FCC Adopts Order Modernizing its Rural Healthcare Program

Davis Wright Tremaine LLP

Davis Wright Tremaine LLP

At its August 2019 meeting, the Federal Communications Commission (FCC) adopted an order modernizing its Rural Healthcare (RHC) universal service programs—the Telecommunications Program and the Healthcare Connect Fund—providing subsidized telecommunications, broadband Internet access, and similar services to rural healthcare facilities. The federal Communications Act calls for healthcare providers in rural areas to have access to telecommunications and other supported services at rates similar to those paid by consumers in urban areas.

After passage of the 1996 Telecommunications Act, the FCC created the Telecommunications Program to provide access to discounted telecommunications services for rural healthcare providers. In 2012, the FCC created the Healthcare Connect Fund to focus subsidizing high-speed services provided to rural healthcare facilities, such as broadband Internet access and dark fiber.

The programs provide varying levels of subsidies to defray the typically higher cost of service in rural areas (the programs may, under certain circumstances, also benefit some healthcare providers). In the Telecommunications Program, participants have furnished rates for similar services in urban and rural areas, and the program paid the difference subject to a cap.

The Healthcare Connect Fund pays a flat 65 percent subsidy for qualifying services. Neither of the constituent RHC programs had changed significantly since their creation, even though the FCC invested considerably in modernizing its other universal service programs, such as E-rate and the High Cost program, to introduce multiple safeguards against waste, fraud and abuse.

The lack of evolution in the RHC rules was less of an issue historically while participation remained well below the $400 million annual funding cap. However, funding requests rapidly increased a few years ago, causing the FCC to begin taking a closer look at the RHC programs. In late 2017, the FCC opened a rulemaking proceeding to consider a variety of reforms to bring its RHC programs more in line with the other universal service programs and its overarching goal of reducing waste, fraud and abuse.

The new order exceeds 100 pages and contains numerous changes to both the Telecommunications and Healthcare Connect Programs. Some changes affect both the Telecommunications Program and the Healthcare Connect Fund, which are summarized immediately below.

Changes to Both RHC Programs

(Unless Otherwise Noted)

Type of Change Description
New priority system instead of proration, and caps now indexed to inflation

If funding requests exceed RHC cap, USAC will no longer prorate funding requests. Instead, it will distribute funding according to a new priority system, which distributes funding first for the most rural and the most medically unserved areas (“MUA”). USAC will fund Telecommunication Program requests according to the new priorities until it hits the $150M+ cap for that program, and continue to fund Healthcare Connect requests until the overall RHC cap of $550M+ is reached. Both caps will now increase annually as indexed by inflation.

The priority system is as follows:

Location of Healthcare Provider Medically Unserved Area/Population Not in MUA/P
Extremely Rural Tier Priority 1 Priority 4
Rural Tier Priority 2 Priority 5
Less Rural Tier Priority 3 Priority 6
Non-Rural Tier Priority 7 Priority 8
Rural thresholds for Healthcare Connect consortia

Three-year grace period for Healthcare Connect consortia to achieve 50% rural participation is eliminated. Current consortia have until funding year 2020 to reach 50%.

If funding demands exceed the cap, the threshold will automatically increase 5% for the following funding year up to a maximum of 75%.

Specifying services sought—rather than medical functions RHC participants will now be required to specify the specific services for which bids are sought (such as Internet access with specific bandwidth requirements) rather than what the services will be used for (such as transmitting X-rays).
Strict gift limitations

Healthcare providers are now prohibited from soliciting or receiving—and service providers are prohibited from offering or providing—directly or indirectly any gift, gratuity, entertainment, loan, or any other thing of value to or from personnel participating in either RHC program. This rule essentially mirrors the gift rule in the E-rate program, and applies throughout the year as well as to entities that are not current participants but may be in the future.

There are two limited exceptions to these prohibitions:

  1. modest refreshments not offered as part of a meal (e.g., coffee and donuts), and items with little intrinsic value (e.g., a certificate), and
  2. items worth $20 or less up to a maximum of $50 per employee from any one source in a calendar year.

Even minor violations of these rules in the E-rate context has resulted in USAC seeking to clawback an entire year’s funding.

Consultant registration Similarly to the E-rate program, RHC consultants assisting applicants will be required to register with USAC.
Additional time for bidding process Beginning in funding year 2021, bidding may begin as early as July 1 of the prior funding year.

USAC will now open the application filing window no later than April 1 (90 days prior to the start of the new funding year)

Single delivery deadline June 30 of the funding year at issue is now the deadline for all contracts for delivery of services.
Extension of delivery deadline for non-recurring services

Applicants may receive a one-year extension to deliver non-recurring services in certain circumstances, such as:

  1. where USAC issues the commitment letter on or after March 1, and
  2. where there is a service provider change or service substitution approved on or after March 1.
Invoicing deadline Invoices must be submitted to USAC within 120 days of the later of the service delivery deadline or the date of a revised funding commitment letter issued pursuant to an applicant or service provider request or successful appeal.

This deadline may receive a single 120-day extension.

Numerous revisions to the rules only affect the Telecommunications Program, which had not significantly changed in over 20 years. These revisions generally align that program with the Healthcare Connect Fund, or otherwise reduce waste, fraud and abuse, as summarized below.

Changes Specific to the Telecommunications Program

Type of Change Description
USAC to define which urban and rural services are similar for rate determinations USAC (rather than the healthcare or service provider) will now identify which services are similar. USAC will consider services to be similar if they fall within a speed range of 30% more or less than the requested service. Factors other than bandwidth may be considered, such as data security features, but only to the extent that the healthcare provider indicates that such features are required.
USAC to define “urban” and “rural” for rate determinations and entity eligibility

To define which areas in a state are urban, USAC will use Census Bureau urbanized areas.

To define which areas in a state are rural, the FCC created three tiers:

  1. a “less rural” area is one that is in a Core Based Statistical Area (“CBSA”) with a population center of 25,000 or more, but the less rural area is in a census tract that does not contain any part of a Place or Urban Area of 25,000 or more
  2. a “rural” area is one that is within a CBSA lacking an urban area with a population of 25,000 or more;
  3. an “extremely rural” area is one entirely outside a CBSA ; in Alaska, “extremely rural” is further bifurcated into two sub-tiers.

These rural tiers will be used to determine both rates, as well as which entities are eligible to participate in the program.

USAC to determine the urban rate USAC to create a new public database of rates from various resources, including rates from the E-rate program for similar services.

USAC will then calculate the median of available rates for similar services across all urbanized areas in a state. The “standard urban distance” rule was therefore eliminated as moot.

USAC to determine the rural rate USAC to calculate the median of available rates across the relevant rural tier in the state. This will include the service provider’s own rates for non-healthcare customers.

Like the urban rates, these will be published in the new database.

New rate database USAC to create the database no later than July 1, 2020, and update the rates “periodically,” although the order also states that a median rate set by USAC will be deemed effective for three years.
Satellite cap eliminated The cap on satellite services is now eliminated as unnecessary in light of the new median rate approach. The order notes that the median rate approach will take into account the rates for satellite services if they are functionally equivalent to the requested services.
Rural thresholds for consortia Three-year grace period for consortia to achieve 50% rural participation is eliminated. Current consortia have until funding year 2020 to reach 50%.

If funding demands exceed the cap, the threshold will automatically increase 5% for the following funding year up to a maximum of 75%.

Healthcare Connect bidding requirements extended to Telecommunications Program Participants in both programs must now specify on their bid scoring matrices the minimum requirements to meet each scoring criteria, record each bidder’s proposed service levels, and specify disqualification criteria. The “fair and open” bidding requirements are also extended to the Telecommunications Program. This entails such things as requiring that all potential bidders have access to the same information and that the healthcare provider respond to all bidders posing questions during the bidding process.
Site and service substitutions Site and service substitutions are now available in the Telecommunications Program, as long as the substitution is consistent with the governing contract, funding documents, and state/tribal/local law, and any new site is otherwise eligible.

The order’s adopted rule changes have varying effective dates. Some delay effective dates, such that they will become effective for funding year 2020 (next summer), and some go into effect for funding year 2021 (summer of 2021). Others will first require additional regulatory approvals from the Office of Management and Budget (“OMB”) (which can take months), and yet others take effect 30 days after the order is published in the federal register.

The order does not appear to specify which changes will require OMB approval, so we have reached out to the FCC for clarification. In the meantime, the order does list the types of rules slated to take effect for funding years 2020 and 2021.

Rules effective in funding year 2020:

  • Prioritizing funding if demand exceeds the cap;
  • Rules governing majority-rural requirement for Healthcare Connect Fund Program consortia;
  • Competitive bidding rules;
  • Invoicing rules;
  • Site and service substitutions and service provider change rules;
  • Service delivery deadline and extension rules, gift rules; and
  • Rules governing use of consultants and other third parties.

Rules effective in funding year 2021:

  • Rules for determining urban and rural rates in the Telecom Program;
  • Rule providing additional time to complete the competitive bidding process; and
  • Application filing window rule.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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