Federal agents are investigating a "massive scheme to defraud" Minnesota's Housing Stabilization Services program, according to court documents.

A search warrant filed with the U.S. District Court for Minnesota details the fraud investigation concerning the meant to help find and maintain homes for people with disabilities — including mental illnesses and substance use disorders — as well as the elderly. 

When the program started in 2020, it was estimated that it would cost taxpayers about $2.5 million a year. But by 2021, it cost $21 million. Last year, it ballooned to $104 million.

In the warrant, the FBI says the housing program has "proved to be extremely vulnerable to fraud," and lists eight business locations where the alleged fraud took place. They are located throughout the Twin Cities, including in St. Paul, Roseville, Blaine, Little Canada and Woodbury. 

"Since Minnesota became the first state to offer Medicaid coverage for Housing Stabilization Services, dozens of new companies have been created and enrolled in the program," the search warrant reads. "These companies, and the individuals that run them have taken advantage of the housing crisis and the drug addiction crisis in Minnesota to prey on individuals who need help getting on their feet as they recover from drug addiction."

Federal investigators say the companies and individuals contacted Medicaid-eligible individuals in drug treatment facilities and halfway houses to offer stable housing. After they registered the individuals, these companies would "fraudulently claim" to provide dozens of program hours to the clients when the client in fact received little or no actual services, investigators said. 

Housing Stabilization Services is run by the state's Department of Human Services. DHS Temporary Commissioner Shireen Gandhi released the following statement on the search warrants, which the commissioner says were executed Wednesday. 

"The search warrants executed today at several Housing Stabilization Services providers are the result of the critical partnerships between the Minnesota Department of Human Services (DHS), the Minnesota Department of Public Safety Bureau of Criminal Apprehension (BCA), the Office of Attorney General and federal offices and is an important example of our shared commitment to work together to ensure Medicaid program integrity. The DHS Office of Inspector General (OIG) regularly provides investigative data and information about Medicaid provider targets to our law enforcement partners so they can build actionable cases to hold bad actors accountable."

Charges have not been announced in connection with the investigation. 

Some say the case parallels problems the state has seen before, including the Feeding Our Future scheme, which federal prosecutors called the biggest pandemic-era fraud in the country, and a new investigation into Medicaid fraud at Minnesota autism centers.

"Sadly, I was not surprised," Rep. Kristin Robbins, R-Maple Grove, said.

Last week, a Minnesota House oversight committee focused on fraud prevention work met for an informational hearing in which Department of Human Services officials walked through protocols to prevent fraud in public programs.

"Thinking about the provider piece, which you talked about, frankly, this committee should be more concerned about. All of the evidence shows that's where the concern is," Rep. Emma Greenman, DFL-Minneapolis, said at the July 8 meeting.

Some lawmakers are saying a new office to handle these issues needs to be reconsidered after being cut during special session budget negotiations.

"We need to take this more seriously and reconsider the proposal to have an Office of Inspector General that is statewide and enterprise-wide and truly independent of the executive branch," Rep. Walter Hudson, R-Albertville.

• Fraud