CMS defers roughly $259 million amid focused review of 14 Medicaid services; Minnesota lawmakers warn of budget strain

Deputy Commissioner John Connelly told the Fraud Prevention and State Oversight Committee on March 2 that the Centers for Medicare & Medicaid Services (CMS) has begun deferring roughly $259,000,000 in federal Medicaid payments while it conducts a focused review of 14 high‑risk services.

Connelly said the deferral applies beginning with the fourth quarter of federal fiscal year 2025 and that focused reviews typically take several quarters. "They will begin deferring dollars roughly $259,000,000 ... while they do a focused review of the 14 high risk services that we identified," he said, warning that repeated deferrals over multiple quarters could total multiples of that amount and "deeply implicate the entire state budget."

Lawmakers pressed DHS on how deferrals would affect the state’s ability to fund services and to staff anti‑fraud work. Several members said the deferral could hamper prosecution and oversight because federal scrutiny removes resources the state otherwise expected to draw down.

Connelly described the immediate task of compiling large volumes of information required for focused reviews and said Minnesota already faced a separate ongoing review of an emergency Medicaid program. He told the committee the state is preparing for a process that is "much, much broader and deeper" than the prior emergency Medicaid review.

Members asked DHS to return with fiscal scenarios and contingency plans. Representative Greenman and others stressed the importance of ensuring state prosecutorial and investigative capacity while federal funds are withheld.

CMS deferrals are an administrative action that temporarily withhold federal payments while the agency evaluates program integrity risks; they are not final disallowances but can lead to repayments or disallowances depending on the outcome of a review. DHS urged the committee to treat the situation as urgent and requested legislative collaboration on anti‑fraud measures and provider vetting to address CMS concerns.

Next steps: DHS agreed to supply follow‑up fiscal estimates and to brief the committee further on how the deferral will affect program operations and planned integrity investments.