CMS Warns Minnesota Over $1B Medicaid Fraud Risking Federal Funding

Centers for Medicare & Medicaid Services (CMS) Administrator Dr. Mehmet Oz has issued a warning to Minnesota Governor Tim Walz regarding potential federal funding cuts due to alleged significant Medicaid fraud within the state. Dr. Oz highlighted that over $1 billion may have been stolen through a fraud scheme involving fraudulent activities in Minnesota's Medicaid programs, specifically pointing to abuses within the state's Somali community. The fraud reportedly involved misuse of funds for luxury purchases and possibly diversion of money to foreign terrorist organizations, raising concerns over program integrity and oversight failures. The CMS administrator criticized the state’s handling of two Medicaid initiatives—the Housing Stabilization Services program and the Early Intensive Developmental and Behavioral Intervention program—both of which experienced dramatic cost increases inconsistent with original budget projections. CMS has intervened to freeze enrollments and shut down the most severely impacted programs pending state corrective actions. Dr. Oz has mandated Minnesota take corrective steps within 60 days to address these discrepancies and improve program integrity; failure to comply could result in the suspension of federal Medicaid funds to the state. These actions follow reports that state officials had previously notified CMS about fraud but did not take sufficient measures to prevent ongoing abuses. The allegations have prompted federal investigations, including a Treasury Department probe into the diversion of Medicaid funds to terrorist organizations, reflecting increased federal scrutiny on states experiencing Medicaid compliance challenges. These developments highlight heightened regulatory enforcement aimed at preventing large-scale fraud that jeopardizes Medicaid financial sustainability and beneficiary protections. Minnesota’s Medicaid program oversight is under significant pressure as federal authorities emphasize accountability and strengthened compliance mechanisms to restore public trust and ensure taxpayer funds are appropriately used. The case underscores the broader challenges faced by states to maintain rigorous controls amid complex service delivery frameworks and diverse provider networks. Governor Walz has yet to publicly respond to the CMS directive.