CMS announced this month that it does not anticipate using federal funds to match state funds for designated state health programs (DSHP) and designated state investment programs (DSIP) under its section 1115 demonstration authority. These programs are designed to support healthcare delivery system changes that are not usually covered by Medicaid. Upon review, CMS concluded that these programs operated without federal funds before being approved under CMS’s section 1115 demonstration authority. Based on this rationale, CMS has concluded that federal funds are not necessary and that these programs are not “integral components of section 1115 demonstration programs.”
CMS also noted that these programs would not have qualified for federal funding without receiving CMS’s approval under its section 1115 demonstration expenditure authority. Unlike other federal matching programs, the federal funds provided to these programs did not have to be tied to Medicaid beneficiary services but instead supported infrastructure and health delivery system transformations such as funding for high-speed internet and equipment for telehealth providers.
DSHP federal matching under CMS’s section 1115 demonstration expenditure authority began in 2005. In 2017, CMS told states that it would not approve new DSHP funding requests. Then, in 2021, CMS reversed course and began approving requests for DSIP matching programs that were state-funded but not eligible for federal funding. CMS also began approving DSHP federal funding requests with certain limitations, including restricting the scope of the DSHP funding, capping DSHP funding, placing time-limitations on federal matching, and requiring states to contribute funding to the programs.
In its latest announcement, CMS opines that these programs have become state financing programs because these programs already existed and were not being used “to test innovative approaches to promote the objectives of Medicaid.” Several of the initiatives that receive DSHP funding are health-related social need initiatives such as a New York program providing non-medical, in-home services, a grant for high-speed internet in rural North Carolina, and New York diversity in medicine initiative. These state programs will need to find other sources of funding once the federal matching program period sunsets.
The CMS announcement is available here.
