Governor Walz Freezes Medicaid Payments Amid Expanding Federal Fraud Investigation

Governor Walz Freezes Medicaid Payments Amid Expanding Federal Fraud Investigation

SAINT PAUL, Minn. — August 1, 2025
By MinneapoliMedia Staff

Governor Tim Walz has ordered a temporary freeze on Medicaid payments to dozens of housing service providers across Minnesota, as a federal investigation into widespread fraud within the state’s Housing Stabilization Services (HSS) program intensifies.

Governor Tim Walz 

The decision follows alarming revelations from federal authorities suggesting that fraudulent claims could total more than $1 billion, marking what could become one of the largest Medicaid fraud schemes in Minnesota history.

Payments Suspended for Top Providers

Citing emergency powers authorized by a new state law, the Minnesota Department of Human Services (DHS) has halted payments for up to 60 days to the state’s 50 largest HSS providers. These agencies were identified through DHS data analytics as potentially high-risk, with unusually high or suspicious billing patterns.

"Every one of these providers is now under scrutiny," Governor Walz said during a press briefing this week. "This is about restoring integrity and protecting resources meant for our most vulnerable residents."

Federal Investigation Expands

The move comes amid a sweeping federal investigation led by Acting U.S. Attorney Joseph Thompson, who warned that the scale of fraud within Minnesota’s Medicaid system could surpass even the high-profile Feeding Our Future scandal, which involved more than $250 million in misappropriated federal nutrition funds.

“The fraud we’re seeing is organized, calculated, and deeply troubling,” Thompson said. “We believe this could reach unprecedented levels.”

Minnesota’s HSS program, which launched in 2020 to provide housing support for individuals with disabilities or mental health challenges, has seen explosive growth—from just $2.6 million in its first year to over $104 million in 2024.

Oversight Measures Strengthened

To respond to the escalating concerns, DHS has implemented several immediate oversight measures:

• Pre-Enrollment Risk Assessments for new providers
• Unannounced inspections and on-site visits
• Mandatory fingerprint background checks
• Enhanced billing documentation requirements, effective August 1
• Real-time data analytics to monitor suspicious claims

According to DHS Commissioner Jodi Harpstead, these efforts represent “a comprehensive crackdown on fraud while preserving access to essential housing supports for those who truly need them.”

Political Fallout and Calls for Accountability

Governor Tim Walz 

Republican leaders at the Capitol and in Minnesota’s Congressional delegation are demanding a full federal audit of DHS and broader state Medicaid operations. House Minority Leader Lisa Demuth called the situation a “wake-up call” for systemic reform.

“This level of mismanagement is unacceptable,” said Rep. Kristin Robbins, who chairs the newly formed House Committee on Government Fraud. “Minnesotans deserve accountability, transparency, and confidence that their tax dollars are being safeguarded.”

The fraud probe has added pressure on Governor Walz’s administration, which is already facing scrutiny for past missteps involving pandemic-era relief programs.

What’s Next

The payment freeze is expected to last through early fall, during which DHS will evaluate each flagged provider. Meanwhile, legislative leaders are exploring new proposals for:

• Creating an independent Office of Inspector General
• Implementing artificial intelligence systems to detect billing anomalies
• Increasing penalties for Medicaid fraud and misuse of public funds

Governor Walz acknowledged the challenge ahead. “We must protect these critical services,” he said. “But we must also ensure every dollar is spent with accountability and purpose.”

Program Snapshot

As the investigation continues, Minnesotans will be watching closely to see whether systemic changes emerge from this crisis—or if history is poised to repeat itself.

Stay with MinneapoliMedia for ongoing coverage of this developing story and the latest updates from both state and federal authorities.

MinneapoliMedia