Among the first moves the incoming Trump administrators at the Centers for Medicare and Medicaid Services (CMS) announced was the elimination of approval for Designated State Health Programs (DSHP) and Designated State Investment Programs (DSIP). Announced on April 10, 2025, this action followed a similar move made by the first Trump administration.
Learn more about the history of DSHPs and DSIPs and what the new administration’s actions mean for state Medicaid programs.
What are Designated State Health Programs (DSHP) and Designated State Investment Programs (DSIP)?
DSHPs are state-funded health programs that do not qualify for federal Medicaid funding. Through Section 1115 demonstrations (also known as waivers), CMS allowed states to receive federal Medicaid matching funds for certain DSHP expenditures to support new initiatives within these demonstrations.
With DSHPs, CMS aimed to ensure the continuation of beneficial state programs during increased expenditures on delivery system reform initiatives pursued via the Section 1115 demonstration. States could then use those freed dollars to support specific initiatives within the Section 1115 demonstration. CMS intended DSHPs to be time-limited.
Funding Approval Conditions
CMS established several conditions for DSHP funding approval
- DSHPs must be state-funded health programs that do not qualify for federal funding, including Medicaid match. They must have existed before the Section 1115 demonstration.
- Federal dollars claimed for DSHPs could not exceed 1.5% of the state’s total Medicaid spending.
- States could not fund Section 1115 Demonstration initiatives exclusively with DSHP funds; CMS required other sources to finance at least 15% of the non-federal share.
- Section 1115 Demonstration initiatives financed using DSHP funds had to be new and could not supplant or supplement existing services or programs.
- States had to meet provider payment rate standards for primary care, behavioral health, and obstetrics to strengthen access to care.
- States claim DSHP expenditures at a Federal Medical Assistance Percentage (FMAP) of 50%. Once states redeploy these dollars to support other demonstration initiatives, states receive their usual FMAP.
- States had to submit a certification or attestation of expenditures and actual expenditure financial data to ensure compliance.
- States had to establish a sustainability plan with a funding strategy to maintain the initiatives beyond the demonstration period.
- States would have to consider DSHP funds for budget neutrality.
Program Examples
Examples of programs that could be considered DSHPs include services for the elderly and mental health and substance use disorder programs, as well as specific initiatives such as training for primary care professionals, physician loan repayment programs, community-based supports for caregivers and people with dementia, non-medical in-home services like housekeeping, and telehealth infrastructure grants.
Like DSHPs, states fund DSIP are state-funded programs that would not qualify for federal Medicaid funding. CMS approved authority for expenditures referred to as DSIP in 2021 for designated programs that provide or support health-related services that were otherwise state-funded and not eligible for Medicaid funding. Similar to DSHPs, the intention was for the federal government to share in the costs of funding these state programs, allowing the state to use the “freed up” state dollars for other demonstration initiatives or state purposes.
What’s the history of these programs?
Early Approvals (2005)
CMS began allowing states to claim federal Medicaid matching funds for some existing, state-funded programs, designated as DSHPs, through Section 1115 demonstration projects starting in 2005.
GAO Concerns (around 2015)
By 2015, the Government Accountability Office (GAO) raised concerns regarding DSHP financing. The GAO pointed out a lack of consistent criteria for determining if DSHPs related to eligible populations or promoted Medicaid goals.
Attempted Phase-Out (2017)
In 2017, CMS announced it would no longer accept new or renewing proposals for DSHP funding. CMS stated that states used DSHPs as a financing mechanism in Section 1115 demonstrations. Their purpose was as a tool to drive reform. They expressed concern that federal DSHP funding was unnecessary to continue important state programs. They also felt funding was inconsistent with the federal-state financial relationship under the Medicaid statute.
Revival with New Conditions (2021)
Starting around 2021, CMS reversed this policy under the Biden administration. The Biden Administration released new conditions for DSHP funding approval, similar to those placed on health-related social needs (HRSN) initiatives. In 2021, CMS also approved authority for expenditures referred to as DSIP. These were designated state programs providing or supporting health-related services that were otherwise state-funded and not Medicaid-eligible. These later approvals for DSHPs and DSIPs included limitations on their size and scope. Additional guardrails included required state contributions, caps on total federal and state DSHP/DSIP expenditure authority, and time limits for federal funding.
Continued Growth and Concerns (2019-2025)
Despite the renewed conditions, DSHPs and DSIPs grew significantly in eligible expenditures. Expenditures grew from $886 million in 2019 to nearly $2.7 billion in 2025. This growth raised renewed concerns for CMS and oversight bodies about the increasing costs to the federal government without a sustainable state contribution. Many also raised concerns about whether these programs were integral to Section 1115 demonstrations or merely financing mechanisms. CMS also noted that federal matching funds for DSHP and DSIP did not always directly tie to services provided to Medicaid beneficiaries.
Why did CMS end funding for DSHPs and DSIPS?
The decision to end funding for DSHPs and DSIPS signaled a move to narrow the scope of the federal-state Medicaid partnership and prioritize federal matching funds for core healthcare services delivered to Medicaid beneficiaries. CMS will not approve new requests or renew existing authority for DSHP and DSIP funding, even if the current authority ends before the overall demonstration period expires.
CMS ended federal matching funds for DSHPs and DSIPs for several key reasons:
Lack of Integral Connection to Medicaid Demonstration Programs
CMS determined that states initially funded these programs without federal Medicaid funds. The subsequent addition of federal matching funds did not make them integral components of Section 1115 demonstration programs. CMS believes these programs existed independently of the demonstrations.
Primarily Financing Mechanisms
CMS concluded that DSHPs and DSIPs served primarily as a financing mechanism for states. By receiving federal matching funds for existing state programs, states could free up their funds for other purposes, including potentially reducing their overall funding obligations for services not traditionally covered by Medicaid. CMS expressed concern that this increased federal expenditures without a sustainable state contribution.
Funds Not Directly Tied to Medicaid Beneficiary Services
Unlike traditional Medicaid matching funds linked to specific services for Medicaid beneficiaries, CMS did not necessarily tie federal funds for DSHPs and DSIPs directly to services provided to this population. Examples provided by CMS include grants to a labor union for childcare provider health insurance, funding for non-medical in-home services like housekeeping, student loan repayment programs, rural broadband grants, and diversity in medicine initiatives.
Renewed Oversight Concerns
Federal DSHP funding has historically raised oversight concerns from Congressional oversight committees and the Government Accountability Office (GAO) regarding their link to eligible populations and alignment with the federal-state financial partnership under the Medicaid statute. CMS had similar concerns in 2017 when it initially attempted to phase out DSHPs, as noted above.
Growth in Expenditures
As noted above, DSHPs and DSIPs experienced significant growth in eligible expenditures. This increase represented a substantial cost to the federal government without a proportional increase in state contributions.
Not Always New and Innovative
CMS noted that many previously accepted demonstrations were not new, innovative initiatives as intended for the Section 1115 program, as the DSHP and DSIP programs already existed at the state level.
Refocusing on Core Medicaid Mission
CMS stated it is taking action to preserve the core mission of the Medicaid program by ending spending that duplicates other federal and state resources or isn’t related to healthcare services for Medicaid beneficiaries. The agency aims to refocus its resources on improving health outcomes for the most vulnerable individuals dependent on Medicaid.
Additional Resources:
- CMS to Withdraw Federal Medicaid Match for Workforce, Social Needs, and Infrastructure: What States, Health Care Providers and Community Organizations Need to Know
- CMS Tells States “No More” Medicaid Section 1115 Matching Funds for Designated State Health Programs (DSHP) and Designated State Investment Programs (DSIP)
- CMS signals cutting future Medicaid demonstration programs
- CMS to Cut Two Programs Related to Section 1115 Medicaid Waivers
Certifi helps states with Section 1115 Medicaid waivers or Medicaid buy-in programs bill and collect payments. Our premium billing and collections module is R3 certified for Medicaid.
