FCC Plans $21 Million Fine For Rural Health Care Program Fraud

On November 4, 2016, the Federal Communications Commission (FCC) announced it plans to fine telecommunications company Network Services Solutions and its chief executive $21,691,499 for apparent violations involving the Universal Service Fund Rural Health Care Program (RHC Program).  The RHC Program provides discounts for telecommunications services to rural health care providers to help pay for modern telecommunications services.  However, to be eligible for the subsidized contracts providers must adhere to certain bidding requirements, which Network Services Solutions is alleged to have violated.  Further, Network Service Solutions is accused of pervasive cost overstatements to increase its payments.  Therefore, according to an FCC press release, the company has been charged with violating the program’s competitive bidding rules, using forged and false documents to seek funding from the program, and violating the federal wire fraud statute.  Network Services Solutions is Reno, Nevada-based reseller of telecommunications services.  The alleged violations occurred throughout the country, but were concentrated in the southeastern United States.

Service providers receive Universal Service Fund payments calculated as the difference between the higher rural rate for telecommunications services and the lower urban rate provided for similar services in the closest city with a population of 50,000 or more.   Taking advantage of this payment system, Network Service Solutions is alleged to have used forged urban rate documents that  overstated the urban rates in order to fraudulently increase Universal Service Fund payments.

In the bid rigging allegations, Network Service Solutions is alleged to have:

  • Reached contractual agreements with rural health care providers during the mandatory 28-day waiting period required by the FCC’s competitive bidding rules.
  • Mislead the government program that contracts were awarded through an objective analysis of bidders.
  • Given a valuable network server to a rural health care provider to influence its decision to award a contract; and
  • Received and improperly used its competitors’ confidential and proprietary information.

The fine against Network Service Solutions is an administrative fine.  However, under the qui tam provisions of the False Claims Act, whistleblowers with information about similar fraud against the government may bring a civil case on behalf of the United States. If successful, the government can recover three times the amount the defendants obtained from the government through fraud.  The whistleblower, who originally filed the qui tam case, is entitled to 15-30% of the government’s recovery as well as their attorney’s fees.