Transforming Rural Health: What States Need to Know About the $50 Billion Rural Health Transformation Fund
Rural hospitals and health systems are vital access points for millions of Americans, but for decades, they’ve faced structural and financial challenges that make long-term sustainability difficult. Now, with the launch of the Rural Health Transformation Fund, states have a new opportunity to invest in rural health care in a way that is both transformative and accountable.
Created under Public Law 119‑21 (OBBBA), enacted on July 4, 2025, the Rural Health Transformation Fund provides $50 billion in federal funding over five years (2026–2030) to support rural health care. The program is intended to help states and rural providers strengthen access, enhance sustainability, and implement community‑driven strategies for care delivery.
A New Model of Support
Unlike previous federal rural hospital programs, which tied reimbursement to cost, patient volume, or facility designation, this program decouples support from service volume and instead focuses on outcomes, innovation, and long-term viability. The result is a more flexible funding model that allows states to tailor their strategies based on community needs and rural health infrastructure.
The Rural Health Transformation Fund is administered by the Centers for Medicare & Medicaid Services (CMS). States must submit a one-time application by the end of 2025, including a comprehensive Rural Health Transformation Plan. CMS will review and approve state applications, after which states will receive annual funding from FY2026 through FY2030. Each year’s funding must be spent by the end of the following fiscal year, or it will be subject to redistribution.
Funding Structure
The $50 billion is divided into two equal parts:
50% is distributed evenly across all participating states.
50% is allocated based on need, with CMS considering factors such as the size of a state’s rural population, the number and condition of rural facilities, and related infrastructure challenges.
States are required to spend at least 90% of their allocations on program activities (no more than 10% can go toward administrative costs) and must submit annual progress reports to CMS. States that fail to follow program requirements may have funds withheld or recouped.
What Can States Fund?
The legislation outlines a broad range of allowable uses that reflect the program’s emphasis on modernization, health equity, and care transformation. Examples include:
Implementing preventive care and chronic disease management programs
Expanding access to behavioral health and substance use disorder treatment
Investing in telehealth, electronic health records, and cybersecurity
Providing direct payments to rural hospitals and clinics
Launching value-based care initiatives
Modernizing or repurposing underused rural facilities
Supporting workforce recruitment and retention, including programs that offer incentives for long-term rural service
States must identify at least three specific improvement activities in their transformation plans, and demonstrate how they will improve access, outcomes, sustainability, and system efficiency.
Who Is Eligible?
A broad range of providers are eligible for support through the Rural Health Transformation Fund, including:
Critical Access Hospitals
Sole Community Hospitals
Medicare-Dependent Hospitals
Low-Volume Hospitals
Rural Emergency Hospitals
Rural Health Clinics
Federally Qualified Health Centers
Community Mental Health Centers
Opioid Treatment Programs
Community Behavioral Health Clinics
Eligibility is based on the facility type, its location, and the population it serves. Certain providers in metropolitan areas that predominantly serve rural communities may also qualify.
Looking Ahead
The Rural Health Transformation Fund introduces a new federal approach to partnering with states on rural health. Rather than relying solely on legacy payment models, the funding provides flexibility for states to pursue locally informed strategies aimed at improving access, sustainability, and quality of care in rural communities.
While CMS has yet to announce the application process details, state Medicaid agencies should begin preparing now to develop comprehensive applications that demonstrate how they'll improve rural access, recruit clinicians, and leverage technology.
How Coral Can Help
Coral Health Advisors works with state Medicaid agencies, rural health offices, and provider organizations to design value-driven strategies that strengthen access, quality, and sustainability. Our work spans from conducting landscape assessments to shaping transformation plans, advancing delivery system reform, and building cross-sector collaborations that drive meaningful impact.
If you’d like to learn more about the Rural Health Transformation Fund or explore how Coral can support your broader rural health initiatives, contact our team to start the conversation.