Technology Innovation: Considerations for Investing Rural Health Transformation Funding

Technology Innovation is one of five strategic initiatives that guide how states invest Rural Health Transformation (RHT) Program funds. It supports efficient care delivery, data security, and access to digital health tools. 

Technology often looks like the easiest place to spend RHT funds. In practice, buying technology with federal dollars comes with more limits than most commercial purchases. For-profit companies, software vendors, and other partners can play a role. However, federal funding brings compliance, reporting, and oversight requirements that apply to every license, device, and contract.

Who Can Participate in Technology Innovation Projects?

States usually fund technology projects through eligible recipients, which then bring in partners. Depending on state program design, partners may include:

• Healthcare companies: telemedicine providers, teleconsultation networks, and specialty groups offering stroke telemedicine or tele-ICU coverage
• Technology vendors: telehealth platforms, remote patient monitoring devices, telecare systems, AI-enabled solutions, and health information exchange (HIE) tools
• Cybersecurity and IT firms: managed security, network infrastructure, and cloud hosting providers
• Service firms: implementation consultants, data integration specialists, and IT governance advisors

A company doesn't need a rural address or a clinical license to take part. It does need a defined role in a funded project. Whether that role is subrecipient or contractor determines which rules apply (see how that classification works).

What Do Technology Innovation Projects Typically Fund?

States set their own priorities. Technology Innovation projects generally fund:

• Telehealth and telemedicine that bring specialty care to rural sites
• Remote patient monitoring for chronic disease and post-discharge care
• Cybersecurity upgrades for small and under-resourced providers
• Interoperability work that connects electronic health records (EHRs) to state HIEs
• AI tools that support clinical workflows, operational efficiency, patient access, data analysis, and other state-defined rural health priorities

How states prioritize these investments varies. Some are exploring AI-enabled solutions, while others are focusing on integrating and modernizing existing systems instead of replacing them. Indiana and Missouri, for example, plan to modernize EHRs by expanding connections to their state HIEs. Before you commit, review your state's Request for Applications (RFA) to see where your services fit. RHT funds must add to existing spending, not substitute for it. 

The Challenge: 3 Rules When Buying Technology with Federal Dollars

1. EHR replacement spending is capped. 

Each state can spend no more than 5% of its annual award on replacing certified EHRs. Since the cap applies statewide, one large project can use up most of it. Before proposing a new system, confirm with your state how much of the cap is still available.

2. Some equipment is prohibited. 

Under 2 CFR 200.216, federal funds can't be used for certain telecommunications and video surveillance equipment and services from named manufacturers or their affiliates. That includes components inside telemedicine carts, cameras, and network hardware, so vendors should be ready to certify what's in their products.

3. Subscriptions can outlast the grant. 

Software licenses and multi-year service agreements often run past the period of performance, and generally only costs within it are allowable. A three-year subscription paid up front with one year of grant funding can leave part of the cost unallowable.

The Opportunity: Technology That Extends Rural Care

RHT-funded technology can give rural providers capacity they couldn't afford on their own. With the right planning, that investment can continue paying off after the award ends. Two areas need attention from the start:

Program Income

Telehealth visits, teleconsultation fees, and remote monitoring services billed to patients and payers may count as program income, which must be promptly identified, tracked, reported, and used the way the award terms allow. Determine early:

• Which telemedicine and telecare services generate revenue that counts as program income
• How to separate grant-supported visits from existing telehealth revenue
• Who reports program income to the state and how often
• What your state requires for identifying, tracking, and reporting program income

Budgeting for Total Cost of Ownership

The purchase price is only the first cost. A sustainability plan should account for:

• Licenses and subscriptions that renew each year
• Maintenance and support contracts after warranties expire
• Replacement cycles for devices, carts, and network hardware
• Staff time for training, IT support, and security monitoring

States are investing heavily in telemedicine, but there isn't yet a durable federal payment path to keep programs running after RHT funding ends. Identify who will pay each recurring cost before the grant stops covering it.

Federally Compliant Procurement for Technology

Technology purchases must follow 2 CFR 200 procurement standards, along with any stricter state or organizational rules. Since October 1, 2025, the micro-purchase threshold is $15,000 and the simplified acquisition threshold is $350,000. Common risks include: 

• Purchase splitting: breaking a large order, such as telemedicine carts for several sites, into smaller orders to stay under a threshold. Auditors look for this pattern, and failing to follow the required procurement process can lead to disallowed costs. 
• Skipping quotes: purchases between the two thresholds need price quotes from an adequate number of qualified sources, with records of each source and the final selection. 
• Using quotes when an RFP is required: purchases above the simplified acquisition threshold require sealed bids or competitive proposals.
• Weak sole-source justifications: noncompetitive purchases, such as a CT scanner that must match existing systems, are allowed only in limited circumstances, such as when an item is available from a single source. Document why no other vendor fits. 
• State pre-approval: Check your state’s procurement requirements before making a purchase. Some states require procurement packages to be submitted for review and approval before a purchase is made.

Vendors should expect federal contract clauses, equipment certifications, and price reviews.

Governance, Internal Controls, and Federal Oversight

Technology projects touch data, devices, and recurring costs, so controls need to cover all three. For-profit recipients and partners should have:

• Clear ownership: defined decision rights for technology selection, data access, and security
• Asset tracking: inventory records for grant-funded equipment, including location and condition
• Segregated accounting: grant costs and program income tracked separately from commercial revenue
• Contract controls: reviews of license terms, renewal dates, and data ownership
• Audit readiness: confirmed audit requirements under each award and subaward

Strong internal controls connect every technology dollar to an approved purpose. CMS can claw back funds spent outside an approved application, so plan for recurring reports, documentation requests, and possible site visits. 

Frequently Asked Questions

Can RHT funds pay for a new EHR? In limited cases. Spending on replacing certified EHRs is capped at 5% of each state's annual award. Integration and upgrade work generally falls outside the cap.

Can a company outside healthcare take part in Technology Innovation projects? It may. Software, cybersecurity, and IT firms can support funded projects by partnering with qualified recipients.

Does telehealth revenue count as program income? It may. Revenue from grant-supported telehealth, teleconsultation, or monitoring services should be tracked and reported according to the award terms.

Can technology be purchased without competitive bidding? Only in limited circumstances. Sole-source purchases require documented justification under 2 CFR 200.

How can technology investments continue after RHT funding ends? Budget for total cost of ownership from the start and identify who will cover licenses, maintenance, and replacement.

We Can Help

Every technology purchase creates costs that continue after the award ends. Elliott Davis helps for-profit companies, healthcare providers, and their partners:

• Assess technology plans against EHR replacement limits and prohibited equipment rules
• Build compliant procurement processes, including quotes, RFPs, and sole-source justifications
• Identify and track program income from telehealth and teleconsultation services
• Model total cost of ownership and sustainability after the grant
• Build the controls and reporting that federal oversight requires

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