Joint committee clears state to accept first-year rural health transformation award; vote unanimous

The joint Tennessee Ways and Means committee voted unanimously to allow the Lee administration to accept the first-year award from the federal Rural Health Transformation Program, a state presentation said could exceed $200 million in year one and potentially reach roughly $1 billion across five years. The committee's senators voted 5-0 and house members voted 9-0 to permit the state to accept the grant.

The administration told the committee the award pairs a guaranteed baseline of $100 million per year with a competitive funding pool that depends on demonstrated progress and policy alignment with federal goals. "On December 29, Tennessee received notification that we've been awarded more than $200,000,000 in the first year of the federal rural health transformation program, with the potential to receive approximately $1,000,000,000 over the next five years," Michael Hendricks, policy director for Governor Bill Lee, told the committee.

Why it matters: presenters said the funding is intended for system-level transformation in rural areas rather than recurring operations. J.W. Randolph, deputy commissioner for population health infrastructure at the Tennessee Department of Health, said each initiative in the state plan includes defined performance metrics, phased implementation timelines and a year-six sustainability plan required by CMS.

Planned uses and guardrails outlined for the committee include: grants to expand integrated community-based primary teams and EMS training; competitive maternal and child health programs; investments in technology infrastructure and a statewide approach to data exchange; community prevention grants (including statewide nonemergency transportation pilots); and workforce development including residencies and loan-repayment placements.

TennCare's role and limits: TennCare chief medical officer Victor Wu told the committee TennCare will manage about $100 million allocated to value-based payment efforts that include maternal and child health, dental care and rural hospital support. "The dollars that we are receiving through the rural health transformation funding cannot be used to increase rates, because it's not part of the sustainability of the program," Wu said, adding that the funds are nonrecurring and should be used to support infrastructure and outcomes-based approaches rather than permanent rate increases.

Ineligible expenses and federal constraints: presenters repeatedly told members that some costs are ineligible under CMS guidance, including major construction, certain provider payments and some clinician salary types. The department said CMS's FAQ and NOFO have narrowed permissible capital spending and that the state will pursue only limited, allowable adjustments.

Oversight and timeline: officials said the state will submit a final revised budget to CMS before spending and that the first-year spending window must be completed by Sept. 30, 2027. The department described layered compliance: pre-screening of grant applications and invoices, internal risk-based monitoring and third-party spot audits to limit misuse and reduce the risk of federal clawbacks.

Next steps: the committee's approval authorizes the administration to accept the award and proceed with required state actions. Committee members were told annual plan revisions and regular meetings with CMS project officers will guide execution and that further legislative input is expected as programs move from planning to procurement and implementation.

The committee voted to accept the grant in a roll call recorded by clerks; the chair announced the vote was unanimous in both chambers and the meeting adjourned shortly afterward.