Rural health transformation fund applications are in. Now what?

Modern Healthcare – Tuesday, November 11, 2025
By Alex Kacik

All 50 states submitted Rural Health Transformation Program applications last week to the Centers for Medicare and Medicaid Services, hoping to get part of the $50 billion fund created under the new tax law.

Hospitals are outlining potential uses for the federal dollars, including initiatives to recruit clinicians, upgrade equipment and boost chronic disease management programs. State lawmakers likely will shape how the money is spent in an appropriations process during next year’s legislative sessions.

Here’s what to know about the program, the applications and next steps.

What is the Rural Health Transformation Program?

The “One Big Beautiful Bill” set aside $50 billion dollars aimed at improving rural healthcare. The fund is the result of a political compromise stemming from the new tax law’s spending cuts to Medicaid, which are expected to disproportionately impact rural hospitals.

States are vying for a slice of the $10 billion annual allotments over a five-year period. Starting next year, CMS will distribute half of the $50 billion equally to approved states. CMS will determine by Dec. 31 how to allocate the other half based on states’ rural population, the needs of their rural hospitals, the quality of their applications and other factors.

What did states ask for in their applications?

Most states are seeking between $100 million and $200 million a year.

States coordinated public forums and sent out proposal requests that gathered input from hospitals, community members and other stakeholders. State agencies organized and filed the applications, and health systems are preparing organization-specific initiatives.

Arkansas asked CMS to fund a $250 million project over five years to expand graduate medical education slots, create new medical school residencies and fund clinician retention bonuses for high-need specialties like mental health and obstetrics.

Arizona pitched a five-year, $135 million initiative to expand tele-behavioral health services, grow maternal-fetal health initiatives and increase access to screenings and public health resources for chronic disease management.

New Mexico applied for $393 million over five years to expand telehealth infrastructure, bolster specialty care and chronic disease management for high-risk rural populations, reduce hospital readmissions and fund provider training programs.

Healthcare vendors are hoping to work alongside states as they distribute funding. Tech and consulting firms last week launched the Collaborative for Healthy Rural America, which looks to help states and providers scale Rural Health Transformation Program initiatives.

How is CMS evaluating the applications?

CMS has broad discretion to determine which states will receive funding.

Federal regulators want initiatives to launch and scale quickly through the use of technology, industry observers said. CMS will likely highlight sustainable programs that do not rely on ongoing state and federal funding, they said.

CMS did not return a request for comment.

Each hospital-led initiative will need a clear, defined purpose aimed at closing healthcare gaps in rural areas, such as limited access to prenatal care, said Mary Mayhew, president and CEO of the Florida Hospital Association.

“Hospitals can’t just say they want to invest in the latest, shiny piece of equipment like a mobile clinic. They need to specify to what end it will be used for,” she said.

What is unclear about the application process?

Hospital associations aren’t sure whether CMS might ask states for more information, if an application can be partly denied and whether states can appeal a denial. It’s also unclear whether the agency coud unexpectedly claw back funding if certain initiatives aren’t working out as expected.

“Everyone will be holding their breath from here to September,” said Julia Ruetten, senior director of government affairs at the New Mexico Hospital Association.

The statute gives CMS Administrator Dr. Mehmet Oz an enormous amount of discretion to pull back money if it is not being spent the way it was intended, said Toni Lawson, chief advocacy officer for the Idaho Hospital Association.

“What level of certainty do states have on whether they will be able to keep awarded funds? How is CMS going to ensure that these initiatives emphasize rural hospitals,” she said.

What happens after state applications are approved?

Putting the funds to use may take a while.

Many states require their legislatures to pass a law to spend public funds. State legislatures typically convene from January through April and new laws would likely take effect July 1. State lawmakers can influence how and where federal funds will be used through the appropriations process.

Legislators don’t want to approve projects that will require state support after federal funding winds down, experts said.

“I suspect the legislature may want to look at opportunities to weigh in on the direction of the funding to support their rural community,” Mayhew said.

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