What Minnesota's $259M Freeze Tells Us About Where This Is Headed

Written By Sarah Meek

In Trump 2.0, CMS is changing the way it fights suspected fraud, waste, and abuse in Medicaid. And Minnesota is the proverbial canary in the Medicaid coal mine for its new offensive.[1]

On February 25th, CMS announced that it was deferring $259.5 million in federal Medicaid payments to Minnesota. This action went well beyond the state-specific program integrity interventions that were standard in previous Administrations.[2] CMS has since expanded the approach beyond Minnesota, combining data analytics, provider-level enforcement, state oversight, and payment deferrals. CMS Administrator Mehmet Oz described the strategy as an effort to stop waste, fraud, and abuse in the Medicaid program "before the check clears."

The Minnesota deferral offered an early look at how drastically CMS is changing its approach to Medicaid program integrity and what states, providers, and other Medicaid stakeholders should expect going forward. The shift is even more dramatic for those using and providing personal care services and home and community-based services (HCBS).[3]

Minnesota Was an Early Test

CMS's February action deferred $259.5 million in federal matching funds associated with Minnesota's fourth quarter FY 2025 Medicaid expenditures. CMS said $243.8 million was associated with expenditures considered unsupported or potentially fraudulent claims, and $15.4 million related to claims involving individuals whose immigration status raised eligibility concerns.

It is important to note that the Minnesota action was a payment deferral, not a permanent funding cut. CMS said the state would have an opportunity to provide documentation demonstrating that the claims in question meet federal Medicaid requirements.[4]

CMS pointed to unusually high spending and rapid growth in several areas, particularly personal care services and HCBS. The agency said it was using both traditional financial management approaches and new program integrity oversight strategies to identify those spending patterns.

The February deferral followed a January notification that CMS intended to withhold federal funding until it was satisfied with Minnesota's corrective action plan to address program integrity concerns. CMS also notified Minnesota that it would conduct a program integrity review of the state's entire Medicaid program.

With the February action, CMS demonstrated that it was prepared to use the federal payment process itself as a program integrity tool while questions about Medicaid spending are under investigation. And as you might guess, Minnesota did not remain a one-off for this CMS.

The Minnesota Model Goes National

In July, HHS and CMS announced that they were deferring an additional $199 million in federal Medicaid payments to Minnesota AND deferring $867.5 million in federal Medicaid payments to California.[5] CMS said its Minnesota review covered fourteen "high-risk service areas" and identified claims requiring additional documentation, including expenditures associated with providers flagged through program integrity reviews and claims involving potential eligibility or billing concerns.

The July announcement is significant because CMS described its actions as part of a "proactive new approach to program integrity."[6] In Congressional testimony, CMS leadership explicitly described its efforts as moving away from the traditional "pay and chase" model to a real-time approach that uses data analytics to identify potentially improper payments before they are made.

What This Means for Medicaid Stakeholders

1. Payment deferrals are now an important enforcement tool.

The Minnesota action shows that CMS will not necessarily wait for a completed audit or fraud investigation before putting federal dollars on hold. CMS continues to emphasize that these are deferrals, not permanent reductions, and that states can provide documentation supporting the claims to seek release of the funds. But the practical effect is that states will not receive their federal match in a timely manner for services that have already been provided.[7]

For states and providers, documentation and claims support are now even more consequential, not just as protection against a future audit but potentially as part of real-time federal review. States should also expect CMS to examine broader patterns of spending, particularly for services that CMS identifies as "high risk."

2. CMS is building a data-driven enforcement operation.

In April, CMS launched its Medicaid Fraud War Room, modeled on the Medicare Fraud Defense Operations Center. The War Room uses advanced analytics to identify suspicious billing patterns and coordinate action among CMS, HHS-OIG, state Medicaid agencies, and law enforcement. CMS described this as a new model of program integrity, with federal and state partners working from shared data to identify "high-risk providers."

By July, CMS reported that the War Room had identified 50 "high-risk Medicaid providers" and stopped more than $203 million in potentially improper payments[8] through coordinated federal and state enforcement efforts during its first 88 days.

Even more important than any dollar figure is the infrastructure CMS is building around this new model of program integrity, which includes continuous data analysis, targeting of providers, and rapid state intervention. That means enrollment screening, claims analytics, provider exclusions, payment suspensions, and other front-end controls are now crucial to ensuring that a state receives its federal Medicaid match.

3. "Waste, fraud, and abuse" is really about Medicaid financing and payment policy.

CMS's program integrity agenda is increasingly focused on the way states finance their Medicaid programs and structure provider payments. In May, CMS proposed significant changes to Medicaid state-directed payments, arguing that some payment arrangements exceed appropriate levels and should be subject to greater oversight. Then in July, CMS proposed changes to Medicaid provider taxes to strengthen oversight of those arrangements. Both proposals go far beyond the statutory authority granted to CMS in HR 1 and are designed to reduce the amount of money in Medicaid overall.

CMS is not just looking for a provider that billed Medicaid incorrectly. The agency is scrutinizing how states finance Medicaid, how they structure payments to providers and plans, and whether federal Medicaid dollars are producing what CMS considers appropriate value. In other words, CMS is deciding whether the underlying payment or financing structure is consistent with its political agenda.[9]

Sirens for HCBS

For HCBS stakeholders, Minnesota is particularly chilling.[10]

CMS specifically identified personal care services and HCBS among the areas where it saw high spending and rapid growth. To HCBS advocates, that growth demonstrates the success of the program and the larger move away from congregate services. But for this CMS, that spending and growth put HCBS squarely on the "waste, fraud, and abuse" radar.[11]

For HCBS providers, that could mean greater attention to billing patterns, documentation, provider enrollment and revalidation, beneficiary eligibility, and other indicators that CMS can analyze against claims data. For states, it means CMS may not just examine individual claims but scrutinize patterns across programs, providers, and payment systems.

Key Takeaway

The Minnesota deferral was not simply a dispute between CMS and one state. It was an early demonstration of a broader shift in how CMS intends to approach Medicaid program integrity, one that brings far greater scrutiny to Medicaid financing and payment policy. CMS's new definition of program integrity encompasses much more than traditional fraud investigations.

Medicaid stakeholders should be prepared for the reality that "waste, fraud, and abuse" is now code for an expansive federal Medicaid oversight agenda. And Minnesota may just be the preview.

Trying to figure out what this means for your state or organization? Book an intro call with us: pattersonandmeek.com/get-connected

Footnotes

[1] I know this is a tortured metaphor or mixed metaphor or whatever the actual term is for things like this. Just go with it.
[2] This is a professional way of saying "THIS IS NOT NORMAL!"
[3] Didn't these used to be bipartisan?
[4] Wink, wink...
[5] GASP! Who would have thought this Administration would target California?!
[6] Professional way of saying, "Watch your back, state Medicaid programs."
[7] Remember that this is all happening while states are implementing the Medicaid cuts from HR 1. Not good.
[8] POTENTIALLY improper, which means not for sure improper. So the state is out a bunch of money for something that could be legitimate. Great...
[9] If you've read this far, I think I can just be honest with you. It was never about fraud.
[10] Like really super scary.
[11] {Screams into the void}

Sources

Sarah Meek
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HR 1 and HCBS: What the Law Actually Changes