Federal and state investigators have uncovered a wave of improper payments in Medicaid’s applied behavior analysis (ABA) therapy program, a service designed to help children with autism. The findings have sparked bipartisan concern and a push for reforms, but the underlying financial structure of Medicaid may be the biggest obstacle to lasting change.
According to the Centers for Medicare and Medicaid Services (CMS), combined spending on ABA therapy under Medicaid and the Children’s Health Insurance Program (CHIP) surged from $2 billion in 2021 to over $10 billion by 2025—a 400% increase. Over the same period, the number of children diagnosed with autism grew by 67%, a discrepancy that immediately raised red flags.
State-level figures are even more alarming. In Minnesota, Medicaid outlays for autism therapy ballooned from under $700,000 in 2018 to more than $342 million by 2024. North Carolina saw a similar explosion, from $1.9 million in 2020 to over $505 million in 2025. Indiana offers a particularly egregious example: in 2023, the state paid a single provider $29 million for services to just 84 patients—roughly $340,000 per child.
Federal audits of four states—Indiana, Colorado, Maine, and Wisconsin—found hundreds of millions of dollars in improper disbursements, including payments to ineligible recipients, overpayments, and claims lacking proper documentation. Officials have recommended that these states return approximately $123 million in misspent federal funds. Notably, none of the four states had conducted a statewide post-payment review of these fee-for-service claims.
Colorado’s case was particularly damning: auditors found that every single one of the 100 sampled enrollee months contained potentially improper payments. Providers billed for services delivered by unqualified staff, and in some instances, they charged Medicaid for naps and group recreation as if they were one-on-one therapy. The Justice Department has also filed criminal charges in a separate $46 million fraud scheme involving fabricated diagnoses and billing for services never rendered.
The problem, experts say, is rooted in Medicaid’s financing model. Because the program is an open-ended entitlement, every dollar a state spends on Medicaid triggers a federal match, giving states little incentive to control costs or aggressively police fraud. “Runaway ABA spending exposes the moral hazard at the heart of Medicaid’s financing architecture,” said Alex Ciccone, policy and government affairs manager at the National Taxpayers Union.
In response, CMS has released a toolkit advising states on verifying provider credentials and ensuring that only clinically appropriate care is reimbursed. The agency is also developing the Comprehensive Regulations to Uncover Suspicious Healthcare (CRUSH) rule, which would use artificial intelligence to flag and block suspicious payments in real time. Meanwhile, House Republicans have introduced the Anti-Fraud Fund Act of 2026, which would channel billions of dollars to federal investigators and prosecutors to combat health program fraud.
But enforcement alone may not solve the problem. Ciccone argues that Congress should consider restructuring Medicaid into a block grant, giving states a fixed sum rather than an open-ended federal match. That, he says, would create a stronger incentive for states to root out waste and abuse.
Medicaid administrator Mehmet Oz underscored the human cost of fraud, stating that “every dollar lost to fraud or waste is a dollar that cannot reach a child who genuinely needs it.” The challenge for policymakers is to ensure that ABA therapy—a vital intervention for many autistic children—remains available to those who need it, without turning the program into a piggy bank for unscrupulous providers.
As the debate over Medicaid reform continues, the recent audits serve as a stark reminder of the consequences when oversight fails. For more on how trust in government programs is eroding, see this poll on voter confidence. And for a related controversy involving diverted Medicaid funds, check this report on the Missouri attorney general’s stance.
