CMS cuts off funding stream for healthcare transformation experiments

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."