[Federal Register Volume 91, Number 9 (Wednesday, January 14, 2026)]
[Notices]
[Pages 1539-1542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-00512]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
Notice of Opportunity for Hearing on Compliance of Minnesota
State Plan Provisions Concerning Program Integrity and Fraud, Waste,
and Abuse With Title XIX (Medicaid) of the Social Security Act
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Notice of opportunity for a hearing; compliance of Minnesota
Medicaid State Plan--program integrity requirements relating to
prevention, detection, and investigation of fraud, waste, and abuse.
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DATES: Requests to participate in the hearing as a party must be
received by the presiding officer within 15 days of the date of this
Federal Register notice.
FOR FURTHER INFORMATION CONTACT: Benjamin R. Cohen, Hearing Officer,
Centers for Medicare & Medicaid Services, 7111 Security Boulevard,
Suite B1-15-15, Baltimore, MD 21244, 410-786-3169.
SUPPLEMENTARY INFORMATION: This notice announces the opportunity,
pursuant to section 1904 of the Social Security Act (the Act), for an
administrative hearing concerning the finding of the Administrator of
the Centers for Medicare & Medicaid Services (CMS) that the State of
Minnesota is substantially out of compliance with federal requirements
in section 1902(a)(64) of the Act and federal regulations at 42 CFR
part 455, subpart A, which implement various provisions of Title XIX of
the Act, including section 1902(a)(4). in administering its Medicaid
state plan because the Minnesota Medicaid agency fails to adequately
identify, prevent, and address fraud, waste, and abuse (FWA) in its
Medicaid program.
This finding will be the basis for withholding federal financial
participation (FFP) from Minnesota's Medicaid program, as described in
more detail in the letter below. The withholding will end when the
Minnesota Medicaid agency fully and satisfactorily implements a
corrective action plan (CAP) to bring its program integrity operations
into compliance with federal requirements.
CMS supports state efforts to appropriately address FWA, and
federal law and regulations provide mechanisms to do so. Federal law
and regulations require states to maintain effective administrative
controls, conduct audits, cooperate with federal integrity efforts,
enforce accountability, and protect Medicaid funds from FWA.
Investigations by CMS, the Department of Health and Human Services
Office of Inspector General (HHS OIG), the Department of Justice (DOJ),
the Federal Bureau of Investigation (FBI), and other federal partners
have identified widespread and ongoing FWA in Minnesota's Medicaid
program and repeated failures by the State to adequately address it.
CMS has found that Minnesota's policies, practices, and oversight
mechanisms violate section 1902(a)(64) of the Act, which requires
states to ensure their state plans provide mechanisms to receive
reports of alleged FWA and to compile and analyze related data. CMS has
further found that Minnesota's policies, practices, and oversight
mechanisms violate federal regulations at 42 CFR part 455, subpart A,
which require states to implement methods for identifying,
investigating, and referring suspected Medicaid fraud, including
pathways to receive complaints from any source and methods for
identifying questionable practices.
CMS has raised these issues previously with the State but Minnesota
has been unable to resolve the State's ongoing FWA issues.
Minnesota will have an opportunity for a hearing on these findings.
Minnesota will have 10 days from the date of the notice letter to
request such a hearing. If a request for hearing is timely submitted,
the hearing will be convened by the designated hearing as soon as
practicable but no sooner than 30 days after the date of this Federal
Register notice, or a later date by agreement of the parties and the
Hearing Officer, at the CMS Regional Office in Chicago, Illinois, in
accordance with the procedures set forth in federal regulations at 42
CFR part 430, subpart D. The Hearing Officer also should be notified if
the Minnesota Medicaid agency requests a hearing but cannot meet the
timeframe expressed in this notice.
The Hearing Officer designated for this matter is: Benjamin R.
Cohen, Hearing Officer, Centers for Medicare & Medicaid Services, 7111
Security Boulevard, Suite B1-15-15, Baltimore, MD 21244.
If a final determination is made that the Minnesota Medicaid agency
has failed to comply substantially with these requirements in the
administration of its Medicaid state plan, after a hearing or absent a
hearing request, consistent with the provisions of section 1904 of the
Act, CMS will
[[Page 1540]]
begin withholding federal funds as specified in the letter below. Such
withholding will continue until the Minnesota Medicaid agency comes
into compliance with section 1902(a)(64) of the Act and federal
regulations at 42 CFR part 455, subpart A, by fully and satisfactorily
implementing a comprehensive CAP that addresses FWA in the 14 high-risk
service areas referenced in the letter below to bring the program into
compliance with the federal requirements.
Details about the facts relating to Minnesota's practices are set
forth in the letter notifying Minnesota of the Administrator's finding.
The following issue will be considered at any requested hearing:
Whether Minnesota has failed to substantially comply with the
requirements of section 1902(a)(64) of the Act and federal regulations
at 42 CFR part 455, subpart A, which implement various provisions of
Title XIX of the Social Security Act, including section 1902(a)(4).
Beginning in July 2024, CMS began working with the State to address
concerns of potential fraud in the housing stabilization services (HSS)
program through Unified Program Integrity Contractor (UPIC) audits. In
April 2025, CMS and its UPIC presented the State with preliminary
findings from audits of the 3 HSS providers for input about payment
policies and state exceptions to rules. Shortly thereafter,in June
2025, the State requested the audits be transferred to the State for
investigation. In August, October, and November 2025, CMS continued
discussions with the state to address issues with closing the HSS
program, reviewing provider enrollment actions, and redesigning the
State's program integrity operations, among other issues. On December
5, 2025, CMS formally notified the Minnesota Medicaid Director of these
concerns and directed the State to submit a comprehensive CAP by
December 31, 2025. Finally, in December 2025, CMS met onsite with state
agency staff and law enforcement and observed firsthand the
deficiencies in the state's ability to proactively identify potential
Medicaid FWA. While the State submitted a document labeled as a CAP to
CMS on December 31, 2025, CMS has determined that it is deficient. The
submitted plan relies heavily on temporary or future-contingent
measures, lacks enforceable timelines and performance metrics,
acknowledges current noncompliance with key federal requirements, and
provides limited assurance of accountability for past misconduct. For
the reasons stated above and in the below letter, CMS has determined
that Minnesota Medicaid agency is not in compliance with the federal
statute and regulations.
The letter notifying Minnesota of the details concerning this
compliance issue, the proposed withholding of FFP, opportunity for a
hearing and possibility of postponing and ultimately avoiding
withholding by coming into compliance reads as follows:
January 6, 2026
The Honorable Tim Walz
Governor of Minnesota
130 State Capitol
75 Rev. Dr. Martin Luther King Jr. Blvd., St. Paul, MD 55155G
Dear Governor Walz:
This letter provides notice and an opportunity for a hearing on a
finding by the Centers for Medicare & Medicaid Services (CMS) of
significant noncompliance with applicable statutory and regulatory
requirements in the operation of the Minnesota Medicaid program,
because the Minnesota Medicaid agency fails to adequately identify,
prevent, and address fraud in its Medicaid program.
As described further in this letter, federal law and regulation
require states to maintain effective administrative controls, conduct
audits, cooperate with federal integrity efforts, enforce
accountability, and protect Medicaid funds from fraud, waste, and abuse
(FWA). As has been widely reported--and acknowledged by the State of
Minnesota--there is significant and ongoing fraud within Minnesota's
Medicaid program. Investigations by the CMS, the Department of Health
and Human Services Office of Inspector General (HHS OIG), the
Department of Justice (DOJ), the Federal Bureau of Investigation (FBI),
and other federal partners have identified widespread FWA in
Minnesota's Medicaid program and repeated failures by the State to
adequately address it.
These investigations have revealed schemes involving billing for
services not rendered, services billed at levels not supported by
documentation, and exploitation of vulnerable Medicaid beneficiaries
for financial gain. Federal law enforcement has identified complex
fraud schemes involving networks of providers operating across multiple
high-risk service categories, including services delivered through
Minnesota's home and community-based services system.
CMS has been engaged in numerous on-site and virtual discussions
with state agency staff to discuss the known fraud schemes and severe
lack of state oversight mechanisms in place to meet minimum oversight
requirements. Specifically, in December 2025, CMS met onsite with state
agency staff and law enforcement to see firsthand the historical
deficiencies in the state's ability to proactively identify potential
Medicaid FWA. The lack of processes to receive reports and compile data
on allegations of FWA demonstrates that the state is not in compliance
with section 1902(a)(64) of the Social Security Act (the Act). States
are required to ensure their state plan provides a mechanism to receive
reports from beneficiaries and others and compile data concerning
alleged instances of waste, fraud, and abuse relating to the operation
of the Medicaid Act. In addition, pursuant to 42 CFR 455, Subpart A,
States are required to implement methods for identifying,
investigating, and referring suspected Medicaid fraud. These methods
must include a pathway to receive complaints of Medicaid fraud or abuse
from any source and methods for identifying any questionable practices.
This information and related data sources must be used to pursue robust
preliminary and full investigations, as appropriate, as well as refer
cases to law enforcement, if applicable. These regulatory authorities
reflect one of the core pillars of state Medicaid oversight that CMS
expects every state to have in place effectively. We have raised these
issues to the state and as we discuss below, the state has been unable
to resolve it's inability to maintain compliance, resulting in its
inability to identify or prevent widespread fraud, waste and abuse of
the program.
Pursuant to section 1904 of the Social Security Act and 42 CFR
430.35, CMS is providing the Minnesota Medicaid agency with an
opportunity for a hearing on these findings of noncompliance with
statutory and regulatory requirements. If these findings are upheld or
unchallenged following this opportunity for a hearing, a portion of
federal financial participation (FFP), as specified in more detail
below, will be withheld until CMS makes a finding that the State has
come into compliance with the statute and regulations.
The factual details of the findings, the withholding, how the
Minnesota Medicaid agency can request a hearing on the findings, and
the steps Minnesota can take to avoid sanctions by coming into
compliance are described below.
Factual Findings
CMS's concerns are not limited to isolated incidents. Minnesota has
historically had significant deficiencies in proactively identifying
suspected Medicaid FWA, primarily through
[[Page 1541]]
limitations in data analytics and monitoring. These limitations have
become prolific in many areas of the state's Medicaid program and are
well documented in CMS and other oversight agency audit reports. For
example, CMS conducted an audit of the State's Personal Care Services
program in 2019, which resulted in numerous findings and
recommendations that reflect the State's deficiencies in basic
oversight efforts.\1\ The State's own Office of the Legislative Auditor
released a report in 2021 about the deficiencies in the PCS program.\2\
In addition, the HHS OIG documented the state's failure to effectively
oversee its Nonemergent Medical Transportation (NEMT) program in a 2017
report.\3\
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\1\ https://www.cms.gov/medicare-medicaid-coordination/fraud-prevention/fraudabuseforprofs/downloads/mnfy18.pdf.
\2\ https://www.auditor.leg.state.mn.us/ped/updates/2021/dhspca.pdf.
\3\ https://oig.hhs.gov/reports/all/2017/minnesota-did-not-always-comply-with-federal-and-state-requirements-for-claims-submitted-for-the-nonemergency-medical-transportation-program/.
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Recent investigations have focused on fourteen high-risk Medicaid
services that the State itself has identified as particularly
vulnerable to fraud (linked here: https://mn.gov/dhs/program-integrity/
). According to CMS analysis of Minnesota Medicaid data, these fourteen
programs consume $3.75 billion in federal and state taxpayer resources.
CMS analysis of Minnesota Medicaid data shows extraordinary growth in
provider enrollment and payments for several of these services that is
inconsistent with beneficiary growth and service utilization trends.
Despite warning signs that have been evident for years, the State has
not implemented sufficient safeguards to prevent ongoing improper
payments.
Applicable Statutory and Regulatory Provisions
Pursuant to Sec. 1902(a)(64) of the Act, States are required to
ensure their state plan provides a mechanism to receive reports from
beneficiaries and others and compile data concerning alleged instances
of waste, fraud, and abuse relating to the operation of the Medicaid
Act. In addition, pursuant to 42 CFR 455, Subpart A, State are required
to implement methods for identifying, investigating, and referring
suspected Medicaid fraud. These methods must include a pathway to
receive complaints of Medicaid fraud or abuse from any source and
methods for identifying any questionable practices. This information
and related data sources must be used to pursue robust preliminary and
full investigations, as appropriate, as well as refer cases to law
enforcement, if applicable.
Prior CMS oversight work has identified consistent non-compliance
with the State's ability to proactively identify suspected Medicaid
FWA, primarily through limitations in data analytics and monitoring. It
should also be mentioned that Minnesota's submission of its quarterly
expenditure reports through the Form CMS-64, includes a certification
that the state is operating under the authority of its approved
Medicaid state plan.
Discussions With the State Medicaid Agency
Beginning in July 2024, CMS began working with the State to address
concerns of potential fraud in the housing stabilization program (HSS)
through Unified Program Integrity Contractor (UPIC) audits. In April
2025, CMS and its UPIC presented the State with preliminary findings
from the 3 HSS providers for input about payment policies and state
exceptions to rules. Shortly after, in June 2025, the State requested
the audits be transferred to the State for investigation. In August,
October, and November 2025, CMS continued discussions with the state to
address issues with closing the HSS program, reviewing provider
enrollment actions, and redesigning the State's program integrity
operations, among other issues. On December 5, 2025, CMS formally
notified the Minnesota Medicaid Director of these concerns and directed
the State to submit a comprehensive corrective action plan (CAP) by
December 31, 2025.
Finally, as noted previously, in December 2025, CMS met onsite with
state agency staff and law enforcement to see firsthand the historical
deficiencies in the state's ability to proactively identify potential
Medicaid FWA.
While the State submitted a document labeled as a CAP to CMS on
December 31, 2025, CMS has determined that it is deficient. The plan
relies heavily on temporary or future-contingent measures, lacks
enforceable timelines and performance metrics, acknowledges current
noncompliance with key federal requirements, and provides limited
assurance of accountability for past misconduct.
Given the widespread concerns that these fraudulent activities were
undertaken by individuals with ties outside of the U.S. and that some
of the funds were then transferred outside of the U.S., CMS sees
nothing in the CAP that would result in the State being able to
understand ownership or corporate structure of providers and how the
State will work with law enforcement to assure that no Medicaid funds
are used to support criminal international entities.
The CAP largely emphasizes prospective controls while providing
limited assurance of meaningful accountability for past misconduct.
Although the State references a forthcoming historical claims review,
it does not commit to specific enforcement actions, recovery targets,
referral thresholds, or timelines for resolving identified overpayments
or fraud. Absent clear commitments to corrective financial remedies and
sanctions, the CAP does not adequately protect the fiscal integrity of
the Medicaid program. The CAP also fails to adequately address how
claim editing will be applied, such as whether those edits will deny
payments or whether the data will identify claims with attributes
appropriate for additional scrutiny, such as outlier billers,
utilization trends in high-risk services, and other appropriate flags.
The CAP should also include how artificial intelligence and other
modern automated methods will be used to address the rampant fraud in
the program, and how performance of these methods will be assessed.
Additionally, Minnesota's draft Program Integrity Playbook
identifies additional vulnerabilities and gaps in its oversight
operations that are not addressed in the CAP. CMS expects Minnesota to
also address the outstanding issues in its updated CAP. For example:
Prior Authorization Program: Please provide additional
details on Minnesota's assessment of its prior authorization program
and enhancements that are needed.
Provider Training and Education: Please specify what
enhancements or changes Minnesota proposes to make its provider
training and education efforts more effective, such as pre-enrollment
training; post-enrollment training; billing and documentation training;
fraud, waste, and abuse training; and compliance and legal obligations
training, among any others identified by the state.
DHS Employee Training and Education: Please specify what
enhancements or changes Minnesota proposes to make to its DHS employee
training and education efforts to identify, evaluate, and mitigate
fraud, waste, and abuse in the state's Medicaid program.
Surveillance and Utilization Review (SURS): Minnesota
stated in its draft Program Integrity Playbook that is implementing a
formal SURS system. Please provide additional information
[[Page 1542]]
the status of the SURS system, its capabilities, and how it will feed
into the state's broader program integrity efforts and lead generating
activities.
Managed Care Oversight: Please include information as to
how the state plans to enhance oversight of its managed care plans
(MCPs). This includes relevant state-MCP contract language (including
any barriers within existing contract language that need to be
addressed), the state's ability to conduct data analytics on managed
care claims and spending, processes for and evaluations of referring
potential fraud from the MCP to the state/law enforcement (including
implementation of payment suspensions), and recovery of identified
overpayments, among any other issues identified by the state.
Focused Financial Reviews of Expenditures on the CMS-64
Given the severity and persistence of these deficiencies, CMS must
take additional steps to protect the integrity of the Medicaid program
and federal taxpayer dollars. Pursuant to section 1903 of the Social
Security Act and implementing regulations in 42 CFR 430 Subpart C, CMS
has the authority to conduct reviews of state expenditures reported on
the quarter Form CMS-64 Accordingly, CMS intends to immediately
initiate a focused CMS-64 review of all fourteen high-risk services
self-identified by the state starting with the most recently certified
CMS-64 (Quarter Four of Federal Fiscal Year 2025). As necessary, CMS
intends to issue deferral or disallowance of any FFP claimed by the
state that does not meet applicable federal requirements.
Determination of Non-Compliance and FFP Withholding
The CMS has concluded that the Minnesota Medicaid agency is
operating its program in substantial noncompliance with federal
requirements described in sections 1902(a)(64) of the Act, generally
requiring the State to ensure sufficient controls to prevent, detect,
and address fraud, waste, and abuse.
Subject to the state's opportunity for a hearing, CMS will withhold
a portion of FFP from the Minnesota Medicaid quarterly claim of
expenditures on the Form CMS-64 until such time as the Minnesota
Medicaid agency is, and continues to be, in compliance with the federal
requirements. The quarterly withholding will be calculated based on the
federal share for one quarter's amount of the previous calendar year's
annual total paid expenditures for the fourteen high-risk services,
estimated as $515,154,947.56, or an alternative substantiated amount
per quarter based on evidence provided by the state to the
Administrator or his designee of an accurate amount of fraudulent
expenditures. This amount may increase based on additional findings of
fraud or insufficient progress towards mitigating fraud--until
Minnesota demonstrates full and sustained compliance with federal
Medicaid requirements. The withholding will end when the Minnesota
Medicaid agency fully and satisfactorily implements a comprehensive CAP
that addresses FWA in the 14 high-risk service areas to bring the
program into compliance with the federal requirements.
Opportunity To Request a Hearing
The State has 10 days from the date of this letter to request a
hearing. If a request for hearing is submitted timely, the hearing will
be convened by the designated hearing officer below, 30 days after the
date of the Federal Register notice, at the CMS Regional Office in
Chicago, Illinois, in accordance with the procedures set forth in
federal regulations at 42 CFR part 430, subpart D. The Hearing Officer
also should be notified if the Minnesota Medicaid agency requests a
hearing but cannot meet the timeframe expressed in this notice. The
Hearing Officer designated for this matter is:
Ben Cohen, Centers for Medicare & Medicaid Services, 7111 Security
Blvd., Suite B1-15-15, Baltimore, MD 21244
At issue in any such hearing will be:
a. Whether the evidence establishes that Minnesota has failed to
substantially comply with the federal requirements described in section
1902(a)(64) of the Social Security Act and the federal regulations
implementing those provisions.
b. Whether Minnesota's failure to substantially comply with those
federal requirements supports the partial withholding of FFP imposed by
CMS.
If the Minnesota Medicaid agency plans to come into compliance with
the federal requirements, the Minnesota Medicaid agency should submit,
by January 30, 2026 a revised comprehensive CAP including the timeframe
for implementation and any performance or quality metrics the state
will use to evaluate effectiveness of the actions.
CMS will continue to exercise strong oversight of State actions to
address these issues. CMS will review and negotiate the terms of an
acceptable corrective action plan and will monitor progress closely.
Our goal is to have the Minnesota Medicaid agency come into compliance,
and CMS continues to be available to provide technical assistance to
help achieve this outcome.
Should you not request a hearing within 5 days of this letter, the
withholding of funds will be imposed, contingent on the State's
progress toward compliance as discussed above.
Please provide any response or questions regarding this matter to
[email protected].
Mehmet Oz, M.D.
Administrator, Centers for Medicare & Medicaid Services
Cc: John Connolly,
Minnesota Medicaid Director
Dan Brillman,
Director, Center for Medicaid & CHIP Services, Centers for Medicare &
Medicaid Services
Kimberly Brandt,
Acting Director, Center for Program Integrity, Centers for Medicare &
Medicaid Services
Dated: January 6, 2026.
Mehmet C. Oz, M.D.
Administrator, Centers for Medicare & Medicaid Services.
The Administrator of the Centers for Medicare & Medicaid Services
(CMS), Mehmet Oz, having reviewed and approved this document,
authorizes Evell J. Barco Holland, who is the Federal Register Liaison,
to electronically sign this document for purposes of publication in the
Federal Register.
Evell J. Barco Holland,
Federal Register Liaison, Centers for Medicare & Medicaid Services.
[FR Doc. 2026-00512 Filed 1-9-26; 4:15 pm]
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