With 14 Medicaid programs’ payments on pause and their billing scrutinized, many disability service providers are concerned that a fraud crackdown could have unintended consequences. In the worst case, some service providers could shut down.

The audit and payment delays for the programs are on top of the end of one state housing program and major federal cuts to another housing program that many people with disabilities rely on. The actions are seen as threats to housing and an array of supports and services disabled Minnesotans rely on.

Gov. Tim Walz announced the Medicaid crackdown this fall, saying the steps are needed to detect suspicious billing activity and allow scrutiny of use of public funds. The effort will be in place for 90 days. A requirement of federal funding is that it be disbursed in 90 days.

“We cannot effectively deliver programs and services if they don’t have the backing of the public’s trust. In order to restore that trust we are pumping the brakes on 14 programs that were created to help the most disadvantaged among us, yet have become the target of criminal activity,” said Walz. “If you attempt to defraud our public programs and steal taxpayer dollars out from under the people who need them most – you will be stopped, and you will be held accountable.”

“We’re taking a systematic approach to finding and stopping fraud,” said temporary Human Services Commissioner Shireen Gandhi. “Adding outside review before payments go out and increasing safeguards for these high-risk services will preserve resources necessary to serve Minnesota’s children, people with disabilities and older adults.”

The Association of Residential Resources in Minnesota (ARRM), which represents more than 200 organizations providing disability services across the state, sounded the alarm about the audit. One red flag for the association is the lack of communication and service provider community engagement by DHS and Walz’s office before the audit was announced. ARRM would like to have seen the expertise and consideration of service providers being taken into account.

While ARRM supports efforts to root out fraud and protect taxpayer dollars, the association warned that halting payments for critical disability services, including individualized home supports, night supervision and integrated community supports, could destabilize an already fragile care network serving thousands of Minnesotans with disabilities.

“ARRM shares the governor’s commitment to accountability and transparency,” said ARRM CEO Sue Schettle. “But pausing payments to legitimate providers for up to 90 days is not an accountability measure, it’s an existential threat to the care infrastructure that keeps Minnesotans with disabilities safe, housed, and supported in their community.”

Schettle pointed out that Minnesota’s disability services providers, many of which operate on razor-thin margins, depend on timely Medicaid payments to meet payroll, maintain housing and deliver essential daily supports. Extended payment delays could mean direct support workers go unpaid, people with disabilities lose access to stable housing and care and providers close their doors.

“We understand the need for audits, accountability and financial oversight,” Schettle said, “but the timing and scope of this action could unintentionally harm the very people these programs were designed to protect. The state must find a way to identify and stop fraud without stopping support.”

Fraud in state-run support programs and federally funded food programs has become a political flash point in upcoming political races.

Audit funds were provided by the 2025 Minnesota Legislature. The Minnesota Department of Human Services (DHS) has contracted with the technology and health services firm Optum, at a cost of $2.3 million. Auditors will analyze Medicaid fee-for-service claims data and flag potential issues for DHS review. Problems to be looked at include missing documentation, unusually high billing patterns, or inconsistencies suggesting that a claim may not meet program requirements.

Claims flagged will then be verified by DHS to confirm whether services were provided as billed. Suspect claims will be referred to the agency’s Office of Inspector General for review and possible investigation.

Outside review of payments may result in longer wait times before providers are paid, while their claims undergo review. The state will still meet federal rules requiring payment within 90 days. But service providers argue that still creates hardship.

The services targeted in the audit are Early Intensive Developmental and Behavioral Intervention Services for Autism, Integrated Community Supports, Nonemergency Medical Transportation, Peer Recovery Services, Adult Rehabilitative Mental Health Services, Adult Day Services, Personal Care Assistance/Community First Services and Supports, Recuperative Care, Individualized Home Supports, Adult Companion Services, Night Supervision, Assertive Community Treatment, Intensive Residential Treatment Services and Housing Stabilization Services.

The latter program was already targeted for closure due to widespread fraud, drawing objections to providers who fear its end will force vulnerable people into homelessness. State officials have responded that they are at work on a replacement program.

State officials also indicated that high-risk services are also subject to stricter oversight requirements, including mandated enhanced fingerprint background studies for owners of provider agencies, initial screening visits and unannounced site visits.

Part of ARRM’s response was to call on DHS to establish a rapid review and payment continuity process for providers with clean billing histories. Another ask is for state officials to communicate clearly with providers and counties about how claims will be prioritized and released.

ARRM also asked Walz’s office to establish an emergency stabilization fund to provide short-term financial assistance to providers at risk of insolvency due to paused Medicaid payments. “Without this support, organizations may be unable to make payroll or sustain essential operations, putting individuals with disabilities at immediate risk of losing housing, care, and critical daily supports,” the association said in a statement. Minnesota’s disability services system is already under significant strain due to workforce shortages, inflation pressures, and reimbursement challenges.
“Providers are barely holding on after years of instability,” said Schettle. “An up to 90-day payment freeze could push some to the breaking point. We need solutions that protect both fiscal integrity and human dignity.”

Editor Jane McClure provides state and federal government coverage for Access Press.