- HR 1 creates a $50B, five-year Rural Health Transformation Fund to help rural providers absorb Medicaid/CHIP cuts.
- CMS rules cap direct provider payments, including rural hospital payments, at 15% of each state’s RHTF award.
- Funding is split 50/50 between equal state allotments and a formula tied to rural population, facility finances, and outcomes, with some dollars conditioned on adopting administration priorities.
- Analysts say the fund is far too small to offset projected rural Medicaid losses, leaving many facilities financially vulnerable.
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The Rural Health Transformation Fund (RHTF), enacted as part of HR 1 under the Trump administration, is intended to partially counterbalance sweeping Medicaid and CHIP cuts by directing federal investment into rural health care over a five-year period. Its purpose was broadly framed by Congress and proponents as a “rural hospital fund” aimed at protecting vulnerable health care providers in rural areas.
Despite these expectations, the implementation rules released by CMS explicitly limit direct provider payments—such as rural hospital payments—to no more than 15% of a state’s federal RHTF allocation. This restriction constrains the ability of states to use RHTF funding to shore up hospitals’ financial stability in response to Medicaid reductions. In effect, only a small slice of the total pot—at most $7.5 billion annually under full utilization of the fund—could meaningfully reach rural hospitals if every state pressed the cap. That figure is modest relative to the projected tens of billions in losses.
Distribution mechanics further complicate the picture. CMS has established that the $50 billion will be split equally among states (half the funds), with the remaining half distributed via a formula factoring in rural population, the financial health of medical facilities, and health outcome metrics. Yet substantial portions of the funding are also contingent on states adopting specified health-policy initiatives favored by the administration, including SNAP restrictions and other priorities. These “policy levers” may disproportionately disadvantage states with political leadership resistant to such mandates.
Strategic implications are clear: rural hospitals in states under financial strain face a dual threat of Medicaid cuts and limited access to relief from RHTF, given the 15% cap. Even states aligned with the administration’s policy priorities must wrestle with tight budgeting among many competing rural health care needs. Furthermore, states that resist the policy conditions may receive less total funding and thus have even less headroom to support strained providers.
Open questions include:
- How many states will meet the cap and use the full 15% on provider payments vs. distribute more funds toward non-provider initiatives?
- What are the specific metrics and oversight tied to the policy conditions (e.g. SNAP), and will states view them as coercive or optional? Which states may lose funding as a result?
- Will the RHTF’s $10 billion/year sufficiently prevent closures, given projections of rural Medicaid shortfalls of $58-$155 billion over the next decade? If not, what supplementary measures might emerge?
- What are the implications for care access in states with high rural population and political resistance to the attached policy terms?
Supporting Notes
- The budget reconciliation law HR 1 includes a $50 billion RHTF to assist rural providers over five years.
- CMS rules cap provider payments—including those to rural hospitals—at no more than 15% of a state’s RHTF award.
- Policymakers widely described the fund as a “rural hospital fund”, implying major direct support to rural hospitals.
- Experts estimate rural Medicaid spending will decline by up to $137 billion over 10 years; the RHTF provides roughly $10 billion/year, far less than projected losses.
- The allocation of RHTF funds: 50% split equally across states; the other 50% based on a formula assessing rural population, facility financial health, and health outcomes.
- Some RHTF funding (totaling $12 billion over 5 years) is conditional on states adopting policies prioritized by the administration (e.g. SNAP restrictions).