Public Law 119‑21 (also known as the One Big Beautiful Bill Act) created a $50 billion Rural Health Transformation (RHT) Program to strengthen healthcare across the rural United States. The $50 billion fund will be allocated to approved states, with 50% of the funding to be distributed equally across all states that have approved applications. The other 50% will be distributed by the Centers for Medicare & Medicaid Services (CMS) based on a variety of factors. To access the RHT Program funds, states must submit a one-time application to CMS. On September 15, 2025, CMS released a notice of funding opportunity (NOFO) with application details. Applications are due by November 5, 2025, with awards to be decided by December 31, 2025.

While only states are eligible to apply, many states are soliciting feedback and comments from stakeholders on how RHT Program funds should be used. Interested stakeholders should provide input to the agency that is responsible for the application in their state.

Background

As part of Public Law 119‑21, US Congress established the $50 billion RHT Program to help rural communities reimagine their healthcare delivery systems and improve health outcomes.

The RHT Program seeks to advance five strategic goals outlined in Public Law 119‑21:

Although the goal of the RHT Program is to effectuate impact on rural communities, per CMS FAQs, the NOFO does not include specific restrictions on which provider organizations may be eligible to receive funding. Some stakeholders have expressed concerns that the funds may go to providers that are not located in rural areas or that only nominally serve rural communicates.

Funding

Funding allocation

The RHT Program provides $50 billion in funding to be allocated to approved states:

• CMS will distribute 50% of the funding ($25 billion) equally among all approved states. This suggests approved states will receive the same amount from this pool regardless of the size of their rural population, the number of rural health facilities in the state, or other factors. CMS refers to this funding in the NOFO as “baseline funding.”
• CMS will allocate 50% of the funding ($25 billion) based on a variety of factors, including the content and quality of the state’s application and rural factors. In the NOFO, CMS refers to this funding as “workload funding.” CMS developed a point scoring methodology for workload funding in the NOFO that includes data driven metrics (based on rural facility and population factors), initiative-driven metrics (based on programmatic initiatives outlined in the state’s application and subsequent follow-through), and state policy metrics. CMS will recalculate each approved state’s technical score and corresponding workload funding amount for each subsequent budget period based on the information and data the approved state provides in the required annual reporting each year. A state’s rural facility and population score will only be calculated once as part of the application process.

The funding will be allocated over five fiscal years, with $10 billion of funding available each fiscal year, beginning in fiscal year 2026 and ending in fiscal year 2030.

Funding eligibility

Only the 50 US states are eligible to receive an RHT Program award. The District of Columbia and US Territories are not eligible. Local governments, hospitals, universities, nonprofits, federally recognized Tribes, and individuals may not apply.

Use of funds

States must use RHT Program funds for three or more of the approved uses:

• Prevention and chronic disease: Promoting evidence-based, measurable interventions to improve prevention and chronic disease management.
• Provider payments: Providing payments to healthcare providers for the provision of healthcare items or services, subject to the restrictions described in the NOFO.
• Consumer technology solutions: Promoting consumer-facing, technology-driven solutions for the prevention and management of chronic diseases.
• Training and technological assistance: Providing training and technical assistance for the development and adoption of technology-enabled solutions that improve care delivery in rural hospitals, including remote monitoring, robotics, artificial intelligence, and other advanced technologies.
• Workforce: Recruiting and retaining clinical workforce talent to rural areas, with commitments to serve rural communities for a minimum of five years.
• IT advances: Providing technical assistance, software, and hardware for significant information technology advances designed to improve efficiency, enhance cybersecurity capability development, and improve patient health outcomes.
• Appropriate care availability: Assisting rural communities to right size their healthcare delivery systems by identifying needed preventative, ambulatory, pre-hospital, emergency, acute inpatient care, outpatient care, and post-acute care service lines.
• Behavioral health: Supporting access to opioid use disorder treatment services (as defined in Social Security Act § 1861(jjj)(1)), other substance use disorder treatment services, and mental health services.
• Innovative care: Developing projects that support innovative models of care that include value-based care arrangements and alternative payment models, as appropriate.
• Additional uses: Uses designed to promote sustainable access to high-quality rural healthcare services, as determined by the CMS administrator, including:
  • Capital expenditures and infrastructure: Investing in existing rural healthcare facility buildings and infrastructure, including minor building alterations or renovations and equipment upgrades to ensure long-term overhead and upkeep costs are commensurate with patient volume, subject to restrictions in the NOFO.
  • Fostering collaboration: Initiating, fostering, and strengthening local and regional strategic partnerships between rural facilities and other healthcare providers to promote quality improvement, improve financial stability of rural facilities, and expand access to care.

Prohibited uses of funding

The NOFO outlines unallowable costs, including the following:

• Funding cannot be used for new construction. This prohibition includes supplanting funding for in-process or planned construction projects or directing funding toward new construction builds. Renovations or alterations are allowed if they are clearly linked to program goals in, and in accordance with, the requirements and limitations set forth in the NOFO. Capital expenditures and infrastructure funding cannot exceed 20% of the total funding that CMS awards to a state in a given budget period.
• Funding cannot be used to replace payment for clinical services that could be reimbursed by insurance or another form of health coverage. CMS will not approve proposed initiatives that would pay for clinical services where payment for the services is available from another source of coverage, including where the initiative would increase the payment amount available from the other source of coverage. If a state plans to fund direct healthcare services, it must justify in its application why such services are not already reimbursable, how the payment will fill a gap in care coverage (such as uncompensated care or services not covered by insurance), and/or how such funding will transform the current care delivery model. Funding for provider payments cannot exceed 15% of the total funding that CMS awards to a state in a given budget period
• Funding cannot be used for clinician salaries or wage supports for facilities that subject clinicians to noncompete contractual limitations.
• No more than 5% of the total funding that CMS awards to a state in a given budget period can support the replacement of an electronic medical record (EMR) system if a previous HITECH-certified EMR system is already in place as of September 1, 2025.
• To the extent a state seeks to implement a “rural tech catalyst fund initiative” or similar initiative for accelerating technology adoption, as described in the NOFO, funding for such initiative cannot exceed the lesser of 10% of total funding awarded to a state in a given budget period or $20 million. Funding for such an initiative is subject to all restrictions and requirements described in the NOFO.

State application process

CMS released the NOFO, including application instructions, for the RHT Program on September 15, 2025. Application submissions are due by November 5, 2025. There is only one opportunity to apply for funding and one application period for the RHT Program. Awards will be decided by December 31, 2025.

To assist states with the application process, CMS has made available an FAQs document. The agency also will hold introductory webinars on September 19 and 25, 2025, and will continue to engage with states during the open application period to answer any questions. More details regarding webinars are available on CMS’s website.

Each state must separately apply for its own funding. However, proposed initiatives could include multistate collaborations, such as regional networks or complementary workforce initiatives. States also may consult and involve partners, such as universities, local health departments, community-based organizations, and provider associations, in designing and implementing the planned activities proposed in the application, and may sub-award or contract RHT Program funds to such partners for various activities. Stakeholders interested in participating in their state’s application process should contact the state agency (or agencies) responsible for the application. The specific state agency may vary from state to state and may require some effort to identify. For example, some states have tasked the governor’s office with the application and others have tasked the state health services agency.

Next steps for stakeholders

As states prepare their RHT Program applications, many states are soliciting input from stakeholders and seeking feedback on how the state, if awarded, should use the federal funding to transform rural healthcare. Interested stakeholders should provide input to their applicable state agency.

We will continue to monitor updates to the RHT Program. Please contact the authors of this article or your regular McDermott Will & Schulte lawyer with any questions.

The Trump administration and 119th Congress are preparing to reduce federal expenditures by targeting Medicare and Medicaid fraud, waste, and abuse. Medicare enrollment revocations, Medicaid enrollment terminations, and extrapolated overpayments resulting from program integrity concerns can have devastating effects on providers. Providers and investors should be aware of preventative measures and appeal strategies to mitigate the anticipated increase in provider enrollment actions and reimbursement audits in the coming months and years.

Background

The US Department of Health and Human Services estimates that Medicare overpaid fee-for-service providers $32 billion and Medicaid overpaid providers $31 billion in 2024. Only a fraction of these estimated improper payments were recovered, and these estimates do not include all fraudulently received payments. Between October 2020 and September 2023, the Centers for Medicare & Medicaid Services (CMS) revoked the Medicare billing privileges of almost 8,500 providers, preventing them from participating in the Medicare program for one to 10 years. Medicare revocations often cause providers to be added to the “preclusion list,” which prevents them from receiving payment from Medicare Advantage plans or writing prescriptions for Part D reimbursable drugs. If a provider is revoked from Medicare, the provider must be revoked from all state Medicaid programs. A Medicare revocation may prevent the provider from being involved in any item or service reimbursed by Medicare or Medicaid.

In fiscal year 2023 alone, more than 2,500 providers were terminated from state Medicaid programs. Termination from one state Medicaid program requires the provider to be terminated from all other state Medicaid programs and may lead to Medicare revocation.

Owners, directors, officers, and managing employees of Medicare and Medicaid providers that are revoked from Medicare or terminated from Medicaid also may be subject to enforcement scrutiny because of their affiliation with the revoked or terminated provider. CMS uses extensive provider ownership and control reporting obligations to identify common ownership or control of providers subject to enforcement action.

Signs of Advances in Program Integrity

Reporter: “Can you guarantee that Medicare, Medicaid, Social Security will not be touched?”

President Trump: “I have said it so many times . . . We’re not going to touch it. Now, we are going to look for fraud.”

Cabinet Meeting, February 26, 2025

“The President said over and over and over, ‘We’re not going to touch Social Security, Medicare or Medicaid.’ We’ve made the same commitment. Now, that said, what we are going to do is go into those programs and carve out the fraud, waste and abuse, and find efficiencies.”

US House of Representatives Speaker Mike Johnson, February 26, 2025

Under some metrics, Medicare and Medicaid program integrity audits are a highly cost-effective strategy to reduce federal healthcare program expenditures. For example, prior reports have found that certain hospital admission audits have returned $24 – $29 to the Medicare trust fund for every $1 spent on audits.

The apparent cost effectiveness of program integrity audits can be amplified in cases where CMS alleges that a high level of payment error exists at the provider. In these cases, CMS can evaluate a small sample of the provider’s claims to determine whether any claims were arguably improperly paid, and if so, multiply (or “extrapolate”) CMS’ alleged “error rate” from the sample across the entire universe of that provider’s claims for a defined time period. Through extrapolation, CMS can turn an alleged overpayment of thousands of dollars into multiple millions of dollars. CMS’s decision to extrapolate is generally not appealable.

The CMS Center for Program Integrity conducts payment and compliance audits through contractors, including the Unified Program Integrity Contractors and the Recovery Audit Contractors. The Medicare Administrative Contractors (MACs) conduct “targeted probe and educate” audits focused on identifying overpayments and implement enrollment revocations. CMS contractors are private companies, their staff are not federal employees, and CMS selects the contractors through a competitive request for proposal process. All of these features, in addition to the cost-effective nature of auditing activities and accessibility of overpayment extrapolation, make the contractors an ideologically aligned mechanism for the Trump administration to reduce federal healthcare program expenditures by reducing fraud, waste, and abuse without cutting specific benefits or entitlements.

Program Integrity Audit Response

Robust compliance programs are the foundation for preventing and defending potential Medicare or Medicaid program integrity audits. Compliance programs should ensure that all claims submitted to third-party payors meet coverage requirements and are properly billed consistent with payor instructions. Internal and external auditing and monitoring of high-risk areas can prevent providers from engaging in anomalous billing practices that trigger an audit and can ensure the provider has sufficient medical record documentation to produce to an auditor. Auditing and monitoring for compliance with enrollment requirements are effective ways to prevent a potential enrollment revocation or termination.

Once a reimbursement audit begins, it is critical to work with experienced legal counsel to ensure that the appropriate provider documentation is reviewed and produced to the auditor and that any appropriate explanations or supplemental information are provided. Legal counsel should assist with strategies to ensure that the provider is best positioned for success based on applicable legal standards and interpretations. The documentation and communications exchanged with the auditor should deescalate the audit and form the basis for any subsequent administrative appeal.

If the audit results in a material finding that the provider believes was in error, it is important to appeal the finding and prevent cascading audits from other federal healthcare programs. Often, audits begin with a relatively small, low-value “probe” sample. If the probe sample reveals a high error rate that is not overturned, the provider is likely to be subject to further scrutiny and audits that may include a statistically valid sample and extrapolation. Sustained high error rates through appeal may require significant changes to the provider’s service offerings, revisions to documentation processes, and dedicated resources to support the services on a go-forward basis.

For all of these reasons, strong advocacy during a program integrity audit and administrative appeal of adverse enrollment actions or overpayments is key to ensuring the continuity of medically necessary services for federal healthcare program beneficiaries and participants.

Takeaways

• Medicare and Medicaid program integrity audits, extrapolated overpayments, and enrollment actions may significantly increase under the current administration.
• Program integrity reimbursement audits often begin with a low-value “probe” sample that progresses into a much larger statistically valid sample and extrapolated overpayment.
• Providers that do not successfully overturn overpayment findings on appeal may be required to review historic claims for overpayments and change their operations, documentation, or billing on a go-forward basis, adversely affecting revenue for the item or service line.
• Significant overpayment findings and enrollment enforcement actions at one provider may generate scrutiny for others, including providers with common ownership or control.
• Investors should closely review active program integrity audits to understand potential risk exposure (direct and indirect) and how that exposure may be mitigated by qualified legal counsel.
• Investors considering investing in a provider subject to Medicare or Medicaid audits should incorporate transaction terms that consider the potential exposure associated with potential enforcement actions and operational impacts.