The Trump administration has moved to defer $1.3 billion in Medicaid reimbursements to California, escalating a broader federal push aimed at addressing alleged fraud in public healthcare programs.
The decision was announced Wednesday by Vice President JD Vance, who said the move is part of a nationwide effort to tighten oversight of Medicaid spending.
Vance said California has not done enough to prevent fraud in its Medicaid system, arguing that improper billing and weak enforcement are costing taxpayers billions.
He said the administration is reviewing state compliance as part of a broader fraud enforcement initiative targeting all 50 states.
“There are California taxpayers and American taxpayers who are being defrauded because California isn’t taking its program seriously,” Vance said during remarks at the White House, adding that fraudulent prescriptions and improper medical billing are part of the issue under review.
The Centers for Medicare & Medicaid Services, led by Dr. Mehmet Oz, said California’s Medicaid records showed “major red flags,” including large clusters of disputed payments tied to home health care and hospice services.
Officials described the $1.3 billion deferral as the largest federal Medicaid hold placed on a single state in recent years, Politico reported.
As part of the same initiative, CMS also announced a six-month moratorium on new Medicare enrollments for hospice and home health providers nationwide.
During that period, the agency will conduct intensified audits, deploy data analytics tools, and remove providers suspected of fraudulent billing practices.
California officials strongly rejected the move.
State Attorney General Rob Bonta called the funding deferral “unlawful” and said the state is reviewing legal options.
According to USA Today, he accused the administration of targeting California for political reasons and warned the decision could threaten access to essential care for vulnerable residents.
Gov. Gavin Newsom (D) also criticized the decision, arguing that federal officials were mischaracterizing programs designed to help seniors and people with disabilities remain in their homes instead of institutional care.
His office said, “We hate fraud. But that’s NOT what this is,” calling the policy a harmful overreach.
State officials pointed to recent enforcement actions within California, including arrests in a major hospice fraud investigation involving hundreds of millions of dollars in alleged losses, as evidence that the state is already actively prosecuting abuse of public programs.
Federal officials, however, said California’s Medicaid billing patterns still raise concerns, citing unusually large payment clusters and questionable eligibility claims.
CMS officials said they are seeking clarification on hundreds of millions of dollars in expenditures as part of the review process, according to NBC News.
The funding freeze comes as the administration expands Medicaid oversight nationwide.
Officials said all 50 states have been notified that Medicaid Fraud Control Units could face funding consequences if they fail to aggressively prosecute fraud cases.
Medicaid spending in California exceeds $150 billion annually, making it the largest Medicaid program in the country and a central focus of federal oversight efforts.
Even small error rates, officials say, can result in significant federal losses over time.
The dispute underscores a growing conflict between Washington and Sacramento over healthcare enforcement, with the administration framing the move as fiscal accountability and California officials calling it politically motivated interference in public health policy.
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