The fiscal assault on Minnesota’s Medicaid program appears to be headed for the off-ramps. Led by Dr. Mehmet Oz, the CMS Administrator, with the full-throated support of Vice President J.D. Vance, CMS launched a two-pronged attack. The first, launched on January 6, was a threat to withhold $515 million in federal Medicaid matching funds per quarter going forward, allegedly for noncompliance with federal anti-fraud requirements. The second, launched on February 25, was the deferral of payment of $259 million in matching funds for the state’s Medicaid spending in the last quarter of FY 2025. With the approval of the state’s corrective action plan (CAP) on March 19 and the agreement with the state to suspend litigation for the next four months (see below), CMS has now put in place off-ramps for both prongs.
Given the vitriol directed against Minnesota and other Democratic-led states at Vice President Vance’s February 25 White House press conference and in the President’s March 16 Executive Order establishing a “Task Force to Eliminate Fraud”, this is somewhat unexpected. And whether CMS eventually uses them to end the assault on Minnesota remains to be seen. But it’s important to watch what CMS does (and doesn’t do), not what Dr. Oz or Vice President Vance says. So here’s what CMS has done since the U.S. District Court on April 6 denied the state’s motion to block the CMS deferral. (A more complete timeline is available here.)
Recent CMS Actions
On April 23, Dr. Oz wrote to all 50 Governors asking that their Medicaid programs “undertake a swift revalidation of Medicaid providers of services at high risk of waste, fraud, abuse, and corruption.” The same day, CMS issued a letter to state Medicaid directors requesting both plans for a “swift revalidation” and a “comprehensive two-year provider revalidation strategy” with a focus on “high-risk providers, including providers without an NPI.”
On April 29, while Minnesota was in the process of conducting site visits to revalidate over 5,800 “high-risk” providers, CMS took another deferral against the state in the amount of $91.5 million for the first quarter of FY 2026. Of that amount, $72.7 million represents federal matching payments “associated with reimbursement claims submitted by providers identified by CMS as high-risk for fraud or aberrant billing practice, based on historical billing patterns and CMS data analytics.”
On May 4, CMS asked the District Court to dismiss the case that Minnesota had filed to block the first deferral (although the Court on April 6 had denied the state’s request to block the deferral, it had retained jurisdiction). In an unexpected turn, two days later the State and CMS filed a Joint Motion for Stay asking that the case “be stayed for 120 days so that the Parties can attempt to resolve the deferrals.” The following day, May 7, the Court granted the joint motion, putting the case on hold until early September (a status report is due by September 3).
The State of Stay
Prong #1. The state is implementing a CAP that CMS approved on March 19. The CAP has 17 different elements, including Off-Cycle Revalidation of Providers in 13 High-Risk Service Areas, and 35 deliverable dates. Prior to this approval, the state had requested a hearing (to which it was entitled) to challenge CMS’ withholding of $515 million per quarter going forward on the grounds that the state was out of compliance with federal anti-fraud requirements. In the approval letter, CMS requested that “the hearing be stayed pending complete implementation of the approved CAP, as successful completion would moot the appeal.” CMS has not withheld any federal matching funds going forward; the state appears to be implementing the CAP; and it seems highly likely that CMS will ultimately drop its threat to withhold funds (the last CAP deliverable date is March 31, 2027).
Prong #2: CMS has deferred a total of $350 million in federal matching funds on expenditures the state has already made in Q4 2025 ($259 million) and Q1 2026 ($91 million). The state’s lawsuit challenging the first of these deferrals is now stayed—at the request of CMS and the state—for the next four months in order to give the state and CMS time to resolve the disputed deferrals (the state has to demonstrate to CMS that its expenditures during those two quarters were “allowable” – i.e., that federal matching payments for those expenditures are appropriate under Medicaid law). While the Court’s order staying the litigation does not expressly prohibit CMS from taking more deferrals against Minnesota’s expenditures in Q2 of FY 2026 (ending March 30) or later, this seems unlikely.
What seems more likely is that Dr. Oz has decided not to impose further fiscal sanctions on Minnesota at this time but instead to monitor the state’s implementation of the CAP and to negotiate an agreement on the amount of the $350 million it will ultimately disallow. There are stays in place for both the compliance hearing challenging the $515 million quarterly withholding and the litigation challenging the $350 million in deferrals. Dr. Oz has the option to end either or both of these stays in a way that enables CMS to exit these disputes while declaring mission accomplished in reducing fraud against Medicaid in Minnesota.
Of course, he doesn’t have to use these off-ramps. He could decide to end the stays and resume the fiscal attack on Minnesota. He could also decide to expand the narrative of fraud against Medicaid and take deferrals against other states. We’ll know more by the time the litigation stay expires in early September—just two months before the mid-term elections.