WASHINGTON, September 22 — The Rural Health Transformation Program, a $50 billion fund created to soften the blow of federal health care cuts in rural America, is now in its first year of operation, and a new analysis from KFF lays out just how much is riding on how quickly states can move. The program traces back to July 4, 2025, when President Donald Trump signed a budget reconciliation bill — once known as the “One Big Beautiful Bill” — into law.
The legislation contained significant reductions in federal health care spending alongside large tax cuts. Shortly after enactment, KFF analysis projected the law would reduce federal Medicaid spending by $911 billion over ten years, including an estimated $137 billion in rural areas.
A political compromise, and a broad mandate
The rural health fund was added to the reconciliation law as a political compromise just before passage, emerging during Senate negotiations in response to concerns about how the spending cuts would land on rural hospitals. It was not, however, written to serve hospitals alone. The law specifies that the Centers for Medicare & Medicaid Services will oversee the program, granting the agency substantial leeway to decide how funding is distributed across states, to expand the permitted uses of the money, and to set the terms and conditions.
CMS is running the program through a new body, the Office of Rural Health Transformation. Under the fund, the agency will award $10 billion in grants to approved states each year from fiscal years 2026 to 2030 — a five-year period, for a total of $50 billion.
States may spend funds they receive at a given point through the end of the following fiscal year, and CMS will redistribute unused funds over time. All funds must be spent by the end of fiscal year 2032. States administer their own programs, subject to terms agreed with CMS.
But the money flows through a mechanism known as a “cooperative agreement,” which, according to the source material, “require[s] substantial CMS project involvement after an award is made.” That involvement comes with strings. CMS may withhold, reduce, eliminate, or recover funding over time if it determines a state is not in compliance with program rules, has not made “satisfactory progress,” or that funding is no longer “in the government’s best interest.” The law indicates there will be no administrative or judicial review of those and other CMS funding decisions.
A fast clock for states
The timeline has been brisk from the start. CMS issued a Notice of Funding Opportunity in September 2025 with guidance on how to apply, leaving states less than two months to prepare their applications. Those applications matter well beyond the first year — they affect the scope of activities states can engage in and the amount of funding they receive for the life of the program.
CMS announced first-year awards in December 2025. From there, states were given less than a year to finalize their plans through discussions with CMS, build their own application process for entities within the state to receive funding, process those applications, obligate funding, and submit their first annual progress reports — reports that will affect second-year awards.
States likely differ in their capacity to manage procurement processes, and they have varied widely in how quickly they have distributed funds during the first year. The KFF brief, authored by Zachary Levinson and Scott Hulver, was originally published on July 16, 2025, and updated over time to include new information and data about the program. The version cited here was published September 18, 2026.
What to watch next: how quickly states obligate their first-year dollars, and whether early progress reports shape the second round of awards. Consult your doctor for medical advice.
