DHS budget director outlines governor's plan to centralize Medicaid administration and tighten program integrity

Derrick Bailey, budget director for the Minnesota Department of Human Services, presented the governor's human services package to the House Human Services Finance and Policy Committee, saying it focuses on system transformation, federal compliance, program integrity, targeted investments and savings to address projected deficits.

Bailey said the package would move the state away from multiple managed care organizations and toward an administrative services organization model, with a target transition date of Jan. 1, 2029. "The state would retain policy decisions and rate setting while an administrative entity handles claims processing," he said, arguing the change would create a single set of rules, a consistent provider network and stronger statewide program-integrity oversight.

The proposal would also begin shifting some manual financial eligibility functions from counties and tribal nations to the state starting July 1, 2028, Bailey said. The goal, he said, is to reduce local administrative burdens, create a shared document-storage approach and improve consistency in eligibility determinations.

On federal compliance, Bailey summarized steps needed to implement the HR1 requirements: six-month eligibility renewals, new data-matching for addresses, work requirements for certain adults in the expansion population and limits on retroactive coverage. He estimated the work-requirements and related changes would cost roughly $11 million in the current biennium and $33.7 million in the tail for initial items.

Program-integrity proposals were a major focus. Bailey outlined a package of prepayment and postpayment claim reviews, predictive analytics and enhanced provider vetting, including shortening response windows for providers facing termination actions and requiring stronger enrollment checks. DHS projects the integrity work would yield substantial savings and allow more aggressive detection and recovery of inappropriate payments.

Other proposals would expand electronic visit verification to more home- and community-based services, add documentation and billing limits, eliminate some pandemic-era remote-provision rules in provider-controlled settings, and align rates to documented staffing and person case mix. Bailey said DHS also plans targeted investments, such as a Medicaid benefit for coordinated specialty care for first-episode psychosis and case management for people exiting jails under an 1115 waiver.

Lawmakers pressed DHS for bill text and implementation detail. Representative Gilman and others repeatedly asked why the committee had not received draft bill language; Bailey said the reviser's office was still finalizing statutory language and DHS would provide text when available. Several members asked how many proposals originated in the governor's office versus agency staff; Bailey described a collaborative process between DHS and the governor's staff.

The presentation drew sharp questions about timing and the effect of savings proposals on people with disabilities and long-term supports. "We cut a billion dollars from people with disabilities last year; it is not a budget year to do that again," one member said, expressing opposition to cuts that would reduce access to care.

The committee did not take votes on the proposals during the session; Bailey's presentation closed with DHS staff available for questions and the committee moving to public testimony.

The DHS budget book and supporting materials are posted online; committee members said they would scrutinize the bill language once available and revisit questions about timelines and operational details.