$1B Medicaid Payment Delay Could Ripple Through Nursing Home Sector in California, Minnesota 

The U.S. Department of Health and Human Services (HHS) and Centers for Medicare and Medicaid Services (CMS) on Tuesday deferred more than $1 billion in federal Medicaid payments to California and Minnesota. The agencies plan to expand this deferment tool in the future.

That’s approximately $867.5 million in deferred federal payments to California, and $199 million to Minnesota, HHS said in a statement. The agency’s decision to defer payments for these states comes after focused financial reviews identified claims that require additional review before federal matching funds are released. 

Of the $31.5 billion in Medicaid distribution to California in 2024, $981.4 million went to nursing homes, according to a report published by KFF. Minnesota, meanwhile, allocated $1.18 billion of its $7.68 billion in Medicaid spending to nursing homes that same year.

That’s 15% of Minnesota’s Medicaid budget going to SNFs, while nursing homes receive 3% of California’s Medicaid budget.

“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,” said HHS Sec. Robert F. Kennedy Jr. “Medicaid exists to serve vulnerable Americans — not to bankroll unsupported claims.”

Raina LeGarreta, communications specialist with the California Association of Health Facilities (CAHF), told Skilled Nursing News the association is reviewing the announcement, but it’s too early to determine full implications.

“We are working to understand its potential impact on California’s Medi-Cal program and those who depend upon it. We will continue to monitor developments as additional information becomes available,” said LeGarreta.

At the national level, American Health Care Association and National Center for Assisted Living (AHCA/NCAL) VP of Reimbursement Policy John Kane told SNN the developments need to ensure beneficiaries maintain access to care.

“The decision to defer more than $1 billion in Medicaid payments to California and Minnesota raises concerns about the broader impact on access to care for those who rely on the program for services,” Kane said. “Effective program integrity depends not only on strong enforcement authorities, but also on targeted, risk-based policies that distinguish intentional misconduct from inadvertent administrative errors.”

Payments are deferred, not cut, HHS said; states will have the opportunity to provide documentation showing the claims meet Medicaid requirements.

CMS reviewed claims in California for in-home programs, identifying spending growth that exceeded national trends, as well as other claims that require additional documentation.

The agency reviewed Medicaid claims in 14 high-risk service areas in Minnesota, finding that these claims needed additional documentation; expenditures are needed which are tied to providers flagged for eligibility or billing concerns.

HHS plans to expand its exclusion authority as well, enabling CMS and the HHS Office of the Inspector General to exercise this deferment tool to “remove bad actors from federal healthcare programs – and, in many cases, permanently bar them from returning.”

It’s the latest effort of the Trump administration to crack down on fraud, waste and abuse in Medicaid and safeguard federal taxpayer dollars. HHS and CMS await additional documentation from the two states to support certain high-risk Medicaid claims.

In May, nursing home providers urged the agencies to proceed carefully with their anti-fraud initiative, warning that overly broad enforcement actions could increase administrative burden and disrupt patient care. This followed the introduction of the Comprehensive Regulations to Uncover Suspicious Healthcare (CRUSH) initiative in February.

More recently, CMS on July 1 proposed new Medicare enrollment safeguards to combat fraud and recover improper payments, a wide-ranging initiative hidden within the Calendar Year 2027 Home Health Prospective Payment System (PPS) rule.

Similar to HHS’s planned expansion with its deferment tool, the Medicare enrollment safeguards would allow CMS to recoup Medicare payments retroactive to the date of noncompliance.

“CMS is done trying to chase down stolen and misused funds after they’ve already left the building,” CMS Administrator Dr. Mehmet Oz said in a statement regarding the $1 billion deferment. “That’s why we’re deferring payments with respect to certain high-risk services within the Medicaid programs in California and Minnesota as part of our proactive new approach to program integrity.”