The Minnesota Department of Human Services told Becker’s Oct. 15 that it may need to claw back funds from Medicaid providers if it faces a disallowance from CMS in the coming weeks.
CMS has deferred $550 million in Medicaid funds to the state, according to an Oct. 2 letter from Minnesota DHS Temporary Commissioner John Connolly that Becker’s obtained. CMS has also proposed deferring $2 billion annually in Medicaid funds to the state. A May 2025 KFF report said the state’s total Medicaid spending was $18.5 billion, which included $11.8 billion in federal funding.
Leading up to 2026, Minnesota designated 14 “high-risk” service areas and paused payments during a third-party audit. CBS News reported in March that federal prosecutors estimated the amount of fraud could top $9 billion across multiple Medicaid programs in the state, even though Gov. Tim Walz disputed that figure.
Minnesota DHS said the state has fulfilled the requirements of a corrective action plan that CMS previously approved. The letter asked for clarity on reaching a resolution.
“CMS administrative actions including withholds, deferrals or potential disallowances are different and do not establish fraud,” the letter said. “These administrative actions frequently involve unresolved claims, documentation questions, eligibility concerns or other issues that have not been and ultimately in most cases are never established as fraudulent.”
Starting Jan. 30, 2026, following CMS guidance, Minnesota paused enrollment for new Medicaid providers across 13 programs. The state eventually extended that for 12 of the 13 in July, with the other service area’s pause scheduled to end Oct. 31. The letter said Minnesota also discontinued its Housing Stabilization Services benefit and completed an off-cycle revalidation process for providers, reviewing more than 5,000 in the 13 services.
In March, the state filed a federal lawsuit over the funding concerns. The case has been stayed, with the stay extending until at least January.
CMS told Becker’s it is committed to protecting Medicaid and does not comment on pending litigation.
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