Federal program won’t make up for Medicaid funding loss to WV hospitals

By Lori Kersey / October 22, 2025

West Virginia may receive at least $100 million a year from a five-year federal program aimed at “transforming the health care delivery ecosystem,” but that money won’t make up for the Medicaid funding state hospitals stand to lose when the One Big Beautiful Bill Act is fully implemented.

When the Republican megabill is fully in effect, West Virginia hospitals will lose more than $1 billion per year. Jim Kaufman, president and CEO of the West Virginia Hospital Association, told West Virginia Watch.

“That will have an impact, and hospitals will have to figure out what they do to ensure access with fewer resources,” Kaufman said. “And that may radically change what they can offer in certain communities.”

The Rural Health Transformation Program is a provision of the One Big Beautiful Bill Act, or HR 1. Congress included the $50 billion rural health fund in the bill in response to the threat of rural hospitals closing because of historic Medicaid cuts in the bill.

The legislation cuts states’ directed payment programs for Medicaid. West Virginia currently levies a 6% provider tax - the maximum allowable - on hospitals that care for Medicaid recipients. The money collected goes toward Medicaid and the state draws a 3-to-1 federal match for that money. The money is distributed to state hospitals based on the number of Medicaid beneficiaries it serves, Kaufman said.

Beginning in 2028, the law requires states to lower their provider taxes to a maximum of 3.5%. The legislation also lowers the Medicaid payment rates to those of Medicare, which don’t cover the full costs of services, he said.

The bill also includes work requirements and more frequent redeterminations for Medicaid, which are also expected to decrease the number of recipients.

And while hospitals will feel the brunt of the Medicaid cuts, Rich Sutphin, executive director of the West Virginia Rural Health Association, said that very little of the Rural Health Transformation Program money is slated to go directly to hospitals.

“You can’t do capital expenditures beyond minor alterations to a facility,” Sutphin said. “You can’t use it to replace any provider revenue that is already being paid for. So you can’t add enhanced reimbursement for certain services.”

The money also can’t be used to replace Medicaid funding, Sutphin said.

“[The Centers for Medicare and Medicaid Services’] guidance has made clear that the Rural Health Transformation Program is not meant to backfill deep Medicaid cuts or otherwise shore up the rural health hospitals and providers that will be most impacted by them,” said Kelly Allen, director of the West Virginia Center on Budget and Policy. “In their notice of funding, they specify that no more than 15% of the funding can go to the provider payments that would help fill in the gaps of the deepest cuts to Medicaid in our nations’s history.”

If hospitals have to cut services, that will affect entire communities, not just Medicaid recipients, Kaufman said.

“I’ve actually had somebody say to me, “Well, I’m not on Medicaid, I don’t care about those cuts,” Kaufman said. “Hospitals do not recruit a provider or run a service only for Medicaid. They provide that service for a community. So when you talk about those cuts, that is resources going out of a community.”

Program aims to ‘transform’ health care delivery

According to the federal Centers for Medicare and Medicaid Services (CMS), the Rural Health Transformation Program aims to “strengthen rural communities across America by improving health care access, quality and outcomes by transforming the health care delivery ecosystem”

The $50 billion fund will be distributed to approved states over the next five years, with $10 billion will be distributed each year starting in fiscal year 2026.

Half of the money will be distributed evenly to states with approved applications.

The other half will be distributed based on states’ individual metrics and applications that ‘reflect the greatest potential for and scale of impact on the health of rural communities.

The program has five strategic goals: Make rural America healthy again, sustainable access, workforce development, innovative care and tech innovation, according to CMS.

Sutphin and Kaufman said the program poses opportunities for the state.

“This is really, how do we start to transform and modify rural health care delivery,” Kaufman said.

“We are confident that Gov. Morrisey’s team is going to put forth an application that will benefit West Virginians and will be eligible for funding through CMS,” Sutphin said.

Public submits ideas for money

The federal government opened the application period for the funding Sept. 15, giving states a deadline of Nov. 5 to submit their applications.

During a new conference Sept. 18, Gov. Patrick Morrisey asked for public input about what the state should include in its application. The governor asked that ideas be submitted by Sept. 29 in order for his administration to meet the tight deadline.

“We have a chance to help our citizens live longer, healthier lives… We have an opportunity to reverse some of the terrible health trends that we’ve seen that have plagued our state for a long time,” Morrisey said at the time. “I think the key to our application is to really go in and focus on things that we can meaningfully improve.”

The state hired McKinsey and Company to help with the application process, he said.

The Rural Health Association submitted ideas focusing on three areas” a rural health pipeline to give health profession students opportunities to have rotations in rural communities, a mechanism to train and recruit health care providers by offering enhanced benefits, and encouraging automation of certain parts of the health care system.

The Hospital Association submitted the ideas of a wellness initiative, expanding access to technology including telemedicine and expanding residency programs to attract and keep physicians in rural areas and another to use artificial intelligencelto support clinicians, Kaufman said.

Capehart said the governor’s office had been meeting with large health care networks, academic institutions, associations and researchers on the application.

He said the administration’s three strategic priorities for the program application include identifying health care barriers to workforce participation, establishing the state as a center for rural health innovation and partnership, and improving access to care and sustainability of the healthcare system.

Kaufman said the program can improve health outcomes and access if the money is used correctly. The state also has to understnad that its’s one-time money, he said.

“The biggest thing is, how do you support the sustainability in year six, when the dollars dry up?” Kaufman said.