In the battle over how the One Big Beautiful Bill Act affects rural hospitals, Health and Human Services Secretary Robert F. Kennedy Jr. has touted a five-year $50 billion fund as “an infusion of cash” that will “restore and revitalize” rural communities. But his statements ignore the higher estimated Medicaid spending cuts to rural areas under the law.
Other administration officials have made similar claims, such as Dr. Mehmet Oz, administrator of the Centers for Medicare & Medicaid Services. He and Kennedy have misleadingly claimed the fund would be a 50% increase over Medicaid spending now going to rural hospitals.
The independent health policy research organization KFF estimated that the OBBBA’s Medicaid provisions could lower federal Medicaid spending in rural areas by $137 billion over a 10-year period. An analysis by Manatt, a legal consulting firm, for the National Rural Health Association estimated a more minor impact on rural hospitals alone (not more broadly to rural areas) — a reduction of $58 billion in federal Medicaid funds over a decade.
Oz used the exact figures in his remarks on Sept. 16 at a Senate Republican press conference.
In addition to the fund falling short of the law’s Medicaid cuts estimates, there are questions about how the $50 billion fund will be distributed. “It’s unclear what portion of that would eventually go to hospitals versus other providers. It’s also ultimately unclear whether all the dollars will go to rural areas,” Zachary Levinson, project director of the KFF project on hospital costs, told us.
Leonardo Cuello, a research professor at the Georgetown University McCourt School of Public Policy’s Center for Children and Families, noted that this funding was “a short-term patch,” while the Medicaid funding reductions in the law “go on forever.”
On September 15, the Centers for Medicare & Medicaid Services announced details on how states could apply for the $50 billion fund, known as the Rural Health Transformation Program, with a deadline of November 5. CMS will make decisions on the applications by December 31.
In a video announcing the opening of the application period, Kennedy again used the 7% figure: “Right now, only 7% of Medicaid hospital spending reaches rural hospitals. That’s got to change,” he said.
A White House memo stated that the figure came from the CMS Office of the Actuary and represented the percentage of Medicaid hospital spending, both inpatient and outpatient, allocated to rural hospitals. HHS didn’t respond to our request for more information about the figure.
The debate over the OBBBA raised concerns about the viability of rural hospitals, many of which are already on shaky financial footing. An August report from the Center for Healthcare Quality & Payment Reform said that about a third of rural hospitals in the U.S. “are at risk of closing because of the serious financial problems they are experiencing,” and 14%, or 322 rural hospitals, are “at immediate risk of closing.”
The $50 billion Rural Health Transformation Program was added to the legislation to address those concerns. In July, after the OBBBA was enacted, Republican Sen. Josh Hawley, who voted for the legislation, introduced a bill to double that fund to $100 billion over 10 years, and to repeal provisions of the law that impact the financing of rural hospitals. No action has been taken on the legislation.
Overall, the OBBBA reduces federal Medicaid spending by $911 billion over 10 years, KFF estimates, and increases the number of people without health insurance by 10 million by 2034, the nonpartisan Congressional Budget Office estimated, with most of that increase (7.5 million) because of the law’s Medicaid provisions, which include new work requirements.
The Law’s Impact and How the Fund Works
Reductions in insurance coverage among rural residents due to the OBBBA would result in a decrease in Medicaid dollars flowing to rural healthcare providers, such as hospitals. The law also affects rural hospitals by prohibiting states from increasing or instituting new provider taxes, which states have used to supplement payments to hospitals to cover uncompensated care, as we’ve written before. It also places limits on state-directed payments, which states can use to require managed care organizations to pay healthcare providers specific rates for services. Hawley’s bill called for repealing both of those aspects of the law.
As we mentioned, KFF estimated that the OBBBA would reduce federal Medicaid spending in rural areas by $137 billion over 10 years. That’s $87 billion more than the five-year rural health fund that Kennedy has promoted. KFF’s figure doesn’t include state matching funds, which would also decline due to decreases in Medicaid enrollment, or the potential impact of insurance coverage losses due to changes to the Affordable Care Act marketplaces under the law. (CBO estimates 2.1 million people will be uninsured by 2034 due to those changes.)
“While providers could potentially offset at least some of the cuts—including through the new rural health funding—any financial pressure on hospitals and other providers could lead to layoffs of staff, more limited investments in quality improvements, fewer services, or additional rural hospital closures,” the KFF report said.
States with larger rural populations would likely experience more significant reductions in Medicaid funding. “Over half of the spending reductions in rural areas are among 12 states that have large rural populations and have expanded Medicaid under the ACA, 10 of which could see rural federal Medicaid spending decline by $5 billion or more over 10 years,” KFF said. “Those 10 states include Kentucky, North Carolina, Illinois, Virginia, New York, Michigan, Ohio, Pennsylvania, Oklahoma, and Louisiana.” Kentucky would be the hardest hit state, with a nearly $11 billion decrease in rural Medicaid funding over a decade, KFF estimated.
That some states face higher looming reductions in rural Medicaid spending than others sparks questions about how the $50 billion rural health program funds will be awarded. Half of that amount will be divided evenly among all states with approved applications, as mandated by law. The other half will be distributed based on the state’s percentage of population in rural areas, its portion of the nation’s rural health care facilities, its hospitals serving low-income patients and “any other factors” the CMS administrator “determines appropriate,” according to the law.
That means for the first tranche, the size of a state’s rural population wouldn’t affect the amount of funding. In a brief explaining the program, KFF noted: “For example, Connecticut (which has 3 rural hospitals based on one definition) could receive the same amount as Kansas (which has 90 rural hospitals) if both are approved for funding.”
The second half should be allocated more to states with larger rural healthcare needs.
In an FAQ, CMS posed the question of whether states are required to provide funds to healthcare providers located in rural areas. The answer: “There are no specific restrictions … on which provider organizations can effectuate impact on rural communities and residents.”
CMS states that the goal of the fund is to enhance disease care and prevention, increase access to care, develop the healthcare workforce, and implement new care models and technologies in rural areas. States must use the money for at least three purposes among a list of 10, the last of which is broadly defined as “[a]dditional uses designed to promote sustainable access to high quality rural health care services, as determined by” the CMS administrator.
The funds will be distributed over five years, but states have until October 2032 to spend the money.
We asked HHS how the program would ensure that the funds would be allocated to rural hospitals.
“This initiative provides states with flexible funding to strengthen rural health care and ensure its long-term sustainability,” a spokesperson told us. “Secretary Kennedy and Administrator Oz look forward to working with Congress on solutions to continue supporting rural hospitals. Additional details will be forthcoming as the program is finalized.”
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-- By Jessica Perry
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