Minnesota officials push law change to make it easier to withhold payments to providers facing fraud claims

Minnesota officials told a panel of lawmakers on Monday that a recent change allowing state agencies to withhold payment to providers facing fraud allegations is falling short of its goals of stopping funds from going out the door sooner rather than later.  

Last year, the Minnesota Legislature on a bipartisan basis changed statute so state agencies  "may withhold payments" to program participants for up to "60 days" if there is a "preponderance of the evidence" showing fraud. 

But that may not be helping in the way that lawmakers hoped it would as Minnesota aims to crack down on fraud in public programs, said Erin Campbell, commissioner of Minnesota Management and Budget. 

"What the governor feels very strongly about is that we get legislation passed that actually puts us in a position to be able to withhold payments. That's not where we are today," Campbell told the House Fraud Prevention and State Agency Oversight Committee, which reviewed the governor's anti-fraud proposals during a hearing Monday.

She said the Walz administration wants lawmakers to make it easier to stop payments by lowering the evidentiary threshold and removing the 60-day limit. Current law, she explained, ties some agencies' hands, forcing them to wait for an investigation before they can turn off the tap. 

Meanwhile, the Department of Human Services, which oversees Medicaid programs that have been determined as high-risk for fraud, can act on a "credible allegation" — a lower bar.  Last year, the agency issued more than 500 payment pauses, which is a 240% increase over 2024, according to agency data. 

A bipartisan bill primed for a House floor vote would mirror the "credible allegation" language that applies to DHS.

Rep. Kristin Robbins, the Republican chair of the committee, expressed concern that the definition in the proposal says such a claim has been "verified by the head state agency."

"That suggests that there has been an investigation, whereas what we'd always been concerned about is if there's a real allegation of fraud, you can take action even if there hasn't been a thorough investigation," she said. 

Campbell said Minnesota Management and Budget believes existing law is the "weaker standard" that requires the investigations in question.

"That has proven to be problematic and not useful," she said. "So what we're coming back this year is with something we believe is stronger, will be more useful and is in line with some of our partner agencies already have."

In a separate Senate committee on Monday, lawmakers advanced a bipartisan bill that would beef up the staff of the attorney general's Medicaid Fraud Control Unit with more investigators and attorneys to crack down on fraudsters. It would also boost criminal penalties for high-dollar Medicaid fraud cases.

The additional staff will help the office handle the growing number of fraud referrals they received, which tripled last year. The specialized unit is supported in part through federal funds, which make up 75% of its budget.

"This statute addresses issues our prosecutors face every day in district courts and helps ensure that fraudsters can be prosecuted for all of the types of conduct that they commit," Nick Wanka, director of the Medicaid Fraud Control Unit, said. 

Lawmakers are also considering a new Office of Inspector General to focus on fraud as an independent watchdog agency. It passed the Senate last year and is now moving through the House.