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APPENDIX B - LIST OF COMMENTERS AND REPLY COMMENTERS
APPENDIX C-FINAL REGULATORY FLEXIBILITY ANALYSIS
APPENDIX D-INITIAL REGULATORY FLEXIBILITY ANALYSIS

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1. In this Second Report and Order, Order on Reconsideration, and Further Notice of Proposed Rulemaking (Second Report and Order), we modify our rules to improve the effectiveness of the rural health care universal service support mechanism. The mechanism provides discounts to rural health care providers to access modern telecommunications for medical and health maintenance purposes. Specifically, in this Second Report and Order, we change the Commission's definition of rural for the purposes of the rural health care support mechanism because the definition currently used by the Commission is no longer being updated with new Census Bureau data.' We also revise our rules to expand funding for mobile rural health care services by subsidizing the difference between the rate for satellite service and the rate for an urban wireline service with a similar bandwidth. Furthermore, we improve our administrative process by establishing a fixed deadline for applications for support.3 On reconsideration, we permit rural health care providers in states that are entirely rural to receive support for advanced telecommunications and information services under section 254(h)(2)(A).a Lastly, in the Further Notice, we seek comment on whether we should increase the percentage discount that rural health care providers receive for Internet access and whether infrastructure development should be funded. Additionally, we seek comment on whether to modify our rules specifically to allow mobile rural health care providers to use services other than satellite.

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2. The actions we take today will improve significantly the ability of rural health care providers to respond to the medical needs of their communities, provide needed aid to strengthen telemedicine and telehealth networks across the nation, help improve the quality of health care services available in rural America, and better enable rural communities to rapidly diagnose, treat, and contain possible outbreaks of disease. In addition, these changes will equalize access to quality health care between rural and urban areas and will support telemedicine networks if needed for a national emergency. Enhancing access to an integrated nationwide telecommunications network for rural health care providers will further the Commission's core responsibility to make available a rapid nationwide network for the purpose of the national defense, particularly with the increased awareness of the possibility of terrorist attacks. Finally, these changes will further the Commission's efforts to improve its oversight of the operation of the program to ensure that the statutory goals of section 254 of the Telecommunications Act of 1996 are met

'See infra paras. 9-23.

2See infra paras. 24-32.

3See infra paras. 33-34.

*47 U.S.C. § 254(h)(2)(A). See infra paras. 35-44.

'See infra. paras. 45-49, 51-53. Infrastructure development would include upgrades to the public switched or backbone networks. Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776, 9107, para. 632 (1997) (1997 Universal Service Order) (subsequent history omitted).

"See infra para. 50.

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3. In section 254 of the Telecommunications Act of 1996,' Congress sought to provide rural health care providers "an affordable rate for the services necessary for the purposes of telemedicine and instruction relating to such services." Specifically, Congress directed telecommunications carriers “[to] provide telecommunications services which are necessary for the provision of health care services in a State, including instruction relating to such services, to any public or nonprofit health care provider that serves persons who reside in rural areas in that State at rates that are reasonably comparable to rates charged for similar services in urban areas in that State." Congress also directed the Commission to enhance access to advanced telecommunications and information services for health care providers."

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4. The Commission implemented this statutory directive by adopting the rural health care support mechanism in the 1997 Universal Service Order." Specifically, the Commission concluded that telecommunications carriers must charge eligible rural health care providers a rate for each supported service that is no higher than the highest tariffed or publicly available commercial rate for a similar service in the closest city in the state with a population of 50,000 or more people, taking distance charges into account.' The Commission also adopted mechanisms to provide support for limited toll-free access to an Internet service provider.13 Finally, the Commission adopted an annual cap of $400 million for universal service support for rural health care providers. The Commission based its conclusions on analysis of the condition of the rural health care community and technology at that time.'

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5. Since the 1997 Universal Service Order, the Commission has made some changes to the rural health care support mechanism to make it more viable and to reflect technological changes.16 For

'Pub. L. No. 104-104, 110 Stat. 56.

H.R. Conf. Rep. No. 458, 104th Cong. 2nd Sess. 133 (1996).

'See 47 U.S.C. §§ 151 et seq. (adding 47 U.S.C. § 254(h)(1)(A) to the Act). The term "State" includes the District of Columbia and the territories and possessions. 47 U.S.C. § 153(40). See also infra n.132.

1047 U.S.C. § 254(h)(2)(A).

"11997 Universal Service Order, 12 FCC Rcd 8776.

12 Id. at 9093, para. 608.

13 Id.

1447 C.F.R. § 54.623; 1997 Universal Service Order, 12 FCC Rcd at 9141, para. 705. The Commission subsequently limited support for the first funding cycle to $100 million. See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Fifth Order on Reconsideration and Fourth Report and Order, 13 FCC Rcd 14915, 14928-33, paras. 20-29 (1998).

15 See 1997 Universal Service Order, 12 FCC Rcd at 9094, n.1556 (based upon material supplied by the Advisory Committee on Telecommunications and Health Care (comprised of experts in the fields of health care, telecommunications, and telemedicine) and the Federal-State Joint Board on Universal Service (referring to FCC Advisory Committee on Telecommunications and Health Care, Findings and Recommendations, October 15, 1996, and Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Recommended Decision, 12 FCC Rcd 87 (1996) (Recommended Decision)).

16In September 1999, the Commission adopted the Fourteenth Order on Reconsideration, in which the Commission determined that all telecommunications carriers that provide supported services to eligible health care providers under section 254(h)(1)(A) are entitled to have a credit against their universal service contribution obligation equal to the difference between the lower, urban rate they offer eligible health care providers for supported telecommunications services and the higher, rural rates that would normally be charged to these customers.

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example, in 1999, after determining that only a small number of rural health care providers qualified for discounts in the original funding cycle, which covered the period from January 1, 1998, through June 30, 1999, the Commission reevaluated the structure of the rural health care universal service support mechanism." As a result, the Commission: (1) simplified the urban/rural rate calculation; (2) eliminated the per-location discount limit; (3) encouraged participation in consortia; and (4) re-allocated billing and collection expenses by the number of participants in the rural health care universal service support mechanism.18 The Commission also determined that the definition of "health care provider" does not include nursing homes, hospices, other long-term care facilities, or emergency medical service facilities." The Commission also decided not to clarify further the definition of "health care provider" or to provide additional support for long distance telecommunications service.

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6. In 2002, the Commission issued a Notice of Proposed Rulemaking (NPRM) to review the rural health care universal service support mechanism. In particular, the Commission sought comment on whether to: clarify how the Commission should treat eligible entities that also perform functions that are outside the statutory definition of "health care provider"; provide support for Internet access; and change the calculation of discounted services, including the calculation of urban and rural rates. In addition, the Commission sought comment on whether and how to streamline the application process; allocate funds if demand exceeds the annual cap; modify the current competitive bidding rules; and encourage partnerships with clinics at schools and libraries.23 The Commission sought further comment on other measures to prevent waste, fraud, and abuse, and on other issues concerning the structure and operation of the rural health care support mechanism.24

7. On November 17, 2003, the Commission released a Report and Order that modified the Commission's rules to improve the effectiveness of the rural health care support mechanism." Among other changes, the Report and Order: (1) clarified that dedicated emergency departments of rural forprofit hospitals that participate in Medicare are "public" health care providers and are eligible to receive prorated rural health care support; (2) clarified that non-profit entities that function as rural health care providers on a part-time basis are eligible for prorated rural health care support; (3) revised the rules to provide a 25 percent discount off the cost of monthly Internet access for eligible rural health care providers; (4) revised the rules to allow rural health care providers to compare the urban and rural rates

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Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Fourteenth Order on Reconsideration, 14 FCC Rcd 20106 (1999) (Fourteenth Order on Reconsideration).

17 Changes to the Board of Directors of the National Exchange Carrier Association, Inc., Federal-State Joint Board on Universal Service, CC Docket Nos. 97-21 and 96-45, Sixth Order on Reconsideration in CC Docket No. 97-21 and Fifteenth Order on Reconsideration in CC Docket No. 96-45, 14 FCC Rcd 18756, 18760-61, para. 7 (1999) (Fifteenth Order on Reconsideration) (noting that there were 2,500 initial applications, and only a small fraction made it through the first funding cycle).

18 Fifteenth Order on Reconsideration, 14 FCC Rcd at 18762, para. 9.

19Id. at 18786, para. 48.

20 Id. at 18773, 18786, paras. 26, 48-49.

21 Rural Health Care Support Mechanism, Notice of Proposed Rulemaking, WC Docket No. 02-60, 17 FCC Rcd 7806 (2002) (NPRM).

22 Id. at 7806, para. 4.

23 Id. 24 Id.

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See Rural Health Care Support Mechanism, WC Docket No. 02-60, Report and Order, Order on Reconsideration, and Further Notice of Proposed Rulemaking, 18 FCC Rcd 24546 (2003) (Report and Order).

for functionally similar services as viewed from the perspective of the end user; (5) revised the rules to allow rural health care providers to compare rural rates to urban rates in any city with a population of at least 50,000 in the state; (6) revised the definition of the Maximum Allowable Distance to equal the distance between the rural health care provider and the farthest point on the jurisdictional boundary of the largest city in that state; and (7) revised the rules to allow rural health care providers to receive discounts for satellite services even where alternative terrestrial-based services may be available, but capped such support at the amount providers would have received if they purchased functionally similar terrestrial-based alternatives.26 These changes were implemented in Funding Year 2004.27

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8. In the Report and Order, the Commission sought comment on the definition of "rural area” for the rural health care program." Since 1997, the Commission has used the definition of "rural" as defined by the Office of Rural Health Care Policy (ORHP).29 ORHP, however, no longer uses that definition. We sought comment on whether we should also use the new definition ORHP has adopted or use a different definition. We also sought comment on whether additional modifications to the Commission's rules are appropriate to facilitate the provision of support to mobile rural health clinics for satellite services and whether other measures were necessary to further streamline the administrative burdens associated with applying for support. In this Second Report and Order, we address the comments filed in response to the Further Notice released in 2003.3

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9. In the 2003 Report and Order, we sought comment on modifications to the definition of "rural area" for the rural health care universal service support mechanism.32 In 1997, the Commission adopted the definition of rural used by the Office of Rural Health Care Policy (ORHP).33 Under ORHP's definition, an area is rural if it is not located in a county within a Metropolitan Statistical Area (MSA) as defined by the Office of Management and Budget (OMB) or if it is specifically identified as “rural” in

26 Id.

27 Funding Year 2003 for the rural health care program ended June 30, 2004, and Funding Year 2004 began July 1, 2004. Because the Commission did not wish to introduce changes to the program in the middle of a funding year, the modifications to the program adopted in the Report and Order were implemented beginning with Funding Year 2004. Report and Order, 18 FCC Rcd at 24577, para. 60.

28 Id. at 24578, para. 63.

29 1997 Universal Service Order, 12 FCC Rcd at 9115-9116, para 649.

30 Report and Order, 18 FCC Rcd at 24579-81, paras. 65-66, 69.

31In a letter filed August 11, 2004, the Appalachian Regional Commission asked the Commission (1) to eliminate the urban-rural comparison for purposes of calculating support for telecommunications services so that rural health care providers could instead receive a flat discount off the regular rate for the services; (2) to provide support for telemedicine equipment; and (3) to provide support to for-profit health care providers that otherwise do not qualify as "public or non-profit" health care providers. Letter from Anne B. Pope, Federal Co-Chair, Appalachian Regional Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, Rural Health Care Support Mechanism, Docket No. 02-60, (Aug. 11, 2004). While we believe these three requests would strengthen the rural health care mechanism, we cannot take any action because we believe the statute precludes us from doing so. See 47 U.S.C. § 254(h)(1)(A).

32 Report and Order, 18 FCC Rcd at 24578, paras. 63-64.

331997 Universal Service Order, 12 FCC Rcd at 9115-9116, para. 649.

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the Goldsmith Modification to the 1990 Census data. ORHP, however, no longer uses the MSA/Goldsmith method and has not developed the Goldsmith Modification to the most recent 2000 Census data." Instead, ORHP has adopted the Rural Urban Commuting Area (RUCA) system for rural designation, and currently uses 1990 Census data until it can incorporate the 2000 Census data.36 Furthermore, since the Commission's adoption of the MSA/Goldsmith definition of rural, OMB has restructured its definitions of MSAs and non-MSAs by adding another category - the Micropolitan Statistical Area (MISA)." Therefore, because the current definition of “rural area" for the rural health care support mechanism is obsolete and will not be updated, the Commission must modify its definition to ensure that universal service funding is dedicated to improving the quality of health care facilities and services available in rural America.

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10. In the 2003 Report and Order, the Commission specifically sought comment on whether any definitions for rural areas used by other government agencies or medical organizations would be appropriate for the rural health care program. The Commission encouraged commenters to describe the effects of any new definition to the program, e.g., how many existing rural areas would become nonrural and vice versa. The Commission also sought comment on whether we should use the same definition of "rural" for both the rural health care and schools and libraries support mechanisms.40

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34 See 47 C.F.R. § 54.5 ("A rural area is a non-metropolitan 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."). The Goldsmith Modification is a procedure for identifying isolated rural neighborhoods within large metropolitan counties. See Harold F. Goldsmith, Dena S. Puskin, and Dianne J. Stiles, Improving the Operational Definition of "Rural Areas" for Federal Programs, Federal Office of Rural Health Policy 1993, available at http://ruralhealth.hrsa.gov/pub/Goldsmith.htm (retrieved Sept. 17, 2004).

35 In order to administer the requirements of the Commission's rural health care universal support mechanism, USAC continues to use the 1990 Census-based MSA/Goldsmith definition of rural for the rural health care program. This information does not reflect any of the information obtained during the 2000 Census.

36 See http://ruralhealth.hrsa.gov/funding/eligibilitytestv2.asp (retrieved Sept. 23, 2004).

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A Metropolitan Statistical Area (MSA) is a Core Based Statistical Area (CBSA) associated with at least one urbanized area that has a population of at least 50,000. An MSA comprises the central county or counties containing the core (either an urbanized area or an urban cluster), plus adjacent outlying counties having a high degree of social and economic integration with the central county as measured through commuting. A Micropolitan Statistical Area (MISA) is a CBSA associated with at least one urban cluster that has a population of at least 10,000, but less than 50,000. The MISA comprises the central county or counties containing the core, plus adjacent outlying counties having a high degree of social and economic integration with the central county as measured through commuting. Standards for Defining Metropolitan and Micropolitan Statistical Areas, Office of Management and Budget, 65 FR 82228, no. 249 (Dec. 27, 2000).

38 Report and Order 18 FCC Rcd at 24578, para. 64.

39 Id.

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4o Id. We note that the schools and libraries universal support mechanism currently uses the same definition of rural area as the rural health care universal support mechanism. See 47 C.F.R. § 54.5. We sought comment on possible changes to the rural area definition in the context of the schools and libraries program in a separate notice of proposed rulemaking. Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Third Report and Order and Second Further Notice of Proposed Rulemaking, 2003 WL 23009204, FCC 03-323 at para. 67 (rel. Dec. 23, 2003).

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