Washington, D.C. — The federal government is taking an aggressive new stance on Medicaid fraud, and the approach is unlike anything states have seen before. The Centers for Medicare and Medicaid Services has begun deferring and withholding hundreds of millions of dollars in federal Medicaid payments — not after fraud is confirmed, but while it’s still being investigated.
That shift carries real consequences for long-term care providers, whose Medicaid revenue depends on states receiving their full federal match without interruption.
A New Playbook for Federal Enforcement
For decades, CMS handled suspected Medicaid fraud through a process called a disallowance — essentially a denial of federal matching funds after an audit confirmed that specific payments weren’t allowable. The process was deliberate, often taking years to resolve.
What’s happening now is different. CMS announced it would defer $259 million in federal Medicaid payments to Minnesota for claims paid in fiscal year 2025 — an unprecedentedly large amount. Then it notified Minnesota it would begin withholding $515 million in quarterly federal payments pending a hearing outcome. That withholding represents nearly 20% of the federal share of Minnesota’s Medicaid spending.
As of mid-March, three additional states have received formal letters from CMS requesting information about program integrity. Eleven states in total — including California, Maine, and New York — have received requests from the House Committee on Energy and Commerce related to potential Medicaid fraud.
Why This Matters for Nursing Homes
The concern for skilled nursing operators isn’t theoretical. When a state suddenly faces a cash shortfall from withheld federal funds, something has to give — and providers are often first in line to feel it.
The new approach flips how the burden of proof works. Under the old disallowance system, CMS had to document why payments weren’t allowable. Under deferrals and withholds, states must now prove their expenditures were legitimate to get federal dollars restored. It’s a faster, broader tool — and it can sweep up spending that has nothing to do with the suspected fraud.
The scope is also far wider than what’s been typical. Prior withholds generally covered 1 to 10 percent of the federal share. Minnesota’s proposed withhold is nearly 20%. If that scale becomes a template, states operating on tight Medicaid budgets could face real disruptions — and nursing facilities could see delayed or reduced reimbursements as a result.
It’s the kind of enforcement escalation that dovetails with CMS’s broader push to use technology and data-driven tools to identify fraud before claims are paid — a strategy that’s clearly accelerating under the current administration.
Still Developing
Industry reports suggest CMS has signaled that additional states will receive similar notices soon. The agency has not released a full list of targets, and several of the states involved have contested whether the spending in question constitutes fraud at all.
The legal and political fight is likely to be long. But in the meantime, states are on notice — and so are the providers whose reimbursements flow through state Medicaid systems. For nursing home operators already navigating Medicaid rate uncertainty, this new federal posture is one more variable to watch closely.
