JULY 3, 2026
Federal officials freeze New York Medicaid fraud unit funding, citing low criminal enforcement; AG James disputes political motivation
The Trump administration's Department of Health and Human Services Office of Inspector General suspended federal funding for New York's Medicaid Fraud Control Unit (MFCU) effective July 1, 2025, citing poor criminal enforcement performance. The HHS OIG's June 30 letter found the New York MFCU recorded only 53 fraud convictions from 2023 to 2025, the lowest among comparable large-state units, and ranked last in criminal indictments. The funding suspension remains in effect through September 30 unless New York completes a series of corrective actions.
The HHS Office of Inspector General denied New York's MFCU annual recertification in a June 30 letter, concluding the unit had become the lowest-performing large-state unit in the nation for criminal Medicaid fraud enforcement despite receiving roughly $60 million annually in federal funding and employing more than 270 staff members. The letter stated the unit secured fewer than 10 criminal fraud indictments in four of the past five years and that 34% of open cases were more than three years old.
Federal officials attributed the low criminal output in part to what the letter described as "a deliberate leadership choice" to prioritize high-impact civil fraud cases over criminal prosecutions. The OIG acknowledged New York remained competitive in civil recoveries — HHS separately noted New York was one of four states responsible for half of all civil recoveries nationwide in fiscal year 2025 — but concluded those results did not offset the decline in criminal enforcement activity.
Attorney General Letitia James disputed the basis for the action, stating in a written response that the administration's decision represented "an unprecedented attack on New York" and characterizing it as a political distraction. James said her office has recovered more than $627 million for Medicaid during her tenure and that HHS had previously recognized New York for leading the nation in anti-fraud efforts. She added that her office is "considering all legal options to stop this outrageous action."