[Federal Register Volume 68, Number 247 (Wednesday, December 24, 2003)]
[Rules and Regulations]
[Pages 74492-74504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31683]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 02-60, FCC 03-288]


Rural Health Care Support Mechanism

AGENCY: Federal Communications Commission.

ACTION: Final rule; denial of petition for reconsideration.

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SUMMARY: In this document, the Commission modifies its rules to improve 
the effectiveness of the rural health care support mechanism, which 
provides discounts to rural health care providers to access modern 
telecommunications for medical and health maintenance purposes. Because 
participation in the rural health care support mechanism has not met 
the Commission's initial projections, the Commission amends its rules 
to improve the program, increase participation by rural health care 
providers, and ensure that the benefits of the program continue to be 
distributed in a fair and equitable manner. In addition, the Commission 
denies Mobile Satellite Ventures Subsidiary's petition for 
reconsideration of the 1997 Universal Service Order.

DATES: Effective February 23, 2004 except for Sec. Sec.  54.609(a)(2), 
54.609(A)(3)(ii), and 54.621(a) which contain information collection 
requirements that have not been approved by the Office of Management 
Budget (OMB). The Commission will publish a document in the Federal 
Register announcing the effective date of those sections.

FOR FURTHER INFORMATION CONTACT: Shannon Lipp, Attorney, (202) 418-7400 
or Regina Brown, Attorney, (202) 418-7400, Wireline Competition Bureau, 
Telecommunications Access Policy Division.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order and Order on Reconsideration, in WC Docket No. 02-60 released 
On November 17, 2003. The full text of this document is available for

[[Page 74493]]

public inspection during regular business hours in the FCC Reference 
Center, Room CY-A257, 445 12th Street, SW., Washington, DC 20554. There 
was also a companion Further Notice of Proposed Rulemaking in WC Docket 
No. 02-60 released on November 17, 2003.

I. Introduction

    1. In this Report and Order and Order on Reconsideration, we modify 
our rules to improve the effectiveness of the rural health care support 
mechanism, which provides discounts to rural health care providers to 
access modern telecommunications for medical and health maintenance 
purposes. Because participation in the rural health care support 
mechanism has not met the Commission's initial projections, we amend 
our rules to improve the program, increase participation by rural 
health care providers, and ensure that the benefits of the program 
continue to be distributed in a fair and equitable manner. 
Specifically, we expand the scope of entities eligible to receive 
discounts, provide support for Internet access, and modify the way in 
which we calculate discounts to offer rural health care providers more 
flexibility. In addition, in the Order on Reconsideration, we deny 
Mobile Satellite Ventures Subsidiary's petition for reconsideration of 
the 1997 Universal Service Order, 62 FR 32862 (June 17, 1997). The 
actions we take encourage the development of public/private 
partnerships and other creative solutions to meet the needs of rural 
communities and increase participation in the rural health care 
mechanism.
    2. The actions we take will also strengthen telemedicine and 
telehealth networks across the nation, help improve the quality of 
health care services available in rural America, and better enable 
rural communities to rapidly diagnose, treat, and contain possible 
outbreaks of disease. Moreover, enhancing access to an integrated 
nation-wide telecommunications network for rural health care providers 
will further the Commission's core responsibility to make available a 
rapid nation-wide network for the purpose of the national defense, 
particularly with the increased awareness of the possibility of 
biological or chemical terrorist attacks. Finally, these changes will 
further the Commission's efforts to improve its oversight of the 
operation of the program to ensure that the statutory goals of section 
254 of the Telecommunications Act of 1996 are met without waste, fraud, 
or abuse.

II. Report and Order

A. Eligible Health Care Provider

    3. We now further define the statutory term ``public health care 
provider.'' We conclude that dedicated emergency departments of rural 
for-profit hospitals that participate in Medicare should be deemed 
``public'' health care providers eligible to receive prorated rural 
heath care support. We agree with commenters that this clarification is 
consistent with congressional intent and is necessary to give meaning 
to the term ``public'' health care provider under the rural health care 
program. Dedicated emergency departments in for-profit hospitals, 
including the emergency departments of critical access hospitals, are 
required, pursuant to the Emergency Medical Treatment and Labor Act 
(EMTALA), to provide medical screening examinations to all patients who 
present themselves and to stabilize or arrange for appropriate transfer 
of those patients with emergency conditions. Thus, such providers are 
``public'' in nature by virtue of the persons they are required, 
pursuant to EMTALA, to examine and/or treat for emergency medical 
conditions.
    4. Moreover, we now determine that dedicated emergency departments 
in for-profit rural hospitals constitute ``rural health clinics.'' As 
UVA notes, in most communities, emergency departments are the only 
ambulatory care entities that serve the public on a 24-hour a day, 7-
day a week basis. In many instances, emergency departments of rural 
for-profit hospitals and critical access hospitals are the only health 
care providers in rural areas serving the medical needs of the 
community. Dedicated emergency departments typically provide the types 
of medical services often provided in traditional health clinics. 
Therefore, we find that dedicated emergency departments in rural for-
profit hospitals should be eligible to receive prorated discounts as 
``public'' ``health providers,'' and more specifically as ``public'' 
``rural health clinics.'' It is necessary to clarify the definition of 
``rural health clinic'' in this way to promote timely access to acute 
specialty healthcare services, chronic disease management programs and 
other preventive services essential to public health and safety. These 
entities are generally the initial point of entry into the healthcare 
system for any person suffering the consequences of a severe 
catastrophe or accident and constitute a vital segment of the health 
care community, particularly in the event of a national public health 
emergency.
    5. Additionally, as suggested by several commenters, given the 
realities of rural health care providers in offering quality health 
care services in rural areas, we clarify the entities listed in section 
254(h)(7)(B) that qualify as rural ``health care providers.'' We 
conclude that entities listed in section 254(h)(7)(B) include non-
profit entities that function as one of the listed entities on a part-
time basis. Pursuant to this modification, non-profit entities that 
provide ineligible services, even on a primary basis, would be able to 
receive prorated support commensurate with their provision of eligible 
rural health care services. For example, if a doctor operated a rural 
health clinic on a non-profit basis in a rural community one day per 
week or during evenings in the local community center, that community 
center would be able to receive prorated support, because it serves as 
a ``rural health clinic'' on a part-time basis. Similarly, if a non-
profit community mental health center also operated as a for-profit 
pharmacy, that center would also be able to receive prorated support as 
a part-time ``community mental health center.'' Our goal in 
implementing this proposal is two-fold--to encourage the development of 
public/private partnerships and other creative solutions to meet the 
needs of rural communities, and to increase participation in the rural 
health care support mechanism.
    6. We decline to expand the definition of health care provider to 
include nursing homes, hospices, and other long-term care facilities. 
Congress specifically listed seven categories of entities eligible for 
support under this program in section 254(h)(7)(B). Given this specific 
listing, we find that if Congress had intended to include nursing 
homes, hospices, and other long-term care facilities as health care 
providers, it would have explicitly done so in the statute. The 
Commission is not authorized to amend the statute to add categories to 
the definition, as suggested by commenters. Thus, we affirm the 
Commission's previous decision that nursing homes, hospices, and other 
long-term care facilities are ineligible for support, whether operated 
on a for-profit or non-profit basis. However, because Congress did 
specifically list seven categories of entities qualifying as health 
care providers, the Commission may clarify the types of entities that 
fit within those seven categories. Therefore, consistent with our 
clarification that entities that serve as a non-profit rural health 
care clinic on a part-time basis are ``health care providers,'' part-
time non-profit rural health care clinics are eligible for

[[Page 74494]]

prorated support, even when associated with a nursing home, hospice, or 
other long-term care facility.
    7. In addition, at this time, we decline to expand the definition 
of rural health care provider to include any rural, non-profit health 
care entity with a certified Medicare and/or Medicare provider number 
as proposed by commenters. The record lacks sufficient information to 
identify the types of entities that would become eligible under this 
proposal, as Medicare/Medicaid supports a wide range of services, 
drugs, and products. We are concerned that by including such entities 
within the definition of ``health care provider'' we may exceed our 
statutory authority. Moreover, with the information in the record we 
are unable to determine the potential impact on the demand for support.

B. Eligible Services

1. Internet Access
    8. Given the rapid development of the Internet's capacities, the 
proliferation of applications available on the Internet, and the 
increase in the number of Internet users since the 1997 Universal 
Service Order was issued, we believe that it is now appropriate to 
provide funding for Internet access to rural health care providers. In 
particular, we conclude that support equal to twenty-five percent of 
the monthly cost for any form of Internet access reasonably related to 
the health care needs of the facility should be provided to rural 
health care providers. The definition for Internet access that we adopt 
here is intended to provide rural health care providers considerable 
flexibility to utilize the resources available over the Internet that 
will assist them in fulfilling their health care needs.
    9. We agree with commenters that the Internet can serve as an 
invaluable resource, by providing on-line courses in health education, 
medical research, follow-up care, regulatory information such as 
compliance with the Health Insurance Portability and Accountability Act 
of 1996, video conferencing, web-based electronic benefit claim systems 
including on-line billing, and other crucial business functions. The 
incredible potential of the Internet to provide access to such a 
breadth of medical information may also help reduce isolation in rural 
communities. In light of the development of medical applications for 
the Internet since 1997, we conclude that encouraging access to this 
information service will improve the level of care available in rural 
areas.
    10. Furthermore, health care information shared over the Internet 
may enable rural health care providers to diagnose, treat, and contain 
possible outbreaks of disease or respond to health emergencies. We 
agree with commenters that Internet access provides a vital link to 
information and instantaneous communications in times of natural 
disasters and public health emergencies. National connectivity of 
telehealth and telemedicine networks could also promote the national 
defense by serving as vehicles for rapid, secure communications in 
times of emergency, due to outbreaks of disease or biological and 
chemical attacks.
    11. Accordingly, for purposes of the rural health care support 
mechanism only, we define ``eligible Internet access'' as ``an 
information service that enables rural health care providers to post 
their own data, interact with stored data, generate new data, or 
communicate over the World Wide Web.'' Eligible Internet access 
provides access to the world-wide information resource of the Internet, 
and includes all features typically provided by Internet service 
providers to provide adequate functionality and performance. To qualify 
as Internet access under the definition we adopt today for the rural 
health care support mechanism, transmissions must traverse the Internet 
in some fashion. Internet access may provide transport of digital 
communications using any Internet-based protocols, including 
encapsulation of data, video, or voice.
    12. We specifically decline to adopt the definition of Internet 
access currently used in the schools and libraries support mechanism. 
Under those rules, Internet access includes: This definition thus 
specifically precludes support for features that provide the capability 
to generate or alter the content of information. We believe adopting 
such a limitation for the rural health care program would significantly 
undercut the utility of providing support for Internet access to rural 
health care providers, because the ability to alter and interact with 
information over the Internet is precisely the feature that could 
facilitate improved medical care in rural areas. Under the rural health 
care support mechanism, we will provide support for Internet access, as 
long as it is reasonably related to the health care needs of the 
facility, and it is the most cost-effective method of meeting those 
needs. We will not provide support, however, for the purchase of 
internal connections, computer equipment or other telecommunications 
equipment, even when used to access the Internet, because such items 
are not information services.
    13. We conclude that a flat discount percentage of twenty-five 
percent off the cost of monthly Internet access will assist health care 
providers seeking to purchase Internet access, while also providing 
incentives for rural health care providers to make prudent economic 
decisions concerning their telemedical needs. We agree with commenters 
that a flat discount, analogous to the operation of the schools and 
libraries support mechanism, will lead to greater predictability and 
fairness among health care providers. A flat discount is consistent 
with section 254(b)(5), which requires ``a specific, sufficient, and 
predictable mechanism * * * because it limits the amount of support 
that each health care provider may receive per month to a reasonable 
level.'' A flat discount is also easy to administer. Although it is 
difficult to estimate the impact of providing support for Internet 
access service due to the wide range of costs between and among the 
various types of Internet access services, we agree with commenters' 
projections that our actions today regarding Internet access are 
unlikely to result in program demand in excess of the cap. We act 
conservatively by choosing a twenty-five percent flat discount 
initially because it will provide an incentive for rural health care 
providers to choose a level of service appropriate to their needs, will 
provide more certainty that demand for Internet access support will not 
exceed the annual funding cap, and will deter wasteful expenditures. 
Furthermore, we find that a twenty-five percent discount is reasonable 
because provision of support to health care providers under the rural 
health care support mechanism is not contingent on economic need, 
similar to the twenty-five percent discount provided to the least 
disadvantaged rural schools and libraries. As we gain more experience 
with this aspect of the support mechanism, we will determine whether an 
increase in the discount is necessary or advisable. Finally, we 
disagree with WorldCom that support for Internet access must be based 
on the difference between urban and rural rates, because section 
254(h)(2)(A) of the Act, the statutory provision dealing with 
information services, makes no reference to an urban-rural comparison, 
unlike section 254(h)(1)(A). The urban-rural comparison for 
telecommunications services that WorldCom cites to in section 
254(h)(1)(A) does not apply to information services such as Internet

[[Page 74495]]

access. Provision of Internet access and other information services is 
governed by section 254(h)(2)(A).
    14. Consistent with the Commission's long-standing principles of 
competitive neutrality, rural health care providers may receive 
discounts for the most cost-effective form of Internet access, 
regardless of the platform. Thus, a provider could opt for dial-up 
Internet access or broadband Internet access over wireline, cable, 
wireless, or satellite platforms. Health care providers must certify, 
however, that the particular Internet access service selected is the 
most cost-effective way of meeting the facility's health care needs. We 
believe this policy will provide flexibility to rural health care 
providers to purchase the most appropriate offerings for their health 
care needs and may also facilitate the deployment of facilities-based 
broadband deployment in rural areas.
    15. Moreover, we will continue to provide support for toll charges 
incurred by health care providers that cannot obtain toll-free access 
to an ISP, limited to the lesser of $180.00 or 30 hours of usage per 
month. The 1997 Universal Service Order stated that the proliferation 
of ISPs and the competitive marketplace ``soon should eliminate the 
need for such support.'' However, we are persuaded by commenters' 
showings that the need for such support still exists. Providing support 
for limited toll charges will place those providers who cannot reach an 
ISP without incurring toll charges on the same footing as other health 
care providers with respect to Internet access.
2. Other Services
    16. We decline at this time to provide support for services other 
than telecommunications services, Internet access, and limited toll 
charges. In the NPRM, 67 FR 34653 (May 15, 2002) the Commission sought 
comment on whether we should establish new policies to enhance access 
to advanced telecommunications and information services for health care 
providers consistent with the scope of our authority under section 
254(h)(2)(A). Commenters suggested that telecommunications equipment, 
surcharges imposed by statewide or regional networks, internal 
connections, and health care providers' travel costs should be eligible 
for universal service support. We find that providing support for 
telecommunications equipment, surcharges, and travel costs exceeds the 
scope of our statutory authority under section 254(h), because these 
items are neither telecommunications nor information services. In 
addition, we believe there is insufficient information in the record to 
provide support for internal connections. Moreover, given our 
experience with the schools and libraries support mechanism, we are 
concerned that providing support for internal connections may place an 
undue burden on the rural health care support mechanism.

C. Calculation of Discounted Services

1. Interpretation of ``Similar Services''
    17. We alter our current policy to allow rural health care 
providers to compare the urban and rural rates for functionally similar 
services as viewed from the perspective of the end user. We agree with 
commenters that our current policy of comparing technically similar 
services does not take into account that certain telecommunications 
services offered in urban areas are not always available in rural 
areas. In particular, new technologies are often first deployed in 
urban areas, and such services may be less expensive than services in 
rural areas based on older technologies. This modification to our rules 
will better effectuate the mandate of Congress to ensure comparable 
services for rural areas, as provided in section 254 of the Act, by 
allowing rural health care providers to benefit from obtaining 
telecommunications services at rates equivalent to those in urban 
areas. Eligible health care providers must purchase telecommunications 
services and compare their service to a functionally equivalent 
telecommunications service in order to receive this discount.
    18. Accordingly, we create ``safe harbor'' categories of 
functionally equivalent services based on the advertised speed and 
nature of the service. For purposes of the rural health care support 
mechanism only, we establish the following advertised speed categories 
as functionally equivalent: low--144-256 kbps; medium--257-768 kbps; 
high--769-1400 kbps (1.4 mbps); T-1--1.41-8 mbps; T-3--8.1-50 mbps. We 
will also consider whether a service is symmetrical or asymmetrical 
when determining functional equivalencies. Telecommunications services 
will be considered functionally similar when operated at advertised 
speeds within the same category (low, medium, high, T-1, or T-3) and 
when the nature of the service is the same (symmetrical or 
asymmetrical). For example, a symmetrical fractional T-1 service 
operating at an advertised speed of 144 kbps would be considered 
functionally similar to a symmetrical DSL transmission service with an 
advertised speed of 256 kbps. By developing ``safe harbor'' categories 
of functionally equivalent speeds, we hope to minimize the disparity in 
rates of services available in rural and urban areas in an 
administratively easy fashion. We will update these categories, as 
needed, to reflect technological developments.
2. Urban Area
    19. We now revise section 54.605 of our rules to allow rural health 
care providers to compare rural rates to urban rates in any city with a 
population of at least 50,000 in the state, as opposed to the nearest 
city with a population of 50,000. The Commission originally required 
comparison to the nearest city with 50,000 people, in part, because 
they believed health care providers would likely connect to a point in 
that nearest large city. Based on our experience with the program and 
information in the record, health care providers may not always find 
the needed expertise in the nearest large city. Allowing comparison to 
rates in any city in the state acknowledges that rural health care 
providers may communicate with experts in other cities in the state. 
Such action also should allow rural health care providers to benefit 
from the lowest rates for services in the State, thereby providing 
additional support to develop better telemedicine links. Verizon 
asserts that, under this policy, rural health care providers may 
receive better rates than those available in some urban areas of the 
state. However, we believe that the public interest in providing more 
flexibility in utilizing telemedicine services and quality health care 
facilities outweighs any minimal advantage gained by rural health care 
providers over those health care providers located in certain urban 
areas. Further, we do not believe the urban rates within states differ 
so significantly that revising this rule will increase demand to the 
extent that we may risk exceeding the funding cap of $400 million.
3. Maximum Allowable Distance
    20. We revise the Maximum Allowable Distance (MAD) to equal the 
distance between the rural health care provider and the farthest point 
on the jurisdictional boundary of the largest city in that State. 
Accordingly, for distance-based charges actually incurred, we modify 
our rules to provide support to rural health care providers to any 
location that exceeds the SUD and is less than this revised MAD. As the 
Commission indicated in the NPRM, our experience to date suggests that 
limiting rural heath care providers to discounts for distance-based 
charges to the nearest city of

[[Page 74496]]

50,000 or more may not be adequate for purposes of creating a 
comprehensive telehealth and telemedicine network. Further, commenters 
contend that the current MAD assumes that the rural health care 
provider will connect with specialists in the nearest urban area, which 
may not necessarily have the essential complement of specialists to 
provide telemedicine services. We believe, in most instances, 
calculating the MAD as described will provide more support for 
distance-based charges than our current rules, without creating 
additional administrative burdens for the Administrator. In addition, 
this modification should provide rural health care providers access to 
high levels of care and greater flexibility in developing appropriate 
telehealth networks.
    21. Although commenters generally favor eliminating the MAD, we 
decline to do so at this time. We are concerned that eliminating the 
MAD could result in wasteful expenditures for the program, as providers 
could connect to more distant locations when a closer one would 
suffice. Expanding the MAD to the largest city in a state should 
provide support sufficient to enable rural health care providers to 
connect with health care facilities with a wide range of medical 
expertise, without introducing the potential for waste associated with 
eliminating the MAD or making the MAD equal to the furthest point in 
the state. Moreover, we decline to expand the MAD to equal the distance 
between the health care provider and the nearest center of tertiary 
care. Although this proposal may have a more direct relationship to 
health care services, we agree with commenters that the nearest point 
of tertiary care may not provide the required specialized expertise. In 
addition, this proposal would require the identification and continued 
monitoring of all tertiary care centers throughout the Nation, which 
would impose significant administrative burdens upon the Administrator 
of the program.
4. Satellite Services
    22. We revise our policy to allow rural health care providers to 
receive discounts for satellite services even where alternative 
terrestrial-based services may be available. As suggested by 
commenters, however, these discounts will be capped at the amount 
providers would have received if they purchased functionally similar 
terrestrial-based alternatives. Providers seeking discounts for 
satellite services will be required to provide to the Administrator 
documentation of the urban and rural rates for the terrestrial-based 
alternative services. We believe imposing a cap on support for 
satellite service is necessary because satellite services are often 
significantly more expensive than terrestrial-based services. Thus, 
pursuant to these changes, where rural health care providers opt for 
more expensive satellite-based services when a cheaper terrestrial-
based alternative is available, the provider, and not the support 
mechanism, will be responsible for the additional cost. For example, if 
a health care provider pays $100 per month for satellite service, the 
rural rate for a comparable wireline service plan is $60 per month, and 
the urban rate is $40 per month, the health care provider would receive 
$20 per month towards the satellite service. We conclude this approach 
furthers the principle of competitive neutrality and recognizes the 
role that satellite services may play in rural areas without unduly 
increasing the size of the fund. We also seek further comment in the 
accompanying Further Notice on whether additional rule changes should 
be adopted to facilitate support for mobile rural health care 
providers.
5. Insular Areas
    23. Although we continue to recognize that using urban rates within 
a State as the benchmark for reasonable rates may be ill-suited to 
certain insular areas, we believe that the proposal of some commenters 
to permit the comparison of insular rural rates to the nearest urban 
area outside the State is inconsistent with the statutory language set 
forth in section 254(h)(1)(A). As the Commission indicated in the 
Fifteenth Order on Reconsideration, 64 FR 66778 (November 30, 1999), 
Congress could have provided discounts for telecommunications services 
that connect rural health care providers to the nearest major hospital 
within or outside the State. Congress, however, explicitly provided 
that rates should be compared to the urban rate in that State. We 
continue to believe section 254(h)(1)(A) precludes us from designating 
an urban area outside of the State as the benchmark for comparison for 
remote, insular areas.
    24. We also disagree with American Samoa Telecommunications 
Authority that section 254(h)(2)(A) authorizes the Commission to 
provide support for telecommunications links between American Samoa to 
an urban center outside the territory, such as Honolulu, Hawaii, 
without regard to the urban-rural rate difference. Section 254(h)(2)(A) 
authorizes the Commission to take action to increase access to advanced 
telecommunications and information services. Support for 
telecommunications services, however, is provided subject to section 
254(h)(1)(A) and as discussed herein, requires an urban to rural 
comparison within the State. Although we do not believe we can grant 
the request of providers in insular areas, we do provide support for 
Internet access for all eligible rural health care providers, including 
those in insular areas, which we believe will functionally provide 
significant support to health care providers in insular areas.

D. Other Changes to the Rural Health Care Support Mechanism

1. Allocation Guidelines and Record-Keeping Requirements
    25. Because entities that engage in both eligible and ineligible 
activities or that collocate with an entity that provides ineligible 
services will now be eligible for prorated support, we adopt rules 
requiring such providers to allocate their discounts to prevent 
discounts from flowing to ineligible activities or providers of 
services. Prorated discounts will be provided commensurate only with 
entities' eligible activities. The method of cost allocation chosen by 
an applicant should be based on objective criteria, and reasonably 
reflect the eligible usage of the facilities. Thus, if 
telecommunications facilities are used jointly for eligible and 
ineligible purposes, the allocation should be based on the percentage 
of time the facility is used for eligible purposes or some other method 
that reasonably reflects eligible usage. Health care providers must 
keep documentation explaining their allocation methods for five years 
and present that information to Universal Service Administrative 
Company upon request. We also direct USAC to evaluate the allocation 
methods selected by program participants in the course of its audit 
activities to ensure program integrity. Additionally, we codify the 
requirement that health care providers must maintain records for their 
purchases of supported services for at least five years sufficient to 
document their compliance with all Commission requirements.
    26. To illustrate the general principle of discount allocation, we 
provide several ``safe harbor'' examples of allocation methods. First, 
if a dedicated emergency department in a for-profit rural hospital 
shares access to a T-3 with the rest of the hospital, and the T-3 is 
used seventy-five hours per week related to EMTALA-emergency care and 
the education of health care

[[Page 74497]]

professionals who work in the dedicated emergency department and fifty 
hours per week related to other hospital use, the T-3 would be used for 
eligible purposes sixty percent of the time (seventy-five hours of use 
by emergency department divided by 125 total hours of use by the entire 
hospital). Therefore, the eligible dedicated emergency department would 
receive sixty percent of the difference between the urban and rural 
rate for the T-3. Second, another dedicated emergency department in a 
for-profit rural hospital that shares access to a T-3 with the rest of 
the hospital, might choose to allocate discounts based on employee 
hours. For example, if the emergency department staff, including on-
call physicians, is staffed at 3,360 hours per week (twenty employees 
covering 168 hours per week), and the rest of the hospital is staffed 
at 4,000 hours per week (100 employees covering 40 hours per week), the 
emergency department would receive forty-six percent of the difference 
between the urban and rural T-3 rate (3,360 emergency staff hours 
divided by 7,360 total staff hours). Third, if a non-profit rural 
health clinic operates in a local community center for five hours one 
evening per week and uses the community center's T-1 line, and the 
community center's normal operating hours are 10 a.m.-10 p.m., Monday 
through Saturday, the T-1 would be used for eligible purposes seven 
percent of the time (five hours divided by eighty-four open hours in a 
week). Therefore, the eligible non-profit rural health clinic would 
receive seven percent of the difference between the urban and rural 
rate for the T-1. Fourth, if a dedicated emergency department in a for-
profit rural hospital shares access to a T-1 with the rest of the 
hospital, and the dedicated emergency department occupies 250 square 
feet and the hospital occupies 2,500 square feet, the T-1 would be used 
for eligible purposes ten percent of the time (250 square feet divided 
by 2,500 square feet). Therefore, the eligible dedicated emergency 
department would receive ten percent of the difference between the 
urban and rural rate for the T-1. If a rural health care provider can 
document that it adopted an allocation method consistent with one of 
these four examples, we will consider the method compliant with our 
requirements. Rural health care providers may choose a different 
allocation method, but will bear the burden of demonstrating, in the 
event of an audit or otherwise, that the chosen method was based on 
objective criteria and reasonably reflects the eligible usage of the 
facilities.
    27. Conversely, when services are used solely by an eligible entity 
for eligible purposes, no allocation would be necessary. For example, 
if a T-1 is located solely in the dedicated emergency room and is used 
only for medical or educational purposes, the dedicated emergency room 
would be able to receive the full discount based on the difference 
between the urban and rural rate. Similarly, if there is a phone line 
in a private room at the community center that is dedicated exclusively 
to a rural health care clinic, no allocation would be necessary because 
the personnel staffing the part-time rural health care clinic would be 
the only ones to use the phone.
2 . Streamlining the Application Process
    28. Since the NPRM was released, USAC has streamlined the 
application process significantly in response to the numerous comments 
submitted in this proceeding on this issue. For example, USAC has 
implemented electronic filing and e-certification for all forms and has 
arranged for electronic forms to be filled automatically with the 
previous year's information for repeat on-line filers. USAC has also 
created a database of urban rates on its Web site. As a result, a 
health care provider can now bypass the arduous step of having to 
retrieve this information from its carrier. In addition, USAC has 
significantly expanded its outreach efforts, such as by sending 
mailings to carriers and health care providers to alert them to changes 
in the program, holding monthly conference calls for carriers and 
health care providers to ask questions and raise concerns, and setting 
up a toll-free access number where carriers and health care providers 
can call at their convenience. Finally, USAC has eliminated the form 
submitted by service providers, FCC Form 468, by combining the relevant 
information into FCC Form 466, which is submitted by applicants. This 
modification to the reimbursement process has reduced to a great extent 
the interval between receipt of service and payments to service 
providers, thereby mitigating commenters' concerns.
    29. We believe USAC's efforts to ease the burdens of applying to 
the program have been exemplary, as further evidenced by the number of 
completed applications received by USAC in Funding Year 2003 compared 
to Funding Year 2002. Nevertheless, in the Further Notice of Proposed 
Rulemaking, we seek comment on ways in which USAC could further 
streamline the application process and expand outreach efforts. In 
addition, we note that the Commission, through the Consumer & 
Governmental Affairs Bureau, will endeavor through its educational and 
outreach efforts, to ensure that those most likely affected are 
informed about the actions taken in this Order. In addition to making 
fact sheets and other informational materials available for 
dissemination through the Commission's Web site, the Commission will 
include the dissemination of such information as part of its on-going, 
grassroots outreach efforts directed at rural America and undertaken in 
coordination with other federal and state agencies.
3. Pro-Rata Reductions if Annual Cap Exceeded
    30. Based on our estimates and the comments we have received, we 
continue to believe that our current rules requiring pro-rata 
distribution of funds if requests exceed the cap, are the most 
effective and equitable means of distributing limited funds in 
accordance with the goals and purposes of the statute. Therefore, we 
agree with the majority of commenters that the current rules should be 
maintained. We note that the rules adopted in this Order could increase 
the level of discounts requested in a year, so applicants are 
encouraged to submit applications during the filing window to secure 
their universal service funding. We disagree with the commenter that 
suggested we prioritize universal service support for telecommunication 
services over information services. We do not think such a measure is 
necessary at this time because program demand has never approached the 
cap. Moreover, prioritization would add another level of unnecessary 
administrative complexity to the support mechanism.
4. Ensuring the Selection of Cost-Effective Services
    31. We agree with commenters that the current rules are adequate to 
ensure that health care providers select the most cost-effective 
services. Our certification requirements, combined with the requirement 
that health care providers remain responsible for a significant portion 
of service costs (i.e., the urban rate of telecommunications services 
and 75% of Internet access) will ensure that rural health care 
providers make prudent economic decisions. We also agree with 
commenters that applicants should not be required to use the lowest-
cost technology because factors other than cost, such as reliability 
and quality, may be relevant to fulfill their telemedical needs.

[[Page 74498]]

5. Other Non-Substantive Rule Changes
    32. In the NECA Order, 62 FR 41294 (August 1, 1997), the Commission 
directed the National Exchange Carrier Association (NECA) to establish 
the Rural Health Care Corporation to administer the rural health care 
support mechanism. Subsequently, the Commission directed the Rural 
Health Care Corporation to be merged into a division of USAC. In light 
of the Commission's prior actions, we hereby amend our rules to replace 
all references to the ``Rural Health Care Corporation'' with the 
``Rural Health Care Division.'' We also revise Sec.  54.609(a)(1)(i) to 
conform to the Fifteenth Order on Reconsideration. We also adopt 
several other non-substantive rule changes to improve the clarity of 
the rules.
6. Implementation
    33. Funding Year 2003 for the rural health care program ends June 
30, 2003, and Funding Year 2004 begins July 1, 2004. Because we do not 
wish to introduce changes to the program in the middle of a funding 
year, the modifications to the program adopted in this Order will be 
implemented beginning with Funding Year 2004. We direct USAC to take 
the necessary operational steps to implement the improvements to the 
program adopted herein for Funding Year 2004.

III. Order on Reconsideration

    34. Consistent with the policy objectives underlying our decision, 
we deny, to the extent indicated herein, Mobile Satellite Ventures' 
(MSV) petition for reconsideration of the 1997 Universal Service Order. 
We decline to revise our policy, as MSV suggests, to subsidize 
satellite service at the same price as terrestrial mobile service. We 
agree with Verizon that equalizing these rates could undercut 
competition and competitive neutrality. Although we agree that MSV and 
similar carriers provide valuable services to rural areas, particularly 
insular areas unserved by wireline carriers, we are concerned that 
equalizing the rates for satellite and terrestrial mobile service could 
significantly increase program demand and disadvantage those carriers 
already providing functionally similar services at more competitive 
prices. Accordingly, we deny MSV's petition for reconsideration to the 
extent indicated herein.

IV. Procedural Matters

A. Regulatory Flexibility Analysis

    35. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Notice of Proposed Rulemaking. The Commission 
sought written public comments on the proposals in the NPRM, including 
comment on the IRFA. The Commission received seventy-five comments, 
fourteen reply comments, and six ex partes in response to the NPRM. 
This present Final Regulatory Flexibility Analysis (FRFA) conforms to 
the RFA.
1. Need for, and Objectives of, the Report and Order
    36. The Commission is required by section 254 of the Act to 
promulgate rules to implement the universal service provisions of 
section 254. On May 8, 1997, the Commission adopted rules that reformed 
its system of universal service support mechanisms so that universal 
service is preserved and advanced as markets move toward competition. 
Among other things, the Commission adopted a mechanism to provide 
discounted telecommunications services to public or non-profit health 
care providers that serve persons in rural areas. Over the last few 
years, important changes in the rural health community prompt us to 
review the rural health care universal service support mechanism. In 
this Report and Order, we adopt several modifications to the 
Commission's rules to improve the effectiveness of the rural health 
care universal service support mechanism and increase utilization of 
this mechanism by rural health care providers.
    37. Specifically, in the Report and Order, we clarify the scope of 
entities eligible to receive discounts. We conclude that dedicated 
emergency departments of rural for-profit hospitals that participate in 
Medicare should be deemed ``public'' health care providers eligible to 
receive prorated rural heath care support. We believe this 
clarification is necessary to give meaning to the term ``public'' 
health care provider under the rural health care program. Moreover, we 
also determine that dedicated emergency departments in for-profit rural 
hospitals constitute ``rural health clinics.'' These entities are 
generally the initial point of entry into the healthcare system for any 
person suffering the consequences of a severe catastrophe or accident 
and constitute a vital segment of the health care community, 
particularly in the event of a national public health emergency. 
Additionally, we conclude that entities listed in section 254(h)(7)(B) 
include non-profit entities that function as one of the listed entities 
on a part-time basis. Pursuant to this modification, non-profit 
entities that provide ineligible services, even on a primary basis, 
would be able to receive prorated support commensurate with their 
provision of eligible rural health care services. Our goal in 
implementing this proposal is two-fold--to encourage the development of 
public/private partnerships and other creative solutions to meet the 
needs of rural communities, and to increase participation in the rural 
health care support mechanism. Further, because entities that engage in 
both eligible and ineligible activities or that collocate with an 
entity that provides ineligible services will now be eligible for 
prorated support, we also adopt rules requiring such providers to 
allocate their discounts to prevent discounts from flowing to 
ineligible activities or providers of services.
    38. We also provide funding for Internet access for rural health 
care providers. We conclude that support equal to twenty-five percent 
of the monthly cost for any form of Internet access reasonably related 
to the health care needs of the facility should be provided to rural 
health care providers. We believe that the Internet can serve as an 
invaluable resource, by providing on-line courses in health education, 
medical research, follow-up care, regulatory information such as 
compliance with Health Insurance Portability and Accountability Act of 
1996, video conferencing, web-based electronic benefit claim systems 
including on-line billing, and other crucial business functions. The 
incredible potential of the Internet to access such a breadth of 
medical information may also help reduce isolation in rural 
communities. Furthermore, health care information shared over the 
Internet may enable rural health care providers to diagnose, treat, and 
contain possible outbreaks of disease or respond to health emergencies. 
Thus, in light of the development of medical applications for the 
Internet since 1997, we conclude that encouraging access to this 
information service will improve the level of care available in rural 
areas.
    39. We also alter our current policy to allow rural health care 
providers to compare the urban and rural rates for functionally similar 
services as viewed from the perspective of the end user. This 
modification to our rules will better effectuate the mandate of 
Congress to ensure comparable services for rural areas, as provided in 
section 254 of the Act, by allowing rural health care providers to 
benefit from obtaining telecommunications services at rates equivalent 
to those in urban areas.

[[Page 74499]]

    40. We also revise Sec.  54.605 of our rules to allow rural health 
care providers to compare rural rates to urban rates in any city with a 
population of at least 50,000 in the state, as opposed to the nearest 
city with a population of 50,000. Allowing comparison to rates in any 
city in the state acknowledges that rural health care providers may 
communicate with experts in other cities in the state. Such action also 
should allow rural health care providers to benefit from the lowest 
rates for services in the State, thereby providing additional support 
to develop better telemedicine links.
    41. Additionally, we revise the maximum allowable distance (MAD) to 
equal the distance between the rural health care provider and the 
farthest point on the jurisdictional boundary of the largest city in 
that State. Accordingly, for distance-based charges, we modify our 
rules to provide support to rural health care providers to any location 
(within or outside of the state) that exceeds the SUD and is less than 
this revised MAD. We believe, in most instances, calculating the MAD as 
described will provide more support for distance-based charges than our 
current rules, without creating additional administrative burdens for 
the Administrator. In addition, this modification should provide rural 
health care providers access to high levels of care and greater 
flexibility in developing appropriate telehealth networks.
    42. Lastly, we revise our policy to allow rural health care 
providers to receive discounts for satellite services even where 
alternative terrestrial-based services may be available. However, these 
discounts will be capped at the amount providers would have received if 
they purchased functionally similar terrestrial-based alternatives. We 
conclude this approach furthers the principle of competitive neutrality 
and recognizes the role that satellite services may play in rural areas 
without unduly increasing the size of the fund.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    43. No petitions for reconsideration or comments were filed 
directly in response to the IRFA or on issues affecting small 
businesses.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    44. The RFA directs agencies to provide a description of, and where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A ``small business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the Small Business 
Administration (SBA).
    45. A small organization is generally ``any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, as of 1992, there were 
approximately 275,801 small organizations. The term ``small 
governmental jurisdiction'' is defined as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' As of 1997, 
there were approximately 87,453 government jurisdictions in the United 
States. This number includes 39,044 counties, municipal governments, 
and townships, of which 27,546 have populations of fewer than 50,000 
and 11,498 counties, municipal governments, and townships have 
populations of 50,000 or more. Thus, we estimate that the number of 
small government jurisdictions must be 75,955 or fewer. Small entities 
potentially affected by the proposals herein include small rural health 
care providers, small local health departments and agencies, and small 
eligible service providers offering discounted services to rural health 
care providers, including telecommunications carriers and ISPs.
a. Rural Health Care Providers
    46. Section 254(h)(5)(B) of the Act defines the term ``health care 
provider'' and sets forth seven categories of health care providers 
eligible to receive universal service support. Although SBA has not 
developed a specific size category for small, rural health care 
providers, recent data indicate that there are a total of 8,297 health 
care providers, consisting of: (1) 625 ``post-secondary educational 
institutions offering health care instruction, teaching hospitals, and 
medical schools;'' (2) 866 ``community health centers or health centers 
providing health care to migrants;'' (3) 1633 ``local health 
departments or agencies;'' (4) 950 ``community mental health centers;'' 
(5) 1951 ``not-for-profit hospitals;'' and (6) 2,272 ``rural health 
clinics.'' We have no additional data specifying the numbers of these 
health care providers that are small entities. In addition, non-profit 
entities that act as ``health care providers'' on a part-time basis 
will now be eligible to receive prorated support. However, we have no 
data specifying the number of potential new applicants. Consequently, 
using the data we do have, we estimate that there are 8,297 or fewer 
small health care providers potentially affected by the actions 
proposed in this Notice.
    47. As noted, non-profit businesses and small governmental units 
are considered ``small entities'' within the RFA. In addition, we note 
that census categories and associated generic SBA small business size 
categories provide the following descriptions of small entities. The 
broad category of Ambulatory Health Care Services consists of further 
categories and the following SBA small business size standards. The 
categories of providers with annual receipts of $6 million or less 
consists of: Offices of Dentists; Offices of Chiropractors; Offices of 
Optometrists; Offices of Mental Health Practitioners (except 
Physicians); Offices of Physical, Occupational and Speech Therapists 
and Audiologists; Offices of Podiatrists; Offices of All Other 
Miscellaneous Health Practitioners; and Ambulance Services. The 
category of Ambulatory Health Care Services providers with $8.5 million 
or less in annual receipts consists of: Offices of Physicians; Family 
Planning Centers; Outpatient Mental Health and Substance Abuse Centers; 
Health Maintenance Organization Medical Centers; Freestanding 
Ambulatory Surgical and Emergency Centers; All Other Outpatient Care 
Centers, Blood and Organ Banks; and All Other Miscellaneous Ambulatory 
Health Care Services. The category of Ambulatory Health Care Services 
providers with $11.5 million or less in annual receipts consists of: 
Medical Laboratories; Diagnostic Imaging Centers; and Home Health Care 
Services. The category of Ambulatory Health Care Services providers 
with $29 million or less in annual receipts consists of Kidney Dialysis 
Centers. For all of these Ambulatory Health Care Service Providers, 
census data indicate that there is a combined total of 345,476 firms 
that operated in 1997. Of these, 339,911 had receipts for that year of 
less than $5 million. In addition, an additional 3414 firms had annual 
receipts of $5 million to $9.99 million; and additional 1475 firms had 
receipts of $10 million to $24.99 million; and an additional 401 had 
receipts of $25

[[Page 74500]]

million to $49.99 million. We therefore estimate that virtually all 
Ambulatory Health Care Services providers are small, given SBA's size 
categories. In addition, we have no data specifying the numbers of 
these health care providers that are rural and meet other criteria of 
the Act.
    48. The broad category of Hospitals consists of the following 
categories and the following small business providers with annual 
receipts of $29 million or less: General Medical and Surgical 
Hospitals, Psychiatric and Substance Abuse Hospitals; and Specialty 
Hospitals. For all of these health care providers, census data indicate 
that there is a combined total of 330 firms that operated in 1997, of 
which 237 or fewer had revenues of less than $25 million. An additional 
45 firms had annual receipts of $25 million to $49.99 million. We 
therefore estimate that most Hospitals are small, given SBA's size 
categories. In addition, we have no data specifying the numbers of 
these health care providers that are rural and meet other criteria of 
the Act.
    49. The broad category of Nursing and Residential Care Facilities 
consists of the following categories and the following small business 
size standards. The category of Nursing and Residential Care Facilities 
with annual receipts of $6 million or less consists of: Residential 
Mental Health and Substance Abuse Facilities; Homes for the Elderly; 
and Other Residential Care Facilities. The category of Nursing and 
Residential Care Facilities with annual receipts of $8.5 million or 
less consists of Residential Mental Retardation Facilities. The 
category of Nursing and Residential Care Facilities with annual 
receipts of less than $11.5 million consists of Nursing Care Facilities 
and Continuing Care Retirement Communities. For all of these health 
care providers, census data indicates that there are a combined total 
of 18,011 firms that operated in 1997. Of these, 16,165 or fewer firms 
had annual receipts of below $5 million. In addition, 1205 firms had 
annual receipts of $5 million to $9.99 million, and 450 firms had 
receipts of $10 million to $24.99 million. We therefore estimate that a 
great majority of Nursing and Residential Care Facilities are small, 
given SBA's size categories. In addition, we have no data specifying 
the numbers of these health care providers that are rural and meet 
other criteria of the Act.
    50. The broad category of Social Assistance consists of the 
category of Emergency and Other Relief Services and small business size 
standard of annual receipts of $6 million or less. For all of these 
health care providers, census data indicates that there are a combined 
total of 37,778 firms that operated in 1997. Of these, 37,649 or fewer 
firms had annual receipts of below $5 million. An additional 73 firms 
had annual receipts of $5 million to $9.99 million. We therefore 
estimate that virtually all Social Assistance providers are small, 
given SBA's size categories. In addition, we have no data specifying 
the numbers of these health care providers that are rural and meet 
other criteria of the Act.
b. Providers of Telecommunications and Other Services
    51. We have included small incumbent local exchange carriers in 
this present RFA analysis. As noted, a ``small business'' under the RFA 
is one that, inter alia, meets the pertinent small business size 
standard (e.g., a telephone communications business having 1,500 or 
fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent local exchange carriers are not dominant in their field of 
operation because any such dominance is not ``national'' in scope. We 
have therefore included small incumbent local exchange carriers in this 
RFA analysis, although we emphasize that this RFA action has no effect 
on Commission analyses and determinations in other, non-RFA contexts.
    52. Total Number of Telephone Companies Affected. The United States 
Bureau of the Census (the ``Census Bureau'') reports that, at the end 
of 1997, there were 6,239 firms engaged in providing telephone 
services, as defined therein. This number contains a variety of 
different categories of carriers, including local exchange carriers, 
interexchange carriers, competitive access providers, cellular 
carriers, mobile service carriers, operator service providers, pay 
telephone operators, PCS providers, covered SMR providers, and 
resellers. It seems certain that some of those 6,239 telephone service 
firms may not qualify as small entities because they are not 
``independently owned and operated.'' For example, a PCS provider that 
is affiliated with an interexchange carrier having more than 1,500 
employees would not meet the definition of a small business. It seems 
reasonable to conclude, therefore, that 6,239 or fewer telephone 
service firms are small entity telephone service firms that may be 
affected by the decisions and rules adopted in this Report and Order.
    53. Local Exchange Carriers, Interexchange Carriers, Competitive 
Access Providers, Operator Service Providers, Payphone Providers, and 
Resellers. Neither the Commission nor SBA has developed a definition 
particular to small local exchange carriers (LECs), interexchange 
carriers (IXCs), competitive access providers (CAPs), operator service 
providers (OSPs), payphone providers or resellers. The closest 
applicable definition for these carrier-types under SBA rules is for 
telephone communications companies other than radiotelephone (wireless) 
companies. The most reliable source of information regarding the number 
of these carriers nationwide of which we are aware appears to be the 
data that we collect annually on the Form 499-A. According to our most 
recent data, there are 1,335 incumbent LECs, 349 CAPs, 204 IXCs, 21 
OSPs, 758 payphone providers and 454 resellers. Although it seems 
certain that some of these carriers are not independently owned and 
operated, or have more than 1,500 employees, we are unable at this time 
to estimate with greater precision the number of these carriers that 
would qualify as small business concerns under SBA's definition. 
Consequently, we estimate that there are fewer than 1,335 incumbent 
LECs, 349 CAPs, 204 IXCs, 21 OSPs, 758 payphone providers, and 541 
resellers that may be affected by the decisions and rules adopted in 
this Report and Order.
    54. Internet Service Providers. The SBA has developed a small 
business size standard for ``On-Line Information Services,'' NAICS code 
514191. This category comprises establishments ``primarily engaged in 
providing direct access through telecommunications networks to 
computer-held information compiled or published by others.'' Under this 
small business size standard, a small business is one having annual 
receipts of $18 million or less. Based on firm size data provided by 
the Bureau of the Census, 3,123 firms are small under SBA's $18 million 
size standard for this category code. Although some of these Internet 
Service Providers (ISPs) might not be independently owned and operated, 
we are unable at this time to estimate with greater precision the 
number of ISPs that would qualify as small business concerns under 
SBA's small business size standard. Consequently, we estimate that 
there are 3,123 or fewer small entity ISPs that may be affected.
    55. Satellite Service Carriers. The SBA has developed a definition 
for small businesses within the category of Satellite 
Telecommunications. According to SBA regulations, a small business 
under the category of Satellite communications is one having annual 
receipts of $12.5 million or less. According to SBA's most recent data,

[[Page 74501]]

there are a total of 371 firms with annual receipts of $9,999,999 or 
less, and an additional 69 firms with annual receipts of $10,000,000 or 
more. Thus, the number of Satellite Telecommunications firms that are 
small under the SBA's $12 million size standard is between 371 and 440. 
Further, some of these Satellite Service Carriers might not be 
independently owned and operated. Consequently, we estimate that there 
are fewer than 440 small entity ISPs that may be affected by the 
decisions and rules of the present action.
    56. Wireless Service Providers. The SBA has developed a definition 
for small businesses within the two separate categories of Cellular and 
Other Wireless Telecommunications or Paging. Under that SBA definition, 
such a business is small if it has 1,500 or fewer employees. According 
to the Commission's most recent Telephone Trends Report data, 1,495 
companies reported that they were engaged in the provision of wireless 
service. Of these 1,495 companies, 989 reported that they have 1,500 or 
fewer employees and 506 reported that, alone or in combination with 
affiliates, they have more than 1,500 employees. We do not have data 
specifying the number of these carriers that are not independently 
owned and operated, and thus are unable at this time to estimate with 
greater precision the number of wireless service providers that would 
qualify as small business concerns under the SBA's definition. 
Consequently, we estimate that there are 989 or fewer small wireless 
service providers that may be affected by the rules.
    57. Cable and Other Subscription Programming or Other Program 
Distribution and Related Entities. The SBA has developed small business 
size standards which include all such companies generating $12.5 
million or less in revenue annually. These standards cover two 
categories of Cable Services: Cable and Other Subscription Programming; 
and Cable and Other Program Distribution.
    58. Cable and Other Subscription Programming. This industry 
comprises establishments primarily engaged in operating studios and 
facilities for the broadcasting of programs on a subscription or fee 
basis. These establishments produce programming in their own facilities 
or acquire programming from external sources. The programming material 
is usually delivered to a third party, such as cable systems or direct-
to-home satellite systems, for transmission to viewers. According to 
Census Bureau data for 1997, there were a total of 234 firms in this 
category, total, that had operated for the entire year. Of this total, 
188 firms had annual receipts of under $10 million. Consequently, the 
Commission estimates that the majority of providers in this service 
category are small businesses that may be affected by the rules and 
policies adopted herein.
    59. Cable and Other Program Distribution. This category includes 
cable systems operators, closed circuit television services, direct 
broadcast satellite services, multipoint distribution systems, 
satellite master antenna systems, and subscription television services. 
According to Census Bureau data for 1997, there were a total of 1,311 
firms in this category, total, that had operated for the entire year. 
Of this total, 1,180 firms had annual receipts of under $10 million and 
an additional 52 firms had receipts of $10 million or more but less 
than $25 million. Consequently, the Commission estimates that the 
majority of providers in this service category are small businesses 
that may be affected by the rules and policies adopted herein.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    60. The Report and Order adopts several modifications to the 
Commission's rules to improve the effectiveness of the rural health 
care universal service support mechanism and increase utilization of 
this mechanism by rural health care providers. As articulated, in the 
Report and Order, we clarify the scope of entities eligible to receive 
discounts. Specifically, because entities that engage in eligible and 
ineligible activities or that collocate with an entity that provides 
ineligible services will now be eligible for prorated support, we adopt 
rules requiring such providers to allocate their discounts to prevent 
discounts from flowing to ineligible activities or providers of 
services. Health care providers are required to maintain documentation 
explaining their allocation methods for five years and present that 
information to USAC upon request. The method of cost allocation chosen 
by an applicant should be based on objective criteria and reasonably 
reflect the eligible usage of the facilities. Additionally, health care 
providers must maintain for their purchases of supported services 
procurement records for at least five years sufficient to document 
their compliance with all Commission requirements.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    61. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach 
impacting small business, which may include the following four 
alternatives (among others): (1) the establishment of differing 
compliance and reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance or 
reporting requirements under the rule for small entities; (3) the use 
of performance, rather than design, standards; and (4) an exemption 
from coverage of the rule, or part thereof, for small entities.
    62. In this Report and Order, we amend our rules to improve the 
program, increase participation by rural health care providers, and 
ensure that the benefits of the program continue to be distributed in a 
fair and equitable manner. Specifically, we expand the scope of 
entities eligible to receive discounts, provide support for Internet 
access, and modify the way in which we calculate discounts to offer 
rural health care providers more flexibility. The actions taken in the 
Report and Order help improve the quality of health care services 
available in rural America, and better enable rural communities to 
rapidly diagnose, treat, and contain possible outbreaks of disease. 
Thus, rural health care providers stand to benefit directly from the 
modifications to our rules and policies.
6. Report to Congress
    63. The Commission will send a copy of the Report and Order and 
Order on Reconsideration including this FRFA, in a report to be sent to 
Congress pursuant to the Congressional Review Act. In addition, the 
Commission will send a copy of the Report and Order and Order on 
Reconsideration including this FRFA, to the Chief Counsel for Advocacy 
of the Small Business Administration. A copy of the Report and Order 
and Order on Reconsideration and FRFA (or summaries thereof) will also 
be published in the Federal Register.

B. Paperwork Reduction Act Analysis

    64. The action contained herein has been analyzed with respect to 
the Paperwork Reduction Act of 1995 and found to impose new or modified 
reporting and recordkeeping requirements or burdens on the public. 
Implementation of these new or

[[Page 74502]]

modified reported and recordkeeping requirements will be subject to 
approval by the Office of Management and Budget (OMB) as prescribed by 
the Act, and will go into effect upon announcement in the Federal 
Register of OMB approval.

C. Further Information

    65. Alternative formats (computer diskette, large print, audio 
recording, and Braille) are available to persons with disabilities by 
contacting Brian Millin at (202) 418-7426 voice, (202) 418-7365 TTY, or 
[email protected]. This Report and Order can also be downloaded in 
Microsoft Word and ASCII formats at <http://www.fcc.gov/ccb/universalservice/highcost.
    66. For further information, contact Shannon Lipp at (202) 418-7954 
or Regina Brown at (202) 418-0792 in the Telecommunications Access 
Policy Division, Wireline Competition Bureau.

V. Ordering Clauses

    67. Pursuant to the authority contained in sections 1, 4(i), 4(j), 
201-205, 214, 254, and 403 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 154(i), 154(j), 201-205, 214, 254, and 403, 
this Report and Order and Order on Reconsideration is adopted.
    68. Pursuant to the authority contained in section 405, of the 
Communications Act of 1934, as amended, 47 U.S.C. 405, and 0.291 and 
1.429 of the Commission's rules, Mobile Satellite Ventures Subsidiary's 
Petition for Clarification or Reconsideration is denied to the extent 
indicated herein.
    69. Part 54 of the Commission's rules, is amended, effective 
January 23, 2004 except for Sec. Sec.  54.609(a)(2), 54.609(A)(3)(ii), 
and 54.621(a) which contain information collection requirements that 
have not been approved by the Office of Management and Budget (OMB). 
The Commission will publish a document in the Federal Register 
announcing the effective date of those sections.
    70. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Report and 
Order and Order on Reconsideration, including the Final Regulatory 
Flexibility Analysis and Initial Regulatory Flexibility Analysis, to 
the Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 54

    Libraries, Reporting and recordkeeping requirements, Schools, 
Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation for Part 54 continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless 
otherwise noted.

0
2. Amend Sec.  54.601 by removing paragraphs (a)(3), (b)(3), and 
(b)(4), redesignating paragraphs (a)(4) and (a)(5) as (a)(3) and 
(a)(4), revising paragraphs (a)(1), newly designated (a)(3) and (c), 
and by adding paragraph (d) to read as follows:


Sec.  54.601  Eligibility.

    (a) * * *
    (1) Except with regard to those services provided under Sec.  
54.621(b), only an entity that is either a public or non-profit rural 
health care provider, as defined in this section, shall be eligible to 
receive supported services under this subpart.
* * * * *
    (3) For purposes of this subpart, a rural health care provider is a 
public or non-profit health care provider located in a rural area, as 
defined in this subpart.
* * * * *
    (c) Services. (1) Any telecommunications service that is the 
subject of a properly completed bona fide request by a rural health 
care provider shall be eligible for universal service support, subject 
to the limitations described in this paragraph. The length of a 
supported telecommunications service may not exceed the distance 
between the health care provider and the point farthest from that 
provider on the jurisdictional boundary of the largest city in a state 
as defined in Sec.  54.625(a).
    (2) Internet access and limited toll-free access to internet. (i) 
For purposes of this subpart, eligible Internet access is an 
information service that enables rural health care providers to post 
their own data, interact with stored data, generate new data, or 
communicate over the World Wide Web.
    (ii) Internet access shall be eligible for universal service 
support under Sec.  54.621(a).
    (iii) Limited toll-free access to an Internet service provider 
shall be eligible for universal service support under Sec.  54.621(b).
    (d) Allocation of discounts. An eligible health care provider that 
engages in eligible and ineligible activities or that collocates with 
an entity that provides ineligible services shall allocate eligible and 
ineligible activities in order to receive a prorated discount for 
eligible activities. Health care providers shall choose a method of 
cost allocation that is based on objective criteria and reasonably 
reflects the eligible usage of the facilities.


Sec.  54.603  [Amended]

0
3. Amend Sec.  54.603 by revising the term ``Rural Health Care 
Corporation'' in paragraphs (b)(1), (b)(2), (b)(3), (b)(4), and (b)(5) 
to read ``Rural Health Care Division.''

0
4. Amend Sec.  54.605 by removing paragraph (c), redesignating 
paragraphs (d) and (e) as paragraphs (c) and (d), and revising 
paragraphs (a) and (b) to read as follows:


Sec.  54.605  Determining the urban rate.

    (a) If a rural health care provider requests an eligible service to 
be provided over a distance that is less than or equal to the 
``standard urban distance,'' as defined in paragraph (c) of this 
section, for the state in which it is located, the urban rate for that 
service shall be a rate no higher than the highest tariffed or 
publicly-available rate charged to a commercial customer for a 
functionally similar service in any city with a population of 50,000 or 
more in that state, calculated as if it were provided between two 
points within the city.
    (b) If a rural health care provider requests an eligible service to 
be provided over a distance that is greater than the ``standard urban 
distance,'' as defined in paragraph (c) of this section, for the state 
in which it is located, the urban rate for that service shall be a rate 
no higher than the highest tariffed or publicly-available rate charged 
to a commercial customer for a functionally similar service provided 
over the standard urban distance in any city with a population of 
50,000 or more in that state, calculated as if the service were 
provided between two points within the city.
* * * * *

0
5. Revise Sec.  54.609 to read as follows:


Sec.  54.609  Calculating support.

    (a) Except with regard to services provided under Sec.  54.621 and 
subject to the limitations set forth in this subpart, the amount of 
universal service support for an eligible service provided to a public 
or non-profit rural health care provider shall be the difference, if 
any,

[[Page 74503]]

between the urban rate and the rural rate charged for the service, as 
defined herein. In addition, all reasonable charges that are incurred 
by taking such services, such as state and federal taxes shall be 
eligible for universal service support. Charges for termination 
liability, penalty surcharges, and other charges not included in the 
cost of taking such service shall not be covered by the universal 
service support mechanisms. Rural health care providers may choose one 
of the following two support options.
    (1) Distance based support. The Administrator shall consider the 
base rates for telecommunications services in rural areas to be 
reasonably comparable to the base rates charged for functionally 
similar telecommunications service in urban areas in that state, and, 
therefore, the Administrator shall not include these charges in 
calculating the support. The Administrator shall include, in the 
support calculation, all other charges specified, and all actual 
distance-based charges as follows:
    (i) If the requested service distance is less than or equal to the 
SUD for the state, the distance-based charges for the rural health care 
provider are reasonably comparable to those in urban areas, so the 
health care provider will not receive distance-based support.
    (ii) If the requested service distance is greater than the SUD for 
the state, but less than the maximum allowable distance, the distance-
based charge actually incurred for that service can be no higher than 
the distance-based charges for a functionally similar service in any 
city in that state with a population of 50,000 or more over the SUD.
    (iii) ``Distance-based charges'' are charges based on a unit of 
distance, such as mileage-based charges.
    (iv) Except with regard to services provided under Sec.  54.621, a 
telecommunications carrier that provides telecommunications service to 
a rural health care provider participating in an eligible health care 
consortium, and the consortium must establish the actual distance-based 
charges for the health care provider's portion of the shared 
telecommunications services.
    (2) Base rate support. If a telecommunications carrier, health care 
provider, and/or consortium of health care providers reasonably 
determines that the base rates for telecommunications services in rural 
areas are not reasonably comparable to the base rates charged for 
functionally similar telecommunications service in urban areas in that 
state, the telecommunications carrier, health care provider, and/or 
consortium of health care providers may request that the Administrator 
perform a more comprehensive support calculation. The requester shall 
provide to the Administrator the information to establish both the 
urban and rural rates consistent with Sec.  54.605 and Sec.  54.607, 
and submit to the Administrator with Form 466 all of the documentation 
necessary to substantiate the request.
    (3) Base rate support-consortium. Except with regard to services 
provided under Sec.  54.621, a telecommunications carrier that provides 
telecommunications service to a rural health care provider 
participating in an eligible health care consortium, and the consortium 
must establish the applicable rural base rates for telecommunications 
service for the health care provider's portion of the shared 
telecommunications services, as well as the applicable urban base rates 
for the telecommunications service.
    (b) Absent documentation justifying the amount of universal service 
support requested for health care providers participating in a 
consortium, the Administrator shall not allow telecommunications 
carriers to offset, or receive reimbursement for, the amount eligible 
for universal service support.
    (c) The universal service support mechanisms shall provide support 
for intrastate telecommunications services, as set forth in Sec.  
54.101(a), provided to rural health care providers as well as 
interstate telecommunications services.
    (d) Satellite services. (1) Rural public and non-profit health care 
providers may receive support for rural satellite services, even when 
another functionally similar terrestrial-based service is available in 
that rural area. Discounts for satellite services shall be capped at 
the amount the rural health care provider would have received if they 
purchased a functionally similar terrestrial-based alternative.
    (2) Rural health care providers seeking discounts for satellite 
services shall provide to the Administrator with the Form 466 
documentation of the urban and rural rates for the terrestrial-based 
alternatives.
    (3) Where a rural health care provider seeks a more expensive 
satellite-based service when a less expensive terrestrial-based 
alternative is available, the rural health care provider shall be 
responsible for the additional cost.

0
6. Amend Sec.  54.613 by revising paragraph (a) to read as follows:


Sec.  54.613  Limitations on supported services for rural health care 
providers.

    (a) Upon submitting a bona fide request to a telecommunications 
carrier, each eligible rural health care provider is entitled to 
receive the most cost-effective, commercially-available 
telecommunications service at a rate no higher than the highest urban 
rate, as defined in Sec.  54.605, at a distance not to exceed the 
distance between the eligible health care provider's site and the 
farthest point on the jurisdictional boundary of the city in that state 
with the largest population.
* * * * *

0
7. Revise Sec.  54.619 to read as follows:


Sec.  54.619  Audits and recordkeeping.

    (a) Health care providers. Recordkeeping. Health care providers 
shall maintain for their purchases of services supported under this 
subpart documentation for five years from the end of the funding year 
sufficient to establish compliance with all rules in this subpart. 
Documentation must include, among other things, records of allocations 
for consortia and entities that engage in eligible and ineligible 
activities, if applicable.
    (b) Production of records. Health care providers shall produce such 
records at the request of any auditor appointed by the Administrator or 
any other state or federal agency with jurisdiction.
    (c) Random audits. Health care providers shall be subject to random 
compliance audits to ensure that requesters are complying with the 
certification requirements set forth in Sec.  54.615(c) and are 
otherwise eligible to receive universal service support and that rates 
charged comply with the statute and regulations.
    (d) Annual report. The Administrator shall use the information 
obtained under paragraphs (a), (b) and (c) of this section to evaluate 
the effects of the regulations adopted in this subpart and shall report 
its findings to the Commission on the first business day in May of each 
year.

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8. Revise Sec.  54.621 to read as follows:


Sec.  54.621  Access to advanced telecommunications and information 
services.

    (a) Twenty-five percent of the monthly cost of eligible Internet 
access shall be eligible for universal support. Health care providers 
shall certify that the Internet access selected is the most cost-
effective method for their health care needs as defined in Sec.  
54.615(c)(7), and that purchase of the Internet access is reasonably 
related to the health care needs of the rural health care provider.
    (b) Each eligible health care provider that cannot obtain toll-free 
access to an Internet service provider shall be entitled to receive the 
lesser of the toll charges incurred for 30 hours of access

[[Page 74504]]

per month to an Internet service provider or $180 per month in toll 
charge credits for toll charges imposed for connecting to an Internet 
service provider.

0
9. Amend Sec.  54.625 by revising paragraph (a) to read as follows:


Sec.  54.625  Support for services beyond the maximum supported 
distance for rural health care providers.

    (a) The maximum support distance is the distance from the health 
care provider to the farthest point on the jurisdictional boundary of 
the city in that state with the largest population, as calculated by 
the Administrator.
* * * * *
[FR Doc. 03-31683 Filed 12-23-03; 8:45 am]
BILLING CODE 6712-01-P