Rural health fund delivers hope for innovation, but financial pressures may undermine impact

The Buzz This Week

All 50 states have submitted applications for the Rural Health Transformation Program (RHTP) by the November 5 deadline. A clearer picture of how states are planning to utilize their share of the $50 billion fund is now coming into view.

Created in the wake of federal Medicaid spending reductions in the One Big Beautiful Bill Act (OBBBA), the fund is intended to help offset an estimated $137 billion in federal Medicaid cuts that will hit rural communities over the next 10 years. The program’s stated goal is to support a redesign of the rural healthcare system through innovations to improve access, quality, and outcomes. The Centers for Medicare & Medicaid Services (CMS) is expected to notify states of award amounts by December 31. Funding will occur over fiscal years 2026 to 2030.

Half of the $50 billion ($25 billion) will be distributed equally among states that submitted an approved application. CMS will distribute the remaining $25 billion based on a variety of factors, including the proportion of the state’s population that is rural, the share of rural health facilities in the state, the financial solvency of hospitals serving a high proportion of low-income patients, and the quality and content of the state’s transformation plan.

Several states—including Alabama, Iowa, Kansas, and Texas—have released detailed narratives outlining their visions for how they would utilize program funds. Other states—such as Florida and New York—have shared summaries of their plan initiatives. Prominent features include recruitment and retention of healthcare professionals (a longstanding issue in rural areas), and initiatives that would leverage telehealth to expand access and bolster technology interoperability.

Why It Matters

America’s rural health safety net has been shaken by hospital closures, a rapid loss of access to care, and an increasingly vulnerable population. The infusion of $50 billion represents a significant opportunity for innovation to expand access and improve care delivery.

Through the application process, states have developed a range of initiatives to better serve their rural populations. As an example, Texas, home to more than 4 million residents in rural communities and the most rural hospitals in the nation, has built its vision for RHTP funds around half a dozen initiatives. These initiatives include modernizing IT infrastructure, improving security and care coordination, creating the next generation of rural Texas’ clinicians and nurses, and using artificial intelligence (AI) to innovate care delivery. Texas is expected to be among the largest recipients of program funds.

The RHTP encourages states to join interstate licensure compacts, enabling physicians, nurses, physician assistants, emergency medical services (EMS), and psychologists to provide care across state lines, including through telehealth. Almost all 50 states (except for California, New York, Oregon, and Alaska) are members of, or are working to join, at least one of the five compacts backed by the rural health fund.

While the RHTP is designed to support important innovation, the $50 billion fund does not come close to offsetting the estimated $137 billion in rural cuts to take place under OBBBA over the next 10 years. And with CMS restricting the ability of states to direct funds to rural hospitals, it is increasingly unlikely that the fund will alleviate the uncertainty and instability that has plagued rural providers for decades. Since 2010, 206 rural hospitals have closed or converted to rural emergency hospital (REH) status, and Chartis research shows that almost half of remaining rural hospitals have a negative operating margin.

Rural hospitals will likely continue to roll back services as they struggle to keep doors open. Obstetric services operate on particularly precarious margins, while clinics could be the next casualty in rural communities. Since September, more than 10 rural clinics have announced plans to close in multiple states, citing OBBBA’s looming Medicaid cuts, staffing shortages, and declining patient volumes.

Rural hospital and clinic closures reduce access to critical care as residents must travel further for services such as emergency care, childbirth, and surgery. Delays in care delivery can lead to negative health outcomes and even avoidable deaths. In addition to the clinical impact, the operational implications for remaining providers can be significant as they deal with overcrowding, increased wait times, and strained resources.

Rural service reductions also impact urban providers as they absorb an influx of patients traveling from rural areas for care. The delay in preventive and chronic care due to distance or cost means this population may be more medically complex and require more costly care by the time they reach an urban hospital, particularly for uninsured or underinsured patients.

The innovations proposed as part of the RHTP seek to alleviate some of these negative impacts in an increasingly challenging environment for both rural and urban providers. While the impact of plans that receive funding remains to be seen, the industry will be closely watching. Chartis will provide future updates and analysis as efforts unfold.