HHS-OIG Raises the Stakes for Medicaid Fraud Enforcement: New Scrutiny of State MFCUs Signals Broader Enforcement Shift

On July 2, 2026, the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) denied recertification of New York’s Medicaid Fraud Control Unit (MFCU), suspending its federal funding. The decision follows HHS-OIG’s decision to deny Hawaii’s request to recertify its MFCU and HHS-OIG’s decision to conditionally recertify eight additional state MFCUs, signaling heightened federal scrutiny of state Medicaid fraud enforcement.

These decisions suggest that HHS-OIG is transforming the annual MFCU recertification process from a routine funding prerequisite into a substantive oversight tool. Rather than simply confirming compliance with program requirements, the agency now appears to weigh how each MFCU actually performs, based on operational performance metrics like its investigative productivity, staffing, case management, and referral practices. That shift tracks the president’s broader emphasis on Medicaid fraud enforcement and coordinated anti-fraud initiatives.

The MFCU Recertification Process

MFCUs are state units that investigate Medicaid provider fraud and allegations of patient abuse or neglect in institutional settings. They rely on federal money to operate, and federal law requires HHS-OIG to recertify each unit every year for it to stay eligible for that funding. For most of the program’s history, recertification was largely a compliance check: the agency confirmed that a unit met the applicable statutory and program requirements.

That approach appears to have changed in 2026. Beginning with HHS-OIG’s April 24, 2026 recertification of Alabama’s MFCU, the agency began issuing detailed certification letters identifying operational strengths and weaknesses, including staffing concerns, referral deficiencies, investigative backlogs, case progression, and enforcement outcomes. These decisions suggest that HHS-OIG is using recertification to set clearer, nationwide expectations for how MFCUs should perform.

Recent Certification Decisions Reflect Increased Oversight

Recent recertification decisions reveal a consistent focus on operational effectiveness and enforcement performance.

Hawaii

On June 4, 2026, HHS-OIG denied Hawaii’s MFCU recertification. The agency’s letter said that the unit’s performance “has gotten significantly worse in recent years.” Between 2022 and 2025, HHS-OIG noted, Hawaii’s MFCU did not obtain a single conviction for Medicaid fraud despite receiving approximately $12 million in federal funding during that period.

On the same day, Governor Josh Green announced an independent Medicaid Fraud Strike Force within the Hawaii Department of Human Services to strengthen oversight, accountability, and coordination in combating Medicaid fraud. The strike force is intended to work alongside, rather than replace, Hawaii’s MFCU. HHS-OIG’s letter did not identify a specific pathway for Hawaii to regain certification.

New York

On June 30, 2026, HHS-OIG denied recertification of New York’s MFCU and suspended the unit’s federal grant effective July 1, 2026. Two days later, the U.S. Attorney’s Office for the Northern District of New York pledged expanded federal Medicaid fraud enforcement in the state.

According to HHS-OIG, New York ranks among the lowest of any large state in criminal Medicaid fraud enforcement. From 2023 to 2025, the state’s MFCU secured only eight to nine criminal indictments a year, while similarly sized states produced hundreds. The agency also found that the unit obtained only four patient-abuse convictions despite receiving more than 2,000 abuse referrals annually, and it cited longstanding investigative backlogs, slow case progression, and referral and tracking deficiencies.

New York disputed HHS-OIG’s conclusions, explaining that the unit intentionally prioritizes complex, high-impact fraud investigations rather than higher-volume prosecutions. Attorney General Letitia James similarly defended the unit’s performance, noting that New York recovered more than $627 million for Medicaid and that a 2025 national MFCU performance report credited it as one of four states responsible for approximately half of all civil Medicaid recoveries.

Unlike Hawaii, New York has a potential path to regain funding. If the state fixes the identified deficiencies before September 30, 2026, HHS-OIG may lift the suspension or otherwise resume federal reimbursement. If it does not, the denial becomes final and the agency will not award grant funding for fiscal year 2027.

Conditional Recertifications

On July 1, 2026, HHS-OIG also issued recertification decisions for nine additional states. Indiana was recertified without conditions. Colorado, Florida, Idaho, Minnesota, Nebraska, Oklahoma, South Dakota, and Wisconsin each received conditional recertifications.

The conditions HHS-OIG imposed on these units track the same performance standards at issue in its other 2026 recertification decisions: staffing levels relative to program size, the adequacy of fraud referrals from state Medicaid program integrity units and managed care organizations, and timely case progression. Collectively, these decisions suggest that HHS-OIG is evaluating MFCUs against a common set of performance expectations rather than simply confirming administrative compliance.

These Certification Decisions Reflect a Broader Federal Focus on Medicaid Fraud

These decisions also coincide with the Trump administration’s broader “Full-Scale War on Fraud.” Recent initiatives include creating the U.S. Department of Justice’s National Fraud Enforcement Division and a Presidential Task Force dedicated to eliminating fraud in federally funded programs; suspending hundreds of Medicare and Medicaid providers; withholding Medicaid funding from states over fraud concerns; and the creation of regional strike forces dedicated to healthcare fraud investigations.

Viewed together, these initiatives show how the federal government is strengthening its oversight of state enforcement agencies. The certification decisions do not signal lighter enforcement in states whose MFCUs are struggling. If anything, they are meant to boost state investigative performance while reinforcing the broader federal anti-fraud agenda.

Implications for Companies Participating in Medicaid Programs

Healthcare providers, managed care organizations, pharmacies, and other Medicaid participants should not read uncertainty around any single MFCU as a sign that enforcement is easing. The opposite is more likely. The recent decisions suggest that Medicaid fraud enforcement will grow more coordinated, data-driven, and performance-oriented as HHS-OIG emphasizes measurable investigative outcomes.

Providers should therefore keep their compliance programs strong, monitor billing practices and internal controls, and investigate potential problems promptly. As HHS-OIG expands its oversight of state MFCUs and the administration keeps healthcare fraud a priority, providers should expect sustained scrutiny from both state and federal authorities.

For questions about these developments and their implications, please contact the authors or any member of Arnold & Porter’s White Collar Defense & Investigations or Life Sciences & Healthcare Regulatory practice groups.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.