Vice President JD Vance and Centers for Medicare & Medicaid Services Administrator Mehmet Oz have promised to crack down on Medicaid fraud and waste. The administration’s new Comprehensive Regulations to Uncover Suspicious Healthcare initiative aims to strengthen oversight and stop schemes that divert taxpayer dollars from vulnerable patients.
Vance and Oz not only have the right goal but also a concrete way to move on it: by halting California politicians’ abuse of the ambulance intergovernmental transfer loophole.
The mechanism behind this con is straightforward. A local government healthcare provider transfers funds to the state. The state then uses that money to claim additional federal Medicaid matching funds. Washington matches the spending, and the money eventually returns to the local government provider who started the process through higher reimbursements. In California, government-run ambulance providers send funds to Sacramento through Medicaid and then get them back, as laid out above, with the state pocketing the difference that Washington provides.
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Technically, IGT arrangements comply with Medicaid rules. But you can see why President Donald Trump, in his State of the Union address, singled out California, alongside Minnesota, as a hotbed of “corruption” and “plundering.” In California’s case, federal spending rises, but ambulance services don’t necessarily get any better — and ordinary folks watch a vital healthcare service stall out.
California’s ambulance con hurts both its own residents and the whole United States in three ways:
First, a reimbursement system obsessed with federal matching leaves patients by the wayside. Arrangements like this can reshape incentives across the healthcare system. When providers and governments are rewarded for exploiting reimbursement formulas rather than expanding services, “more money” no longer has to correlate with “better services.” Medicaid exists to ensure access to care for vulnerable Americans, but the IGT loophole risks — practically guarantees — resources being diverted from people who need support.
Second, ambulance IGT shenanigans hit taxpayers in every state. Federal healthcare programs are rife with fraud and improper payments, with the Government Accountability Office estimating annual losses of between $233 billion and $521 billion to these twin monsters. And though we can’t call what California’s doing here literal fraud, we’re definitely at the intersection of waste and abuse — the kind that raises taxes nationwide and which CRUSH is designed to halt in its tracks.
Third, schemes like California’s are a body blow to market competition. Only public ambulance companies benefit from the IGT loophole, saddling any company not stamped with Uncle Sam’s logo with a business-shuttering handicap. Rural communities, which already face ambulance shortages and long response times, are hit harder as government favoritism forces private companies to shut down. Worse, as market competition becomes impossible, incentives to innovate and rebuild services in communities with a less obvious return on investment evaporate.
The challenge of reform work from within the government is considerable, especially when fraud is concerned. More than a decade ago, the Congressional Budget Office estimated that additional fraud enforcement generates only modest net returns — roughly $1.50 saved for every $1 spent. The COVID-19 pandemic further exposed the scale of the problem; the Paycheck Protection Program alone is estimated to have lost up to $80 billion to fraud.
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But the Trump administration can take an easy step forward by setting its sights on the abuse that we’re seeing in California. After all, Medicaid, no matter what loopholes exist in its federal funding rules, was created to fund healthcare for those who need it most. It was not designed to serve as a revenue stream for state and county governments. So closing the ambulance IGT loophole — a simple step well within the administration’s power — solves a lot of problems without the headaches that will come with fraud investigations elsewhere.
The Trump administration must address not only fraudsters but also the financial structures that enable waste to flourish. That is why the CRUSH initiative should start on the West Coast. If Oz is looking for “suspicious healthcare,” California’s ambulance IGT loophole is the cream of the crop.
Michael Feuz is an economist who earned a master’s degree in economics at George Mason University.
