CMS describes how $50 billion will be distributed for rural healthcare

The Trump administration announced the application period for the Rural Health Transformation Program, giving states an opportunity to claim a piece of a $10 billion FY26 allotment on behalf of their hospitals and clinics.

Created by the budget reconciliation bill known as the One Big Beautiful Bill Act, the fund is set to disburse up to $50 billion over five years as a partial cushion for Medicaid cuts projected to total nearly $1 trillion over a decade.

Of each $10 billion annual allocation, half is set to be doled out equally to all states that successfully apply, meaning a baseline of $100 million is available per state, assuming all 50 complete the application process. Washington, D.C., and the U.S. territories are ineligible. States must apply by Nov. 5, with awards to be announced by Dec. 31.

The other $5 billion per year is set for distribution according to discretionary factors, as evaluated by CMS.

The tight turnaround time for applications is causing stress for hospital stakeholders.

“Folks are getting sort of anxious about how we can help our governor’s office [determine] appropriate things to spend that money on in a way that makes the healthcare system sustainable,” said Jodiane Tritt, executive vice president with the Arkansas Hospital Association.

States will not have to formally apply for a share of the funding in subsequent years but must annually submit updated information that describes their progress in meeting the goals they include in their applications.

Determining the additional funding

For the $5 billion per year in discretionary funding, specific monetary awards will be based on a complicated points system that includes several sets of factors. At least a quarter of all states will receive a portion of the discretionary allotment.

Some factors are based on state demographics and hospital characteristics:

• Total number of rural residents and share of the state population that is located in rural areas
• Share of hospitals and clinics within the state that are designated as rural (e.g., critical access hospitals, sole community hospitals, Medicare-dependent hospitals, low-volume hospitals, rural emergency hospitals)
• Uncompensated care as a share of hospital operating expenses, and the percentage of hospitals in the state that receive Medicaid disproportionate share hospital payments
• Total square miles in the state, and how a state scores in metrics that designate frontier status

Promoting improvements

Other criteria for the discretionary funding entail initiatives the state pledges to implement using the money. States will be scored on how they plan to support any of the following (states do not need to address all initiatives in each set):

• Population health clinical infrastructure, care models to promote prevention and wellness, Supplemental Nutrition Assistance Program restrictions to dissuade unhealthy eating, integrating nutrition counseling in continuing medical education
• Rural provider strategic partnerships, support for emergency medical services, loosened certificate-of-need regulations
• Regulatory support for clinical staff recruitment and retention (e.g., scope of practice, interstate licensure)
• Value-based payment expansion, care coordination for individuals dually eligible for Medicare and Medicaid, increased access to short-term, limited-duration insurance
• Remote care services, data infrastructure that supports interoperability, consumer-facing technology

“We would like to be able to demonstrate that hospitals really are in a position to make some of these changes that are being called for, including using digital platforms and achieving value-based care by keeping avoidable hospitalizations out of the hospital,” said Joe Schindler, vice president with the Minnesota Hospital Association.

States must show progress toward implementing associated legislative and regulatory steps by the end of 2027 or risk forfeiting some of their funding, except that the deadlines with respect to prevention-focused care models and nutrition-focused continuing medical education are the end of 2028.

“If states don’t perform, we have the ability to claw back some of that money and reallocate it to the states that are performing,” said Mehmet Oz, MD, administrator of CMS.

What is and isn’t allowed

Funding can be put toward various broad uses, according to the announcement.

“It’s not designed to pay back old bills or pay for operating expenses,” Oz said. “It’s designed very specifically to transform the healthcare system.”

States must attest that they will address at least three of the following areas to qualify for the baseline funding:

• Chronic disease prevention and management
• Provider payments
• Consumer tech solutions
• Training and technical assistance for technology implementation
• Workforce recruitment and retention
• IT advances
• Appropriate care delivery (e.g., identifying service lines that need bolstering)
• Behavioral healthcare services
• Innovative care models

Collaborative ventures between rural facilities and other healthcare providers are another permissible use, as are capital expenditures and infrastructure spending. However, CMS says new construction is not an authorized use, nor is supplanting funding for in-process or planned construction projects.

While provider payments may use up 15% of a state’s grant funding, “CMS will not approve proposed initiatives that would pay for clinical services where payment for the services is available from another source of coverage [e.g., Medicare or Medicaid], including where the initiative would increase the payment amount available from the other source of coverage,” according to an FAQ.

States also may not use the funding to boost clinician salaries at hospitals with noncompete policies. A federal court vacated a Biden administration rule prohibiting noncompete agreements, but the Trump administration intends to use the rural funding tranche to discourage them.

One noteworthy detail in the FAQ is that providers that receive shares of their state’s funding need not be located in rural areas, as long as the funding is put toward rural healthcare. CMS states there are “no specific restrictions” as to “which providers can effectuate impact on rural communities and residents.”