« PreviousContinue »
moving ahead with the auditing of financial statements as quickly as possible. However, adequate financial systems may not be in place to prepare financial statements at this point in time.
: Question. In your opinion, would financial statements of Federal agencies be useful for this Committee? If so, what types of information should be provided in the statements?
Answer. In our opinion, Federal agency financial statements could become very useful to the Committee. Presuming that financial statements include information on such areas as outputs, accomplishments or productivity, and combine this with information on the cost of these efforts, then there will be great benefit from the statements. Comparing the information in such statements over several years should inform the Committee whether productivity is increasing and/or whether the cost of production is being reduced. Such information could be of use in determining the effects of budget cuts on program outputs or the additional funding needed to produce increases in program outputs.
Question. Mr. Kusserow, as you know, the issue of indirect costs has been in the news recently after it was reported that Stanford University is including the cost of the university yacht in its NIH indirect costs reimbursements. As you probably know, indirect costs range from 6.3 percent for the foundation at the New Jersey Institute of Technology to 155 percent for the Michigan Cancer Foundation. For colleges and universities the rate ranges from 26.3 percent for New Mexico State University to 108 percent for Gettysburg College.
Mr. Kusserow, do you believe that we should focus on the question of indirect costs? Does the system need to be reformed?
Answer. Yes, I believe we should focus on this question. Indirect costs represented about 46 percent of total direct NIH research dollars expended in FY 1989, or about $1.2 billion of the total cost of doing research at colleges and universities. This is obviously a significant part of the total cost of research and requires our close attention. Also, as illustrated by the revelations coming out of the Stanford situation, we need to be concerned about those items of cost which are charged to Federal research through the indirect cost process.
You note in your question that indirect costs vary significantly among Federal grantees, and I share your concern in this area. Our studies have shown that for major colleges and universities (118 receiving $6
million or more in research) under the cognizance of our Department, the rates as of November 1990 varied from a low of 37 percent to a high of 77 percent. The average rate for these schools is about 51 percent. We are currently planning to study some of the reasons often cited as contributing to these variances. For example, we will be reviewing the level of salaries at private versus public schools, facilities replacement (infrastructure concerns), and energy costs.
clarification is required, however, regarding the specific examples cited in the Committee's question. The 108 percent rate for Gettysburg College is a percentage of direct salaries and wages, while the rates for the larger universities are percentages of total direct costs (less certain exclusions such as equipment purchases). The OMB indirect cost guidelines permit two methods for computing indirect cost rates by colleges and universities: a simplified method for small colleges, which produces an indirect cost rate expressed as a percentage of direct salaries and wages, and a "regular" method for larger institutions, which results in a rate expressed as a percentage of total direct costs. Since the two types of rates are expressed as percentages of a different group of direct costs, they are really not comparable.
Gettysburg College qualifies as a "small college" under the OMB guidelines, since it has only one small Federal grant (funded at $86,000) which reimburses indirect costs. The college has also elected to treat all employee fringe benefit costs as indirect costs, while most other institutions directly charge these costs. The effect of both practices is essentially the same, and both are permitted by the OMB guidelines. If the indirect cost rate for Gettysburg College were expressed as a percentage of total direct costs (with fringe benefits treated as direct costs), the rate would be about 50 percent. A similar situation exists for the Michigan Cancer Research Foundation.
Conversely, the 26.3 percent rate cited for New Mexico State University is not the University's regular indirect cost rate for on-campus research projects; instead, it is a special indirect cost rate for the University's Physical Science Laboratory. These types of laboratories usually have low rates, since they are frequently constructed and equipped with direct Federal funds and often charge certain costs directly that are treated as indirect for regular on-campus research projects. The regular on-campus research rate at New Mexico State University is currently 43.2 percent.
with regard to the second part of your question, we have a number of studies both underway and planned which will deal, in part, with the adequacy and effectiveness of the current process for reimbursing indirect costs. Our reviews will consider the need for making changes to this system. For example, one of our reviews will examine the types of expenditures included in indirect cost centers and eventually allocated to Federal research. Our reviews will not be limited to determining whether charges are allowable under OMB circular A-21. We will also review the cost principles in OMB circular A-21 to determine whether they effectively ensure the inclusion of only reasonable costs. For example, in the Stanford situation we have seen that certain costs which are currently allowable under A-21 appear to have no direct or indirect relationship to research.
Other reviews we have planned will explore the use of alternative methods of reimbursing indirect costs, such as the use of fixed rates or caps. Other options may emerge as our reviews progress and as we gain more experience and insight into this complex process. We are finalizing a set of work plan items that will address the changes that may be needed in this process, to ensure that only allowable and properly allocable costs that are appropriate in supporting research are charged to the Federal research effort. We will provide you with a copy of our work plan under separate cover, and will advise you of the results of our studies and recommendations as they are completed.
Finally, we would note that my office has been working very closely with the Department's Division of Cost Allocation (DCA) -- an office within the Assistant Secretary for Management and Budget which negotiates indirect cost rates at colleges and universities. We perform joint reviews with the DCA at selected schools which they have identified as requiring a more intensive examination of records supporting indirect cost proposals. About 20 schools have been identified for such review in FY 1991. Our experience to date shows that these reviews have been effective in identifying unallowable or improperly allocated indirect costs.
SUBCOMMITTEE RECESS Senator HARKIN. The subcommittee will stand in recess to reconvene at 2 p.m., when we will meet to hear from the Administrator of the Health Care Financing Administration, Gail R. Wilensky.
[Whereupon, at 12:36 p.m., Thursday, March 7, the subcommittee was recessed, to reconvene at 2 p.m., the same day.]
(AFTERNOON SESSION, 2:02 P.M., THURSDAY, MARCH 7, 1991) The subcommittee met at 2:02 p.m., in room SD-192, Dirksen Senate Office Building, Hon. Tom Harkin (chairman) presiding. Present: Senators Harkin, Bumpers, Reid, Specter, and Gorton. DEPARTMENT OF HEALTH AND HUMAN SERVICES
HEALTH CARE FINANCING ADMINISTRATION STATEMENT OF GAIL R. WILENSKY, ADMINISTRATOR
OPENING REMARKS OF SENATOR TOM HARKIN Senator HARKIN. The Subcommittee on Labor, Health and Human Services, Education, and Related Agencies will come to order.
This afternoon we are going to hear from two Government agencies, the Health Care Financing Administration and the Social Security Administration.
These agencies are particularly important to our ever-increasing numbers of elderly citizens because of the programs they administer: Medicare and Social Security. They are important, too, for the less well-off in our society, no matter what their age, because of their responsibilities in the areas of Medicaid and disability benefits and SSI.
This subcommittee has jurisdiction over the administrative costs necessary for proper implementation of these entitlement programs.
The Health Care Financing Administration (HCFA) administers the Medicaid and Medicare programs.
The Federal benefits projected to be paid out to these two programs total $187 billion in fiscal year 1992; $126.7 billion is for Medicare berfefits, and $59.8 billion is for the Federal share of Medicaid.
To administer these two enormous programs, the administration has requested $1.89 billion in fiscal year 1992 or 9 percent less
$30he Soci year 1990 billion enormous Sram, million in Security
The Social Security Administration will disburse an estimated $307 billion in benefits in fiscal year 1992. To administer the program, the administration has requested $4.5 billion or 9 percent more than fiscal year 1991. I am going to repeat that for emphasis.
The administration has requested 9 percent less this year for these two programs, but to administer the programs they require 9 percent more. Interesting.
In the case of both the Health Care Financing Administration and Social Security Administration, workloads are projected to grow far in excess of the rate of growth of the funds requested to administer these programs. I am concerned the administration's request may not be able to meet that.
The Secretary echoed this concern by stating, “The means of providing benefits are seriously threatened by the level of resources" for their administration which OMB has suggested. Funding for these two major agencies may well be $500 million short of the true needs.
Total spending for HCFA and the Social Security Administration will be $494 billion or 34 percent of the Government's total spending. Needless to say, situations of fraud, waste, abuse occur in agencies of this size and we intend to talk about several cases this afternoon.
At this point, I will leave the record open for any opening statement that Senator Specter may wish to make.
Our first witness this afternoon will be Dr. Gail Wilensky, Administrator of the Health Care Financing Administration.
Welcome again to the subcommittee, Dr. Wilensky. If you could give us a brief summary of your budget request, I would appreciate that. And that will leave us a little bit more time for questions. Of course, your entire statement will be made a part of the record in its entirety. Please proceed as you so desire.
Dr. WILENSKY. Thank you.
SUMMARY STATEMENT Mr. Chairman, I am pleased to be here today to discuss the fiscal year 1992 HCFA budget request. I was sworn in as HCFA Administrator only 2 days before my appearance here last year. But even then, HCFA's central task for the foreseeable future was clear: To control the growth in program expenditures while remaining responsive to the needs of the Medicaid and Medicare populations that we serve.
Only by working together can the administration and the Congress hope to achieve this objective and to maintain our progress in today's changing health care environment.
Our 1992 budget attempts to strike a workable balance among the competing demands that we face: The rapid escalation of health care costs, the steady stream of program changes mandated each year in Medicare and Medicaid legislation, the growing number of program participants, and the fiscal constraints imposed by the Federal deficit and embodied in the Budget Enforcement Act.
In developing the HCFA budget, it was not easy to reconcile these demands. We were faced with choices that were difficult, but necessary. With you, we share the dilemma of managing huge and growing entitlement programs in an era of spending caps on discretionary programs.
We at HČFA are satisfied, however, that in each successive stage of the formulation of our budget, a wide range of alternatives was explored. Our budget represents the administration's best judgment of the most appropriate balance among competing priorities. It will not be easy, but we will work creatively to live within the budget that we have requested.
At this time, I would like to briefly highlight each of the accounts under the jurisdiction of this subcommittee: Grants to States for Medicaid, payments to the health care trust funds, program management, and the proposed survey and certification revolving fund.