Arizona receives $33 million less than expected for rural healthcare funding

TUCSON, Ariz. (13 News) - Arizona received $33 million less than expected in federal rural healthcare funding, despite the state applying for the amount encouraged by federal officials.

Gov. Katie Hobbs submitted the state’s application in November for $200 million per year through the Rural Health Transformation Program. The revised budget was sent back Jan. 30 to the Centers for Medicare and Medicaid Services to reflect the $167 million annual award instead.

The shortfall comes as federal cuts to Medicaid are expected to cost Arizona up to $34 billion, according to the Congressional Budget Office. Arizona received the sixth-lowest amount of rural health funding in the country from the program, which awards $10 billion annually across all 50 states. However, when broken down by the percentage per rural resident, Arizona ranks 22nd.

According to the CMS, 50% of the funding is distributed equally among all approved states. The remaining 50% is allocated based on factors like state rural rates, health system conditions, and state policies, among others.

Dr. Daniel Derksen, director of the Arizona Center for Rural Health, said the funding shortfall is concerning given the state’s rural healthcare needs.

“The $167 million a year that CMS, the Centers for Medicare and Medicaid Services, awards Arizona, won’t come close to making up for the difference between that,” Derksen said.

Eight of Arizona’s 15 counties are fully rural, according to Derksen. Those communities often have lower incomes, less access to care, and higher rates of chronic disease.

“Rural areas in Arizona tend to have a higher percentage of people who depend on Medicaid for coverage, so when you take that away, it’s disproportionally going to affect people who live in rural areas and the providers that take care of them in those areas,” Derksen said.

Despite the shortfall, Derksen said the governor’s office has rebalanced the budget well. The $167 million will be distributed among AZDHS, State Medicaid services, also known as AHCCCS, and the Office of Economic Opportunity. Those investments will improve telehealth and digital technology tools, address maternal health and chronic disease, and invest in workforce education and training.

While only 11% of Arizonans live in rural communities, Derksen said the funding could be a good first step.

“It’s a good opportunity for our rural areas really to take advantage of some of this new funding that’s coming and prepare for some of the new changes that could be coming in 2027,” Derksen said.

Derksen said CMS is expected to approve the revised budget by the end of February or early March, with funding distributed soon after.

This article was originally broadcast on KOLD