The Trump administration has suspended federal funding for New York’s Medicaid Fraud Control Unit, accusing the state of failing to aggressively investigate and prosecute Medicaid fraud and warning that the funding freeze will remain in place unless significant improvements are made.
In a letter sent Tuesday to New York officials, Department of Health and Human Services Inspector General Thomas March Bell informed the state that millions of dollars in federal funding would be withheld through at least September. Bell argued that New York’s Medicaid Fraud Control Unit has not produced enough criminal indictments or convictions to justify continued federal support.
The action marks the second time this year that the administration has suspended funding for a state Medicaid fraud unit. It is part of a broader anti-fraud campaign that has included the creation of a federal task force, expanded investigations, delayed funding, stricter oversight of healthcare providers, and new compliance requirements. While the initiatives have affected every state, they have focused heavily on states led by Democrats.
The latest move also follows the administration’s earlier acknowledgment that it had relied on inaccurate figures when launching a Medicaid fraud inquiry involving New York.
New York Attorney General Letitia James immediately denounced the decision and pledged to challenge it in court.
“During my time as Attorney General, my office has recovered over $627 million for Medicaid and was recognized by this very administration for leading the nation in anti-fraud efforts,” she wrote. “We are considering all legal options to stop this outrageous action.”
Bell’s letter, addressed to James and Medicaid Fraud Control Unit Director Amy Held, contends that New York has allowed investigations to move too slowly and has failed to obtain enough criminal convictions. It notes that among five comparably sized state Medicaid fraud units, New York recorded the fewest criminal fraud convictions between 2023 and 2025.
Although Bell acknowledged that New York deliberately chose to prioritize “high impact, complex fraud cases” instead of pursuing a larger number of smaller prosecutions, he argued that the strategy failed to deliver adequate results.
“Enough is enough,” Bell wrote. “The New York MFCU has failed to comply with the terms and conditions of its MFCU grant award.”
According to Bell, the funding suspension could be lifted before Sept. 30 if state officials take corrective action and demonstrate that they have addressed the deficiencies identified by the federal government. Otherwise, he warned, the freeze will remain in effect.
New York’s attorney general’s office defended its record, saying the unit has “long been recognized as a national leader in effectively investigating and prosecuting Medicaid fraud schemes,” including by the HHS inspector general itself. Officials also pointed to a 2025 federal report showing that New York was one of only four states responsible for half of all civil Medicaid fraud recoveries nationwide that year.
A spokesperson for the attorney general’s office added that the unit focuses its criminal prosecutions on business owners, corporate executives, and companies whose misconduct results in substantial financial recoveries for the Medicaid program.
The New York State Health Department also criticized the administration’s action.
“Under the leadership of Governor Kathy Hochul, New York State has taken concrete steps to root out waste, fraud and abuse in Medicaid,” said Cadence Acquaviva, New York State Health Department spokesperson, in a statement. “We look forward to the day when these disingenuous attacks end.”
The funding suspension follows a similar decision involving Hawaii. Earlier this month, Bell informed Hawaii officials that federal support for the state’s Medicaid fraud unit would be cut after it went three years without securing a single Medicaid fraud indictment or conviction.
Joan Alker, executive director and co-founder of Georgetown University’s Center for Children and Families, questioned the logic behind the administration’s approach.
“If you want to fight fraud, don’t take away money from states’ fraud control units,” she said. “I chalk this up to more political theater to distract voters from historic Medicaid cuts before the midterms.”
For months, the Trump administration has argued that states—particularly those led by Democrats—have not done enough to combat fraud in public assistance programs such as Medicaid.
Federal officials have also required at least five states, four of them governed by Democrats, to provide detailed information explaining how they detect, prevent, and investigate Medicaid fraud.
In addition to New York and Hawaii, the administration has withheld certain Medicaid funds from Minnesota and California over fraud-related concerns. Minnesota Governor Tim Walz, the Democratic nominee for vice president in 2024, accused President Trump of using the funding cuts as political retaliation.
The administration’s anti-fraud campaign has also expanded into Medicare. Dr. Mehmet Oz, administrator of the Centers for Medicare & Medicaid Services, recently announced a nationwide six-month moratorium on enrolling new hospice and home healthcare providers as part of the broader effort to combat fraud and abuse.
{Matzav.com}