Earlier Lifeline for Rural Hospitals Faces Test Under ‘Big Beautiful’ Law

Sturgis Hospital in Michigan was among the first to convert to the federal Rural Emergency Hospital model, a Congress-created program offering a Medicare payment boost in exchange for giving up inpatient beds. Emergency department use fell afterward, and the hospital closed in June, three years into the arrangement, leaving an 11,000-person town without a hospital.

More than 50 rural hospitals in over 20 states have adopted the model, which research suggests has improved finances at some conversions, though not enough to guarantee survival. Sturgis is the only rural hospital to fully close in 2026, prompting four senators, including Susan Collins, to warn CMS administrator Mehmet Oz that the related $50 billion Rural Health Transformation Program may be structured in a way that disadvantages the hospitals it was meant to help.

The stakes are rising: the 2026 tax and spending law is projected to cut Medicaid funding by more than $900 billion over a decade, a blow expected to land hardest in high-Medicaid rural areas. Other hospitals, including one in Scotland, South Dakota, report modest gains from the model, while a shuttered hospital in Keokuk, Iowa, remains stalled in a slow-moving effort to reopen under it.

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