What does the Rural Health Transformation Program pay for, and how does a rural hospital get some?

On Sept. 28, Colorado's Medicaid agency said it would send $169.6 million from the federal Rural Health Transformation Program to 91 applicants, for about 250 projects in 55 counties. Every state must commit its first year's money by Oct. 30, and the Centers for Medicare & Medicaid Services (CMS), which runs the program, has said it will not extend that deadline.

Where the money goes

Congress created the program in the budget law signed July 4, 2025: $10 billion a year for fiscal years 2026 through 2030, for the 50 states only. Half of each year's money is split equally. CMS allocates the other half by a score. Rural factors such as population, uncompensated care and land area make up half of it, calculated once; the state's plans and its commitments to change state policy make up the rest, recalculated every year. First-year awards ran from $147.3 million for New Jersey to $281.3 million for Texas; Colorado received $200.1 million.

The law lists 10 uses, from chronic disease prevention to recruiting clinicians, and requires each state to fund at least three. Artificial intelligence appears once, in a use that pays for "training and technical assistance" to help rural hospitals adopt technology, "including remote monitoring, robotics, artificial intelligence, and other advanced technologies." Software and hardware fall under a separate use, for information technology and cybersecurity. Some states fund AI by name. Mississippi's first round included $537,094 for Hattiesburg Clinic "to deploy ambient AI documentation to approximately 500 providers across its multispecialty network," and Colorado's program says "AI-enabled tools, subscription platforms, and other technology solutions are allowable when they directly support approved project activities."

What it will not pay for

CMS added limits the law does not contain. Payments to providers may not exceed 15% of a state's award in a budget period, are meant for services that insurance does not already pay for, and cannot raise payment rates for billable care. Spending on existing buildings and equipment is capped at 20%, new construction is not allowed, and no more than 5% may go to replacing an electronic health record when a certified one was in place on Sept. 1, 2025. The money also cannot replace existing state, local or private funding, such as staff salaries, and Colorado adds that its grants "cannot pay for billable telehealth services."

How a hospital gets money

Hospitals get the money from their state, as grants, contracts or program payments, and CMS leaves the process to each state. The rounds differ. Colorado's was a $160 million request for applications, open from June 23 to Aug. 3. Mississippi's technology notice expected general awards of $200,000 to $400,000 and pays subrecipients "on a reimbursement basis."

A hospital that wins usually becomes a subrecipient of a federal grant, and duties follow the money. It needs a Unique Entity Identifier. Colorado also requires an active SAM.gov registration and warns that grantees "may be subject to applicable federal requirements under 2 CFR Part 200," the federal grant rules, under which the state must monitor each subrecipient and verify that it is audited when required.

Colorado, worked through

Colorado's program is run by the Department of Health Care Policy and Financing, the state's Medicaid agency. Its plan has 10 initiatives; the 10th, "Expand Rural Telehealth & Technology Integration," covers eConsults, remote patient monitoring and a "statewide technology readiness assessment." Lead applicants had to be Medicaid-enrolled providers in rural or frontier counties, or a third party applying for one. Eligible providers ranged from critical access hospitals to rural health clinics and emergency medical services, and partners could include "technology vendors or consultants."

The department received 112 eligible applications seeking more than $250 million and funded 91. The funded areas include telehealth, tele-ICU and remote patient monitoring, and "EHR modernization and digital health tools." Neither the department's announcement nor CMS's mentions artificial intelligence, and the list of awardees it promised on its program page had not been posted when checked on Sept. 28. For a hospital that did not apply, the program's FAQs say "the current expectation is that participation requires applying to the RFA issued in June 2026."

What can go wrong

The money can be taken back. The law lets CMS withhold, reduce or recover payments when a state does not use them as its application described, and it bars administrative or judicial review of those decisions. "We will take the money back" if states "don't abide by what they wrote, if they don't do a good job," CMS Administrator Dr. Mehmet Oz said at an event in Washington in June, KFF Health News reported. Hospitals carry risk too: when a provider that took workforce money does not complete its five-year service commitment, CMS "may seek to recoup 100% of the funds awarded to the provider," its FAQs say, unless there are extenuating circumstances.

Some projects could run into Medicare's payment rules. Twenty-two states have announced about $240 million for remote patient monitoring, according to an analysis by the Alliance for Connected Care reported by Fierce Healthcare, while CMS has proposed that from 2027 Medicare pay for remote monitoring only when clinical staff employed by the practice furnish it. As of Sept. 28 the proposal was not final. And some hospital leaders doubt the program meets their needs. "It's hard to think about transformation when you're thinking about survival," Randy Clark of Northern Light Health said, according to STAT.

What to do now

1. Find the state's program. The Rural Health Information Hub lists every state's program page and lead agency, and each state's office of rural health can point to the right contact.

2. Learn where the state stands. Whether a round is open, closed or expected, and when next year's money arrives. CMS sets each state's fiscal 2027 amount by Oct. 31.

3. Get the federal identifiers. A Unique Entity Identifier at minimum, and a SAM.gov registration where the state requires one.

4. Tie the project to the plan. CMS does not let states add or swap initiatives, so a technology project, AI included, has to serve one the state already has.

5. Budget inside the rules, and keep grant files from the first day. No services insurers already pay for, no new construction, and invoices, time records and outcomes kept from the start: the state must monitor its subrecipients, and CMS can recover money.