A key goal of universal service is to ensure affordable telecommunications services to consumers living in high-cost areas, low-income consumers, eligible schools and libraries, and rural health care providers. Universal service programs are funded by statutorily mandated payments into the Universal Service Fund by companies that provide interstate and international telecommunications services. These payments are deposited into the federal Universal Service Fund, from which disbursements are made for the various federal universal service programs, including the Rural Health Care Program. Companies generally pass their universal service costs along to consumers through a universal service fee on customers’ telephone bills. FCC’s current Rural Health Care Program is made up of three components that fund different benefits. As figure 1 illustrates, the first two components—the Telecommunications Fund and the Internet Access Fund—are commonly discussed together as the “primary Rural Health Care Program.” Both components in the primary Rural Health Care Program offer discounts on services provided to a single site. In contrast, the third component—the pilot program—encourages health care providers to form comprehensive, multisite, state and regional dedicated health care networks. Figure 2 shows how the components in the current Rural Health Care Program may change if FCC adopts the proposed reforms described in its July 2010 NPRM. As the figure illustrates, the Health Broadband Services Program would replace the Internet Access Fund (and raise the discount percentage). A new Health Infrastructure Program would make available up to $100 million per year to support up to 85 percent of the construction costs of new regional or statewide networks for health care providers in areas of the country where broadband is unavailable or insufficient. This $100 million would be part of the overall $400 million annual spending cap that covers the Rural Health Care Program as a whole and that FCC established in 1997. In managing the program, FCC oversees USAC—the not-for-profit corporation that administers the program. USAC uses its subcontractor, Solix, Inc., to carry out certain key aspects of the program, such as reviewing and processing funding applications. An MOU between FCC and USAC as well as FCC orders and rules set forth the roles and responsibilities of FCC and USAC in the management, oversight, and administration of the Rural Health Care Program. (See the sidebar on this page for examples of benefits provided by the Rural Health Care Program.) USAC has highlighted the impct of the Rl Helth Cre Progrm on the Kodik Are Ntive Assocition (KANA). KANA i nonprofit corportion tht provide helth nd ociervice for the Alas Ntive of the Konig region. According to the Informtion Stem Mger of KANA, the support received from the primry Rl Helth Cre Progrm has “revoltionized telehelth ervice” t KANA. KANA ptient once hd to wit etween 6 nd 9 month to ee n epecilit, but telemedicine has redced ptient wit time 2 week nd has redced trvel co, ince mny ptient viite condcted remotely y other helth cre provider. For exmple, phyicin in Anchorge was able to ass helth ide in Kotzebue perform surgery when evere wether mde ir trvel impossle. The Informtion Stem Mger reported tht withosupport from the primry Rl Helth Cre Progrm, KANA wold e forced to go back to using dil-ervice. Withot thi support, “it wold e difficlt to fford even the llet connection etween the villge nd KANA.” satellite service charges, so that rural and urban prices are comparable within each state. Second, to support advanced telecommunications and information services, the Internet Access Fund offers most rural health care providers a 25 percent flat discount on monthly Internet access charges. Eligible rural health care providers can apply for support from both the Telecommunications Fund and the Internet Access Fund. However, FCC has stated that rural health care providers have not participated at the rate it had expected. The steps that applicants must carry out to obtain support from one or both components of the primary Rural Health Care Program are illustrated in figure 3. FCC created the third component of the current Rural Health Care Program, the pilot program, in September 2006 after acknowledging that the primary Rural Health Care Program was “greatly underutilized.” FCC explained that “although there are a number of factors that may explain the underutilization” of the program, it was “apparent that health care providers continue to lack access to the broadband facilities needed to support…advanced telehealth applications.” The pilot program funds 85 percent of the costs of deploying dedicated broadband networks connecting rural and urban health care providers, including the cost of designing and installing broadband networks that connect health care providers in a state or region, as well as the costs of advanced telecommunications and information services that ride over that network. This is in contrast to the primary Rural Health Care Program, which provides discounts only on monthly recurring costs for telecommunications services or Internet access to rural health care providers. The pilot program also provides funding for the cost of connecting state or regional networks to Internet2 or National LambdaRail—two national networks that connect government research institutions as well as academic, public, and private health care institutions—and the costs of connecting to the public Internet. Any eligible public and nonprofit health care provider—whether located in an urban or a rural area—was eligible to apply for funding when the pilot program was announced. However, the program rules required that applicants’ proposed networks include at least a de minimis number of public and nonprofit health care providers that serve rural areas. FCC received 81 applications from projects seeking to participate in the pilot program. In November 2007, FCC announced that it had accepted 69 of the 81 projects into the program and capped total funding for all of the pilot projects at roughly $418 million over 3 years. Since then, a few projects have merged and 1 project has withdrawn from the program. The size and scope of the remaining projects vary widely. For example, the Illinois Rural HealthNet project is using pilot program funds to pay for the installation of approximately 1,250 miles of buried fiber. The purpose of this fiber is to create the backbone of a network that will connect rural critical access hospitals, health clinics, and community mental health centers to specialists throughout the state and nation. In contrast, a project in Wisconsin is planning to use the pilot program funds to link two existing fiber systems to establish connections between four hospitals that allow health care specialists to transmit images between facilities. (See the sidebar on this page for other examples of pilot projects.) USAC administers the pilot program pursuant to FCC’s rules. Each pilot project must designate a project coordinator and associate project coordinator, who manage the administrative aspects of the program for the project and submit the required forms. USAC provides each project with a “coach”—that is, a designated Solix staff person who works closely with a pilot project to assist the project through the program’s administrative requirements and processes. With some exceptions, the pilot program forms and administrative processes are the same as those previously described in the primary Rural Health Care Program. However, pilot participants pay 15 percent of eligible costs (and all ineligible costs), and the pilot program funds up to 85 percent of eligible costs. In addition, pilot participants must meet additional requirements before they can receive funding: The lead entity in charge of the pilot project must obtain a letter of agency from every entity participating in its project. This letter authorizes the lead entity to act on the other entity’s behalf in all matters related to the pilot program. Pilot participants must develop a sustainability plan describing how the project will be self-sustaining in the future, to include network ownership and membership arrangements, and describing sources of future support. Pilot participants are required to submit quarterly progress reports describing the status of their project. In February 2010, FCC’s Wireline Competition Bureau extended by 1 year, to June 30, 2011, the deadline for participants in the pilot program to submit to USAC requests for funding commitments. Annual disbursements from the primary Rural Health Care Program have increased from 1998 through 2009, yet they have never approached FCC’s original projections for participation. Figure 4 shows the total amount of funds that have been disbursed for the primary Rural Health Care Program from 1998 to 2009. USAC disbursed just over $327 million for the primary program from 1998 through 2009. Thus, as figure 4 illustrates, total program expenditures in 12 years of disbursements have not yet reached the single year funding cap of $400 million. Also, as of September 2010, USAC has disbursed just over $26 million for the pilot program. Therefore, USAC has disbursed less than $400 million for all three components of the Rural Health Care Program since the program began in 1998. (FCC does not collect $400 million each year from telecommunications carriers for this program, but rather bases collections only on projected expenditures. FCC uses a quarterly evaluation of health care provider demand to assess how much telecommunications companies must contribute to the Universal Service Fund each quarter. This means that if FCC’s proposed reforms create more participation in the program, telecommunications companies would need to pay more in Universal Service Fund contributions. Telecommunications companies would likely pass these costs on to consumers through higher universal service fees in consumers’ telephone bills.) According to USAC data, primary Rural Health Care Program funding was disbursed to all of the types of rural health care providers designated by statute as eligible to participate in the program. As figure 5 illustrates, over 68 percent of total applicants in 2008 were either rural health clinics or not-for-profit hospitals. As with disbursements, the number of applicants to the primary Rural Health Care Program has generally increased since the program began.