GAO 

United States Government Accountability Office

Report to Congressional Requesters

RYAN WHITE CARE 

ACT 

Effects of Certain 

Funding Provisions on 

Grant Awards 

September 2009 

GAO-09-894 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2009

RYAN WHITE CARE ACT

Effects of Certain Funding Provisions on Grant 

Awards

Highlights of GAO-09-894, a report to 

congressional requesters 

Funds are made available under the 

Ryan White Comprehensive AIDS 

Resources Emergency Act of 1990 

(CARE Act) for individuals affected 

by HIV/AIDS. Part A provides for 

grants to metropolitan areas and 

Part B provides for grants to states 

and territories and associated 

jurisdictions for HIV/AIDS services 

and for AIDS Drug Assistance 

Programs (ADAP). The Ryan White 

HIV/AIDS Treatment Modernization 

Act of 2006 (RWTMA) reauthorized 

CARE Act programs for fiscal years 

2007 through 2009. RWTMA 

requires name-based HIV case 

counts for determining CARE Act 

funding, but an exemption allows 

the use of code-based case counts 

through fiscal year 2009. RWTMA 

formulas include hold-harmless 

provisions that protect grantees’ 

funding at specified levels. RWTMA 

also included provisions under 

which Part A and B grantees with 

unobligated balances over 2 

percent at the end of the grant year 

incur a penalty in future funding. 

GAO was asked to examine CARE 

Act funding provisions. This report 

provides information on (1) how 

many Part B grantees collect and 

use name-based HIV case counts 

for CARE Act funding; (2) the 

distribution of Part A holdharmless funding; and (3) 

reductions in Part B grantees’ 

funding due to unobligated balance 

provisions. GAO reviewed agency 

documents and analyzed data on 

CARE Act funding. GAO 

interviewed 19 grantees chosen by 

geography, number of HIV/AIDS 

cases, and other criteria. GAO also 

interviewed federal government 

officials and other experts. 

Forty-seven of the total 59 Part B grantees had the Health Resources and 

Services Administration (HRSA) use their name-based HIV case counts to 

determine CARE Act formula funding for fiscal year 2009. The remaining 12 

grantees had HRSA use their code-based HIV case counts to determine fiscal 

year 2009 CARE Act funding. If the exemption permitting code-based 

reporting is not extended, it is likely that future fiscal year funding will be 

based exclusively on name-based counts. Any Part B grantees who currently 

have name-based HIV reporting systems, but that had not been collecting 

name-based HIV case counts long enough to include all cases, could face a 

reduction in fiscal year 2010 funding. 

Part A hold-harmless funding was more widely distributed among eligible 

metropolitan areas (EMA) in fiscal year 2009 than in fiscal year 2004, the last 

year for which we reported this information. Seventy-one percent of EMAs 

received hold-harmless funding in fiscal year 2009, whereas 41 percent 

received hold-harmless funding in fiscal year 2004. In fiscal year 2009, 

$24,836,500 in hold-harmless funding was distributed compared to $8,033,563 

in fiscal year 2004. However, the range of CARE Act hold-harmless funding 

among EMAs, as measured by funding per case, was smaller in 2009 than in 

2004. In fiscal year 2009, EMAs received from $0 to $208 in hold-harmless 

funding per case. In fiscal year 2004, EMAs received between $0 and $1,020 in 

hold-harmless funding per case. The hold-harmless funding resulted in EMAs 

receiving formula funding ranging from $645 to $854 per case in fiscal year 

2009 and from $1,221 to $2,241 per case in fiscal year 2004. 

Sixteen Part B grantees had reductions in their grant year 2009 funding due to 

their unobligated balances at the end of grant year 2007. Part B base grant 

penalties ranged from $6,433 in Palau to $1,493,935 in Ohio. ADAP base grant 

penalties ranged from $26,233 in Maine to $12,670,248 in Pennsylvania. Part B 

grantees with unobligated funds provided various reasons for these balances, 

and said that some of these reasons were beyond their control. Grantees and 

HRSA stated that a requirement to spend drug rebate funds before obligating 

federal funds makes it more difficult to avoid unobligated balances. Twentyseven ADAPs purchase drugs exclusively through a federal drug discount 

program, under which they pay full price and receive a rebate at some point in 

the future. HRSA sought to address the interaction between drug rebate funds 

and the RWTMA unobligated balance provisions by requesting from the 

Department of Health and Human Services (HHS) permission to seek an 

exemption for grantees from the relevant regulations from the Office of 

Management and Budget. However, HHS denied this request, stating that the 

justification HRSA presented for requesting the exemption was “not 

compelling.” 

HHS provided technical comments on a draft of this report, which GAO 

incorporated as appropriate. View GAO-09-894 or key components.

For more information, contact Marcia Crosse 

at (202) 512-7114 or crossem@gao.gov. 
Page i GAO-09-894 

Contents 

Letter 1

Background 6 

Not All Grantees Had HRSA Use Their Name-Based HIV Case 

Counts for Fiscal Year 2009 Formula Funding, but Most Part B 

Grantees Are Collecting Name-Based HIV Case Counts in Their 

Reporting Systems 14 

Hold-Harmless Funding Was More Widely Distributed among 

EMAs in Fiscal Year 2009 Than in Fiscal Year 2004, but the 

Range of Funding Differences per Case Decreased 16 

Sixteen Grantees Had Reductions in Their 2009 Grants Due to 

Their Unobligated Part B Balances at the End of Grant Year 2007 23 

Agency Comments 31 

Appendix I GAO Contact and Staff Acknowledgments 32 

Tables 

Table 1: RWTMA Unobligated Balance Provision Triggers and 

Penalties as Applied by HRSA 13 

Table 2: Grantees That Had HRSA Use Code-Based HIV Case 

Counts to Determine CARE Act Formula Funding, Fiscal 

Year 2009 15 

Table 3: EMA Base Grant and Hold-Harmless Funding, Fiscal Years 

2009 and 2004 17 

Table 4: EMA Base Grant and Hold-Harmless Funding per Case, 

Fiscal Years 2009 and 2004 19 

Table 5: Hold-Harmless Funding as a Percent of EMA’s Base Grants 

in Fiscal Year 2009 and 2004 21 

Table 6: Part B Grantees’ Unobligated Balances in Grant Year 2007 24 

Table 7: Part B Grantees with Unobligated Part B Base Grant 

Penalties in Grant Year 2009 26 

Table 8: Part B ADAP Base Grant Penalties in Grant Year 2009 27 

Figure 

Figure 1: Time Line for 2007 Part B Grants and Unobligated 

Balance Provisions 12 

 CARE Act Funding Provisions 
Abbreviations 

ADAP AIDS Drug Assistance Program 

AIDS acquired immunodeficiency syndrome 

CARE Act Ryan White Comprehensive AIDS Resources Emergency 

 Act of 1990 

CDC Centers for Disease Control and Prevention 

EMA eligible metropolitan area 

FSR Financial Status Report 

HHS Department of Health and Human Services 

HIV human immunodeficiency virus 

HRSA Health Resources and Services Administration 

OIG Office of Inspector General 

RWTMA Ryan White HIV/AIDS Treatment Modernization Act of 2006 

TGA transitional grant area 

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Page ii GAO-09-894 CARE Act Funding Provisions
Page 1 GAO-09-894 

 

United States Government Accountability Office

Washington, DC 20548 

 

September 18, 2009 

The Honorable Michael B. Enzi 

Ranking Member 

Committee on Health, Education, Labor, and Pensions 

United States Senate 

The Honorable Richard Burr 

United States Senate 

The Honorable Tom A. Coburn 

United States Senate 

The Honorable Lisa Murkowski 

United States Senate 

It has been more than 28 years since the first cases of acquired 

immunodeficiency syndrome (AIDS) in the United States were reported in 

June 1981. Since then, approximately 1.7 million Americans have been 

infected with human immunodeficiency virus (HIV), including more than 

580,000 who have died.1

 The Centers for Disease Control and Prevention 

(CDC) estimates that approximately 1.1 million people were living with 

HIV infection in the United States at the end of 2006, and that there were 

56,300 new HIV infections in that year.2

 CDC estimates HIV/AIDS case 

counts based on information it receives from states, the District of 

Columbia, and the U.S. territories and associated jurisdictions. 

The Ryan White Comprehensive AIDS Resources Emergency Act of 1990 

(CARE Act), administered by the Department of Health and Human 

Services’s (HHS) Health Resources and Services Administration (HRSA), 

was enacted to address the needs of jurisdictions, health care providers, 

and people with HIV/AIDS and their family members.3

 Each year CARE 

1

HIV is the virus that causes AIDS. In this report, we use the common term HIV/AIDS to 

refer to HIV disease, inclusive of cases that have progressed to AIDS. When we use these 

terms alone, HIV refers to the disease without the presence of AIDS, and AIDS refers 

exclusively to HIV disease that has progressed to AIDS. 

2

These were the most recent estimates available at the time of this report. 

3

Pub. L. No. 101-381, 104 Stat. 576 (codified as amended at 42 U.S.C. §§ 300ff through 300ff121). The 1990 CARE Act added title XXVI to the Public Health Service Act. Unless 

otherwise indicated, references to the CARE Act are to the current title XXVI. 

 CARE Act Funding Provisions 
 

Act programs provide assistance to over 530,000 mostly low-incom

underinsured, or uninsured individuals living with HIV/AIDS. Under the 

CARE Act, approximately $2.2 billion in grants were made in fiscal year 

2009. CARE Act programs have been reauthorized three times (1996, 2000, 

and 2006) and are scheduled to be reauthorized again in 2009.

e, 

 

4

The Ryan White HIV/AIDS Treatment Modernization Act of 2006 (RWTMA) 

reauthorized CARE Act programs for fiscal year 2007 through fiscal year 

2009, including grants for jurisdictions through Part A and Part B.5

 Part A 

of the CARE Act provides for grants to selected metropolitan areas—

known as eligible metropolitan areas (EMA) and transitional grant areas 

(TGA)—that have been disproportionately affected by the HIV/AIDS 

epidemic.6

 Most CARE Act funding is distributed either as base or 

supplemental grants. Base grants are distributed by formula.7

Supplemental grants are generally awarded through a competitive process 

based on the demonstration of severe need and other criteria. Base grants 

for EMAs, but not TGAs, are protected by a hold-harmless provision that 

protects grantees’ funding at specified levels. Base grants for EMAs are 

distributed among grantees according to each grantee’s share of HIV/AIDS 

cases among all EMAs resulting in equal funding per case for all grantees. 

After the preliminary funding level for an EMA is calculated based on its 

4

CARE Act programs were previously reauthorized by the Ryan White CARE Act 

Amendments of 1996 (Pub. L. No. 104-146, 110 Stat. 1346), the Ryan White CARE Act 

Amendments of 2000 (Pub. L. No. 106-345, 114 Stat. 1319), and the Ryan White HIV/AIDS 

Treatment Modernization Act of 2006 (Pub. L. No. 109-415, 120 Stat. 2767). 

5

Title XXVI of the Public Service Act contains several parts which provide for grants for 

various HIV/AIDS-related services. In addition to Parts A and B, the other primary sections 

of the CARE Act under which HRSA awards grants are Parts C, D, and F. Part C provides 

for grants to public and private nonprofit entities to provide early intervention services, 

such as HIV testing and ambulatory care. Part D provides for grants to private nonprofit 

and public entities for family-centered comprehensive care to children, youth, and women 

and their families. Part F provides for grants for demonstration and evaluation of 

innovative models of HIV/AIDS care delivery for hard-to-reach populations, training of 

health care providers, and for Minority AIDS Initiative (MAI) grants. Part E does not 

provide for funding for HIV/AIDS services but rather includes provisions to address various 

administrative functions. 

6

EMAs are areas that have a population of 50,000 persons or more and had a cumulative 

total of more than 2,000 new AIDS cases during the most recent 5-year period. TGAs are 

areas that have a population of 50,000 persons or more and had a cumulative total of 1,000 

to 1,999 new AIDS cases during the most recent 5-year period. Prior to RWTMA, all 

metropolitan areas that received Part A funding were classified as EMAs. 

7

HRSA uses a grantee’s share of living HIV/AIDS cases to determine the amount of base 

grants. 

Page 2 GAO-09-894 CARE Act Funding Provisions
 

percentage of HIV/AIDS cases, the amount is compared to the funding 

levels guaranteed by the hold-harmless provision. If the preliminary 

funding level is less than the guaranteed amount, the base grant is 

increased to the guaranteed amount and results in funding not being 

distributed equally per case. The funds used to meet the EMA holdharmless requirement are deducted from the funds that would otherwise 

be available to EMAs and TGAs as supplemental grants before these grants 

are awarded. Part B provides for grants to states, the District of Columbia, 

and U.S. territories and associated jurisdictions to improve quality, 

availability, and organization of HIV/AIDS services. 

RWTMA required that, beginning in fiscal year 2007, CARE Act Part A and 

Part B formula funding be based on the number of living HIV and AIDS 

cases in a grantee’s jurisdiction. Previously, formula funding was based 

solely on the number of living AIDS cases reported in that jurisdiction. 

CDC provides HRSA with the number of living name-based HIV/AIDS 

cases in each jurisdiction and HRSA uses these counts to determine CARE 

Act Part A and Part B formula funding.8

 While prior to RWTMA all 

grantees collected AIDS counts by name, not all grantees collected HIV 

counts by name. Instead, some collected HIV counts by code; that is, using

a coded identifier. Code-based case counts are not accepted by CDC 

because CDC does not consider them to be accurate and reliable, 

primarily because they include duplicate case counts.

A 

show specified progress toward such reporting. RWTMA provided for such 

 

9

 RWTMA required 

Part B grantees to report name-based HIV case counts to be used by HRS

when determining the amount of base grants.10 However, RWTMA 

provided for a transition period from a code-based to a name-based 

system. States without an accurate and reliable name-based HIV reporting

system are exempt from the name-based reporting requirement if they can 

8

Individuals with HIV/AIDS are included in the case count of the jurisdiction where they are 

diagnosed. These case counts are not adjusted to remove individuals who no longer reside 

in the jurisdiction. 

9

Since 1999, CDC has advised that all states and territories and associated jurisdictions 

adopt name-based HIV reporting systems. In 2005, CDC strengthened this advice to a 

recommendation. CDC has noted that name-based systems are more cost-effective and 

achieve higher levels of accuracy and reliability than systems based on other types of 

identifiers. 

10RWTMA also required that name-based HIV case counts be used for determining the 

amount of Part A base grants. Part A grantees’ HIV case counts are included in the cases 

reported to CDC by Part B grantees, with the exception of New York City, which reports 

directly to CDC. 

Page 3 GAO-09-894 CARE Act Funding Provisions
 

an exemption through 2009, the period for which it reauthorized CARE Ac

programs.

t 

 

11

Another change in RWTMA concerned the obligation of funds by Part A 

and Part B grantees. In the past, some CARE Act grantees did not obligate 

all of their funds in some years, while others obligated all of their funds.12

RWTMA provided that base and supplemental grant funds were available 

for obligation by the grantee for a 1-year period beginning on the date 

awarded funds first became available to the grantee (i.e., the grant year). It 

also required HRSA to cancel any unobligated balances at the end of the 

grant year, recover funds that had been disbursed to grantees, and 

redistribute these funds to grantees in need as supplemental grants.13

These RWTMA unobligated balance provisions apply to base and 

supplemental grants under Parts A and B.14

As Congress prepares to reauthorize CARE Act programs, you asked us to 

examine how various elements of the law affect CARE Act awards. In this 

report, we provide information on (1) how many Part B grantees had 

HRSA use their name-based HIV case counts to determine fiscal year 2009 

CARE Act formula funding and how many Part B grantees are collecting 

name-based HIV case counts in their reporting systems; (2) the 

distribution of CARE Act hold-harmless funding among EMAs and the 

extent of funding differences per case in EMAs in fiscal years 2009 and 

2004 resulting from hold-harmless provisions; and (3) the reductions in 

Part A and Part B grantees’ funding due to the RWTMA unobligated 

balance provisions based on grantees’ unobligated balances at the end of 

grant year 2007. 

11RWTMA provided for a similar transition period for EMAs and TGAs. 

12In this report, we use the term obligate to refer to funds that have been committed for a 

specific purpose and will require payment during the same or a future period. Unobligated 

refers to funds that have not been committed. 

13RWTMA permits a Part A or Part B grantee to request a waiver from HRSA to allow the 

grantee to carry forward and use for a period of 1 year all (or a portion) of any unobligated 

balance from their base grant. 

14The unobligated balance provisions do not apply to Part A and Part B Minority AIDS 

Initiative grants. These grants are available to all Part A and B grantees as competitive, 

supplemental funding. For more information on Minority AIDS Initiative grants, see GAO, 

Ryan White CARE Act: Implementation of the New Minority AIDS Initiative Provisions, 

GAO-09-315 (Washington, D.C.: March 27, 2009). 

Page 4 GAO-09-894 CARE Act Funding Provisions
 

To examine how many Part B grantees had HRSA use their name-based 

HIV case counts to determine fiscal year 2009 CARE Act formula funding 

and how many Part B grantees are collecting name-based HIV case counts 

in their reporting systems, we obtained and reviewed data from CDC and 

HRSA on the number of Part B grantees that have such systems and the 

dates they began collecting name-based HIV case counts. We also obtained 

data from CDC and HRSA on which grantees had name-based HIV 

reporting systems used to generate the case counts for determining CARE 

Act formula funding. We reviewed published information on HIV reporting 

systems. We also reviewed descriptions of steps CDC and HRSA are taking 

to help grantees convert to a name-based reporting system. We 

interviewed CDC and HRSA officials knowledgeable about the data 

reporting practices of grantees and the use of these data for CARE Act 

funding. We also interviewed officials from the National Alliance of State 

and Territorial AIDS Directors, the Kaiser Family Foundation, and other 

organizations. 

To examine the distribution of CARE Act Part A hold-harmless funding 

among EMAs and determine the extent of formula funding differences per 

case in fiscal years 2009 and 2004 resulting from hold-harmless provisions, 

we obtained and reviewed data from HRSA on Part A grants for fiscal year 

2009. We reviewed the amount of funding distributed to each EMA based 

on its share of HIV/AIDS cases, amount of hold-harmless funding for each 

EMA, and HIV/AIDS case counts used by HRSA to determine fiscal year 

2009 funding. We compared the funding per HIV/AIDS case received by 

each EMA to determine whether funding departs from equal funding per 

case. We also determined the effect of the hold-harmless provision on each 

EMA by comparing funding with the hold-harmless provision in place to 

what it would be without the hold-harmless provision in place. To 

determine how the distribution of hold-harmless funding and funding 

differences per case have changed over time, we compared EMAs’ funding 

for fiscal year 2009 to fiscal year 2004 funding. We chose fiscal year 2004 

because we reported on 2004 in an earlier study and because it preceded 

RWTMA in 2006.15 We interviewed HRSA officials knowledgeable about 

Part A grants and the funding formula. We reviewed the data and asked 

HRSA officials follow-up questions about the hold-harmless provision and 

funding calculations, and determined that the data were sufficiently 

reliable for our purposes. 

 

15See GAO, HIV/AIDS: Changes Needed to Improve the Distribution of Ryan White CARE 

Act and Housing Funds, GAO-06-332 (Washington, D.C.: Feb. 28, 2006), 31-35. 

Page 5 GAO-09-894 CARE Act Funding Provisions
 

To determine the reductions in Part A and Part B grantees’ funding due to 

the RWTMA unobligated balance provisions, we reviewed HRSA 

documentation on grantees’ unobligated balances at the end of the 2007 

grant year. We also reviewed the effect of these 2007 balances on grantees’ 

funding for fiscal year 2009. We interviewed HRSA officials and others 

knowledgeable about the unobligated balance provisions. We also 

interviewed 6 Part A grantees and 13 Part B grantees, which we chose 

based on their geographic location, number of HIV/AIDS cases, whether 

the grantee had an unobligated balance over 2 percent at the end of the 

2007 grant year, and how the grantee purchases drugs for its clients with 

HIV/AIDS.16 We reviewed the data provided by HRSA and asked follow-up 

questions related to the calculation of unobligated balances, and 

determined that the data were sufficiently reliable for our purposes. 

We conducted this performance audit from April 2009 through September 

2009 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

CARE Act base grants are distributed through a formula that includes 

HIV/AIDS case counts. Through its HIV/AIDS surveillance system, CDC 

receives case counts from states, the District of Columbia, and U.S. 

territories and associated jurisdictions.17 CDC provides these case counts 

to HRSA so that HRSA may determine CARE Act formula grant amounts. 

In fiscal year 2009, HRSA distributed approximately $410 million by 

formula under Part A of the CARE Act and about $1.1 billion by formula 

under Part B. 

Background 

Fifty-six metropolitan areas received Part A funds in fiscal year 2009. 

Twenty-four of the metropolitan areas were classified by HRSA as EMAs 

 

16We interviewed the following Part A grantees: Houston, TX; Indianapolis, IN; Memphis, 

TN; New York, NY; Phoenix, AZ; and Sacramento, CA. We also interviewed the following 

Part B grantees: Arizona, California, Delaware, Florida, Hawaii, Missouri, Nebraska, North 

Carolina, Ohio, Pennsylvania, Rhode Island, and Washington. 

17Surveillance is an ongoing, systematic collection, analysis, interpretation, and 

dissemination of data regarding a health-related event. CDC’s HIV/AIDS surveillance 

system observes, records, and disseminates reports about cases of HIV and AIDS. 

Page 6 GAO-09-894 CARE Act Funding Provisions
 

and 32 as TGAs.18 For fiscal years 2008 and 2009, the hold-harmless 

provision provided that an EMA receive at least 100 percent of the amount 

it had received as its base grant, including hold harmless funding, for fiscal 

year 2007.19

Part B of the CARE Act provides funds to all 50 states, the District of 

Columbia, the Commonwealth of Puerto Rico, Guam, the U.S. Virgin 

Islands, and 5 other territories and associated jurisdictions.20 Part B grants 

include grants for HIV/AIDS services that are awarded by formula, AIDS 

Drug Assistance Program (ADAP) grants that are awarded by formula,21

emerging community grants that are awarded by formula for HIV/AIDS 

services,22 Part B supplemental grants for HIV/AIDS services, and ADAP 

supplemental grants. RWTMA contained a hold-harmless provision that 

protects funding for Part B base grants and ADAP base grants. For fiscal 

years 2008 and 2009, a grantee’s total Part B base and ADAP base grants 

would be at least 100 percent of the total of such grants in fiscal year 2007. 

One condition of an ADAP grant is that grantees use every means at their 

disposal to secure the best price available for all products on their 

formularies. Best prices are determined by the prices that can be obtained 

 

18Two EMAs, Nassau-Suffolk and New Haven, were classified as TGAs by HRSA after the 

enactment of RWTMA. As a result, Nassau-Suffolk petitioned a federal district court to 

prevent HRSA from changing its status from EMA to TGA. The request for a preliminary 

injunction to this effect was denied by the district court. On appeal, the U.S. Court of 

Appeals for the Second Circuit reversed, finding that Nassau-Suffolk had established a 

likelihood of success on the merits. County of Nassau v. Leavitt, 524 F.3d 408 (2d Cir. 

2008). In anticipation of another possible claim, HRSA elected to reclassify New Haven as 

an EMA because New Haven is also located within the geographic boundaries of the 

Second Circuit. Nassau-Suffolk’s claim with respect to fiscal years 2007 and 2008 is still 

pending. 

19There were also hold-harmless provisions in the 1996 and 2000 reauthorizations of CARE 

Act programs. 

20The five other grantees are American Samoa, the Commonwealth of the Northern Mariana 

Islands, the Federated States of Micronesia, Palau, and the Republic of the Marshall 

Islands. 

21ADAPs provide medications for the treatment of HIV disease. Program funds may also be 

used to purchase health insurance for eligible clients and for services that enhance access 

to, adherence to, and monitoring of drug treatments. 

22Emerging communities are those metropolitan areas that do not qualify as EMAs or TGAs, 

but have 500-999 cumulative reported AIDS cases during the most recent 5-year period. 

Emerging community grants are distributed to states, which then pass them through to 

emerging communities. 

Page 7 GAO-09-894 CARE Act Funding Provisions
 

under the 340B drug pricing program.23 Generally, an ADAP purchasing 

drugs through the 340B program can use a direct purchasing option or 

rebate option. Under the 340B direct purchase option, ADAPs purchase 

drugs from drug manufacturers or through a third-party such as a drug 

purchasing agent. Using the 340B direct purchase option, ADAPs receive 

the 340B price discount up front. Under the rebate option, ADAPs typically 

contract with entities such as a pharmacy network or pharmacy benefits 

manager for purchase of covered drugs. ADAPs later request a rebate 

consistent with the section 340B price from the drug manufacturers. 

Due to RWTMA’s requirement that CARE Act formula funding be 

determined by using name-based HIV/AIDS counts, grantees collecting HIV 

case counts by code must transition to such a reporting system. Although 

all grantees had name-based AIDS reporting systems, at the time of 

RWTMA seven grantees still used code-based HIV reporting systems, while 

17 others had recently transitioned to a name-based HIV reporting 

system.24 It can take several years to transition to a name-based system 

because grantees must identify by name each case originally reported by 

code and then enter each case into the new, name-based reporting system. 

During the transition period from a code-based to a name-based system, a 

grantee can report its code-based HIV counts directly to HRSA and have 

these counts used to determine funding for fiscal years 2007 through 2009. 

However, in accordance with RWTMA, for each grantee relying on a codebased system, HRSA made a 5 percent reduction in the number of living 

 

23Under section 340B of the Public Health Service Act (42 U.S.C. § 256b), drug 

manufacturers provide discounts on certain outpatient drugs to covered entities including 

community health centers, hemophilia treatment centers, and HIV early intervention 

projects; a 340B price, sometimes referred to as a 340B ceiling price, is established for each 

covered drug that these entities purchase. ADAPs are allowed to purchase drugs through 

the section 340B program and are required to submit quarterly HIV/AIDS drug pricing 

reports to HRSA that indicate what they pay for drugs. However, an ADAP’s participation 

in the 340B program is voluntary—they may choose, for example, to negotiate drug prices 

themselves with drug companies. 

24RWTMA identified 35 Part B grantees, of 59 total, that had name-based HIV reporting 

systems in place that could be used to determine CARE Act formula funding on the 

grounds that they had systems in place, as of December 31, 2005, that provided sufficiently 

accurate and reliable reporting of cases. The 35 grantees were: Alabama, Alaska, Arizona, 

Arkansas, Colorado, Florida, Idaho, Indiana, Iowa, Kansas, Louisiana, Michigan, Minnesota, 

Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North 

Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, 

Utah, Virginia, West Virginia, Wisconsin, Wyoming, Guam, and the U.S. Virgin Islands. It 

also provided for the recognition of additional grantees with name-based reporting systems 

determined to provide accurate and reliable reporting. 

Page 8 GAO-09-894 CARE Act Funding Provisions
 

HIV cases to adjust for potential duplicate reporting in systems that collect 

code-based case counts, thus reducing the award. RWTMA allowed the use 

of code-based HIV case counts through fiscal year 2009; it also provided 

that the status of a grantee under RWTMA for purposes of the transition 

period may not be considered after fiscal year 2009. Grantees that are 

transitioning to a name-based HIV reporting system determine when their 

name-based counts will be used by HRSA to calculate CARE Act formula 

funding. If the exemption permitting code-based reporting is not extended, 

it is likely that future fiscal year funding will be based exclusively on 

name-based counts. A grantee that had not completed the transition from 

code- to name-based case counts could face a reduction in funding 

because its name-based HIV reporting system could contain fewer cases 

than its code-based system.25

Once a grantee has transitioned to a name-based HIV reporting system, its 

system must be determined to be operational, as well as accurate and 

reliable, in order for a grantee’s name-based case counts to be used for 

funding purposes. To be operational, CDC, in consultation with the 

grantee’s HIV/AIDS surveillance program and epidemiologist, considers 

several factors, such as the grantee’s process for ensuring HIV-positive 

individuals are only counted once and the number of providers and 

laboratories within the grantee’s jurisdiction diagnosing and reporting HIV 

positive diagnoses to the grantee.26 The date CDC allows grantees to report 

name-based HIV cases to it is considered the date the reporting system 

becomes operational. Once the name-based HIV reporting system is 

declared operational, a grantee can determine that its reporting system is 

accurate and reliable (i.e., its case counts are complete), and can elect to 

have CDC send HRSA its name-based case counts to determine CARE Act 

formula funding. A grantee may declare its system to be accurate and 

 

25There is a time lag between when HIV/AIDS cases are reported and when they are used 

for determining CARE Act funding. For example, funds distributed in fiscal year 2010 will 

be based on case counts collected through December 2008. 

26A reporting system being “operational” is not the same as a reporting system being 

“mature.” CDC requires that a grantee’s name-based reporting system be mature before the 

grantee’s data can be included in CDC’s national HIV estimates. Four full years are required 

for a reporting system to be considered mature so that CDC can adjust the case counts to 

take reporting delays into consideration. In CDC’s 2007 HIV/AIDS Surveillance Report, CDC 

used only the name-based HIV case counts from 34 states and 5 U.S. territories and 

associated jurisdictions in its national estimates. Name-based HIV reporting had been in 

place in these jurisdictions since at least the end of 2003. See Centers for Disease Control 

and Prevention, HIV/AIDS Surveillance Report, 2007, Vol. 19. (Atlanta: U.S. Department of 

Health and Human Services, Centers for Disease Control and Prevention; 2009). 

Page 9 GAO-09-894 CARE Act Funding Provisions
 

reliable anytime after the system has been determined to be operational. 

However, regardless of the grantee’s assessment, CDC considers a HIV 

reporting system to be accurate and reliable no later than 4 years after the 

grantee began collecting name-based HIV case counts. After a grantee 

determines that its system is accurate and reliable, or after the 4-year 

period, CDC transmits the HIV case counts to HRSA to be used in the 

funding formulas. 

RWTMA required HRSA to cancel funds from grantees’ awards that are 

unobligated at the end of the grant year, recover funds that had been 

disbursed, and redistribute these funds to other grantees. These 

unobligated balance provisions apply to base and supplemental grant 

awards under Parts A and B. For 2007 grants, HRSA required grantees to 

estimate and report their unobligated balance to HRSA 60 days prior to the 

end of the grant year. Grantees were also required to submit a Financial 

Status Report (FSR) to HRSA 90 days after the grant year ends. Grantees 

must report their actual unobligated balance on the FSR and the 

unobligated balance can be updated by the grantee for up to 6 months 

after the FSR is due.27 Unobligated balances of grant awards are canceled 

(with disbursed funds recovered) and then redistributed to grantees who 

apply for them as additional amounts for supplemental grants under Part A 

and Part B in the next fiscal year after the unobligated funds were 

reported. 

For base grant funds, the impact of unobligated balances differs based on 

whether the unobligated amount is more than 2 percent of the grant. All 

unobligated base grant funds must be canceled and recovered by HRSA if 

the grantee has not been granted a carryover waiver.28 HRSA takes this 

step following receipt of the FSR. In addition to having unobligated funds 

canceled and recovered unless a carryover waiver is granted, grantees 

with unobligated Part A, Part B, and ADAP base grant funds in excess of 

2 percent of the grant award incur a penalty—a corresponding reduction 

in grant funds for the first fiscal year beginning after the fiscal year in 

 

27A grantee may request an extension in writing if it is unable to close a grant account 

within the 90-day period, but the extension cannot exceed 6 months. 

28Unobligated base grant funds awarded under Parts A and B are available for expenditure 

by the grantee for a 1-year period, beginning at the end of the grant year with HRSA 

approval of a carryover waiver. For 2007 grants, HRSA required carryover waivers to be 

requested 60 days before the end of the grant year. If funds are not expended at the end of 

the 1-year waiver period, the funds will be canceled, recovered and redistributed to Part A 

and B grantees as supplemental awards. Grantees cannot carryover supplemental funds. 

Page 10 GAO-09-894 CARE Act Funding Provisions
 

which the Secretary receives the FSR.29 Grantees are assessed the 

reduction even if they were granted a waiver. Because FSRs are submitted 

90 days after the grant year ends, grants for the next year have already 

been made by the time HRSA has received the information necessary to 

determine which grantees have an unobligated balance greater than 

2 percent. As a result, there is a 1 year lag time between when the 

unobligated balance occurs and when the penalty is assessed. For 

example, if a grantee had an unobligated balance of 3 percent in grant year 

2007, the grantee’s FSR would have been filed in grant year 2008, and the 

dollar amount of the 2007 unobligated balance would have been deducted 

from the grantee’s award in grant year 2009. Figure 1 shows such a time 

line for 2007 Part B grant distribution and the unobligated balance 

provisions. 

 

29The amount of the reduction corresponds to the amount of the grantee’s unobligated 

balance. RWTMA provides for the reduction in funding for the first fiscal year beginning 

after the fiscal year in which the Secretary obtains the information necessary for 

determining that the balance was unobligated at the end of the grant year. 

Page 11 GAO-09-894 CARE Act Funding Provisions
 

Figure 1: Time Line for 2007 Part B Grants and Unobligated Balance Provisions 

Source: GAO analysis of HRSA guidance.

J

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Federal fiscal year ...........................2007............ ...........................2008........................... ...........................2009........................... ................

J

F

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Part B grant year ............... ...........................2007........................... ...........................2008........................... ............2009...........................

April 1: Grantee receives the grant award. 

The 12-month period to obligate funds begins.

January 30: 60 days prior to the end of the grant year, grantees file their projected 

unobligated balance of Part B base and ADAP base awards. Grantees may file a carryover 

waiver application to retain any unobligated Part B base and ADAP base grants.

June 29: 90 days after the Part B grant year ends, grantees must file a Financial Status 

Report (FSR), which includes the exact amount of the grantee’s unobligated balance. Any 

unobligated balances at this point are cancelled and amounts disbursed are returned to the 

Secretary, unless the grantee has applied for a carryover waiver and it has been approved. 

The FSR is the basis for determining the applicability of the unobligated balances provisions. 

April 1: Grantees with unobligated balances over 2% in 2007 

are assessed a corresponding penalty in 2009.

In addition, grantees with unobligated balances of greater than 2 percent 

of Part A or Part B base grants are ineligible to receive supplemental 

grants for the year in which the reduction takes place. For Part A grantees 

this means that they are not eligible to receive Part A supplemental grants. 

For Part B base grantees this results in ineligibility to receive Part B 

Page 12 GAO-09-894 CARE Act Funding Provisions
 

supplemental grants. For Part B ADAP grantees, an unobligated balance of 

greater than 2 percent does not result in ineligibility for ADAP 

supplemental grants. Instead, ineligibility for the ADAP supplemental grant 

is based on a grantee not obligating at least 75 percent of its entire Part B 

grant award within 120 days.30 Table 1 lists the triggers and penalties for 

the unobligated balance provisions. 

Table 1: RWTMA Unobligated Balance Provision Triggers and Penalties as Applied 

by HRSA 

RWTMA Part Trigger Unobligated balance penalty 

Part A Base Grant Grantee reports 

unobligated balance 

of greater than 2 percent 

of base grant on the FSR, 

which is due 90 days 

after conclusion of the 

grant year. 

1. Reduction in base grant 

equal to the amount of the 

unobligated balance. 

2. Ineligibility for Part A 

supplemental award. 

Part B Base and ADAP 

Base Grant 

Grantee reports 

unobligated balance of 

greater than 2 percent of 

total Part B base and 

ADAP base grant funding 

on the FSR, which is due 

90 days after conclusion 

of the grant year. 

1. Reduction in base grants 

equal to the amount of the 

unobligated balance (with 

reductions from Part B 

base and ADAP base 

grants as applicable). 

2. Ineligibility for Part B 

supplemental award. 

Source: GAO analysis of HRSA guidance. 

Note: Although there were unobligated balances for grant year 2007, the penalties were applied to 

the 2009 grants because HRSA does not require grantees’ FSRs until 90 days after the grant year 

has ended, at which time the grants for 2008 had already been awarded. 

Since its inception, the CARE Act has required Part B grantees to obligate 75 percent of their entire 

Part B grant within certain time frames and repay any unobligated balance to HRSA for reallocation 

as supplemental grants. States had 150 days to meet this requirement in the first year of the program 

and have had 120 days in all subsequent years. HRSA requires Part B grantees to report this 

obligation within 150 days on an FSR. In addition, grantees that do not obligate this 75 percent are 

ineligible for ADAP supplemental grants. 

 

30Since its inception, the CARE Act has required Part B grantees to obligate 75 percent of 

their entire Part B grant within certain time frames and repay any unobligated balance to 

HRSA for reallocation as supplemental grants. States had 150 days to meet this requirement 

in the first year of the program and have had 120 days in all subsequent years. HRSA 

requires Part B grantees to report this obligation within 150 days on an FSR. In addition, 

grantees that do not obligate this 75 percent are ineligible for ADAP supplemental grants. 

Page 13 GAO-09-894 CARE Act Funding Provisions
 

Most Part B grantees were collecting name-based HIV case counts in their 

reporting systems as of December 31, 2007, but not all grantees had HRSA 

use these case counts to determine fiscal year 2009 CARE Act funding.31

For 47 of the 59 Part B grantees, HRSA used name-based HIV case counts, 

as provided by CDC, to determine CARE Act funding. The remaining 12 

grantees had HRSA use their code-based HIV case counts to determine 

fiscal year 2009 CARE Act funding. Seven of the 12 grantees—California, 

the District of Columbia, Illinois, Maryland, Massachusetts, Oregon, and 

Rhode Island—were collecting name-based HIV case counts as of 

December 31, 2007, but submitted their code-based case counts to HRSA 

to determine CARE Act funding.32 Five of the 12 grantees—Hawaii, 

Vermont, the Federated States of Micronesia, Palau, and the Republic of 

the Marshall Islands—were not collecting name-based case counts as of 

December 31, 2007.33 Table 2 lists the 12 grantees for which code-based 

HIV case counts were used for fiscal year 2009 CARE Act formula funding, 

and the month and year that they began collecting name-based case 

counts. Each of these 12 grantees could require 4 years from the date they 

began collecting name-based HIV case counts for their name-based HIV 

reporting systems to be considered accurate and reliable. However, 

grantees can determine that their reporting systems are accurate and 

reliable in less than 4 years.34

Not All Grantees Had 

HRSA Use Their 

Name-Based HIV Case 

Counts for Fiscal Year 

2009 Formula 

Funding, but Most 

Part B Grantees Are 

Collecting NameBased HIV Case 

Counts in Their 

Reporting Systems 

 

31Fiscal year 2009 CARE Act formula funding is based on case counts as of December 31, 

2007. 

32Six of the seven grantees—California, the District of Columbia, Illinois, Massachusetts, 

Oregon, and Rhode Island—could have had HRSA use their name-based HIV case 

counts to determine CARE Act funding but instead had HRSA use their code-based counts. 

The seventh grantee—Maryland—was collecting name-based HIV case counts as of 

December 31, 2007, but their name-based HIV reporting system had not been determined to 

be operational; therefore, Maryland was not yet reporting name-based case counts to CDC 

and did not have the option to have HRSA use its name-based case counts. 

33Hawaii and Vermont transitioned to a name-based HIV reporting system in 2008. 

34Eight grantees—Connecticut, Delaware, Kentucky, Maine, Montana, New Hampshire, 

Pennsylvania, and Washington—with systems less than 4 years old determined that their 

name-based HIV reporting systems were accurate and reliable such that case counts from 

these systems were used by HRSA to determine fiscal year 2009 CARE Act funding. 

Page 14 GAO-09-894 CARE Act Funding Provisions
 

Table 2: Grantees That Had HRSA Use Code-Based HIV Case Counts to Determine 

CARE Act Formula Funding, Fiscal Year 2009 

Part B grantee 

Month and year grantee began collecting 

name-based HIV case counts 

California April 2006 

District of Columbia November 2006 

Hawaii March 2008 

Illinois January 2006 

Maryland April 2007 

Massachusetts January 2007 

Oregon April 2006 

Rhode Island July 2006 

Vermont April 2008 

Federated States of Micronesia NA 

Palau NA 

Republic of the Marshall Islands NA 

Source: CDC. 

Note: The Federated States of Micronesia, Palau, and the Republic of the Marshall Islands are not 

currently collecting HIV cases by name. If the exemption permitting code-based reporting is not 

extended, it is likely that future fiscal year funding will be based exclusively on name-based counts. 

Consequently, the Federated States of Micronesia, Palau, and the Republic of the Marshall Islands’ 

fiscal year 2010 base funding would be based solely on their AIDS case counts. 

Although 56 of the 59 Part B grantees are currently collecting name-based 

HIV case counts,35 some grantees could face a reduction in fiscal year 2010 

funding if HRSA uses these counts to determine fiscal year 2010 funding. 

RWTMA allows grantees to submit code-based case counts to HRSA to 

determine funding for fiscal years 2007 through 2009; without an extension 

as part of the upcoming reauthorization, it is likely that HRSA would 

determine CARE Act funding for fiscal year 2010 using name-based case 

counts collected through December 2008. However, this could be 

problematic for some grantees. For example, as of December 2008, 

Vermont had only been collecting name-based case counts for 8 months. If 

Vermont’s system is not considered to be accurate and reliable—which 

could take up to 4 years—but its December 2008 name-based case count is 

nevertheless used to determine fiscal year 2010 funding, Vermont may not 

actually receive funding commensurate with the number of HIV/AIDS 

 

35The Federated States of Micronesia, Palau, and the Republic of the Marshall Islands have 

not begun collecting name-based HIV case counts. 

Page 15 GAO-09-894 CARE Act Funding Provisions
 

cases in the state, which is the intended basis for the formula grant. 

Further, its funding may be a reduction from what it received for fiscal 

year 2009. 

CDC has provided assistance for grantees transitioning from a code-based 

to a name-based HIV reporting system. CDC has provided grantees with 

technical assistance materials, ongoing assistance via conference calls, 

and additional assistance upon request. According to CDC, the District of 

Columbia and Massachusetts were the only Part B grantees that requested 

additional assistance in transitioning to a name-based system. CDC and 

HRSA plan to meet with grantee officials from the Federated States of 

Micronesia, Palau, and the Republic of the Marshall Islands to discuss HIV 

reporting. 

Part A hold-harmless funding was more widely distributed among EMAs in 

fiscal year 2009 than in fiscal year 2004. A larger percentage of EMAs 

qualified for hold-harmless funding in fiscal year 2009 than in fiscal year 

2004, the last year for which we reported this information.36 About 

71 percent of EMAs received hold-harmless funding in fiscal year 2009, 

while 41 percent received hold-harmless funding in fiscal year 2004.37

Furthermore, the percentage of the total hold-harmless funding received 

by the EMA with the most hold-harmless funding was smaller in fiscal year 

2009 than in fiscal year 2004. In fiscal year 2009, New York received 

52.7 percent of the hold-harmless funding, while in fiscal year 2004, San 

Francisco received 91.6 percent of the hold-harmless funding. In addition 

to hold-harmless funding being more widely distributed in fiscal year 2009 

than in fiscal year 2004, the total amount of hold-harmless funding 

provided to EMAs was larger in fiscal year 2009 than in fiscal year 2004. In 

fiscal year 2009, $24,836,500 in hold-harmless funding was distributed 

Hold-Harmless 

Funding Was More 

Widely Distributed 

among EMAs in Fiscal 

Year 2009 Than in 

Fiscal Year 2004, but 

the Range of Funding 

Differences per Case 

Decreased 

 

36GAO-06-332. 

37In fiscal year 2009, 17 of the 24 EMAs received hold-harmless funding. In fiscal year 2004, 

21 of the 51 EMAs received hold-harmless funding. Prior to RWTMA, all metropolitan areas 

that received Part A funding were classified as EMAs. RWTMA created a new category of 

metropolitan areas called TGAs. As a result, the number of EMAs was reduced from 51 to 

24. The other EMAs were reclassified as TGAs. TGAs are not eligible for hold-harmless 

funding. 

Page 16 GAO-09-894 CARE Act Funding Provisions
 

compared to $8,033,563 in fiscal year 2004.38 Table 3 lists the EMAs and 

their base grant and hold-harmless funding in fiscal years 2009 and 2004. 

Table 3: EMA Base Grant and Hold-Harmless Funding, Fiscal Years 2009 and 2004 

EMA 

Base grant 

(including 

hold-harmless 

funding), 

FY 2009a

Holdharmless 

funding, 

FY 2009

Percent of 

hold-harmless 

funding, 

FY 2009

Base grant 

(including 

hold-harmless 

funding), 

FY 2004 

Holdharmless 

funding, 

FY 2004

Percent of 

hold-harmless 

funding, 

FY 2004

New York, N.Y. $74,871,159 $13,098,284 52.7% $60,276,790 $0 0%

Los Angeles, Calif. 24,264,522 0 0 18,540,316 0 0

Washington, D.C. 18,764,167 0 0 14,431,645 0 0

Chicago, Ill. 17,524,988 0 0 12,801,123 0 0

Miami, Fla. 16,015,311 587,606 2.4 12,806,009 0 0

Philadelphia, Pa. 14,921,528 268,926 1.1 12,038,992 0 0

San Francisco, Calif. 14,672,553 3,571,649 14.4 16,171,607 7,358,239 91.6

Baltimore, Md. 13,826,195 0 0 10,195,952 0 0

Houston, Tex. 12,781,667 592,067 2.4 9,416,722 0 0

Atlanta, Ga. 12,224,515 697,534 2.8 9,268,937 0 0

San Juan, P.R. 9,415,738 2,271,091 9.1 8,139,880 41,011 0.5

Dallas, Tex. 9,654,841 0 0 6,425,600 0 0

Ft. Lauderdale, Fla. 9,444,694 100,799 0.4 7,330,631 0 0

Boston, Mass. 9,091,554 30,093 0.1 7,434,884 60,284 0.8

Newark, N.J. 9,090,344 747,165 3.0 8,151,371 10,975 0.1

San Diego, Calif. 7,463,078 0 0 5,201,792 0 0

Tampa-St. Petersburg, Fla. 6,330,428 357,808 1.4 4,777,696 44,908 0.6

West Palm Beach, Fla. 5,769,721 989,815 4.0 4,577,648 8,523 0.1

Detroit, Mich. 5,649,097 103,139 0.4 4,382,256 0 0

Orlando, Fla. 5,503,874 7,048 0 4,021,954 0 0

Phoenix, Ariz. 5,367,535 0 0 3,480,889 0 0

New Orleans, La. 4,944,359 158,635 0.6 3,852,184 0 0

 

38Total Part A base and supplemental funding were also larger in 2009 than in 2004. In fiscal 

year 2009, Part A grantees received $590,290,260 in base and supplemental funding, while in 

2004 they received $552,083,998. However, even with this increased funding, hold-harmless 

funding was still a larger percentage of total funding in fiscal year 2009 than in fiscal year 

2004. In fiscal year 2009, hold harmless was 4.2 percent of total Part A base and 

supplemental funding, while it was 1.5 percent in fiscal year 2004. We did not include 

Minority AIDS Initiative funding in the calculations of the total funding because fiscal year 

2009 Minority AIDS Initiative grants were not available at the time of our analysis. 

Page 17 GAO-09-894 CARE Act Funding Provisions
 

EMA 

Base grant 

(including 

hold-harmless 

funding), 

FY 2009a

Holdharmless 

funding, 

FY 2009

Percent of 

hold-harmless 

funding, 

FY 2009

Base grant 

(including 

hold-harmless 

funding), 

FY 2004 

Holdharmless 

funding, 

FY 2004

Percent of 

hold-harmless 

funding, 

FY 2004

New Haven, Conn.b

4,604,295 717,147 2.9 3,639,492 42,573 0.5

Nassau-Suffolk, N.Y.b4,091,917 537,694 2.2 3,182,104 21,212 0.3

Metropolitan areas that 

were EMAs in FY 2004 

but not in FY 2009 NA NA NA 55,158,431 445,838 5.5

Totalc$316,288,080 $24,836,500 100% $305,704,561 $8,033,563 100%

Source: GAO analysis of HRSA data. 

Note: In fiscal year 2009, an EMA’s base funding was determined according to its proportion of living 

HIV/AIDS cases. If an EMA qualified for hold-harmless funding, that amount was added to the base 

funding and distributed together as the base grant. 

In fiscal year 2004, an EMA’s base funding was determined according to its proportion of estimated 

living AIDS cases, not its proportion of living HIV/AIDS cases. If an EMA qualified for hold-harmless 

funding, that amount was added to the base funding and distributed together as the base grant. 

a

Funding amounts for fiscal year 2009 base grants do not include funding that resulted from the stoploss provision contained in the Omnibus Appropriations Act, 2009, Pub. L. No. 111-8, div. F, title II, 

123 Stat. 524, 763-64. For more information on stop loss, see GAO, Ryan White CARE Act: 

Estimated Effect of Proposed Stop-Loss Provision on Urban Areas, GAO-09-472R (Washington, 

D.C.: March 6, 2009). 

b

Two EMAs, Nassau-Suffolk and New Haven, were classified as TGAs by HRSA after the enactment 

of RWTMA. As a result, Nassau-Suffolk petitioned a federal district court to prevent HRSA from 

changing its status from EMA to TGA. The request for a preliminary injunction to this effect was 

denied by the district court. On appeal, the U.S. Court of Appeals for the Second Circuit reversed, 

finding that Nassau-Suffolk had established a likelihood of success on the merits. County of Nassau

v. Leavitt, 524 F.3d 408 (2d Cir. 2008). In anticipation of another possible claim, HRSA elected to 

reclassify New Haven as an EMA because New Haven is also located within the geographic 

boundaries of the Second Circuit. Nassau-Suffolk’s claim with respect to fiscal years 2007 and 2008 

is still pending. 

c

Individual entries do not sum to total because of rounding. 

The range of CARE Act funding differences among EMAs, as measured by 

funding per case, was smaller in 2009 than in 2004. In fiscal year 2009, 

EMA base funding per case ranged from $645 to $854, a range of $209. In 

fiscal year 2004, the funding per case ranged from $1,221 to $2,241, a range 

of $1,020. The smaller funding range resulted from San Francisco receiving 

less hold-harmless funding in fiscal year 2009 than in fiscal year 2004. In 

both years, San Francisco received the most hold-harmless funding per 

case. However, in fiscal year 2009, San Francisco received $208 in holdharmless funding per case,39 while in fiscal year 2004 it received $1,020 in 

 

39The $1 difference in the range in fiscal year 2009 base funding per case ($209) and the 

range in hold-harmless funding per case ($208) is attributable to rounding error. 

Page 18 GAO-09-894 CARE Act Funding Provisions
 

hold-harmless funding per case.40 Table 4 lists the 24 EMAs and their base 

grant and hold-harmless funding per case in fiscal years 2009 and 2004. 

Table 4: EMA Base Grant and Hold-Harmless Funding per Case, Fiscal Years 2009 and 2004 

EMA 

Base grant (including 

hold-harmless 

funding) per HIV/AIDS 

case, FY 2009a

Hold-harmless 

funding per HIV/AIDS 

case, FY 2009b

Base grant (including 

hold-harmless 

funding) per AIDS 

case, FY 2004c

Hold-harmless 

funding per AIDS 

case, FY 2004d

San Francisco, Calif. $854 $208 $2,241 $1,020

San Juan, P.R. 852 205 1,228 6

New York, N.Y. 784 137 1,221 0

West Palm Beach, Fla. 780 134 1,224 2

New Haven, Conn.e766 119 1,236 14

Nassau-Suffolk, N.Y.e744 98 1,230 8

Newark, N.J. 704 58 1,223 2

Atlanta, Ga. 686 39 1,221 0

Tampa-St. Petersburg, Fla. 685 39 1,233 12

Houston, Tex. 678 31 1,221 0

Miami, Fla. 671 25 1,221 0

New Orleans, La. 668 21 1,221 0

Philadelphia, Pa. 658 12 1,221 0

Detroit, Mich. 658 12 1,221 0

Ft. Lauderdale, Fla. 653 7 1,221 0

Boston, Mass. 649 2 1,231 10

Orlando, Fla. 647 1 1,221 0

Baltimore, Md. 646 0 1,221 0

Chicago, Ill. 646 0 1,221 0

Dallas, Tex. 646 0 1,221 0

Los Angeles, Calif. 646 0 1,221 0

Phoenix, Ariz. 646 0 1,221 0

Washington, D.C. 646 0 1,221 0

San Diego, Calif. 645 0 1,221 0

Source: GAO analysis of HRSA data. 

Note: This table lists only the 24 metropolitan areas that were EMAs in fiscal year 2009. In fiscal year 

2004, there were a total of 51 EMAs, including the 24 listed here. 

 

40Prior to RWTMA, formula funding was determined using the number of estimated living 

AIDS cases in a jurisdiction rather than the number of HIV/AIDS cases. For a description of 

how this estimate was calculated, see GAO-06-332, 5. 

Page 19 GAO-09-894 CARE Act Funding Provisions
 

In fiscal year 2009, an EMA’s base funding was determined according to its proportion of living 

HIV/AIDS cases. If an EMA qualified for hold-harmless funding, that amount was added to the base 

funding and distributed together as the base grant. 

In fiscal year 2004, an EMA’s base funding was determined according to its proportion of estimated 

living AIDS cases, not its proportion of living HIV/AIDS cases. If an EMA qualified for hold-harmless 

funding, that amount was added to the base funding and distributed together as the base grant. 

a

This amount was calculated by dividing the base grant, including any hold-harmless funding, 

received by each EMA by the number of living HIV/AIDS cases in the EMA. 

b

This amount was calculated by dividing the hold-harmless funding received by each EMA by the 

number of living HIV/AIDS cases in the EMA. 

c

This amount was calculated by dividing the base grant, including any hold-harmless funding, 

received by each EMA by the number of living AIDS cases in the EMA. 

d

This amount was calculated by dividing the hold-harmless funding received by each EMA by the 

number of living AIDS cases in the EMA. 

e

Two EMAs, Nassau-Suffolk and New Haven, were classified as TGAs by HRSA after the enactment 

of RWTMA. As a result, Nassau-Suffolk petitioned a federal district court to prevent HRSA from 

changing its status from EMA to TGA. The request for a preliminary injunction to this effect was 

denied by the district court. On appeal, the U.S. Court of Appeals for the Second Circuit reversed, 

finding that Nassau-Suffolk had established a likelihood of success on the merits. County of Nassau

v. Leavitt, 524 F.3d 408 (2d Cir. 2008). In anticipation of another possible claim, HRSA elected to 

reclassify New Haven as an EMA because New Haven is also located within the geographic 

boundaries of the Second Circuit. Nassau-Suffolk’s claim with respect to fiscal years 2007 and 2008 

is still pending. 

Hold-harmless funding accounted for a larger percentage of San 

Francisco’s total base funding than it did for any other EMA in fiscal years 

2009 and 2004, but the percentage was smaller in fiscal year 2009 than in 

fiscal year 2004. In fiscal year 2004, hold-harmless funding accounted for 

approximately 46 percent of San Francisco’s base grant while in fiscal year 

2009 hold-harmless funding accounted for approximately 24 percent of 

San Francisco’s base grant. Table 5 lists the 24 EMAs and their holdharmless funding as a percent of their base grants in fiscal years 2009 and 

2004. 

Page 20 GAO-09-894 CARE Act Funding Provisions
 

Table 5: Hold-Harmless Funding as a Percent of EMA’s Base Grants in Fiscal Year 

2009 and 2004 

EMA 

Hold-harmless as a 

percent of base grant, 

FY 2009 

Hold-harmless as a 

percent of base grant, 

FY 2004

San Francisco, Calif. 24.3% 45.5%

San Juan, P.R. 24.1 0.5

New York, N.Y. 17.5 0.0

West Palm Beach, Fla. 17.2 0.2

New Haven, Conn.a15.6 1.2

Nassau-Suffolk, N.Y.a13.1 0.7

Newark, N.J. 8.2 0.1

Atlanta, Ga. 5.7 0.0

Tampa-St. Petersburg, Fla. 5.7 0.9

Houston, Tex. 4.6 0.0

Miami, Fla. 3.7 0.0

New Orleans, La. 3.2 0.0

Detroit, Mich. 1.8 0.0

Philadelphia, Pa. 1.8 0.0

Ft. Lauderdale, Fla. 1.1 0.0

Boston, Mass. 0.3 0.8

Orlando, Fla. 0.1 0.0

Baltimore, Md. 0.0 0.0

Chicago, Ill. 0.0 0.0

Dallas, Tex. 0.0 0.0

Los Angeles, Calif. 0.0 0.0

Phoenix, Ariz. 0.0 0.0

San Diego, Calif. 0.0 0.0

Washington, D.C. 0.0 0.0

Source: GAO analysis of HRSA data. 

Note: This table lists only the 24 metropolitan areas that were EMAs in fiscal year 2009. In fiscal year 

2004, there were a total of 51 EMAs, including the 24 listed here. 

a

Two EMAs, Nassau-Suffolk and New Haven, were classified as TGAs by HRSA after the enactment 

of RWTMA. As a result, Nassau-Suffolk petitioned a federal district court to prevent HRSA from 

changing its status from EMA to TGA. The request for a preliminary injunction to this effect was 

denied by the district court. On appeal, the U.S. Court of Appeals for the Second Circuit reversed, 

finding that Nassau-Suffolk had established a likelihood of success on the merits. County of Nassau

v. Leavitt, 524 F.3d 408 (2d Cir. 2008). In anticipation of another possible claim, HRSA elected to 

reclassify New Haven as an EMA because New Haven is also located within the geographic 

boundaries of the Second Circuit. Nassau-Suffolk’s claim with respect to fiscal years 2007 and 2008 

is still pending. 

Page 21 GAO-09-894 CARE Act Funding Provisions
 

In some cases, hold-harmless funding in fiscal year 2009 accounted for a 

significant portion of a grantee’s Part A base funding. For example, San 

Francisco, which received the most hold-harmless funding per HIV/AIDS 

case in fiscal year 2009, received a total of $14,672,553 in base funding. Of 

this amount, $3,571,649 or 24.3 percent was due to the hold-harmless 

provision. Because of its hold-harmless funding, San Francisco, which had 

17,173 HIV/AIDS cases, received a base grant equivalent to what an EMA 

with approximately 22,713 HIV/AIDS cases (32 percent more) would have 

received without hold-harmless funding. 

A significant portion of the differences in funding per case between San 

Francisco and the other EMAs results from how the San Francisco case 

counts are determined. The San Francisco EMA continues to be the only 

metropolitan area whose formula funding is based on both living and 

deceased AIDS cases. In February 2006 and October 2007, we reported 

that the San Francisco EMA was the only EMA still receiving CARE Act 

formula funding based on the number of living and deceased cases in a 

metropolitan area.41 All other EMAs received formula funding based on an 

estimate of the number of living cases. We showed that the fiscal year 2004 

CARE Act formula funding for the San Francisco EMA was determined in 

part with reference to its fiscal year 1995 funding, which was based on 

both living and deceased AIDS cases. Because the San Francisco EMA also 

received hold-harmless funding in fiscal years 2005, 2006, 2007, and 2009, 

its fiscal year 2009 CARE Act formula funding continues to be based, in 

part, on the number of deceased cases in the San Francisco EMA as of 

1995.42 Hold-harmless funding for other EMAs does not trace back to 1995 

 

41GAO-06-332, 34-35; and GAO, Ryan White CARE Act: Impact of Legislative Funding 

Proposal on Urban Areas, GAO-08-137R (Washington, D.C.: Oct. 5, 2007), 16. 

42Fiscal year 2009 funding for the San Francisco EMA can be traced to its fiscal year 1995 

funding due to the relationship between the amount it received in fiscal year 1995 and the 

amounts it was guaranteed by law to receive in fiscal years 2000, 2006, 2007, and 2009 due 

to the operation of the hold-harmless provisions. No other EMA was held harmless in all 

these years and, consequently, their funding cannot be linked back to 1995. In fiscal year 

2000, the San Francisco EMA received 95 percent of the amount it received from its grant 

in fiscal year 1995. In fiscal year 2006, it received 85 percent of the amount it received from 

its grant in fiscal year 2000. In fiscal year 2007, it received 95 percent of the amount it 

received from its grant in fiscal year 2006. In fiscal year 2009, it received 100 percent of the 

amount it received in fiscal year 2007. Taken together, the hold-harmless provisions meant 

that in fiscal year 2009 the San Francisco EMA received approximately 76.7 percent of its 

fiscal year 1995 grant of $19,126,679, or $14,672,553. We calculated the guaranteed 

percentage by multiplying the hold-harmless amounts (95, 85, 95, and 100 percent) for each 

year together. For more discussion on how the hold-harmless provision operates and how 

it has affected funding for the San Francisco EMA, see GAO-06-332, 31-35. 

Page 22 GAO-09-894 CARE Act Funding Provisions
 

or earlier, a period when CARE Act funding was based on cumulative 

counts of AIDS cases, both living and deceased. 

If there had been no hold-harmless provision in fiscal year 2009, most 

grantees would have received more funding in fiscal year 2009 than they 

did. Seventeen of the 24 EMAs would have received more funding if there 

had been no hold-harmless provision and if the $24.8 million that was used 

for hold-harmless funding had instead been distributed across all EMAs as 

supplemental grants, that is, in the same proportions as the supplemental 

grants.43 The funds used to meet the EMA hold-harmless requirement are 

deducted from the funds that would otherwise be available for 

supplemental grants before these grants are awarded. As a consequence, 

the pool of funds for supplemental grants is reduced by the amount of 

funding needed to meet the hold-harmless provision. Although 17 EMAs 

received hold-harmless funding in fiscal year 2009, only 7 (New York, San 

Francisco, San Juan, West Palm Beach, Newark, New Haven, and NassauSuffolk) received more funding because of the hold-harmless provision 

than they would have received through supplemental grants in the absence 

of the hold-harmless provision. 

Sixteen Part B grantees received reduced funding in grant year 2009 

because they had unobligated balances over 2 percent in grant year 2007. 

Grantees we interviewed provided reasons why it is difficult to obligate all 

but 2 percent of their grant award. Grantees and HRSA said that drug 

rebates complicate grantees’ efforts to obligate grant funds. 

Sixteen Grantees Had 

Reductions in Their 

2009 Grants Due to 

Their Unobligated 

Part B Balances at the 

End of Grant Year 

2007 

 

43This analysis shows how the hold-harmless funding would have been distributed if it had 

been allocated as supplemental grants, that is, in the same proportions as the supplemental 

grant funding. For example, Houston received about 4.4 percent of the funds available for 

supplemental grants and, consequently, we allocated 4.4 percent of the $24,836,500 holdharmless funding to Houston. It is not possible to determine the exact effect of the holdharmless provision on the amount of supplemental funding for each EMA because it is not 

known how the funds would have been distributed in the absence of the hold-harmless 

awards. 

Page 23 GAO-09-894 CARE Act Funding Provisions
 

Sixteen Part B Grantees 

Were Assessed Penalties 

Under the RWTMA 

Unobligated Balance 

Provisions Because They 

Had Unobligated Balances 

over 2 Percent 

Nine states and seven territories and associated jurisdictions were 

assessed penalties in grant year 2009 because they had unobligated 

balances over 2 percent in grant year 2007. Arizona, Arkansas, Colorado, 

Delaware, Idaho, Maine, Nebraska, Ohio, and Pennsylvania were all 

assessed penalties along with seven of the U.S. territories and associated 

jurisdictions (American Samoa, Commonwealth of the Northern Mariana 

Islands, the Federated States of Micronesia, Guam, Palau, the Republic of 

Marshall Islands, and the U.S. Virgin Islands). Table 6 shows the Part B 

grant year 2007 unobligated balances. No Part A grantees had unobligated 

balances over 2 percent. 

Table 6: Part B Grantees’ Unobligated Balances in Grant Year 2007 

Part B grantee 

Total grant 

year 2007 

Part B 

unobligated balance 

Grant year 2007 Part B 

unobligated balance 

as a percentage of 

Part B base and 

ADAP base grants 

Arizona $1,065,435 7.9%

Arkansas 614,033 7.8

Colorado 1,099,874 8.2

Delaware 713,904 14.3

Idaho 41,018 3.7

Maine 33,971 2.4

Nebraska 285,982 12.0

Ohio 2,315,763 10.2

Pennsylvania 12,936,735 33.7

American Samoa 18,720 36.0

Commonwealth of the Northern 

Mariana Islands 10,319 19.1

Federated States of Micronesia 18,525 33.7

Guam 52,975 18.2

Palau 6,433 12.9

Republic of the Marshall Islands 27,998 52.9

U.S. Virgin Islands 435,798 38.1

Source: GAO analysis of HRSA data. 

Note: Although unobligated balances were attributable to the 2007 grants, the reduction occurred in 

the 2009 Part B grants because HRSA does not require grantees’ FSRs until 90 days after the grant 

year has ended, at which time the 2008 grants had already been awarded. 

Page 24 GAO-09-894 CARE Act Funding Provisions
 

To establish if an unobligated balance penalty applied to a grantee’s 2009 

grant, HRSA summed the Part B base and ADAP base unobligated 

balances to determine if the total was more than 2 percent of the grantee’s 

total award (Part B base and ADAP base) for grant year 2007. As the 

provisions were applied by HRSA, Part B grantees can incur a penalty in 

both their Part B base and ADAP base grants even if the unobligated 

balance for one of these grants is less than 2 percent as long as the sum of 

the Part B base and ADAP base balances is greater than 2 percent. HRSA 

assesses unobligated balance penalties based on the sum of the Part B 

base and ADAP base unobligated balances.44 For example, in grant year 

2007 Maine had an unobligated balance of more than 2 percent in its ADAP 

base grant but less than 2 percent in its Part B base grant. The total 

unobligated funding was 2.4 percent. Because the total was above 

2 percent, HRSA reduced both the Part B base and ADAP base grants in 

grant year 2009. 

While 16 Part B grantees incurred unobligated balance penalties, some 

incurred penalties in both their Part B base grants and ADAP base grants 

and others only had penalties in their Part B base grants because they did 

not have unobligated ADAP balances. In grant year 2009, six states and 

one territory were assessed penalties in both their Part B base and ADAP 

base grants. Because penalties apply to both base grants only when 

grantees have unobligated balances in both grants, three states and six 

territories and associated jurisdictions had penalties assessed only on 

their Part B base grants, because they did not have unobligated ADAP base 

balances. Part B base funding penalties ranged from $6,433 in Palau to 

$1,493,935 in Ohio. (See table 7.) ADAP base funding penalties ranged 

from $26,233 in Maine to $12,670,248 in Pennsylvania. (See table 8.) 

Pennsylvania’s ADAP base grant penalty accounted for 84 percent of the 

total amount of penalties for unobligated ADAP funds levied on 2009 

grants. 

 

44If the unobligated balances were determined to be greater than 2 percent, HRSA 

subtracted the grant year 2007 Part B base unobligated balance amount from the 2009 

Part B base award, and the grant year 2007 ADAP base unobligated balance amount from 

the 2009 ADAP base award. Some grantees did not incur penalties in their 2009 ADAP base 

award because they did not report grant year 2007 ADAP unobligated balances. HRSA 

applies unobligated balance penalties to both Part B base grants and ADAP base grants 

only when grantees have reported unobligated balances in both grants. 

Page 25 GAO-09-894 CARE Act Funding Provisions
 

Table 7: Part B Base Grant Penalties in Grant Year 2009 

Grant Year 2009 Part B base grant 

Part B grantee 

Preliminary grant year 

2009 Part B base grant

Hold-harmless 

amount 

Unobligated 

balance penalty 

Final grant year 2009 

Part B base grant 

Arizona $4,006,304 – $325,240 $3,681,064

Arkansas 3,634,977 21,615 411,984 3,244,608

Colorado 3,666,928 166,716 734,240 3,099,404

Delaware 2,453,761 – 223,319 2,230,442

Idaho 532,766 – 41,018 491,748

Maine 762,807 – 7,738 755,069

Nebraska 1,169,371 – 285,982 883,389

Ohio 7,739,752 347,714 1,493,935 6,593,531

Pennsylvania 12,225,623 – 266,487 11,959,136

American Samoa 50,000 – 18,720 31,280

Commonwealth of the Northern 

Mariana Islands 50,000 – 10,319 39,681

Federated States of Micronesia 50,000 – 18,525 31,475

Guam 200,000 – 52,975 147,025

Palau 50,000 – 6,433 43,567

Republic of the Marshall Islands 50,000 – 27,998 22,002

U.S. Virgin Islands 500,000 – 308,201 191,799

Source: HRSA. 

Note: Although unobligated balances were attributable to the 2007 grants, the reduction occurred in 

the 2009 Part B base grant because HRSA does not require grantees’ FSRs until 90 days after the 

grant year has ended, at which time the 2008 grants had already been awarded. 

In order to calculate the final Part B base and ADAP base grant awards, 

the penalty attributable to an unobligated balance is applied after other 

calculations are made, including hold harmless funding. If hold-harmless 

funds were added after the unobligated balance penalties were applied, 

hold-harmless funds would negate the effect of the unobligated balance 

penalties because they would increase funding. For example, Colorado 

had a preliminary 2009 Part B base grant award of $3,666,928. Under the 

hold-harmless provision in RWTMA, Colorado was guaranteed Part B base 

grant funding of $3,683,544. Application of the RWTMA unobligated 

balance provision reduced the amount of its Part B base grant award (after 

the addition of hold harmless funding) by $734,240, leaving Colorado with 

a final Part B base grant award of $3,099,404. In comparison, if holdharmless funding had been added after the application of the unobligated 

Page 26 GAO-09-894 CARE Act Funding Provisions
 

balance penalty, Colorado would have received $3,683,544, the same as if 

it had incurred no unobligated balance penalty. 

Table 8: ADAP Base Grant Penalties in Grant Year 2009 

Grant year 2009 ADAP base grant 

ADAP grantee 

Preliminary grant 

year 2009 ADAP 

base grant 

Hold-harmless 

amount

Unobligated 

balance penalty 

Final grant year 

2009 ADAP 

base grant

Arizona $10,398,958 – $740,195 $9,658,763

Arkansas 4,376,738 – 202,049 4,174,689

Colorado 9,612,191 – – 9,612,191

Delaware 2,870,482 441,676 490,585 2,821,573

Idaho 623,246 – – 623,246

Maine 892,354 – 26,233 866,121

Nebraska 1,367,964 – – 1,367,964

Ohio 14,627,126 – 821,828 13,805,298

Pennsylvania 29,011,307 – 12,670,248 16,341,059

American Samoa 2,803 – – 2,803

Commonwealth of the Northern Mariana Islands 5,606 – – 5,606

Federated States of Micronesia 7,475 – – 7,475

Guam 84,096 6,988 – 91,084

Palau – – – –

Republic of the Marshall Islands 934 2,034 – 2,968

U.S. Virgin Islands 532,609 112,668 127,597 517,680

Source: HRSA. 

Note: Although unobligated balances were attributable to the 2007 grants, the reduction occurred in 

the 2009 ADAP base grant because HRSA does not require grantees’ FSRs until 90 days after the 

grant year has ended, at which time the 2008 grants had already been awarded. 

Grantees Provided 

Reasons Why Obligating 

All but 2 Percent of Their 

Grant Awards Is Difficult 

Five of the 13 Part B grantees we interviewed had unobligated balances 

over 2 percent; these 5 grantees told us that they had varying reasons for 

their unobligated balances, some of which they said were beyond their 

control. For example, Arizona explained that it had an unobligated balance 

from its ADAP base grant, in part, because it had a dispute with a vendor it 

had contracted with to provide prescription drugs to clients. The vendor 

claimed that it had not been paid for services. According to state officials, 

to settle the dispute and comply with applicable state rules Arizona had to 

pay the vendor twice. When the vendor realized that it had been overpaid, 

it reimbursed Arizona in the amount of $670,000. Arizona received the 

Page 27 GAO-09-894 CARE Act Funding Provisions
 

reimbursement at the end of the grant year. Arizona was unable to spend 

this amount, leaving it with an unobligated balance of over 2 percent and a 

subsequent penalty. 

Grantees we interviewed, which included those that had unobligated 

balances of over 2 percent and those that did not, explained that they 

experienced difficulty obligating grant funds within the grant year. Three 

of the 13 Part B grantees we interviewed explained that they are currently 

dealing with economic factors such as state hiring freezes, spending caps, 

and furloughs of staff. One grantee explained that because of economic 

difficulties, his state has implemented new procedures as a means to limit 

state spending, including reclaiming state funding balances that are not 

spent quickly. Because of this new procedure, the grantee must allocate 

state funding, federal funding, and program income simultaneously, which 

he finds difficult. One grantee said the existence of the state hiring freeze 

has limited the amount of grant funding that could be obligated to fund 

staff positions. The grantee stated that the hiring freeze has been 

implemented as a means to limit state spending, but the state has imposed 

the hiring freeze on all programs, including those that receive federal 

funds. 

One Part B grantee explained that, while the grantee can to some extent 

control the contracts that are entered into and types of services that are 

provided, the grantee cannot control factors that affect the demand for 

program services. For example, the grantee cannot control the number of 

people who become infected; those who will lose their jobs and private 

health insurance and need to receive services supported with grant funds; 

and changes that occur with Medicaid and Medicare that can affect clients. 

Additionally, two grantees stated that because the grant awards can arrive 

after April 1, it can be helpful to carry over funds from the previous year’s 

grant award so that they can award contracts, rather than delay them until 

HRSA awards grant funds. These grantees said that they would like to be 

able to carry over funds without risking a reduction in future funding. 

One grantee explained that because grant awards are based on a formula 

and can fluctuate from year to year, it is helpful for the grantee to have 

funding on hand to maintain consistent service levels even if formula 

funding is decreased without risking a penalty. Six grantees expressed 

concern that the level of oversight required to obligate all but 2 percent of 

their grants leaves them unable to deal with unpredictable situations, such 

as a contractor going out of business. Six of the 13 grantees we 

interviewed said that they consider the 2 percent threshold too low, and 

some suggested that a 5 percent threshold would be more reasonable. Two 

Page 28 GAO-09-894 CARE Act Funding Provisions
 

of these grantees told us that if grantees had to obligate all but 5 percent of 

their funding, they would have more room to manage their budgets. 

However, only 2 of the 16 Part B grantees that received penalties for 

unobligated balances had unobligated balances of less than 5 percent. 

Grantees and HRSA Said 

Drug Rebates Make It 

Difficult for Grantees to 

Obligate Grant Funds 

According to information provided by HRSA, 7 of the 13 Part B grantees 

we interviewed received drug rebates. In addition, Delaware informed us 

that they also receive rebates. Four of the eight grantees that received 

rebates said that the requirement that they spend drug rebates before 

spending grant funds makes it more difficult for them to obligate all but 

2 percent of their grant awards, even though drug rebates are not subject 

to the unobligated balance provisions. The 27 Part B grantees that 

exclusively use the federal 340B rebate option to purchase their ADAP 

drugs typically contract with pharmacy networks or pharmacy benefit 

managers for the purchase of covered drugs who then request rebates 

from the pharmaceutical companies in order to obtain the 340B drug price 

and pass these savings on to the grantee. Under RWTMA, drug rebates that 

grantees receive are not considered part of the grant award and are not 

subject to the unobligated balance provisions.45 However, federal 

regulations generally applicable to state and local government grantees 

require them to disburse rebates (along with program income and certain 

other amounts) before requesting additional cash payments.46 Accordingly, 

HRSA requires rebates to be spent before grantees obligate additional 

grant funds. Thus, grantees receiving drug rebates must prioritize spending 

these funds and several grantees said that this makes it more difficult to 

obligate grant funds in the grant year. 

While only three of the nine states that had a reduction in their ADAP base 

grants for grant year 2009 due to an unobligated balance received rebates, 

five of the eight grantees we interviewed that received rebates expressed 

 

45In August 2007, HRSA provided guidance consistent with RWTMA to grantees that states 

“Drug rebate dollars are not considered to be part of the grant award, therefore any 

unobligated drug rebate funds are not subject to the unobligated balance provisions.” 

46HRSA sent a letter in January 2007 to the 27 grantees using the rebate option stating that 

rebates are considered program income under 45 C.F.R. § 92.21(f)(2). In a subsequent 

letter, HRSA advised that rebates should not be considered program income for purposes 

of reporting on the FSR, but, under section 92.21(f)(2), grantees must disburse rebates 

before requesting additional cash payments. Cash payments requested by grantees would 

be for the purpose of liquidating or making payments associated with obligations of grant 

funds. 

Page 29 GAO-09-894 CARE Act Funding Provisions
 

concern about the requirement that drug rebate funds be spent before 

grant funds.47 One grantee explained that though it did not have an 

unobligated balance for grant year 2007, it took a great deal of effort to 

avoid one. Before RWTMA and the budget challenges in this state, this 

grantee saved state funds to spend at the end of the grant year so it could 

ensure that Part B funds were obligated and rebate funds were spent. 

However, because of state spending requirements put in place due to 

economic factors this state is currently facing, the grantee can no longer 

do this. In addition, spending rebates first can be difficult because rebate 

states often do not know when they will receive rebates; the state may 

send out requests every quarter, but may not receive the rebates until well 

into the next quarter or grant year. Rebate states may also not know the 

rebate amount beyond what they can estimate based on trends over the 

past year. Several grantees said that because of the variability of the rebate 

amounts and their timing, they could receive a large rebate check late in 

the year. They then could have unobligated balances of grant funds of 

greater than 2 percent at that time because they use the rebate amounts 

when they become available rather than grant funds. 

Pennsylvania had an unobligated ADAP base grant balance of $12,670,248 

in grant year 2007, and state officials said that a large part of the reason 

was its ADAP drug rebates. In grant year 2007, Pennsylvania received 

$11 million in rebates. These rebate funds had to be spent before it could 

obligate its ADAP base funding for grant year 2007. According to 

Pennsylvania officials, the Pennsylvania grantee has an administrative 

structure that only allows it to spend its rebates on the purchase of drugs, 

limiting how it could spend its rebate funds. Other states we spoke to can 

use rebate funds to provide Part B medical services as well, providing 

them with greater flexibility in spending these funds. Pennsylvania 

officials told us that they also had an unobligated balance of its ADAP base 

grant of over $2.4 million in grant year 2008. The Pennsylvania state 

government is working to revise its current structure. 

HRSA sought to address the interaction between drug rebate funds and the 

RWTMA unobligated balance provisions by requesting from HHS 

permission to seek an exemption from the regulation for grantees from the 

Office of Management and Budget. HRSA told us that requiring ADAP 

rebate funds to be spent before grant funds increases the risk of 

 

47Maine and Pennsylvania are drug rebate states. Delaware is a hybrid state; they use direct 

340B pricing and participate in a drug rebate program. 

Page 30 GAO-09-894 CARE Act Funding Provisions
 

unobligated balance penalties, and that the loss of grant funding and 

ineligibility for supplemental funding can pose difficulties for grantees. 

HRSA requested permission to seek an exemption from the otherwise 

applicable federal regulations for drug rebate states from HHS. HRSA 

believes the unobligated balance requirements were intended to ensure 

that federal funds are spent promptly, not to create a mechanism through 

which federal grants would be reduced. However, HRSA’s request for 

permission to seek an exemption for drug rebate states was denied by 

HHS in November 2007. HHS stated that while federal regulations and the 

unobligated balance provisions create significant challenges for rebate 

states, the justification HRSA presented for the class deviation was “not 

compelling.” 

HHS provided technical comments on a draft of the report, which we 

incorporated as appropriate. Agency Comments 

We are sending copies of this report to the Secretary of Health and Human 

Services. The report is also available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staffs have any questions, please contact me at (202) 512-

7114 or crossem@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may found on the last page of this report. 

Other staff who made major contributions to this report are listed in 

Marcia Cros

appendix I. 

se 

Director, Health Care 

Page 31 GAO-09-894 CARE Act Funding Provisions
Appendix I: 

A

GAO Contact and Staff 

cknowledgments 

Page 32 GAO-09-894 

Appendix I: GAO Contact and Staff 

Acknowledgments 

Marcia Crosse, (202) 512-7114 or crossem@gao.gov 

In addition to the contact above, Thomas Conahan, Assistant Director; 

Robert Copeland, Assistant Director; Leonard Brown; Romonda McKinney 

Bumpus; Cathleen Hamann; Sarah Resavy; Rachel Svoboda; and Jennifer 

Whitworth made key contributions to this report. 

 CARE Act Funding Provisions 

GAO Contact 

Staff 

Acknowledgments 

(290759) 
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