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ST. PAUL, MN
Minnesota’s Medicaid program is entering what state officials describe as a decisive phase in its long and bruising effort to confront fraud, waste, and systemic oversight failures that cost taxpayers hundreds of millions of dollars and shook public trust in one of the state’s largest public programs.
A state-commissioned audit released February 6, 2026, alongside new operational data from the Minnesota Department of Human Services, shows both the scale of past vulnerabilities and the early impact of a new pre-payment review system designed to stop suspicious claims before public money is paid out.
At the center of the overhaul is a partnership with Optum, brought in after the fallout from the Feeding Our Future scandal, which exposed deep weaknesses in how Minnesota monitored publicly funded programs.
“This is not just about chasing fraud after the fact,” said State Medicaid Director John Connolly, who also serves as a deputy commissioner at DHS. “We did not have tools up to the task of responding to the increasingly complex schemes we have been grappling with. This is a key step in closing those gaps.”
From post-payment cleanup to pre-payment defense
For decades, Minnesota’s Medicaid oversight relied heavily on post-payment audits, a model that often allowed improper claims to be paid and only questioned months or years later, when recovery was difficult or impossible.
That changed late in 2025, when DHS quietly began piloting automated pre-payment analytics for fee-for-service Medicaid claims, placing certain high-risk claims into temporary suspension while data checks are performed.
In the past 90 days, Optum’s system has been reviewing claims before payment, flagging anomalies that warrant closer scrutiny and allowing unflagged claims to proceed normally. State officials stress that a flagged claim does not automatically indicate fraud, but rather a need for documentation or clarification.
The shift represents a structural change in how Minnesota protects Medicaid funds, moving prevention upstream rather than relying on recovery after losses have already occurred.
What the Optum audit found
The newly released audit examined 46 months of fee-for-service Medicaid claims, ending in late 2025, across 14 service categories that DHS identified as carrying the highest fraud risk.
Optum’s findings outlined two stark tiers of financial exposure:
Direct recoveries: $52.3 million
These involve clear policy violations, including so-called “impossible days,” where providers billed more than 24 hours of services in a single day, along with other direct rule-breaking patterns.
Potential savings: $1.75 billion
This larger figure reflects estimated losses tied not to explicit violations, but to vague policies, fragmented data systems, and oversight blind spots that allowed providers to exploit loopholes without triggering automatic alarms.
State officials emphasize that the $1.75 billion estimate does not represent proven fraud, but rather the scale of risk created when guardrails are weak or inconsistent.
The 14 high-risk services under review
DHS has placed a nine-month pre-payment review focus on the following service categories:
- Adult Companion Services
- Adult Day Services
- Adult Rehabilitative Mental Health Services
- Assertive Community Treatment
- Community First Services and Supports
- Early Intensive Developmental and Behavioral Intervention (EIDBI)
- Housing Stabilization Services
- Individualized Home Supports
- Integrated Community Supports
- Intensive Residential Treatment Services
- Night Supervision Services
- Non-Emergency Medical Transportation
- Recovery Peer Support
- Recuperative Care
Within that group, the audit identified especially high exposure in several programs:
EIDBI autism services accounted for the largest estimated vulnerability, with roughly 90 percent of claims diverging from established standards, creating more than $1 billion in potential exposure.
Individualized Home Supports showed unusually high volumes of billing for individuals who did not meet vulnerability thresholds, exposing an estimated $429.6 million in risk.
Night Supervision Services and Non-Emergency Medical Transportation revealed patterns of direct rule-breaking, including phantom billing and implausible travel times.
Early results show sharp behavioral change
According to DHS data, intensified oversight in the final quarter of 2025 led to a 29 percent drop in billing across the 14 targeted service categories, translating into approximately $165 million in cost avoidance.
Officials describe the decline not as a reduction in services, but as evidence that tighter scrutiny is altering provider behavior and deterring improper billing before money leaves the state treasury.
As an added safeguard, DHS has implemented a temporary licensing moratorium on new providers in these 14 categories, preventing opportunistic actors from entering the system while reviews are underway.
Federal pressure and a narrowing window
The state’s push to modernize Medicaid oversight has unfolded under growing federal scrutiny. The Centers for Medicare & Medicaid Services has warned Minnesota that unresolved oversight deficiencies could put up to $2 billion in federal Medicaid funding at risk.
That pressure has added urgency to reforms that many state officials now acknowledge should have been implemented years earlier.
“This is about restoring credibility with the federal government and with Minnesotans,” Connolly said. “We have to demonstrate that we are capable stewards of public dollars.”
What comes next
Optum’s pre-payment review work is scheduled to continue through the end of 2026, with DHS refining algorithms, tightening policy language, and reducing false positives that could delay legitimate payments.
In parallel, DHS is seeking funding for 168 temporary staff to conduct unannounced, on-site inspections of more than 5,800 providers statewide by this summer, verifying that billed services are actually being delivered to people who qualify for them.
Taken together, the measures represent the most aggressive restructuring of Minnesota’s Medicaid integrity operations in decades.
Whether they arrive in time to permanently close the door on the kinds of abuses that defined the Feeding Our Future era remains an open question. But for the first time, state officials say, the system is no longer relying on trust alone.
It is watching before it pays.
