DSHP is Dead – What CMS’s Recent Decision Means for Medicaid

Post Written by Jason Helgerson, Founder and CEO

CMS recently announced that it will no longer allow states to use Designated State Health Programs (DSHP) as a source of state match in their 1115 Medicaid Waivers. There has been lots of chatter this past week about what this means for state Medicaid programs–unfortunately, there has also been a lot of hyperbole and misinformation. Today, I hope to provide some clarity and perspective on this important topic. 

What is DSHP and why does it matter:

DSHPs are public health programs that, under normal circumstances, would not have qualified as a source of state “match” for federal Medicaid funds. Often misunderstood, Medicaid is a matching program in which a state must contribute/spend a dollar for the federal government to match that dollar and each state has a matching rate that reflects its relative level of poverty. 

Under 1115 Medicaid waivers, CMS makes DSHP eligible for federal Medicaid matching funds, effectively having the federal government share in the costs of funding these state programs. As a result, the state uses the “freed up” state dollars as a non-federal share source for its Medicaid demonstration programs. In other words, DSHP effectively functions to reduce states’ overall funding obligation by allowing federal funds to supplant existing state funds for services not otherwise covered by Medicaid.

That is a long-winded way of saying that DSHP allows states to draw down federal funds without putting up any new tax dollars. In essence, DSHP is a creative way for CMS and states to fund programs without the state needing to contribute a penny. If CMS is willing to play ball, it's a good deal for a state. 

States typically use the funds created by DSHP matching to fund programs and initiatives not traditionally covered by Medicaid. These days, those services are mostly concentrated around Health-Related Social Needs (HRSN) programs and services, but DSHP use isn’t limited to just these services. New York has also used these funds to invest in workforce training programs and subsidies for financially distressed hospitals. 

Did this decision from President Trump’s administration come as a surprise?

No. Those who follow Medicaid closely know this was a foregone conclusion on election day. The first Trump Administration made the same decision, so no one should be surprised. The only “surprise” is that they will allow existing waiver programs that rely on DSHP to continue until their natural end but won’t renew any such programs. States have time to decide how to react to this decision.

How will states move forward in light of this decision? 

It depends. This is a substantial blow for states utilizing DSHP to fund waiver programs. New York made the decision to rely almost entirely on DSHP to fund the current HRSN services in its 1115 waiver, as well as the workforce and hospital payment programs. Previous New York State waivers relied more on Intergovernmental Transfer (IGT) revenue as the source of state match. While also challenging, IGT is more sustainable because many states use it to fund programs. New York and other states will now need to decide what to do—Put up tax dollars to fund these services or wait until the next election, hoping for a different result? That decision will need to be made moving forward after the current waiver expires.

Does this spell the end of Health Related Social Needs programs?

Not necessarily. While CMS withdrew Biden Administration guidance on HRSN (LINK), there may still be an appetite within the agency to support HRSN in another way; after all;

Secretary Kennedy visited a food pantry in a primary care clinic last week and emphatically declared he wished he could “clone what’s going on here.” Recall that CMS under President Trump approved the first-ever HRSN waiver for North Carolina, so there is at least some history that points to a possible path forward. The one thing the DSHP decision makes clear, however, is that if states want to offer HRSN services, they will need to put up state tax dollars to do it. 

What does this mean for SDOH more generally?

I have been in the Medicaid space for a long time and have seen how views have changed relative to Medicaid’s role in addressing the health related social needs of members. Back in 2006, when I first became Wisconsin’s Medicaid Director, the view of most within the Medicaid world was that it wasn’t Medicaid’s job to fill the gaps caused by a quickly retreating social welfare system. While evidence was growing that social needs often significantly impacted healthcare needs, many in the Medicaid world strongly opposed using Medicaid funds to address those needs systematically. By the time I became New York’s Medicaid Director in 2011, the world had totally changed, and almost everyone believed that Medicaid had to play a role in addressing the social needs of members.

Perhaps now we are seeing the pendulum swing back on health related social needs and Medicaid’s role in funding interventions to meet these needs. Or perhaps they will require more data that demonstrates the effectiveness of specific HRSN interventions before they agree to fund those efforts at scale. We shall see. 

Curious to learn more about how policy changes are impacting the Medicaid space? We’re here for you, whether you’re a provider taking risk or an ACO/IPA, or seeking to enter the Medicaid market. Contact us and we’ll arrange a time to talk!

About the Authors: Jason Helgerson is the founder and CEO at HSG, and was previously the Medicaid Director for New York State. Follow him on X and connect with him on LinkedIn.