As the divided Minnesota Legislature barrels toward a May 18 deadline to adjourn, a few areas of agreement are starting to emerge around the contentious issue of how to prevent fraud in state government services.
With a backdrop including YouTuber videos in December that turned President Donald Trump’s focus toward Minnesota and prompted Operation Metro Surge, the largest immigration enforcement operation in U.S. history, and extending to FBI raids of almost two dozen businesses earlier this week as part of continued investigations, this year’s legislative session was defined by the pressure to prevent fraud.
Several anti-fraud bills have been introduced in both the House and the Senate, but due to a 67-67 tie between Democrats and Republicans in the House, many of the bills have failed to make it out of committee. A package of anti-fraud reforms proposed by Governor Tim Walz to transform the Department of Human Services and improve oversight of Medicaid programs remains in limbo.
But with less than three weeks to go, some proposals are inching forward.
Legislature’s anti-fraud efforts
A major piece of legislation that would create a new statewide Office of Inspector General to combat fraud in state programs is headed to the House floor after DFL and GOP lawmakers reached a compromise Wednesday night to overcome partisan gridlock. Republicans had asked for the new office to have its own law enforcement division, but DFL lawmakers argued the Minnesota Bureau of Criminal Apprehension would fulfill that role. Ultimately, both sides decided to move forward by including the Republican law enforcement provision but delaying its implementation until 2028.
The bill, which passed in the Senate with bipartisan support last session, would establish an independent office headed by an Inspector General appointed by the governor with the authority to investigate fraud across all of state government.
While many other bills have stalled, a few have gotten to the governor’s desk for his signature. One bill modified a law passed last year that gave all state agencies the authority to stop payments to programs suspected of fraud by lowering the standard for evidence for freezing the payments. Another increased the statute of limitations for theft of government funds from six years to 10 years.
Other anti-fraud measures were split across two human services omnibus bills in the House. House File 729 authored by Rep. Mohamud Noor of Minneapolis, the DFL co-chair of the House Human Services Finance and Policy Committee, included pre-payment review requirements for medical assistance claims and claims in any of the 14 programs deemed “high risk” by DHS. The bill also allows the DHS commissioner to withhold payments for a 90-day period and institute an enrollment moratorium of up to two years for those high-risk programs.
The bill also formally terminates housing stabilization services, a state-run Medicaid program aimed at helping people with disabilities and seniors retain housing that was found last year to be riddled with fraud and overbilling.
Meanwhile, House File 4338 authored by Rep. Joe Schomacker of Luverne, the committee’s Republican co-chair, included funds for pre- and post-payment reviews, billing limits for autism centers, additional training requirements for providers and a framework for continuity of care should a provider no longer be able to administer services.
Noor’s bill has moved through its assigned committees and awaits a House floor vote while Schomacker’s bill is waiting to be heard in the House Ways and Means Committee.
Noor told Sahan Journal that his main focus in crafting human services legislation related to program integrity this session has been on how the services provided by those programs – or lack thereof – have been impacting the recipients. Whether they are seniors or someone with a disability or someone experiencing substance abuse or behavioral health issues, ensuring they receive the services they deserve is important, he said.
“We want to make sure that we are putting in the safeguards but also that we are making sure that we are emphasizing that our focus is on the recipients of the programs who are entitled to those services,” Noor said in an interview. “Anybody who is defrauding them one dime or one penny should be held accountable.”
While lawmakers work to impose anti-fraud safeguards, honest providers of these human services programs may be put in a tough position.
Medicaid-only service providers typically have more limited resources than providers who receive private funding, said Rebecca Johnston, executive director of the Residential Providers Association of Minnesota (RPAMN). That means if a provider’s payment is withheld, they can’t be expected to operate at all, and as the threshold for what could cause a payment withhold is lowered, it could put those providers out of business.
“When bad actors exploit the system, they drain already limited resources meant to fund the consistent care that our providers provide and the individuals they serve depend on for their daily well being,” she said.
Johnston said RPAMN, which represents about 100 small- to medium-sized home and community-based providers, supports efforts by the state to combat fraud. But, she said, a heavy-handed enforcement approach could hurt the clients who rely on those services, as well as the business owners who provide those services.
“An oversight approach that feels a little bit more ‘guilty until proven innocent’ definitely puts folks at risk of losing care,” Johnston told Sahan Journal. “We have to ensure moving forward that anti-fraud measures are targeted and they’re collaborative, but they’re also protecting the relationships and the care that our providers are providing out in the community as well.”
Walz’s DHS ‘transformation’
Walz announced a proposal in March to overhaul the state’s human services programs by moving the administration of Medicaid to a centralized statewide model and away from managed care organizations (MCOs), which currently administer 45% of Medicaid spending and 80% of basic care services. The proposal would also shift Medicaid eligibility determination from counties to the state.
DHS Deputy Commissioner John Connolly told reporters at a news briefing in late March that Walz’s proposal would establish Minnesota as a national leader in combating waste and fraud. Connolly said the current Medicaid system is difficult to navigate, and that applicants have to submit the same information to multiple agencies, leading to delays. He said eliminating managed care organizations and centralizing the process under DHS will allow applications to be processed more quickly, and will help DHS spot fraud.
“It just allows for easier monitoring and oversight … and just direct visibility into the different operations,” he said.
In order to take on more of the process, DHS would need to increase its capacity and staffing, adding 100 full time employees by fiscal year 2027, gradually increasing to 276 employees by fiscal year 2029. The cost of DHS staffing under Walz’s proposal would rise from $7.9 million in fiscal year 2027, to $30.6 million in fiscal year 2029, according to DHS.
Connolly said he understands lawmakers may propose changes to Walz’s plan, and that the department is open to hearing them.
“It’s tempting to oppose this thing on its face because it comes from the governor, but there is some good stuff in here,” Republican Rep. Steve Gander of East Grand Forks told DHS Budget Director Elyse Bailey when Walz’s proposals were heard in the House Human Services Finance and Policy Committee last month.
Connolly said change needs to happen, and that the proposal is a good start.
“This is the start of a conversation,” he said. “We understand these are … big, bold, out-of-the-box ideas.”
The Minnesota Council of Health Plans represents managed care organizations (MCO’s), which are contracted through DHS to provide health care benefits to those enrolled in state health programs. Lucas Nesse, the council’s president and CEO, says the organizations provide clients more choice in deciding how they receive care.
“We strongly disagree with eliminating the choice for consumers and Minnesotans to choose between managed care entities,” Nesse said.
Nesse said MCO’s have program integrity measures in place to detect fraud, and under Walz’s proposal, the state would have to hire staff to do work that MCO’s are already doing.
‘We have those people, we have the staff, we have the technology,” he said.
Currently, the 87 counties and Tribal Nations in Minnesota are responsible for determining if clients are eligible for human services programs, including Medicaid programs. The system hasn’t changed much since the 1990’s, and is widely regarded as out of date. Julie Ring, the executive director of the Minnesota Association of Counties, said Walz’s proposal would bring needed technology improvements to counties.
“It’s very labor intensive, and that opens us up to more errors, mistakes, where if you have a worker who can’t trust the system’s work and is having to do side calculations on a Post-it note,” she said.
Walz’s proposal would move some eligibility responsibilities to the state, and create a study to determine what the role of counties should look like.
“We strongly support the study. That’s something that we have been asking for for a long time,” she said.
