Rural hospitals in the United States face an uncertain future following the passage of the One Big Beautiful Bill (OBBB) on July 4, 2025. With nearly 1,800 rural hospitals nationwide and 57 located within California, the implications of this legislation could be profound. The OBBB, also known as the Budget Reconciliation Act, includes significant budget reductions and alters Medicaid eligibility, raising concerns among lawmakers about the sustainability of these critical healthcare facilities.
Rural hospitals serve as essential healthcare providers in non-metropolitan areas, often located far from urban centers. Over the past two decades, California has witnessed a decline in rural hospitals, dropping from 79 to 57. The California Hospital Association emphasizes that these hospitals care for over 2 million people, acting as vital economic and health pillars in their communities. Despite their importance, many rural hospitals struggle financially due to low reimbursement rates, increasing regulations, and rising levels of uncompensated care.
The OBBB does not modify existing Medicare payment enhancements for rural hospitals, which are categorized into several types for funding purposes. For instance, the Tahoe Forest Health System is classified as a “critical access hospital,” allowing it to bill at 101% of Medicare allowable costs due to its fewer than 25 acute care beds. Another classification is the Medicare-Dependent Hospital, which offers enhanced payment rates.
Sierra Nevada Memorial Hospital (SNMH) is one of California’s recognized rural hospitals, noted for quality and safety by the Leapfrog Group. While approximately 46% of its revenue comes from Medicare, the hospital does not qualify as a Medicare-Dependent Hospital. Additionally, around 22% of its funding is obtained through Medicaid (Medi-Cal) reimbursements. Dr. Scott Neeley, CEO of SNMH, stated that “like many healthcare organizations in California, particularly rural hospitals, SNMH faces many challenges,” but emphasized the hospital’s commitment to serving its community.
The OBBB’s introduction of a $50 billion Rural Health Transformation Program (RHTP) aims to stabilize rural hospitals and enhance health outcomes. States must submit RHTP applications by December 31, 2025, detailing strategies to improve access to hospitals, healthcare outcomes, and financial sustainability. The funding from this program will begin in 2026, before the new Medicaid regulations take effect in 2027. This timing is crucial, as it provides rural health systems with an opportunity to stabilize operations and retain healthcare professionals.
The impact of tightened Medicaid eligibility remains uncertain, but projections indicate that the consequences could be significant. As reported by Kristen Hwang of CalMatters, California has seen a 31% increase in Medicaid enrollment since 2014, with the state currently spending $161 billion on the program. Concerns are growing that approximately 3.4 million of the 15 million Californians on Medicaid could lose their coverage, potentially resulting in a loss of $28.4 billion in federal funding.
California’s response to the OBBB, particularly regarding Medicaid reform, will be critical in determining the future of rural hospitals. The anticipated increase in uninsured individuals seeking care at these facilities raises concerns about the potential for more uncompensated care. As the deadline for RHTP applications approaches, it is vital that hospital and provider associations actively engage with lawmakers to craft proposals that maximize early funding and bolster rural healthcare access.
The future of rural hospitals hangs in the balance, and how California navigates these changes will be instrumental in shaping healthcare delivery in underserved areas.
