When Congress passed the 2025 budget reconciliation law, it included the largest cuts to Medicaid in the program's history. It also included something meant to soften the blow for rural communities: a $50 billion Rural Health Transformation Program. More than nine months after the first awards were announced, states are now racing to put the money to work, and important deadlines arrive this month [1].
How the program works
The program provides $10 billion a year to states for five years, from fiscal 2026 through 2030. It is overseen by a new Office of Rural Health Transformation within the Centers for Medicare & Medicaid Services (CMS) [1]. All 50 states applied and were approved, and CMS announced the first-year awards on December 29, 2025 [1]. The money is divided in two ways. Half, $25 billion over five years, is split equally among states, giving each state $100 million a year in "baseline" funding, as the law requires [1]. The other half is distributed using a formula of 23 factors [1]: • About 25% of the total is based on need, including rural population, the number of rural health facilities, uncompensated hospital care and land area.
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About 16% is based on CMS's scoring of the quality of each state's plan and, in later years, its progress.
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About 8% is based on whether states adopt certain policies favored by the administration, many tied to the "Make America Healthy Again" (MAHA) agenda.
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About 1% is based on other factors, such as the quality of state Medicaid data reporting.
Who got the most
First-year awards averaged about $200 million per state. Texas received the most, about $281 million, followed by Alaska at about $272 million and California and Montana at about $234 million each. New Jersey received the least, about $147 million, with Connecticut, Rhode Island and Delaware also near the bottom [1][2]. Because every state received the same $100 million base, the money per rural resident varies enormously. KFF calculated that Texas received about $66 per rural resident, while Rhode Island, with very few rural residents, received about $6,305 per rural resident. Ten states received under $100 per rural resident, and eight received over $500 [1].
The policy strings
The 8% tied to state policies has drawn the most attention. States earned points for steps such as reinstating the Presidential Fitness Test in schools, prohibiting SNAP food assistance from being used for soda or candy, requiring nutrition education for physicians, eliminating "certificate of need" laws that restrict construction of new health facilities, making it easier for clinicians to practice across state lines and expanding scope of practice for nurse practitioners and other non-physicians [1]. KFF notes that these are statewide policies, not rural-specific [1]. Supporters say the incentives encourage reforms that can expand access and promote healthier lifestyles. Critics say tying rural health money to unrelated policy choices penalizes states with different priorities.
What the money can and can't buy
States must spend funds on at least three of 11 approved uses, such as chronic disease prevention, technology upgrades, workforce recruitment and retention, behavioral health and new payment models [1]. There are significant limits: no more than 15% of an award can go to direct payments to providers, 20% to building improvements, 5% to replacing electronic medical record systems and 10% to administration. Funds cannot be used for new construction or to cover ongoing operating costs indefinitely [1][2]. Those rules matter because many rural hospitals are struggling primarily with day-to-day finances. KFF notes that hospitals are not the sole focus of the program and that the benefit to rural hospitals specifically is unclear [1]. Can it offset the Medicaid cuts? This is the central question. The 2025 law is projected to reduce federal Medicaid spending by about $911 billion over 10 years. KFF estimates that about $137 billion of that reduction will fall on rural areas [1]. By that measure, the $50 billion fund offsets about 37% of the rural cuts and about 5% of total federal Medicaid cuts [1]. Timing is another concern. The fund ends after 2030, but about 64% of the 10-year Medicaid reductions occur after fiscal 2030 [1]. Provider organizations told Fierce Healthcare they were optimistic about the funding but cautioned that it does not make up for the Medicaid cuts [2]. CMS Administrator Dr. Mehmet Oz has noted that Medicaid provides about $19 billion in federal funds to rural America each year, so the additional $10 billion represents a limited-time increase of nearly 50% [2].
Deadlines and accountability
The program's timeline is tight. States' first annual progress reports were due August 31, 2026; they must obligate their first-year funds by October 30, 2026; and CMS is scheduled to announce each subsequent year's awards by October 31 [1]. First-year money must be spent by September 30, 2027 [1]. CMS has broad power to withhold, reduce or recover funds if a state is not making "satisfactory progress," and the law indicates these decisions are not subject to administrative or judicial review. Some groups have called for more transparency, since CMS releases progress reports only on request [1].
How states plan to use the money
States' plans vary widely. Common themes include expanding telehealth and remote monitoring, recruiting and keeping doctors, nurses and paramedics in rural areas, supporting behavioral health and addiction treatment, upgrading technology and data systems and helping rural providers shift to payment models that reward prevention [1]. Because no more than 15% of a state's annual award can go directly to provider payments, rural hospitals hoping for direct financial relief will see only a portion of the money [1].
Why it matters
About one in five Americans lives in a rural area, where hospitals are often small, distances are long and residents are older and more likely to rely on Medicaid. The Rural Health Transformation Program is a large and unusual investment, giving states flexibility to try new approaches. But it is temporary, and it arrives alongside much larger and longer-lasting Medicaid reductions. Over the next five years, rural communities will be a key test of whether innovation funding can make up for less money overall.
Sources
- 1. "A Closer Look at the $50 Billion Rural Health Transformation Program," KFF, updated September 18,
- 2026. https://www.kff.org/medicaid/a-closer-look-at-the-50-billion-rural-health-transformation-program/
- 2. "Rural Health Transformation Program awards announced—Here's who's getting the most in FY2026," Fierce Healthcare, December 2025. https://www.fiercehealthcare.com/providers/rural-health-transformati on-program-awards-announced-heres-whos-getting-most Information in this article is current as of October 10, 2026. Bracketed numbers refer to the sources listed above.