May 19, 1999

Irene Flannery, Chief
Accounting Policy Division
Common Carrier Bureau
Federal Communications Commission
445 12th Street, SW
Washington, DC 20554

Re: CC Docket Nos. 96-45 and 97-21

Dear Ms. Flannery,

The purpose of this letter is to provide you with a summary and some background to our meeting of April 27, 1999 at the Federal Communications Commission (FCC).

We began the meeting by discussing why and how OAT and NTIA telemedicine grantees configure their projects into consortia. Together, OAT and NTIA support over 400 rural telemedicine sites in the United States. About 90% of both OAT and NTIA grantees organize their networks into formal and informal consortia for economic efficiency purposes.

A consortium normally includes an urban "hub" site--such as a teaching university, urban hospital, medical center or state government unit-- which is associated with several small rural "spoke" sites. For the purpose of getting a telemedicine grant, an urban hub site will first contact interested rural clinics, hospitals or others organizations from which they get medical referrals and then apply for a telemedicine grant as a consortium. The hub then uses the grant to purchase equipment for the consortium and builds out a telemedicine network that connects the hub with the spoke sites. Thus, many rural health provider spokes sites use telecommunication infrastructures ultimately built out by and paid for by the "hub" site.

Since many rural spoke sites lack much administrative or technical support, (i.e. sometimes a nurse will also serve as a part-time technician for the system), the hub often provides technical assistance/ MIS support, purchases equipment and negotiates and pays for telecommunications services for the whole consortium.

While consortia provide economies of scale and other efficiencies in telemedicine projects, it raises some difficult questions for the FCC. One concern voiced by the FCC is the issue of third party payment. That is, the FCC must be certain that only the rural health care provider receives the "comparable rate" discount benefit for their telecommunication service line charges. If the Local Exchange Carrier charges the urban hub for telecom services received by the rural spoke site, the FCC cannot be sure that the telecom subsidy is used only for the rural spokes sites and not for the urban hub site.

To address these concerns, Steve Downs discussed a hypothetical example of a hub site directly connected to each rural spoke site. Each line is charged separate rates and each may provide different bandwidth capacity between each spoke and the hub. RHCD pointed out that it would be possible for the telco to identify monthly line charges for each line. That is, a telco should be able to provide a monthly bill, showing end-to-end charges for each circuit and to identify each end. The hub site would be familiar with the difference between line charges for itself or its urban spoke site ($300 per month as shown in the graphic) and its rural spokes ($600 per month and $2,000 per month) because it negotiates all the original rates for the entire consortia.

Dr. Puskin noted that she requires her grantees to attest to their use of grant monies and couples this attestation with the practice of audits to curb the possibility of fraud and abuse. She also pointed out that a number of other programs such as Medicare use this method of attestation and audits to control abuse or fraudulent use of federal funds.

Both OAT and NTIA use some form of attestation and audits in their grant programs; this approach could be applied to the Universal Service program. With the assumption that the FCC would pose penalties for any misrepresentation of information, OAT and NTIA suggest three items for a Universal Service Rural Health Care audit check list:

• Self Certification.
• Institutional independent audit requirements.
  The consortia should keep 2-3 years of telephone bills that show individual circuit charges for their lines.
• OIG audits either random or directed when fraud, waste or abuse is suspected.

We also discussed some references to the concept of consortiums that were compiled from the Universal Service Order, its Reconsiderations, FAQ’s on the FCC, and the information on the RHCD website, as well as from DOC/ OAT grantee information. Both the Schools and Libraries and the Rural Health Care program refer to the concept of consortia. However, the healthcare consortia model differs from the school model in that the heath care hubs and spokes are separate fiscal entities whereas schools in a district are fiscally related to one another, However, there are schools included in some consortia that may be unrelated to the core school district. In those cases, third-party payment may also be an issue but the FCC allows these outlying schools to benefit from the program.

We hope that this letter clarifies why many federally funded telemedicine projects are configured into consortia and offers some solutions to the third party payment issue. Please do not hesitate to contact us for more information.

Stephen J. Downs, SM
Director, Telecommunications and Information
Infrastructure Assistance Program
NTIA, Department of Commerce

Dena S. Puskin, Sc.D.
Director, Office for the Advancement of Telehealth
Health Resources and Services Administration
Department of Health and Human Resources

Joanne K. Kumekawa, MBA
Director, Policy Development, OAT
Health Resources and Services Administration
Department of Health and Human Resources

cc: Mr. Tom Power, Legal Advisor
Office of the Chairman
Federal Communications Commission

Linda Armstrong, Assistant Chief
Accounting Policy Division
Common Carrier Bureau
Federal Communications Commission