How California Overcharges Medicaid For Ambulance Services

Removing California’s brazen use of federal money to prop up its state and local budgets would demonstrate to Medicaid recipients that there are indeed ways to trim the budget without jeopardizing their treatment.

This article was written by Ike Brannon and originally published by California Business Journal.

There is a long and sordid history of states and localities gaming Medicaid rules to get more money from the federal government and alleviate their budget shortfalls. California seems to be better at it than most, which I suspect is true because its enormous long-term public pension shortfall and already sky-high taxes incentivizes it to hoover up every dime it can, and its large bureaucracy means it has more civil servants available to look for potential ways to game the federal government.

One particular game California plays in this regard has to do with ambulances.

In most locales (whether in California or elsewhere), there are public and private ambulance systems. For instance, my small hometown in Central Illinois contracts its ambulance services to a private provider that also covers several neighboring communities. Sharing a service is more cost-effective for my town than if it took the ambulance system in-house.

However, California eschews private ambulance services and has been moving to replace them with publicly-run services for several years. (I wrote about that trend here.) Moving ambulance services from a private to a municipally-run service is typically less cost-effective: If the workers become public employees, their compensation increases significantly because of the overly generous pension benefits–especially so for California public safety workers.

However, California has figured out a way to essentially abuse Medicaid reimbursement rules. In 2022 it proposed a change in the system that increased the reimbursement rate for Ground Emergency Medical Transport covered by Medi-Cal by over $800. However, this increase only applied to government providers.

Predictably, private ambulance providers have been pushed aside as governments took steps to exploit the higher public rate by bringing these services in-house. Publicly-run ambulance services do not deliver better services or improve public health in any way, so there is absolutely no benefit to the public from this move.

Soon after, fire departments across the state discovered a better way to exploit the rule: By firing their private ambulance services and then rehiring them as subcontractors at the same rate they received as private ambulance providers. This way, a local government receives the sharply higher reimbursement rate but without incurring the higher costs of making the EMTs who work in the ambulance public employees. Its costs haven’t gone up at all, so the higher reimbursement rate is, in effect, the equivalent of profit for the fire department and its community. Getting paid much more for the exact same services is almost the textbook definition of a racket.

Medicare and Medicaid are in a perilous financial situation: Together, the government spent more than $1.6 trillion on the programs in 2024, and the Medicare Hospital Insurance Trust Fund is on track to be depleted in a decade. Together, the two constitute one-fourth of the entire federal budget, and it is impossible to seriously address our country’s shortfall without taking serious steps to make these programs more affordable and productive.

With Congress and Elon Musk’s DOGE contemplating ways to reduce Medicaid spending, some people fear that the result of such efforts will inevitably be a reduction in the ability of poor people to access affordable medical care. What California’s public ambulance gambit demonstrates is that there are plenty of things that can be done to reduce Medicaid expenditures without jeopardizing patient care.

Removing California’s brazen use of federal money to prop up its state and local budgets would demonstrate to Medicaid recipients that there are indeed ways to trim the budget without jeopardizing their treatment.