Is the seller able to hold up closing due to lien on home?

If there is a contract of sale and a contractually agreed upon closing date, you could in theory sue to enforce that: i.e. sue for a court order requiring the seller to go ahead with the sale and/or seeking monetary compensation for any costs or losses a delay causes you (such as if you have to pay to rent someplace else to live and/or store your belongings). Generally, the seller's financial or legal issues are theirs--they do not provide a basis to escape their contractual obligations. So in theory, they would have to sell to you, even if doing so exposes them to liability.
BUT--and this is a large "but"--unlike a simple, unsecured debt, a lien goes with the property. The property should not be sold without paying off the lien and what *should* happen is that the proceeds at closing are used to pay off the lien (then the seller gets whatever is left over). But if for some reason the lien is not properly cleared or paid off before or at closing, you would be stuck owning property with a lien on it; Medicaid (or the state health agency acting on behalf of Medicaid) could then go after *your* home. Even if the problem is just paperwork--e.g. the lien should have been cleared, but there was some omission and error and it was not, but there is no reason to think it will not be once the paperwork is corrected--do you want to be spending your hard-earned money to get a house with a Medicaid lien on it? (And the problem might not be just paperwork: if there is a mortgage on the house, too, or large closing costs to be paid, there might not be enough to pay off the lien.)
Speak to a real estate attorney NOW, with whom you can discuss the situation in detail (e.g. amount of lien, amount offered for home, are there other liens or mortgages that also would have to be paid off, etc.) and follow his/her advice. It is not impossible that the recommendation will be to let the seller know that if they cannot transfer clean title at closing, that you will treat them as being in breach of contract, terminate the contract, and sue them for all costs and losses you incur.