The U.S. Centers for Medicare & Medicaid Services (CMS) has deferred $867 million in payments to California's Medi-Cal program for the second quarter of 2026, citing significant concerns about waste, fraud, and corruption. This action follows a review that identified "major warning signs" in the state's Medicaid spending, particularly within the In-Home Supportive Services (IHSS) program.

The IHSS program, which reimburses individual caregivers for assisting disabled beneficiaries with daily tasks, has experienced a cost increase of nearly 24% over the past two years. This growth rate is almost double the national average for personal care expenditures, a discrepancy that CMS officials flagged as an "outlier" and a potential indicator of deeper issues.

CMS deferred over $390 million of the IHSS spending increase, pending an explanation from California for the disproportionate growth rate. Additionally, nearly $255 million in suspicious claims were deferred due to irregularities such as billing for deceased beneficiaries, claims exceeding realistic patient capacity, and other anomalies among top billers.

Further scrutiny revealed that California sought payments for individuals with unsatisfactory immigration status. CMS deferred approximately $220 million intended for these payments, along with other "anomalous expenditures." Officials stated that federal taxpayer dollars would not be used to fund healthcare for "illegal immigrants and ineligible enrollees."

CMS indicated that these issues were not difficult to detect and questioned why California officials had not addressed them earlier. The agency suggested that powerful unions dominating California's IHSS program and politicians receiving campaign funding from these unions have created incentives for lax oversight. The notes reference a 2018 Supreme Court decision, Janus v. AFSCME, regarding requirements for caregiver consent to union dues, and cite labor complaints alleging coercion and difficulty in opting out of union membership.

These alleged First Amendment violations, while not the direct cause for the payment deferrals, are presented as contributing factors to an environment where significant program growth and questionable expenditures have occurred. The notes also point to a 1,500% increase in California hospice providers between 2010 and 2022 as another example of potentially unchecked program expansion.

CMS Administrator Dr. Mehmet Oz and CMS Deputy Administrator Dan Brillman stated that the agency is acting as stewards of federal taxpayer dollars and cannot permit these abuses to continue. They likened the situation to a medical diagnosis, where California must accept "sound medical advice" to correct the issues within its Medi-Cal program.