I'm sorry but that does not make any sense what so ever.

As the reimbursement only occur only after one returns from travel, if this is true, in effect it means no one will ever stay in Hilton on Government rate, as no one will be ready to float the cost of the hotel for months.

If it is true, it is a business decision by Hilton not to cater to the Government employees any more. Which seems to be rather sneaky and stupid way of doing so.

Plus, the talk about "blocking" does not make any sense as well. The hotels can offer a room in Government rate, but it is not blocked from other booking the same room on other rates. OP, is this in connection to a conference or large gathering, or was it just a room on a regular travel?