Feds Freeze Another $91M in Minnesota Medicaid Funds Over Fraud

Dr. Mehmet Oz, CMS administrator, announced the deferral of $91 million in Minnesota Medicaid funding on May 4, 2026, citing systemic fraud risks uncovered in an expanded audit of fourth-quarter fiscal year 2025 billing. Of the total, $76 million targets 14 high-risk service categories like personal care assistance and home-based community services, while $14 million addresses program integrity issues, including payments to ineligible recipients. The action builds on CMS's February 2026 deferral of over $259 million in federal financial participation across similar vulnerable areas.

On April 6, 2026, the U.S. District Court for the District of Minnesota denied the state's motion for a preliminary injunction to block the initial $259 million deferral, marking the first federal ruling on such a mid-stream CMS action. The court ruled the deferral initiates an investigative process under 42 C.F.R. § 430.40, not a final decision, and rejected Minnesota's claims of due process violations, bad faith by CMS leaders like Oz and Vice President Vance, and improper retroactive conditions. Judges noted the deferred funds represent just 1.8% of projected federal Medicaid funding and that some state service disruptions stem from Minnesota's own anti-fraud measures.

Minnesota Department of Human Services Commissioner Lizotte stated the agency has aggressively combated fraud for over a year, recouping illicit payments and submitting a corrective action plan approved by CMS last month. Despite this, federal officials insist funds won't flow until Minnesota verifies billings, with Oz emphasizing, "We cannot and will not pay bad bills." Gov. Tim Walz accused the Trump administration of exploiting the state's fraud crisis for political gain, amid a DOJ probe into Twin Cities childcare centers linked to Medicaid irregularities.

The standoff threatens Minnesota's Medicaid program, which serves over 1.3 million residents including low-income families in Minneapolis-St. Paul and rural Iron Range communities. CMS vows continued collaboration but prioritizes taxpayer protection, as Minnesota navigates legal appeals and intensified audits to unlock the frozen $350 million total.