Trump administration suspends funding for New York’s Medicaid fraud unit

NEW YORK (AP) — The Trump administration on Tuesday said it would freeze federal funding for New York’s Medicaid Fraud Control Unit, a state agency responsible for investigating and prosecuting fraud in the safety-net government healthcare program.

In a letter sent to New York officials, U.S. Department of Health and Human Services Inspector General Thomas March Bell accused the state of not securing enough criminal indictments and said millions of dollars in funding would be suspended through at least Sept. 30.

The move is the second suspension of a state Medicaid fraud unit this year by the Republican Trump administration, and part of a barrage of anti-fraud actions it has aggressively promoted in the healthcare sector. They have included the creation of a new task force, targeted investigations, funding deferrals and demands for revalidation of healthcare providers that have touched all states but focused largely on Democratic ones.

The pulled funding also comes after the administration admitted a glaring error in figures meant to help justify a fraud probe into New York’s Medicaid program earlier this year, a mistake critics said revealed a Trumpian tendency to attack first and verify the facts later.

New York Attorney General Letitia James, a Democrat, immediately vowed to fight Tuesday’s funding freeze.

“During my time as Attorney General, my office has recovered over $627 million for Medicaid and was recognized by this very administration for leading the nation in anti-fraud efforts,” she wrote. “We are considering all legal options to stop this outrageous action.”

Letter accuses New York of low performance compared to other states

Bell’s letter to James and New York MFCU Director Amy Held argues that the unit is moving too slowly on cases and amassing too few indictments and convictions for wrongdoing in the Medicaid system. It notes that compared to four similarly-sized units in other states, it secured the lowest number of criminal fraud convictions between 2023 and 2025.

The letter acknowledges that one reason the state has fewer criminal convictions than other states is that it made a deliberate choice to focus on “high impact, complex fraud cases” rather than smaller-scale individual cases, but says that tradeoff didn’t produce sufficient results.

“Enough is enough,” Bell wrote. “The New York MFCU has failed to comply with the terms and conditions of its MFCU grant award.”

Bell said in the letter that the funding suspension could be lifted before Sept. 30 if New York takes corrective action, “showing it has remediated concerns that formed the basis for this suspension.” He said if the state doesn’t fix the problems, the freeze will continue.

New York officials dispute the Trump administration’s claims

New York’s attorney general’s office said in a statement that it has “long been recognized as a national leader in effectively investigating and prosecuting Medicaid fraud schemes,” including by the HHS inspector general’s office. A 2025 report from the office notes that New York is one of four states that made up half the total civil recoveries in that year.

A spokesperson for the attorney general’s office said most of the unit’s criminal convictions focus on company owners, executives and corporations that would return large amounts to Medicaid.

“This administration’s unprecedented attack on New York is another political distraction,” James said in a statement.

The funding cutoff follows a similar move in Hawaii. In early June, Bell told Hawaii officials that Medicaid fraud funding would be cut off there, saying that it had a three-year stretch without a Medicaid fraud indictment or conviction.

Joan Alker, executive director and co-founder of Georgetown University’s Center for Children and Families, said there’s an irony in the federal government cutting off money intended for prosecuting fraud when its stated goal is to do just that.

“If you want to fight fraud, don’t take away money from states’ fraud control units,” she said. “I chalk this up to more political theater to distract voters from historic Medicaid cuts before the midterms.”

Move follows months of federal warnings and deferrals

For months, the Trump administration has contended that states – especially some Democratic-led ones – have been lax about fraud in social safety-net programs, including Medicaid.

It has demanded at least five states, four of them governed by Democrats, share information about how they identify, prevent and address Medicaid fraud.

The federal government has also withheld some Medicaid funding from Minnesota and California over fraud concerns. Minnesota Gov. Tim Walz, a Democrat who was Kamala Harris’ 2024 running mate, accused Trump of making cuts because of retribution.

The fraud-busting efforts have also targeted Medicare programs. Dr. Mehmet Oz, who leads the federal Centers for Medicare and Medicaid Services, announced a six-month moratorium on new enrollments for providers of hospice and home care nationally.

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Associated Press writer Anthony Izaguirre contributed to this report. Mulvihill reported from Haddonfield, New Jersey.