Minnesota Continues to Challenge CMS On Outstanding Federal Medicaid Funds

October 15, 2026

In an October 2 letter to the Centers for Medicare and Medicaid Services (CMS), temporary Commissioner and State Medicaid Director for the Minnesota Department of Human Services (DHS) John Connolly asked for resolution on several outstanding points of disagreement, including the threatened withholding of $2 billion in future federal Medicaid funding, as well as the deferral, or freezing, of $550 million in federal Medicaid funds associated with past claims.  

CMS has imposed the $550 million deferral in a piece-meal manner. On February 25, 2026, CMS deferred $260 million to Minnesota. Despite approving Minnesota’s corrective action plan on March 19, CMS deferred an additional $91.5 million on April 29. Finally, on July 21, CMS deferred another $199 million owed to Minnesota. 

Deferrals are temporary pauses on federal Medicaid funds for past claims while CMS investigates an issue. However, if CMS ultimately determines a state’s expenditures to be unallowable (e.g., due to concerns of fraud), CMS could redetermine the deferrals as disallowances or permanent rejections. In the case that CMS issues a disallowance, Minnesota has the right to administrative appeal within CMS, then to judicial appeal through the courts.   

If CMS issues a disallowance, DHS may be required to claw-back payments already issued to Minnesota Medicaid providers, including physicians. 

Separately, CMS has threatened to issue a withhold, the freezing of federal funds for future Medicaid claims, of $2 billion to Minnesota over fraud concerns. This withhold is the matter of ongoing litigation. 

The MMA will continue to inform its members on issues related to federal funding of Minnesota Medicaid. Please contact Adrian Uphoff, manager of health policy and regulatory affairs, with questions.