As Minnesota cracks down on fraud, some lawful social service providers struggle to survive

The call Kathy Messerli received from a home care agency last week was wrenching: a woman with dementia sat alone at home without the supervision of aides, garbage and unpaid bills piling up.

The vulnerable Minnesotan is one of dozens languishing as their Medicaid-funded services succumb to financial pressures — a product, providers say, of the state’s rollout of a slew of measures to root out fraud.

The Department of Human Services hopes the changes, which included a payment delay to providers, will help rein in a snowballing scandal that’s thrust Minnesota into the national spotlight. More than a dozen people have been charged with pilfering from an array of social programs, and authorities claim stolen funds could ultimately total billions of dollars. President Donald Trump has pointed to the situation as a reason to deploy federal agents to Minnesota.

But providers point to even more stresses. The new processes closely follow the shuttering of UCare, the nonprofit insurer that Medicaid-funded services long relied on for reimbursement. And they come amid an extraordinary immigration enforcement operation that’s sent some immigrant health workers and patients into hiding.

Advocates say those factors have created a perfect storm for an already unstable industry. Their concerns reveal simmering unease with the human services agency as it struggles to crack down on fraud without kneecapping legitimate businesses.

“Targeting absolutely every provider, including those of high integrity, is simply creating a lack of services out in the field,” said Messerli, the executive director of the Minnesota Home Care Association.

State social services officials at a recent hearing stood behind their hard-nosed approach to reducing misconduct while pledging to improve communication with providers and safeguard services.

Minnesota lawmakers are likely to focus on reimagining social services when the session begins Feb. 17, but talks about balancing reforms with resource access are already underway.

Gov. Tim Walz’s October announcement caught thousands of Minnesota providers off guard: Amid a welfare scandal that unfolded on his watch, the state human services agency would delay payments to certain programs vulnerable to wrongdoing as officials parsed claims for fraud.

For Susan Rosette, the new policy precipitated a crisis for her Two Harbors-based home care service, Cardinal Comfort Care Cooperative. Without the guarantee of an on-time paycheck, 16 workers quit to find new jobs. Twenty-eight people have stayed on under the agreement that they will get compensated eventually. (Many providers started getting paid again in mid-January.)

Meanwhile, the cooperative has slimmed down its Department of Human Services clients from 44 to 12, relying instead on people who can pay privately and through managed care organizations.

“It’s just a tragedy what happened,” Rosette said. “We worry about our people.”

First came the shuttering last year of the fraud-plagued Housing Stabilization Services, which disability rights attorney Chad Wilson said robbed some innocent residents of a place to live.

Then, UCare announced it would close, drying up an essential revenue stream for wide-ranging companies, from those that ferry Minnesotans to medical appointments to others that assist disabled adults.

The massive ICE surge that’s rocked the state has also presented unexpected challenges for the industry, said Amy Hewitt, the director of the Institute on Community Integration at the University of Minnesota.

“People with disabilities and their families are afraid to leave their home,” Hewitt said, noting that one consequence of the immigration enforcement operation is “all the missed appointments and the effects that has on people who have chronic health conditions and people with disabilities.”

The Department of Human Services largely defended its fraud-fighting efforts at a January pre-session hearing that featured emotional testimony from advocates and clients. Many of them, as well as some politicians of both parties, slammed the agency for an apparent lack of transparency about the pre-payment reviews.

“This whole rolling out has been a mess and a failure for the people we try and serve,” Republican Rep. Joe Schomacker of Luverne said.

John Connolly, the agency’s deputy commissioner and state Medicaid director, said the pre-payment review process has helped identify billing irregularities. An initial Optum report found 90% of claims that Medicaid-funded autism intervention providers billed the state over a four-year period veered from acceptable procedures.

But Connolly acknowledged the new procedure hasn’t been perfect.

“Our idea here was to do this in a way that would not take a hammer approach… but to be more surgical and more specific in terms of how we’re analyzing specific claims or providers,” he said, adding that the agency intends to improve communication with providers. Connolly said officials didn’t intend to freeze claims across the board, but rather suspend payments to get the review process rolling.

Gandhi said her agency has worked hard to root out welfare wrongdoing — from freezing enrollment of new providers in high-risk programs to working with lawmakers to strengthen licensure standards for autism intervention services. And she pointed to the urgent backdrop of their efforts: the Trump administration has threatened to withhold $2 billion in Medicaid funding to Minnesota, a move the state has appealed.