Trump Administration Freezes Medicaid Payments Over Fraud Allegations

On Tuesday, the Trump administration revealed it would suspend over $867 million in federal Medicaid payments to California due to suspected fraud. One expert described this situation as a “cheap snack” for scammers looking to take advantage.

Health and Human Services Secretary Robert F. Kennedy Jr. stated during a news conference that “we will not transfer Medicaid funds outward until we are confident that they are being used lawfully and appropriately.”

The controversy revolves around California’s In-Home Support Services (IHSS), a Medicaid-funded program that compensates caregivers—often relatives—for helping elderly and disabled individuals remain in their homes instead of moving into facilities.

Over the last couple of years, Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services (CMS), noted that California’s expenditure on home services has been “double the average for the rest of the country.”

“If we smell fraud, we will no longer pay for it,” he remarked, adding that payments would be postponed until California can “corroborate its claims in this quarterly audit.”

Additionally, around $199 million in Medicaid funding for Minnesota has been frozen as part of the same decision.

Oz elaborated that CMS had identified questionable billing practices, pointing out issues like providers submitting claims over a year after the services were rendered and those who billed multiple patients simultaneously. Some providers even ranked among the top 2.5 percent of claimants across the nation.

Heywood Talcove, CEO of LexisNexis Risk Solutions for Government, expressed that taxpayers ought to be “outraged” by the alleged oversight failures, suggesting that the state is fostering a climate for rampant fraud.

“When a program like this is self-reported and there is virtually no auditing and no one gets caught, the potential for fraud is very high,” he assessed, estimating that around 20% of IHSS programs might involve fraudulent activity.

Talcove explained how fraudsters exploit the IHSS program, branding the process as “a no-brainer.” The scam begins when someone submits an IHSS application claiming a need for home care, subsequently naming a caregiver and persuading a medical professional to falsely certify the need in exchange for a cut.

“I say your fake person, who doesn’t exist, needs home health care, but what’s going to happen? You’re going to give me a small share, that’s how it is,” Talcove remarked, adding, “The state doesn’t have the technology, the personnel, the system to verify that.”

Talcove insisted that California’s staffing and technology shortfalls prevent the proper verification of over 500,000 IHSS recipients.

“There is no money coming out of the country’s pockets,” he said, adding that the federally funded, state-managed incentive structure appears flawed.

In response, California Governor Gavin Newsom dismissed the claims of widespread fraud as “pure politics.” He asserted that his administration takes fraud seriously and criticized the decision to suspend payments.

“We don’t politicize like they do,” Newsom stated. He argued that the timing of the announcement seemed to target his potential successor, Democratic gubernatorial nominee Xavier Becerra, who previously served as Health and Human Services Secretary under President Biden.

The governor also emphasized that his office is collaborating with the Trump administration, highlighting existing communications where the state has already delivered requested information.

“California’s approach, long approved by CMS, will save federal and state taxpayers money,” a spokesperson for Newsom’s office told the Post, mentioning that one year of home care can save approximately $100,000 per person compared to nursing home care. A California Audit Report from 2020 raised no integrity concerns, suggesting increased reimbursement rates to help expand the workforce of home care providers.

Kennedy noted that California and Minnesota must provide documentation to prove the legitimacy of their payments if they wish to get their funds reinstated.

Talcove argued that solving this issue requires issuing block grants directly to states or adequately funding the program at the federal level.

“You can’t get out of this situation by arresting and indicting,” he emphasized.

Earlier in May, the Trump administration had already withheld $1.3 billion in Medicaid funding from California due to escalating concerns related to the state’s hospice and home health agencies, bringing the total withheld funds to over $2 billion.

The funds will remain frozen until California and Minnesota can validate their claims and until federal authorities review “high-risk” Medicaid applications.

“We need to provide documentation to prove that these payments are legitimate,” Kennedy reiterated.