End of fraud-plagued Minn. housing program could leave those in need scrambling

After 10 years living on the streets of Duluth, Travis Johnson finally found a small apartment to call home.

Thanks to a state program called Housing Stabilization Services (HSS), which helped him make appointments, pick up medication and pay his rent on time, he’s been able to keep it.

“Four years ago, five years ago, I was starting to get sober and transitioning out of treatment,” he said. “When I got this place, it really helped me stay on the path.”

But widespread fraud by what federal officials suspect could be hundreds of bogus providers defrauding the Medicaid benefit program prompted the state Department of Human Services to end HSS this past Friday.

That’s left reputable providers scrambling to replace the millions of dollars in state funding they received since 2020 to help people find and keep housing. Some say the state’s failure to prevent fraud has led to an overcorrection that could put people like Johnson back on the street.

Tammy Moreland said canceling HSS was an overreaction. The chairperson of the Minnesota Tribal Collaborative in the Twin Cities said her group was just starting to tap into the program when the rug was pulled out. Instead, she said, the state could add training and other safeguards to the program instead of taking the unprecedented step of ending the five-year-old program after the FBI raided Twin Cities businesses last summer.

“The cancellation of this program feels like a punishment to people that have the highest disparities in our state,” Moreland said. “While we in no way condone fraud, we feel that completely terminating a program is going too far in addressing the issues.”

In a statement to the Minnesota Star Tribune last week, officials at the Department of Human Services said they discussed alternatives to shutting down HSS.

“As the scope of fraud in this program became more apparent, DHS decided that Minnesota cannot afford to wait and see how effective these new program integrity measures will be,” officials said.

DHS officials said they’re working with “the Legislature, providers, community partners” and federal officials “to redesign HSS with robust program integrity and service quality requirements.” It’s not clear when that could happen.

Housing services is not the only program under government scrutiny. On Wednesday, Gov. Tim Walz announced that he has ordered a third-party audit of billing for 14 high-risk Medicaid services to detect and stop suspected fraud. HSS is among the programs to be audited.

HSS launched in 2020 to help find and maintain housing for older adults and people with disabilities, mental illness and substance-abuse disorder. Minnesota was the first state to tap into the federal benefit, and in that first year officials expected an annual cost of $2.6 million.

Then it grew — by a lot. Last year, more than 700 providers received more than $100 million in Medicaid payments, according to data the DHS provided to the Minnesota Star Tribune.

Much of that growth was fueled by sham providers allegedly lying, cheating and stealing taxpayer money, federal and state officials say.

In September, eight people were charged in what a federal prosecutor called “the first wave” of cases in a sprawling plot to defraud the program. Anwar Adow pleaded guilty a few weeks later to submitting false claims that “significantly overrepresented” the hours of services provided by his company, Liberty Plus LLC.

“The HSS program is riddled with fraud,” then-acting U.S. Attorney Joe Thompson said at a recent news conference. “Many of these companies operated out of dilapidated storefronts or run-down office buildings that were full of other fraudulent health care companies.”

That wasn’t the plan, proponents say.

Alison Niemi, owner of North Star Policy Consulting, is part of a group of consultants and nonprofits that came together in 2020 to help new providers “ensure that the most vulnerable people — people with the longest histories of homelessness and the most difficult housing barriers — are able to access these housing services and get housed."

HSS paid to help people find housing and make sure that, once they found a roof over their heads, they kept it.

Providers ensured rents were paid on time, reviewed leases, even advised clients on how to get along with their landlord and neighbors. It also helped people through the complicated process of securing rental subsidies.

Now, Niemi worries that some will be left without services and without a home.

“One woman I talked to described her housing stabilization service provider as an angel,” Niemi said. “She said, ‘I am in housing and stable, and my life’s getting back together, and I don’t know what I’m going to do without this person.’”

By ending HSS, Niemi said, the state is throwing the baby out with the bathwater.

“There are people that were clearly doing things wrong,” she said. “But the people that end up being punished for it and paying the worst for it are the most vulnerable peoples. They are losing their support.”

Center City Housing Corp., which worked with Johnson, began with three buildings with about 90 affordable housing units in Duluth. It now has more than 1,000 units across Minnesota. It used HSS funds to help about 150 households, said Nancy Cashman, executive director.

While the system was complicated and record-keeping was time-consuming, Cashman said “it was really important money to keep our properties running, because finding service dollars for permanent supportive housing is getting harder and harder and harder every day.”

She said she hopes to continue offering such services, even if it means taking money and staff from other programs.

“What we’re going to try to do is find places to cut services before we lose the housing support, before we lose the staff, which are the critical piece to helping people stay housed,” she said. “We have other grant funds coming in, so this was a piece of the puzzle.”

At RS Eden in Minneapolis, Co-CEO Alicia House said they’ve helped 366 people secure and keep housing since 2020.

Jill Grow, lead program manager at RS Eden’s Alliance Apartments, said she knows of other, smaller providers that will likely have to close since HSS ended. RS Eden intends to keep housing stabilization going by tapping into other funding sources, but it will be difficult to do with limited funding, Grow said.

“Our participants are already not receiving a lot of income as they’re working to get back on their feet a lot of times and focusing on their other goals, mental health, physical health,” she said. “So not having this additional funding puts a strain on the resources that we’re able to give.”

Back in Duluth, Johnson said getting off the streets and into his one-bedroom apartment helped him reconnect with his family and discover he’s a grandpa. It’s helped him maintain his sobriety, too. Soon, he hopes to get a job.

Without HSS, he said, “I might have to go back to the streets, and the streets are rough,” he said. “You know, having the support makes it easier to stay grounded and keep me on the path that I started.”

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