PROGRAM INCOME What is It ? How Can You Spend It? By: Stacia Le Blanc January 7, 2015

What You Need to Know HHS New! regulations at 2 CFR 200.307 and 300.1 http://www.ecfr.gov/cgi-bin/text-idx?SID=2b569ac2bdcc2f58e3f89493501d1455&node=se2.1.200_1307&rgn=div8 HHS Grant Policy Statement pages II-60 - 62 http://www.hhs.gov/asfr/ogapa/aboutog/hhsgps107.pdf The HTC Manual for Participating in the Drug Pricing Program Established by Section 340B of the Public Health Service Act, July 2005 http://www.hrsa.gov/hemophiliatreatment/340Bmanual.htm MCHB Project Grant Regulations at 42 CFR 51a http://www.ecfr.gov/cgi-bin/text-idx?SID=09d07c5739e46598f9ec093826f2ec10&node=42:1.0.1.4.25&rgn=div5 www.hemoalliance.org info@hemoalliance.org

What You Need to Know New! 2 CFR Part 200 – New grant regulation Applicable to awards made after December 26, 2014 Replaces HHS regulations at 45 CFR Parts 74 and 92 Coming! MCHB will be publishing program income guidance Coming! Update of the 2005 HTC 340B Manual Hemo Alliance Template Policies and Procedures Appendix II: http://hemoalliance.org/wp-content/uploads/2013/12/HTC_340B-Template-Policy-Manual_-revised_Clean.pdf www.hemoalliance.org info@hemoalliance.org

Program Income Defined Gross revenue Earned by non-Federal entity Directly generated by a supported activity Or earned as a result of the Federal award during the period of performance HRSA says that HTCs are federally recognized and generate revenues “as a result of the award” (2003 Letter) Can ask for prior written agency approval under 2 CFR 200.407 2 CFR 200.80 - Definitions www.hemoalliance.org info@hemoalliance.org

GAO Principles of Appropriations Law Does not automatically acquire a federal character Not required to be deposited in the Treasury Retained by grantee for grant-related use Deducted, Added, or used as cost share GAO Review of Program Income http://www.gao.gov/assets/150/140376.pdf www.hemoalliance.org info@hemoalliance.org

What Revenue of HTC is Included? HRSA GUIDANCE: Income a recipient or sub recipient earns as the result of a benefit made possible by receipt of a grant or grant funds Income as a result of drug sales when a recipient is eligible to buy the drugs because it has received a Federal grant See HHS AAGAM Chapter 3.03.103 at 2 HRSA Letters restricted all revenue since 2003 www.hemoalliance.org info@hemoalliance.org

What Revenue of HTC is Included? It is the position of HRSA that any and all revenue earned by the HTC is considered program income Fees collected by the HTC for services, camps, physical therapy, social therapy, and other programs for women and children Medicaid and Medicare payments Private Insurance payments 340B and non-340B revenue from Factor www.hemoalliance.org info@hemoalliance.org

What do Federal Funds Support? Average of $35,000 per HTC Used to pay half of the compensation of a nurse or social therapist No federal dollars are used to support the establishment and maintenance of a Factor program www.hemoalliance.org info@hemoalliance.org

What You Need to Know MCHB Program Guidance HRSA-12-133, p. 15: Provide a description of how program income, including program income from any 340B Factor Replacement Product programs, will be used and disbursed, consistent with applicable federal regulation and policies. Include any information on guidelines or policies for disbursement. Address how this information will be transmitted to grant sub recipients and how the grantee will monitor sub recipients’ compliance. Note: Recipients and subrecipients are to add program income revenue to the funds committed to the project or program to “further eligible project and program objectives.” More specifically, reportable net program income is to be used for patient health, education, and supportive services necessary to provide comprehensive care to patients served by the HTCs. www.hemoalliance.org info@hemoalliance.org

What You Need to Know MCHB Program Guidance HRSA-12-133, p. 25: If a recipient or sub recipient organization purchases or reimburses for outpatient drugs, an assessment must be made to determine whether the organization’s drug acquisition practices meet Federal requirements regarding cost-effectiveness and reasonableness If a recipient or sub recipient organization is eligible to be a covered entity under section 340B of the PHS Act and the assessment shows that participating in the 340B Drug Pricing Program and its Prime Vendor Program is the most economical and reasonable manner of purchasing or reimbursing for covered outpatient drugs (as defined in section 340B), failure to participate may result in a negative audit finding, cost disallowance, or grant funding offset. This does not require you to participate in 340B, but you should have a written pricing policy and justification documented www.hemoalliance.org info@hemoalliance.org

What You Need to Know The HTC Manual for Participating in the Drug Pricing Program Established by Section 340B of the Public Health Service Act, July 2005, at p. 15, states that: HTCs use extra income from the 340B discount to maintain or expand supporting services and as well as provide factor replacement products to uninsured patients.” The general policy in the drug acquisition regulation in 42 CFR Part 50, Subpart E, section 50.503, states: “It is the policy of the Secretary that program funds (including program income) which are utilized for the acquisition of drugs be expended in the most economical manner feasible.” The 340B Guide on p. 78, also states that “the grants awarding office may, on a case-by-case basis allow a grantee to use the income for eligible costs of the project that might not be expressly allowable costs under the terms and conditions of the award.” www.hemoalliance.org info@hemoalliance.org

What You Need to Know 2005 Hemophilia Treatment Center Manual: “Program Funds” include “program income” Includes all revenue earned from sales of drugs prescribed by HTC doctors sold to patients of HTC – Medicaid, Medicare, Privately Insured, self-pay www.hemoalliance.org info@hemoalliance.org

What You Need to Know 2005 Hemophilia Treatment Center Manual: “FRP revenue, whether or not the HTC is a 340B covered entity, is program income and subject to the rules for that kind of income in the grant regulation and HHS GPS” (Page 29) If Host Institution uses its DSH/PED designation in sales of FRP to HTC patients – Is it considered reportable and restricted Program Income? Yes - Under the grant regulations as previously enforced by the HRSA grants office Note: A current issue being addressed within HRSA with the updating of this Manual www.hemoalliance.org info@hemoalliance.org

What You Need to Know Is there a change in HHS position under 2005 Manual? HTC able to convince hosting hospital that all FRP revenue from its patients is “program income” and reportable However, the information was submitted in a report to a Region that separately designating FRP purchases by hospital and HTC designation – as provided by the hospital to the HTC HRSA Attorney said MCHB does not have authority over Hospital purchases – sensitivity to recent court rulings MCHB, HHS Attorney, OPA, and Grants Officer will meet and discuss this issue It is a Grant Administration question under grant regulations, not strictly a 340B OPA issue or MCHB issue OPA not supportive of current 2005 Manual which needs updating – in process of updating it www.hemoalliance.org info@hemoalliance.org

How is Program Income Restricted Earned During the Award Period Subject to all of the terms and conditions of the award and sub award agreement Applicable cost principles – allowable, reasonable, allocable Region award requirements flow down to the sub award agreements Program Income is intended to REMAIN with the recipient/sub recipient Does not go back to the U.S. Treasury because it is not subject to the Miscellaneous Receipts Statute according to the Comptroller General Decisions [B-191420 (August 24, 1978), p.4 and 44 Comp. Gen. 87, 88 (1964) (establishing that income generated from federal funds was not subject to section 3617 of the Revised Statutes, 31 U.S.C. § 484 (1970)]. Not Federal Taxpayer dollars Not Matching dollars under award But Federally restricted – held in public trust www.hemoalliance.org info@hemoalliance.org

HHS Grant Policy Statement II-60 Regardless of the alternative applied, program income may be used only for allowable costs in accordance with the applicable cost principles and the terms and conditions of the award. Subawards and contracts under grants are subject to the terms of the subaward or contract with regard to any income generated, but the terms specified by the recipient must be consistent with the requirements of the NoA. www.hemoalliance.org info@hemoalliance.org

How is Program Income Restricted May only be spent on: Patient Care Education Supportive services necessary to provide comprehensive care to patients Stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services H.R. Rep. No. 102-384, at p. 12 (1992) Further eligible project and program objectives www.hemoalliance.org info@hemoalliance.org

How is Program Income to be Used? ADDITIVE: HRSA allows HTCs to add the program income to the amount included in the award and sub award 2 CFR 200.307(e)(2) Addition: With prior approval of the Federal awarding agency, program income may be added to the Federal award by the Federal agency and the non-Federal entity. The program income must be used for the purposes and under the conditions of the Federal award. www.hemoalliance.org info@hemoalliance.org

How is Program Income to be Used? WHAT DOES IT MEAN to commit to the project or program, and use to further eligible project or program objectives? More specifically, what is to be considered relevant to patient health, education, and supportive services necessary to provide comprehensive care to patients served by the HTCs HRSA-12-133, p. 24. www.hemoalliance.org info@hemoalliance.org

How May Program Income be Used? Bleeding and Clotting Disorders: Hemophilia, VWB, Thrombophilia Programs to educate patients Social services Physical therapy Nutrition and exercise programs Children’s camps Women’s and men’s programs Dental services Factor programs and Contract Pharmacies Rent Renovations valued less than $150,000 in grant year www.hemoalliance.org info@hemoalliance.org

How May Program Income be Used? Training Local travel Outreach Provision of Factor to low-income, uninsured, underinsured Research if approved by HRSA Foreign travel if approved by HRSA Facilities and Administrative costs of medical school/hospital directly allocable to hosting HTC – separate indirect cost rate established for HTC Not for entertainment, food, beverages, bad debt, or anything else prohibited by the cost principles www.hemoalliance.org info@hemoalliance.org

Are There Exceptions? HTCs would like program guidance on commonly questioned areas: Patient Assistance Patient Travel Assistance- PPACA / OIG Advisory Opinion allow it Travel to international Hemophilia Meetings Should be viewed as allowable educational training Research on disease, treatment, and patient outcomes – HRSA Approval Allocable, allowable, reasonable costs of hosting institution Twinning programs www.hemoalliance.org info@hemoalliance.org

Are There Exceptions? HTCs would like program guidance on commonly questioned areas: Property Acquisition, Construction, Renovations exceeding $150,000 Government Accountability Office Principles of Appropriations Law which clearly sets forth that certain restrictions imposed upon Federal appropriations are inapplicable to grantee expenditures, specifically citing to 41 U.S.C. § 12, the prohibition against entering into contracts for construction or repair of buildings. See Comptroller Decision B-173589 (Sept. 30, 1971) and Principles of Appropriations Law at pp. 10-70, 13-153 and 13- 173. www.hemoalliance.org info@hemoalliance.org

Indirect Costs of Independent HTCs Independent stand-alone HTCs No 8% program limitation on indirect cost rate Must be COST based with indirect cost proposal Federally negotiated with government if prime recipient Submit indirect cost rate proposal to Cognizant Agency If approved by Federal Government – IDC must be honored by all awarding agencies Regions may negotiate and approve subrecipient rates Option: if no federally approved indirect cost rate, a fixed rate of 10% may be charged with no submission of indirect cost rate proposal New! 2 CFR 200.414 - .419 www.hemoalliance.org info@hemoalliance.org

Indirect Costs of Hosted HTCs Administrative Costs of Hosting institution are allocable to HTC if directly benefit the HTC, are reasonable, allocable, cost based, and allowable under the applicable cost principles Must be COST based and specific to costs incurred as a result of the HTC activities Using administrative personnel and facilities of hosting org Generally, the Federally negotiated indirect cost rate for host organizations is for research grants and is not applicable to the HTC Rate must be negotiated/approved by Region/Prime Recipient To establish Indirect Cost Proposals – See Appendices III, IV, V HRSA will not negotiate IDCs for subrecipients or specific programs. www.hemoalliance.org info@hemoalliance.org

Indirect Cost Certification Vice President or Chief Financial Officer Certificate of Indirect Costs: This is to certify that to the best of my knowledge and belief: I have reviewed the indirect cost proposal and all costs are allowable in accordance with the cost principles None include any unallowable costs All are properly allocable to award on basis of beneficial or causal relationship between the expenses incurred I declare the foregoing is true and correct www.hemoalliance.org info@hemoalliance.org

How is Program Income Reported? Reported on the government-wide standard form: SF-425 Financial Report http://www.whitehouse.gov/sites/default/files/omb/assets/grants_forms/SF-425.pdf Gross and Net Revenue – Deduct costs Expenditures incurred but not supported by award dollars www.hemoalliance.org info@hemoalliance.org

How is Program Income Reported? SF 425 Asks: l. Total Federal program income earned m. Program income expended in accordance with the deduction alternative n. Program income expended in accordance with the addition alternative o. Unexpended program income (line l minus line m or line n) www.hemoalliance.org info@hemoalliance.org

How is Program Income Reported? Regional 340B Program Income Reporting Form (June 1, 2013 – May 31, 2014) Subrecipients report to Region Region reports to HRSA Patients receiving 340B and non-340B Medicaid patients Total Income from 340B and non-340B sales Other sources of program income – Does NOT include other public or private grants www.hemoalliance.org info@hemoalliance.org

How is Program Income Reported? Expenses related to the sale of product Cost of factor purchases at 340B and non-340B Pharmacy Operations Billing Staff FRP HTC staff time Contractual Costs – contract pharmacy Other costs Indirect costs of parent institution Total Operational Costs Total Program Income Earned (Net Revenue) www.hemoalliance.org info@hemoalliance.org

How is Program Income Reported? Uses of residual program income Number of FTE’s supported by program income Physicians, Fellows, Nurses, NPs, PAs, Social Workers, Psychologists, Physical Therapists, Genetic Counselor, Other professional staff – RD, Research, Clinical trials, administrative staff, consultants = Total FTEs Patient Services and Programs Professional Education and Development Operational Costs Other HTC Expenses – ATHN, Hemo Alliance dues Expended Program Income Unexpended Program Income Balance at the end of the reporting period www.hemoalliance.org info@hemoalliance.org

How is Program Income Reported? Be sure you account for all costs incurred in generating revenue so only NET PROGRAM INCOME is reported All revenue and expenditures must be accounted for in a single cost center in your accounting system www.hemoalliance.org info@hemoalliance.org

Challenges of HTCs Hosted by Hospital Award and sub award is basis for 340B eligibility Program Income supports comprehensive care Recipients of federal funds must restrict program income for HTC program use only Even if HTC is not a separate legal entity from the Hospital, it registers to purchase 340B with HM designation Even if NOT registered as HM, the revenue from 340B factor to patients of grantee and subgrantees is still restricted program income – unresolved issue Program Income must be kept within the HTC and expended for HTC costs DSH and Children Hospitals are not a grant recipient and are not required to restrict program income www.hemoalliance.org info@hemoalliance.org

Challenges of HTCs Hosted by Hospital Hospitals hosting HTC increasingly seeking access to HTC program income for other purposes Patients go to HTC clinic for comprehensive services, not to hospital outpatient clinic Revenue derived from dispensing of Factor for HTC patient should be kept within the HTC program Hospitals increasingly seeking to purchase Factor under their DSH/PED designation, but potential grant violations Separate hospital pharmacy – direct HTC Medicaid patients there and keep revenue www.hemoalliance.org info@hemoalliance.org

What if HTC Sub awardee No longer is HM Designated or Award Terminated HTC retains and restricts program income that was earned during the award or sub award period If award and sub award is terminated, the HTC may continue to operate and spend program income benefitting the program only The program income earned post award is not restricted There are no Federal requirements governing the disposition of income earned after the end of the period of performance unless terms say otherwise Federal agency may negotiate agreements with recipients regarding appropriate uses of income at closeout of grant 2 CFR 200.307(f) www.hemoalliance.org info@hemoalliance.org

What if HTC Subrecipient No longer is HM Designated or Terminated? Region may select a new subrecipient The balance of the program income earned must be returned by the terminated subrecipient Former HTC loses Federal recognition as Center of Excellence Patients likely to leave the former HTC Former subrecipient may jeopardize other federal awards www.hemoalliance.org info@hemoalliance.org

The Alliance is Here to Serve You Goal of the Alliance to provide resources and services to sustain the HTC comprehensive care model Four hours of free legal services annually Assist in discussions with CFO and Counsel regarding program income Ensure allowable expenditures Assist in negotiations with HTC and hosting organizations Advise on indirect cost rate requirements www.hemoalliance.org info@hemoalliance.org

Members may contact me anytime: Thank You Contact Details: Members may contact me anytime: Stacia@Hemoalliance.org Cell: (703) 989-3833 www.hemoalliance.org info@hemoalliance.org