Medicaid Fraud Crackdown Intensifies, But Is It Solving the Right Problem?

In January 2026, Minnesota received a letter from CMS announcing it would begin withholding $515 million in quarterly federal Medicaid payments, citing unresolved program integrity concerns.¹ The state sued. A federal court dismissed the case on procedural grounds in April, and even after CMS accepted Minnesota's corrective action plan the following month, the withheld funds were not released.² By May, CMS had gone further still, deferring $1.3 billion in federal Medicaid funding to the state—the largest deferral action in the agency's history.³

Minnesota is the most visible example of a federal enforcement posture that has escalated sharply in 2026, and it embodies a question now shaping managed care and value-based organizations nationwide. How much of the money that CMS is clawing back through efforts targeting fraud, waste, and abuse reflects genuine improper billing, and how much reflects administrative eligibility redeterminations that can result in coverage losses among people who may still qualify for Medicaid?

A Rapidly Escalating Enforcement Posture

The current push traces to February 2026, when CMS released a request for information on how to strengthen fraud, waste, and abuse efforts across Medicaid, Medicare, and the Affordable Care Act marketplaces under its Comprehensive Regulations to Uncover Suspicious Healthcare (CRUSH) initiative.³ The following month, President Donald J. Trump signed an executive order establishing the Task Force to Eliminate Fraud, chaired by Vice President JD Vance.

Since then, the tools CMS has deployed have moved well beyond routine audits. In April, the agency sent letters to all 50 governors directing states to "swiftly revalidate" high-risk Medicaid providers and submit 2-year revalidation strategies. In May, CMS announced that HHS's Office of Inspector General would review every state and territory’s Medicaid Fraud Control Unit (MFCU) ahead of its next annual recertification. One early outcome of that review came in June. HHS denied Hawaii's MFCU its recertification, cutting off federal funding for the unit entirely. CMS has also implemented a 6-month nationwide moratorium on new Medicare home health and hospice enrollments and reports that Medicare program integrity savings increased from $26.3 billion in fiscal year (FY) 2024 to $41.9 billion in FY 2025, a 59% increase the agency attributes to more aggressive enforcement.⁴

Beyond Minnesota, at least 4 additional states have received formal CMS information requests, and 11 states have received inquiries from the House Committee on Energy and Commerce about their program integrity practices.² State Medicaid directors, for their part, say they largely share Washington's stated goal. The National Association of Medicaid Directors noted that states have long used audits, postpayment reviews, and MFCUs to guard against improper billing, and that MFCUs alone reported 1151 convictions and $1.4 billion in recoveries in the most recent federal FY on record.⁵

Robert Andrews, JD, CEO of the Health Transformation Alliance (HTA), a purchasing cooperative representing large self-insured employers, said the underlying strategy behind CRUSH—using data analytics and prepayment review to flag suspicious billing patterns—mirrors what has already proven effective in the commercial market.

"It used to be maybe 2 decades ago that lots of humans would have to sort through lots of paper," said Andrews in an interview with The American Journal of Managed Care^® (AJMC^®). "Now, if you have a good AI [artificial intelligence] tool, it can look at millions of claims in a couple of minutes and find those patterns."

He pointed to examples as simple as a male patient billed for obstetric-gynecologic services or a physical therapy practice averaging far more weekly visits per patient than is plausible as the kind of anomaly that pattern-recognition tools can surface almost instantly.

Based on HTA's experience auditing more than $40 billion in annual employer health spending, Andrews said HTA has found roughly 2% of claims to be erroneous or fraudulent, and he believes the rate in Medicaid is likely higher.

"Medicaid patients are very often less able to look out for themselves," he said, contrasting them with commercially insured patients who may more readily recognize a billing scam. Applied to the more than $1 trillion spent annually on Medicaid, Andrews said even a conservative estimate points to tens of billions of dollars in recoverable savings.

Distinguishing Fraud From Eligibility Redeterminations

Not everyone agrees that the dollars being described as "fraud, waste, and abuse" savings are actually coming from fraud. An analysis from the Georgetown University Center for Children and Families found that only 4 of 21 Medicaid provisions in the federal budget reconciliation law actually target waste, fraud, or abuse; the Congressional Budget Office estimates those provisions will reduce federal payments to states by $25 billion over 10 years, or about 2.5% of the law's roughly $990 billion in total Medicaid cuts.⁶ By contrast, work-reporting requirements and 6-month redetermination cycles imposed on Medicaid expansion adults account for nearly 40% of those cuts. Much of the projected federal savings stems from disenrollment associated with administrative requirements rather than fraud detection, according to the analysis.

Importantly, eligibility redetermination is generally intended to verify continued Medicaid eligibility rather than identify fraudulent billing. As implemented, it can result in disenrollment among individuals who do not complete required paperwork, verify income on revised timelines, or document work-reporting compliance—even if they remain eligible for coverage.

Andrews drew a sharp line between the 2 categories when asked whether the distinction matters to a large employer purchaser. "It matters a lot," he said. Verifying whether an individual meets work-requirement criteria, he explained, requires defining terms like "able-bodied" and "working" in ways that are far more complicated than they appear. He offered the example of a parent at home caring for young children with family support or someone with a disabling mental health condition that is not immediately visible to a caseworker.

"It's not that the cost of taking care of them is going to disappear," Andrews said, noting that federal law requires hospitals to treat emergency patients regardless of coverage status, meaning uncompensated costs simply resurface elsewhere in the system.

He contrasted that with clearly identifiable billing anomalies, like a physical therapy practice billing 15 visits per patient per week, which he called "a lot trickier" to defend and "pretty easy to find out" once flagged. "Savings from the second example are clear and fair and should be vigorously pursued," Andrews said. "From the first example, I think it's a lot trickier."

The Managed Care and ACO Exposure

For organizations delivering care under value-based arrangements, the enforcement wave is not simply a policy debate playing out in Washington—it has direct operational consequences. Aisha Pittman, MPH, senior vice president of government affairs at the National Association of ACOs (NAACOS), said in an interview with AJMC that accountable care organizations (ACOs) have effectively served as an early warning system for fraud because they are financially responsible for their beneficiaries' total cost of care.

"ACOs have really been at the forefront of uncovering areas of fraud, waste, and abuse," Pittman said, citing catheter fraud tied to skin substitute billing and durable medical equipment (DME) schemes that ACOs identified and reported to CMS in recent years.

She described a recurring pattern in which new suppliers or newly acquired ownership groups rapidly bill a broad swath of beneficiaries before disappearing—the exact behavior CRUSH's provider revalidation and DME moratorium provisions are designed to intercept and change NAACOS has welcomed.

But Pittman also raised a financial exposure specific to ACOs that has gone largely unaddressed: fraudulent claims that CMS has flagged and paid into escrow pending investigation still appear as paid claims on the data feeds ACOs use to calculate shared savings.

"We don't have any signal as to whether or not CMS will remove those services from the ACO's ledgers until long after the performance year," Pittman said, adding that allegedly fraudulent claims submitted by providers outside an ACO's control can meaningfully reduce or eliminate the shared savings a well-performing organization would otherwise earn.

NAACOS is pushing for reforms that would exclude disputed claims from ACO expenditure calculations in real time rather than after the fact, along with a clearer feedback loop when ACOs report suspected fraud to CMS and HHS’ Office of Inspector General. Some larger ACOs, she said, are also interested in piloting preclaim payment review, taking on a more active role in verifying that billed services were appropriate before payment is made.

Andrews said the ripple effects of enforcement extend into commercial contracting as well. He estimated that about a quarter of HTA's roughly 80 member companies are already using dedicated payment-integrity vendors, with the remainder pushing their carriers to do more.

"Getting rid of a fraudulent provider benefits the whole system," Andrews said, arguing that a practice shut down for Medicaid fraud is also a practice that stops overbilling commercial payers and Medicare.

What to Watch

CMS continues developing its CRUSH initiative following the Request for Information comment period and has indicated that additional program integrity actions are likely. The agency also has signaled that further state-level deferral and withholding actions are likely.² How the MFCU recertification reviews play out beyond Hawaii, and whether other states follow Minnesota's litigation path, will help determine whether this enforcement wave settles into standard practice or triggers a broader legal and political reckoning.

For managed care organizations and ACOs, the practical stakes come down to 2 separate questions that are currently being litigated under 1 banner: how to root out genuine billing fraud without penalizing organizations for schemes outside their control and how to distinguish that effort from a redetermination and work-reporting apparatus that, by most independent accounting, is doing the greater share of the fiscal work—just not the kind CMS is publicizing.


References

1. Shankar A. New federal focus on fraud, waste and abuse may signal changes for the health care industry. Foley & Lardner LLP. April 20, 2026. Accessed July 14, 2026. https://www.foley.com/insights/publications/2026/04/new-federal-focus-on-fraud-waste-and-abuse-may-signal-changes-for-the-health-care-industry/
2. Mathers J, Burns A, Rudowitz R. CMS' new approach to federal Medicaid spending in cases of potential fraud. KFF. May 15, 2026. Accessed July 14, 2026. https://www.kff.org/medicaid/cms-new-approach-to-federal-medicaid-spending-in-cases-of-potential-fraud/
3. Mathers J, Hinton E. What to know about recent federal actions involving state Medicaid program integrity. KFF. June 9, 2026. Accessed July 14, 2026. https://www.kff.org/medicaid/what-to-know-about-recent-federal-actions-involving-state-medicaid-program-integrity/
4. Crushing fraud, waste & abuse. CMS. Updated July 6, 2026. Accessed July 14, 2026. https://www.cms.gov/fraud
5. McEvoy K. Why and how states and territories are addressing fraud, waste and abuse. National Association of Medicaid Directors. February 27, 2026. Accessed July 14, 2026. https://medicaiddirectors.org/resource/why-and-how-states-and-territories-are-addressing-fwa/
6. Schneider A. Fraud and abuse against Medicaid: the truth about the budget reconciliation law. Georgetown University Center for Children and Families. July 25, 2025. Accessed July 14, 2026. https://ccf.georgetown.edu/2025/07/25/fraud-and-abuse-against-medicaid-the-truth-about-the-budget-reconciliation-law/