The Medicaid “Fraud Waste and Abuse” Crackdown, Phase Two
The administration is expanding its coordinated campaign to pressure states and freeze funding, recasting Medicaid as suspect and setting the table for a next round of Medicaid cuts.
Authors: Jocelyn Guyer and Julian Polaris
Editor: Patti Boozang
tl;dr
In recent weeks, the federal Medicaid fraud campaign has moved from heightened political rhetoric to expanding scrutiny on key Medicaid services in select states – potentially laying the groundwork for further cuts in Medicaid through a second reconciliation package.
In late February, CMS froze $259 million in funding for key Medicaid services in Minnesota that are used by many people with disabilities (including behavioral health issues) to remain in their homes and communities. Meanwhile, CMS expanded beyond Minnesota, sending letters to California, Maine and New York that direct states to provide extensive data and other information on Medicaid program integrity.
In March, the House Energy and Commerce’s oversight subcommittee sent its own demand letters to 10 states, repeating the same themes as CMS, and asking many of the same questions. Democratic Governors remain CMS’ exclusive focus, at least so far, but Energy and Commerce Republicans have named a few red states.
Fraud in Medicaid is real and should be taken seriously, but there is a profound difference between serious, collaborative program integrity work and a public campaign that uses fraud allegations to justify extraordinary pressure on states and to undermine confidence in Medicaid itself.
The 80 Million Impact
We have written before about the Medicaid fraud narrative and actions at the White House and on the Hill.
First came the rhetoric: sweeping claims that Medicaid is awash in fraud, deployed to support broader arguments for cuts to the program including through HR1. Second, a highly publicized and escalating attack on Minnesota Medicaid program integrity. Then the DOGE/HHS data drop: partial Medicaid claims data released without enough context and paired with messaging suggesting that anyone with a spreadsheet, an AI bot, and an agenda could easily identify fraud. Interestingly and without explanation, that data has been pulled offline for at least a week, as of this writing.
Now we are in the next phase: expanding the state targets.
Since January, when CMS threatened to withhold $515 million in federal funds from Minnesota based on program integrity concerns, CMS has announced inquiries into a new state every month: California in late January, Maine in February, and New York in March—all Democratic‑led states. Afforded little time to respond, states have nevertheless prepared comprehensive responses to myriad HHS inquiries (see Minnesota, California, and Maine response letters). President Trump and CMS Administrator Oz have signaled that additional oversight actions are expected in additional states.
On the same day New York received its CMS inquiry letter, Minnesota sued CMS over the February 25 deferral of approximately $240 million in federal Medicaid payments for already‑paid claims, a second enforcement action that CMS pursued alongside the original withholding threat, which the state has also appealed.1
Meanwhile, Republican House Energy and Commerce leaders broadened their own investigation, sending letters to ten states—California, Colorado, Maine, Massachusetts, Nebraska, New York, Oregon, Pennsylvania, Vermont, and Washington—requesting detailed information on program integrity. Fraud hits red and blue states alike, but taken together, these actions reveal a striking political pattern of federal scrutiny focused primarily on Democratic-led states, at least to date.
Services for people with disabilities and behavioral health issues are at risk.
The service areas under scrutiny are largely consistent across states, with federal officials noting increased spending over time in behavioral health, home and communitybased services, and autismrelated services. Spending on these services is rising nationwide (not just in these states) for multiple, well-founded reasons, including longstanding federal and state policy choices to strengthen access to services for mental health and substance use disorders, and to rebalance long-term services away from institutions and toward communitybased settings. In this context, an increase in state spending on behavioral health or HCBS services alone cannot and should not be treated as evidence of fraud.
The federal rhetoric also includes worrying suggestions that there is something inherently problematic about these classes of services, and not merely that it is unacceptable for bad actors to engage in fraud when delivering them (or any other services). For example, CMS leaders have raised questions about Medicaid reimbursing family caregivers (as authorized under federal law), providing transportation to medical appointments and helping people with essential activities like paying their bills. However, for people with physical limitations, intellectual and developmental disabilities, dementia, or severe mental illness, these services may be the difference between isolation and engagement, between living in a costly institution or remaining at home and in their communities.
In response, concerned stakeholders—including people with disabilities, older adults and children with autism, disability and aging advocates—have been sounding the alarm that the current fraud narratives and funding freezes risk undermining essential services and destabilizing already fragile provider networks.
The campaign is testing legal and practical limits.
Minnesota’s lawsuit is important not just because of the dollars at stake—7% of the state’s total federal funding—but also because it crystallizes the underlying concern: that CMS is using extraordinary enforcement tools in ways that threaten due process, state budgeting, and beneficiary access to services. The state argues that CMS has not adequately explained the basis for the deferral and is effectively using an immediate deferral to accomplish what it has not yet been able to do prospectively through a withholding action, which requires a hearing before imposing a penalty.
The fraud narrative is emerging as a rationale for additional Medicaid cuts.
Some Republicans are pushing for a second reconciliation bill before the midterms. While this debate goes well beyond issues related to Medicaid alone, charges of waste, fraud and abuse in the program are being cited by some as a reason to consider even further cuts to Medicaid beyond the $1 trillion cut to the program through HR1.
Real fraud detection and prosecution are undermined when politics takes center stage.
None of this is to say that fraud is fictional or that Medicaid should be insulated from scrutiny. Medicaid is a massive program, and like every large public and private payer, it is vulnerable to fraud schemes, billing abuses, and oversight gaps in some corners. Fraud hurts taxpayers, beneficiaries, and legitimate providers alike.
The traditional Medicaid program integrity model is not passive, but it is usually collaborative. States screen providers, run claims edits, monitor outliers, coordinate with law enforcement, and recover overpayments. They appreciate technical assistance from CMS, including jointly developing corrective action plans as needed. And states collaborate with CMS’s program integrity contractors as well as federal law enforcement such as HHS OIG. When there are concerns, there are established tools to address them.
What is different here is not that CMS is asking questions. It is that the program scrutiny is being announced and amplified through videos and social media, accompanied by swift and unprecedented enforcement actions, and paired with a broad political message that Medicaid is poorly run and fundamentally vulnerable to abuse.
That is exactly why this moment is so troubling. Serious program integrity is painstaking work. It depends on credible data, careful analysis, clear legal process, and sustained federal-state cooperation. It does not begin with broad insinuation, leap to public accusation, and end with funding threats untethered from transparent evidence. And it certainly does not treat spending growth as self-evident proof of fraud.
As we’ve said before, that should worry every state, including those that haven’t (yet) received any inquiry letters. Because once Medicaid program integrity becomes a vehicle for publicly discrediting the program, punishing select states, and justifying funding restraints, the real target is no longer fraud alone. It is Medicaid’s legitimacy and stability as a source of affordable coverage for nearly 80 million people.
The Bottom Line
What we are seeing now goes beyond a tightening of oversight. It reflects an intensifying campaign and punitive posture that relies on selective data, public allegations, and heightened political messaging. The risk is not simply that some states face multiple, burdensome investigations and documentation requests. The risk is that Medicaid program integrity will be recast from a shared federal-state responsibility into a pretext for destabilizing coverage, intimidating states, and weakening confidence in one of the nation’s most important sources of affordable health care.
If the goal is truly to reduce fraud, waste, and abuse, the path is not mysterious. It is disciplined oversight, analytical rigor, procedural fairness, and real partnership with states. What we are seeing instead is something else: fraud as narrative, fraud as leverage, and increasingly, fraud as a rationale for squeezing Medicaid itself.
In total, CMS is deferring $259 million. However, Minnesota’s challenge is limited to the $240 million in deferrals based on allegations related to provider fraud, waste, and abuse.
The sequencing is the tell. Rhetoric, then Minnesota, then ten states, then cite the pattern to justify more cuts. Each step references the last. That's not oversight, that's a campaign building its own evidence.
The DOGE data getting pulled offline. Actually, that deserves more weight. If it supported the claims it stays up. It came down because it was there to generate a headline and wasn't built to survive anyone pushing back.
HCBS spending rose because the policy was to move people out of institutions. Now the plan's own results are the evidence against it.
The line about CMS questioning family caregiver reimbursement is quiet in this piece but not a quiet policy.