Industry Voices—The FCC's Rural Health Care Fund is a victim of its own success

The Rural Health Care Fund is becoming a victim of its own success, stranding rural healthcare providers (and, subsequently, their patients) that have become reliant on the fund to help support their telemedicine needs. After years of undersubscription, the last two funding years have finally seen healthcare provider demand for these funds outstrip the current $400 million annual cap on grants. The consequences of this oversubscription are just beginning to be felt throughout the healthcare industry.

Steve Rosen

The Rural Health Care Fund, written into the universal service section of the Telecommunications Act of 1996, provides subsidies to rural, public/nonprofit hospitals to purchase telecommunications services for roughly the same cost as their urban counterparts. It is one prong of a four-part universal service subsidy program, with the other prongs being the Connect America Fund (providing subsidies for residential telephone service in rural areas), the Lifeline Fund (providing subsidies for residential telephone service for low-income Americans) and the Schools and Libraries Fund (providing grants to public K-12 schools and public libraries for telephone service and internet connections).

For most of the Rural Health Care Fund’s 20-year history, applications were fully funded as they were approved by Universal Service Administrative Company (USAC). USAC opened successive “funding windows” each year in the hope of distributing more grants to worthy rural healthcare providers. 

Things have changed. During the 2017 funding year (July 1, 2017-June 30, 2018) USAC offered only one funding window. And, because demand for the fund’s resources now outstrips supply, grantees are seeing a pro rata reduction in their funding, based on the percentage by which the funds requested in approved applications exceed the fund’s $400 million cap. For the second filing window in the 2016 funding year, the pro rata reduction was 7.5%. Such a pro rata reduction is also likely for funding year 2017. 

It is safe to say that these reductions will be the new normal unless the Federal Communications Commission increases the size of the fund.

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The reasons underlying this run on the fund are varied. First, in 2012, the Commission created the Healthcare Connect Fund, which allows urban hospitals to draw on the Rural Healthcare Fund, provided the urban providers are members of majority rural buying consortia. Because this new program vastly increased the number of entities that were eligible for Rural Healthcare Fund resources, it increased pressure on the fund. 

This pressure was further exacerbated by the fact that the Healthcare Connect Fund offers healthcare providers a simple, flat 65% discount on eligible services rather than requiring grantees to substantiate the difference between urban and rural rates in their geographic area. Even if the subsidies to a particular grantee would be are slightly smaller under the Healthcare Connect Fund, many healthcare providers are attracted by its simplicity.

Second, for both administrative and clinical reasons, telecommunications are increasingly being seamlessly integrated into modern medicine. Administratively, various new electronic patient record requirements—including the American Recovery and Reinvestment Act requiring all public and private healthcare providers to adopt and demonstrate “meaningful use” of electronic medical records by Jan. 1, 2014, in order to maintain their existing Medicaid and Medicare reimbursement levels—have increased the bandwidth needed to practice medicine. 

RELATED: FCC requests input on advancing broadband-enabled IT solutions in healthcare

Clinically, as the resolution of radiological images increases (e.g., from low-resolution x-rays to high-resolution MRI and CT studies) and clinicians increasingly rely on remotely situated radiologists to interpret these studies, there is a greater need for high-capacity, high-cost data lines. And, due to both choice and necessity, the practice of telemedicine—where the doctor or nurse practitioner and the patient are connected by a video link—is finding increasing clinical acceptance by both clinicians and patients. 

As a matter of choice, younger patients, who grew up on video games and remote engagements with friends and family through such applications as Facebook, Snapchat, and Facetime, see nothing wrong with remote interactions with a clinician. As more and more rural hospitals close their doors, when faced with the choice of a three- or four-hour drive to an urban health center or a telemedicine consult with a specialist, the remote consult is increasingly attractive.

Finally, the fact that grantees from the Telecom Program are only required to pay the urban rate, with the Rural Healthcare Fund subsidizing the difference between the rural and the urban rate, has arguably decreased the price-sensitivity of participants in the Telecom Program. Because high rural rates do not throttle demand for Rural Health Care Fund resources, the fund finds itself under increasing pressure as more health care providers avail themselves of its resources.

RELATED: FCC plans to consider a funding boost for rural telehealth programs in 2017 and beyond

In response to the financial difficulties facing the RHC Program, the FCC has circulated (PDF) a draft Notice of Proposed Rulemaking and Order, which will be considered at the Dec. 14 Open Commission Meeting. In the draft Notice of Proposed Rulemaking, the Commission proposes requesting comment on:

  1. Increasing the $400 million cap on the Rural Health Care Fund on an ongoing basis.
  2. Prioritizing the distribution of grants based on remoteness, type of service requested, whether the monies are to be drawn from the Telecom Program or the Healthcare Connect Fund, and economic need of the provider’s population
  3. Targeting funding only to rural and tribal healthcare providers.
  4. Promoting price sensitivity and encouraging healthcare providers to make more efficient purchasing decisions, including refining the definition of the most “cost-effective” service offering.
  5. Establishing rules on consultants, gifts and invoicing deadlines.
  6. Strengthening the competitive bidding rules in the Telecom Program to align these rules with the Healthcare Connect Fund.

In its companion draft Order, the FCC proposes:

  1. Waiving the annual $400 million cap on a one-time basis and instructing USAC to carry forward any unused Rural Healthcare funds from prior funding years for use in 2017.
  2. allowing service providers to voluntarily reduce their rates for qualifying 2017 requests while still drawing the same amount of grant money from the fund.

Against this background, healthcare providers that rely on the Rural Healthcare Fund to support their telemedicine needs can take two steps to ameliorate the looming reduction in federal funding. 

First, as soon as the Notice of Proposed Rulemaking is adopted by the FCC, they can file comments supporting an increase in the Rural Healthcare Fund’s $400 million cap and any other proposals that might help alleviate the particular provider’s funding shortage (e.g., a more remote provider might support funding priority based on remoteness). Second, they can look to state resources (such as the California Teleconnect Fund) to make up for at least some of the lost resources.

Steve Rosen is a partner at Levine, Blaszak, Block & Boothby, LLP in Washington, D.C. His practice focuses on federal and state regulation of wireless and wireline telecommunications and information services—including the taxation of these services—and on the negotiation of contracts for the purchase and sale of goods and services by small enterprises.