Minnesota halts payments to housing program providers amid fraud investigation

Minnesota has stopped payments to 50 Housing Stabilization Services providers amid an investigation into fraud in the fast-growing state program.

Speaking to reporters at an event in Delano, Minn., Gov. Tim Walz said the state halted payments Monday to “most of the people involved in this program.” The Minnesota Department of Human Services said in a statement that 43 of those payment stoppages came Monday. Payments to seven providers had already been stopped before Monday.

The announcement comes a couple weeks after federal investigators raided five providers as they investigate what they’ve called a “massive” scheme to defraud the program.

The state had halted payments to those five providers before the raids, according to the governor’s office.

The Housing Stabilization Services program uses Medicaid money to help find and maintain housing for older adults and people with disabilities. It’s now seen as a good idea “badly designed.”

“The payments that were scheduled to go today are not going out to them,” Walz said. “I fully expect some of those folks will sue the state of Minnesota, but I think we’re in a position right now [to] trust but verify.”

Temporary DHS Commissioner Shireen Gandhi said in a statement that the agency initiated a comprehensive data analytics project in March, reviewing records “in new ways.” As a result, the agency stopped payments and sent information on suspected fraud to law enforcement.

Minnesota initially estimated the housing stabilization program would cost about $2.6 million a year. Providers received $3.3 million in 2020. But by 2024, the total escalated to more than $107 million, according to data provided by DHS.

More than 1,700 housing stabilization providers are listed in the state’s provider directory. More than 700 companies were paid to provide the services last year, DHS data shows.

U.S. Attorney for Minnesota Joe Thompson said the program was designed to be an “easy-to-obtain benefit” with relatively few eligibility requirements.

“This has left the program vulnerable to bad actors and to fraud, and people billing for services that weren’t needed and were never provided,” he said.

Walz said that during and since the COVID-19 pandemic, fraudsters have sought to take advantage of programs meant to quickly get money to those in need.

Going forward, Walz said, there will need to be more barriers in place, even if it slows down organizations doing legitimate work.

DHS deputy commissioner John Connolly said Monday that the agency is “very concerned” about fraud in the program.

Connolly was responding to comments Thompson made to KSTP that fraud in state programs could reach $1 billion when current federal investigations are complete.

Thompson told KSTP the “vast majority” of providers of Housing Stabilization Services are fraudulent.

“This is, I think, a tremendous problem for the program,” Connolly said. “It’s a threat to the program overall because it diverts resources from the people who need them and from the providers who deliver services.”

State investigations into Medicaid fraud have been taking place for “a number of years,” he said.

“We’ve been investigating providers ... based on any credible information that we receive, continuously,” he said.

Minnesota lawmakers this spring boosted oversight of the housing program, including requiring providers to document their services, compliance training for companies and limits on how much a provider can bill for a single recipient.