The head of Minnesota’s Medicaid program is cautioning that despite the federal government’s approval of the state’s corrective action plan, $3.1 billion in federal Medicaid funding is still at risk. A federal court ruling last week cleared the way for the Centers for Medicare and Medicaid Services (CMS) to continue deferring $260 million in quarterly reimbursements for Medicaid claims the state has already paid out.
“This deferral disrupts Minnesota’s health care services. If not reversed, a quarterly deferral of $260 million will dramatically impact our health care delivery systems,” said John Connolly, deputy commissioner of the Minnesota Department of Human Services and state Medicaid director. “This disruption will increase with every additional deferral. It could blossom into $1 billion annually given CMS’ admitted expectation that it will issue more deferrals and each deferral will likely take several quarters to resolve.”
An analysis by the Minnesota Department of Human Services demonstrates how the cuts will impact the entire state, potentially devastating rural health care providers.
The $260 million deferral is equal to the cost of providing health insurance for 35,000 children for an entire year. That amount of funding would also cover all pharmacy services for kids under 18 years of age for 12 months.
Going forward, CMS is continuing to withhold up to $2 billion annually in future Medicaid funding. Combined with the funding already being held back, Minnesota could see a $3.1 billion annual shortfall in health care spending. The state is appealing that withholding and working to provide the documentation necessary to lift the quarterly deferral of $260 million. However, Connolly says Minnesota health care providers have to be prepared for a shortfall.
COUNTY RESIDENTS ENROLLED IN MEDICAID
26.2 percent of Polk County residents are currently on the Medicaid program. Norman County has 26.1 percent enrolled, Kittson County has 24.9 percent enrolled, Red Lake has 21.6 percent enrolled, Marshall County has 20.6 percent enrolled, Pennington County has 19.1 percent enrolled, and Roseau County has 18.7 percent enrolled.
FINANCIAL COSTS TO COUNTY HEALTHCARE PROVIDERS
The financial impact on healthcare facilities in northwest Minnesota will be major. In Polk County, it will mean $12,561,616 less in funding. Pennington County will see a decrease of $4,679, 928, Roseau County will have a decrease of $3,676,771, Norman County will see a decrease of $2,204,370, Marshall County will see a decrease of $1,837,334, Kittson County will see a decrease of $1,187,473, and Red Lake County will see a decrease of $393,161.
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WORKING TO RELEASE MEDICAID FUNDING
How much funding is deferred or withheld, and for how long, will depend on CMS. At a February press conference CMS Administrator, Dr. Mehmet Oz, stated that Minnesota would receive the deferred fund after Minnesota “proposes and acts on a comprehensive corrective action plan to solve the problem.” CMS approved the revised corrective action plan in March, and even noted Minnesota had already met the first two milestones, yet CMS refuses to uphold its commitment and release the $260 million deferral.
“For the past 18 months, we have engaged with CMS staff in an intensive effort to harden our systems against fraud. They’ve agreed with us on the policies and procedures needed, and we’ve implemented changes they’ve suggested. But the goalposts keep moving. Rather than work with us to fight fraud while protecting programs, CMS is taking actions that punish Minnesotans who need these services,” said Connolly.
However, Connolly says the state is continuing to make progress. The centerpiece of the approved corrective action plan is an effort called Minnesota Revalidate. By May 31, 2026, Minnesota will have reviewed 5,538 Medicaid providers in its 13 high-risk program areas. Each will either be revalidated to bill Medicaid or have received a disenrollment notice from the program.
“We are going to keep working with CMS to implement our plan and then continue improving our systems to offer services more efficiently, and harden our systems against fraud, waste and abuse,” said Connolly. “We are working to become a national leader on fighting fraud, and taking care of Minnesotans who need quality, lifesaving and life-affirming health care.”
Since the fall of 2024, the Minnesota Human Services Department has introduced new processes and reforms to detect and prevent fraud by:
- Identifying 14 high-risk services and establishing freeze on new service providers in those programs
- Discontinuing the Housing Stabilization Services program
- Auditing autism service providers, including onsite visits
- Implementing licensure for autism centers
- Disenrolling inactive providers
- Beginning enhanced pre-payment review before fee-for-service payments are made to providers in 13 high-risk services
- Conducting onsite visits of 5,583 providers of high-risk services by the end of May 2026
