Dr. Oz Calls Blue-State Medicaid Fraud a “Feature.”
California’s Own Auditors Have Been Saying So Since 2007.
“Stealing money from Medicaid is not a flaw for a lot of states, it’s a feature,” CMS Administrator Mehmet Oz told Fox News Digital on July 10, 2026, aiming the line at California Governor Gavin Newsom (D-CA). Oz said Newsom was warned “four years ago” by his own state auditors about widespread fraud and “did some performative things” instead of fixing it. It plays well on cable news — and it isn’t new. Oz used nearly identical wording in a Just the News interview two months earlier, on May 14, 2026, which makes it less a fresh accusation than a talking point he keeps rotating back to.
The soundbite is not, by itself, the story. The real record sits in duller places: a California State Auditor report that has kept Medi-Cal eligibility on its official “high-risk” list every year since 2007; a federal inspector-general inspection that logged both real fraud convictions and real dysfunction inside California’s own fraud-fighting unit; a $1.3 billion federal funding freeze — the largest Medicaid deferral in CMS history — that California’s own Medicaid director told Congress arrived without a single documented instance of fraud attached; and a national “improper payment” number the administration has, in a closely related episode, already stretched past what the underlying data supports.
This page works through that record on its own terms — including the parts that complicate the “uniquely a blue-state problem” framing Oz and Vice President JD Vance (R) have built an entire task force around. National prosecution data does not show Democratic-run states leading benefits-fraud cases as a category; some of the largest recent fraud settlements are in red states. Where advocacy groups have supplied bigger numbers than any government audit has certified, this page says so explicitly and names whose numbers they are.
- 6.12% / $37.39B — the national Medicaid improper-payment rate and dollar total CMS itself reported for FY2025, up from 5.09% / $31.10 billion in FY2024 — CMS's own data attributes roughly three-quarters of that to documentation and eligibility-verification error, not theft · Source: CMS PERM Fact Sheet
- $186 billion — improper payments reported government-wide across Medicare, Medicaid, the Earned Income Tax Credit, and SNAP in FY2025 · Source: GAO-26-108694
- Since 2007 — how long Medi-Cal eligibility determinations have sat on the California State Auditor's official high-risk list — spanning three governors of both parties · Source: California State Auditor, Report 2025-601
- $1.9 billion — in questionable Medi-Cal payments the state auditor traced to eligibility-system discrepancies in 2021, still only partially resolved as of April 2025 · Source: California State Auditor
- $1.3 billion — in Medicaid reimbursements CMS deferred from California in May 2026 — the largest single deferral in the agency's history, which Oz himself called "the largest deferral we've ever made" · Source: KPBS; Healthcare Dive
- $544 million — recovered by California's Medicaid Fraud Control Unit across 180 indictments and 221 convictions, FY2021-23 — the same federal inspection that counted those wins also found the unit chronically understaffed · Source: HHS Office of Inspector General
In the July 10, 2026 Fox News Digital interview, Oz said Newsom was told directly by his own state auditors about widespread Medi-Cal fraud roughly four years earlier — a reference that lines up with the California State Auditor’s 2021 finding that eligibility-system discrepancies had caused the state to disburse $1.9 billion in questionable payments. Oz’s specific complaint is that Sacramento’s response amounted to — in his words — “some performative things,” not the fixes the record required. On that narrow point, the audit trail backs him up: the same high-risk designation the 2021 report described is still open in the State Auditor’s most recent report, published December 2025.
Where the soundbite gets less careful is in the leap from “flaw” to “feature” — the suggestion that California and other Democratic-run states have made fraud an intentional policy choice, rather than a persistent, badly under-resourced oversight failure. Oz made a version of the same claim to Just the News on May 14, 2026, telling the outlet he believes it’s a “feature” for some states and separately estimating CMS is “losing $100 billion a year to fraud” nationally — a round number that is roughly double the entire government-wide improper-payment total GAO has actually certified, and one CMS has not attached documentation to. Two nearly identical interviews eight weeks apart is a talking point, not a new disclosure.
“Stealing money from Medicaid is not a flaw for a lot of states, it's a feature.”
CMS Administrator Dr. Mehmet Oz — Fox News Digital, July 10, 2026
CMS measures Medicaid’s error rate through its Payment Error Rate Measurement program, or PERM — an annual audit sample, not a fraud investigation. The FY2025 result was a 6.12% improper-payment rate, or $37.39 billion, up from 5.09% and $31.10 billion in FY2024. CMS’s own accompanying data shows the increase is driven almost entirely by the post-pandemic “unwinding” of COVID-era eligibility flexibilities, and that roughly three-quarters of all improper payments trace to insufficient documentation — a caseworker’s file missing a signature, an eligibility redetermination filed late — not to a beneficiary or provider stealing money. “Improper payment” and “fraud” are legally and statistically different categories, and conflating them is a specific, recurring move in this fight, not a one-off exaggeration.
The conflation has already drawn a formal fact-check. In June 2025, OMB Director Russell Vought (R) claimed “one out of every $5 or $6 in Medicaid” payments is improper — a 16-20% rate roughly triple CMS’s own certified figure at the time. PolitiFact rated the claim “Mostly False,” finding it ignored the federal government’s own data and, again, treated documentation errors as if they were theft. Oz’s “feature” framing doesn’t repeat Vought’s specific number, but it leans on the same rhetorical move: using an accounting category built to catch paperwork gaps as if it were a fraud tally.
In April 2026, CMS sent Governor Kathy Hochul (D-NY) a letter alleging widespread Medicaid fraud in New York’s personal-care program, citing roughly 5 million beneficiaries as evidence of runaway spending. CMS later admitted to the Associated Press that the real figure was approximately 450,000 — an overstatement of more than tenfold. Fiscal Policy Institute analysts said the error likely came from adding monthly beneficiary counts together instead of counting unique people across the year. CMS did not apologize or explain how the 5 million figure was produced. It is a reasonable caution on Oz’s numbers generally, not a reason to dismiss every claim his agency makes — which is exactly why the rest of this page checks each figure against its own primary source rather than against Oz’s framing of it.
Dr. Oz's numbers keep changing because they keep being wrong — CMS had to admit it overstated New York's Medicaid caseload by more than 10 times. Meanwhile California has revoked over 280 hospice licenses and has 300 more under active investigation.
Set the soundbite aside, and the California State Auditor’s own paper trail is the strongest single piece of evidence in this story — not because it proves the “feature” framing, but because it independently documents almost two decades of exactly the kind of unresolved oversight failure Oz gestures at. The Department of Health Care Services, which runs Medi-Cal, has been on the Auditor’s statutory high-risk list continuously since 2007. That predates Gavin Newsom (D-CA) taking office by twelve years and spans three governors of both parties — a detail that complicates any version of this story pinned solely to one governor’s tenure.
2007: Medi-Cal eligibility determinations first placed on the California State Auditor's high-risk list.
2018-19: Auditor identifies discrepancies between county and state eligibility systems tied to at least $4 billion in questionable payments.
2021: A follow-up audit estimates the same category of discrepancies caused the state to disburse $1.9 billion in questionable payments — the finding Oz's “four years ago” line appears to reference.
December 2025 (Report 2025-601): The Auditor keeps Medi-Cal eligibility on the high-risk list, finding the department “has not adequately demonstrated progress” resolving it. As of April 2025, eligibility discrepancies remain only somewhat below 2021 levels.
None of that is a fraud finding by itself — a “questionable payment” in the Auditor’s framework means a payment the state cannot adequately document as correct, the same underlying problem PERM measures nationally. But the duration is the story the soundbite skips over: this is not a fraud scheme investigators recently uncovered. It is a documented, repeatedly re-flagged administrative failure the state’s own watchdog has been unable to get resolved across two decades and three administrations, most recently confirmed unresolved five months before Oz’s July interview.
California has opened more than 100 criminal fraud charges and dozens of civil fraud cases since Attorney General Bonta took office — that's an enforcement record, not the indifference Washington keeps describing.
Where the record shifts from “unresolved oversight problem” to documented fraud, it runs through California’s Medicaid Fraud Control Unit — the state office HHS’s own inspector general periodically inspects. The most recent inspection, covering fiscal years 2021 through 2023, credits the unit with 180 indictments, 221 convictions, 65 civil settlements and judgments, and $544 million in recoveries. That is real enforcement output, and it undercuts the “did nothing” version of the story as much as the twenty-year audit trail undercuts the “nothing to see here” version.
The unit's own numbers, FY2021-23: 180 indictments; 221 convictions; 65 civil settlements and judgments; $544 million recovered.
But the same inspection found: chronic difficulty maintaining investigator and auditor staffing; “few fraud referrals” reaching the unit from California's own state Medicaid program-integrity office and its managed-care plans; outdated policy manuals; data-quality limits on investigations; delayed reporting to federal partners; and fiscal-control gaps including more than $37,000 in unsupported costs and $1.3 million in unapproved expenses.
Named, adjudicated Medi-Cal settlements (Attorney General Bonta): $10 million against a Southern California lab and clinic operator; $68 million against CenCal Health, Community Health Centers of the Central Coast, Cottage Health System, and Sansum Clinic; $70.7 million against Gold Coast Health Plan, Dignity Health, Clinicas del Camino Real, and Ventura County Medical Center.
April 2026 — Operation Skip Trace: Bonta charged 21 defendants in a $267 million hospice-fraud scheme that used stolen identities purchased on the dark web, 14 straw-owned hospice companies, and more than 130 shell companies to bill Medi-Cal for hospice care that was never provided. All defendants are presumed innocent unless convicted; roughly $30 million had been recovered as of the announcement.
Congressional testimony, June 26, 2026: California Medicaid director Tyler Sadwith told the House Energy and Commerce Oversight Subcommittee the state suspended approximately 5,000 providers over five years and recovered more than $1 billion in fraudulent payments over three years — while noting CMS's $1.3 billion deferral arrived without a single documented instance of fraud, waste, or abuse attached to it.
CMS Administrator Dr. Oz's 'feature, not a flaw' comment about blue-state Medicaid fraud is going viral — but VP Vance's anti-fraud task force has so far focused entirely on Democratic-led states, even as HHS's own watchdog has flagged enforcement gaps nationwide.
Here is the part the “feature” framing leaves out entirely. Stateline’s April 16, 2026 reporting found that despite the administration’s rhetoric, federal data does not show benefits fraud is any more prevalent in Democratic-run states than in Republican-run ones as a category. Vice President Vance’s anti-fraud task force has nonetheless concentrated almost exclusively on blue states — California, Illinois, Minnesota, Maine, and New York — and the administration has already halted payments to roughly 450 hospice and home-health providers in Los Angeles alone.
U.S. Sentencing Commission data on where benefits-fraud cases actually get prosecuted tells a similar story: the top federal districts for these prosecutions are Florida, North Carolina, South Carolina, and Texas — all red states — along with New York and Virginia. California does not lead that list. And the largest state fraud recoveries aren’t confined to blue states either: a Mississippi welfare-fraud case, unrelated to Medicaid, ended with a court ordering $101 million repaid in December 2024. None of this means California’s record is clean — the audits above stand on their own — but it does mean the “this is what Democratic states do” framing doesn’t survive contact with the national data.
The number most often paired with Oz’s soundbite in conservative media didn’t come from CMS, GAO, or the State Auditor at all. It came from City Journal, a Manhattan Institute publication, which published “Gavin Newsom’s Empire of Fraud” on April 3, 2026 — a piece by Christopher F. Rufo, a Manhattan Institute senior fellow, with Ryan Thorpe, Kenneth Schrupp, and Haley Strack. The authors applied what they called a “conservative” 15% fraud rate to Medi-Cal’s total spending since 2019 to arrive at a cumulative $146 billion figure — a method that assumes a fraud rate first and multiplies it against total spending, rather than auditing individual payments the way PERM or the State Auditor do.
The rate itself comes from named advocates, not auditors. Haywood Talcove, CEO of LexisNexis Risk Solutions for Government, put California’s Medicaid fraud rate at 20%, which he called “very conservative” — worth noting because his company sells the anti-fraud data and identity-verification tools state governments buy when they conclude they have a large fraud problem, a direct financial interest the underlying article does not disclose to readers. Brian Blase, president of Paragon Health Institute, a conservative health-policy think tank, put the range at 15% to 20%. Anonymous sources described only as “high-ranking” HHS officials reportedly offered 25%. None of these percentages has been replicated by CMS’s audited sampling, GAO’s payment-integrity reviews, or the State Auditor’s document-by-document findings — which is why this page cites them as named estimates from named advocates, not as certified government figures alongside the $37.39 billion PERM number or the $1.9 billion Auditor finding.
Watch how quickly the number moves once it leaves the original piece. City Journal’s own $146 billion estimate was built on a 15% rate its authors called conservative. Within days, Fox News’s coverage of the same City Journal reporting quoted Rufo saying “experts and HHS officials estimate that California has lost somewhere between $180 and $280 billion” — nearly double the original figure, still without a named audit behind it. That is the trajectory advocacy-sourced numbers tend to follow in a story like this one: an estimate becomes a range, the range gets rounded up in the retelling, and by the third or fourth outlet the number bears no visible relationship to the $37.39 billion CMS has actually measured or the $1.9 billion the State Auditor has actually traced.
The administration has treated the funding fight as a matter of program integrity. Vance and Oz announced the $1.3 billion deferral together in May 2026, citing roughly $630 million in disputed billing, $500 million in home-health spending, and $200 million more Oz called “questionable expenditures” he said had partly gone to cover people not eligible for Medicaid. Sadwith’s later congressional testimony countered that California’s home-care spending grew because the state deliberately shifted seniors and disabled beneficiaries out of costlier nursing homes and into cheaper in-home care — a policy choice, he argued, not evidence of fraud — and that CMS never provided documentation of fraud, waste, or abuse before freezing the money.
California’s elected officials have pushed back hard. Newsom communications director Izzy Gardon told Fox News Digital the state has revoked more than 280 hospice licenses in two years with 300 more providers under investigation, and dismissed Oz's framing in blunt terms. Attorney General Rob Bonta (D-CA) said California has “not hesitated to challenge unlawful actions by the Trump administration” and accused Washington of targeting the state “for political reasons.” Sen. Alex Padilla (D-CA) was most direct, posting that the deferral was “political retribution, plain and simple” and that “this isn’t about fraud — it’s about punishing a state that didn’t vote for” President Trump.
CMS pulled $1.3 billion from California without providing a single documented instance of fraud, waste, or abuse. Call it program integrity if you want — the state's own Medicaid director just told Congress the receipts don't exist.
Dr. Oz's 'feature' comment is the same talking point he tested on Just the News in May. It's an applause line, not an audit — and it conveniently skips every red state where benefits-fraud prosecutions actually lead the country.
Both sides are arguing from real numbers and real omissions. The administration is citing an audit trail that genuinely spans two decades and does show unresolved, documented problems in Medi-Cal eligibility oversight — while wrapping it in a national improper-payment figure it has already overstated once this year, in New York, by more than tenfold. California’s defenders are citing a real enforcement record — hundreds of millions in recoveries, thousands of suspended providers — while a national anti-fraud task force that has so far touched almost no red states makes “this isn’t about fraud” a harder argument to wave away.
Dr. Oz’s “feature, not a flaw” line is a talking point he’s used twice in eight weeks, and it isn’t the strongest evidence in this story — California’s own State Auditor is. Medi-Cal eligibility has sat on that Auditor’s high-risk list since 2007, across three governors of both parties, with $1.9 billion in questionable payments still only partially resolved as of last year. California’s fraud unit has also recovered $544 million and won 221 convictions in three years, even as the same federal inspection found it chronically understaffed and starved of fraud referrals from the state’s own Medicaid agency. What the data does not support is the idea that this is uniquely a blue-state failure: national prosecution data points to red-state districts more often than California, and CMS has already had to walk back one of Oz’s own numbers this year by a factor of eleven. The advocacy-sourced $146 billion figure making the rounds is a named estimate from named advocates, not a government finding — and readers deserve to know the difference between the two kinds of numbers in this fight.
