California and Minnesota Face $1 Billion Medicaid Hold as Federal Officials Demand More Claim Records. 

 More than $1 billion in federal Medicaid payments to California and Minnesota is being placed on hold while the states provide additional records supporting claims that federal officials say require closer examination. 

The Department of Health and Human Services announced the action Tuesday, July 21, saying the Centers for Medicare and Medicaid Services will defer approximately $867.5 million connected to California and $199 million connected to Minnesota. 

The action is a payment deferral, not a permanent cancellation of Medicaid funding. It also does not immediately change Medicaid eligibility or benefits for residents of either state. California and Minnesota can recover the money by providing documentation showing that the questioned claims meet federal requirements. 

That distinction matters because Medicaid is not an abstract budget line for the people who use it. It pays for doctor visits, prescriptions, disability services and assistance that allows some older adults and people with disabilities to remain safely in their homes. 

Federal officials want documentation before releasing the money 

Health and Human Services Secretary Robert F. Kennedy Jr. said states seeking the release of the funding must “provide basic documentation” showing the services were legitimate. 

Federal officials said focused financial reviews identified claims that need more support before federal matching funds can be released. However, Kennedy and CMS Administrator Dr. Mehmet Oz did not publicly present proof during their announcement that every questioned claim involved fraud. 

Instead, they described spending patterns, unsupported claims, billing concerns, and providers previously flagged through program-integrity reviews. Reuters reported that the officials cited anomalies and outlier billing patterns but did not offer specific proof of fraud during the news conference.

“CMS is done trying to chase down stolen and misused funds,” Oz said while explaining the agency’s decision to review certain claims before approving federal reimbursement. 

The federal government traditionally shares Medicaid costs with states. States pay providers and then submit expenditures to CMS for federal matching funds. A deferral allows CMS to temporarily withhold its portion while requesting additional records. 

California’s in-home care spending takes center stage

Most of the newly announced total is connected to California.

CMS said it reviewed claims involving certain in-home care programs after finding that spending growth exceeded national trends. The agency is withholding approximately $867.5 million while California provides additional information. 

California’s In-Home Supportive Services program, known as IHSS, helps older adults, children and people with disabilities remain at home instead of entering nursing homes or other institutions. Caregivers may assist with bathing, dressing, cooking, shopping, transportation and other daily needs. 

California officials said more than 900,000 residents rely on IHSS. They have argued that the program’s rising expenses reflect a growing caseload, higher caregiver wages and increased service needs, not evidence that the entire program is being improperly managed. 

State data released in May showed that the number of federally eligible IHSS participants increased from 613,764 in the 2022-23 fiscal year to 720,988 in 2024-25. The average hourly cost also increased from $19 to $21.03 during that period.

State Medicaid Director Tyler Sadwith said caregivers “help people get out of bed, prepare meals, bathe safely” and remain in their homes. 

California officials also say home-based services can cost far less than institutional care. That argument gives the dispute a very human dimension. Behind every billing spreadsheet is a person who may depend on help getting dressed, preparing food or reaching a medical appointment. 

Gov. Gavin Newsom called the federal action a “recycled political stunt.” He said California opposes fraud and will “collaborate with CMS in good faith efforts to combat fraud.”

Minnesota faces questions across high-risk services 

The Minnesota portion involves approximately $199 million in federal payments. 

HHS said CMS examined claims in 14 service areas identified as high risk. According to the department, some expenditures were connected to providers previously flagged through program-integrity reviews. Other claims raised possible eligibility or billing concerns. 

Minnesota has already been working through an extended dispute with CMS over Medicaid oversight. The state conducted a wide-ranging revalidation of thousands of providers operating in high-risk service areas and required them to prove they continued to meet legal and enrollment standards. 

Minnesota officials said the state completed reviews of nearly 5,600 high-risk providers by May 31. The state has also instructed providers receiving documentation requests to submit medical records, authorizations, billing records, schedules and other materials supporting the claims under review.

Oz said Minnesota has returned documents that CMS is reviewing. 

Gov. Tim Walz rejected the latest action as political punishment. He said the administration was “cutting more money in healthcare than they’ve prosecuted for fraud.” 

Minnesota maintains that Medicaid serves more than one million people in the state, including children, seniors, people with disabilities and residents with serious mental health needs. State officials have warned that prolonged funding disputes could eventually place pressure on providers and the wider healthcare system.

The new totals may overlap earlier deferrals 

The July announcement follows previous federal actions affecting Medicaid funding in both states. 

In May, CMS announced that it was deferring roughly $1.3 billion connected to California, including money tied to in-home care and administrative claims. Earlier in the year, the administration deferred approximately $259 million connected to Minnesota. 

HHS did not clearly state in Tuesday’s announcement whether the new totals are entirely separate from those earlier actions or include some of the same claims. Fierce Healthcare reported that it asked the department to clarify whether the figures overlap.

For that reason, the amounts should not automatically be added together and described as a larger cumulative funding loss without further clarification from CMS. 

The dispute is now about evidence and timing 

Federal officials say the government should verify questionable claims before taxpayer money leaves the Treasury. State officials say they are already fighting fraud and accuse the administration of using ordinary payment reviews as political leverage. 

Both sides agree on at least one basic point: fraud in Medicaid should be investigated and stopped. 

The disagreement concerns whether the federal government has provided enough evidence to justify the size of the deferrals, whether state documentation has been adequately reviewed, and how long the process will take. 

HHS has not announced a deadline for completing the reviews or releasing the money. The department said the states will have an opportunity to demonstrate that the claims comply with federal Medicaid rules. 

Kennedy also announced that HHS and its inspector general would continue using exclusion powers to remove providers found to be bad actors from Medicare and Medicaid, potentially preventing them from returning to federal healthcare programs. 

For Medicaid patients, the immediate message is less dramatic than the billion-dollar headline might suggest. Eligibility and benefits have not been canceled by this announcement. The money is being held while federal and state officials work through disputed claims. 

The longer-term consequences will depend on how quickly California and Minnesota provide the requested material, how CMS evaluates it, and whether the states challenge additional federal actions in court.