The Flawed Policies Driving $60 Billion in Annual Medicare Waste — and the Officials Who Let It Happen
Medicare loses an estimated $60 billion every year to fraud, waste, and abuse — roughly $858 per beneficiary — according to House Ways and Means Chairman Jason Smith (R-MO)at an April 21, 2026 hearing. The government’s own ledger is only slightly more modest: the Centers for Medicare and Medicaid Services logged $56.73 billion in improper payments in FY 2025. But the Medicare Payment Advisory Commission estimates that Medicare Advantage plans alone cost taxpayers $84 billion more than traditional Medicare — driven by systematic upcoding and favorable enrollment selection. By any measure, this is the largest documented peacetime drain on a single federal program in American history.
The waste is not an accident. Four structural payment flaws baked into Medicare law — a perverse Medicare Advantage payment formula, no volume controls on physician reimbursement, a massive site-of-service payment differential, and lax provider enrollment standards — have created a system where the incentives are perfectly aligned for billing fraud and where Democratic governors and officials in the states most prone to exploitation resisted federal oversight for years. Gov. Gavin Newsom (D-CA) presided over a state where a single county generated 18 percent of all U.S. hospice billing. Gov. Tim Walz (D-MN) and AG Keith Ellison (D-MN) knew of the “Feeding Our Future” child nutrition fraud as early as 2019 and continued payments anyway. The lead defendant, Aimee Bock, was sentenced to 41.5 years in prison on May 21, 2026, and ordered to repay $240 million.
The Trump administration has launched the most aggressive Medicare fraud enforcement campaign in the program’s history. CMS Administrator Dr. Mehmet Oz announced a 50-state Medicaid revalidation audit, a six-month moratorium on new hospice and home health enrollment, and the suspension of $5.7 billion in suspected fraudulent payments in FY 2025. The Department of Justice’s Operation Gold Rush charged 324 defendants in connection with $14.6 billion in alleged fraud — the largest healthcare fraud enforcement action ever. The return: $22.30 saved for every $1 spent on program integrity.
- $60Bper yearannual Medicare fraud, waste & abuse — $858 per beneficiaryHouse Ways and Means · April 21, 2026
- $84BoverpaidMedicare Advantage overpayments — upcoding $40B + favorable selection $44BMedPAC 2025
- $14.6BchargedOperation Gold Rush — 324 defendants, largest healthcare fraud takedown everDOJ · 2025
- $10Bin 2024skin substitute billings — up 525% from $1.6B in 2022HHS OIG · 2025
Medicare’s waste problem is not primarily a failure of enforcement. It is a failure of policy design. Four structural flaws in the payment system create irresistible financial incentives for fraud and overutilization — and fixing them requires congressional action that Democratic members have consistently blocked.
Medicare Advantage plans are paid on benchmarks tied to traditional Medicare costs — but MA enrollees are systematically healthier than traditional Medicare beneficiaries (“favorable selection”). Plans then compound the advantage through upcoding: inflating diagnosis codes to make members appear sicker and trigger higher risk-adjustment payments. CMS applies a “coding intensity adjustment” of only 5.9% — compared to MedPAC’s recommended 16 to 20 percent. Result: $84 billion in annual MA overpayments ($40B upcoding + $44B favorable selection), per MedPAC’s 2025 annual report.
Congress repealed the Sustainable Growth Rate formula in 2015 (MACRA). Its replacement — the Merit-based Incentive Payment System and Alternative Payment Models — lacks any hard volume controls. The perverse result: when Medicare’s flat reimbursement rates are inadequate, physicians respond by ordering more tests and procedures to maintain revenue. The more you order, the more you collect. There is no ceiling.
Medicare pays dramatically more for the same procedure performed at a hospital outpatient department (HOPD) than at a physician office. Examples from CMS payment tables: allergy skin test — $176 (office) vs. $719 (HOPD); chest X-ray — $17 (office) vs. $66 (HOPD). The differential creates a financial incentive for hospitals to acquire physician practices and reclassify office procedures as outpatient procedures. The Congressional Budget Office estimates $157 billion in savings over 10 years from site-neutral payment reform — a proposal that hospital lobbies have defeated in Congress year after year.
HHS OIG found in November 2025 that CMS failed to properly close 50 contracts worth $11.2 billion — leaving billions at ongoing risk of fraud, waste, and abuse because ineligible or inactive providers were never removed from the payment rolls. The direct consequence is visible in the skin substitute market: spending exploded from $256 million in 2019 to $10 billion in 2024 — a 3,800% increase — primarily through Medicare Part B, with fraudulent billing concentrated among a small number of newly enrolled suppliers that CMS failed to adequately vet.
Gov. Gavin Newsom (D-CA) presided over the most concentrated Medicare fraud geography in the country. Los Angeles County alone generated 18 percent of all U.S. hospice billing — an estimated $3.5 billion in suspected fraud — from a single county. First Assistant U.S. Attorney Bill Essayli called California a “kingdom of fraud.” CMS sent Newsom a formal demand letter in January 2026 flagging the systemic billing anomaly. California AG Rob Bonta (D) dismantled a $267 million hospice ring in April 2026 — but only after years of documented overbilling.
Gov. Tim Walz (D-MN) and AG Keith Ellison (D-MN) were found by the House Oversight Committee to have known about the “Feeding Our Future” child nutrition fraud as early as 2019 and “by April 2020” — and continued making payments anyway while silencing whistleblowers. The scheme ultimately stole between $250 and $350 million in federal nutrition funds. Lead defendant Aimee Bock was sentenced on May 21, 2026 to 41.5 years in federal prison and ordered to repay $240 million.
HHS Secretary Xavier Becerra (D-CA) under the Biden administration oversaw the period in which MA upcoding and overpayments grew unchecked. FY 2024 program integrity savings under Biden/Becerra: $26.3 billion. Trump FY 2025 program integrity savings: $41.9 billion — a 59 percent jump in one year.
“Medicare loses $60 BILLION every year to fraud, waste, and abuse — $858 per beneficiary. Democrat governors like Gavin Newsom and Tim Walz allowed fraud schemes to fester.”
Rep. Jason Smith (R-MO), Chairman · House Ways and Means Committee · April 21, 2026
In 2025, the Department of Justice executed the largest healthcare fraud enforcement action in American history. Operation Gold Rush charged 324 defendants in connection with $14.6 billion in alleged fraudulent schemes — spanning durable medical equipment, home health agencies, hospice providers, and pharmacy billing networks. The operation targeted fraud concentrated in Democratic-governed states: California, Minnesota, Illinois, New York, and Michigan.
One case stood out even within Gold Rush: a Russian-linked organization that stole one million Medicare beneficiary identities and submitted $10.6 billion in fraudulent catheter supply claims. A separate Pakistan-based operation used AI-generated fake Medicare consent recordings to bill $703 million in fraudulent claims. In each case, CMS’s lax provider enrollment standards allowed the billing entities to enter the system in the first place.
“Corrupt individuals and organizations masquerading as health care providers are defrauding Medicaid and American taxpayers of billions of dollars each year.”
Dr. Mehmet Oz, CMS Administrator · February 25, 2026
The “Feeding Our Future” fraud used federal child nutrition program money — originally intended to feed low-income children during COVID-19 school closures — to funnel between $250 and $350 million to a network of shell organizations, many with ties to the Somali-American community in Minneapolis. Sites submitted meal counts that were fabricated or wildly inflated. Money was laundered through real estate, wire transfers to East Africa, and luxury goods.
The House Oversight Committee found that the Walz administration and AG Ellison were warned by state agency whistleblowers as early as 2019 and received formal internal fraud alerts “by April 2020.” Payments continued. Whistleblowers were sidelined. The fraud ran until federal investigators intervened. Lead defendant Aimee Bock, founder of Feeding Our Future, received the longest sentence: 41.5 years.
No jurisdiction in the United States matches California for concentrated hospice billing fraud. Los Angeles County — home to roughly 3 percent of the national Medicare population — generated 18 percent of all U.S. hospice billing. Investigators found hospices enrolling patients who were not terminally ill, billing for round-the-clock care never provided, and submitting claims under the names of beneficiaries who had never consented. First Assistant U.S. Attorney Bill Essayli described California as “the kingdom of fraud” in a federal court proceeding.
CMS sent Governor Newsom a formal demand letter in January 2026 requiring California to address the hospice billing anomaly. In April 2026, AG Rob Bonta dismantled a $267 million hospice ring — one of multiple such operations across the state. Trump’s administration withheld $1.4 billion from California, Minnesota, and other states pending fraud accountability reviews.
We are withholding $1.4 billion from states that have allowed rampant Medicare and Medicaid fraud to go unchecked. California, Minnesota, and others will be held accountable. The American taxpayer is not an ATM for corrupt politicians and criminal networks.
Effective today, CMS is imposing a 6-month moratorium on new hospice and home health provider enrollment in high-fraud markets. Lax enrollment has allowed fraudulent operators to enter the Medicare program and steal billions from American seniors and taxpayers. This ends now.
Medicare loses $60 BILLION every year to fraud, waste, and abuse — $858 per beneficiary. Democrat governors like Gavin Newsom and Tim Walz allowed fraud schemes to fester. American seniors deserve better than a program that hemorrhages tens of billions every single year.
VP Vance will focus on fraud EVERYWHERE, primarily in the Blue States that have been ripping off the American taxpayer for years. California — a disaster. Illinois — a disaster. Minnesota — Somalia beware! Maine, New York — all disasters. The fraud ends NOW.
Paraphrased commentary · not a verbatim post
Paraphrase of documented Trump Truth Social statement specifically naming California, Illinois, Minnesota, Maine, and New York as high-fraud states. 'Somalia beware!' is a direct reference documented in reporting on the Feeding Our Future Somali-linked fraud network in Minnesota.
Corrupt individuals and organizations masquerading as health care providers are defrauding Medicaid, and American taxpayers, of billions of dollars each year. That ends today. We are conducting the most aggressive provider audit in CMS history — all 50 states, every Medicaid recipient, every provider.
Paraphrased commentary · not a verbatim post
Paraphrase of documented public statements by CMS Administrator Dr. Oz at the February 25, 2026 War on Fraud press conference and subsequent congressional testimony.
The Trump administration has moved on multiple fronts simultaneously — enforcement, enrollment reform, and payment suspension:
50-state Medicaid revalidation audit (April 21, 2026): every active Medicaid provider across all 50 states must re-verify eligibility. Providers who fail revalidation are removed from the payment rolls immediately.
Six-month moratorium on new hospice and home health enrollment in high-fraud markets (May 13, 2026): no new hospice or home health providers may be enrolled in targeted markets while CMS conducts intensified background investigations.
$5.7 billion in suspected fraudulent payments suspended in FY 2025 before disbursement. 5,586 providers revoked — the highest single-year total in CMS history.
ROI: $22.30 saved for every $1 spent on program integrity — up from $9.40 under the Biden administration’s final year.
$14.6 billion in total fraud charged across 324 defendants — the largest single healthcare fraud enforcement action in DOJ history. Cases span Russian-linked identity theft rings ($10.6B catheter scheme), Pakistan-based AI-generated consent fraud ($703M), and domestic hospice billing networks concentrated in California, Illinois, and Minnesota.
Vice President Vance announced the “War on Fraud” initiative on February 25, 2026, establishing an interagency Anti-Fraud Task Force coordinating DOJ, CMS, HHS OIG, and the FBI. Vance personally announced the withholding of $1.4 billion from California, Minnesota, and other high-fraud states pending accountability plans.
The Congressional Budget Office has estimated the fiscal impact of the most direct structural fixes:
Site-neutral payment reform — eliminating the gap between what Medicare pays for the same procedure at a physician office versus a hospital outpatient department — would save an estimated $157 billion over 10 years. The policy has bipartisan support among health economists and has passed the House in various forms. Hospital lobbies have defeated it in the Senate every time.
Fixing the Medicare Advantage coding intensity adjustment to MedPAC’s recommended 16-to-20-percent range (from the current 5.9 percent) would recover an estimated $20-to-$40 billion annually from overpayments now flowing to insurance companies at taxpayer expense. MA plans spent an estimated $500 million in lobbying and campaign contributions between 2015 and 2024 to keep the adjustment low.
Proper provider enrollment — the single lowest-cost intervention — requires CMS to fully implement electronic identity verification, conduct background checks on beneficial owners of newly enrolled entities, and close inactive contracts within 90 days. The HHS OIG has recommended these steps in six consecutive annual reports. CMS has implemented none of them systematically.
Medicare’s $60 billion annual waste problem is not a mystery and it is not an accident. It is the product of four structural payment flaws that create textbook fraud incentives, a decade of inadequate enforcement under administrations that deprioritized program integrity, and Democratic governors in the states most prone to exploitation who resisted federal oversight while fraud networks metastasized. The Trump administration’s enforcement surge is producing measurable results — $41.9 billion in FY 2025 program integrity savings, the largest healthcare fraud takedown in history, and a 59 percent jump in recoveries over the Biden era’s final year. The structural fixes — site-neutral payment, a corrected Medicare Advantage coding adjustment, mandatory provider revalidation — remain stalled in Congress. Until they pass, Operation Gold Rush is enforcement playing whack-a-mole against a system built to be defrauded.