Minnesota sued the Trump administration late Monday for withholding $243 million in payments to the state over allegations of fraud within the state’s Medicaid program.
In the lawsuit, Minnesota Attorney General Keith Ellison argues that the Trump administration’s actions violate the Fifth Amendment’s right to due process as well as the Administrative Procedures Act’s prohibition against arbitrary and capricious actions by federal agencies. The suit is in response to a move last week by Vice President JD Vance to indefinitely pause, or defer, allocated federal funding.
While there is a typical process that can result in deferred funds, “deferral has never been used to categorically deny funds to a state across entire service areas, as is being done here,” Minnesota argues in the suit. Minnesota says it has only heard vague assertions of noncompliance from the federal government despite the state’s Medicaid fraud rate being “dramatically lower” than the national average, according to the Centers for Medicare & Medicaid’s own reporting.
More than 1.1 million Minnesota residents are enrolled in Medicaid, including 42 percent of the state’s children, with the federal government paying for more than half of the cost, according to the state. The $243 million amounts to a 7 percent cut across the board to the state’s Medicaid program, the Minnesota Department of Human Services estimated.
“Unless the deferral is quickly reversed, the state will be irreparably harmed,” the suit says.
Ellison filed suit two days before he and Minnesota Gov. Tim Walz are scheduled to testify on Wednesday in front of the House Oversight and Government Reform Committee about fraud within Minnesota’s social services programs. The House Energy and Commerce Committee is also investigating the state’s Medicaid program after a CMS audit.
The state has been a target of the administration across several fronts, including an influx of federal immigration agents into Minneapolis that led to the shooting deaths of two U.S. citizens in January. A reduction in those forces was announced last month.
The funding pause is part of a broader pattern of the Trump administration attempting to claw back health care funding from Democrat-led states. Courts have often blocked the actions, or the administration itself has quickly reversed them.
Just before the funding freeze was announced, Minnesota introduced a new legislative package to fight fraud in its Medicaid program. A new statute would increase penalties for public fraud by 20 percent, extend the statute of limitations for certain crimes and establish an Office of the Inspector General aimed at statewide fraud prevention.
‘Political vendetta’
Minnesota Democrats say the Medicaid pause feels like a targeted attack.
“Let’s be clear. This is not a new thing. Let’s also be really clear that Minnesota has been getting after the issues of fraud for years,” Sen. Tina Smith said in a brief interview. “So the president wants to hate on Minnesota. And who is he punishing but families and veterans and people living with disabilities? It’s completely unacceptable, and it feels like a political vendetta to us.”
Medicaid disputes between states and the federal government are usually solved through the CMS disallowance process, which is kicked off by an audit from the Department of Health and Human Services’ inspector general. The agency can retroactively deny federal matching funds for state expenditures that violate a law or policy, with the state paying back those funds, after much back and forth. Each party also has the ability to appeal.
The goal with the process is to correct any fraud or improper payments without disrupting a state’s Medicaid program and care that its enrollees receive.
At least 14 states have contested disallowances proposed by CMS over the last five years. Joan Alker, executive director of the Center for Children and Families and a Research Professor at the McCourt School of Public Policy at Georgetown University, noted the unusual nature of this dispute.
“It’s not that there isn’t a problem here,” she said. “It’s that the federal government and the state should be working together to solve this problem. And typically, what you would see is the Feds would identify problems and they would ask the state to submit a corrective action plan.”
These back-and-forth negotiations can take years, Alker said. In contrast, the administration sent a letter to Minnesota in December giving officials 30 days to respond.
States usually have policies to ride out temporary issues within Medicaid program budgets. It’s unclear how long, though, before Minnesota runs out of money to pay managed care organizations.
The lawsuit says the state would be required to “significantly scale back healthcare services for low income families across the state or other government services” if the court does not stop the cuts soon.
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