‘Serious Fraud’: Judge Allows Trump Admin To Withhold MN’s Medicaid Funds
A federal judge has rejected an attempt by the state of Minnesota to immediately restore more than $243 million in Medicaid funding withheld by the Trump administration amid an investigation into widespread fraud concerns.
U.S. District Judge Eric Tostrud—appointed by President Donald J. Trump—ruled Monday that Minnesota’s legal challenge was premature because the federal government has not yet made a final decision about the disputed payments.
The judge denied both a temporary restraining order and a preliminary injunction sought by the state, meaning the funds will remain on hold while the federal review continues.
Lawsuit Filed Over Medicaid Payment Freeze
The dispute began after the Centers for Medicare and Medicaid Services (CMS) paused Medicaid payments to Minnesota earlier this year.
Federal officials said the action was taken after identifying significant concerns about fraudulent billing connected to state-run social service programs that receive Medicaid funding.
Minnesota Attorney General Keith Ellison filed a lawsuit in early March challenging the decision in the case Minnesota v. Oz, arguing that the funding freeze amounts to political retaliation disguised as fraud prevention.
The complaint sought a court order forcing CMS to release the funds while the administrative process unfolds.
However, Judge Tostrud concluded that courts typically intervene only after a federal agency has reached a final determination.
“Minnesota’s request for a preliminary injunction depends on assuming that predicted future events come to pass,” Tostrud wrote. “As a rule, the law does not allow a preliminary injunction to be issued based on assumptions like these.”
Federal Review Still in Early Stages
According to the ruling, the federal government has only initiated a deferral process—a procedure allowing regulators to temporarily pause funding while verifying whether reimbursement claims are legitimate.
CMS notified Minnesota on Feb. 25 that certain billing submissions had been flagged as questionable and requested supporting documentation.
“CMS, in other words, identified concerns and requested documents,” Tostrud wrote. “It did not express a conclusion that these claims or any part of them would be disallowed.”
While Minnesota cannot access the deferred funds during the review process, the judge emphasized that the investigation has only just begun.
Judge Acknowledges Minnesota’s Fraud Problem
In his ruling, Tostrud noted that even Minnesota officials have acknowledged serious issues with fraud tied to state social service programs.
“Minnesota has recognized it has a serious fraud problem,” the judge wrote.
At the same time, he acknowledged that the scale of the federal action is unusual.
“Minnesota credibly complains that the federal government’s deferral is historically unprecedented in its size and timing,” he wrote, though he ultimately concluded the move likely complies with federal regulations.
Minnesota Warns of Budget Damage
State officials argued that the funding freeze could severely impact Minnesota’s finances.
In court filings, Ellison’s office warned that deferrals typically apply to individual claims rather than large portions of a state’s Medicaid funding, and claimed the administration plans to repeat the action quarterly.
“Unless the deferral is quickly reversed, the state will be irreparably harmed,” the lawsuit stated. “The administration has already stated that the deferral will recur every quarter, crippling the state budget.”
However, Tostrud noted that federal regulations do not limit the size of a deferral and do not prohibit regulators from applying both payment pauses and deferrals simultaneously.
Federal Officials Emphasize Fraud Crackdown
Statements from senior administration officials also played a role in the legal dispute.
Vice President JD Vance—who has been tasked with overseeing fraud enforcement efforts—previously said the federal government needed to “turn the screws on [Minnesota] so that they take this fraud seriously.”
Meanwhile, CMS Administrator Mehmet Oz explained the rationale behind the funding pause.
“This quarter-billion-dollar deferment is hopefully going to get on the radar screen for the state of Minnesota and make sure they are responsive to our requests,” Oz said.
Minnesota argued those remarks suggested the federal government was using the funding freeze to force policy changes from the state.
Judge Tostrud acknowledged that the statements “sometimes seem to muddle the regulatory distinctions between deferrals and withholdings.”
However, he concluded they do not prove the administration acted improperly.
“All of this is not to say that Minnesota cannot prevail,” Tostrud wrote. “Minnesota has identified reasonable legal concerns regarding the deferral’s nature and scope and the federal government’s motivations for initiating it. It is possible the record may support these concerns in the future. Today it does not.”
For now, the funds will remain frozen while the administrative review proceeds, leaving the legal battle far from over.