With $50 billion set to flow to states over the next five years, CMS's new Rural Health Transformation Initiative is one of the largest federal investments in rural health care in decades. However, experts believe it will not address the ongoing vulnerabilities that have led to such dire financial conditions for rural hospitals and clinics.
CMS's new fund is part of the Big Beauty Act, which was signed into law in July. Last month, the agency announced how the fund would work and invited states to apply.
The plan would allocate $50 billion to states between fiscal years 2026 and 2030, distributing $10 billion annually. This represents an approximately 50 percent increase in federal spending on rural health care, which currently totals approximately $19 billion annually through Medicaid.
To qualify for funding, states must submit a detailed plan outlining how they plan to use the funds to improve rural health care. All 50 states have submitted expressions of interest for funding, and grant applications are due by November 5, with funds to be distributed by the end of the year.
How bad is the medical and health situation in rural areas? About one-third of rural hospitals are currently at risk of closure. Most rural health care providers struggle with low patient volumes, high fixed costs, increasing workforce shortages, and heavy reliance on Medicaid and Medicare reimbursements.
CMS wants to 'right-size' rural health care system
CMS Administrator Dr. Mehmet Oz described the fund as a “great experiment” last week while speaking at Sanford Health's annual summit on the future of rural health care. He said it was time to rethink rural care models, prioritizing sustainability and quality.
“We need transformative, big ideas that will dramatically change what we expect from rural health care systems,” Dr. Oz declared.
He explained that CMS's new funds are not about simply paying bills or solving problems, but are intended to “right-size” and modernize health care services in rural communities.
As part of this effort, CMS will reevaluate the number and types of rural hospitals and clinics needed in each region. Dr. Oz also said the agency will encourage partnerships between large health systems and small rural facilities. Larger hospitals can help keep local providers afloat by offering services like telemedicine and specialty care.
Dr Oz added that the plan also aims to strengthen the rural workforce by funding regional training programs for nurses and doctors and expanding the role of existing service providers. For example, pharmacists could play a greater role in solving day-to-day problems, such as prescribing medication refills or diagnosing strep throat through telemedicine consultations to improve patient access and reduce unnecessary travel.
Political fix or structural solution?
While Dr. Oz insists that CMS's new funds are designed for more than just a quick fix, one health care expert says the program risks repeating the same dependency problems caused by temporary subsidies under the Affordable Care Act.
Michael Abrams, managing partner at Numerof & Associates, warned that while the new funding could help hospitals and states launch important initiatives, many of those programs could collapse entirely after the five-year fund is exhausted.
Abrams declared: “A lot of people in the health care industry are not business people, so they don't understand something as simple as this: If you build a program that continually spends more than it brings in, and only gets through on special events like bailout funds, when the bailout funds stop, the program will either find another source or it will collapse.”
He called the CMS Fund a “Band-Aid solution” driven more by political compromise than a genuine effort to address structural problems in rural health care.
Abrams noted that the fund was introduced in the Beautiful Big Act as a gesture to hospitals and rural lawmakers in light of the Trump administration's budget plan, which includes more than $911 billion in Medicaid cuts that disproportionately harm rural communities.
“If this relief fund is not needed to get this beautiful big bill [Act] Through Congress, that won't happen – no one will consider the precarious state of rural health care. I think that’s the shame — 60 million Americans, 20 percent of our population, live in areas designated as rural,” he said.
Abrams said these Americans “have a right to expect” the federal government will take a more thoughtful approach to ensuring they don't have to travel 30 to 50 miles to get to an emergency room.
He believes more sustainable solutions require lawmakers to confront the fundamental economics of health care in rural America. This would involve aligning reimbursement with the true cost of care and incentivizing operational efficiencies rather than permanently relying on temporary federal aid.
The fund helps — but not enough
Like Abrams, rural hospitals are concerned that the CMS program, while significant, will not on its own stabilize the finances of rural providers, especially in the wake of devastating cuts to Medicaid.
“Without ongoing policies to guarantee sustainable reimbursement, rural hospitals and clinics will continue to be at risk. This program is an important step forward, but it must be paired with lasting reforms to ensure that rural Americans have reliable access to care for years to come,” the National Rural Health Association (NRHA) said in a statement released the day the fund was announced.
In an interview this week, NRHA CEO Alan Morgan stressed that CMS's rural health funding and the Trump administration's Medicaid cuts should be discussed separately.
He doesn’t think the fund should be overlooked or ignored just because it’s much smaller than the Trump administration’s Medicaid cuts.
“Obviously, Medicaid cuts have to be rolled back in the future. It has to happen,” Morgan said. “I think both sides acknowledge that the cuts are unsustainable for rural health care systems. It's causing so much concern that this transformation fund hasn't been fully discussed yet.”
Learn what works
In Morgan's view, CMS' plans could be implemented in two ways over the next five years.
In the best-case scenario, Morgan explained, states will use the funds to build rural health networks, which include hospitals and clinics that collaborate to improve workforce development, data sharing and artificial intelligence integration for rural health care providers. In the worst-case scenario, funding could be diverted to large urban providers, leaving rural areas without support.
Morgan stressed the importance of ensuring funding reaches rural communities directly.
Although states will technically submit grant applications to CMS, states typically rely on input and recommendations from hospitals and health systems within their borders. Larger, well-resourced health systems—which may be headquartered in urban areas but also have facilities in some rural communities—can often write stronger, more sophisticated grant proposals than smaller rural hospitals or clinics.
Morgan noted that independent rural providers often have limited management capabilities and may struggle to take full advantage of the application.
He added that the upcoming state application deadline of Nov. 5 is also a significant challenge.
“The application deadline is very tight and now the federal government is shut down. That raises questions and concerns about how states are going to be able to get answers from the federal government about the details of this application,” Morgan explained.
For him, the program's success hinges on whether the money actually reaches the rural providers who need it most.
Overall, Morgan doesn't think rural health funds are a Band-Aid solution. Instead, he sees it as a temporary, innovation-focused program designed to test various approaches over the next five years.
“You're going to have a lot of innovation hubs. Honestly, every one of these states [is] yes “We will try new approaches to sustainability and innovation. Let's learn from the next five years and then replicate what works,” Morgan said.
He said innovators should focus on initiatives such as rural residency programs, better labor pipelines, faster technology integration and the introduction of more alternative payment models.
He warned against overreliance on technology, saying it may be useful but does not fully solve the plight of rural health care providers and noted that payment reform will always be the most important part of ensuring the long-term sustainability of rural hospitals.
The plan is far from a panacea and rural health care providers will still face challenges once the five-year funding window closes, but Morgan said the plan has the potential to create a blueprint to make rural health care more resilient.
Photo: Petri Oeschger, Getty Images
