Rural Health Fund Insufficient to Offset Projected Medicaid Reductions

Rural Health Funding Dispute: Kennedy’s Claims vs. Medicaid Cut Realities

Health and Human Services Secretary Robert F. Kennedy Jr. has been promoting a $50 billion rural health fund as a transformative investment for struggling rural hospitals, but healthcare experts warn his claims overlook larger Medicaid cuts that could disproportionately impact those same communities.

“Under the rural transformation program, we give them an extra $10 billion a year. So, we’re raising an infusion of cash of rural hospitals and rural communities by 50%,” Kennedy stated at an August 26 Cabinet meeting. “It’s going to be the biggest infusion in history and it’s going to restore and revitalize these communities.”

Dr. Mehmet Oz, administrator of the Centers for Medicare & Medicaid Services, has echoed these claims in recent public statements, including at a September 16 Senate Republican press conference.

However, independent analyses paint a different picture of the One Big Beautiful Bill Act’s (OBBBA) overall impact on rural healthcare. The Kaiser Family Foundation (KFF) estimates the legislation will reduce federal Medicaid spending in rural areas by approximately $137 billion over ten years – far exceeding the $50 billion allocated to the Rural Health Transformation Program.

A separate analysis by Manatt, conducted for the National Rural Health Association, projects a slightly lower but still substantial reduction of $58 billion in federal Medicaid funds to rural hospitals over a decade.

Healthcare policy experts have raised several concerns about the administration’s claims. Zachary Levinson, project director at KFF, notes significant uncertainty about the fund’s distribution: “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.”

Leonardo Cuello from Georgetown University’s Center for Children and Families described the funding as merely “a short-term patch” against Medicaid reductions that “go on forever.”

The timing and application process for the program adds another layer of complexity. On September 15, CMS announced details on how states could apply for the funds, with a November 5 deadline and decisions expected by December 31.

The debate highlights the precarious position of many rural healthcare facilities. An August report from the Center for Healthcare Quality & Payment Reform found approximately one-third of rural hospitals in the United States “are at risk of closing because of serious financial problems,” with 14% (322 facilities) facing “immediate risk of closing.”

The impact of the OBBBA on rural healthcare extends beyond direct funding reductions. The legislation implements new Medicaid work requirements and prohibits states from increasing provider taxes that help cover uncompensated care. It also places limits on state-directed payments that can ensure adequate reimbursement rates for healthcare providers.

According to KFF’s analysis, states with larger rural populations will bear the brunt of Medicaid funding reductions. “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,” the organization noted. Kentucky is projected to be the hardest hit, facing nearly $11 billion in decreased rural Medicaid funding over a decade.

The distribution mechanism for the $50 billion fund has also drawn scrutiny. Half the amount will be divided equally among states with approved applications, regardless of rural population size or healthcare needs. This means Connecticut, with just three rural hospitals, could receive the same allocation as Kansas, which has 90 such facilities.

The remaining funds will be distributed based on factors including rural population percentage, number of rural healthcare facilities, and hospitals serving low-income patients. However, CMS has acknowledged there are “no specific restrictions” requiring funds to go to providers located in rural areas.

When asked how the program would ensure money reaches rural hospitals specifically, an HHS spokesperson stated: “This initiative provides states with flexible funding to strengthen rural healthcare and ensure its long-term sustainability. Secretary Kennedy and Administrator Oz look forward to working with Congress on solutions to continue supporting rural hospitals.”

As the November application deadline approaches, rural healthcare advocates remain concerned that even with the new funding program, many facilities may still face unsustainable financial pressures under the law’s broader Medicaid changes.