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Vice President JD Vance announced Wednesday that the Trump administration is withholding $1.3 billion in Medicaid payments to California and warned states nationwide they could face similar funding freezes if they do not intensify efforts to combat Medicaid fraud.
Speaking at the White House in his role overseeing the administration’s anti-fraud initiatives, Vance said California had become a primary target because federal officials believe the state has failed to adequately police its Medicaid system.
“There are California taxpayers and American taxpayers who are being defrauded because California isn’t taking its program seriously,” Vance said. “You have people who have been prescribed medications that they don’t even need.”
The move escalates an ongoing clash between the Trump administration and Democratic-led states over federal healthcare funding and oversight.
The administration’s action mirrors a similar decision earlier this year to suspend Medicaid payments to Minnesota amid separate fraud investigations.
Vance said Wednesday that the administration has now formally notified all 50 states that federal funding for their Medicaid Fraud Control Units could also be suspended if officials fail to aggressively pursue fraud cases.
Those units are responsible for investigating and prosecuting Medicaid provider fraud at the state level.
“We are going to turn off the money that goes to these anti-fraud units if they do not aggressively prosecute Medicaid fraud,” Vance said.
He added that the administration could also freeze “other resources within their state Medicaid programs” if federal officials continue identifying what they view as systemic problems.
Administration cites billing concerns
Mehmet Oz said federal officials identified multiple financial irregularities within California’s Medicaid program that prompted the unprecedented payment deferral.
According to Oz, the administration is seeking explanations for approximately $630 million in billing concerns, $500 million in home health service payments and another $200 million in what he described as “questionable expenditures” connected to healthcare coverage involving undocumented immigrants.
Undocumented immigrants are generally not eligible for federally funded Medicaid benefits, though some states use their own funds to provide limited healthcare coverage.
“It’s the largest deferral we’ve ever made,” Oz said of the $1.3 billion payment freeze. “We’re making it for a good reason.”
Oz said federal officials want California to provide additional documentation explaining the disputed payments.
The administration did not publicly release detailed evidence supporting the allegations Wednesday.
California officials silent so far
The offices of Gavin Newsom and California Attorney General Rob Bonta did not immediately respond to requests for comment.
The California Department of Public Health also did not publicly address the administration’s allegations Wednesday.
Democratic officials in other states have previously accused the administration of weaponizing federal funding disputes for political purposes, particularly in conflicts involving healthcare and immigration policies.
In addition to the California action, Oz announced a six-month moratorium on new Medicare enrollments for hospice providers and home health agencies nationwide.
The Centers for Medicare and Medicaid Services said the temporary freeze would allow the agency to intensify fraud investigations and remove providers suspected of improper billing or fraudulent conduct.
Federal officials said CMS plans to increase the use of advanced data analytics and targeted investigations during the moratorium period.
The administration did not specify how many providers are currently under review.
Broader context
The funding dispute comes as the Trump administration continues expanding its broader anti-fraud campaign across multiple federal programs.
Vance, whom Trump designated earlier this year as the administration’s “fraud czar,” has increasingly framed healthcare fraud enforcement as both a fiscal issue and a political fight against Democratic-led states.
“Now, we have red states and blue states that go after fraud aggressively,” Vance said. “But we also unfortunately have some states — mostly blue states, unfortunately — that do not take Medicaid fraud very seriously.”
The administration’s actions are likely to intensify ongoing legal and political battles over the federal government’s authority to withhold healthcare funding from states.
Healthcare policy experts have warned that large-scale funding suspensions could disrupt services for low-income patients if prolonged disputes prevent states from accessing federal reimbursements.
California officials are expected to face pressure to provide additional documentation and challenge the administration’s allegations in the coming weeks.
Meanwhile, other states may now face heightened federal scrutiny as the administration signals it is prepared to expand funding freezes tied to Medicaid fraud enforcement.
Legal challenges to the administration’s authority to suspend Medicaid funding could also emerge if additional states are targeted.
