CMS to Phase Out Designated State Health Program (DSHP) Funding

On December 15, 2017, CMS Director Brian Neale informed State Medicaid Directors of CMS’ intent to phase out funding for Designated State Health Programs (DSHP) in Section 1115 waivers.  CMS will no longer approve waiver requests under Section 1115 for DSHP funding, and will not renew portions of existing waivers that provide DSHP funding.

DSHP funding in Section 1115 waivers developed alongside of CMS’ funding of Delivery System Reform Incentive Payments (“DSRIP”) following the passage of the Affordable Care Act in 2010.  These incentives are often used to move state Medicaid plans away from the traditional fee-for-service model of paying for care.  DSHP was envisioned by states, and by CMS, as a means to free up state funds to pay for delivery system transformation by providing federal funds for state health programs that are not covered by Medicaid.  In Washington’s Section 1115 waiver, for example, the state receives federal funding for such programs as “Offender Re-Entry Community Safety,” “Problem Gambling Services,” and “Tobacco and Marijuana Prevention and Education.”  The waiver asserts that payments for these programs will “ensure the continuation of vital health care and provider support programs” and “result in savings to the federal government that will exceed the DSHP funding.”

CMS seems to have reconsidered that sanguine conclusion.  In his December 15, 2017 letter, Director Neale accused states of failing to contribute state dollars saved by federal DSHP funds toward delivery system transformation, and argued that the states “have not made a compelling case that federal DSHP funding is a prudent federal investment.”  Director Neale argued that many state waivers are structured such that “increased federal expenditures” do not lead to “a comparable increase in the state’s investment in its demonstration.”

States currently receiving DSHP funding will continue to receive funding through the expiration of their current Section 1115 waiver, but thereafter will have to find other means of funding.  Given the nature of many of these programs – the December 15, 2017 letter gives as examples an “immunization program,” a “child growth and nutrition program,” and a “renal disease program” – sizeable constituencies will be looking to state houses to make up the difference.

DSHP funding is part of the greater debate over funding for DSRIP.  Popular under the Obama administration, states are waiting to see how the Trump-era CMS responds to DSRIP requests.  Ten states currently have DSRIP initiatives as part of their Section 1115 Waivers.


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