In a betrayal of trust that has siphoned billions from American taxpayers, New York state officials were accused of gaming the Medicaid system for decades — forcing hospitals to fund their own federal matches in a scheme that authorities under President Donald Trump are none too pleased with.
Dr. Mehmet Oz, head of the U.S. Centers for Medicare and Medicaid Services, on Tuesday fired off a scathing letter to New York Gov. Kathy Hochul, obtained by Newsmax, demanding answers to 50 questions about the state’s bloated $124 billion Medicaid program.
Oz painted a picture of rampant waste, fraud, and abuse, noting that New York spends a staggering $12,528 per beneficiary — 36% above the national average — and nearly 80% more per resident than any other state.
In his letter, Oz zeroed in on skyrocketing costs in home care, adult day care, non-emergency transportation, and behavioral health services.
But the real outrage, insiders say, lies in a deeper racket: state officials allegedly defrauding the federal government — and, by extension, taxpayers nationwide — through manipulative funding loops.
At the heart of this is the Disproportionate Share Hospital (DSH) program, designed to help safety-net hospitals serving the poor and uninsured.
A leaked legal memorandum from a prominent attorney’s office lays it bare: Public benefit corporation hospitals like Nassau University Medical Center (NUMC) cannot legally transfer non-tax funds to the state or county to cover the non-federal share of DSH payments.
Federal law bars such moves if they’re not from bona fide state or local taxes, but that’s exactly what whistleblowers claim happened at NUMC, Long Island’s largest hospital, with 80% of its patients relying on Medicaid.
For more than 20 years, the state allegedly forced NUMC to pony up $50 million annually as the “non-federal share,” only to get it back alongside the federal match — making it look like the funds went to the hospital when they actually propped up Albany’s budget.
This shell game cost NUMC over $1 billion, crippling its finances, and racking up a $1.4 billion deficit by late 2024.
The scandal erupted when Megan Ryan, NUMC’s former CEO, unearthed the scheme in 2024 and filed lawsuits to reclaim the funds. But Hochul, facing exposure, allegedly orchestrated a hostile takeover.
In May 2025, her administration pushed through budget provisions seizing control of NUMC’s parent board from Nassau County Executive Bruce Blakeman, a Republican rival. Ryan and other executives were ousted, contracts with suing law firms canceled, and the litigation dropped.
Newsmax learned Tuesday that CMS, the entity run by Oz, is readying a social-media video explaining to the masses what it is now investigating.
Ryan fired back against Hochul with a countersuit for retaliation and defamation, calling the moves a power grab to “consolidate political power” and potentially shutter the hospital for private development.
An FBI probe into the allegations kicked off in April 2025, with Blakeman cooperating amid claims of stolen documents and break-ins tied to the scandal.
House Oversight Committee Chairman James Comer has taken the fight to Washington. In a Jan. 16 letter to Oz, Comer demanded a briefing and formal guidance on DSH funding sources, blasting New York for “misrepresenting the source of the non-federal share” to trigger federal dollars.
“Whistleblowers report that the State has concocted a scheme by which it has forced a safety net hospital to reimburse the State’s portion of the Medicaid match, despite telling the federal government the DSH funds had gone to the hospital,” Comer wrote.
His press release that day tied it to broader probes into fraudulent programs, like Minnesota’s $9 billion, or more, theft scandal. Comer’s team has partial documents from Hochul’s office but demands full compliance.
This isn’t just a New York problem — it’s a taxpayer travesty with national tentacles. Insiders whisper that if the state pulled this with NUMC, it may have done similarly with New York’s roughly 200 DSH-eligible hospitals, nearly all of which receive such payments.
Extend that to other cash-strapped blue states, and the fraud could balloon to tens of billions over a decade, affecting over 2,000 DSH hospitals nationwide that serve the most needy.
Hannah Anderson, senior director of policy at the America First Policy Institute, sees it as part of a rotten system.
“Medicaid fraud diverts resources from vulnerable patients and steals from taxpayers, so accountability should apply regardless of position or party,” she told Newsmax.
On whether this is isolated to NUMC, she said: “Medicaid’s financing structure has long created opportunities for abuse if guardrails are weak. Just look at what’s happening in Minnesota.”
Anderson warned that it’s likely the tip of the iceberg, urging leaders to “demonstrate leadership to restore public trust” rather than look the other way.
Still, she defends the programs’ purpose.
“Matching programs exist to ensure states can support hospitals that serve high-need populations,” Anderson said. “The goal is to stabilize care access for low-income patients. The problem is not necessarily the existence of matching funds, but the complexity and opacity of some financing mechanisms.”
The probe comes amid a torrent of revelations about criminal schemes bleeding the system dry. Federal prosecutors have nailed cases like a $68 million Brooklyn fraud ring involving kickbacks for phantom home care services at adult day care centers, and another where 10 defendants billed Medicaid for nonexistent home health aide work.
Oz highlighted a 121% spike in non-medical transportation spending in recent months, warning of “coordinated fraud” where the same providers bill for day care and rides that may never happen.
Hochul’s office pushed back, touting reforms that saved $2 billion by cracking down on wasteful middlemen in home care programs. They accused Republicans of plotting to gut health services for the vulnerable.
But no one in Hochul’s administration — or from the Department of Health and Human Services, NUMC, or the FBI — would speak to Newsmax on the record for this report.
While no public figure has explicitly called for arrests of Hochul or others, Anderson didn’t hold back.
“If investigators determine that officials or hospital administrators knowingly misrepresented expenditures or manipulated funding structures to improperly draw federal Medicaid dollars, then prosecution would be warranted,” she said.
As Oz’s probe ramps up alongside Comer’s, the push for real accountability grows; thus, the questions that Oz demanded answers to from Hochul on Tuesday, including: “How does the state coordinate with law enforcement to address systemic vulnerabilities and pursue recovery of improper payments? What are the recent results of such coordination? What tools are used to detect improper provider screening, enrollment, and revalidation across locations?”
Oz gave Hochul and her team 30 days to supply him with answers.
