How States Can Access New Federal Funds to Improve Care in Rural Communities

In July 2025, Congress passed H.R. 1, which cut more than $900 billion from Medicaid — the largest cuts in the program’s history — and is expected to cause more than 5 million individuals to become uninsured. For hospitals and providers, this will increase levels of uncompensated care while also decreasing overall revenue as reimbursement rates decline. The resulting budget shortages could cause hospitals and other health care facilities to close. The cuts will disproportionately affect rural areas, which have a higher proportion of Medicaid beneficiaries. Federal spending on Medicaid in rural areas is predicted to decrease by $137 billion over the next 10 years. The cuts will disproportionately impact states that expanded Medicaid as these states have larger Medicaid enrollment and thus will incur larger losses.

H.R. 1 also introduced the Rural Health Transformation Program, proposed by sponsors to help offset the impact on rural hospitals and providers. The resources available under the program favor the administration’s policy goals. This includes Make America Healthy Again priorities like instituting the President’s Physical Fitness Test, which uses competitions to encourage students’ physical condition and health; restricting the foods available under the Supplemental Nutrition Assistance Program (SNAP) by eliminating certain sugar-sweetened items; and encouraging patient engagement in health care through technology initiatives like allowing patients access to data and the use of technology wearables and health apps. The program gives the Centers for Medicare and Medicaid Services (CMS) administrator a high level of discretion in making funding decisions.

The program will invest $50 billion over five years, at a rate of $10 billion per year, starting in 2026. Half will be allocated equally to all states with approved applications; the other half will be determined by CMS based on factors outlined in H.R. 1 and further detailed in the Notice of Funding Opportunity (NOFO) released in September. To be considered for funding, states must submit their applications by November 5; CMS will announce awards by December 31. The program does not require states to contribute funds to the project.

How Can States Use the Funding?

States can use funds to implement new and enhance existing activities, but not to replace or duplicate activities that are already funded. The program will support five strategic goals outlined by CMS:

• Make Rural America Healthy Again
• sustainable access
• workforce development
• innovative care
• tech innovation.

Projects are expected to advance Health and Human Services Secretary Robert F. Kennedy, Jr.’s Make America Healthy Again agenda by expanding preventive services and chronic and behavioral health care to target the root causes of disease. The NOFO outlines 10 ways states can utilize the funds to pursue the program’s goals and requires them to integrate at least three of these “permissible uses” in their applications.

Required Collaboration

States must certify that their applications were developed in collaboration with a range of required partners including the state health agency or department of health, state Medicaid agency, state office of rural health, state tribal affairs office or tribal liaison, and Indian health care providers. Applications also must be endorsed by the governor of the state. States must also describe how they are involving rural health stakeholders in planning and implementation; provide proof of stakeholder involvement, like letters of support; and describe how the project governance structure reflects the patients and providers in their area.

How Will CMS Assess State Applications?

As described earlier, half of the available funding will be distributed to all approved states equally. The other half will be distributed by CMS based on the state’s “total point score.” The total point score is determined by two components: rural factors data and the technical score, which includes application information, data, and current state policy, such as policies aligned with the Make America Health Again agenda. Each state will have its technical score reevaluated at the start of every budget period, and the reevaluation will consider whether the state is making progress in achieving its goals and objectives. State budgets can be adjusted accordingly.

CMS will use detailed scoring criteria to determine total state funding. The three categories of scores that will determine workload funding are initiative-based factors evaluating the transformative possibilities of proposed projects and activities; state policy action factors for states that have an existing aligned policy or commit to make policy changes by the end of 2027; and data-driven factors based on metrics in comparison to other states.

Conclusion

The Rural Health Transformation Program is one of the only sources of new funding included in H.R. 1., and while the $50 billion cannot offset $900 billion in cuts, the funds do present an opportunity for states to invest in new collaborations, technologies, payment models, and other initiatives that could improve health care delivery for rural patients and systems. This may be especially impactful for nonexpansion states that will experience significantly lower cuts to Medicaid, and can therefore focus more fully on rural health transformation efforts.

With each state developing plans to meet its own needs, we are likely to see a range of activities and programs — as well as a range of success. This allows policymakers the opportunity to learn from other states, and to determine what is effective, adopt successful methods, and improve.

Once the awards are made, efforts to monitor and measure program implementation, outcomes, and findings will be vital to ensure that rural delivery programs and residents benefit from the investment.