The passage of the One Big Beautiful Bill (OBBB) on July 4, 2025, has raised significant concerns regarding the future of rural hospitals in California and across the United States. This legislation aims to make permanent the tax cuts introduced in 2017 while also implementing a series of budget cuts and fiscal reforms. Notably, it includes a $50 billion Rural Health Transformation Program (RHTP) designed to stabilize rural healthcare facilities and enhance health outcomes in underserved areas.
In California, there are currently 57 rural hospitals, a dramatic decline from 79 in the past two decades. These facilities play a crucial role in providing care to over 2 million residents, according to the California Hospital Association. They serve as vital economic pillars and healthcare lifelines for their communities, often facing challenges such as low reimbursement rates, high regulatory burdens, and increasing instances of uncompensated care.
The definition of a rural hospital often varies, but they are generally located in non-metropolitan areas with limited access to other healthcare facilities. The Rural Health Information Hub emphasizes their importance, stating that these hospitals contribute significantly to community well-being by offering a range of services from primary care to long-term care.
Despite their essential role, many rural hospitals are struggling financially. For instance, the Tahoe Forest Health System operates as a critical access hospital, one of 37 in California, which has fewer than 25 acute care beds and bills at 101% of Medicare allowable costs. The Sierra Nevada Memorial Hospital (SNMH) is another example, recognized as a “Top Rural Hospital” by the Leapfrog Group. Although SNMH has stable operations and a commitment to community health, it faces ongoing financial challenges, with less than 60% of its revenue derived from Medicare patients.
The OBBB’s provisions on Medicaid have raised alarms, particularly regarding the tightening of eligibility requirements. This could have significant implications for rural hospitals, as many patients in these areas rely on Medicaid for their healthcare needs. The California Department of Health Care Access and Information notes that about 22% of SNMH’s revenue comes from Medicaid reimbursements.
Dr. Scott Neeley, CEO of SNMH, expressed concerns, stating, “like many healthcare organizations in California, particularly rural hospitals, SNMH faces many challenges. SNMH has stable operations and works to maintain its ability to deliver on its mission to the community.”
As California Democratic lawmakers have historically expanded Medicaid, the potential impact of the OBBB’s changes could reverse some of these gains. According to reports, California currently spends $161 billion on Medicaid, with the majority of funding from the federal government. However, with 3.4 million Californians at risk of losing coverage, the state could face a loss of $28.4 billion in federal Medicaid funding.
The RHTP applications, due by December 31, 2025, require states to outline strategies for improving access to care and health outcomes in rural communities. The applications must also detail how new technologies, including artificial intelligence, will help manage chronic diseases and ensure the long-term viability of rural hospitals. Importantly, funds from the RHTP are set to be distributed beginning in 2026, prior to the implementation of the new Medicaid regulations in 2027. This timeline aims to give rural health systems the necessary resources to adapt and stabilize.
While it remains uncertain how California’s leadership will respond to the Medicaid reforms, the potential for increased uninsured patients relying on rural hospitals is a pressing concern. This situation could lead to an increase in uncompensated care, further straining the financial resources of these facilities.
As the deadline for RHTP applications approaches, it is essential for hospital associations and healthcare providers to actively participate in shaping California’s application. This collaboration is vital to ensure that rural hospitals can secure the funding needed to enhance access to care and maintain operations in the face of impending challenges.
