Industry Voices—Providers need to prepare for FCC changes to Rural Health Care Program

The Federal Communications Commission has expressed concern that its method for establishing rural rates has become difficult to operationalize in a de-tariffed era for areas with a limited number of commercial customers. (Getty/OgnjenO)

The Federal Communications Commission’s Rural Health Care (RHC) fund is suddenly quite popular.

After years of undersubscription, the last two funding years have finally seen healthcare provider demand for RHC funds far outstrip the current $400 million annual cap on grants. As a result of this demand spike, the FCC recently proposed a number of measures to tighten funding requirements, especially in the RHC’s Telecom Program.

The most significant proposal affecting both the Healthcare Connect Fund and the Telecom Program would prioritize grantee eligibility based on rurality, economic need or service type.

For example, healthcare providers located in areas that are more rural (based, for example, on Census Bureau data) would be granted priority in their funding applications, as would Healthcare Connect Fund consortia that have a greater percentage of rural locations. Similarly, the FCC might prioritize eligibility based on the relative economic need of a rural area’s population (based, for example on Medicaid eligibility).

The Telecom Program’s subsidies are pegged to the difference between the urban and the rural rates for each eligible circuit. Therefore, the most important proposed change to this program involves revamping the process for determining valid urban and rural rates.

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Specifically, in the past few years, the FCC has become increasingly concerned that allowing healthcare providers to rely on a single, “publicly-available” urban rate of the applicant’s choosing simply presents too great an opportunity for applicants to “cherry-pick” artificially low urban rates which lead to higher individual grants and an increased draw on the fund. The commission has proposed instead to mandate that funding applicants use the average urban rate for a functionally similar service, because the rate-averaging process would eliminate the ability of applicants to rely on a single low and non-representative urban rate.

The FCC has also expressed concern that its method for establishing rural rates has become difficult to operationalize in a de-tariffed era for areas with a limited number of commercial customers.

Under the commission’s current rules, applicants have three options for identifying the rural rate on which their funding application is based: (1) the average of the rates actually being charged to the carrier’s non-healthcare commercial customers for identical or similar services in the rural area in which the healthcare provider is located; or (2) if the carrier is not providing any identical or similar services in the rural area, the average of the tariffed and other publicly available rates charged for the same or similar services in that rural area by other carriers; and (3) if neither of the first two conditions can be satisfied, the carrier may get approval from either the FCC or a state commission for cost-based rates for the services in question.

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The FCC’s proposals recognize that, in the current competitive environment, there may be few carriers offering business-grade services in rural areas where healthcare providers are located. Moreover, carriers tend to regard their rates for business services as competitively sensitive, confidential information. And, in the current regulatory environment, there are few, if any, tariffs to use as benchmarks for rural rates.

Accordingly, the FCC asked for comment on whether the rural rate should be the average of all publicly available rates charged for the “same or similar services” in the rural area in which the healthcare provider is located.

Finally, in order to allow healthcare providers and carriers to implement its rate-averaging proposals, the commission proposed that either the service providers or the Universal Service Administrative Company (USAC), rather than the healthcare providers, create and curate databases of urban and rural rates.

Commenters have suggested that in today’s deregulated market where cost-based rate justifications have generally been eliminated, the commission would be best served by relying on the competitive bidding process to produce a market-based rural rate. Under such circumstances, on a USAC audit, the healthcare provider would merely have to defend the integrity of the competitive bidding process and not the rate itself. More radically, other commenters have proposed phasing out the Telecom Program entirely, with the exception of Alaska.

While the wheel of the commission’s decision is still in spin, affected healthcare providers should monitor the docket and be prepared to implement the new requirements when the order is adopted.

Steve Rosen and Colleen Boothby are both partners at Levine, Blaszak, Block & Boothby LLP in Washington, D.C.