Federal funding for New York's Medicaid Fraud Control Unit (MFCU) has been suspended due to accusations of ineffective criminal enforcement and leadership decisions that have led to a backlog of fraud investigations. The action by the Health and Human Services Office of Inspector General (OIG) comes as New York Attorney General Letitia James faces renewed criticism from Republicans, who argue her office has not aggressively prosecuted fraud cases.
In a June 30 letter denying the unit's annual recertification, HHS OIG officials stated that New York's MFCU had become the lowest-performing large-state unit in the nation for criminal Medicaid fraud enforcement. Despite receiving approximately $60 million annually in federal funding and employing over 270 staff members, the unit reported only 53 fraud convictions between 2023 and 2025. This figure was significantly lower than other similar-sized units, with the next lowest reporting 129 convictions during the same period.
The report also found that New York ranked last in criminal indictments, securing fewer than 10 fraud indictments in four of the past five years. Additionally, 34% of the unit's open cases were more than three years old, and 69% of referrals from the state's Medicaid Program Integrity Unit had been pending for at least two years.
HHS OIG concluded that the unit's performance issues stemmed from a "deliberate leadership choice" to prioritize high-impact civil fraud cases over criminal prosecutions, a strategy that has rendered the office ineffective in pursuing criminal Medicaid fraud despite its resources. While the unit remained competitive in civil recoveries, federal officials stated these results did not compensate for the decline in criminal enforcement.
Republican challenger Saritha Komatireddy, running for New York Attorney General, criticized James, stating, "Letitia James ran New York's Medicaid Fraud Unit into the ground, and now we know why: a deliberate leadership choice to open fewer cases and let them drag on for years." The Republican Attorneys General Association also commented, with Executive Director Adam Piper asserting that Democratic AGs like James "knowingly aid and abet scams and fraud in their states."
James has denounced the funding freeze, accusing the Trump administration of targeting New York for political reasons. Her office noted that HHS had previously recognized New York as one of four states responsible for half of all national civil recoveries in fiscal year 2025 and pointed to recent multimillion-dollar fraud cases. James stated, "The only people this decision benefits are the criminals we investigate every day. We are considering all legal options to stop this outrageous action."
Meanwhile, federal prosecutors in New York are increasing efforts to investigate Medicaid fraud and patient abuse. First Assistant U.S. Attorney John A. Sarcone III, who is leading the revival of the NDNY Health Care Fraud Task Force, commented on the unit's performance, noting that the New York MFCU averaged just nine criminal indictments annually between 2021 and 2025, a stark contrast to the more than 100 annual indictments during the three years prior to James' tenure.
The suspension of federal funding is effective from July 1 through September 30. New York must implement a series of corrective actions ordered by HHS, including reducing case backlogs, increasing criminal indictments, and enhancing coordination with federal investigators. Failure to address these deficiencies could result in the permanent loss of the federal MFCU grant for fiscal year 2027.