As funds begin flowing to states through the five-year, $50 billion Rural Health Transformation Program, hospital leaders are confronting a central question: Will the initiative meaningfully stabilize struggling providers — or will it fall short of offsetting an estimated $137 billion in Medicaid cuts to rural communities over the next decade?
The program, enacted in July as part of HR1, is designed to support broader health system transformation in rural areas. But its structure — including limits on direct patient-care payments and significant state discretion — has raised uncertainty about how much the program will ultimately benefit rural hospitals.
Here are three major questions surrounding the program:
1. How much will rural hospitals actually receive?
Unlike previous federal relief programs, this one does not provide direct payments to rural hospitals. Instead, states applied for and are managing the funds. States are not legally required to allocate money to rural hospitals specifically.
CMS stipulates that direct payments to hospitals and other providers for patient care cannot exceed 15% of total funds, though providers could benefit through other means, such as infrastructure investments (capped at 20%).
State applications varied in detail, but common themes emerged, such as workforce development, telehealth, partnerships and network development, interoperability, and preventive measures promoting healthier lifestyles, according to Chartis.
KFF said in a January report that it is unclear how much of the money will benefit rural hospitals either directly or indirectly and the extent to which this will offset hospitals’ losses under the reconciliation bill.
Damond Boatwright, CEO of Springfield, Ill.-based Hospital Sisters Health System, sees the program as a significant opportunity to reverse the long decline of rural healthcare, but the majority of the funds must flow directly to rural providers and not be diverted toward nonclinical or private equity and venture capital-backed enterprises.
“The majority of RHT funds must reach rural providers who deliver care, sustain access and anchor their communities,” Mr. Boatwright recently wrote for Becker’s. “Strengthening rural hospitals, clinics and caregivers — while simultaneously investing in workforce development, broadband, economic revitalization, transportation and social determinants — creates a resilient ecosystem where rural Americans can thrive.”
The sentiment is shared by Texas Hospital Association President and CEO John Hawkins.
“The proof will be in the details,” he said in a statement shared with Becker’s. “The dollars need to be focused on hospitals, which took the brunt of the Medicaid cuts. They need to come quickly without unnecessary administrative hurdles. They need to be self-sustaining, flexible and not create new burdens.”
2. What will future funding rounds look like?
When CMS announced the first-year funding amounts in December, variation in funding per-state was relatively narrow. Texas received the most first-year funding with $281.3 million and New Jersey received the least with $147.3 million.
Half of the program’s funds are being distributed equally to each state, meaning that $100 million is allocated from 2026 through 2030 to all 50 states. The other half involves a formula that factors in a state’s rural score — which considers rural population, number of facilities, land area and the share of hospitals receiving disproportionate share hospital payments — as well as technical scoring for project proposals, KFF News reported Jan. 14.
Texas’ first-year funding includes $105.1 million in rural funding and $76.2 million in technical funding, according to KFF News’ analysis of data from the University of North Carolina’s Cecil G. Sheps Center for Health Services Research. New Jersey’s rural funding was $22.8 million and its technical funding was $24.5 million.
Mark Holmes, director of the Cecil G. Sheps Center for Health Services Research, told KFF News that the technical score is a crucial consideration because those funds can be redistributed and potentially clawed back in future years.
“We can be fairly certain that every state will get at least a slightly, if not a vastly, different amount next year based on this re-pooling and reallocation piece,” Mr. Holmes told the news outlet.
3. Can struggling rural hospitals keep their doors open?
Forty-one percent of rural hospitals are operating at a loss and 417 are vulnerable to closure, according to a Feb. 10 report from Chartis.
Chartis said that while state initiatives have the opportunity to positively affect healthcare in rural communities, the program may be too late to prevent more hospitals from closing their doors or removing service lines. Since 2010, there have been 206 rural hospitals that have either closed or converted to models that exclude inpatient care, such as the Rural Emergency Hospital Model.
The firm’s analysis found that more than 10 million rural Americans rely on Medicaid. At the median rural hospital, Medicaid represents nearly 10% of total revenue. Chartis said the Medicaid-related cuts outlined “will severely impact cash-strapped rural hospitals.”
“The Medicaid cuts that take effect in 2027 will intensify efforts to stabilize the financial viability of rural hospitals,” Chartis said. “Rural hospitals need to plan for those cuts while using RHT funding at the state level to deliver the maximum benefit from those programs and initiatives to the communities they serve.”
