How Minnesota healthcare leaders are responding to threats over withholding Medicaid funds

Healthcare leaders in Minnesota are warning that withheld Medicaid funds will significantly impact the state’s ability to provide care.

The Centers for Medicare and Medicaid Services (CMS) sent Minnesota Deputy Commissioner and Medicaid Director John Connolly a letter on Feb. 25 saying the agency would withhold $259 million—about 7% of the state’s quarterly Medicaid budget, according to the state attorney general’s office—as part of the administration’s efforts to “crack down on fraud” in the federal insurance program.

The move comes after CMS said in January it would withhold $2 billion in annual Medicaid funding to the state over fraud concerns. The state appealed the decision shortly after, and as of publication, it has yet to take effect.

It also comes just two weeks after the Department of Homeland Security said it would end Operation Metro Surge, which was initiated, at least in part, due to fraud concerns in Minnesota safety-net programs. Thousands of agents from Immigration and Customs Enforcement had flooded the state.

CMS Administrator Mehmet Oz said the agency wouldn’t reimburse Minnesota for the $259 million until Gov. Tim Walz compiles a “comprehensive corrective action plan” to combat fraud, Minnesota Reformer reported.

Of the $259.5 million, CMS said $243.8 million was related to “unsupported or potentially fraudulent Medicaid claims” and $15.4 million was related to claims for people “lacking a satisfactory immigration status.”

State health officials are sounding the alarm in response.

“Deferring $259 million will significantly harm the state’s healthcare infrastructure and the 1.2 million Minnesotans who depend on Medicaid,” Shireen Gandhi, Minnesota’s temporary human services commissioner, said in a statement.

A press release from Minnesota Attorney General Keith Ellison’s office stated the cuts would require the state to “significantly scale back healthcare services for low-income families across the state.”

A health system’s perspective. Emily Chapman, president and CEO of Children’s Minnesota, told Healthcare Brew she “absolutely” expects the withheld Medicaid funds to impact the hospital.

More than 40% of Medicaid enrollees in Minnesota are children, despite children comprising less than a quarter of the state’s population, Chapman noted. Nearly half of the patients treated at Children’s Minnesota are on Medicaid, she added.

“There is no possible scenario whereby children who need services aren’t harmed by this,” Chapman said.

In response, she said Children’s Minnesota—which comprises two hospitals and 12 primary care clinics, and treats more than 160,000 patients annually—is partnering closely with other healthcare organizations and the state’s Department of Human Services to “shore up safety-net programs” and better understand what the impact of the withheld funds could be.

Chapman added the health system is most concerned about how the withheld funds will impact its ability to provide in-home care in addition to services patients rely on to keep out of the emergency room, like access to food.

“We’re expecting to need to be prepared to see more of these children in our emergency departments, rather than in-home care,” she said.

Minnesota’s response. Ellison filed a lawsuit against CMS on March 2 and asked the court to issue a temporary restraining order, arguing that withholding Medicaid funds violates the Fifth Amendment due process clause as well as the Administrative Procedure Act, a federal law that dictates how agencies develop and issue regulations.

In a March 2 House committee meeting, Connolly said that given past experiences with CMS, he’s concerned the agency will continue withholding $259 million each quarter for more than a year, which could “put the Medicaid program in a very difficult position.”

Walz on March 10 announced in a news conference a slew of changes to how the state administers Medicaid. Among the proposed changes are transitioning to a single administrative service organization in place of managed care organizations and putting the responsibility for overseeing Medicaid eligibility on the state rather than counties.

Zooming out. Other states may soon face similar troubles.

To date, Oz has sent letters to governors in California, New York, and Maine, requesting information about Medicaid fraud, and Republican leaders in the House Committee on Energy and Commerce announced on March 5 that they were expanding potential Medicaid fraud investigations to 10 states.

It’s also not the first instance of the Trump administration withholding healthcare-related funds. In February, the administration said it would take back more than $600 million worth of public health funds from Democratic states—California, Colorado, Illinois, and Minnesota—claiming they “do not reflect agency priorities,” the New York Times reported.

The states sued, and a federal judge temporarily blocked the action.