Feds threaten to slash Minnesota Medicaid funds amid ongoing fraud probe

Minnesota is facing threats that the federal government may withdraw funding for Minnesota’s Medicaid program until it cleans up its law Amid investigations into several alleged fraud schemes Which the social services system in the country suffers from.

Minnesota is under intense scrutiny as President Donald Trump has called Minnesota a “hub for fraudulent money laundering activity,” due to several major fraud schemes targeting the state’s Medicaid program, and other federally funded programs that feed children. More than 80 people have faced charges in the state in connection with these schemes.

Chris Edwards, the Kelts family chair of financial studies at the libertarian think tank the Cato Institute, said: Federal and state funding programs They are ripe causes for fraudulent activity.

“Federal state aid programs are particularly vulnerable to fraud and scams because the feds essentially pay for them,” Edwards said in a Tuesday email to Fox News Digital. “States manage and don’t care much about waste because the Fed pays. States will have a greater incentive to run effective programs if they are funded by state taxes. States must balance their budgets every year, so politicians must make trade-offs and focus on efficiency.”

“By contrast, the federal government runs a massive deficit, so politicians don’t care much about waste,” Edwards said. “There’s a double problem with state aid programs: States don’t care about the waste because it’s federal money, and the Fed doesn’t care either because it’s running huge deficits.”

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A protester holding a sign to protect Medicaid lights up the Capitol amid the budget standoff, on May 07, 2025 in Washington, DC. (Lee Vogel/Getty Images for Intergenerational Care)

This series of alleged fraud schemes involves a program stemming from a new program known as the Housing Stabilization Services Program, which offered… Medicaid coverage For housing stabilization services in an effort to help people with disabilities, mental illness, and substance use disorders obtain housing.

the Ministry of Justice Fewer than a dozen people have been charged so far for allegedly defrauding the program run through Minnesota’s Medicaid service, but more charges are expected.

Additionally, the Trump administration and lawmakers launched investigations into a $250 million “Feed Our Future” fraud scheme in Minnesota that allegedly targeted a child nutrition program funded by the Department of Agriculture and overseen by Minnesota during the COVID-19 pandemic. At least 77 people have been charged in the scheme, which took advantage of the USDA’s decision to waive some requirements of the Federal Child Nutrition Program.

However, some fraud cases in Minnesota have collapsed, and a Hennepin County judge overturned Abdelfattah Youssef’s conviction in a Medicaid fraud case in November. Minnesota Attorney General Keith Ellison announced in August that Youssef was found guilty of six counts of aiding and abetting theft by fraud, alleging that Youssef used his agency Promise Health Services, LLC to fraudulently obtain Medicaid funds for services that were not provided or were billed based on inaccurate documentation.

Minnesota relies on the federal government for a large portion of its funding. In 2023, federal funding for Minnesota’s Medicaid program totaled $11 billion — equivalent to about 58% of the total federal funding Minnesota receives, according to the House Energy and Commerce Committee. Ultimately, the federal government covers approximately 51% of Medicaid costs in Minnesota.

In each state, the federal government apportions Medicaid costs using the federal Medicaid percentage formula, which is calculated by comparing a state’s per capita income with that of the United States. The percentages that determine how much the federal government covers vary from state to state, with the federal government absorbing between 50% of Medicaid costs in states like California and Colorado, and up to nearly 77% in Mississippi, according to the Congressional Research Service.

A report alleges that Minnesota taxpayer money was diverted to the terrorist group Al-Shabaab

It’s unclear exactly how many federal dollars were spent on fraudulent providers in Minnesota. The US Centers for Medicare and Medicaid Services told Fox News Digital on Tuesday that the review will examine how federal funds are being used.

“CMS is using all of our resources to investigate and address this egregious fraud scheme in Minnesota. As part of a comprehensive audit, CMS will isolate the extent of these funds being misused,” CMS spokeswoman Katherine Howden said in a statement to Fox News Digital. “Given the complexity of this situation, coupled with Minnesota’s lack of transparency, this review will be complex and time-consuming.”

The Minnesota Department of Health and Human Services did not respond to a request for comment from Fox News Digital by deadline.

It’s easier than ever for criminal gangs to participate in these fraudulent schemes, Edwards said, due to the fact that benefits and subsidies are now paid automatically via federal computers, rather than through paper forms.

“The only solution is to move these federally funded programs to the states and allow them to be funded,” Edwards said. “There is no magic money tree in Washington. Welfare programs must be funded and managed at the state level.”

Tim Walz was called out by The Washington Post for refusing to take responsibility for the Minnesota fraud scandal

In September, the Department of Justice announced that it had charged eight defendants with wire fraud for their roles in the Housing Stabilization Services Program’s medical fraud scheme. Acting US Attorney Joseph Thompson said in a statement that the charges represent the “first wave” expected in connection with the case.

“I want to be clear about the scope of the crisis,” Thompson said in a statement in September. “What we’re seeing are schemes stacked upon schemes, draining resources for those in need. It seems like it never ends. I’ve spent my career as a fraud prosecutor, and the depth of fraud in Minnesota takes my breath away.”

In July 2022, Minnesota launched the Housing Stabilization Services Program, which provides Medicaid coverage for housing stability services. But instead, the defendants in September took “millions of dollars in program funds that were intended to compensate for services provided to these people” and “misappropriated” them, according to the Justice Department.

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Tim Walz speaks on stage during the 2025 SXSW Conference & Festival at the Austin Convention Center on March 08, 2025 in Austin, Texas. (Tiberna Hobson/Getty Images)

Despite the housing stability services program The program was expected to cost $2.6 million annually, and the program paid $42 million in 2022, $72 million in 2023, and $104 million in 2024.

Ultimately, a federal investigation found that several program providers had defrauded the system by obtaining the names of eligible program beneficiaries from addiction treatment centers and other facilities, then used those individuals’ information to submit false reimbursement claims — ultimately fraudulently collecting taxpayer money, according to the Justice Department.

He is among those charged in September in connection with the Housing Stabilization Services Program Mukhtar Hassan Aden, 30 years old; Mustafa Dayeb Ali, 29; Khaled Ahmed Deeb, 26; And Abdel Fattah Mahmoud Muhammad, 27 years old. Together, they allegedly registered Brilliant Minds Services LLC in Aden as a housing stabilization program service provider in April 2022, then claimed to provide reimbursable counseling services, the Justice Department said.

In total, Brilliant Minds submitted reimbursement claims amounting to $2.3 million between September 2022 and April. All defendants allege She received between $300,000 and $400,000 between April 2023 and May 2025 through Brilliant Minds, according to the Justice Department.

Treasury Secretary launches investigation into alleged Minnesota tax money funding Al-Shabaab terrorist group

Director of the Centers for Medicare and Medicaid Services (CMS). Mehmet Oz issued a stern warning to Minnesota Gov. Tim Walz on Friday, threatening to cut federal funding for Medicaid unless Minnesota restores the “integrity” of its program.

Specifically, Oz said more than $1 billion had been stolen through the alleged fraud scheme within Minnesota’s Somali community, and asserted that some of the money “may have reached the Somali terrorist group (Al-Shabaab).”

“Our people at CMS told me they had never seen anything like this in Medicaid — and everyone from Gov. Tim Walz down should be investigated because they were asleep at the wheel,” Oz said.

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Centers for Medicare & Medicaid Services (CMS) Director Dr. Mehmet Oz on Friday warned Minnesota Gov. Tim Walz that the state could lose federal funding for Medicaid if it does not “restore the integrity” of its program. (@DrOzCMS via X)

Walz’s office did not immediately respond to a request for comment from Fox News Digital.

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As a result, Oz said, Walz should send weekly updates on anti-fraud measures to the Centers for Medicare and Medicaid Services, freeze enrollment of high-risk providers for six months, verify that all current providers are “legitimate” or remove them, and send a corrective action plan to CMS to prevent future fraud within the next 60 days.

“If we are not satisfied with the state’s plans or cooperation, we will stop paying the federal share of these programs,” Oz said.

Fox News’ Sophia Compton and Brian Depesch contributed to this report.