On July 16, 2026, the Federal Communications Commission (FCC) released a draft Third Further Notice of Proposed Rulemaking (FNPRM) and Order in its long-running Promoting Telehealth in Rural America proceeding (WC Docket No. 17-310). The FCC's Rural Health Care (RHC) Program provides universal service financial support to help rural health care providers obtain telecommunications and broadband services at discounted rates, facilitating the delivery of telehealth to some of the most remote areas in the nation. According to the FCC's 2025 Universal Service Monitoring Report, nearly 14,000 health care providers received support from this Universal Service Fund program that year. The program disbursed $523 million in 2024, and the FY2026 cap is $744.2 million.

The stakes in this proceeding are practical: for a rural clinic or hospital, the program can determine whether it can afford the connectivity that links geographically isolated patients to medical expertise.

The draft FNPRM touches nearly every constituency in the RHC program. Health care providers in eight statutory categories—including not-for-profit hospitals, rural health clinics, community health centers, local health departments, community mental health centers, skilled nursing facilities, teaching institutions offering health care instruction, and consortia of these entities—are eligible to participate (47 U.S.C. § 254(h)(7)(B)). Service providers, particularly in Alaska, where demand has concentrated, face the most direct changes: the draft FNPRM reexamines how the rates that determine their support payments are calculated and documented. And the Universal Service Administrative Company (USAC), which administers the Universal Service Fund, would see its responsibilities altered under several proposals.

The FCC frames the entire package as an effort "to reduce burdens and costs on RHC Program participants while protecting the limited resources of the Universal Service Fund by preventing waste, fraud, and abuse," and asks commenters to explain how their positions further both goals.

This draft FNPRM has been circulated for consideration at the FCC's August 6, 2026, open meeting. If adopted, public comments will be due 30 days after publication in the Federal Register, with reply comments due 60 days after publication.

Two Programs, Three Methods, and a Failed Database

The RHC Program consists of two component programs:

• The Telecommunications (Telecom) Program, established in 1997, subsidizes the difference between the rates for telecommunications services in a health care provider's rural area and the rates for comparable services available in urban areas within the same state.
• The Healthcare Connect Fund (HCF) Program, created in 2012, promotes broadband use and health care provider consortia by providing a flat 65 percent discount on an array of advanced telecommunications and information services.

The Telecom Program's central challenge is determining the "rural rate." Under current rules, applicants must apply three methods sequentially:

1. the average of rates the carrier actually charges other commercial customers for the same or similar services in the health care provider's rural area (Method 1);
2. if the carrier has no such customers, the average of tariffed and other publicly available rates charged by other providers over the same distance in that area (Method 2); or
3. if no such rates exist or the carrier reasonably determines they would be unfair, a cost-based rate approved by the FCC (or a state commission for intrastate services) and justified by an itemized cost study (Method 3).

Method 3 was never used during the program's first two decades, but rising bandwidth demand—particularly among Alaska health care providers—led to its expanding use beginning in funding year 2017. Participants complained from the outset that cost studies were burdensome to prepare and approve. The FCC tried to solve the problem in 2019 by creating a Rates Database of pre-determined median urban and rural rates, but eliminated that database in 2023 after uncovering significant anomalies (for example, a median rural rate for 100 megabits per second (Mbps) dedicated data service in one California area deemed less rural was four times higher than the rate in an area deemed more rural).

The FCC reinstated the Methods 1-3 framework as "the best available option" while it considered long-term solutions, and issued a Second Further Notice of Proposed Rulemaking proposing replacement market-based calculations plus a cost-based option with heightened evidentiary requirements.

Commenters opposed those evidentiary requirements as expensive, time-consuming, and of questionable accuracy. This draft FNPRM proceeding is the FCC's response.

What the Third Further Notice Proposes

The draft FNPRM groups its questions into three areas: Telecom Program support calculations, supported services, and program processes.

Redefining "Similar Services" and "Comparable Rural Areas"

Section 254(h)(1)(A) of the Communications Act bases Telecom Program support on the difference between the urban rate and the rural rate—the rate "for similar services provided to other customers in comparable rural areas." Since 2019, the FCC has defined "similar services" as services with advertised speeds within 30 percent of the requested service's speed, using a technology-agnostic approach that judges similarity from the end user's perspective.

The draft FNPRM asks whether the 30 percent threshold remains reasonable, and if it is broadened or eliminated, how prices should be adjusted for differences in speed—noting that broadband prices generally do not rise linearly with bandwidth. The draft asks how to guard against selection bias if providers can choose which commercial rates to submit, including whether providers should be required to file data on all "sufficiently similar" commercial rates within a "sufficiently close proximity" of the health care provider.

The urgency behind these questions is visible in the data: in Alaska, only 32 of 317 approved Telecom Program requests relied on Methods 1 or 2 in funding year 2024, and only 34 of 340 in funding year 2025. The FCC asks whether the 30 percent restriction unduly limits the commercial rates available for Methods 1 and 2, and whether the Commission should abandon its "functional" approach and instead require that comparable services be technologically similar.

On "comparable rural areas," the draft FNPRM asks whether the term could encompass rural areas in adjoining states with similar levels of rurality, and whether some form of rurality tiers is workable despite the inaccuracies observed in the Rates Database experiment.

Reducing Cost Study Burdens—or Replacing Cost Studies

The FCC acknowledges that cost studies, intended as a "seldom-used 'safety valve,'" have become an increasingly utilized method. After the FCC waived its rules to permit the reuse of previously approved rural rates following the Rates Database repeal, Telecom Program participants used those rates nearly 500 times in funding years 2024 and 2025. The FCC concludes that if the waivers end, more providers may need to rely on Method 3.

The draft FNPRM asks which of the extensive evidentiary requirements proposed in 2023—company-wide investment and depreciation data, cost-allocation spreadsheets, demand projections, audited financial statements, geographic density characteristics, and more—are truly necessary, which can be eliminated, and whether a standardized template would help.

The FCC then seeks comment on three cost study alternatives, all drawn from suggestions by GCI Communication Corp. (Alaska's biggest communications provider,¹ which was the selected service provider for 255 approved funding requests in funding year 2024 and 265 in funding year 2025) in response to the Second Further Notice:

• Wholesale rates. Allowing the wholesale rates a provider actually charges other carriers for the same or similar service to justify a cost-based rate, documented by invoice or contract. The draft FNPRM asks whether wholesale rates should be treated as cost-based when the provider has market power, whether rates contracted with affiliated companies should be disallowed, and whether providers should be permitted to add a rate of return, and, if so, whether the 9.75 percent cap used for high-cost rate-of-return carriers is appropriate.
• Previously approved cost models or rates. A proposal "that would have the practical effect of making these rule waivers permanent." The draft FNPRM asks how recent an approved rate must be, how long providers can rely on it, and whether a rate could be perpetually re-approved. The draft FNPRM flags the risk that a provider "could continually use the same rate indefinitely, as it would become a newly approved rate every three years." The draft also states the FCC's belief that, given ongoing network deployments, rates will decrease over time, so "older rates may overcompensate providers relative to current market rates."
• Rate projections. Allowing providers to interpolate or extrapolate a rural rate from rates justified at other bandwidths under Methods 1 or 2. The draft FNPRM notes that interpolation is likely more accurate than extrapolation and that observed broadband prices are "generally highly non-linear"—staff analysis of GCI's own Anchorage rate table found that a tenfold bandwidth increase (100 Mbps to 1 Gbps) raised the price by a factor of less than six. The FCC also asks whether to adopt one alternative or a suite of options, and whether a menu of choices would itself create new burdens.

Secondary (Backup) Services

The draft FNPRM seeks comment on promoting lower-cost backup services. Current RHC rules do not distinguish between primary and secondary services, which the FCC suggests may lead to inefficiencies—such as a provider using more expensive C-band satellite service for backup when a less costly low-earth-orbit satellite service would suffice. The draft proposes codifying existing guidance that a secondary service's cost and bandwidth "must reasonably reflect its use as a secondary service" and "must be the most cost-effective option available." The notice also asks whether to limit eligible technologies for secondary services, whether to prioritize primary over secondary services in funding decisions, and—pointing the other direction—whether reliability should be the primary focus "regardless of price and technology."

An Eligible Services List

The draft FNPRM proposes creating a formal eligible services list for the RHC Program, modeled in part on the E-Rate program's annual list. When the FCC established the HCF Program in 2012, it deliberately chose a "broad and flexible" definition of eligible services instead of a list, citing overwhelming stakeholder support. The draft FNPRM asks whether conditions have changed since 2012. Proposed rules would require the Wireline Competition Bureau to revise the list on an as-needed basis and to release a final list at least 60 days before each application filing window opens.

Performance Metrics for Application Processing

The draft FNPRM asks whether to adopt processing deadlines for USAC modeled on the E-Rate program's September 1 deadline for issuing funding commitments or denials on all "workable" requests—those timely filed, complete, and not subject to investigation or audit. A September 1 deadline would give USAC roughly five months after the RHC application filing deadline. The FCC tentatively concludes that applications subject to a pending USAC information request would be exempt.

Two "Delete, Delete, Delete" Items

Responding to suggestions filed in the FCC's Delete, Delete, Delete initiative (GN Docket No. 25-133), which seeks to eliminate obsolete, redundant, and burdensome regulations, the draft:

• Seeks comment on eliminating the requirement that USAC approve multi-year contracts as "evergreen" before applicants can use the competitive bidding exemption for such contracts—a change recommended by the Schools, Health & Libraries Broadband (SHLB) Coalition, which points out that E-Rate has no equivalent approval requirement. The draft FNPRM asks whether health care providers are positioned to assume the risk of a violation discovered years later if they rely on an unapproved contract.
• Proposes eliminating the HCF Program's annual report requirement (47 CFR § 54.618), tentatively agreeing with the Ad Hoc Broadband for Rural Health Group that the data "is no longer a meaningful metric." The FCC notes the HCF Program accounted for 56.8 percent of RHC funding commitment dollars in funding year 2024 and tentatively concludes the report now "serves as a hurdle" to receiving support.

What the Order Does

Separately from the rulemaking questions, the draft Order would waive section 54.605(b) of the FCC's rules to permit the use of previously approved rural rates for funding year 2027 that would otherwise require a cost-based justification. This is the third such waiver: the FCC previously waived the rule for funding years 2024-2025 and again for 2026. The waiver permits use of the most recent approved rate for the same facility/service combination from funding years 2024-2026, or, absent that, an approved rate for the same or similar service to a facility with the same or similar geographic characteristics; where no comparable rate exists, a Method 3 cost study is still required. The FCC directs its Wireline Competition Bureau to determine whether waivers for funding year 2028 and beyond are necessary if the rulemaking continues past the waiver period. The draft Order would take effect upon release.

What Stands Out

Across both the Order and the FNPRM, there are some issues in this item that stand out.

A waiver on the road to permanence.

The FY2027 waiver is the third consecutive extension of what began as temporary relief, and the draft FNPRM explicitly seeks comment on a proposal "that would have the practical effect of making these rule waivers permanent." Stakeholders may want to watch whether "temporary" relief hardens into the de facto rate methodology—a concern the FCC itself raises when it notes that a previously approved rate could be recycled "indefinitely" and that older rates "may overcompensate providers" as market rates fall.

A possible retreat from technology neutrality.

The draft FNPRM asks whether the FCC should abandon its "functional," end-user-perspective approach to similar services and instead require that services be technologically similar, and separately whether to limit the technologies eligible for secondary-service support. The FCC has been technology-agnostic in the RHC Program historically; either change would be a meaningful shift.

Statutory interpretation doing quiet work.

The FCC observes that section 254(h)(1)(A) "does not specify the manner in which rates must be documented," then states: "We believe the statutory language requires the Commission to protect against improper payments." That is the FCC constructing a statutory obligation from silence—a formulation that could later anchor whatever documentation regime it adopts. The draft seeks comment on "these beliefs."

One carrier's fingerprints.

All three cost study alternatives originate from GCI's comments. GCI states that without the waivers, "a full quarter" of its funding requests would likely require cost-based rates, and it was the selected service provider for 255 approved funding requests in funding year 2024 and 265 in funding year 2025. The Alaska-centric data throughout the draft underscores how concentrated the Method 3 problem is—and how much a single provider's proposals are structuring the record.

The funding cap that isn't there.

The draft's stated purpose includes examining "how best to administer limited funding given increased program participation and service costs," yet the Third Further Notice contains no proposal regarding the RHC funding cap. Conspicuously, the Initial Regulatory Flexibility Analysis (IRFA )(Appendix B) states that the Notice seeks comment on "whether to increase the RHC Program funding cap" and "whether we should change how the RHC Program prioritizes support in the event that demand exceeds the program funding cap"—but no such sections appear in the body of the document. This appears to be a drafting artifact, possibly suggesting funding cap provisions were removed from an earlier version. [This will be worth verifying against the final adopted item.]

A second Appendix B mismatch.

The same IRFA paragraph describes the draft as seeking comment on "the elimination of the evergreen contract competitive bidding exemption" (Appendix B). The body does not propose eliminating the exemption—it seeks comment on eliminating USAC's approval requirement for evergreen contracts. These are very different things, and the IRFA description overstates the proposal.

"Serves as a hurdle."

The FCC's characterization of the HCF annual report—the program's only codified mechanism for assessing progress toward its performance goals—as "a hurdle that HCF Program applicants must clear" is unusually decided language for a tentative proposal. The draft does ask whether the data retains value, but the framing leans toward deletion. Readers concerned with program evaluation may note that the draft proposes eliminating the HCF Program's performance reporting at the same time it proposes adding performance metrics for USAC's processing speed: accountability for the administrator, but less data on program outcomes.

What Happens Next

The FCC is scheduled to consider the draft at its August 6, 2026, open meeting. The proceeding is subject to "permit-but-disclose" ex parte rules; presentations to the Commission or its staff must be filed in WC Docket No. 17-310 via the Electronic Comment Filing System. If adopted, comments will be due 30 days after Federal Register publication and replies 60 days after.

Notes

1. Paul Lipscombe, “GCI Expands 5G Network Coverage in Alaska,” Data Center Dynamics (July 20, 2026) https://www.datacenterdynamics.com/en/news/gci-expands-5g-network-coverage-in-alaska/. 

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