As part of its efforts to crack down on fraud in Medicaid, the Trump administration revealed that it will suspend funding for New York's state Medicaid Fraud Control Unit.
In a letter (PDF) to Attorney General Letitia James and Amy Held, director of the state's MFCU, the Department of Health and Human Services Office of the Inspector General says that New York's fraud unit "was the poorest performing unit by a wide margin" between 2023 and 2025, when compared to others of similar size.
New York's fraud unit secured just eight or nine criminal indictments, per the letter, while other comparable units secured hundreds despite having smaller Medicaid programs. The state's Medicaid program serves nearly 7 million people and costs more than $100 billion to administer each year.
OIG said it recertified New York's MFCU on May 1 before conducting further review. The agency conducted an on-site visit on June 8 and determined that a key reason for the low number of indictments is a "deliberate leadership choice" to prioritize more high-impact, complex cases.
"This decision has shifted focus from criminal fraud and patient abuse and neglect to civil fraud cases, even though the relevant statutes and regulations make clear that State MFCUs are expected also to prosecute criminal cases," OIG wrote in the letter. "This shift in focus has not resulted in the New York MFCU achieving significantly improved results for its civil cases."
Given this approach, the agency determined that New York's fraud unit "failed to comply with the terms and conditions of its MFCU grant award," and will be withholding the funds for a quarter, beginning July 1 through Sept. 30.
The letter doesn't specify how much money will be withheld from the state over the next few months, but New York's fraud unit does receive $60 million per year.
In a statement on social media, AG James said that the state has recovered more than $267 million in Medicaid "and was recognized by this very administration for leading the nation in anti-fraud efforts."
"We are considering all legal options to stop this outrageous action," James wrote.
The action against New York marks the second state where the Trump administration has pulled back funds earmarked for combating Medicaid fraud. Funding for Hawaii's Medicaid fraud unit was pulled earlier in June, totaling about $3 million in funding, according to reporting from Reuters.
If a state's MFCU loses its funding and certification, it could put other Medicaid funding at risk.
The action against New York is the latest step in the administration's broader fight against healthcare fraud, spearheaded by Vice President JD Vance. The Centers for Medicare & Medicaid Services has also withheld Medicaid funds from Minnesota and California, and cracked down on fraudulent behavior in hospice and home healthcare.