Gov. Walz unveils anti-fraud bill after feds halt $259 million in Medicaid to Minnesota

Democratic Minnesota Gov. Tim Walz laid out his anti-fraud legislative package on Thursday, one day after the White House paused $259 million in federal Medicaid payments to the state until a comprehensive action plan is laid out to fight fraud.

The package focuses on three main components, according to Walz's office:

• Better detection and oversight
• Strengthened investigative and enforcement authority
• Increased criminal penalties

The plan calls for the creation a state inspector general's office, the shuttering of the state human services department's beleaguered Housing Stabilization Services, ratcheting up penalties for those who steal public funds and extending the statute of limitations for fraud-related crimes.

"Any dollar of state money, especially those being used for programs to enhance people's lives, if that goes to the wrong place, is misspent, or in the case of this, criminals are stealing it, we need to do everything possible to prosecute that," Walz said.

The governor's package also lays out plans to bolster oversight of the state's managed care organizations, utilize technology to zero in on fraud at its onset, hire more internal auditors, as well as boost funding for fraud units in both the Minnesota Bureau of Criminal Apprehension and the state attorney general's office.

"The Trump administration is not serious"  

Vice President JD Vance and Dr. Mehmet Oz, who runs the U.S. Centers for Medicare and Medicaid Services, said on Wednesday the funding freeze is part of a broader national crackdown on misuse of public funds following several high-profile fraud cases in Minnesota, including the Feeding our Future scandal. They said the state has 60 days to respond.

"All we need the governor and administration of Minnesota to do is something quite simple, is to show when they're giving Medicaid funds to somebody that you're taking seriously the funds that you're providing, and the fact that there are so many people handing out millions and billions of dollars without confirming that they are doing the thing that they are doing, it's a disgrace and we are stopping it," Vance said.

Walz said Thursday the Trump administration's move "is absolutely not serious," and it's "not meant to fight fraud."

"How does taking and punishing children and elderly have anything to do with fighting fraud when that's not where this issue is taking place?" Walz said.

The governor added the Medicaid pause is "totally illegal and unprecedented."

"We're at a crossroads here in Minnesota. If you like talking about fraud and you think it's an electoral issue for you, that's gone. I'm not running. That's gone," Walz said. "If you're serious about fighting fraud, you can help us work on this package, get this package passed."

Just last month, Oz's own department released federal data showing Minnesota's rate of improper Medicaid payments, 2.1%, was well below the national average of 6.1%. 

Walz took to social media following Wednesday's Medicaid announcement, alleging it's another piece in a "campaign of retribution" against Minnesota."

"Trump is weaponizing the entirety of the federal government to punish blue states like Minnesota," Walz said. "These cuts will be devastating for veterans, families with young kids, folks with disabilities and working people across our state."

Shireen Gandhi, commissioner of the Minnesota Department of Human Services, echoed Walz's sentiment, saying the White House's announcement is "part of a broad and sustained attack."

"Deferring $259 million will significantly harm the state's health care infrastructure and the 1.2 million Minnesotans who depend on Medicaid," Gandhi said.

DFL, GOP respond

Walz's legislative package has already sparked criticism on both sides of the aisle at the State Capitol. Republican Minnesota House Speaker Lisa Demuth and floor leader Harry Niska released a joint statement in which they called the governor's news conference "indignation theater."

"Democrats in Minnesota are feeling the heat over the fraud they've enabled for years, and now they're trying to do damage control," Demuth and Niska said. "Gov. Walz would rather talk about President Trump than the culture of fraud in his agencies, which he's allowed to continue unchecked for his entire seven years in office."

DFL Senate President Bobby Joe Champion took issue with the governor's call to end "legislatively-named grants," also known as direct appropriations, which are defined by the state as "authorizations by the legislature to spend money from the state treasury for purposes established in law."

"I want to be clear: I will not vote for and will actively rally support against any bill that includes an end to direct appropriations," Champion said.

Walz's plan seeks to require grants to instead be awarded via "a competitive [request-for-proposal] process" which he says will "ensure transparency and fairness."

"Direct appropriations have not led to the fraud that our state government is confronting," Champion said. "I look forward to working with the governor on an anti-fraud package that does not actively or intentionally seek to harm communities of color and the organizations that seek to serve them."

Millions could be left in limbo

Randy Anderson, founder of Bold North Recovery, is an expert in the world of addiction recovery services. He said that providers are unsure about what the Medicaid funding deferrment will mean, given the state can only shoulder the load without being reimbursed for so long. 

"At this point, no one knows what really is happening," Anderson said. "If we have some type of promise or guarantee or whatever from the federal government, saying once they agree with our corrective action plan that they'll give us the money back, I think we're fine, but again, we don't know if any of that is going to happen. That's probably the scariest part." 

Josh Berg, who runs the nonprofit Accessible Space Inc., echoed Anderson's concerns. While an updated state budget forecast is anticipated Friday, the last check-in indicated there will be a multi-billion dollar deficit next year. 

"If this turns into a quarter after quarter withholding or deferral, then policy makers are going to have to make different decisions, tough decisions to balance the budget," Berg said. 

In a statement, mental health services provider NAMI Minnesota condemned the move from the federal government, taking the position that the withholding of funds will cripple their ability to deliver care in the long term.

"The majority of Medicaid beneficiaries live in Greater Minnesota, where providers rely heavily on Medicaid reimbursement to keep their doors open. A funding cut of this magnitude will be devastating, particularly in rural communities that already face workforce shortages and limited provider capacity. People living with a mental illness will be forced to travel hours for care — or go without it entirely," the statement reads in part.