by Jaymie Baxley, North Carolina Health news
January 20, 2026
By Jaymie Baxley
North Carolina health officials are beginning to sketch out plans for turning the first wave of funding from a new federal program into on-the-ground changes for rural communities that have long struggled with provider shortages, hospital closures and limited access to care.
During a virtual town hall on Jan. 16, leaders from the N.C. Department of Health and Human Services discussed the state’s recently approved proposal for the Rural Health Transformation Program.
In the federal budget passed last summer by Congress — known as the One Big Beautiful Bill Act — lawmakers cut as much as $900 billion from Medicaid spending over the coming decade. Under pressure from rural state senators, the bill also included a $50 billion pool aimed at improving health outcomes in rural communities, which are heavily dependent on Medicaid for health care coverage.
In late December, the federal Centers for Medicare and Medicaid Services announced that NC DHHS would receive $213 million of this health transformation fund in 2026. It will be the first of five annual payments totaling more than $1 billion, provided the state meets performance benchmarks set by CMS.
Devdutta Sangvai, head of NC DHHS, said the funding represents a “once-a-lifetime opportunity to transform health care in North Carolina.”
“Over the next five years, the funding will help us think about how we create sustainable change in these communities where oftentimes access is the biggest problem,” he said.
From broad concepts to concrete plans
While the state’s 61-page proposal laid out broad strategies for improving rural health outcomes, Deborah Farrington, deputy secretary for health for NC DHHS, said much of the detailed work lies ahead.
“This is a cooperative agreement with CMS that will require ongoing and substantial federal involvement,” Farrington said during the town hall. “We wrote our application in a way that was quite responsive to the federal requirements, but in some cases that meant that we had to describe what we were going to do at a very high level.”
Over the coming months, the department plans to translate those concepts into “accountable strategies with clear timelines, clear responsibilities and measurable milestones,” she said.
At the center of the state’s plan are six interlinked initiatives focused on expanding primary and preventive care, integrating behavioral health services into primary care, strengthening the rural health workforce, advancing value-based payment models and increasing the use of technology and data. Farrington said the initiatives “align with the federal requirements and goals” of the program.
Together, the initiatives are intended to address persistent disparities among rural North Carolinians — including higher rates of chronic disease, gaps in maternal and infant care, workforce shortages and limited access to digital health services.
Rural residents experience diabetes rates roughly 17 percent higher than urban communities, Farrington noted, and rural areas are more likely to be designated maternal care deserts, with higher pregnancy-related mortality and infant death rates.
At the same time, years of hospital closures and provider vacancies have strained access to care, while broadband gaps and limited digital literacy have made it harder for rural residents to take advantage of telehealth options.
Regional hubs and tight timelines
One of the most closely watched components of the plan is the creation of regional “ROOTS” hubs. Short for Rural Organizations Orchestrating Transformation for Sustainability, the hubs will serve as locally governed networks that coordinate care and community-based interventions, according to Farrington.
Each hub will bring together hospitals, primary care practices, behavioral health providers, EMS agencies, local health departments and other partners under a shared regional structure. The goal is to replace the fragmented patchwork of services that rural residents often struggle to navigate with a more coordinated system tailored to local needs.
Maggie Sauer, director of the Office of Rural Health at NC DHHS, said the hubs will be organized around the state’s six Medicaid Standard Plan regions, which divide North Carolina into large, multi-county areas used to administer managed care. Those regions broadly cover the western mountains, the Piedmont Triad, the greater Charlotte area, the Triangle, the northeastern part of the state and southeastern North Carolina.
The department expects to launch an application process for entities that will be tapped to lead the hubs within the next three months, with selections and onboarding taking place between April and October.
“It will be important for us to establish clear criteria to govern those partnerships and sustainability,” Sauer said.
Before any funding can flow, however, the state faces a tight set of near-term deadlines. NC DHHS must submit a revised year-one budget to CMS by Jan. 30 and stand up a dedicated Rural Health Transformation office within the department by the end of March.
Funds won’t supplant Medicaid cuts
Gov. Josh Stein said the Rural Health Transformation funding offers a rare chance to expand access, stabilize rural providers and improve care delivery for communities that have historically been underserved.
However, he noted that the same federal budget law that created the program is also expected to reduce Medicaid funding in North Carolina by $50 billion over the next decade.
State health officials have warned that those reductions could place added financial strain on hospitals, clinics and safety-net providers — particularly in rural areas, where Medicaid-heavy margins are already thin.
Cuts to the program could limit access to preventive care, behavioral health services and maternal health care, potentially undercutting some of the gains the transformation program is designed to achieve.
“It is without doubt that these cuts will inevitably hit rural communities hard,” Stein said. “My team and I will continue to urge the Congress to do right by the millions of North Carolinians by redressing these devastating cuts to Medicaid.”
One of the biggest threats is a new federal work requirement for Medicaid.
The requirement, set to take effect on Jan. 1, 2027, will force local and county departments of social services to regularly verify that “able-bodied” beneficiaries are working, volunteering or attending school for at least 80 hours a month.
Melanie Bush, assistant secretary for NC Medicaid, recently told lawmakers that the state must find a way to cover the high administrative costs associated with the requirement. She anticipates North Carolina will need millions more each quarter to pay for additional county staff, system upgrades, vendor contracts and member outreach.
All this in an environment where members of the legislature have been unable to agree on a state budget in the past year.
Lawmakers question ‘rural’ definition
During a Jan. 13 meeting of the state General Assembly’s Joint Legislative Oversight Committee on Health and Human Services, lawmakers voiced concerns about how the program was designed and how the money will ultimately be spent.
Rep. Hugh Blackwell (R-Valdese) criticized the state’s use of a broad federal definition of “rural” in its proposal to CMS, arguing that it allows more urban or suburban counties to qualify while excluding places with the most severe access problems.
“We drive to Charlotte for access, and yet we are not included,” he said of Burke County, which was not among the 85 counties listed as rural in the state’s application. “I think you all need to take another look at this, and you need to relate it to where we have the absence of [obstetric] services altogether, where we don’t have CAT scan machines, where we can’t do MRIs without driving two or three hours.”
Rep. Grant Campbell (R-Kannapolis) also took issue with the definition of rural used in the proposal, noting that it included urban population centers like Wake County but not more traditionally rural areas like Rowan and Cabarrus counties.
“I may have missed the rolling acres of crops and wilderness of Wake County,” said Campbell, who is a physician. “If someone can show me that, I’d love to see it.”
In response, Farrington told lawmakers that funding decisions have not yet been tied to specific counties and that entities serving rural residents — including those in counties excluded under the initial definition — would still be eligible to benefit.
She added that the proposal was developed under an accelerated federal timeline and that lawmakers would have opportunities to shape implementation as the program moves forward.
“We chose the definition that gave us the broadest number of counties,” Farrington said. “We wanted also to make sure that our application gave North Carolina the best opportunity to get the most dollars to be able to benefit our rural communities.”
While North Carolina boasts the nation’s second largest rural population behind Texas, the $213 million award translates to just $61 for each of the state’s more than 3.4 million rural residents — the second lowest amount of per-resident funding provided by CMS, according to an analysis by The Washington Post.
South Carolina, by contrast, has 1.6 million people living in rural communities, but received twice as much funding per resident.
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