Trump administration pauses Minnesota Medicaid funds over fraud claims

The Trump administration will hold back $259.5 million in Medicaid funding from Minnesota while it reviews alleged fraud, Vice President JD Vance said Wednesday. The move could put pressure on payments tied to the health program for low-income residents and is part of a broader federal push President Donald Trump has branded a national fight against fraud.

Vance announced the action alongside Dr. Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services. Vance said the administration wanted Minnesota to meet its obligations in protecting taxpayer money.

Oz said the federal government would release the money only after the state proposes and carries out a corrective action plan. He said Gov. Tim Walz, a Democrat, would have 60 days to respond, and he directed worried providers and Medicaid recipients to contact the governor’s office.

State officials dispute the action

Walz rejected the administration’s explanation in social media posts, saying the funding pause was political punishment rather than a fraud response. He said the cuts would harm veterans, families with young children, people with disabilities and working Minnesotans.

Minnesota Attorney General Keith Ellison said his office has secured more than 300 Medicaid fraud convictions since he took office in 2019. Ellison also said he had asked state lawmakers earlier Wednesday for more staffing and legal authority to fight Medicaid fraud.

Ellison warned that Minnesota may sue if the federal government withholds money intended for the state’s Medicaid population. He said 1.2 million low-income Minnesotans rely on Medicaid.

CMS said in a release that the paused funding includes about $244 million in unsupported or potentially fraudulent Medicaid claims and roughly $15 million in claims involving people who lacked satisfactory immigration status. CMS spokesperson Catherine Howden said the agency’s review could include sampling claims for federal compliance and seeking additional information about specific claims.

CMS also said Minnesota could face up to $1 billion in deferred federal funds over the next year if it does not meet federal requirements. Akeiisa Coleman of the Commonwealth Fund called the deferral highly unusual and said provider payments, and potentially care, could be affected if the state lacks enough money.

Broader federal fraud push

Oz said CMS is also acting against suspected fraud in Medicare. He said the agency would block new Medicare enrollments for six months for suppliers of durable medical equipment, prosthetics, orthotics and related supplies.

The Health and Human Services inspector general found last year that Medicare improperly paid suppliers nearly $23 million for durable medical equipment from 2018 through 2024. The inspector general also found that most of the improper payments occurred before system changes that began in January 2020.

Oz announced a crowdsourcing effort to gather tips and ideas from the public on fraud. Trump, in his State of the Union address Tuesday, said Vance would lead a national “war on fraud.”

The Minnesota dispute follows several fraud cases in the state, including the Feeding Our Future case, in which prosecutors have alleged $300 million was stolen from pandemic aid meant for school meals. Federal scrutiny has also focused on alleged fraud involving day care centers run by Somali residents in Minneapolis, which the Associated Press reported preceded an immigration crackdown and protests in the city.

The administration has threatened funding cutoffs for other Democratic-led states over fraud concerns. Judges have blocked some of those moves, including actions involving social service payments to Minnesota, California, Colorado, Illinois and New York, and a separate effort tied to food aid data from 22 states.

This story draws on original reporting from Fortune.