MINNEAPOLIS — When Minnesota brought in experts to review billions of dollars in social services spending to combat fraud, the assignment had a gaping hole.

The analysis leaves out billions more that flow through health plans like Medica, Health Partners and Hennepin Health. The so-called managed care organizations handle benefits for about 85% of Minnesotans enrolled in Medicaid.

Now state leaders are pressing those companies to bolster their fraud protections.

It’s one of the latest steps in the sweeping effort by Minnesota officials to better safeguard taxpayer dollars and rebuild public trust rocked by widespread social services fraud, which federal prosecutors said could amount to billions. The federal government — which has halted some Medicaid payments to the state over the scandal — has also called on the state to enhance its oversight of managed care.

So far the state has largely zeroed in on the Medicaid dollars it directly pays to social service providers. But scammers have gamed the system to wrongfully take both money the state handles and Medicaid dollars managed care organizations dole out, such as funding for the now-shuttered Housing Stabilization Services program.

It’s unclear just how much of the money distributed by the organizations was misused by providers. But when Gov. Tim Walz debuted his anti-fraud measures last week, increased oversight of managed care organizations was a top priority.

As Walz and legislators expand their focus to managed care, many organizations say they have already beefed up their fraud defenses and are a step ahead of the state on blocking bad actors. They are offering their own recommendations for how Minnesota could improve social services oversight, like making sure the state doesn’t hamstring their ability to vet providers.

“We want to promote access to high-quality care,” said Lucas Nesse, who leads the Minnesota Council of Health Plans. “But at the same time, we need these tools to provide appropriate oversight and reestablish that healthy balance to make sure the bad actors aren’t taking advantage of the system.”

Minnesota is working with eight managed care organizations in 2026. They receive payments from the state to handle someone’s health care, then contract with and reimburse providers who serve that individual.

While the vast majority of people on Medicaid in the state have their care managed by such companies, the entities are responsible for less than half of annual Medicaid spending. That’s because people with “fee-for-service” coverage — where the state directly pays a business or nonprofit for autism services, medical transportation or other assistance — tend to be those with disabilities who have more expensive needs.

Last fall, the state brought in UnitedHealth Group subsidiary Optum to do an extensive review of fee-for-service payments to providers in 14 programs identified as particularly susceptible to fraud. They left out managed care.

A federal prosecutor suggested in December that fraudsters may have bilked half of the roughly $18 billion billed in those 14 programs since 2018. Managed care organizations handled about $6 billion of that $18 billion, Minnesota Medicaid Director John Connolly said.

Connolly said the state is now looking to amend its contracts with the organizations to strengthen their fraud protections in four areas:

Officials with some managed care organizations said they are on board with the state’s ideas, and some are already doing much of what’s proposed.

For example, many companies said they have sophisticated tools to monitor claims data and spot troubling patterns. At Blue Cross, vice president and chief compliance officer Tracy E. Tracy also noted they already do site visits as part of investigations.

“I fully support DHS wanting to lean in those directions,” Tracy said. “The more that we’re all doing that the better.”

Nichole Melton Mitchell, an executive at Medica, echoed that sentiment. She said they have intensified fraud-fighting efforts as the organization has grown.

The Minnetonka-based managed care organization regularly looks for billing irregularities. But unlike the broad prepayment review process the state rolled out for its fee-for-service programs, Medica and some other managed care organizations are not widely withholding payments from providers as they try to identify fraud. Providers across Minnesota have slammed the state’s broad withholding of dollars, saying payment delays have caused a financial squeeze.

“Our focus is caring for people, which includes minimizing disruption during periods of uncertainty and change,” Melton Mitchell said. “And with that, we’re committed to being responsible stewards of public dollars.”

Information on managed care organizations’ fraud-fighting efforts is less transparent than the state’s, but they report some details on staffing, investigations and spending.

The nine managed care organizations that contracted with the state in 2024 reportedly had 56 dedicated program integrity staff that year. However, that may not be a full picture of employees involved in such work, and some organizations said they have been adding people in that area.

For example, Hennepin Health said it has brought in more compliance workers to help with analytics and case management. Their compliance team responded to 166 cases of potential fraud in 2022. That grew to 584 cases last year and is on track to reach almost 1,000 cases this year.

In 2024, the nine organizations reported opening 2,433 cases and collecting $4.4 million in overpayments identified through fraud, waste or abuse investigations, according to the Department of Human Services.

Managed care organizations lose out when fraud occurs.

“Any fraud directly comes from the bottom line,” Nesse said, noting the amount recovered from fraudsters tends to be “very, very low.”

Nesse said they are proposing a number of changes to better prevent such losses and protect public dollars.

They want the state to share more information with managed care organizations, he said, noting right now they can’t see if a provider is billing improbable sums through multiple entities. And if one entity is investigating a provider, he said, other managed care organizations should be immediately flagged.

And when a new Medicaid benefit program is created, managed care organizations want a minimum timeline of at least a year before it is offered to ensure there’s appropriate licensing and oversight, Nesse said, pointing to the speedy rollout of Housing Stabilization Services.

The state abruptly shut down that program last year after discovering widespread fraud. Managed care groups were responsible for about 90% of the spending that went to providers in that program, Department of Human Services Inspector General James Clark said during a state program integrity update.

Melton Mitchell noted they must draw from a list of state-approved providers for some programs, including Housing Stabilization Services.

“We had no say or ability to do oversight on what that provider network looks like,” Melton Mitchell said. The state, she said, “did all of the provider vetting, and they sent us the data for us to administer the program.”

Dr. Brian Palmer, the medical director of behavioral health for HealthPartners, said the managed care organization has taken several steps to fight fraud. That includes visiting every contracted autism intervention provider — an area deemed high-risk for fraud — and stopping work with those that didn’t meet standards for supervision and medical records. Employees are currently conducting a similar review of adult mental health service providers.

Palmer noted Minnesota’s “Any Willing Provider” law previously required managed care organizations to accept any qualified mental health providers into their networks. Years later, HealthPartners employees now find themselves auditing and cutting ties with many of those providers “because they seem to be unscrupulous.”

©2026 The Minnesota Star Tribune. Visit at startribune.com. Distributed by Tribune Content Agency, LLC.