$50B Rural Health ‘Slush Fund’ Faces Questions, Skepticism

A last-minute scramble to add a $50 billion rural health program to President Donald Trump’s massive tax and spending law has left hospital and clinic leaders nationwide hopeful but perplexed.

The Rural Health Transformation Program calls for federal regulators to hand states $10 billion a year for five years starting in fiscal year 2026.

But the “devil’s in the details in terms of implementing,” said Sarah Hohman, director of government affairs at the National Association of Rural Health Clinics.

“An investment of this amount and this style into rural — hopefully it goes to rural — is the type of investment that we and other advocates have been working on for a long time,” said Hohman, whose organization represents 5,600 rural health clinics.

People who live in the nation’s rural expanses have more chronic diseases, die younger, and make less money. Those compounding factors have financially pummeled rural health infrastructure, triggering hospital closures and widespread discontinuation of critical health services like obstetrics and mental health care.

Nearly 1 in 4 people in rural America use Medicaid, the state and federal program for low-income and disabled people. So, as Senate Republicans heatedly debated Medicaid spending reductions, lawmakers added the $50 billion program to quell opposition. But health advocates and researchers doubt it will be enough to offset expected cuts in federal funding.

Senate Majority Leader John Thune, a Republican from South Dakota, which has one of the largest percentages of rural residents in the nation, led the push to pass the budget bill. His website touts support for strengthening access to care in rural areas. But his office declined to respond on the record to questions about the rural health program included in the bill.

Sen. Susan Collins, a Republican from Maine who introduced an initial amendment to add the rural program, also did not respond to a request for comment. On July 15, Sen. Josh Hawley, a Republican from Missouri, introduced a bill to reverse future cuts to Medicaid and add to the rural program.

Michael Cannon, director of health policy studies at the Cato Institute, a libertarian think tank headquartered in Washington, D.C., said the money was set aside because of politics and not necessarily for rural patients.

“As long as it’s a government slush fund where politics decides where the money goes, then there’s going to be a mismatch between where those funds go and what it is consumers need,” Cannon said.

The nonpartisan Congressional Budget Office estimates federal Medicaid spending will be reduced by about $1 trillion over the next decade.

“These dollar amounts translate to actual people,” said Fredric Blavin, a senior fellow and researcher at the Urban Institute, a Washington D.C.-based think tank that focuses on social and economic research.

Most states expanded their Medicaid programs to cover more low-income adults under the Affordable Care Act. That has lowered medical debt, improved health, and even reduced death rates, Blavin said.

By 2034, about 11.8 million people are expected to lose their health insurance from this bill, said Alice Burns, an associate director for KFF’s Program on Medicaid and the Uninsured. And she said the Medicaid rollback may have an outsize impact on rural areas.

In rural areas, federal Medicaid spending is expected to decline by $155 billion over 10 years, according to an analysis by KFF, a health information nonprofit that includes KFF Health News.

If the goal of the rural program was to transform rural health care, as its name suggests, it will fall short, Burns said. The $50 billion rural program distributed over five years won’t offset the losses expected over a decade of Medicaid reductions, she said.

In Kansas, Holton Community Hospital Chief Executive Carrie Lutz said she doesn’t “feel that the sky is falling right now.”

Lutz, whose 14-bed hospital is on the northern plains of the state, said she is bracing for the potential loss of Medicaid-covered patients and limits to provider taxes, which nearly all states use to get extra federal Medicaid money.

The reduction in provider taxes has been delayed until fiscal year 2028, Lutz said, but she still wants her state’s leaders to apply for a portion of the rural program funding, which is expected to be distributed sooner.

“Every little penny helps when you’ve got very negative margins to begin with,” Lutz said.

The program’s $50 billion will be spread over five years and may not be limited to bolstering rural areas or their hospitals. Half of the money will be distributed “equally” among states that apply to and win approval from the Centers for Medicare & Medicaid Services. The law’s current language “raises the possibility” that a small state like Vermont could receive the same amount as a large state like Texas, Burns said.

States are required to submit a “detailed rural health transformation plan” by the end of this year, according to the law.

The law says states should use the funds to pursue goals including improving access to hospitals and other providers, improving health outcomes, enhancing economic opportunity for health care workers, and prioritizing the use of emerging technologies.

Mehmet Oz, a Trump appointee leading Medicare and Medicaid, will determine how to distribute the other half, or $25 billion, using a formula based on states’ rural population and need. The law says the money is to be used for such things as increasing use of robotics, upgrading cybersecurity, and helping rural communities “to right size their health care delivery systems.”

Spokespeople for CMS did not respond to a list of questions.

Kyle Zebley, senior vice president of public policy at the American Telemedicine Association, said there is “a pretty significant degree of discretion” for the White House and the Medicare and Medicaid administrator in approving state plans.

“We will urge states to include robust telehealth and virtual care options within their proposals going up to the federal government,” Zebley said.

Alexa McKinley Abel, government affairs and policy director for the National Rural Health Association, said that while the law calls for states to create and submit plans, it’s unclear what state agencies will perform the task, McKinley Abel said.

“There are a lot of gaps around application and implementation,” she said, noting that an earlier version of the bill called for state plans to be developed in consultation with federally funded state offices of rural health.

But those offices are proposed to be eliminated in Trump’s federal budget, which will face congressional approval in the fall. McKinley Abel said her organization supports state offices of rural health helping develop the plans and working with states to disburse the money, “since they intimately know the rural health community.”

Hohman, with the rural health clinic association, said she is not sure money from the transformation program will even reach her members. About 27% of the patients treated at rural health clinics are enrolled in Medicaid, she said.

“There’s just some confusion about who actually gets this money at the end of the day,” Hohman said. “What is it actually going to be used for?”

KFF Health News senior correspondent Phil Galewitz contributed to this report.