On December 29, 2025, the Centers for Medicare and Medicaid Services (“CMS”) announced the first round of awards under the Rural Health Transformation Program (“RHTP”), a $50 billion, five-year initiative intended to strengthen and modernize health care delivery in rural communities nationwide. All 50 states will receive funding beginning in Federal Fiscal Year (“FFY”) 2026, with first-year awards averaging $200 million per state.

At the same time, CMS formally established the Office of Rural Health Transformation within the Center for Medicaid and CHIP Services, creating a dedicated office to oversee implementation of the RHTP.

Allocation and Distribution of Funds

RHTP funds are distributed in two ways: 1) 50% is allocated equally among all states with approved applications (“Baseline Funding”), providing a baseline level of support regardless of size or rural population; and 2) 50% is allocated based on a range of state-specific factors, including rural population size, the proportion and condition of rural health facilities, qualitative scoring of proposed initiatives and other CMS-specified priorities (“Workload Funding”). In FFY 2026, each state will receive $100 million from Baseline Funding, and the amount of Workload Funding will vary from $47 million to $181 million. CMS will reassess funding for future years and may adjust state funding based on demonstrated progress on a state’s initiatives and any committed policy actions and compliance with the cooperative agreement.

Once funds are awarded, states retain discretion over how RHTP dollars are deployed at the local level. Depending on state design choices, funds may be distributed directly to providers, administered through regional collaboratives, or routed through intermediaries such as managed care entities or other third parties. Each funding pathway may carry different participation requirements, performance expectations and reporting obligations, reflecting the structure selected by the state and the terms of its cooperative agreement. As a result, provider involvement and compliance obligations under RHTP are likely to vary significantly by state and by funding mechanism.

Key Program Priorities Identified by CMS

CMS has indicated that RHTP funding will be used to advance a broad set of rural health priorities, including the following:

  • Expanding Access to Care. Increasing access to preventive, primary, maternal, behavioral health and emergency services, including through new access points, enhanced EMS coordination and telehealth.
  • Strengthening the Rural Health Workforce. Supporting training, recruitment and retention efforts designed to sustain local rural health care workforces.
  • Modernizing Infrastructure and Technology. Investing in facility upgrades, equipment, cybersecurity, interoperability, telehealth and other digital tools to improve access and operational efficiency.
  • Improving Coordination and Efficiency. Advancing regional partnerships, shared services and clinically integrated networks intended to improve sustainability while keeping care local.
  • Advancing Care and Payment Models. Testing value-based care models to support collaboration, financial stability and improved patient outcomes.

Program Implementation

Although awards are made to the states, RHTP’s real impact will hinge on how states structure governance, select initiatives and engage rural providers during implementation. Early state plans reflect a wide range of approaches, including telehealth delivered through nontraditional settings such as libraries, emerging technologies like medication delivery drones and remote diagnostics, workforce development initiatives and expanded mobile and home-based services. While these proposals reflect the program’s focus on innovation, they also raise questions about whether states can translate ambitious concepts into operational models that align with local care delivery realities.

National stakeholders have echoed these concerns. The American Hospital Association has emphasized the need for frameworks that support rural hospitals while minimizing administrative burden and has specifically urged CMS to require separate reporting of RHTP funds on Medicare cost reports, including through dedicated line items to promote consistent reporting and avoid distortions in cost and reimbursement analyses. To date, however, CMS has not issued detailed guidance on how RHTP funds should be reported on Medicare cost reports.

The National Rural Health Association (“NRHA”) has welcomed the RHTP as a significant federal investment aligned with longstanding rural health priorities, while emphasizing the importance of ensuring that rural hospitals receive a fair share of funding to sustain access to care. The NRHA has also cautioned that one-time funding alone will not ensure long-term stability for rural providers and has stressed the need for sustainable policy reforms to support reimbursement and effective participation by rural providers.

How Can Providers Prepare

As states move to implementation stages, rural providers have opportunities to participate in planning activities, pilot programs, reporting initiatives and regional collaborations supported by RHTP funding. To prepare, providers may wish to review state applications and implementation materials to understand how funds are expected to flow, which initiatives are being prioritized and what participation requirements may apply. Early engagement in state-led planning efforts can also help providers assess how proposed initiatives fit within existing care delivery models, including clinically integrated networks, accountable care organizations and other value-based arrangements. Providers may further benefit from early discussions about governance, contracting and operational structures. Taking these steps in advance will help providers implement funded activities more efficiently and align RHTP-supported initiatives with broader strategies to improve access, care coordination and financial sustainability.

Practical Takeaways

With significant funding now flowing to states, the immediate focus for rural providers shifts from federal announcements to state-level advocacy and strategic planning. Because states retain substantial discretion over distribution channels, whether through direct grants, managed care intermediaries or regional collaboratives, providers should actively engage with state agencies to understand specific participation requirements and funding priorities. Organizations should begin assessing how RHTP initiatives align with their current operational goals and prepare to navigate potential compliance issues, including around cost reporting, grant reporting and the interplay with existing reimbursement models.

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