Minnesota DHS to pause licensing adult day care centers as agency investigates "kickbacks"
The Minnesota Department of Human Services is implementing a two-year moratorium on new licenses for adult day care centers in response to an uptick in providers that exceeds the number of people who need services. And there could be similar actions taken within other state programs.
Shireen Gandhi, temporary commissioner of the agency, said Tuesday that over the last 10 years, there has been a 7% increase in the recipients adult day services, which support older Minnesotans and people with disabilities. That is much lower than the 43% increase in capacity growth over the same time period.
The temporary moratorium on new licenses for adult day services — which will begin Feb. 1, 2026, and last through Jan. 31, 2028 — will "allow DHS to focus on program integrity and regulation compliance with the currently licensed providers," Gandhi explained.
The move comes as the agency is under scrutiny for its response to fraud in state Medicaid programs. Federal prosecutors filed criminal charges against providers of both autism treatment services and housing stabilization services, a program that was recently shut down.
Officials also revealed that they are also investigating "kickbacks" or financial incentives to get individuals to switch from one business to another.
"It's my understanding from talking to investigators and licensers that they've been approached by good or quality providers that are saying, 'Hey, my business is being tampered with, and I suspect that my competitors are paying my recipients or people receiving my services to come to their business,'" said James Clark, the inspector general within the agency. "Kickbacks are a sign that there's an oversaturation of providers. When there is not a way to drum up legitimate business, providers try to drum up illegitimate business by potentially paying recipients to come do business with them."
A day after the announcement, adult day services were in focus at the Wednesday meeting of the Minnesota House Fraud and State Agency Oversight Committee, where Gandhi and Clark testified about their decision to press pause on new licenses and took questions from lawmakers.
That program is on a list with 14 others deemed "high-risk" for fraud. The governor's office recently hired a third-party to conduct audits of provider billing for those services.
Clark told lawmakers that more provider enrollment pauses are likely coming in the "near future," following a letter from the U.S. Centers for Medicare and Medicaid Services to DFL Gov. Tim Walz asking his administration to halt that process for those high-risk programs or federal Medicaid funding could be in jeopardy.
"These licensing and enrollment pauses are an important tool that we can use to make sure and prevent provider oversaturation and the problems and the problems that come along with provider oversaturation," Clark said.
Rep. Walter Hudson, R-Albertville, asked why there is a discrepancy between providers and participants — if more providers come online to meet a perceived need in the community. Gandhi previously said with the number of providers available today, they can serve 3,000 more people than are currently enrolled in the program.
"How do you get established as an adult day provider in the first place if there's nobody that you need to take care of?" Hudson asked.
John Connolly, deputy DHS commissioner and state Medicaid director, responded that businesses do not need to demonstrate that there is a high demand for their service in order to seek a license for many programs.
But Clark said he thinks the Legislature ought to consider making a "needs assessment" a requirement for all of them.
"I think that would help with this excess capacity issue that we're seeing because we have a marketplace where there's excess capacity, there's not a way to drum up legitimate business," Clark said. "If profit is your motive, you're going to figure out ways to drum up illegitimate businesses. So that's why we've seen allegations and we're investigating allegations of kickbacks in the adult day program area."
Qualifications in order to be a provider in the first place vary by program in state law, Clark explained. He suggested that the state raise those thresholds for getting licensed so there is more vetting on the front end before fraud can take place.
"We do not have the staff at DHS. We do not have the technology to be looking over everyone's shoulder, verifying every attendance record, making sure that every bill that is submitted to us is appropriate," Clark told lawmakers. "We need to be able to trust the providers that they are doing the right thing. So what can we do on the front end to make sure that we weed out as many untrustworthy providers as possible?"