Iowa seeks $1 billion from new federal rural health fund amid Medicaid cuts

Iowa is seeking up to $1 billion in federal funding to bolster rural hospitals and clinics through a new program created under the sweeping Republican tax-and-spending law passed earlier this year — a law that also slashed billions from Medicaid and other federal health programs.

Gov. Kim Reynolds announced Wednesday that the state has submitted its application to the Centers for Medicare and Medicaid Services for the Rural Health Transformation Program, a $50 billion initiative created under what supporters dubbed the One Big Beautiful Bill Act.

If approved, Iowa could receive as much as $200 million annually for five years to implement its proposal, “Healthy Hometowns.”

“Since taking office, my administration has emphasized the importance of supporting and revitalizing rural Iowa through targeted investments and policy initiatives,” Reynolds said in a statement. “Rural communities are the backbone of our state — home to nearly half of all Iowans and the foundation of our economy, culture and identity. Healthy Hometowns is a pivotal opportunity to build a high-quality, sustainable system of care that vastly improves health, well-being and quality of life for rural Iowans.”

A new federal fund amid deep cuts

The Rural Health Transformation Program was included in Section 71401 of the One Big Beautiful Bill Act — the Republican-backed tax-cut-and-spending law enacted this summer.

The legislation reduced long-term federal Medicaid spending, while establishing a five-year, $50 billion fund meant to help states offset the impact of those cuts on rural hospitals. Half of the funding will be divided equally among approved states, with the remainder distributed based on rural population, hospital infrastructure and other factors.

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Health-policy experts and rural advocates have criticized the plan as insufficient to make up for the deep Medicaid reductions expected to hit rural providers. Democrats, who opposed the law, say they pushed unsuccessfully to restore more stable funding and undo the health care cuts.

How states can use the funds

Under federal rules, states must use Rural Health Transformation funds for at least three of a dozen approved purposes.

Those include promoting evidence-based prevention and chronic disease management; providing payments to health care providers; and supporting consumer-facing, technology-driven solutions such as telehealth and remote monitoring.

States may also invest in workforce recruitment and retention programs requiring a minimum five-year service commitment in rural areas; expand the use of artificial intelligence, robotics and cybersecurity technology in hospitals; and strengthen opioid, substance use disorder and mental health treatment services.

Other approved uses include modernizing health information systems, offering training and technical assistance, and testing innovative care models such as value-based and alternative payment arrangements — all aimed at ensuring sustainable access to high-quality health care in rural communities.

Iowa’s ‘Healthy Hometowns’ proposal

Reynolds’ proposal outlines a comprehensive strategy to strengthen rural health systems through a “hub-and-spoke” model of care developed in collaboration with hospitals, community partners and the Iowa Department of Health and Human Services.

Iowa has launched several initiatives in recent years to strengthen rural health care, including a network of Centers of Excellence (COEs) to expand access to specialized care in underserved regions. Hospitals such as Cass Health, Mahaska Health and Van Buren County Hospital have received state grants to build regional partnerships. They serve as coordinated systems that provide primary care locally with regional hubs that offer specialty services to surrounding counties, such as maternal health and behavioral health, by bringing specialists to rural areas or creating regional partnerships.

“Iowa’s application reflects years of thoughtful planning and collaboration,” Iowa HHS Director Larry Johnson said in a statement. “It’s a plan rooted in the values of hard work, innovation, and community. Iowans deserve a health care system designed for them — and with Healthy Hometowns, we’re delivering just that.”

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The proposal centers on six initiatives:

Within five years, the state projects fewer preventable emergency visits, higher local-care rates, increased provider-to-population ratios, and broader telehealth coverage across rural Iowa.

CMS is expected to announce state awards on Dec. 31, with funding set to begin in fiscal 2026.

Hospital leaders warn funds won’t backfill cuts

Rural-health groups welcomed the opportunity but warned that even full participation will not shield Iowa’s critical access hospitals from the ripple effects of Medicaid reductions.

Iowa hospital leaders warn the fund won’t backfill those cuts.

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“None of this funding can be used to replace the cuts that were put into effect,” Chris Mitchell, president and CEO of the Iowa Hospital Association, said during an Oct. 3 Iowa Ideas conference panel discussion hosted by The Gazette.

“The name rural health transformation fund, if you've listened to (U.S. Health and Human Services) Secretary (Robert F.) Kennedy (Jr.) it's really to do two things from their perspective: To transform how rural health care is delivered and also to continue to push forward the Make America Healthy Again agenda, and that to me is distinctly different from mitigating the cuts that we're facing.”

Even with a strong award, he noted, the state faces major losses as Medicaid changes are phased in over the next three years — including $750 million worth of cuts to Iowa from changes to state-directed payments, a Medicaid funding mechanism that allows states to direct how managed care organizations (MCOs) pay providers, often to address specific state health priorities and close gaps in Medicaid payment rates.

The law is projected to reduce future Medicaid spending by $941 billion over 10 years and increase the number of uninsured people by 10 million, according to the nonpartisan Congressional Budget Office.

Of that total, Medicaid spending in rural areas will decrease by $137 billion over 10 years, according to the nonprofit health care advocacy organization KFF.

The projected 10-year impact on Iowans, according to the American Hospital Association: 37,700 rural Iowans will lose Medicaid coverage and rural hospitals will see $2.7 billion less in Medicaid funding.

Health-policy analysts note that while the Rural Health Transformation Program offers up to $10 billion nationally each year, that pool must be divided among all participating states, meaning even the most successful applicants will recoup only a fraction of what Medicaid cuts may cost.

Washington County Hospital and Clinics CFO Shelley Cleverly said any new dollars should be aimed at keeping access intact and modernizing how care is delivered. The fund, she said, “really should be prioritized to ensure that patient care remains intact and that care can still be delivered” and to “increase efficiency and reduce overhead,” including targeted investments in telemedicine and AI.

The broader picture

Iowa’s application underscores how deeply rural states are trying to adapt to shifting federal health care policy. Nearly every Iowa county with below-average health-insurance coverage is rural, and rural Iowans drive an average of 30 minutes to the nearest hospital and 24 minutes to a primary-care provider, according to HHS data.

Reynolds’ office said Healthy Hometowns is intended to build a “sustainable system of care,” but Democrats in Congress continue to push for legislation to reverse the underlying Medicaid cuts that prompted the creation of the fund in the first place.

More information about Iowa’s proposal is available through the governor’s office and the Iowa HHS website.

Erin Murphy of The Gazette contributed to this report.

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