Federal Funds Restricted in Five States Amid Fraud Concerns

On January 6, 2026, HHS, through its Administration for Children and Families (ACF), informed officials in California, Colorado, Illinois, Minnesota, and New York of a temporary suspension of access to select federal grant funds. This action, triggered by concerns of potential fraud, affects approximately $10.6 billion allocated across three key programs: the Child Care and Development Fund (CCDF) – totaling nearly $2.4 billion; the Temporary Assistance for Needy Families (TANF) program, receiving $7.35 billion; and the Social Services Block Grant (SSBG), which accounts for $869 million.

States impacted by the restriction will be required to provide detailed justification and supporting documentation before any further federal payments are released. ACF has simultaneously launched a dedicated fraud reporting portal at childcare.gov, empowering individuals to report suspected misuse of funds. While the restriction is expected to remain in effect until ACF completes its comprehensive review and confirms compliance with federal regulations, its implementation has already faced legal challenges, with a temporary injunction halting enforcement while litigation proceeds. [4] This action follows the nationwide activation of ACF’s “Defend the Spend” system, underscoring a broader initiative to enhance program oversight.

Changes Proposed to Child Care Provider Payment Rules

Beyond the funding restrictions, HHS is proposing revisions to the 2024 Child Care and Development Fund rule established under the previous administration. The proposed changes seek to rescind provisions that mandated state payment to child care providers based on enrollment numbers, rather than verified attendance. Additionally, HHS aims to eliminate requirements for advance payments – funds disbursed before care is actually provided – and to remove preferences for guaranteed contract slots with providers over parent-directed voucher systems. [7]

If finalized, these changes would allow states to revert to attendance-based billing and post-service payment methods, and would eliminate federal incentives favoring contracts over vouchers that empower parents to choose their preferred child care options. HHS asserts that these adjustments will strengthen program oversight and reduce the potential for waste, fraud, and abuse within federally funded state child care programs. The proposed rule is currently subject to a 30-day public comment period. [9]

Telemedicine Flexibilities Extended for Controlled Substances

In a coordinated effort with the Drug Enforcement Administration (DEA), HHS announced a fourth temporary extension of telemedicine flexibilities initially implemented during the COVID-19 public health emergency. This extension, valid from January 1, 2026, through December 31, 2026, permits patients to receive prescriptions for Schedule II-V controlled medications without a prior in-person medical visit. [10]

The extension aims to prevent disruptions in care for vulnerable populations – including seniors, individuals with disabilities, rural residents, and those receiving treatment for mental health or substance use disorders – who rely on telehealth for access to essential medications. It’s important to note that this extension does not alter existing requirements for licensed practitioners to issue prescriptions for legitimate medical purposes, in full compliance with both federal and state laws. Data from 2024 reveals that over seven million prescriptions for controlled medications were issued via telehealth without a preceding in-person visit, [14] influencing the decision to extend these flexibilities. This fourth extension provides additional time for the DEA and HHS to finalize permanent regulations, including the proposed Special Registration for Telemedicine, which seeks to establish clear standards for prescribing controlled substances remotely while prioritizing patient safety and preventing misuse.

What impact will these changes have on access to childcare for low-income families? And how will the extension of telemedicine flexibilities shape the future of healthcare delivery in rural communities?

Frequently Asked Questions About HHS Actions

1. What is the primary goal of the HHS actions regarding child care funding? The primary goal is to enhance program integrity and prevent fraud within the Child Care and Development Fund, Temporary Assistance for Needy Families, and Social Services Block Grant programs.
2. How will the proposed changes to CCDF payment rules affect child care providers? The proposed changes would allow states to revert to attendance-based billing and post-service payment methods, potentially impacting provider cash flow and administrative processes.
3. What types of controlled medications are covered by the telemedicine extension? The extension applies to Schedule II-V controlled medications prescribed via telemedicine, in accordance with DEA guidance and applicable laws.
4. Is a prior in-person visit now required to obtain a prescription for controlled substances via telehealth? No, the extension continues to allow prescriptions for controlled substances to be issued via telehealth without a prior in-person visit, but only in compliance with existing regulations.
5. What is the “Defend the Spend” system? “Defend the Spend” is a nationwide initiative by ACF to proactively identify and prevent fraud, waste, and abuse in federally funded programs.
6. What is the status of the litigation challenging the funding restrictions? Enforcement of the funding restrictions has been temporarily enjoined while litigation proceeds in federal court.
7. Where can individuals report suspected child care fraud? Individuals can report suspected fraud and program misuse through the dedicated portal at childcare.gov.