Provisions in the One Big Beautiful Bill Act could destabilize rural hospitals, risking closures and healthcare deserts unless policymakers implement targeted reforms.
Editor's Note: Bappa Mukherji is the CEO of Java Medical Group. He can be reached at bappa@javamedicalgroup.com.
Rural hospitals are the backbone of healthcare delivery in underserved communities, providing essential access to care for millions of Americans. Yet today they are under unprecedented threat from long-standing financial and operational challenges like limited patient volumes and geographic isolation, including the new provisions of the new One Big Beautiful Bill Act.
According to the American Hospital Association, the One Big Beautiful Bill Act (H.R. 1) (OBBBA) could strip Medicaid coverage from approximately 1.8 million rural residents by 2034, and KFF estimates the bill will cut $137 billion in federal Medicaid spending on rural hospitals over the next decade.
Why rural hospitals are at risk
Rural hospitals rely heavily on federal reimbursements and local support to remain viable. While OBBBA was designed to strengthen healthcare access, several provisions such as cuts to state directed payments and provider taxes within the legislation create uncertainty for rural hospitals. Without adjustments, these pressures could accelerate the financial strain on rural hospitals, leading to service reductions or closures.
Such closures create "healthcare deserts" where rural populations lose access to critical care. Estimates suggest that over 300 rural hospitals face immediate closure, and more than 700 could be at risk nationwide.
Opportunities for reform and support
While these policy changes introduce new challenges, they also provide an opportunity to reimagine how rural healthcare is supported. By tailoring provisions to address the realities of small and isolated facilities, policymakers can strengthen the rural healthcare safety net. Several strategies could help:
Guarantee cost-based reimbursement: Rural hospitals operate with higher per-patient costs due to lower volumes, limited economies of scale, and increased staffing challenges. Guaranteeing cost-based reimbursement would provide a predictable revenue stream that ensures hospitals can cover operating expenses and continue offering essential services. Extending the Rural Health Transformation Program's reimbursement timeline to a full 10 years and ensuring proportional state funding would also strengthen the financial safety net for rural hospitals.
Require inclusion of all rural hospitals in health plan networks: Health plans should be mandated to contract with all hospitals within their geographic footprint. This would prevent rural providers from being excluded due to low patient volumes and would guarantee that local communities can access care without having to travel to urban centers.
Create standby capacity for rural care delivery: A standby capacity payment is a payment mechanism that reimburses hospitals not only for the volume of services they actually provide (like admissions, procedures, or outpatient visits) but also for the fixed costs of maintaining essential readiness to provide these services. In rural hospitals, this means ensuring they can provide 24/7 access to emergency care, obstetrics, trauma stabilization, and other critical services—even if patient volumes are low. These types of payments are already utilized for Rural Emergency Hospitals to offset the costs of maintaining rural emergency rooms. The advantages to standby capacity payments are that they can be calculated based on reasonable operating costs, are predictable, and are direct payments avoiding the time-consuming and expensive process of collecting payments from medical insurance carriers.
Invest in telehealth and infrastructure: Rural hospitals can extend their reach through telehealth, but reliable broadband access and startup funding remain uneven. Expanding investment in telehealth infrastructure would allow rural hospitals to deliver specialty care, mental health services, and follow-up visits more efficiently.
Together, these reforms would help balance the promise of OBBBA with the practical needs of rural hospitals and ensure that policy improvements do not inadvertently create healthcare deserts.
Rural facilities are lifelines for their communities, and without them, millions of Americans will face barriers to care. Without targeted policy reform, OBBBA may inadvertently dismantle this vital safety net, leaving Americans in rural areas with limited or no access to essential care. Policymakers must act swiftly to align the promise of this legislation with the real needs of rural healthcare providers.
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KEY TAKEAWAYS
OBBBA could cut $137 billion in Medicaid spending on rural hospitals, threatening the hundreds of facilities that are already at risk of closure.
Rural hospitals' reliance on federal reimbursements makes them especially vulnerable to policy shifts.
Solutions like cost-based reimbursement, standby capacity payments, and telehealth investment could stabilize rural healthcare.