Memo pushes back on bill's impact to rural hospitals
The administration notes that Medicaid has historically invested very little in rural hospitals. According to figures from the Centers for Medicare and Medicaid Services (CMS), Medicaid spent just $19 billion on rural hospitals in 2024. The rural health fund will provide an additional $10 billion each year from 2026 through 2030. But it ends after 2030, with no phaseout period.
The memo argues the fund is a 'flexible' source of investment because it's not tied directly to reimbursement for services.
Indeed, as experts have noted, the fund will not make direct payments to rural hospitals. Instead, the money will go to states, which will need to first file detailed 'rural health transformation plans' and get approval from CMS Administrator Mehmet Oz.
The law gives Oz broad discretion on what he can approve, and there is no specific requirement for states to direct funds to rural hospitals or CMS to approve only funding for rural districts.
States also need to make funding decisions quickly, as the federal government can claw back unobligated money before the program ends.
The new law cuts about $1 trillion from Medicaid, primarily through stringent work requirements as well as reductions to how states can fund their Medicaid programs through provider taxes and state-directed payments.
Rural hospitals rely heavily on Medicaid funding because many of the patients they care for are low income. But the administration noted that rural hospitals only account for 7 percent of overall Medicaid spending.
According to a KFF analysis, federal Medicaid spending in rural areas is estimated to decline by $155 billion over a decade because of the law.
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