Earlier this year, the federal government promised a sweeping crackdown on fraud, waste, and abuse in the healthcare industry. That promise is now taking concrete shape through a pair of announcements establishing CMS Medicaid payment deferral exclusion authority as twin pillars of an expanding federal enforcement posture.
The California and Minnesota Payment Deferrals Behind This CMS Medicaid Payment Deferral Exclusion Authority Shift
In late July 2026, CMS deferred approximately $867.5 million in federal Medicaid payments to California after focused financial reviews flagged spending growth in certain in-home care programs and other claims that far exceeded national trends. CMS separately deferred approximately $199 million in Minnesota payments after reviewing claims across 14 high-risk service areas.
How Officials Framed This Deferral Action
CMS Administrator Mehmet Oz said the agency is “done trying to chase down stolen and misused funds after they’ve already left the building,” describing the deferrals as part of “CMS’s new approach to program integrity.” Kennedy added, “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.”
Why Deferral Differs From a Permanent Cut Within This CMS Medicaid Payment Deferral Exclusion Authority Framework
Rather than making broad, permanent payment cuts, CMS is instituting a document-driven, temporary payment deferral tied to high-risk claim categories. If a state’s funding is deferred, as with California or Minnesota, the state can submit documentation showing how the claims meet federal Medicaid requirements, and once adequate support is submitted, the funds will be released.
The Practical Concerns This Deferral Approach Raises
These payment deferrals are likely a practical tool to help limit waste and fraud while not completely cutting off funding. However, some providers and stakeholders are concerned these deferrals could also lead to cash-flow disruptions for legitimate claims and place additional burdens on state Medicaid agencies by requiring further supporting documentation for claims in higher-risk categories.
CMS’s New Exclusion Authority Within This CMS Medicaid Payment Deferral Exclusion Authority Announcement
While CMS was deferring payments to California and Minnesota, Kennedy was also announcing his plans to delegate to CMS the “exclusion authority” previously within the exclusive domain of HHS-OIG, granting CMS the power to exclude individuals and entities from participation in federally funded healthcare programs. Kennedy said both CMS and HHS-OIG “will be able to use that authority to remove bad actors from federal health care programs and in many cases to permanently ban them from returning.”
How Exclusion Authority Has Traditionally Worked
Exclusion is not something to take lightly, and until now, Congress had granted only HHS-OIG this authority. For HHS-OIG, exclusion is a harsh tool often used alongside the Department of Justice to combat fraud, abuse, and certain healthcare violations by preventing providers from participating in federally funded healthcare programs individually and through future-formed corporate entities or employment arrangements. Between October 2025 and March 2026 alone, HHS-OIG excluded 1,212 individuals and entities, generating $5.56 billion in monetary impact and more than $447 million in potential cost savings.
Unresolved Questions Within This CMS Medicaid Payment Deferral Exclusion Authority Delegation
Although no guidance or details have been released regarding the extent and scope of CMS’s new authority, HHS Inspector General T. March Bell described the delegation as “a force multiplier” aimed at creating “additional momentum.” Several questions remain, however: how will CMS and HHS-OIG divide responsibilities? How will this new authority interact with CMS’s existing Medicare enrollment revocation authority? Will CMS’s involvement help facilitate or delay False Claims Act settlements? And what due process would apply to a CMS-initiated exclusion?
Why These Open Questions Matter for Providers
The absence of clear guidance on these operational questions means providers and their counsel currently have limited ability to predict exactly how CMS will exercise this authority in practice, adding a layer of uncertainty to compliance planning even as the underlying legal authority is now formally in place.
What Healthcare Providers Should Do in Response to This CMS Medicaid Payment Deferral Exclusion Authority Shift
In line with the government’s “crackdown on fraud,” CMS’s execution of the exclusion authority may expand the government’s overall enforcement capacity and increase the total number of exclusion actions pursued. Even if CMS does not immediately enforce its new exclusion authority, providers and state agencies should be wary of payment deferrals and requests for supporting documentation, like those seen in California and Minnesota.
Sheppard Mullin’s Specific Recommendations
Providers should expect the possibility of exclusions by CMS and HHS-OIG based on the same underlying conduct, along with increased enforcement activity and potential payment deferrals. Providers with significant Medicare or Medicaid participation should consider taking a fresh look at their compliance programs, fraud-and-abuse controls, and risk-assessment processes, prioritizing strong documentation practices, compliance readiness, and proactive risk assessment now.
What This CMS Medicaid Payment Deferral Exclusion Authority Development Means Going Forward
With no formal guidance yet released on how CMS will exercise its newly delegated exclusion authority, healthcare organizations with substantial Medicare or Medicaid exposure should treat this announcement as an early warning signal rather than waiting for finalized rules to begin strengthening their compliance infrastructure. Given the unresolved questions about how CMS and HHS-OIG will divide case responsibilities, providers may face a more complex and potentially less predictable enforcement landscape than under the historical single-agency exclusion model.
What to Watch Going Forward
As additional details about this delegation become available, healthcare providers, compliance officers, and legal counsel will likely watch closely for guidance clarifying how CMS and HHS-OIG will divide exclusion authority responsibilities, and whether other states beyond California and Minnesota face similar high-risk claims payment deferrals. Given the scale of HHS-OIG’s own exclusion activity, more than 1,200 parties excluded in just six months, this CMS Medicaid payment deferral exclusion authority shift may substantially expand the federal government’s overall capacity to remove providers from Medicare and Medicaid participation as this dual-agency enforcement model takes shape.
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