DS scales only off the damage that lowers your health, which is why avoidance, stance reductions, and armor reduce the healing DS does.
It's also why we can use stamina as a mitigation stat in addition to EH, and it's why we're allowed to double dib on magic damage.
To be honest, I don't think it's that big of a problem. A far bigger issue, I think, is how reactive it is.
Monks can stagger a huge hit.
Paladins can get their full SotR bonus.
Warriors can SBlock for a guaranteed 30%.
Druids passively take less physical damage.
Death Knights get a puny shield (about 11% of my maximum health right now) unless we've been taking a lot of damage. This means our damage taken tends to oscillate - we'll take a huge pile of damage, then heal it back and take nothing for a little while, then when the shield breaks we'll take another huge pile, etc.
If I had my preference, Blood Shield would provide a flat "all physical damage dealt to you is reduced by X for five seconds" effect, which could stack with itself but not roll. This would really help dampen the swings in our health pool while still leaving us with the thematic "take hits and come back stronger" mechanic.