Megabill: The problematic Rural Health Transformation Fund
In the 11th hour during the protracted debate over the Megabill, a Rural Health Fund was added to counteract projected cuts to hospitals. How it is desgined is quite problematic
July 6, 2025 — In the 11th hour of the debate on H.R.1, the big bill, the Congress added a Rural Health Transformation Program, to counteract big negative impacts on rural hospitals in particular of the large cuts to health programs (primarily Medicaid), estimated to amount to more than $1 trillion over ten years.
Last minute changes to the RURAL HEALTH TRANSFORMATION PROGRAM were made to increase the Fund from $12.5 billion to $50 billion (section 71401). That apparently was enough to persuade some of the lawmakers to vote yes.
How the law proposes to allocate money from the Program is problematic. Much more can be said about this, such as that the funds are allocated mostly to hospitals and not other providers who will be impacted, that the allocation of funds depends on whether the states will apply for them, and how they design their application, and how HHS will interpret and implement the legislation.
But let’s start with one aspect of the legislation that seems quite problematic. See the attached spreadsheet which I got from a link to a post by the NRHA, with a state-by-state breakdowns (see table below). Note that the original table is presented on their website, but I adjusted the table for the doubling of the Fund to $50 billion at the very last minute to garner the votes of some lawmakers.
Important takeaway: the Fund only partially covers the projected losses to health spending from the Medicaid cuts (and they admit it’s only a partial accounting), 87% of the losses to rural hospitals overall across the U.S.
But even that makes presumptions and assumptions about what will happen
But the main thing I wanted to point out is real problem in how the funds are allocated.
The Fund distributes *EQUALLY* across all states who apply 50% of the funds “50 percent of the amounts appropriated for each such fiscal year equally among all States with an approved application under this subsection” (p.677);
This seems problematic since it is not apportioned based on any factor such as the number of people in those hospitals in rural areas or any other logical criterion;
It will mean that some states will get a disproportionate allocation, in fact even greater than the amount of cuts they face.
The attached spreadsheet (pasted below) shows the problem.
For example in WY, the cuts are estimated to be $45 million, but they amount allocated is $654 million, so the fund will cover 1,453% of the cuts, yes 14.5 times the size of the cuts.
26 states will be allocated MORE than the cuts.
Other states will be allocated only a small portion of the cuts. For example, the cuts for rural hospitals in Kentucky are $5.4 billion, but they are allocated just $1.9 billion, so it covers just 36% of the cuts
To cite another example, Alaska will received funds that cover 223% of the cuts ($734 million in funds compared to $329 million in cuts). No wonder that Senator voted yes.
And another, Missouri will receive just 72% of the cut, so it amounts to a 28% cut in funds for hospitals.
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