Vice President JD Vance announced Wednesday that the Trump administration is withholding $1.3 billion in Medicaid payments to California and is threatening to suspend federal funding to all states if they don't aggressively prosecute fraud in their Medicaid programs.
The action targets California because, according to Vance, the state isn't taking fraud seriously in its program. "There are California taxpayers and American taxpayers who are being defrauded because California isn't taking its program seriously," Vance said at the White House. He also cited concerns about patients receiving medications they don't need due to fraudulent prescriptions.
The move mirrors a similar action the administration took in February, when it suspended Medicaid payments to Minnesota. The latest deferral represents what Dr. Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services, called "the largest deferral we've ever made."
Oz said California must explain $630 million in questionable billing, $500 million in home health services, and $200 million in expenditures allegedly linked to coverage for undocumented immigrants—who are not eligible for Medicaid. "We need California to at least come to the table and explain to us how these outlier payments have been generated," Oz said.
What the Right Is Saying
Vance defended the action as necessary to protect taxpayers and program integrity. "We want to protect Medicare," he said. "But we can't do that if the states that are administering those programs are allowing those programs to be fleeced by fraudsters."
The Vice President drew a distinction between how different states handle Medicaid fraud investigations. "Now, we have red states and blue states that go after fraud aggressively. But we also unfortunately have some states — mostly blue states, unfortunately — that do not take Medicaid fraud very seriously," Vance said.
He added that the administration is prepared to work with states using technology and other tools to address fraud. "We encourage people to work with us," he said. The White House also notified all 50 states that funding to their Medicaid Fraud Control Units could be frozen if they fail to aggressively prosecute cases of provider fraud within their jurisdictions.
What the Left Is Saying
Democratic officials in California swiftly condemned the announcement. Governor Gavin Newsom's office criticized Vance and Oz in a series of social media posts following the announcement, arguing the administration was penalizing state residents for political reasons.
State Attorney General Rob Bonta offered a sharper rebuke, posting that "Once again, California appears to be targeted solely for political reasons." Bonta's office was among those contacted by NBC News for comment on the suspension.
California health officials have not yet issued a formal response, though the state's Department of Public Health was reached for comment. The suspension comes as California's Medicaid program covers approximately 14 million residents, making it one of the largest state Medicaid programs in the country.
What the Numbers Show
The $1.3 billion suspension represents California's largest-ever federal Medicaid deferral, according to CMS Administrator Oz. Of the funds under review: $630 million involves questionable billing practices; $500 million concerns home health services flagged for irregularities; and $200 million relates to expenditures allegedly linked to undocumented immigrants, who are not eligible for Medicaid coverage.
California's Medicaid program serves approximately 14 million residents—roughly one-third of the state's population. The state spent roughly $106 billion on its Medicaid program in fiscal year 2024, according to state budget documents.
The administration previously suspended Medicaid payments to Minnesota in February, citing similar fraud concerns. That action affected approximately $300 million in federal funding before negotiations led to a partial release of funds.
CMS also announced a six-month moratorium on new Medicare enrollment for hospices and home health agencies nationwide, citing fraud concerns. The agency said it will deploy advanced data analytics during this period to identify suspected fraudulent providers.
The Bottom Line
The suspension places California in the position of either providing extensive documentation to justify its Medicaid spending or potentially losing federal funding that supports roughly one-third of its residents' healthcare coverage. State officials have not yet indicated whether they will comply with the administration's request for clarification.
California has 30 days to respond to CMS concerns before the deferral could become a permanent disallowance, according to federal Medicaid rules. Governor Newsom's administration is expected to formally contest the suspension as politically motivated rather than based on legitimate fraud concerns.
The broader threat to all states' Medicaid Fraud Control Units signals that the administration intends to use federal funding as leverage for stricter enforcement nationwide. How other governors respond—and whether Republican-led states face similar scrutiny—will be watched closely in coming weeks.