Vance announces $1.3B Medicaid deferral to California over fraud suspicions

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Vice President JD Vance announced new steps in the Trump administration’s initiative to root out fraud in federal health programs, including a $1.3 billion deferral of Medicaid funding to California, during an event at the White House. Vance said the government should not collect money for programs “if they know that that money doesn’t go to a low-income kid who needs healthcare, but that money goes into a fraudster getting rich.” He said such fraud victimizes taxpayers and program beneficiaries.

Vance also said the administration is imposing a six-month freeze on some new Medicare enrollments and is warning states to investigate Medicaid fraud or risk losing federal money. The steps are part of a task force Vance leads that has been taking more aggressive approaches to investigating states before the November elections, according to the administration’s descriptions of the panel’s mission to crack down on potential misuse of public money.

The administration’s action against California centers on Medicaid payments that officials said would be deferred over suspicions of fraud. Dr. Mehmet Oz, who leads the Centers for Medicare and Medicaid Services, said the administration was making what he described as the “largest deferral we’ve ever made” in Medicaid funds and said CMS had identified “questionable expenditures and anomalies,” including what officials described as a higher rate of growth in California’s home care program compared with other states.

Oz said the agency would like the state to “at least come to the table and explain to us how these outlier payments have been generated,” adding that CMS did not offer concrete examples of documented fraud during the announcement. California Gov. Gavin Newsom’s press office disputed Oz’s framing, writing that the state’s home care program grew because California is “keeping more people OUT of far more expensive nursing homes,” and it added, “We hate fraud. But that’s NOT what this is.”

Beyond the dispute over the home-care spending comparison, officials said the total cost of California’s Medicaid program, including both state and federal funding, is expected to be about $222 billion for the budget year that begins July 1. The administration’s officials described the payment deferral as tied to outlier spending patterns they want states to explain.

On Medicare, CMS announced a nationwide six-month moratorium on new Medicare enrollments for providers of hospice and home care. Oz said, “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,” while CMS said existing providers in those categories would continue to operate as usual.

CMS said it would “intensify targeted investigations, deploy advanced data analytics, and accelerate the removal” of providers in the hospice and home care category that it suspects are involved in fraudulent activity. Tricia Neumann, a senior vice president and executive director for Medicare policy at the healthcare research nonprofit KFF, said the type of moratorium is not unprecedented, noting that the Democratic administration of President Bill Clinton also imposed a temporary moratorium on home health agencies.

Neumann said a brief moratorium gives an administration time to crack down on fraud and prevent new fraudulent entities from emerging, while other groups have urged a more targeted approach rather than a blanket enrollment freeze. The National Alliance for Care at Home said it supported efforts to root out fraud but preferred targeted strategies, arguing that a sweeping moratorium could raise concerns about access to care, reduce competition, and slow innovation.

The administration’s actions also included an effort by the U.S. Department of Health and Human Services’ internal watchdog. Officials said the watchdog sent letters to state attorneys general warning them to vigorously investigate possible Medicaid fraud or risk losing federal money.

The steps fit into a broader monthslong push by CMS, including suspensions of payments to hundreds of hospice and home care agencies in Los Angeles over alleged fraud and a separate six-month moratorium on suppliers of durable medical equipment, prosthetics, orthotics and certain other supplies in Medicare. Officials also said CMS has approached at least five states with investigations into potential healthcare fraud and halted some $243 million in Medicaid payments to Minnesota over fraud concerns, and last month Oz said CMS would require all 50 states to share plans for revalidating certain Medicaid providers.

In at least one case, CMS acknowledged an error in how it justified a probe. In April, officials said CMS acknowledged to The Associated Press that it made a significant error in figures it used to help justify a fraud probe in New York, which the report said deepened doubts about the administration’s methods and reflected a recurring criticism that it attacks first and confirms the facts later.