Medicaid Fraud, Funding and Federal Power
The federal fraud campaign has evolved into something more concerning: an effort to strip federal Medicaid funding and narrow the availability of Medicaid state plan services.
Author: Patti Boozang and Jocelyn Guyer
Editors: Amanda Eisenberg and Jacob Rains
tl;dr
Federal actions against blue states based on charges of Medicaid fraud are accelerating in pace and scope, from investigations to warning letters, funding deferrals and looming rulemaking.
Recent actions against Minnesota and California, and letters to all 50 state attorneys general, point to a broader strategy to force governors, law enforcement and Medicaid agencies into political compliance rather than collaborative program integrity work.
The approach is self-defeating: Real fraud enforcement depends on state–federal partnership, especially for complex criminal prosecutions.
When viewed in the context of H.R. 1 implementation and upcoming budget negotiations, these efforts contribute to a larger narrative that conflates reducing fraud with efforts to shrink Medicaid funding and reach.
The 80 Million Impact
The Trump administration’s campaign to paint Medicaid as riddled with fraud is escalating in pace and consequence for state Medicaid programs. Investigations and public accusations of fraud have expanded into warning letters, social media attacks, funding deferrals and a federal request for information (RFI) headed toward formal rulemaking. These actions create new pathways to withhold, delay or condition federal Medicaid funding and shrink the program’s practical ability to cover services that federal Medicaid law permits for eligible people, including home and community-based services, behavioral health care, and other long-term services and supports.
While all states are potentially impacted, blue states have been in the crosshairs of most aggressive actions, with the administration framing them as “corrupt” or led by “crooks,” rather than partners in protecting public dollars and prosecuting real wrongdoing.
The Latest Escalation
On May 13, Vice President JD Vance publicly warned that states must show they are “effectively and aggressively” prosecuting Medicaid fraud or the administration would “turn off the money” for anti-fraud units — and, if problems persisted, potentially other Medicaid resources as well. He sharpened that message in Bangor, Maine, where he used a campaign-style appearance to cast Democratic-led states as the main offenders, call Maine a possible “bronze medalist” in fraud behind Minnesota and California, and tell supporters they had been “taken advantage of,” “stolen from,” and “fleeced by [their] own government.”
The same day, the Department of Health and Human Services Office of Inspector General (OIG) sent letters to attorneys general in all 50 states reminding them of their obligations to oversee and support their Medicaid Fraud Control Units (MFCUs). But the core threat went far beyond the enhanced federal match that supports those offices: The letters warned, in effect, that a state’s failure to ensure an effective MFCU could place all of its federal Medicaid funding in jeopardy.
Continuing to make good on its threats against blue states, the administration announced a $1.3 billion Medicaid deferral for California, which the Centers for Medicare & Medicaid Services (CMS) described as the largest deferral in the agency’s history. The notice appears to rest on vague allegations about California’s claiming patterns and does not identify specific violations of federal law or any announced finding of actual fraud. CMS does not appear to have identified specific compliance failures by California or a requested corrective action plan before taking this extraordinary step. California forcefully pushed back: the Department of Health Care Services said the move would create immediate harm for hundreds of thousands of vulnerable Californians who rely on in-home supportive services. Attorney General Rob Bonta called the action politically motivated and suggested it is highly likely that the state will challenge it.
That dispute goes to the heart of the problem. California is not a state refusing to confront fraud; it is a state with significant anti-fraud enforcement infrastructure that is now being publicly cast as incompetent (at best) to justify unprecedented federal funding pressure. The message here is not collaborative program integrity. Meaningful fraud enforcement, especially criminal prosecution of sophisticated schemes, depends on state–federal partnership, not political theater. To genuinely ferret out real fraud, the administration needs California and other states as partners.
Minnesota, Again
On April 30, CMS deferred an additional $91 million in federal Medicaid funding to Minnesota, bringing the total amount withheld or deferred to more than $330 million. The additional deferral could force the state to cut benefits or reimbursement, jeopardizing access to services for Medicaid enrollees. Of the $91 million, $76 million is tied to 14 service categories CMS has flagged as “highly vulnerable” to fraud, and another $14 million involves what CMS described as payments for ineligible individuals.
Notably, CMS approved Minnesota’s corrective action plan in March, and the state is actively conducting off-cycle revalidations of roughly 5,800 providers across 13 high-risk service categories per its plan. Still, CMS has not yet released any of the $243 million withheld earlier this year, even as that remediation work proceeds.
Provider Revalidation Blitz
In a pair of April 23 letters to all 50 states, CMS issued a new mandate: audit and revalidate high-risk Medicaid providers. These are providers that states identify as having less rigorous enrollment standards or lacking a National Provider Identifier, but who may still bill Medicaid for services. In the first letter to all 50 governors, CMS Administrator Mehmet Oz described the effort as urgent and warned that states’ willingness or unwillingness to comply would factor into the agency’s assessment of each state’s fraud risk going forward. A separate letter gave state Medicaid directors 30 days (a June 2 deadline) to submit a comprehensive two-year provider revalidation strategy — a significant administrative undertaking for agencies already stretched by H.R. 1 implementation demands.
The Coming CRUSH
The March 30 deadline on the Comprehensive Regulations to Uncover Suspicious Healthcare (CRUSH) RFI drew hundreds of comments. CRUSH is emerging as a vehicle for expanding federal authority over Medicaid, the Children’s Health Insurance Program, Medicare and the Affordable Care Act Marketplace. Commenters’ views of the appropriate federal role in Medicaid program integrity were divided.
State Medicaid agencies urged CMS to support, not supplant, state-led program integrity efforts through better data-sharing and technical assistance rather than new mandates. State attorneys general were even more direct, arguing that fraud allegations are being used to justify pressure on politically disfavored states. States are not arguing against anti-fraud enforcement; they are arguing against an opaque federal approach that substitutes coercion for partnership and treats state capacity as something to be overridden rather than strengthened.
Many commenters flagged home and community-based services as a high-risk area for fraud, waste, and abuse. But consumer, aging and disability advocates warned that aggressive crackdowns — especially broad deferrals like those used in Minnesota — can inflict harm on people who rely on these services to stay in their homes and avoid institutional care.
A proposed CRUSH rule has not yet been released, but the February RFI made clear that the Department of Health and Human Services is laying the groundwork for formal rulemaking. The CRUSH rule could convert today’s ad hoc threats into durable federal policy, codifying expanded payment suspensions in ways that make it easier for Washington to second-guess states, delay funding and narrow the scope of Medicaid in practice.
The Bottom Line
This series of federal actions appears to reflect more than a standard program integrity initiative. Taken together, the steps suggest a broader effort to bring states — including Medicaid agencies, governors, attorneys general and law enforcement — under more direct federal control. To date, Democratic-led states appear to have faced the greatest scrutiny.
These actions are increasing in scope and carry meaningful consequences: they place federal Medicaid dollars at risk, may jeopardize states’ ability to provide federally authorized services to eligible people, and move the federal-state relationship away from collaboration and toward a more directive approach.
There is no question that fraud must be addressed. But effective fraud enforcement — particularly the criminal prosecution of sophisticated schemes — depends on transparency, specificity and strong federal-state partnership. When federal action is perceived as relying on broad allegations, expansive threats to funding or an adversarial posture toward states, it can weaken the collaboration that serious enforcement requires. When viewed in the context of H.R. 1 and upcoming budget negotiations, these federal developments raise broader questions about whether fraud oversight is also being used to support a more far-reaching effort to narrow Medicaid funding and flexibility.
It would be useful to highlight more the impacts (like unnecessary deaths) that disabled people will experience from these actions and the already tremendous pressure that family caregivers are straining under. This needs to be said more clearly and repeatedly: that forcing disabled people into institutional care is deadly, financially wasteful, and contravenes basic freedoms. These actions are part of the continuing war on disabled people.