Welcome to another round of PYA Washington Updates – Rural Health Edition
Question: How much did it cost to get the One Big Beautiful Bill Act (OBBBA) over the finish line in the Senate?
Answer: $25 billion, apparently.
The version of the bill that passed the House by one vote back on May 22 would have cut Medicaid spending by $793 billion over 10 years. The final version President Trump signed into law on July 4 included $1.02 trillion in Medicaid cuts.
Most of additional $227 billion in Medicaid cuts in the final version are the result of tighter limits on provider taxes and state-directed payments. States have used these payments to increase Medicaid reimbursement rates, especially for rural hospitals.
In response to concerns about the impact of deeper Medicaid cuts on rural hospitals following the release of Senate Finance Committee’s initial bill text on June 16, Senate leadership floated a $15 billion rural hospital stabilization fund. When the revised bill text came out on June 27, it included a $25 billion fund, with $10 billion to be made available in 2027 and 2028, $2 billion in 2029 and 2030, and $1 billion in 2031.
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During the day-long Senate floor debate on the bill, Sen. Susan Collins (R-Maine) offered an amendment to increase the fund to $50 billion and to allow a wider range of providers to access the fund. To pay for the increase, Sen. Collins proposed adding a 39.6% bracket on earners making over $25 million. The amendment was defeated 78-22.
But then, in a last-minute bid to win over Sen. Lisa Murkowski (R-Alaska), Senate leadership moved to increase the amount to $50 billion and to make funds available starting in 2026 (versus 2027). Unlike Sen. Collins, Senate leadership did not specify where the additional and did not expand the list of eligible providers. That amendment passed 51-50, the same margin as the final vote on the bill. Sen. Murkowski voted in favor of passage, while Sen. Collins did not.
In the days following Senate passage, CMS Administrator Mehmet Oz was among the Administration officials lobbying House Republicans to get the bill on the President’s desk by July 4. According to July 2 report in Politico, Dr. Oz “tried to assure a group of House Republicans worried about Medicaid cuts in the megabill [who were] especially concerned how their communities could access a limited pot of $50 billion for rural hospitals in the legislation. Oz specifically talked about how districts in states like Pennsylvania and other areas that are not specifically rural could obtain money from the fund, according to two people with direct knowledge.
Rural Health Transformation Program Overview
OBBBA Section 71401 amends 42 USC 1397ee by adding a new subsection (h) detailing the Rural Health Transformation Program (the Program). Although the Program was created in response to concerns regarding rural hospitals’ loss of Medicaid revenue, the award of Program funds in not tied to the amount of lost revenues. The statute directs the CMS Administrator to implement the Program “by program instruction or other form of program guidance” as opposed to notice-and-comment rulemaking. Congress has appropriated $200 million to CMS to operate the Program.
For five years beginning in 2026, the Administrator will allot $10 billion to states annually to carry out specified activities. The manner in which the Administrator will determine the amount each state is allotted each year is detailed below. All funds allotted to a state in a given year must be expended by the end of the following fiscal year, e.g., funds allotted in 2026 must be expended by September 30, 2027.
The statute directs the Administrator to determine the amount of unobligated or unexpended funds each year available for redistribution. The statute does not specify how such redistributions are to be accomplished, other than the date by which redistributed funds must be expended by the state receiving such funds.
If the Administrator determines a state is not using funds in a manner consistent with its approved application for Program funds (discussed below), the Administrator may withhold or reduce payments to the state or recover previous payments made to the state.
The statute specifies that the Administrator’s decisions regarding the amount allotted or redistributed to a state, as well as decisions regarding the reduction or withholding of payments or the recovery of payments made to a state are not subject to administrative or judicial review. Thus, a state claiming it was not treated fairly has no recourse, except politically.
State Applications
By a date to be determined by the Administrator, but no later than December 31, 2025, a state must apply for Program funds in the form and manner to be specified by the Administrator. The statute specifies that a state’s application must include a detailed rural health transformation plan to accomplish the following:
- Improve access to hospitals, other health care providers, and health care items and services furnished to rural residents of the State;
- Improve health care outcomes of rural residents of the State;
- Prioritize the use of new and emerging technologies that emphasize prevention and chronic disease management;
- Initiate, foster, and strengthen local and regional strategic partnerships between rural hospitals and other healthcare care providers to promote measurable quality improvement, increase financial stability, maximize economies of scale, and share best practices in care delivery;
- Enhance economic opportunity for, and the supply of, healthcare clinicians through enhanced recruitment and training; and
- Prioritize data and technology driven solutions that help rural hospitals and other rural health care providers furnish high-quality health care services as close to a patient’s home as is possible.
The plan also must outline strategies to manage long-term financial solvency and operating models of the state’s rural hospitals in the state and identify the reasons why stand-alone rural hospitals are at risk of closure, conversion, or service reduction.
A state must certify in its application that it will not use any Program funds to finance the non-federal share of expenditures required under any provision of law. Finally, a state must provide any other information the Administrator may require.
The Administrator must approve or deny each application by no later than December 31, 2025. (Given that this is the same “no later than” date for states to submit their applications, one can assume applications will be due earlier in the year.) Once its application is approved, a state will be eligible for an allotment each year of the Program; states will not have to apply for each annual allotment. The statute does not specify the consequences if CMS denies a state’s application, e.g., whether a state can amend its application to address any deficiencies identified by the Administrator.
State Allotments
For each Program year, the Secretary must allot $5 billion “equally among all States with an approved application….” Presumably, equally means equally; if every state had its application approved, each would receive $100 million without regard to the number or financial condition of the state’s rural health facilities.
Although New Jersey and Rhode Island do not have any rural hospitals, these states still would be eligible for Program funds because they have federally qualified health centers and community mental health centers, both of which are included in the statute’s definition of “rural health facility” without regard to whether they are located in rural areas.
The statute then requires the Administrator to allot the other $5 billion each Program year among not fewer than 25% of the states with approved applications, taking into consideration the following:
- The percentage of the state population that is located in a rural census tract of a metropolitan statistical area (as determined under the most recent modification of the Goldsmith Modification)[1];
- The proportion of rural health facilities (as defined below) in the state relative to the number of rural health facilities nationwide;
- The situation of hospitals in the state which serve a disproportionate number of low-income patients with special needs (referencing 42 USC 1396a(a)(13)(A)(iv)); and
- Any other factors the Administrator determines appropriate.
The statute does not specifically state whether the Administrator should make this allotment on an annual basis – thus taking into consideration any year-to-year changes – or whether the Administrator should make the allotment decisions for all five years all at once based on a single snapshot of these considerations.
Use of Rural Health Transformation Program Funds
Regarding the use of Program funds, a state must submit to the Administrator its plan to use its allotment to carry out three or more of the following ten permitted activities, presumably to the exclusion of any other use of Program funds:
- Promoting evidence-based, measurable interventions to improve prevention and chronic disease management.
- Providing payments to health care providers for the provision of health care items or services, as specified by the Administrator.
- Promoting consumer-facing, technology-driven solutions for the prevention and management of chronic diseases.
- Providing training and technical assistance for the development and adoption of technology-enabled solutions that improve care delivery in rural hospitals, including remote monitoring, robotics, artificial intelligence, and other advanced technologies.
- Recruiting and retaining clinical workforce talent to rural areas, with commitments to serve rural communities for a minimum of 5 years.
- Providing technical assistance, software, and hardware for significant information technology advances designed to improve efficiency, enhance cybersecurity capability development, and improve patient health outcomes.
- Assisting rural communities to right size their health care delivery systems by identifying needed preventative, ambulatory, pre-hospital, emergency, acute inpatient care, outpatient care, and post-acute care service lines.
- Supporting access to opioid use disorder treatment services, other substance use disorder treatment services, and mental health services.
- Developing projects that support innovative models of care that include value-based care arrangements and alternative payment models, as appropriate.
- Additional uses designed to promote sustainable access to high quality rural health care services, as determined by the Administrator.
Presumably, states will submit their plans after having been informed of their allotments, as opposed to including these plans in their application.
The statute authorizes the Administrator to impose additional requirements and restrictions on states’ use of Program funds. A state will be required to submit an annual report to the Administrator accounting for its use of allotted funds in a format specified by the Administrator. A state may use up to 10% of its allotted funds for administrative purposes, presumably to cover expenses associated with Program administration and reporting. Unless CMS provides states funds from the $200 million the agency has been appropriated to operate the Program, there are no funds available to the states to develop their applications (i.e., to develop their detailed rural health transformation plans).
As a technical matter, the payments made to states under the Program are exempt from specified requirements in 42 USC 1397ee(c) regarding state use of federal payments under the Medicaid program.
Definition of Rural Health Facilities
For purposes of the criteria specified for the allotment of the second $5 billion each year, the statute defines “rural health facilities” to include the following:
- Subsection (d) hospital located in a rural area, treated as being located in a rural area, or located in a rural census tract of an MSA
- Critical access hospital
- Sole community hospital
- Medicare-dependent, small rural hospital
- Low-volume hospital
- Rural emergency hospital
- Rural health clinic
- Federally qualified health center or FQHC look-alike (with no geographic limitations)
- Community mental health center (with no geographic limitations)
- Opioid treatment located in a rural census tract of an MSA
- Certified community behavioral health clinic located in a rural census tract of an MSA
What’s Next?
Given the direction to the Administrator to have the Program fully implemented by the end of 2025, there is not a minute for states to waste in preparing their applications. Even while waiting for CMS to release the application forms and instructions, providers should be engaging with their state agencies to support the development of a meaningful rural transformation plan. This includes compiling relevant data to present the challenges the state’s rural providers face in a compelling manner. Given the loss of revenue these providers will experience over the next few years due to Medicaid cuts, it is imperative to leverage Program funds to the fullest extent possible to protect rural providers and the communities they serve.
[1] It is not clear why the statute directs the Administrator to consider this subset of rural areas as opposed to the overall rural population of a state.
Please do not hesitate to contact us if you have any questions regarding the Rural Health Transformation Program, and please continue to check PYA’s website for updates.
