April 22, 2025  – The Centers for Medicare & Medicaid Services (CMS) has announced a shift in its approach to Medicaid funding by halting support for certain state programs that fall outside the core mission of the program. In a letter sent to state Medicaid directors this week, CMS stated it will no longer approve new or extended requests for federal matching funds for programs known as Designated State Health Programs (DSHPs) and Designated State Investment Programs (DSIPs).

These programs have grown rapidly in recent years, and according to the Trump Administration, are often unrelated to direct healthcare services for Medicaid beneficiaries. According to CMS, DSHPs and DSIPs expanded from $886 million in eligible expenditures in 2019 to nearly $2.7 billion in 2025. The increase has raised concerns over sustainability and the integrity of the federal-state financial relationship that underpins Medicaid.

“DSHPs and DSIPs are essentially a tap on the federal Treasury for programs that states have determined are priorities outside of the federal commitment to the Medicaid program,” the agency said in its statement.

Examples of programs funded through DSHPs or DSIPs include $241 million in New York for non-medical in-home services such as housekeeping, $11 million in grants to a labor union for childcare provider health insurance, and $17 million in California for a student loan repayment initiative. In North Carolina, $20 million was used to expand high-speed internet access for rural healthcare providers. While these programs may serve important local goals and can often be linked to health equity, CMS argues they fall outside the scope of Medicaid’s statutory purpose. CMS emphasized that Medicaid is intended to support medical and health-related services for low-income and vulnerable individuals, and that federal funds should be directed accordingly.

CMS previously signaled its concerns back in 2017, stating at that time that states had not demonstrated why DSHP funding was essential to maintain existing programs. Now, with rising costs and increasing scrutiny from Congress and the Government Accountability Office (GAO), the agency is taking a firmer stance.

“While CMS will continue to work with states on innovative Section 1115 demonstrations, those demonstrations should be focused on improving health outcomes of the most vulnerable dependent on Medicaid,” the agency said.

This move signals CMS’s intent to refocus Medicaid spending, and rein in spending. The decision is expected to affect several states currently relying on DSHPs and DSIPs for funding local priorities. As CMS tightens its oversight, states will need to reevaluate their strategies and explore other avenues to support non-healthcare initiatives.