California did not report and return $113.3 million in Medicaid overpayments tied to 14 cases handled by its Medicaid Fraud Control Unit, federal auditors said in a report issued September 3, 2026. The Department of Health and Human Services Office of Inspector General recommended that the state return $47.8 million, the federal share of that amount. California’s Department of Health Care Services, which runs Medi-Cal, disputed that recommendation and argued it owes far less.
What auditors found in 26 fraud-control cases
The HHS-OIG audit, report number OAS-25-06-061, was issued September 3 and posted September 8. It examined overpayments identified by California’s Medicaid Fraud Control Unit during federal fiscal year 2023, which ran from October 1, 2022, through September 30, 2023. In California, that unit is the Division of Medi-Cal Fraud and Elder Abuse in the state Attorney General’s Office. It investigates and prosecutes Medicaid provider fraud and the abuse or neglect of residents in care facilities.
Auditors reviewed 26 cases with fraud-unit-determined overpayments totaling $231.2 million, of which $99.3 million was the federal share. Their findings broke that total into several pieces:
- California did not report or return $113,269,575 ($47,769,205 federal share) in overpayments tied to paid claims in 14 cases.
- It did not report or return $27,515 ($11,006 federal share) from one court-ordered award the fraud unit had collected.
- It reported $74.9 million ($32.1 million federal share) for 14 cases, but not within the required timeframe.
- It correctly reported and returned $43.0 million ($19.5 million federal share) for 10 cases.
One case accounts for most of the unreported money: $103.4 million, with a federal share of about $44.0 million, according to the full report.
Where Medi-Cal and Medicare overlap. Many older Californians hold both Medicare and Medi-Cal, and a statewide accounting dispute does nothing to sort out a personal bill or coverage question, which is the job the California pack among the 51 state Medicare cost-help packs in The Medicare Cost & Coverage Protection Kit is built for.
Why the money was never reported
Medicaid is paid for jointly by Washington and the states. When a fraud case recovers money, federal law entitles the U.S. government to its proportional share, and states report those recoveries on a quarterly expenditure statement, Form CMS-64. Under federal rules, when a court sets the overpayment amount in a fraud case, the state has 30 days after the final judgment to collect from the provider before it must report the amount and return the federal share, whether or not the money has actually been collected.
According to the full audit report, California officials told auditors they do not report any fraud-unit overpayment on the federal form until they receive the provider’s payment. Auditors said the state agency lacked procedures to make sure every case file reached it and relied on the fraud unit to send case files and overpayment information. Instructions the state received from the fraud unit were at times inconsistent with federal guidance on calculating the federal share, reporting court-ordered awards and meeting deadlines. A memorandum of understanding between the two agencies also gives the fraud unit up to 60 days to notify the state after a judgment, longer than the 30-day federal window.
California disputes most of the $113.3 million
In written comments, the Department of Health Care Services agreed with three of the four recommendations and rejected the first, which asked it to return $47.8 million for the 14 unreported cases. Those cases include 12 criminal cases totaling $5,484,316 and two civil cases. The state argued that one criminal judgment of $4,366,018 did not name the Centers for Medicare & Medicaid Services or any other federal agency as a restitution victim, and said it had already returned $20,023 in additional payments. By its count, the amount due on the criminal cases is $1,098,275, with a federal share of $580,090.
For the two civil cases, worth $107,785,258, the state said the final figure remains subject to adjustment depending on how the False Claims Act bonus is treated and whether CMS approves claiming administrative costs. California’s qualifying state false claims law earns it an extra 10 percentage points on recoveries, lowering the federal share.
The inspector general’s office held its ground. It said the $4.37 million restitution involved health care fraud in the state’s Family Planning, Access, Care, and Treatment program, which receives federal Medicaid money, so the federal government is owed its share. It said the state gave no documentation showing the $20,023 had been reported, and cited a 2008 CMS letter to state health officials barring states from deducting legal expenses or administrative costs before calculating the federal portion of false claims recoveries. “We maintain that our findings and recommendations are correct,” the office wrote.
What happens next, and what it means for Medi-Cal members
The dispute now moves to CMS. The report says a CMS official will allow California to submit documentation showing funds have been returned before making a final determination on the monetary recommendations. The state agreed to remit the $27,515 court-ordered award, to work with the fraud unit on revising the notification timeline in their agreement, and to update its written policies so that all identified overpayments are reported on time regardless of whether they have been collected.
The findings concern accounting between the state and federal governments. They do not change Medi-Cal eligibility, create a payment for members or require any action by patients. The overpayments at issue went to providers in fraud cases resolved through court judgments and settlements, not to enrollees. For older Californians, the relevance is in how the fraud unit’s work translates into money for the program. The same office pursues elder abuse and neglect in nursing homes and residential care, and the audit shows that money recovered through its cases does not always travel smoothly back through the books. Members with a question about their own coverage or a bill would still need to work from their own plan or county notices.
The audit is one of a series in which HHS-OIG has examined whether states returned the correct federal share of improper provider payments. Auditors did their fieldwork from April 2025 through April 2026, and the report highlights summarize the four recommendations.
A statewide audit fight leaves individual coverage files untouched
Whatever CMS decides about the disputed millions, a Medi-Cal or Medicare enrollee’s own claims, denials and prescription costs still have to be tracked one bill at a time.
The Medicare Cost & Coverage Protection Kit includes the prior-authorization appeal steps, a medication and cost tracker and the new Part D out-of-pocket cap, which together cover the paperwork side of a denied service or a rising drug bill.
Start that file with The Medicare Cost & Coverage Protection Kit.
This article was prepared with AI assistance and reviewed against the linked official sources.
Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
