Federal Audit Flags $1.3 Billion in Questionable Medicaid Spending by California

January 28, 2026 | JacobiJournal.com — CMS scrutiny of California’s handling of federal Medicaid funds is intensifying after federal auditors concluded the state improperly billed more than $1.3 billion for healthcare services that were not legally eligible for federal reimbursement. The finding has sparked sharp questions from lawmakers and intensified concerns about systemic oversight failures tied to public benefit programs.

At the center of the controversy is a letter sent by Rep. Young Kim of California’s 40th Congressional District, who is demanding explanations from Governor Gavin Newsom following the Centers for Medicare & Medicaid Services (CMS) audit results.

What Did Federal Auditors Find in California’s Medicaid Claims?

According to CMS, California submitted reimbursement claims for non-emergency medical services provided to individuals who are not legally eligible for federal Medicaid benefits. While federal law allows emergency Medicaid services regardless of immigration status, auditors determined the state crossed a clear legal boundary by billing federal taxpayers for services explicitly excluded under longstanding eligibility rules.

Federal statutes, including the Personal Responsibility and Work Opportunity Reconciliation Act, prohibit most federal public benefits — including standard Medicaid coverage — from being extended to individuals without lawful immigration status. CMS concluded California’s claims violated these restrictions.

Why the $1.3 Billion Finding Raises Fraud and Compliance Concerns

The $1.3 billion figure reflects federal funds that CMS says were improperly claimed and must be repaid. Compliance experts note that such findings often signal deeper issues within state-level administrative controls, including inadequate eligibility verification, weak financial oversight, or policy decisions that conflict with federal law.

Beyond the immediate repayment demand, the audit has raised broader questions about whether California’s Medicaid accounting practices expose federal programs to continued misuse — a recurring concern in government fraud enforcement.

How Lawmakers Are Responding to the CMS Audit

Rep. Kim’s letter presses Governor Newsom for answers on three core issues:

When California will stop billing federal Medicaid for ineligible services
How the state plans to repay the $1.3 billion identified by CMS
What safeguards will be implemented to prevent future violations

Lawmakers argue that improper Medicaid spending directly affects seniors, disabled individuals, and low-income families who rely on limited program resources. Federal watchdogs have increasingly emphasized accountability as Medicaid spending continues to expand nationwide.

What This Means for Taxpayers and Federal Oversight

CMS has formally requested repayment, placing California under pressure to reconcile its claims and demonstrate corrective action. Failure to do so could invite additional audits, heightened federal oversight, or enforcement referrals.

For taxpayers, the case underscores how complex benefit programs can become vulnerable to misuse when federal eligibility rules are overridden by state policy decisions — a recurring theme in healthcare fraud investigations.

Readers seeking more detail on federal Medicaid eligibility rules can review CMS guidance directly through the Centers for Medicare & Medicaid Services official site.

FAQs: Medicaid Spending and Federal Fraud Oversight

Can Medicaid be used for non-emergency care regardless of immigration status?

No. Federal law restricts Medicaid funding for individuals without lawful status to emergency medical services only.

Why is CMS demanding California repay $1.3 billion?

CMS determined the state billed federal Medicaid for services that were not eligible for reimbursement under federal law.

Does improper Medicaid billing qualify as fraud?

Improper billing can constitute fraud or abuse if claims are knowingly submitted in violation of eligibility rules or without proper safeguards.

What happens when a state violates Medicaid funding rules?

CMS can demand repayment, impose corrective action plans, or increase oversight through future audits.
Cases like this highlight why financial oversight and fraud detection remain central to public trust.

Subscribe to JacobiJournal.com for continued coverage of government fraud, compliance failures, and taxpayer accountability.