Minnesota officials say the federal government could outright reject more than half a billion dollars in deferred Medicaid payments in a few weeks as the Trump administration continues pressuring the state on fraud.

The Department of Human Services is “bracing for a disallowance” from the Centers for Medicare and Medicaid Services that could “potentially require clawing back Medicaid funds from Minnesota Medicaid providers,” an agency spokesperson said in a statement this week.

Federal officials have not responded to requests for comment on the potential deferral as of Tuesday, and the state didn’t know when the disallowance would happen or how much money it would involve. A disallowance is a more permanent rejection of deferred money, though the state can still appeal.

CMS has deferred $550 million in payments to Minnesota since the beginning of this year and threatened to withhold up to $2 billion. The money funds programs like low-income health care and disability programs. The withholding is tied to allegations of billions in fraud in 13 “high-risk” programs like autism services and a home care support program for people with disabilities and demands for corrective action from CMS.

Federal prosecutors have speculated that theft in the programs could run into the billions since 2018, though proven fraud across numerous other state programs in a similar time frame has been in the hundreds of millions.

Since September last year, federal prosecutors have charged 30 people in cases totaling around $125 million in alleged theft in federal Medicaid dollars from state programs.

Earlier this year, as Republican President Donald Trump’s administration dialed up pressure on Minnesota, CMS Administrator Mehmet Oz set a “Corrective Action Plan” for Minnesota and tied compliance to funding. Democratic Gov. Tim Walz and Attorney General Keith Ellison have called the move political retribution.

Minnesota’s Human Services Department insists it has taken corrective actions like reviewing providers, freezing enrollments in high-risk programs, and weekly updates on anti-fraud efforts, but that federal officials still haven’t released funding.

In a Friday letter to Oz, John Connolly, Minnesota Medicaid Director and Temporary Human Services Commissioner, asked for more clarity on the agency’s expectations.

“Minnesota is doing this work, but we can’t do it alone. Effective program integrity requires a strong federal-state partnership,” he wrote, later adding: “We remain prepared to act on credible concerns, but we need CMS to join us by sharing critical information on identified fraud risks.

Connolly pointed to several steps the state had taken, including ending the fraud-ridden Housing Stabilization Services program, weekly data sharing with federal officials and revalidating more than 5,000 high-risk providers in a process that involved on-site visits.

The process involved a significant expansion of announced on-site visits. Human Services recruited 168 current state employees to help with its efforts. Before the push, there were “a half dozen staff members” dedicated to site visits for revalidation.

That revalidation resulted in the disenrollment of more than half of its high-risk providers, though most of it was due to incomplete paperwork and did not determine there was fraud, Connolly said. More than 2,000 of the disenrolled providers later had payments restored amid outcry over what providers called a “rushed and poorly managed” process.

High-profile fraud cases involving hundreds of millions of federal dollars stolen from state agencies have drawn national attention to Minnesota over the last year.

Minnesota fraud has been described as “industrial scale” by former Assistant U.S. Attorney Joe Thompson, who speculated total losses in Medicaid programs alone could top $9 billion since 2018 — a figure Walz and state officials have disputed. So far, prosecutors have proven hundreds of millions of dollars in fraud.

In a report published earlier this year, Walz’s director of program integrity, Tim O’Malley, blamed fraud problems on a culture in state agencies “more based on compassion than compliance.”

Funding threats from Oz are subject to ongoing administrative and legal battles. The first major funding halt came in February when Vice President JD Vance and Oz announced they’d withhold around $260 million from the state.

At the end of April came another $91 million in deferrals as federal agents raided child care businesses suspected of fraud. Another $200 million came in July.

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