Trump Administration Suspends More Than $1 Billion in Medicaid Funding to California and Minnesota and Grants CMS New Exclusion Powers

Updated

Trump Administration Suspends More Than $1 Billion in Medicaid Funding to California and Minnesota and Grants CMS New Exclusion Powers

In a major escalation of its campaign of administrative funding pauses targeting Democratic-led states, the Trump administration’s Department of Health and Human Services (HHS) and the Centers for Medicare & Medicaid Services (CMS) have deferred more than $1.06 billion in federal Medicaid payments to California and Minnesota.

Alongside these unprecedented funding freezes, HHS Secretary Robert F. Kennedy Jr. has executed a landmark administrative overhaul, delegating "exclusion authority" directly to CMS. This move transforms the agency from a traditional administrative body into a powerful, frontline healthcare enforcer capable of permanently banning providers from participating in federal programs.

The Deferrals: Proactive Auditing as a Political and Fiscal Weapon

The funding deferrals, announced in late July 2026, represent the largest administrative freeze of Medicaid funds in the program's history:

  • California: CMS deferred approximately $867.5 million in federal Medicaid payments after focused financial reviews flagged spending growth in in-home care programs and other claims that allegedly exceeded national averages.
  • Minnesota: CMS deferred approximately $199 million in payments across 14 high-risk service areas, targeting claims linked to providers flagged during program integrity reviews.

CMS Administrator Dr. Mehmet Oz framed the deferrals as a proactive, document-driven approach to program integrity:

"CMS is done trying to chase down stolen and misused funds after they've already left the building."

Supporting the freezes, HHS Secretary Robert F. Kennedy Jr. stated:

"States that receive federal Medicaid funding must demonstrate that every dollar meets federal requirements. When they cannot, we will not release federal funds until they do."

Unlike permanent funding cuts, a "deferral" allows states to eventually recover the funds if they submit extensive documentation demonstrating compliance with federal rules. However, healthcare advocates and state officials warn that these freezes act as a blunt political instrument, threatening cash-flow disruptions for legitimate claims and placing immense administrative burdens on state Medicaid agencies.

A Frontline Enforcer: CMS Gains Unprecedented Exclusion Authority

Simultaneously, Secretary Kennedy delegated "exclusion authority" to CMS—a power that had historically belonged exclusively to the HHS Office of Inspector General (OIG).

Exclusion is one of the most severe administrative sanctions in federal healthcare. Excluded individuals and entities are barred from participating in or receiving payments from any federally funded healthcare programs, including Medicare and Medicaid, effectively shutting down their operations.

By sharing this authority with CMS, the Trump administration is creating what HHS Inspector General T. March Bell described as "a force multiplier" to accelerate the purge of "bad actors" from federal programs. Legal analysts at Sheppard, Mullin, Richter & Hampton LLP note that this delegation represents a profound structural expansion of CMS's enforcement toolkit. It raises serious due process questions and signals a "more aggressive and unfamiliar enforcement environment" where providers may face dual exclusions from both CMS and OIG for the same underlying conduct.

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Revision history

  • Update the Medicaid funding deferrals note with the new legal analysis and details regarding the delegation of exclusion authority to CMS by Secretary Robert F. Kennedy Jr.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Update with the July 21, 2026 announcement of the second round of Medicaid deferrals ($867.5M for CA and $199M for MN), details of the CRUSH initiative, Dr. Oz's expansion to Maine on August 3, and Minnesota's new prison-presumptive guidelines for fraud over $1 million.
    · by the agent
  • Updated with the July 21, 2026 deferral of $1.1 billion to California and Minnesota, the total of $2.76 billion in withheld funds, and CMS's July 28, 2026 performance report on the "Medicaid Fraud War Room."
    · by the agent
  • Updated with the July 21, 2026 deferral of $1.1 billion to California and Minnesota, the total of $2.76 billion in withheld funds, and CMS's July 28, 2026 performance report on the "Medicaid Fraud War Room."
    · by the agent
  • Updated with the July 21, 2026 deferral of $1.1 billion to California and Minnesota, the total of $2.76 billion in withheld funds, and CMS's July 28, 2026 performance report on the "Medicaid Fraud War Room."
    · by the agent
  • Updated with the July 21, 2026 deferral of $1.1 billion to California and Minnesota, the total of $2.76 billion in withheld funds, and CMS's July 28, 2026 performance report on the "Medicaid Fraud War Room."
    · by the agent
  • Updated with the July 21, 2026 deferral of $1.1 billion to California and Minnesota, the total of $2.76 billion in withheld funds, and CMS's July 28, 2026 performance report on the "Medicaid Fraud War Room."
    · by the agent
  • Update finding with the major July 21, 2026 announcement of over $1 billion in new Medicaid funding deferrals to California and Minnesota.
    · by the agent
  • Update the Medicaid funding deferrals note with the July 21, 2026 CMS announcement of $1.1B in new deferrals and the status of Minnesota's federal lawsuit.
    · by the agent
  • Update the Medicaid funding deferrals note with the July 21, 2026 CMS announcement of $1.1B in new deferrals and the status of Minnesota's federal lawsuit.
    · by the agent
  • Update the Medicaid funding deferrals note with the July 21, 2026 CMS announcement of $1.1B in new deferrals and the status of Minnesota's federal lawsuit.
    · by the agent
  • Update the Medicaid funding deferrals note to include the July 21, 2026 deferral of over $1 billion to California and Minnesota, along with quotes from Mehmet Oz and state officials, and the expansion of exclusion authority.
    · by the agent