Minnesota is casting a Trump administration freeze on hundreds of millions in Medicaid dollars as political payback rather than a response to the state’s healthcare fraud scandal.
Temporary state Medicaid director John Connolly sent a five-page letter dated Oct. 2 to CMS administrator Dr. Mehmet Oz seeking restoration of deferred federal payments, the Daily Caller reported.
Connolly, appointed in May by Democratic Gov. Tim Walz, warned that the freeze on roughly $550 million since the start of 2026 feels less like enforcement and more like targeting. Federal agencies have deferred large sums, charged defendants in nine-figure schemes, and opened a criminal referral path, while Minnesota’s leaders insist the evidence has not been shared with them and call the pressure a retribution campaign.
Connolly leads the Minnesota Department of Human Services as temporary commissioner and state Medicaid director. In the letter he argued the department had met fraud-reporting expectations by flagging 14 “high risk” Medicaid providers.
He also said Minnesota had revalidated thousands of Medicaid providers. The letter asked CMS to resume funding and pressed federal officials for proof behind public fraud claims.
Connolly wrote that Minnesota has repeatedly asked CMS and federal law enforcement to supply evidence so the department can stop payments where warranted.
"Minnesota has repeatedly asked CMS and federal law enforcement to provide evidence supporting public claims of of fraud in Minnesota’s Medicaid programs so the Department of Human Services can stop payments where warranted,"
He added that no such evidence had reached DHS and that CMS had not directed the state to impose a payment withhold on any provider.
"To date, no such evidence has been shared with the Department of Human Services. Nor has CMS requested that the Minnesota Department of Human Services impose a payment withhold on any provider."
In public comments, Connolly said the department is ready to act on any “credible allegations of fraud.” He also said the federal posture had begun to “feel increasingly like a war on Medicaid, not a war on fraud.”
He voiced deeper political alarm as well.
"We are deeply concerned that this would be another step in a retribution campaign for Minnesota that was promised very publicly,"
MN DHS told the Daily Caller News Foundation it acts aggressively to detect and prevent fraud and cuts off money when credible allegations surface, working with other state agencies and law enforcement. The department did not detail further specific steps beyond those claims when asked.
CMS deferred $550 million in payments to Minnesota since the beginning of 2026, according to the MN DHS website. That same site said federal officials threatened to withhold as much as $2 billion over alleged fraud.
A February CMS press release described an initial $259 million deferral. Of that total, $243.8 million covered unsupported or potentially fraudulent Medicaid claims, and $15.4 million related to claims involving illegal immigrants.
In June, HHS announced it was deferring $1 billion from Minnesota and California combined for Medicaid and social-services fraud.
An independent KFF analysis cited in the reporting found federal dollars make up 64 percent of Minnesota’s total Medicaid spending, with the state receiving $11.8 billion a year from Washington. Losing even a slice of that stream hits a program built on heavy federal support.
A CMS spokesperson said the agency is committed to safeguarding Medicaid by strengthening program integrity, protecting taxpayer dollars, and ensuring benefits go only to people eligible under the law. The spokesperson declined further comment on pending litigation.
"CMS is committed to safeguarding Medicaid by strengthening program integrity, protecting taxpayer dollars, and ensuring benefits are reserved for those who are eligible under the law,"
Allegations of widespread fraud in Minnesota first broke in late 2025. The scandal touched COVID-19 pandemic relief, day-care centers, autism services, and home-care support programs. Reporting noted that the vast majority of people charged in connection with it were of Somali descent.
In May the Justice Department announced charges against 15 defendants in Minnesota for more than $90 million in fraud.
That same month Walz installed Connolly at DHS. Earlier, in March, then-DHS commissioner Shireen Gandhi and Attorney General Keith Ellison sued CMS, claiming the agency was illegally withholding funds. A court denied their request for a preliminary injunction.
In June, Vice President JD Vance said on X that he had referred allegations involving Minnesota officials to the Justice Department’s new Fraud Division for criminal investigation. Vance named the stakes in plain terms.
"I’ve referred these allegations to DOJ’s new Fraud Division for criminal investigation. Minnesota state officials are not above the law, and if they facilitated fraud, lied under oath about what they knew, or harassed and intimated whistleblowers, they must face justice."
Walz answered the same day. He said the move had “nothing to do with fraud” and labeled it a “campaign of retribution.”
Ellison’s office, for its part, boasted in 2023 that it had run the “largest-ever Medicaid fraud prosecution” by a state attorney general, three defendants, 24 counts, and $11 million total. Federal charging announcements later dwarfed that figure. CBS reporting cited in the coverage also noted Ellison has filed more than 73 lawsuits against the Trump administration.
Former Obama-era CMS senior advisor Andy Schneider criticized the current federal approach, saying officials “have done to Minnesota what CMS has never done to any other state” and calling it “all uncharted territory.”
Minnesota’s public line is consistent: the state wants evidence, says it partners with law enforcement, and frames federal freezes and referrals as political punishment. Connolly’s letter treats identification of 14 high-risk providers and provider revalidation as proof of good-faith compliance.
Federal actions tell a different sequence. CMS and HHS deferred hundreds of millions, then more. DOJ brought charges topping $90 million. Vance sent a criminal referral aimed at whether state officials facilitated fraud, lied under oath, or pressured whistleblowers. A state lawsuit failed to win an early court block on the funding hold.
Walz’s and Ellison’s offices did not comment in time for the Daily Caller report. CMS would not discuss the litigation further. The gap Minnesota officials keep citing, evidence not shared with DHS, sits beside charging documents, deferral totals, and a vice-presidential referral already on the record.
Taxpayers fund most of Minnesota’s Medicaid budget. When hundreds of millions freeze and billions stand at risk, the dispute is not abstract. It is about whether a state that already saw major fraud cases will police its own providers hard enough, or spend its energy arguing that Washington is the real problem.
Playing injured party is easier than cleaning up a program that kept paying questionable claims until federal officials finally closed the tap.
