Medicaid fraud can’t stay out of the news cycle. A California man was just sentenced to 30 years in prison over a massive healthcare fraud scheme. Minnesota is still in the middle of a high-profile Medicaid case.
The Trump administration has already made eliminating fraud a top priority, including through the One Big Beautiful Bill last year. As implementation of the law moves forward, the federal Centers for Medicare & Medicaid Services (CMS) can turn its attention to addressing how some Medicaid payments are financed.
In July, CMS deferred more than $1 billion in federal Medicaid payments to California and Minnesota after financial reviews flagged claims for suspected fraud and noncompliance. California is now waiting on about $867.5 million to be unfrozen while it produces supporting documentation. CMS Administrator Dr. Mehmet Oz put the standard in plain language: stop questionable payments before the money leaves the building, rather than chase it afterward.
That standard should cover financing, not just claims. Taxpayers should be able to follow a Medicaid dollar from the nonfederal share, through the federal match, to the provider, and to any transfer that follows.
Intergovernmental transfers (IGTs) are a commonsense place to start. An IGT is a payment from a local government or publicly owned provider to a state Medicaid agency to help cover the state’s share of program costs. The state then draws down federal matching funds. The structure is inherently abusive: Washington puts up more money while the state never bears the share of cost taxpayers would reasonably expect.
The Government Accountability Office (GAO) flagged this more than twenty years ago. States were using financing arrangements to pull down extra federal Medicaid dollars without a comparable increase in their own spending. In the older schemes GAO documented, states made large payments to local government providers, claimed the federal match, and then required much of the money back. Federal spending rose. State spending did not.
California plays this scheme to its advantage. The Paragon Health Institute found that Medi-Cal paid private ambulance providers $339 per emergency transport in 2024, and $1,168 to public providers for the same ride. Under the state’s IGT arrangement, public providers send money to Sacramento. The state uses that money as the nonfederal share, draws the federal match, and finances the higher public rate — shifting the burden to federal taxpayers.
The administration has already shown it will scrutinize Medicaid payments as part of its War on Fraud effort to combat theft in welfare programs. In February, Vice President JD Vance and Dr. Oz announced new measures against Medicare and Medicaid fraud. In May, CMS proposed restrictions on payment practices the agency estimates could save more than $775 billion over 10 years. That same month, Vance said the administration would defer $1.3 billion in Medicaid reimbursements to California for failing to take fraud seriously.
IGTs should get the same thorough review.
Policymakers should require reporting that identifies the source of every dollar used as the nonfederal share, the Medicaid payment it generates, the federal match attached to it, the provider that receives the payment, and any later transfer of those funds. When CMS reviews a State Plan Amendment that depends on IGT financing, that trail should be complete. If officials cannot establish where the money comes from, where it goes, and whether the arrangement meets Medicaid rules, they should reject the amendment.
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This level of transparency is sure to produce results, and CMS already has the authority to do it. No change in the law is required for now — that will likely come later. Simply put, IGTs should never be a black box. Medicaid is supposed to serve the truly needy. It should not function as an opaque matching scheme in which federal taxpayers cannot tell who put the first dollar in or who kept the last one.
The administration can take the War on Fraud to the next level. They have already withheld federal payments from California and Minnesota until those states produce evidence for the claims. Apply that test to the financing. If the dollar cannot be followed, it should not be matched.
Josh Mesker is a former senior staffer to two Members of Congress with 20 years of combined experience in federal, state, nonprofit, and consulting roles. He lives in the Little Rock, Arkansas, area.
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[ H/T Washington Examiner ]
