Why rural hospitals are preparing for a $50B funding race

Modern Healthcare – Thrusday, July 17, 2025
By Alex Kacik

Hospitals are working with states to prepare bids for a $50 billion fund that aims to bolster rural healthcare, though the program may not be enough to sustain providers.

States have until the end of the year to submit to the Centers for Medicare and Medicaid Services their plans for the Rural Health Transformation Program funding that was part of the new tax law. However, industry observers are concerned the program won’t ultimately benefit the highest-need rural hospitals and will not be enough to mitigate looming Medicaid and Medicare cuts.

Here is what to know about the program.

What is the Rural Health Transformation Program?

Congress created the Rural Health Transformation Program as part of the healthcare and tax cuts law President Donald Trump signed earlier this month.

States, in conjunction with hospitals and other providers, must explain to regulators how they plan to use the five-year, $50 billion fund that is designed to soften the blow of the Medicaid and Medicare cuts in the law. Those with approved plans will receive $10 billion a year from fiscal 2026 to 2030. CMS must approve applications by Dec. 31.

How is CMS judging applications?

The law laid out several criteria regulators will use to evaluate states’ plans, each of which is relatively broad. Rural health transformation plans must include strategies to:

• Increase access to hospitals, other providers and services for rural residents.
• Identify the causes of standalone rural hospital closures and service reductions.
• Improve patient outcomes in rural areas.
• Prioritize technology focused on preventative medicine and chronic disease management.
• Build regional partnerships between rural hospitals and other providers to promote quality improvement and financial sustainability.
• Boost clinician recruitment and training programs.
• Create data-driven strategies to provide care close to patients’ homes.
• Develop long-term financial solvency and operating models for rural hospitals.

How will the money be allocated?

Regulators will distribute half of the funding equally among states with approved transformation plans. The rest will be allocated based on the number of rural residents and providers in a state, as well as “any other factors the administrator determines appropriate,” according to the law.

Federal overseers have a lot of leeway over funding allocations, stoking concerns that larger health systems will secure more funding than small rural hospitals with fewer resources, rural hospital CEOs and policy experts said.

“The National Rural Health Association is really concerned that the money won’t get to facilities that Congress intended,” said Brock Slabach, chief operations officer of the National Rural Health Association.

Rural-adjacent providers may unduly benefit from the program, he said.

What initiatives does the law call for?

If CMS signs off on a state’s plan, it must work on at least three of these initiatives:

• Improved prevention and chronic disease management through data-driven treatment
• Hospital and other provider payments
• Development of consumer-facing, technology-driven chronic disease management and preventative care programs
• Adoption of remote monitoring, robotics or artificial intelligence to improve care delivery in rural hospitals
• Clinician recruitment and retention, including five-year employment commitments
• Infrastructure for technology designed to improve efficiency, enhance cybersecurity or improve care quality
• Assistance to help rural communities right-size their organizations by identifying necessary preventative, ambulatory, emergency, inpatient, outpatient and post-acute service lines
• Supporting substance abuse and mental health treatment
• Expanded value-based care models
• Increased access to high-quality rural health services, as determined by CMS
• In addition, states may not use more than 10% of their funding for administrative expenses and must report annually to CMS.

How could hospitals use the funding?

The $50 billion program has the potential to support much-needed technology investments that can hone rural hospital care plans and improve outcomes, rural hospital executives said. But the funding may also enrich consulting firms tasked with coordinating those initiatives, experts warned.

For instance, rural hospitals could use the funding to set up telehealth programs that increase access to specialty care through partnerships with specialists at health systems and independent physician groups, said Dr. Jennifer Schneider, CEO and co-founder of Homeward, a healthcare startup that works with rural providers. The rural health fund could also help providers improve data analysis to better guide treatment interventions for patients managing chronic conditions like diabetes or heart disease, she said.

But if not properly monitored, hospitals could use the funding to extend existing programs that do not significantly improve care or lower costs, Schneider said.

“This could be an opportunity to jumpstart transformation, or it could go wildly sideways,” she said. “I hope the dollars go to the rural facilities that are most in need for an idea that is going to change outcomes the most.”

Will the fund offset Medicaid and Medicare cuts?

The rural health fund will likely fall well short of making rural hospitals whole, especially since those facilities predominantly treat Medicaid and Medicare patients, experts said.

As part of the law, providers are facing reductions in Medicaid supplemental payments, rising uncompensated care costs as Medicaid enrollment drops through work requirements and eligibility crackdowns, and lower Medicare payments via the Statutory Pay-As-You-Go Act of 2010.

Rural hospitals have been living off subsidies, like state-directed payments, for so long, they have become part of their operating budget, said Eric Shell, board chair at consultancy Stroudwater Associates.

“One of the main concerns I have is that the fund is going to run out really quickly,” he said. “I don’t see how the fund is going to equal the dollars that will be cut.”

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