California’s Fraud Problem Starts With Medicaid

California’s latest hospice crackdown is not an isolated scandal. It is another sign that Gavin Newsom’s California has become an epicenter of government waste, fraud, and corruption, with Medicaid standing at the center of the problem. Federal officials have now suspended 221 hospice and healthcare providers in Los Angeles over suspected fraud, and they say that number is likely to keep rising. That should not surprise anyone who has watched California pour more money into sprawling public programs while oversight falls further behind.

The broader pattern is hard to ignore. As Christopher Rufo and his coauthors reported in City Journal, California may have lost at least $180 billion in taxpayer money to fraud across major state programs. Even California’s own admissions on unemployment insurance were staggering, with about $20 billion in fraudulent claims and roughly $55 billion in improper payments overall during the pandemic era. That record alone would be bad enough. But the more important story now is that Medicaid fraud may be even bigger and more structurally embedded.

Medicaid Is Where the Biggest Risk Sits

California’s Medicaid program, Medi-Cal, has grown at a pace that should alarm any taxpayer. The chart above shows California Medicaid spending projections rising far faster than those of other states from 2013 to 2025. By 2025, California’s cumulative growth is projected at 286%, compared with 143% for other states, according to the National Association of State Budget Officers. That kind of spending surge creates exactly the kind of environment where fraud, abuse, and gaming flourish.

The City Journal investigation notes that total budgeted Medi-Cal spending rose from $93.5 billion before Newsom took office to $196.7 billion in the current annual budget, even as California’s population slightly declined. It also points out that California’s state auditor has treated Medi-Cal eligibility as a high-risk issue since 2007, while California’s attorney general has conceded that Medi-Cal fraud could reach billions of dollars annually.

That is why the hospice crackdown matters so much. It is not just a law enforcement story. It is evidence that a bloated system with weak guardrails has become an easy target for fraudsters. When federal investigators are suspending hundreds of providers in a single metro area, it is a warning that the problem is not marginal. It is systemic.

CFE Has Already Warned About the Financing Side

The fraud risk in Medicaid is not limited to fake providers or fraudulent claims. It is also built into the way states can manipulate the program’s financing rules.

CFE recently warned about this in “Stop the Next Medicaid Money Laundering Scheme”. That piece explained how states can use intergovernmental transfers, or IGTs, to recycle government funds through Medicaid financing formulas in order to draw down more federal money. As CFE noted, the more a state appears to spend, the more federal matching money it can claim. That creates a strong incentive to maximize revenue instead of serving patients efficiently. 

That earlier warning now looks even more relevant. California is showing what happens when a Medicaid program grows rapidly, oversight stays weak, and the political system rewards bigger spending instead of cleaner administration. Fraud at the provider level and gimmicks at the financing level are different tactics, but they thrive in the same culture. They both turn Medicaid into a cash machine.

This Is Bigger Than Healthcare

Medicaid fraud deserves the most attention because of the dollars involved and because federal taxpayers are exposed to so much of the risk. But it is part of a larger governing failure in California.

The same state that admitted tens of billions in unemployment fraud is also home to a high-speed rail project now expected to cost about $126 billion, nearly four times the price tag presented to voters, with no track laid nearly two decades after the project began. That is not healthcare fraud, but it reflects the same governing model: spend huge sums, promise big results, and tolerate failure for far too long. 

Newsom’s California increasingly looks like a state where public money moves easily, accountability moves slowly, and taxpayers are expected to absorb the difference.

Fraud Prevention Has to Mean Structural Reform

California does not just need more raids after the money is gone. It needs reforms that make fraud harder in the first place.

That means tighter eligibility checks, stronger provider screening, better claims oversight, and real transparency around how Medicaid dollars are flowing through the system. It also means federal policymakers should close down financing abuses like intergovernmental transfer schemes before they become even more entrenched. A Medicaid program this large cannot be allowed to operate like an open tab for corrupt providers, aggressive middlemen, and state budget gimmicks.

CFE Takeaway

California’s fraud problem is not just a few bad actors taking advantage of the system. It is what happens when government grows faster than accountability.

The latest hospice suspensions are a reminder that Medicaid fraud is not theoretical. It is here, it is costly, and it is tied to a broader pattern of failed oversight in Newsom’s California. Washington should treat California as a warning, not a model. Medicaid dollars should go to patient care, not fraud rings, provider scams, or financing games disguised as public health policy.