Walz unveils anti-fraud package after Trump administration threatens to halt Medicaid funds

ST. PAUL, Minn., (AP) — Gov. Tim Walz denounced the Trump administration’s latest threat to withhold federal funds from Minnesota as another step in a “retribution” campaign as he unveiled a package of legislation Thursday intended to fight fraud in public programs, a persistent problem that provided an impetus for the federal government’s immigration crackdown in Minnesota.

The Democratic governor made the announcement a day after Vice President JD Vance said the administration would “temporarily halt” some Medicaid funding to Minnesota over fraud concerns, as part of what he described as an aggressive drive against the misuse of public funds. Walz’s proposals were in the works well before Vance’s announcement. They followed other initiatives Walz launched previously to try to come to grips with a problem that eventually helped lead him to drop his bid for a third term.

“This is a targeted retribution against a state that the president doesn’t like,” Walz said at a news conference, where he said the administration is using the same kind of “false information” on fraud as a “pretext” the way it did to justify Operation Metro Surge, in which the Department of Homeland Security sent over 3,000 federal officers into Minnesota.

The Trump administration’s move to freeze the Medicaid funds was part of a larger effort to spotlight fraud around the country. The administration had previously cited allegations of fraud involving day care centers run by Minneapolis-area Somali residents as a reason for a massive enforcement surge there.

One Minnesota federal prosecutor last December estimated that the total fraud across several programs could exceed $9 billion. But John Connolly, the state’s Medicaid director, told reporters Thursday the state has no evidence to substantiate such a high figure.

Other fraud cases in Minnesota have included a $300 million pandemic food fraud scheme revolving around the nonprofit Feeding Our Future, in which 78 defendants have been charged, with at least 57 convictions so far, in what prosecutors call the largest COVID-19-related fraud scheme in the country.

The governor’s long list of proposals is aimed at better detection and oversight, strengthened investigative and enforcement authority and increased criminal penalties. One of them is the creation of a centralized Office of the Inspector General to lead fraud prevention efforts. The state Senate passed a bipartisan inspector general bill last year. But it remains stalled in the House amid disagreements over whether it should have law enforcement authority or, as the Walz administration prefers, just focus on investigations and leave enforcement up to the existing state Bureau of Criminal Apprehension.

Dr. Mehmet Oz, the administrator for the Centers for Medicare and Medicaid Services, said at a news conference Wednesday with Vance that the government would hold off on paying $259.5 million to Minnesota for Medicaid, the health care safety net for low-income Americans. Oz said the money would be delivered only after Minnesota implements “a comprehensive corrective action plan to solve the problem.” And he gave Walz 60 days to respond.

“How does taking and punishing children and elderly have anything to do with fighting fraud?” Walz countered. He added that the Trump administration has given his team no guidance for how to address its concerns, nor any opportunity to show the work that Minnesota has already done over the years to fight fraud. His administration estimates that 1.2 million Minnesotans could be hurt.

Officials at the Minnesota Department of Human Services, which administers Medicaid, noted that withholding $259.5 million — retroactive to the fourth quarter of 2025 — follows earlier federal action to withhold more than $2 billion in annual Medicaid funding to the state. The agency said the state submitted a corrective action plan earlier, and is still in the process of appealing that decision.

The state agency said it has implemented several new processes and reforms to prevent and detect Medicaid fraud since 2024. The changes included identifying areas at high risk of fraud, imposing stricter controls such as criminal background checks on providers, and more unannounced site visits.

Walz and Minnesota Attorney General Keith Ellison are both scheduled to appear before the U.S. House Oversight Committee next Wednesday for a hearing on misuse of federal funds in Minnesota’s social service programs.