Minn. DHS suspends payments to 115 providers, seeks CMS termination of housing-stabilization Medicaid benefit amid fraud probes

The Minnesota Department of Human Services has suspended payments to 115 providers, has 120 open investigations into its housing stabilization services (HSS) program and has asked the Centers for Medicare & Medicaid Services to terminate the Medicaid HSS benefit, temporary DHS Commissioner Shereen Gandhi told the House State Agency and Fraud Oversight Committee in an oversight hearing.

Gandhi and Inspector General James Clark described a pattern of coordinated and increasingly sophisticated fraud across parts of the state’s Medicaid home- and community‑based services, including both housing stabilization services and integrated community supports (ICS). "Payments will be shut off immediately at the first signs of fraud," Inspector General James Clark said. "All credible allegations of fraud will be referred to law enforcement."

Why it matters: DHS officials and public testifiers said the schemes have affected people trying to get housing and other supports, and that fraud has diverted taxpayer dollars from people with disabilities and Minnesotans experiencing homelessness. Agency leaders said they have moved to stop payments faster, expand data analytics and pursue both administrative and criminal referrals, while warning there are tradeoffs between rapid payment suspension and protecting criminal investigations.

What DHS reported

Shereen Gandhi, identified herself as the temporary commissioner of the Minnesota Department of Human Services and said DHS is treating fraud as a top priority. She told the committee HSS is a Medicaid service distinct from state‑funded rent assistance and estimated the program serves roughly 21,000 individuals with about 1,800 enrolled providers. For ICS, she said there are about 260 ICS providers, 487 approved ICS settings and roughly 2,800 ICS units.

Gandhi said DHS designated HSS and the early intensive developmental and behavioral interventions (EIDBI) program as "high risk" in April, effective June 1, which tightened enrollment requirements, increased on-site and unannounced visits and gave DHS additional administrative tools. She said DHS has asked CMS to terminate the HSS benefit and that the earliest termination date would be Oct. 20, pending CMS’s review and the close of public comment.

Inspector General James Clark told the committee the fraud schemes are varied and, in some cases, appear to be organized operations rather than isolated incidents. He described common patterns including billing for services recipients did not receive, overbilling, upcoding and lacking documentation. Clark said his office has referred cases to law enforcement and has contracted a federal reviewer to perform a top‑to‑bottom analysis of HSS billing data, with preliminary results expected the following month.

Clark said the 115 providers to which DHS has suspended payments have billed about $100 million to the Medicaid program over the last six years; he cautioned that the exact portion of that amount that will be proven to be fraud remains subject to ongoing investigations and potential prosecution. "We're seeing mixed bags in our investigations," Clark said. "Ultimately, prosecutors or a court of law will determine exactly... how much of it is actually fraud."

Agency changes and tools

DHS described a set of administrative steps and tools it says it is using or seeking: immediate suspension of payments when a credible allegation of fraud is found; a temporary moratorium on new provider enrollments; creation of unique identifiers to track providers across programs; referrals to the Department of Revenue for tax investigations; and a statewide inspector general work group to share data and investigative resources. Gandhi said the governor issued an executive order on the day of the hearing that included those authorities.

DHS said it has expanded analytical capacity by bringing five data analysts from Minnesota Management and Budget into DHS enterprise analytics and is contracting for prepayment review capacity. Clark said DHS is moving from a largely tip‑driven investigative model to a proactive data‑analytics model, and asked the legislature to consider statutory enhancements such as stronger payment‑withhold authority, expanded authority to suspend payments when licenses are revoked or suspended, and statutory risk‑assessment tools for pre‑enrollment vetting.

Public testimony and examples

Three public testifiers described the effects of alleged fraud on recipients. Rachel Lien, who identified herself as a woman in long‑term recovery, told the committee she found billing in her insurance records from two HSS providers — Brilliant Minds and Leo Human Services LLC — for services she said she never received. Lien said she was billed about $2,000 by one provider for a single vacuum and over $14,000 by another for repeated weekly encounters she said never occurred. She said she left information on DHS’s fraud hotline in November 2024 and did not hear from a senior investigator until May 2025.

Kane Pence, a public testifier, described ICS billing he said charged high daily rates for services he said were not delivered and said DHS did not act until his case attracted media attention. Josh Berg, who said he works at a large ICS provider, urged the committee to combine enforcement with continuity‑of‑care protections so individuals are not left without housing or services when providers are suspended.

Committee questions and legal standard

Committee members pressed DHS on timelines and why information from managed care organizations and counties had not prompted earlier action. DHS leaders said they began targeted analytics in 2025 after seeing spending patterns that diverged sharply from forecasts and after receiving both provider‑specific tips and less specific community allegations that signaled broader schemes.

State staff counsel quoted the statutory definition of a "credible allegation of fraud" under Minnesota law (Minn. Stat. §256B.064), which the agency uses to trigger payment suspensions; the statute describes allegations that have "an indicia of reliability" and that the state has reviewed using available evidence, including hotline complaints, claims data mining, provider audit patterns and law‑enforcement information.

Outstanding questions and next steps

Committee members asked DHS for a list of internal control failures, a breakdown of which programs beyond HSS have had payments suspended, and monthly updates on suspensions and investigations. DHS agreed to follow up. Gandhi said DHS wants to redesign and relaunch a housing stabilization benefit with stronger front‑end controls and continuity plans for individuals who need services.

"We do recognize there is a need for housing stabilization services," Gandhi said, and she urged collaboration with the legislature, providers and counties to rebuild the benefit with strengthened internal controls and fraud prevention in place.

Ending note

DHS officials told the committee they are balancing speed against investigative risk: suspending payments quickly to stop money leaving the state but remaining available to share data rapidly with law enforcement when criminal investigations proceed. The agency said it will continue administrative and criminal referrals and work with CMS, the attorney general’s office and federal contractors on data reviews as it pursues both enforcement and program redesign.