369. Background. The E-rate program allows service providers to be reimbursed for services in one of two ways: either as an offset to their obligation to contribute to universal service support, or through direct reimbursement drawn from universal service support mechanisms. E-rate service
providers elect the preferred method in January of each year.834 For the Telecommunications and Internet Access Programs, however, the Commission requires carriers to use the offset option.835 A carrier in those programs may only receive direct reimbursement if the total amount of support owed exceeds the carrier’s total universal service obligation, calculated on an annual basis. USAC has until the end of the first quarter of the calendar year following the year in which costs were incurred (and any applicable offset applied) to provide the direct reimbursement to the carrier.836 This means that a Fund contributor may be required to wait over a year before it is reimbursed for services provided to HCPs. The
Commission waived the offset rule for the Pilot Program, however, enabling both “telecommunications carriers” and “non-telecommunications carriers” to receive direct reimbursement for discounts provided to Pilot Program participants.837
370. In the NPRM, the Commission explained that, despite its intended benefits, the offset rule can create inequities and inefficiencies.838 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.839 The Commission also sought comment on whether to retain the offset rule as an option for contributors who wish to utilize this method.840
83447 C.F.R. § 54.515.
835See 47 C.F.R. § 54.611; see also Universal Service First Report and Order, 12 FCC Rcd at 9154–55, para. 734.
In adopting this requirement, the Commission construed the statutory language that authorized both the Rural Health Care mechanism and the E-rate mechanism. Ultimately, the Commission implemented the offset rule as a
requirement only for the RHC program and not for the E-rate. See Universal Service First Report and Order, 12 FCC Rcd at 9154–55, para. 734. Compare47 C.F.R. § 54.515 (permitting carriers providing services under E-rate to elect either an offset or a direct reimbursement), with 47 C.F.R. § 54.611(a) (requiring RHC program carriers to receive support in the form of an offset). Although the Commission concluded that it had authority to allow carriers to receive direct reimbursement from USAC, it deemed a mandatory offset rule for the RHC Program to be “less vulnerable to manipulation and more easily administered and monitored.” Universal Service First Report and Order, 12 FCC Rcd at 9156, para. 737 (citing Federal State-Joint Board on Universal Service, CC Docket No. 96- 45, Recommended Decision, 12 FCC Rcd 87, 446, para. 716 (1996)).
83647 C.F.R. § 54.611(d).
8372007 Pilot Program Selection Order, 22 FCC Rcd at 20419, paras. 114-16. The Commission determined that offset should not be mandatory in the Pilot Program because both telecommunications carriers and non-
telecommunications carriers were eligible to provide services under the program. 2007 Pilot Program Selection Order, 22 FCC Rcd at 20419, para. 116.
838NPRM, 25 FCC Rcd at 9424, para. 136. Under the offset rule, service providers are not reimbursed until the annual rural health care offset occurs, which often means that HCPs must pay the full cost for services and wait for a refund from the service provider once the service provider receives the offset. See 47 C.F.R. § 54.611; NPRM, 25 FCC at 9424, para. 136 n.276. The Commission also noted that USF contributors are subject to the offset rule, whereas non-contributors, by definition, cannot receive an offset (and thus must receive direct reimbursement). Id.
at para. 136 n.278.
839NPRM, 25 FCC Rcd at 9424, para. 137.
840Id.
371. 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.841 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.842 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.
372. In light of the shortcomings of the offset rule discussed above, and in consideration of the relevant comments, we revise section 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 things, that the offset requirement is obsolete, outdated, and administratively burdensome, and that it delays payment to carriers.843 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.844 We adopt a new rule for the Healthcare Connect Fund and the Telecommunications Program to effectuate this approach.845
841See Request for Waiver of Section 54.611 of the Commission’s Rules by Action Communications, Inc., WC Docket No. 02-6, Order, 25 FCC Rcd 8031 (Wireline Comp. Bur. 2010) (authorizing direct reimbursement on a monthly basis); see also Request for Waiver by TeleQuality Communications, Inc., WC Docket No. 02-6, Order, 24 FCC Rcd 10716 (Wireline Comp. Bur. 2009) (authorizing direct reimbursement on a bi-monthly basis); see also Request for Waiver by Unicom, Inc., WC Docket No. 02-6, Order, 21 FCC Rcd 11240 (Wireline Comp. Bur. 2006) (authorizing direct reimbursement on a quarterly basis).
842See Pilot Evaluation, 27 FCC Rcd at 9467-68, App. D, List of Winning Vendors; see alsosection VI.B.1..
843See, e.g., AHA Comments at 5 (supporting proposal to receive payment for services directly from the Fund because it would further simplify funding mechanisms); AT&T Comments at 11 (noting that direct funding from USAC would remove additional, time-consuming step of having the project coordinator review and approve the invoice); GCI Comments at 21 (stating that the offset rule is “obsolete” and fully supporting its elimination); CTN Comments at 28 (calling the offset rule “outdated” and not technology neutral); Fort Drum Regional Health
Planning Organization Comments at 7 (noting that it “supports removal of the offset rule”); Avera Health Comments at 12 (requesting that the Commission modify the reimbursement process going forward to mirror that of the Pilot Program so that carriers are “reimbursed by USAC directly for specific services rendered, as is the case with the E- Rate and other Commission programs”); Charter Communications Comments at 17 (citing delay in payment to carriers).
844Until it expires, participants in the Internet Access Program also qualify for the new offset rule. Consistent with the modifications to the offset rule adopted herein, we grant the petitions for waiver of section 54.611 of the rules filed by Network Services Solutions, L.L.C. (NSS), and Richmond Connections, Inc. (Richmond Connections), and direct USAC, no later than 10 days calendar days from release of this Order, to initiate bi-monthly rural health care support disbursements to NSS and Richmond Connections. We dismiss as moot NSS’s and Richmond Connections’
companion petitions for expedited stays. See Wireline Competition Bureau Seeks Comment on Network Services Solutions, L.L.C., Petition for Waiver of Certain Rural Health Care Program Rules and Emergency Petition for Expedited Stay, WC Docket No. 02-60, Public Notice, 27 FCC Rcd 8946 (Wireline Comp. Bur. 2012); Petition for Waiver and Emergency Request for Expedited Stay and/or Special Relief of Network Services Solutions, L.L.C, WC Docket No. 02-60 (filed Jun. 18, 2012); Comment Sought on Richmond Connections, Inc., Request for Waiver of the Commission’s Rural Health Care Program Rules and Emergency Petition for Expedited Stay Pending Commission Review, WC Docket No. 02-60, Public Notice, 26 FCC Rcd 10247 (Wireline Comp. Bur. 2011);
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373. 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.846 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.847 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.”848 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.849 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.850
374. 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.851 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 2013.852 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.853
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Petition for Waiver and Emergency Request for Expedited Stay and/or Special Relief of Richmond Connections, Inc., WC Docket No. 02-60 (filed Jul. 7, 2011).
845See Appendix D, 47 C.F.R. § 54.679.
846TeleQuality Comments at 6.
847See,e.g., NETC Comments at 4; AHA Comments at 5; USF Consultants Comments at 3.
848See Charter Communications Comments at 18; see alsoGCI Comments at 21; Fort Drum Regional Health Planning Organization Comments at 7.
849See Charter Communications Comments at 18; see alsoGCI Comments at 21.
850See 47 C.F.R. § 54.515 (permitting carriers providing services under E-rate to elect either an offset or a direct reimbursement).
851See 47 C.F.R. § 54.515(a); see also Changes to the Board of Directors of the National Exchange Carrier Association, Inc., Second Report and Order and Third Order on Reconsideration, CC Docket No. 97-21, Federal- State Joint Board on Universal Service, Sixth Order on Reconsideration, CC Docket No. 96-45, 13 FCC Rcd 22908, 22918, para. 18 (1998) (Universal Service Sixth Order on Reconsideration) (noting that it “may be costly and administratively burdensome if USAC is asked to alter on a frequent basis the method by which a carrier is
reimbursed” and “therefore requir[ing] carriers that are owed support under the universal service support mechanism for schools and libraries to elect on an annual basis the method by which they will receive payment”).
852We note that, as in the Internet Access Program, vendors that elect direct reimbursement can receive monthly reimbursement payments.
853See 47 C.F.R. § 54.515(a); see also Universal Service Sixth Order on Reconsideration, 13 FCC Rcd at 22919, para. 19 (finding that, “to the extent that a carrier is in arrears on its universal service obligations, it has already
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