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

2. What You Need to Know HHS New! regulations at 2 CFR 200.307 and 300.1
HHS Grant Policy Statement pages II
The HTC Manual for Participating in the Drug Pricing Program Established by Section 340B of the Public Health Service Act, July 2005
MCHB Project Grant Regulations at 42 CFR 51a

3. 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:

4. 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
2 CFR Definitions

5. 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

6. 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 at 2
HRSA Letters restricted all revenue since 2003

7. 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

8. 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

9. 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.

10. 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

11. 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 , 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.”

12. 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

13. 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

14. 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

15. 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 (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

16. 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.

17. 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 , at p. 12 (1992)
Further eligible project and program objectives

18. 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 (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.

19. 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 , p. 24.

20. 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

21. 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

22. 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

23. 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 (Sept. 30, 1971) and Principles of Appropriations Law at pp , and

24. 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

25. 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.

26. 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

27. How is Program Income Reported?
Reported on the government-wide standard form: SF-425 Financial Report
Gross and Net Revenue – Deduct costs
Expenditures incurred but not supported by award dollars

28. 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)

29. 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

30. 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)

31. 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

32. 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

33. 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

34. 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

35. 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 (f)

36. 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

37. 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

38. Members may contact me anytime:
Thank You
Contact Details:
Members may contact me anytime:
Cell: (703)