Hawaii MFCU Defunding Signals Increased Scrutiny for Providers and MCOs

The Trump administration has decertified and defunded Hawaii’s Medicaid Fraud Control Unit (MFCU), withholding $3 million in federal funds. As detailed in a previous post, in May, the Office of Inspector General for the Department of Health and Human Services (HHS-OIG) informed every state of its intent to review the activities of its MFCU. On June 4, 2026, HHS-OIG escalated further and followed through with its threats by formally denying recertification of Hawaii’s MFCU based on its failure to pursue Medicaid fraud effectively. 

The Administration’s Rationale for Decertification. According to HHS-OIG’s letter, Hawaii’s MFCU obtained no criminal indictments or convictions for Medicaid fraud from 2022-2025, and only four convictions over the five-year period from 2021-2025. HHS-OIG specifically faulted the unit for failing to investigate and prosecute patient abuse and neglect in Medicaid-funded facilities, as required by statute.

Although the unit did obtain some civil recoveries, HHS-OIG criticized the unit for relying heavily on global settlements led by other jurisdictions or entities rather than investigations it initiated or developed itself. Overall, HHS-OIG found the unit’s overall enforcement outcomes and financial recoveries to be minimal relative to the size and growth of Hawaii’s Medicaid program. 

HHS-OIG’s letter also emphasized that these deficiencies are long-standing. Since 2014, HHS-OIG has conducted multiple reviews and identified systemic issues, including inadequate staffing, deficient investigative capacity, poor case management, and weak referral processes. Despite prior corrective action plans, technical assistance, and formal recommendations, the unit failed to achieve sustained or meaningful improvement.

Impact on Hawaii. As a result of the denial of recertification, Hawaii’s MFCU will no longer receive approximately $3 million in annual federal funding for its operations. The action took effect on June 4, 2026, though the State may request reconsideration within the applicable regulatory timeframe.

Pattern of State Enforcement. This is the third state targeted by the administration for punitive action for the alleged failure to pursue Medicaid fraud. As noted in our previous post, the Centers for Medicaid & Medicaid Services has already frozen Medicaid funds due to California and Minnesota based on concerns about each state’s program integrity efforts. The administration is sending a clear message that it will continue to withhold federal Medicaid funding if it believes a state is not appropriately targeting and investigating Medicaid fraud and abuse. 

Key Takeaways for Providers and Medicaid MCOs. Given Hawaii’s poor track record, the HHS-OIG likely viewed its MFCU as low-hanging fruit. This recertification action appears intended to pressure other states to increase their Medicaid fraud pursuit efforts. It is also yet another warning to Medicaid providers and managed care organization to prepare for increased scrutiny from state Medicaid agencies and MFCUs.
 

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