The Trump administration announced Tuesday it is deferring more than $1 billion in Medicaid payments to California and Minnesota, citing "suspected fraud and noncompliance." Health Secretary Robert F. Kennedy Jr. stated this action is part of a broader strategy to prevent fraud before it occurs, a departure from previous administrations' approach of recovering funds after prosecution.
"We have a duty to stop the payments, demand answers and then follow the evidence wherever it leads," Kennedy said during a news conference. The administration links this crackdown on alleged fraud to its campaign to demonstrate fiscal responsibility amid rising healthcare costs and economic pressures ahead of the midterm elections.
Officials in both states, led by Democratic governors, have pushed back against the administration's decision. California Governor Gavin Newsom accused the Republican administration of politically targeting his state, while Minnesota Governor Tim Walz suggested the move was intended to offset costs from tax cuts for wealthy Americans.
This action follows the establishment of a new anti-fraud task force in March, initiated by President Donald Trump and led by Vice President JD Vance. The task force aims to leverage data and technology to identify and investigate the misuse of federal funds.
The administration's strategy has faced challenges. In April, the Centers for Medicare & Medicaid Services (CMS) acknowledged an error in figures used to justify a fraud probe in New York. Last month, California's Medicaid director informed a congressional committee that CMS had not yet provided specific instances of fraud, waste, or abuse to justify a $1.3 billion Medicaid funding deferral announced in May. Minnesota has also been working to address CMS concerns, leading to the deferral of approximately $260 million in federal funds and threats of future cuts.
CMS Administrator Dr. Mehmet Oz did not provide specific examples of fraud but noted patterns such as providers billing for multiple patients simultaneously or billing after a beneficiary's death. He also raised concerns about the rapid growth of California's home care program, a point disputed by state officials who explain the growth as a deliberate strategy to use less expensive home care over costlier nursing home care.
Kennedy and Oz stated that states can resume federal funding by providing documentation to prove the legitimacy of the payments in question. Officials in California and Minnesota have previously acknowledged working with the federal government to supply requested information. Oz mentioned that Minnesota had submitted documents for reevaluation.
In a related development, Kennedy indicated an intention to expand the authority to exclude providers from federal health programs like Medicaid and Medicare to CMS. This authority has historically been held by his department's Office of the Inspector General. HHS Inspector General Thomas March Bell described this as a "full force multiplier" to "exclude additional bad actors."