Enough is Enough: HHS-OIG Freezes Funds for New York Medicaid Fraud Control Unit, Effective July 1

One week after the U.S. Department of Justice on June 23, 2026, announced the results of its annual National Health Care Fraud Takedown—taking aim at Medicaid fraud and partnering with all 50 state Medicaid Fraud Control Units (MFCUs)—the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) denied recertification for New York’s MFCU and froze $60 million in annual federal funds for New York’s MFCU, effective July 1.

A June 30, 2026, letter from HHS Inspector General T. March Bell to New York Attorney General Letitia A. James and Director Amy Held of New York’s MFCU announced that “[e]nough is enough.” OIG is denying both: (1) the New York MFCU’s request for recertification and (2) any additional funding, unless the New York MFCU takes “immediate action to demonstrate that it is capable of effectively carrying out its statutory fraud-fighting responsibilities.”

The letter continues: “OIG is suspending the New York MFCU Federal grant due to its failure to materially comply with Federal statutes, regulations, and the terms and conditions of the grant….”  The suspension is effective July 1, 2026, and extends through September 30, 2026, when the New York MFCU’s current grant period expires.

As we noted in our June 24 post, in early June, HHS denied recertification to Hawaii’s MFCU, the first such unit that the federal government has ever de-certified. OIG is now posting all MFCU recertification letters on its website.

“Lowest Performing Unit” For Criminal Medicaid Fraud Enforcement and Patient Abuse and Neglect Cases

New York’s MFCU (or the “Unit”), which has a staff of more than 270 people, receives approximately $60 million per year in federal dollars to combat fraud in one of the largest Medicaid programs in the country, covering 7 million people at a cost of more than $100 billion annually.

Yet the OIG claims that New York’s MFCU “has been the lowest performing Unit in terms of both Medicaid fraud and patient abuse and neglect cases among similar-sized Units,” including California, Texas, Ohio, and Florida, from 2023 to 2025 in particular: “In FY 2025 and FY 2023, the Unit only secured eight or nine criminal indictments while other similar-sized Units have secured hundreds, even though those other Units oversee Medicaid programs that are half the size of the New York Medicaid program.”

OIG had conditionally recertified New York’s MFCU on May 1, 2026, pending further review. But a “targeted onsite visit” conducted by OIG during the week of June 8, 2026, revealed that the Unit was shifting focus from criminal fraud and patient abuse cases to “high-impact, complex civil fraud cases,” which OIG slammed as a failure of leadership as well as an example of poor decision making. While noting that the New York MFCU “provided several examples in which its civil work resulted in novel settlement arrangements, many of which held nursing homes accountable for systemic neglect and fraud,” the OIG stated that “[t]he relevant statutes and regulations make clear that State MFCUs are expected also to prosecute criminal cases.”

Furthermore, OIG stated that even the civil cases from the New York MFCU are ranked only third out of five among similarly sized Units. As such, the OIG claimed that the New York MFCU has been “ineffective in fighting criminal cases involving Medicaid fraud or abuse or neglect of Medicaid patients.”

And as the letter states, under the Social Security Act, federal funding is allowable only if a MFCU has been certified and recertified annually by OIG.

Certification Factors

In concluding that the New York MFCU does not meet the requirements of the Social Security Act, implemented in 42 CFR Part 1007, OIG weighed the following factors, determining:

Compliance with Regulations (42 CFR § 1007.17(c)(1))

The New York MFCU is not effectively carrying out its statutory functions and responsibilities required by the Social Security Act provisions governing state MFCUs.

Compliance with Policy Transmittals (42 CFR § 1007.17 (c)(2))

The New York MFCU has generally complied with OIG policy transmittals.

Adherence to Performance Standards (42 CFR § 1007.17(c)(3))

The New York MFCU is not adhering to the MFCU performance standards of 89 Fed. Reg. 76431, September 2024:

1. Performance Standard 2—Staffing. The 272 staff, including 88 auditors and 69 investigators, have not enabled the New York MFCU to effectively investigate and prosecute fraud or patient abuse and neglect cases.
2. Performance Standard 4—Referrals. In 2025, the New York MFCU received 2599 total allegations, including 478 fraud allegations and 2121 allegations regarding patient abuse and neglect. The OIG notes “low viable referrals from managed care organizations” and says that New York “has not made progress [with this issue] in nearly 10 years.”
3. Performance Standard 5—Case Progression. The OIG claims that 34 percent of the New York MCFU’s open cases are more than three years old; that its backlog dates to before the COVID-19 pandemic; and that 69 percent of referrals received from the state Medicaid Program Integrity Unit were in pending status for two years or more.
4. Performance Standard 8—Cooperation. OIG found the New York MFCU’s willingness to work on joint cases with the federal government “must be improved.” During OIG’s onsite visit, for example, it concluded that New York “is not regularly tracking cases it has referred for prosecution.”

Effectiveness in Investigating and Prosecuting Fraud (42 CFR § 1007.17(c)(4))

The New York MFCU is inadequate in investigating cases of possible fraud in the administration of the Medicaid program; in the provision of medical assistance; in the activities of providers of medical assistance under the state Medicaid plan; and in prosecuting cases or cooperating with the prosecuting authorities. It reported only 53 fraud convictions from 2023 to 2025, the lowest number among similarly sized Units. It also secured fewer than 10 criminal indictments for fraud in four of the last five years, also last among the number of indictments for similar-sized Units.

Effectiveness Investigating and Prosecuting Patient Abuse and Neglect (42 CFR § 1007.17(c)(5))

The New York MFCU is not effectively investigating Medicaid patient abuse and neglect cases—specifically, it is not using its resources in reviewing and investigating, referring for investigation or prosecution, or criminally prosecuting complaints alleging abuse or neglect of patients or residents in health care facilities receiving payments under the state Medicaid plan. It ranks last out of five similar-sized Units for patient abuse and neglect convictions.

Next Steps for the New York MFCU

While HHS suspended the New York MFCU’s funding, it said the suspension could be lifted before September 30 if the New York MFCU takes “corrective action.” The U.S. Attorney’s Office for the Northern District of New York issued a statement on July 2, warning that “Rather than spending resources ‘assessing legal options,’ the New York MFCU would better fulfill its mandate by focusing on investigating and prosecuting crime, as it is both required and funded to do.”

Meanwhile, a June 30 statement by New York Attorney General James charged: “This administration’s unprecedented attack on New York is another political distraction.”

Implications for New York Medicaid Providers

What are the implications for New York providers? If the New York MFCU does obtain recertification, it is possible that it will bring criminal Medicaid fraud-related cases more closely aligned with the administration’s stated priorities, in an effort to retain federal funding. One area of federal criticism was that the New York MFCU emphasized civil matters over criminal, leading to a possibility that civil cases will be reviewed for conversion to criminal cases. It is also possible that criminal cases with insufficient evidence will be rushed to a charging decision to make the “stats” insisted upon by the administration. If this possibility materializes, it could lead to ill-founded cases and opportunities by defense counsel to seek dismissal and other pre-trial relief.

As states without a certified MFCU can lose all federal Medicaid funds, an additional question still outstanding is how the certification of New York’s MFCU will impact Medicaid.

We'll be watching this unprecedented federal attack on MFCUs closely.

To discuss how this impacts you or your company, please contact the authors.

Epstein Becker Green Staff Attorney Ann W. Parks contributed to the preparation of this post.