Rural hospital leaders are raising concerns that some of the new federal rural health transformation funding could flow through state governments without ever reaching the hospitals the program was designed to support.

CMS awarded $50 billion across all 50 states through the Rural Health Transformation Program, a five-year initiative running from 2026 through 2030. The program is intended to strengthen access, infrastructure and workforce capacity in rural communities. But states are not legally required to pass the funds directly to rural hospitals and early signals from legislators in some states have hospital CEOs worried.

Hospital executives say that gap between federal intent and state discretion is creating unease as rural providers face continued financial pressure, including looming Medicaid cuts tied to the same legislation that authorized the program.

Funds aren’t guaranteed to hospitals
Under the program, $10 billion will be distributed annually, with half of the funding allocated equally across states and the remainder awarded based on factors such as rural population, land mass, facility needs and proposed policy actions. While states must submit annual reports to CMS, funding is not contingent on performance, and there is no mandate that dollars be directed to rural hospitals.

That structure has prompted concern among rural leaders who say the funds could be absorbed into state-run initiatives, new administrative departments or competitive grant programs that may offer limited near-term relief to struggling providers. Jeremiah Hodshire, president and CEO of Hillsdale (Mich.) Hospital, said rural hospitals in Michigan spent months advising the state on how to deploy the funds, particularly in anticipation of Medicaid cuts.

“I chaired the Michigan Hospital Association task force which prepared detailed recommendations to the State of Michigan Department of Health & Human Services, for which they did not accept any of our recommendations,” Mr. Hodshire said.

The task force included rural hospital leaders from across the state who focused on what they viewed as immediate needs for rural community hospitals.

“MDHHS is funding a new department complete with over a dozen staff members, and I don’t expect to see much for our hospital,” he said, later adding, “I am extremely disappointed that MDHHS did not utilize the experience, expertise and needs of rural hospitals when submitting the application, which we had to FOIA for review.”

Michigan ranked 43rd among state awards and was among the seven lowest-funded applications nationally, according to Mr. Hodshire. While outcomes vary by state, he said the broader issue is the lack of guardrails ensuring funds reach providers.

“This will have little impact on rural community hospitals, for which it was designed, and will create statewide programs and grant applications while dozens of hospitals in the state of Michigan are at risk of closure,” he said.

State-led models limit hospital control
Leaders in other states echoed concerns that hospitals may have less influence over how the funds are ultimately used than they initially expected. Brian Sponseller, CEO of Carolina Pines Regional Medical Center in Hartsville, S.C., said his state asked hospitals to submit proposed uses for the funding on a compressed timeline, with little clarity on how those ideas would be evaluated or funded.

“The way the federal government did this was left up to the states on how they want to allocate it,” Mr. Sponseller said.

South Carolina gave rural hospital leaders five days to propose ideas on how to use the funds and then submitted them to the federal government. The state’s plan to have Medicaid administer funds was approved, and now the Medicaid program is collecting proposals for individual program funding.

“We gave them a bunch of ideas, and we don’t know yet what the state got the funds or programs for. The state hasn’t made up its mind on the funds,” said Mr. Sponseller.

He said the proposals focused on areas such as rural maternal health, family medicine residency training with obstetrics experience, and remote monitoring technology to support pregnant patients in counties without local OB services.

“They’re listening to rural hospitals,” Mr. Sponseller said. “But they’re waiting for feedback from the federal government.”

That dynamic, he said, has left hospitals advancing concepts without certainty that funding will materialize or align with what they proposed.

“We don’t have as much control as we thought we’d have,” he said.

Some leaders say there are early signs that at least a portion of the funds could reach rural hospitals, depending on how states structure administration. William Davis, president of Deaconess Illinois in Marion, said Illinois has announced that the Illinois Critical Access Network will administer a subset of the funds, which could create a clearer pathway to rural providers.

“When you read the legislation, the funds don’t have to flow to rural hospitals,” he said. “If you’re an administrator, we’ve got a responsibility to continue to advocate to make sure that funding makes it to rural health, because it absolutely can be transformative.”

Rural hospitals have operated on shoestring budgets for years and changes to the Medicaid program and ACA coverage will likely mean more uncompensated care while expenses continue to rise. Mr. Davis sits on the Illinois Hospital Association board and is working closely with the state to develop the application process and decide how to administer the awards. The Illinois Critical Access Network will be one administer for a particular subset of funds.

“Because of that, we do think that some of the funds will flow to rural hospitals, and I’m at least optimistic on that front,” said Mr. Davis. “I don’t think every state’s doing that, or can, but we did a lot of advocacy efforts when all of this was being formed to position the organization as an administrator because they already administer grants to other rural hospitals and critical access hospitals in rural areas, so they have a structure in place to execute quickly.”

A broader policy tension
The concerns come as rural hospitals face sustained financial strain. The legislation that created the Rural Health Transformation Program also includes long-term Medicaid cuts projected to reduce rural funding by $155 billion over 10 years, according to policy experts.

Some states have framed the funds as catalytic capital meant to support care model redesign, workforce pipelines, data infrastructure and regional collaboration — rather than backfilling operating losses. While many rural leaders support that long-term vision, they worry that hospitals already operating on razor-thin margins may not be positioned to compete for or sustain those investments.

Rural leaders said the next year will be critical in determining whether the program delivers meaningful support to providers. CMS completed its first-round awards in December, but many states are still awaiting federal approval of their implementation plans. Until those plans are finalized, hospitals say they have little visibility into timelines, eligibility criteria or funding mechanisms.

For now, many rural hospitals are planning cautiously — developing project concepts, exploring partnerships and advocating for more direct provider funding — while recognizing that ultimate decisions rest with state agencies.

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