The rural hospital community, which makes up approximately 35% of community hospitals nationwide, is facing unprecedented changes in recent weeks including funding challenges, shutdown impact and Medicaid cuts. In this uncertain time, the Rural Health Transformation (RHT) program may provide some relief to organizations.
States are now working to secure a piece of the overall RHT program funding. This $50 billion federal program, administered by Centers for Medicare and Medicaid Services (CMS), is targeted to aid rural health care over the next five years. The distribution methodology is proving to be a key determinant of which states will secure higher levels of funding.
RHT funding explained
The RHT program will distribute $10 billion annually from 2026 to 2030. The funds are divided into two streams with $25 billion each, direct and formula-based awards:
- Direct awards will be distributed equally among all states with an approved application; each of the 50 states could receive a total of $500 million over the program’s duration.
- Formula-based awards will be allocated based on a formula determined by the CMS administrator. This portion is where states with greater rural health care needs could gain a larger share. The formula will consider key factors such as a state’s percentage of rural residents, the proportion of rural health facilities and the financial situation of its hospitals, including uncompensated care and reliance on Medicaid Disproportionate Share Hospital payments.
States must submit a comprehensive rural health transformation plan by November 5 to CMS to be eligible for funding. This plan must outline how they will use the funds to address specific rural health care challenges. The program aims to promote innovation with:
- Care delivery: Supporting preventative and chronic disease treatments and improving access to a wide range of care points from emergency services to post-acute care.
- Technology and infrastructure: Funding for consumer-facing technology, IT improvements like cybersecurity and efficiency software, and providing training for staff to adopt new tech-enabled solutions.
- Workforce and behavioral health: Initiatives to improve workforce recruitment and retention in rural areas, as well as solutions for substance use disorder and mental health services.
- Payment models: Advancing innovative care models, including value-based care and alternative.
States that score higher on risk factors, such as having a larger rural population and a higher proportion of distressed rural health facilities, are positioned to receive more of the formula-based funding. A Community Health Needs Assessment (CHNA) has been required of nonprofit providers under the Affordable Care Act (ACA) every three years to identify significant health needs and develop strategies to address them; the CHNA is the determination of the community needs. The assessment is a good source of data for consideration in the RHT application process and for states to leverage to secure additional funding.
Addressing cuts and shutdown
Given recent changes such as the One Big Beautiful Bill Act (OBBBA) Medicaid reductions, additional funding may be needed to compensate for these proposed cuts. Likewise, telehealth and hospital-at-home providers will lose access to Medicare payments, due to the recent government shutdown, as the key programs supporting these initiatives were not renewed prior to the end of the government’s fiscal year, and their fate will be decided as part of this Congressional matter.
Providers are wrestling with a critical choice: either suspend these services or continue delivering care at the risk of not receiving reimbursement, unless Congress retroactively approves payment should the program be extended. RHT funds could buy additional time and bridge the gap for some rural providers.
The takeaway
Rural hospitals are facing disruptions due to funding cuts and the government shutdown. The new $50 billion RHT program could offer relief, but states must act quickly and strategically to secure funding.
Shelby Burghardt
Shelby Burghardt is a senior manager for audit services and a health care senior analyst for RSM US LLP. With over 17 years of experience, she provides financial statement audit, single audit and agreed-upon procedures services for clients in the health care and nonprofit industries. Shelby has served a variety of health care and nonprofit organizations, including academic medical centers, hospitals and health systems, behavioral health organizations, as well as private equity-backed health care companies. In addition, as a member of the firm’s Industry Eminence Program, Shelby works alongside the firm’s chief economist and her fellow senior analysts to understand, forecast and communicate economic, business and technology trends affecting middle market businesses.
Danny Schmidt
Danny Schmidt is a senior manager in the assurance practice and a health care senior analyst for RSM US LLP. As a member of the Industry Eminence program, Danny works alongside the firm’s chief economist and his fellow senior analysts to understand, forecast and communicate economic, business and technology trends affecting middle market businesses.
