The CMS is ending a funding stream that states relied on to transform their healthcare systems to provide more efficient patient care, saying it’s unclear that the program is a good investment.

Over the years, states have received billions of dollars through the Designated State Health Programs, or DSHP, which can be used to finance delivery system reform. Those funds have gone toward health issues including lead poisoning prevention or supported employment programs that benefit Medicaid beneficiaries, according to Judy Solomon, vice president for health policy at the Center on Budget and Policy Priorities.

But the CMS said Friday that it will not renew DSHP portions of Medicaid waivers when they expire, and new requests for DSHP money will be denied.

“Current demonstrations have not made a compelling case that federal DSHP funding is a prudent federal investment,” CMS Medicaid Director Brian Neale said in a letter to state officials Friday.

Health policy insiders said the news wasn’t much of a shock, as the Trump administration has previously stated it would reduce healthcare program spending.

“I am not surprised that the administration, despite its stated interest in improving healthcare quality, would cease investing in delivery system reform for the Medicaid population,” said Sara Rosenbaum, a professor health policy at the George Washington University.

DSHP funds were always supposed to be a temporary solution to help drive delivery system reform. However, states have viewed the federal dollars as a source of additional revenue, Neale said.

“This, in effect, results in increased federal expenditures without a comparable increase in the state’s investment in its demonstration,” Neale said in the letter.

The Medicaid and CHIP Payment and Access Commission has noted a similar sentiment when it evaluated delivery reform experiments around the country.

Arizona, California, New York, New Hampshire, Rhode Island and Washington now have waivers that include DSHP funds.

Spokespeople from those state Medicaid agencies noted they still had DSHP funds for several years to come. They acknowledged they may have to come up with a replacement if delivery system reform efforts continue beyond the funding’s expiration.

“We have always understood that this DSHP was only available for the five-year life of our Medicaid transformation demonstration,” Amy Blondin, a spokeswoman for Washington’s Medicaid agency, said. “We are pleased to be able to continue the transformative work we have already underway with our waiver.”

As long as states are allowed to complete their waiver terms without change, the elimination of DSHP shouldn’t be a problem in the short term, Solomon said.

“However, for states that rely on this as a way of financing their initiatives it could make it harder for them to continue their reform efforts in the future, and of course no new states would be able to utilize this method to finance future efforts to reform their delivery systems,” Solomon said.

The Obama administration shared the Trump administration’s view that DSHP funds should be a temporary aid for health system transformation, according to Eliot Fishman, who oversaw 1115 waiver under the Obama administration and is now senior director of health policy at Families USA.

However, he was disappointed that states that haven’t yet used this funding tool will never get the chance to do so, as delivery system reform is needed around the country.

“We are still in the second or third inning out of nine when it comes to Medicaid system transformation,” Fishman said. “This is something that still needs federal support.”

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Note – from an explanation provided to the National Governor’s Association in a report authored by the Center for Health Care Strategies:
https://www.chcs.org/media/Medicaid-Compendium-Overview.pdf

1115 WAIVERS/DELIVERY SYSTEM REFORM INCENTIVE PROGRAM/DESIGNATED STATE HEALTH PROGRAMS
Some states have received approval from HHS for Medicaid Section 1115 demonstrations that have provided states with the authority to make sweeping changes to their Medicaid programs while receiving additional funding from the federal government. For example, states have Section 1115 demonstrations that allow them to implement large-scale delivery system and payment reform efforts and to receive additional federal funds through the DSRIP, which states have used to make additional payments to providers and other entities, and Designated State Health Programs (DSHP), which are state-funded programs that would not otherwise be eligible for federal Medicaid matching funds.

Since the first DSRIP program was approved in California in 2010, seven additional states (Kansas, Massachusetts, New Jersey, New Mexico, New York, Oregon, and Texas) have received approval from HHS for DSRIP programs and several of these states have extended their programs.

Early DSRIP programs provided federal funding for payments to hospitals, and particularly safety net hospitals, with metrics tied to the success of individual projects. More recent DSRIP programs provide federal funding for payments to integrated delivery networks linking hospitals to other providers and social service agencies, with metrics tied to system transformation.

Significantly, in more recent waivers, both the integrated delivery networks receiving DSRIP funds and the state are at risk based on quality and cost measures – meaning that a failure to achieve these metrics results in reductions of DSRIP funds.

New York is using its DSRIP to invest in 25 Performing Provider Systems, each of which must include a network of acute, long-term care, and behavioral health providers with linkages to community- based social services organizations. Providers must form partnerships to implement innovative projects focusing on system transformation, clinical improvement, and population health improvement. DSRIP funds are used to reward performance linked to achievement of specific project milestones associated with specific projects. One keystone of New York’s demonstration is the link between DSRIP funds and demonstrable metrics with an overarching goal of reducing avoidable hospitalizations by 25 percent over five years.

Oregon is using its Section 1115 demonstration waiver to implement its CCO program. Under this demonstration, Oregon obtained a significant level of federal matching funds to support CCO implementation. The state used DSHP funds to invest in a Transformation Center, innovator agents, learning collaboratives, and other technical supports, which are part of the quality strategy that Oregon developed to meet its program goals. DSHP is tied closely to specific terms and conditions pertaining to the annual expenditure reduction in spending targets and quality and access standards. For example, CMS is authorized to reduce DSHP funding if Oregon does not meet those terms.