CMS halts funding for designated state health programs under 1115 demonstrations: 4 things to know

CMS will stop accepting state proposals for new or renewing section 1115 demonstrations relying on federal Designated State Health Program funds.

Here are four things to know about the change.

1. Designated State Health Programs are state-funded health programs that previously didn't qualify for federal funding like Medicaid, and were around before section 1115 Medicaid demonstrations. Under the Social Security Act, section 1115 demonstrations allow states to test healthcare delivery models for Medicaid and the Children's Health Insurance Program. 

2. Several states have received federal Medicaid funds for DSHPs through section 1115 demonstrations. The funding was intended to ensure legacy health programs continued while states made investments in Medicaid reform and coverage expansion. However, CMS said federal matching funds for DSHPs have not necessarily been tied to funding Medicaid services and claims like traditional Medicaid matching funds are.

3. CMS Medicaid Director Brian Neale said in a Dec. 15 letter to state Medicaid directors, "the result has been that many states are not contributing state funds toward these delivery system reform efforts. Instead, these states are primarily relying on dollars freed up by the federal Medicaid contribution to DSHP to draw down additional federal Medicaid matching expenditures to support delivery system reforms."

4. As a result, CMS said DSHP funding has not proved to be a "prudent federal investment," and it will cease DSHP funding. Current DSHPs will continue until the state's demonstration period concludes, but will not be renewed.

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