Federal Funding Pulled for New York Medicaid Fraud Unit After HHS Denies Certification

HHS cites lagging criminal prosecutions; move follows earlier cut to Hawaii and raises questions about federal Medicaid funding for 6.4 million New Yorkers

The U.S. Department of Health and Human Services has withdrawn federal certification and funding for New York’s Medicaid Fraud Control Unit, citing the state’s lower rate of criminal prosecutions compared with other large states. HHS acknowledged civil case results and some improvement in criminal activity this year, but said those gains were insufficient. The action, part of an interagency fraud crackdown overseen by Vice President JD Vance, follows a similar withdrawal of funding for Hawaii earlier this month.

Federal Funding Pulled for New York Medicaid Fraud Unit After HHS Denies Certification

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Key Points

HHS has denied federal certification and funding to New York’s Medicaid Fraud Control Unit, citing comparatively low numbers of criminal prosecutions.
The decision follows an earlier HHS move to pull funding from Hawaii’s unit; Hawaii has requested reconsideration.
Approximately 6.4 million people in New York are enrolled in Medicaid; the state reported $627.8 million recovered in fraud cases from 2019 through 2025, and AG James recently announced a $9 million fraud arrest.

The U.S. Department of Health and Human Services notified New York officials on Tuesday that it will cut federal funding to the state’s Medicaid Fraud Control Unit, concluding the unit has not met performance expectations on criminal prosecutions. HHS said in a letter to Attorney General Letitia James that New York has trailed other large states on the number of criminal cases pursued in recent years.

Attorney General James supervises the Medicaid Fraud Control Unit, which is charged with investigating and prosecuting fraud by healthcare providers. In its letter, HHS acknowledged the unit’s accomplishments in civil litigation and noted it has seen improvement this year in criminal matters, but concluded that those improvements do not meet the threshold required for federal certification and denied continued funding.

Vice President JD Vance is leading the interagency effort to tighten enforcement of healthcare fraud that resulted in the funding decision, according to the administration. The former Ohio senator is mentioned in the notice as overseeing the crackdown and is viewed publicly as a possible contender for the Republican nomination in 2028.

HHS earlier this month took similar action against Hawaii’s Medicaid Fraud Control Unit and the state has asked federal officials to reconsider that decision. Federal certification is tied to states’ broader Medicaid funding, and HHS warned that a lack of certified fraud units could put states’ eligibility for federal Medicaid dollars at risk.

About 6.4 million New Yorkers are enrolled in Medicaid, the federal-state program that provides health coverage for low-income residents. In recent enforcement activity, Attorney General James announced last week the arrest of an individual accused of participating in a $9 million Medicaid fraud scheme. James’s office also reported that the state recovered $627.8 million in Medicaid fraud recoveries from 2019 through 2025.

The denial of federal certification for New York’s unit marks a notable escalation in federal oversight of state-level Medicaid fraud enforcement and comes amid a broader push by the administration to increase prosecutions and recoveries tied to healthcare fraud.

Risks

Loss of federal certification could jeopardize New York’s broader federal Medicaid funding, affecting healthcare financing for low-income residents - impacts the healthcare and public finance sectors.
Reduced federal funding for state fraud units may limit investigative and prosecutorial capacity, potentially slowing recoveries and enforcement activity - affects legal and healthcare provider sectors.
The administration’s enforcement focus and previous actions against other states introduce uncertainty for state Medicaid program administrators about certification standards and future funding - impacts state governments and Medicaid program managers.

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Federal Funding Pulled for New York Medicaid Fraud Unit After HHS Denies Certification

Key Points

Risks

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