White House withholds $1.3B in Medicaid payments to California amid broader fraud crackdown

Vice President JD Vance announced on Wednesday that the federal government is “deferring” $1.3 billion in Medicaid reimbursements to California and said the administration would withhold payments from additional states if they do not ramp up their efforts to root out fraud in federal benefits programs.

The notice came as part of President Donald Trump’s “war on fraud,” which Vance is leading as the head of the White House’s anti-fraud task force. 

The unit, established in March by executive order, was granted the authority to withhold funding from state and local jurisdictions “that do not have adequate anti-fraud requirements,” per the order, although the effort has been somewhat clouded by allegations of political bias. The directive establishing the task force noticeably specifically called out Democrat-led states for failing to address fraud in their benefits programs.

The White House kicked off its fraud prevention efforts by announcing in February it was withholding more than $240 million in Medicaid funding from Minnesota following allegations of misuse of public funds in the state’s social services. 

Vance said the move to withhold Medicaid payments from California, in particular, was because the administration believes the state “has not taken fraud very seriously.” 

He downplayed any partisan undertones for the administration’s broader fraud prevention push, saying “we have red states and blue states that go after fraud aggressively,” although he added that “we also unfortunately have some states — mostly blue states, unfortunately ​​— that do not take Medicaid fraud very seriously.”

During Wednesday’s news conference, Vance also said the federal government plans to review every state’s federally-funded Medicaid Fraud Control Units — or MFCUs — and will “turn off” funding for those watchdogs if their fraud prevention efforts are deemed insufficient. 

“And if we continue to find problems, we can turn off other resources within their state Medicaid programs as well,” he added.

The Wall Street Journal first reported on Wednesday that attorneys general in all 50 states received a letter from Department of Health and Human Services Inspector General Thomas Bell stating that the administration will be conducting “a robust review” of their MFCUs to ensure they are effectively combating Medicaid fraud. 

“We want to help you use technology and other tools to get rid of the fraud, to get to the root of the fraud,” Vance said during the news conference about working with states to bolster their fraud prevention efforts. “We want to help you, but we can only help these state programs if those state programs are willing to help themselves. So these letters are the first step — the first effort — to try to force these states to get serious about prosecuting fraud, and that's exactly what we're doing.”

The Centers for Medicare and Medicaid Services also announced on Wednesday that it is implementing a six-month freeze on all new Medicare enrollments for hospices and home health agencies to halt what it called “high-risk categories” for fraudulent activity. 

Since the start of Trump’s second administration, CMS has touted its use of new tools and technologies, including artificial intelligence, to better identify improper payments.

During a March interview with Nextgov/FCW, Kim Brandt — deputy administrator and chief operating officer at CMS — said the agency was using many of these capabilities in its Fraud Defense Operations Center to help “detect spikes or aberrancies in current claim submissions.”

Brandt said at the time FDOC’s work, including the use of AI and enhanced data analysis, allowed the agency to save over $2 billion that would have otherwise gone toward improper Medicare payments. She added that CMS was looking to expand out its new technologies to identify further waste, fraud and abuse in the Medicaid program.