Minnesota declares moratorium on group homes for disabled. Providers say they're 'blindsided'

MINNEAPOLIS - Residential Services was just a few months away from opening a new respite home for children in Virginia, Minn., said Jon Nelson, the Duluth agency's executive director.

He'd been working for months with St. Louis County to create a small haven, a place where kids with behavioral or mental health challenges could ease back into the community after hospital stays. The respite home would give beleaguered parents a chance as well to catch their breaths without sending their kids to foster care.

Then the Minnesota Department of Human Services (DHS) pulled the rug out from under him, Nelson said.

"Right now, there is no crisis respite for children in St. Louis County," he said. "And everything has stopped, thanks to the moratorium."

On Tuesday, in its ongoing efforts to fight fraud in state programs, DHS announced a two-year moratorium on new group homes for providers of Home and Community-Based Services that allow people with disabilities to live in the community. The ban also applies to new programs run by organizations that already have a license.

The moratorium followed a September executive order issued by Gov. Tim Walz that directed DHS to take several measures to combat fraud, including a moratorium on new licenses and programs.

Since the pandemic, state social service programs have been rocked by fraud totaling hundreds of millions of dollars, and state officials have been dogged with questions about how fraud in state programs -- such as Feeding Our Future, housing support services and programs to treat autism -- could have gone on for years. In October, Walz ordered an audit across 14 high-risk services to analyze Medicaid claims after federal authorities charged nine people with defrauding state housing and autism programs. DHS has also withheld payments to Medicaid providers 485 times this year, state officials said.

But the moratorium announced this week is an overcorrection, providers say, and their reaction, from Moorhead to Mankato, w