Rural Health Transformation Program Year 2 awards largely mirror prior-year disbursements

CMS announced the second year of allocations in the five-year, $50 billion Rural Health Transformation Program (RHTP), a One Big Beautiful Bill Act (OBBBA) initiative to bolster U.S. rural healthcare.

The second of five annual $10 billion distributions across the 50 states from 2026 through 2030 ranged from nearly $282 million for Texas to $142.3 million for New Jersey, according to a Nov. 9 news release.

Although CMS performs a separate computation for each year’s allocations, there were few dramatic changes from Year 1 to Year 2. North Dakota had the biggest increase (3.7%), while New Jersey incurred the biggest decrease (3.3%).

An increase or decrease does not set a state’s funding trajectory for the remainder of the program, CMS noted.

How CMS determines state funding allocations

Half the annual funding is a baseline payment of $100 million per state. The other half is so-called workload funding, allocated using factors described in the RHTP’s initial notice of funding opportunity: rural population and facility characteristics, initiatives in the state’s transformation plan, certain state policy actions and miscellaneous technical factors

States must use the funds for at least three of the approved issues:

• Prevention and chronic disease management (including mental health and substance-use disorder)
• Workforce support
• Technology and health IT
• Innovative care and payment models
• Right-sizing delivery systems

In allocating Year 2 funding, CMS reviewed reports from all 50 states on their Year 1 activity. As part of the initiative-based allocations, the agency used a checkpoint model measuring implementation steps such as governance, project plan approval, results measurement and sustainability planning. State policy implementation in areas such as the Presidential Fitness Test and nutrition-based continuing medical education for physicians was considered.

States must obligate their funding within the budget period in which it was assigned. Funds generally can be spent through the end of the following federal fiscal year (e.g., funds awarded going into 2026 must be spent by Sept. 30, 2027). Unspent funds are subject to redistribution to other states based on the same methodology used for the annual allocations.

What RHTP funding means for rural hospital finances

For hospitals that could bear the brunt of OBBBA cuts, including $910 billion less in projected Medicaid spending between 2025 and 2034, one concern with the RHTP is the perceived lack of direct support. The funding is not expected to overcome Medicaid spending losses estimated at $137 billion over 10 years in rural areas.

“RHTP supports transformation across the rural healthcare delivery system,” states a CMS fact sheet on the Year 2 funding. “It is not limited to one type of provider or designed simply to provide short-term operating support to individual hospitals.”

Provider payment, meaning payment for healthcare items and services, is capped at 15% of a state’s RHTP award per budget period, and funding is prohibited from paying for services that already are reimbursable by government or commercial insurers. Funding can support investments in hospital infrastructure and operations, but not construction of new hospitals.

Unlike the OBBBA’s Medicaid reductions, which will be in place indefinitely unless Congress reverses them, the influx of funding through the RHTP has a cutoff point (2030).

“The general thought is that it’s helping mitigate short-term issues, but long-term, if this is the [financial] new normal, at some point that’s not a sustainable model to have these funds available,” said Tyler Higgins, leader of the Strategic Cost Reduction practice at AArete, “It’s a good band-aid. It’s just a band-aid that’s buying them a couple years.”

How states are investing rural health funding

States in recent months announced provider-level investment supported by their first-year RHTP awards.

Among the recent sub-awards disclosed by states, Missouri allocated $39.7 million to 26 rural providers “as they renovate, reconfigure, equip or repurpose existing facilities, to expand maternal health, behavioral health, diagnostic, outpatient and chronic disease management services,” according to a news release issued by CMS.

Investments to be made via the funding include:

• New labor, delivery and private triage rooms
• Expanded behavioral health services for older adults and people with substance use disorders
• Upgraded diagnostic equipment, including MRI, mammography and ultrasound services

Texas announced $87 million in funding to 129 providers, with specific initiatives to prevent and manage chronic conditions, recruit and retain healthcare professionals, replace aging medical equipment and improve existing facilities.

Mississippi announced $32 million for disbursement, in part to help rural hospitals and other providers with workforce initiatives. Allocations will go to recruitment and retention of primary care physicians and other healthcare professionals, expansion of clinical training, and opening of pathways to healthcare careers.

Another portion of Mississippi’s funding will establish three psychiatric emergency units adjacent to hospital emergency departments.

“These investments will help rural communities address staffing shortages, maintain essential healthcare services and improve care for people experiencing behavioral health crises,” according to a CMS news release.