At a July 21 press conference, CMS Administrator Mehmet Oz announced that his agency was deferring payment of $1.1 billion in federal Medicaid matching funds to California and Minnesota “pending review of high-risk claims in crackdown on fraud.” The amount of the California deferral was $867.5 million; the Minnesota deferral, $199.0 million. CMS has previously taken deferrals against both of these states; to date, the deferrals total $2.76 billion. Without apparent irony, Dr. Oz characterized these actions as an example of the administration’s “whole of government approach” to reducing fraud against Medicaid. He presented no evidence that withholding federal matching funds from states actually reduces fraud against Medicaid.
A deferral is a temporary withholding of payments by CMS to enable it to determine whether funds a state has spent on Medicaid are allowable for federal matching. It has long been a routine part of CMS oversight of state Medicaid programs. These two deferrals, however, are anything but routine. They are part of what it now appears will be an ongoing weaponization of fraud against Medicaid by CMS in these two states. As it happens, both are led by Democratic Governors. (In a recent KFF Health Tracking Poll, 65% of voters said deferrals were mostly motivated by politics; the remaining 35% said they were mostly motivated by wanting to reduce fraud).
California
The July 21 deferral against California is the second of two; CMS announced the first, in the amount of $1.34 billion, at a May 13 press conference. The July 21 deferral applies to state spending during the second quarter of federal fiscal year 2026, which ended on March 31. The May 13 deferral applies to state spending during Q1 FFY 2026, which ended on December 31, 2025. Together, the two deferrals total $2.21 billion. As a rough estimate, the amount the state spent during these two quarters that CMS is challenging totaled about $3.56 billion (based on the latest data from MACPAC, the federal government paid about 62 percent of California’s Medicaid costs in FY 2024).
The July 21 deferral of $867.5 million includes 13 different items. The largest by far is a $646.4 million item with two major elements: $391.4 million relating to the state’s Community First Choice (CFC) spending, and $250.2 million for Personal Care Services (PCS) spending. CMS attributes the first element to “significant growth observed in California’s CFC-PCS claiming, which between federal fiscal year (FFY) 2023 and FFY 2025 exceeded the average growth rate of all other states by 11.23%.” It attributes the second to “significant CFC-PCS-related program integrity risks.” CMS indicates that it has “selected a statistically valid sample of claims” and has requested that the state provide documentation to support the allowability of those claims by July 31, just 10 days after the deferral was taken.
In its focus on rates of increase in state spending on home care services, the July 21 deferral parallels the May 13 deferral and ties back to a letter of inquiry that CMS sent to the state Medicaid agency on January 27. The state’s 64-page response, submitted to CMS on February 17, explained in considerable detail why spending on its In-Home Support Services (IHSS) program has grown: an increase in the IHSS caseload; an increase in the number of hours needed by those served by the program; and an increase in costs per hour due primarily to increased reimbursement rates for caregivers. There is fraud against Medi-Cal, but that does not explain the growth in IHSS spending.
Minnesota
The July 21 deferral against Minnesota is the third of three. CMS announced the first, in the amount of $259 million for expenditures in Q4 FFY 2025, at a White House press conference on February 25. It announced the second, in the amount of $91.5 million for Q1 FFY 2026, also at a White House press conference on April 29. The total amount deferred to date is $550 million. As a rough estimate, that represents about 58 percent of $948 million the state spent over those three consecutive quarters on 14 “high-risk” services that CMS questions.
Of the $199 million deferred on June 21, CMS said $195.7 million was “associated with reimbursement claims submitted to the state by specific providers that we have identified as high-risk for fraud or aberrant billing practices based on historical billing and CMS data analytics.” (This is almost identical to the language in the April 29 deferral notice). CMS asked the state for documentation of the allowability of the claims within 60 days.
There’s no acknowledgement in the letter that CMS and the state are in litigation about the deferrals. On March 2, the state brought suit in federal district court to enjoin the first deferral. On April 6, the court denied the state’s request but retained jurisdiction. On April 29, CMS announced the second deferral, and a week later it filed a motion jointly with the state to stay further proceedings in the case until early September to give the parties time to resolve the issues raised by the first two deferrals. The court granted the stay on May 7. It appeared that CMS was looking for an off-ramp.
As it happens, appearances can be misleading. Two and a half months after filing the joint motion, CMS has unilaterally taken a third deferral against the state. There is no reason to think that more deferrals are not coming.
On June 25, after the second deferral, the Director of Minnesota’s Medicaid agency testified before the Subcommittee on Oversight & Investigations of the House Energy and Commerce Committee. (He was one of four Medicaid directors who testified, including California’s). He made the following point, which is reinforced by the third deferral:
“A funding freeze of this magnitude puts real people and essential care networks at risk. It places pressure on counties, hospitals, nursing facilities, clinics, behavioral health providers, transportation providers, home- and community-based service providers, and ultimately the people they serve. DHS will continue to pursue fraud aggressively, because every dollar lost to fraud is a dollar that cannot support care for an eligible Minnesotan. But program integrity cannot become a pretext for destabilizing the very services Medicaid exists to provide. Our obligation is to do both: safeguard taxpayer dollars and preserve timely, reliable access to care for Minnesotans who rely on these services every day.”
Going Forward
There is fraud against Medicaid in California and Minnesota—and in every other state. (There is also fraud against Medicare). One need only look to the cases listed in the 2026 National Health Care Fraud Takedown. According to the case summaries, as of June 23, federal prosecutors had filed cases involving fraud against Medicaid in 19 states (including DC) other than California and Minnesota; additional cases were filed involving fraud against both Medicare and Medicaid. State prosecutors had filed Medicaid cases in 39 states in addition to California and Minnesota. These cases, which represent allegations of fraud, not convictions, nonetheless reflect the ubiquity of bad actors. They also reflect the importance of collaboration between federal and state law enforcement as well as CMS and state Medicaid agencies to hold bad actors accountable for the harm they do to the program, its enrollees, and honest providers.
On July 23, GAO issued a report, Combating Fraud: Managing Risks in Federally Funded, State-Administered Programs. The report makes recommendations for reducing fraud against 20 such programs, the largest of which is Medicaid. These recommendations include: sharing information and leveraging relationships among and between state and federal agencies; enhancing analytics for detecting fraud; increasing transparency with fraud prevention activities; and adapting approaches to address evolving fraud threats.
For the record, the report does not recommend holding White House and HHS press conferences to announce repeated deferrals of $2.76 billion (and counting) in federal Medicaid matching funds against two states led by Democratic Governors.
