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Evaluation of the Rural Health Care Program

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Evaluation of the Rural Health Care Program

REPORT TO THE FCC

     Evaluation of the Rural Health Care Program

     ? Suggested Improvements

     ? Anticipated Demand

     ? Revised Administrative Expenses

     March 5, 1999

    UNIVERSAL SERVICE ADMINISTRATIVE COMPANY

    RURAL HEALTH CARE DIVISION

    Evaluation of the Rural Health Care Program

    Universal Service Administrative Company

    583 D‘Onofrio Drive, Suite 201

    Madison, WI 53719-2055

    Phone 608-827-8872 ? Fax 608-872-8893

    Home Page: http://www.universalservice.org

    2120 L Street, N.W., Suite 600

    Washington, D.C. 20037

    Phone 202-776-0200 ? Fax 202-776-0800

Table of Contents

TABLE OF CONTENTS .................................................................................................................................................. I

    SECTION I ....................................................................................................................................................................1 PURPOSE OF REVIEW.....................................................................................................................................................1

    SECTION II ...................................................................................................................................................................2 SUMMARY OF FINDINGS AND RECOMMENDATIONS FOR ADMINISTRATIVE IMPROVEMENTS AND REDUCTIONS TO

    ADMINISTRATIVE EXPENSES .........................................................................................................................................2

    Recommendations for Improvements in the Program ..............................................................................................3

    Process Improvements ........................................................................................................................................................ 4

    Outreach Improvements ...................................................................................................................................................... 5

    Demand ..................................................................................................................................................................6

    Reductions in Administrative Costs.........................................................................................................................7 SECTION III .................................................................................................................................................................8 HISTORY OF THE PROGRAM ADMINISTRATION ...............................................................................................................8

    Structure of the Independent Administrator ............................................................................................................9

    Administrative Processes Established to Meet the Program Design Specifications ............................................... 10

    Current Process .................................................................................................................................................................10

    Web Site ...........................................................................................................................................................................10

    Handling of Applications ...................................................................................................................................................11

    Customer Outreach, Education, and Eligible RHCPs ..........................................................................................................12

    Current Level of RHCD Administrative Costs (Actual 1998 and Budgeted 1999) .................................................. 16

    Operational Results in 1998 and the Status of Outstanding Issues ........................................................................ 19

    SECTION IV................................................................................................................................................................ 22 INDUSTRY BENCHMARKS FOR COMPARABLE ORGANIZATIONS ...................................................................................... 22

    Description of Comparable Group ........................................................................................................................ 22

    Summary of Benchmark Analysis .......................................................................................................................... 23 SECTION V ................................................................................................................................................................. 27 CUSTOMER AND STAKEHOLDER FEEDBACK.................................................................................................................. 27

    Customer Groups.................................................................................................................................................. 27

    Feedback from Selected ETCs Involved in Process Development of the Program ................................................. 27

    ETCs Focus Group Feedback (Conducted by NTCA, 2/10/99, San Antonio) ......................................................... 28

    Feedback from Selected Non-ETCs ....................................................................................................................... 28 SECTION VI................................................................................................................................................................ 29 IDENTIFICATION AND QUANTIFICATION OF BARRIERS TO EFFICIENT OPERATION AND RECOMMENDATIONS FOR

    IMPROVEMENT ........................................................................................................................................................... 29

    Administrative Barriers ........................................................................................................................................ 29

    Outreach ............................................................................................................................................................................29

    Forms and Instructions .......................................................................................................................................................31

    Responsiveness of PwC and RHCD to Applicants and Vendors ..........................................................................................32

    Effectiveness of Outsourced Services .................................................................................................................................32

    Calculation of Urban Rate Differential ...............................................................................................................................32

    Lack of Effective Communications .....................................................................................................................................34

    Lack of Program Consolidation ..........................................................................................................................................34

    Policy Barriers ..................................................................................................................................................... 35

    ETC Requirement ..............................................................................................................................................................35

    Third-Party Billing ............................................................................................................................................................35

    Posting/Contracting Requirement .......................................................................................................................................35 March 5, 1999 i

    Level of Money Available per Site .....................................................................................................................................35

    Types of Services Included in Program ...............................................................................................................................36

    RHCPs Do Not Include Rural Nursing Homes, Hospices, Emergency Medical Service Facilities, Community Health Centers,

    or Long-Term Care Facilities .............................................................................................................................................36

    Complexity of the Urban-Rural Rate Differentials ..............................................................................................................36

    Resale Prohibitions ............................................................................................................................................................36

    The Hawaii Problem ..........................................................................................................................................................37 Other Barriers ...................................................................................................................................................... 37

    RHCPs Not Interested or Not Informed ..............................................................................................................................37

    RHCPs Do Not Have Equipment Necessary for Telemedicine ............................................................................................37

    POTS May Provide Adequate Level of Service...................................................................................................................37

    Telecommunications Providers Not Supportive ..................................................................................................................38

    RHCPs Have Toll-Free Internet Access ..............................................................................................................................38

    Not Worth the Effort to RHCPs..........................................................................................................................................38

    Infrastructure Not Available Today ....................................................................................................................................38

    Lack of Local Competition .................................................................................................................................................38

    Limited Patient Volume and Demand ................................................................................................................................39

    Lack of Physician Interest ..................................................................................................................................................39

    Lack of Medicare Reimbursements for Telemedicine Consultations Limits Interest in Telemedicine Investment.................39

    SECTION VII .............................................................................................................................................................. 40 ANALYSIS OF DEMAND AND ADMINISTRATIVE COSTS .................................................................................................. 40

    Demand ................................................................................................................................................................ 40 Administrative Costs ............................................................................................................................................. 43

    Outsourcing .......................................................................................................................................................................44

    Billing and Collections ......................................................................................................................................................45

    Compensation ....................................................................................................................................................................45

    Outreach ............................................................................................................................................................................47 SECTION VIII ............................................................................................................................................................. 49 CONCLUSION ............................................................................................................................................................. 49 APPENDIX A ............................................................................................................................................................... 50 ESTIMATED ADMINISTRATIVE COSTS FOR 1999 ........................................................................................................... 50

    APPENDIX B ............................................................................................................................................................... 53 LETTER FROM MR. JONATHON LINKOUS ...................................................................................................................... 53

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Universal Service Administrative Company Evaluation of the Rural Health Care Program

SECTION I

Purpose of Review

    The Federal Communications Commission (Commission) proposed that the Universal

    Service Administrative Company (USAC), pursuant to its obligations as administrator:

    (1) reduce the administrative expense associated with the rural health care support

    mechanism to an amount that is commensurate with the size of the support mechanism; (2)

    evaluate ways to improve opportunities for eligible rural health care providers to take

    advantage of the support mechanism; and (3) evaluate anticipated demand for 1999. USAC

    is required to submit revised administrative expenses for the rural health care support

    mechanism and an evaluation of the Program by March 5, 1999. This report meets those

    requirements by focusing on the opportunities for improvement in the administration of

    the rural health care fund, including proposals for reducing administrative costs, and

    forecasting anticipated demand for the Program.

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    Universal Service Administrative Company Evaluation of the Rural Health Care Program

    SECTION II

    Summary of Findings and Recommendations for

    Administrative Improvements and Reductions to

    Administrative Expenses

    This report includes an analysis of the policy and administrative barriers identified by the stakeholders that were surveyed. Consistent with the role and mission of USAC, our recommendations focus on administrative improvements and the interpretation of the Commission‘s rules in the administration of the Program. Rural health care and industry experts have provided USAC with several recommendations for addressing the policy barriers that would require the Commission to re-evaluate its approach, reexamine policy determinations, and in some instances, seek statutory change. These recommendations are included in Appendix B to this report.

    This report provides a history of the Rural Health Care Program (Program) (Section III), benchmark information regarding administrative costs of other non-profits for comparison purposes (Section IV), and an overview of the customer groups that were surveyed about the Program (Section V). These sections of the report and the feedback from the stakeholders provide the background and basis for the recommendations in the report.

    The report recommends simplification of the Program to increase participation (especially for small rural health care providers (RHCPs) and small rural telecommunications carriers) and to decrease the administrative costs. Absent simplification, the report recommends other options for reducing administrative costs. These recommendations are primarily found in Section VI, Identification and Quantification of Barriers to Efficient Operations and Section VII, Analysis of Demand and Administrative Costs.

The report includes the following:

    ; Recommendations for improvements in the Program

     Simplify the urbanrural rate calculation

     Recognize that one component of the urbanrural rate differential is distance

     Simplify the forms

     Target outreach efforts

     Refocus outreach efforts to partner with additional associations and federal and

    state agencies

     Consolidate Program functions

     Extend the funding cycle for the first year by 6 to 12 months, delay the opening

    of the second application cycle, and significantly change the Program for the

    second application cycle.

    ; Estimates of 1998 and 1999 application year demand

     $3,115,000 for 1998

     $9,290,000 for 1999

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    Universal Service Administrative Company Evaluation of the Rural Health Care Program

    ; Recommendations for reductions in Program administrative expenses nd 2 Quarter 1999

    ; Reallocate USAC support (Compensation)

    ; Reallocate the support position 100 percent to the USAC support

    ; Eliminate the President position

     For the Period July 1 December 31, 1999

    ; Reduce outside contract costs

    ; Reallocate billing and collections costs

    ; No renewal of the PricewaterhouseCoopers LLP (PwC) contract. If the

    Commission extends the first year and delays the start of the second

    application cycle, provide for a transition to complete any remaining first

    year applications and process all new applications in-house.

     After January 1, 2000 without simplification of the Program

    ; Consolidate like functions with other programs

    ; Consider bringing functions in-house and/or re-bid the contract After January 1, 2000 with simplification of the Program

    ; Bring all operations in-house and consolidate wherever possible

    Recommendations for Improvements in the Program

    The primary barrier to a more efficient program is the design that was intended to accommodate a larger number of participants and level of support per participant. However, it appears that existing state and federal universal service policies have minimized any urban-rural rate differential for basic switched services. The best current estimates show that this Program is not likely to exceed $10 million in annual support level in the near term. If this had been the assumption at the onset, a less complex infrastructure likely would have been established. Removal of this barrier for the existing Program will involve simplifying the rate calculations, changing the distance calculations, simplifying the forms required from the RHCPs and the carriers, and consolidation of application handling, customer support, web site maintenance, and support invoicing with other USAC programs.

    Other major barriers are the completion of the pre-commitment audit and a few unresolved issues of interpretation. The resolution of these issues should be concluded shortly.

    While outreach itself is not a significant barrier, the actual measure of its effectiveness is a barrier to designing future outreach programs that are more effective. Feedback from applicants on outreach should be incorporated into the customer service representatives‘ contact with applicants. Outreach plans for future years should include special emphasis on regions with the highest potential to receive benefits under the Program. The first step in improving outreach must be the continual development of a reliable database of eligible providers beginning with the successful 1998 group of RHCPs.

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    Process Improvements

    It is critically important that USAC do whatever it can to get this Program on solid footing. In that regard, USAC should work closely with the Commission to implement programmatic changes as quickly as possible. USAC is concerned that the current Program is in serious jeopardy because the level of frustration of RHCPs is high, the level of demand is low, and the level of administrative costs for the Program currently may exceed the support that is provided to RHCPs.

    The most important process improvement needed at this time is the simplification of the rate calculation process. The time spent on this function is vastly out of proportion to the benefit. The most straightforward solution, which can be accomplished within the bounds of the Telecommunications Act of 1996 (Act of 1996), is simplification of the urban-rural rate differential calculation. One method for accomplishing that would be to calculate a statewide average discount for eligible services. This discount could simply be applied to all distance-based services including T-1 and fractional T-1. If program changes are also made that allow a different approach for identifying the urban-rural rate difference, such as mileage or long-distance charges, a simple discount can apply to all services. The mileage component or the long-distance charges could be a surrogate for the urban-rural rate difference. The mileage discount would be based on the charge for the mileage from the rural provider to the outer bounds of the nearest urban area. This would be simple to calculate and apply. It would not involve calculating a hypothetical urban rate for comparison and would not involve a maximum allowable distance calculation. This

    recommendation holds the most promise for administrative expense reduction.

    Another simplification available to the Commission would be for it to recognize, like the Commission recognized for access to the Internet, that long-distance charges represent a rate difference between urban and rural service.

    Internally, USAC will look to consolidate the rural health care processes into processes that are being performed for other universal service programs. For example, client assistance could be consolidated for the Schools and Libraries and Rural Health Care Programs once current contracts expire.

    This Program is important to rural communities and to the provision of health care to those communities. USAC is committed to working with the Commission, RHCPs, and carriers to make this Program work. Because of the concern for the viability of the Program, USAC recommends that the Commission consider delaying the opening of the second round of applications and extending the funding period for the first application cycle. This would eliminate the need for RHCPs to reapply for support beginning July 1,1999. Going forward, it would eliminate the need to continue to use the current system, which is burdensome and costly; it would give the

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    Universal Service Administrative Company Evaluation of the Rural Health Care Program

    Commission time to implement changes to the Program; it would provide industry experts with time to provide the Commission with specific recommendations on how to implement these improvements; and it would allow USAC to decrease administrative costs. Delaying the opening of the second application cycle would also ensure that RHCPs would know what funding they will receive prior to filing their next application. USAC recommends that the extension be limited to 6 12 months and that the

    Commission immediately establish a Task Force to work out the details of a simplified program that implements the recommendations in this report. USAC is committed to working with the Commission, RHCPs, the carriers, and other government agencies to complete the task in this time frame.

    The rural health care experts have said that, ―the application process as it exists today is burdensome, complicated, causes substantial hardship on applicants, and creates a barrier on getting the Program benefits out to the

    1intended beneficiaries.‖ The current process is also very costly for USAC to administer. Without significant changes in the process, USAC will continue to incur administrative costs significantly above comparable benchmarks and above those costs that serve the public interest.

    USAC realizes that there are potential disadvantages to this recommendation: it may be viewed as but one more delay in the Program, and RHCPs that do not file a Form 465 by May 15, 1999, will have to wait until they can file for Year 2. Because of concern for the current vulnerability of the Program and our desire to get it on solid footing as soon as possible while reducing the costs to administer the Program, USAC puts forward this recommendation as an additional option for Commission consideration.

    Outreach Improvements

    Continued working relationships with the National Telephone Cooperative Association (NTCA) and the National Organization of State Offices of Rural Health (NOSORH) are important to maintain broad awareness of the Program. However, it is not necessary to award contracts again for the 1999 year. Efforts of the Rural Health Care Division (RHCD) should be concentrated on continuing to develop an accurate database of RHCPs based on the applicant pool, to target additional efforts to regions that have the highest possibility of receiving support, and to coordinate efforts with the NTCA, NOSORH, and other associations. Outreach plans should also include partnering with associations, government agencies, the telecommunications industry, and the other universal service programs. A community-based approach working with carriers, community leaders, school and library officials, and other government agencies to outreach should be considered. Associations, government agencies, and industry should also continue to be used as a resource for identifying the eligible RHCPs. In addition, some RHCD outreach should be specifically targeted

     1 See Appendix B.

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    to the beginning of the new Program year to maximum available months of

    support.

    Demand

    Demand will not increase significantly without major changes in the Program (such

    as increases in the type of health care providers that qualify and the services that are

    covered) and the removal of some of the health care industry barriers. Absent

    changes, demand is not likely to exceed $10 million in annual support next year.

    Over time, demand will increase from this amount with simplification of the

    2Program, with the growth of telemedicine networks, and if Alaska can develop a

    model to overcome the ETC barrier (as discussed in Sections III and VI of this

    report).

     2 The term ―telemedicine‖ is used throughout this report as the broad term to apply to all applications as described in the Commission Order: ―For purposes of this Order, we consider the terms ‗telemedicine,‘ ‗telehealth,‘ ‗telemedicinal applications,‘ and ‗telemedicine-related services‘ to be interchangeable. The Joint Working Group on Telemedicine defines ‗telemedicine‘ as ‗the use of telecommunications and information [service] technologies for the provision and support of clinical care to individuals at a

    distance and the transmission of information needed to provide that care.‘ It defines ‗telehealth‘ as including clinical care, but

    additionally encompassing the related areas of ‗health professionals' education, consumer health education, public health, research and administration of health services.‘ See JOINT WORKING GROUP ON TELEMEDICINE, TELEMEDICINE REPORT TO THE CONGRESS at 90, U.S. Department of Commerce (1997) (Joint Working Group Report).‖

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