Tennessee's Rural Health Crisis: Is the Rural Health Transformation Plan the Remedy?
Tennessee leads the nation with the most hospital closures, per capita. Most Tennesseans living in urban areas have greater access to primary care practices, urgent care centers, emergency departments, and specialty care practices. This is not the same reality for Tennesseans living in small rural communities.
When a rural hospital shuts down, residents are further away from life-saving treatment and care. Since 2010, Tennessee has experienced 6 hospital conversions, where services were reduced, and 8 hospital closures, reflected in the map below. These 14 closures and conversions threaten access to medical care for thousands of rural Tennesseans across the state. This results in less services, longer wait times, postponed care, greater distances to travel, and increased pressure on surrounding hospitals. Not to mention, closures negatively impact the local economy as hospitals are among the largest employers in their communities, causing severe economic decline.
Why are rural hospitals vulnerable?
Health systems are often paid by the volume of services they provide, known as a fee-for-service payment model. Urban hospitals have high operating costs but have enough patient volume to offset costs. In comparison, rural hospitals have a smaller patient population, leading to less demand for services and less revenue to cover operating expenses. Another major challenge is the “urban-rural reimbursement gap,” in which rural hospitals and providers receive less reimbursement from private insurance and Medicare Advantage plans, compared to urban hospitals. As a result, rural hospitals are typically paid less than what it costs to deliver a service, causing them to operate at a loss.
Hospitals that are at high risk of closing have to make tough decisions, and maternity care is typically the first to be cut. Both TennCare and private insurance reimbursements are often not sufficient enough to cover maternity services at rural hospitals. As of 2026, only 22 rural hospitals offer labor and delivery services which is less than half of Tennessee’s rural hospitals. Furthermore, two labor and delivery units in the state are at risk of closing due to financial instability. When a hospital closes or cuts maternity care, pregnant women must travel farther distances to access care, increasing the risk of complications for the mother and baby.
How would Medicaid expansion improve the financial stability of rural hospitals?
Tennessee is one of only ten states that has not taken advantage of federal money to expand Medicaid under the Affordable Care Act. This would increase Medicaid coverage, known as TennCare, for thousands of uninsured Tennesseans. Rural Americans are more likely to have lower incomes and less likely to have employer-based health insurance, compared to urban residents. As a result, many rural residents are uninsured and often struggle to afford their healthcare costs.
Expanding Medicaid helps address this problem. When more Tennesseans have insurance coverage, patient visits are reimbursed, helping hospitals stay open. On average, rural hospitals are 62% less likely to close if they are located in an expansion state. States that have expanded Medicaid have significantly reduced the amount of uncompensated care at rural hospitals. For example, uncompensated care costs at rural hospitals fell by 43% in expansion states, while non-expansion states saw a 16% decrease between 2013 and 2015. Medicaid expansion has proven to be a key indicator of rural hospital stability.
Furthermore, Congress refused to extend the enhanced premium tax credits beyond 2025, which were federal health subsidies that defray the cost of coverage under the Affordable Care Act. Since the subsidies have expired, insurance premiums have increased, and 70,000 Tennesseans have become uninsured. Rural residents are particuarly vulnerable, as they depended more heavily on the premium tax credits to afford health insurance. As more Tennesseans lose their insurance coverage, hospitals will have to absorb additional uncompensated care.
What is the Rural Health Transformation Plan?
H.R. 1 was signed into law on July 4, 2025, and cut $1 trillion of federal Medicaid funding over the next decade. In response to warnings that the cuts would devastate rural hospitals, Congress included the Rural Health Transformation Plan (RHTP) in H.R. 1. This is a 5-year initiative of $50 billion intended for “system transformation” rather than “perpetual operating expenses.” Each state will equally receive a baseline of $100 million a year, for the next 5 years. The other half of the funds are known as “workload funding” which is based on two components: a rural score and a technical score. The Centers for Medicare & Medicaid Services (CMS) evaluates each state’s level of rurality, while the technical score evaluates the strength of each state’s proposed policies and initiatives from their application. Part of the technical score includes the adoption of Make America Healthy Again (MAHA) priorities as part of a state’s application to receive more funding. For the first year, Tennessee was awarded $207 million in federal grant dollars. Funds can be directed towards specific initiatives, including IT advancement, workforce recruitment and retention, behavioral health services, chronic disease management, and alternative payment models. However, funds cannot be used to replace lost Medicaid revenue or offset uncompensated care.
Will the Rural Health Transformation Plan help Tennesseans?
An analysis conducted by the Leonard Davis Institute of Health Economics, reported that the RHTP funding allocation is inconsistent with rural health needs. States categorized with a high rural population, will receive less funding per rural resident ($390) compared to states with a low rural population ($73). Furthermore, states with the highest rural death rate, like Tennessee, are receiving less than half as much money per rural resident ($104), as states with the lowest rural death rates ($233).
Most importantly, $137 billion in Medicaid cuts are expected to harm rural areas– which substantially outweighs the $50 billion from the Rural Health Transformation Plan. Although the RHTP may sound promising, it is not nearly sufficient enough to make up for the projected harms from the Medicaid cuts. In addition, the federal government can repeal funds if mandated policy changes are not passed, and the same amount of funding is not guaranteed for the following year. There are also legitimate concerns that rural hospitals, in a state like Tennessee, cannot be “transformed” if they are merely trying to keep the doors open and stay afloat. After the five-year funding period ends, the RHTP funds will dry up, and we will begin to feel the harsh implications of the Medicaid cuts. The Rural Health Transformation Plan is treating symptoms, rather than solving the underlying causes of rural health instability. Given the fragility of Tennessee’s rural healthcare, it is important to monitor the allocation, effectiveness, and sustainability of RHTP funds over the next five years.
