in its hospice programs.

“We’ve seen systemic and deeply troubling fraud in the hospice and home health space, with bad actors exploiting some of our most vulnerable Medicare patients and stealing money from the American taxpayer,” Oz said in a statement announcing the hospice moratorium earlier on Wednesday.

“Today we’re shutting the door on fraud—preventing new bad actors from entering Medicare while we aggressively identify, investigate, and remove those already exploiting them.”

Earlier this year, CMS placed a similar six-month nationwide moratorium on certain companies that provide durable medical equipment, such as wheelchairs, hospital beds and oxygen equipment — an industry it says is also rife with fraud.

Oz has focused his hospice anti-fraud efforts in the Los Angeles area. He believes at least half of the hospices there are fraudulent, noting Wednesday that the agency has suspended 800 hospices that billed Medicare $1.4 billion last year.

“That’s getting us close to where we think we should be,” he said, noting that few of them have reached out to CMS to complain that they were shut down.

In addition to these anti-fraud efforts, CMS has also revoked or deactivated hundreds of hospices and home health agencies it says engaged in fraud or improper activity; increased oversight of new hospice providers in Arizona, California, Georgia, Ohio, Nevada and Texas; expanded reviews of home health agency claims in Florida, Illinois, Oklahoma, Ohio, North Carolina and Texas; and conducted hospice site visits.

However, the new moratorium announced Wednesday could hurt legitimate providers of hospice services and limit patients’ access to care, the National Alliance for Care at Home said in a statement.

“An enrollment moratorium raises serious access-to-care concerns in areas where patient demand is growing or existing capacity is already strained, leading to longer wait times, reduced service availability, and fewer choices for patients – particularly in rural or underserved communities,” the alliance said.

The group added that it and other national organizations have provided CMS with recommendations and targeted strategies for stopping bad actors from entering Medicare and Medicaid, while not overly burdening good-faith providers.

This headline and story have been updated with additional developments.