Massive Medicaid fraud scheme puts Minnesota’s federal funding at risk — and fallout could widen
Minnesota is facing threats that the federal government may pull its funding for Minnesota’s Medicaid program until it cleans up its act amid investigations into multiple alleged fraud schemes plaguing the state’s social services system.
Minnesota is coming under heightened scrutiny as President Donald Trump has labeled Minnesota a "hub of fraudulent money laundering activity," due to several key fraud schemes targeting the state's Medicaid program, and other federally funded programs that feed children. More than 80 people have faced charges in the state in connection with these schemes.
Chris Edwards, the Kilts Family Chair in Fiscal Studies at the libertarian think-tank the Cato Institute, said that federal-state funding programs are ripe grounds for fraudulent activity.
"Federal aid-to-state programs are especially vulnerable to fraud and scams because the Feds mainly pay for them," Edwards said in a Tuesday email to Fox News Digital. "The states administer and they care little about waste because the Feds are paying. The states would have more incentive to run efficient programs if they were funded by state taxes. The states must balance their budgets every year, so politicians must make tradeoffs and focus on efficiency."
"By contrast, the federal government runs massive deficits, so the politicians don't care much about waste," Edwards said. "There's a double-problem with aid-to-state programs: the states don't care about waste because it's federal money, and the Feds don't care either because they run massive deficits."
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Included in this series of alleged fraud schemes is one stemming from a new program known as the Housing Stability Services Program, which offered Medicaid coverage for housing stabilization services in an attempt to help those with disabilities, mental illnesses, and substance-use disorders receive housing.
The Justice Department so far has charged less than a dozen people for allegedly defrauding the program that runs through Minnesota’s Medicaid service, but more charges are expected.
Additionally, the Trump administration and lawmakers have launched probes into Minnesota's "Feeding Our Future" $250 million fraud scheme that allegedly targeted a children's nutrition program the Department of Agriculture funded and that Minnesota oversaw during the COVID-19 pandemic. At least 77 people have been charged in that scheme, which took advantage of the U.S. Department of Agriculture's decision to waive certain Federal Child Nutrition Program requirements.
Some fraud cases in Minnesota have collapsed though, and Hennepin Country judge overturned a guilty verdict for Abdifatah Yusuf in a Medicaid fraud case in November. Minnesota Attorney General Keith Ellison announced in August that Yusuf was found guilty of six counts of aiding and abetting theft by swindle, and claimed that Yusuf used his agency Promise Health Services, LLC to fraudulently obtain Medicaid funds for services that were not provided or were billed based on inaccurate documentation.
Minnesota is dependent on the federal government for a significant portion of its funding. In 2023, federal funding toward Minnesota’s Medicaid program totaled $11 billion — amounting to roughly 58% of all federal funding Minnesota receives, according to the House’s Energy and Commerce Committee. Ultimately, the federal government covers approximately 51% of Minnesota's Medicaid costs.
In every state, the federal government splits Medicaid costs using the Federal Medical Assistance Percentage formula, which is calculated by comparing the state's per capita income to U.S. per capita income. Percentages determining how much the federal government covers vary by state, with the federal government absorbing between 50% of Medicaid costs in states like California and Colorado, and up to nearly 77% in Mississippi, according to the Congressional Research Service.
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It’s unclear exactly how many federal dollars went toward fraudulent providers in Minnesota. The U.S. Centers for Medicare & Medicaid told Fox News Digital Tuesday that an audit will further examine how federal funds were used.
"CMS is using all our resources to investigate and address this egregious fraud scheme in Minnesota…As part of a comprehensive audit, CMS will isolate how much of these funds were misused," CMS spokeswoman Catherine Howden said in a statement to Fox News Digital. "Given the complexity of this situation, along with Minnesota’s lack of transparency, this review will be complex and time intensive."
Minnesota’s Department of Health and Human Services did not respond to a request for comment from Fox News Digital by deadline.
Edwards said that it is easier than ever for criminal gangs to partake in these fraudulent schemes, due to the fact that benefits and subsidies are now paid automatically by federal computers, rather than through paper forms.
"The only solution is to devolve these federal-funded programs to the states and let them fund," Edwards said. "There is no magic money tree in Washington. Welfare programs should be funded and administered at the state level."
In September, the Justice Department announced that it had charged eight defendants with wire fraud for their roles in the Housing Stability Services Program Medicaid fraud scheme. Acting U.S. Attorney Joseph Thompson said in a statement that the charges marked the "first wave" expected in connection with the case.
"I want to be clear on the scope of the crisis," Thompson said in a statement in September. "What we see are schemes stacked upon schemes, draining resources meant for those in need. It feels never ending. I have spent my career as a fraud prosecutor and the depth of the fraud in Minnesota takes my breath away."
In July 2022, Minnesota stood up its Housing Stability Services Program, which offers Medicaid coverage for housing stabilization services. But instead, those charged in September obtained and "misappropriated millions of dollars in program funds that were intended as reimbursements for services provided to those people," according to the Justice Department.
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Although the Housing Stability Services Program was expected to cost $2.6 million annually, the program paid out $42 million in 2022, $72 million in 2023, and $104 million in 2024.
Ultimately, a federal investigation found that many program providers had defrauded the system by acquiring names of program-eligible beneficiaries from addiction treatment centers and other facilities, and then used those individuals’ information to send in bogus reimbursement claims — ultimately raking in taxpayer money fraudulently, per the Justice Department.
Among those charged in September in connection to the Housing Stability Services Program were Moktar Hassan Aden, 30; Mustafa Dayib Ali, 29; Khalid Ahmed Dayib, 26; and Abdifitah Mohamud Mohamed, 27. Together, they allegedly enrolled Aden’s company Brilliant Minds Services LLC as a Housing Stability Services Program provider in April 2022 and then claimed that they provided program-reimbursable consultation services, the Justice Department said.
Altogether, Brilliant Minds submitted reimbursement claims racking up to $2.3 million between September 2022 and April. Each defendant allegedly pocketed between $300,000 and $400,000 between April 2023 and May 2025 through Brilliant Minds, according to the Justice Department.
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Centers for Medicare & Medicaid Services (CMS) Administrator Mehmet Oz issued a stern warning to Minnesota Gov. Tim Walz Friday, and threatened to slash federal Medicaid funding unless Minnesota restored the "integrity" of its program.
Specifically, Oz said that more than $1 billion had been stolen through the alleged fraud scheme within Minnesota’s Somali community, and asserted that some of the funds "may have even made its way to the Somalian terrorist group (al-Shabab)."
"Our staff at CMS told me they’ve never seen anything like this in Medicaid — and everyone from Gov. Tim Walz on down needs to be investigated, because they’ve been asleep at the wheel," Oz said.
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Walz’s office did not immediately respond to a request for comment from Fox News Digital.
As a result, Oz said that Walz must send weekly updates on anti-fraud measures to the Centers for Medicare and Medicaid Services freeze enrollment of high-risk providers for six months, verify all current providers as "legitimate" or remove them, and send CMS a corrective action plan to prevent fraud in the future within the next 60 days.
"If we’re unsatisfied with the state’s plans or cooperation, we’ll stop paying the federal share of these programs," Oz said.
Fox News’ Sophia Compton and Breanne Deppisch contributed to this report.