by Mindy Klowden, Managing Director; Andy Wilson, Managing Director; Elveena Fareedi, Manager; and Topher Rasmussen, Manager
The Rural Health Transformation Program (RHTP) represents one of the largest federal investments ever aimed at strengthening rural health care. The program allocates $50 billion over five years (FY 2026–2030) to help states transform care delivery in rural communities. States submitted their required one-time applications and transformation plans by November 5, 2025, with funding slated to begin in 2026. The Centers for Medicare & Medicaid Services (CMS) has until December 31 to approve individual state plans, which means negotiations may be ongoing with states at this time.
While substantive, the RHTP does not replace the extensive Medicaid reductions expected under H.R. 1. According to the Kaiser Family Foundation (KFF), rural Medicaid spending is projected to decline by $137 billion over ten years – nearly three times the total RHTP allocation. This mismatch suggests that the RHTP, while meaningful, will not fully address long-term financial losses for rural communities.
Why Rural Health Care Needs Transformation
Rural health systems face longstanding structural challenges that necessitate transformation.
Rural hospitals are financially vulnerable. In 2025, Chartis reported that 46 percent of rural hospitals nationwide have a negative operating margin and 432 rural hospitals are “vulnerable to closure.” This is due primarily to high fixed costs and low patient volume. Fee-for-service payment models disadvantage rural providers who serve small populations but must maintain high-cost services.
Health outcomes are worse in rural communities. The Rural Health Information Hub notes that rural residents experience higher mortality rates and lower life expectancy than urban populations, driven by chronic disease, injuries, and limited access to specialty care.
Behavioral health needs are especially acute. Suicide remains more common in rural America than in urban America. according to the Centers for Disease Control and Prevention (CDC), suicide rates nearly doubled between 2000 and 2020.. Behavioral health conditions frequently co-occur with chronic illnesses, complicating disease management and worsening outcomes.
Workforce shortages deepen disparities. Data from the Health Resources Services Administration (HRSA) show that the percentages of health professional shortage areas designated as rural for primary care, dental, and mental health,were 66.32 percent, 66.75percent , and 61.87 percent, respectively.
These challenges underscore why transformational funding is needed – and why temporary funds alone cannot offset H.R. 1’s long-term cuts.
What RHTP Funds Can Support — The Five CMS Allowable Uses
CMS specifies that states must design transformation plans using one or more of the five allowable use categories:
- Make rural America healthy again — States may fund evidence-based, measurable interventions to improve disease prevention, chronic disease management, behavioral health, and prenatal care.
- Sustainable access — Funds may support activities that help rural providers maintain long-term access to core services – including primary care, emergency services, and specialty care – through improved efficiency, coordination, and system restructuring.
- Workforce development — RHTP may strengthen efforts to recruit and retain a high-skilled rural workforce, including physicians, nurses, behavioral health providers, community health workers, pharmacists, and care coordinators.
- Innovative care — States may implement new and flexible care delivery arrangements, including value-based care and alternative payment models better suited to rural realities.
- Technology innovation — Funds may support technology-driven solutions, such as telehealth, data-sharing, cybersecurity upgrades, remote monitoring, and other advanced tools that improve access and care efficiency.
Together, these categories reflect CMS’s intent for the RHTP to advance long-term transformation – not simply fill short-term funding gaps. The harder question is how states translate these categories into delivery systems that actually work differently. Increasingly, the answer involves moving from isolated facilities toward integrated regional networks.
From Isolation to Integration: The Hub-and-Spoke Imperative
For decades, rural health care systems have been expected to meet complex community needs while operating with significantly fewer resources and in a fragmented system. The resulting fragmentation was not a consequence of poor coordination or lack of will; it was the foreseeable outcome of chronic underinvestment, structural barriers, and policies that failed to account for the realities of geographically dispersed care. Chronic underinvestment deprived rural systems of the technology, workforce, and financial resources required for integration, leaving them little choice but to operate within their own four walls.
RHTP represents a significant shift in federal recognition of these systemic challenges. While the program does not prescribe a specific organizational model, many states are turning to a hub-and-spoke approach because it offers a practical, scalable way to achieve RHTP’s goals of integration, expanded access, and more sustainable care delivery. Rather than functioning in isolation, rural hospitals and their community partners are using RHTP funds to formalize long-needed coordination, supported by investments in data-sharing technology, care-coordination staffing, interoperable health information systems, and the agreements required to sustain collaboration across historically siloed organizations.
California provides a clear example of how states are operationalizing this structure. Its RHTP proposal establishes regional hospital-led networks that link rural hospitals with local clinics, birthing centers, behavioral health agencies, EMS partners, and telehealth providers. The state plans to standardize referral and transfer protocols, expand e-Consults for specialty access, deploy remote monitoring tools across spoke sites, and build shared data dashboards to support population health management. These concrete steps illustrate how this model creates an infrastructure that rural communities have long lacked and enables coordinated, whole-person care aligned with RHTP’s value-based objectives.
This integrated approach is critical for rural participation in value-based care. Managing total cost of care requires insight into services delivered across the continuum – most of which occur outside the hospital. Historically, rural providers lacked the data, staffing, and coordination infrastructure to influence these drivers. RHTP’s dedicated funding enables rural systems to bridge these gaps by aligning care across settings, reducing avoidable hospital use, and strengthening preventive and community-based services. It also creates a durable pathway for integrating behavioral health and substance use treatment, areas long fragmented by limited reimbursement, workforce shortages, and persistent stigma.
Building this infrastructure is not an end in itself. The ultimate test is whether rural systems can sustain these improvements financially – which brings us to alternative payment models.
Putting Alternative Payment Models (APMs) in the Context of Rural Health Transformation
Given the structural challenges – low volume, high fixed costs, workforce shortages, and population health needs – that rural providers face, integrating alternative payment models (APMs) that incentivize quality and population health, rather than solely focusing on the number of visits or procedures, into RHTP plans is essential. But while the RHTP puts investments in workforce, technology, and redesign on equal footing with APMs, successful participation in APMs truly comes from effectively executing on developing a more robust and sustainable model of care delivery. Therefore, successful RHTP plans will be those that carefully and strategically consider how their investments lay the groundwork for rural hospitals and clinics to become long-term APM participants.
Because of the precarious financial positions of rural providers and their critical importance to their communities, the first principle for any APM should be to first do no harm. This means that common design elements found in many current APMs – imposing downside risk, basing financial benchmarks on historical spending patterns – do not work in rural contexts and will only worsen providers’ financial situations. State Medicaid agencies and others implementing APM programs must view these as mechanisms to support the long-term growth and success of rural providers. That will mean designing APMs to give providers a smooth glidepath toward full participation and building in sufficient flexibility to allow for adaptation and changes over time based on provider experiences.
One area where this flexibility matters most – and where RHTP investments and APM design must work in concert – is behavioral health.
Behavioral Health Must Be Central, Not Peripheral
The RHTP names addressing behavioral health as a priority, specifically around investing in opportunities to expand access to treatment for substance use disorders and mental health treatment. Given that behavioral health is embedded directly within the “Make Rural America Healthy Again” allowable use category, states should treat it as a foundational component of their RHTP strategies. Integrated behavioral-medical care, tele-behavioral health, and expansion of the rural behavioral health workforce can yield meaningful and measurable improvements.
What Critics Say — Scale, Duration, and Transparency Problems
The preceding sections outline what RHTP could accomplish if implemented well. But a growing chorus of critics argues the program may be structurally unable to deliver on its promise – regardless of how thoughtfully states design their plans. Experts point to several issues:
- Insufficient scale: KFF’s analysis shows RHTP funding is far smaller than projected Medicaid losses under H.R. 1.
- Temporary timeframe: Medicaid cuts occur over 10 years, while RHTP lasts just five.
- Limited transparency: A KFF Health News investigation found many states refused to release their RHTP applications and budget plans, despite federal promises of “radical transparency.” This has raised concerns among rural hospitals, clinics, and advocacy groups about how funds will be distributed.
These critiques are serious and worth heeding. But they also clarify the stakes: RHTP’s success depends entirely on whether states use these five years to build structures that outlast the funding itself. That work starts now.
Moving From Vision to Execution: The Real Work Ahead
The RHTP creates an unprecedented opportunity, but also a demanding timeline. Once federal awards are announced, states will have a few months to distribute funds, with most providers having limited time to draft proposals, build partnerships, and prepare for execution. Many organizations will need support across the full lifecycle of this work, starting from strategy development and data-infrastructure buildout to care model implementation and evaluation.
Providers will need support across two key phases: the planning phase, where they must define how funds will be used and what outcomes they will deliver, and the execution phase, where new care models, technology, and partnerships must be put into practice and evaluated. Since RHTP spans multiple years, success will hinge on continuous improvement backed by strong data and rigorous performance tracking.
Third Horizon bridges strategy and execution – crafting feasible, high-impact plans and guiding implementation to achieve meaningful, measurable outcomes. Across multiple states and care settings, the firms has designed and implemented value-based payment models and supported organizations through the hard middle phase—where strategy meets operational reality. For providers navigating RHTP’s compressed timelines and multi-year demands, that experience equips the firm to provide the strategic guidance, operational support, and evaluation capabilities that organizations will need to navigate RHTP’s accelerated timelines and multi-year expectations.
With thoughtful planning and expert guidance, rural communities can utilize RHTP dollars to enhance access, improve outcomes, and foster long-term resilience—even while the program cannot fully offset Medicaid losses associated with H.R. 1.