The Council on Governmental Relations

Report

of the Working Group

on

The Cost of Doing Business

June 2, 2003

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# Council on Governmental Relations

1200 New York Avenue, N.W., Suite 320, Washington D.C. 20005

(202)289-6655/(202)289-6698(FAX)

#### EXECUTIVE SUMMARY

Growing requirements related to the conduct of federally funded research
are increasing compliance costs. At the same time, the administrative
component of the facilities and administrative (F&A) rate is capped at a
level that is too low to permit the full recovery of actual F&A
expenses. Under-recovery of costs due to the cap for all universities
for FY 2000 is estimated to be about \$200 million. An even larger
under-recovery of F&A costs results from various agency policies and
statutes that limit reimbursement to 75 to 80 percent of the full
negotiated F&A rate. For FY 2000, under recovery due to these agency
practices is estimated to be about \$ 1 billion for all universities. A
recent study of facilities and administrative costs at universities
estimated that the total under-recovery is between \$0.7 billion and
\$1.5 billion. These circumstances have led to the increasing diversion
of university funds away from research to pay for compliance costs.

This study examines the incremental compliance costs associated with
recently enacted federal regulations, as incurred or estimated for the
period 2000-2005. It also addresses the costs of new business systems
implemented by universities to more economically and efficiently operate
the research enterprise. To do this, the report identifies new business
practices that have been established in response to either increased
oversight of existing federal requirements or which respond to new
federal policies or regulatory requirements. Only incremental costs
unrelated to ongoing operations and practices were considered.

The twenty-five institutions in this study estimate that they will spend
approximately \$411 million, or \$16.5 million per institution on
average on incremental compliance activities during the period 2000-05.
Moreover, 24 of these 25 institutions already have administrative costs
that exceed the 26 percent cap implemented by OMB in 1991 and made
effective in 1993. These circumstances require the institutions to
expend increasing amounts of institutional funds to support compliance
infrastructure.

Compliance costs are escalating rapidly over time. Average incremental
expenditures range from approximately \$1.8 million per institution in
2000 to approximately \$4.1 million of projected expenditures per
institution in 2005. The \$411 million in expenditures represent new
costs that are clearly over and above routine operating costs that
already include considerable monies spent on compliance. The estimated
level of incremental compliance-related expenditures is \$1.2 billion
for the top 100 research institutions when extrapolated from this sample
of 25 institutions.

Many of the sample universities report significant expenditures for
expanded requirements in existing regulations such as human subjects
protection systems, conflicts of interest, disposal of hazardous waste,
increased monitoring of health and safety requirements in laboratories,
Medicare billing and compliance, and research space studies. In
addition, significant expenditures were reported for new regulations,
such as Health Insurance Portability and Accountability Act (HIPAA),
Patriot Act and Homeland Security, bioterrorism controls and training in
the responsible conduct of research.

Continued increases in these substantial compliance costs cannot be
borne by the universities without impairing the research enterprise. At
the same time the universities recognize the need for compliance
programs that address valid societal concerns. To balance these
competing demands, a new, comprehensive strategy for dealing with
compliance costs is necessary. Such a strategy would include the
identification and elimination of unnecessary regulatory burdens, the
streamlining of compliance programs by the adoption of new business
models, and the government's acceptance of its responsibilities to pay
its fair share for new requirements that currently constitute unfunded
mandates, especially for actions related to the common defense and
security. By identifying the sources of these increasing compliance
costs, this report is a first step towards developing such a strategy.

### I. INTRODUCTION

U.S. universities that conduct federally funded research are required to
establish substantial infrastructure and administrative support systems
to satisfy a broad range of compliance requirements. The development and
maintenance of these systems requires the commitment of substantial
resources that are integral to creating a proper and effective research
environment. Although some compliance costs are reimbursed as part of
the Federal support for research, costs associated with new regulatory
requirements and business practices established in the past decade have
increased substantially above reimbursements, resulting in great
financial strain on universities. Such costs are expected to increase
further as new regulations and policies are implemented for additional
protections for human research participants, individual and
institutional conflicts of interest, training in responsible conduct of
research, and safeguarding of select biological agents. This increasing
burden led the Presidents of the Association of American Universities
(AAU) to request the Council on Governmental Relations (COGR) to prepare
a study on the increasing costs of conducting research. This study
examines compliance costs associated with recently enacted Federal
regulations, as incurred or estimated for the period 2000-2005. It also
addresses the costs of new business systems implemented by universities
to improve the economy and efficiency of operating the research
enterprise.

A.  Developments During the Past Decade

Since the early 1990s, the federal government's expectations and
requirements have risen significantly with respect to formal, verifiable
education and compliance monitoring for faculty and staff involved in
the research enterprise. A variety of reports have documented the
resulting administrative burdens for universities. These reports show
that colleges and universities are required to cope with a large variety
of new expectations. Revised regulations, policies or guidance cover the
gamut of research administration and compliance from electronic
applications, financial management, protection of humans and animals,
conflicts of interest, intellectual property, laboratory security, and
interaction with non-U.S. scientists. As these requirements continued to
increase, universities expressed growing concern about their ability to
meet these new requirements and expectations.

For example, a December 1992 report to the Federal Coordinating Council
for Science, Engineering and Technology (FCCSET) noted:

> Public expectations have increased with respect to universities'
> fulfillment of their fundamental responsibilities for education and
> stewardship of public resources. Increasingly, the conduct of research
> also raises a variety of legal, social and ethical issues, including
> scientific misconduct and conflict of interest. In response to these
> concerns, university activities have become subject to a wide variety
> of administrative requirements on expenditures of Federal funds and
> certification of compliance with Federal statutes. Since these Federal
> requirements can be expected to increase, their cumulative burden on
> research-intensive universities, as well as their interaction with
> state and local government policies, need to be better understood.

A 2000 RAND report concluded that overall, the research partnership
between the federal government and universities is praised for its
contribution to the public welfare.[^1] However, RAND estimated that
universities under-recover between 10 and 30 percent of the facilities
and administrative expenses associated with federal projects, because of
various limitations on federal facility and administrative (F&A) cost
reimbursement established in agency policies or by statute. The RAND
report estimates the total amount of this under-recovery to be \$750
million to \$1.5 billion annually -- and this is in addition to the
estimated \$5 billion universities already provide in direct support of
research.

B. Summary of First COGR Study

COGR's first study of the shortfall in recovering compliance costs
focused on the costs to comply with greatly expanded requirements for
human research participant protection. Twenty universities participated.
COGR found:

-   During the period 1995 to 2000, costs related to human subjects
    protection increased an average of 176 percent, or 23 percent
    annually. This did not include the costs to develop and conduct
    training in human subjects protection, estimated by several large
    universities to be over \$500,000.

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-   These increased costs are part of the administrative component of
    facilities and administrative rates.

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-   Because all but one of the twenty universities are at or above the
    26 percent cap on administrative costs, these increased costs are
    borne totally by the university.

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-   Under-recovery of costs due to the 26 percent cap[^2] for the 20
    universities in FY 2000 is estimated to be over \$46 million, or
    \$2.3 million per institution on average. Under-recovery for all
    universities due to the cap for FY 2000 was estimated to be about
    \$200 million.

Compounding the short-fall in recovery due to the cap are various agency
policies that limit reimbursement of such costs or that "encourage" cost
sharing, which often result in a reduction of the F&A rate. For example,
the NIH limits F&A payments on career and training grants to 8 percent;
NSF often negotiates award amounts with researchers, seeking a reduction
that will not affect the scope of scientific work proposed; and USDA has
a statutory limit of 19 percent on competitive awards. For the 20
universities, under-recovery due to such agency practices in FY 2000 was
estimated to be over \$112 million, or \$5.6 million per institution on
average. For all universities, under-recovery due to these agency
practices was estimated to be about \$1 billion.

Based on the results of this first analysis, the AAU Presidents asked
COGR to expand its review to cover a much broader range of new research
business practices implemented either as a direct result of new or
greatly expanded federal mandates, or to improve the management of the
university's research enterprise. This study attempts to provide such
data.

II\. METHODOLOGY:

To provide the factual basis for developing policy alternatives for
addressing escalating compliance costs, a study was designed to identify
the detailed contributors to the increases in compliance costs. A
Working Group was established.

The Working Group Charter called for 1) an inventory of new university
business practices or enhancements to existing practices established in
response to Federal compliance requirements within the last five years
and 2) a delineation of the nature and costs of these initiatives in at
least 20 institutions.

######## Scope 

The Working Group endeavored to develop an inventory of new business
practices that had been established in response to Federal compliance
requirements. These new business initiatives could be in response to
either increased oversight of existing requirements, (e.g. the
protection of human subjects) or in response to new regulatory or policy
requirements (e.g. the Health Insurance Portability and Accountability
Act (HIPAA)).

The Working Group determined it would identify the *incremental* costs
associated with the initiatives to the extent possible. The Working
Group understood that some initiatives are implemented within existing
staff resources and it is difficult to identify discrete costs in those
cases. In the interest of conservatism, the Working Group instructed
respondents to exclude items from their calculations of incremental
costs unless the related costs were clearly distinguishable from
on-going operations and practices. (See Incremental Cost definition)

The Working Group also decided to collect the total facility and
administrative (F&A) costs allocated to the management of organized
research according to the cost pools established in OMB Circular A-21;
for example, depreciation, operations and maintenance, sponsored
projects administration, etc. The F&A costs, therefore, could be
analyzed over time to observe increases, if any, in the total cost of
the research enterprise even if it would be difficult to identify
specific causes or explanations.

Finally, respondents were instructed to provide only those costs
allocable to Organized Research. Total on-going costs for each pool were
provided for contextual purposes only.

Time Frame

The Working Group decided to identify costs for a six-year period from
2000 through 2005 to capture recent compliance initiatives as well as
those initiatives planned for the next two years.

Core Group

The principal COGR staff person, the chair of the Working Group and one
staff person from the Chair\'s institution comprised a Core Group to
refine the methodology, develop instructions, and design a template for
data collection. This group was assisted by Jim Roth and staff from
Huron Consulting who provided pro bono support to the study.

######## Instructions and Template

The instructions and data collection template were refined following the
October meeting and sent to the sample institutions for clarification
and comment before they were finalized.

The final data collection instrument was sent to the sample institutions
on November 17, 2002, and responses were requested by December 23, 2002.
The template was structured to capture both the costs of new initiatives
and the total F&A costs by cost pool. Institutions were instructed to
use their most recent F&A cost study as the base for determining costs
for the period requested using a reasonable cost inflator for each year
based on actual institutional experience.

Members of the Core Group provided on-going assistance and clarification
of questions that arose during the data collection. They arrived at
consensus definitions on novel questions and fed those back to the
sample institutions to insure consistency in response. An early and very
complete institutional response was sent to all participants as an
example that served to further clarify and provide consistency of
results.

Data Review

The Core Group reviewed institutional responses as received. An
individual member of the Core Group contacted the participating
institutional representative to clarify any initiatives or costs that
appeared to be outliers or that did not fit the data definitions. Costs
not fitting the definitions were excluded. They also asked respondents
to clarify abbreviations and institutional acronyms. The Core Group
conducted one additional conference call, and the institutional
representatives met following the COGR meeting in February to clarify
data definitions in order to ensure as much consistency as possible.
Some institutions refined their data submissions based on these
discussions. Final responses were collected through February 2003.

Case Studies

It is always more difficult to implement specific compliance initiatives
than financial metrics or FTEs can ever describe. Each compliance
activity on campus requires considerable faculty volunteer effort in the
initial development of new policy and procedures, and subsequently in
the actual implementation. Faculty spend substantial amounts of time
without compensation in the review of human subjects, animal protocols,
inventorying and labeling chemicals and potentially hazardous materials,
and so on. The effort devoted to these activities, no matter how
important, means time away from education and research. Likewise, the
costs of this volunteer effort are not included in the incremental costs
of compliance identified in this report. The implementation of new
compliance requirements often requires assembling faculty a variety of
departments and disciplines along with staff from an array of central
and departmental offices over a long period of time to develop policies
and procedures. While the process is often time consuming, it is
essential to forge institutional policy and consensus that is so
critical to the subsequent implementation. It is not unlike the process
in which any other complex organization would have to engage, including
federal agencies. We have included case studies that are drawn from
actual institutional experiences to illustrate the complexities that are
part of the implementation of any compliance initiative. These case
studies represent the initiatives that were the most frequently cited
during the study period.

Definitions

*New Initiative*: A new initiative is one that began or would begin
during the study period of 2000-2005 in response to applicable federal
requirements (See discussion of administrative systems.)

*Incremental Cost:* An incremental cost is one associated with a new
initiative that is clearly over and above previous baseline costs. These
costs are in addition to those that were previously expended in support
of the activity. These costs do not include the on-going costs of
existing staff or resources that were redirected to conduct or
participate in the initiative; for example, the salary of an existing
staff person who spent time to revise conflict of interest policies did
not qualify. However, the costs of establishing a new database to
document conflict of interest disclosures and actions did qualify.
On-going costs were excluded because of the difficulty of allocating the
costs within an institution and consistently collecting these costs
across institutions.

*Cost pools:* OMB Circular A-21 describes the methodology by which
institutions must assign facility and administrative expenditures,
including compliance activities, to various categories or pools for the
purpose of determining indirect costs. These same pools are used for
this study.

III\. RESULTS:

Sample Institutions

Twenty-five institutions volunteered to participate in this study,
including 14 private and 11 public institutions. Twenty-one of these
institutions have academic medical centers. Six of the institutions are
within the NSF top 10 institutions as ranked by Federally-financed
research expenditures, representing approximately \$2.5 billion or 66
percent of the expenditures for that group. Twenty-one of the
institutions spend over \$4.8 billion or 33 percent of all
federally-financed research expenditures.[^3] Four of the institutions
receive less than \$50 million of federal research funding annually.

Incremental Costs in All Areas

The twenty-five institutions estimate they will spend approximately
\$411 million, or \$16.5 million per institution on average, during the
period 2000-05 on incremental compliance activities. However, 24 of
these 25 institutions are above the administrative cap; they are,
therefore, expending institutional resources to support their compliance
infrastructure.

**Graph 1**

![](media/image1.wmf)

Graph 1 shows that these incremental costs are escalating rapidly over
time in all pools. Average expenditures range from approximately \$1.8
million per institution in 2000 to approximately \$4.1 million of
projected expenditures per institution in 2005. The \$411 million in
expenditures represent new costs that are clearly over and above routine
operating costs that already include considerable costs of compliance.
As indicated in the Methodology section of this report, respondents were
instructed to carefully identify only the new incremental costs of
compliance. Extrapolating from this sample of 25 institutions, the
estimated level of new, incremental, compliance-related expenditures may
range from \$1.2 to \$1.9 billion for the Top 100 institutions'
federally-financed research expenditures.[^4]

Graph 2

![](media/image2.wmf)

Graph 2 illustrates the relative allocation of costs by pools. SPA costs
are the largest component and represent, on average, 54 percent of the
incremental costs of compliance over the six-year period.

**Graph 3**

![](media/image3.wmf)

Graph 3 indicates that expenditures within the pooled costs allocated to
organized research have also increased dramatically from 2000-2005.
Administrative costs (sponsored projects administration, general
administrative, and departmental administration) are projected to
increase 6.9 percent annually on average over the study period.

Limited Analysis of Administrative Cost Growth vs. Research Base Growth

Increases in administrative costs are not all attributed to the
increased costs of compliance; they also reflect inflation and an
increase in research volume.[^5] It is not possible in the scope of this
study to distinguish the effects of increased costs, inflation, and
increased volume from one another. Hypothetically, if growth in the
organized research base exceeds the growth in the administrative cost
pools, institutions would recover more administrative costs and the
additional reimbursement would mitigate some of institutional losses due
to the 26 percent cap on administrative costs. While it was not feasible
to analyze this effect within the total sample, we did perform an
analysis of administrative cost recovery among seven sample
institutions. Five of the institutions are private and two are public.
All seven are within the Top 100. In 2000 the seven institutions lost a
total of approximately \$34M, or approximately \$5M on average based on
the projected recovery of administrative costs vs. recovered. This
represented a median loss of 12 percent of estimated administrative
costs. In 2002, the average loss of administrative costs for the seven
universities increased to approximately \$43M or approximately \$6M on
average in spite of an approximately 10 percent increase in the MTDC
base. In 2005, the average loss is projected to decrease to
approximately \$40M or approximately \$6M on average, due to about a 6
percent increase in the research base as compared to the forecast
increase in administrative expenses. The total estimated loss of
administrative expenses for the seven institutions for the study period
is \$248M. This amounts to an underrecovery of administrative costs of
in the range of approximately \$1.6B to \$3.5B when extrapolated to the
Top 100 institutions. [^6] Only one institution estimated a positive
recovery of administrative costs in one year. In fact, that institution
and each of the others lost even more administrative costs than the
estimates indicate due to agency and foundation award limitations on
indirect costs, as described in the Introduction to this report on page
3.

This analysis underscores a general point. That is, if administrative
costs were fixed, an increase in research volume (MTDC base) would
increase the recovery of administrative costs and mitigate some of the
effect of the cap. In practice, however, this study demonstrates
graphically that administrative costs are not fixed. New research
compliance requirements are a major factor in driving up administrative
costs at a pace equal to or greater than increases in the research base,
resulting in greater and greater losses for educational institutions. It
is not easy to project what may occur in the near future; however; it
may be reasonable to presume that research volume will stabilize since
this is the last year of the NIH budget doubling process while
compliance requirements may continue to increase. If that is the case,
and nothing is done with respect to the 26% cap or agency limits on F&A
cost recovery, institutions will lose even more funds.

######## 

######## 

######## Assessment of Individual Cost Pools

The sponsored project administration (SPA) cost pool includes research
administration costs in general, as well as many compliance activities
costs. The SPA cost pool is where most institutions have assigned the
costs for the protection of human subjects, conflict of interest, animal
welfare, intellectual property and compliance with Bayh-Dole, HIPAA,
export controls, compliance offices, tracking of sponsor award terms and
salary caps, and so forth. Graph 4 illustrates that on-going
expenditures for this cost pool averaged approximately \$6 million at
each of the sample institutions and increased on average approximately 7
percent annually from 2000-2005. In the same period, incremental SPA
expenditures averaged approximately \$1.7 million per year among
respondents for a dramatic average annual change of 23 percent.

Graph 4

![](media/image4.wmf)

The operations and maintenance (O&M) cost pool includes the costs of
utilities, security, repairs and renovations, grounds keeping,
environmental health and safety, and hazardous waste disposal. This cost
pool contains many of the new compliance activities due almost entirely
to the latest requirements impacting environmental health and safety.
These activities have not only been subject to additional scrutiny by
the Environmental Protection Agency, but by many overlapping state and
local government authorities as well. This is the category of activity
that is impacted by the new requirements of the Homeland Security Act
and the Patriots Act. The combination of increased oversight and new
requirements has required increased lab inspections, additional lab
security, the registration and protection of toxic agents, and
bioterrorism controls. Many institutions have had to hire additional
staff, provide additional education for faculty and staff, and develop
new databases to inventory and track materials.

Graph 5 indicates that on-going expenditures for this cost pool averaged
approximately \$21.6 million among the sample institutions and increased
on average approximately 5 percent annually from 2000-2005. In the same
period, incremental O&M expenditures averaged approximately \$478,000
per year for a dramatic average increase for the period of 10.6 percent.

**Graph 5**

![](media/image5.wmf).

Many institutions have assigned the costs of audit follow up, HIPAA
compliance, service recharge centers, review for the HHS/OIG procurement
exclusion, and the costs of administrative, payroll, and financial
management information systems to this category. Graph 6 indicates that
General Administrative costs increased as well with ongoing costs
increasing on average by 6.1 percent annually and the incremental costs
increasing an average of 10.7 percent annually.

**Graph 6**

![](media/image6.wmf)

The Working Group debated whether to include the costs of administrative
and financial systems in this analysis. Like all general administrative
costs, they benefit the entire institution. Yet the pressure to update
legacy administrative information systems is often the result of
pressure for compliance with Federal requirements in salary
distribution, effort reporting, proper rate application, complete
property inventory and control, and so forth. According to the
instructions, institutions included only that portion of information
systems that were allocated to organized research, and only that portion
of the costs that were allocated during the study period. Most
institutions capitalize the costs of information systems; respondents
were instructed to include only the capitalized costs as incremental
costs.

To determine the relative magnitude of administrative systems costs, we
prepared a parallel analysis in which all such costs were eliminated.
The total six year incremental cost per institution, on average, was
calculated to be \$15.1 million, or \$1.4 million lower, without
administrative systems costs. It is interesting to note that the vast
majority of those costs are included in the General Administration cost
pool. With administrative systems costs excluded, the General
Administration cost pool represents only 13 percent of total incremental
costs (as opposed to 24 percent in the original analysis) while
Sponsored Programs Administration costs represent almost 62 percent (as
opposed to 54 percent in the original analysis).

Range of Incremental Costs

For the purpose of the analysis, the range and the median incremental
compliance costs were developed for each cost pool. Not all institutions
incurred incremental compliance costs in each category each year, so the
minimum range in each case was the least or lowest amount of dollars
expended in that particular category. The range of costs for Sponsored
Projects was a minimum of \$32,000 in one year to a maximum of
\$16,571,681 in one year. The median Sponsored Projects Administration
costs were \$975,544 per year. The minimum for the General and
Administrative cost pool was \$14,000 and the maximum was \$4,550,000
with median costs of \$452,318 per year. The minimum Operations and
Maintenance incremental cost was \$3,500 and with a maximum of
\$4,467,890 and a median of \$198,000 per institution per year. The
least amount of incremental expenses was in the area of Departmental
Administration with a minimum of \$1,000 by one institution in one year
to a maximum of \$2,128,107. The median Departmental Administration
costs were \$123,230 per year. It should be noted that each institution
has its particular mix of research which influences the timeframe for
meeting new compliance requirements, resulting in varying degrees of
expenditures in any one year shown above.

Inventory

The sample institutions identified over 100 activities that they
initiated or plan to initiate between 2000-2005 in response either to
increased federal oversight of existing requirements or new law,
regulation, and policy. These activities group broadly within the areas
of environmental health and safety, the Health Insurance Portability and
Accountability Act (HIPAA), human subjects protection, conflict of
interest, Medicare billing compliance, intellectual property management,
facility space studies, general audits, and other topics.

Six of these activities (audits, conflict of interest, disposal of
hazardous waste, increased monitoring of health and safety requirements
in laboratories, increased lab security, and HIPAA were each implemented
by ten or more respondents. Fifteen of these activities (e.g. the
Patriot Act and Homeland Security, bioterrorism controls, Medicare
billing and compliance, Office of Technology Management, Payroll
Systems, service centers, institutional review boards, space studies and
surveys, and code of conduct) were each implemented by more than seven
institutions. Many of the other initiatives were also implemented by
multiple institutions.

The list is extensive and reflects a not so surprising collection of the
latest concerns regarding homeland security, protection of human
subjects, avoidance of conflict of interest, the promotion of research
integrity, and the compliance with federal cost policies. The list of
compliance activities reflect federal requirements that demand an
administrative infrastructure that must be every bit as tangible and
sophisticated as the facilities in which the research takes place.

**Restrictions on Cost Allocations**

OMB Circular A-21 describes the methodology by which institutions must
assign facility and administrative expenditures, including compliance
activities to various categories or pools for the purpose of determining
indirect costs. For example, the costs associated with environmental
health and safety are often identified as operations and maintenance
costs, while the costs associated with the protection of human subjects
are usually included in sponsored projects administration. Circular A-21
permits some institutional discretion in the assignment of compliance
costs to the various cost pools. For example, compliance with HIPAA
could be assigned to sponsored projects administration, general
administrative costs, or departmental administration, depending on where
the costs are incurred. However, based on a revision of Circular A-21 in
1991, section G.8.d, institutions must receive permission to change the
assignment of costs from one pool to another. In fact, this survey
indicates that the various compliance activities are sometimes assigned
to different cost pools among the sample institutions, reflecting
legitimate differences in where the costs are incurred, and where they
have been charged historically within particular institutions. The
survey indicates that compliance costs are incurred in every one of the
facility and administrative cost pools. They are included in the costs
of facilities, in operations and maintenance, in the general
administrative costs of the institution, in academic departmental
administration, and most certainly in sponsored projects administration.
Consequently, it is difficult to identify compliance costs, to track
increases in costs over time, and to isolate compliance costs within one
or two cost pools.

### IV. CONCLUSION

We are in an era where a sophisticated research compliance
infrastructure is as crucial to the successful conduct of meritorious
research as state-of-the-art research facilities and scientific
instrumentation. Developing and maintaining an adequate compliance
infrastructure carries a substantial price tag.

The data collected during this study demonstrate that institutions are
financing new, incremental compliance costs at the rate of \$3 million
and more per year. Alarmingly, the number and complexity of regulations
and their resulting costs are escalating rapidly today and in the
future, rather than stabilizing or decreasing. Incremental compliance
costs for the Top 100 institutions are projected to exceed \$1.2 billion
in the study period. The more routine costs for research facilities and
an adequate administrative infrastructure are absorbed in current
operations, and they, too, are increasing at a substantial rate.
Compliance in the conduct of biomedical and health-related research is
even greater than for most basic science. Compliance in academic medical
centers, including the protection of human subjects, the accuracy of
Medicare billing, the avoidance of conflict of interest, and the
disposal of hazardous waste is even more substantial than in the those
institutions without medical centers.

All of this occurs in the context of non-profit institutions of higher
education that are caught in a rapidly deteriorating economic
environment. The loss of earnings on endowment, the decrease or deferral
of gifts, and the loss of state revenues for the support of education
put these non-profit institutions in considerable peril. These
institutions have been struggling to finance the current costs of
construction and renovation of research facilities. Funding for
essential research facilities will be at risk to the extent that
available funds are diverted to implement new compliance requirements.
It is difficult to estimate how these institutions will continue to
finance the escalating spiral of compliance requirements in the context
of rapidly decreasing economic resources.

The limitation of reimbursement of administrative costs to universities
was set in place over a decade ago. It is past time for this policy to
be reevaluated to better reflect the costs that universities bear to
administer research programs. Federal law, regulation, and policy
establishing new compliance requirements continue to increase. Lawmakers
and the public have every reason to assume that these requirements will
be implemented swiftly and effectively. Yet the resources to do so are
severely constrained by archaic policy. This is not the result of
deliberate, congruent public policy, but the inconsistent result of
independent policies established years apart.

No other class of institutions or recipients of federal funds that have
their costs artificially capped or constrained in such a fashion.
Non-profit research institutes, commercial organizations, small
businesses, and hospitals receive relatively full reimbursement for the
actual costs of research. They do not face this contradiction in public
policy that requires substantial investment in compliance activities on
the one hand, and limits the reimbursement for compliance infrastructure
on the other. Federal Acquisition Regulations (FAR) do not restrict, or
limit cost reimbursement to an individual class of organization. In
fact, commercial organizations conducting federal research under the FAR
would not consider conducting such research without a profit or fee, let
alone without the full reimbursement of actual costs.

### V. RECOMMENDATIONS

Current economic hardship experienced by universities due to rising
compliance costs seems to be the unintended consequence of actions taken
more than a decade ago to cap administrative cost rates and to pay less
than negotiated rates under certain programs in certain agencies. We
have characterized this as an unintended consequence because we cannot
believe that the government would knowingly have adopted financial
disincentives for compliance; nor have we seen restrictions on recovery
of compliance costs in any other class of recipient of federal funds.

It is essential to modify policies and procedures to fairly reimburse
universities for the costs of research. Strategically, these
reimbursement policies must be consistent among classes of institutions
and provide fair reimbursement for the costs of compliance mandates and
research infrastructure. Tactically, it means that not only is there is
a coherent federal-wide policy for the reimbursement of facility and
administrative costs, but there is also consistency among agency
policies with respect to reimbursement policies on all funding
mechanisms. COGR and the other associations of higher education will
vigorously support such an effort.

Since it will take the action of OMB and the federal agencies to correct
these essential issues, it seems logical to us to have the fundamental
reasons for this situation addressed in the context of the National
Science and Technology Council (NSTC). Under the leadership of the
Office of Science and Technology Policy a committee is charged with
developing new business models to support research. We recommend that
this committee carefully consider the many avenues available to redress
the problems, which span a spectrum from repeal to recalibration to
reformulation of policies and procedures in order to ensure that
universities receive equitable reimbursement for the increased
compliance initiatives to meet overall societal goals. Options to
establish a fair business partnership between universities and
government include: removal of the 26% cap, payment of full negotiated
F&A rates on all awards, and the creation of a new uncapped compliance
cost pool.

It is very important that OMB and the Office of Science and Technology
Policy interagency committee provide a mechanism for the academic
community to be involved in their work and consulted at critical stages.
The committee also should coordinate its work with the important
initiatives already underway under Public Law 106-107 to streamline and
simplify grant and contract administration and to reduce regulatory
burden. While it is of primary importance to seek solutions to the
financial difficulties identified in this report, it is essential to
continue efforts to reduce or eliminate non value-added requirements,
and to reduce costs by minimizing or streamlining essential compliance
procedures.

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### 

#### CASE STUDIES

####  

#### Case Study: Implementation of the Health Insurance Portability and Accountability Act -- HIPAA

######### Introduction

The Health Insurance Portability and Accountability Act (HIPAA) and the
HIPAA Privacy regulations ensure the smooth flow of a patient's
protected health information (PHI) for treatment, payment and business
operations while restricting the use or disclosure of this PHI without
explicit and voluntary authorization by the patient. The HIPAA Privacy
Regulations also protect a patient\'s right to access their PHI, and to
know who is using it and how it is being used. Implementing strategies
to comply with these new regulations have affected the clinical,
research and teaching operations across the Schools and central areas of
the university and directly impacted the workflow and operations of both
faculty and staff.

**[Implementation]{.underline}**

# Phase 1: Understanding the Law and Regulations

Since the law and regulations are new, the University's strategy was
to 1) understand the specifics of the HIPAA law and Privacy regulations,
and 2) assess the impact on the institution. This process, which took
about six months, included attending educational programs, communicating
with professional organizations, and other peer institutions, and
conferring with external consultants and legal advisors.

A 20-member Steering Committee of representatives from key clinical
areas, research administration, IRB, Information Systems, Human
Resources, General Counsel, Student Health, and School Administration
and Finance was appointed to lead the HIPAA Initiative at the
university.

The Steering Committee surveyed departments and business units they
expected to be impacted by HIPAA in order to understand the collection,
use, disclosure, and disposal of PHI. Approximately 25 departments in
the Schools of Medicine, Arts & Sciences, Social Work and Engineering,
as well as additional business units such as Student Health, Public
Affairs and Athletics participated in the written survey. Both faculty
and staff contributed information to the survey, which took 2-4 weeks to
complete. This comprehensive survey was an integral part of the
committee\'s strategy to gather facts about existing operations to
assist them in defining the scope of the HIPAA compliance initiative at
the university.

# Phase 2: Developing University Guidelines, Policies and Procedures

The Steering Committee established a HIPAA Compliance Structure to
ensure stakeholders\' participation in the development and
implementation of the HIPAA compliance strategies. This structure
consisted of:

-   A Stakeholder Committee charged with reviewing proposed plans and
    strategies. (Approximately 100 faculty and staff participated in
    this activity.)

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-   Four subcommittees charged with developing university policies,
    procedures, tools, templates, training, and communication
    strategies.

-   Joint committees appointed to address university-affiliated
    hospitals\' clinical, research and teaching activities occurring at
    these sites.

All committees were staffed with faculty and staff who had expertise
needed to fulfill the specific charges of the committees. The activities
of the Research Policies and Procedures Subcommittee provide a good
example of the type of work the subcommittees completed. Over 20 faculty
members from different disciplines and departments were interviewed
individually to discover the specific issues associated with the
different types of research being conducted at the university, and to
assess the impact HIPAA regulations would have on their research
programs. The Research Subcommittee met bimonthly. As policies were
developed, Research Subcommittee members attended faculty meetings in
various departments to share their work and seek input from faculty and
staff.

The four subcommittees\' activities lasted 10 months and involved
approximately 60 faculty and staff. In addition, the university devoted
almost two FTEs from the General Counsel's office and two other FTEs who
were assigned project management responsibilities.

[Phase 3: Implementation and Monitoring]{.underline}\
\
The university is in the final phases of implementing HIPAA compliance.
The critical elements of implementation include:

1.  Organizational changes:

    a.  Establishing a University Privacy Office \*

    b.  Expanding the Medical School IRB role to serve as the Privacy
        Board to review the more than 3500 protocols submitted by
        600-800 investigators annually\*

    c.  Establishing a Security Office\*

2.  Appointing over 50 Privacy Liaisons in business units who are
    responsible for meeting University HIPAA policies.\
    \*(Note: These changes will add approximately 10 new FTEs to the
    costs of the central operations.)

3.  Implementing mandatory web-based training for 8,000 to 9,000 faculty
    and staff. The time expended in training will range from 20 minutes
    to 5 hours, depending upon an individual's job responsibility. The
    business units have appointed over 90 HIPAA trainers to monitor the
    mandatory training and deliver business unit specific training. The
    cost of the web-based training program is approximately \$20.00 per
    person. This does not include the time and effort costs of the
    trainers' or trainees' time.

4.  Implementing new or revised operational practices for departments,
    staff and faculty in clinical, teaching and research areas,
    including but not limited to, patient communications, subject
    recruitment, and management of databases and medical records. Costs
    associated with these operational changes are impossible to predict,
    and since no new funding exists to support these changes,
    departments will need to absorb these costs into their operating
    budgets.

5.  Enhancing security guidelines for electronic and paper systems.

6.  Establishing new monitoring and auditing programs to assess
    compliance.

## Phase 4: Security Regulations

The university is now preparing to respond to the recently published
HIPAA Security Regulations, which add new dimension to the HIPAA
Initiative.

# Conclusion

The university's HIPAA Initiative is based on the following four-part
strategy:

1.  Establishing minimum standards at the University level.

2.  Introducing customization and implementation strategies at the
    Business Unit level

3.  Requiring Business Unit self-monitoring and reporting

4.  Instituting University-level auditing to verify compliance

Complying with HIPAA Privacy regulations has been, and will continue to
be, a significant logistical task at this university. By the April 13,
2003, implementation date, we will have used uncounted hours of faculty
and staff time to develop policies, procedures and education programs.
The ongoing demands to educate, monitor, audit, report, and continuously
improve the policies, procedures, and compliance initiatives will
undoubtedly add new costs and duties to the organization.

Case Study: PATRIOT Act and Select Agent Regulations

[Introduction]{.underline}

The regulations governing the use of a number of biological agents and
toxins have been significantly changed over the past sixteen months.
Although the details of some requirements are still uncertain, the
impact of these enhanced regulations has had a significant impact on
colleges and universities (C&U). The following is a brief analysis of
one of the provisions of this new regulatory environment.

In 1996 the "Anti-Terrorism and Effective Death Penalty Act[^7]"
established the need for notification of Centers For Disease Control and
Prevention (CDC) if institutions were transferring certain listed
biological agents or toxins, collectively called "Select Agents."

In October of 2001, the "USA Patriot Act[^8]" passed with additional
provisions to the Anti-Terrorism Act, the major items being the added
registration requirement for the *Use and Possession of Select Agents,*
and the establishment of a category of Restricted Individuals who would
be prohibited from possession or use of select agents. In 2002 the "
Public Health and Security and Bio-terrorism Preparedness and Response
Act[^9]" charged the Secretaries of the Departments of Health and Human
Services (HHS), Agriculture (USDA) and Justice (DOJ) to establish
regulations to implement the provisions of the new act.

The requirement to register possession mandated the institution to
determine the presence of all "select agents." This task presented a
number of major challenges since the possession of these agents was not
prohibited previously and therefore there was no need to maintain a
record of their existence. A nine-person task force made up of faculty,
Environmental Health and Safety Staff (EH&S) and campus administration
was assembled to review the requirements and develop a strategy. After
extensive discussions, it was decided to approach this problem in a
number of phases.

**[Implementation]{.underline}**

**[Phase 1: Screening Questionnaire]{.underline}**

Initially a simple questionnaire was developed to ask the respondent a
series of simple questions, the two critical ones being: a) Are you
using or have you used any of the items listed in the attachment while
at the university? and b) Have you inherited any refrigerators or
freezers with samples?

An attachment included the listing of select agents and an introductory
information package describing the provisions of the PATRIOT Act and the
need to identify the presence of select agents.

The questionnaire was mailed to 2,100 individuals who were listed as
having a research authorization (e.g. grant application, human subjects
approval, chemical inventory owners, etc.). It was estimated that each
individual would require approximately one hour to understand the issues
and respond to the questionnaire. The individuals were given two weeks
to return the forms to EH&S.

Upon receipt of the forms EH&S staff reviewed the forms to determine if
the respondent had responded positively to the two key questions. All
individuals responding positively were included as participants in the
Phase 2. After two weeks EH&S staff visited all the individuals who had
not responded and obtained the information. At this stage approximately
350 respondents were identified for Phase 2.

**[Phase 2: Follow up Visits]{.underline}**

After Phase 1 was completed, individuals who had responded positively to
the questionnaire regarding the use of select agents were mailed a more
comprehensive questionnaire to provide information on: the type and
quantities of agents used; location of storage; security of the site;
who had access to the materials; information on the LD-50[^10]of the
select agents this information was critical to; and whether the agents
met the definition of "exempt."

Following the receipt of the second questionnaire EH&S staff visited
each respondent to review the information and conduct site visits. At
the conclusion of the interview, the staff, with assistance from the
campus police, conducted a brief tour of the site to review the security
of the site and the access control practices. This effort ultimately
identified 26 investigators who had select agents in their inventory,
and they were included in Phase 3 of the process.

During Phase 2 individuals who had "inherited" refrigerators or freezers
with biological samples were also visited to determine if there might
have been "select agents" stored. In a few instances previous faculty
owners had to be contacted to verify the identity of samples with
unclear labels.

**[Phase 3: Review of Select Agents]{.underline}**

This phase identified the investigators with select agents in their
inventory. This group was referred to the campus Biological Safety
Officer (BSO) for more in-depth review to determine if the types used
were considered "Exempt" or subject to registration. The BSO had to
obtain detailed information about the select agents, their lethal dose
(LD-50) by reviewing available data and/or contacting the suppliers to
verify the accuracy of the published data. Once it was determined that
the select agents on hand met the criteria for exemption, then the CDC
was contacted to verify the determination made by the campus. At the
conclusion of Phase 3, two units were identified as having select agents
that required registration, and applications were submitted to CDC.

During Phase 3 a number of other areas were subjected to detailed
review, these included internal paperwork management to review the
processing of incoming information and how to restrict the access.

Information technology and data management systems review was conducted
for units where select agent data might be stored. This identified the
need for upgrading the server security infrastructure.

**[Phase 4: Implementation of Full Provisions of the Select Agent
Rule]{.underline}**

The campus is currently working on the final stage of implementing the
remaining provisions of the select agent rule as the regulations are
developed. A committee oversees this phase with representatives of the
campus, the Academic Senate, the Biological Safety Committee, and the
offices of Environmental Health and Safety, Materials Management, Human
Resources, Facilities Management, Executive Vice Chancellor's Office and
Legal Affairs.

As of February 1, 2003, this effort has required approximately 4,200
hours.

> **Case Study: Environmental Health and Safety**

Over the past five years the regulatory requirements relating to
Environmental Health and Safety (EHS) have increased significantly. The
burdens of these regulations span every aspect of the research and
teaching activities in Colleges and Universities and directly impact the
operations at every level.

# Introduction

# The US Environmental Protection Agency (EPA) is responsible for implementation of the provisions of the Resource Conservation and Recovery Act (RCRA)[^11] which is the Federal regulation that governs the disposal of hazardous chemicals. This Act sets the regulations that govern all handling, storage, packaging and disposal of the hazardous wastes from institutions. One of the major initiatives announced by the EPA has been the "Audit Policy Incentive Program."[^12] Although this initiative covers many aspects of the University and Colleges, for the purpose of this study the focus will be on the hazardous waste disposal area.

One of the options provided in the EPA initiative is the so called
"self-audit and disclosure" option that allows institutions to perform
their own audits and report their findings to the EPA. In return, EPA
might provide release from certain fines[^13] if a series of narrowly
defined criteria are met. In 2001 the university was formally invited by
EPA to participate in the program. The invitation initially allowed six
months to complete the program, however it was extended to approximately
nine months. Discussions with other institutions across the country who
had participated in a similar program indicated that this was a major
effort and that it must be given serious attention.

# Implementation of the EPA Self-Audit

The university along with the other system campuses participated in the
study. The implementation started with the participation from the office
of the system President who issued the notification to the Chancellors
and Vice Chancellors.

The Office of Environmental Health and Safety (OEHS) was charged with
managing the program under the general oversight of the Campus Chemical
and Environmental Committee (a faculty oversight committee). To ensure
that all stakeholders were notified and were involved, a number of
working Committees comprised of faculty, staff, research technicians,
laboratory managers, facilities management, medical center staff,
auxiliary and housing staff and transportation staff. The Committees
reviewed the scope of the project as related to the hazardous waste
disposal at the university and developed the tools required to perform a
self-audit, identify any potential problems and mitigate the identified
problems. The Associate Vice Chancellor for Research chaired the
bi-weekly meetings of the chairs of the working committees to review the
progress.

During the six-month effort, four full-time staff members from OEHS were
assigned to:

-   coordinate the efforts of various stakeholders at the university as
    well as other campuses;

-   provide training for individuals involved in self-audits to ensure
    consistency;

-   review audit reports and tracking data;

-   prepare mitigation measures and follow-ups;

-   prepare final reports for the EPA.

Overall, the completion of this effort required the involvement of an
estimated 250 faculty, 250 laboratory staff (managers, technicians,
Science Research Associates, etc.) and over 75 other individuals from
various medical center and administrative units. A conservative estimate
of the total time spent at the university for this effort was 8,500
hours.

The campus submitted its final report to EPA in 2003[^14] and is waiting
their response. In the meantime, a comprehensive compliance maintenance
program is in place to ensure that the institution continues to remain
in compliance. This includes:

-   quarterly inspection of all areas used for waste storage and
    collection (approximately 1,350 hours of effort per calendar
    quarter);

-   routine training of all new employees as well as periodic training
    of existing employees involved with handling of hazardous wastes
    (estimated 250 hours per year);

-   increased efforts by laboratories staff in managing the waste for
    ensuring items such as proper labeling, completion of paperwork,
    etc. (Estimated at approximately 2,450[^15] per year).

######### Summary

It was a major logistical effort to coordinate a full campus-wide audit,
determine the scope of the self-audit for nine campuses, identify all
locations used for hazardous waste accumulation or storage, visit each
site and identify the functional owner of the site, inspect each
hazardous waste container on site at the time of the visit and make sure
that the waste is being handled properly. The lack of any additional
funding or staffing for this task made it even more challenging, as all
the effort had to be absorbed by the existing staffing both at OEHS and
campus units involved.

This effort had a definite impact on a number of other ongoing
activities. For example, in order to accommodate the significant
increase on their workload, OEHS staff asked for, and were granted,
permission to postpone some routine efforts such as refresher training
programs, the annual review of operating procedures and manuals.

Having engaged in this level of rigorous review and implementation with
existing requirements, the university still has to address toxic
materials, lab access and security, background checks, and inventory
control due to the new Homeland Security requirements under the
provisions of the "USA PATRIOT", and the "Public Health and Security and
Bio-Terrorism Preparedness and Response Acts".

These two acts pose even greater challenges than the efforts described
as the regulations are still under development, and many of the specific
requirements are not defined. There is also a longer history of dealing
with regulations that were promulgated to protect the health and safety
of individuals working with the materials and the health of the general
public by preventing the inadvertent contamination of the environment.
These two new acts are targeting a new requirement "to prevent
individuals with intent to do harm." One of the complexities of this
issue is that the colleges and universities have a tradition of open
dialogue and exchange of scientific ideas, both of which are now being
subjected to certain restrictions.

Case Study: Space Survey

# Introduction

The allocation of facilities costs to direct and indirect functions is
the single most important element in the calculation of Facilities and
Administrative (F&A) rates at colleges and universities. Arguably, it is
also the most problematic, costly, and contentious aspect of determining
of F&A rates. The root of the problem lies with the regulations
governing the reimbursement of the costs of Federally sponsored research
projects for colleges and universities, OMB Circular A-21. This Circular
prescribes an allocation formula for the assignment of facilities costs
to university activities (including instruction and research) based on
institution-wide Full Time Equivalent (FTE) employees or salaries and
wages applicable to the major functions. However, the use of
institution-wide FTE data or salaries and wages to distribute facilities
costs is not equitable since it does not take into account many of the
factors that cause research facilities to be more costly than buildings
used for instruction, administration, or other university functions.
Research buildings are almost always more costly to build, maintain, and
renovate because of the special structural and program requirements of
the space. Research conducted at most major universities is
cutting-edge, and the laboratories must be periodically refinished or
rehabilitated to meet the changing needs of the research. Instructional
facilities, on the other hand, remain relatively unchanged from year to
year. Institution-wide FTE or salary data do not take into account the
unique nature, and higher costs, of research facilities relative to
other campus facilities.

# Implementation

Because the standard allocation formula prescribed in A-21 often results
in an inequitable distribution of costs, most major research
institutions employ an alternative method as allowed in the Circular to
allocate facilities costs to the A-21 functional classifications. This
alternative calls for a complete survey of all research space on campus.
The survey is usually conducted by a central administration office, but
it involves the coordination of many offices; facilities administration,
IT services, individual school administration, departmental
administration, grants administration, payroll, etc. The survey requires
the support of the most senior leadership within the university; for
example, executive vice presidents, provost, and deans, in order to
obtain the necessary staff participation and follow through. Depending
on the size of the university the number of people involved can include
upwards of 50--100 administrators, just as many faculty, and at least
two staff within central administration and IT services. It has been
estimated that a department may spend up to as much as 10 percent of
their administrative time in a given year to work on these surveys. Most
of them do this without assistance of additional staff. These surveys
are so administratively intensive when they are conducted and completed,
that attention to and compliance with other administrative duties are at
risk of being diminished.

Many schools engage the assistance of consultants who assist with the
training of the administrators and help ensure the quality assurance of
the space inventory. Some institutions use consultants to complete the
survey, and the total cost to the university for consultants can exceed
\$1 million.

The frequency of the space survey typically revolves around the F&A
proposal. For many schools that have predetermined rates this means a
reeducation of staff every three to four years. Currently, most schools
complete these surveys in a paper environment with data entry into
mainframe systems. Software packages are just now becoming available to
streamline this task, but the cost to institutions for the purchase and
implementation of these systems can exceed hundreds of thousands of
dollars.

# Process

An example of the process is as follows:

-   central administration receives approval to conduct a space survey
    including getting buy-in from deans and school administration (2
    weeks);

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-   central administration contracts with consultants to assist with
    planning, training and quality assurance

> (1 month);

-   central administration and consultants meet with facilities staff to
    assure themselves that the space data are updated and accurate (1--2
    months depending on the facility information);

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-   central administration and consultants put together training
    materials to assist departments (2 weeks);

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-   central administration identifies all the individuals who need
    training (2 weeks);

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-   training sessions are conducted for these individuals (1 month);

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-   departments begin to inventory their space, including interviews
    with faculty and department chairs. They must detail the use of the
    rooms, the people and the projects in the rooms (depending on the
    size of the department 2 weeks to 2 months);

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-   departments and central staff conduct the interviews (all interviews
    take up to 3 months, if not longer);

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-   central staff needs to follow up with departments who did not come
    prepared to complete the interview

> (2 months);

-   central staff enters all data into a database (3 weeks);

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-   central staff and consultants review the database for completeness
    (1 month);

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-   central staff follows up with departments that may not be complete
    (2 weeks);

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-   finalized data are then entered into the various F&A models for
    calculation purposes;

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-   additional time is needed after Federal negotiators review the
    documentation, walk the space, conduct their interviews, etc.,

####### Summary

This process may vary by university but the total elapsed time ranges
from six months to one and a half years to complete this assignment.
After all this effort, the space survey is still an estimating process,
but it does provide a much better estimate of actual research space
allocation than the Salary and Wage or FTE method prescribed in Circular
A-21.

Case Study: Institutional Research Review Boards

[Introduction]{.underline}

Research involving human subjects is necessary for progress in many
areas of medicine. This research must always be guided by the highest
ethical and professional standards as well as primary consideration for
the welfare of the subjects involved. To ensure that these standards are
met, all research involving human subjects must be reviewed by a duly
appointed Committee on Human Rights in Research (Institutional Review
Board; IRB).[^16] Over the past several years, the burdens of the
regulatory requirements governing IRBs have increased significantly. The
impact of these burdens has had a direct operational and financial
impact on institutions conducting research involving human subjects.

[Background]{.underline}

Academic institutions are required to establish policies and procedures
to ensure compliance with these regulations. Furthermore, institutions
are required to provide for the designation of one or more IRBs to be
established in accordance with the requirements of the regulations, and
to ensure that provisions are made for meeting space and that staffing
levels are sufficient to support all IRB functions.[^17]

Granting agencies such as the National Institutes of Health (NIH) and
the Department of Defense (DOD), will not award a grant which funds
research involving human subjects unless the studies included in the
application have been reviewed and approved by an IRB.

Over the past several years, the Office of Human Research Protection
(OHRP) has identified numerous instances in which human subject research
described in an application for HHS support differed significantly from
the IRB approved protocol that was claimed by the investigator to
constitute the research in the application. In each case, the
application added important elements (e.g., targeting of vulnerable
subjects; additional treatment arms; different drug dosages; additional
collaborators or performance sites) that were ultimately implemented
without IRB review and approval.

In view of these findings, OHRP reminds IRBs that HHS regulations
require that the IRB review the actual application or proposal for HHS
support. The IRB's review should ensure that all research described in
the application or proposal is entirely consistent with any
corresponding protocol(s) submitted to the IRB.[^18]

The regulations also require that any change to the protocol,
professional staff, consent procedures, and informed consent documents
must be reviewed by the IRB. Finally, the IRB is required to conduct
ongoing reviews of studies that it has approved in addition to reviewing
and reporting all incidents involving adverse events.

It is important to note that over the past five years, the funding
volume of National Institutes of Health grants and the level of
complexity of clinical research efforts have increased substantially.
Moreover, there has been an increase in clinical research conducted in
collaboration with investigators at other institutions, which adds its
own unique complexity factor to the IRB review function.

[The University Experience]{.underline}

The university IRB reviewed an estimated 1,445 protocols in fiscal year
1999--2000. In fiscal year 2000-2001 the WMC/IRB reviewed 1,596
protocols. This represents an increase of 10.45 percent. In fiscal year
2001-2002 1,962 protocols were reviewed by the IRB, representing an
increase of 22.93 percent.

It is important to consider that the IRB review process includes both
new protocols, continuing reviews, and protocols that have been
submitted at prior meetings but have not been approved for various
reasons (e.g., the IRB has questions, more information is needed). Each
IRB member is responsible for being the primary presenter and the
secondary presenter for a certain number of protocols. All IRB members
are responsible for reviewing the synopsis of all the protocols prior to
the IRB meeting.

Due to the rapid increase of clinical research activity, and the HHS
requirement to provide for sufficient IRB staffing and meeting space
capability, the university is in the process of providing the
infrastructure for a second IRB. Currently, the IRB consists of
twenty-six members. The committee meetings are scheduled on a tri-weekly
basis and last approximately six hours. In the near future there will be
a total of fifty-two IRB members and two tri-weekly meetings.

The increase in IRB volume and complexity has caused the university to
add six administrative positions to the IRB staff since fiscal year
1999-2000. This includes an Associate Dean position, which has oversight
responsibilities over the proper conduct of research activities,
including the IRB function. A further four positions are budgeted with
the formation of a second IRB and additional space had to be renovated
in order to provide appropriate meeting space capability and to
accommodate the additional staff for the IRB function.

The HHS requirement for record keeping and for the appropriate
infrastructure that will enable the IRB to conduct its review properly
has mandated that we invest in an electronic system for processing
protocols and their corresponding applications. This will also provide
the university with the mechanism to develop an appropriate database
that will have the capability to keep up with the increased pace of our
record keeping responsibilities.

In the last several years there has been an increased focus on the IRB
function and compliance with the HHS regulations. The university has
retained the services of a consulting firm to provide primary
consideration of the welfare of the human subjects involved in its
clinical research activities and to ensure compliance with the HHS
regulations.

[Conclusion]{.underline}

The IRB review system is supposed to be funded by indirect costs, which
are capped at 26 percent. The information provided here illustrates that
the university has had, in large part, to underwrite the cost of the IRB
review function. It can also be reasonably deduced that the burden to
the university will only increase with the continued expansion of IRB
activity.

Case Study: Medicare Billings and Clinical Trials

# Introduction

When universities undertake clinical trials, there is a potential that
the wrong third party can be billed unless proper procedures are in
place. Patients do not have responsibility to ensure that the proper
party is billed. Thus, it is the responsibility of hospitals and
physician investigators associated with universities to ensure proper
billing. This does not occur without proper policies, training,
communication and adequately trained personnel involved in the process.

# Phase 1: Gathering Information

Given that university leadership was focused on ensuring proper
compliance in the IRB area, the University Compliance Officer created an
ad-hoc committee of mid-level staff members involved in clinical trials
in various capacities to study clinical trial billings. The committee
consisted of 20 individuals that met bi-weekly for 90 minutes per
session over a period of nine months. At the end of this period the
committee created a report that included the following findings.

-   There was an unacceptable error rate in billings on clinical trials.

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-   Inadequate information existed and was provided starting during the
    budget process.

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-   Shortfalls for procedures were charged to the wrong third party.

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-   The pharmacy complained that they did not have sufficient
    information to bill the proper party.

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-   As a result of the above issues significant dollars were lost.

# Phase 2: Continuing Concerns/ The Pharmacy

A second committee was formed in response to Pharmacy billing concerns.
This committee consisted of a mixture of leadership and mid-level
management in the hospital, clinics and clinical departments. Because
there was some overlap in committee membership, it was quickly
discovered that there was commonality of the issues identified by both
committees. This group met over a period of 6 months with the group
meeting every 6 weeks. In between meetings, committee members spent a
significant amount of time conducting detailed analysis of billing
related issues. This group concluded that there were significant billing
errors resulting in financial shortfalls that were being passively
shifted to the hospital.

As a result of the reports of both committees, top leadership refocused
on this area and created a task force to implement policies/practices
aimed at reducing compliance risks and financial shortfalls.

# 

# 

# 

# Phase 3: Fixing the Problem

A committee of 25 individuals involved in the research enterprise as it
applies to clinical trials was charged to create policies/practices to
reduce compliance risk and financial shortfalls. The committee meets
every 2 months with subcommittees meeting on alternate months. They are
starting at the proposal phase and creating policies/procedures
throughout the clinical trials cycle. Changes that are currently being
developed include the following.

-   Development of a web based tool that will walk investigators through
    the proper steps in the clinical trial process.

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-   Development of a tool that will provide the proper costs for
    tests/procedures that clinical investigators use in clinical trials.

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-   Creation of cultural change whereby there is better communication
    throughout the process.

    -   The investigator will inform a designated business official when
        a patient is enrolled in a study.

    -   Hiring and/or training of institutional staff (with a research
        nursing background) to assist investigators throughout the
        process while protecting institutional interests.

    -   More active involvement of business officers throughout the
        process.

    -   A clear understanding that financial shortfalls due to

> non-compliance will be funded by the department.

Once the pre-award process is near completion, lessons learned from this
will be used to develop post-award procedures/processes. An education
component will be developed that includes both classroom and web based
opportunities.

##### Working Group

Geoffrey Grant, Associate Vice President of Research Administration,
Stanford University, Chair

Jim Aumiller, Director of Research Accounting Services, Johns Hopkins
University

Anthony Boccanfuso, Director of Sponsored Programs & Research,
University of South Carolina

Tony DeCrappeo, Associate Director, Council on Governmental Relations

Jerry Fife, Director of Contract and Grant Accounting, Vanderbilt
University

Stephen Gilje, Associate Vice President, Research, State University of
New York, Binghamton

William Laird, Assistant Vice President for Finance, Carnegie Mellon
University

Denise McCartney, Associate Vice Chancellor of Research Administration,
Washington University in St. Louis

Julie Norris, Director of Sponsored Programs, Massachusetts Institute of
Technology

Katharina Phillips, President, Council on Governmental Relations

Marilyn Surbey, Assistant Vice President for Finance, Emory University

# 

[^1]: \"Paying for University Research Facilities\", Charles A. Goldman,
    T. Williams, Science and Technology Policy Institute, RAND, 2000

[^2]: In 1991 OMB revised Circular A-21 to place a cap of 26 percentage
    points as maximum reimbursement for university administrative
    expenses effective in institutions fiscal year 1993.

[^3]: National Science Foundation, Division of Science Resource Studies,
    Survey of Research and Development Expenditures at Universities and
    Colleges, FY2000

[^4]: The range is calculated based both on the amount of
    Federally-financed research expenditures in the sample as compared
    to the Top 100, and on the number of institutions in the sample.

[^5]: The cost pools include incremental compliance costs to the extent
    that institutions have been able to include them in current rate
    negotiations and that they are below the administrative cap of 26
    percent. If the rate negotiation is somewhat dated, or the
    institution is at the administrative cap, the cost pools do not
    include the estimated future incremental compliance costs.

[^6]: The range depends on whether the calculation is based on the
    amount of federally financed research expenditures among the seven
    institutions in the sample as compared to the Top 100, or on the
    number of institutions in the sample.

[^7]: Public Law, 104-32

[^8]: Public Law, 107-56

[^9]: Public Law, 107-188, Title-III

[^10]: LD-50 is the dose required to kill 50 percent of the persons to
    whom a material is administered and is a criterion set by the CDC
    for exemption of a number of toxins from registration requirements.

[^11]: The Resource Conservation and Recovery Act of 1976 (RCRA) (P.L.
    94-580) consists collectively of the Solid Waste Disposal Act of
    1965 (SWDA) and the subsequent amendments to it.

[^12]: For more details on the initiative see
    <http://www.epa.gov/ne/assistance/univ/index.html>

[^13]: Based on EPA News releases over the past four years it has
    imposed over \$2.8 million in penalties for C&U

[^14]: Over 90 percent of all deficiencies found in laboratories were
    related to problems with incomplete labeling

[^15]: The university generates approximately 21,000 individual
    containers of waste (ranging from 100 ml to 1 gallon size) with
    approximately 7 minutes of paperwork per container for the
    laboratories

[^16]: From a university guide concerning the conduct of human subjects
    research.

[^17]: The regulations for the conduct of research involving human
    subjects are established in 45 CFR 46, promulgated by the Department
    of Health and Human Services (DHHS) and when applicable, 21 CFR 50
    and 56, promulgated by the Food and Drug Administration (FDA).

[^18]: OHRP Guidance on IRB Review of Applications for HHS Support,
    \<http://ohrp.osophs.dhhs.gov/humansubjects/guidance/aplrev.htm\>.