The U.S. Department of Health and Human Services (HHS), under the Trump administration, has suspended more than $1 billion in federal Medicaid matching payments to California and Minnesota. Federal officials cite “suspected fraud and noncompliance” as the primary drivers of the freeze. According to the Centers for Medicare and Medicaid Services (CMS), this action is part of a proactive strategy to stop waste before funds are distributed, rather than attempting to recover stolen money after the fact.
The deferral heavily targets specific state programs where federal watchdogs have identified unusual spending patterns.
- California’s $867.5 Million Hold: CMS halted approximately $867.5 million bound for California. The agency flagged certain in-home care programs after discovering that the state’s spending growth “far exceeded national trends”.
- Minnesota’s $199 Million Hold: The federal government deferred $199 million from Minnesota, specifically citing claims across 14 distinct “high-risk service areas”.
These recent holds follow earlier, larger deferrals. In May, CMS announced it was holding a record $1.3 billion from California, and similar actions were taken against Minnesota in February. As of late July, previously held funds had not yet been released.
HHS Secretary Robert F. Kennedy Jr. and CMS Administrator Dr. Mehmet Oz have explicitly stated that this action is a payment deferral, not a permanent funding cut. Both states have the opportunity to access the funds if they can prove their billing is compliant.
“If Governor Gavin Newsom or Governor Tim Walz wants this funding released all they have to do is provide basic documentation showing that these services are legitimate and not fraudulent,” Kennedy explained.
The Scope of the Suspected Fraud Federal investigators allege that billions of dollars are bleeding from the U.S. healthcare system through coordinated fraud. Much of the suspected abuse centers around care provided by unlicensed individuals in unsupervised settings.
The administration also suspects international coordination. CMS Administrator Dr. Oz stated, “We think there are foreign, multinational organizations involved in some of this weaponized fraud”. Furthermore, HHS plans to expand its exclusion authority, allowing both CMS and the HHS Office of the Inspector General to proactively eject program participants suspected of fraudulent activity.
The federal perspective is framed around program integrity. “CMS is done trying to chase down stolen and misused funds after they’ve already left the building,” Dr. Oz stated, framing the deferral as a way to protect taxpayers and vulnerable Americans. HHS Inspector General T. March Bell added that the current fraud backlog is actively harming patient access to necessary care.
However, the move has generated significant political friction. Minnesota Governor Tim Walz (D) sharply criticized the Trump administration’s strategy, accusing federal officials of utilizing “bad math”. Walz argued that the administration’s actions amount to an effective cut in healthcare funding rather than a genuine effort to combat fraud.
The $1 billion deferral is not an isolated event; it is part of a wider, ongoing anti-fraud initiative by federal law enforcement targeting specific vulnerabilities in California and Minnesota.
- California Hospice Fraud: In April, the Justice Department arrested and charged eight individuals in a $50 million healthcare and hospice fraud scheme. A prior analysis indicated that over 700 of the roughly 1,800 hospices in Los Angeles County trigger multiple fraud red flags.
- Minnesota Pandemic-Era Schemes: The federal government has aggressively scrutinized Minnesota following massive abuses of public assistance programs. More than 75 people have been charged in a $250 million pandemic-era fraud scheme in the state, and the U.S. attorney in Minnesota has estimated that total statewide fraud could exceed $1 billion. The federal government has also suspended millions in pandemic-era loans to the state over similar vulnerabilities.