Minnesota moves to terminate housing program amid FBI fraud investigation

The Minnesota Department of Human Services is seeking to terminate Housing Stabilization Services amid allegations of widespread fraud in the program intended to help people find and keep housing.

The agency announced Friday that it is taking the unprecedented step to end the program. A letter sent by DHS to the federal Centers for Medicare and Medicaid Services asks to stop the Medicaid-funded benefit.

DHS said it intends to redesign and relaunch the program.

“We cannot allow one more cent of taxpayer money going out the door to providers who claim to serve Minnesotans in need of stable housing while lining their pockets for personal gain,” DHS temporary Commissioner Shireen Gandhi said in a prepared statement. “Our own data analysis has shown that this program does not have the necessary controls to stop bad actors, and we are urging CMS to approve our request to end this program as swiftly as possible.”

The state move comes after FBI investigators said they’re looking into a “massive scheme” to defraud the program. Investigators searched five Housing Stabilization Services providers last month.

The state has been halting payments to individual providers, but now wants sign-off from the federal government to end the benefit altogether.

Gov. Tim Walz said Monday that the state stopped payments to “most of the people involved in this program.” State officials said Friday they have suspended payments to 77 Housing Stabilization Services providers “based upon credible allegations of fraud,” with 11 of those payment withholds newly effective Thursday.

Providers who said they have been working hard to serve clients called Friday’s news a shock.

Ashley Wolf, who helped build the Housing Stabilization Services program at Cardinal Home Services in Red Wing, raised concerns last year about problematic practices by another provider. But she said the decision to terminate the entire program was “heartbreaking” and fears it will hurt beneficiaries.

Kristi Flattum, who owns the housing stabilization company River Valley Housing Connection in St. Peter, said she’d spent the day helping a woman move into a new apartment. The small organization has about 100 clients and she worries they “are going to feel abandoned and give up hope.”

“It’s going to be a loss for the community. We were really meeting a need,” she said, noting county workers have such large caseloads, “they don’t have the time to really focus on the housing piece and we’ve been able to be that connection.”

The program has long needed more oversight and has been fraught with issues that make it hard for good providers, Flattum said. But she is worried about how long it will take the state to relaunch and whether she will be able to wait and resume the service.

For now, though, the state is focused on shutting the program, with DHS officials saying they are notifying enrollees and providers. The agency said it will continue to monitor remaining providers as the federal government winds up the program.

Acting U.S. Attorney Joe Thompson said in a prepared statement that he welcomed the news.

“Fraud has been eating away at Minnesota’s public programs for years, costing taxpayers billions,” Thompson said. “Ending the Housing Stabilization Services program cuts off a major source of abuse, but this is just the beginning. The fight against fraud continues, and a broader reckoning is long overdue.”

The state launched the housing stabilization program five years ago and it quickly ballooned, dramatically surpassing DHS projections. The program — one of the first of its kind in the country — was expected to serve about 8,000 people and cost roughly $2.6 million annually.

Last year more than 700 providers received a total of more than $107 million in Medicaid payments through the program, according to data DHS provided to the Minnesota Star Tribune. More than 1,800 Housing Stabilization Services providers are listed in the state health care program provider directory.

Search warrant affidavits describe how providers registered people but offered them little or no help while fraudulently billing Medicaid, claiming to have provided dozens of hours of services.

Officials at organizations who work with people who are homeless or facing housing instability said they have had concerns about Housing Stabilization Services providers for years, starting in 2022. Several people said concerns were passed along to DHS years ago and it isn’t clear why the state hasn’t addressed the issues sooner.

Minnesota set up the program with insufficient guardrails to ensure providers were qualified and to protect against billing abuses, lawmakers and social service providers said. This year, legislators passed a number of additional controls for the program, and they started rolling out this summer.

Several Republican lawmakers condemned the Walz administration in prepared statements Friday, saying the state failed to protect taxpayer dollars and calling for more accountability.

Republican legislators sent a letter to the U.S. Department of Health and Human Services last month asking it to audit the DHS. Rep. Kristin Robbins, who leads the House Fraud Prevention and State Agency Oversight Policy Committee, said Friday’s announcement strengthens the need for such an audit.