[Federal Register Volume 78, Number 41 (Friday, March 1, 2013)]
[Rules and Regulations]
[Pages 13936-13993]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-04040]



[[Page 13935]]

Vol. 78

Friday,

No. 41

March 1, 2013

Part II





Federal Communications Commission





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47 CFR Part 54





Rural Health Care Support Mechanism; Final Rule

  Federal Register / Vol. 78 , No. 41 / Friday, March 1, 2013 / Rules 
and Regulations  

[[Page 13936]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 02-60; FCC 12-150]


Rural Health Care Support Mechanism

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
reforms its universal service support program for health care, 
transitioning its existing Internet Access and Rural Health Care Pilot 
programs into a new, efficient Healthcare Connect Fund. This Fund will 
expand health care provider access to broadband, especially in rural 
areas, and encourage the creation of state and regional broadband 
health care networks. Access to broadband for medical providers saves 
lives while lowering health care costs and improving patient 
experiences.

DATES: Effective April 1, 2013, except for added Sec. Sec.  54.601(b), 
54.631(a) and (c), 54.632, 54.633(c), 54.634(b), 54.636, 54.639(d), 
54.640(b), 54.642, 54.643, 54.645, 54.646, 54.647, 54.648(b), 
54.675(d), and 54.679, and the amendments to Sec. Sec.  54.603(a) and 
(b), 54.609(d)(2), 54.615(c), 54.619(a)(1) and (d), and 54.623(a), 
which contain new or modified information collection requirements that 
will not be effective until approved by the Office of Management and 
Budget. The Federal Communications Commission will publish a document 
in the Federal Register announcing the effective date for those 
sections.

FOR FURTHER INFORMATION CONTACT: Linda Oliver, Wireline Competition 
Bureau at (202) 418-1732 or TTY (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Report and Order (Order) in WC Docket No. 02-60, FCC 12-150, adopted 
December 12, 2012, and released December 21, 2012. The complete text of 
this document is available for inspection and copying during normal 
business hours in the FCC Reference Information Center, Portals II, 445 
12th Street SW., Room CY-A257, Washington, DC 20554, or at the 
following Internet address: http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-12-150A1.doc. The document may also be purchased from 
the Commission's duplicating contractor, Best Copy and Printing, Inc., 
445 12th Street SW., Room CY-B402, Washington, DC 20554, telephone 
(800) 378-3160 or (202) 863-2893, facsimile (202) 863-2898, or via the 
Internet at http://www.bcpiweb.com.

I. Introduction

    1. In this Order, the Commission reforms our universal service 
support programs for health care, transitioning our existing Internet 
Access and Rural Health Care Pilot programs into a new, efficient 
Healthcare Connect Fund (Fund). This Fund will expand health care 
provider (HCP) access to broadband, especially in rural areas, and 
encourage the creation of state and regional broadband health care 
networks. Broadband connectivity has become an essential part of 21st 
century medical care. Whether it is used for transmitting electronic 
health records, sending X-rays, MRIs, and CAT scans to specialists at a 
distant hospital, or for video conferencing for telemedicine or 
training, access to broadband for medical providers saves lives while 
lowering health care costs and improving patient experiences. 
Telemedicine can save stroke patients lasting damage, prevent premature 
births, and provide psychiatric treatment for patients in rural areas. 
Exchange of electronic health records (EHRs) avoids duplicative medical 
tests and errors in prescriptions, and gives doctors access to all of a 
patient's medical history on a moment's notice. Telehealth applications 
save HCPs money as well. For example, a South Carolina HCP consortium 
funded by the Commission's Rural Health Care (RHC) Pilot Program saved 
$18 million in Medicaid costs through telepsychiatry provided at 
hospital emergency rooms. Another Pilot project in the Midwest saved 
$1.2 million in patient transport costs after establishing an 
electronic intensive care unit (e-ICU) program.
    2. This Order builds on the success of the RHC Pilot Program. That 
program demonstrated the importance of expanding HCP access to high-
capacity broadband services, which neither the existing RHC 
Telecommunications Program nor the Internet Access Program have 
successfully achieved. The Pilot Program also proved the benefits of a 
consortium-focused program design, encouraging rural-urban 
collaboration that extended beyond mere connectivity, while 
significantly lowering administrative costs for both program 
participants and the Fund. The Pilot Program funds 50 different health 
care provider broadband networks, with a total of 3,822 individual HCP 
sites, 66 percent of which are rural. The networks range in size from 4 
to 477, and have received a total of $364 million in funding 
commitments, to be spread out over several years. Through bulk buying 
and competitive bidding, most HCPs in the program have been able to 
obtain broadband connections of 10 Mbps or more. The consortia were 
often organized and led by large hospitals or medical centers, which 
contributed administrative, technical, and medical resources to the 
other, smaller HCPs providing service to patients in rural areas.
    3. Drawing on these lessons, the Healthcare Connect Fund will 
direct Universal Service Fund (USF) support to high-capacity broadband 
services while encouraging the formation of efficient state and 
regional health care networks. The new Fund will give HCPs substantial 
flexibility in network design, but will require a rigorous, auditable 
demonstration that they have chosen the most cost-effective option 
through a competitive bidding process.
    4. In particular, like the Pilot Program, the Healthcare Connect 
Fund will permit HCPs to purchase services and construct their own 
broadband infrastructure where it is the most cost-effective option. 
The Healthcare Connect Fund is thus a hybrid of the separate 
infrastructure and services programs proposed in the Commission's July 
2010 Notice of Proposed Rulemaking (NPRM), 75 FR 48236, August 9, 2010. 
The self-construction option will only be available, however, to HCPs 
that apply as part of consortia, which can garner economies of scale 
unavailable to individual providers. With these safeguards, and based 
on the experience of the RHC Pilot Program, we expect the self-
construction option to be used only in limited circumstances, and often 
in combination with services purchased from commercial providers.
    5. Regardless of which approach providers choose, the Healthcare 
Connect Program will match two-for-one the cost of broadband services 
or facilities that they use for health care purposes, requiring a 35 
percent HCP contribution. A two-for-one match will significantly lower 
the barriers to connectivity for HCPs nationwide, while also requiring 
all program participants to pay a sufficient share of their own costs 
to incent considered and prudent decisions and the choice of cost-
effective broadband connectivity solutions. Indeed, with the level of 
support the Healthcare Connect Fund provides, and with the other 
reforms we adopt, we expect that HCPs will be able to obtain higher 
speed and better quality broadband connectivity at lower prices, and 
that the value for the USF will be greater, than in the existing RHC

[[Page 13937]]

Telecommunications and Internet Access Programs.
    6. Both rural and non-rural HCPs will be allowed to participate in 
the new program, but non-rural providers may join only as part of 
consortia. Moreover, to ensure that all consortia keep rural service 
central to their mission, we will require that a majority of the HCPs 
in each consortium meet our longstanding definition of rural HCPs, 
although we grandfather those Pilot projects with a lower rural 
percentage. And to ensure that the program maintains its focus on 
smaller HCPs that serve predominantly rural populations, we also adopt 
a rule limiting support to no more than $30,000 per year for recurring 
charges and no more than $70,000 for non-recurring charges over a five-
year period for larger HCPs--defined as hospitals with 400 beds or 
more.
    7. We also adopt a number of reforms for the Healthcare Connect 
Fund that will increase the efficiency of the program, both by reducing 
administrative costs for applicants and for Universal Service 
Administrative Company (USAC), and by adopting measures to maximize the 
value obtained by HCPs from every USF dollar. In particular, we take a 
number of steps in this Order to simplify the application process, both 
for individual HCP applicants and for consortia of HCPs.
    8. As a central component of this Order, we also adopt express 
goals and performance measures for all the Commission's health care 
support mechanisms. The goals are (1) increasing access to broadband 
for HCPs, particularly those serving rural areas; (2) fostering the 
development and deployment of broadband health care networks; and (3) 
maximizing the cost-effectiveness of the program. These goals inform 
all the choices we make in this Order. As we implement this Order, we 
will collect information to evaluate the success of our program against 
each of these goals.
    9. Finally, we create a new Pilot Program to test whether it is 
technically feasible and economically reasonable to include broadband 
connectivity for skilled nursing facilities within the Healthcare 
Connect Program. The Pilot will make available up to $50 million to be 
committed over a three-year period for pilot applicants that propose to 
use broadband to improve the quality and efficiency of health care 
delivery for skilled nursing facility patients, who stand to benefit 
greatly from telemedicine and other telehealth applications. We expect 
to use the data gathered through the Pilot to determine how to proceed 
on a permanent basis with respect to such facilities, which provide 
hospital-like services.
    10. We note that, with this comprehensive reform of the RHC 
program, the Commission has now reformed all four USF distribution 
programs within the past three years. In September 2010, the Commission 
modernized the Schools and Libraries support mechanism (E-rate) for the 
21st century, improving broadband access, streamlining administrative 
requirements, and taking measures to combat waste, fraud and abuse. In 
October 2011, the Commission adopted transformational reforms of the 
high-cost program, creating the Connect America and Mobility Funds to 
advance the deployment of fixed and mobile broadband networks in rural 
and underserved areas, while putting the high-cost program on an 
overall budget for the first time ever. In January 2012, the Commission 
transformed the low-income program, taking major steps to modernize the 
program and reduce waste, fraud, and abuse. In each prior instance, and 
again in this Order, we have made our touchstone aligning the universal 
service programs with 21st century broadband demands, while improving 
efficiency, accountability, and fiscally responsibility.

II. Performance Goals and Measures

    11. Clear performance goals and measures will enable the Commission 
to determine whether the health care universal service support 
mechanism is being used for its intended purpose and whether that 
funding is accomplishing the intended results. In the NPRM, the 
Commission recognized the importance of establishing measurable 
performance goals, stating that ``[i]t is critical that our efforts 
focus on enhancing universal service for health care providers and that 
support is properly targeted to achieve defined goals.'' Establishing 
performance goals and measures also is consistent with the Government 
Performance and Results Act of 1993 (GPRA), which requires federal 
agencies to engage in strategic planning and performance measurement. 
In its 2010 report, the Government Accountability Office (GAO) also 
emphasized that the Commission should provide the RHC support mechanism 
with ``a solid performance management foundation'' by ``establishing 
effective performance goals and measures, and planning and conducting 
effective program evaluations.''
    12. Drawing on the Commission's experience with the existing RHC 
programs and the Pilot Program, and based on the record developed in 
this proceeding, we adopt the following performance goals for the 
health care universal service support mechanism (both for the RHC 
Telecommunications Program and the Healthcare Connect Fund), which 
reflect our ongoing commitment to preserve and advance universal 
service for eligible HCPs: (1) Increase access to broadband for HCPs, 
particularly those serving rural areas; (2) foster development and 
deployment of broadband health care networks; and (3) reduce the burden 
on the USF by maximizing the cost-effectiveness of the health care 
support mechanism. We also adopt associated performance measurements. 
Throughout this Order, we have used these goals as guideposts in 
developing the Healthcare Connect Fund, and these goals also will guide 
our action as we undertake any future reform of the Telecommunications 
Program.
    13. Using the adopted goals and measures, the Commission will, as 
required by GPRA, monitor the performance of the universal service 
health care support mechanism. If the program is not meeting the 
performance goals, we will consider corrective actions. Likewise, to 
the extent that the adopted measures do not help us assess program 
performance, we will revisit them as well.

A. Increase Access to Broadband for Health Care Providers, Particularly 
Those Serving Rural Areas

    14. Goal. We adopt as our first goal increasing access to broadband 
for HCPs, particularly those serving rural areas. This goal implements 
Congress's directive in section 254(h) of the Communications Act that 
the Commission ``enhance access to advanced telecommunications services 
and information services'' for eligible HCPs and to provide 
telecommunications services necessary for the provision of health care 
in rural areas at rates reasonably comparable to similar services in 
urban areas. Access to the broadband necessary to support telehealth 
and Health IT applications is critical to improving the quality and 
reducing the cost of health care in America, particularly in rural 
areas. Broadband enables the efficient exchange of patient and 
treatment information, reduces geography and time as barriers to care, 
and provides the foundation for the next generation of health 
innovation.
    15. Measurement. We will evaluate progress towards our first goal 
by measuring the extent to which program participants are subscribing 
to increasing levels of broadband service over time. We also plan to 
collect data about participation in the Healthcare

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Connect Fund relative to the universe of eligible participants. We also 
will collect data about the bandwidth obtained by participants in the 
program, and will chart the increase over time in higher bandwidth 
levels. We plan to compare those bandwidth levels with the minimum 
bandwidth requirements recommended in the National Broadband Plan, 
March 16, 2010 and the OBI Technical Paper, August, 2010 to determine 
how HCP access to broadband evolves as technology changes and as HCPs 
increasingly adopt telemedicine and electronic health records. We also 
expect to measure the bandwidth obtained by HCPs in the different 
statutory categories, as that information is not administratively 
burdensome to collect. To the extent feasible, we also will endeavor to 
compare the bandwidth obtained by participants in the Commission's 
programs with that used by non-participants, by relying on public 
sources of information regarding broadband usage by the health care 
industry, and by comparing the bandwidth obtained by new participants 
in the Commission's programs with what they were using prior to 
joining, to the extent such data is available.
    16. HCP needs for higher bandwidth connections vary based on the 
types of telehealth applications used by HCPs and by the size and 
nature of their medical practices. Because of this variation, and 
because of potential constraints on the ability of HCPs to obtain 
broadband (due to cost or lack of broadband availability), we are not 
establishing a minimum target bandwidth as a means to measure progress 
toward this goal. We expect, nevertheless, to compare the bandwidth 
obtained by HCPs with the kinds of bandwidth commonly required to 
conduct telemedicine and other telehealth activities.
    17. We direct the Bureau to consult with the major stakeholders and 
other governmental entities in order to minimize the administrative 
burden placed on applicants and on the Fund Administrator (currently, 
USAC). We also direct the Bureau to consult with the U.S. Department of 
Health and Human Services (HHS), including the Indian Health Service 
(IHS), and other relevant federal agencies to ensure the meaningful and 
non-burdensome collection of broadband data from HCPs. We expect to 
follow health care trends (such as use of EHRs and telemedicine) and to 
coordinate, to the extent possible, our monitoring efforts with other 
federal agencies. We also direct the Bureau to engage in dialogue with 
United States Department of Health and Human Services (HHS) regarding 
whether and how to incorporate broader health care outcomes, including 
providers' ``meaningful use'' of EHRs, into our performance goals and 
measures in the future, consistent with our statutory authority.
    18. Finally, in order to further our progress toward meeting this 
goal, we also direct the USAC, working with the Bureau and with other 
agencies, to conduct outreach regarding the Healthcare Connect Fund 
with those HCPs that are most in need of broadband in order to reach 
``meaningful use'' of EHRs and for other health care purposes.

B. Foster Development and Deployment of Broadband Health Care Networks

    19. Goal. We adopt as our second goal fostering development and 
deployment of broadband health care networks, particularly networks 
that include HCPs that serve rural areas. This goal is consistent with 
the statutory objective of section 254(h), which is to enhance access 
to telecommunications and advanced services, especially for health care 
providers serving rural areas. Broadband health care networks also 
improve the quality and lower the cost of health care and foster 
innovation in telehealth applications, particularly in rural areas.
    20. Measurement. We will evaluate progress towards this second goal 
by measuring the extent to which eligible HCPs participating in the 
Healthcare Connect Fund are connected to other HCPs through broadband 
health care networks. We plan to collect data about the reach of 
broadband health care networks supported by our programs, including 
connections to those networks by eligible and non-eligible HCP sites. 
We also will measure how program participants are using their broadband 
connections to health care networks, including whether and to what 
extent HCPs are engaging in telemedicine, exchange of EHRs, 
participation in a health information exchange, remote training, and 
other telehealth applications. Access to high speed broadband health 
care networks should help facilitate adoption of such applications by 
HCPs, including those HCPs serving patients in rural areas. We direct 
the Bureau to work with USAC to implement the reporting requirements 
regarding such telehealth applications in a manner that imposes the 
least possible burden on participants, while enabling us to measure 
progress toward this goal. We also direct the Bureau to coordinate with 
other federal agencies to ensure that data collection minimizes the 
burden on HCPs, which may already be required to track similar data for 
other health care regulatory purposes. To the extent feasible, we also 
will endeavor to compare the extent to which participants in the new 
program are using telehealth applications to that of non-participants, 
relying on public sources of information regarding trends in the health 
care industry.

C. Maximize Cost-Effectiveness of Program

    21. Goal. We adopt as our third goal maximizing the cost-
effectiveness of the RHC universal service health care support 
mechanism, thereby minimizing the Fund contribution burden on consumers 
and businesses. This goal includes increasing the administrative 
efficiency of the program (thereby conserving Fund dollars) while 
accelerating the delivery of support for broadband. This goal also 
includes ensuring that the maximum value is received for each dollar of 
universal service support provided, by promoting lower prices and 
higher speed in the broadband connections purchased with Fund support. 
In addition, we seek to ensure that funding is being used consistent 
with the statute and the objectives of the RHC support mechanism, and 
we adopt throughout this Order measures to help prevent waste, fraud 
and abuse. The goal of increasing program efficiency is consistent with 
section 254(h)(2)(A) of the Communications Act, which requires that 
support to HCPs be ``economically reasonable.''
    22. Measurement. We will evaluate progress towards this goal both 
by measuring the administrative efficiency of the program and by 
measuring the value delivered with each dollar of USF support. First, 
we will measure the cost of administering the program compared to the 
program funds disbursed to recipients. USAC's cost to administer the 
Telecommunications, Internet Access, and Pilot RHC programs was nine 
percent of total funds disbursed in calendar year 2011, the highest of 
all four universal service programs. We may measure this also in terms 
of the percentage of administrative expenses relative to funds 
committed, to account for the fact that administrative expenses may be 
higher in years in which USAC processes a large number of applications 
for multi-year funding.
    23. Second, we will measure the value delivered to HCPs with 
support from the Healthcare Connect Fund by tracking the prices and 
speed of the broadband connections supported by the program. As we 
found in the Pilot Program, consortium applications, in combination 
with competitive bidding

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and other program features, lead to lower prices and higher speed 
broadband. As we did in the Pilot Evaluation, DA 12-1332, we expect to 
measure the prices and speed of connections obtained under the 
Healthcare Connect Fund to determine whether this goal has been 
accomplished, and will examine similar data from the Telecommunications 
Program. In addition, we will monitor the results of the 
Administrator's audits and other reports to track progress in reducing 
improper payments and waste, fraud and abuse.

III. Support for Broadband Connectivity

A. Overview

    24. In this Order, we create a new Healthcare Connect Fund that 
will provide universal service support for broadband connectivity for 
eligible HCPs. As designed, the new program will achieve the goals we 
have identified above for the reformed program: (1) Increasing access 
to broadband for HCPs, including those in rural areas; (2) fostering 
the development of broadband health care networks to deliver innovation 
in telehealth applications; and (3) maximizing the cost-effective use 
of the Fund. The Healthcare Connect Fund replaces the current RHC 
Internet Access Program, but the RHC Telecommunications Program remains 
in place.
    25. Although we will allow the filing of both individual and 
consortium applications, a primary focus of the Healthcare Connect Fund 
will be encouraging the growth or formation of statewide, regional, or 
Tribal broadband health care networks that will expand the benefits we 
observed in the Pilot Program. Benefits of such networks include access 
to specialists; cost savings from bulk buying capability and 
aggregation of administrative functions; efficient network design; and 
the transfer of medical, technical, and financial resources to smaller 
HCPs. We will allow non-rural as well as rural health care providers to 
participate and receive support for critical network connections if 
they apply as part of a consortium, with limitations to ensure that 
program funds are used efficiently and that all consortia include rural 
participation.
    26. In the NPRM, the Commission proposed to create two separate 
programs: A Health Infrastructure Program and a Broadband Services 
Program. The former would support the construction of HCP-owned 
broadband networks; the latter would support the purchase of broadband 
services. In view of the real world experience we have gained from the 
Pilot Program over the intervening two years, and based on the 
extensive record in this docket from a broad array of affected 
stakeholders, we now conclude that the better approach is to adopt a 
single, hybrid program. The new program will support the cost of (1) 
broadband and other advanced services; (2) upgrading existing 
facilities to higher bandwidth; (3) equipment necessary to create 
networks of HCPs, as well as equipment necessary to receive broadband 
services; and (4) HCP-owned infrastructure where shown to be the most 
cost-effective option. The hybrid approach of the Healthcare Connect 
Fund provides flexibility for HCPs to create broadband networks that 
best meet their needs and that can most readily be put to use for 
innovative and effective telehealth applications, while ensuring funds 
are spent responsibly and efficiently. The new program will replace the 
current Internet Access Program and provide continuing support for 
Pilot Program consortia as they exhaust any remaining funding already 
committed under the Pilot Program. As discussed in the Implementation 
Timeline section, for administrative convenience, rural HCPs can 
continue to participate in the Internet Access Program during funding 
year 2013.
    27. We expect that most HCPs will choose to obtain services from 
commercial providers rather than construct and own network facilities 
themselves, just as they did in the Pilot Program. HCP-owned 
infrastructure will be supported under the Healthcare Connect Fund only 
when the HCP or HCP consortium demonstrates, following a competitive 
bidding process that solicits bids for both services and construction, 
either that the needed broadband is unavailable or that the self-
construction approach is the most cost-effective option. We also impose 
an annual cap of $150 million that will apply, in part, to the funds 
available for HCP self-construction, to ensure that ample funding will 
remain available for HCPs choosing to obtain services.
    28. To promote fiscal responsibility and cost-effective purchasing 
decisions, we adopt a single, uniform 35 percent HCP contribution 
requirement for all services and infrastructure supported through the 
program. Use of a single, flat rate will facilitate network 
applications, encourage efficient network design, and reduce 
administrative expenses for applicants and the Fund. In requiring a 35 
percent contribution, we balance the need to provide appropriate 
incentives to encourage resource-constrained HCPs to participate in 
health care broadband networks, while requiring HCPs to have a 
sufficient financial stake to ensure that they obtain the most cost-
effective services possible. We also find that a 35 percent 
contribution requirement is economically reasonable and fiscally 
responsible, given the $400 million cap for the health care support 
mechanism and the anticipated demand for program support.
    29. We adopt the Healthcare Connect Fund pursuant to section 
254(h)(2)(A) of the Communications Act, which requires 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 public and 
nonprofit * * * health care providers.'' The Commission relied on this 
statutory authority when it created the Pilot Program in 2006 to 
support HCP-owned infrastructure and services, including Internet 
access services, and the Commission has broad discretion regarding how 
to fulfill this statutory mandate. In Texas Office of Public Utility 
Counsel v.  FCC, the United States Court of Appeals for the Fifth 
Circuit upheld the Commission's authority under section 254(h)(2)(A) to 
provide universal service support for ``advanced services'' to both 
rural and non-rural HCPs.

B. A Consortium Approach to Creation of Broadband Health Care Networks

    30. The flexible, consortium-based approach of the Pilot Program 
fostered a wide variety of health care broadband networks that enabled 
better care and lowered costs. Drawing on our Pilot Program experience, 
we implement a Healthcare Connect Fund that will encourage HCPs to work 
together to preserve and advance the development of health care 
networks across the country. The measures we adopt will simplify the 
application process for consortia of HCPs and afford them flexibility 
to innovate in the design and use of their networks, recognizing the 
importance of enabling smaller HCPs to draw on the medical and 
technical expertise and administrative resources of larger HCPs.
    31. We conclude that non-rural HCPs may apply and receive support 
as part of consortia in the Healthcare Connect Fund. To ensure that 
program support continues to benefit rural as well as non-rural HCPs, 
however, we require that in each consortium, a majority of HCP sites 
(over 50 percent) be rural HCPs. We also adopt measures to limit the 
amount of funding that flows to the

[[Page 13940]]

largest hospitals in the country, to ensure that funding remains 
focused on a broad cross section of providers serving smaller 
communities across America.
    32. Separately, we describe the services and equipment eligible for 
support (including services and equipment necessary for networks), and 
we describe the funding process, including the requirements applicable 
to consortia.
1. Key Benefits of a Consortium Approach
    33. Discussion. The Pilot Evaluation documented in detail the 
benefits from the flexible consortium-based approach used in the Pilot 
Program, including:
     Administrative Cost Savings: Applying as a consortium is 
simpler, cheaper, and more efficient for the HCPs and for the Fund. 
Under the consortium approach, the expenses associated with planning 
the network, applying for funding, issuing RFPs, contracting with 
service providers, and invoicing are shared among a number of 
providers. Consortium applications also allow USAC to process 
applications more efficiently.
     Access to Medical Specialists through Telemedicine. 
Consortia that include both larger medical centers and members that 
serve more sparsely populated areas enable the latter to obtain access 
to medical specialists through telemedicine, thus improving the quality 
and reducing the cost of care.
     Leadership of Consortia. The organizers and leaders of 
many Pilot projects classified as non-rural entities under the 
Commission's longstanding definition of rural HCPs--especially 
hospitals and university medical centers--were able to shoulder much of 
the administrative burden associated with the consortia, thereby 
benefiting smaller, rural HCPs.
     Sources of Technical Expertise. Larger sites often have 
the technical expertise necessary to design networks and manage the IT 
aspects of the network, and also often have greater expertise than 
smaller providers in rural areas in telemedicine, electronic health 
records, Health IT, computer systems, and other broadband telehealth 
applications.
     Financial Resources. Many Pilot projects depend on the 
financial and human resources of larger sites to absorb the 
administrative costs of participation in the Pilot, such as the cost of 
planning and organizing applications, applying for funding, preparing 
RFPs, contracting for services, and implementing the projects.
     Efficiency of Network Design. Network design in many cases 
has been more efficient and less costly in the Pilot Program than in 
the Telecommunications Program, because the Pilot Program funds all 
public and not-for-profit HCPs, even those located in non-rural areas. 
Pilot projects were able to design their networks with maximum network 
efficiency in mind because funding is not negatively impacted by 
inclusion of non-rural sites in those networks.
     Bulk Buying Capability. Consortium bulk buying capability, 
when combined with competitive bidding and multi-year funding 
commitments, enabled Pilot projects to obtain higher bandwidth, lower 
rates, and better service quality than would otherwise have been 
possible.
    34. Commenters generally support a consortium approach and agree 
that it can provide a number of benefits, including better pricing and 
administrative efficiency.
    35. In light of these benefits, we adopt a number of rules to 
encourage HCPs to work together in consortia to meet their broadband 
connectivity needs. We conclude that non-rural HCPs may participate and 
receive support as part of consortia, with some limitations. We also 
adopt a ``hybrid'' approach that allows consortia to receive support 
through a single program for services and, where necessary, self-
construction of infrastructure. We adopt a uniform HCP contribution 
percentage applicable to all HCPs and to all funded costs to simplify 
administration. We adopt additional measures. We make support for 
certain costs available only to consortia--e.g., upfront payments for 
build-out costs and indefeasible rights of use (IRUs), equipment 
necessary for the formation of networks, and self-construction charges. 
We also allow consortia to submit a single application covering all 
members, and we provide additional guidance based on Pilot Program 
experience for consortium applications. Finally, we facilitate group 
buying arrangements by providing for multi-year commitments and 
allowing HCPs to ``opt into'' competitively bid master service 
agreements previously approved by USAC or other federal, state, Tribal, 
or local government agencies, without undergoing additional competitive 
bidding solely for the purposes of receiving Healthcare Connect Fund 
support.
2. Eligibility To Participate in Consortia
    36. Discussion. We will allow participation in the Healthcare 
Connect Fund consortia by both rural and non-rural eligible HCPs, but 
with limitations to ensure that the health care support mechanism 
continues to serve rural as well as non-rural needs in the future. The 
Pilot Program provided support to both rural and non-rural HCPs under 
section 254(h)(2)(A), which directs the Commission to ``enhance * * * 
access to advanced telecommunications and information services for all 
public and non-profit * * * health care providers.'' As the Fifth 
Circuit has found, ``the language in section 254(h)(2)(A) demonstrates 
Congress's intent to authorize expanding support of `advanced 
services,' when possible, for non-rural health providers.''
    37. We expect that including non-rural HCPs in consortia will 
provide significant health care benefits to both rural and non-rural 
patients, for at least three reasons.
     First, even primarily rural networks benefit from the 
inclusion of larger, non-rural HCPs. Pilot projects state that rural 
HCPs value their connections to non-rural HCPs for a number of reasons, 
including access to medical specialists; help in instituting 
telemedicine programs; leadership; administrative resources; and 
technical expertise. Many non-rural HCPs in the Pilot Program devoted 
resources to organizing consortia, preparing applications, designing 
networks, and preparing requests for proposal (RFPs). Had these non-
rural HCPs not been eligible for support, they might not have been 
willing to take on a leadership role, which in turn directly enabled 
smaller and more rural HCPs to participate in Pilot networks. The 
participation of non-rural sites has also led to better prices and more 
broadband for participating rural HCPs, due to the greater bargaining 
power of consortia that include larger, non-rural sites.
     Second, the Commission's longstanding definition of ``non-
rural'' HCPs encompasses a wide range of locales, ranging from large 
cities to small towns surrounded by rural countryside. Even within 
areas that are primarily rural, HCPs are likely to be located in the 
most populated areas. Many HCPs that are technically classified as non-
rural within our rules in fact are located in relatively sparsely 
populated areas. For example, Orangeburg County Clinic in Holly Hill, 
South Carolina (population 1,277), a HCP participating in Palmetto 
State Providers Network's Pilot project, is characterized as non-rural. 
The largest cities closest to Holly Hill are Charleston, SC, and 
Columbia, SC, which are respectively 50 and 69 miles away from Holly 
Hill. Moreover, even those hospitals and clinics that are located in 
more densely populated

[[Page 13941]]

towns directly serve rural populations because they are the closest HCP 
for many patients who do live in the surrounding rural areas. For 
example, the University of Virginia Medical Center is a major referral 
center for many counties in rural Appalachia.
     Third, even hospitals and clinics that are located in 
truly urban areas are able to provide significantly improved care by 
joining broadband networks. The California Telehealth Network, for 
example, states that it ``frequently encounters urban health care 
providers with patient populations that are as isolated from clinical 
specialty care as [the] most rural health care providers,'' including 
urban Indian HCPs who could better serve Native populations through 
broadband-centered technologies such as EHRs and telemedicine. In some 
areas of the country, even ``urban'' communities may be hundreds of 
miles away from critical health care services such as Level 1 Trauma 
Centers, academic health centers, and children's hospitals. Like HCPs 
in rural areas, these ``urban'' community hospitals may serve as 
``spoke'' health care facilities that access services that are 
available at larger hospital ``hubs.'' Eligible public and not-for-
profit HCPs located in communities that are not classified as ``rural'' 
thus have a need for access to broadband to be able to effectively 
deliver health care, just as their ``rural'' counterparts do.
    38. Some commenters express concern that unlimited non-rural HCP 
participation might jeopardize funding for rural HCPs if the $400 
million annual program cap is reached. We therefore adopt three simple 
limitations that should help ensure a fiscally responsible reformed 
health care program without unduly restricting non-rural participation, 
consistent with our statutory mandate to enhance access to advanced 
services in an ``economically reasonable'' manner. First, non-rural 
HCPs may only apply for support as part of consortia that include rural 
HCPs; that is, they may not submit individual applications. Second, 
non-rural HCPs may receive support only if they participate in 
consortia that include a majority (more than 50 percent) of sites that 
are rural HCPs. The majority rural requirement must be reached by a 
consortium within three years of the filing date of its first request 
for funding (Form 462) in the Healthcare Connect Fund. Third, we 
establish a cap on the annual funding available to each of the largest 
hospitals participating in the program (those with 400 or more beds). 
These requirements will encourage the formation of health care networks 
that include rural HCPs, while generating administrative and pricing 
efficiencies as well as significant telemedicine and other telehealth 
benefits.
    39. For purposes of the majority rural requirement, we 
``grandfather'' non-rural HCP sites that have received a funding 
commitment through a Pilot project that has 50 percent or more non-
rural HCP sites with funding commitments as of the adoption date of 
this Order. Such non-rural HCP sites may continue to receive support 
through the Healthcare Connect Fund, but unless the consortium overall 
reaches majority rural status overall, the project may add new non-
rural HCP sites only if, in the aggregate, the new (i.e., non-Pilot 
project) HCP sites remain majority rural. The grandfathering only 
applies to the sites that have received a Pilot Program funding 
commitment as of the adoption date of this Order, and applies only so 
long as the grandfathered non-rural HCP site continues to participate 
in that consortium.
    40. We recognize that large, metropolitan non-profit hospitals are 
more likely to provide specialized services and expertise that HCPs and 
patients in less populous areas (both rural and non-rural) may 
otherwise be unable to access, and that may serve a leadership role 
under which they provide significant, often unreimbursed assistance to 
other HCPs within the network. Thus, we see significant value in having 
such hospitals participate in health care broadband networks. At the 
same time, however, large metropolitan hospitals are located in urban 
areas where broadband is typically less expensive than in rural areas. 
Given that universal service funds are limited, we expect larger 
hospitals to structure their participation in Healthcare Connect Fund 
consortia in a way that appropriately serves the goals of the health 
care program to increase HCP access to broadband services and health 
care broadband networks. In other words, it would not be economically 
reasonable to provide support to larger hospitals for connections they 
would have purchased in any event, outside of their participation in 
the consortium.
    41. To protect against larger HCPs in non-rural areas joining the 
program merely to obtain support for pre-existing connections, we 
require consortium applicants to describe in their applications the 
goals and objectives of the proposed network and their strategy for 
aggregating HCP needs, and to use program support for the described 
purposes. We also impose a limitation on the amount of funding 
available to large metropolitan hospitals, while recognizing that it is 
unlikely in the near term that large urban hospitals will consume a 
disproportionate amount of funds in the Healthcare Connect Fund. We 
require that under the Healthcare Connect Fund, a non-rural hospital 
site with 400 or more licensed patient beds may receive no more than 
$30,000 per year in support for recurring charges and no more than 
$70,000 in support for nonrecurring charges every 5 years under the 
Fund, exclusive in both cases of costs shared by the network. For 
purposes of this limit, we ``grandfather'' non-rural hospitals that 
have received a funding commitment through a Pilot project as of the 
adoption date of this Order. We base the amount of these caps on the 
average charges that were supported for non-rural hospitals in the 
Pilot Program. The American Hospital Association (AHA) defines 
``large'' hospitals as those with 400 or more staffed patient beds. We 
will use the AHA classification as a guide for our own definition of a 
``large'' hospital, which is any non-rural hospital with 400 or more 
licensed patient beds. Based on our experience with the Pilot Program, 
it appears that the vast majority of Pilot participant hospitals have 
fewer than 200 beds. We do not anticipate, therefore, that the funding 
caps for large hospitals that we adopt here will be likely to affect 
most of the hospitals that are likely to join consortia in the 
Healthcare Connect Fund. We will monitor use of support by large 
hospitals closely in the new program, and if it appears that such 
hospitals are utilizing a disproportionate share of program funds 
despite our caps, we may consider more explicit prioritization rules to 
ensure that program dollars are targeted to the most cost-effective 
uses. We plan to conduct a further proceeding to examine possible 
approaches to prioritizing funding.
    42. We expect that, on average, the actual number of rural members 
in the consortia will be substantially higher than 51 percent, as was 
the case in the Pilot Program, and we will evaluate this over time. We 
will not begin receiving applications from new consortia until 2014, 
and based on our experience with the Pilot Program, we know that it may 
take some time for consortia to organize themselves and apply for 
funding. We therefore direct the Bureau to report to the Commission on 
rural participation by September 15, 2015. If we observe that the trend 
of rural participation in the new program does not appear to be on a 
comparable path as we observed in the Pilot Program (where average 
rural participation reached 66 percent), we will open, by the end of 
2015, a

[[Page 13942]]

proceeding to expeditiously re-evaluate the participation requirement.
    43. We emphasize that the limitations do not prevent any non-rural 
HCP from participating in a health care broadband network; entities 
ineligible for support may participate in networks if they pay their 
``fair share'' (i.e. an ``undiscounted'' rate) of network costs. Non-
profit entities, including non-rural HCPs, may also serve as consortium 
leaders even if they do not receive universal service support.
    44. In light of the limitations, we do not anticipate that our 
decision to allow both rural and non-rural HCPs to receive support 
through the Healthcare Connect Fund will cause program demand to exceed 
the $400 million cap in the foreseeable future, especially in light of 
our decision to require a 35 percent participant contribution and our 
adoption of a $150 million annual cap on support for upfront payments 
and multi-year commitments. Furthermore, the pricing and other 
efficiencies made possible through group purchasing should drive down 
the cost of connections as some Telecommunications Program participants 
migrate to the Healthcare Connect Fund. We will closely monitor program 
demand, and stand prepared to consider whether additional program 
changes are necessary, including, establishing rules that would give 
funding priority to certain HCPs.
3. Eligibility of Grandfathered Formerly ``Rural'' Sites
    45. In June 2011, the Commission adopted an interim rule permitting 
participating HCPs that were located in a ``rural'' area under the 
definition used by the Commission before July 1, 2005, to continue 
being treated as if they were located in a ``rural'' area for the 
purposes of determining eligibility for support under the RHC program. 
We conclude that HCPs that were located in ``rural areas'' under the 
pre-July 1, 2005 definition used by the Commission, and that were 
participating in the Commission's RHC program before July 2005, also 
will be treated as ``rural'' for purposes of the new Healthcare Connect 
Fund. Many such facilities play a key role in providing health care 
services to rural and remote areas, and discontinuing discounted 
services to these grandfathered providers could jeopardize their 
ability to continue offering essential health care services to rural 
areas. Extending eligibility for these grandfathered HCPs in the 
Healthcare Connect Fund helps ensure that these valuable services are 
not lost in areas that need them, and thus ensures continuity of health 
care for many rural patients. For similar reasons, we also have 
grandfathered those Pilot projects that do not have the majority rural 
HCP membership required of consortium applicants in the Healthcare 
Connect Fund.

C. A Hybrid Infrastructure and Services Approach

    46. Discussion. We conclude that a hybrid approach that supports 
both broadband services and, where necessary, HCP-constructed and owned 
facilities as part of networks, will best fulfill our goal of 
developing broadband networks that enable the delivery of 21st century 
health care. In addition to funding HCP-owned network facilities, we 
also include as an essential component of this hybrid approach the 
provision of funding for equipment needed to support networks of HCPs 
and the provision of support for upgrades that enable HCPs to obtain 
higher bandwidth connections.
    47. We expect that HCP-owned infrastructure will be most useful in 
providing last-mile broadband connectivity where it is currently 
unavailable and where existing service providers lack sufficient 
incentives to construct it. As the American Hospital Association 
observed: ``Although many rural providers lease broadband services, 
some construction is still needed. For many of the AHA's rural members, 
the ability to ensure access to `last mile' broadband connections to 
rural health care facility locations is a fundamental problem 
restricting broadband access.'' We have learned that when providers are 
unable to build a business case to construct fiber in rural areas, 
last-mile fiber self-construction may be the only option for a HCP to 
get the required connectivity. We note that other federal programs--
such as the Broadband Telecommunications Opportunities Program (BTOP)--
have provided support for construction of ``middle mile'' facilities, 
and if HCPs can obtain support for last-mile connections from the 
Healthcare Connect Fund, they can take advantage of such middle mile 
backbone networks.
    48. Providing a self-construction option will also promote our goal 
of ensuring fiscal responsibility and cost-effectiveness by placing 
downward pressure on the bids for services. As the Health Information 
Exchange of Montana observes, the option to construct the network may 
constrain pricing offered by existing providers, particularly in areas 
that have little or no competition. When an RFP includes both a 
services and a self-construction option, bidders will know that if the 
services prices bid are too high, the HCPs can choose to build their 
own facilities.
    49. We adopt safeguards to ensure that the self-construction option 
will be exercised only where it is absolutely necessary to enable the 
HCPs to obtain the needed broadband connectivity. First, the HCP-owned 
infrastructure option may be employed only where self-construction is 
demonstrated to be the most cost-effective option after competitive 
bidding. We require USAC carefully to evaluate this showing; USAC 
already has experience in evaluating cost-effectiveness for large-scale 
projects from the Pilot Program. Consortia interested in pursuing self-
construction as an option must solicit bids both for services and for 
construction, in the same posted Request for Proposals (submitted with 
Form 461), so that they will be able to show either that no vendor has 
bid to provides the requested services, or that the bids for self-
construction were the most cost-effective option. RFPs must provide 
sufficient detail so that cost-effectiveness can be evaluated over the 
useful life of the facility, if the consortium pursues a self-
construction option. We also permit HCPs that have received no bids on 
a services-only posting to then pursue a self-construction option 
through a second posting. We discuss the mechanics of the competitive 
bidding process and delegate to the Bureau the authority to provide 
administrative guidance for conducting the competitive bidding process, 
for the treatment of hybrid (services and construction) RFPs, excess 
capacity and shared costs, and other necessary guidelines for effective 
operation of this aspect of the Healthcare Connect Fund.
    50. Second, by setting the discount at the same level regardless of 
whether HCPs choose to purchase broadband services from a provider or 
construct their own facilities, we ensure that there is no cost 
advantage to choosing self-construction. We require that all HCPs 
provide a 35 percent contribution to the cost of supported networks and 
services, which will help ensure prudent investment decisions. Pilot 
projects have stated that ownership of newly constructed facilities 
only makes economic sense for them where there are gaps in 
availability. And as many HCPs have stated in this proceeding, HCPs are 
generally not interested in owning or operating broadband facilities, 
but rather are focused on the delivery of health care.
    51. Finally, we impose a $150 million cap on the annual funds that 
can be allocated to up-front, non-recurring

[[Page 13943]]

costs, including HCP-owned infrastructure, and we require that non-
recurring costs that exceed an average of $50,000 per HCP in a 
consortium be prorated over a minimum three-year period. These measures 
will help ensure that the Fund does not devote an excessive amount of 
support to large up-front payments for HCP self-construction, which 
could potentially foreclose HCPs' ability to use the Fund for monthly 
recurring charges for broadband services. This also addresses the 
comments of several parties, who suggested that providing funding for 
infrastructure could put undue pressure on the Fund.
    52. In addition to these safeguards, we expect that several other 
mechanisms in this Order will help create incentives for commercial 
service providers to construct the necessary broadband facilities, so 
that HCPs will rarely have to construct, own, and operate such 
facilities themselves. For example, by allowing consortia to include 
both rural and non-rural sites and to design networks flexibly, we 
expect to encourage HCPs to form larger consortia that are more 
attractive to commercial service providers, even if some new broadband 
build-out is necessary to win the contract. Indeed, in the Pilot 
Program, we observed that, thanks to consortium bidding, the majority 
of Pilot projects attracted multiple bids from a range of different 
service providers. In addition, as in the Pilot Program, the Healthcare 
Connect Fund will provide support for upfront payments, multi-year 
funding commitments, prepaid leases, and IRUs. These mechanisms enabled 
many HCPs in the Pilot Program to meet their broadband connectivity 
needs without having to construct and own their own broadband 
facilities.
    53. With the limitations and based on our experience with the Pilot 
Program, we do not expect HCPs to choose to self-construct facilities 
very often, and when they do, it will be because they have shown that 
they have no other cost-effective option for obtaining needed 
broadband. The self-construction option was rarely exercised in the 
Pilot Program. Only two of 50 projects entirely self-constructed their 
networks, even though the Pilot Program was originally conceived of as 
a program supporting HCP construction of broadband networks. The six 
projects that did self-construct some facilities used those funds 
primarily for last-mile facilities. We believe the hybrid approach 
adopted for the Healthcare Connect Fund will preserve the benefits of 
HCP-owned infrastructure while minimizing the potential for 
inefficient, duplicative construction of facilities.
    54. In light of the safeguards we adopt, we reject arguments that 
when HCPs construct their own networks, rather than purchasing 
connectivity from existing commercial service providers, they remove 
key anchor institutions from the public network, thereby increasing the 
costs of providing service in rural areas and creating disincentives 
for network investment in rural areas. Rather, allowing the self-
construction option should create incentives for service providers to 
charge competitive prices for the services offered to anchor 
institutions such as HCPs, which reduces burden on the rural health 
care mechanism. Moreover, experience under the Pilot program suggests 
that a self-construction option for HCPs can provide incentives for 
commercial service providers to work cooperatively together with HCPs 
to construct new broadband networks in rural areas, with each party 
building a portion of the network, and providing excess capacity to the 
other party under favorable terms, to the benefit of both the HCPs and 
the greater community.
    55. We are also unpersuaded by commenters that argue the Commission 
lacks authority to provide universal service support for construction 
of HCP-owned broadband facilities. As the Commission concluded in 
authorizing the Pilot Program, section 254(h)(2) provides ample 
authority for the Commission to provide universal service support for 
HCP ``access to advanced telecommunications and information services,'' 
including by providing support to HCP-owned network facilities. Nothing 
in the statute requires that such support be provided only for carrier-
provided services. Indeed, prohibiting support for HCP-owned 
infrastructure when self-construction is the most cost-effective 
option, would be contrary to the command in section 254(h)(2)(A) that 
support be ``economically reasonable.''
    56. The Montana Telecommunications Association (MTA), which 
represents telecommunications providers in Montana, also argues that 
funding HCP-owned infrastructure violates section 254(h)(3) of the 
Communications Act, which provides that ``[t]elecommunications service 
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.'' MTA's argument is unconvincing. As the 
Commission determined in connection with the Pilot Program, ``the 
prohibition on resale does not prohibit for-profit entities, paying 
their fair share of network costs, from participating in a selected 
participant's network.'' It concluded that the resale provision is 
``not implicated when for-profit entities pay their own costs and do 
not receive discounts provided to eligible health care providers'' 
because only subsidized services and network capacity can be said to 
have been ``provided * * * under this subsection.'' The protections we 
adopt in this Order to ensure that non-eligible entities pay their fair 
share of the cost of health care networks they participate in will help 
ensure that this principle is satisfied. In 2008, the Bureau provided 
guidance to the Pilot projects and USAC regarding excess capacity on 
network facilities supported by universal service funds. We adopt 
similar guidelines in this Order for the treatment of excess capacity 
on HCP-owned facilities. Under those guidelines, the use of excess 
capacity by non-HCP entities would not violate the restrictions against 
sale, resale, or other transfer contained in section 254(h)(3) because 
HCPs would retain ownership of the excess capacity and because payments 
for that excess capacity may only be used to support sustainability of 
the network. Allowing HCPs to own network facilities when it is the 
most cost-effective option can yield better prices for the acquired 
broadband services or facilities used in the health care networks, in 
furtherance of the objectives of section 254(h)(2) and responsible 
management of universal service funds. Thus, our interpretation of 
section 254(h)(3) not only advances the universal service goals of 
section 254(h)(2), but is consistent with the restrictions on subsidies 
to ineligible entities incorporated in paragraphs (h)(3), (h)(4), and 
(h)(7)(B) of section 254.

D. Health Care Provider Contribution

    57. Discussion. We adopt a requirement that all HCPs receiving 
support under the Healthcare Connect Fund contribute 35 percent towards 
the cost of all items for which they seek support, including services, 
equipment, and all expenses related to infrastructure and construction. 
A flat, uniform percentage contribution is administratively simple, 
predictable, and equitable, and has broad support in the record. 
Requiring a significant contribution will provide incentives for HCPs 
to choose the most cost-effective form of connectivity, design their 
networks efficiently, and refrain from purchasing unneeded capacity. 
Vendors

[[Page 13944]]

will also have an incentive to offer services at competitive prices, 
knowing that HCPs will be unwilling to increase unnecessarily their 
out-of-pocket expenses.
1. Use of a Uniform Contribution Percentage
    58. We adopt a flat-percentage approach to calculating an HCP's 
contribution under the Healthcare Connect Fund. This flat rate will 
apply uniformly to all eligible expenses and all eligible HCP sites.
    59. The use of a uniform participant contribution will facilitate 
consortium applications and reduce administrative expenses, both for 
participating HCPs and for the Fund Administrator. In the 
Telecommunications Program, varying support levels have historically 
discouraged potential applicants due to ``the complexity of * * * 
identify[ing] the amount of program reimbursement associated with the 
difference between rural and urban rates.'' A uniform participant 
contribution will eliminate this complexity. Many commenters support a 
flat-rate approach for this reason. Indeed, based on this record, we 
anticipate that the relative administrative simplicity of the uniform 
flat discount approach will help attract HCPs to the Healthcare Connect 
Fund that may have declined to participate in the Telecommunications 
Program. We expect that the use of a uniform flat discount will 
therefore further all three of our program goals--increasing HCP access 
to broadband, fostering health care networks, and maximizing cost-
effectiveness of the program.
    60. A uniform HCP contribution requirement will also facilitate 
efficient network design because support will not vary based on network 
configuration. As the Bureau observed in the Pilot Evaluation, a 
uniform HCP contribution requirement for both services and 
infrastructure in the Pilot Program enabled consortia to design their 
networks for maximum network efficiency because there was no negative 
impact on funding from including nodes with a lesser discount level 
within the network. A uniform percentage contribution requirement will 
also ensure that HCPs make purchasing decisions based on cost-
effectiveness, regardless of the location or type of the HCP or the 
services, equipment, or infrastructure purchased.
    61. Adopting a uniform contribution requirement will also help 
eligible HCPs to conduct better long-range planning for their broadband 
needs and obtain better rates. A clear, uniform rate will allow HCPs to 
better project anticipated support over a multi-year period, plan 
accordingly for their broadband services, and as appropriate, enter 
into multi-year contracts to take advantage of more favorable rates.
    62. A flat-rate approach also provides HCPs with a strong incentive 
to control the total cost of the broadband connectivity, as a 
participating HCP will share in each dollar of increased costs and each 
dollar of cost savings. In contrast, in the Telecommunications Program, 
an HCP using the rural-urban differential pays only the urban rate, so 
it has little incentive to control the overall cost of the service 
(i.e. the rural rate). Any increases in the overall cost of the service 
are borne directly by the Fund, which pays the difference between the 
urban and rural rates.
    63. Finally, a flat rate is consistent with the Act. In 2003, the 
Commission concluded that a flat discount for the Internet Access 
Program would be consistent with section 254(b)(5), which requires 
support to be ``specific, sufficient, and predictable.'' We now 
conclude that a flat discount for the Healthcare Connect Fund is also 
consistent with section 254(b)(5).
    64. A number of commenters suggest that the Commission adopt 
different HCP contribution percentages depending on the identity of the 
health care provider or based on other factors, and such an approach 
was also recommended in the National Broadband Plan. The proffered 
justification for a varying percentage contribution requirement is to 
enable the targeting of scarce resources to those HCPs or geographic 
areas most in need. Some commenters suggest that discount rates should 
be increased for certain HCPs, such as HCPs located in Health 
Professional Shortage Areas or Medically Underserved Areas, or for HCPs 
that are in particular need of support to achieve ``meaningful use'' of 
electronic health records under the Affordable Care Act. While 
supporting providers in areas with health care professional shortages 
and promoting achievement of meaningful use are both important public 
policy goals, we are not persuaded at this time that providing a non-
uniform discount is necessary in order to accomplish these goals. We 
note that the statutory categories of eligible HCPs in the Act already 
capture many health care providers who serve underserved populations, 
including rural health clinics, community and migrant health centers, 
and community mental health centers.
2. 35 Percent HCP Contribution
    65. Discussion. We find that requiring a 35 percent HCP 
contribution appropriately balances the objectives of enhancing access 
to advanced telecommunications and information services with ensuring 
fiscal responsibility and maximizing the efficiency of the program. A 
35 percent HCP contribution results in a 65 percent discount rate, 
which represents a significant increase over the 25 percent discount 
provided today for Internet access, and the 50 percent proposed for the 
Broadband Services Program in the NPRM. We believe that a 35 percent 
contribution appropriately balances the need to provide sufficient 
incentives for HCPs to participate in broadband networks, while 
simultaneously ensuring that they have a sufficient financial stake to 
seek out the most cost-effective method of obtaining broadband 
services.
    66. We base our conclusion on a number of factors. First, many 
state offices of rural health, which work most directly with rural 
HCPs, believe that a 65 percent discount is required to provide a 
``realistic incentive'' for many eligible rural HCPs to participate. A 
65 percent discount rate is also similar to the average effective 
discount rate in the Telecommunications Program, which is approximately 
69 percent, excluding Alaska. The effective discount rate in the 
Telecommunications Program provides a reasonable proxy for the discount 
rate that will be sufficient to allow health care providers in rural 
areas, which tend to have high broadband costs, to participate in the 
program. The discount level we set also falls between the proposed 
discount levels in the NPRM (50 percent for the Broadband Services 
Program and 85 percent for the Health Infrastructure Program)--a 
reasonable choice given the hybrid nature of the program we adopt. A 35 
percent HCP contribution is also within the range of the match required 
in other federal programs subsidizing broadband infrastructure. For 
example, the BTOP program required a 20 percent match, while the U.S. 
Department of Agriculture's Broadband Initiatives Program overall 
provided an average of 58 percent of its funding in the form of grants, 
with 32 percent of its funding in loans (which the recipients 
ultimately repay), and 10 percent recipient match.
    67. We also expect that the 65 percent discount will be sufficient 
to induce many HCPs to participate in the Healthcare Connect Fund--both 
those currently in the Telecommunications Program and those that have 
not participated in that program before. We expect that at a 65 percent 
discount, eligible HCPs participating in consortia in the Healthcare 
Connect Fund will generally pay less ``out-of-pocket'' when

[[Page 13945]]

purchasing the higher bandwidth connections necessary to support 
telehealth applications than they would pay as individual participants 
in the Telecommunications Program. The Pilot Program showed that bulk 
buying through consortia, coupled with competitive bidding, can reduce 
the prices that HCPs pay for services and infrastructure through their 
increased buying power.
    68. Other attractive features of the Healthcare Connect Fund 
include the lower administrative costs and the broader eligibility of 
services and equipment, relative to the Telecommunications Program. 
These factors may offset to some degree concerns regarding the size of 
the contribution requirement from those who advocated a lower HCP 
contribution. We also note that from a program efficiency perspective, 
the better prices negotiated by consortia in the Pilot Program, 
relative to the prices paid by Telecommunications Program participants, 
will mean that USF dollars will go further in the new program, 
particularly as HCPs demand the higher bandwidth and better service 
quality needed for telehealth applications.
    69. We recognize that a 35 percent contribution will be a 
significant commitment for many health care providers, and that many 
commenters argued for a lower contribution amount from HCPs. One of our 
core objectives, however, is to ensure that HCPs have a financial stake 
in the services and infrastructure they are purchasing, thereby 
providing a strong incentive for cost-effective decision-making and 
promoting the efficient use of universal service funding.
    70. We acknowledge that some current Pilot participants have argued 
that a discount rate lower than 85 percent will preclude new sites from 
being added to existing networks and may even result in existing sites 
dropping off the network. We nonetheless believe a cautious approach is 
justified given that the new Healthcare Connect Fund will expand 
eligibility and streamline the application process compared to the 
existing Telecommunications Program, which we hope will increase the 
number of participating HCPs. Even within the existing program, the 
number of participating HCPs has steadily increased in recent years, 
averaging just under 10 percent annual growth for the past five years. 
Meanwhile the Pilot Program has attracted over 3,800 HCPs, the majority 
of which were not previously participating in the RHC Program.
    71. A 65 percent discount rate will help keep demand for the 
overall health care universal service, including the Healthcare Connect 
Fund, below the $400 million cap for the foreseeable future, even as 
program participation expands. We estimate that there are approximately 
10,000 eligible rural HCPs nationwide, of which approximately 54 
percent (5,400) are participating in the RHC Telecommunications, 
Internet Access, or Pilot Programs. If we assume that in five years (1) 
the rural HCP participation rate increases from 54 percent to 75 
percent, (2) the number of rural HCPs participating in the 
Telecommunications Program does not significantly decrease, and (3) the 
average annual support per HCP is $14,895 in the Healthcare Connect 
Fund (including support for both recurring and non-recurring costs), 
the projected size of the annual demand for funding (including non-
rural and rural HCPs) would be approximately $235 million. We will 
continue to monitor the effect of the 35 percent contribution 
requirement on participation in the program and on the USF, and stand 
ready to adjust the contribution HCP requirement or establish 
additional prioritization rules, should it prove necessary.
3. Limits on Eligible Sources of HCP Contribution
    72. Consistent with the Pilot Program, we limit the sources for 
HCPs' contribution (i.e., the non-discounted portion) to ensure that 
participants pay their share of the supported expenses. Only funds from 
an eligible source will apply towards a participant's required 
contribution. In addition, consortium applicants are required to 
identify with specificity their source of funding for their 
contribution of eligible expenses in their submissions to USAC. 
Requiring participants to pay their share helps ensure efficiency and 
fiscal responsibility and helps prevent waste, fraud, and abuse.
    73. Eligible sources include the applicant or eligible HCP 
participants; state grants, funding, or appropriations; federal 
funding, grants, loans, or appropriations except for other federal 
universal service funding; Tribal government funding; and other grant 
funding, including private grants. Any other source is not an eligible 
source of funding towards the participant's required contribution. 
Examples of ineligible sources include (but are not limited to) in-kind 
or implied contributions; a local exchange carrier (LEC) or other 
telecom carrier, utility, contractor, consultant, vendor or other 
service provider; and for-profit entities. We stress that participants 
that do not demonstrate that their contribution comes from an eligible 
source or whose contribution is derived from an ineligible source will 
be denied funding by USAC. Moreover, participants may not obtain any 
portion of their contribution from other universal service support 
program, such as the RHC Telecommunications Program.
    74. We conclude that these limitations on eligible sources are 
necessary to help safeguard against program manipulation and to help 
prevent conflicts of interest or influence from vendors and for-profit 
entities that may lead to waste, fraud, and abuse. Accordingly, we are 
unconvinced by commenters that argue the eligible sources should 
include in-kind contributions; contributions from carriers, network 
service providers, or other vendors; and contributions from for-profit 
entities. First, allowing in-kind or implied contributions would 
substantially increase the complexity and burden associated with 
administering the program. It would be difficult to accurately measure 
the value of in-kind or implied contributions to ensure participants 
are paying their share, and the costs and challenges associated with 
policing in-kind and implied contributions would likely be substantial. 
Second, allowing carrier, service provider, or other vendor 
contributions would distort the competitive bidding process and reduce 
HCPs' incentives to choose the most cost-effective bid, leading to 
potential waste, fraud, and abuse.
    75. Some commenters urge the Commission to allow for-profit 
entities to pay an eligible HCPs contribution because ``[t]he benefits 
of improved telehealth capabilities cannot be fully achieved if for-
profit health care services providers are not part of the health care 
delivery network.'' This argument is based on a faulty premise. To be 
clear, the prohibition against a for-profit HCP paying the contribution 
of an eligible HCP does not prevent the for-profit HCP from 
participating in one or more networks that receive Healthcare Connect 
Fund support, as long as the for-profit pays its ``fair share.'' 
Rather, the prohibition helps avoid creating an incentive for 
participating eligible HCPs to use support to benefit ineligible 
entities (e.g., for-profit HCPs).
    76. Future Revenues from Excess Capacity as Source of Participant 
Contribution. Some consortia may find, after competitive bidding, that 
construction of their own facilities is the most cost-effective option. 
Due to the low additional cost of laying additional

[[Page 13946]]

fiber, some Pilot projects who chose the ``self-construction'' option 
found that they were able to lay more fiber than needed for their 
health care network and use revenues from the excess capacity as a 
source for their 15 percent contribution. We conclude that under the 
following limited circumstances, consortia in the Healthcare Connect 
Fund may use future revenues from excess capacity as a source for their 
35 percent match.
     The consortium's RFP must solicit bids for both services 
provided by third parties and for construction of HCP-owned facilities, 
and must show that ``self-construction'' is the most cost-effective 
option. Applicants are prohibited from including the ability to obtain 
excess capacity as a criterion for selecting the most cost-effective 
bid (e.g. applicants cannot accord a preference or award ``bonus 
points'' based on a vendor's willingness to construct excess capacity).
     The participant must pay the full amount of the additional 
costs for excess capacity facilities that will not be part of the 
supported health care network. The additional cost for excess capacity 
facilities cannot be part of the participant's 35 percent contribution, 
and cannot be funded by any health care universal service support 
funds. The inclusion of excess capacity facilities cannot increase the 
funded cost of the dedicated network in any way.
     An eligible HCP (typically the consortium, although it may 
be an individual HCP participating in the consortium) must retain 
ownership of the excess capacity facilities. It may make the facilities 
available to third parties only under an IRU or lease arrangement. The 
lease or IRU between the participant and the third party must be an 
arm's length transaction. To ensure that this is an arm's length 
transaction, neither the vendor that installed the excess capacity 
facilities, nor its affiliate, would be eligible to enter into an IRU 
or lease with the participant.
     The prepaid amount paid by other entities for use of the 
excess capacity facilities (IRU or lease) must be placed in an escrow 
account. The participant can then use the escrow account as an asset 
that qualifies for the 35 percent contribution to the project.
     All revenues from use of the excess capacity facilities by 
the third party must be used for the project's 35 percent contribution 
or for sustainability of the health care network supported by the 
Healthcare Connect Fund. Such network costs may include administration, 
equipment, software, legal fees, or other costs not covered by the 
Healthcare Connect Fund, as long as they are relevant to sustaining the 
network.
    77. We delegate authority to the Bureau to specify additional 
administrative requirements applicable to excess capacity, including 
requirements to ensure that HCPs have appropriate incentives for 
efficient spending (including, if appropriate, a minimum contribution 
from funds other than revenues from excess capacity), and to protect 
against potential waste, fraud, and abuse, as part of the 
infrastructure component of the program.

IV. Eligible Services and Equipment

    78. Overview. We discuss the services and equipment for which the 
Healthcare Connect Fund will provide support. We also provide examples 
of services and equipment that will not be supported. Section 
254(h)(2)(A) of the Act directs the Commission to establish 
competitively neutral rules to ``enhance * * * access to advanced 
telecommunications and information services * * * for health care 
providers.'' Pursuant to that authority, we will provide support for 
services whether provided on a common carrier or private carriage 
basis, reasonable and customary one-time installation charges for such 
services, and network equipment necessary to make the broadband service 
functional. For HCPs that apply as consortia, we will also provide 
support for upfront charges associated with service provider deployment 
of new or upgraded facilities to provide requested services, dark or 
lit fiber leases or IRUs, and self-construction where demonstrated to 
be the most cost-effective option. Requests for funding that involve 
upfront support of more than $50,000, on average, per HCP will be 
subject to certain limitations. In general, we find that this approach 
will ensure the most efficient use of universal service funding.
    79. Immediately below is a chart summarizing what services and 
equipment are eligible for support under the Healthcare Connect Fund.

                     Eligible Services and Equipment
------------------------------------------------------------------------
                                            INDIVIDUAL      CONSORTIUM
                                            Applicants      Applicants
------------------------------------------------------------------------
Eligible Services (Sec.   V.A.1).........      [check]          [check]
Reasonable & Customary Installation            [check]          [check]
 Charges (Sec.   V.A.6) (<=$5,000
 undiscounted cost)......................
Lit Fiber Lease (Sec.   V.A.3)...........      [check]          [check]
Dark Fiber (Sec.   V.A.3)
     Recurring charges (lease of       [check]          [check]
     fiber and/or lighting equipment,
     recurring maintenance charges)......
     Upfront payments for IRUs,             No          [check]
     leases, equipment...................
Connections to Research & Education            [check]          [check]
 Networks (Sec.   V.A.4).................
HCP Connections Between Off-Site Data          [check]          [check]
 Centers & Administrative Offices (Sec.
 V.A.5)..................................
Upfront Charges for Deployment of New or            No          [check]
 Upgraded Facilities (Sec.   V.A.7)......
HCP-Constructed and Owned Facilities                No          [check]
 (Sec.   IV.D)...........................
Eligible Equipment (Sec.   V.B)
     Equipment necessary to make       [check]          [check]
     broadband service functional........
     Equipment necessary to                 No          [check]
     manage, control, or maintain
     broadband service or dedicated
     health care broadband network.......
------------------------------------------------------------------------

A. Eligible Services

    80. We describe the services that will be eligible for support 
under the Healthcare Connect Fund. We are guided, among other 
considerations, by our statutory directive to enhance access to 
``advanced telecommunications and information services'' in a 
competitively neutral fashion. We conclude that providing flexibility 
for HCPs to select a range of services, within certain defined limits, 
and in conjunction with the competitive bidding requirements we adopt, 
will maximize the impact of Fund dollars (and scarce HCP resources).

[[Page 13947]]

    81. Specifically, we will provide support for advanced services 
without limitation as to the type of technology or provider. We allow 
HCPs to utilize both public and private networks, and different network 
configurations (including dedicated connections between data centers 
and administrative offices), and lease or purchase dark fiber, 
depending on what is most cost-effective. We also provide support for 
reasonable and customary installation charges (up to an undiscounted 
cost of $5,000). For consortium applicants, we will also provide 
support for upfront payments to facilitate build-out of facilities to 
HCPs. We limit such funding to consortia because we anticipate that 
group buying for such services and equipment will lead to lower prices 
and better bids, resulting in more efficient use of Fund dollars.
    82. We decline to adopt a minimum bandwidth requirement for the 
supported services because many rural HCPs still lack access to higher 
broadband speeds. We will, however, limit certain types of support to 
connections that provide actual speeds of 1.5 Mbps (symmetrical) or 
higher, in order to ensure that we do not invest in networks based on 
outdated technology.
1. Definition of Eligible Services
    83. Discussion. We adopt a rule to provide support for any service 
that meets the following definition:

Any advanced telecommunications or information service that enables 
HCPs to post their own data, interact with stored data, generate new 
data, or communicate, by providing connectivity over private dedicated 
networks or the public Internet for the provision of health information 
technology.

    The definition we adopt differs from the NPRM proposal in only two 
respects. First, because we allow all HCPs to participate in consortia 
and receive support (subject to the limitations on non-rural HCPs), we 
have removed the language referring to ``rural'' HCPs. Second, we 
delete the word ``broadband access'' from the definition originally 
proposed, to make clear that eligible services include not only 
broadband Internet access services, but also high-speed transmission 
services offered on a common carrier or non-common carrier basis that 
may not meet the definition of ``broadband'' that the Commission has 
used in other contexts. This broad definition allows HCPs to choose 
from a wide range of connectivity solutions, all of which enhance their 
access to advanced services, based on their individual health care 
broadband needs as available technology evolves over time; decisions 
will be made in the marketplace without regard to regulatory 
classification decisions of the connectivity solutions.
    84. Public and Private Networks. We conclude that eligible HCPs may 
receive support for services over both the public Internet and private 
networks (i.e., dedicated connections that do not touch the public 
Internet). As discussed in the NPRM, access to advanced 
telecommunications and information services for health care delivery is 
provided in a variety of ways today. For example, due to privacy laws 
and EHR requirements, HCPs may find that it best suits their needs to 
securely transmit health IT data to other HCPs over a private dedicated 
connection. In other instances (e.g., communicating with patients via a 
Web site), HCPs may need to utilize the public Internet, or it may 
simply be more cost-effective to utilize Dedicated Internet Access 
services for certain types of traffic. Several Pilot projects have 
determined that a mix of both public and private networks best fits the 
needs of their HCPs.
    85. Network Configurations. Under the new rule, ``eligible 
services'' may include last mile, middle mile, or backbone services, as 
long as support for such services is requested and used by an eligible 
HCP for eligible purposes in compliance with other program rules. HCPs 
emphasize that they need the ability to control the design of their 
networks, even if the network relies on leased services. Our Pilot 
Program experience also indicates that HCPs are likely to tailor their 
funding requests based on what services are already available. For 
example, if a region already has a middle mile network suitable for 
health care use, the applicant may choose to focus its funding request 
on last mile facilities to connect to the middle mile or backbone 
network. On the other hand, if there is no pre-existing middle mile 
connection between the HCPs in the network, providers may choose to 
seek funding to lease such capacity instead. Therefore, we find that 
allowing flexibility in the network segments supported will best 
leverage prior investments by allowing maximum use of existing 
infrastructure.
    86. In the NPRM, the Commission proposed that the Broadband 
Services Program would subsidize costs for any advanced 
telecommunications and information services that provide ``point-to-
point broadband connectivity.'' In response to the NPRM, some 
commenters expressed concern that only traditional point-to-point 
circuits might be eligible for funding, and such a limitation could 
preclude use of more cost-effective point-to-multipoint, IP-based, or 
cloud-based architectures. Based on our full consideration of the 
record, we conclude that support under the Healthcare Connect Fund will 
not be limited to ``point-to-point'' services. Rather, any advanced 
service is eligible, and HCPs may request support for any type of 
network configuration that complies with program rules (e.g., is the 
most cost-effective). This approach comports with the statutory 
directive that the Commission enhance access to advanced services in a 
manner that is ``competitively neutral.''
    87. Technology. Consistent with the statutory requirement that our 
rules be competitively neutral, we conclude that eligible services may 
be provided over any available technology, whether wireline (copper, 
fiber, or any other medium), wireless, or satellite. We also find that 
a competitively neutral approach will best ensure that HCPs can make 
cost-effective use of Fund support. We provide additional guidance 
regarding fiber leases, and minimum bandwidth and service quality 
requirements.
2. Minimum Bandwidth and Service Quality Requirements
    88. Discussion. We will not impose minimum bandwidth and service 
quality requirements for the Healthcare Connect Fund, based on the 
record in this proceeding. Commenters agree that HCPs need certain 
minimum levels of reliability, redundancy, and quality of service, but 
they note that the exact requirement may vary depending on the 
application, and that not all HCPs will have access to services that 
provide a specified level of reliability and quality. While our goal is 
to encourage HCPs to obtain broadband connections at the speeds 
recommended in the National Broadband Plan, the record indicates that 
in some areas of the country, HCPs face limited options in obtaining 
speeds of 4 Mbps or above. Commenters note that in areas where higher 
speed connections are not available, telemedicine networks have 
nevertheless been able to operate with connections at speeds less than 
4 Mbps. Commenters also state that some of the smallest rural HCPs 
simply may not be able to afford higher bandwidth connections, even 
when such connections are available. These commenters express concern 
that a minimum bandwidth requirement could result in HCPs either (1) 
being forced to buy bandwidths that are not cost-effective for their 
circumstances; or (2) being unable to receive health care

[[Page 13948]]

universal service discounts (due to the cost of the required minimum-
bandwidth connection). We do not wish to prevent the neediest HCPs from 
receiving discounts, especially if they are able to address their 
connectivity needs in the near term by utilizing a connection below a 
defined minimum. After reviewing the record, we conclude that it would 
be difficult to set a minimum speed requirement at this time that would 
not have the unintended effect of potentially precluding some HCPs from 
obtaining connectivity currently appropriate for their individual 
needs. We therefore conclude it would be premature now to set a minimum 
threshold speed for connections that are supported in the Healthcare 
Connect Fund.
    89. We will continue to provide support in the Healthcare Connect 
Fund for services that have been historically supported through the 
Internet Access Program, including DSL, cable modem, and other similar 
forms of Internet access. We expect recipients to migrate to services 
over time that deliver higher capabilities. We do, however, adopt one 
limitation designed to ensure that the focus of the program remains on 
advancing access to the bandwidths that increasingly will be needed for 
health care purposes. No upfront payments will be eligible for funding 
for services that deliver less than 1.5 Mbps symmetrical (i.e. less 
than T-1 speeds), except for reasonable installation costs under 
$5,000. We have chosen the 1.5 Mbps threshold because HCPs have 
indicated that they can successfully implement telemedicine services 
over a 1.5 Mbps connection, if that is the only practical option. 
Therefore, we conclude that 1.5 Mbps is the minimum threshold at which 
HCPs should be able to obtain support for upfront costs for build-out 
or infrastructure upgrades.
    90. We note that the Pilot Program allowed most participants to 
obtain speeds of 4 Mbps or above, and we expect that the reforms 
adopted in this Order will generally allow HCPs to obtain access to the 
bandwidths recommended in the National Broadband Plan. We agree with 
the National Rural Health Association and the California Telehealth 
Network that we should benchmark actual speeds obtained under the 
Healthcare Connect Fund to determine how well the program is meeting 
HCPs' broadband needs. Therefore, we will also require participants to 
report basic information regarding bandwidth associated with the 
services obtained with universal service discounts. To enable HCPs to 
have the information necessary to file such reports, we will require 
all service providers participating in the Healthcare Connect Fund to 
disclose the required metrics to their HCP customers.
3. Dark and Lit Fiber
    91. Discussion. Service providers today provide numerous broadband 
services over fiber that the service provider manages and has ``lit'' 
(i.e., the service provider has furnished the modulating equipment and 
activated the fiber). HCPs are currently able to receive support for 
telecommunications services and Internet access services provided over 
such fiber, as are schools and libraries in the E-rate program. The 
Healthcare Connect Fund will continue to support broadband services 
provided over service provider-lit fiber. The NPRM proposal, however, 
raised two additional issues: (1) The eligibility of dark fiber, and 
(2) support for costs associated with dark or lit fiber leases, 
including upfront payments associated with leases or indefeasible right 
of use (IRU) arrangements for lit or dark fiber.
    92. Eligibility of dark fiber. We conclude that eligible HCPs may 
receive support for ``dark'' fiber where the customer, not the service 
provider, provides the modulating electronics. In the NPRM, the 
Commission noted that under such an approach, applicants would, for 
instance, be able to lease dark fiber that may be owned by state, 
regional or local governmental entities, when that is the most cost-
effective solution to their connectivity needs. Consistent with our 
practice in the E-rate program, however, we will only provide support 
for dark fiber when it is ``lit'' and is actually being used by the 
HCP; we will not provide support for dark fiber that remains unlit.
    93. Consistent with Commission precedent, we find that dark fiber 
is a ``service'' that enhances access to advanced telecommunications 
and information services consistent with section 254(h)(2)(A) of the 
Act. As in the E-rate program, we conclude that supporting dark fiber 
provides an additional competitive option to help HCPs obtain broadband 
in the most cost-effective manner available in the marketplace. HCPs 
generally support making dark fiber eligible. For example, IRHN states 
that the varying broadband environments in rural areas throughout the 
country need to be ``mined'' to find the most cost-effective solution, 
including existing fiber infrastructure that can be brought into use by 
HCPs seeking dark fiber. Commenters also agree that making dark fiber 
eligible will allow the cost-effective leveraging of existing resources 
and investments, including state, regional, and local networks.
    94. As the Commission concluded in the E-rate context, we are not 
persuaded by arguments that entities who are not telecommunications 
providers, such as HCPs, ``have a poor track record making dark fiber 
facilities viable for their services.'' While dark fiber will not be an 
appropriate solution for all HCPs, Pilot projects have demonstrated 
that they can successfully incorporate dark fiber solutions into a 
regional or statewide health care network. We are also not persuaded by 
the argument that dark fiber solutions may not be cost-effective. HCPs 
will be required to undergo competitive bidding, and our actions merely 
ensure that HCPs have an additional option to consider during that 
process. If service providers can provide comparable, less expensive 
lit fiber alternatives, we anticipate that such providers will bid to 
provide services to HCPs, who are required to select the most cost-
effective option. As the Commission found in the Schools and Libraries 
Sixth Report and Order, 75 FR 75393, December 3, 2010, if more 
providers bid to provide services, the resulting competition should 
better ensure that applicants--and the Fund--receive the best price for 
the most bandwidth.
    95. In order to further ensure that dark fiber is the most cost-
effective solution, however, we will limit support for dark fiber in 
two ways. First, requests for proposals (RFPs) that allow for dark 
fiber solutions must also solicit proposals to provide the needed 
services over lit fiber over a time period comparable to the duration 
of the dark fiber lease or IRU. Second, if an applicant intends to 
request support for equipment and maintenance costs associated with 
lighting and operating dark fiber, it must include such elements in the 
same RFP as the dark fiber so that USAC can review all costs associated 
with the fiber when determining whether the applicant chose the most 
cost-effective bid.
    96. We are not persuaded that allowing a HCP to purchase dark fiber 
from state, regional, or local government entities will negate the 
HCP's ability to ``maintain a fair and open competitive bidding 
environment'' if the HCP is ``linked'' to the governmental entity in 
question. We adopt requirements that prohibit potential service 
providers, including government entities, from also acting as either a 
Consortium Leader or consultant or providing other types of specified 
assistance to HCPs in the competitive bidding process. Allowing HCPs to 
lease dark fiber should increase competition among fiber providers and

[[Page 13949]]

ensure a more robust bidding process. HCPs still must demonstrate that 
the bid they choose is the most cost-effective. As the Commission 
stated in the E-rate context, we believe our competitive bidding rules 
will protect against the possibility of waste, fraud, or abuse in that 
context. To the extent there are violations of the competitive bidding 
rules, such as sharing of inside information during the competitive 
bidding process, USAC will adjust funding commitments or recover any 
disbursed funds through its normal process. As the Commission concluded 
in the E-rate context, our RHC rules and requirements, including the 
competitive bidding rules, apply to all applicants and service 
providers, irrespective of the entity providing the fiber network.
    97. Fiber leases and IRUs. As proposed in the NPRM, eligible HCPs 
may receive support for recurring costs associated with leases or IRUs 
of dark (i.e., provided without modulating equipment and unactivated) 
or lit fiber. We conclude that HCPs may not use fiber leases and IRUs 
to acquire unneeded fiber strands or warehouse excess dark fiber 
strands for future use. If a HCP chooses to lease (or obtain an IRU) 
for ``dark'' (i.e., unactivated) fiber, recurring charges under the 
lease or IRU are eligible only for fiber strands that have been lit 
within the funding year, and only once the fiber strand has been lit.
    98. Eligible HCPs applying as consortia may also receive support 
for upfront charges associated with fiber leases or IRUs, subject to 
the limitations applicable to all upfront charges. An IRU or lease for 
dark fiber typically requires a large upfront payment, even if no new 
construction is required. In some cases, however, service providers may 
deploy new fiber facilities to serve HCPs under the lease or IRU, and 
may seek to recover all of part of those costs through non-recurring 
charges (sometimes called ``special construction charges''). Such 
``build-out'' costs are eligible for support. Consistent with the 
general rule we adopt, we will provide support for build-out costs from 
an off-premises fiber network to the service provider demarcation 
point. We decline to provide support for such charges after the service 
provider demarcation point, consistent with the Commission's current 
policy of not supporting internal connections for HCPs.
    99. In the E-rate program, fiber must be lit within the funding 
year for non-recurring charges to be eligible. We adopt this 
requirement in the Healthcare Connect Fund. HCPs, however, unlike 
schools, do not have a summer vacation period during which construction 
can take place without disrupting normal operations. Furthermore, in 
some rural areas, weather conditions can cause unavoidable delays in 
construction. Therefore, we will allow applicants to receive up to a 
one-year extension to light fiber if they provide documentation to USAC 
that construction was unavoidably delayed due to weather or other 
reasons.
    100. Maintenance Costs. We also find that HCPs may receive support 
for maintenance costs associated with leases of dark or lit fiber. Only 
HCPs applying as consortia may receive support for upfront payments for 
maintenance costs.
    101. Equipment. We will provide support for equipment necessary to 
make a broadband service functional. Consistent with that standard, we 
find that HCPs may receive support for the modulating electronics and 
other equipment necessary to light dark fiber. If equipment is leased 
for a recurring monthly (or annual) fee, HCPs may receive support for 
those recurring costs. HCPs applying as consortia may also receive 
support for upfront payments associated with purchasing equipment, 
subject to the limitations.
    102. Eligible Providers. The Commission has previously authorized 
schools and libraries to lease dark fiber, and authorizes schools and 
libraries to lease any fiber connectivity (not just dark fiber) from 
any entity, including state, municipal or regional research networks 
and utility companies. We will allow HCPs to lease fiber connectivity 
from any provider.
4. Connections to Internet2 or National LambdaRail
    103. Discussion. ``Broadband Services'' in this context includes 
backbone services. We find that the membership fees charged by 
Internet2 and NLR are part of the cost of obtaining access to the 
backbone services provided by these organizations, and thus are 
eligible for support as recurring costs for broadband services. We 
delegate authority to the Wireline Competition Bureau to designate as 
an eligible expense, upon request, membership fees for other non-profit 
research and education networks similar to Internet2 and NLR. We 
further find that broadband services required to connect to Internet2 
or NLR should be eligible for support under the Healthcare Connect 
Fund, as well as any broadband services obtained directly from 
Internet2 or NLR. Commenters generally support providing support for 
both membership fees and for the broadband services required to connect 
health care networks to Internet2 and NLR. In addition, some commenters 
believe that these networks may provide a level of service not 
available from commercial providers in certain situations.
    104. We conclude, however, that it is appropriate to require 
participants to seek competitive bids from NLR and Internet2, or any 
other research and education network, through our standard competitive 
bidding process. We recognize and anticipate that in some cases, 
Internet2 or NLR services may be the most cost-effective solution to 
meet a HCP's needs. As noted by commenters, these networks can provide 
many benefits, and the most cost-effective solution for HCP needs may 
come from Internet2 or NLR. There may be instances, however, under 
which a more cost-effective solution is available from a commercial 
provider, or a non-profit provider other than Internet2 or NLR. Many 
commenters opposed the Commission's proposal to exempt National 
LambdaRail and Internet2 from competitive bidding, arguing, among other 
things, that such an exemption would be anti-competitive by 
disadvantaging other telecommunications providers. A competitive 
bidding requirement that applies equally to all participants will 
ensure that HCPs can consider possible options from all interested 
service providers. Because applicants must already engage in 
competitive bidding for all other services, we do not believe it would 
be overly burdensome to require applicants to also include Internet2 or 
NLR in their competitive bidding process. While we encourage all 
applicants to fully consider the benefits of connecting to non-profit 
research and education networks such as Internet2 and NLR, we emphasize 
that it is not a requirement to connect to Internet2 or NLR.
5. Off-Site Data Centers and Off-Site Administrative Offices
    105. Discussion. Based on our experience with the RHC 
Telecommunications and Pilot Programs, we adopt a rule that provides 
support under the Healthcare Connect Fund for the connections and 
network equipment associated with off-site data centers and off-site 
administrative offices used by eligible HCPs for their health care 
purposes, subject to the conditions and restrictions. There has been 
significant change in how HCPs use information technology in the 
delivery of health care since the Commission originally adopted the 
rules for the Telecommunications Program that do not provide support 
for off-site data centers and administrative

[[Page 13950]]

offices. This new rule appropriately recognizes ``best practices'' in 
health care facility and infrastructure design and the way in which 
HCPs increasingly accomplish their data storage and transmission 
requirements. It also enables HCPs to use efficient network 
connections, rather than having to re-route traffic unnecessarily in 
order to obtain support. Many commenters pointed out the operational 
and network efficiency gains from this approach.
    106. For purposes of the rule we adopt, an ``off-site 
administrative office'' is a facility that does not provide hands-on 
delivery of patient care, but performs administrative support functions 
that are critical to the provision of clinical care by eligible HCPs. 
Similarly, an ``off-site data center'' is a facility that serves as a 
centralized repository for the storage, management, and dissemination 
of an eligible HCP's computer systems, associated components, and data. 
Under the new rule, we expand the connections that are supported for 
already eligible HCPs to include connections to these locations when 
purchased by HCPs in the Healthcare Connect Fund.
    107. Specifically, subject to the conditions and restrictions, we 
provide support in the Healthcare Connect Fund for connections used by 
eligible HCPs: (i) Between eligible HCP sites and off-site data centers 
or off-site administrative offices, (ii) between two off-site data 
centers, (iii) between two off-site administrative offices, (iv) 
between an off-site data center and the public Internet or another 
network, and (v) between an off-site administrative office and an off-
site data center or the public Internet or another network. We also 
expand the eligibility of network equipment to provide support for such 
equipment when located at an off-site administrative office or an off-
site data center. In addition, we establish that support for such 
connections and/or network equipment is available both to single HCP 
applicants or consortium applicants under the Healthcare Connect Fund. 
Finally, we include support for connections at such off-site locations 
even if they are not owned or controlled by the HCP.
    108. We adopt this rule with certain conditions and restrictions to 
ensure the funding is used to support only eligible public or non-
profit HCPs and to protect the program from potential waste, fraud, and 
abuse. First, the connections and network equipment must be used solely 
for health care purposes. Second, the connections and network equipment 
must be purchased by an eligible HCP or a public or non-profit health 
care system that owns and operates eligible HCP sites. Third, if 
traffic associated with one or more ineligible HCP sites is carried by 
the supported connection and/or network equipment, the ineligible HCP 
sites must allocate the cost of that connection and/or equipment 
between eligible and ineligible sites, consistent with the ``fair 
share'' principles. These conditions and requirements should fully 
address the concerns of those commenters who fear that these additional 
supported connections may be used long-term for non-health care 
purposes.
    109. As commenters point out, HCPs often find increased 
efficiencies by locating administrative offices and data centers apart 
from the site where patient care is provided. This is especially true 
for groups of HCPs, including smaller HCPs, who often share 
administrative offices and/or data centers, to save money and pool 
resources. Furthermore, it does not make practical sense to distinguish 
administrative offices and/or data centers that are located off-site 
but otherwise perform the same functions as on-site facilities, and 
which require the same broadband connectivity to function effectively. 
While off-site administrative offices and off-site data centers do not 
provide ``hands on'' delivery of patient care, they often perform 
support functions that are critical to the provision of clinical care 
by HCPs. For example, administrative offices may coordinate patient 
admissions and discharges, ensure quality control and patient safety, 
and maintain the security and completeness of patients' medical 
records. Administrative offices also perform ministerial tasks, such as 
billing and collection, claims processing, and regulation compliance. 
Without an administrative office capable of carrying out these 
functions, an eligible HCP may not be able to successfully provide 
patient care.
    110. Similarly, off-site data centers often perform functions, such 
as housing electronic medical records, which are critical to the 
delivery of health care at eligible HCP sites. For example, the Utah 
Telehealth Network uses a primary data center in West Valley City, Utah 
with a backup secondary data center in Ogden, Utah to deliver 
approximately 2,500 clinical and financial applications to eligible HCP 
sites. North Carolina Telehealth Network plans to use data center 
connectivity to help public health agencies comply with ``meaningful 
use'' of EHRs.
    111. By providing support for the additional connections (e.g., 
those connections beyond the direct connection to an eligible HCP site) 
and network equipment associated with off-site administrative offices 
and off-site data-centers, eligible HCPs will be able to design their 
networks more efficiently. For example, the use of remote cloud-based 
EHR systems has become a ``best practice,'' especially for smaller 
HCPs, for whom that solution is often more affordable. In such cases, a 
direct connection from the HCP off-site administrative office and/or 
off-site data center to the network hosting the remote cloud-based EHR 
system enables the more efficient flow of network traffic. In 
comparison, if these additional connections and network equipment were 
not supported, an HCP may be forced to route traffic from its off-site 
administrative office or off-site data center that is destined for the 
remote EHR system back through the eligible HCP site, potentially 
resulting in substantial inefficiency in the use of funding.
    112. After reviewing the record, we conclude that requiring that an 
eligible HCP to have majority ownership or control over an off-site 
administrative office or data center in order for it to be eligible for 
support would impose an unnecessary burden on HCPs seeking to use 
broadband effectively to deliver health care to their patients. 
Providing support for eligible expenses associated with off-site 
administrative offices and off-site data centers was widely endorsed by 
commenters, but commenters noted that there is a wide variation in the 
way that HCPs structure their physical facilities. For example, HHS 
explains that an HCP often has no ownership or control of the off-site 
data center hosting its health care related equipment and servers. NCTN 
suggests that the Commission identify ``eligible functions'' rather 
than evaluating ownership. The adopted rule addresses these concerns 
and provides eligible HCPs with the flexibility to use off-site data 
centers and administrative offices irrespective of ownership or 
control, subject to the conditions and requirements.
    113. The adopted approach also accommodates a variety of 
arrangements for the operation of off-site administrative offices and/
or off-site data centers. For instance, one commenter was concerned 
that the NPRM proposal unreasonably excluded support for the off-site 
administrative offices and off-site data centers owned by a public or 
non-profit health care system rather than by one or more eligible HCP 
sites. Under the rule we adopt, the network equipment and connections 
associated with these off-site facilities owned by public or non-profit 
health care systems are eligible for

[[Page 13951]]

support to the extent they satisfy the conditions and restrictions. Any 
network equipment and connections shared among a system's eligible and 
ineligible HCP sites may only receive support to the extent that the 
expenses are cost allocated according to the guidelines. We believe 
this approach is consistent with the intent of the statute and best 
balances the objectives of fiscal responsibility and increasing access 
to broadband connectivity to eligible HCPs.
6. Reasonable and Customary Installation Charges up to $5,000
    114. Discussion. We will provide support for reasonable and 
customary installation charges for broadband services, up to an 
undiscounted cost of $5,000 (i.e., up to $3,250 in support) per HCP 
location. Commenters generally agree with providing support for 
installation charges. ACS suggests, however, that in order to preserve 
funds, the Commission should limit the scope of this funding to only 
the most medically underserved areas (i.e., those with the highest HPSA 
score). We conclude, however, that the better course is to limit the 
amount of installation charges per eligible HCP location. Because our 
experience with the RHC Telecommunications and Pilot Programs indicates 
that undiscounted installation charges are typically under $5,000 per 
location, we conclude that setting a cap at this level will ensure that 
as many HCPs can obtain the benefits of broadband connectivity as 
possible. HCPs who are subject to installation charges higher than this 
amount may seek upfront support for eligible services or equipment, if 
those charges independently qualify as eligible expenses (e.g., upfront 
charges for service provider deployment of facilities, costs for HCP-
constructed and owned infrastructure, network equipment, etc.).
7. Upfront Charges for Service Provider Deployment of New or Upgraded 
Facilities To Serve Eligible Health Care Providers
    115. Discussion. Eligible consortia may obtain support for upfront 
charges for service provider deployment of new or upgraded facilities 
to serve eligible HCP sites that are applying as part of the 
consortium, including (but not limited to) fiber facilities. Although 
the Pilot Program has helped thousands of HCPs to obtain broadband 
services, many HCPs in more remote, rural areas still lack access to 
broadband connections that effectively meet their needs. The Pilot 
Program demonstrated that many HCPs prefer not to own the physical 
facilities comprising their networks, but can still assemble a 
dedicated health care network if funds are available for service 
provider construction and upgrades where broadband facilities are not 
already available. In a number of instances, Pilot projects found that 
support for upfront charges for deployment of service provider 
facilities allowed them to find the most cost-effective services to 
meet their needs while obtaining the benefits of connecting to existing 
networks.
    116. Commenters recommend that the Healthcare Connect Fund support 
service provider build-out charges, arguing that will result in cost-
effective pricing, which in turn reduces the cost to the Fund. This 
solution may be particularly useful when a health care network covers a 
large region served by multiple vendors, because the network can 
maximize the use of existing infrastructure and seek funding for build-
out only where necessary. For example, OHN's multi-vendor leased line 
network utilized 151.06 miles of existing infrastructure, and 
stimulated 86.41 miles of new middle-mile connectivity.
    117. We adopt a rule to provide support for service provider 
deployment of facilities up to the ``demarcation point,'' which is the 
boundary between facilities owned or controlled by the service 
provider, and facilities owned or controlled by the customer. In other 
words, the demarcation point is the point at which responsibility for 
the connection is ``handed off'' to the customer. Thus, charges for 
``curb-to-building installation'' or ``on site wiring'' are eligible if 
they are used to extend service provider facilities to the point where 
such facilities meet customer-owned terminal equipment or wiring. If 
the additional build-out is not owned or controlled by the service 
provider, it will not be eligible as service provider deployment costs. 
In contrast, consistent with current RHC program rules, ``inside 
wiring'' and ``internal connections'' are not eligible for support.
    118. Because upfront charges for build-out costs can be 
significant, we limit eligibility for such upfront charges to 
consortium applications. Our experience of over a decade with the RHC 
Telecommunications Program suggests that individual HCPs are unlikely 
to attract multiple bids, which would constrain prices. As HCPs 
themselves acknowledge, and as we learned in the Pilot Program, 
consortium applications are more likely to attract multiple bidders, 
due to the more significant dollar amounts associated with larger 
projects. Furthermore, we anticipate that individual HCPs will benefit 
from participating in a consortium in numerous ways, including pooling 
administrative resources (e.g. for the competitive bidding process), 
and increased opportunities for cooperation with other HCPs within 
their state or region. Consortia seeking funding for build-out costs 
must apply and undergo the competitive bidding process through the 
consortium application process. As in the Pilot Program, an RFP that 
includes a build-out component need not be limited to such costs (for 
example, some HCPs included in the RFP may not need any additional 
build-out to be served, but rather only need discounts on recurring 
services). We expect HCPs to select a proposal that includes carrier 
build-out costs only if that proposal is the most cost-effective 
option. In addition, upfront charges for build-out are subject to the 
limitations.

B. Eligible Equipment

    119. Discussion. We will provide support for network equipment 
necessary to make a broadband service functional in conjunction with 
providing support for the broadband service. In addition, for 
consortium applicants, we will provide support for equipment necessary 
to manage, control, or maintain a broadband service or a dedicated 
health care broadband network. Equipment support is not available for 
networks that are not dedicated to health care. We conclude that 
providing support for such equipment is important to advancing our 
goals of increasing access to broadband for HCPs and fostering the 
development and maintenance of broadband health care networks, for 
three reasons.
    120. First, providing support for equipment will help HCPs to 
upgrade to higher bandwidth services. USAC states that Pilot Program 
funding for equipment allowed such HCPs to upgrade bandwidth without 
restrictions based on what their existing equipment would allow. We 
note that small rural hospitals and clinics often lack the IT expertise 
to know that they will need new equipment to use new or upgraded 
broadband connections, and finding funding to pay for the equipment can 
cause delays.
    121. Second, support for the equipment necessary to operate and 
manage dedicated broadband health care networks can facilitate 
efficient network design. USAC states that urban centers, where most 
specialists are located, are natural ``hubs'' for telemedicine 
networks, but the cost of equipment required to serve as a hub

[[Page 13952]]

can be a barrier for these facilities to serve as hubs. In the Pilot 
Program, funding network equipment eliminated this barrier to entry. 
OHN explains that connecting to urban hubs can also reduce the need for 
rural sites to manage firewalls at their locations, which allows the 
rural sites to reduce equipment costs while adhering to security 
industry best practices and standards.
    122. Finally, support for network equipment can also help HCPs 
ensure that their broadband connections maintain the necessary 
reliability and quality of service, which can be challenging even if 
the HCP has a service level agreement (SLA) with its telecommunications 
provider. Support for network equipment has enabled some Pilot projects 
to set up Network Operations Centers (NOCs) that can manage service 
quality and security in a cost-effective manner for all of the HCPs on 
the network. The NOC can proactively monitor all circuits and contact 
both the service provider and HCP whenever the status of a link drops 
below the conditions specified in the SLA. This allows proactive 
monitoring to find and deal with adverse network conditions ``in real 
time and before they have a chance to impact the delivery of patient 
care.'' A HCP-operated NOC in some cases may be more cost-effective for 
larger networks (e.g., statewide, or even multi-state networks), 
particularly when the NOC may be monitoring and managing circuits from 
multiple vendors.
    123. We do not express a preference for single- or multi-vendor 
networks here, nor do we suggest that it is always more efficient for a 
dedicated health broadband network to have its own NOC. For example, a 
network that chooses to obtain a single-vendor solution and obtain NOC 
service from that vendor may receive support for the NOC service as a 
broadband service, if that solution is the most cost-effective. Our 
actions simply facilitate the ability of a consortium to operate its 
own NOC, if that is the most cost-effective option.
    124. Eligible equipment costs include the following:
     Equipment that terminates a carrier's or other provider's 
transmission facility and any router/switch that is directly connected 
to either the facility or the terminating equipment. This includes 
equipment required to light dark fiber, or equipment necessary to 
connect dedicated health care broadband networks or individual HCPs to 
middle mile or backbone networks;
     Computers, including servers, and related hardware (e.g., 
printers, scanners, laptops) that are used exclusively for network 
management;
     Software used for network management, maintenance, or 
other network operations, and development of software that supports 
network management, maintenance, and other network operations;
     Costs of engineering, furnishing (i.e., as delivered from 
the manufacturer), and installing network equipment; and
     Equipment that is a necessary part of HCP-owned 
facilities.
    125. Support for network equipment is limited to equipment 
purchased or leased by an eligible HCP that is used for health care 
purposes. We do not authorize support, for example, for network 
equipment utilized by telecommunications providers in the ordinary 
course of business to operate and manage networks they use to provide 
services to a broader class of enterprise customers, even if eligible 
HCPs are utilizing such services. Non-recurring costs for equipment 
purchases are subject to the limitations on all upfront charges.

C. Ineligible Costs

    126. Services and equipment eligible for support under the 
Healthcare Connect Fund are limited to those listed in this Order. For 
administrative clarity, however, we also list the following specific 
examples of costs that are not supported.
1. Equipment or Services Not Directly Associated With Broadband 
Services
    127. Discussion. In keeping with our goals to increase access to 
broadband, foster development of broadband health care networks, and 
maximize cost-effectiveness, we provide support under the Healthcare 
Connect Fund for the cost of equipment or services necessary to make a 
broadband service functional, or to manage, control, or maintain a 
broadband service or a dedicated health care broadband network. Certain 
equipment (e.g., switches, routers, and the like) are necessary to make 
the broadband service functional--conceptually, these are ``inputs'' 
into the broadband service. Other equipment or services (e.g., 
telemedicine carts, or videoconferencing equipment, or even a simple 
health care-related application) ``ride over'' the broadband 
connection--i.e., in those cases, the broadband connectivity is an 
``input'' to making the equipment or service functional. In this latter 
case, the equipment or service is not eligible for support. This 
distinction is consistent with that utilized in the Pilot Program.
    128. In particular, costs associated with general computing, 
software, applications, and Internet content development are not 
supported, including the following:
     Computers, including servers, and related hardware (e.g., 
printers, scanners, laptops), (unless used exclusively for network 
management, maintenance, or other network operations);
     End user wireless devices, such as smartphones and 
tablets;
     Software (unless used for network management, maintenance, 
or other network operations);
     Software development (excluding development of software 
that supports network management, maintenance, and other network 
operations);
     Helpdesk equipment and related software, or services 
(unless used exclusively in support of eligible services or equipment);
     Web hosting;
     Web site portal development;
     Video/audio/web conferencing equipment or services; and
     Continuous power source.
    129. Furthermore, costs associated with medical equipment (hardware 
and software), and other general HCP expenses are not supported. For 
example, the following is not supported:
     Clinical or medical equipment;
     Telemedicine equipment, applications, and software;
     Training for use of telemedicine equipment;
     Electronic medical records systems; and
     Electronic records management and expenses.
2. Inside Wiring/Internal Connections
    130. Discussion. The American Telemedicine Association requests 
that the Commission provide support for ``internal wiring.'' The 
Healthcare Connect Fund will provide support for service provider 
build-out to the customer demarcation point, and for network equipment 
necessary to make a broadband connection functional. We conclude that 
support is better targeted at this time toward providing broadband 
connectivity to the HCP rather than internal networks within HCP 
premises. The record does not indicate that small HCPs (such as 
clinics) likely will incur large expenses for inside wiring or internal 
connections in order to utilize their broadband connectivity. For 
larger institutions such as hospitals, however, the cost of providing 
discounts for internal connections could be substantial. Furthermore, 
as the Commission has acknowledged, it can be difficult to distinguish 
from ``internal

[[Page 13953]]

connections'' and ineligible computers or other peripheral equipment. 
In the E-rate context, the Commission relied on the congressional 
directive that the Fund provide connectivity all the way to classrooms. 
There is no similar statutory directive with respect to HCPs. For these 
reasons, we decline to provide support for inside wiring or internal 
connections under the Healthcare Connect Fund.
3. Administrative Expenses
    131. The NPRM proposed to provide limited support for 
administrative expenses under the proposed Health Infrastructure 
Program, but not for the proposed Broadband Services Program. The 
Commission acknowledged that some parties had argued that planning and 
designing network infrastructure deployment can place a burden on HCPs. 
The Commission also recognized, however, that ``the primary focus of 
the program should be to fund infrastructure and not project 
administration.''
    132. Discussion. Consistent with the objectives of streamlining 
oversight of the program and ensuring fiscal responsibility, we decline 
to fund administrative expenses associated with participation in the 
Healthcare Connect Fund. We are taking significant steps to streamline 
and simplify the application process, which will lessen the time and 
resources needed to participate in the program. Moreover, because we 
expect that most HCPs in the new program will choose to purchase 
services rather than construct and own facilities, the rationale for 
funding of administrative expenses is lessened.
    133. The Commission has recognized that administrative expenses of 
organizing networks and applying for universal service support can be 
substantial. In response, we are taking steps throughout this Order to 
minimize the administrative burden of participating in the Healthcare 
Connect Fund. First, we put in place a streamlined application process 
that facilitates consortium applications, which should enable HCPs to 
file many fewer applications and to share the administrative costs of 
all aspects of participation in the program. Second, we adopt a uniform 
flat-rate discount to simplify the calculation of support, particularly 
when compared with the urban/rural differential approach of the 
Telecommunications Program. Third, we enable multi-year funding 
commitments, long-term arrangements (e.g., IRUs and pre-paid leases), 
and the use of existing MSAs. Fourth, we expand eligibility to include 
all HCPs, with rules in place to ensure a reasonable balance of rural 
and non-rural sites within health care networks. In the Pilot Program, 
HCPs that did not meet our long-standing definition of ``rural'' HCPs 
frequently provided administrative and technical support to the 
consortia, thereby reducing the burden on individual HCPs. Finally, we 
eliminate the competitive bidding requirement for applicants seeking 
support for $10,000 or less of total undiscounted eligible expenses for 
a single year. We find that the combination of these reforms, among 
others, should significantly reduce the administrative burden on 
participants in terms of the complexity, volume, and frequency of 
filings, thereby addressing concerns raised by some commenters 
regarding the administrative burdens of participating in the program. 
In contrast, if we were to provide direct support for administrative 
expenses, it would necessitate additional and more complex application 
requirements, guidelines, and other administrative controls to protect 
such funding from waste, fraud, and abuse. This would significantly 
increase the administrative burden on USAC and on applicants as well.
    134. We recognize that many commenters support the provision of 
support for administrative expenses. Some commenters suggest that the 
funding of reasonable administrative expenses is necessary to ensure 
participation in the program. However, experience with the existing 
programs suggests that HCPs will participate even without the program 
funding administrative expenses. Neither the Telecommunications nor 
Pilot Programs fund administrative expenses, but both programs have 
significant participation. The number of participating HCPs in the 
Telecommunications Program has grown by nearly 10 percent year-over-
year for the past five years. Similarly, the Pilot Program has 
experienced substantial and sustained interest with just over 3,800 HCP 
sites receiving funding commitments. We expect that the participation 
in the RHC support mechanism will only increase with the implementation 
of the Healthcare Connect Fund and its more streamlined administrative 
process.
    135. In addition, commenters have not explained how we could 
readily distinguish reasonable from unreasonable administrative 
expenses and ensure fiscal responsibility and cost effective use of the 
finite support available for eligible HCPs. Without a clear standard, 
there would be increased complexity and cost in policing the 
reimbursement of these expenses to guard against waste, fraud, and 
abuse. By reducing the administrative burden, rather than directly 
funding administrative expenses, we seek to facilitate increased 
participation while still ensuring fiscal responsibility and the 
efficient use of scarce universal service funding.
    136. Consistent with the approach taken by the Commission in the 
Pilot Program Selection Order, 73 FR 4573, January 25, 2008, we 
conclude that administrative expenses will not be eligible for support 
under the Healthcare Connect Fund. Ineligible expenses include, but are 
not limited to, the following expenses:
     Personnel costs (including salaries and fringe benefits), 
except for personnel costs in a consortium application that directly 
relate to designing, engineering, installing, constructing, and 
managing the dedicated broadband network. Ineligible costs of this 
category include, for example, personnel to perform program management 
and coordination, program administration, and marketing.
     Travel costs, except for travel costs that are reasonable 
and necessary for network design or deployment and that are 
specifically identified and justified as part of a competitive bid for 
a construction project.
     Legal costs.
     Training, except for basic training or instruction 
directly related to and required for broadband network installation and 
associated network operations. For example, costs for end-user 
training, such as training of HCP personnel in the use of telemedicine 
applications, are ineligible.
     Program administration or technical coordination (e.g., 
preparing application materials, obtaining letters of agency, preparing 
request for proposals, negotiating with vendors, reviewing bids, and 
working with USAC) that involves anything other than the design, 
engineering, operations, installation, or construction of the network.
     Administration and marketing costs (e.g., administrative 
costs; supplies and materials (except as part of network installation/
construction); marketing studies, marketing activities, or outreach to 
potential network members; evaluation and feedback studies).
     Billing expenses (e.g., expense that service providers may 
charge for allocating costs to each HCP in a network).
     Helpdesk expenses (e.g., equipment and related software, 
or services); technical support services that provide more than basic 
maintenance.

[[Page 13954]]

4. Cost Allocation for Ineligible Entities, Sites, Services, or 
Equipment
    137. Discussion. Costs associated with ineligible sites or 
ineligible components of services or equipment are ineligible for 
support, except as otherwise specified in this Order. Ineligible sites, 
however, may participate in consortia and dedicated broadband health 
networks supported through this program, as long as they pay a fair 
share of the undiscounted costs associated with the consortium's 
funding request. Similarly, an applicant is only eligible to receive 
support for the eligible components of a service or a piece of 
equipment.
    138. There are a wide variety of contexts in which it may be more 
cost-effective for eligible HCPs to share costs with ineligible 
entities, or to procure a service or piece of equipment that includes 
both eligible and ineligible components. The Commission has allowed 
such cost-sharing in the past in the RHC Telecommunications Program and 
the Pilot Program, and we will allow it in the Healthcare Connect Fund. 
Such permissible cost-sharing includes the following:
     Sharing with ineligible entities. In the case of statewide 
or regional health care networks, it may be useful for health care 
purposes to have both eligible and ineligible HCPs participate in the 
same network, and share certain backbone or network equipment costs 
between all participants in the network. Having both eligible and 
ineligible entities contribute to shared costs may lead to lower 
overall costs for the eligible HCPs, and enables HCPs to benefit from 
connections to a greater number of other HCPs, including for-profit 
HCPs that are not eligible for funding under section 254 but 
nevertheless play an important role in the overall health care system. 
The Commission has previously found that the resale prohibition does 
not prevent Pilot Program networks from ``sharing'' facilities with 
for-profit entities that pay their ``fair share'' of network costs 
(i.e., that do not receive discounts provided to eligible HCPs, but 
instead pay their full pro rata undiscounted share as determined by the 
portion of network capacity used).
     Allocating cost between eligible and ineligible 
components. A product or service provided under a single price may 
contain both eligible and ineligible components. For example, a service 
provider may provide a broadband internet access service (eligible) 
and, as a component of that service, include web hosting (ineligible). 
While it may be simpler to buy the eligible and ineligible components 
separately, in some instances it is more cost-effective for HCPs (and 
the Fund) to buy the components as a single product or service. In such 
cases, applicants may need guidance on if, and how, they should 
allocate costs between the eligible and ineligible components.
     Excess capacity in fiber construction. In the NPRM, the 
Commission noted that it is customary to build excess capacity when 
deploying high-capacity fiber networks, because the cost of adding 
additional fiber to the conduit is minimal. In the Pilot Program, the 
Commission found that a Pilot participant could not ``sell'' network 
capacity supported by Pilot funding, but could ``share'' network 
capacity with ineligible entities paying a fair share of network costs 
attributable to the portion of network capacity used. Consortia that 
seek support to construct and own their own fiber networks may wish to 
put in extra fiber strands during construction and make the excess 
capacity available to other users.
     Part-time eligible HCPs. Under current rules, entities 
that provide eligible health care services on a part-time basis are 
allowed to receive prorated support commensurate with their provision 
of eligible health care services. For example, if a doctor operates a 
non-profit 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 is eligible to receive prorated support, 
because it serves as a ``rural health clinic'' on a part-time basis.
    139. We conclude that eligible HCP sites may share costs with 
ineligible sites, as long as the ineligible sites pay a ``fair share'' 
of the costs. We use ``fair share'' here as a term of art that, in 
general, refers to the price or cost that an ineligible site must pay 
to participate in a supported network, or share supported services and 
equipment, with an eligible HCP. To determine fair share, an applicant 
is required to apply the following principles:
     First, if the service provider charges a separate and 
independent price for each site, an ineligible site must pay the full 
undiscounted price. For example, if a consortium has negotiated certain 
rates that are applicable to all sites within the consortium, an 
ineligible HCP site must pay the full price without receiving a USF 
discount. Similarly, if the consortium has received a quote from the 
service provider for the individualized costs of serving each member of 
the consortium, an ineligible member must pay the full cost without 
receiving a USF discount.
     Second, if there is no separate and independent price for 
each site, the applicant must prorate the undiscounted price for the 
``shared'' facility (including any supported maintenance and operating 
costs) between eligible and ineligible sites on a proportional fully-
distributed basis, and the applicant may seek support for only the 
portion attributable to the eligible sites. Applicants must make this 
cost allocation using a method that is based on objective criteria and 
reasonably reflects the eligible usage of the shared facility. For 
example, a network may choose to divide the undiscounted price of the 
shared facility equally among all member sites, and require ineligible 
sites to pay their full share of the price. Other possible metrics, 
depending on the services utilized, may include time of use, number of 
uses, amount of capacity used, or number of fiber strands. The 
applicant bears the burden of demonstrating the reasonableness of the 
allocation method chosen.
    140. Because we define eligible services and equipment for the 
Healthcare Connect Fund broadly in this Order, we do not anticipate 
that applicants will encounter many situations in which they purchase 
or lease a single service or piece of equipment that includes both 
eligible and ineligible components. Nonetheless, we also provide 
guidelines herein for allocating costs when a single service or piece 
of equipment includes an ineligible component. Applicants seeking 
support for a service or equipment that includes an ineligible 
component must also explicitly request in their RFP that service 
providers should also provide pricing for a comparable service or piece 
of equipment that includes only eligible components. If the selected 
provider also submits a price for the eligible component on a stand-
alone basis, the support amount is capped at the stand-alone price of 
the eligible component. If the service provider does not offer the 
eligible component on a stand-alone basis, the full price of the entire 
service or piece of equipment must be taken into account, without 
regard to the value of the ineligible components, when determining the 
most cost-effective bid.
    141. We delegate authority to the Bureau to issue further 
guidelines, as needed, to interpret the cost allocation methods or 
provide guidance on how to apply the methods to particular factual 
situations.
    142. Applicants must submit a written description of their 
allocation method(s) to USAC with their funding requests.

[[Page 13955]]

Allocations must be consistent with the principles. If ineligible 
entities participate in a network, the allocation method must be 
memorialized in writing, such as a formal agreement among network 
members, a master services contract, or for smaller consortia, a letter 
signed and dated by all (or each) ineligible entity and the Consortium 
Leader. For audit purposes, applicants must retain any documentation 
supporting their cost allocations for a period consistent with the 
recordkeeping rules.

D. Limitations on Upfront Payments

    143. Discussion. Support for upfront payments can play an important 
part in ensuring that HCPs can efficiently obtain the broadband 
connections they need in a cost-effective manner. We therefore adopt a 
rule providing support for upfront payments, but include certain 
limitations to ensure the most cost-effective use of Fund support and 
to deter waste, fraud, and abuse. The limitations in this section apply 
to all non-recurring costs, other than reasonable and customary 
installation charges of up to $5,000. USAC reports that in both the 
``Primary'' (Telecommunications and Internet Access and Pilot Programs, 
service providers do not typically assess ``installation charges'' in 
excess of $5,000 if no new build-out is required to provide a service 
(i.e., the ``installation charge'' is entirely for the cost of 
``turning on'' services over existing facilities). Therefore, we find 
that it is appropriate to treat installation charges of up to $5,000 as 
``ordinary'' installation charges, and apply limitations only to 
charges above that amount.
    144. The limitations are as follows. First, upfront payments 
associated with services providing a bandwidth of less than 1.5 Mbps 
(symmetrical) are not eligible for support. By their nature, upfront 
payments are intended to amortize the cost of new service deployment or 
installation that will be enjoyed for years in the future; in other 
words, HCPs should continue to reap the benefits from the upfront 
payments beyond the funding year in which support is requested. We do 
not believe it is an efficient use of the Healthcare Connect Fund to 
support upfront payments for speeds which may increasingly become 
inadequate for HCP needs in the near future.
    145. Second, we limit support for upfront payments to consortium 
applications, to create greater incentives for HCPs to join together in 
consortia and thereby obtain the pricing benefits of group purchasing 
and economies of scale, as demonstrated in the Pilot Program.
    146. Third, we impose a $150 million annual limitation on total 
commitments for upfront payments and multi-year commitments. We do so 
in order to limit major fluctuations in Fund demand, although we 
anticipate that the $150 million should be sufficient to meet demand 
for upfront payments given the other limitations we impose. Fourth, we 
will require that consortia prorate support requested for upfront 
payments over at least three years if, on average, more than $50,000 in 
upfront payments is requested per HCP site in the consortium. Fifth, 
upfront payments must be part of a multi-year contract. At $50,000 per 
site, $50 million per year would provide upfront support to 1,000 HCP 
sites. Given that total participation in the Pilot Program since 2006 
has been approximately 3,900 providers to date, we believe this is an 
adequate level of funding to meet HCP needs in the immediate future; we 
can revisit this conclusion if experience under the new program proves 
otherwise.
    147. We do not adopt a per-provider cap for upfront payments at 
this time. Although most HCPs in the Pilot Program were able to obtain 
any necessary build-out at a cost below $50,000, a small percentage of 
HCPs incurred very high build-out costs. Requiring these HCPs to apply 
as part of consortia should help them to obtain service at a lower 
cost; however, adopting a per-provider cap could have the unintended 
consequence of excluding the highest-cost HCPs from such consortia. 
Although we do not adopt a per-provider cap, we note that because the 
HCP will be responsible for paying a substantial contribution towards 
the cost of services received (i.e., 35 percent), we anticipate that 
consortia will have every incentive to obtain the lowest prices 
possible.
    148. Finally, consortia that seek certain types of upfront payments 
will be subject to additional reporting requirements and other 
safeguards to ensure effective use of support.

E. Eligible Service Providers

    149. Discussion. We conclude that eligible service providers for 
the Healthcare Connect Fund shall include any provider of equipment, 
facilities, or services that are eligible for support under the 
program, provided that the HCP selects the most cost-effective option 
to meet its health care needs. We reiterate that eligible services may 
be provided through any available technology, consistent with our 
competitive neutrality policy. Commenters generally support a broad 
definition of eligible service providers, and state that allowing a 
wide variety of vendors will provide more competing options and thus 
will be more cost-effective. We note that the Pilot Program, which 
allowed similar flexibility, had over 120 different vendors win 
contracts to provide services.
    150. We also adopt the NPRM proposal to allow eligible HCPs to 
receive support for the lease of dark or lit fiber from any provider, 
including dark fiber that may be owned by state, regional or local 
governmental entities, and conclude that eligible vendors are not 
limited to telecommunications carriers or other types of entities 
historically regulated by the Commission. Both non-profit (e.g., 
Internet2 and NLR) and commercial service providers are eligible to 
participate. We will not allow a state government, private sector, or 
other non-profit entity to simultaneously act as a Consortium Leader/
consultant and potential service provider, in order to preserve the 
integrity of the competitive bidding process. We emphasize that HCPs 
must select the most cost-effective bid, and are under no obligation to 
select a particular vendor merely due to its ``non-profit'' status or 
its receipt of other federal funding (e.g., BTOP grants, or Connect 
America Fund support), although we anticipate that providers who 
receive other federal funding may be in a position to provide services 
to HCPs at competitive rates.

V. Funding Process

    151. USAC shall, working with the Bureau, develop the necessary 
application, competitive bidding, contractual, and reporting 
requirements for participants to implement the requirements to ensure 
the objectives of the program are met.

A. Pre-Application Steps

1. Creation of Consortia
    152. The Healthcare Connect Fund will provide support for both 
individual applications and consortium applications. With the reforms 
we adopt, we encourage eligible entities to seek funding from the new 
program by forming consortia with other HCPs in order to obtain higher 
speed and better quality broadband and to recognize efficiencies and 
lower costs. For purposes of Healthcare Connect Fund, a ``consortium'' 
is a group of multiple HCP sites that choose to request support as a 
single entity.

[[Page 13956]]

a. Designation of a Consortium Leader
    153. Discussion. Each consortium seeking support from the 
Healthcare Connect Fund must identify an entity or organization that 
will be the lead entity (the ``Consortium Leader''). As a preliminary 
matter, we note that the consortium and the Consortium Leader can be 
the same legal entity, but are not required to be. For example, the 
consortium may prefer to designate one of its HCP members as the 
Consortium Leader or an ineligible state or Tribal government agency or 
non-profit organization.
    154. The consortium need not be a legal entity, although the 
consortium members may wish to form as a legal entity for a number of 
reasons. For example, if the consortium itself is to be legally and 
financially responsible for activities supported by the Fund (i.e. 
serve as the ``Consortium Leader''), the consortium should constitute 
itself as a legal entity. In addition, the consortium may wish to 
constitute itself as a legally recognized entity to simplify 
contracting with vendors (i.e. if the consortium is not a legal entity, 
each individual participant may need to sign an individual contract 
with the service provider, or one of the consortium members may need to 
enter into a master contract on behalf of all of the other members).
    155. The Consortium Leader may be the consortium itself (if it is 
constituted as a legal entity), an eligible HCP participating in the 
consortium, or an ineligible state organization, public sector 
(governmental) entity (including a Tribal government entity), or non-
profit entity. An eligible HCP may serve as the Consortium Leader and 
simultaneously receive support. If an ineligible entity serves as the 
Consortium Leader, however, the ineligible entity is prohibited from 
receiving support from the Healthcare Connect Fund, and the full value 
of any discounts, funding, or other program benefits secured by the 
ineligible entity must be passed on to the consortium members that are 
eligible HCPs.
    156. Certain state organizations, public sector entities (including 
Tribal government entities), or non-profit entities may wish to perform 
multiple roles on behalf of consortia, including (1) serving as lead 
entities; (2) providing consulting assistance to consortia; and/or (3) 
serving as a service provider (vendor) of eligible services or 
equipment for which consortia are seeking support. Potential conflict 
of interest issues arise in the competitive bidding process, however, 
if an entity serves a dual role as both Consortium Leader/consultant 
and potential service provider. The potential conflict is that the 
selection of the service provider may not be fair and open but may, in 
fact, provide an unfair advantage to the lead entity as service 
provider.
    157. For that reason, we conclude that state organizations, public 
sector entities, or non-profit entities may serve as lead entities or 
provide consulting assistance to consortia if they do not participate 
as potential vendors during the competitive bidding process. 
Conversely, if such entities wish to provide eligible services or 
equipment to consortia, they may not simultaneously serve as project 
leaders, and may not provide consulting or other expertise to the 
consortium to assist it in developing its request for services. This 
restriction does not prohibit eligible HCPs from conducting general due 
diligence to determine what services are needed and to prepare for an 
RFP. Part of such due diligence may involve reaching out to known 
service providers--including state or other public sector entities--
that serve the area to determine what services are available. Nor does 
the restriction prevent a service provider, once selected through a 
fair and open competitive bidding process, from assisting an eligible 
HCP with implementing the purchased services.
    158. We recognize that certain state governmental entities, for 
example, may be large enough to institute an organizational and 
functional separation between staff acting as service providers and 
staff providing application assistance. Consistent with current 
practice in the E-rate program, we will allow state organizations, 
public sector entities, or non-profit entities, if they so choose, to 
obtain an exemption from this prohibition by making a showing to USAC 
that they have set up an organizational and functional separation. This 
exemption, however, must be obtained before the consortium begins 
preparing its request for services. Examples of appropriate 
documentation for such a showing include organizational flow charts, 
budgetary codes, and supervisory administration.
    159. The Consortium Leader's responsibilities include the 
following:
     Legal and Financial Responsibility for Supported 
Activities. The Consortium Leader is the legally and financially 
responsible entity for the conduct of activities supported by the Fund. 
By default, the Consortium Leader will be the responsible entity if 
audits or other investigations by USAC or the Commission reveal 
violations of the Act or our rules by the consortium, with the 
individual consortium members being jointly and severally liable if the 
Consortium Leader dissolves, files for bankruptcy, or otherwise fails 
to meet its obligations. We recognize that in some instances, a 
consortium may wish to have a Consortium Leader serve only in an 
administrative capacity and to have the consortium itself, or its 
individual members, retain ultimate legal and financial responsibility. 
Except for the responsibilities, we will allow consortia to have 
flexibility to allocate legal and financial responsibility as they see 
fit, provided that this allocation is memorialized in a formal written 
agreement between the affected parties (i.e. the Consortium Leader, and 
the consortium as a whole and/or its individual members), and the 
written agreement is submitted to USAC for approval with or prior to 
the Request for Services (Form 461). The agreement should clearly 
identify the party(ies) responsible for repayment if USAC is required, 
at a later date, to recover disbursements to the consortium due to 
violations of program rules. USAC is directed to provide, in writing by 
the expiration of the 28-day competitive bidding period, either 
approval or an explanation as to why the agreement does not provide 
sufficient clarity on who will be responsible for repayment. If USAC 
provides such comments, it shall provide the Consortium Leader with a 
minimum of 14 calendar days to respond. USAC is prohibited from issuing 
a funding commitment to the consortium until the Consortium Leader 
either takes on the default position as responsible entity, or provides 
an agreement that adequately identifies alternative responsible 
party(ies).
     Point of Contact for the FCC and USAC. The Consortium 
Leader is responsible for designating an individual who will be the 
``Project Coordinator'' and serve as the point of contact with the 
Commission and USAC for all matters related to the consortium. The 
Consortium Leader is responsible for responding to Commission and USAC 
inquiries on behalf of the consortium members throughout the 
application, funding, invoicing, and post-invoicing period.
     Typical Applicant Functions, Including Forms and 
Certifications. The Consortium Leader is responsible for submitting 
program forms and required documentation and ensuring that all 
information and certifications submitted are true and correct. This 
responsibility may not contractually be allocated to another entity. 
The Consortium Leader may be asked during an audit or other inquiry to 
provide documentation that supports information and certifications

[[Page 13957]]

provided. The Consortium Leader must also collect and retain a Letter 
of Agency (LOA) from each member.
     Competitive Bidding and Cost Allocation. The Consortium 
Leader is responsible for ensuring that the competitive bidding process 
is fair and open and otherwise complies with Commission requirements. 
If costs are shared by both eligible and ineligible entities, the 
Consortium Leader must also ensure that costs are allocated in a manner 
that ensures that only eligible entities receive the benefit of program 
discounts.
     Invoicing. The Consortium Leader is responsible for the 
invoicing process, including certifying that the participant 
contribution has been paid and that the invoice is accurate.
     Recordkeeping, Site Visits, and Audits. The Consortium 
Leader is also responsible for compliance with the Commission's 
recordkeeping requirements, and coordinating site visits and audits for 
all consortium members.
b. Participating Health Care Providers
    160. Next, the consortium should identify all HCPs who will 
participate. The Consortium Leader will need to provide this 
information to USAC in order to request program support. We intend for 
eligible HCPs to have broad flexibility in organizing consortia 
according to their health care needs. For example, a consortium may be 
a pre-existing organization formed for reasons unrelated to universal 
service support (e.g. a regional telemedicine network, a statewide 
health information exchange), or a group newly formed for the purpose 
of applying for Healthcare Connect Fund support. Consortium members may 
be affiliated (formally or informally) or unaffiliated. Ineligible HCPs 
may participate in consortia, although they are not eligible to receive 
support and must pay full cost (fair share) for all services received 
through the consortium.
c. Letters of Agency
    161. Discussion. The letter of agency requirement helps ensure that 
participating entities are eligible to receive support, and that the 
HCPs have given the project leaders the necessary authorization to act 
on their behalf. After considering our experience in the Pilot Program, 
and reviewing the comments filed regarding letters of agency, we 
conclude that each Consortium Leader must secure the necessary 
authorizations through an LOA from each HCP seeking to participate in 
the applicant's network that is independent of the Consortium Leader. 
LOAs are not required for those participating HCP sites that are owned 
or otherwise controlled by the Consortium Leader (and thus are not 
``independent''). Similarly, one LOA is sufficient for multiple HCP 
sites that are owned or otherwise controlled by a single consortium 
member.
    162. We adopt an approach that creates a two-step process of LOAs: 
in the first step, a Consortium Leader must obtain LOAs from members to 
seek bids for services, and in the second step, the Leader must obtain 
LOAs to apply for funding from the program. This two-step approach 
addresses an issue that arose in the Pilot Program, where some 
prospective member HCPs were reluctant to provide LOAs that would 
commit them to participate in a consortium network before they knew the 
pricing of services from prospective bidders. Under the Healthcare 
Connect Fund, we require that each Consortium Leader secure 
authorization, the required certifications, and any supporting 
documentation from each consortium member (i) to submit the request for 
services on its behalf (Form 461) and prepare and post the request for 
proposal on behalf of the member for purposes of the Healthcare Connect 
Fund and (ii) to submit the funding request (Form 462) and manage 
invoicing and payments, on behalf of the member. The first 
authorization is required prior to the submission of the request for 
services (Form 461), while the second authorization is only required 
prior to the submission of the request for funding (Form 462). An 
applicant may either secure both required authorizations upfront or 
secure each authorization as needed. Consortium Leaders may also obtain 
authorization, the required certifications, and any supporting 
documentation from each member to submit Form 460, if needed, to 
certify the member's eligibility to participate in the Healthcare 
Connect Fund. If the Consortium Leader does not obtain such 
authorization for a given member, that member will have to submit its 
own Form 460. In addition, we delegate authority to the Bureau to 
develop model language for the LOA required for each authorization.
    163. In addition to the necessary authorizations, the LOA must 
include, at a minimum, the name of the entity filing the application 
(i.e., lead applicant or consortium leader); name of the entity 
authorizing the filing of the application (i.e., the participating HCP/
consortium member); the physical location of the HCP/consortium member 
site(s); the relationship of each site seeking support to the lead 
entity filing the application; the specific timeframe the LOA covers; 
the signature, title and contact information (including phone number, 
mailing address, and email address) of an official who is authorized to 
act on behalf of the HCP/consortium member; signature date; and the 
type of services covered by the LOA. For HCPs located on Tribal lands, 
if the health care facility is a contract facility that is run solely 
by a Tribal Nation, the appropriate Tribal leader, such as the Tribal 
Chairperson, President, or Governor, or Chief, shall also sign the LOA, 
unless the health care responsibilities have been duly delegated to 
another Tribal government representative. In all instances, electronic 
signatures are permissible.
    164. The approach we adopt addresses many of the concerns expressed 
by commenters, while still ensuring applicants have the necessary 
authority to act on behalf of their members. Some commenters correctly 
point out that under the Pilot Program, an HCP was often reluctant or 
unable to execute an LOA that required the HCP to agree to participate 
in a network before accurate pricing was available. Other commenters 
stressed that requiring LOAs as part of the Form 465 submission was a 
net benefit because it enabled the project to ``vet'' the eligibility 
of interested HCPs at the outset of the application process. We 
conclude that the adopted approach provides flexibility to allow 
consortium applicants to tailor the LOA process to meet the needs of 
their members, within the necessary constraints.
2. Determination of Health Care Provider Eligibility
    165. Discussion. Consistent with other measures we adopt to improve 
the efficiency and operation of the Healthcare Connect Fund, we 
institute a new process for obtaining faster eligibility determinations 
from USAC by permitting HCPs to submit Form 460 at any time during the 
funding year to certify to the eligibility of particular sites. By 
separating the eligibility determination from the competitive bidding 
process, we provide HCPs with the option of receiving an eligibility 
determination before they move forward with preparing an application 
for funding. HCPs who have previously received an eligibility 
determination from USAC (i.e. HCPs who already participate in the 
existing rural health care programs) are not required to submit a Form 
460 prior to submission of a Form 461. All HCPs, however, are required 
to submit an updated Form 460 within 30 days of a material change, such 
as a change in the HCP's name, site

[[Page 13958]]

location, contact information or eligible entity type, or for non-rural 
hospitals, an increase in the number of licensed patient beds such that 
the hospital goes from having fewer than 400 licensed beds to 400 or 
more licensed beds.
    166. For each HCP listed, applicants will be required to provide 
the HCP's address and contact information, identify the eligible HCP 
type, provide an address for each physical location that will receive 
supported connectivity, provide a brief explanation for why the HCP is 
eligible under the Act and the Commission's rules and orders, and 
certify to the accuracy of this information under penalty of perjury. 
Consortium leaders should obtain supporting information and/or 
documents to support eligibility for each HCP when they collect LOAs; 
leaders also may be asked for this information during an audit or 
investigation. USAC should notify each applicant of its determination 
(or whether it needs additional time to process the form) within 30 
days of receipt of Form 460. We caution applicants that it is their 
obligation to submit accurate information and certifications regarding 
their eligibility. Because HCP eligibility is limited by the Act, the 
Commission does not have discretion to waive eligibility requirements, 
and must recover any support erroneously disbursed to ineligible 
entities. We direct USAC to assign a unique identifying number to each 
HCP location in order to facilitate tracking of the location throughout 
the application process.
3. Technology Planning
    167. Discussion. We encourage all applicants to carefully evaluate 
their connectivity needs before submitting an application. We decline 
at this time to require applicants in the Healthcare Connect Fund to 
submit technology plans with their requests for service, but we may re-
evaluate this decision in the future based on experience with the new 
program. Our goal is reduce administrative burdens and delay associated 
with participating in the Healthcare Connect Fund, especially for the 
HCPs with the fewest resources and greatest need to participate.
    168. The record indicates that HCPs are a diverse group with a 
diverse set of needs. Our intent, consistent with precedent, is to 
allow HCPs to identify their specific broadband needs, which, together 
with the competitive bidding requirements and the required HCP 35 
percent contribution, will help ensure that universal services funds 
are used most cost-effectively. We recognize that the amount of 
planning required will vary depending on a number of factors, such as 
the HCP's size and planned utilization of health IT, and that the 
amount of IT expertise and other resources available for formal 
planning will vary widely between different types of HCPs. In the 
planning process, applicants may wish to consider questions such as the 
following:
     What applications do we plan to use over our broadband 
connection (e.g. exchange of EHRs, videoconferencing, image transfers, 
and other forms of telehealth or telemedicine)? How do these 
applications fit into our overall strategy to improve care and/or 
generate cost savings? How many users do we need to support for each 
application?
     What broadband services do we need to support the planned 
applications and users?
     Do we have a plan to train our staff to use the 
applications?
     Do we have the necessary IT resources to deploy the 
broadband services and applications?
     Have we considered the benefits and drawbacks of short-
term versus multi-year contracts (e.g. cost savings in long-term 
contracts versus potential decreases in prices, technology advances, 
and termination fees)?
     How will we pay for the undiscounted portion of supported 
services and equipment, and any unsupported costs?
     Should we consider joining with other HCPs to apply as a 
consortium? If a consortium, should we include other HCPs?
     What resources are available to help us?
    169. We encourage prospective applicants to consult available 
resources, including those previously published by the Commission and 
resources available through HHS, in conducting their technology 
planning.
4. Preparation for Competitive Bidding
    170. Discussion. The Commission has defined ``cost-effective'' for 
purposes of the existing RHC support mechanism as ``the method that 
costs the least after consideration of the features, quality of 
transmission, reliability, and other factors that the HCP deems 
relevant to * * * choosing a method of providing the required health 
care services.'' The Commission does not require HCPs to use the 
lowest-cost technology because factors other than cost, such as 
reliability and quality, may be relevant to fulfill their health care 
needs. Furthermore, initially higher cost options may prove to be lower 
in the long-run, by providing useful benefits to telemedicine in terms 
of future medical and technological developments and maintenance. 
Therefore, unlike the E-rate program, the RHC program does not require 
participants to consider price as the primary factor in selecting a 
service provider. Instead, applicants identify the factors relevant for 
health care purposes, and then select the lowest price bid that 
satisfies those considerations. We conclude that continuing this 
approach is appropriate for the Healthcare Connect Fund.
    171. Applicants must develop appropriate evaluation criteria for 
selecting the winning bid before submitting a request for services to 
USAC to initiate competitive bidding. The evaluation criteria should be 
based on the Commission's definition of ``cost-effective,'' and include 
the most important criteria needed to provide health care, as 
determined by the applicant. For smaller applicants (e.g. those 
requesting support for recurring monthly costs for a single T-1 line), 
criteria such as bandwidth, quality of transmission, reliability, 
previous experience with the service provider, and technical support 
are likely to be sufficient. For more complex projects (including 
projects that involve designing or constructing a new network or 
building upon an existing network), additional relevant non-cost 
factors may include prior experience, including past performance; 
personnel qualifications, including technical excellence; management 
capability, including solicitation compliance; and environmental 
objectives (if appropriate).
    172. Typically, an applicant will develop a scoring matrix, or a 
list of weighted evaluation criteria, that it will use in evaluating 
bids. Once the applicant has developed its evaluation criteria, it 
should assign a weight to each in order of importance. No single factor 
may receive a weight that is greater than price. For example, if the 
HCP assigns a weight of 40 percent to cost, other factors must receive 
a weight of 40 percent or less individually (with the total weight 
equaling 100%). Each bid received should be scored against the 
determined criteria, ensuring they are all evaluated equally. All 
applicants who are not exempt from competitive bidding will be required 
to submit bid evaluation documentation with their funding requests.
5. Source(s) for Undiscounted Portion of Costs
    173. Although applicants are not required to submit documentation 
regarding sources for the undiscounted portion of costs until they 
complete the competitive bidding process, they should begin identifying 
possible

[[Page 13959]]

sources for their 35 percent as early as possible. This is especially 
important for larger consortia that intend to undertake high-dollar 
projects. In the Pilot Program, many projects experienced delays due, 
in part, to difficulty in obtaining the required contribution.
6. FCC Registration Number (FRN)
    174. All applicants must obtain FCC registration numbers (FRNs), if 
they do not have one already. An FRN is a 10-digit number that is 
assigned to a business or individual registering with the FCC, and is 
used to uniquely identify the business or individual in all of its 
transactions with the FCC. Obtaining an FRN is a quick, online process 
that can typically be completed in a manner of minutes through the 
Commission's Web site. Consortium applicants may obtain a single FRN 
for the consortium as a whole, if desired (i.e. instead of requiring 
each participating HCP to obtain a separate FRN).

B. Competitive Bidding

    175. Discussion. Competitive bidding remains a fundamental pillar 
supporting our goals for the Healthcare Connect Fund, as it will allow 
HCPs to obtain lower rates (thereby increasing access to broadband) and 
increase program efficiency. The outlines of the competitive bidding 
process for the new program will remain the same as our existing 
programs: All HCPs will submit a request for services for posting by 
USAC, wait at least 28 days before selecting a service provider, and 
select the most cost-effective bid. In addition, in some circumstances, 
applicants will be required to prepare a formal request for proposals 
as well.
    176. While competitive bidding is essential to the program, we 
acknowledge that it is not without administrative costs to participants 
and to the Fund. We conclude that in three situations, exempting 
funding requests from competitive bidding in the Healthcare Connect 
Fund will strike a common-sense balance between efficient use of 
program funds and reducing regulatory costs. First, based on our 
experience with the Telecommunications and Internet Access Programs, we 
find that it will be more administratively efficient to exempt 
applicants seeking support for relatively small amounts. The threshold 
for this exemption is $10,000 or less in total annual undiscounted 
costs (which, with a 35 percent applicant contribution, results in a 
maximum of $6,500 annually in Fund support). Second, if an applicant is 
purchasing services from a master service agreement negotiated by a 
governmental entity on its behalf, and the master service agreement was 
awarded pursuant to applicable federal, state, Tribal, or local 
competitive bidding processes, the applicant is not required to re-
undergo competitive bidding. Third, we conclude that applicants who 
wish to request support under the Healthcare Connect Fund while 
utilizing contracts previously endorsed by USAC (Master Services 
Agreements under the Pilot Program or the Healthcare Connect Fund, or 
evergreen contracts in any of the health care programs, or master 
contracts the E-rate program) may do so without undergoing additional 
competitive bidding, as long as they do not request duplicative support 
for the same service and otherwise comply with all program 
requirements. In addition, consistent with current RHC program 
policies, applicants who receive evergreen status or multi-year 
commitments under the Healthcare Connect Fund are exempt from 
competitive bidding for the duration of the contract. Applicants who 
are exempt from competitive bidding can proceed directly to submitting 
a funding commitment request.
1. ``Fair and Open'' Competitive Bidding Process
    177. Discussion. Unless they qualify for one of the competitive 
bidding exemptions, all entities participating in the Healthcare 
Connect Fund must conduct a fair and open competitive bidding process 
prior to submitting a request for funding Form 462. Although it is not 
possible to anticipate all possible factual circumstances that may 
arise during the process, we set forth here three basic principles and 
some specific guidance that should help applicants comply with this 
requirement.
    178. First, service providers who intend to bid should not also 
simultaneously help the HCP choose a winning bidder. More specifically, 
service providers who submit bids are prohibited from (1) preparing, 
signing or submitting an applicant's Form 461 documents; (2) serving as 
Consortium Leaders or other points of contact on behalf of applicants; 
(3) being involved in setting bid evaluation criteria; or (4) 
participating in the bid evaluation or vendor selection process (except 
in their role as potential vendors). Consultants, other third-party 
experts, or applicant employees who have an ownership interest, sales 
commission arrangement, or other financial stake with respect to a 
bidding service provider are also prohibited from performing any of the 
four functions on behalf of the applicant. All applicants must submit a 
``Declaration of Assistance'' with their request for services (Form 
461) to help the Commission and USAC identify third parties who 
assisted in the preparation of the applications.
    179. Second, all potential bidders and service providers must have 
access to the same information and must be treated in the same manner. 
Any additions or modifications to the documents submitted to, and 
posted by, USAC must be made available to all potential service 
providers at the same time and using a uniform method. We direct USAC 
to facilitate this process by allowing applicants to submit any 
additions or modifications to USAC, for posting on the same Web page as 
the originally posted documents.
    180. Finally, as is the case in the Telecommunications, Internet 
Access, and Pilot Programs, all applicants and service providers must 
comply with any applicable state or local competitive bidding 
requirements. The Commission's requirements apply in addition to, and 
are not intended to preempt, such requirements.
2. Requests for Proposals
    181. Discussion. We will require submission of RFPs with Form 461 
for (1) applicants who are required to issue an RFP under applicable 
state, Tribal, or local procurement rules or regulations; (2) 
consortium applications that seek more than $100,000 in program support 
in a funding year; and (3) consortium applications that seek support 
for infrastructure (i.e. HCP-owned facilities) as well as services. 
Applicants who seek support for long-term capital investments, such as 
HCP-constructed infrastructure or fiber IRUs, must also seek bids in 
the same RFP from vendors who propose to meet those needs via services 
provided over vendor-owned facilities, for a time period comparable to 
the life of the proposed capital investment. This is to allow USAC to 
determine if the option chosen is the most cost-effective. In addition, 
any applicant is free submit an RFP to USAC for posting, but all 
applicants who utilize an RFP in conjunction with their competitive 
bidding process must submit the RFP to USAC for posting and provide 
USAC with any subsequent changes to the RFP. We conclude that our 
requirement strikes a reasonable balance between ensuring larger 
consortia and the Fund benefit from the cost savings resulting from the 
RFP process, while limiting the administrative burden on individual 
HCPs and smaller consortia.

[[Page 13960]]

    182. Applicants who have or intend to issue an RFP must submit a 
copy of the RFP with their request for services. We recognize that a 
consortium may not know the exact cost of the project until after it 
completes the competitive bidding process and selects a vendor. If a 
consortium chooses to forego an RFP, however, its support will be 
capped at $100,000.
    183. The Commission does not specify requirements for RFPs in the 
current RHC program, and USAC does not approve RFPs. Therefore, 
applicants may prepare RFPs in any manner that complies with program 
rules and any applicable state, Tribal, or local procurement rules or 
regulations. The RFP, however, should provide sufficient information to 
enable an effective competitive bidding process, including describing 
the HCP's service needs and defining the scope of the project and 
network costs (if applicable). The RFP should also specify the period 
during which bids will be accepted. The RFP should also include the 
scoring criteria that will be used to evaluate bids for cost-
effectiveness, in accordance with the requirements and solicit 
sufficient information so that the criteria can be applied effectively. 
A short, simple RFP may be appropriate for smaller consortia, or for 
consortia whose needs are less complex. We note that consortia may 
choose to submit single or multiple requests for services (and multiple 
RFPs), depending on the structure that makes most sense for the 
particular project.
3. USAC Posting of Request for Services
    184. Discussion. Applicants subject to competitive bidding must 
submit new FCC Form 461 and supporting documentation to USAC. The 
purpose of these documents is to provide sufficient information on the 
requested services to enable an effective competitive bidding process 
to take place and to enable USAC to obtain certifications and other 
information necessary to prevent waste, fraud, and abuse.
    185. Documents to be submitted to USAC with the ``request for 
services'' include the following:
     Form 461. Applicants should submit Form 461, the ``request 
for services,'' to provide information about the services for which 
they are seeking support. On Form 461, applicants will provide basic 
information regarding the HCP(s) on the application (including contact 
information for potential bidders), a brief description of the desired 
services, and certifications designed to ensure compliance with program 
rules and minimize waste, fraud, and abuse. An applicant must certify 
under penalty of perjury that (1) it is authorized to submit the 
request and that all statements of fact in the application are true to 
the best of the signatory's knowledge; (2) it has followed any 
applicable state or local procurement rules; (3) the supported services 
and/or equipment will be used solely for purposes reasonably related to 
the provision of health care service or instruction that the HCP is 
legally authorized to provide under the law of the state in which the 
services are provided and will not be sold, resold, or transferred in 
consideration for money or any other thing of value; and (4) the HCP or 
consortium satisfies all program requirements and will abide by all 
such requirements. Applicants not using an RFP should provide on Form 
461 sufficient information regarding the desired services to enable an 
effective competitive bidding process, including, at a minimum, a 
summary of their service needs, the dates for service (including 
whether the contract is potentially for multiple years), and the dates 
of the bid evaluation period. Consortium Leaders should provide the 
required information on behalf of all participating HCPs.
     Applicants who include a particular service provider's 
name, brand, product or service on Form 461 or in the RFP must also use 
the words ``or equivalent'' in the description, in order to avoid the 
appearance that the applicant has pre-selected the named service 
provider or intends to give the service provider preference in the 
bidding process. In addition, an applicant may wish to describe its 
needs in general terms (e.g., ``need to transmit data and medical 
images'' rather than requesting a specific service or bandwidth), 
because the applicant may not be aware of all potential service 
providers in its market. Using general terms can allow an applicant to 
avoid inadvertently excluding a lower-cost bid from a service provider 
using a newer technology.
     Bid Evaluation Criteria. The requirements for bid 
evaluation criteria are discussed.
     Request for Proposal. Certain applicants must use an RFP 
in the competitive bidding process, and any applicant may use an RFP. 
Applicants who use an RFP should submit it (along with any other 
relevant bidding information) as an attachment to Form 461.
     Network Planning for Consortia. Consortium applicants must 
submit a narrative attachment with Form 461 that includes the following 
information:
    (1) Goals and objectives of the proposed network;
    (2) Strategy for aggregating the specific needs of HCPs (including 
providers that serve rural areas) within a state or region;
    (3) Strategy for leveraging existing technology to adopt the most 
efficient and cost effective means of connecting those providers;
    (4) How the broadband services will be used to improve or provide 
health care delivery;
    (5) Any previous experience in developing and managing health IT 
(including telemedicine) programs; and
    (6) A project management plan outlining the project's leadership 
and management structure, and a work plan, schedule, and budget.

    The network planning requirements are consistent with those in the 
Pilot Program. For purposes of the Healthcare Connect Fund, however, 
submission of this information is a minimum requirement, not a scoring 
metric for choosing funding recipients. We do not intend for this 
planning to be an undue administrative burden, and will continue to 
allow consortia to put forth a variety of strategies for accomplishing 
their goals, as the Commission did in the Pilot Program.
    Consortium applicants are required to use program support. All 
applicants are subject to the Commission's procedures for audits and 
other measures to prevent waste, fraud, and abuse.
     Form 460. Applicants should submit Form 460 to certify to 
the eligibility of HCP(s) listed on the application, if they have not 
previously done so.
     Letters of Agency for Consortium Applicants. Consortium 
applicants should submit letters of agency demonstrating that the 
Consortium Leader is authorized to submit Form 461, including required 
certifications and any supporting materials, on behalf of each 
participating HCP in the consortium.
     Declaration of Assistance. As the Commission did in the 
Pilot Program, we require that all applicants identify, through a 
declaration of assistance, any consultants, service providers, or any 
other outside experts, whether paid or unpaid, who aided in the 
preparation of their applications. The declaration of assistance must 
be filed with the Form 461. Identifying these consultants and outside 
experts facilitates the ability of USAC, the Commission, and law 
enforcement officials to identify and prosecute individuals who may 
seek to defraud the program or engage in other illegal acts. To ensure 
participants

[[Page 13961]]

comply with the competitive bidding requirements, they must disclose 
all of the types of relationships.
    186. Applicants may submit Form 461 starting 180 days before the 
beginning of the funding year. Our experience in the Pilot Program is 
that it can take as long as six months for more complex projects to 
complete bid evaluation and select a vendor. To allow sufficient time 
to complete this process prior to the beginning of the funding year, 
HCPs should submit Form 461 as soon as possible after the filing window 
opens. USAC may provide applicants with the opportunity to cure errors 
on their submissions, up to the date of posting of the Form 461 
package. The responsibility to submit complete and accurate information 
to USAC, however, remains at all times the sole responsibility of the 
applicant.
4. 28-Day Posting Requirement
    187. After the HCP submits Form 461, USAC will post the form and 
any accompanying documents (the Form 461 ``package'') on its Web site. 
USAC may institute reasonable procedures for processing Form 461 and 
the associated documents and may provide applicants with an opportunity 
to correct errors in the submissions. We caution applicants, however, 
that they remain ultimately responsible for ensuring that all forms and 
documents submitted comply with our rules and any other applicable 
state or local procurement requirements. We also remind applicants that 
they must certify under penalty of perjury on Form 461 that all 
statements of facts contained therein are true to the best of their 
knowledge, information, and belief, and that under federal law, persons 
willfully making false statements on the form can be punished by fine, 
forfeiture, or imprisonment. If an applicant makes any changes to its 
RFP post-submission, it is responsible for ensuring that USAC has a 
current version of the RFP for the Web site posting.
    188. The NPRM proposed that applicants seeking infrastructure bids 
should be required to distribute their RFPs in a method likely to 
garner attention from interested vendors. In keeping with our objective 
of minimizing administrative costs to applicants, however, we decline 
to adopt a formal requirement for applicants to distribute an RFP 
beyond the USAC posting process. We do encourage applicants, however, 
to disseminate their requests for services (Form 461 package) as widely 
as possible, in order to maximize the quality and quantity of bids 
received. Such methods could include, for example, (1) posting a notice 
of the Form 461 package in trade journals or newspaper advertisements; 
(2) send the RFP to known or potential service providers; (3) posting 
the Form 461 package (or a link thereto) on the HCP's Web page or other 
Internet sites, or (4) following other customary and reasonable 
solicitation practices used in competitive bidding.
    189. After posting of the Form 461 package, USAC will send 
confirmation of the posting to the applicant, including the posting 
date and the date on which the applicant may enter into a contract with 
the selected service provider (the ``Allowable Contract Selection 
Date,'' or ACSD). Once USAC posts the package, interested bidders 
should submit bids directly to the applicant. Applicants must wait at 
least 28 calendar days from the date on which their Form 461 packages 
are posted on USAC's Web site before making a commitment with a service 
provider, so the ACSD is the 29th calendar day after the posting. 
Applicants may not agree to or sign a contract with a service provider 
until the ACSD, but may discuss requirements, rates, and conditions 
with potential service providers prior to that date. Applicants who 
select a service provider before the ACSD will be denied funding.
    190. Applicants are free to extend the time period for receiving 
bids beyond 28 days from the posting of Form 461 and may do so without 
prior approval. In addition, some applicants who propose larger, more 
complex projects may wish to undertake an additional ``best and final 
offer'' round of bidding. Allowing sufficient time and opportunity for 
all potential bidders to develop and submit bids can lead to more and 
better bids, and has the potential to enhance the quality and lower the 
price of services ultimately received. We encourage HCPs contemplating 
more complex projects (including those with an infrastructure 
component) to utilize a longer bidding period, as done by many Pilot 
projects. If an applicant has plans to utilize a period longer than 28 
days, it should so indicate clearly on the Form or in accompanying 
documentation. An applicant that decides to extend the bidding period 
after USAC's posting of Form 461 should notify USAC promptly, so that 
USAC can update its Web site posting with notice of the extension.
5. Selection of the Most ``Cost-Effective'' Bid and Contract 
Negotiation
    191. Once the 28-day period expires, applicants may evaluate bids, 
select a winning bidder and negotiate a contract. Applicants should 
develop appropriate evaluation criteria for selecting the ``most cost-
effective'' bid according to the Commission's rules before submitting a 
Form 461 package to USAC. Applicants should follow those evaluation 
criteria in evaluating bids and selecting a service provider. All 
applicants subject to competitive bidding will be required to certify 
to USAC that the services and/or infrastructure selected are, to the 
best of the applicant's knowledge, the most cost-effective option 
available.
    192. Applicants must submit documentation to USAC to support their 
certification that they have selected the most cost-effective vendor, 
including a copy of each bid received (winning, losing, and 
disqualified), the bid evaluation criteria, and any other related 
documents, such as bid evaluation sheets; a list of people who 
evaluated bids (along with their title/role/relationship to the 
applicant organization); memos, board minutes, or similar documents 
related to the vendor selection/award; copies of notices to winners; 
and any correspondence with service providers during the bidding/
evaluation/award phase of the process. We explain how applicants may 
seek confidential treatment for these documents. We do not require bid 
evaluation documents to be in a certain format, but the level of 
documentation should be appropriate for the scale and scope of the 
services for which support is requested. Thus, for example, we expect 
that the documentation for a large network project will be more 
extensive than for an individual HCP seeking support for a single 
circuit. Applicants should also retain the supporting documentation for 
five years from the end of the relevant funding year, pursuant to the 
recordkeeping requirements.
    193. Certain tariffed or month-to-month services are typically not 
provided pursuant to a signed, written contract. For all other 
services, the contract should be negotiated and signed before 
applicants submit a request for a funding commitment. Applicants who 
wish to enter into a multi-year contract and be exempt from competitive 
bidding for the duration of the contract (``evergreen status'') should 
ensure that the contract identifies both parties; is signed and dated 
by the HCP or Consortium Leader after the Allowable Contract Selection 
Date; and specifies the type, term, and cost of service(s). Applicants 
will be required to submit a copy of the final contract(s) with their 
funding requests.

[[Page 13962]]

6. Competitive Bidding Exemptions
    194. An applicant that qualifies for any of the exemptions (and 
does not wish to use the competitive bidding process) is not required 
to prepare and post a Form 461. Instead, the applicant may proceed 
directly to filing the request for funding commitment (Form 462). If 
the applicant has not previously submitted Form 460 to certify to its 
eligibility, it should submit that form at the same time, or prior to, 
submitting Form 462. The exemptions only apply to participants 
receiving support through the Healthcare Connect Fund, not the existing 
RHC or Pilot Programs.
a. Annual Undiscounted Cost of $10,000 or Less
    195. Discussion. Based on our experience with the 
Telecommunications and Pilot programs, we adopt an exemption to the 
competitive bidding requirements under the Healthcare Connect Fund for 
an applicant and any related applicants that seek support for $10,000 
or less of total undiscounted eligible expenses for a single year 
(i.e., with a required HCP contribution of 35 percent, up to $6,500 in 
Fund support). This exemption does not apply to multi-year contracts. 
This approach recognizes that for applicants pursuing small dollar 
value contracts, the administrative costs associated with the 
competitive bidding process may likely outweigh the potential benefits. 
Even with the exemption, however, we encourage smaller applicants to 
consider using the competitive bidding process to help ensure they are 
receiving the best service and pricing available.
    196. The $10,000 annual limit is based on the average undiscounted 
recurring monthly cost of a 1.5 to 3.0 Mbps connection as observed 
under both the Telecommunications and Pilot programs. Based on this 
limit, small applicants, typically single HCP sites, should be able to 
secure support for a T-1 line or similar service without having to go 
through the competitive bidding process. A consortium application 
seeking support for undiscounted costs of $10,000 or less is also 
exempt from competitive bidding if the total of all consortium members' 
undiscounted costs for which support is sought, in this and any other 
application combined, is not more than $10,000 for that year. We 
recognize that as a practical matter, this will likely prevent all but 
the smallest consortia from qualifying for the exemption, but as 
observed under the Pilot Program, consortia can substantially benefit 
from the competitive bidding process in terms of better pricing and 
higher quality of service.
    197. We recognize that an applicant may not always be able to 
exactly predict its annual eligible expenses in advance. If the 
applicant chooses to forego competitive bidding, however, its annual 
support will be capped at $6,500 (65 percent of $10,000) for any 
services that are not subject to an exemption. If a qualifying 
applicant later discovers that it requires additional services beyond 
the $10,000 limit, the applicant may receive support for the additional 
services if it first completes the competitive bidding process for the 
additional services.
b. Government Master Service Agreements
    198. Discussion. We adopt a competitive bidding exemption for HCPs 
who are purchasing services and/or equipment from MSAs negotiated by 
federal, state, Tribal, or local government entities on behalf of such 
HCPs and others, if such MSAs were awarded pursuant to applicable 
federal, state, Tribal, or local competitive bidding requirements. This 
exemption helps streamline the application process by removing 
unnecessary and duplicative government competitive bidding requirements 
while still ensuring fiscal responsibility. Because these MSAs have 
government requirements for competitive bidding, this fairly ``removes 
the burden from the Rural Health Care Provider to conduct an additional 
competitive bid.'' This exemption only applies to MSAs negotiated by, 
or under the direction of, government entities and subject to 
government competitive bidding requirements. Applicants must submit 
documentation demonstrating that they qualify for the exemption, 
including a copy of the MSA and documentation that it was subject to 
government competitive bidding requirements. In many cases these 
government contracts were negotiated on behalf of a large number of 
users, so are likely to generate similar cost efficiencies as those 
derived through the Healthcare Connect Fund competitive bidding 
process.
    199. Commenters generally support the adoption of a competitive 
bidding exemption that allows applicants to take services from a 
government MSA, so long as the original master contract was subject to 
a competitive bidding process. For instance, CCHCS ``recommends that 
the Commission exempt from competitive bidding requirements State HCPs 
that are required to use the State mandated Master Services Agreements 
for the procurement of telecommunication and/or broadband services.'' 
Similarly, VAST argues that the ``Commission should allow eligible 
Health Care Providers to take services from a federal or state Master 
Service Agreement (MSA) that has been awarded through a competitive 
bidding process.''
c. Master Service Agreements Approved Under the Pilot Program or the 
Healthcare Connect Fund
    200. Discussion. We adopt a competitive bidding exemption for HCPs 
purchasing services or equipment from an MSA, whether the contract was 
originally secured through the competitive bidding process under the 
Pilot Program or in the future through the Healthcare Connect Fund. As 
the Commission stated in the July 2012 Bridge Funding Order, 77 FR 
42185, July 18, 2012, sufficient safeguards are in place to protect 
against waste, fraud, and abuse in these situations because HCPs have 
already gone through the competitive bidding process to identify and 
select the most cost-effective service provider in instituting these 
contracts. This exemption also applies to MSAs that have been secured 
through competitive bidding with funding approved by USAC during the 
Pilot Program bridge period. In addition, the exemption will apply to 
services or equipment purchased during an MSA extension approved by 
USAC. The exemption is limited to those MSAs that were developed and 
negotiated from an RFP that specifically sought a mechanism for adding 
additional sites to the network. This exemption does not extend to MSAs 
or extensions thereof that are not approved by USAC.
d. Evergreen Contracts
    201. Discussion. As proposed in the NPRM, and as supported in the 
record, we allow contracts to be designated as ``evergreen'' in the 
Healthcare Connect Fund. As stated in the NPRM and echoed by 
commenters, evergreen procedures likely will benefit participating HCPs 
by affording them: (1) lower prices due to longer contract terms; and 
(2) reduced administrative burdens due to fewer required Form 465s.
    202. A contract entered into by an HCP or consortium as a result of 
competitive bidding will be designated as evergreen if it meets all of 
the following requirements: (1) Signed by the individual HCP or 
consortium lead entity; (2) specifies the service type, bandwidth and 
quantity; (3) specifies the term of the contract; (4) specifies the 
cost of services to be provided; and (5) includes the physical 
addresses or other

[[Page 13963]]

identifying information of the HCPs purchasing from the contract. 
Consortia will be permitted to add new HCPs if the possibility of 
expanding the network was contemplated in the competitive bidding 
process, and the contract explicitly provides for such a possibility. 
Similarly, service upgrades will be permitted as part of an evergreen 
contract if the contemplated upgrades are proposed during the 
competitive bidding process, and the contract explicitly provides for 
the possibility of service upgrades.
    203. Participants may also exercise voluntary options to extend an 
evergreen contract without undergoing additional competitive bidding, 
subject to certain limitations. First, the voluntary extension(s) must 
be memorialized in the evergreen contract. Second, the decision to 
extend the contract must occur before the participant files its funding 
request for the funding year when the contract would otherwise expire. 
Third, voluntary extension(s) may not exceed five years, after which 
the service(s) must be re-bid. We find that this limitation strikes an 
appropriate balance between two competing considerations: (1) providing 
HCPs with the price and administrative savings of entering into a long-
term contract; and (2) ensuring that HCPs periodically re-evaluate 
whether they can obtain better prices through re-bidding a service.
    204. We also conclude that, if an HCP has a contract that was 
designated as evergreen under Telecommunications Program or Internet 
Access Program procedures prior to January 1, 2014, it may choose to 
seek support for services provided under the evergreen contract from 
the Healthcare Connect Fund instead without undergoing additional 
competitive bidding, so long as the services are eligible for support 
under the Healthcare Connect Fund, and the HCP complies with all other 
Healthcare Connect Fund rules and procedures. The Commission noted in 
the NPRM that codifying the evergreen policy ``would maintain 
consistency while transitioning from the existing internet access 
program to the new health broadband services program.'' Allowing HCPs 
who have already competitively bid (and received evergreen status for) 
multi-year contracts seamlessly to transition into the Healthcare 
Connect Fund furthers our program goals to streamline the application 
process and promote fiscal responsibility and cost-effectiveness. Pilot 
Program participants who have negotiated a long-term contract that 
extends beyond the period of their Pilot awards may also seek to have 
their contracts designated as ``evergreen'' by USAC for purposes of the 
Healthcare Connect Fund without undergoing a new competitive bidding 
process, as long as the existing contract meets the requirements for an 
evergreen contract. If an evergreen contract approved under the 
Telecommunications Program, Internet Access Program, or a Pilot Program 
contract designated as evergreen under the Healthcare Connect Fund 
includes voluntary extensions, HCPs utilizing such contracts in the 
Healthcare Connect Fund may also exercise such voluntary extensions 
consistent with the requirements.
e. Contracts Negotiated Under E-Rate
    205. Discussion. Consistent with Sec.  54.501(c)(1) of our rules, 
we conclude that an HCP entering into a consortium with E-rate 
participants and becoming a party to the consortium's existing contract 
should be exempt from the RHC competitive bidding requirements, so long 
as the contract was competitively bid consistent with E-rate rules, 
approved for use in the E-rate program as a master contract, and the 
Healthcare Connect Fund applicant (i.e. the individual HCP or 
consortium) otherwise complies with all Healthcare Connect Fund rules 
and procedures. An applicant utilizing this exemption must submit 
documentation with its request for funding that demonstrates that (1) 
the applicant is eligible to take services under the consortium 
contract; and (2) the consortium contract was approved as a master 
contract in the E-rate program. We agree with MiCTA that such an 
exemption will reduce HCPs' individual administrative burdens and 
encourage consortia, and likely will save universal service funds due 
to the lower contract prices often associated with consortia bulk-
buying. We thus find that a competitive bidding exemption for HCPs 
entering into contracts negotiated under the E-rate program will 
further our program goals to streamline the application process, 
facilitate consortium applications, and promote fiscal responsibility 
and cost-effectiveness. We note that an HCP in a consortium with E-rate 
participants may receive support only for services eligible for support 
under the RHC programs.
f. No Exemption for Internet2 and National LambdaRail
    206. Discussion. We require participants to seek competitive bids 
from any research and education networks, including Internet2 and 
National LambdaRail, through our standard competitive bidding process. 
There may be instances where a more cost-effective solution is 
available from a commercial provider, or even a non-profit provider 
other than Internet2 or National LambdaRail, and a competitive bidding 
requirement will ensure that HCPs consider options from all interested 
service providers. Many commenters opposed the Commission's proposal to 
exempt National LambdaRail and Internet2 from competitive bidding, 
arguing, among other things, that such an exemption would be anti-
competitive by disadvantaging other telecommunications providers. We 
find that requiring HCPs to seek bids from National LambdaRail and 
Internet2 through the normal competitive bidding process could result 
in lower-priced bids, and should therefore be required. This approach 
furthers our program goal to promote fiscal responsibility and cost-
effectiveness.

C. Funding Commitment From USAC

    207. Once a service provider is selected, applicants in the current 
RHC program submit a ``Funding Request'' (and supporting documentation) 
to provide information about the services selected and certify that the 
services were the most cost-effective offers received. If USAC approves 
the ``Request for Funding,'' it will issue a ``Funding Commitment 
Letter.'' USAC's role is to review the funding request for accuracy and 
completeness. Once an applicant receives a funding commitment, it may 
invoice USAC after receiving a bill from the service provider. 
Applicants do not need to file a Form 467 to notify USAC that the 
service provider began providing services for which the applicant is 
seeking support.
1. Requirements for Service Providers
    208. All vendors that participate in the Healthcare Connect Fund 
are required to have a Service Provider Identification Number (SPIN). 
The SPIN is a unique number assigned to each service provider by USAC, 
and serves as USAC's tool to ensure that support is directed to the 
correct service provider. SPINs must be assigned before USAC can 
authorize support payments. Therefore, all service providers submitting 
bids to provide services to selected participants will need to complete 
and submit a Form 498 to USAC for review and approval if selected by a 
participant before funding commitments can be made.
    209. Service providers in the Healthcare Connect Fund must certify 
on Form 498, as a condition of receiving support, that they will 
provide to HCPs, on a timely basis, all information and documents 
regarding the supported

[[Page 13964]]

service(s) that are necessary for the HCP to submit required forms or 
respond to FCC or USAC inquiries. In addition, USAC may withhold 
disbursements for the service provider if the service provider, after 
written notice from USAC, fails to comply with this requirement.
2. Filing Timeline for Applicants
    210. Discussion. Unless and until the Commission adopts other 
procedures to prioritize requests for funding, we retain the rule that 
requests for funding may be submitted at any point during the funding 
year, and direct USAC to process and prioritize funding requests on a 
rolling basis (according to the date of receipt) until it reaches the 
program cap established by the Commission. Given the historical 
utilization of RHC support and the implementation timetable for funding 
year 2013, we do not currently anticipate that demand will exceed the 
$400 million cap in FY 2013 or for the foreseeable future. We conclude, 
however, that this longstanding default rule will apply in the unlikely 
event that the cap is exceeded, unless and until the Commission adopts 
a different rule for prioritizing funding requests. We also direct USAC 
to periodically inform the public, through its Web site, of the total 
dollar amounts (1) requested by HCPs and (2) actually committed by USAC 
for the funding year, as well as the amounts committed in upfront 
payments (for purposes of the $150 million cap on upfront payments).
    211. We also direct USAC to establish a filing window for funding 
year 2013 and for future funding years as necessary, for both the 
Telecommunications Program and the Healthcare Connect Fund. When USAC 
establishes a filing window, it should provide notice of the window in 
advance via public notice each year. The filing window may begin prior 
to the first day of the funding year, as long as actual support is only 
provided for services provided during the funding year.
    212. As in the Telecommunications Program, applicants may initiate 
services at their own risk during the funding year pending the 
processing of their funding requests, as long as the services are 
provided pursuant to a contract or other service agreement that 
complies with program requirements (including the competitive bidding 
process). The contract must be signed (or the service agreement entered 
into) before the applicant submits a funding request.
    213. Funding will be available for Pilot participants starting July 
1, 2013, and starting January 1, 2014, for other applicants.
3. Required Documentation for Applicants
    214. This information should be submitted to USAC to support a 
request for commitment of funds.
    215. Form 462. Form 462 is the means by which an applicant 
identifies the service(s), rates, service provider(s), and date(s) of 
service provider (vendor) selection. In the Primary Program, applicants 
are required to submit a separate form for each service or circuit for 
which the applicant is seeking support. In the Healthcare Connect Fund, 
we will not require separate forms for each service or circuit, thereby 
lessening administrative burden on potential Fund recipients. Each 
individual applicant will submit a single form for each service 
provider that lists the relevant information for all service(s) or 
circuit(s) for which the individual applicant is seeking support at the 
time. Similarly, each consortium applicant will submit a single form 
for each service provider that lists the relevant information for all 
consortium members, including the service(s) or circuit(s) for which 
each member is seeking support at the time.
    216. Certifications. Applicants must provide the following 
certifications on Form 462.
     The person signing the application is authorized to submit 
the application on behalf of the applicant, and has examined the form 
and all attachments, and to the best of his or her knowledge, 
information, and belief, all statements of fact contained therein are 
true.
     Each service provider selected is, to the best of the 
applicant's knowledge, information, and belief, the most cost-effective 
service provider available, as defined in the Commission's rules.
     All Healthcare Connect Fund support will be used only for 
the eligible health care purposes, as described in this Order and 
consistent with the Act and the Commission's rules.
     The applicant is not requesting support for the same 
service from both the Telecommunications Program and the Healthcare 
Connect Fund.
     The applicant satisfies all of the requirements under 
section 254 of the Act and applicable Commission rules, and understands 
that any letter from USAC that erroneously commits funds for the 
benefit of the applicant may be subject to rescission.
     The applicant has reviewed all applicable requirements for 
the program and will comply with those requirements.
     The applicant will maintain complete billing records for 
the service for five years.
    217. Contracts or other documentation. All applicants must submit a 
contract or other documentation that clearly identifies (1) the 
vendor(s) selected and the HCP(s) who will receive the services; (2) 
the service, bandwidth, and costs for which support is being requested; 
(3) the term of the service agreement(s) if applicable (i.e. if 
services are not being provided on a month-to-month basis). For 
services provided under contract, the applicant must submit a copy of a 
contract signed and dated (after the Allowable Contract Selection Date) 
by the individual HCP or Consortium Leader. If the service is not being 
provided under contract, the applicant must submit a bill, service 
offer, letter, or similar document from the service provider that 
provides the required information. In either case, applicants must 
ensure that the documentation provided specifies all charges for which 
the applicant is receiving support (for example, if the contract does 
not specify all such charges, applicants should submit a bill or other 
similar documentation to support their request). In addition, 
applicants may wish to submit a network or circuit diagram for requests 
involving multiple vendors or circuits.
    218. Competitive bidding documents. Applicants must submit 
documentation to support their certifications that they have selected 
the most cost-effective option. Relevant documentation includes a copy 
of each bid received (winning, losing, and disqualified), the bid 
evaluation criteria, and any other related documents. Applicants who 
are exempt from competitive bidding should also submit any relevant 
documentation to allow USAC to verify that the applicant is eligible 
for the exemption (e.g., a copy of the relevant government MSA and 
documentation showing that the applicant is eligible to purchase from 
the MSA, or USAC correspondence identifying and approving a contract 
previously approved for the Pilot Program).
    219. Cost allocation for ineligible entities or components. 
Applicants who seek to include ineligible entities within a consortium, 
or to obtain support for services or equipment that include both 
eligible and ineligible components, should submit a description of 
their cost allocation methodology per the requirements. Applicants 
should also submit any agreements that memorialize cost-sharing 
arrangements with ineligible entities.
    220. Evidence of viable source for 35 percent contribution. Many 
projects in

[[Page 13965]]

the Pilot Program experienced implementation delays, in part due to the 
difficulty in obtaining their required contribution. In the NPRM, the 
Commission suggested participants in the proposed infrastructure 
program be required to demonstrate they have a reasonable and viable 
source for their contribution by submitting letters of assurances 
confirming funds from eligible sources to meet the contribution 
requirement.
    221. We require all consortium applicants to submit, with their 
funding requests, evidence of a viable source for their 35 percent 
contribution. We adopt this requirement to minimize administrative 
processing of applications that do not have a source for the required 
match, which will lessen USAC's administrative costs and thereby lessen 
the burden on the Fund. Applicants, especially those that intend to 
undertake high-dollar projects, should begin identifying potential 
sources for their contribution as early as possible. The funding 
request is the last major step in the application process before 
applicants receive a funding commitment, and at this stage applicants 
should be well advanced in determining the amount of their contribution 
and the source for that contribution. We also note that program 
participants will be required to submit a certification that they have 
paid their 35 percent contribution before USAC will disburse universal 
service support, so it is important for participants to have a ready 
source of payment before they begin receiving services.
    222. Consortia may provide evidence of a viable source by 
submitting a letter signed by an officer, director, or other authorized 
employee of the Consortium Leader. The letter should identify the 
entity that will provide the 35 percent contribution, and the type of 
eligible source (e.g. HCP budget, grant/loan, etc.). If the applicant 
contribution is dependent on appropriations, grant funding, or other 
special conditions, the applicant should include a description of any 
special conditions and general information regarding those conditions. 
If the applicant has already identified secondary sources of funding, 
it should also include information regarding such sources in its 
letter. If the source for the participant contribution is excess 
capacity, applicants must identify the entit(ies) who will pay for the 
excess capacity, and submit evidence of arrangements made to comply 
with the requirements.
    223. Consortium applicants are not required to identify the funding 
source for each consortium member if each consortium member will pay 
its contribution individually. Instead, the Consortium Leader should 
(1) verify that each member will pay its contribution from an eligible 
source (e.g., by requesting a certification to that effect in the 
consortium member's LOA) and (2) submit documentation (e.g. consortium 
membership agreement) that shows that each member has agreed to pay its 
own contribution from an eligible source.
    224. We delegate authority to the Bureau to provide more specific 
guidance, if needed, on the content of the letter and documentation to 
be submitted. USAC may, as needed, request additional documentation 
from applicants in order to ensure compliance with this requirement.
    225. Additional documentation for consortium applicants. Consortium 
applicants should submit any revisions to the project management plan, 
work plan, schedule, and budget previously submitted with the Request 
for Services (Form 461). If not previously provided with the project 
management plan, applicants should also provide (or update) a narrative 
description of how the network will be managed, including all 
administrative aspects of the network (including but not limited to 
invoicing, contractual matters, and network operations.) If the 
consortium is required to provide a sustainability plan, the revised 
budget should include the budgetary factors discussed in the 
sustainability plan requirements. Finally, consortium applicants will 
be required to provide electronically (via a spreadsheet or similar 
method) a list of the participating HCPs and all of their relevant 
information, including eligible (and ineligible, if applicable) cost 
information for each participating HCP. USAC may reject submissions 
that lack sufficient specificity to determine that costs are eligible.
    226. Sustainability plans for applicants requesting support for 
long-term capital expenses. In the NPRM, the Commission proposed to 
require sustainability plans similar to those required in the Pilot 
Program for HCPs who intended to have an ownership interest, 
indefeasible right of use, or capital lease interest in facilities 
funded by the Fund. We adopt the proposal in the NPRM, and require that 
consortia who seek funding to construct and own their own facilities or 
obtain IRUs or capital lease interests to submit a sustainability plan 
with their funding requests demonstrating how they intend to maintain 
and operate the facilities that are supported over the relevant time 
period. A sustainability plan for such projects is appropriate to 
protect the Fund's investment, because such projects are requesting 
support for capital expenses that are intended to have long-term 
benefits.
    227. We largely adopt the same specific requirements for 
sustainability plans proposed in the NPRM and utilized in the Pilot 
Program. Although participants are free to include additional 
information to demonstrate a project's sustainability, the 
sustainability plan must, at a minimum, address the following points:
     Projected sustainability period. Indicate a reasonable 
sustainability period that is at least equal to the useful life of the 
funded facility. Although a sustainability period of 10 years is 
generally appropriate, the period of sustainability should be 
commensurate with the investments made from the health infrastructure 
program. For example, if the applicant is purchasing a 20 year IRU, the 
sustainability period should be a minimum of 20 years. The applicant's 
budget should show projected income and expenses (i.e. for maintenance) 
for the project at the aggregate level, for the sustainability period.
     Principal factors. Discuss each of the principal factors 
that were considered by the participant to demonstrate sustainability. 
This discussion should include all factors that show that the proposed 
network will be sustainable for the entire sustainability period. Any 
factor that will have a monetary impact on the network should be 
reflected in the applicant's budget.
     Terms of membership in the network. Describe generally any 
agreements made (or to be entered into) by network members (e.g., 
participation agreements, memoranda of understanding, usage agreements, 
or other documents). If the consortium will not have agreements with 
the network members, it should so indicate in the sustainability plan. 
The sustainability plan should also describe, as applicable: (1) 
Financial and time commitments made by proposed members of the network; 
(2) if the project includes excess bandwidth for growth of the network, 
describe how such excess bandwidth will be financed; and (3) if the 
network will include eligible HCPs and other network members, describe 
how fees for joining and using the network will be assessed.
     Ownership structure. Explain who will own each material 
element of the network (e.g., fiber constructed, network equipment, end 
user equipment). For purposes of responding to this question, 
``ownership'' includes an IRU interest. Applicants should clearly 
identify the legal entity who will own each material

[[Page 13966]]

element so that USAC can verify that only eligible entities receive the 
benefits of program support. Applicants should also describe any 
arrangements made to ensure continued use of such elements by the 
network members for the duration of the sustainability period.
     Sources of future support. If sustainability is dependent 
on fees to be paid by eligible HCPs, then the sustainability plan 
should confirm that the HCPs are committed and have the ability to pay 
such fees. If sustainability is dependent on fees to be paid by network 
members that will use the network for health care purposes, but are not 
eligible HCPs under the Commission's rules, then the sustainability 
plan should identify such entities. Alternatively, if sustainability is 
dependent on revenues from excess capacity not related to health care 
purposes, then the sustainability plan should identify the proposed 
users of such excess capacity. Projects who have multiple sources of 
funding should address each source of funding and the likelihood of 
receiving that funding. Eligible HCPs may not receive support twice for 
the same service. For example, if the Healthcare Connect Fund provides 
support for a network to procure an IRU to be used by its members, and 
the network charges its members a fee to cover the undiscounted cost of 
the IRU, the members may not then individually apply for program 
support to further discount the membership fee.
     Management. The applicant's management plan should 
describe the management structure of the network for the duration of 
the sustainability period, and the applicant's budget should describe 
how management costs will be funded.
    228. The Pilot Program required projects to submit a copy of their 
sustainability plan with every quarterly report. Based on our 
experience with the Pilot Program, we conclude submission of the 
sustainability report on a quarterly basis is unnecessarily burdensome 
for applicants, and provides little useful information to the 
Administrator. We therefore conclude that sustainability reports for 
the Healthcare Connect Fund should only be required to be re-filed if 
there is a material change in sources of future support or management, 
a change that would impact projected income or expenses by the greater 
of 20 percent or $100,000 from the previous submission, or if the 
applicant submits a funding request based on a new Form 461 (i.e., a 
new competitively bid contract). In that event, the revised 
sustainability report should be provided to USAC no later than the end 
of the relevant quarter, clearly showing (i.e., by redlining or 
highlighting) what has changed.
4. Requests for Multi-Year Commitments
    229. In the July 19 Public Notice, 77 FR 43773, July 26, 2012, the 
Bureau sought to further develop the record on issues relating to 
multi-year contracts, including issues relating to upfront payments. 
Commenters unanimously supported multi-year commitments as a measure 
that would reduce administrative costs and increase the value of the 
services procured.
    230. Discussion. We will allow applicants in the Healthcare Connect 
Fund to receive multi-year funding commitments that cover a period of 
up to three funding years. The multi-year funding commitments we adopt 
will reduce uncertainty and administrative burden by eliminating the 
need for HCPs to apply every year for funding, as is required under the 
Primary Program, and reduce administrative expenses both for the 
projects and for USAC. Multi-year funding commitments, prepaid leases, 
and IRUs also encourage term discounts and produce lower rates from 
vendors. Multi-year commitments will also allow consortium applicants 
to choose HCP-constructed-and-owned infrastructure where it is the most 
cost-effective way to obtain broadband. Applicants receiving support 
for long-term capital investments whose useful life extends beyond the 
period of the funding commitment may be subject to additional reporting 
requirements to ensure that such facilities continue to be used for 
their intended purpose throughout their useful life. We delegate 
authority to the Bureau to issue administrative guidance to implement 
such requirements.
    231. Applicants requesting a funding commitment for a multi-year 
funding period should indicate the years for which funding is required 
on Form 462 and, for consortia, with the attachment that lists the HCPs 
and costs for each HCP within the network. If a long-term contract 
covers a period of more than three years, the applicant may also have 
the contract designated as ``evergreen'' if the contract meets the 
criteria specified, which will allow the applicant to re-apply for a 
funding commitment under the contract after three years without having 
to undergo additional competitive bidding. In choosing a three-year 
period, we strike a balance between allowing applicants and the Fund to 
reap the benefits of long-term contracts, reducing administrative 
burdens on applicants and the Fund, and ensuring that applicants are 
not ``locked in'' to long-term contracts which may prevent them from 
seeking more cost-effective options when prices drop, or they choose to 
upgrade to higher bandwidths/newer technologies. Three years is also 
consistent with our requirement that upfront payments averaging more 
than $50,000/site be amortized over at least three years. Commenters 
generally support a three-year period as being reasonable. Consistent 
with current rules, a multi-year funding commitment cannot extend 
beyond the end of the contract submitted with the request for funding. 
For example, if an applicant submits a two-year contract and requests a 
multi-year funding commitment, USAC will only issue a funding 
commitment for two years. Similarly, if a contract ends in the middle 
of the funding year, the funding commitment can only extend to the end 
date of the contract.
    232. In the NPRM, the Commission proposed a $100 million cap for 
infrastructure projects. We institute a single cap of $150 million 
annually that will apply to all commitments for upfront payments during 
the funding year, and all multi-year commitments made during a funding 
year. This approach for the hybrid infrastructure-services program will 
provide greater flexibility than the $100 million cap proposed in the 
NPRM for infrastructure projects; it recognizes that upfront payments 
also can be substantial when purchasing services from a commercial 
provider who needs to deploy facilities to serve the HCP. This cap 
takes into account the need for economic reasonableness and responsible 
fiscal management of the program, and will help prevent large annual 
fluctuations in program demand. We direct USAC to process and 
prioritize funding requests for upfront payments and multi-year 
commitments on a rolling basis, similar to the process for funding 
requests generally. We also direct USAC to periodically inform the 
public, through its Web site, of the total dollar amounts subject to 
the $150 million cap that have been (1) requested by HCPs (2) actually 
committed by USAC for the funding year. We may consider adjusting the 
cap upward if it appears a significant number of Primary Program 
participants are moving to the Healthcare Connect Fund. Finally, USAC 
may establish a filing window tailored toward funding requests subject 
to the $150 million cap, if necessary.
    233. Current Commission rules allow universal service support for 
state and federal taxes and surcharges assessed on eligible services. 
We recognize that taxes and surcharges can fluctuate over a three-year 
commitment period. In the

[[Page 13967]]

Pilot Program, projects were allowed to estimate taxes and surcharges 
over the commitment period. Similarly, in the Healthcare Connect Fund, 
we will take into account the year-to-year fluctuation in taxes and 
surcharges by allowing HCPs and consortia to estimate the expense using 
either current tax rates or by projecting the tax rate for the 
commitment period. Projected taxes and surcharges shall be limited to 
no higher than 110 percent of the current rate at the time that the HCP 
or consortium files a funding request. The funding commitment will be 
issued based on the tax and surcharge rate provided by the applicant. 
We note that this does not lead to an additional potential for waste, 
fraud, and abuse, because disbursements will be based on actual 
expenses, not the projections.
5. USAC Processing and Issuance of Funding Commitment Letters
    234. USAC will review funding requests and, if approved, issue a 
funding commitment letter to the applicant. We allow applicants the 
opportunity to cure errors on their submissions after initial USAC 
review, although the responsibility to submit complete and accurate 
information remains at all times the sole responsibility of the 
applicant. In order to expedite HCPs' ability to initiate service once 
they have selected a service provider, we specify a timeframe for 
USAC's initial review of funding commitment requests. Within 21 
calendar days of receipt of a complete funding commitment request, USAC 
will inform applicants in writing of (1) any and all ministerial or 
clerical errors that it identifies in the funding commitment request, 
along with a clear and specific explanation of how the selected 
participants can remedy those errors; (2) any missing, incomplete, or 
deficient certifications; and (3) any other deficiencies that USAC 
finds, including any ineligible network components or ineligible 
network components that are mislabeled in the funding request. If USAC 
needs more than 21 calendar days to complete its initial review of the 
funding request, it should inform the applicant in writing that it 
needs additional time, and provide the applicant with a date on or 
before which it expects to provide the information. We remind 
applicants that this 21-day period is not a deadline for USAC to issue 
a funding commitment letter. Instead, it is a timeframe for USAC to 
check that information provided by applicants is complete and accurate, 
which will then allow USAC to subsequently process the funding request. 
If an applicant receives a notice that its funding request includes 
deficiencies, it will have 14 calendar days from the date of receipt of 
the USAC written notice to amend or re-file its funding request for the 
sole purpose of correcting the errors identified by USAC.
    235. For purposes of prioritizing funding requests, funding 
requests are deemed to have been filed when the applicant submits an 
application that is complete. If USAC identifies any errors or 
deficiencies during its initial 21-day review, the application is not 
considered to be complete until all such errors and deficiencies are 
corrected. Applicants may make material changes to their funding 
requests prior to USAC's issuance of a funding commitment letter, but 
will be considered, for priority purposes, to have filed their 
applications as of the date when a complete notice of the material 
change (i.e. without the types of errors or deficiencies identified in 
the prior paragraph) is submitted to USAC.
    236. Upon completion of its review process, USAC will send funding 
commitment letter or a denial. The funding commitment letter should 
specify whether the contract has been deemed evergreen (if requested), 
and whether a multi-year commitment has been issued (and if so, the 
annual amount of the commitment). Applicants denied funding for errors 
other than ministerial or clerical errors must follow USAC's and the 
Commission's regular appeal procedures. Applicants that do not comply 
with the terms of this Order, section 254 of the 1996 Act, and 
Commission rules and orders will be denied funding in whole or in part, 
as appropriate.

D. Invoicing and Payment Process

    237. Discussion. In Healthcare Connect Fund, we adopt an invoicing 
procedure similar to the one currently in use by the Pilot Program. In 
the Pilot Program, service providers bill HCPs directly for services 
that they have provided. Upon receipt of a service provider's bill, the 
HCP creates and approves an invoice for the services it has received, 
certifies that the invoice is accurate and that it has paid its 
contribution, and sends the invoice to the service provider. The 
service provider then certifies the invoice's accuracy and uses it to 
receive payment from USAC.
    238. This invoicing procedure is different from the Primary Program 
in two principal ways. In the Healthcare Connect Fund, as in the Pilot 
Program, (1) a HCP or Consortium Leader must certify to USAC that it 
has paid its contribution to the service provider before the invoice 
can be sent to USAC and the service provider can be paid, and (2) 
before any invoice is sent to USAC, both the HCP and service provider 
must certify that they have reviewed the document and that it is 
accurate. We believe the adoption of these requirements in the new 
program will help eliminate waste, fraud, and abuse by making sure that 
HCPs have made their required contribution to the cost of the services 
they receive and that the invoice accurately reflects the services an 
HCP is receiving and the support due to the service provider. It is 
permissible to certify that these steps have been taken via electronic 
signature of an officer, director, or other authorized employee of the 
Consortium Leader or HCP. All invoices must be received by the 
Administrator within six months of the end date of the funding 
commitment.

E. Contract Modifications

    239. Discussion. The Universal Service Fourth Order on 
Reconsideration, 63 FR 2094, January 13, 1998, concluded that requiring 
a competitive bid for every minor contract modification would place an 
undue burden upon eligible entities. The Commission found that an 
eligible school, library, or rural HCP would be entitled to make minor 
modifications to a contract that was previously approved for funding 
without completing an additional competitive bid process. The 
Commission also noted that any service provided pursuant to a minor 
contract modification also must be an eligible supported service as 
defined in the Order to receive support or discounts.
    240. Consistent with existing requirements, HCPs should look to 
state or local procurement laws to determine whether a proposed 
contract modification would be considered minor and therefore exempt 
from state or local competitive bidding processes. If a proposed 
modification would be exempt from state or local competitive bidding 
requirements, the applicant likewise would not be required to undertake 
an additional competitive bidding process in connection with the 
applicant's request for discounted services under the federal universal 
service support mechanisms. Similarly, if a proposed modification would 
have to be rebid under state or local competitive bidding requirements, 
then the applicant also would be required to comply with the 
Commission's competitive bidding requirements before entering into an 
agreement adopting the modification.
    241. The Universal Service Fourth Order on Reconsideration also

[[Page 13968]]

addressed instances in which state and local procurement laws are 
silent or are otherwise inapplicable with respect to whether a proposed 
contract modification must be rebid under state or local competitive 
bidding processes. In such cases, the Commission adopted the ``cardinal 
change'' doctrine as the standard for determining whether the contract 
modification requires rebidding. The cardinal change doctrine looks at 
whether the modified work is essentially the same as that for which the 
parties contracted. A cardinal change occurs when one party affects an 
alteration in the work so drastic that it effectively requires the 
contractor to perform duties materially different from those originally 
bargained for. In determining whether the modified work is essentially 
the same as that called for under the original contract, factors 
considered are the extent of any changes in the type of work, 
performance period, and cost terms as a result of the modification. 
Ordinarily a modification falls within the scope of the original 
contract if potential offerors reasonably could have anticipated the 
modification under the changes clause of the contract.
    242. The cardinal change doctrine recognizes that a modification 
that exceeds the scope of the original contract harms disappointed 
bidders because it prevents those bidders from competing for what is 
essentially a new contract. The Commission adopted the cardinal change 
doctrine as the test for determining whether a proposed modification 
will require rebidding of the contract, absent direction on this 
question from state or local procurement rules, because it believed 
this standard reasonably applies to contracts for supported services 
arrived at via competitive bidding. If a proposed modification is not a 
cardinal change, there is no requirement to undertake the competitive 
bidding process again.
    243. An eligible HCP seeking to modify a contract without 
undertaking a competitive bidding process should, within 30 calendar 
days of signing or otherwise entering into the contract modification, 
file a revised funding commitment request indicating the value of the 
proposed contract modification so that USAC can track contract 
performance. The HCP also must demonstrate that the modification is 
within the original contract's change clause or is otherwise a minor 
modification that is exempt from the competitive bidding process. The 
HCP's justification for exemption from the competitive bidding process 
will be subject to audit and will be reviewed by USAC to determine 
whether the applicant's request is, in fact, a minor contract 
modification that is exempt from the competitive bidding process. We 
note that program participants make contract modifications without 
competitive bidding at their own risk. If a participant makes a 
contract modification without competitive bidding, and the modification 
does not qualify as minor, USAC will not allow support for the 
modification.
    244. We emphasize that even though minor modifications will be 
exempt from the competitive bidding requirement, parties are not 
guaranteed support with respect to such modified services. A commitment 
of funds pursuant to an initial FCC Form 462 does not ensure that 
additional funds will be available to support the modified services. We 
conclude that this approach is reasonable and is consistent with our 
effort to adopt the least burdensome application process possible while 
maintaining the ability of USAC and the Commission to perform 
appropriate oversight.

F. Site and Service Substitutions

    245. Based on our experience in the Pilot Program, we adopt a site 
and service substitution policy for participants in the Healthcare 
Connect Fund that is similar to that applied in the Pilot Program. 
Consortia may make site substitutions in accordance with the policy 
(because individual applicants are by definition single-site, no site 
substitutions are allowed for individual applicants). Both individual 
and consortium applicants may make service substitutions in accordance 
with the policy.
    246. As the Commission found in the Pilot Program, allowing site 
and service substitutions minimizes the burden on consortium 
participants and increases administrative efficiency by enabling HCPs 
to ask USAC to substitute or modify the site or service without 
modifying the actual commitment letter. Moreover, this policy 
recognizes the changing broadband needs of HCPs by providing the 
flexibility to substitute alternative services within the constraints. 
This policy is a more administratively efficient approach than the 
Primary Program, in which any modification of funding requires a new 
application and a new funding commitment letter for each HCP impacted. 
In its July 19 Public Notice, the Bureau asked for comment on whether 
to adopt the Pilot Program approach to site and service substitutions 
in the reformed program. The commenters generally supported applying 
the same approach in the new program.
    247. The Pilot Program permits site and service substitutions 
within a project in certain specified circumstances, in order to 
provide some amount of flexibility to project participants. Under the 
Pilot Program, a site or service substitution may be approved if (i) 
the substitution is provided for in the contract, within the change 
clause, or constitutes a minor modification, (ii) the site is an 
eligible HCP and the service is an eligible service under the Pilot 
Program, (iii) the substitution does not violate any contract provision 
or state or local procurement laws, and (iv) the requested change is 
within the scope of the controlling FCC Form 465, including any 
applicable Request for Proposal. Once USAC has issued a funding 
commitment letter, support under the letter is capped at the amount 
provided in the letter. Therefore, support for a qualifying site and 
service substitution is only guaranteed if the substitution will not 
cause the total amount of support under the funding commitment letter 
to increase. We adopt these same criteria for the Healthcare Connect 
Fund, which we include in a new rule.

G. Data Collection and Reporting Requirements

    248. Discussion. Data from participants and from the Fund 
Administrator are essential to the Commission's ability to evaluate 
whether the program is meeting the performance goals adopted and to 
measure progress toward meeting those goals. We anticipate collecting 
the necessary data through a combination of the application process and 
annual reporting requirements. For consortium participants under the 
Healthcare Connect Fund, we require the submission of annual reports. 
Annual, rather than quarterly, reports minimize the burden on 
participants and the Administrator alike while still supporting 
performance evaluation and enabling us to protect against waste, fraud, 
and abuse. Because we expect to be able to collect data from single 
applicants in the Healthcare Connect Fund on forms they already submit, 
we do not at this time expect that they will need to submit an annual 
report, unless a report is required for other reasons. To further 
minimize the burden on participants, we direct the Bureau to work with 
the Administrator to develop a simple and streamlined reporting system 
that integrates data collected through the application process, thereby 
eliminating the need to resubmit any information that has already been 
provided to the Administrator. We agree with several commenters that to 
the

[[Page 13969]]

extent feasible, USAC should collect information through automated 
interfaces.
    249. In the Healthcare Connect Fund, each consortium lead entity 
must file an annual report with the Administrator on or before 
September 30 for the preceding funding year (i.e., July 1 through and 
including June 30). Each consortium is required to file an annual 
report for each funding year in which it receives support from the 
Healthcare Connect Fund. For consortia that receive large upfront 
payments, the reporting requirement extends for the life of the 
supported facility. The Administrator shall make the annual reports 
publicly available as soon as possible after they are filed.
    250. All participants are required to provide the information 
necessary to ensure the Commission can assess progress towards the 
performance goals and measures adopted. To track progress toward the 
first goal, increasing access to broadband, we require participants to 
report the characteristics, including bandwidth and price, of the 
connections supported by the Healthcare Connect Fund. To track progress 
toward the second goal, fostering broadband health care networks, we 
require participants to report the number and characteristics of the 
eligible and non-eligible sites connecting to the network. We also 
expect participants to report whether and to what extent the supported 
connections are being used for telemedicine, exchange of EHRs, 
participation in a health information exchange, remote training, and 
other telehealth applications. To track progress toward the third goal, 
maximizing the cost-effectiveness of the program, in addition to the 
reporting requirements under the first goal, we require that 
participants report the number and nature of all responsive bids 
received through the competitive bidding process as well as an 
explanation of how the winning bid was chosen.
    251. We delegate authority to the Bureau to provide, and modify as 
necessary, further guidance on the reporting requirements, for both 
participants and the Administrator, to ensure the Commission has the 
necessary information to measure progress towards meeting the 
performance goals adopted in this Order. For consortium applicants, the 
consortium leader will be responsible for preparing and submitting 
these annual reports. Some of the data will already be collected 
through other forms that participants will submit through the funding 
process. We do not require non-consortium applicants to file annual 
reports at this time because we expect to be able to collect 
information through forms they already submit in connection with the 
application process, or if necessary, through other simplified 
automated interfaces. We delegate authority to the Bureau to work with 
USAC to accomplish these tasks, and to modify specific reporting 
requirements if necessary consistent with the requirements.
    252. We also extend the current Pilot Program reporting requirement 
for each Pilot project through and including the last funding year in 
which the project receives Pilot support, but make it an annual instead 
of a quarterly obligation. We will also make the Pilot Program 
reporting requirements the same as the Healthcare Connect Fund 
reporting requirements and delegate to the Bureau the authority to 
specify whether any additional information from the quarterly report 
should continue to be included in the annual report that might be 
needed to evaluate the Pilot Program or to prevent waste, fraud, and 
abuse in that program. As of the effective date of this Order, Pilot 
projects are no longer required to file quarterly reports and instead 
may file their first annual report on September 30, 2013. We further 
delegate authority to the Bureau to determine the expiration of any 
supplemental Pilot Program reporting requirements.
    253. In specifying these reporting requirements, we have sought to 
simplify and streamline the requirements as much as possible, in order 
to minimize the burden on participants while still ensuring the funding 
is used for its intended purpose. This furthers all of our performance 
goals--expanding access to broadband and fostering health care networks 
while maximizing the cost-effectiveness of the program. The data we 
collect will also help us to measure progress toward each of these 
goals.

VI. Additional Measures To Prevent Waste, Fraud, and Abuse

    254. We adopt additional safeguards against waste, fraud, and 
abuse. These are discussed set forth in new rule Sec.  54.648, in 
various rule provisions requiring certifications, and elsewhere in the 
rules and in this Order. The safeguards are patterned on the rules for 
the Telecommunications Program, and incorporate many of the provisions 
that proved effective in the Pilot Program in making the program 
efficient and in safeguarding against waste, fraud, and abuse. The 
provisions we adopt here also take into account the comments we 
received in response to the NPRM. These safeguards are in addition to 
many of the requirements for the Healthcare Connect Fund that are also 
designed to protect against waste, fraud, and abuse.
    255. In addition to the requirements, we remind participants in the 
Healthcare Connect Fund that they will be subject to existing 
Commission rules governing the exclusion of certain persons from 
activities associated with or relating to the USF support mechanisms 
(the ``suspension and disbarment'' rules). We also remind participants 
that all entities that are delinquent in debt owed to the Commission 
are be prohibited from receiving support until full payment or 
satisfactory arrangement to pay the delinquent debt(s) is made, 
pursuant to the Commission's ``red light'' rule implementing the Debt 
Collection Improvement of 1996.

A. Recordkeeping, Audits, and Certifications

    256. As proposed in the NPRM, we apply all relevant Pilot and 
Telecommunications program requirements regarding recordkeeping, 
audits, and certifications to participants in the Healthcare Connect 
Fund, as modified herein, and we recodify those requirements in a new 
rule section applicable to the new program.
    257. Recordkeeping. Consistent with Sec. Sec.  54.619(a), (b), and 
(d) of our current rules, program participants and vendors in the 
Healthcare Connect Fund must maintain for five years certain 
documentation related to the purchase and delivery of services, network 
equipment, and participant-owned facilities funded by the program, and 
they will be required to produce these records upon request. In 
particular, participants who receive support for long-term capital 
investments in facilities whose useful life extends beyond the period 
of the funding commitment shall maintain records for at least 5 years 
after the end of the useful life of the facility. The NPRM also 
proposed to: (1) Clarify that the documents to be retained by 
participants and vendors must include all records related to the 
participant's application for, receipt of, and delivery of discounted 
services; and (2) mandate that vendors, upon request, produce the 
records kept pursuant to the Commission's recordkeeping requirement. We 
adopt rules consistent with these proposals to enable the Commission 
and USAC to obtain the records necessary for effective oversight of the 
new Healthcare Connect Fund.
    258. Audits and Site Visits. The Commission will continue to use 
the

[[Page 13970]]

audit process to ensure there is a focused and effective system for 
identifying and deterring program abuse. Consistent with existing Sec.  
54.619(c) of the Commission's rules, participants in the Healthcare 
Connect Fund will be subject to random audits to ensure compliance with 
program rules and orders.
    259. USAC must assess compliance with the program's requirements, 
including the new requirements established in this Order for recipients 
of RHC support. We direct USAC to review and revise the Beneficiary/
Contributor Compliance Audit Program (BCAP) and the Payment Quality 
Assurance (PQA) program to take into account the changes adopted in 
this Order when designing procedures for recipients of funding under 
the Healthcare Connect Fund. We further direct USAC to submit a report 
to the Bureau and Office of Managing Director (OMD), within 60 days of 
the effective date of this Order or by May 31, 2013, whichever is 
later, proposing changes to the BCAP and PQA programs consistent with 
this Order.
    260. We also direct USAC to conduct random site visits to 
Healthcare Connect Fund participants to ensure that support is being 
used for its intended purposes, or as necessary and appropriate based 
on USAC's review of participants' submissions to USAC. We further 
direct USAC to notify the Wireline Competition Bureau and the Office of 
the Managing Director of any site visit findings and analysis within 45 
days of the site visit.
    261. Certifications. We adopt certification requirements for the 
Healthcare Connect Fund that are similar to those in the existing RHC 
programs. Participants in the Healthcare Connect Fund must certify 
under oath to compliance with certain program requirements, including 
the requirements to select the most cost-effective bid and to use 
program support solely for purposes reasonably related to the provision 
of health care services or instruction.
    262. For individual HCP applicants, required certifications must be 
provided and signed by an officer or director of the HCP, or other 
authorized employee of the HCP (electronic signatures are permitted). 
For consortium applicants, an officer, director, or other authorized 
employee of the Consortium Leader must sign the required 
certifications. USAC may not knowingly accept certifications signed by 
a person who is not an officer, director, or other authorized employee 
of the HCP or Consortium Leader.
    263. Third parties may submit forms and other documentation on 
behalf of the applicant, including the HCP or Consortium Leader's 
signature and certifications, if USAC receives, prior to submission of 
the forms or documentation, a written, dated, and signed authorization 
from the relevant officer, director, or other authorized employee 
stating that the HCP or Consortium Leader accepts all potential 
liability from any errors, omissions, or misrepresentations on the 
forms and/or documents being submitted by the third party. Consistent 
with longstanding precedent, we find that a HCP or Consortium Leader 
may not contractually reallocate responsibility for compliance with 
program requirements to a consultant or similar third party.
    264. We find that our actions here will preserve the integrity of 
the program by protecting against wasteful or unlawful use of support.

B. Duplicative Support and Relationship to Other RHC Programs

    265. Discussion. As the Commission proposed in the NPRM, we adopt a 
rule prohibiting HCPs from receiving universal service support for the 
same services from both the Telecommunications Program and the 
Healthcare Connect Fund. This prohibition is necessary because, in 
certain instances, an HCP's selected service could be eligible for 
support under both the Telecommunications Program and the Healthcare 
Connect Fund. Where this is the case, HCPs will not be permitted to 
``double dip'' from the USF for the same connections. Applicants are 
prohibited from submitting a funding request for the same service in 
the Telecommunications Program and the Healthcare Connect Fund. 
Further, consistent with the NPRM, we adopt a rule prohibiting HCPs 
from receiving funds for the same services under either the 
Telecommunications or the reformed RHC program and any other universal 
service program. If an HCP is still receiving support under the Pilot 
Program, it also will be subject to this same restriction on receiving 
support from another FCC program for the same services. Under this 
rule, an HCP only will be prohibited from receiving duplicative support 
for the same services--not from receiving complementary support for 
different services.
    266. Our action here is consistent with the Commission's Pilot 
Program requirement that participants cannot receive support for the 
same service from both the Pilot Program and other universal service 
programs. We believe that the prohibition on using funds from other 
Universal Service programs as part of the HCP's 35 percent contribution 
requirement is equally important in our reformed RHC program, and that 
it will help safeguard against wasteful and unlawful duplicative 
distribution of universal service support.
    267. We do not believe, however, that it is necessary in the 
Healthcare Connect Fund to prohibit the use of federal funds from non-
universal service program sources to be part of the HCP's 35 percent 
contribution requirement. Here, the HCP contribution amount is 
significantly greater than in the Pilot Program (35 percent as opposed 
to 15 percent in the Pilot Program). While we are not aware of other 
sources of federal funding for HCPs that could be used towards their 35 
percent contribution, we do not want to preclude the possibility that a 
recipient in our program could use funding from another federal agency 
towards its 35 percent contribution. We anticipate that even if other 
federal funding may be available, HCPs will still be required to secure 
a significant portion of the cost of broadband supported by this 
program through their own efforts.
    268. We also do not preclude federal government entities, such as 
the Indian Health Service, or other Tribal entities, from receiving 
support under the Healthcare Connect Fund, even though their 35 percent 
contribution may come from federal sources, as does the balance of the 
budget of such entities. We also do not preclude HCPs from purchasing 
services from entities that have received federal funds to assist in 
infrastructure construction, such as through the Broadband 
Telecommunications Opportunities Program or the Rural Utilities Service 
Broadband Infrastructure Program. These programs are intended to 
develop broadband infrastructure in geographic areas that are unserved 
or underserved by broadband. It would defeat the value of federal 
investment in such facilities if we were to prohibit such entities from 
bidding to provide service under the Healthcare Connect Fund.

C. Recovery of Funds, Enforcement, and Debarment

    269. Recovery of Funds. Consistent with the 2007 Program Management 
Order, 72 FR 54214, September 24, 2007, Healthcare Connect Fund monies 
that are disbursed in violation of a Commission rule that implements 
the Act, or a substantive program goal, will be recovered. Recovery of 
funds will be directed at the party or parties (including both 
beneficiaries and

[[Page 13971]]

vendors) who have committed the statutory or rule violation. If more 
than one party shares responsibility for a statutory or rule violation, 
recovery actions may be initiated against both parties, and pursued 
until the amount is satisfied by one of the parties. Failure to repay 
recovery amounts may subject recipients to enforcement action by the 
Commission, in addition to any collection action.
    270. Enforcement and Criminal Sanctions. In the 2007 Program 
Management Order, the Commission also found that sanctions, including 
enforcement action, are appropriate in cases of waste, fraud, and abuse 
in the universal service support programs, but not in cases of clerical 
or ministerial errors. If any participant or vendor fails to comply 
with Commission rules or orders, or fails to timely submit filings 
required by such rules or orders, the Commission has the authority to 
assess forfeitures for violations of such Commission rules and orders 
under section 503 of the Act. In addition, any participant or service 
provider that willfully makes a false statement(s) can be punished by 
fine or forfeiture under sections 502 and 503 of the Communications 
Act, or fine or imprisonment under Title 18 of the United States Code 
(U.S.C.) including, but not limited to, criminal prosecution pursuant 
to section 1001 of Title 18 of the U.S.C.
    271. Debarment. In order to prevent fraud, and to prevent bad 
actors from continuing to participate in the universal service 
programs, Sec.  54.8 of the Commission's rules provides that the 
Commission shall suspend and debar parties for conviction of, or civil 
judgment for, fraud or other criminal offenses arising out of 
activities associated with or related to the universal service support 
mechanisms, absent extraordinary circumstances. These debarment 
procedures in Sec.  54.8 of the Commission's rules will apply to the 
Healthcare Connect Fund, just as they do to other Commission universal 
service programs.

VII. Telecommunications Program Reform

    272. This Order focuses on the creation of a new, reformed health 
care support mechanism. The Healthcare Connect Fund replaces the 
current RHC Internet Access Program. For the time being, we maintain 
the current RHC Telecommunications Program, which funds the difference 
between the rural rate for telecommunications services and the rate 
paid for comparable services in urban areas. In doing so, we recognize 
that the RHC Telecommunications Program is particularly important for 
extremely remote places like Alaska. However, we would expect the 
Healthcare Connect Fund to prove attractive to many of the HCPs that 
currently receive support under the Telecommunications Program, as well 
as to HCPs that do not currently participate in any RHC Program. Unlike 
the Telecommunications Program, the new program will provide a flat 
rate discount, a simpler application process for both single and 
consortium applicants, flexibility for consortia to design their 
networks in a cost-effective manner to best serve the needs of their 
communities, support for certain network-related expenses, the 
availability of multi-year and prepaid funding arrangements, and the 
option for health care provider self-construction. And most 
importantly, we also expect that many HCPs will be able to get higher 
bandwidth service for lower out-of-pocket costs under the new program. 
For all these reasons, we expect significant migration of HCPs out of 
the Telecommunications Program and into the Healthcare Connect Fund 
over time.
    273. As the new Healthcare Connect Fund is implemented, we expect 
to consider whether the Telecommunications Program remains necessary, 
and if so whether reforms to the program are appropriate to ensure that 
any continuing support under that program is provided in a cost-
effective manner. In doing so, we will, in particular, look at the 
needs of extremely remote places like Alaska. Such reforms could 
include changes to ensure subsidies provided under the program are set 
at appropriate levels, to provide greater incentives for cost-efficient 
purchasing by program participants, and to reduce the administrative 
costs of the program, both to participants and to USAC.
    274. In the meantime, the current Telecommunications Program rules 
and procedures will continue to apply. In addition, because we view our 
health care universal service programs as accomplishing the same 
overarching goals, we make the performance goals and measures adopted 
in this Order applicable in the Telecommunications Program as well as 
to the Healthcare Connect Fund.

VIII. Pilot Program for Skilled Nursing Facility Connections

    275. Discussion. There is evidence that skilled nursing facilities 
are particularly well-suited to improve patient outcomes through 
greater use of broadband. By their nature, they are often remote from 
doctors and sophisticated laboratory and testing facilities, making the 
availability of EHRs and telehealth an especially valuable benefit to 
convalescents or patients for whom traveling to see a doctor, 
diagnostician, or specialist would be especially difficult. On the 
record before us, however, we are unable to determine how support for 
SNFs can be provided as part of an ongoing program in a ``technically 
feasible and economically reasonable'' manner, as required by section 
254(h)(2)(A). Nor does the record currently allow us to balance the 
potential benefits of supporting SNFs against the potential impact on 
Fund demand. On this record, we reach no conclusion about whether or 
under what circumstances a SNF might qualify as a health care provider 
under the statute. We find, however, that funding connections used by 
SNFs in working with HCPs has the potential to enhance access to 
advanced services and to generate the associated health care benefits, 
and that a limited pilot program would enable us to gain experience and 
information that would allow us to determine whether such funding could 
be provided on a permanent basis in the future.
    276. We therefore conclude that it is both technically feasible and 
economically reasonable to launch, as an initial step, a pilot program 
to test how to support broadband connections for SNFs, with safeguards 
to ensure that the support is directed toward SNFs that are using 
broadband to help provide hospital-type care for those patients, and 
that are using those broadband connections for telehealth applications 
that improve the quality and efficiency of health care delivery. The 
Skilled Nursing Facilities Pilot Program (SNF Pilot) will focus on 
determining how we can best utilize program support to assist SNFs that 
are using broadband connectivity to work with eligible HCPs to optimize 
care for patients in SNFs through the use of EHRs, telemedicine, and 
other broadband-enabled health care applications. We will fund up to 
$50 million for this purpose within the existing health care support 
mechanism, which remains capped at $400 million annually. We expect to 
implement this SNF Pilot in Funding Year 2014. We conclude that a total 
of $50 million may be disbursed for the SNF Pilot over a funding period 
not to exceed three years, which will moderate the annual impact on 
Fund demand.
    277. We direct the Bureau to develop scoring criteria for 
applications for the SNF Pilot consistent with the program goals, 
soliciting input from HHS

[[Page 13972]]

(including IHS) and other stakeholders, and to specify other 
requirements for the SNF Pilot, including safeguards to ensure that 
funding is directed towards facilities that are engaged in the 
provision of skilled care comparable to what is available in a hospital 
or clinic. In order to maximize other Fund investments, only SNFs that 
do not currently have broadband services sufficient to support their 
intended telehealth activities are eligible to participate in the SNF 
Pilot. The Bureau shall give a preference to applicants that partner 
with existing or new consortia in the existing Pilot Program or the 
Healthcare Connect Fund and to SNFs located in rural areas, and will 
require applicants to demonstrate how proposed participation of SNFs 
will improve the overall provision of health care by eligible HCPs. The 
SNF Pilot Program will seek to collect data on a number of variables 
related to the broadband connections supported and their health care 
uses, so that at the conclusion of the SNF Pilot, the Commission can 
use the data gathered to determine how to proceed with regard to 
including SNFs in the Commission's health care support programs on a 
permanent basis.
    278. Once the scoring criteria are developed, the Bureau shall 
release a Public Notice specifying the application procedures, 
including dates, deadlines, and other details of the application 
process. Except as necessary to meet the goals of the SNF Pilot, all 
requirements applicable to the Healthcare Connect Fund, as described in 
this Order, will apply to the SNF Pilot. After reviewing the 
applications, the Bureau then will announce the SNF Pilot participants. 
We delegate authority to the Bureau to implement the SNF Pilot 
consistent with the framework established in this Order, and specify 
that USAC shall disburse no more than $50 million to fund the SNF 
Pilot, as directed by the Bureau.
    279. To be eligible for funding, those seeking to participate in 
SNF Pilot projects must commit to robust data gathering as well as 
analysis and sharing of the data and to submitting an annual report. 
Applicants will be expected to explain what types of data they intend 
to gather and how they intend to gather that data. At the conclusion of 
the Pilot, we expect applicants to be prepared to demonstrate with 
objective, observable metrics the health care cost savings and/or 
improved quality of patient care that have been realized through 
greater use of broadband to provide telemedicine to treat the residents 
of SNFs. We authorize USAC to use administrative expenses from the Fund 
to perform data gathering and related functions. The Commission plans 
to make this data public for the benefit of all interested parties, 
including third parties that may use such information for their own 
studies and observations.

IX. Miscellaneous

A. Implementation Timeline

    280. Discussion. In this Order, we adopt for the Healthcare Connect 
Fund the same general funding schedule that is currently used in the 
Telecommunications and Internet Access Programs. Thus, applicants 
seeking support under the Healthcare Connect Fund may start the 
competitive bidding process anytime after January 1 (six months before 
the July 1 start of the funding year) and can submit a request for 
funding at any time during that funding year (i.e. between July 1 and 
June 30) for services received during that funding year.
    281. For the first funding year of the Healthcare Connect Fund (FY 
2013, which runs from July 1, 2013 to June 30, 2014), we adopt a 
schedule in which the funding for Pilot project applicants and new 
applicants begins at different times. The schedule for Pilot project 
applicants will remain unchanged. Starting on July 1, 2013, Pilot 
projects can seek universal service support under the Healthcare 
Connect Fund at a 65 percent discount level for existing HCP sites that 
have exhausted funding allocated to them as well as for new sites to be 
added to Pilot project networks.
    282. For new applicants (either current Telecommunications or 
Internet Access Program participants or HCPs new to the Commission's 
programs), the funding schedule will be different in FY 2013. For FY 
2013 only, the competitive bidding process for non-Pilot Healthcare 
Connect Fund applicants will start in late summer 2013, with applicants 
eligible to receive funds starting on January 1, 2014. This six-month 
delay is necessary to complete administrative processes relating to the 
new program, including obtaining approval for new forms under the 
Paperwork Reduction Act. Starting in FY 2014 (July 1, 2014-June 30, 
2015), all applicants will be on the same funding year schedule and 
will be able to request funds from USAC between July 1-June 30, after 
completing a competitive bidding process that may start on or after 
January 1. In addition, to ensure a smooth transition and to minimize 
the administrative burden, eligible rural HCPs may continue to receive 
support under the RHC Internet Access Program through the end of 
funding year 2013, or through June 30, 2014.
    283. A timeline of the funding schedule for the first year of the 
program for both Pilot project applicants and non-Pilot applicants 
appears in the figure below.

                                                                            Funding Year 2013 Implementation Timeline
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  Jan.     Feb.     Mar.     Apr.     May      June     July     Aug.    Sept.     Oct.     Nov.     Dec.     Jan.     Feb.     Mar.     Apr.     May      June
                                  2013     2013     2013     2013     2013     2013     2013     2013     2013     2013     2013     2013     2014     2014     2014     2014     2014     2014
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Pilot Project Applicants......  Pilot projects determine
                                 their service needs and
                                 prepare RFPs in
                                 accordance with reformed
                                 program rules
                                Competitive bidding
                                 starts during second
                                       quarter 2013
                                                                               2013 Funding
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Non-Pilot Project Applicants..  New program applicants organize themselves,
                                 determine their service needs, and prepare RFPs
                                Competitive bidding starts during third quarter 2013
                                      and continues through fourth quarter 2013
                                                    2013 Funding
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    284. As shown in the chart, starting the competitive bidding 
process in summer of 2013 will give non-Pilot Healthcare Connect Fund 
applicants time to organize as consortia, to determine their service 
needs, to design RFPs, and to complete the competitive bidding process 
before requesting funds from USAC. The experience of Pilot Program 
participants suggest that it takes at least six months for consortia to 
organize themselves, obtain the necessary authorizations from 
individual health care providers, assess broadband needs for the 
members, and

[[Page 13973]]

prepare RFPs. Pilot experience also suggests that can take 
approximately six additional months for a consortium to post the RFP, 
receive bids, evaluate bids properly, and negotiate a contract. If 
funding were available July 1, 2013, new applicants would not have 
enough time to complete all these steps. A possible result could be 
poorly organized consortia and ill-considered network designs, which 
would be inconsistent with our overarching program goals. In order to 
maximize the cost-effectiveness of bulk buying and competitive bidding, 
it is important to allow sufficient time for needs assessment, network 
design, and RFP preparation, as well sufficient time to solicit a range 
of competitive bids, select a vendor, and negotiate a contract. Making 
funding available beginning January 1, 2014, will allow time for all 
these activities to take place and to enable applicants to create well-
designed networks and to obtain cost-effective bids.
    285. This funding cycle also will encourage individual HCPs to join 
new or existing consortia rather than applying for funding alone. We 
expect that some potential single HCP applicants will receive offers to 
join existing Pilot project networks or newly-formed consortia. We 
encourage this collaboration. As discussed in the Pilot Evaluation, 
consortia are able to obtain higher bandwidths, lower rates, and better 
service quality, and they save on administrative costs. By making 
funding available at the same time for consortium applicants and single 
applicants, there will be more time for coordination and outreach 
between consortia applicants and their prospective members to occur. In 
the meantime, individual HCPs can still receive support through the 
Telecommunications or Internet Access Programs until they are eligible 
to seek funds under the Healthcare Connect Fund.
    286. The same considerations do not apply to the Pilot projects. 
They have already completed the multi-step process of forming consortia 
and conducting competitive bidding. Allowing them to begin receiving 
funding effective July 1, 2013, will benefit both existing Pilot 
project HCPs and HCPs that seek to join existing Pilot projects. 
Allowing new sites joining existing Pilot projects to receive funds on 
July 1, 2013, will encourage those projects to grow and become large-
scale networks. This funding schedule will also provide sites that will 
exhaust Pilot Program funding on or before July 1, 2013, a smooth 
transition into the new program. As the Commission observed in 
providing transitional funding to such Pilot project HCPs in the Bridge 
Funding Order, it is important for the sustainability of these networks 
that they are not forced to transition twice to different RHC 
programs--first to the Telecommunications or Internet Access Programs 
and then to the Healthcare Connect Fund. Without an orderly transition 
to the new program, some individual Pilot project HCPs could be at risk 
of discontinuing their participation in their respective networks. This 
would be contrary to the goals of the Pilot Program. Providing 
continuing support (albeit at the discount level applicable under the 
Healthcare Connect Fund) will help protect the investment the 
Commission has already made in these networks.
    287. Outreach efforts will be essential in order to maximize 
potential of the Healthcare Connect Fund to support broadband and 
thereby transform the provision of health care for both individual HCPs 
and consortia. We therefore direct the Bureau to work with USAC to 
develop and execute a range of outreach activities to make HCPs aware 
of the new program and to educate them about the application process. 
We expect the Bureau will consult with other health care regulatory 
agencies (such as HHS); with state, local, and Tribal governments; with 
organizations representing HCPs (especially rural HCPs); and with other 
stakeholder groups to identify the best means to publicize the new 
program and to identify likely beneficiaries of the new program--both 
HCPs already participating in RHC programs and those that are not. We 
direct USAC to produce and disseminate outreach materials designed to 
educate eligible HCPs about the new program. In addition, we direct 
USAC to implement a mechanism for any interested party to subscribe to 
an automated alert from USAC when Healthcare Connect Fund requests for 
services or RFPs are posted, based on available filtering criteria.

B. Pilot Program Transition Process and Requests for Additional Funds

    288. The final deadline for filing requests for funding commitments 
in the RHC Pilot Program was June 30, 2012. As discussed in the Pilot 
Evaluation, several projects either withdrew from the program or merged 
with other projects, leaving 50 active Pilot projects. Every one of 
these remaining projects met the June 30 deadline for filing funding 
commitment requests. USAC is likely to complete the processing of all 
these funding requests by the end of calendar year 2012. Projects have 
up to six years from the date of issuance of the initial funding 
commitment letter for the applicable project to complete invoicing. 
Thus, by the latter part of calendar year 2017, all invoicing under the 
Pilot Program should be completed.
    289. We would expect that as the Pilot projects and their member 
HCPs begin to exhaust Pilot funding, they will migrate as consortia 
into the Healthcare Connect Fund. Pilot participants are at different 
points in the process of implementing their networks and invoicing for 
the services or infrastructure in their projects. As discussed in the 
Commission's Bridge Funding Order, released in July 2012, a number of 
projects began to exhaust funding for some of their HCP sites in 2012, 
and the Commission provided continued funding for those sites pursuant 
to that order. Although we believe the rules we adopt in this Order 
should permit an easy transition for the Pilot Program participants, we 
delegate to the Bureau the authority to adopt any additional procedures 
and guidelines that may be necessary to smooth this process. In the 
Implementation Timeline section, we make support under the Healthcare 
Connect Fund for the transitioning Pilot Program participants effective 
on July 1, 2013, in order to ensure that there are no gaps in support 
for them. We permit them to use the same forms they used in the Pilot 
Program to secure funding pursuant to the Bridge Funding Order. Once 
their currently committed Pilot funds are exhausted, they will be 
required to provide a 35 percent contribution (not the 15 percent in 
the Pilot Program), and will not be eligible to receive support for 
anything that is not covered under the Healthcare Connect Fund.
    290. Several Pilot projects filed requests for additional support, 
asking the Commission to use funds that were originally allocated to 
the Pilot Program, but were relinquished or unspent by other Pilot 
projects that withdrew or did not use their full awards. In their 
requests for additional funding, these pilot projects argued, among 
other things, that remaining Pilot funding should be redirected to 
projects that have demonstrated substantial progress with their 
original awards and that these additional funds would facilitate 
expansion of these successful projects.
    291. In light of our creation of the new Healthcare Connect Fund, 
we deny these requests for additional Pilot Program funding. First, we 
note that Pilot projects may now seek additional funding through the 
Healthcare Connect Fund, once their current awards are exhausted, so 
there is no reason to

[[Page 13974]]

provide these Pilots preferential treatment over other consortia. 
Second, the Pilot Program was just that--a pilot, or trial, program 
launched to examine how the RHC program could be used to enhance HCP 
access to advanced services and to lay the foundation for the reformed 
program. It would be contrary to the limited scope of the Pilot Program 
to authorize additional Pilot Program support at this time. Finally, 
disbursement of additional Pilot program support would be inconsistent 
with the Commission's 2007 directive that Pilot Program applicants that 
were denied funding at that time could reapply for RHC funding in the 
reformed program. The Pilot projects requesting additional support may 
reapply in the reformed program, just as denied applicants may do. To 
grant these requesting Pilot projects additional support without 
requiring new applications would unfairly advantage them to the 
detriment of the denied Pilot applicants. Instead, we direct USAC to 
utilize unused Pilot Program funds for the demand associated with the 
Healthcare Connect Fund.
    292. We also dismiss a request by the Texas Health Information 
Network Collaborative (TxHINC) for an extension of the June 30, 2012, 
Pilot Program deadline for projects to choose vendors and request 
funding commitment letters from USAC. In its request, TxHINC explains 
that, due to circumstances unique to Texas, it was delayed in choosing 
vendors and submitting funding requests to USAC. We dismiss TxHINC's 
request, finding it moot because TxHINC ultimately filed its request 
for funding commitments by the June 30, 2012 deadline.

C. Prioritization of Funding

    293. In the NPRM, the Commission sought comment on whether to 
establish an annual cap of $100 million for support under the proposed 
Health Infrastructure Program, and sought comment on whether to 
establish criteria for prioritizing funding should the infrastructure 
program exceed that cap in a particular year. The Commission stated 
that it did not believe that the proposed Health Broadband Services 
Program initially would exceed the amount of available funds, but 
sought comment on possible prioritization procedures in the event that 
the total requests for funding under the Telecommunications and the new 
programs were to exceed the Commission's established $400 million 
annual cap.
    294. Discussion. After consideration of the record received in 
response to the prioritization proposals in the NPRM, we will continue 
for the time being to apply the existing rule for addressing situations 
when total requests exceed the $400 million cap. Demand in this program 
has never come close to the $400 million annual cap, and we believe 
that we are unlikely to reach the cap in the foreseeable future. We 
direct USAC to periodically inform the public, through its web site, of 
the total dollar amounts that have been (1) requested by HCPs, as well 
as the total dollar amounts that have been actually committed by USAC 
for the funding year. USAC should post this information for both the 
$150 million cap on multi-year commitments and the $400 million cap 
that applies to the entire rural health care supporty mechanism. We do 
intend, however, to conduct further proceedings and issue an Order by 
the end of 2013 regarding the prioritization of support for all the RHC 
universal service programs. In the meantime, we will continue to rely 
upon, as a backstop, the approach codified in our existing rules, in 
the unlikely event that funding requests do reach the $400 million cap 
before we have established other prioritization procedures.
    295. We believe it is unlikely that the combined health care 
support programs will approach the $400 million annual cap any time 
soon. It will likely take a significant amount of time for new 
consortia to organize, identify broadband needs, prepare RFPs, conduct 
competitive bidding, and select vendors, and for that reason it will be 
at least a year before funding will begin to flow to new applicants in 
the program. Given the Pilot Program experience, it will likely take 
even longer than that for many consortium applicants to be ready to 
seek funding under the Healthcare Connect Fund. In addition, our 
decision to require a 35 percent participant contribution, the 
limitations we impose on participation by non-rural HCPs, and the $150 
million cap on annual funds for upfront payments all should moderate 
demand for funding in the near term. Finally, the pricing and other 
efficiencies made possible through consortium purchase of a broader 
array of services also should help drive down the cost of connections 
supported by the RHC component of the Universal Service Fund, as some 
Telecommunications Program participants migrate to the reformed 
program. For that reason, we project growth in the combined health care 
universal service fund to remain well under the $400 million cap over 
the next five years. Because we lack historical demand data for the 
Healthcare Connect Fund, and because the new program provides support 
for multi-year contracts and other upfront payments, we direct the 
Bureau, working with OMD and with the Administrator, to project the 
amounts to be collected for the USF for the early period of the new 
program, until such time as historical data provides an adequate basis 
for projecting demand.

D. Offset Rule

    296. In the NPRM, the Commission explained that, despite its 
intended benefits, the offset rule can create inequities and 
inefficiencies. Based on the offset rule's shortcomings, the Commission 
proposed to eliminate the rule for participants in the Broadband 
Services Program (now part of the Healthcare Connect Fund) and the 
existing RHC program, and replace it with a rule allowing service 
providers to receive direct reimbursement from USAC. The Commission 
also sought comment on whether to retain the offset rule as an option 
for contributors who wish to utilize this method.
    297. Discussion. While the original intent of the offset rule was 
to prevent waste, fraud, and abuse, we find that mandatory application 
of the rule is no longer necessary or advisable. Our action here is not 
the first instance in which the Commission has recognized the 
shortcomings of the offset rule. Indeed, the Bureau has waived the 
offset rule in several instances because strict application of the rule 
would have jeopardized the precarious finances and operations of some 
small, rural HCPs and their service providers. Further, service 
providers who are not required to contribute to the Fund already 
receive direct reimbursement. Based on the wide variety of vendors 
participating in the Pilot Program, we believe that direct 
reimbursement encouraged extensive bidding on RFPs in the Pilot 
Program. Likewise, we expect that enabling carriers to elect direct 
reimbursement in the Healthcare Connect Fund will encourage many more 
vendors to bid on RFPs than if offset was mandatory, because they will 
not have to wait to receive reimbursement until they can offset their 
universal service contribution amount.
    298. In light of the shortcomings of the offset rule discussed 
above, and in consideration of the relevant comments, we revise Sec.  
54.611 of the Commission's rules to eliminate mandatory application of 
the offset procedure. Commenters unanimously support having the option 
of direct reimbursement, arguing, among other

[[Page 13975]]

things, that the offset requirement is obsolete, outdated, and 
administratively burdensome, and that it delays payment to carriers. We 
will permit USF contributors in the Telecommunications Program and the 
Healthcare Connect Fund to elect whether to treat the amount eligible 
for support as an offset against their universal service contribution 
obligation, or to receive direct reimbursement from USAC. We adopt a 
new rule for the Healthcare Connect Fund and the Telecommunications 
Program to effectuate this approach.
    299. We note that, while commenters unanimously support direct 
reimbursement, they do not agree on whether to maintain offset as an 
option. TeleQuality recommends that service providers be given an 
offset option. Several other commenters do not directly advocate for an 
offset option but implicitly support it in their support of our 
proposed rule which includes an offset option. Conversely, a few 
commenters seek elimination of offset even as an option, with Charter 
Communications asking the Commission to ``formalize its recognition of 
the deficiencies of the offset rule by eliminating it in the new RHC 
programs.'' While we recognize the deficiencies of mandatory offset, we 
conclude it is appropriate to maintain offset as an option because it 
affords flexibility to carriers that deem offset simpler or otherwise 
more beneficial than direct reimbursement. Further, while carriers such 
as Charter and GCI prefer, and likely will choose, direct 
reimbursement, an offset option will not disadvantage them in any way. 
Finally, our revised rule is consistent with the choice available in 
the E-rate program, in which service providers may opt to use the 
offset method or receive direct reimbursement from USAC.
    300. Also as we do in the E-rate program, each January we will 
require service providers to elect the method by which they will be 
reimbursed, and require that they remain subject to this method for the 
duration of the calendar year using Form 498, as is the case in the E-
rate program. Form 498 will need to be revised to accommodate such 
elections in the health care support mechanism, and the revised form is 
unlikely to be approved by OMB under the Paperwork Reduction Act prior 
to January 31, 2013. Therefore, once revised Form 498 is available, we 
direct the Bureau to announce via public notice a 30-day window for 
service providers to make their offset/direct reimbursement election 
for the health care support mechanism for 2013. To the extent that a 
service provider fails to remit its monthly universal service 
obligation, however, any support owed to it under the Healthcare 
Connect Fund or the Telecommunications Program will automatically be 
applied as an offset to the service provider's annual universal service 
obligation.

E. Delegation To Revise Rules

    301. Given the complexities associated with modifying existing 
rules as well as other reforms adopted in this Order, we delegate 
authority to the Bureau to make any further rule revisions as necessary 
to ensure the reforms adopted in this Order are reflected in the rules. 
This includes correcting any conflicts between the new and or revised 
rules and existing rules as well as addressing any omissions or 
oversights. If any such rule changes are warranted, the Bureau shall be 
responsible for such change. We note that any entity that disagrees 
with a rule change made on delegated authority will have the 
opportunity to file an Application for Review by the full Commission.

X. Procedural Matters

A. Final Regulatory Flexibility Certification

    302. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the NPRM. The Commission sought written public comment 
on the proposals in the NPRM, including comment on the IRFA. This 
present Final Regulatory Flexibility Analysis (FRFA) conforms to the 
RFA.
1. Need for, and Objectives of, the Order
    303. The Commission is required by section 254 of the 
Communications Act of 1934, as amended, 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 
programs, the Commission adopted a program to provide discounted 
telecommunications services to public or non-profit health care 
providers (HCPs) that serve persons in rural areas. The changing 
technological landscape in rural health care over the past decade has 
prompted us to propose a new structure for the rural health care 
universal service support mechanism.
    304. In this Order, we reform the Rural Health Care (RHC) Support 
Mechanism and adopt the Healthcare Connect Fund to expand HCP access to 
high-speed broadband capability and broadband health care networks, 
improving the quality and reducing the cost of health care throughout 
America, particularly in rural areas. Additionally, we adopt a pilot 
program to be implemented in 2014 to test how to support broadband 
connections for skilled nursing facilities (SNF Pilot).
    305. Building on recommendations from the Staff Evaluation of the 
Pilot Program and comments received in response to the Commission's 
NPRM and the July 19 Public Notice, the reforms adopted in this Order 
build on the substantial impact the RHC program has on improving 
broadband connectivity to HCPs. Broadband connectivity generates a 
number of benefits and cost savings for HCPs. First, telemedicine 
enables patients in rural areas to access specialists and can improve 
the speed and enhance the quality of health care everywhere. Second, 
connectivity enables the exchange of electronic health records, which 
is likely to become more widespread as more providers adopt 
``meaningful use'' of such records. Third, connectivity enables the 
exchange of large medical images (such as MRIs and CT scans), which can 
improve the speed and quality of diagnosis and treatment. Fourth, 
connectivity enables remote health care personnel to be trained via 
videoconference and to exchange other technical and medical expertise. 
Fifth, these ``telehealth'' applications have the potential to greatly 
reduce the cost of providing health care, for example by reducing 
length of stay or saving on patient transport costs. Finally, 
telemedicine can help rural HCPs keep and treat patients locally, thus 
enhancing revenue streams and helping rural providers to keep their 
doors open.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    306. No comments were filed in response to the IFRA attached to the 
NPRM. Notwithstanding the foregoing, some general comments discussing 
the impact of the proposed rules on small businesses were submitted in 
response to the NPRM and the July 19 Public Notice.
    307. Several commenters expressed concern that administrative and 
reporting requirements for the new program might be too burdensome for 
small HCPs. Many commenters suggested abandoning quarterly reporting 
requirements in favor of annual or semi-annual reporting to reduce 
administrative burdens. Several commenters asked for a common

[[Page 13976]]

reporting format, and requested that reporting requirements not be too 
onerous. OHN recommended that the Commission authorize electronic 
signatures for all processes, especially the invoice approval process; 
permit electronic document submission; permit electronic administrative 
linkage into FCC/USAC project tracking systems; and support web-based 
electronic survey and reporting tools to gather, present, and compare 
data. Some commenters also expressed concern that imposing detailed 
technical requirements on health services infrastructure projects might 
``discourage investment in broadband infrastructure projects and even 
foreclose the use of certain technologies.''
    308. Responses to the NPRM and July 19 Public Notice also 
emphasized a streamlined approach to the competitive bidding 
requirements through the use of consortium applications and multiyear 
contracts. For example, one commenter stated that consortium 
applications would take the administrative burden off small HCPs who do 
not have the time or resources to apply for funds. However, one of the 
Pilot Projects, PSPN, noted that a mandated multi-year contract for at 
least 5 years could be burdensome to service providers.
    309. Finally, one commenter specifically recommended that the 
Commission encourage participation from small and women-owned 
businesses by reducing or waiving matching contributions requirements 
for non-profit small and women-owned businesses acting as consortium 
leaders; streamlining administrative reporting requirements; and 
increasing the performance bond minimum requirement for contracts of 
$300,000 or higher from the $150,000 floor. In making the 
determinations reflected in this Order, we have considered the impact 
of our actions on small entities.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    310. 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 rules adopted herein. 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). In 2009, there were 27.5 million businesses in 
the United States, according to SBA Office of Advocacy estimates. The 
latest available Census data show that there were 5.9 million firms 
with employees in 2008 and 21.4 million without employees in 2008. 
Small firms with fewer than 500 employees represent 99.9 percent of the 
total (employers and non-employers), as the most recent data show there 
were 18,469 large businesses in 2008.
    311. Small entities potentially affected by the reforms adopted 
herein include eligible non-profit and public health care providers and 
the eligible service providers offering them services, including 
telecommunications service providers, Internet Service Providers 
(ISPs), and vendors of the services and equipment used for dedicated 
broadband networks.
i. Health Care Entities
    312. As noted earlier, 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 small business providers with annual receipts of $7 
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 such providers with $10 million or less in 
annual receipts consists of: Offices of Physicians (except Mental 
Health Specialists); 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 such 
providers with $13.5 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 $34.5 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 are a combined total of 
368,143 firms that operated for all of 2002. Of these, 356,829 had 
receipts for that year of less than $5 million. In addition, an 
additional 6,498 firms had annual receipts of $5 million to $9.99 
million; and additional 3,337 firms had receipts of $10 million to 
$24.99 million; and an additional 865 had receipts of $25 million to 
$49.99 million. We therefore estimate that virtually all Ambulatory 
Health Care Services providers are small, given SBA's size categories. 
We note, however, that our rules affect non-profit and public health 
care providers, and many of the providers noted above would not be 
considered ``public'' or ``non-profit.''
    313. The broad category of Hospitals consists of the following 
categories, with an SBA small business size standard of annual receipts 
of $34.5 million or less: General Medical and Surgical Hospitals, 
Psychiatric and Substance Abuse Hospitals; and Specialty (Except 
Psychiatric and Substance Abuse) Hospitals. For these health care 
providers, census data indicate that there is a combined total of 3,800 
firms that operated for all of 2002, of which 1,651 had revenues of 
less than $25 million, and an additional 627 firms had annual receipts 
of $25 million to $49.99 million. We therefore estimate that most 
Hospitals are small, given SBA's size categories.
    314. The broad category of Nursing and Residential Care Facilities 
consists, inter alia, of the category of Skilled Nursing Facilities, 
with a small business size standard of annual receipts of $13.5 million 
or less. For these businesses, census data indicate that there were a 
total of 16,479 firms that operated for all of 2002. All of these firms 
had annual receipts of below $1 million. We therefore estimate that 
such firms are small, given SBA's size standard.
    315. The broad category of Social Assistance consists, inter alia, 
of the category of Emergency and Other Relief Services, with a small 
business size standard of annual receipts of $7 million or less. For 
these health care providers, census data indicate that there were a 
total of 55 firms that operated for all of 2002. All of these firms had 
annual receipts of below $1 million. We therefore estimate that all 
such firms are small, given SBA's size standard.

[[Page 13977]]

ii. Providers of Telecommunications and Other Services
a. Telecommunications Service Providers
    316. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were a total of 3,188 
firms in this category that operated for the entire year. Of this 
total, 3144 firms employed 999 or fewer employees, and 44 firms 
employed 1000 employees or more. Thus, under this size standard, the 
majority of firms can be considered small entities that may be affected 
by rules adopted pursuant to this Order.
    317. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to local exchange services. The 
closest applicable size standard under SBA rules is for Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,307 carriers reported that they were incumbent local exchange 
service providers. Of these carriers, an estimated 1,006 have 1,500 or 
fewer employees and 301 have more than 1,500 employees. Consequently, 
the Commission estimates that most providers of local exchange service 
are small entities that may be affected by rules adopted pursuant to 
this Order.
    318. We have included small incumbent LECs in this present RFA 
analysis. 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 LECs are not dominant 
in their field of operation because any such dominance is not 
``national'' in scope. We have therefore included small incumbent LECs 
in this RFA analysis, although we emphasize that this RFA action has no 
effect on Commission analyses and determinations in other, non-RFA 
contexts.
    319. Competitive Local Exchange Carriers (competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. Neither the Commission nor the SBA 
has developed a small business size standard specifically for these 
service providers. The closest applicable size standard under SBA rules 
is for Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 1,442 carriers reported that they were engaged in 
the provision of either competitive local exchange services or 
competitive access provider services. Of these carriers, an estimated 
1,256 have 1,500 or fewer employees and 186 have more than 1,500 
employees. In addition, 17 carriers have reported that they are Shared-
Tenant Service Providers, and all 17 are estimated to have 1,500 or 
fewer employees. In addition, 72 carriers have reported that they are 
Other Local Service Providers. Of these 72 carriers, an estimated 70 
have 1,500 or fewer employees and two have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive local exchange service, competitive access providers, 
Shared-Tenant Service Providers, and Other Local Service Providers are 
small entities that may be affected by rules adopted pursuant to this 
Order.
    320. Interexchange Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to interexchange services. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 359 companies reported that their primary 
telecommunications service activity was the provision of interexchange 
services. Of these companies, an estimated 317 have 1,500 or fewer 
employees and 42 have more than 1,500 employees. Consequently, the 
Commission estimates that the majority of interexchange service 
providers are small entities that may be affected by rules adopted 
pursuant to this Order.
    321. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of ``Paging'' and ``Cellular and Other 
Wireless Telecommunications.'' Under the present and prior categories, 
the SBA has deemed a wireless business to be small if it has 1,500 or 
fewer employees. For this category, census data for 2007 show that 
there were 1,383 firms that operated for the entire year. Of this 
total, 1,368 firms employed 999 or fewer employees and 15 employed 1000 
employees or more. Similarly, according to Commission data, 413 
carriers reported that they were engaged in the provision of wireless 
telephony, including cellular service, Personal Communications Service 
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these, 
an estimated 261 have 1,500 or fewer employees and 152 have more than 
1,500 employees. Consequently, the Commission estimates that 
approximately half or more of these firms can be considered small. 
Thus, using available data, we estimate that the majority of wireless 
firms can be considered small entities that may be affected by the 
rules adopted pursuant to this Order.
    322. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and specialized mobile radio 
telephony carriers. As noted, the SBA has developed a small business 
size standard for Wireless Telecommunications Carriers (except 
Satellite). Under the SBA small business size standard, a business is 
small if it has 1,500 or fewer employees. According to the 2008 Trends 
Report, 434 carriers reported that they were engaged in wireless 
telephony. Of these, an estimated 222 have 1,500 or fewer employees and 
212 have more than 1,500 employees. We have estimated that 222 of these 
are small under the SBA small business size standard.
    323. Satellite Telecommunications and All Other Telecommunications. 
Since 2007, the SBA has recognized satellite firms within this revised 
category, with a small business size standard of $15 million. The most 
current Census Bureau data are from the economic census of 2007, and we 
will use those figures to gauge the prevalence of small businesses in 
this category. Those size standards are for the two census categories 
of ``Satellite Telecommunications'' and ``Other Telecommunications.'' 
Under the ``Satellite Telecommunications'' category, a business is 
considered small if it had $15 million or less in average annual 
receipts. Under the ``Other Telecommunications'' category, a business 
is considered small if it had $25 million or less in average annual 
receipts.
    324. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and 
receiving communications signals via a system of satellites or 
reselling satellite

[[Page 13978]]

telecommunications.'' For this category, Census Bureau data for 2007 
show that there were a total of 512 firms that operated for the entire 
year. Of this total, 464 firms had annual receipts of under $10 
million, and 18 firms had receipts of $10 million to $24,999,999. 
Consequently, we estimate that the majority of Satellite 
Telecommunications firms are small entities that might be affected by 
rules adopted pursuant to this Order.
    325. The second category of Other Telecommunications ``primarily 
engaged in providing specialized telecommunications services, such as 
satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing Internet services or 
voice over Internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry.'' 
For this category, Census Bureau data for 2007 show that there were a 
total of 2,383 firms that operated for the entire year. Of this total, 
2,346 firms had annual receipts of under $25 million. Consequently, we 
estimate that the majority of Other Telecommunications firms are small 
entities that might be affected by our action.
b. Internet Service Providers
    326. Internet Service Providers. Since 2007, these services have 
been defined within the broad economic census category of Wired 
Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard of 
1,500 or fewer employees. According to Census Bureau data from 2007, 
there were 3,188 firms in this category, total, that operated for the 
entire year. Of this total, 3,144 firms had employment of 999 or fewer 
employees, and 44 firms had employment of 1000 employees or more. 
Consequently, we estimate that the majority of these firms are small 
entities that may be affected by rules adopted pursuant to this Order.
    327. Data Processing, Hosting, and Related Services. Entities in 
this category ``primarily * * * provid[e] infrastructure for hosting or 
data processing services.'' The SBA has developed a small business size 
standard for this category; that size standard is $25 million or less 
in average annual receipts. According to Census Bureau data for 2007, 
there were 8,060 firms in this category that operated for the entire 
year. Of these, 7,744 had annual receipts of under $24,999,999. 
Consequently, we estimate that the majority of these firms are small 
entities that may be affected by rules adopted pursuant to this Order.
    328. All Other Information Services. The Census Bureau defines this 
industry as including ``establishments primarily engaged in providing 
other information services (except news syndicates, libraries, 
archives, Internet publishing and broadcasting, and Web search 
portals).'' Our action pertains to interconnected VoIP services, which 
could be provided by entities that provide other services such as 
email, online gaming, web browsing, video conferencing, instant 
messaging, and other, similar IP-enabled services. The SBA has 
developed a small business size standard for this category; that size 
standard is $7.0 million or less in average annual receipts. According 
to Census Bureau data for 2007, there were 367 firms in this category 
that operated for the entire year. Of these, 334 had annual receipts of 
under $5.0 million, and an additional 11 firms had receipts of between 
$5 million and $9,999,999. Consequently, we estimate that the majority 
of these firms are small entities that may be affected by rules adopted 
pursuant to this Order.
c. Vendors and Equipment Manufacturers
    329. Vendors for Infrastructure Development or ``Network Buildout'' 
Construction. The Commission has not developed a small business size 
standard specifically directed toward manufacturers of network 
facilities. The closest applicable definition of a small entity are the 
size standards under the SBA rules applicable to manufacturers of 
``Radio and Television Broadcasting and Communications Equipment'' 
(RTB) and ``Other Communications Equipment.''
    330. Telephone Apparatus Manufacturing. The Census Bureau defines 
this category as follows: ``This industry comprises establishments 
primarily engaged in manufacturing wire telephone and data 
communications equipment. These products may be standalone or board-
level components of a larger system. Examples of products made by these 
establishments are central office switching equipment, cordless 
telephones (except cellular), PBX equipment, telephones, telephone 
answering machines, LAN modems, multi-user modems, and other data 
communications equipment, such as bridges, routers, and gateways.'' The 
SBA has developed a small business size standard for Telephone 
Apparatus Manufacturing, which is: All such firms having 1,000 or fewer 
employees. According to Census Bureau data for 2002, there were a total 
of 518 establishments in this category that operated for the entire 
year. Of this total, 511 had employment of under 1,000, and an 
additional 7 had employment of 1,000 to 2,499. Thus, under this size 
standard, the majority of firms can be considered small.
    331. Radio and Television Broadcasting and Wireless Communications 
Equipment Manufacturing. The Census Bureau defines this category as 
follows: ``This industry comprises establishments primarily engaged in 
manufacturing radio and television broadcast and wireless 
communications equipment. Examples of products made by these 
establishments are: Transmitting and receiving antennas, cable 
television equipment, GPS equipment, pagers, cellular phones, mobile 
communications equipment, and radio and television studio and 
broadcasting equipment.'' The SBA has developed a small business size 
standard for Radio and Television Broadcasting and Wireless 
Communications Equipment Manufacturing, which is: All such firms having 
750 or fewer employees. According to Census Bureau data for 2002, there 
were a total of 1,041 establishments in this category that operated for 
the entire year. Of this total, 1,010 had employment of under 500, and 
an additional 13 had employment of 500 to 999. Thus, under this size 
standard, the majority of firms can be considered small.
    332. Other Communications Equipment Manufacturing. The Census 
Bureau defines this category as follows: ``This industry comprises 
establishments primarily engaged in manufacturing communications 
equipment (except telephone apparatus, and radio and television 
broadcast, and wireless communications equipment).'' The SBA has 
developed a small business size standard for Other Communications 
Equipment Manufacturing, which is: All such firms

[[Page 13979]]

having 750 or fewer employees. According to Census Bureau data for 
2002, there were a total of 503 establishments in this category that 
operated for the entire year. Of this total, 493 had employment of 
under 500, and an additional 7 had employment of 500 to 999. Thus, 
under this size standard, the majority of firms can be considered 
small.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    333. The reporting and recordkeeping requirements in this Order 
could have an impact on both small and large entities. However, even 
though the impact may be more financially burdensome for smaller 
entities, the Commission believes the impact of such requirements is 
outweighed by the benefit of providing the additional support necessary 
to make broadband available for HCPs to provide health care to rural 
and remote areas, and to make broadband rates for public and non-profit 
HCPs lower. Further, these requirements are necessary to ensure that 
the statutory goals of section 254 of the Telecommunications Act of 
1996 are met without waste, fraud, or abuse.
    334. Eligibility Determination. For each HCP listed, applicants 
will be required to provide the HCP's address and contact information; 
identify the eligible HCP type; provide an address for each physical 
location that will receive supported connectivity; provide a brief 
explanation for why the HCP is eligible under the Act and the 
Commission's rules and orders; and certify to the accuracy of this 
information under penalty of perjury.
    335. Consortium Leaders should obtain supporting information and/or 
documents to support eligibility for each HCP when they collect LOAs. 
Consortium applicants must also submit documentation regarding network 
planning as part of the application process, although the Commission 
will monitor experience under the new rule, and may make adjustments in 
the future, if necessary, to ensure that this requirement is minimally 
burdensome while creating appropriate incentives for applicants to make 
thoughtful, cost-effective purchases. Applicants in the Healthcare 
Connect Fund are not required to submit technology plans with their 
requests for service, but the Commission may re-evaluate this decision 
in the future based on experience with the new program.
    336. Process for initiating competitive bidding for requested 
services. Applicants must develop appropriate evaluation criteria for 
selecting the winning bid before submitting a request for services to 
USAC to initiate competitive bidding. The evaluation criteria should be 
based on the Commission's definition of ``cost-effective,'' and include 
the most important criteria needed to provide health care, as 
determined by the applicant. Applicants should also begin to identify 
possible sources for the 35 percent of undiscounted costs.
    337. Applicants subject to competitive bidding must submit new FCC 
Form 461 and supporting documentation to the Universal Service 
Administrative Company (USAC). On Form 461, applicants must provide 
basic information regarding the HCP(s) on the application (including 
contact information for potential bidders); a brief description of the 
desired services; and certifications designed to ensure compliance with 
program rules and minimize waste, fraud, and abuse.
    338. Applicants must supplement their Form 461 with a Request for 
Proposals (RFP) on USAC's Web site in the following instances: (1) 
Consortium applications that seek more than $100,000 in program support 
in a funding year; (2) applicants who are required to issue an RFP 
under applicable state or local procurement rules or regulations; and 
(3) consortium applications that seek support for infrastructure (i.e. 
HCP-owned facilities) as well as services. In addition, any applicant 
is free to post an RFP.
    339. Applicants also are required to submit the following 
documents, which will not be publicly posted by USAC.
    340. Form 460. Applicants should submit Form 460 to certify to the 
eligibility of HCP(s) listed on the application, if they have not 
previously done so.
    341. Letters of Agency for Consortium Applicants. Consortium 
applicants should submit letters of agency demonstrating that the 
Consortium Leader is authorized to submit Forms 460, 461, and 462, as 
applicable, including required certifications and any supporting 
materials, on behalf of each participating HCP in the consortium.
    342. Declaration of Assistance. As in the Pilot Program, all 
applicants must identify, through a Declaration of Assistance, any 
consultants, service providers, or any other outside experts, whether 
paid or unpaid, who aided in the preparation of their applications. The 
Declaration of Assistance must be filed with the Form 461. Identifying 
these consultants and outside experts facilitates the ability of USAC, 
the Commission, and law enforcement officials to identify and prosecute 
individuals who may seek to defraud the program or engage in other 
illegal acts. To ensure participants comply with the competitive 
bidding requirements, they must disclose all of the types of 
relationships explained above.
    343. Finally, all applicants subject to competitive bidding must 
certify to USAC that the services and/or infrastructure selected are, 
to the best of the applicant's knowledge, the most cost-effective 
option available. Applicants must submit documentation to USAC to 
support their certifications, including a copy of each bid received 
(winning, losing, and disqualified), the bid evaluation criteria, and 
any other related documents, such as bid evaluation sheets; a list of 
people who evaluated bids (along with their title/role/relationship to 
the applicant organization); memos, board minutes, or similar documents 
related to the vendor selection/award; copies of notices to winners; 
and any correspondence with service providers during the bidding/
evaluation/award phase of the process. Bid evaluation documents need 
not be in a certain format, but the level of documentation should be 
appropriate for the scale and scope of the services for which support 
is requested.
    344. Reporting Requirements. Data from participants and USAC are 
essential to the Commission's ability to evaluate whether the program 
is meeting its performance goals, and to measure progress toward 
meeting those goals. In the Healthcare Connect Program, each consortium 
lead entity must file an annual report with USAC on or before July 30 
for the preceding funding year (i.e., July 1 through and including June 
30). Individual HCP applicants do not have to fine annual reports, 
however.
    345. Recordkeeping. Consistent with Sec. Sec.  54.619(a), (b), and 
(d) of the Commission's current rules, participants and service 
providers in the Healthcare Connect Fund must maintain certain 
documentation related to the purchase and delivery of services funded 
by the RHC programs, and will be required to produce these records upon 
request.
    346. The NPRM also proposed to: (1) clarify that the documents to 
be retained by participants and service providers must include all 
records related to the participant's application for, receipt of, and 
delivery of discounted services; and (2) amend the existing rules to 
mandate that service providers, upon request, produce the records kept 
pursuant to the Commission's recordkeeping requirement. This Order 
adopts rules consistent with these proposals to enable the Commission 
and USAC to

[[Page 13980]]

obtain the records necessary for effective oversight of the RHC 
programs.
    347. Certifications. Consistent with Sec. Sec.  54.603(b) and 
54.615(c) of the current rules, participants in the Healthcare Connect 
Fund must certify under oath to compliance with certain program 
requirements, including the requirements to select the most cost-
effective bid and to use program support solely for purposes reasonably 
related to the provision of health care services or instruction. For 
individual HCP applicants, required certifications must be provided and 
signed by an officer or director of the HCP, or other authorized 
employee of the HCP (electronic signatures are permitted). For 
consortium applicants, an officer, director, or other authorized 
employee of the Consortium Leader must sign the required 
certifications.
    348. Vendors SPIN Requirement. All vendors participating in the 
Healthcare Connect Fund must obtain a Service Provider Identification 
Number (SPIN) by submitting an FCC Form 498. The SPIN is a unique 
number assigned to each service provider by USAC, and serves as USAC's 
tool to ensure that support is directed to the correct service 
provider. SPINs must be assigned before USAC can authorize support 
payments. Therefore, all service providers submitting bids to provide 
services to selected participants will need to complete and submit a 
Form 498 to USAC for review and approval if selected by a participant 
before funding commitments can be made.
    349. Skilled Nursing Facility (SNF) Pilot. SNF Pilot applicants 
must demonstrate how proposed participation of SNFs will improve the 
overall provision of health care by eligible HCPs. SNF Pilot applicants 
and participants must submit data on a number of variables (to be 
determined by the Bureau at a later date) related to the broadband 
connections supported and their health care uses, so that at the 
conclusion of the SNF Pilot, the Commission can use the data gathered 
to determine how to proceed with regard to including SNFs in the 
Commission's health care support programs on a permanent basis. SNF 
Pilot applicants also must commit to robust data gathering and 
analysis, and to submission of an annual report. Applicants must 
explain what types of data they intend to gather and how they intend to 
gather that data. At the conclusion of the Pilot, participants must 
demonstrate the health care cost savings and/or improved quality of 
patient care that have been realized through greater use of broadband 
to provide telemedicine to treat the residents of SNFs.
5. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    350. The FRFA requires an agency to describe any significant 
alternatives that it has considered in developing its approach, which 
may include the following four alternatives (among others): ``(1) The 
establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part thereof, for 
such small entities.'' Accordingly, we have taken the following steps 
to minimize the impact on small entities.
    351. Consortium approach. Consistent with support from commenters, 
this Order adopts a streamlined application process that facilitates 
consortium applications, which should enable HCPs to file many fewer 
applications and to share the administrative costs of all aspects of 
participation in the program. Each consortium must file only one 
application, instead of each individual HCP filing separate 
applications. Applying as a consortium is simpler, cheaper, and more 
efficient for small HCPs. Under the consortium approach adopted in this 
Order, the expenses associated with planning the network, applying for 
funding, issuing RFPs, contracting with service providers, and 
invoicing are shared among a number of providers. This should help 
ensure that applicants, including small entities, will not be deterred 
from applying for support due to administrative burdens.
    352. Flat-Rate Discount. In order to encourage participation in the 
Healthcare Connect Fund and relieve planning uncertainties for smaller 
entities, this Order adopts a flat-rate discount of 65 percent, clearly 
identifying the level of support that providers can reasonably expect 
to receive. By adopting a flat-rate discount, the Commission provides a 
clear and predictable support amount, thereby helping eligible HCPs to 
plan for their broadband needs. This approach is also less complex and 
easier to administer, which should expedite the application process and 
reduce administrative expenses for small entities.
    353. Competitive Bidding Exemptions. While competitive bidding is 
essential to the program, it is not without administrative costs to 
participants. In three situations, exempting funding requests from 
competitive bidding strikes a common-sense balance between efficient 
use of program funds and reducing regulatory costs. First, based on our 
experience in the existing RHC programs, it will be more 
administratively efficient to exempt applicants seeking support for 
relatively small amounts. The threshold for this exemption is $10,000 
or less in total annual undiscounted costs (which, with a 35 percent 
minimum applicant contribution, results in a maximum of $6,500 annually 
in Fund support). Second, if an applicant is required by federal, state 
or local law or regulations to purchase services from a master service 
agreement negotiated by a governmental entity on its behalf, and the 
master service agreement was awarded pursuant to applicable federal, 
state, Tribal, or local competitive bidding processes, the applicant is 
not required to re-undergo competitive bidding. Third, applicants who 
wish to request support under the Healthcare Connect Fund while 
utilizing contracts previously approved by USAC (under the Pilot 
Program, the RHC Telecommunications or Internet Access Programs, or the 
E-rate program) may do so without undergoing additional competitive 
bidding, as long as they do not request duplicative support for the 
same service and otherwise comply with all Healthcare Connect Fund 
requirements. In addition, consistent with current RHC program 
policies, applicants who receive evergreen status or multi-year 
commitments under the Healthcare Connect Fund are exempt from 
competitive bidding for the duration of the contract. Applicants who 
are exempt from competitive bidding can proceed directly to submitting 
a funding commitment request.
    354. Evergreen Contracts. The existing RHC program allows 
``evergreen'' contracts, meaning that for the life of a multi-year 
contract deemed evergreen by USAC, HCPs need not annually rebid the 
service or post an FCC Form 465. As stated in the NPRM, codification of 
existing evergreen procedures likely will benefit participating HCPs by 
affording them: (1) Lower prices due to longer contract terms; and (2) 
reduced administrative burdens due to fewer required Form 465s. 
Commenters supported the NPRM's proposal to codify the Commission's 
existing evergreen procedures, arguing, among other things, that the 
evergreen procedures significantly reduce HCPs'

[[Page 13981]]

administrative and financial burdens. This Order also makes one change 
to the existing evergreen policy to allow participants to exercise 
voluntary options to extend an evergreen contract without undergoing 
additional competitive bidding, subject to certain limitations.
    355. Multi-year funding commitments: Applicants may receive multi-
year funding commitments that cover a period of up to three funding 
years. The multi-year funding commitments will reduce uncertainty and 
administrative burden by eliminating the need for HCPs to apply every 
year for funding, as is required under the existing RHC 
Telecommunications and Internet Access Programs, and reduce 
administrative expenses both for the projects and for USAC. Multi-year 
funding commitments, prepaid leases, and IRUs also encourage term 
discounts and produce lower rates from vendors. The funding of HCP-
constructed-and-owned infrastructure has allowed Pilot projects to 
choose this option where it is the most cost-effective way to obtain 
broadband.
    356. Annual Reporting Requirement: Participants in the Healthcare 
Connect Fund must submit reports on an annual basis, consistent with 
suggestions from commenters to minimize the burdens of reporting 
requirements. Submitting annual, rather than quarterly reports, as 
required in the Pilot Program, will minimize the burden on participants 
and USAC alike while still supporting performance evaluation and 
enabling the Commission to evaluate the prevention of waste, fraud, and 
abuse. Because the Commission expects to be able to collect data from 
individual applicants in the Healthcare Connect Fund on forms they 
already submit, individual applicants are not required to submit annual 
reports unless a report is required for other reasons. To further 
minimize the burden on participants, the Order delegates authority to 
the Bureau to work with USAC to develop a simple and streamlined 
reporting system that leverages data collected through the application 
process, eliminating the need to resubmit any information that has 
already been provided to USAC.
    357. Sustainability plans for applicants that build their own 
infrastructure. In the NPRM, the Commission proposed to require 
sustainability plans similar to those required in the Pilot Program for 
HCPs who intended to have an ownership interest, indefeasible right of 
use, or capital lease interest in supported facilities. The Pilot 
Program required projects to submit a copy of their sustainability plan 
with every quarterly report. Based on the Pilot Program, the Commission 
concludes that submission of sustainability reports on a quarterly 
basis is unnecessarily burdensome for applicants, and provides little 
useful information to USAC. Accordingly, sustainability reports for the 
Healthcare Connect Fund are only required to be re-filed if there is a 
material change that would impact projected income or expenses by the 
greater of 20 percent or $100,000 from the previous submission, or if 
the applicant submits a funding request based on a new Form 461 (i.e., 
a new competitively bid contract). In such an event, the revised 
sustainability report must be provided to USAC no later than the end of 
the relevant quarter, clearly showing (i.e. by redlining or 
highlighting) what has changed.
    358. Skilled Nursing Facility Pilot Requirements. Participants in 
the SNF Pilot must submit data on a number of variables; gather and 
analyze data; submit annual reports; and, at the conclusion of the 
Pilot, demonstrate the health care cost savings and/or improved quality 
of patient care that have been realized through greater use of 
broadband. While these requirements may impact small entities, we have 
determined that the benefits of these requirements--namely, preserving 
program integrity and ensuring cost-effectiveness--outweigh any costs. 
Specifically, we do not believe that these requirements will have 
significant impact on small entities for two reasons. First, the SNF is 
a voluntary pilot program and, as such, entities may choose whether to 
apply. Second, the Bureau will give preference to applicants that 
partner with existing or new consortia in the existing Pilot Program or 
the Healthcare Connect Fund. Small SNFs joining consortia should 
experience minimal reporting burdens as these consortia typically have 
the leadership and expertise to effectively assist their members with 
administrative requirements.
    359. Report to Congress: The Commission will send a copy of the 
Order, 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 Order, including this FRFA, to the Chief Counsel for 
Advocacy of the SBA. A copy of the Order (and FRFA summaries thereof) 
will also be published in the Federal Register.

B. Paperwork Reduction Act Analysis

    360. This Order contains new information collection requirements 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. It will be submitted to the Office of Management and Budget (OMB) 
for review under section 3507(d) of the PRA. OMB, the general public, 
and other Federal agencies are invited to comment on the new or 
modified information collection requirements contained in this 
proceeding. In addition, we note that pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4), we previously sought specific comment on how the Commission 
might further reduce the information collection burden for small 
business concerns with fewer than 25 employees. We describe the impacts 
that might affect small businesses, which include most businesses with 
fewer than 25 employees, in the Final Regulatory Flexibility Analysis.

C. Congressional Review Act

    361. The Commission will send a copy of this order to Congress and 
the Government Accountability Office pursuant to the Congressional 
Review Act, see 5 U.S.C. 801(a)(1)(A).

XI. Ordering Clauses

    362. Accordingly, it is ordered that, pursuant to sections 1, 2, 
4(i)-(j), 201(b), and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151, 152, 154(i), 154(j), 201(b), and 254, this 
Report and Order is adopted, and, pursuant to 5 U.S.C. 553(d)(3) and 
Sec. Sec.  1.4(b)(1), 1.103(a), and 1.427(a) of the Commission's rules, 
47 CFR 1.4(b)(1), 1.103(a), 1.427(a).
    363. It is further ordered that Part 54 of the Commission's rules, 
47 CFR Part 54, is amended as set forth in the Appendix, and such rules 
shall become effective April 1, 2013, except for those rules and 
requirements that involve Paperwork Reduction Act burdens, which shall 
become effective immediately upon announcement in the Federal Register 
of OMB approval and of effective dates of such rules.
    364. It is further ordered that pursuant to 5 U.S.C. 801(a)(1)(A), 
the Commission shall send a copy of this Report and Order to Congress 
and to the Government Accountability Office pursuant to the 
Congressional Review Act.
    365. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.
    366. It is further ordered that, pursuant to the authority 
contained in

[[Page 13982]]

sections 1-4 and 254 of the Communications Act of 1934, as amended, 47 
U.S.C. 151-154 and 254, the requests for additional Rural Health Care 
Pilot Program funding filed by Oregon Health Network, California 
Telehealth Network, Southwest Telehealth Access Grid, Western New York 
Rural Area Health Education Center, Inc., Palmetto State Providers 
Network, and Health Information Exchange of Montana are denied.
    367. It is further ordered that, pursuant to the authority 
contained in sections 1-4 and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151-154 and 254, the request for an extension of the 
June 30, 2012, Rural Health Care Pilot Program deadline filed by the 
Texas Health Information Network Collaborative is dismissed as moot.
    368. It is further ordered that, pursuant to the authority 
contained in sections 1-4 and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151-154 and 254, the requests for waiver of 47 CFR 
54.611 of the Commission's rules filed by Network Services Solutions, 
L.L.C., and Richmond Connections, Inc., are granted.
    369. It is further ordered that, pursuant to the authority 
contained in sections 1-4 and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151-154 and 254, USAC shall make an initial 
reimbursement payment to Network Services Solutions, L.L.C., and 
Richmond Connections, Inc., no later than December 31, 2012 as 
described herein.
    370. It is further ordered that, pursuant to the authority 
contained in sections 1-4 and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C. 151-154 and 254, the requests for stay of 
enforcement of 47 CFR Sec.  54.611 of the Commission's rules filed by 
Network Services Solutions, L.L.C., and Richmond Connections, Inc., are 
dismissed as moot.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Health facilities, Reporting and 
recordkeeping requirements, Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

    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:  Secs. 5, 48 Stat. 1068, as amended; 47 U.S.C. 155.


0
2. In Sec.  54.5, revise the definition of ``rural area'' to read as 
follows:


Sec.  54.5  Terms and definitions.

* * * * *
    Rural area. For purposes of the schools and libraries universal 
support mechanism, a ``rural area'' is a nonmetropolitan county or 
county equivalent, as defined in the Office of Management and Budget's 
(OMB) Revised Standards for Defining Metropolitan Areas in the 1990s 
and identifiable from the most recent Metropolitan Statistical Area 
(MSA) list released by OMB, or any contiguous non-urban Census Tract or 
Block Numbered Area within an MSA-listed metropolitan county identified 
in the most recent Goldsmith Modification published by the Office of 
Rural Health Policy of the U.S. Department of Health and Human 
Services.
* * * * *

0
3. Add Sec.  54.600 to subpart G and an undesignated center heading to 
read as follows:

Defined Terms and Eligibility


Sec.  54.600  Terms and definitions.

    As used in this subpart, the following terms shall be defined as 
follows:
    (a) Health care provider. A ``health care provider'' is any:
    (1) Post-secondary educational institution offering health care 
instruction, including a teaching hospital or medical school;
    (2) Community health center or health center providing health care 
to migrants;
    (3) Local health department or agency;
    (4) Community mental health center;
    (5) Not-for-profit hospital;
    (6) Rural health clinic; or
    (7) Consortium of health care providers consisting of one or more 
entities described in paragraphs (a)(1) through (a)(6) of this section.
    (b) Rural area. (1) A ``rural area'' is an area that is entirely 
outside of a Core Based Statistical Area; is within a Core Based 
Statistical Area that does not have any Urban Area with a population of 
25,000 or greater; or is in a Core Based Statistical Area that contains 
an Urban Area with a population of 25,000 or greater, but is within a 
specific census tract that itself does not contain any part of a Place 
or Urban Area with a population of greater than 25,000. For purposes of 
this rule, ``Core Based Statistical Area,'' ``Urban Area,'' and 
``Place'' are as identified by the Census Bureau.
    (2) Notwithstanding the definition of ``rural area,'' any health 
care provider that is located in a ``rural area'' under the definition 
used by the Commission prior to July 1, 2005, and received a funding 
commitment from the rural health care program prior to July 1, 2005, is 
eligible for support under this subpart.
    (c) Rural health care provider. A ``rural health care provider'' is 
an eligible health care provider site located in a rural area.

0
4. Revise Sec.  54.601 to read as follows:


Sec.  54.601  Health care provider eligibility.

    (a) Eligible health care providers. (1) Only an entity that is 
either a public or non-profit health care provider, as defined in this 
subpart, shall be eligible to receive support under this subpart.
    (2) Each separate site or location of a health care provider shall 
be considered an individual health care provider for purposes of 
calculating and limiting support under this subpart.
    (b) Determination of health care provider eligibility for the 
Healthcare Connect Fund. Health care providers in the Healthcare 
Connect Fund may certify to the eligibility of particular sites at any 
time prior to, or concurrently with, filing a request for services to 
initiate competitive bidding for the site. Applicants who utilize a 
competitive bidding exemption must provide eligibility information for 
the site to the Administrator prior to, or concurrently with, filing a 
request for funding for the site. Health care providers must also 
notify the Administrator within 30 days of a change in the health care 
provider's name, site location, contact information, or eligible entity 
type.

0
5. Add Sec.  54.602 to subpart G to read as follows:


Sec.  54.602  Health care support mechanism.

    (a) Telecommunications Program. Rural health care providers may 
request support for the difference, if any, between the urban and rural 
rates for telecommunications services, subject to the provisions and 
limitations set forth in Sec. Sec.  54.600 through 54.625 and 
Sec. Sec.  54.671 through 54.680. This support is referred to as the 
``Telecommunications Program.''
    (b) Healthcare Connect Fund. Eligible health care providers may 
request support for eligible services, equipment, and infrastructure, 
subject to the provisions and limitations set forth in Sec. Sec.  
54.600 through 54.602 and Sec. Sec.  54.630

[[Page 13983]]

through 54.680. This support is referred to as the ``Healthcare Connect 
Fund.''
    (c) Allocation of discounts. An eligible health care provider that 
engages in both eligible and ineligible activities or that collocates 
with an ineligible entity shall allocate eligible and ineligible 
activities in order to receive prorated support for the eligible 
activities only. 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.
    (d) Health care purposes. Services for which eligible health care 
providers receive support from the Telecommunications Program or the 
Healthcare Connect Fund must be reasonably related to the provision of 
health care services or instruction that the health care provider is 
legally authorized to provide under the law in the state in which such 
health care services or instruction are provided.

0
6. In Sec.  54.603, add an undesignated center heading; revise the 
section heading and paragraphs (a), (b)(1) introductory text, and 
(b)(1)(i) and (ii), and remove and reserve paragraph (b)(1)(iii).
    The addition and revisions read as follows:

Telecommunications Program


Sec.  54.603  Competitive bidding and certification requirements.

    (a) Competitive bidding requirement. To select the 
telecommunications carriers that will provide services eligible for 
universal service support to it under the Telecommunications Program, 
each eligible health care provider shall participate in a competitive 
bidding process pursuant to the requirements established in this 
section and any additional and applicable state, Tribal, local, or 
other procurement requirements.
    (b) * * *
    (1) An eligible health care provider seeking to receive 
telecommunications services eligible for universal service support 
under the Telecommunications Program shall submit a completed FCC Form 
465 to the Administrator. FCC Form 465 shall be signed by the person 
authorized to order telecommunications services for the health care 
provider and shall include, at a minimum, that person's certification 
under oath that:
    (i) The requester is a public or non-profit entity that falls 
within one of the seven categories set forth in the definition of 
health care provider, listed in Sec.  54.600(a);
    (ii) The requester is physically located in a rural area;
* * * * *

0
7. In Sec.  54.604, revise the section heading; redesignate paragraphs 
(b) and (c) as paragraphs (d) and (e) respectively; redesignate 
paragraph (a) as paragraph (c) and add new paragraphs (a) and (b); and 
revise newly redesignated paragraph (c) introductory text to read as 
follows:


Sec.  54.604  Consortia, telecommunications services, and existing 
contracts.

    (a) Consortia. (1) Under the Telecommunications Program, an 
eligible health care provider may join a consortium with other eligible 
health care providers; with schools, libraries, and library consortia 
eligible under subpart F of this part; and with public sector 
(governmental) entities to order telecommunications services. With one 
exception, eligible health care providers participating in consortia 
with ineligible private sector members shall not be eligible for 
supported services under this subpart. A consortium may include 
ineligible private sector entities if such consortium is only receiving 
services at tariffed rates or at market rates from those providers who 
do not file tariffs.
    (2) For consortia, universal service support under the 
Telecommunications Program shall apply only to the portion of eligible 
services used by an eligible health care provider.
    (b) Telecommunications Services. 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).
    (c) Existing contracts. A signed contract for services eligible for 
Telecommunications Program support pursuant to this subpart between an 
eligible health care provider as defined under Sec.  54.600 and a 
telecommunications carrier shall be exempt from the competitive bid 
requirements set forth in Sec.  54.603(a) as follows:
* * * * *

0
8. In Sec.  54.605, revise paragraph (a) to read as follows:


Sec.  54.605  Determining the urban rate.

    (a) If a rural health care provider requests support for an 
eligible service to be funded from the Telecommunications Program that 
is 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.
* * * * *

0
9. In Sec.  54.609, revise paragraphs (a) introductory text, (a)(1)(iv) 
and (3), (d)(1) and (2), and (e)(1) to read as follows:


Sec.  54.609  Calculating support.

    (a) The amount of universal service support provided for an 
eligible service to be funded from the Telecommunications Program shall 
be the difference, if any, 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. Under the Telecommunications 
Program, rural health care providers may choose one of the following 
two support options.
    (1) * * *
    (iv) 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.
* * * * *
    (3) Base rate support-consortium. 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.
* * * * *
    (d) * * *

[[Page 13984]]

    (1) Rural public and non-profit health care providers may receive 
support for rural satellite services under the Telecommunications 
Program, even when another functionally similar terrestrial-based 
service is available in that rural area. Support 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 support from the 
Telecommunications Program for satellite services shall provide to the 
Administrator with the Form 466, documentation of the urban and rural 
rates for the terrestrial-based alternatives.
* * * * *
    (e) * * *
    (1) Calculation of support. The support amount allowed under the 
Telecommunications Program for satellite services provided to mobile 
rural health care providers is calculated by comparing the rate for the 
satellite service to the rate for an urban wireline service with a 
similar bandwidth. Support for satellite services shall not be capped 
at an amount of a functionally similar wireline alternative. Where the 
mobile rural health care provider provides service in more than one 
state, the calculation shall be based on the urban areas in each state, 
proportional to the number of locations served in each state.
* * * * *


Sec.  54.611  [Removed]

0
10. Remove Sec.  54.611.


Sec.  54.613  [Amended]

0
11. In Sec.  54.613, remove and reserve paragraph (b).

0
12. In Sec.  54.615, revise paragraphs (b), (c) introductory text, and 
(c)(2) and remove and reserve paragraph (c)(3).
    The revisions read as follows:


Sec.  54.615  Obtaining services.

* * * * *
    (b) Receiving supported rate. Upon receiving a bona fide request, 
as defined in paragraph (c) of this section, from a rural health care 
provider for a telecommunications service that is eligible for support 
under the Telecommunications Program, a telecommunications carrier 
shall provide the service at a rate no higher than the urban rate, as 
defined in Sec.  54.605, subject to the limitations applicable to the 
Telecommunications Program.
    (c) Bona fide request. In order to receive services eligible for 
support under the Telecommunications Program, an eligible health care 
provider must submit a request for services to the telecommunications 
carrier, signed by an authorized officer of the health care provider, 
and shall include that person's certification under oath that:
* * * * *
    (2) The requester is physically located in a rural area, or if the 
requester is a mobile rural health care provider requesting services 
under Sec.  54.609(e), that the requester has certified that it is 
serving eligible rural areas;
* * * * *


Sec.  54.617  [Removed]

0
13. Remove Sec.  54.617.

0
14. In Sec.  54.619, revise paragraphs (a)(1) and (d) to read as 
follows:


Sec.  54.619  Audits and recordkeeping.

    (a) * * *
    (1) Health care providers shall maintain for their purchases of 
services supported under the Telecommunications Program 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. 
Mobile rural health care providers shall maintain annual logs 
indicating: The date and locations of each clinic stop; and the number 
of patients served at each such clinic stop.
* * * * *
    (d) Service providers. Service providers shall retain documents 
related to the delivery of discounted services under the 
Telecommunications Program for at least 5 years after the last day of 
the delivery of discounted services. Any other document that 
demonstrates compliance with the statutory or regulatory requirements 
for the rural health care mechanism shall be retained as well.


Sec.  54.621  [Removed]

0
15. Remove Sec.  54.621.

0
16. Revise Sec.  54.623 to read as follows:


Sec.  54.623  Annual filing and funding commitment requirement.

    (a) Annual filing requirement. Health care providers seeking 
support under the Telecommunications Program shall file new funding 
requests for each funding year.
    (b) Long term contracts. Under the Telecommunications Program, if 
health care providers enter into long term contracts for eligible 
services, the Administrator shall only commit funds to cover the 
portion of such a long term contract scheduled to be delivered during 
the funding year for which universal service support is sought.

0
17. Revise Sec.  54.625 to read as follows:


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

    (a) The maximum support distance for the Telecommunications Program 
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.
    (b) An eligible rural health care provider may purchase an eligible 
telecommunications service supported under the Telecommunications 
Program that is provided over a distance that exceeds the maximum 
supported distance.
    (c) If an eligible rural health care provider purchases an eligible 
telecommunications service supported under the Telecommunications 
Program that exceeds the maximum supported distance, the health care 
provider must pay the applicable rural rate for the distance that such 
service is carried beyond the maximum supported distance.

0
18. Add Sec.  54.630 and an undesignated center heading to subpart G to 
read as follows:

Healthcare Connect Fund


Sec.  54.630  Eligible recipients.

    (a) Rural health care provider site--individual and consortium. 
Under the Healthcare Connect Fund, an eligible rural health care 
provider may receive universal service support by applying individually 
or through a consortium. For purposes of the Healthcare Connect Fund, a 
``consortium'' is a group of two or more health care provider sites 
that request support through a single application. Consortia may 
include health care providers who are not eligible for support under 
the Healthcare Connect Fund, but such health care providers cannot 
receive support for their expenses and must participate pursuant to the 
cost allocation guidelines in Sec.  54.639(d).
    (b) Limitation on participation of non-rural health care provider 
sites in a consortium. An eligible non-rural health care provider site 
may receive universal service support only as part of a consortium that 
includes more than 50 percent eligible rural health care provider 
sites.
    (c) Limitation on large non-rural hospitals. Each eligible non-
rural public

[[Page 13985]]

or non-profit hospital site with 400 or more licensed patient beds may 
receive no more than $30,000 per year in Healthcare Connect Fund 
support for eligible recurring charges and no more than $70,000 in 
Healthcare Connect Fund support every 5 years for eligible nonrecurring 
charges, exclusive in both cases of costs shared by the network.

0
19. Add Sec.  54.631 to subpart G to read as follows:


Sec.  54.631  Designation of Consortium Leader.

    (a) Identifying a Consortium Leader. Each consortium seeking 
support from the Healthcare Connect Fund must identify an entity or 
organization that will be the lead entity (the ``Consortium Leader'').
    (b) Consortium Leader eligibility. The Consortium Leader may be the 
consortium itself (if it is a distinct legal entity); an eligible 
health care provider participating in the consortium; or a state 
organization, public sector (governmental) entity (including a Tribal 
government entity), or non-profit entity that is ineligible for 
Healthcare Connect Fund support. Ineligible state organizations, public 
sector entities, or non-profit entities may serve as Consortium Leaders 
or provide consulting assistance to consortia only if they do not 
participate as potential vendors during the competitive bidding 
process. An ineligible entity that serves as the Consortium Leader must 
pass on the full value of any discounts, funding, or other program 
benefits secured to the consortium members that are eligible health 
care providers.
    (c) Consortium Leader responsibilities. The Consortium Leader's 
responsibilities include the following:
    (1) Legal and financial responsibility for supported activities. 
The Consortium Leader is the legally and financially responsible entity 
for the activities supported by the Healthcare Connect Fund. By 
default, the Consortium Leader is the responsible entity if audits or 
other investigations by Administrator or the Commission reveal 
violations of the Act or Commission rules, with individual consortium 
members being jointly and severally liable if the Consortium Leader 
dissolves, files for bankruptcy, or otherwise fails to meet its 
obligations. Except for the responsibilities specifically described in 
paragraphs (c)(2) through (c)(6) of this section, consortia may 
allocate legal and financial responsibility as they see fit, provided 
that this allocation is memorialized in a formal written agreement 
between the affected parties (i.e., the Consortium Leader, and the 
consortium as a whole and/or its individual members), and the written 
agreement is submitted to the Administrator for approval with or prior 
to the Request for Services. Any such agreement must clearly identify 
the party(ies) responsible for repayment if the Administrator is 
required, at a later date, to recover disbursements to the consortium 
due to violations of program rules.
    (2) Point of contact for the FCC and Administrator. The Consortium 
Leader is responsible for designating an individual who will be the 
``Project Coordinator'' and serve as the point of contact with the 
Commission and the Administrator for all matters related to the 
consortium. The Consortium Leader is responsible for responding to 
Commission and Administrator inquiries on behalf of the consortium 
members throughout the application, funding, invoicing, and post-
invoicing period.
    (3) Typical applicant functions, including forms and 
certifications. The Consortium Leader is responsible for submitting 
program forms and required documentation and ensuring that all 
information and certifications submitted are true and correct. The 
Consortium Leader must also collect and retain a Letter of Agency (LOA) 
from each member, pursuant to Sec.  54.632.
    (4) Competitive bidding and cost allocation. The Consortium Leader 
is responsible for ensuring that the competitive bidding process is 
fair and open and otherwise complies with Commission requirements. If 
costs are shared by both eligible and ineligible entities, the 
Consortium Leader must ensure that costs are allocated in a manner that 
ensures that only eligible entities receive the benefit of program 
discounts.
    (5) Invoicing. The Consortium Leader is responsible for notifying 
the Administrator when supported services have commenced and for 
submitting invoices to the Administrator.
    (6) Recordkeeping, site visits, and audits. The Consortium Leader 
is also responsible for compliance with the Commission's recordkeeping 
requirements and for coordinating site visits and audits for all 
consortium members.

0
20. Add Sec.  54.632 to subpart G to read as follows:


Sec.  54.632  Letters of agency (LOA).

    (a) Authorizations. Under the Healthcare Connect Fund, the 
Consortium Leader must obtain the following authorizations.
    (1) Prior to the submission of the request for services, the 
Consortium Leader must obtain authorization, the necessary 
certifications, and any supporting documentation from each consortium 
member to permit the Consortium Leader to submit the request for 
services and prepare and post the request for proposal on behalf of the 
member.
    (2) Prior to the submission of the funding request, the Consortium 
Leader must secure authorization, the necessary certifications, and any 
supporting documentation from each consortium member to permit the 
Consortium Leader to submit the funding request and manage invoicing 
and payments on behalf of the member.
    (b) Optional two-step process. The Consortium Leader may secure 
both required authorizations from each consortium member in either a 
single LOA or in two separate LOAs.
    (c) Required Information in LOA. (1) An LOA must include, at a 
minimum, the name of the entity filing the application (i.e., lead 
applicant or Consortium Leader); name of the entity authorizing the 
filing of the application (i.e., the participating health care 
provider/consortium member); the physical location of the health care 
provider/consortium member site(s); the relationship of each site 
seeking support to the lead entity filing the application; the specific 
timeframe the LOA covers; the signature, title and contact information 
(including phone number, mailing address, and email address) of an 
official who is authorized to act on behalf of the health care 
provider/consortium member; signature date; and the type of services 
covered by the LOA.
    (2) For HCPs located on Tribal lands, if the health care facility 
is a contract facility that is run solely by the tribe, the appropriate 
tribal leader, such as the tribal chairperson, president, or governor, 
shall also sign the LOA, unless the health care responsibilities have 
been duly delegated to another tribal government representative.

0
21. Add Sec.  54.633 to subpart G to read as follows:


Sec.  54.633  Health care provider contribution.

    (a) Health care provider contribution. All health care providers 
receiving support under the Healthcare Connect Fund shall receive a 65 
percent discount on the cost of eligible expenses and shall be required 
to contribute 35 percent of the total cost of all eligible expenses.
    (b) Limits on eligible sources of health care provider 
contribution. Only funds from eligible sources may be applied toward 
the health care provider's required contribution.

[[Page 13986]]

    (1) Eligible sources include the applicant or eligible health care 
provider participants; state grants, funding, or appropriations; 
federal funding, grants, loans, or appropriations except for other 
federal universal service funding; Tribal government funding; and other 
grant funding, including private grants.
    (2) Ineligible sources include (but are not limited to) in-kind or 
implied contributions from health care providers; direct payments from 
vendors or other service providers, including contractors and 
consultants to such entities; and for-profit entities.
    (c) Disclosure of health care provider contribution source. Prior 
to receiving support, applicants are required to identify with 
specificity their sources of funding for their contribution of eligible 
expenses.
    (d) Future revenues from excess capacity as source of health care 
provider contribution. A consortium applicant that receives support for 
participant-owned network facilities under Sec.  54.636 may use future 
revenues from excess capacity as a source for the required health care 
provider contribution, subject to the following limitations.
    (1) The consortium's selection criteria and evaluation for ``cost-
effectiveness'' pursuant to Sec.  54.642 cannot provide a preference to 
bidders that offer to construct excess capacity.
    (2) The applicant must pay the full amount of the additional costs 
for excess capacity facilities that will not be part of the supported 
health care network.
    (3) The additional cost of constructing excess capacity facilities 
may not count toward a health care provider's required contribution.
    (4) The inclusion of excess capacity facilities cannot increase the 
funded cost of the dedicated health care network in any way.
    (5) An eligible health care provider (typically the consortium, 
although it may be an individual health care provider participating in 
the consortium) must retain ownership of the excess capacity 
facilities. It may make the facilities available to third parties only 
under an indefeasible right of use (IRU) or lease arrangement. The 
lease or IRU between the participant and the third party must be an 
arm's length transaction. To ensure that this is an arm's length 
transaction, neither the vendor that installs the excess capacity 
facilities nor its affiliate is eligible to enter into an IRU or lease 
with the participant.
    (6) Any amount prepaid for use of the excess capacity facilities 
(IRU or lease) must be placed in an escrow account. The participant can 
then use the escrow account as an eligible source of funds for the 
participant's 35 percent contribution to the project.
    (7) All revenues from use of the excess capacity facilities by the 
third party must be used for the health care provider contribution or 
for sustainability of the health care network supported by the 
Healthcare Connect Fund. Network costs that may be funded with any 
additional revenues that remain include administration, equipment, 
software, legal fees, or other costs not covered by the Healthcare 
Connect Fund, as long as they are relevant to sustaining the network.

0
22. Add Sec.  54.634 to subpart G to read as follows:


Sec.  54.634  Eligible services.

    (a) Eligible services. Subject to the provisions of Sec. Sec.  
54.600 through 54.602 and Sec. Sec.  54.630 through 54.680, eligible 
health care providers may request support from the Healthcare Connect 
Fund for any advanced telecommunications or information service that 
enables health care providers to post their own data, interact with 
stored data, generate new data, or communicate, by providing 
connectivity over private dedicated networks or the public Internet for 
the provision of health information technology.
    (b) Eligibility of dark fiber. A consortium of eligible health care 
providers may receive support for ``dark'' fiber where the customer, 
not the vendor, provides the modulating electronics, subject to the 
following limitations:
    (1) Support for recurring charges associated with dark fiber is 
only available once the dark fiber is ``lit'' and actually being used 
by the health care provider. Support for non-recurring charges for dark 
fiber is only available for fiber lit within the same funding year, but 
applicants may receive up to a one-year extension to light fiber if 
they provide documentation to the Administrator that construction was 
unavoidably delayed due to weather or other reasons.
    (2) Requests for proposals (RFPs) that solicit dark fiber solutions 
must also solicit proposals to provide the needed services over lit 
fiber over a time period comparable to the duration of the dark fiber 
lease or indefeasible right of use.
    (3) If an applicant intends to request support for equipment and 
maintenance costs associated with lighting and operating dark fiber, it 
must include such elements in the same RFP as the dark fiber so that 
the Administrator can review all costs associated with the fiber when 
determining whether the applicant chose the most cost-effective bid.
    (c) Dark and lit fiber maintenance costs. (1) Both individual and 
consortium applicants may receive support for recurring maintenance 
costs associated with leases of dark or lit fiber.
    (2) Consortium applicants may receive support for upfront payments 
for maintenance costs associated with leases of dark or lit fiber, 
subject to the limitations in Sec.  54.638.
    (d) Reasonable and customary installation charges. Eligible health 
care providers may obtain support for reasonable and customary 
installation charges for eligible services, up to an undiscounted cost 
of $5,000 per eligible site.
    (e) Upfront charges for vendor deployment of new or upgraded 
facilities. (1) Participants may obtain support for upfront charges for 
vendor deployment of new or upgraded facilities to serve eligible 
sites.
    (2) Support is available to extend vendor deployment of facilities 
up to the ``demarcation point,'' which is the boundary between 
facilities owned or controlled by the vendor, and facilities owned or 
controlled by the customer.

0
23. Add Sec.  54.635 to subpart G to read as follows:


Sec.  54.635  Eligible equipment.

    (a) Both individual and consortium applicants may receive support 
for network equipment necessary to make functional an eligible service 
that is supported under the Healthcare Connect Fund.
    (b) Consortium applicants may also receive support for network 
equipment necessary to manage, control, or maintain an eligible service 
or a dedicated health care broadband network. Support for network 
equipment is not available for networks that are not dedicated to 
health care.
    (c) Network equipment eligible for support includes the following:
    (1) Equipment that terminates a carrier's or other provider's 
transmission facility and any router/switch that is directly connected 
to either the facility or the terminating equipment. This includes 
equipment required to light dark fiber, or equipment necessary to 
connect dedicated health care broadband networks or individual health 
care providers to middle mile or backbone networks;
    (2) Computers, including servers, and related hardware (e.g. 
printers, scanners,

[[Page 13987]]

laptops) that are used exclusively for network management;
    (3) Software used for network management, maintenance, or other 
network operations, and development of software that supports network 
management, maintenance, and other network operations;
    (4) Costs of engineering, furnishing (i.e. as delivered from the 
manufacturer), and installing network equipment; and
    (5) Equipment that is a necessary part of health care provider-
owned network facilities.
    (d) Additional limitations: Support for network equipment is 
limited to equipment:
    (1) Purchased or leased by a Consortium Leader or eligible health 
care provider; and
    (2) Used for health care purposes.

0
24. Add Sec.  54.636 to subpart G to read as follows:


Sec.  54.636  Eligible participant-constructed and owned network 
facilities for consortium applicants.

    (a) Subject to the funding limitations under Sec. Sec.  54.675 and 
54.638 and the following restrictions, consortium applicants may 
receive support for network facilities that will be constructed and 
owned by the consortium (if the consortium is an eligible health care 
provider) or eligible health care providers within the consortium.
    (1) Consortia seeking support to construct and own network 
facilities are required to solicit bids for both:
    (i) Services provided over third-party networks; and
    (ii) Construction of participant-owned network facilities, in the 
same request for proposals. Requests for proposals must provide 
sufficient detail so that cost-effectiveness can be evaluated over the 
useful life of the proposed network facility to be constructed.
    (2) Support for participant-constructed and owned network 
facilities is only available where the consortium demonstrates that 
constructing its own network facilities is the most cost-effective 
option after competitive bidding, pursuant to Sec.  54.642.
    (b) [Reserved].

0
25. Add Sec.  54.637 to subpart G to read as follows:


Sec.  54.637  Off-site data centers and off-site administrative 
offices.

    (a) The connections and network equipment associated with off-site 
data centers and off-site administrative offices used by eligible 
health care providers for their health care purposes are eligible for 
support under the Healthcare Connect Fund, subject to the conditions 
and restrictions set forth in paragraph (b) of this section.
    (1) An ``off-site administrative office'' is a facility that does 
not provide hands-on delivery of patient care, but performs 
administrative support functions that are critical to the provision of 
clinical care by eligible health care providers.
    (2) An ``off-site data center'' is a facility that serves as a 
centralized repository for the storage, management, and dissemination 
of an eligible health care provider's computer systems, associated 
components, and data, including (but not limited to) electronic health 
records.
    (b) Conditions and Restrictions. The following conditions and 
restrictions apply to support provided under this sections.
    (1) Connections eligible for support are only those that are 
between:
    (i) Eligible health care provider sites and off-site data centers 
or off-site administrative offices,
    (ii) Two off-site data centers,
    (iii) Two off-site administrative offices,
    (iv) An off-site data center and the public Internet or another 
network,
    (v) An off-site administrative office and the public Internet or 
another network, or
    (vi) An off-site administrative office and an off-site data center.
    (2) The supported connections and network equipment must be used 
solely for health care purposes.
    (3) The supported connections and network equipment must be 
purchased by an eligible health care provider or a public or non-profit 
health care system that owns and operates eligible health care provider 
sites.
    (4) If traffic associated with one or more ineligible health care 
provider sites is carried by the supported connection and/or network 
equipment, the ineligible health care provider sites must allocate the 
cost of that connection and/or equipment between eligible and 
ineligible sites, consistent with the ``fair share'' principles set 
forth in Sec.  54.639(d).

0
26. Add Sec.  54.638 to subpart G to read as follows:


Sec.  54.638  Upfront payments.

    (a) Upfront payments include all non-recurring costs for services, 
equipment, or facilities, other than reasonable and customary 
installation charges of up to $5,000.
    (b) The following limitations apply to all upfront payments:
    (1) Upfront payments associated with services providing a bandwidth 
of less than 1.5 Mbps (symmetrical) are not eligible for support.
    (2) Only consortium applicants are eligible for support for upfront 
payments.
    (c) The following limitations apply if a consortium makes a request 
for support for upfront payments that exceeds, on average, $50,000 per 
eligible site in the consortium:
    (1) The support for the upfront payments must be prorated over at 
least three years.
    (2) The upfront payments must be part of a multi-year contract.

0
27. Add Sec.  54.639 to subpart G to read as follows:


Sec.  54.639  Ineligible expenses.

    (a) Equipment or services not directly associated with eligible 
services. Expenses associated with equipment or services that are not 
necessary to make an eligible service functional, or to manage, 
control, or maintain an eligible service or a dedicated health care 
broadband network are ineligible for support.

    Note to Paragraph (a):  The following are examples of ineligible 
expenses:
    1. Costs associated with general computing, software, 
applications, and Internet content development are not supported, 
including the following:
    i. Computers, including servers, and related hardware (e.g., 
printers, scanners, laptops), unless used exclusively for network 
management, maintenance, or other network operations;
    ii. End user wireless devices, such as smartphones and tablets;
    iii. Software, unless used for network management, maintenance, 
or other network operations;
    iv. Software development (excluding development of software that 
supports network management, maintenance, and other network 
operations);
    v. Helpdesk equipment and related software, or services, unless 
used exclusively in support of eligible services or equipment;
    vi. Web server hosting;
    vii. Web site portal development;
    viii. Video/audio/web conferencing equipment or services; and
    ix. Continuous power source.
    2. Costs associated with medical equipment (hardware and 
software), and other general health care provider expenses are not 
supported, including the following:
    i. Clinical or medical equipment;
    ii. Telemedicine equipment, applications, and software;
    iii. Training for use of telemedicine equipment;
    iv. Electronic medical records systems; and
    v. Electronic records management and expenses.

    (b) Inside wiring/internal connections. Expenses associated with 
inside wiring or internal connections are ineligible for support under 
the Healthcare Connect Fund.

[[Page 13988]]

    (c) Administrative expenses. Administrative expenses are not 
eligible for support under the Healthcare Connect Fund.

    Note to Paragraph (c): Ineligible administrative expenses 
include, but not limited to, the following expenses:
    1. Personnel costs (including salaries and fringe benefits), 
except for personnel expenses in a consortium application that 
directly relate to designing, engineering, installing, constructing, 
and managing a dedicated broadband network. Ineligible costs of this 
category include, for example, personnel to perform program 
management and coordination, program administration, and marketing;
    2. Travel costs, except for travel costs that are reasonable and 
necessary for network design or deployment and that are specifically 
identified and justified as part of a competitive bid for a 
construction project;
    3. Legal costs;
    4. Training, except for basic training or instruction directly 
related to and required for broadband network installation and 
associated network operations;
    5. Program administration or technical coordination (e.g., 
preparing application materials, obtaining letters of agency, 
preparing request for proposals, negotiating with vendors, reviewing 
bids, and working with the Administrator) that involves anything 
other than the design, engineering, operations, installation, or 
construction of the network;
    6. Administration and marketing costs (e.g., administrative 
costs; supplies and materials, except as part of network 
installation/construction; marketing studies, marketing activities, 
or outreach to potential network members; evaluation and feedback 
studies);
    7. Billing expenses (e.g., expense that vendors may charge for 
allocating costs to each health care provider in a network);
    8. Helpdesk expenses (e.g., equipment and related software, or 
services); and
    9. Technical support services that provide more than basic 
maintenance.

    (d) Cost allocation for ineligible sites, services, or equipment. 
(1) Ineligible sites. Eligible health care provider sites may share 
expenses with ineligible sites, as long as the ineligible sites pay 
their fair share of the expenses. An applicant may seek support for 
only the portion of a shared eligible expense attributable to eligible 
health care provider sites. To receive support, the applicant must 
ensure that ineligible sites pay their fair share of the expense. The 
fair share is determined as follows:
    (i) If the vendor charges a separate and independent price for each 
site, an ineligible site must pay the full undiscounted price.
    (ii) If there is no separate and independent price for each site, 
the applicant must prorate the undiscounted price for the ``shared'' 
service, equipment, or facility between eligible and ineligible sites 
on a proportional fully-distributed basis. Applicants must make this 
cost allocation using a method that is based on objective criteria and 
reasonably reflects the eligible usage of the shared service, 
equipment, or facility. The applicant bears the burden of demonstrating 
the reasonableness of the allocation method chosen.
    (2) Ineligible components of a single service or piece of 
equipment. Applicants seeking support for a service or piece of 
equipment that includes an ineligible component must explicitly request 
in their requests for proposals that vendors include pricing for a 
comparable service or piece of equipment that is comprised of only 
eligible components. If the selected provider also submits a price for 
the eligible component on a stand-alone basis, the support amount is 
calculated based on the stand-alone price of the eligible component on 
a stand-alone basis. If the vendor does not offer the eligible 
component on a stand-alone basis, the full price of the entire service 
or piece of equipment must be taken into account, without regard to the 
value of the ineligible components, when determining the most cost-
effective bid.
    (3) Written description. Applicants must submit a written 
description of their allocation method(s) to the Administrator with 
their funding requests.
    (4) Written agreement. If ineligible entities participate in a 
network, the allocation method must be memorialized in writing, such as 
a formal agreement among network members, a master services contract, 
or for smaller consortia, a letter signed and dated by all (or each) 
ineligible entity and the Consortium Leader.

0
28. Add Sec.  54.640 to subpart G to read as follows:


Sec.  54.640  Eligible vendors.

    (a) Eligibility. For purposes of the Healthcare Connect Fund, 
eligible vendors shall include any provider of equipment, facilities, 
or services that are eligible for support under Healthcare Connect 
Fund.
    (b) Obligation to assist health care providers. Vendors in the 
Healthcare Connect Fund must certify, as a condition of receiving 
support, that they will provide to health care providers, on a timely 
basis, all information and documents regarding supported equipment, 
facilities, or services that are necessary for the health care provider 
to submit required forms or respond to Commission or Administrator 
inquiries. The Administrator may withhold disbursements for the vendor 
if the vendor, after written notice from the Administrator, fails to 
comply with this requirement.

0
29. Add Sec.  54.642 to subpart G to read as follows:


Sec.  54.642  Competitive bidding requirement and exemptions.

    (a) Competitive bidding requirement. All applicants are required to 
engage in a competitive bidding process for supported services, 
facilities, or equipment consistent with the requirements set forth in 
this subpart, unless they qualify for one or more of the exemptions in 
paragraph (h) of this section. In addition, applicants may engage in 
competitive bidding even if they qualify for an exemption. Applicants 
who utilize a competitive bidding exemption may proceed directly to 
filing a funding request as described in Sec.  54.643.
    (b) Fair and open process. (1) All entities participating in the 
Healthcare Connect Fund must conduct a fair and open competitive 
bidding process, consistent with all applicable requirements.
    (2) Vendors who intend to bid to provide supported services, 
equipment, or facilities to a health care provider may not 
simultaneously help the health care provider choose a winning bid. Any 
vendor who submits a bid, and any individual or entity that has a 
financial interest in such a vendor, is prohibited from:
    (i) Preparing, signing or submitting an applicant's request for 
services;
    (ii) Serving as the Consortium Leader or other point of contact on 
behalf of applicant(s);
    (iii) Being involved in setting bid evaluation criteria; or
    (iv) Participating in the bid evaluation or vendor selection 
process (except in their role as potential vendors).
    (3) All potential bidders must have access to the same information 
and must be treated in the same manner.
    (4) All applicants and vendors must comply with any applicable 
state, Tribal, or local competitive bidding requirements. The 
competitive bidding requirements in this section apply in addition to 
state, Tribal, and local competitive bidding requirements and are not 
intended to preempt such state, Tribal, or local requirements.
    (c) Cost-effective. For purposes of the Healthcare Connect Fund, 
``cost-effective'' is defined as the method that costs the least after 
consideration of the features, quality of transmission, reliability, 
and other factors that the health care provider deems relevant to

[[Page 13989]]

choosing a method of providing the required health care services.
    (d) Bid evaluation criteria. Applicants must develop weighted 
evaluation criteria (e.g., scoring matrix) that demonstrate how the 
applicant will choose the most ``cost-effective'' bid before submitting 
a Request for Services. Price must be a primary factor, but need not be 
the only primary factor. A non-price factor can receive an equal weight 
to price, but may not receive a greater weight than price.
    (e) Request for services. Applicants must submit the following 
documents to the Administrator in order to initiate competitive 
bidding.
    (1) Form 461, including certifications. The applicant must provide 
the following certifications as part of the request for services.
    (i) The person signing the application is authorized to submit the 
application on behalf of the applicant and has examined the form and 
all attachments, and to the best of his or her knowledge, information, 
and belief, all statements of fact contained therein are true.
    (ii) The applicant has followed any applicable state, Tribal, or 
local procurement rules.
    (iii) All Healthcare Connect Fund support will be used solely for 
purposes reasonably related to the provision of health care service or 
instruction that the HCP is legally authorized to provide under the law 
of the state in which the services are provided and will not be sold, 
resold, or transferred in consideration for money or any other thing of 
value.
    (iv) The applicant satisfies all of the requirements under section 
254 of the Act and applicable Commission rules.
    (v) The applicant has reviewed all applicable requirements for the 
program and will comply with those requirements.
    (2) Bid evaluation criteria. Requirements for bid evaluation 
criteria are described in paragraph (d) of this section.
    (3) Declaration of assistance. All applicants must submit a 
``Declaration of Assistance'' with their Request for Services. In the 
Declaration of Assistance, applicants must identify each and every 
consultant, vendor, and other outside expert, whether paid or unpaid, 
who aided in the preparation of their applications.
    (4) Request for proposal (if applicable). (i) Any applicant may use 
a request for proposals (RFP). Applicants who use an RFP must submit 
the RFP and any additional relevant bidding information to the 
Administrator with Form 461.
    (ii) An applicant must submit an RFP:
    (A) If it is required to issue an RFP under applicable State, 
Tribal, or local procurement rules or regulations;
    (B) If the applicant is a consortium seeking more than $100,000 in 
program support during the funding year, including applications that 
seek more than $100,000 in program support for a multi-year commitment; 
or
    (C) If the applicant is a consortium seeking support for 
participant-constructed and owned network facilities.
    (iii) RFP requirements. (A) An RFP must provide sufficient 
information to enable an effective competitive bidding process, 
including describing the health care provider's service needs and 
defining the scope of the project and network costs (if applicable).
    (B) An RFP must specify the period during which bids will be 
accepted.
    (C) An RFP must include the bid evaluation criteria described in 
paragraph (d) of this section, and solicit sufficient information so 
that the criteria can be applied effectively.
    (D) Consortium applicants seeking support for long-term capital 
investments whose useful life extends beyond the period of the funding 
commitment (e.g., facilities constructed and owned by the applicant, 
fiber indefeasible rights of use) must seek bids in the same RFP from 
vendors who propose to meet those needs via services provided over 
vendor-owned facilities, for a time period comparable to the life of 
the proposed capital investment.
    (E) Applicants may prepare RFPs in any manner that complies with 
the rules in this subpart and any applicable state, Tribal, or local 
procurement rules or regulations.
    (5) Additional requirements for consortium applicants. (i) Network 
plan. Consortium applicants must submit a narrative describing specific 
elements of their network plan with their Request for Services. 
Consortia applicants are required to use program support for the 
purposes described in their narrative. The required elements of the 
narrative include:
    (A) Goals and objectives of the network;
    (B) Strategy for aggregating the specific needs of health care 
providers (including providers that serve rural areas) within a state 
or region;
    (C) Strategy for leveraging existing technology to adopt the most 
efficient and cost effective means of connecting those providers;
    (D) How the supported network will be used to improve or provide 
health care delivery;
    (E) Any previous experience in developing and managing health 
information technology (including telemedicine) programs; and
    (F) A project management plan outlining the project's leadership 
and management structure, and a work plan, schedule, and budget.
    (ii) Letters of agency. Consortium applicants must submit letters 
of agency pursuant to Sec.  54.632.
    (f) Public posting by the Administrator. The Administrator shall 
post on its web site the following competitive bidding documents, as 
applicable:
    (1) Form 461,
    (2) Bid evaluation criteria,
    (3) Request for proposal, and
    (4) Network plan.
    (g) 28-day waiting period. After posting the documents described in 
paragraph (f) of this section on its Web site, the Administrator shall 
send confirmation of the posting to the applicant. The applicant shall 
wait at least 28 days from the date on which its competitive bidding 
documents are posted on the Web site before selecting and committing to 
a vendor.
    (1) Selection of the most ``cost-effective'' bid and contract 
negotiation. Each applicant subject to competitive bidding is required 
to certify to the Administrator that the selected bid is, to the best 
of the applicant's knowledge, the most cost-effective option available. 
Applicants are required to submit the documentation listed in Sec.  
54.643 to support their certifications.
    (2) Applicants who plan to request evergreen status under Sec.  
54.642(h)(4)(ii) must enter into a contract that identifies both 
parties, is signed and dated by the health care provider or Consortium 
Leader after the 28-day waiting period expires, and specifies the type, 
term, and cost of service.
    (h) Exemptions to competitive bidding requirements. (1) Annual 
undiscounted cost of $10,000 or less. An applicant that seeks support 
for $10,000 or less of total undiscounted eligible expenses for a 
single year is exempt from the competitive bidding requirements under 
this section, if the term of the contract is one year or less.
    (2) Government Master Service Agreement (MSA). Eligible health care 
providers that seek support for services and equipment purchased from 
MSAs negotiated by federal, state, Tribal, or local government entities 
on behalf of such health care providers and others, if such MSAs were 
awarded pursuant to applicable federal, state, Tribal, or local 
competitive bidding requirements, are exempt from the competitive 
bidding requirements under this section.
    (3) Master Service Agreements approved under the Pilot Program or

[[Page 13990]]

Healthcare Connect Fund. A eligible health care provider site may opt 
into an existing MSA approved under the Pilot Program or Healthcare 
Connect Fund and seek support for services and equipment purchased from 
the MSA without triggering the competitive bidding requirements under 
this section, if the MSA was developed and negotiated in response to an 
RFP that specifically solicited proposals that included a mechanism for 
adding additional sites to the MSA.
    (4) Evergreen contracts. (i) Subject to the provisions in Sec.  
54.644, the Administrator may designate a multi-year contract as 
``evergreen,'' which means that the service(s) covered by the contract 
need not be re-bid during the contract term.
    (ii) A contract entered into by a health care provider or 
consortium as a result of competitive bidding may be designated as 
evergreen if it meets all of the following requirements:
    (A) Is signed by the individual health care provider or consortium 
lead entity;
    (B) Specifies the service type, bandwidth and quantity;
    (C) Specifies the term of the contract;
    (D) Specifies the cost of services to be provided; and
    (E) Includes the physical location or other identifying information 
of the health care provider sites purchasing from the contract.
    (iii) Participants may exercise voluntary options to extend an 
evergreen contract without undergoing additional competitive bidding, 
if:
    (A) The voluntary extension(s) is memorialized in the evergreen 
contract;
    (B) The decision to extend the contract occurs before the 
participant files its funding request for the funding year when the 
contract would otherwise expire; and
    (C) The voluntary extension(s) do not exceed five years in the 
aggregate.
    (5) Schools and libraries program master contracts. Subject to the 
provisions in Sec. Sec.  54.500(g), 54.501(c)(1), and 54.503, an 
eligible health care provider in a consortium with participants in the 
schools and libraries universal service support program and a party to 
the consortium's existing contract is exempt from the Healthcare 
Connect Fund competitive bidding requirements if the contract was 
approved in the schools and libraries universal service support program 
as a master contract. The health care provider must comply with all 
Healthcare Connect Fund rules and procedures except for those 
applicable to competitive bidding.

0
30. Add Sec.  54.643 to subpart G to read as follows:


Sec.  54.643  Funding commitments.

    (a) Once a vendor is selected, applicants must submit a ``Funding 
Request'' (and supporting documentation) to provide information about 
the services, equipment, or facilities selected and certify that the 
services selected were the most cost-effective option of the offers 
received. The following information should be submitted to the 
Administrator with the Funding Request.
    (1) Request for funding. The applicant shall submit a request for 
funding (Form 462) to identify the service(s), equipment, or 
facilities; rates; vendor(s); and date(s) of vendor selection.
    (2) Certifications. The applicant must provide the following 
certifications as part of the request for funding:
    (i) The person signing the application is authorized to submit the 
application on behalf of the applicant and has examined the form and 
all attachments, and to the best of his or her knowledge, information, 
and belief, all statements of fact contained therein are true.
    (ii) Each vendor selected is, to the best of the applicant's 
knowledge, information and belief, the most cost-effective vendor 
available, as defined in Sec.  54.642(c).
    (iii) All Healthcare Connect Fund support will be used only for 
eligible health care purposes.
    (iv) The applicant is not requesting support for the same service 
from both the Telecommunications Program and the Healthcare Connect 
Fund.
    (v) The applicant satisfies all of the requirements under section 
254 of the Act and applicable Commission rules, and understands that 
any letter from the Administrator that erroneously commits funds for 
the benefit of the applicant may be subject to rescission.
    (vi) The applicant has reviewed all applicable requirements for the 
program and will comply with those requirements.
    (vii) The applicant will maintain complete billing records for the 
service for five years.
    (3) Contracts or other documentation. All applicants must submit a 
contract or other documentation that clearly identifies the vendor(s) 
selected and the health care provider(s) who will receive the services, 
equipment, or facilities; the service, bandwidth, and costs for which 
support is being requested; and the term of the service agreement(s) if 
applicable (i.e., if services are not being provided on a month-to-
month basis). For services, equipment, or facilities provided under 
contract, the applicant must submit a copy of the contract signed and 
dated (after the Allowable Contract Selection Date) by the individual 
health care provider or Consortium Leader. If the service, equipment, 
or facilities are not being provided under contract, the applicant must 
submit a bill, service offer, letter, or similar document from the 
vendor that provides the required information.
    (4) Competitive bidding documents. Applicants must submit 
documentation to support their certifications that they have selected 
the most cost-effective option, including a copy of each bid received 
(winning, losing, and disqualified), the bid evaluation criteria, and 
the following documents (as applicable): bid evaluation sheets; a list 
of people who evaluated bids (along with their title/role/relationship 
to the applicant organization); memos, board minutes, or similar 
documents related to the vendor selection/award; copies of notices to 
winners; and any correspondence with vendors during the bidding/
evaluation/award phase of the process. Applicants who claim a 
competitive bidding exemption must submit relevant documentation to 
allow the Administrator to verify that the applicant is eligible for 
the claimed exemption.
    (5) Cost allocation for ineligible entities or components. Pursuant 
to Sec.  54.639(d)(3) through (d)(4), where applicable, applicants must 
submit a description of how costs will be allocated for ineligible 
entities or components, as well as any agreements that memorialize such 
arrangements with ineligible entities.
    (6) Additional documentation for consortium applicants. A 
consortium applicant must also submit the following:
    (i) Any revisions to the network plan submitted with the Request 
for Services pursuant to Sec.  54.642(e)(5)(i), as necessary. If not 
previously submitted, the consortium should provide a narrative 
description of how the network will be managed, including all 
administrative aspects of the network, including but not limited to 
invoicing, contractual matters, and network operations. If the 
consortium is required to provide a sustainability plan as set forth in 
Sec.  54.643(a)(6)(iv), the revised budget should include the budgetary 
factors discussed in the sustainability plan requirements.
    (ii) A list of participating health care providers and all of their 
relevant information, including eligible (and ineligible, if 
applicable) cost information for each participating health care 
provider.
    (iii) Evidence of a viable source for the undiscounted portion of 
supported costs.

[[Page 13991]]

    (iv) Sustainability plans for applicants requesting support for 
long-term capital expenses: Consortia that seek funding to construct 
and own their own facilities or obtain indefeasible right of use or 
capital lease interests are required to submit a sustainability plan 
with their funding requests demonstrating how they intend to maintain 
and operate the facilities that are supported over the relevant time 
period. Applicants may incorporate by reference other portions of their 
applications (e.g., project management plan, budget). The 
sustainability plan must, at a minimum, address the following points:
    (A) Projected sustainability period. Indicate the sustainability 
period, which at a minimum is equal to the useful life of the funded 
facility. The consortium's budget must show projected income and 
expenses (i.e., for maintenance) for the project at the aggregate 
level, for the sustainability period.
    (B) Principal factors. Discuss each of the principal factors that 
were considered by the participant to demonstrate sustainability. This 
discussion must include all factors that show that the proposed network 
will be sustainable for the entire sustainability period. Any factor 
that will have a monetary impact on the network must be reflected in 
the applicant's budget.
    (C) Terms of membership in the network. Describe generally any 
agreements made (or to be entered into) by network members (e.g., 
participation agreements, memoranda of understanding, usage agreements, 
or other similar agreements). The sustainability plan must also 
describe, as applicable:
    (1) Financial and time commitments made by proposed members of the 
network;
    (2) If the project includes excess bandwidth for growth of the 
network, describe how such excess bandwidth will be financed; and
    (3) If the network will include ineligible health care providers 
and other network members, describe how fees for joining and using the 
network will be assessed.
    (D) Ownership structure. Explain who will own each material element 
of the network (e.g., fiber constructed, network equipment, end user 
equipment). For purposes of this subsection, ``ownership'' includes an 
indefeasible right of use interest. Applicants must clearly identify 
the legal entity that will own each material element. Applicants must 
also describe any arrangements made to ensure continued use of such 
elements by the network members for the duration of the sustainability 
period.
    (E) Sources of future support. Describe other sources of future 
funding, including fees to be paid by eligible health care providers 
and/or non-eligible entities.
    (F) Management. Describe the management structure of the network 
for the duration of the sustainability period. The applicant's budget 
must describe how management costs will be funded.
    (v) Material change to sustainability plan. A consortium that is 
required to file a sustainability plan must maintain its accuracy. If 
there is a material change to a required sustainability plan that would 
impact projected income or expenses by more than 20 percent or $100,000 
from the previous submission, or if the applicant submits a funding 
request based on a new Form 462 (i.e., a new competitively bid 
contract), the consortium is required to re-file its sustainability 
plan. In the event of a material change, the applicant must provide the 
Administrator with the revised sustainability plan no later than the 
end of the relevant quarter, clearly showing (i.e., by redlining or 
highlighting) what has changed.
    (b) [Reserved]

0
31. Add Sec.  54.644 to subpart G to read as follows:


Sec.  54.644  Multi-year commitments.

    (a) Participants in the Healthcare Connect Fund are permitted to 
enter into multi-year contracts for eligible expenses and may receive 
funding commitments from the Administrator for a period that covers up 
to three funding years.
    (b) If a long-term contract covers a period of more than three 
years, the applicant may also have the contract designated as 
``evergreen'' under Sec.  54.642(h)(4) which will allow the applicant 
to re-apply for a funding commitment under the contract after three 
years without having to undergo additional competitive bidding.

0
32. Add Sec.  54.645 to subpart G to read as follows:


Sec.  54.645  Payment process.

    (a) The Consortium Leader (or health care provider, if 
participating individually) must certify to the Administrator that it 
has paid its contribution to the vendor before the invoice can be sent 
to Administrator and the vendor can be paid.
    (b) Before the Administrator may process and pay an invoice, both 
the Consortium Leader (or health care provider, if participating 
individually) and the vendor must certify that they have reviewed the 
document and that it is accurate. All invoices must be received by the 
Administrator within six months of the end date of the funding 
commitment.

0
33. Add Sec.  54.646 to subpart G to read as follows:


Sec.  54.646  Site and service substitutions.

    (a) A Consortium Leader (or health care provider, if participating 
individually) may request a site or service substitution if:
    (1) The substitution is provided for in the contract, within the 
change clause, or constitutes a minor modification;
    (2) The site is an eligible health care provider and the service is 
an eligible service under the Healthcare Connect Fund;
    (3) The substitution does not violate any contract provision or 
state, Tribal, or local procurement laws; and
    (4) The requested change is within the scope of the controlling 
request for services, including any applicable request for proposal 
used in the competitive bidding process.
    (b) Support for a qualifying site and service substitution will be 
provided to the extent the substitution does not cause the total amount 
of support under the applicable funding commitment to increase.

0
34. Add Sec.  54.647 to subpart G to read as follows:


Sec.  54.647  Data collection and reporting.

    (a) Each consortium lead entity must file an annual report with the 
Administrator on or before September 30 for the preceding funding year, 
with the information and in the form specified by the Wireline 
Competition Bureau.
    (b) Each consortium is required to file an annual report for each 
funding year in which it receives support from the Healthcare Connect 
Fund.
    (c) For consortia that receive large upfront payments, the 
reporting requirement extends for the life of the supported facility.

0
35. Add Sec.  54.648 to subpart G to read as follows:


Sec.  54.648  Audits and recordkeeping.

    (a) Random audits. Participants shall be subject to random 
compliance audits and other investigations to ensure compliance with 
program rules and orders.
    (b) Recordkeeping. (1) Participants, including Consortium Leaders 
and health care providers, shall maintain records to document 
compliance with program rules and orders for at least 5 years after the 
last day of service delivered in a particular funding year. 
Participants who receive support for long-term capital investments in

[[Page 13992]]

facilities whose useful life extends beyond the period of the funding 
commitment shall maintain records for at least 5 years after the end of 
the useful life of the facility. Participants shall maintain asset and 
inventory records of supported network equipment to verify the actual 
location of such equipment for a period of 5 years after purchase.
    (2) Vendors shall retain records related to the delivery of 
supported services, facilities, or equipment to document compliance 
with program rules and orders for at least 5 years after the last day 
of the delivery of supported services, equipment, or facilities in a 
particular funding year.
    (3) Both participants and vendors shall produce such records at the 
request of the Commission, any auditor appointed by the Administrator 
or the Commission, or of any other state or federal agency with 
jurisdiction.

0
36. Add Sec.  54.649 to subpart G to read as follows:


Sec.  54.649  Certifications.

    For individual health care provider applicants, required 
certifications must be provided and signed by an officer or director of 
the health care provider, or other authorized employee of the health 
care provider. For consortium applicants, an officer, director, or 
other authorized employee of the Consortium Leader must sign the 
required certifications. Pursuant to Sec.  54.680, electronic 
signatures are permitted for all required certifications.

0
37. Add Sec.  54.671 to subpart G and an undesignated center heading to 
read as follows:

General Provisions


Sec.  54.671  Resale.

    (a) Prohibition on resale. Services purchased pursuant to universal 
service support mechanisms under this subpart shall not be sold, 
resold, or transferred in consideration for money or any other thing of 
value.
    (b) Permissible fees. The prohibition on resale set forth in 
paragraph (a) of this section shall not prohibit a health care provider 
from charging normal fees for health care services, including 
instruction related to services purchased with support provided under 
this subpart.

0
38. Add Sec.  54.672 to subpart G to read as follows:


Sec.  54.672  Duplicate support.

    (a) Eligible health care providers that seek support under the 
Healthcare Connect Fund for telecommunications services may not also 
request support from the Telecommunications Program for the same 
services.
    (b) Eligible health care providers that seek support under the 
Telecommunications Program or the Healthcare Connect Fund may not also 
request support from any other universal service program for the same 
expenses.

0
39. Add Sec.  54.675 to subpart G to read as follows:


Sec.  54.675  Cap.

    (a) Amount of the annual cap. The aggregate annual cap on federal 
universal service support for health care providers shall be $400 
million per funding year, of which up to $150 million per funding year 
will be available to support upfront payments and multi-year 
commitments under the Healthcare Connect Fund.
    (b) Funding year. A funding year for purposes of the health care 
providers cap shall be the period July 1 through June 30.
    (c) Requests. Funds shall be available as follows:
    (1) Generally, funds shall be available to eligible health care 
providers on a first-come-first-served basis, with requests accepted 
beginning on the first of January prior to each funding year.
    (2) For the Telecommunications Program and the Healthcare Connect 
Fund, the Administrator shall implement a filing window period that 
treats all eligible health care providers filing within the window 
period as if their applications were simultaneously received.
    (3) [Reserved]
    (4) The deadline to submit a funding commitment request under the 
Telecommunications Program and the Healthcare Connect Fund is June 30 
for the funding year that begins on the previous July 1.
    (d) Annual filing requirement. Health care providers shall file new 
funding requests for each funding year, except for health care 
providers who have received a multi-year funding commitment under Sec.  
54.644.
    (e) Long-term contracts. If health care providers enter into long-
term contracts for eligible services, the Administrator shall only 
commit funds to cover the portion of such a long-term contract 
scheduled to be delivered during the funding year for which universal 
service support is sought, except for multi-year funding commitments as 
described in Sec.  54.644.
    (f) Pro-rata reductions for Telecommunications Program support. The 
Administrator shall act in accordance with this section when a filing 
window period for the Telecommunications Program and the Healthcare 
Connect Fund, as described in paragraph (c)(2) of this section, is in 
effect. When a filing window period described in paragraph (c)(2) of 
this section closes, the Administrator shall calculate the total demand 
for Telecommunications Program and Healthcare Connect Fund support 
submitted by all applicants during the filing window period. If the 
total demand during a filing window period exceeds the total remaining 
support available for the funding year, the Administrator shall take 
the following steps:
    (1) The Administrator shall divide the total remaining funds 
available for the funding year by the total amount of 
Telecommunications Program and Healthcare Connect Fund support 
requested by each applicant that has filed during the window period, to 
produce a pro-rata factor.
    (2) The Administrator shall calculate the amount of 
Telecommunications Program and Healthcare Connect Fund support 
requested by each applicant that has filed during the filing window.
    (3) The Administrator shall multiply the pro-rata factor by the 
total dollar amount requested by each applicant filing during the 
window period. Administrator shall then commit funds to each applicant 
for Telecommunications Program and Healthcare Connect Fund support 
consistent with this calculation.

0
40. Add Sec.  54.679 to subpart G to read as follows:


Sec.  54.679  Election to offset support against annual universal 
service fund contribution.

    (a) A service provider that contributes to the universal service 
support mechanisms under subpart H of this part and also provides 
services eligible for support under this subpart to eligible health 
care providers may, at the election of the contributor:
    (1) Treat the amount eligible for support under this subpart as an 
offset against the contributor's universal service support obligation 
for the year in which the costs for providing eligible services were 
incurred; or
    (2) Receive direct reimbursement from the Administrator for that 
amount.
    (b) Service providers that are contributors shall elect in January 
of each year the method by which they will be reimbursed and shall 
remain subject to that method for the duration of the calendar year. 
Any support amount that is owed a service provider that fails to remit 
its monthly universal service contribution obligation, however, shall 
first be applied as an offset to that contributor's contribution

[[Page 13993]]

obligation. Such a service provider shall remain subject to the 
offsetting method for the remainder of the calendar year in which it 
failed to remit its monthly universal service obligation. A service 
provider that continues to be in arrears on its universal service 
contribution obligations at the end of a calendar year shall remain 
subject to the offsetting method for the next calendar year.
    (c) If a service provider providing services eligible for support 
under this subpart elects to treat that support amount as an offset 
against its universal service contribution obligation and the total 
amount of support owed exceeds its universal service obligation, 
calculated on an annual basis, the service provider shall receive a 
direct reimbursement in the amount of the difference. Any such 
reimbursement due a service provider shall be provided by the 
Administrator no later than the end of the first quarter of the 
calendar year following the year in which the costs were incurred and 
the offset against the contributor's universal service obligation was 
applied.

0
41. Add Sec.  54.680 to subpart G to read as follows:


Sec.  54.680  Validity of electronic signatures.

    (a) For the purposes of this subpart, an electronic signature 
(defined by the Electronic Signatures in Global and National Commerce 
Act, as an electronic sound, symbol, or process, attached to or 
logically associated with a contract or other record and executed or 
adopted by a person with the intent to sign the record) has the same 
legal effect as a written signature.
    (b) For the purposes of this subpart, an electronic record (defined 
by the Electronic Signatures in Global and National Commerce Act, as a 
contract or other record created, generated, sent, communicated, 
received, or stored by electronic means) constitutes a record.

[FR Doc. 2013-04040 Filed 2-28-13; 8:45 am]
BILLING CODE 6712-01-P