Minnesota’s Department of Human Services is appealing a decision by the administration of President Donald Trump to withhold more than $2 billion in Medicaid funding from the state in 14 programs deemed to be at high risk for fraud.
The move comes after Centers for Medicare and Medicaid Services head Dr. Mehmet Oz announced that the federal government would seek to cut off funding to Minnesota due to fraud in state programs. As of Tuesday there is no set date for that to happen, state officials said.
Oz said CMS would cut off around $515 million in quarterly Minnesota Medicaid funding for 14 “high-risk” programs after his agency demanded the state take corrective action on fraud last month. Oz demanded that the Department of Human Services place a six-month freeze on enrollments in high-risk providers and confirm existing providers’ legitimacy.
In their appeal, state officials are seeking to have the funding freeze reviewed at an administrative hearing at the federal level.
Federal official: ‘Deep rot’ in Minnesota’s social service system
While the state has made changes, including cutting off new licenses and provider enrollments in more than a dozen programs at high risk for fraud, federal officials ultimately found the changes unsatisfactory.
“We were disappointed to find that our draft corrective plan was summarily rejected in an unprecedented way, with little substantive analysis of the facts and no time for the state and federal agencies to discuss and agree upon a corrective action plan that would be implemented,” said Minnesota Medicaid Director John Connolly during a Tuesday media briefing.
In announcing CMS’s decision in a video on social media last week, Oz accused the state of not being forthcoming with federal officials.
“We’re increasingly worried about the deep rot within Minnesota’s Medicaid and Social Services system, which are supposed to protect the most vulnerable Americans,” Oz said. “The more we uncover, the more it becomes clear it’s much worse than we were led to believe by state government officials.”
State’s objections
Minnesota Human Services is disputing the legality and legitimacy of Oz’s announcement. In a Jan. 9 letter responding to the threat of federal funding cuts, Connolly detailed the state’s objections to Oz’s decision.
“There are no facts to support the withholding of all federal dollars for fourteen separate benefits. Even if plan noncompliance is proven at hearing, CMS’s withholding should be limited to the scope of noncompliance,” he wrote. “There is no basis to eliminate funding to the benefits entirely. Also, even if CMS’s intent is to eliminate all funding for these benefits, CMS has miscalculated, and overstated, the federal quarterly share.”
Minnesota Medicaid provides benefits for 1.2 million people overall, including about 592,000 children, according to Human Services.
The funding freeze also could place significant strain on the state budget, said Shireen Gandhi, the agency’s temporary commissioner.
“Unfortunately, CMS’ recent decision to withhold Medicaid funds is putting the people whom both agencies are sworn to serve at risk,” Gandhi said.
Changes to 14 high-risk programs
Human Services started making changes in 14 programs deemed to be at high risk for fraud soon after Oz demanded changes in December.
State officials first said they would stop accepting license applications for adult day care providers from Feb. 1 to Jan. 31, 2028. The move came amid allegations of fraudulent activity and allegations of kickback schemes in the program. Licensing is the process of getting authorization to operate.
Adult day services is one of 14 programs undergoing a third-party audit after being deemed high risk by state officials in the fall of 2025.
State Human Services officials stopped issuing licenses for new home and community-based services providers on Jan. 1, a pause that also will likely extend for two years.
The expanded freeze announced Thursday will apply to the rest of the operating Medicaid-funded state programs deemed high-risk.
They include: Early Intensive Developmental and Behavioral Intervention Services for Autism; Integrated Community Supports; Nonemergency Medical Transportation; Peer Recovery Services; Adult Rehabilitative Mental Health Services; Adult Day Services; Personal Care Assistance/Community First Services and Supports; Recuperative Care; Individualized Home Supports; Adult Companion Services; Night Supervision; Assertive Community Treatment; Intensive Residential Treatment Services; and Housing Stabilization Services.
One of the 14 programs, Housing Stabilization Services, is no longer operating. Human Services ended the program in October after learning of a federal investigation into allegations of significant fraud.
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The U.S. Attorney’s Office has said there is significant fraud in federally funded programs in Minnesota, though the exact amount remains up for debate.
Former Assistant Minnesota U.S. Attorney Joe Thompson in December said fraud in the 14 high-risk Medicaid programs could top $9 billion since 2018, though Gov. Tim Walz has pushed back against that figure, calling it “defamation” of the state as it has not been backed by hard evidence.
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