Medicaid Fraud: Political Rhetoric vs. Reality

Why every state should be alarmed by what’s happening in Minnesota.

Authors: Eric Gold and Patti Boozang
Editors: Cindy Mann and Amanda Eisenberg

tl;dr

• The Trump administration has issued a formal notice to Minnesota withholding what amounts to $1 out of every $5 of the state’s federal Medicaid funding based on the administration’s claim that there is “significant and ongoing” fraud in the program. The state swiftly contested this unprecedented action and appealed the notice.

• Allegations of Medicaid fraud are the latest in a string of administrative actions targeting Minnesota, from cutting funding for its Supplemental Nutrition Assistance Program (SNAP) to targeting the state’s communities with an unprecedented enforcement effort, and even criminal investigations into its elected officials.

• States employ multiple tactics to prevent and address Medicaid fraud, including screening and credentialing providers, identifying leads through data analytics and hotlines, and investigating and prosecuting those who commit fraud. States also have strong law enforcement and financial interests in preventing and addressing Medicaid fraud and work closely with the Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General (OIG) in their program integrity efforts.

• We can’t speak to the nature of potential fraud in Minnesota Medicaid. But we do know that CMS’ unprecedented move to impose punishing financial penalties on the state’s Medicaid program breaks with long‑standing state–federal partnership norms, risks blowing up essential state and federal collaboration to combat fraud, threatens essential health care for Minnesotans, and signals a politically motivated shift that should concern all states.

The 80 Million Impact

The Administration’s Threat to Withhold 20% of Minnesota’s Federal Medicaid Funding

Throughout the debate on the budget reconciliation bill last year, Congressional leaders, the Trump administration, and organizations aligned with the administration claimed (without specifics) that there is widespread fraud, waste and abuse in Medicaid — a justification for cutting hundreds of billions of dollars from the program. Others have helpfully explained how these claims are exaggerated and why the Medicaid cuts will not reduce fraud in the program.

The administration and Republican Congressional leadership returned to the same theme at the end of the year, when they opposed extending the enhanced premium tax credits for Affordable Care Act Marketplace coverage, repeating the false claim that marketplace plans were inundated with fraud.

So, it shouldn’t be a surprise that the Trump administration has started the new year with an unprecedented attack on a state Medicaid program, repeating the refrain that the Medicaid program is awash in fraud. On Jan. 6, CMS publicly announced on social media that it will withhold more than $500 million per quarter in federal Medicaid payments to Minnesota, citing “significant and ongoing” fraud, waste, and abuse across 14 Medicaid service categories. That’s about 20% of the total federal Medicaid funding to the state, and the entire Federal Financial Participation (FFP) for the health care services at issue. Even though CMS and the state have been working together to address program integrity concerns, CMS abruptly issued a formal notice to the state the same day, saying that if the Minnesota does not submit a corrective action plan in two weeks that is satisfactory to CMS, CMS will begin withholding federal Medicaid payments until the state does so.

On Jan. 9, Minnesota responded by formally appealing CMS’ notice and requesting a hearing, detailing the ways it has been “focused on rooting out fraud, strengthening program integrity and protecting [the state’s] public programs from bad actors, all the while working closely with CMS on these issues.” The state explains that CMS’ notice did not comply with CMS’ own regulations, relied on irrelevant data that is more than five years old, and challenged the sufficiency of the state’s Medicaid plan, which CMS itself approved. Minnesota also points out that — even if there is non-compliance — there is no basis for CMS to withhold all federal dollars from 14 separate categories of benefits, including adult day services, assertive community treatment, nonemergency transportation services and others. Noting the sharp departure from the state–federal partnership that underpins the program, the state closes its appeal by stating “it is regrettable that the federal administration has chosen to weaponize the Medicaid program against the state of Minnesota for political reasons.”

This unprecedented action to withhold substantial federal Medicaid funding from a state Medicaid program — based on allegations of fraud, without an audit and while the state has been actively collaborating in good faith with CMS on corrective actions to address the concerns — merits a deeper dive.

The Facts About Medicaid Fraud

Because fraud is inherently done in secret and much of it is undetected, there are not good measurements of health insurance fraud whether in private insurance, Medicare or Medicaid. Private health insurance fraud ranges from 3%-10% of total payments, according to a 2022 Colorado State University Global White Collar Crime Task Force report that used 2019 estimates from the National Healthcare Anti-Fraud Association. CMS calculates and reports an “improper payment rate” for Medicare and Medicaid fee-for-service, which was 6.55% for Medicare and 6.12% for Medicaid in 2025. Improper payments, however, are largely driven by gaps in state or provider documentation, and the Government Accountability Office has cautioned that “estimates of improper payments cannot be used to determine the extent of fraud in a particular program.”

The facts are that there is fraud in the U.S. health care system writ large — including fraud committed against the Medicaid program, often perpetrated by organized criminal elements. Fraud in Medicaid is about the same as (or perhaps even less than) fraud in Medicare and private insurance. State and federal officials have a long history of collaboration to root out fraud in Medicaid, and more can and is being done, including by employing artificial intelligence. But withholding 20% of a state’s federal Medicaid funding will harm the program, the families it serves and the state — not help address fraud.

How States Prevent, Detect, Investigate, and Prosecute Medicaid Fraud

CMS and state Medicaid agencies each have significant responsibilities to prevent, detect, investigate and prosecute fraud, and each has comprehensive program integrity programs to carry out this important work. Much of what is done is accomplished through collaboration between federal and state agencies and law enforcement. To prevent Medicaid fraud from occurring, states conduct extensive education and training and screen and credential providers before they can apply to participate in the Medicaid programs. This helps weed out providers who are known fraudsters. For all provider claims, Medicaid agencies use utilization management techniques to review claims and ensure services are appropriate before the claims are paid. States also use “edits” in their software systems to automatically stop payment on potentially fraudulent claims.

To detect fraud, states use extensive data analytics that allow them to identify unusual billing patterns, along with audits of managed care plans, providers and the Medicaid agencies themselves. High-risk services that criminal elements are more likely to target are given special attention. Beyond that, Medicaid members, providers and others can report suspicions of fraud directly to state agencies.

Every state Medicaid agency has a fraud detection and investigation program that includes procedures for identifying suspected cases of fraud and referring them to law enforcement. Where there is suspected fraud, the agency refers the case to the state’s separate Medicaid Fraud Control Unit (MFCU) and immediately suspends all payments to the provider suspected of fraud.

Every state MFCU must meet detailed regulatory standards for staffing and certification and is responsible for investigating and prosecuting providers who commit fraud. Those MFCUs operate in all 50 states (usually in the state attorney general’s office), working in close coordination with and under the supervision of OIG. In fiscal year 2024, MFCUs recovered $1.4 billion back into the Medicaid program through nearly 500 civil settlements and judgments and 817 criminal convictions for fraud. The financial recoveries and criminal convictions are a strong caution to anyone who may be tempted to take money from the Medicaid program.

Medicaid Relies on a Collaborative State-Federal Partnership

CMS is a critical partner to states in preventing, identifying and responding to Medicaid fraud. As Minnesota’s response to CMS underscores, when program integrity issues arise, states historically engage in transparent, good‑faith collaboration with CMS to address those issues — work marked by continuous consultation, data sharing and corrective‑action efforts.

CMS’ action to initiate formal action to withhold an unprecedented amount of funds that the program relies on to provide services to eligible individuals is a sharp and concerning departure for a program that depends on state and federal collaboration. Noncompliance financial penalties can be an important tool for addressing serious issues but because financial penalties put health care services, providers and patients at risk, they are typically reserved for cases of non-cooperation or willful neglect. By moving abruptly to withhold an unprecedented amount of federal funds from a state that has been addressing the issues and regularly communicating with CMS, CMS not only breaks with established regulatory norms but also threatens to strip critical resources from the benefits and services that Minnesota Medicaid enrollees rely on. At the same time, CMS creates chaos for program leaders and staff left to grapple with the funding gap, potentially diverting their attention from oversight. This approach strikes at the heart of a core principle of Medicaid program administration: its reliance on state–federal partnership.

The Bottom Line

Medicaid supports lifesaving health care services for nearly 80 million Americans every day. Fraud is indisputably a problem across the U.S. health care system, no more in Medicaid than in Medicare or private insurance. State Medicaid agencies, working in close collaboration with other state agency and federal partners, arguably have among the most robust program integrity systems to prevent, detect, investigate and prosecute those who commit fraud, but deterring criminal elements that look for vulnerabilities in the system requires constantly evolving efforts as well as open and collaborative efforts between federal and state agencies and investigators.

CMS’ unprecedented move to withhold hundreds of millions of federal dollars from Minnesota’s Medicaid program should set off alarm bells for every state and health policy maker in the country. If CMS can disregard years of transparent, good‑faith collaboration and impose sweeping financial penalties without a current audit or clear legal grounding, no state Medicaid program is safe from similar action. Beyond breaking with decades of cooperative state–federal oversight, CMS’ action directly threatens the health care services relied upon by millions of enrollees. What’s happening in Minnesota is not a one‑state issue: It’s a warning signal about the stability, fairness and efficacy of federal Medicaid oversight.

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