Rural Health's $50 Billion Question: Transformation or Just Survival?
The Rural Health Transformation Program, embedded in HR1 and signed this summer, presents rural America with a profound paradox. Over the next five years, states will receive $50 billion to reimagine rural healthcare delivery—even as the same legislation cuts $137 billion from rural Medicaid spending over the next decade. With the application deadline arrival today, November 5, 2025, the pressure to deploy these funds quickly is immense. And therein lies the danger.
When systems are hemorrhaging, the instinct is to apply tourniquets. But what if this moment demands something more strategic—not just stopping the bleeding, but redesigning the body to function with less blood?
The Tension We Can't Ignore
The math is sobering. Rural healthcare systems face a net reduction of $87 billion over ten years, even accounting for transformation funds. Meanwhile, CMS has capped direct provider payments at just 15% of state allocations, despite many lawmakers characterizing this as a "rural hospital fund". The message is clear: these dollars aren't meant to preserve the status quo. They can't.
This creates an uncomfortable but clarifying tension. Every dollar spent shoring up current operations is a dollar not invested in a fundamentally different future. Yet every hospital closure, every service line eliminated, every physician who leaves creates immediate human consequences that demand urgent response.
The reality on the ground is stark. Since 2010, 182 rural hospitals have closed or converted to operating models excluding inpatient care, with 18 closures in the last year alone. Currently, 50% of rural hospitals are operating in the red, with 432 vulnerable to closure. Between 2010 and 2021, 136 rural hospitals and health systems closed, with nearly three out of four closures in states that either refused to expand Medicaid or where expansion had been in place for less than a year.
The question isn't whether to address today's crises. It's whether we can address them in ways that build tomorrow's capabilities.
What "Doing More With Less" Actually Means
The phrase "doing more with less" has become a tired management cliché, often code for expecting burnout-level performance with diminishing resources. That's not what rural healthcare needs. Instead, we need to think about system redesign across three dimensions:
Redesigning care delivery itself. Not every condition requires a hospital. Not every visit requires synchronous time with a physician. Not every rural community needs the same configuration of services. The transformation opportunity lies in matching care intensity to actual need, using the full scope of every team member's license, and leveraging technology to extend specialist expertise without requiring specialist presence.
The workforce crisis makes this imperative unavoidable. Calculations show that 91% of all rural counties face a shortage of primary care physicians, and 90% of rural health systems reported labor shortages in 2024. More than 60% of Healthcare Professional Shortage Areas are in rural locations. Nearly a quarter of all active physicians in the United States were 65 or older in 2023, signaling an impending wave of retirements.
Redesigning the financial architecture. Fee-for-service payment incentivizes volume in systems that can't sustain volume. Population-based payment models—true capitation, not fee-for-service with a shared savings garnish—create different incentives entirely. They reward keeping people healthy and out of hospitals. They make it financially viable to invest in community health workers, remote monitoring, and prevention. They align financial sustainability with actual health outcomes.
The evidence, while modest, points in the right direction. Pennsylvania's Rural Health Model, which ran from 2019 to 2024, transitioned 18 hospitals from fee-for-service to global budget payment—all hospitals stayed open during the pandemic and chose to remain in the program through its duration. The model included two pillars: alternative payment to stabilize finances and transformation plans to move from volume to value.
Redesigning collaborative structures. The myth of the self-sufficient rural hospital is dying. The future belongs to networks, alliances, and shared infrastructure. Telehealth hubs. Shared EHR platforms. Regional specialty centers that support local primary care rather than competing with it. Joint contracting with payers. Merged back-office functions. These aren't compromises of local control—they're enabling structures that let local providers focus on clinical care rather than billing systems.
What This Looks Like in Practice
Consider a few investment scenarios through the lens of system transformation:
Scenario A: A state uses 40% of its RHTP allocation to provide temporary operating support to 20 critical access hospitals facing imminent closure.
Scenario B: A state invests 40% of its allocation in building a statewide virtual specialty network, training community health workers in chronic disease management, and transitioning three regional health systems to full capitation contracts.
Scenario A addresses real pain. Scenario B addresses underlying pathology.
Real-world examples demonstrate what's possible when systems commit to transformation. Sanford Health, serving a rural coverage area spanning 250,000 square miles, used artificial intelligence to identify high users of care and mobilized health guides to coordinate care—resulting in a 62% drop in emergency department visits, 67% reduction in hospital admissions, and 34% drop in missed appointments within six months.
The honest answer is that states will need elements of both. But the ratio matters enormously. And the sequence matters even more.
A Framework for Strategic Decision-Making
Healthcare organizations and policymakers evaluating RHTP investments should ask three questions about every proposed use of funds:
1. Does this investment change our operating model, or just delay the need to change it?
Operating support, facility upgrades, and equipment purchases can be necessary. But they should be coupled with concrete plans to reduce per-unit costs, expand service capacity without adding FTEs, or generate new revenue streams. Investments that merely sustain current operations for 2-3 years don't transform anything—they just postpone decisions.
The program's allowable uses include promoting evidence-based interventions to improve prevention and chronic disease management, providing training for technology-enabled solutions like remote monitoring and artificial intelligence, and supporting consumer-facing technology solutions. These are transformation investments. Contrast them with simple operating subsidies that run out when the five-year funding window closes.
2. Does this investment reduce our dependence on scarce inputs?
Rural healthcare's scarcest resources are specialized physicians, capital for infrastructure, and sufficient patient volume to maintain certain service lines. Between 2011 and 2023, 293 rural hospitals stopped providing obstetrics services, representing 24% of the nation's rural OB units. This creates care deserts where patients must travel greater distances for essential services.
Smart investments substitute abundant resources for scarce ones: nurse practitioners for physicians, digital tools for physical infrastructure, regional coordination for local volume. Ask whether each investment makes the system more or less dependent on things that are only getting harder to secure.
3. Does this investment create compounding returns or diminishing ones?
The best system redesign investments are force multipliers. Training community health workers creates ongoing capacity for chronic disease management. Building telehealth infrastructure enables dozens of specialty applications. Implementing population health payment models changes incentives across every clinical decision. These investments compound.
Compare that to one-time equipment purchases or staff retention bonuses that provide temporary relief but don't change underlying dynamics. Feedback from care delivery organizations suggests that at least 50% of a book of business needs to be in significant value-based arrangements to support the substantial shifts in care delivery needed to succeed in new care models.
The Economics of Transformation
There's a persistent myth that rural healthcare transformation would be prohibitively expensive. The data tells a different story. Ensuring that payments cover the true costs of services in rural communities would increase national healthcare spending by approximately $5 billion per year, or just 0.1% of total national healthcare expenditure. This modest investment would support primary and emergency care—the areas most impacted by underpayment.
Without such adjustments, closures are likely to lead to higher overall healthcare costs, as rural residents who lose access to local preventive and emergency care are more likely to experience worsening health conditions requiring more expensive treatments in the future.
The Pennsylvania model offers concrete evidence. Rather than viewing rural healthcare through the lens of higher costs, the model encouraged thinking about cost avoidance and the consequences of continuing current trajectories. Transformation isn't about spending more—it's about spending strategically.
The Window Won't Stay Open
Here's what makes this moment so critical: transformation funding of this scale is rare. Funding will begin in federal fiscal year 2026, with $10 billion allocated annually through 2030, and states will have an additional year after each award to spend the funds. Once these dollars are allocated and spent, the next decade will be defined by those choices.
States that use RHTP funds primarily for crisis management will find themselves facing the same crises in 2030, but with $10 billion per year less Medicaid funding and no transformation program to cushion the blow.
States that invest in genuine system redesign—even if it means making harder choices in the near term about which current services to maintain—will have built healthcare delivery models that function effectively in the constrained environment that's already here.
The transformation program's name is telling. It's not the Rural Health Preservation Program. It's not the Rural Hospital Support Program. The stated goals are to support rural health innovations promoting preventative health, attract and retain healthcare workforce, spark growth of innovative care models, and foster use of innovative technologies. The transformation language is intentional. The question is whether we'll take it seriously.
Moving Forward
For healthcare organizations, this means advocating for RHTP investments that come with expectations. Don't just ask for funds—propose how you'll fundamentally change operations. Commit to specific transformation milestones. Demonstrate how short-term support will enable long-term viability, not just delay inevitable closure.
Show how investments align with the evidence base. The Pennsylvania Rural Health Model demonstrated that having a predictable annual budget allows rural hospitals to focus on specific needs of their communities, including food access, transportation, and health literacy. These upstream factors determine health outcomes as surely as clinical interventions.
For policymakers, this means resisting the political pressure to spread funds thinly across every struggling facility. Some concentration of resources in organizations ready to transform is better than universal under-investment. It means being honest that not every current service line can be preserved, but new models can deliver better outcomes.
It means measuring success not by how many hospitals stayed open unchanged, but by how many communities maintained access to high-quality care through whatever delivery model works. The Rural Emergency Hospital designation, which allows hospitals to close inpatient operations while maintaining emergency and outpatient services with enhanced Medicare payments, represents the first new rural hospital licensure type in decades. It's a tool in the toolbox, not a failure.
The rural health transformation moment is now. The funding is real. The deadline is immediate. And the choice between band-aids and system redesign will determine whether rural America has a healthcare system that can weather the next decade of demographic, financial, and workforce challenges.
We can't afford to waste this opportunity solving yesterday's problems when tomorrow's are already here.
References
Centers for Medicare & Medicaid Services. "Rural Health Transformation (RHT) Program." https://www.cms.gov/priorities/rural-health-transformation-rht-program/
Brownstein Hyatt Farber Schreck. "Understanding the Rural Health Transformation Program." July 21, 2025.
Mercer Government. "FLASH | H.R. 1 - Rural Health Transformation Program."
Connecticut Department of Social Services. "Rural Health Transformation Program." https://portal.ct.gov/dss/rural-health-transformation-program
Georgetown University Center for Children and Families. "Trump Administration Severely Limits Rural Health Transformation Funds." October 21, 2025.
Health Management Associates. "H.R. 1 Signed Into Law—What It Means for Medicaid and Public Coverage." July 10, 2025.
U.S. Joint Economic Committee. "Addressing Rural Health Worker Shortages Will Improve Population Health." 2024.
Chartis Center for Rural Health. "Rural Hospital Closures & Care-Access Crisis | 2025 State of the State."
American Journal of Managed Care. "Health Policy in Crisis: Saving Rural Hospitals Across America." October 2025.
Healthcare Innovation. "What's the Future of Value-Based Care for Rural Hospitals?"
Rural Health Information Hub. "Exploring Alternative Payment Models to Fund Health Equity Programs."
Penn LDI. "The Future of Value-Based Payment: A Road Map to 2030." August 29, 2023.
American Medical Association. "How 3 Health Systems Lead on Value-Based Care." July 24, 2024.