Feds hold states to the fire over Medicaid fraud as CA loses $1B

The White House announced it is withholding over $1 billion in funding from California because of its lackluster anti-healthcare fraud efforts. Other states could be next, Vice President J.D. Vance warned in a press conference yesterday.

Vance told reporters that the Trump administration notified all state Medicaid programs that it will require them to attest that they are "effectively and aggressively" prosecuting Medicaid fraud.

Failing to demonstrate sufficient effort could result in federal funding cuts to state Medicaid Fraud Control Units, he added. These units operate out of the State Attorney General's office to investigate and prosecute Medicaid provider fraud, patient abuse and neglect within the program.

"And if we continue to find problems, we can turn off other resources within their state Medicaid programs as well," Vance stated.

California is already feeling the weight of the Trump administration's latest crackdown on healthcare fraud.

During the press conference, Vance revealed that the federal government is deferring $1.3 billion in Medicaid reimbursements to the state because it "has not taken fraud very seriously."

"Think about this. You're just a person trying to go see a doctor. You assume that your doctor is doing the right thing, but these fraudulent healthcare providers are getting rich by giving people medications they don't even need," he said. "It's a defrauding of the American taxpayer, but it's a violation of the trust that should exist between every American and the people who prescribe the medications."

The announcements are part of the administration's focus on rooting out healthcare fraud, waste and abuse in public health insurance programs. President Donald J. Trump created a special task force in March, with Vance at the helm, to develop a national strategy to stop fraud in federal benefit programs, including Medicare and Medicaid.

The administration then targeted Minnesota, citing serious fraud concerns and oversight failures. The government has deferred or withheld over $350 million in federal Medicaid matching funds to the state this year, representing about 10% of the state's quarterly federal match.

On Wednesday, CMS also announced, in conjunction with Vance's anti-fraud task force, a six-month moratorium on approving new hospice providers, saying this is a high-risk area for healthcare fraud.

But states aren't using the Medicaid Fraud Control Units to their highest potential, according to Vance at the press conference. He pointed to Hawaii, which he said received "billions and billions of dollars from the federal taxpayers," but has had no convictions in the last couple of years.

"Not a single indictment, not a single conviction, because the administrators of the Hawaii program just don't take it seriously. They don't think that fraud is a big enough problem," he said.

Vance also pointed to New York as a potential area of concern because of its lack of indictments.

Medicaid Fraud Control Units are aggressively pursuing fraud, as well as patient abuse and neglect. The Office of the Inspector General reported in its annual report for fiscal year 2025 that convictions by the units totaled 1,185, with the majority of cases involving fraud.

The units generated significant ROI, recovering $4.64 for every dollar spent by states and the federal government to operate the units. In total, the units recovered $2 billion in FY 2025, OIG reported.

Hawaii and New York ranked at the lower end of total indictments in FY 2025, with 0 and 9 indictments, respectively. Meanwhile, California had 83 total indictments. Ohio -- a state Vance called out as having a robust anti-Medicaid fraud strategy -- ranked among the highest, with 149 total indictments.

California Attorney General Rob Bonta said in an X post on Wednesday that the Medicaid fraud crackdown is more politically motivated, targeting Democrat-led states. Vance denied targeting states by political leaning, but said it is mostly blue states that aren't pursuing Medicaid fraud aggressively enough.

"We encourage, whether it's California and New York or Maryland or Ohio, we encourage people to work with us," Vance said. "We want to help you use technology and other tools to get rid of the fraud, to get to the root of the fraud. We want to help you. But we can only help these state programs if those state programs are willing to help themselves."

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management since 2016