States Race the Clock to Secure Rural Funding
CMS dropped a notice of funding opportunity to inform state applications for the $50 billion Rural Health Transformation Program. States are under the wire to get their applications in by Nov. 5.
Author: Anne O’Hagen Karl
Editors: Patti Boozang, Michelle Savuto and Amanda Eisenberg
For more information on this topic, sign up for The 80 Million’s Ask Manatt session with Patti Boozang and Anne O’Hagen Karl from Manatt Health, Deputy Secretary for North Carolina Medicaid Jay Ludlam and Homeward Health Founder and CEO Jennifer Schneider, MD on Sept. 29.
tl;dr
The Centers for Medicare and Medicaid Services (CMS) released a Notice of Funding Opportunity (NOFO) on Sept. 15 for states to apply for funds under the $50 billion Rural Health Transformation (RHT) Program established under H.R.1. Starting in Fiscal Year (FY) 2026, $25 billion in baseline funding will be distributed across all states with approved applications over five years. The other $25 billion, known as “workload funding,” will be distributed over the same period but funding amounts will be based on a list of factors selected by CMS.
States’ workload funding awards will be assessed based on data indicating how rural a state is compared to other states and information on the state’s rural health facilities, along with the extent to which the state’s policies and the initiatives they are hoping CMS will fund align with the Trump administration’s Make America Healthy Again (MAHA) agenda.
The rub? States have only a handful of weeks left to conduct stakeholder engagement and develop an application that articulates the state’s vision for a transformed rural health care delivery system in alignment with CMS’ policy priorities and instructions. Should a state submit an application that’s not in line with the CMS’ road rules or policy vision, it risks being denied funding.
The 80 Million Impact
The RHT program is currently the only new federal funding available to states and providers to support health care delivery — and it’s crucial as they face $1 trillion in Medicaid cuts. Any additional federal funding can make the difference in preserving service lines and health care access. It stands to reason then that states are racing to develop and submit RHT program applications by the Nov. 5 due date, with an eye to CMS awards by Dec. 31.
CMS’ NOFO requires states to outline in their applications how they will improve access to care and health outcomes for rural residents, expand the use of technology that emphasizes prevention and chronic disease management, foster partnerships between rural and non-rural health care providers at the local and regional level, expand the clinical workforce in rural areas, implement data-driven solutions and strategies that improve the financial solvency of rural health providers, and address the root causes of rural hospitals’ risk of closure. The application must include the following key components:
Program objectives. States must outline what they will achieve by the end of the funding period FY 2031 with specific and measurable objectives, including both baseline data and targets.
Initiative profiles. States are required to detail each proposed initiative, including an implementation plan and timeline, expected outcomes and performance measures, alignment with CMS’ strategic goals and key factors in the RHT scoring methodology, and implementation partners involved in the initiative. Performance measures must be described as a part of a detailed metrics and evaluation plan. Initiatives will be evaluated on clarity, completeness, quality of the proposed initiative, direct impact to rural residents and areas and “how transformative the initiative is in relation to the state’s baseline.” For inspiration, states may also look to the Appendix of the NOFO for example initiatives grounded in states’ previous experiences, which range from value-based care to rural talent recruitment programs.
Overarching implementation plan and timeline. In addition to a per-initiative implementation plan and timeline, states must also submit an overarching plan associated with general program set-up that describes the governance and project management structure and an approach to coordinating among state health agencies.
Stakeholder engagement. States must describe how they have involved and will involve rural stakeholders when planning and carrying out this program.
Policy landscape. States must submit descriptions of current state policy — and can be rewarded for committing to future legislative or regulatory action — across a disparate list of policy domains that CMS defines as high priorities, including state laws related to expanding use of telehealth, scope of practice regulations that help address workforce issues, narrow or no certificate of need requirements, and participation in provider licensure compacts.
Sustainability plan. States must describe how they plan to sustain successful initiatives after the RHT Program funding ends (after FY 2031).
States must also develop a budget narrative with “best estimates” of costs to operate each proposed initiative, along with their governors’ endorsement that these programs will be enacted.
The NOFO establishes new parameters on permissible uses of funds and adds two new categories beyond those outlined in H.R.1; states must still propose investments in at least three of the following permitted uses:
CMS outlined several funding prohibitions and limitations in the NOFO, including using RHT Program funds for new construction and significant retrofitting of buildings, clinician salaries or wages at facilities with non-compete agreements, expenditures associated with financing the non-federal share of expenditures required under any provision of law, replacing payment for clinical services that could be reimbursed by insurance, and payments for abortions and gender affirming care.
There is some uncertainty around these general and programmatic limitations. For example, although the NOFO does not address restrictions related to citizenship or immigration status in detail, the NOFO expressly applies citizenship documentation requirements to payments made “with respect to an individual.” This likely impacts RHT funds that go toward health services and could potentially have implications for certain infrastructure improvements. Further guidance from CMS is needed to determine how states can account for costs to ensure RHT Program funds benefit eligible individuals.
Another challenge for states will be navigating budget development without a set award amount (CMS encourages states to use a hypothetical $200 million per budget period) and planning for potential changes to award funding over time.
There is also considerable variation in how states will rank across the rural facility and population score factors, which will be assessed once based on 2025 data and impact half of the state’s workload score. For example, according to U.S. Census Bureau data, Texas, North Carolina and Pennsylvania have the highest number of rural residents, while Vermont, Maine and West Virginia rank highest on the percentage of state population located in rural areas. Other factors, such as the percentage of hospitals in a state that receive Medicaid Disproportionate Share Hospital (DSH) payments, may disadvantage states that rely heavily on Medicaid state-directed payments and as a result make DSH payments to fewer hospitals. CMS’ scoring methodology ties the other half of the distribution of workload funding in years two through five to each state’s program performance on CMS’ score factors, creating uncertainty in a state’s funding allocations, given that the amount awarded from the $25 billion workload funding pool may fluctuate annually. States are likely to earn increasing points over time for planning to and then implementing their RHT Program initiatives and new state policy changes. However, if states do not achieve these milestones (e.g., finalize state policy actions proposed in the application by the end of calendar year 2027), they will have to forfeit funds back to CMS.
The Bottom Line
States will need to work quickly and collaboratively with key stakeholders to build applications that address their state’s rural health care system needs while aligning with CMS’ goals and funding parameters. Many states are already gathering ideas from a wide variety of stakeholders to sharpen their proposals. For more information, look out for CMS’ next webinar for applicants on Sept. 25
For more information on this topic, sign up for The 80 Million’s Ask Manatt session with Patti Boozang and Anne O’Hagen Karl from Manatt Health, Deputy Secretary for North Carolina Medicaid Jay Ludlam and Homeward Health Founder and CEO Jennifer Schneider, MD on Sept. 29.