CMS expands health care fraud-fighting efforts as it withholds $1B in Medicaid funds

The federal government is halting more than $1 billion in Medicaid payments to California and Minnesota until those states can prove claims were legitimate.

U.S. Department of Health and Human Services (HHS) Secretary Robert F. Kennedy, Jr., led a news conference to announce the latest developments in the administration’s continuing crackdown on health care fraud. He called the money “$1 stolen from American patients and from the American taxpayer” whenever it is lost to fraud, waste, or abuse. The frozen funds include approximately $867.5 million intended for California and about $199 million intended for Minnesota.

“Medicaid exists to serve vulnerable Americans — not to bankroll unsupported claims,” Kennedy said.

HHS is also expanding “exclusion authority,” a legal tool that lets the government bar health care providers found to have committed fraud from billing federal programs such as Medicare and Medicaid, in some cases permanently, Kennedy said. Previously used mainly by the HHS Office of Inspector General (HHS-OIG), that authority will now also be available directly to the Centers for Medicare & Medicaid Services (CMS), the agency pausing the payments.

Joining Kennedy were CMS Administrator Mehmet Oz, M.D., MBA, two CMS deputy administrators, the chairman of the Federal Trade Commission (FTC), and leaders of the White House Anti-Fraud Task Force and HHS-OIG. Each spoke in turn about a specific piece of the administration's effort to identify and stop fraudulent billing before payments go out, rather than trying to recover the money afterward. It’s an approach the officials repeatedly described as moving from “pay and chase” to prevention.

The shift follows a decline in CMS staff dedicated to program integrity, the internal review process meant to catch improper billing, which he said fell from 80 employees to six under the prior administration, Kennedy said. He said CMS is working with the White House task force and has already identified and stopped $42 billion in Medicare fraud, waste, and abuse.

“If your state wants Medicaid funding, it must meet basic documentation requirements,” Kennedy said. “And if we suspect fraud, you will not receive taxpayer dollars until you prove that those payments are legitimate. That's how we make America healthy again. That's how we restore the integrity of our democracy, and that's how we make America great again.”

In-home care spending, high-risk billing categories drove deferrals

Oz described the deferrals as a “proactive new approach to program integrity.” CMS targeted a limited set of high-risk services in each state rather than every claim, focusing on personal care and home-based services often delivered by family members or unsupervised, unlicensed workers, Oz said.

In Minnesota, Oz said reviewers examined 14 high-risk service categories and found about $413 million in claims under review, including more than $3 million tied to billing for deceased beneficiaries, more than $40 million tied to roughly 870 providers already flagged by fraud-detection analytics, and the largest share tied to about 3,000 providers Minnesota itself had removed from the program for failed background checks or site visits.

In California, Oz pointed to in-home supportive services (IHSS), which pays for home-based care for seniors and people with disabilities. California's spending in that program grew 24% over two federal fiscal years, twice the roughly 12% national average, accounting for about $391 million of the deferral. Additional amounts covered high-risk billing patterns and deceased beneficiaries, plus about $221 million tied to claims involving beneficiaries whose immigration status could not be verified. Oz called the review “a very conservative approach.”

A pause, not a cut, to benefits or eligibility

Dan Brillman, director of the Center for Medicaid & CHIP Services and a CMS deputy administrator, emphasized that the deferrals are data-driven and temporary.

“This is a deferral. It's a pause to review past receipts,” he said, stressing that no beneficiary's coverage or eligibility changes as a result.

Brillman outlined three steps states must take three steps to recover withheld funds:

• Produce complete documentation supporting submitted claims.
• Confirm beneficiaries were eligible and providers qualified.
• Take corrective action on problems found, including recovering improper payments, suspending or terminating providers, and referring suspected criminal conduct to law enforcement.

If documentation supports the claims, funds move forward; if it doesn't, he said, “taxpayers should not be paying for these services.”

Hundreds of thousands of Medicaid beneficiaries with intellectual and developmental disabilities, medically complex children, and disabled veterans currently wait months or years for home and community-based services due to limited funding. Recovering misspent dollars could help states reduce or eliminate those waiting lists. “Every dollar lost to fraud is $1 that cannot pay” for such services, Brillman said.

Targeting prevention and prosecution across agencies

Andrew Ferguson, chairman of the FTC and a leader of the White House Anti-Fraud Task Force, described a two-part strategy set by Vice President JD Vance: stopping fraudulent payments before they go out, and prosecuting people who commit fraud. He cited a Department of Justice announcement of arrests or indictments of more than 400 people accused of over $5 billion in combined Medicare and Medicaid fraud, and said the FBI has extradited three top fraud suspects since launching a most-wanted list two months earlier.

Similar efforts are underway government-wide, Ferguson said:

• The Department of Education has blocked millions in fraudulent student loans.
• Housing and Urban Development cut funding to two housing authorities over misused funds.
• The Small Business Administration identified more than $123 billion in fraudulent loans this year
• The Department of Labor uncovered $5.3 billion in unemployment insurance fraud.

Fraud does more than drain budgets, Ferguson said, citing a Minnesota program for homeless veterans that shut down after being overwhelmed by fraud, and unnecessary medical procedures performed solely so providers could bill for them. Stopping fraud, he said, “protects real people from real injury” and restores public trust.

Machine learning flags fraud before payments go out

Jetson Leder-Luis, deputy executive director and chief economist of the White House Anti-Fraud Task Force, described a program launched in April called the Medicaid Fraud War Room, a joint effort among CMS, HHS-OIG, state agencies, and the task force. In its first 90 days, he said, the initiative prevented more than $200 million in fraudulent Medicaid payments using machine learning, a form of artificial intelligence that analyzes billing patterns to flag suspicious claims before providers are paid. He said the team reviews dozens of new Medicaid fraud cases weekly using this approach, which he called scalable across other federal programs.

Leder-Luis shared a personal connection to the work, saying his family relied on food assistance after experiencing homelessness when he was a child. His mother later received Medicaid benefits allowing her to stay home while managing an illness rather than moving to a nursing facility. He said federal benefit programs exist for families in similar circumstances, “and not to line the pockets of criminals,” and credited Vance with driving the task force's work.

Record savings and skin substitute reform

Kimberly Brandt, CMS deputy administrator and chief operating officer, presented figures on the financial impact of the administration's shift toward stopping improper payments before they occur. She said CMS stopped $41.9 billion in Medicare payments last year, a 59% increase over the prior year, with 68% of savings coming from preventing payments rather than recovering them later. Medicaid savings reached $4.1 billion, a 165% increase. In this year's first quarter alone, CMS revoked billing privileges for 1,413 providers and identified $850 million in overpayments through medical review.

Brandt highlighted skin substitutes, wound-care products for which Medicare and Medicaid previously paid whatever price manufacturers set. After CMS moved to a fixed payment rate this year, spending on the products fell 95%, returning to 2019-2020 levels. She cited a case in which an 80-year-old woman had allegedly been billed for more than 5,000 skin substitute applications, and noted many questionable claims involved hospice patients near the end of life. Brandt said the change did not reduce beneficiaries' access to needed care, calling it “a fair price for these services.”

Returning $15 for every dollar spent

T. March Bell, Inspector General for the HHS-OIG, said his office's legal team completed 2,600 provider exclusions last year, barring individuals or companies from billing federal health programs, in some cases permanently, and welcomed the decision to extend that authority to CMS.

OIG's roughly 400 investigators nationwide return $15 to federal health trust funds for every dollar spent funding their work, Bell said. He cited a June enforcement action involving 405 defendants and $5.6 billion in fraud exposure, conducted with the FBI and other agencies. He described audit findings of irregular spending growth in state autism-services programs and said OIG has tightened oversight of state Medicaid Fraud Control Units, state-run units, typically housed within attorneys general offices, that investigate Medicaid fraud.

Bell cited two cases: an investigation into immigrant children removed from federally run facilities by unauthorized individuals, and the prosecution of an executive sentenced to prison for a $90 million scheme involving 37 million improperly prescribed pills of a stimulant medication used to treat attention-deficit/hyperactivity disorder (ADHD).

“Every dollar we spend on waste, fraud, and abuse has a human face,” Bell said.