Minnesota Seeks $1B Under New Rural Health Transformation Program, but Experts Warn It Won’t Offset Looming Medicaid Cuts
Minnesota has submitted a sweeping proposal for $1 billion in federal Rural Health Transformation Program (RHTP) funding, setting forth a bold plan to strengthen its rural hospitals, expand telehealth capacity, support workforce pipelines, and restore access to vital services such as obstetrics. Yet despite the scale and ambition of the proposal, state leaders warn the investment will not be enough to offset the massive Medicaid cuts embedded in the same federal legislation that created the new grant program.
The RHTP, authorized under H.R. 1 (Public Law 119-21) on July 4, 2025, allocates $50 billion nationally over five years to help states stabilize and modernize rural care. Minnesota is seeking $200 million per year for five years, with funding decisions expected from CMS by December 31.
Rural Minnesota: A Health System Under Strain
About 1.7 million Minnesotans nearly 30% of the state live in rural areas. The state’s application highlights an increasingly fragile landscape: 69 of 87 counties are designated primary-care shortage areas, rural residents travel an average of 64 minutes for medical-surgical care (versus 19 minutes in urban areas), and a growing number of clinics and hospitals have closed services or entire campuses.
Clinicians describe the consequences in stark terms. Dr. Kim Tjaden, a family physician in St. Cloud, said many of her rural patients delay care simply because they lack transportation, childcare, time off work, or broadband access for virtual visits. “Folks won’t come in for office visits,” she said. “If I don’t even know I have high blood pressure, my first visit ends up being in the ER with a stroke.”
Compounding the access problem is a widespread financial crisis among rural providers. The Minnesota Department of Health (MDH) reports 34 of 95 rural hospitals are financially distressed, having logged four or more years of negative margins in the past eight. Major systems including Mayo Clinic Health System and Allina Health have closed multiple rural clinics and birthing units in the past two years.
The obstetrics crisis is particularly acute, 700,000 Minnesotans now live in counties with no hospital-based labor and delivery services. Even modest winter storms, flooded roads, or lack of car access can put expecting parents in danger.
A Community-Built Vision for Rural Health
Minnesota’s RHTP application was shaped through extensive engagement: more than 40 stakeholder meetings and 350 public comments gathered from hospitals, tribes, EMS leaders, community clinics, county officials, and bipartisan lawmakers. MDH’s stated commitment is to build not only a stronger system but one that reflects local needs rather than prescriptive top-down strategies.
The plan outlines investments across five major areas:
1. Community-based prevention and chronic disease management
MDH wants to bring basic screenings, chronic care follow-up, and preventive services into schools, pharmacies, tribal clinics, workplaces, and community centers reducing travel barriers and catching disease earlier.
2. Workforce recruitment and retention
Minnesota proposes expanding rural clinical training, residencies, and simulation-based obstetrics skill programs, including a new Family Medicine Obstetrics Fellowship with the University of Minnesota.
3. Sustaining access to essential services
Funds would help rural hospitals maintain core offerings such as emergency, primary care, and maternity services.
4. Regional models for whole-person care
Minnesota aims to coordinate rural hospitals, clinics, tribes, and EMS systems across regions rather than forcing each facility to stand alone.
5. Technology and infrastructure modernization
The application prioritizes telehealth expansion, remote monitoring, mobile units, digital upgrades, and technical assistance to improve revenue cycles and financial resilience.
Diana Rydrych, MDH’s health policy director, said the proposal focused on initiatives that can “hit the ground running” and build on what is already working. “We tried to think about what we can do with this grant that allows us to make as much progress as possible,” she said.
A Lifeline With Limitations: “It Won’t Make Up the Difference”
Yet even as Minnesota lays out a highly targeted vision for improving rural care, policy experts caution that the RHTP funding cannot compensate for the federal government’s near-term reductions to Medicaid.
Trump’s One Big Beautiful Bill Act, the same law that created RHTP, includes nearly $1 trillion in Medicaid cuts over 10 years cuts that will disproportionately hit rural states and low-income populations.
The Minnesota Hospital Association estimates the state could lose $2.4 billion in federal healthcare funding in FY 2028 alone. Meanwhile:
• 140,000 Minnesotans could lose Medicaid coverage
• Another 60,000 could drop ACA plans due to rising costs
Health services researchers say the math simply doesn’t add up.
“We’re looking at nearly a trillion dollars in Medicaid cuts, and this fund is only $50 billion,” said Carrie Henning-Smith of the University of Minnesota Rural Health Research Center. “Maybe it’s appropriate to be cynical I worry this is a shiny thing meant to distract from the other cuts.”
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She also noted that every state has applied for the same $1 billion maximum, even though states vary dramatically in rural population. Minnesota, she argues, should get more than smaller rural states like Wyoming or Rhode Island, but CMS has not clarified how it will assess “need.”