Sec. 71401 Rural Health Transformation Program
Signed into law July 4th, 2025
Bill Overview
On July 4, 2025, the President signed the House of Representatives budget reconciliation bill H.R. 1 titled “An Act to provide for reconciliation pursuant to title II of H. Con. Res.14,” formerly known as the One Big Beautiful Bill. H.R. 1 includes many chapters with numerous sections covering a wide range of policy areas, such as health care, tax reform, education, agriculture, energy, defense, and infrastructure. This overview focuses specifically on the new statutory provisions related to the Rural Health Transformation Program.
Rural Health Transformation Program
Section 71401 establishes the Rural Health Transformation Program – a federal relief program under which states can access additional funding for rural health programs. The funding was added to the bill because legislators from both sides of the aisle expressed concerns about the impacts of certain provisions of H.R. 1 on rural health. Under this program, $10 billion is appropriated annually to the Centers for Medicare & Medicaid Services (CMS) for 5 years (federal fiscal years 2026 through 2030) to provide allotments to states that apply for the funding.
State Applications
To be eligible for a Rural Health Transformation Program allotment, states must submit an application to CMS during an application period. The specific time frame will be defined by CMS, but applications must be submitted no later than December 31, 2025. Although CMS will determine the specifics of the application form and process, H.R. 1 stipulates that applications should address the following:
- A detailed rural health transformation plan that outlines how the state intends to take the following actions impacting rural residents of the state:
- Improve access to hospitals and other health care providers and services.
- Improve health care outcomes.
- Prioritize the use of new and emerging technologies emphasizing prevention and chronic disease management.
- Increase local and regional partnerships between rural hospitals and other health care providers.
- Enhance economic opportunity for and the supply of health care clinicians.
- Prioritize data- and technology-driven solutions and support the provision of health care services as close to a patient’s home as possible.
- Outline strategies to support financial solvency of rural hospitals.
- Identify the causes of the accelerating rate of rural hospital closures.
- A certification that none of the funding allotted to the state will be used for expenditures attributable to an intergovernmental transfer, certified public expenditure, or any other expenditure to finance the non-federal share of expenditures.
- Any other information CMS requires in the application process.
The application is a one-time process – all states whose applications are approved by CMS are eligible for allotments for the duration of the program. Applications are limited to the 50 states (territories and the District of Columbia are not eligible to apply). Applications submitted by states are to be approved by CMS by December 31, 2025.
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- Note: It is unclear how applications from states are due to CMS by December 31, 2025, with CMS approval also occurring by December 31, 2025. We expect CMS to provide clarification in their instructions for the application process.
Allotted Funding
The annual $10 billion funding under the Rural Health Transformation Program will be provided to states without requiring matching funds on the part of the state. The funding will be provided by CMS through the following formula:
- Part 1: 50% of the funding for each fiscal year will be distributed equally to states with an approved application.
- Part 2: The remaining 50% of the funding for each fiscal year will be distributed using a methodology yet to be determined by CMS. However, CMS must take the following into account:
- Ensure that at least 25% of the states with an approved application receive allotted funds under this half of the allotment. CMS must consider:
- The percentage of the state’s population located in a rural census tract of a metropolitan statistical area, as determined through the most recent Goldsmith Modification. The Goldsmith Modification is a method for identifying rural census tracts within metropolitan counties.
- The proportion of rural health facilities in the state relative to the number of rural health facilities nationally (refer to the next section for the definition of rural facilities).
- The situation of hospitals in the state as described in section 1902(a)(13)(A)(iv) – in other words, disproportionate share hospitals (DSH).
- Any other factors CMS deems appropriate.
- Ensure that at least 25% of the states with an approved application receive allotted funds under this half of the allotment. CMS must consider:
Funds distributed to states for a fiscal year must be expended by the state by the end of the fiscal year following the fiscal year of the distribution. If states do not spend their full allotment or misuse the funds for purposes outside the parameters of the program, CMS may withhold, reduce, or recover previously paid funds. CMS will redistribute the unexpended or misused funds, and states who receive redistributed funding must expend the funds by the end of the fiscal year following the fiscal year of the redistribution.
Types of Rural Health Facilities
In considering the characteristics of a state’s rural providers for purposes of distributing Part 2 of the allotment, rural health facilities are defined as:
- Hospitals meeting specific rural or hospital-type criteria defined in Title XVIII of the Social Security Act, including:
- Medicare subsection (d) hospitals (acute care hospitals paid under Medicare’s inpatient prospective payment system) located in a rural area.
- Critical access hospitals.
- Sole community hospitals.
- Medicare-dependent, small rural hospitals.
- Low-volume hospitals.
- Rural emergency hospitals.
- Rural health clinics.
- Federally qualified health centers.
- Community mental health centers.
- Health centers receiving grants under Section 330 of the Public Health Services Act.
- Opioid treatment programs located in a rural census tract of a metropolitan statistical area as determined through the most recent Goldsmith Modification.
- Certified community behavioral health clinics (CCBHCs) located in a rural census tract of a metropolitan statistical area as determined through the most recent Goldsmith Modification.
State Requirements
CMS will develop specific requirements states must follow, which will include:
- Use of funds. States must use the funds for 3 or more of the following health-related activities:
- Promote evidence-based chronic disease prevention and management.
- Provide payments to health care providers for health care items or services. CMS will provide additional information regarding this element.
- Promote consumer-facing technology-driven solutions to prevent and manage chronic diseases.
- Provide training and technical assistance for the development and adoption of technology solutions that improve care in rural hospitals, such as remote monitoring, robotics, and artificial intelligence.
- Clinical workforce recruitment and retention, with a commitment to serve at least 5 years.
- Provide technical assistance, software, and hardware for information technology advances that improve efficiency, cybersecurity, and patient outcomes.
- Assist rural communities in right-sizing health care delivery systems by identifying preventative, ambulatory, pre-hospital, emergency, acute inpatient care, outpatient care, and post-acute care service lines.
- Support access to opioid use disorder, other substance use disorder, and mental health treatment services.
- Develop innovative models of care that include value-based and alternative payment models.
- Additional activities designed to promote access to rural health care services as determined by CMS.
- Documentation. States must submit the following documentation to CMS:
- A plan describing how the state will expend the allotment on 3 or more of the above activities.
- Annual reports regarding the use of allotment.
- Administrative limitation. States may not use more than 10% of the allotted funding for administrative expenses.
Recommended State Actions
Although the Rural Health Transformation Program represents a meaningful investment in rural health, it may not fully offset potential Medicaid reductions contained in other provisions of H.R. 1. States should evaluate the impact of these provisions in light of other aspects of the new legislation. In particular, states should consider the combination of provider tax and SDP reductions outlined in H.R. 1, Sections 71115 and 71116 (that Myers and Stauffer addresses in a separate summary), as well as DSH allotment reductions, to estimate the revenue shortfall for state Medicaid programs. States will need to consider the aggregate impact of these various revenue stream changes as well as their downstream impact to rates and recipient access in both urban and rural settings.
States should also examine how this federal investment can be leveraged with other sources of funding and delivery system reform efforts to maximize the impact of these funds. States who wish to apply for the funding should consider the following activities as soon as possible, given the December 31, 2025, deadline:
- Begin the process of gathering necessary information to prepare the application for this funding.
- Identify and measure the anticipated reduction in Medicaid funding and impact to state budgets.
- Identify rural providers providing essential services to Medicaid populations within your state.
- Identify the health-related activities to which the state intends to direct the funding.
Need More Information?
Myers and Stauffer will continue monitoring federal guidance and state implementation of the Rural Health Transformation Program. We are available to assist states with application development, transformation planning, financial modeling, program implementation, and compliance monitoring. For more information, reach out to one of our subject matter experts below.
Bobby Courtney, JD, MPH
Principal
PH 317.815.5475
bcourtney@mslc.com
Tim Guerrant, CPA
Member
PH 317.815.2935
tguerrant@mslc.com
Jerry Dubberly, PharmD, MBA
Principal
PH 404.524.0775
jdubberly@mslc.com
Johanna Likenhoker, CPA
Member
PH 804.270.2200
jlikenhoker@mslc.com
Joe Gamis, CFE
Principal
PH 816.945.5315
jgamis@mslc.com
Kevin Yates
Principal
PH 816.945.5362
kyates@mslc.com
