CMS Left $1.6 Billion in Medicaid Payments Unresolved for Years

Every quarter, states tell the federal government exactly what they spent on Medicaid, and the federal government is supposed to check the math before sending its share.▸ A June 2026 audit⧉ by the Department of Health and Human Services' Office of Inspector General found that CMS, the agency responsible for that check, had let $1.6 billion in disputed Medicaid payments -- 145 separate cases -- sit unresolved as of March 2023, more than 100 of them stretching back years. Separately, in fiscal 2024, OIG audits caught $764.7 million more in Medicaid overpayments across eight states that CMS's own review process never flagged at all.

States report actual Medicaid expenditures within 30 days of each quarter's end on a form called the CMS-64⧉; CMS's job is to confirm the numbers are real, allowable, and charged at the right federal matching rate.▸ When an analyst can't confirm a claim, CMS can defer -- freeze -- the payment rather than approve or reject it outright. Federal regulation⧉ gives a state 60 days (120 with an extension) to produce supporting documents; if the state then misses a follow-up 15-day cure period, the rule is not discretionary -- "the current Designee disallows the claim." CMS then has 90 days to rule on whatever the state did produce, after which it must pay the claim anyway, subject to being clawed back later.

On paper, that adds up to well under a year before a disputed claim gets an answer one way or the other.▸ OIG found CMS's actual internal policy quietly loosens both hard stops: it lets states extend past the 120-day document deadline without limit, and it does not require CMS to disallow a claim when a state blows through the 15-day cure period. The audit's own language is direct: CMS's "policies and procedures did not adhere to the resolution timelines set forth in Federal regulations."

As of January 1, 2023, CMS had 144 unresolved deferred payments worth almost $1.5 billion.▸ By March 31, it had resolved four of those and opened five new ones -- netting out to 145 cases and over $1.6 billion, tied to 20 distinct unresolved issues. Of those 145, 118 trace to problems CMS itself first flagged in fiscal 2020 or earlier: this is not a backlog of paperwork moving through a normal queue, it is a pile of old disputes that keeps getting slightly larger.

Three examples the audit names by issue, not by state, show how far "unresolved" can stretch.▸ One state has had 53 separate deferred payments over a single recurring Medicaid waiver dispute running from fiscal 2014 through fiscal 2020 -- almost $139 million, still open as of July 2024, with CMS saying it was still waiting on answers to its own questions. A second state has had over $20 million frozen since fiscal 2017 while CMS waits on documentation. A third has nearly $32 million tied up for a reason entirely inside CMS's own control: the money is frozen behind a state Medicaid plan amendment from 2011 that CMS itself had, as of July 2024, still not finished approving.

A frozen claim is at least a claim CMS caught.▸ The audit's Appendix B lists eight separate OIG performance audits completed in fiscal 2024 -- each finding a state had claimed federal Medicaid money it should not have, and none of it surfaced through CMS's own quarterly review. Combined, the eight total $764,743,953: Pennsylvania's $551.4 million for improperly claimed school-based-program funds accounts for 72% of that by itself, followed by New Mexico ($119.1 million, nursing-facility capitation), California ($52.7 million, capitation for noncitizens with unsatisfactory immigration status), and five smaller cases in North Carolina, South Carolina, Alabama, Delaware, and Colorado.

The audit traces both failures to the same root causes.▸ CMS's 76 analysts, split across two regional branches, work from a review guide last revised in January 2022 -- but the training manual meant to teach them how to use it has not been updated since 2015, and OIG found the analysts' own work papers inconsistent enough, state to state, that it could not confirm every required review step was actually performed. On the disallowance side, CMS logs cases in a single spreadsheet that multiple divisions are separately responsible for updating; it took CMS "several months and attempts" just to hand OIG a current list of its own disallowed payments and their status.

For scale: CMS's own FY2023 financial report⧉ estimates the national Medicaid improper-payment rate at 8.58%, or $50.33 billion, against $536.58 billion the program paid correctly.▸ The $1.6 billion stuck in CMS's deferral backlog is a small slice of that -- about 3% -- but it is a different kind of failure than most of the $50.33 billion. Most of that figure is error CMS's measurement process never caught in the first place; the $1.6 billion is money CMS's own review already caught, froze, and then simply never closed out.