Walz admin expands fraud probe, plans pause on licensing adult day cares

The Minnesota Department of Human Services announced Tuesday, Dec. 16, it will soon pause licensing of new adult day care centers as the Walz administration expands its probe of fraud in human services programs.

“We are not just talking about reducing fraud. We are moving more quickly than ever before to put new strategies in place to get ahead of the criminals stealing from taxpayers,” temporary DHS Commissioner Shireen Gandhi said at a Tuesday news conference.

The announcement comes the day before the state House fraud committee is scheduled to hear testimony about adult day care services.

The agency said the licensing pause will likely last for two years — from Feb. 1, 2026 through Jan. 31, 2028 — and will allow regulators to focus on oversight of existing licensed providers. The agency may make exceptions for new providers in working with counties, tribes and managed care organizations.

The number of adult day cares, which provide meals and activities for disabled adults during the day, already have capacity for about 3,000 more people than currently receive services. That capacity has increased by 43% over the past five years even though there was only a 7% increase in the yearly average number of Medicaid participants, Gandhi said.

This is the second time DHS has leveraged its new authority — granted by the Legislature earlier this year — to pause licensing if it finds new applications are growing beyond program needs. More licensing pauses are likely on the way, DHS Inspector General James Clark said.

A rapid increase in demand for services has been a signature feature of human services later found to be rife with fraud. For instance, payments to autism therapy providers increased 3,000% from 2018 to 2023, the Reformer was first to report.

DHS officials initially said they were neither surprised nor disturbed by the rapid growth, noting it was in line with the growth of Housing Stabilization Services, a program Gov. Tim Walz would eventually shut down entirely earlier this year, citing suspicions of widespread fraud.

DHS is also investigating reports of kickbacks in the adult day care program, in which service recipients were allegedly paid to switch from one provider to another, Clark said.

“Kickbacks are a sign that there’s an oversaturation of providers,” Clark said. “When there is not a way to drum up legitimate business, providers try to drum up illegitimate business.”

DHS has recovered “several hundred thousand dollars” from adult day centers in recent years and referred more than 100 providers across Medicaid-funded service programs to law enforcement for criminal investigations this year, Clark said.

Some providers warn the Walz administration’s heavy-handed approach will hurt legitimate services providers and the disabled people they serve.

After years of sluggish response to reported fraud, the issue now hangs heavy over Walz as he seeks an unprecedented third four-year term against a bevy of Republican challengers. Among them: Rep. Kristin Robbins, who chairs the House fraud committee that meets Wednesday.

Recent national coverage has also rocketed the issue beyond Minnesota’s borders, attracting the attention of President Donald Trump and his cabinet.

The Walz administration has responded in recent months with a series of actions aimed at clamping down on the flow of government funds to providers deemed suspicious.

DHS catalogued in a press release the steps they’ve taken to address fraud this year, including terminating Housing Stabilization Services, hiring the health care company Optum to audit billing in 14 “high-risk” services and pausing licenses for Home and Community-based Services, which include group homes for people with disabilities.

The agency has also disenrolled around 800 inactive providers in “high-risk” programs and moved 11 Medicaid benefits into a “high-risk classification,” which allows regulators to increase scrutiny including through unannounced site visits and other oversight actions.

Minnesota Reformer is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Minnesota Reformer maintains editorial independence. Contact Editor J. Patrick Coolican for questions: info@minnesotareformer.com.