Feds Defer $1.2 Billion in California Medicaid Payments, and FBI Raids NYC Adult Day Care Programs

The Trump administration is holding back another $1.2 billion in Medicaid reimbursements to California. Dr. Mehmet Oz, who runs the Centers for Medicare and Medicaid Services, announced it today, Oct. 20, at a White House event with President Trump and Vice President JD Vance.

The target is California's personal care services program for older adults and people with disabilities. Oz said state officials were notified Tuesday.

"California has been growing that program 24% in the last three years. That is twice the rate of every other state average in the country," Oz said. "Impossible for us to understand how that could be so we are taking major action in California."

Oz did not present specific evidence of fraud in the program. His argument rests on the growth rate and on a broader claim that California pays for help families would otherwise give for free.

"Many of you would carry groceries upstairs for your mom for free, but in California, they will pay you a lot of money for it," he said.

The money at stake

The deferral follows a $1.3 billion withholding announced in May over suspected fraud in hospice and in-home care. Added together, that is $2.5 billion in federal reimbursements now in dispute. One tally puts the amount withheld from the state this year at about $2.2 billion, most of it tied to In-Home Supportive Services, the program that pays family members and other caregivers for bathing, dressing and feeding.

The new deferral is roughly 4% of California's annual federal Medicaid payments. It is the largest single deferral to the state so far.

Deferred does not mean denied. CMS can review the funds and decide to pay them or cancel them. If the money is cancelled, the state is on the hook to make up the difference. California has not yet received the funds.

CMS has also deferred Medicaid payments to Minnesota over fraud allegations.

California's response

California disputes the premise. State officials have said Washington has not provided sufficient evidence of fraud and that the growth reflects ballooning demand for care.

Gov. Gavin Newsom's office did not immediately comment on today's move. In May, it called the earlier withholding a "sick" and politically motivated attack on services meant to "keep seniors and people with disabilities OUT of nursing homes." The office also argues the program saves money: IHSS care costs about $30,000 a year per person, versus $137,000 for a nursing home.

Democratic Sen. Alex Padilla said the decision "will hurt older Californians, people with disabilities, and those recovering from illness or injury."

A 2020 California state auditor report found that nearly three-quarters of IHSS caregivers assist a family member. That is a fact both sides can use. Oz reads it as paying for what families would do anyway. The state reads it as the program working as designed.

California's hospice sector does have a documented history of problems. A Los Angeles Times investigation in 2020 found providers billing Medicare for hospice services and equipment for patients who were not dying while the industry boomed.

Growth of 24% in three years is a fair thing to question. It is also a statistic, not a finding. Taxpayers are owed an explanation either way, and so far one side has numbers and the other has an unproven accusation.

$25 million for tipsters

At the same event, Trump unveiled a $25 million Justice Department whistleblower initiative. According to the announcement as relayed by the White House pool, the program offers $30,000 bounties from a dedicated federal fund for tips that lead to fraud charges. Trump said he would add a 1% commission on recovered funds.

Trump also named himself the final judge of who gets paid. "I'll determine whether or not the person is deserving, and I will be very generous believe me," he said. "I promise you I will be fair."

A payout decision that sits with one elected official is an unusual design for a Justice Department program. The administration has not described how disputes would be handled.

Vance leads the administration's anti-fraud task force. He and the task force have made fraud a central message ahead of the November midterm elections, touting actions in Medicaid, the individual health insurance marketplaces and food stamps.

A Fox News segment said the task force's California action was fueled by tips from citizen journalist Nick Shirley, and that it targets suspicious billing in personal care and autism services. That detail has not been confirmed by CMS in the remarks above.

Raids in New York

A separate operation began today in New York City. The FBI said in a statement that FBI New York and multiple other law enforcement agencies are conducting activity in Queens, Staten Island, Brooklyn and other locations "in connection with ongoing federal investigations."

Gov. Kathy Hochul called it a "massive effort to combat fraud and abuse." The New York State Department of Health and the Office of the Medicaid Inspector General joined the federal agencies. The focus is social adult day care programs.

"We are targeting providers who we believe engaged in illegal activity, ranging from money laundering to kickbacks to improper billing and other fraudulent activities," Hochul said.

Hochul said the investigation is active, which limits what officials can disclose. No charges or arrests have been announced as of tonight.

The New York operation is the kind of action the California dispute lacks: investigators at named providers, with specific alleged conduct. The two stories were announced the same day, and no source has tied one to the other.

What comes next

CMS now has to decide whether to release or cancel the deferred California funds. If it cancels them, California would have to cover the gap itself. The administration has not said when that decision will come.

In New York, any charges or arrests would show whether the allegations Hochul described hold up in court.