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When HR1 was signed into law last summer it extended big tax breaks for high income people & corporations while reducing federal funding for Medicaid, SNAP, and other core public health programs.

Those cuts (especially to Medicaid) will eventually have long-term bad impacts on rural hospitals (urban hospitals are less exposed because they have less exposure to Medicaid and a more diverse payer mix).

In the coming years, the HR1 cuts will weaken rural hospital finances. Some will cut or end services like labor and delivery. Others may be forced to close altogether, but only after they cut services that don’t ‘pay for themselves’ (like labor and delivery).

To offset those coming effects (or I would argue to provide political cover), Congress set up the Rural Health Transformation Program. The program gives $10B per year for five years across the US (FY 2026–2030). Arizona’s share is $100M per year (for 5 years).

Arizona turned in our first application for our part a few months ago. CMS reduced Arizona’s first-year award by about $33M (from $200M to $167M). While it always sucks to take a cut from what you thought you were getting, the Governor’s Office responded in a disciplined and thoughtful way as they developed their Plan B application.

The Revised Resubmitted Plan preserved the important long-term spine of the initial strategy (especially rural education and training) while trimming the most immediate workforce part (immediate financial incentives for rural practice). They also proposed scaling back some systems investments like technical aid and technology upgrades. See the budget line items

What I liked most about the original proposal: it wasn’t just a collection of short-term work (although some of it was). AZ’s plan leaned more into longer-term capacity building, especially rural healthcare workforce development.

Workforce: Long Term Pipeline Protected | Short-Term Incentives Cut

The revised budget mostly preserved the training and education pipeline, which is encouraging. The single largest workforce line item (Rural Education and Training Expansion) stays at $32M. Funding for critical rural residency support, provider upskilling, and training capacity grants also stay intact, as does support for statewide workforce coordination and learning networks (a total of $47M).

Arizona rural health plan cuts $33M, focuses on workforce

The cuts landed hardest on the most immediate and direct recruitment (but also relatively short-term) retention tool: financial incentives for rural practice. That line item was cut from $15M to $8M.

The revised plan still builds the long-term future workforce but does less to provide immediate help. That’s OK with me – I’d rather see robust long term and sustainable solutions survive even if shorter term recruitment stuff gets cut.

Shorter Term Interventions

Several major program areas were largely protected in the revision. Short-term funding for behavioral health and substance-use services, chronic disease prevention, and maternal-fetal health remained unchanged at a combined $27M. This is all important – but it doesn’t provide a long-term sustainable impact (but will temporarily enhance services in these areas).

The diagnostic, technical and IT (“Resilience”) side of the plan took a relatively big cut (from $50M down to $38M). Investments in EHR modernization, diagnostic equipment, shared services, and technical aid were scaled back, but still large. I’m glad they cut this part instead of making cuts to the residency and healthcare workforce pipeline work.

Summary

Arizona’s revised Rural Health Transformation Plan mostly focused on what matters most over the long haul: building and sustaining a rural health workforce rather than chasing short-term fixes.

The exception is the funding for behavioral health and substance-use services, chronic disease prevention, and maternal-fetal health remained – which stays unchanged from the first application (a combined $27M). This is important work but doesn’t provide a long-term sustainable system impact (but will temporarily enhance services in these areas).

Importantly, the revised application meaningfully improves accountability by shifting more oversight and implementation responsibility away from the relatively small and non-health-related Governor’s Office of Economic Opportunity to AHCCCS, an agency with scale, experience, and operational capacity to issue and evaluate RFPs, contract amendments, IGAs/grants, competitive RGAs, examine invoices and hold grant recipients accountable etc.)

That change increases the likelihood that this grant will move beyond planning documents and into real execution and will more likely hold recipients accountable.

Revised Project Narrative

See the budget line items

Editorial Note: The Governor’s Office did a nice job with this revised application – both in terms of what they trimmed, protected and changed operationally. If I could change one thing in the grant it would have been to provide resources needed for the NAU Medical School (which focused on primary care in rural areas) off the ground. I’m not sure if that would be an allowed expense under the RHT program or not though.

Important Note: A poison pill overshadows the entire Rural Health Transformation program. Back in December CMS Administrator Oz said he & Kennedy intend to “claw back” RHT dollars if states don’t embrace Kennedy’s broader agenda, including anti-vaccine positions and nutrition initiatives like restricting what foods can be bought with SNAP benefits.