15 www.loubar.org November 2025 PROFESSIONAL EXCELLENCE CMS Takes Control of Medicaid with the Rural Health Transformation Program Virginia Leigh Schell When it was signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) significantly reduced Medicaid funding nationwide by $911 billion over a period of 10 years. Medicaid expansion states, i.e., those that expanded Medicaid under the Affordable Care Act like Kentucky, will bear the brunt, seeing more than 13 percent reduction in funding over the next decade. See https://www.kff.org/medicaid/allocating- cbos-estimates-of-federal-medicaid-spending-reductions-and- enrollment-loss-across-the-states/. OBBBA Reduces Medicaid Funding Medicaid is funded through a complex system of federal funds and state funds received from provider taxes and state-directed payments. Historically, states managed their own Medicaid programs with guidance and oversight from the federal gov- ernment. Kentucky’s state-directed payment program is the Hospital Rate Improvement Program (HRIP) which “makes it possible for hospitals to draw down more federal funds so that Medicaid reimbursements will be closer to the average commer- cial rate rather than the Medicare rate of reimbursement. The funds are tied to quality metrics hospitals must meet in order to receive the improved reimbursement.” See https://www. khaquality.com/programs/hrip-quality-program/. According to the Kentucky Hospital Association, these funds keep rural hospitals open while also improving patient outcomes because they receive more Medicaid funding, which makes up the differ- ence between the actual cost of care and the low Medicare rate of reimbursement. See https://kyhealthnews.net/2025/01/12/ kentuckys-hospital-rate-improvement-program-brings-more- money-and-better-health-outcomes-to-hospitals/. Kentucky’s HRIP program is funded by the provider tax on hospitals. Id. The OBBBA removes incentives for states to expand Medicaid and prohibits new provider taxes and reduces existing provider taxes, making it significantly harder for states to fund Medicaid. Rural areas have a larger percentage of Medicaid recipients. As a result, numerous rural hospitals face closure due to the reduction in funding. According to the Sheps Center for Health Services Research at the University of North Carolina at Cha- pel Hill, 338 rural hospitals nationwide are at risk of closure due to the OBBBA Medicaid cuts, including 35 hospitals in Kentucky, the most closures faced by any state. Because the OBBBA’s Medicaid cuts will disproportionately af- fect rural health hospitals, Congress included the Rural Health Transformation Program (RHTP) in Section 71401 of the OBB- BA. The United States’ Senate Fact Sheet on the RHTP states that “the OBBBA does make reforms to prevent states from exploiting sources of federal Medicaid revenue” and “require[s] states to refocus their Medicaid programs on the truly vulnerable patients for which the program was intended.” See U.S. Senate Committee on Finance RHTP Fact Sheet. The RHTP is intended to “serve as a bridge to shore up rural hospitals and prevent gaps in care.” Id. Under the RHTP, CMS now has much greater oversight and control over the allocation of Medicaid funds while states have far less control than previously. Overview of the RHTP The RHTP will be administered by the Centers for Medicare and Medicaid Services (CMS). The purpose of the RHTP is “to strengthen health care across rural America… designed to empower states to transform the existing rural health care infrastructure and build sustainable health care systems that expand access, enhance quality of care, and improve outcomes for patients.” See https://www.cms.gov/newsroom/ press-releases/cms-launches-landmark-50-billion-rural- health-transformation-program. The RHTP has five strategic goals: 1) Make rural America healthy again; 2) Sustainable access; 3) Workforce development; 4) Innovative care; and 5) Tech innovation. Id. The program is funded for five years with $10 billion to be made available each year. Id. CMS “will partner with states over the program period to ensure strong oversight and successful implementation of initiatives with lasting impact.” Id. While the RHTA has allocated $50 billion in funding, half of that funding will be spread out among the states that are approved to participate in the program. See https://www. cms.gov/priorities/rural-health-transformation-rht-program/ overview. The other half of the funding “will be allocated by CMS based on a variety of factors including rural popula- tion, the proportion of rural health facilities in the State, the situation of certain hospitals in the State, and other factors to be specified by CMS in the [Notice of Funding Opportunity].” Id. States are required to use the funds for three or more of the following approved uses: prevention and chronic disease; provider payments; consumer tech solutions; training and technical assistance; workforce; IT advances; appropriate care availability; behavioral health; and innovative care. See Rural Health Transformation Program NOFO at 11-12. Funds also may be used for capital expenditures and infrastructure and fostering collaboration between rural facilities and other health care providers. Id. at 12. Application process for RHTP CMS issued its Notice of Funding Opportunity on Sep- tember 15, 2025. Each state must apply to the program by November 5, 2025, and CMS will announce the awardees by December 31, 2025. The Governor’s office of each state is tasked with designating an agency or office to handle the application process. See Rural Health Transformation- FAQ. The application must include “a letter of endorse- ment from the Governor that expresses support for the proposed rural health transformation plan and certifies that the application has been developed with certain key stakeholders.” Id. The U.S. Territories and Washington, D.C. are not eligible to receive an award from the RHTP. Id. A state’s application will be scored by a combination of 1) rural facility and population score factors and 2) work- load funding, each compromising 50% of the score. See AMA Summary: Rural Health Transformation Program at 2. A state’s workload funding score is calculated based on initiative-based factors, i.e. proposed initiatives for use of RHTP funds; state policy-based factors, i.e. current state policy policies that the state commits to enacting; and data- driven metrics. Id. There are limitations on use of funds, such as no more than 10 percent of the funds may be used on administrative expenses and funds may not be used to pay for clinical services already reimbursed by another source like insurance, Medicare, CHIP, etc. Id. at 3. RHTP funding is not guaranteed and “depends on the availability of funds, program authority, satisfactory performance, and compli- ance with the terms and conditions of the Federal award.” See Rural Health Transformation Program NOFO at 60. If a state is approved, then it receives funds all five years as long as it complies with the RHTP requirements. Id. No matching funds from the state are required. Once the awards are made, then monitoring will begin in 2026. Id. at 13. Post-Award financial and performance reports are required as well as non- competing continuation applications. Id. at 59-60. There will be no other application opportunities for the RHTP. States’ Response to the RHTP Forty-six states have requested public input in preparation for their application to the RHTP. See https://shvs.org/ tracking-state-preparation-for-the-rural-health-transforma- tion-program/. Two states have requested public input and solicited a consultant. Id. While Kentucky has not published any requests for input on its application, the Medicaid Over- sight and Advisory Board met on August 27, 2025. Dr. Steven Stack, Kentucky’s Secretary of CHFS, updated the committee on the application process and noted that a vendor had been chosen to support “deployment and programmatic changes.” The report of the Kentucky Rural Health Transformation Program on the same date indicates that letters were issued in July to stakeholders requesting input with responses due by August 31, 2025. There also was a Kentucky Rural Health Clinic Summit in August which included a listening session on rural health transformation. The Kentucky RHTP’s next steps include continued stakeholder engagement and review of feedback; monitoring CMS guidance and application release in September; and coordination with the governor’s office to develop and submit Kentucky’s application by the deadline. Potential Consequences of Reduction in Medicaid Funding Even if they are approved, states will still be short of funds after receiving their allocated funding under the RHTP. The Kaiser Family Foundation found that the RHTP funds only partially offset the reductions because rural areas will lose approximately $137 billion in Medicaid funding as a result of the OBBBA. See https://www.kff.org/medicaid/how-might- federal-medicaid-cuts-in-the-enacted-reconciliation-package- affect-rural-areas/. It noted that “Kentucky would experience the largest rural Medicaid spending reduction, with an esti- mated drop of $11 billion over 10 years.” Id. As a result of this funding shortfall, states will be faced with the difficult choice of having to come up with funds to make up the difference or reduce or eliminate some rural healthcare services. Lack of funding could result in hospital closures, workforce reductions and decreased access to healthcare in rural areas as well as increased demand for healthcare services in urban areas, the impacts of which will be felt statewide. Leigh Schell is an Associate in Stoll Keenon Ogden’s Louisville office. Her primary focus is on the defense of professional negligence claims made against physi- cians, healthcare personnel, hospitals and nursing homes. Leigh is chair of the LBA’s Health Law Section. n “ Lack of funding could result in hospital closures, workforce reductions and decreased access to healthcare in rural areas as well as increased demand for healthcare services in urban areas, the impacts of which will be felt statewide.
