A Closer Look at the $50 Billion Rural Health Transformation Program

Structure

The rural health fund will provide $50 billion in grants to states over five years.

The rural health fund was added to the 2025 reconciliation law as a political compromise just prior to the law’s passage. The fund emerged during Senate negotiations in response to concerns about the impact of federal spending cuts on rural hospitals. Nonetheless, the program is not specific to rural hospitals but instead supports a much broader set of activities (see below). The law specifies that the Centers for Medicare & Medicaid Services (CMS) will oversee the program. It grants the agency substantial leeway to determine how to distribute funding across states and flexibility to expand the permitted uses of funding and determine the terms and conditions. CMS is administering the program through the new Office of Rural Health Transformation.

Under the rural health fund, CMS will award $10 billion in grants to approved states each year from fiscal years 2026 to 2030, a five-year period, for a total of $50 billion. States will be allowed to spend funds that they receive at a given point through the end of the following fiscal year, and CMS will redistribute any unused funds over time, but all funds must be spent by the end of fiscal year 2032. States will administer their programs, subject to terms agreed upon with CMS. However, the funding is occurring through a mechanism known as a “cooperative agreement,” which “require[s] substantial CMS project involvement after an award is made.”  

States had a one-time opportunity to apply for funding and all states were approved, meaning that they are eligible for funding for all five years of the program. However, CMS may withhold, reduce, eliminate, or recover funding over time if it determines that a state is not in compliance with program rules, the state has not made “satisfactory progress,” or that funding is no longer “in the government’s best interest.” The law indicates that there will be no administrative or judicial review of these and other funding decisions made by CMS.

The law and CMS established a fast-paced timeline for states to apply for funding and initiate programs during the first year of the program. CMS issued a Notice of Funding Opportunity in September 2025 with guidance on how to apply. States then had less than two months to prepare their applications. Those applications affect the scope of activities states can engage in and the amount of funding they receive for the life of the program. CMS announced first-year awards in December 2025. States were then given less than a year to finalize their plans through discussions with CMS, develop their own application process for entities within the state to receive funding, process applications, obligate funding, and submit their first annual progress reports (which will affect second-year awards). States likely differ in their capacity to manage procurement processes and have varied widely in terms of how quickly they have distributed funds during the first year.

Uses

The rural health fund is intended to transform the delivery of health care in rural communities and is being used to support a wide variety of activities.

The rural health fund is designed to help “support…rural communities to improve healthcare access, quality, and outcomes through system transformation” according to CMS. CMS also indicated that it “expects States to design initiatives that invest in long-term, sustainable improvements rather than temporary fixes or funding perpetual operating expenses.” States can use funding for eleven purposes detailed in law and through guidance from CMS, with certain restrictions (see textbox below and Appendix Table 1). CMS has also identified five strategic goals of the program that align with these uses: make rural America healthy again, sustainable access, workforce development, innovative care, and tech innovation (see Appendix Table 2).

In line with the broad scope of the rural health fund, states are implementing a wide variety of activities under the program. For example, states are using funds to promote prevention and chronic disease management interventions, support collaboration among rural health care facilities (such as by sharing administrative services) and between rural providers and regional health systems, recruit clinical workers to rural areas, promote technological advancements (such as by expanding telehealth or promoting AI diagnostic tools), invest in existing hospital buildings and infrastructure, help hospitals determine which services should and should not be maintained, and support the adoption of value-based care and alternative payment models.

Specific state examples include the following (each state is undertaking multiple initiatives):

• Alabama is funding the use of telerobotics to provide ultrasounds remotely.
• Alaska is funding the use of drones to deliver medications to remote areas.
• California is funding new provider collaboration networks, connecting regional hospitals with critical access hospitals, clinics, birthing centers, and other providers.
• Michigan is funding an initiative to bring “services closer to where people work and live,” such as by “expanding…home-based care for older adults to allow them to age in place.”
• North Carolina is increasing access to healthy foods, such as by “facilitat[ing] farm-to-hospital [programs], mobile food markets, and community-based food access.”
• Montana is helping rural hospitals “right size” their services, which could entail eliminating some service offerings to improve hospitals’ financial sustainability.
• Nevada is funding an expansion of its rural workforce, such as through provider recruitment incentives.

Uses for Hospitals

Rural health funds are not just for hospitals, and there are restrictions on how hospitals can benefit.

While the fund emerged in response to concerns about the impact of the reconciliation law on rural hospitals, the extent to which it will benefit these facilities is unclear. States can choose how much of the funds will go to hospitals versus other rural providers and various other entities, such as contractors providing technical assistance, universities participating in workforce initiatives, regional health systems in urban areas collaborating with rural providers, and vendors developing new health technologies. Of the dollars going to rural hospitals, it is not yet clear which specific facilities will receive funding and the extent to which states will target resources to particular types of hospitals, such as those that are isolated or in financial distress. Additionally, hospitals that are not in rural areas can also receive funding, as long as it is to the benefit of rural communities and residents.

Initiatives could benefit hospitals to varying degrees. For example, uses of the funds that could more directly benefit hospitals include investing in existing hospital infrastructure (permitted within limits), strengthening collaboration among rural facilities and other providers, and supporting alternative payment models. Other initiatives, such as programs to promote health literacy and healthy behaviors, may have less direct or no obvious benefits for hospitals. The benefit to rural hospitals—and to other providers, patients, and rural communities—will also depend on how effective state initiatives are, which is difficult to predict. 

While funding could benefit hospitals in a number of ways, there are also limitations on how it can do so. For example, CMS guidance indicates that rural health funds cannot be used for:

• Propping up struggling hospitals with temporary relief. The funds are not intended “to be used for perpetual operating expenses, but rather for investments…that will have sustainable impact beyond the end of the program,” according to CMS.
• Payments to providers for care that exceed 15% of a state award in a given budget period. Payments to providers must be related to the strategic goals of the program, such as bonus payments for providing high-quality care, and cannot be used to supplement or duplicate existing funding, including payments from Medicaid or private insurance.
• Construction, building expansion, or purchasing buildings, though they can be used for certain investments in existing rural health care facility buildings and infrastructure, not to exceed 20% of a state award in a given budget period.
• Replacements for previous HITECH-certified electronic medical record (EMR) systems that exceed 5% of a state award in a given budget period.
• Funds for gender-affirming care (a limitation that is not restricted to care for minors, as are many other federal measures) and reimbursement for most abortion services. There are also limitations related to “citizenship documentation requirements for payments made with respect to an individual.” Many hospitals do not currently collect patient immigration status but may need to do so to be reimbursed for patient care with rural health funds.

The rural health fund may help hospitals adapt to the loss of federal funding under the reconciliation law, though the extent to which it will do so is unclear. The reconciliation law made historic reductions in federal support for health care and is expected to result in an unprecedented increase in the number of people without health insurance. An increasing uninsured rate results in fewer patients with health coverage for hospital care, and an increase in the amount of uncompensated care hospitals provide. At the same time, the 2025 reconciliation law made significant changes to Medicaid financing that could result in major reductions to the rates Medicaid pays for hospital services in most states.

The hospital industry and some members of Congress have called for a greater focus on hospitals. The hospital industry has recommended that the rural health fund give greater priority to supporting rural hospitals, including by lifting restrictions on provider payments and capital investments. A group of Senators also recommended that the program focus more on rural hospitals and other rural providers and expressed concern that small rural providers will have a harder time vying with larger systems and organizations for funding. Increasing funding for rural hospitals would do more to address concerns about the financial standing of these facilities, an original motivation for the program, but would involve tradeoffs with competing initiatives.