Minnesota braces for Trump administration cuts to state Medicaid funding due to fraud, demands transparency on federal data analytics tools

As Minnesota state officials brace for a disallowance from the Centers for Medicare and Medicaid Services in the coming weeks, according to sources from the Minnesota Department of Human Services, they’re calling for more transparency from the Trump administration into the tech and data used to make those decisions.

CMS has threatened to withhold $2 billion in Medicaid funding annually and has already frozen $550 million in deferrals over the past several quarters, including an initial $259 million when the Trump administration announced the crackdown in February 2026. 

Temporary state Medicaid Commissioner John Connolly sent a letter, reviewed by StateScoop, to CMS Administrator Mehmet Oz last week outlining the state’s ongoing program integrity work and requesting information related to the state’s corrective action plan and ongoing deferrals, accuracy in public communications regarding fraud and administrative actions, and renewing their partnership to strengthen transparency. 

Connolly said the claims under review for that deferral are from July to September 2025, and that CMS has not shared what amount, if any, will be disallowed related to the fourth quarter fiscal 2025 deferral. 

“We’ve continued to advance our program integrity work, have met all the Corrective Action Plan requirements from CMS, and still have not heard from Administrator Oz or CMS leadership about a path toward resolution,” officials told StateScoop. 

CMS identified 870 Minnesota providers for fraud or aberrant billing practices using historical billing information and CMS data analytics. In the letter, Connolly says federal officials have described the technology as including “machine learning and AI capable of analyzing Medicaid claims.”

Minnesota is asking CMS to disclose the criteria and methodology used to designate providers as high-risk, as well as the technology involved in the data analytics, because the state needs the underlying evidence to determine whether it should take action.

“Minnesota requests that CMS provide all evidence supporting allegations of fraud it has identified, including the criteria, methodology, use of machine learning, artificial intelligence, or fraud detection analytics of any kind used to identify suspected fraud, so the Department of Human Services can evaluate the evidence and take appropriate action,” the letter states.

The letter also highlights broader federal-state data sharing challenges. 

Minnesota said it has the authority and infrastructure to withhold payments and investigate providers, but needs CMS to first share the information generated by its fraud-detection systems before it can act.

“We stand ready to stop payments and routinely take this action when credible evidence supports it,” Connolly’s letter states.

As states prepare to implement new Medicaid work requirements under last year’s budget reconciliation law, the Center on Budget and Policy Priorities, a Washington think tank, found that policy may be arriving faster than state systems can handle. Millions of people could lose Medicaid coverage, the report argues, not because they fail to meet requirements, but because they struggle to navigate reporting systems or encounter administrative barriers. Without more time and clearer federal guidance, states risk deploying aging or overburdened systems that are not fully ready. 

The dispute in Minnesota follows months of the U.S. Department of Justice’s Minnesota Health Care Fraud Takedown, which resulted in February criminal charges against 15 defendants, including owners of child care centers and various Medicaid providers in Minnesota. Last week, two Minnesota men pleaded guilty to defrauding Minnesota’s Housing Stabilization Services program out of more than $500,000 by submitting fraudulent claims for Medicaid services that were never provided.

In response, Gov. Tim Walz signed a bipartisan measure in June that creates new governance structures, provides funding for the technology upgrades and establishes grants for counties to develop their own modernization projects. The new law establishes a Human Services Systems Modernization Advisory Council designed to bring together state agencies, county representatives and other stakeholders to coordinate future IT projects.

President Trump also established an anti-fraud task force in March to better vet the “vast benefits system for [U.S.] citizens in need that includes housing, food, medical care, cash assistance, and more.”

“CMS, the White House Fraud Task Force, and other officials continue to publicly tout billions of dollars in alleged fraud they are uncovering nationally, while blurring the line between actual criminal fraud and the administrative actions they are taking in Minnesota,” Minnesota Medicaid officials said. “We are expecting them to blur this line when they make their next announcement about Minnesota’s Medicaid program in the coming weeks.”