Federal rural health money pushes states to loosen the laws that control new hospitals

A giant pot of federal money meant to prop up rural health care is also being used as leverage to get states to drop long-standing rules on who may build a hospital. Several states are already moving to go along.

Money tied to policy

The Rural Health Transformation Program will send $50 billion to the states over five years. Half is split evenly among them. The other $25 billion depends on other factors, including the policy promises each state makes. The Centers for Medicare & Medicaid Services told states their applications would score higher if they scaled back their certificate of need laws, which the agency called an added expense and burden for rural facilities.

Those laws make a hospital or clinic show that a community needs a new service before it can build or expand. More than 30 states plus Washington, D.C., have some version. Some even require sign-off for a single expensive piece of equipment. The rural program was added to the One Big Beautiful Bill Act, the sweeping law that passed last year.

Who is moving

Tennessee has gone furthest. In April its lawmakers voted with support from both parties to unwind most of the state's remaining rules over four years. Alaska, Connecticut, Delaware, Iowa and Mississippi said they would consider ending or easing theirs. Six states in all signaled plans to revisit their laws in their applications.

South Carolina voted in 2023 to end most of its rules. Starting in January it will no longer require approval to build or expand a hospital and will keep the process only for nursing homes.

Supporters of repeal say the laws were meant to curb monopolies and rising costs but have instead pushed prices up, stalled needed buildings and kept new technology from rural patients. In North Carolina a hospital that won permission to build a much-needed facility spent three years in court before it broke ground this year.

Warnings from smaller hospitals

Critics expect the opposite result. In 2024 the chief executive of a rural health system south of Nashville warned that ending the rules would let big chains cherry-pick the richest markets and widen gaps in care. Weeks later a hospital company owned by HCA Healthcare, the largest hospital operator in the country, won approval for a new hospital about 20 minutes from his system's main medical center.

Leaders of smaller systems say more competition could force independent hospitals to close or sell. Williamson Health, a nonprofit system in the same region, agreed in late July to sell its clinics, diagnostic centers and a hospital with more than 330 beds to Ascension St. Thomas in a $900 million deal.

A researcher at the National Academy for State Health Policy said states should weigh the trade-offs with care. Once the laws are gone, she warned, states may lose track of who owns their hospitals, including when a system hires private equity to run services.