The Trump Administration Is Ramping Up Medicaid Fraud Enforcement Efforts

What Happened: The Trump administration has stepped up its Medicaid fraud enforcement efforts, as demonstrated through a variety of agency actions taken over the past few months.

Why It Matters: The focus on Medicaid fraud undoubtedly will result in increased scrutiny of Medicaid providers and Medicaid managed care organizations (MCOs) by state and federal enforcement authorities. 

The Details: This article provides an overview of recent developments related to the Trump administration’s increased attention to Medicaid fraud control efforts and key takeaways for Medicaid providers and MCOs. 

Curtailing fraud has always been a priority of this administration, but we appear to be entering a new phase of enforcement, which is seemingly driven, at least in part, by political objectives. Over the past few months, the administration has taken numerous actions focusing on how the Centers for Medicare & Medicaid Services (CMS) and states identify and address fraud, waste, and abuse in Medicaid. These actions, taken together, mean that Medicaid providers and MCOs should be on high alert.

Freezing Minnesota and California Medicaid Funds: Beginning in winter 2025/2026, CMS started laying the groundwork for freezing Minnesota’s and California’s federal Medicaid share.

• Minnesota: This winter, CMS required and shortly thereafter rejected a corrective action plan from Minnesota related to its oversight of fraud, waste and abuse. In rejecting the corrective action plan, CMS stated that it found Minnesota’s “policies, practices, and oversight mechanisms” for identifying fraud and abuse to be insufficient. Since February 2026, CMS has deferred over $350 million in federal Medicaid match payments and is requiring the State to submit another corrective action plan to unfreeze the funds. In response, Minnesota has already increased its fraud enforcement efforts by freezing Medicaid provider enrollment for certain providers and increasing oversight.

• California: Similar to Minnesota, CMS first alerted California to its concerns in January 2026 when CMS sent Governor Newsom a letter formally requesting detailed information regarding California’s program integrity and eligibility verification measures. The letter raised questions about in-home support services and requested information on the monitoring and oversight activities of Medicaid MCOs.  

  Fast forward to May, CMS sent another letter to California, this time deferring over $1.1 billion in federal Medicaid payments. The letter stated that CMS is deferring $500 million due to “significant growth” in personal care services while the deferral of the remaining $600 million is the result of “program integrity risks” related to personal care services. 

Executive Order – Establishing the Task Force to Eliminate Fraud – March 16, 2026: In March, the Trump administration announced an Executive Order creating a new Task Force to Eliminate Fraud (Task Force) being led by Vice President Vance. The purpose of the Task Force is to “coordinate and accelerate a comprehensive national strategy to stop fraud, waste, and abuse within Federal benefit programs, including programs administered jointly with State, local, tribal, and territorial partners.” The Executive Order argues this Task Force is needed due to states refusing to implement “basic fraud controls.” The Executive Order specifically calls out California, Illinois, New York, Maine, and Colorado.

State Revalidation Letter – April 26, 2026: About a month following the establishment of the Task Force, CMS sent a letter to all governors and State Medicaid Directors “requesting” that they swiftly revalidate “high-risk” Medicaid providers (the “April 26th Revalidation Letter”). States had to respond to the letter within ten business days identifying whether they intend to comply and the proposed timeframe for compliance. While states have the discretion to designate “high-risk” providers, CMS specifically stated that states should include any “provider without a National Provider Identifier.” Of note, within Medicaid, a key category of providers without an NPI are personal care providers (which as noted above are the key driver of California’s deferral). While the April 26th Revalidation Letter is framed as a request, the letter provides that a state’s failure to comply “will be considered as we evaluate the likelihood of fraud in each state moving forward.”

Medicaid Fraud Control Unit (MFCU) Investigations – May 13, 2026: In early May, the Office of Inspector General for the Department of Health and Human Services (HHS-OIG) informed each Attorney General that it intends to review the activities of every state’s MFCU. Every state operates a MFCU to investigate and prosecute Medicaid fraud, and these units are jointly funded by states and the federal government, and many are housed within the state’s Office of Attorney General. The strongly worded letters sent to each Attorney General stated that HHS-OIG will “engage in a robust review” of every MFCU, and that poorly performing MFCUs could face consequences ranging from: (1) corrective action or “other specialty conditions on annual recertification,” (2) suspension or reduction in funding for MFCUs, or (3) denial of recertification, the consequences of which would be loss of federal matching for the state’s Medicaid program. 

Audit Enforcement and Risk Oversight Audit – May 22, 2026: Last week, HHS announced the Audit Enforcement and Risk Oversight, or AERO, initiative, which focuses on states and other grantees that expend more than $1 million in federal grants in a fiscal year. Examples of providers meeting this criteria include Federally Qualified Health Centers (FQHCs), providers under the AIDS Drug Assistance Program (ADAP), and many hospitals and academic research centers. Under federal grant regulations, states and grantees with more than $1 million of federal expenditures must undergo a “Single Audit,” which is comprised of a financial statement audit and program compliance audit looking at internal controls and compliance in areas, such as allowable costs and timeliness of reporting. States and grantees must submit these audits to HHS.

Through the AERO initiative, HHS will deploy artificial intelligence (AI) over five years of Single Audit data to identify grantees that fail to submit such audits or “consistently failed to remedy serious internal control issues.” Per the HHS press release, “HHS will work collaboratively with states and grantees to resolve their audit findings.” For those that fail to correct issues, HHS could suspend or terminate the award or withhold federal funds, among other penalties.

SDP Proposed Rule – May 22, 2026: CMS also released a proposed rule on state directed payments, or SDPs, last week (“SDP Proposed Rule”). States have used SDPs to direct Medicaid MCOs to pay certain providers specified amounts (generally higher than the Medicaid fee schedule) or to pay them through value-based arrangements. The administration has been hostile to SDPs and ultimately required their reduction through the One Big Beautiful Bill Act (OBBA). The SPD Proposed Rule implements the provisions of OBBA but also goes beyond the reductions required by OBBA. The OBBA limits SDPs by capping SDPs to either 100% or 110% of Medicare (depending on whether the state expanded Medicaid) for four types of services: (1) inpatient hospital services, (2) outpatient hospital services, (3) nursing facility services, and (4) qualified practitioner services at an academic medical center. The SDP Proposed Rule expands the SDP cap to all services, not just the enumerated four above. 

Key Takeaways for Medicaid Providers and MCOs

• The administration will likely freeze federal Medicaid funding in additional states, which may impact payments to Medicaid providers and MCOs. CMS has already sent pre-enforcement letters to Maine, New York, and Florida. Additionally, between the AERO initiative and the April 26th Revalidation Letter, the administration is arming itself with multiple avenues to limit funding to states. Such actions may have a direct impact on Medicaid providers and MCOs as they could result in payment delays or reductions.
• Federal and state governments already are increasing fraud enforcement efforts. Providers should brace themselves for increased Medicaid scrutiny. The audits of MFCUs may result in an increase in provider enforcement in an effort to show the federal government tangible results. The Department of Justice (DOJ) has a new “National Fraud Enforcement Division,” and it has been highlighting Medicaid fraud enforcement actions on a weekly basis. As further evidence of DOJ’s intent to pursue Medicaid fraud, DOJ announced last week the hiring of 15 additional prosecutors dedicated to pursuing Medicaid fraud nationwide.
• Medicaid MCOs also should expect increased scrutiny. Medicaid MCOs should be prepared for increased scrutiny, including audits. As we saw in CMS’s letter to Governor Newsom, CMS is seeking information on Medicaid MCO fraud efforts and the state’s oversight of such efforts. Further, in 2025, the Government Accountability Office (GAO) issued a report noting that while improper payments to Medicaid MCOs are low, Medicaid MCOs may be making improper payments to ineligible providers or for services on behalf of ineligible members. The administration may cite to these statistics as it audits Medicaid MCO fraud and abuse programs and payments.
• The administration appears hostile toward home health agencies and personal care services. As noted above, in the April 26th Revalidation Letter, the only provider type specifically identified as a “high-risk” provider are those providers without NPIs — which in Medicaid generally are personal care attendants. Similarly, California’s $1.13 billion deferral is tied to fraud and abuse concerns related about personal care attendant services.  
• The administration is focusing on and deploying AI in its fraud efforts. As evidenced by the AERO initiative, the administration is turning to AI to assist in its efforts to identify and combat fraud.  
   

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