HHS Just Deferred $1 Billion in Medicaid Payments to California and Minnesota. Here’s What It Means for Nursing Homes.

Washington, D.C. — The U.S. Department of Health and Human Services has deferred more than $1 billion in federal Medicaid payments to California and Minnesota, a move that nursing home operators fear could ripple through the sector and tighten already strained budgets.

Approximately $867.5 million in payments to California and $199 million to Minnesota are now on hold, according to an HHS statement issued Tuesday. The agency said focused financial reviews found claims in both states that require additional documentation before federal matching funds are released.

Nursing homes in both states stand to feel the impact. California directed $981.4 million of its $31.5 billion Medicaid distribution to nursing homes in 2024, according to KFF data. In Minnesota, nursing homes received $1.18 billion out of $7.68 billion in total Medicaid spending that same year — about 15% of the state’s entire Medicaid budget.

HHS Secretary Robert F. Kennedy Jr. framed the deferment as a fraud-prevention measure.

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

CMS Administrator Dr. Mehmet Oz struck a similarly aggressive tone, saying the agency is “done trying to chase down stolen and misused funds after they’ve already left the building.”

What This Means for Operators

The payments are deferred, not cut. States will have the opportunity to provide documentation showing the claims meet Medicaid requirements. But the timing is worrisome for a sector already grappling with financial pressures on operators across the country.

John Kane, vice president of reimbursement policy at the American Health Care Association and National Center for Assisted Living, told industry sources the deferment raises broader concerns about access to care.

“The decision to defer more than $1 billion in Medicaid payments raises concerns about the broader impact on access to care for those who rely on the program for services,” Kane said.

California’s review focused on in-home programs with spending growth that exceeded national trends, plus other claims needing additional documentation. Minnesota’s review examined 14 high-risk service areas, with expenditures tied to providers flagged for eligibility or billing concerns.

A Growing Crackdown

HHS said it plans to expand its deferment tool and exclusion authority, allowing CMS and the Office of the Inspector General to “remove bad actors from federal healthcare programs — and, in many cases, permanently bar them from returning.”

The move follows the CRUSH initiative launched in February and a July 1 proposal by CMS to add new Medicare enrollment safeguards that would allow retroactive payment recovery.

In May, nursing home providers urged the agencies to proceed carefully, warning that overly broad enforcement could increase administrative burden and disrupt patient care. Now, with more than a billion dollars in limbo, those warnings are being tested in real time.