title 45 code of federal regulations part 74.91 also known as: 45 cfr part 74 appendix e © partners...

Title 45 Code of Federal RegulationsPart 74.91

Also known as:45 CFR Part 74 Appendix E

© Partners HealthCare System, Inc., 2011

Learning Objectives

To gain familiarity with cost principles applicable to hospitals

Become comfortable with the guidance, to be able to find answers when needed

Gain understanding of the terms used in costing

To have a better understanding of direct vs. indirect now known as facilities and administrative costs

An Introduction to 45 CFR Part 74

Title 45 – Public Welfare

Part 74 – Uniform Administrative Requirements for Awards and Sub-awards

Appendix E to Part 74 – Principles for Determining Costs Applicable to Research and Development Under Grants and Contracts With Hospitals

An Introduction to 45 CFR Part 74

Here is how you will normally see the cost principles referenced in an award:

Cut and paste from an NIH R01, SECTION IV – HG Special Terms and Conditions – 5R01HG00XXX-03 5. This award is issued without direct cost categorical breakdowns.

Recipients are required to allocate and account for costs by category in accordance with applicable cost principles. (Reference NIH Guide, Volume 24, Number 38, October 27, 1995.)

You will find the same vague reference in proposal guidelines, it is up to us to know which cost principles apply to us (A-21 for Higher Ed, FAR for commercial organizations, A-122 for not-for-profits/foundations).

Purpose and Scope

Objectives: Applies to grants and contracts awarded by DHHS - NIH Centers and Institutes

Each hospital is expected to employ sound management practices

Application of these principles shall be in conformance with generally accepted accounting practices of hospitals

Purpose and Scope, cont.

It is essential that consistent procedures for determining reimbursable costs for similar services be employed without regard to program differences (health services projects, Medicare, sponsored research)

Both the direct and indirect costs of a research project must be accounted for within their respective cost center

All operating agencies within DHHS sponsoring work in hospitals, will apply these principles

Purpose and Scope, cont.

These principles and policy guides shall be used in determining costs incurred for work under grants and cost reimbursement type contracts and subcontracts

They shall also be used as a guide in the pricing of fixed-price contracts and subcontracts

Definitions of Terms

Organized Research – All research activities of a hospital that may be identified whether the support for such research is from a federal, non-federal or internal source

Departmental Research – Research activities that are not separately budgeted and accounted for. Such activities, including all research activities not encompassed under the term Organized Research, are regarded as part of the patient care activities of the hospital.

Definitions of Terms, cont.

Research Agreement - Any valid arrangement to perform federally sponsored research or development including grants, cost-reimbursement type contracts, cost reimbursement type subcontracts, and fixed price contracts and subcontracts

Instruction and Training – The formal or informal programs of educating and training technical and professional health services personnel, primarily medical and nursing training


Other Hospital Activities – all organized activities of a hospital not immediately related to patient care, research and instructional and training functions which produce identifiable revenue from the performance of these activities.

Patient Care – Those departments or cost centers which render routine or ancillary services to in-patients and/or out-patients, as the costs of these services apply to patients involved in research programs


Allocation – In regard to these cost principles, allocation means the process by which the indirect costs are assigned between; organized research, patient care including department research, instruction and training, and other hospital activities

Cost Center – An identifiable department or area (including research) within the hospital which has been assigned an account number in the hospital accounting system for the purpose of accumulating expenses

Basic Considerations

The tests for allowability of costs:

They must be reasonable; the nature of the goods or services acquired or applied would pass the prudent person test. Necessary, and consistent with hospital policies and practices.

They must be assigned to research agreements under the standards and methods provided in these guidelines.

They must be accorded consistent treatment through application of the generally accepted accounting practices appropriate to the circumstances.

Basic Considerations, cont.

They must conform to any limitations or exclusions set forth in these principles or in the terms of the research agreement as to types or amounts of cost items.

They must be allocable to a particular cost center in accordance with relative benefits received or other equitable relationship. They must be incurred solely to advance the work or necessary to the overall operations of the hospital.

Costs allocable to a particular research agreement may not be shifted to other research agreements to meet deficiencies caused by overruns or other fund considerations or for other reasons of convenience.

Basic Considerations, cont.

“Applicable credits” refers to negative expenditure type transactions which operate to reduce expense items allocable to research agreements. Examples – purchase discounts, rebates, allowances, sales of scrap or incidental services.

In some instances, applicable credits where such items are provided for a benefit of a particular hospital activity, should be treated as an offset to the indirect costs apportioned to that activity.

Direct Costs

Direct costs are those costs that can be identified specifically with a particular cost center.

Compensation for employees for the time or effort devoted to the performance of work under the research agreement

Staff benefit and pension plan costs

The costs of materials consumed or expended in the performance of the work

Other items of expense incurred for the research agreement such as extraordinary utility consumption

Indirect Costs

Costs that have been incurred for common or joint objectives and thus are not readily subject to treatment as direct costs of research agreements or other ultimate or revenue producing cost centers.

Depreciation (buildings, fixed and movable equipment)

Administrative and general, including fringe (i.e. hospital accounting, information centers, purchasing)

Indirect Costs, cont.

Operation of plant (power plant operations, general utility costs, elevator operations, protection services and general parking lots)

Maintenance of plant (ordinary repair and maintenance of buildings and general equipment)

Laundry and linen service (including salary and wage for laundry services staff or to outside laundry or linen services)

Indirect Costs, cont.

Housekeeping (salary and wage for all maids, porters, janitors and other housekeeping employees. Also includes all supplies needed to carry out the housekeeping functions)

Dietary (operation of all hospital cafeterias)

Medical records and library (medical record clerks and librarians, including all supplies to create and house medical records)

Also covered in this section is the guidance on how to prepare the indirect cost proposal.

General Standards for Selected Items of Cost

This section provides standards to be applied in establishing the allowability of certain items involved in determining cost.

Failure to mention a particular item of cost in the standards is not intended to imply that it is either allowable or unallowable. Rather, determination as to allowability in each case should be based on the treatment or standards provided for similar or related items of cost.

General Standards for Selected Items of Cost, cont.

In case of discrepancy between the standards provided and the provisions of a specific research agreement, the provisions of the research agreement shall govern.

It is important to seek agreement with the Government in advance of the incurrence of special or unusual costs in categories where reasonableness and allocability are difficult to determine.

Selected Items of Cost

Advertising costs Recruitment for a sponsored agreement, procurement of scarce items

needed to perform research, disposal of scrap or surplus used in research are allowable costs.

Bad debts Only when patient related (caused by a research patient requiring

clinical care and is approved by the awarding agency).

Bonding costs Allowable when required by a sponsored research agreement or by the

hospital in the general conduct of its business.

Capital expenditures Allowable only as provided for in a sponsored research agreement.

Selected Items of Cost, cont.

Civil defense costs Allowed when reasonable and when distributed to all activities of the institution

(first-aid training, fire fighting training, exit notices and directional signs).

Communication costs Local and long distance phone, postage and the like are generally allowable.

Compensation for personal services Includes salaries, wages, staff benefits and pension plan costs are allowable

when reasonable and in conformance to the consistently applied institutional policies. *Includes effort reporting requirements which we will talk about later.

Contingency provisions are unallowable costs Unless specifically stated in the application guideline (construction grants).

Depreciation and use allowances Generally not considered (see listing for specifics and exceptions).


Employee morale, health and welfare costs and credits Expenses for the improvement of working conditions,

employee/employer relations, employee morale (EAP) and employee performance are allowable.

Entertainment costs Including transportation, lodging and gratuities are unallowable.

Equipment and other facilities Allowable on a direct charge basis when approved by sponsor and

provided for in the terms of the agreement.

Fines and penalties Unallowable unless as a result of compliance with specific provisions of

a research agreement or written instructions from the sponsor.


Insurance and indemnification Allowable when required by the sponsor and terms of agreement.

Interest, fund raising and investment management costs Generally unallowable unless related to the physical custody and control

of monies and securities.

Labor relations costs Including labor management committees and publications are allowable.

Losses on research agreements or contracts Excess costs are unallowable, including cost shares.

Maintenance and repair costs Both normal and extraordinary maintenance and repair costs are

allowable. Rehabilitation costs are allowable only on a depreciation basis.


Material costs Costs incurred for purchased materials, supplies and fabricated parts

directly or indirectly related to a research agreement are allowable.

Memberships, subscriptions and professional activities costs Allowable including costs of meals, transportation, facility rental and

other incidental costs for meetings and conferences.

Organization costs Incorporation fees, attorney fees, accountant fees, broker fees, and

fees to promoters and organizers are generally unallowable.

Other business expenses Such as recurring expenses as registry and transfer charges, costs of

shareholder meetings, publication of related reports and submission of reports and forms for taxing and regulatory bodies are allowable costs when allocated on an equitable basis.


Patient care Routine and ancillary or special services to research patients is an allowable

direct cost for research agreements.

Routine services Regular room, dietary and nursing services, minor medical and surgical supplies

and the use of equipment and facilities are allowable.

Patent costs Preparing disclosures, reports and other documents as well as prior art search

expenses are allowable costs.

Pension plan costs Allowable when incurred in accordance with established hospital policies as long

as they are reasonable and non-discriminatory.

Plan security costs Wages, uniforms and equipment for personnel are allowable when incurred to

comply with government security requirements.

Selected Items of Cost, cont. Pre-research agreement costs

Unallowable unless specifically set forth and identified in the terms of a research agreement.

Professional services costs For services rendered by members of a particular profession who are not

employees of the hospital are allowable under certain circumstances. Please see the guidelines for specifics.

Profits and losses on disposition of plant equipment or other assets These costs shall be excluded when computing research agreement costs.

Proposal costs These costs should be treated as indirects and allocated currently to all activities.

Public information services costs Unallowable unless specifically authorized by the sponsoring agency.


Rearrangement and alteration costs Both ordinary and special rearrangement and alteration of facilities are

allowable when previously approved by the sponsor.

Reconversion costs Restoration or rehabilitation of the institutions facilities to address fair

wear and tear are allowable when the wear was caused through conducting sponsored research.

Recruiting costs Help wanted ads, recruitment expenses including travel and relocation

allowances, and employment office services are allowable when pursuant to a well managed recruitment program.

Rental costs Including the sale and lease back of facilities are generally allowable

when reasonable.


Royalties and other costs for use of patents Allowable unless the Government has a license or the right to free use

of the patent, the patent has been deemed invalid or unenforceable, or has expired.

Severance pay Severance pay costs are allowable only to the extent what such

payments are required by law, by agreement or by established policy or circumstances of employment.

Specialized service facilities operated by the hospital Highly complex and specialized facilities such as super computers and

reactors are allowable when meeting conditions defined in the guidelines.

Special administrative costs General public relations activities, catalogs and services are

unallowable.


Staff and/or employee benefits Annual leave, sick leave, military leave and the like are allowable when

in proportion to the relative amount of time and effort actually devoted to each.

Taxes Generally allowable, see guideline for specifics.

Transportation costs In bound freight, express, postage and other transportation services

relating to goods purchased, in process or delivered are allowable.

Travel costs When incurred by employees in travel on official business of the hospital

are allowable. See guideline for specifics. *Remember your own entity and the Partners travel policies*


Termination costs applicable to contracts These costs are generally allowable except when they are for the costs

of common items of material that are reasonably usable on the hospital’s other work.

Voluntary services The value of voluntary services by sisters or other members of religious

orders is allowable provided the amounts do not exceed that paid other employees for similar work.

Effort Reporting

Charges for salaries and wages of individuals other than members of professional staff will be supported by daily time and attendance and payroll records.

Professional staff – current and reasonable estimates of the percentage distribution of their total effort may be used as support in the absence of actual time records.

The term professional staff includes physicians, research associates, and other personnel performing work at responsible levels of activities.

The competent performance of these activities usually requires persons possessing degrees from accredited institutions of higher learning and / or state licensure.

Effort Reporting, cont.

To qualify as current and reasonable, estimates must be made no later than one month after the month in which services were performed. Our hospitals are on a waiver for semi-annual certification.

These estimates of effort on each research agreement should be prepared by the individual who performed the services or by a responsible individual such as a department head or supervisor having first hand knowledge of the services performed on each research agreement.

The estimate of effort spent may include activities such as; preparing and delivering lectures about the research, writing research reports and articles, participating in appropriate research seminars, consulting with respect to related research, attending scientific meetings and conferences.

Effort Reporting, cont.

All other hospital activities include departmental research, administration and committee work, and public services undertaken on behalf of the hospital.

The estimates must show the allocation of effort between organized research and all other hospital activities.

Estimates determined before the performance of services do not qualify as estimates of effort spent.

Part time work done on research by staff members having only part-time appointments will be determined at a rate not in excess of that for which they are regularly paid for their part time staff assignment.

Where to Find the Full Text

The full text of 45 CFR Part 74 Appendix E can be found at:

http://www.nhtsa.gov/nhtsa/whatsup/tea21/GrantMan/HTML/29d_OMB_CostPrnHosp_45CFR_Prt74.html



Questions?

Robin CyrDirector of Training and [email protected]

© Partners HealthCare System, Inc., 2011

mailto:[email protected]

title 45 code of federal regulations part 74.91 also known as: 45 cfr part 74 appendix e © partners...

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