In a letter to state Medicaid directors, CMS said it will no longer accept Medicaid waiver proposals that ask for federal funding for Designated State Health Programs (DSHPs), saying states aren’t contributing their own funds toward efforts to make delivery system changes and have used the waivers to draw down additional federal dollars for Medicaid.

Since 2005, section 1115 waivers allowing states to experiment with delivery system reforms in their Medicaid programs could include DSHPs—initiatives which had previously been state-funded and not eligible for federal matching funds from CMS. States like Oregon used this expansion to gain additional federal matching funds to implement its Coordinated Care Organization (CCO) model.

CMS Administrator Seema Verma, MPH, however, had recommended halting that federal support earlier this year. The Dec. 15 memo confirmed the move, saying in recent years states stopped contributing their own funds to delivery system reforms, relying on the federal matching dollars obtained through DSHP requests in their 1115 waivers.

“In most approved demonstrations, the amount of DSHP funding is tied to expenditures under the demonstration for delivery system reform activities, so that the federal DSHP funding frees up state dollars that the state can expend to obtain additional federal match,” wrote Brian Neale, director of the Center for Medicaid and CHIP Services. “This, in effect, results in increased federal expenditures without a comparable increase in the state’s investment in its demonstration.”

Once CMS began a closer review of these waiver projects which included federal DSHP funding, Neale wrote it confirmed the money was “primarily used by states to obtain additional federal funds without state match, and not as an integral part of a Medicaid delivery system or coverage reform demonstration.”

In one instance, he said a state’s approved DSHP was a previously state-funded immunization program and a tobacco use prevention efforts. Another state used the funding for program for nutrition and renal disease programs—again, not efforts integral to delivery system reform.

States with existing DSHP funding will continue to receive it until their waiver expires. No new demonstration projects which include it as a funding mechanism will be approved, with Neale promising CMS will work with states to come out with other options “that promote the objectives of Medicaid.”