Minnesota Faces $2 Billion Medicaid Funding Cut Over Fraud Concerns

(KNSI) — Minnesota is racing against the clock to avoid losing $2 billion in annual federal Medicaid funding after regulators rejected the state’s fraud prevention plan.

On December 5th, 2025, the Centers for Medicare & Medicaid Services gave the state 26 days to develop a corrective action plan to combat fraud. That plan was rejected less than a week after submission. On January 6th, CMS notified the state that it considered the corrective action plan deficient and intended to withhold the money until the state Department of Human Services met certain conditions. Minnesota officials say the reasons cited in the CMS decision letter were inaccurate and based on reports from 2019 and 2021, overlooking work Minnesota had been doing with the federal agency over the past year.

While appealing the CMS decision, the state is also working with federal officials. A revised corrective action plan was submitted to CMS on January 30th to address the federal agency’s concerns.

DHS now says it is requesting 168 qualified workers from across state agencies to help revalidate more than 5,800 Medicaid providers by summer, in an effort to persuade CMS to reconsider its decision.

The state says the revalidation process is conducted regularly for all Medicaid providers, with DHS reviewing high-risk providers at least every three years. The process includes examining provider paperwork and billing records, followed by an unannounced site visit. The announcement says 5,800 individual providers in all of the state’s 87 counties will receive onsite inspections in the next few months. While there are already people in place who conduct the visits, others will be called on to help. Training for them starts this month.

“Performing an unannounced site visit on every provider in 13 high-risk services is a major step forward in ensuring Minnesota’s Medicaid providers are of high quality and meet the requirements of the law. We’re pulling in resources from multiple state agencies to make this happen as quickly as possible,” said John Connolly, deputy commissioner and state Medicaid director. “Minnesotans need to have confidence that the money being spent on these programs is helping the people it’s intended to help.”

“We’re implementing their recommendations, and we are taking action above and beyond those requests to minimize the risk of fraud, harden our systems against bad actors, and catch fraud quickly when it does happen,” said Connolly.

State investigators say roughly $9 billion in fraud has been committed against the state since 2018. A CMS review released this month of improper Medicaid payments found Minnesota’s error rate at 2.1%, well below the national average of 6.1%. The agency reviewed billing and compared payments to medical records to verify the actual services performed.

“Even one dollar lost to fraud, waste or abuse is too much. It’s a dollar that isn’t being used to offer lifesaving or life-enhancing medical care. The State of Minnesota and CMS are both mandated by law to provide that care, and we’re committed to carrying out that mission,” said Connolly.

DHS has identified 14 high-risk services and established a licensing moratorium on new service providers in those programs, discontinued the Housing Stabilization Services program, audited Autism Service providers, including onsite visits, implemented licensure for autism centers, disenrolled inactive providers, and begun enhanced pre-payment review before fee-for-service payments are made to providers in the 13 high-risk services.

More information about Minnesota’s efforts to combat fraud can be found on the Medicaid program integrity webpage.

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