Minnesota Asks CMS to Explain by October 15 How It Flagged 870 Medicaid Providers as High Risk

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The answer matters for the more than 1.2 million Minnesotans who rely on Medicaid and the providers who serve them. Federal officials have now frozen about $550 million in payments to the state through three quarterly deferrals, and the state warns that the uncertainty could disrupt legitimate care.

Fraud claims tied to the deferrals have not been proven. A deferral is an administrative hold on federal funds while CMS reviews claims, not a finding that fraud occurred.

In the state’s letter to CMS administrator Mehmet Oz, Temporary Commissioner and State Medicaid Director John Connolly said CMS deferred $195.7 million in second-quarter claims. About $42.5 million of that came from the 870 providers CMS flagged using historical billing and its own data analytics.

Connolly wrote that CMS shared the list but has not explained the criteria, data or analytics behind it, or whether machine learning or artificial intelligence was used. The letter also asks for the criteria behind what Oz, at a July 21 HHS briefing, called claims that “smell like fraud,” and asks when CMS will share evidence so the state can impose its own payment withholds.

Another $153.2 million in deferred claims, the larger share, involved providers who were enrolled when they billed but later received termination notices. The state says more than half of those providers have since been revalidated.

Minnesota has identified 14 Medicaid services as high risk, now 13 after the state ended its Housing Stabilization Services benefit. Autism service providers have been audited, including on-site visits, and the state has placed a moratorium on new providers in the remaining high-risk services.

For families, the immediate concern is continuity. Legitimate providers can face cash-flow strain when payments slow, and the letter stresses that care for Medicaid members must be protected during program integrity work. The letter does not describe any service cuts tied to the 870 flagged providers.

The stakes could grow. Federal officials may formally withdraw up to $259 million in frozen payments, and the administration has threatened a separate $2 billion cut, according to the Washington Sun’s report on Minnesota’s budget preparations. Minnesota DHS has already appealed the federal plan to withhold $2 billion. Connolly told the Sun that a permanent clawback could force tough choices reaching beyond Medicaid to areas such as public health.

CMS has framed its actions as part of a crackdown on Medicaid fraud, and individual fraud cases are real. On Oct. 7, a federal jury convicted Sharmaine Meadows, 45, of Lake Elmo, on three counts of health care fraud. Prosecutors said the state’s now-defunct housing program paid her company about $3.6 million from 2020 to 2025 for services that were not actually provided, the Justice Department announced. “My office is committed to prosecuting those who steal from the American taxpayer,” said U.S. Attorney Daniel N. Rosen.

Minnesota’s letter agrees that fraud harms patients and taxpayers but argues that the federal figures blur important lines. Deferrals, withholds and disallowances are administrative tools, the state says, not findings of fraud.

Andy Schneider, a senior adviser at CMS during the Obama administration, told the Washington Sun the approach has no precedent. “They have done to Minnesota what CMS has never done to any other state,” he said. CMS declined to comment on its plans or on what information it has given the state.

MedicalDaily previously reported when the federal government froze more than $1 billion in Medicaid payments to California and Minnesota over fraud claims. Since then, the frozen total for Minnesota has grown, and the state is now demanding the data behind it.

The key unknowns are whether CMS will answer by Oct. 15, what its analytics show, and whether any of the 870 flagged providers will face formal fraud allegations. Minnesota sued over the first deferral. A judge declined to issue a preliminary injunction, and a stay remains in place through early January.

Oct. 8, 2026: The Justice Department announces a Minnesota housing program fraud conviction (DOJ).

Oct. 2, 2026: Minnesota DHS asks CMS to explain its methods by Oct. 15 (DHS letter).

July 21, 2026: HHS announces more than $1 billion in deferrals to Minnesota and California (cited in DHS letter).

Medicaid members should keep using their providers and contact their health plan or county office if a provider changes services. Anyone who suspects billing fraud can report it to the state or to the HHS Office of Inspector General.

What is Minnesota asking CMS? The state wants the criteria and data CMS used to flag 870 providers as high risk, and it asked for answers by Oct. 15.

How much money is frozen? About $550 million across three quarterly deferrals, including $195.7 million in the second quarter.

Have the flagged providers committed fraud? That has not been shown. Deferrals are administrative holds, not fraud findings.

Will Medicaid patients lose care? The state’s letter does not describe service cuts tied to the flagged providers and says protecting care is a priority.

What has CMS said? CMS declined to comment on its plans for Minnesota’s Medicaid funds.

Is there proven fraud in Minnesota Medicaid? Yes, in individual cases. A Lake Elmo woman was convicted Oct. 7 in a scheme that took about $3.6 million from the state’s housing program.