State Appeals Federal Government’s Withholding of $2B in Medicaid Funding

January 15, 2026

On January 13, the Minnesota Department of Human Services (DHS) announced that it is appealing the decision by the Trump Administration to withhold more than $2 billion in annual Medicaid funding for Minnesota. 

Dr. Mehmet Oz, administrator for the Centers for Medicare & Medicaid Services (CMS), announced the withholding in a social media video last week. Oz alleged Minnesota has failed to take action to fight fraud in the state’s Medicaid program. 

“These sweeping allegations and unprecedented actions are not based on facts,” said John Connolly, human services deputy commissioner and Minnesota Medicaid director. “The move is counter to federal regulation and would destabilize health care across our state.” 

Since October 2024, DHS has enhanced its continued work to stop fraud in Medicaid programs, identify risks, and harden programs to prevent bad actors from accessing them. That work is ongoing, but to-date actions include: 

• Identifying 14 high-risk services and establishing a program integrity dashboard for the public 

• Auditing autism service providers, including on-site visits 

• Discontinuing the Housing Stabilization Services program 

• Establishing a moratorium on adding new service providers in the 14 high-risk services 

• Beginning enhanced pre-payment review before fee-for-service payments are made to providers in the 14 high-risk services, and 

• Developing plans to review and revalidate providers in the 14 high-risk services. 

The state acted to meet or exceed the steps CMS requested in a December letter to address program integrity concerns. However, Oz has now deemed the DHS’s actions inadequate — without time for state and federal agencies to discuss and agree upon a corrective action plan. 

The state has formally appealed the CMS decision. The federal agency must now set a date for a hearing. (Here’s a link to a request to participate in the hearing on the issue.) 

Details and updates on the DHS’S program integrity work are available on the agency’s Medicaid program integrity webpage.