FCC Provides Relief for Rural Health Care Providers; Proposes Changes to Rural Health Care Program

Davis Wright Tremaine LLP

Davis Wright Tremaine LLP

[co-author: Tanea Foglia]

On December 14, the FCC adopted, with bipartisan support, a Notice of Proposed Rulemaking and Order (“NPRM”) to provide a measure of financial relief to rural health care providers who will be impacted by the pending pro-ration of the Universal Service Fund’s Rural Health Care (“RHC”) Program support. The Order and NPRM seek to address the immediate and long-term sustainability of the RHC fund.

Two components comprise the RHC program: the legacy Telecommunications Program (“Telecom Program”) and the Healthcare Connect Fund (“HCF”). The Telecom Program, adopted in 1997, allows eligible rural health care providers to pay lower rates that are comparable to rates for similar services in urban areas. The HCF component was established in 2012 and provides a 65 percent discount on services and equipment related to the provisioning of broadband service. 

The smallest of the four USF programs, the RHC program is capped at $400 million annually. Prior to 2016, the program had never approached the cap. Indeed, in its 2012 HCF Order the FCC projected that funding requests would grow to approximately $235 million annually within five years. In fact, funding commitments exceeded that amount in 2014 and, in 2016, exceeded the cap for the first time in the program’s 20-year history. As a result, the Universal Service Administrative Company (“USAC”) pro-rated support too many health care providers. Based on estimates for Funding Year 2017 (“FY 2017”), it appears that USAC will be required to pro-rate support again. The actions taken in the Order and NPRM are designed to provide immediate relief to health care providers in the short term, and address waste, fraud and abuse, other funding concerns, and program oversight in the long term.


The FCC’s Order adopts two discrete measures to provide immediate relief to RHC program participants for FY 2017. Taken together, the measures described below are designed to reduce the increased out of pocket expenses health care providers would otherwise incur.

Unused Support Rollover. The Order will permit USAC to carry forward unused RHC funds from previous years to fund FY 2017 commitments.  Depending on the amount of rollover support available, the additional funds will either reduce or eliminate altogether the need to prorate support for individual health care providers. If there is additional support remaining after assisting the individual health care providers, USAC will then adjust the proration amount for consortia. The FCC’s rationale for this bifurcated approach is that, unlike consortia, “individual rural health care providers generally do not have the advantages of bargaining power or the economies of scale when purchasing services…”.

Voluntary Price Reduction. In conjunction with amending the proration factor, the Order further modifies the rules for FY 2017 by permitting service providers the opportunity to voluntarily reduce their service costs to “reduce unexpected cost burdens” experienced by health care providers resulting from a reduction in RHC funding. This approach is consistent with the one taken in the Alaska Waiver Order, which permitted service providers to reduce previously approved service prices on a one-time basis while holding constant the prorated support amount.  Despite this relief, health care providers still incurred unexpected expenses. 

In order to effectuate this change, the FCC has waived additional rules that would otherwise be triggered by a reduction in service provider rates:

  • reduced service charges will not be considered as a payment from an ineligible source;
  • health care providers will not have to restart the competitive bid process;
  • the FCC will waive the invoice certification rule for this limited purpose;
  • the reduced rates will not impact evergreen contracts; and where applicable,
  • the price reductions resulting from this limited waiver will not impact E-Rate lowest price requirements.

Notice of Proposed Rulemaking

Although the Order addresses immediate concerns for FY 2017, the Commission asserts that a long-term solution is needed to prevent similar problems from recurring in subsequent years. The NPRM seeks comment on ways to:

  • Address funding levels;
  • Create efficiencies to mitigate waste, fraud, and abuse; and,
  • Improve program oversight.

Each proposal is discussed briefly below.

Address Funding Levels. In the NPRM, the FCC acknowledges that the $400 million cap for the RHC program has not increased since the program’s inception 20 years. As such, the FCC seeks comment on whether the cap should be increased and, if so, should the increase retroactively include FY 2017.  The FCC seeks input on how much of an increase is warranted and how such an increase should be calculated. For example, if the FCC were to adopt the same methodology used for E-Rate, the Gross Domestic Product Chain-type Price Index (“GDP-CPI”), the inflation adjusted RHC cap would be $571 million for FY 2017. The FCC also seeks comment on what additional factors should be factored into a revised a cap,  and whether unused funding should be rolled over for subsequent funding years as permitted for FY 2017.

The NPRM also asks whether the FCC should follow up on its previous consideration of prioritizing funding should the RHC program exceeds its cap in the future. If prioritization is adopted, the NPRM asks whether it should be based on rurality and remoteness, service type, Telecom Program vs. HCF requests, economic need or health care professional shortages, or other criteria.

Further, the FCC seeks comment on whether it should reconsider the composition of consortia for funding purposes. Currently non-rural health care providers can participate in the HCF program if more than 50 percent of members are rural.

Last, the FCC seeks comment on how to better meet the needs of tribal participants in the RHC program.

Create Efficiencies to Mitigate Waste, Fraud, and Abuse. The FCC puts forth several proposals for managing costs in the Telecom Program, including establishing a benchmark for funding requests and asking how to manage requests that exceed the benchmark. Further, the FCC proposes modifying the support calculation for the Telecom Program, relying less on service providers to calculate urban versus rural rates, and reassessing what defines “similar services” and “cost effectiveness.”

Improve Program Oversight. Although the HCF and Telecom Program both are components of the Rural Health Care Program, the rules for the two components are not uniform. The FCC proposes to increase synchronization between the Telecom and HCF programs by establishing consistent rules for “fair and open” competitive bidding, codifying in the Telecom program the HCF rules related to consultants and invoicing, and adopting the E-rate gift rules for both programs. Currently, the RHC program has no specific gift requirements.

Finally, the NPRM proposes reducing the administrative burden on RHC participants by consolidating the RHC forms and reducing the number of forms from seven to four. The NPRM also proposes making administrative practices more consistent by requiring participants in the Telecom Program to submit documentation along with funding requests, and consolidating the filing windows. Last, the NPRM proposes requiring all RHC participants to report on their telehealth activities; currently, only consortia are required to report that information.

Comments on the NPRM will be due 30 days after publication in the Federal Register, and Reply Comments will be due 30 days thereafter. Please contact your DWT attorney if you are interested in learning more about the FCC’s newly adopted rules and proposals, and their impact on your business.

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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