Before Taxing Wealth for Healthcare, California Should Stop Wasting Medi-Cal Money

Supporters of California’s Proposition 40 say the state needs a massive new tax on billionaires to save Medi-Cal from federal funding cuts. But before California reaches further into taxpayers’ pockets, shouldn’t it make sure the $220 billion Medi-Cal program is spending its existing money responsibly?

A damning new report from the California State Auditor suggests the answer is no. The report, released October 15, documents improper payments, questionable transportation claims, and inadequate oversight of potentially fraudulent providers.

These findings raise an uncomfortable question for Proposition 40 supporters: How much additional money does Medi-Cal really need, and how much could be saved by eliminating fraud, waste, and excessive payments?

Proposition 40 is being sold as an emergency response to federal Medicaid reductions enacted by Republicans in 2025. Yet the emergency may be over before the tax takes effect.

Congressional Democrats have pledged to reverse Medicaid cuts if they regain control of Congress in November’s election, as now seems likely. Reversing the cuts would still require assent from President Trump, but that should not be difficult to obtain simply by holding hostage some of his spending priorities.

Meanwhile, California has already developed alternative Medi-Cal revenue sources.

In June, the Legislature restructured the state’s managed care organization tax through Senate Bill 125, which Gov. Gavin Newsom signed on June 29. Starting in 2027, it charges every health plan, public and private, $8.85 per enrollee monthly and is projected to raise $2.3 billion annually. The budget also anticipates 2027 legislation that will impose a new fee on large employers whose workers receive Medi-Cal. 

At the local level, Santa Clara County voters approved a 0.625% sales tax intended to offset anticipated federal health care reductions. The tax took effect in April. Los Angeles County followed with Measure ER, a 0.5% Medi-Cal sales tax expected to raise approximately $1 billion annually for five years.

Before imposing yet another tax, California healthcare advocates ought to account for these revenue sources and show voters that current Medi-Cal dollars are being spent effectively.

The State Auditor’s latest findings offer a remarkable window into Medi-Cal’s weak financial controls.

During fiscal year 2024-25, more than 130 medical transportation providers received nearly $31 million in excessive reimbursements. Providers billed mileage at nonemergency ambulances rate, $3.55/mile even though their vehicles were ordinary taxis or wheelchair vans, billable at $1.30/mile.

Even more astonishing was the activity of one provider operating with a single registered vehicle. The provider claimed to have transported 35 beneficiaries in one day using that vehicle driving one of those clients 300 miles.

The Department of Health Care Services, which administers Medi-Cal, failed to adequately investigate numerous high-risk providers.  The auditor also identified payments to providers who had become ineligible to participate in Medi-Cal years earlier.

Another troubling example emerged from a May investigation by NBC Bay Area.

Reporters uncovered allegations that taxi drivers were paying Medi-Cal beneficiaries to travel to a methadone treatment clinic in Menlo Park rather than use facilities closer to their homes.

Patients described receiving cash payments from drivers. Because transportation companies were reimbursed by the mile, taking patients on longer trips could generate substantially more revenue.

During just three months, Medi-Cal paid for more than 22,000 trips to or from the Menlo Park clinic. Those rides accounted for 92% of the trips to the four approved methadone treatment programs in Santa Clara County.

Some patients reportedly traveled as far as 100 miles round-trip despite living close to alternative treatment facilities.

Outright fraud is only part of the problem. California also maintains reimbursement arrangements that appear to reward government agencies for charging far more than private providers for comparable services.

Consider the Public Provider Ground Emergency Medical Transportation program, or PP-GEMT.

Under this arrangement, fire departments and other public ambulance providers can receive substantial supplemental Medicaid payments financed through intergovernmental transfers.

In 2024, the state-authorized reimbursement for an eligible public ambulance transport included a $1,049.98 supplemental payment on top of a $118.20 base rate, totaling $1,168.18. A later state proposal sought to raise eligible public-provider reimbursement to nearly $1,600 per transport.

By comparison, a private ambulance reimbursement benchmark was approximately $339.

And transportation is not the only Medi-Cal service vulnerable to abuse.

In April, DHCS officials announced that they had uncovered a large-scale hospice fraud scheme involving stolen identities and claims for services never provided.

The scheme involved 14 fraudulent hospice providers and more than $267 million in improper billing. Authorities reported recovering more than $70 million and bringing criminal charges.

While DHCS touts this and other enforcement actions, it nonetheless recognizes that Medi-Cal’s improper payment rate exceeds 8%, equating to about $17 billion annually.

Not all improper payments are fraudulent, and the examples described here do not establish that eliminating waste and fraud would fully offset the federal Medicaid reductions. 

But these cases, and Medi-Cal’s long-terms residency on the state auditor’s list of high-risk programs, suggest that a lot of program integrity savings are possible.

Before voters pump tens of billions more into Medi-Cal they should have some assurance that the hundreds of billions we already spend are not being wasted.