FCC 97-157

XI. HEALTH CARE PROVIDERS

A. Overview

608. In this section, we conclude that all public and non-profit health care providers that are located in rural areas and meet the statutory definition set forth in section 254(h)(5)(B) are eligible for support under section 254(h)(1)(A). We conclude that under section 254(h)(1)(A), any telecommunications service of a bandwidth up to and including 1.544 Mbps that is necessary for the provision of health care services is eligible for support. We establish limits on the supported services that a rural health care provider may obtain. We also require telecommunications carriers to charge rural health care providers a rate for a supported service that is no higher than the highest tariffed or publicly available rate charged by a carrier to a commercial customer for a similar service in the state's closest city with a population of at least 50,000, taking distance charges into account. In addition, we conclude that a carrier that provides telecommunications services to eligible health care providers at reduced rates may recover the difference, if any, between the rate for similar services provided to other customers in comparable rural areas of the state and the rate charged to the rural health care provider for such services. Pursuant to section 254(h)(2)(A), we provide limited support for toll-free access to an Internet service provider for all health care providers, regardless of their location. Recognizing that section 254 requires that universal service support mechanisms be specific, predictable, and sufficient, we establish support subject to a $400 million annual cap.

B. Services Eligible for Support

1. Background

609. Section 254(c)(1) gives the Commission and Joint Board responsibility for defining a group of core services eligible for federal universal service support.⁽¹⁵⁵⁰⁾ Section 254(c)(3) provides the Commission with separate authority to designate, in addition to core telecommunications services, "additional" services as eligible for support for public and non-profit health care providers pursuant to section 254(h).⁽¹⁵⁵¹⁾

610. In the Joint Explanatory Statement, Congress explained that section 254(h) is intended "to ensure that health care providers for rural areas . . . have affordable access to modern telecommunications services that will enable them to provide medical . . . services to all parts of the Nation."⁽¹⁵⁵²⁾ The Joint Explanatory Statement also noted that the definition of services to be supported by universal service support mechanisms is an evolving one, and "[t]he Commission is given specific authority to alter the definition from time to time,"⁽¹⁵⁵³⁾ and pursuant to 254(c)(3), to specify a separate definition of universal service that would apply only to public institutional telecommunications users.⁽¹⁵⁵⁴⁾ The Joint Explanatory Statement indicated that "the conferees expect the Commission and the Joint Board to take into account the particular needs of hospitals" in formulating the latter definition.⁽¹⁵⁵⁵⁾

611. After the NPRM was issued, the Commission established the Advisory Committee on Telecommunications and Health Care (Advisory Committee).⁽¹⁵⁵⁶⁾ In its report, issued prior to the Joint Board's Recommended Decision, the Advisory Committee described what it called its "market basket" of "essential telemedicine⁽¹⁵⁵⁷⁾ applications."⁽¹⁵⁵⁸⁾ The Advisory Committee developed the market basket as a guide to the level of telecommunications services "necessary to support rural telemedicine efforts."⁽¹⁵⁵⁹⁾ The applications in the market basket include: 1) health care provider-to-provider consultation between professionals in rural hospitals and clinics, and professionals in other locations, including the capability to transmit data and medical images such as x-rays; 2) provider-to-patient consultation, including the examination or counseling in a multimedia format of patients in rural hospitals and clinics by professionals in urban hospitals using diagnostic devices such as electronic stethoscopes, ophthalmoscopes, otoscopes, EKGs and others; 3) continuing medical education programs for rural physicians and other health care providers; 4) round-the-clock support (including triage) from physicians and specialists either at urban centers or at a local physician's office; 5) a comprehensive set of specialty services -- such as radiology, dermatology, selected cardiology, pathology, obstetrics (fetal monitoring), pediatric, and mental health/psychiatric services -- the diagnostics, data, and images of which should be able to be transmitted at high speed; and 6) interaction between emergency departments and trauma centers in urban areas and helicopters and ambulances at the scene of emergencies in rural areas.⁽¹⁵⁶⁰⁾

612. The Advisory Committee recommended that the Commission limit universal service support to services of bandwidths up to and including 1.544 Mbps or its equivalent.⁽¹⁵⁶¹⁾ The Advisory Committee called this "the minimum bandwidth necessary" to allow eligible health care practitioners to "access the basic set of telecommunications applications necessary for health care in rural areas"⁽¹⁵⁶²⁾ and recommended that health care providers be able to choose what services they need and obtain support for any telecommunications services up to that bandwidth.⁽¹⁵⁶³⁾ Although it found that the bandwidth needs of a health care provider vary by the size of a facility and number of patients it serves, the Advisory Committee declined to recommend limiting the telecommunications services available for support based on a facility's size.⁽¹⁵⁶⁴⁾ The Advisory Committee concluded that because health care providers would still be paying rates comparable to those charged in urban areas, these market prices would provide a strong incentive for health care providers to "self-monitor" and avoid excessive use of supported services.⁽¹⁵⁶⁵⁾ The Advisory Committee also recommended toll-free access to the Internet -- providing access to services such as electronic mail, the most current health care information, and collaborative applications -- be included in the list of telecommunications services necessary for the provision of health care in a state.⁽¹⁵⁶⁶⁾ In addition, the Advisory Committee recommended that an eligible telecommunications carrier receive universal service support to build, upgrade, or extend its backbone infrastructure so it could offer telecommunications services necessary for the provision of health care to all eligible health care providers in the rural areas it served.⁽¹⁵⁶⁷⁾ The Advisory Committee recommended, that if backbone facilities that had been extended or upgraded with universal service funds were used by other non-eligible customers of the carrier, there should be mechanisms to recover the supported costs of the infrastructure from the profits obtained from serving such customers.⁽¹⁵⁶⁸⁾

613. In the Recommended Decision, the Joint Board concluded that the information on the record was insufficient to support a recommendation on the scope of services to be supported for health care providers.⁽¹⁵⁶⁹⁾ The Joint Board recommended that the Commission solicit information and expert assessment on the exact scope of services that are "necessary for the provision of health care in a state."⁽¹⁵⁷⁰⁾ The Joint Board concluded that only telecommunications services should be designated eligible for support⁽¹⁵⁷¹⁾ and recommended that the Commission seek information on the telecommunications needs of rural health providers and the most cost-effective ways of providing needed services.⁽¹⁵⁷²⁾ The Joint Board also recommended that the Commission support terminating as well as originating services, when the eligible provider incurs such charges;⁽¹⁵⁷³⁾ that the Commission not designate customer premises equipment as eligible for support;⁽¹⁵⁷⁴⁾ and that the Commission revisit the list of supported additional services by the year 2001, when the Commission is scheduled to re-convene a Joint Board on Universal Service.⁽¹⁵⁷⁵⁾

614. The Joint Board found insufficient information in the record to justify a recommendation of support for Internet access for rural health care providers. The Joint Board recommended that the Commission seek information on both the rate of expansion of local access coverage of Internet service providers in rural areas of the country and the costs likely to be incurred in providing toll-free Internet access to health care providers in rural areas.⁽¹⁵⁷⁶⁾ The Joint Board also found insufficient evidence on the record to justify a recommendation that the Commission authorize support for upgrades to the public switched or backbone networks when such upgrades can be shown to be necessary to deliver services to eligible health care providers.⁽¹⁵⁷⁷⁾ The Joint Board recommended that the Commission seek additional information on the probable costs, advantages, and disadvantages of supporting such upgrades.⁽¹⁵⁷⁸⁾

615. In the Recommended Decision Public Notice, the Common Carrier Bureau sought information about the exact scope of services that should be included in the definition of services "necessary for the provision of health care in a State" and the most cost-effective way to provide such services.⁽¹⁵⁷⁹⁾ The Bureau also sought comment on the relative costs and benefits of supporting technologies and services that require bandwidth higher than 1.544 Mbps.⁽¹⁵⁸⁰⁾ Moreover, the Bureau sought comment on the costs of supporting upgrades to the public switched network and inquired to what extent, and on what schedule, ongoing network modernization might make such upgrades unnecessary.⁽¹⁵⁸¹⁾ In addition, the Bureau sought comment on the probable costs, advantages, and disadvantages of supporting upgrades to the public switched or backbone networks when such upgrades can be shown to be necessary to deliver eligible services to rural health care providers.⁽¹⁵⁸²⁾

2. Discussion

616. Medical Applications Eligible for Support. In the Recommended Decision, the Joint Board concluded that the information on the record was insufficient to support a recommendation on the scope of services to be supported for health care providers⁽¹⁵⁸³⁾ and recommended that the Commission solicit information and expert assessment on the exact scope of services that are "necessary for the provision of health care in a state."⁽¹⁵⁸⁴⁾ Consistent with the record developed as a result of the Joint Board recommendation, we agree with those commenters suggesting that health care providers themselves are best able to determine those medical applications that should be provided by means of supported telecommunications services.⁽¹⁵⁸⁵⁾

617. Commenters submitted a comprehensive, if not exhaustive, list of medical applications that use telecommunications services, including the "market basket" developed by the Advisory Committee.⁽¹⁵⁸⁶⁾ We reject the suggestions of some commenters that "health care services"⁽¹⁵⁸⁷⁾ must or should be defined to include only patient care, diagnosis, and treatment,⁽¹⁵⁸⁸⁾ or to exclude general administrative lines⁽¹⁵⁸⁹⁾ or all bedside services.⁽¹⁵⁹⁰⁾ Because the definition of "health care provider" includes, for example, local health departments or agencies and post-secondary educational institutions,⁽¹⁵⁹¹⁾ we conclude that Congress did not intend to limit support solely to telecommunications services used for individual patient care.⁽¹⁵⁹²⁾ We also agree with those commenters suggesting that telecommunications services used by public health agencies to provide health-related services -- including the education of the public and the health care community about matters of importance to public health; the collection and dissemination of public health data to appropriate government entities; the coordination of the public response to disasters; and the prevention and control of disease -- should be eligible for universal service support.⁽¹⁵⁹³⁾ We further agree with commenters that in times of disaster, the ability of these agencies to have ready access to information from each other and from federal emergency and health-management agencies will prevent disease and save lives, and therefore their ability to communicate electronically is important to the health of local communities, the states, and the nation.⁽¹⁵⁹⁴⁾ Accordingly, we find that "public health services" are "health care services"⁽¹⁵⁹⁵⁾ for purposes of section 254(h), and as such, the associated telecommunications services necessary to provide such services may be supported by universal service support mechanisms, consistent with the requirements of section 254(h).⁽¹⁵⁹⁶⁾ For purposes of section 254, we define "public health services" to mean health-related services, including non-clinical, informational, and educational public health services, that local public health departments or agencies are charged with performing under federal and state laws.⁽¹⁵⁹⁷⁾

618. Moreover, we disagree with those commenters that urge an unduly strict interpretation of the phrase "necessary for the provision of health care services."⁽¹⁵⁹⁸⁾ As the Commission has concluded in other contexts, the meaning of the term "necessary" depends on the purposes of the statutory provision in which it is found.⁽¹⁵⁹⁹⁾ We find that the phrase "necessary for the provision of health care services . . . including instruction relating to such services" means reasonably related to the provision of health care services or instruction because we find that a broad reading of the phrase is consistent with the purpose of section 254(h) which, as Congress has stated, is, in part, "to ensure that health care providers for rural areas . . . have affordable access to modern telecommunications services that will enable them to provide medical . . . services to all parts of the nation."⁽¹⁶⁰⁰⁾

619. We emphasize that the determination of what "additional services"⁽¹⁶⁰¹⁾ should be eligible for support is not expressly limited by the considerations listed in section 254(c)(1).⁽¹⁶⁰²⁾ Those considerations are relevant to the establishment of core universal services and are not determinative of which "additional" services should receive support for health care providers under the language of section 254(c)(3).⁽¹⁶⁰³⁾ We note that the certification requirements that we adopt today, in particular the requirement that the health care provider certify that the requested service will be used exclusively for purposes reasonably related to the provision of health care services or instruction that the health care provider is legally authorized to provide under applicable state law, will help ensure that only eligible services are funded.⁽¹⁶⁰⁴⁾

620. Bandwidth Limitations. We conclude that, within the limitations described below, universal service support mechanisms for health care providers should support commercially available services of bandwidths up to and including 1.544 Mbps, or the equivalent transmission speed, but not higher speeds. The Joint Board indicated that the Advisory Committee and a majority of the NPRM commenters that recommended a specific level of bandwidth capacity concluded that health care professionals should be able to choose among any telecommunications services of bandwidths up to and including 1.544 Mbps.⁽¹⁶⁰⁵⁾ The Joint Board, however, did not make a specific recommendation endorsing this bandwidth limitation, instead recommending that the Commission seek more information on the telecommunications needs of rural health care providers and the most cost-effective ways of providing the needed services.⁽¹⁶⁰⁶⁾

621. The majority of parties filing comments following the Recommended Decision agree that telecommunications services necessary for the provision of health care services use bandwidth capacity up to and including 1.544 Mbps.⁽¹⁶⁰⁷⁾ Only one commenter suggests that a bandwidth limitation at some level below 1.544 Mbps might be appropriate. U S West, which prefers that the Commission set no limit on supported services, contends that if the Commission decides to mandate a particular service, the Commission should designate Private Line Transport Service at 56/64 Kbps. U S West asserts that this level of bandwidth "will adequately meet the various needs of rural health care providers."⁽¹⁶⁰⁸⁾ Both PacTel and American Telemedicine, which previously suggested that limiting support to ISDN levels would be sufficient,⁽¹⁶⁰⁹⁾ now acknowledge that some carriers might find it more cost-effective to provide services up to T-1 speeds⁽¹⁶¹⁰⁾ and that 1.544 Mbps is necessary for some real-time interactive emergency and diagnostic-quality video applications.⁽¹⁶¹¹⁾ In particular, commenters indicate that in certain situations involving transmission of video images for diagnostic purposes, limiting support to lesser bandwidths could result in receipt of inconsistent, unstable, or discontinuous images that could increase the risk of inaccurate diagnosis or incorrect treatment.⁽¹⁶¹²⁾ Moreover, commenters report that services with lesser transmission capacity add significant delay to the transmission of possibly time-critical medical images. For example, the transmission of a single study of chest X-rays containing four film images would take 3.5 hours to transmit over a 28.8 modem, 40 minutes over an ISDN line, and only 4 minutes over a T-1 line at 1.544 Mbps.⁽¹⁶¹³⁾ We find that this evidence is persuasive and supports the conclusion that bandwidths up to and including 1.544 Mbps are necessary for the provision of health care services.

622. Only one commenter, iSCAN L.P., seeks support for services using bandwidths higher than 1.544 Mbps.⁽¹⁶¹⁴⁾ Several other commenters, including the Advisory Committee, contend that the high costs of supporting such telecommunications services would outweigh the benefits and assert that such services are not necessary for the provision of health care services at the present time.⁽¹⁶¹⁵⁾ Accordingly, we find that the weight of the record evidence demonstrates that these higher bandwidth services are not presently necessary for the "provision of health care services in a State."⁽¹⁶¹⁶⁾ We also find that the record indicates vastly higher costs implicated in supporting services that employ bandwidths higher than 1.544 Mbps.⁽¹⁶¹⁷⁾ Like the Joint Board, we are mindful of the need to balance the needs of persons residing in rural areas of the state for telecommunications services necessary for the provision of health care with the costs of such services.⁽¹⁶¹⁸⁾ This need for balance, coupled with most commenters' assertions that services with bandwidth greater than 1.544 Mbps are presently unnecessary for the provision of health care leads us to conclude that the cost of supporting such higher bandwidth services greatly exceeds the potential benefits of supporting such services at this time.

623. Because we agree that transmission speeds above 1.544 Mbps are not necessary for the provision of health care services at the present time,⁽¹⁶¹⁹⁾ and their cost outweighs the additional benefits they offer,⁽¹⁶²⁰⁾ we reject the suggestions of those commenters that urge us not to limit eligible services.⁽¹⁶²¹⁾ Moreover, given the strength of record support for these rulings, we decline to require states to establish committees to deliberate on these questions as one commenter proposes, instead establishing a guideline making state-by-state determinations unnecessary.⁽¹⁶²²⁾ We also conclude that telecommunications carriers should not determine what telecommunications services health care providers should use or which should be eligible for support,⁽¹⁶²³⁾ because we believe that health care providers are best able to determine what telecommunications services best meet their needs and are within their budgets.

624. Consistent with the Joint Board recommendation, we clarify that the support mechanisms discussed in this section support telecommunications services, not the particular facilities over which such services are provided.⁽¹⁶²⁴⁾ Therefore, services operating within the bandwidth limitation may be carried over facilities capable of carrying services at higher bandwidths, so long as the provisions for calculating support set forth herein are followed.⁽¹⁶²⁵⁾ Accordingly, using for purposes of example some of the services described by commenters, Frame Relay Service,⁽¹⁶²⁶⁾ Private Line Transport Service,⁽¹⁶²⁷⁾ ISDN,⁽¹⁶²⁸⁾ satellite communications,⁽¹⁶²⁹⁾ unlicensed spread spectrum,⁽¹⁶³⁰⁾ non-consumer, point-to-point services,⁽¹⁶³¹⁾ and similar services, when provided by a telecommunications carrier at speeds not exceeding 1.544 Mbps, and requested and certified as necessary by an eligible health care provider, will be eligible for support.

625. Bifurcated Support. We agree with the Advisory Committee⁽¹⁶³²⁾ and decline to adopt the suggestion of several commenters that we create two tiers of support for eligible health care providers.⁽¹⁶³³⁾ Some of these commenters propose that large hospitals receive support for telecommunications services with a bandwidth capacity up to and including 1.544 Mbps while small clinics receive support only for services with less bandwidth capacity.⁽¹⁶³⁴⁾ Although they could reduce the costs of health care support,⁽¹⁶³⁵⁾ such proposals do not acknowledge that, if bandwidth capacity of 1.544 Mbps is needed for diagnostic quality, real-time, full-motion, interactive video conferencing to evaluate or treat patients,⁽¹⁶³⁶⁾ then this need is shared by both large hospitals and small rural clinics. For this reason, we do not foreclose the availability of support for such services to any eligible health care provider. We find, however, that the high urban prices of telecommunications services, as well as associated equipment and training, will deter rural health care providers from purchasing any service using greater bandwidth capacity than is necessary to provide health care services or health care instruction.

626. Scope of Services Eligible for Support. For the reasons set forth in the Recommended Decision, we agree with and adopt the recommendation of the Joint Board, unchallenged by any commenter, that terminating services should be supported when they are billed to the eligible health care provider, as in the case of wireless telephone air time charges, and should not be supported otherwise.⁽¹⁶³⁷⁾ We adopt the recommendation of the Joint Board,⁽¹⁶³⁸⁾ supported by several commenters⁽¹⁶³⁹⁾ and otherwise unopposed, that we not support health care providers' acquisition of customer premises equipment such as computers and modems.

627. Like the Joint Board, we conclude that only telecommunications services should be designated for support under 254(h)(1)(A).⁽¹⁶⁴⁰⁾ Section 254(e) states that only an "eligible telecommunications carrier" under section 214(e) may receive universal service support.⁽¹⁶⁴¹⁾ Unlike section 254(h)(1)(B), section 254(h)(1)(A) does not contain an exception to the eligibility requirements of section 254(e). Therefore, we conclude that only eligible telecommunications carriers, as defined in section 254(e), shall be eligible to receive support for providing eligible services to health care providers under section 254(h)(1)(A).

628. We conclude that both eligible telecommunications carriers and telecommunications carriers that do not qualify as eligible telecommunications carriers under section 254(e) may receive support for services provided to eligible health care providers under section 254(h)(2). We find that there is no need to extend eligiblity beyond telecommunications carriers because we are supporting only telecommunications services.⁽¹⁶⁴²⁾

629. Internet Access. The Joint Board concluded that the record contained insufficient information about the costs of providing Internet access to health care providers to justify a recommendation that such access be supported.⁽¹⁶⁴³⁾ Consistent with the Joint Board recommendation, the Common Carrier Bureau sought comment on the need for supporting Internet access for rural health care providers.⁽¹⁶⁴⁴⁾ The Joint Board recommended that the Commission seek information on both the rate of expansion of local access coverage of Internet service providers in rural areas of the country and the costs likely to be incurred in providing toll-free Internet access to health care providers in rural areas.⁽¹⁶⁴⁵⁾

630. As discussed in the schools and libraries section, sections 254(c)(3) and 254(h)(1)(B) of the Act authorize us to permit schools and libraries to receive the telecommunications and information services needed to use the Internet at discounted rates.⁽¹⁶⁴⁶⁾ In contrast, section 254(h)(1)(A) explicitly limits supported services for health care providers to telecommunications services.⁽¹⁶⁴⁷⁾ Accordingly, as some commenters suggest,⁽¹⁶⁴⁸⁾ data links and associated services that meet the statutory definition of information services, because of their inclusion of protocol conversion and information storage, are not eligible for support under section 254(h)(1)(A), as they are under section 254(h)(2)(A). As several commenters maintain, however, the telecommunications component of access to an Internet service provider, provided by an eligible telecommunications carrier, is a telecommunications service eligible for universal service support for health care providers under section 254(h)(1)(A).⁽¹⁶⁴⁹⁾ That is, any telecommunications service within the prescribed bandwidth limitations used to obtain access to an Internet service provider is eligible for support under section 254(h)(1)(A). The record suggests that the most efficient and cost-effective way to provide many telemedicine services, including many of the health care services described in the Advisory Committee's list of necessary telemedicine services, is via the Internet.⁽¹⁶⁵⁰⁾ For example, via the Internet, health care providers may gain access to expert information and databases,⁽¹⁶⁵¹⁾ communicate through e-mail and on-line support groups,⁽¹⁶⁵²⁾ and access services sponsored by the National Institute of Health and the National Library of Medicine.⁽¹⁶⁵³⁾

631. The record developed in response to the Recommended Decision also indicates that rural health care providers often incur large telecommunications toll charges and that these charges are a major deterrent to full use of the Internet for health-related telecommunications services.⁽¹⁶⁵⁴⁾ Therefore, as discussed below, under section 254(h)(2)(A), we support limited toll charges incurred by health care providers that cannot obtain toll-free access to an Internet service provider.⁽¹⁶⁵⁵⁾

632. Infrastructure Development and Upgrade. The Joint Board observed that the issue of what services to support necessarily raises the issue of how to treat a request for a service that is not offered in the health care provider's local area or that could not be supported by the infrastructure or facilities currently in place.⁽¹⁶⁵⁶⁾ The Joint Board also found insufficient evidence on the record to justify a recommendation that the Commission authorize support for upgrades to the public switched or backbone networks when such upgrades can be shown to be necessary to deliver services to eligible health care providers.⁽¹⁶⁵⁷⁾ The Joint Board recommended that the Commission seek additional information on the probable costs, advantages, and disadvantages of supporting such upgrades.⁽¹⁶⁵⁸⁾ Despite requests for further information in the Recommended Decision and the Public Notice, few parties commented on this issue.⁽¹⁶⁵⁹⁾

633. As a preliminary matter, we note that several commenters characterize infrastructure development as "network buildout."⁽¹⁶⁶⁰⁾ As other commenters note, however, providing additional support for network buildout or other infrastructure building technologies may not comport with the principle of competitive neutrality.⁽¹⁶⁶¹⁾ We recognize that non-wireline technologies may provide the most cost-effective manner of providing services to areas currently underserved by, or receiving unsatisfactory service from the use of, wireline technologies.⁽¹⁶⁶²⁾ For this reason we will use the term "infrastructure development" instead of "network buildout" and will explore the use of non-wireline technologies as part of the program described below.

634. We agree with MCI that infrastructure development is not a "telecommunications service" within the scope of section 254(h)(1)(A).⁽¹⁶⁶³⁾ We reject the position of AT&T,⁽¹⁶⁶⁴⁾ however, that support for non-telecommunications services is likewise barred under the companion provisions of section 254(h)(2). We conclude that we have the authority to establish rules to implement a program of universal service support for infrastructure development as a method to enhance access to advanced telecommunications and information services under section 254(h)(2)(A), as long as such a program is competitively neutral, technically feasible, and economically reasonable.⁽¹⁶⁶⁵⁾ Section 254(h)(2)(A) directs the Commission to establish competitively neutral rules "to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all . . . health care providers."⁽¹⁶⁶⁶⁾ Extending or upgrading existing telecommunications infrastructure enhances access to the advanced services that may be offered over that infrastructure.

635. The record contains anecdotal evidence regarding the need for support for infrastructure development.⁽¹⁶⁶⁷⁾ We conclude, however, that the existing record contains insufficient information to determine the level of need for such infrastructure development or to estimate reliably the costs to support such development. Moreover, the record contains few details regarding existing federal and state programs already supporting infrastructure development and the extent to which they are meeting existing needs.⁽¹⁶⁶⁸⁾ Accordingly, we will issue a Public Notice regarding whether and how to support infrastructure development needed to enhance public and not-for-profit health care providers' access to advanced telecommunications and information services.

636. Periodic Review. We have considered carefully the issue of how soon to review and revise the description of supported services and adopt the Joint Board's recommendation to revisit the list of supported services in 2001. We note that there are several advantages to the Joint Board approach. The Joint Board's recommended review date is also the time we have set to re-convene a new Joint Board on universal service, which the statute contemplates will make recommendations to the Commission on modifications to the definition of supported services.⁽¹⁶⁶⁹⁾

637. We note the concern of some commenters that technology, markets, and regulations are changing so rapidly, and in some cases so unpredictably, that we should set a review date earlier than the 2001 date recommended by the Joint Board.⁽¹⁶⁷⁰⁾ On the other hand, we wish to set a review date that allows sufficient time to evaluate the effect of newly adopted regulations. Therefore, we anticipate that, as the Joint Board recommends, we will revisit the list of supported services in 2001, unless changing circumstances require expedited review. Interested parties may submit requests for expedited review based on such changing circumstances.⁽¹⁶⁷¹⁾ In particular, we would be interested in comments from the appropriate federal agencies working on telehealth applications, because we intend the support we provide to complement the work of other federal programs. Moreover, we will use the monitoring report of the Administrator described below, in conjunction with input from the Joint Working Group on Telemedicine, to evaluate any developing needs for review or redefinition of supported services earlier than recommended by the Joint Board.⁽¹⁶⁷²⁾ This report will be made public so that others may also use it to assess these developing needs.

C. Eligibility of Health Care Providers

1. Defining Eligibility for Health Care Providers

a. Background

638. Section 254(h)(1)(A) grants the right to receive federal universal service support to "any public or non-profit health care provider that serves persons who reside in rural areas of that state."⁽¹⁶⁷³⁾ The provision does not specify, however, where a health care provider must be physically located in order to be eligible for universal service support.

639. The Joint Explanatory Statement indicates that section 254(h) is intended to ensure that "health care providers for rural areas have affordable access to modern telecommunications services that will enable them to provide medical and educational services to all parts of the nation."⁽¹⁶⁷⁴⁾ In another paragraph, the Joint Explanatory Statement expresses Congress's intent "that the rural health care provider receive an affordable rate for the services necessary for the purposes of telemedicine and instruction relating to such services."⁽¹⁶⁷⁵⁾ The Joint Explanatory Statement further states that

[t]he provisions of subsection (h) will help open new worlds of knowledge, learning and education to all Americans - rich and poor, rural and urban. They are intended, for example, to provide the ability to find new information on the treatment of an illness.⁽¹⁶⁷⁶⁾

640. The Joint Board recommended that eligibility for universal service support be limited to health care providers that are located in rural areas.⁽¹⁶⁷⁷⁾ The Joint Board concluded that administering an eligibility definition that includes providers located in urban areas would be "unworkable," given that the statute contemplates a support mechanism designed to reduce rural rates to a level "reasonably comparable" to urban rates.⁽¹⁶⁷⁸⁾

b. Discussion

641. Pursuant to section 254(h)(1)(A), "any public or nonprofit health care provider that serves persons who reside in rural areas in that State" is eligible for universal service support. As the Joint Board acknowledged, because nearly all health care providers serve some rural residents, the statute could be read to include nearly every health care provider in the country.⁽¹⁶⁷⁹⁾ The intent of Congress to limit eligibility under section 254(h)(1)(A) to health care providers located in rural areas is demonstrated by the statutory directive that calculation of the amount of support due a carrier for providing services to a health care provider is to be based on the difference between the "rates for services provided to health care providers for rural areas and the rates for similar services provided to other customers in comparable rural areas."⁽¹⁶⁸⁰⁾ It would not be logical to compare the rates paid by health care providers with those paid by other customers in comparable rural areas if the health care provider were not also located in a rural area.⁽¹⁶⁸¹⁾ Thus, Congress contemplated that an eligible health care provider would otherwise be paying the rates of any other nonresidential customer located in a rural area. The Joint Board's recommendation that eligibility for universal service support be limited to health care providers that are located in rural areas⁽¹⁶⁸²⁾ and its conclusion that administering an eligibility definition that includes providers located in urban areas would be "unworkable"⁽¹⁶⁸³⁾ are consistent with this interpretation.

642. We agree with the Joint Board that we should adopt "a mechanism that includes the largest reasonably practicable number of health care providers that primarily serve rural residents and that, because of their location, are prevented from obtaining telecommunications services at rates available to urban customers."⁽¹⁶⁸⁴⁾ We also agree, therefore, that eligibility to obtain telecommunications services at urban rates should be limited to health care providers located in rural areas. Accordingly, we conclude that all public and nonprofit health care providers that are located in rural areas, as defined below, are eligible to receive supported services pursuant to the mechanisms established in this section.

643. Such an interpretation is consistent with the legislative history of the statute, which indicates that Congress intended section 254(h) "to ensure that health care providers for rural areas . . . have affordable access to modern telecommunications services that will enable them to provide medical . . . services to all parts of the Nation."⁽¹⁶⁸⁵⁾ The legislative history also indicates that Congress was particularly concerned that "rural health care providers [be able] to obtain access to advanced telecommunications services"⁽¹⁶⁸⁶⁾ and "that the rural health care provider receive an affordable rate for the services necessary for the purposes of telemedicine and instruction relating to such services."⁽¹⁶⁸⁷⁾ Accordingly, we adopt mechanisms to ensure that public and nonprofit rural health care providers receive supported services.

644. We note commenters' concerns that health care providers located outside of rural areas are a major source of health care services and related instruction to rural areas.⁽¹⁶⁸⁸⁾ Nonetheless, we are bound by the language of the statute, which contemplates support for only those health care providers who would otherwise pay rural rates for supported services. For similar reasons, we agree with the Joint Board and decline to extend support to carriers that provide services to underserved urban areas.⁽¹⁶⁸⁹⁾ Such an extension of support would be directly contrary to the plain language of section 254(h)(1)(A).

645. As discussed below, we agree with the Joint Board that all public and non-profit health care providers should benefit from the provisions of section 254(h)(2).⁽¹⁶⁹⁰⁾ Therefore, as discussed below, we conclude that all public and non-profit health care providers that cannot obtain toll-free access to an Internet service provider will be eligible for support for limited toll-free access under section 254(h)(2)(A).⁽¹⁶⁹¹⁾

2. Defining Rural Areas

a. Background

646. Section 254(h)(1)(A) provides, in part, that a telecommunications carrier shall provide telecommunications services "to any public or non-profit health care provider that serves persons who reside in rural areas in that State . . . at rates that are reasonably comparable to rates charged in urban areas in that State."⁽¹⁶⁹²⁾ In addition, section 254(h)(1)(A) states that the carrier providing such services is "entitled to have an amount equal to the difference, if any, between the rates for services provided to health care providers for rural areas in a State and the rates for similar services provided to other customers in comparable rural areas in that State treated as a service obligation as part of its obligation to participate in the mechanisms to preserve and advance universal service."⁽¹⁶⁹³⁾

647. The Commission recognized that, in order to implement section 254(h)(1)(A), it would be necessary to define "rural areas" both to determine the residency of health care patients served by providers and to establish reasonably comparable rates for telecommunications services.⁽¹⁶⁹⁴⁾ After considering alternative methodologies that ORHP/HHS⁽¹⁶⁹⁵⁾ and the United States Department of Agriculture's Economic Research Service⁽¹⁶⁹⁶⁾ had developed, the Advisory Committee recommended that we use the ORHP/HHS method to identify rural areas.⁽¹⁶⁹⁷⁾ Consistent with the ORHP/HHS approach, the Advisory Committee recommended that the Commission use the OMB's Metropolitan Statistical Area (MSA) designation of metropolitan and nonmetropolitan counties⁽¹⁶⁹⁸⁾ (or county equivalents)⁽¹⁶⁹⁹⁾ along with the "Goldsmith Modification"⁽¹⁷⁰⁰⁾ to metropolitan counties.⁽¹⁷⁰¹⁾ The Advisory Committee recognized that large, nominally metropolitan counties can contain significant rural areas that are isolated and lack easy physical access to the central areas of metropolitan counties for health care services.⁽¹⁷⁰²⁾ For that reason, the Advisory Committee suggested using the Goldsmith Modification to identify such areas for inclusion in the category of nonmetropolitan counties.⁽¹⁷⁰³⁾

648. The Joint Board recommended that we use the same definition of rural areas both to determine whether a health care provider is located in "rural areas of a state" and to designate the "comparable rural areas" needed to calculate the credit or reimbursement due a carrier providing supported services.⁽¹⁷⁰⁴⁾ In each case, the Joint Board recommended defining "rural areas" as those nonmetropolitan counties identified by the MSA list, together with the additional rural areas identified in the most recent Goldsmith Modification, as ORHP/HHS and the Advisory Committee recommended.⁽¹⁷⁰⁵⁾ The Joint Board recommended that the Commission improve that definition if possible.⁽¹⁷⁰⁶⁾ In addition, the Joint Board declined to recommend that the Commission designate and direct more support to frontier areas.⁽¹⁷⁰⁷⁾

b. Discussion

649. As the Joint Board recognized, section 254(h)(1)(A) requires us to adopt a definition of "rural area" both to determine the location of health care providers and to determine the "comparable rural areas" needed for use in calculating the credit or reimbursement to a carrier that provides services to those health care providers at reduced rates. For both purposes, we adopt the recommendation of the Joint Board and define "rural area" to mean a nonmetropolitan county or county equivalent, as defined by OMB and identifiable from the most recent MSA list released by OMB, or any census tract or block numbered area, or contiguous group of such tracts or areas, within an MSA-listed metropolitan county identified in the most recent Goldsmith Modification published by ORHP/HHS. We agree that counties are units of identification more easily used and administered than the Bureau of the Census's density-based definition of rural and urban areas.⁽¹⁷⁰⁸⁾ Although some commenters view this definition as too expansive,⁽¹⁷⁰⁹⁾ we find that it is consistent with the Joint Board's recommendation and congressional intent to adopt "a mechanism that includes the largest reasonably practicable number of rural health care providers that, because of their location, are prevented from obtaining telecommunications services at rates available to urban customers."⁽¹⁷¹⁰⁾ As discussed above, because lists of MSA counties and Goldsmith-identified census tracts and blocks already exist, updated to 1996, such an approach is easily administered.⁽¹⁷¹¹⁾ We direct the Administrator to post on a website the most recent versions of the MSA list, the Goldsmith Modification list, and appropriate instructions for identifying the MSA census tract or block numbered area in which a rural health care provider's site is located. In addition, we direct the Administrator to make that information available in hard copy to interested parties upon request.

650. We agree with the Joint Board and decline to adopt a definition of "rural area" consistent with the service territory or study area of a rural telephone company, as defined in the Act.⁽¹⁷¹²⁾ Indeed, neither the definition of the term "rural telephone company" nor the service boundaries of such companies are well known and using them for eligibility and rate calculation purposes would be more burdensome on rural health care providers and the Administrator than using counties and cities. Moreover, we find no evidence in the record that the service territories of rural telephone companies are expansive enough to cover all the rural areas in the country that are entitled to supported services. Further, such boundaries are constantly changing as rural telephone companies are acquired by other companies, acquire other companies' territories, or apply for study area waivers or modifications. For these reasons, we find the service territory boundaries of rural telephone companies unsuitable for use in designating "rural areas" for the purposes of section 254.

651. We recognize that our decision to define rural area by using the OMB/MSA listing would appear to exclude certain insular areas that do not have counties and are not included in the OMB list or the Goldsmith Modification.⁽¹⁷¹³⁾ Accordingly, we make special provisions for insular areas, as described below.⁽¹⁷¹⁴⁾

652. Consistent with the Joint Board's recommendation, we decline to make special provisions in this section for "frontier areas," areas with very low population density, as some commenters suggest.⁽¹⁷¹⁵⁾ The rate-setting mechanisms that we adopt here apply to all rural areas, including frontier areas. Recognizing, however, the special problems that some health care providers in frontier areas face because of inadequate telecommunications infrastructure, we have addressed the issue of infrastructure buildout above.⁽¹⁷¹⁶⁾

3. Definition of Health Care Provider

a. Background

653. Section 254(h)(1)(A) states that "[a] telecommunications carrier shall, upon receiving a bona fide request, provide telecommunications services which are necessary for the provision of health care services in a State . . . , to any public or nonprofit health care provider that serves persons who reside in rural areas in that State."⁽¹⁷¹⁷⁾ Section 254(h)(4) clarifies that "[n]o entity listed in this subsection shall be entitled to preferential rates or treatment as required by this subsection, if such entity operates as a for-profit business."⁽¹⁷¹⁸⁾ The "Definitions" provision of section 254 states that:

For purposes of this subsection: . . . [t]he term 'health care provider' means --

(i) post-secondary educational institutions offering health care instruction, teaching hospitals, and medical schools;

(ii) community health centers or health centers providing health care to migrants;

(iii) local health departments or agencies;

(iv) community mental health centers;

(v) not-for-profit hospitals;

(vi) rural health clinics; and

(vii) consortia of health care providers consisting of one or more entities described in clause (i) through (vi).⁽¹⁷¹⁹⁾

654. In response to commenters who raised the issue of the definition of the term "health care provider," the Joint Board recommended that the Commission attempt no further clarification of the term.⁽¹⁷²⁰⁾ It found that section 254(h)(5)(B) adequately describes those entities Congress intended to be eligible for universal service support.⁽¹⁷²¹⁾

b. Discussion

655. We adopt the Joint Board's recommendation that the Commission attempt no further clarification of the term "health care provider," because section 254(h)(5)(B) adequately describes those entities Congress intended to be eligible for universal service support.⁽¹⁷²²⁾ Commenters present no convincing justification for expanding the categories of eligible providers beyond those delineated by Congress, which are unambiguously described in section 254(h)(5)(B).

656. Accordingly, we do not include rural home care providers within the definition of health care providers.⁽¹⁷²³⁾ Although such providers often deliver critical services and constitute an important segment of the health care community, Congress did not include them among rural health care providers eligible for universal service support. Given the specific categories of health care providers defined in section 254(h)(5)(B), we find that if Congress had intended to include rural home care providers in the list, it would have done so explicitly.⁽¹⁷²⁴⁾ Likewise, we decline to include "not-for-profit entities devoted to continuing medical education" within the definition of health care providers, to the extent that they are not already among those entities listed in section 254(h)(5)(B).⁽¹⁷²⁵⁾

D. Implementing Support Mechanisms for Rural Health Care Providers

1. Identifying the Applicable Rural Rate

a. Background

657. The method of determining the amount that a telecommunications carrier providing services to an eligible health care provider is entitled to treat as its universal service obligation is described in section 254(h)(1)(A) as follows:

(A) HEALTH CARE PROVIDERS FOR RURAL AREAS. A telecommunications carrier providing service under this paragraph shall be entitled to have an amount equal to the difference, if any, between the rates for services provided to health care providers for rural areas in a State and the rates for similar services provided to other customers in comparable rural areas in that State treated as a service obligation as a part of its obligation to participate in the mechanisms to preserve and advance universal service.⁽¹⁷²⁶⁾

658. The Joint Board recommended a method for determining the "rates for similar services provided to other customers in comparable rural areas" necessary to calculate the amount of support -- the "rural rate." The Joint Board stated that the rural rate should "be determined to be the average of the rates paid by commercial customers, other than health care providers, for identical or technically similar services provided by the carrier providing the service to commercial customers in the rural county in which the health care provider is located."⁽¹⁷²⁷⁾ The Joint Board further recommended that the term "rural county" be defined as any nonmetropolitan county identified in the OMB/MSA list, and any rural area within a metropolitan county described and identified in the "Goldsmith Modification" of the OMB/MSA list.⁽¹⁷²⁸⁾

659. Where the carrier provides no identical or technically similar services in that rural county, the Joint Board recommended that the rural rate be the average of the tariffed or publicly available rates other carriers charge for the same or similar services in that rural county.⁽¹⁷²⁹⁾ Where no such services are offered by any other carriers, or where the carrier deems the method, as applied to that carrier, to be unfair for any reason, the Joint Board recommended that the carrier should be permitted to submit for its state commission's approval, a cost-based rate for the provision of the service in the most economically efficient, reasonably available manner.⁽¹⁷³⁰⁾ The Joint Board further recommended that if state commission review is not available, the carrier should be allowed to submit its proposed rate to the Commission for approval.⁽¹⁷³¹⁾ The Joint Board recommended that the proposed rate be supported, justified, reviewed, and approved, in the initial submission and periodically thereafter, according to procedures and requirements similar to those used for establishing tariffed rates for telecommunications services in their state.⁽¹⁷³²⁾

b. Discussion

660. We adopt the recommendation of the Joint Board and conclude that the rural rate shall be the average of the rates actually being charged to commercial customers, other than rates reduced by universal service programs, for identical or technically similar services provided by the carrier providing the service in the rural area in which the health care provider is located.⁽¹⁷³³⁾ In making this decision, we agree with the Joint Board's conclusion that the approach is "[m]indful of the Commission's obligation to craft a mechanism that is `specific, predictable and sufficient.'"⁽¹⁷³⁴⁾ As the Joint Board recommended, we define "rural area" to mean a nonmetropolitan county or county equivalent, as defined by OMB and identifiable from the most recent MSA list as released by OMB, or any census tract or block numbered area, or contiguous group of such tracts or areas, within an MSA-listed metropolitan county as identified in the most recent Goldsmith Modification published by ORHP/HHS.⁽¹⁷³⁵⁾ We conclude that including the discounted rates charged rural schools and libraries for similar services among the rates averaged would deny the telecommunications carrier full compensation for its services to a rural health care provider. For this reason, like the Joint Board, we conclude that the rates averaged to calculate the rural rate should exclude any rates reduced by universal service programs.⁽¹⁷³⁶⁾ Excluding such rates should help ensure that the rural rate more accurately reflects the costs of providing similar services to other customers in rural areas, so that the carrier providing services receives "sufficient" support, as contemplated by the Act.⁽¹⁷³⁷⁾

661. Because we find it to be a reasonable procedure that minimizes administrative burdens on health care providers and carriers, we also adopt the Joint Board's recommendation on how to determine the rural rate when the providing carrier is providing no identical or technically similar services to other commercial customers in the relevant rural area. The rural rate must be determined by taking the average of the tariffed and other publicly available rates, not including any rates reduced by universal service programs, charged for the same or similar services in that rural area by other carriers. As the Joint Board recommended, if there are no such tariffed or publicly available rates for such services in that rural area, or if the carrier considers the method described here, as applied to the carrier, to be unfair for any reason, the carrier may submit, for the state commission's approval, regarding intrastate rates, or the Commission's approval, regarding interstate rates, a cost-based rate for the provision of the service in the most economically efficient, reasonably available manner. We also agree with the Joint Board recommendation that the rate determined under this procedure should be supported and justified periodically, taking into account anticipated and actual demand for telecommunications services by all customers who will make use of the facilities over which services are being provided to eligible health care providers.⁽¹⁷³⁸⁾ We encourage state commissions to review these proposed rates according to procedures and requirements similar to those used for establishing tariffed rates for telecommunications services in their states, as the Joint Board contemplated.⁽¹⁷³⁹⁾

662. We agree with the Joint Board that by defining "comparable rural areas" as the rural area in which the health care provider is located, the rates charged to non-health care customers for similar services in that area are a reasonable measure of "the rates charged for similar services provided to other customers in comparable rural areas in the state."⁽¹⁷⁴⁰⁾ If there are no similar services being provided in the rural area, either by the carrier or by others, and thus no rates to average, or if the carrier concludes that rates derived from this formula are unfair, we agree with the Joint Board's reasoning that the availability of a cost-based rate application procedure, such as we have adopted, becomes an important backstop. By providing the carrier an opportunity to obtain review of any aspect of the rate or credit calculation that it considers unfair, such a procedure should ensure that the rate is fair to the carrier and accordingly that the support mechanisms are "sufficient," consistent with section 254(b).⁽¹⁷⁴¹⁾

663. We disagree with Illinois CC's contention that the Commission should limit its role in the establishment of intrastate programs for universal service support and, in particular, its role in the establishment of support mechanisms for rural health care providers, thus leaving this task entirely to the states to perform.⁽¹⁷⁴²⁾ In sections 254(c)(3) and 254(h)(1)(A), Congress clearly expressed its intent that the Commission establish universal service support mechanisms for telecommunications services necessary for the provision of health care in each state.⁽¹⁷⁴³⁾ Requiring each of more than 50 states and territories to devise its own mechanisms for the support of telecommunications services to health care providers without a federal plan to set minimum support levels across the country would not provide "sufficient" support mechanisms across the country, as contemplated by section 254(b)(5). In addition, we note that under section 254(f), states are entitled to establish and fund their own universal service support mechanisms, not inconsistent with the Commission's rules, which do not interfere with or burden federal universal service support mechanisms, to preserve and advance universal service.⁽¹⁷⁴⁴⁾

2. Identifying the Applicable Urban Rate

a. Background

664. Section 254(h)(1)(A) describes the rate that telecommunications carriers may charge eligible rural health care providers as follows:

(A) HEALTH CARE PROVIDERS FOR RURAL AREAS. - A telecommunications carrier shall . . . provide telecommunications services . . . to any public or non-profit health care provider . . . at rates that are reasonably comparable to rates charged for similar services in urban areas in that State.⁽¹⁷⁴⁵⁾

665. The Joint Explanatory Statement states that subsection 254(h) was "intended to ensure that health care providers for rural areas . . . have affordable access to modern telecommunications services that will enable them to provide medical and educational services to all parts of the nation."⁽¹⁷⁴⁶⁾ The Joint Explanatory Statement particularly emphasizes affordability of telemedicine as a goal of this subsection, stating: "[i]t is intended that the rural health care provider receive an affordable rate for the services necessary for the purposes of telemedicine and instruction relating to such services."⁽¹⁷⁴⁷⁾

666. The Joint Board recommended an approach for purposes of designating "urban areas" in order to calculate the rate "reasonably comparable to rates charged . . . in urban areas."⁽¹⁷⁴⁸⁾ The Joint Board concluded that the Commission should "designate a different, somewhat more refined boundary" than the county boundaries used to designate rural areas, recommending that the Commission use the jurisdictional boundaries of the nearest "large city."⁽¹⁷⁴⁹⁾ The Joint Board further recommended that the Commission "designate by regulation the exact city population size to define the term `large city.'"⁽¹⁷⁵⁰⁾

667. The Joint Board further recommended that "the Commission designate as the rate `reasonably comparable to rates charged for similar services in urban areas in that State' (the `urban rate'), the highest tariffed or publicly available rate actually being charged to commercial customers within the jurisdictional boundary of the nearest large city in the state (measured by airline miles from the health care provider's location to the closest city boundary point)."⁽¹⁷⁵¹⁾ The Joint Board concluded that in this context, "`comparable' is most reasonably defined to mean `no higher than the highest' rate charged in the nearest large city (excluding distance-based charges)."⁽¹⁷⁵²⁾ The Joint Board also rejected using averaged rates, including an average of statewide urban rates, an average statewide rate, or an average nationwide rate.⁽¹⁷⁵³⁾

668. The Joint Board declined to recommend support for distance-based charges or charges for transmissions crossing LATA boundaries, because it concluded that the record lacked sufficient evidence about the costs of reducing or eliminating such charges to justify such a recommendation.⁽¹⁷⁵⁴⁾ Instead, the Joint Board recommended that the Commission seek additional information about the probable costs of supporting distance-based and LATA-crossing charges for rural health care providers.⁽¹⁷⁵⁵⁾

b. Discussion

669. Definition. We adopt the recommendation of the Joint Board with modifications and designate as the rate "reasonably comparable to rates charged for similar services in urban areas in that State" (the "urban rate"), a rate no higher than the highest tariffed or publicly available rate actually being charged to a commercial customer within the jurisdictional boundary of the nearest large city in the state, calculated as described below. Accordingly, we adopt the Joint Board's recommended definition of "urban areas" to be used to calculate the rate "reasonably comparable to rates charged . . . in urban areas."⁽¹⁷⁵⁶⁾ So that the urban rate would "reflect to the greatest extent possible reductions in rates based on large-volume, high-density factors that affect telecommunications rates,"⁽¹⁷⁵⁷⁾ the Joint Board recommended that the Commission use the jurisdictional boundaries of the nearest "large city" to define the relevant "urban area."⁽¹⁷⁵⁸⁾ Consistent with the Joint Board's recommendation that the Commission "designate by regulation the exact city population size to define the term `large city,'"<sup>(1759)</sup> and for the reasons described in the next paragraph, we define the phrase "nearest large city" to mean the city in the state with a population of at least 50,000, nearest to the rural health care provider's site, measured point-to-point, from the health care provider's location to the closest point on that city's jurisdictional boundary. We agree with the Joint Board's conclusion that in this context, "`comparable' is most reasonably defined to mean `no higher than the highest' rate charged in the nearest large city (excluding distance-based charges)."⁽¹⁷⁶⁰⁾ Subject to the limitations described below, a telecommunications carrier may not charge a rural health care provider a rate higher than the urban rate, as defined herein, for a requested service.

670. Like the Joint Board, we conclude that telecommunications rates in the nearest large city are a reasonable proxy for the "rates . . . in urban areas in a State."⁽¹⁷⁶¹⁾ We believe that cities with populations of at least 50,000 are large enough that telecommunications rates based on costs would likely reflect the economies of scale and scope that can reduce such rates in densely populated urban areas. We also choose the 50,000 city size because an MSA, as defined by OMB, is based in part on counties with cities having a population of 50,000 or more, and every state has at least one MSA with a city that size.⁽¹⁷⁶²⁾ If we chose a city size larger than 50,000, we would be unable to apply this standard to states with no cities of that size. In addition, because the telecommunications services a rural health care provider uses in connection with its provision of the health care services covered by section 254(h) are likely to involve transmission facilities linking that health care provider's premises to a point in that nearest large city, using that location should provide more accurate and more realistic comparable rates for specific services than using rates, or average rates, from more distant urban areas.⁽¹⁷⁶³⁾ We agree with the Joint Board that using the highest tariffed or publicly available rate actually being charged to customers in the nearest city of 50,000 in the state avoids any unfairness that would arise from using average rates.⁽¹⁷⁶⁴⁾ The Joint Board stated that use of an average rate "would entitle some rural customers to rates below those paid by some urban customers, creating fairness problems for those urban customers and arguably going farther with this mechanism than Congress intended."⁽¹⁷⁶⁵⁾ The use of average rates could result in pricing telecommunications services to rural health care providers at rates lower than those paid by many nearby urban customers.

671. In the NPRM, the Commission stated that it sought a methodology for establishing "reasonably comparable" rates that was based on publicly available data, neither under-inclusive nor over-inclusive, and easily administered.⁽¹⁷⁶⁶⁾ We conclude that this method of defining the urban rate is easy to understand and use and thus advances the Commission's goal of fashioning universal service support mechanisms that minimize administrative burdens on regulators and carriers.⁽¹⁷⁶⁷⁾ We believe that it should be relatively easy to compare a city's jurisdictional boundaries with a carrier's rate or exchange maps⁽¹⁷⁶⁸⁾ and thus ascertain precisely the applicable rate. Moreover, like the Joint Board, we conclude that using the jurisdictional boundaries of cities makes this plan specific and predictable.⁽¹⁷⁶⁹⁾

672. We reject MCI's suggestion that we require telecommunications carriers "to charge rural health care providers no more than the TELRIC rate of the same or comparable service in the nearest urban area."⁽¹⁷⁷⁰⁾ We are constrained by the language of section 254(h)(1)(A) to adopt mechanisms designed to make telecommunications services available to rural health care providers at rates reasonably comparable to "rates charged for similar services in urban areas."⁽¹⁷⁷¹⁾ To the extent that any rates in the urban areas may reflect TELRIC-based pricing, then the discounted rate will also reflect TELRIC-based pricing. The health care provisions of the statute do not contemplate TELRIC-based pricing in other instances.

673. Rates and Distance-based Charges. In considering how to set rates for telecommunications services "that are reasonably comparable to rates charged for similar services in urban areas in that State,"⁽¹⁷⁷²⁾ the Joint Board considered whether distance-based charges could be eligible for support pursuant to section 254(h)(1)(A).⁽¹⁷⁷³⁾ The Joint Board concluded that, when such charges exceed those charges incurred by commercial customers in the nearest urban area, section 254 "strongly suggests" that they should be made comparable.⁽¹⁷⁷⁴⁾ As the Joint Board emphasized, "the whole thrust of section 254(h)(1)(A) is that such disparities in telecommunications rates based on distance should be reduced or eliminated by universal service support."⁽¹⁷⁷⁵⁾ Concluding that the record lacked sufficient evidence regarding the costs of excluding such charges, however, the Joint Board declined to recommend that the Commission eliminate or reduce distance-based charges.⁽¹⁷⁷⁶⁾ Instead, the Joint Board recommended, in order to determine whether such services should be eligible for universal service support, that the Commission seek additional information about the probable cost of supporting distance-based charges for rural health care providers, when such charges exceed those paid by customers in the nearest urban area of the state.⁽¹⁷⁷⁷⁾

674. Based on the record filed in response to the Joint Board's recommendation, we agree with the Advisory Committee that support for some distance-based charges is necessary to ensure that rates charged to rural health care providers are "reasonably comparable" to urban rates.⁽¹⁷⁷⁸⁾ We define distance-based charges as charges based on a unit of distance, such as mileage-based charges. We note that the term "rate" is not defined in section 254(h)(1)(A) or elsewhere in the 1996 Act. Although several incumbent LECs and USTA contend that the term "rate" refers to the cost of each element or sub-element of a telecommunications service,⁽¹⁷⁷⁹⁾ we conclude that, as used in section 254(h)(1)(A), the term "rate" refers to the entire cost or charge of a service, end-to-end, to the customer.

675. Such an interpretation is consistent with the language and purpose of section 254(h)(1)(A). As discussed above, section 254(h)(1)(A) refers to "rates for services provided to health care providers" and "rates for similar services provided to other customers,"⁽¹⁷⁸⁰⁾ not rates for particular facilities or elements of a service. As the record indicates, many, if not most, base rates for telecommunications services are averaged across a state or study area.⁽¹⁷⁸¹⁾ It is often distance-based charges, not differences between base rates for service elements, that create great disparities in the overall cost of telecommunications services between urban and rural areas.⁽¹⁷⁸²⁾ Indeed, distance-based charges are often a serious impediment to rural health care providers' use of telemedicine.⁽¹⁷⁸³⁾ If, as several LECs contend, a rural rate is "reasonably comparable" to an urban rate provided that per-mile charges are the same for rural and urban areas,⁽¹⁷⁸⁴⁾ section 254(h)(1)(A) could do little to reduce the disparity between rural and urban rates. Given that Congress emphasized the importance of making telecommunications services affordable for rural health care providers,⁽¹⁷⁸⁵⁾ it seems unlikely that Congress intended to adopt such a restrictive definition of "rate."⁽¹⁷⁸⁶⁾ Accordingly, we will support distance-based charges incurred by rural health care providers, consistent with the limitations described herein.

676. Support Mechanisms. Although many commenters support eliminating distance-based charges for rural health care providers,⁽¹⁷⁸⁷⁾ few suggest how to do so. Nebraska Hospitals advocates providing each eligible rural health care provider with a T-1 circuit linking that provider to its primary source for medical consultation at a price equal to the charge for a similar telecommunications service paid by the urban health care provider located the farthest distance from the latter's serving central office.⁽¹⁷⁸⁸⁾ We conclude, however, that such a plan would not be competitively neutral, because it links support to the use of a wireline service of a specified bandwidth. Likewise, it would be difficult to administer, given the difficulty of ascertaining the relevant urban health care provider.

677. While contending that the Commission lacks the authority to subsidize distance charges, several ILECs suggest a "reasonable means" by which the Commission could do so.⁽¹⁷⁸⁹⁾ The ILECs contend that "the maximum distance for which a rural health care provider should be subsidized would be the distance from the rural provider's facility to the nearest urban area," which they define as the nearest city that has a population of 25,000 or more.⁽¹⁷⁹⁰⁾ Moreover, they propose that we adopt a threshold distance to take into account the potential distance charges paid by urban providers, that would be established on a state-wide basis. They propose that a rural provider should not receive a subsidy on distance-based charges associated with distances less than that threshold distance.⁽¹⁷⁹¹⁾ For the reasons discussed above, we find that the Commission has the authority to subsidize distance-based charges, and we adopt an approach similar to that recommended by these ILECs, as discussed below.

678. We conclude that the universal service support mechanisms shall support eligible telecommunications services for a distance not to exceed the distance between the health care provider and the point on the jurisdictional boundary of the city used to calculate the urban rate that is most distant from the health care provider's location. Because rural health care providers may select any commercially available telecommunications service with bandwidths up to and including 1.544 Mbps, such an approach is competitively neutral. Moreover, this plan should suffice to connect a rural health care provider with a health care provider in the nearest large city in the state or an Internet service provider. We agree with those ILECs that contend that establishing a maximum distance for which a rural health care provider can receive support should "protect against an otherwise natural tendency for a subsidized rural provider to request telemedicine connections to far flung areas in search of the real or imagined 'expert' in the field."⁽¹⁷⁹²⁾ Moreover, we agree with the group of ILECs that limiting support to connections to the nearest large city in the state is consistent with Congress's intent to make rural and urban rates comparable, rather than making rural health care providers better off than their urban counterparts.⁽¹⁷⁹³⁾

679. We clarify that, at its discretion, an eligible rural health care provider may choose to connect to a point within the state or across state lines that is closer than the nearest city with a population of 50,000 or more within the state, provided that the health care services can be provided consistent with state law. We do not limit support to a connection to the nearest large city, irrespective of state lines, because state physician licensing requirements may preclude a rural health care provider from establishing a telemedicine connection with the nearest large city in another state. We note that choosing to connect to a city closer than the nearest large city in the state could reduce the amount that the health care provider itself must pay. Thus, as the group of ILECs suggest, the eligible health care provider has an incentive to make rational choices about the telecommunications services it needs, as well as the flexibility to make decisions based on criteria other than just cost.⁽¹⁷⁹⁴⁾

680. As the group of ILECs indicate, urban health care providers are not exempted from distance charges in connection with the purchase of telecommunications services.⁽¹⁷⁹⁵⁾ To the extent that they connect with other health care providers and Internet service providers within that city, however, these urban health care providers would appear to be less likely than their rural counterparts to incur distance-based charges over a distance greater than the longest diameter of the city in which they are located. Accordingly, we agree with the group of ILECs that blanket subsidization of distance-based charges for rural health care providers could result in inequalities between rural and urban health care providers.⁽¹⁷⁹⁶⁾ Therefore, we adopt the ILECs' proposal to adopt a standard urban distance on a state-wide basis that takes into account the potential distance charges paid by urban health care providers. To calculate that distance, however, we adopt a city size consistent with our definition of "nearest large city." Accordingly, we conclude that the longest diameters of all cities with a population of 50,000 or more within a state should be averaged to arrive at that state's standard urban distance.⁽¹⁷⁹⁷⁾ We conclude that using a state-wide distance figure should minimize the administrative burden on the Administrator and carriers while establishing a reasonable estimation of the distance charges that an urban health care provider might incur.

681. Consistent with that approach, if a rural health care provider requests a service to be provided over a distance that is less than or equal to the standard urban distance for the state in which it is located, the urban rate for that service shall be no higher than the highest tariffed or publicly available rate charged to a commercial customer for a similar service provided over the same distance in the nearest large city in the state, calculated as if the service were provided between two points within the city. For purposes of calculating the appropriate amount of universal service support, this urban rate will then be compared with the rural rate for a similar service over the same distance. If a rural health care provider requests a service to be provided over a distance that is greater than the standard urban distance for the state in which it is located, the urban rate shall be no higher than the highest tariffed or publicly available rate charged to a commercial customer for a similar service provided over the standard urban distance in the nearest large city in the state, calculated as if the service were provided between two points within the city. This urban rate will then be compared to the rural rate for the same or similar telecommunciations service provided over a distance not to exceed the distance between the health care provider and the point on the jurisdictional boundary of the city used to calculate the urban rate that is most distant from the health care provider's location.

682. InterLATA Charges. We decline to provide additional mechanisms to support what commenters and the Joint Board referred to as LATA-crossing charges. To the extent that this term refers to rates for interexchange services, we note that, under the provisions of section 254(g),⁽¹⁷⁹⁸⁾ such rates charged to health care providers in rural areas are to be no higher than the rates charged to the IXC's subscribers in urban areas. To the extent that the term LATA-crossing charges refers to access charges for a service provided to a rural customer, the mechanisms that we adopt will support such charges by supporting the difference between the rural rate and the urban rate.

683. We note that, as a result of the 1996 Act, competitive entry into the local exchange market will increase. As those markets are opened, firms presently precluded from entering the interLATA market may be allowed to offer interLATA services with the result that LATA boundaries are likely to have less functional importance.⁽¹⁷⁹⁹⁾ Under these circumstances, charges related to LATA crossing are likely to become less burdensome. We will re-examine this issue no later than the next review of the services eligible for universal service support in the year 2001.

684. Limiting Supported Services. The Act directs that universal service support mechanisms should be specific, predictable, and sufficient.⁽¹⁸⁰⁰⁾ In order to establish such mechanisms for a new and untried program, we conclude that we must limit the services that a rural health care provider may receive. As discussed above, we conclude that bandwidth transmission speeds above 1.544 Mbps are not necessary for the provision of health care services at this time. Accordingly, we conclude that, upon submitting a bona fide request to a telecommunications carrier, a rural health care provider is eligible to receive, for each separate site or location, the most cost-effective, commercially-available telecommunications service with a bandwidth capacity of 1.544 Mbps at a rate no higher than the urban rate, as defined herein, provided over a distance not to exceed the distance between the health care provider and the point on the jurisdictional boundary of the city used to calculate the urban rate that is the most distant from the health care provider's location (the allowable distance). The most cost effective service is the service available at the lowest cost after consideration of the features, quality of transmission, reliability, and other factors the health care provider deems necessary for the service adequately to transmit the health care services the provider requires.

685. As discussed above, we conclude that allowing a rural health care provider to purchase a service with a bandwidth capacity of 1.544 Mbps, at distances up to the limit described above, should enable such a provider to establish a connection with a health care provider located in the nearest city or with an Internet service provider. The rural health care provider may request any other service or combination of services with transmission speeds slower than 1.544 Mbps, transmitted over the same or shorter distance, so long as the total annual support amount for all such services to that health care provider combined, calculated as provided herein, does not exceed what the support amount would have been for the most cost-effective service with a bandwidth capacity of 1.544 Mbps at the allowable distance, calculated as discussed above. Use of transmission speeds slower than 1.544 Mbps may be required where no 1.544 Mbps service is commercially available or may be the preference of a rural health care provider that desires more than one supported service. For example, a rural health care provider could request one or more ISDN connections to an urban health care provider in the nearest large city, so long as the total amount of support for all the requested services does not exceed the amount that would have been necessary to support the most cost-effective service with a bandwidth capacity of 1.544 Mbps connecting the rural health care provider to the farthest point on the jurisdictional boundary of the nearest large city. If the eligible health care provider is located in a rural area in which a service with a bandwidth capacity of 1.544 Mbps is not commercially available and the rate for such a service is therefore unavailable, the maximum amount of support available shall be the difference, if any, between the urban rate and the rural rate, as defined herein, for the most cost-effective service available using a bandwidth of 1.544 Mbps in another rural area of the state.

3. Competitive Bidding

686. Consistent with the Joint Board's recommendation for eligible schools and libraries, we conclude that eligible health care providers shall be required to seek competitive bids for all services eligible for support pursuant to section 254(h) by submitting their bona fide requests for services to the Administrator. Such requests shall include a statement, signed by an officer of the health care provider authorized to order telecommunications services, certifying under oath to the bona fide request requirements discussed below.⁽¹⁸⁰¹⁾ The Administrator shall post the descriptions of requested services on a website so that potential providers can see and respond to them.⁽¹⁸⁰²⁾ As with schools and libraries, the request may be as formal and detailed as the health care provider desires or as required by any applicable federal or state laws or other requirements. The request shall contain information sufficient to enable the carrier to identify and contact the requester and to know what services are being requested. The posting of a rural health care provider's description of services will satisfy the competitive bidding requirement for purposes of our universal service rules. We emphasize, however, that the submission of a request for posting under our rules is not a substitute for any additional and applicable state, local, or other procurement requirements.

687. After selecting a telecommunications carrier, the rural health care provider shall certify to the Administrator that the service chosen is, to the best of the health care provider's knowledge, the most cost-effective service available. Moreover, the health care provider shall submit to the Administrator copies of the other responses or bids received in response to its request for services. As with schools and libraries, we are not requiring health care providers to select the lowest bids offered, but rather will permit them to take quality of service into account and to choose the offering or offerings that they find most cost-effective, where this is consistent with other procurement rules under which they are obligated to operate.⁽¹⁸⁰³⁾ After being selected, the carrier shall certify to the Administrator the urban rate, the rural rate, and the difference sought as an offset against the carrier's universal service obligation.

688. We adopt a competitive bidding requirement because we find that this requirement should help minimize the support required by ensuring that rural health care providers are aware of cost-effective alternatives. Like the language of section 254(h)(1) targeting support to public and nonprofit health care providers, this approach "ensures that the universal service fund is used wisely and efficiently."⁽¹⁸⁰⁴⁾

689. While the Joint Board did not discuss competitive bidding for rural health care providers generally, it rejected a competitive bidding plan suggested by Florida Cable as more complicated and less easily administered than the plan that the Joint Board recommended.⁽¹⁸⁰⁵⁾ The state members of the Joint Board have subsequently endorsed the use of a competitive bidding process for health care providers to encourage competitive neutrality and foster competition and cost effectiveness.⁽¹⁸⁰⁶⁾

4. Insular Areas and Alaska

a. Background

690. Section 254(b)(3)⁽¹⁸⁰⁷⁾ provides that consumers in insular areas should have access to telecommunications and information services, including interexchange services, advanced telecommunications services, and information services that are: (1) reasonably comparable to those services provided in urban areas; and (2) that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.⁽¹⁸⁰⁸⁾ Congress stated that the Joint Board and the Commission were to consider consumers of telecommunications services in insular areas, such as the Pacific Island territories, when developing support mechanisms for consumer access to telecommunications and information services.⁽¹⁸⁰⁹⁾

691. The Joint Board recommended that the Commission seek further information about the issue of whether insular areas experience a disparity in telecommunications rates between urbanized and non-urbanized parts of their territories.⁽¹⁸¹⁰⁾ In particular, the Joint Board recommended that the Commission seek further information regarding the size of cities and other demographic information that might be used to establish urban and rural telecommunications rates in each of the insular areas.⁽¹⁸¹¹⁾ In the Recommended Decision Public Notice, the Common Carrier Bureau inquired if insular areas experience a disparity in telecommunications rates between urbanized and non-urbanized areas.⁽¹⁸¹²⁾

b. Discussion

692. Statutory Authority. We note that the provisions of section 254(h)(1)(A) apply to insular areas, because the Act defines "State" to include all United States "Territories and possessions."⁽¹⁸¹³⁾ We conclude, moreover, that section 254(h)(2)(A) authorizes our adoption of special mechanisms by which to calculate support for these territories. Section 254(h)(2)(A) directs us, in part, to establish competitively neutral rules "to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications . . . services for all public and nonprofit . . . health care providers."⁽¹⁸¹⁴⁾

693. Insular Areas. Although the Common Carrier Bureau sought comment on whether insular areas experience a disparity in telecommunications rates between urbanized and non-urbanized areas,⁽¹⁸¹⁵⁾ the record contains little information on this point.⁽¹⁸¹⁶⁾ Moreover, commenters have provided little information regarding what programs (in addition to those targeted to rural, insular, or high cost areas) are needed to ensure that insular areas have affordable telecommunications services.⁽¹⁸¹⁷⁾ Nor have parties, other than CNMI, provided information from which the costs of such programs might be estimated.⁽¹⁸¹⁸⁾

694. The record does indicate, however, that the unique geographic and demographic circumstances of CNMI and Guam -- including their uniformly rural character, their lack of a city with a population as large as 50,000, or indeed any real urbanized population centers, their lack of counties or county equivalents, and the relatively small size and low density of their populations -- render the mechanisms we adopt under section 254(h)(1)(A) ill-suited to these territories without modifications.⁽¹⁸¹⁹⁾

695. We note that the record contains no information about the status and availability of health care services and telemedicine in American Samoa, the U.S. Virgin Islands, or any other insular areas except for CNMI, Guam, and Puerto Rico. We recognize, however, that American Samoa and the U.S Virgin Islands, like CNMI and Guam, are relatively isolated, have small populations, and have limited medical resources.⁽¹⁸²⁰⁾ American Samoa is a chain of seven Pacific islands with a total land area of 76 square miles. Ninety-five percent of the territory's population of 56,000 lives on the island of Tutuila, where the territory's single hospital is also located.⁽¹⁸²¹⁾ The U. S. Virgin Islands is a United States territory of three islands located in the Carribean Sea 1,000 miles southeast of Miami. The population in 1995 was 110,000. The U.S. Virgin Islands has a Department of Health; two 250-bed hospitals, one on St. Thomas and one on St. Croix; a community mental health center; and clinics on St. Croix and St. John.⁽¹⁸²²⁾ Therefore, we conclude that we may need to tailor additional support mechanisms to address the unique circumstances faced by both the health care providers and telecommunications carriers that serve these islands.

696. Given the lack of comprehensive information in the record regarding the telecommunications needs of insular areas and the costs of supporting such services, we will issue a Public Notice regarding these issues. Parties may discuss the proposal of the Governor of Guam to designate telecommunications services between an insular area's medical facilities and a supporting medical center in an urban area outside the insular area as services eligible for support.⁽¹⁸²³⁾ They may likewise address CNMI's proposal that universal service mechanisms should support per-minute toll charges for inter-island calls.⁽¹⁸²⁴⁾ We will seek additional proposals for support mechanisms by which we could ensure that health care providers located in these territories will have access to the telecommunications services available in urban areas in the country, at affordable rates, as Congress intended.⁽¹⁸²⁵⁾

697. In this Order, we designate urban and rural areas in these territories by which to set the "urban rate" and calculate the amount of support under section 254(h)(1)(A) consistent with our general approach to that section. Based on their status as the largest population centers in the territories, we designate the following areas as urban areas for purposes of setting the urban rate: for American Samoa, the island of Tutuila; for CNMI, the island of Saipan;⁽¹⁸²⁶⁾ for Guam, the town of Agana; and for the U.S. Virgin Islands, the town of Charlotte Amalie. For purposes of calculating the "rural rate," all other areas in each of the above-listed territories are designated as rural areas.

698. The "urban rate" shall be no higher than the highest tariffed or publicly available rate charged for the requested service in each territory's designated urban area. The "rural rate," used to calculate the support amount, shall be the average of tariffed and other publicly available rates, not including rates reduced by universal service mechanisms, charged for the same or similar services in the rural areas of the territory. If no such services are available in the rural areas of the territory, or, at the carrier's option, the carrier may submit for the territorial commission's approval, a cost-based rate for the provision of the service in the most economically efficient, reasonably available manner. In addition to the support outlined here, we will provide additional support for limited toll-free access to an Internet service provider pursuant to section 254(h)(2)(A), as discussed below, which applies equally to health care providers in insular areas.⁽¹⁸²⁷⁾

699. Puerto Rico. We find it unnecessary to adopt measures beyond those adopted for rural health care providers in other areas to ensure that rural health care providers in Puerto Rico have access to affordable telecommunications services that are necessary to provide health care services. The record shows that Puerto Rico has a population of 3.74 million people and well-defined metropolitan and nonmetropolitan areas, including 28 municipalities listed as MSAs.⁽¹⁸²⁸⁾ Puerto Rico has sixty-seven hospitals, including nineteen in nonmetropolitan areas, and the San Juan Regional Hospital and Main Medical Center is an advanced health care center offering sophisticated and advanced health care technology and services.⁽¹⁸²⁹⁾ No commenters have objected to applying to Puerto Rico the mechanisms described in the Recommended Decision for defining the urban and rural rates for rural health care providers. These facts suggest that the universal service support mechanisms for rural health care providers that we have adopted under section 254(h)(1)(A) can be applied within the territorial limits of Puerto Rico. Accordingly, we find it unnecessary to add any provisions for rural health care providers in this insular area.

700. Alaska. The record developed in response to the Recommended Decision suggests that much of the difficulty of implementing telemedicine programs in the vast frontier areas in Alaska arises from the lack of basic telecommunications network infrastructure necessary to support telemedicine.⁽¹⁸³⁰⁾ Alaska asserts that because of the state's vast size, rugged terrain, harsh weather, and sparse population, "the major obstacle to providing telemedicine services in Alaska is that the public switched network is not currently capable of providing services in rural locations where there is significant need."⁽¹⁸³¹⁾ The Alaska PUC states that Alaska is "heavily dependent on satellite communications to provide links between the majority of remote, rural health care providers and the few regional hospitals," and affordable satellite connectivity is often limited to bandwidth of 9.6 kbps.⁽¹⁸³²⁾ The need to "hop" satellite signals through multiple earth stations and the use of antiquated analog earth stations reduce transmission speed and reliability even further and often result in the inability to use fax machines or computer modems.⁽¹⁸³³⁾

701. To the extent that rural health care providers in Alaska experience distance-sensitive telecommunications charges greater than those faced in urban areas in that state,⁽¹⁸³⁴⁾ the mechanisms adopted in this section should afford some relief to those health care providers by reducing or eliminating such disparities. As discussed above, however, we decline at this time to adopt support mechanisms for infrastructure development, including infrastructure development in Alaska, but encourage parties interested in obtaining such support for Alaska to present comments in response to our Public Notice on this issue.

E. Capping and Administering the Mechanisms

1. Selecting Between Combined or Separate Support

Mechanisms for Health Care Providers and for Schools and Libraries

a. Background

702. In the Further Comment Public Notice, the Common Carrier Bureau asked whether separate funding mechanisms should be established for schools and libraries and for rural health care providers.⁽¹⁸³⁵⁾ The Joint Board recommended the use of a single funding mechanism with separate accounting and allocation systems for the two groups.⁽¹⁸³⁶⁾

b. Discussion

703. As discussed above, consistent with the Joint Board's recommendation, we will use a unified mechanism for eligible health care providers and schools and libraries with separate accounting and allocation systems for the funds collected for the two groups.⁽¹⁸³⁷⁾ We agree with the Joint Board and the parties contending that separate funding mechanisms would be expensive and unnecessary.⁽¹⁸³⁸⁾ We further agree with the Joint Board and commenters that separate accounting and allocation systems are necessary because the 1996 Act establishes different requirements for calculating disbursements to schools and libraries and to health care providers.⁽¹⁸³⁹⁾ Moreover, we find that establishing two separate systems (within the single fund) will facilitate monitoring for fraud, waste, and abuse and, if necessary, amending the systems governing support to one group without necessarily altering the systems for the other group.⁽¹⁸⁴⁰⁾

2. Funding Cap

a. Funding Cap Level

704. Although the Joint Board did not propose a funding cap on the amount of universal service support for health care providers, we agree with those commenters who advocate a total cap to control the size of the support mechanisms.⁽¹⁸⁴¹⁾ We note that there is no existing program to help us estimate the cost of funding the support program for health care providers that we adopt under sections 254(h)(1)(A) and 254(h)(2)(A), unlike our programs for high cost and low-income assistance for which we have historical data.⁽¹⁸⁴²⁾ Moreover, it is difficult to estimate costs given that technologies are developing rapidly and demand is inherently difficult to predict. Therefore, to fulfill our statutory obligation to create specific, predictable, and sufficient universal service support mechanisms, we establish an annual cap of $400 million on the amount of funds available to health care providers.⁽¹⁸⁴³⁾ Collection and distribution of the funding will begin in January 1998, consistent with other universal service support mechanisms implemented pursuant to this Order.

705. After substantial deliberations, we conclude that a program that calls for contributions of no more than $400 million annually should ensure sufficient mechanisms, because it is based on the maximum amount of service that we have found necessary and on generous estimates of the number of potentially eligible rural health care providers. No commenter has presented record evidence suggesting a method for determining the amount for a cap, so we have estimated the annual aggregate potential demand for funds based on the record evidence. We estimate that the total cost of the program should not exceed $400 million annually, based on the assumptions discussed below.

706. First, we estimate that there are approximately 12,000 health care providers located in rural areas that are eligible to receive supported services under section 254(h)(1)(A). There is no list of public and non-profit health care providers that fit the definition of "health care provider" in section 254(h)(5)(B) and are located in rural areas, and ORHP/HHS suggests that the number of potentially eligible providers would be difficult to determine before the universal service mechanisms are implemented.⁽¹⁸⁴⁴⁾ Nonetheless, we have developed an estimate of the number of rural health care providers based on figures supplied by various federal agencies and national associations.⁽¹⁸⁴⁵⁾

707. Second, we estimate that the maximum cost of providing services eligible for support under section 254(h)(1)(A) is $366 million, if all eligible health care providers obtain the maximum amount of supported services to which they are entitled. That is, we assume that each rural health care provider will request support for a service of 1.544 Mbps. We recognize that service of that bandwidth is not available in all areas and that many rural health care providers may choose not to use the full amount of support represented by that service. Therefore, the actual cost of support should be lower than our estimate. We also assume that rates will be higher in rural areas than in urban areas. As the record suggests, however, rates are frequently averaged,⁽¹⁸⁴⁶⁾ a factor that should likewise reduce the amount of support required. We further assume that for each rural health care provider, the support mechanisms will fund distance-based charges for 100 miles per provider, a reasonable number of miles based on the record.⁽¹⁸⁴⁷⁾

708. We further estimate that the maximum cost of support for toll-free access to an Internet service provider, provided under section 254(h)(2)(A), will be $26 million. That estimate is based on an assumption that the number of nonprofit and public health care providers that cannot obtain toll-free access to an Internet service provider is 12,000, our estimate of the number of eligible rural health care providers. Because the record indicates that many rural health care providers can reach an Internet service provider with a local call,⁽¹⁸⁴⁸⁾ the actual cost of support may be much lower. Moreover, the estimate is based on the assumption that each rural health care provider will use the maximum dollar amount of support ($180 per month). In fact, some rural health care providers may not take Internet service due to the monthly service charge. Moreover, some health care providers eligible to receive limited toll-free access to an Internet service provider may obtain such access from a service provider that imposes a toll charge of less than $.10 per minute, in which case only the toll charges associated with 30 hours of access would be supported, at less than $180 per month. Therefore, the actual cost of support is expected to be lower than our estimate.

709. We decline to adopt a per-institution dollar cap as some commenters propose,⁽¹⁸⁴⁹⁾ because we believe that the limits on supported services set forth in section XI.B.2 above should suffice to ensure that support is distributed equitably among health care providers and that it is specific, predictable, and sufficient.

b. Operation of Cap

710. Timing of Funding Requests. As discussed above, we adopt an annual cap of $400 million for universal service support for health care providers pursuant to sections 254(h)(1)(A) and 254(h)(2) of the Act. Support will be committed on a first-come-first-served basis. Consistent with other universal service support mechanisms implemented pursuant to this Order, the funding year for health care providers will begin on January 1, with requests for support accepted beginning on the first of July prior to each calendar year. Health care providers will be permitted to submit funding requests once they have made agreements for specific eligible services,⁽¹⁸⁵⁰⁾ and the Administrator will commit funds based on those agreements until the total payments committed during a funding year reach the amount of the cap. For the first year only, requests for support will be accepted as soon as the health care website is open and the applications are available.

711. The Administrator shall measure commitments against the $400 million limit based on the contractually-specified expenditures for recurring flat-rate charges for telecommunications services that a health care provider has agreed to pay and the commitment of an estimated variable usage charge, based on documentation from the health care provider of the estimated expenditures that it has budgeted to pay for its share of usage charges. Health care providers must file their contracts with the Administrator either electronically or by paper copy. Moreover, health care providers must file new funding requests for each funding year. Such requests will be placed in the funding queue based on the date and time they are received by the Administrator.

712. As with schools and libraries, we conclude that these rules will give health care providers the certainty they need for budgeting. Some uncertainty may remain about whether an institution will receive the same level of support from one year to the next because demand for funds may exceed the funds available despite our efforts to set the cap at a level intended to permit participation by all eligible health care providers and the cap might not be raised immediately. If that does occur, we cannot guarantee support in the subsequent year without placing institutions that have not formulated their telecommunications plans in the previous year at a disadvantage, possibly preventing such entities from receiving any universal service support. We acknowledge that requiring annual refiling for recurring charges places an additional administrative burden on eligible institutions. As with schools and libraries, however, we find that allowing funding for recurring charges to carry forward from one funding year to the next would favor those who are already receiving funds and might deny any funding to those who had never before received funding.

713. Adjustments to Cap. We do not anticipate that the cost of funding eligible services will exceed the cap, given the limits on the services that any one health care provider may request, and we do not want to create incentives for health care providers to file requests for services prematurely to ensure funding. If the amount of support needed for requested services exceeds the funding cap, this will indicate that our estimates were less accurate than we expect and will suggest that we must adjust the cap. We will consider the need to revise the cap in our three-year review proceeding and sooner if we find it necessary to ensure the sufficiency of the fund or to respond to requests from interested parties for expedited review.

714. Advance Payment for Multi-Year Contracts. We conclude that providing funding in advance for multiple years of recurring charges could enable an individual health care provider to guarantee that its full needs over a multi-year period were met, even if other health care providers were unable to obtain support due to insufficient funds. Moreover, we are also concerned that funds would be wasted if a prepaid service provider's business failed before it had provided all of the prepaid services. At the same time, we recognize that health care providers often will be able to negotiate better rates for pre-paid/multi-year contracts, reducing the costs that both they and the universal service support mechanisms incur. Therefore, we conclude that while eligible health care providers should be permitted to enter into pre-paid/multi-year contracts for supported services, the Administrator will only commit funds to cover the portion of a long-term contract that is scheduled to be delivered during the funding year. Eligible health care providers may either structure their contracts so that payment is required on at least a yearly basis or, if they wish to enter into contracts requiring advance payment for multiple years of service, they may use their own funds to pay full price for the portion of the contract exceeding one year (pro rata), and request that the service provider rebate the payments from the support mechanism that it receives in subsequent years to the eligible health care provider.

715. Collections. We lack sufficient historical data to estimate accurately the funding demands for the first year of this program. As discussed above, in the past when the Commission has established similar funding mechanisms, the Commission or the Administrator has had access to information upon which to base an estimate of necessary first-year contribution levels. No unified mechanism exists to provide telecommunications and information services to the nation's health care providers. We agree with NYNEX and Bell Atlantic that funds should be collected for assistance to health care providers on an as-needed basis, to meet anticipated actual expenditures over time.⁽¹⁸⁵¹⁾ Therefore, we direct the Administrator to collect $100 million for the first three months of 1998 and to adjust future contribution assessments quarterly based on its evaluation of health care provider demand for funds, within the limits of the spending cap we establish here. We direct the Administrator to report to the Commission, on a quarterly basis, both the total amount of payments made to entities providing services to health care providers to finance universal service support and its determination regarding contribution assessments for the next quarter.⁽¹⁸⁵²⁾

716. As with the schools and libraries mechanism, we find that adjustments for any large reserve of remaining funds can be addressed in our review in the year 2001. As part of its review in the year 2001, the Joint Board likewise will review the appropriate level of funding of the health care program.

F. Restrictions and Administration

1. Restrictions on Resale and Aggregated Purchases

a. Background

717. Section 254(h)(3) states that "[t]elecommunications services and network capacity provided to a public institutional telecommunications user under this subsection may not be sold, resold, or otherwise transferred by such user in consideration for money or any other thing of value."⁽¹⁸⁵³⁾ The Joint Explanatory Statement explains that this section "clarifies that telecommunications services and network capacity provided to health care providers . . . may not be resold or transferred for monetary gain."⁽¹⁸⁵⁴⁾

718. The Joint Board advocated the strict enforcement of the prohibition in section 254(h)(3) against the resale of supported services, and urged that an audit program be established sufficient to monitor effectively and evaluate the use of supported services in aggregated purchase arrangements.⁽¹⁸⁵⁵⁾ The Joint Board emphasized, however, that this prohibition should not restrict or inhibit joint purchasing and network-sharing arrangements with both public and private entities and individuals. The Joint Board recommended that health care providers be encouraged to enter into aggregate purchasing and maintenance agreements for telecommunications services with other public and private entities and individuals, but that the entities and individuals not eligible for universal service support pay the full contract rates for their portion of the services. In addition, the Joint Board recommended that the Commission's order make clear that, under such arrangements, the qualified health care provider is eligible for reduced rates, and the telecommunications carrier eligible for support, only on that portion of the services purchased and used by that health care provider. The Joint Board concluded that these arrangements should be subject to full disclosure and close scrutiny under the audit program it recommended.⁽¹⁸⁵⁶⁾

b. Discussion

719. Consortia. We agree with the Joint Board and those commenters observing that aggregated purchase or network sharing arrangements can substantially reduce costs and in some cases are necessary to sustain a rural telecommunications network.⁽¹⁸⁵⁷⁾ As the Joint Board stated, and as we did with schools and libraries, we recognize that aggregation into consortia can promote efficient shared use of facilities to which each consortium member might need access, but for which no single user needs more than a small portion of the facilities' full capacity.⁽¹⁸⁵⁸⁾ We also recognize, however, that allowing health care providers to aggregate with other local customers, such as schools and libraries, may increase the difficulty of enforcing the eligibility and resale limitations. Nevertheless, as we did for schools and libraries, we conclude that the benefits of aggregation outweigh the administrative difficulties discussed below. Therefore, we adopt, with slight modification, the Joint Board's recommendation to encourage health care providers to enter into aggregate purchasing and maintenance agreements for telecommunications services with other entities and individuals, as long as the entities not eligible for universal service support pay full rates for their portion of the services.⁽¹⁸⁵⁹⁾ Consistent with the schools and libraries directive and reasoning regarding aggregated purchase arrangements, however, eligible health care providers participating in consortia that include private sector members will not be eligible to receive universal service support, with one exception.⁽¹⁸⁶⁰⁾ Eligible health care providers participating in such a consortium may receive support, if the consortium is receiving tariffed rates or market rates, from those providers who do not file tariffs.⁽¹⁸⁶¹⁾ We find that this prohibition will deter ineligible, private entities from entering into aggregated purchase arrangements with rural health care providers to receive below-tariff or below-market rates that they otherwise would not be entitled to receive.⁽¹⁸⁶²⁾

720. Consistent with our directives pertaining to support for schools and libraries and the Joint Board's recommendation, we require telecommunications carriers to carefully maintain complete records of how they allocate the costs of shared facilities among consortium participants in order to charge eligible health care providers the appropriate amounts. We emphasize that under such arrangements, the rural health care provider is eligible for reduced rates and the telecommunications carrier is eligible for support only on that portion of the services purchased and used by that eligible health care provider. We adopt the Joint Board's recommendation that these arrangements be subject to full disclosure requirements and closely scrutinized under an audit program.⁽¹⁸⁶³⁾ Carriers shall also be required to keep detailed records of services provided to rural health care providers. These records shall be maintained by carriers and shall be available for public inspection. The carriers must quantify and justify the amount of support for which members of consortia are eligible. Accordingly, a provider of telecommunications services to a health care provider participating in a consortium must establish the applicable rural rate for the health care provider's portion of the shared telecommunications services, as well as the relevant urban rate. Absent supporting documentation that quantifies and justifies the amount of universal service support requested by an eligible telecommunications carrier, the Administrator shall not allow that carrier to offset, or receive reimbursement for, the costs of providing services to rural health care providers participating in consortia.⁽¹⁸⁶⁴⁾

721. Health care providers that belong to consortia that share facilities should maintain their own records of use, in addition to the records that service providers keep. Such records may be subject to an audit or examina