Hospitals not yet a fraud focus

The Trump administration has ramped up high-profile healthcare fraud prevention efforts across a range of areas. Hospitals are not yet in the crosshairs.

Ryan Thurber, an attorney with Polsinelli, said the focus of much of the administration’s healthcare and Medicaid fraud detection is on “nontraditional providers” of services around the periphery of healthcare, such as transportation and autism services.

“The more traditional provider types still need to be aware about this then. Just because the current spotlight is not necessarily on them, that doesn’t mean that there will not be splash over or carryover from these,” Thurber said.

Although there a range of healthcare fraud-related actions the Trump administration has taken, Thurber said a big departure has been the vocal emphasis on fraud fighting by leadership.

For example, Mehmet Oz, MD, administrator of CMS, visited Minnesota in mid-December to visit with whistleblowers and local media to tout the administration’s anti-fraud initiatives in Medicaid.

“I have to take draconian action to get the state to pay attention, so that the individuals actually listen to each other,” Oz said in an interview with local media.

In early January, CMS announced that it would withhold as much as $515 million in quarterly Medicaid payments to Minnesota for 14 service areas deemed at high risk for fraud, including nonemergency medical transportation, intensive residential treatment services and housing stabilization services.

Actions so far

In early 2025, the Department of Justice (DOJ) announced a record-breaking $6.8 billion in False Claims Act (FCA) settlements and judgments for FY25, which was the largest in the statute’s history and more than double the previous year’s total. Those included claims against ProMedica Health Systems and Oroville Hospital in California but overwhelmingly focused on other types of providers and payers.

The administration’s Medicaid anti-fraud enforcement has focused primarily on peripheral healthcare service providers..

Hospital and health system impacts from those services being suspended or unfunded could include an influx of patients to institutional settings that the state was trying to redirect to less restrictive settings, Thurber said.

Another indirect effect for those large organizations is that some partners in social determinants of health (SDoH) initiatives may be financially or criminally implicated in anti-fraud enforcement actions. So, organizations should review partnership entities in their SDoH efforts, he said.

Similarly, the administration suspended $10 billion for social services and child care in five Democratic-led states over concerns of large-scale fraud. Affected funding for California, Colorado, Illinois, Minnesota and New York was in the Temporary Assistance for Needy Families program, the Child Care and Development Fund and the Social Services Block Grant.

Hospital advocates in those states said hospitals and health systems were not directly affected by those payment freezes.

Oz said the rapid rise in per-beneficiary Medicaid spending (36% increase from 2018 to 2024) and an increasing number of healthcare fraud-related prosecutions are driving the crackdown.

“The massive additional increase in spend per person in Medicaid is so large you can’t possibly believe it’s medical,” Oz said in a recent interview with local media. “There’s something else going on in the system. And I think it’s weaponization from foreign entities.”

Thurber expected an increased Medicaid fraud focus.

“The big area of focus right now is Medicaid and that’s, I think, in part because Medicaid oversight is to a large degree delegated” to states, he said. “That’s an area where you see increased enforcement over the next couple of years.”

The Medicaid anti-fraud effort is partly driven by the Trump administration but also increasingly by states that struggle with tight budgets, in which Medicaid is the largest spending item.

For instance, on Jan. 16, Texas launched investigations of Medicaid services “susceptible to higher incidences of fraud” and increased oversight of Medicaid managed care plans.

Provider steps

Although hospitals and health systems are not yet the focus of federal healthcare fraud, Thurber said they could become targets, given their share of federal healthcare spending.

“This is going to sound like a cliché, but an ounce of process is worth many, many pounds of legal fight later on,” he said.

Key steps include:

• A good intake process. Ensure that staff are trained and reminded how to process the enforcement agency’s letters, medical record and documentation requests. That will avoid misplaced paperwork spiraling into adverse findings against an organization.

• Internal compliance program. It is key to ensure solid avenues of communication for front-line staff, so their concerns are heard, reviewed and addressed.

“There’s sort of a tendency of creating a compliance program and then put it on the shelf and admire how beautiful your compliance program is,” Thurber said. “Now, in particular, is a great time to pull it off the shelf, dust it off and make sure it works for the organization,” he said.

• Internal risk assessments. These will help organizations stress test their processes to identify weaknesses, missing processes or needed training.

New fraud areas

The DOJ also is expanding the FCA to investigate federal contractors and grant recipients whose diversity, equity and inclusion (DEI) programs may violate federal anti-discrimination laws. The DOJ argues that certifying compliance while operating such programs constitutes fraud.

“Regardless of how you feel, there is a real risk now for companies who have not gone back and evaluated their DEI programs,” Brandon Helms, a healthcare attorney for Hall Render, said in a December webinar. “Every entity needs to be looking at that, especially healthcare entities that receive a lot of federal funding.”

Evaluations should examine external comments by organizations, the content on their websites and their statements in press releases. Also, they need to examine whether their internal policies and procedures violate the new DOJ interpretation of civil rights laws.

“It’s presenting just new and different challenges for the industry and for the attorneys that represent the industry [given] the expansion of the government’s focus on different areas using familiar tools like the [FCA],” said Stewart Kameen, a partner at Bass Berry & Sims.

Kameen noted the July 2025 renewal of a federal false claims working group and said a key objective may be targeting “the manipulation of electronic health record systems to drive inappropriate utilization.”

Helms said the DOJ’s 2025 focus on Medicare Advantage (MA) plans could shift to providers.

“Right now, the focus is on the [MA] organizations, but I think it’s going to turn to the providers who are up-coding their diagnosis so that the [MA plans] get more money,” he said.