Final Report, April 1, 2000

1. Charge to the Team

The VHA Chief Financial Officer convened the Team to develop a system allowing explicit accounting of the VERA research support funds allocated to medical centers for salaries of clinician researchers and research facilities and administrative costs. The CFO requested that a report with technical recommendations and preliminary data be submitted by April 1, 2000.

2. Background

The Veterans Equitable Resource Allocation system introduced in 1996 provides methods of distributing funds in the VA Medical Care Appropriation to Networks for several purposes. One of these purposes is support of research, one of the missions of the Veterans Health Administration. The VERA Research Support funds have been distributed to Networks in proportion to the level of research activity (level of funding from the VA Research Appropriation or from certain non-VA sources for research projects) in the Network.

In October 1999 the Acting Undersecretary for Health approved an Executive Decision Memo stating four recommendations made by the VERA Research Support Work Group and the Policy Board: A) Charge a workgroup to develop a system for accounting of Medical Care funds spent in support of research, to evaluate both FY 1999 and FY 2000, and to report its recommendations by April 1, 2000. B) Assure that the accounting system identifies what costs to measure, what salaries to include, what other expense items, and what system to use to collect and report data. C) For FY 2000 Networks will pass through the VERA Research Support allocation as it is computed for each medical center (similar to Specific Purpose allocations) and Medical Centers will account and obligate funds to support the salaries of clinician-researchers, and research facilities and administrative costs. D) Communicate the fairness of the recommendations by involving the Medical Center Directors, Service Chiefs, Research Office, and Network Directors in planning, conducting, and accounting for the costs of research.

In December 1999 the VHA Directive “Medical Care FY2000 Network Allocation” stated that each medical center should explicitly obligate and account for VERA research support funds allocated to support the salaries of researchers, research facilities, and administrative costs.

The VERA Research Support Accounting Team received its charge from the VHA Chief Financial Officer in January 2000. Meetings (both teleconference and face-to-face) and email discussions were used to develop and refine the cost accounting system recommended in this report. The Team viewed its main goal to be development of a cost accounting system that can be applied to Medical Care expenditures in FY 2000. It tested the proposed accounting system by applying it to FY 1999 cost data at 10 Medical Centers. It also recognized that an important element of the accounting system is clarification of the principles that will be applied to identify which costs are appropriately included. The Team considered questions primarily concerned with allocation of funds to be outside the scope of its charge, although it recognized that considerations of which research activities should be supported are inevitably linked to understandings about the purposes of allocations.

In the process of identifying sources of data to be used in the cost accounting system the Team sought to identify reports that are currently available throughout the VA system and that provide information applicable to the specific types of research costs identified for inclusion. Consideration was given to reports generated in Finance Offices (830 Report, FTEE Report, Cost Distribution Report), in Research Offices (R&D Information System, project data), and the Decision Support System (DSS).

3. Costs included in the accounting

The Team discussed which costs should be included in the cost accounting process in the light of guidance stating that it should identify all medical care dollars that go to support research activities. The Team recognized that accounting standards are needed to assure uniformity of reporting, and that “research activities” requires definition. It is necessary to decide which research activities should be supported by VA Medical Care funds and which activities associated with the term “research” do not qualify for support by Medical Care funds. To develop a system of accounting that can be applied uniformly across VHA it is necessary to decide which activities will not be supported by expenditure of Medical Care funds and will, therefore, not have research support costs. This identification of qualifying research activities means that some activities qualify for research support and some others do not. The Team recognizes that the recommendations in this report will not satisfy all parties, however the proposed accounting system is designed to specify activities so that all of the costs of these activities can be accounted for uniformly across VHA.

The cost categories recommended for inclusion are the following:

1. VA-paid time for certain members of the clinical staff who are conducting research
2. Facilities costs related to research activities
3. Administration costs related to research activities
4. Other Clinical costs (excluding the costs identified in a) and excluding those ancillary clinical services that were provided solely for research purposes and for which no net cost is incurred because a specific research project has reimbursed Medical Care funds.

4. Method of cost accounting: VERA Research Support Cost Report (VRSCR)

The VRSCR consists of 10 Forms (Excel worksheets) and Instructions for each of the Forms. The Forms provide a method of collecting costs related to provision of support to specified research activities in VA medical centers. The Instructions provide guidelines so that the cost accounting principles can be applied uniformly across the system. The VRSCR has been tested by the Team members at 9 medical centers and the results are attached to this report as preliminary data. The main considerations underlying the construction of the VRSCR are described in the following:

a) Clinician Investigators:

This term is used with a particular meaning to identify individuals who are paid from VA Medical Care funds and who are working in specified research activities at a specific time in the fiscal year. The term Clinician Investigators is defined to include Principal Investigators and some co-investigators and some other individuals devoting effort to specified research activities. The specified research activities, and the recommended VA-paid time allowances for these activities, are identified in Appendix 1.

• Determines VA-paid time for these activities
• Uses local cost of salary and benefits and a schedule of time allowances for these activities
• Obtains data from the 830 Report for the last month of the period under consideration, from the FTEE Report for the last pay period of the period under consideration, from the Budget Allocation Summary report produced by the Research & Development Information System (RDIS) for the last month of the period under consideration, and from research project information maintained in the local Research Office.

b) Facilities

• Identifies cost centers (in the 500 series) that provide support to the research program
• Calculates a fraction of the total Medical Center Facilities costs that are attributed to research support
• Uses a ratio of net square feet for research to net square feet for the total Medical Center to calculate the research percentage
• Obtains data from the 830 Report

c) Administration

• Identifies cost centers (in the 400 series) that provide support to the research program
• Calculates a fraction of the total Medical Center Administration costs that are attributed to research support
• Uses a ratio of expenditures for research to expenditures for the total Medical Center and applies this ration to total costs to calculate the research percentage; adds the appropriate cost of the ACOS for Research
• Obtains data from the 830 Report

d) Other Clinical

• Identifies cost centers (in the 200 series) that provide support to the research program
• Excludes cost of salary and benefits (personal services) determined for Clinician Investigators (in element a) above
• Excludes cost of ancillary clinical services (personal services and all other costs) that have been charged (billed to and collected from research project funds) to specific research projects. This exclusion means that the net cost to the Medical Care appropriated funds (after subtraction of reimbursements) is the reported cost.
• Determines the portion of clinical care cost that is the net expended from Medical Care funds for this element of research support
• Obtains data from the Cost Distribution Report (CDR) and asks that these data be reviewed locally by research, clinical and management officials to consider their accuracy and appropriateness

5. Comments

The VRSCR avoids the terms “direct” and “indirect” in referring to the various types of funding and expenditure. In other contexts direct is variously used to mean direct patient care costs (clinical services) or to mean direct research costs (items in the budget of a research project). Also, indirect is sometimes used to mean hospital services that are other than direct patient care and in the case of research is used to mean institutional overhead costs that are not specific to a particular research project.

The VRSCR uses the term Research Support to refer specifically to Medical Care funds that support research, rather than patient care or graduate medical education. The term "support" is not used to refer to funds awarded to a specific investigator for a specific project; these are research funds (whether from the VA Research Appropriation or from a non-VA funding source).

The Team gave repeated consideration to the time that clinical staff spend on non-VA funded research (such as NIH grants) carried out at VA Medical Centers. This effort on research funded by non-VA sources is within the VA research program, is viewed as a contribution to the research mission of VHA, and is valued. However, salary for time on these projects could be provided by the non-VA funding agency. At the present time the non-VA funding agencies, though willing to fund appropriate portions of salary for investigators, are not providing this salary support in many cases. The Team also recognizes that there are serious practical difficulties in arranging for multiple sources of salary support. The proposed accounting system includes non-VA funded research as qualifying for VERA Research Support, however, at a lower level of VA-paid time than proposed for VA funded research (Appendix 1).

The VRSCR includes an allowance proportionate to the identified salary cost as the cost of “bridge funding” (Appendix 1). This element recognizes that the research program is dynamic with some investigators being between awards and some investigators being newly recruited and in the process of applying for research funding. The Team proposes that this time spent on obtaining preliminary results and applying for research funding be recognized as a qualifying research activity, and that assignments of this VA-paid time to individuals be made by the responsible local service chiefs or other clinical managers. At the time of cost reporting the specific individuals who are provided this element of Research support can be identified.

The VRSCR uses current year cost information drawn largely from the 830 Report. Data identifying costs for Clinician Investigators is obtained from 830 Report salary information and from ORD reports (the R&D Information System, RDIS) identifying individual research awards. In one element, the Other Clinical cost, the Cost Distribution Report is used as one source of information about the portion of total cost assigned to Research Support (CDR subaccounts 0000.21 and 0000.22 for the 200 series Cost Centers).

The Team considered using the Decision Support System (DSS) for each of the elements because the DSS should be able to gather the cost data using automated systems. However, the Team concluded that for the current year (FY 2000) the DSS, as it is currently structured, has not been designed to account for all of the costs of Research Support that were intended in the design of the VERA Research Support allocation. Examination of DSS reports for the cost elements that the Team agreed should be included convinced the Team that the present DSS structure will have to be modified in several ways:

• to map clinical (patient oriented) research activity as well as laboratory (bench) research
• to identify qualifying research activities depending on type of activity and source of funding
• to identify the portions of Facilities and Administration costs that are attributed to research support.

The VRSCR provides a cost accounting system that can be used in the interim until the DSS is modified so that it can capture all of the costs of Research Support. The VRSCR was applied successfully at 9 Medical Centers to account for Research Support costs in FY 1999.

The VRSCR recognizes Facilities costs for both VA funded and non-VA funded research conducted on VA campuses. The calculated costs of Administration research support are related to VA funded research because non-VA funded research generally requires less involvement by VA administrative departments. The Facilities and Administration costs are “research percentages” of total Medical Center costs and, thus, identify the amounts that could have been provided for Research Support. The procedures used to obtain these percentages are simple and provide amounts that are proportionate to the magnitude of the current research program.

The VRSCR separates Research Support costs for Clinician Investigator salaries from Other Clinical costs. The Other Clinical element includes costs attributable to staff and supplies that support research activity regardless of funding source and whether related to a specific project or not. A subset of these costs, specific clinical services provided for a specific research project and solely for a research purposes, should be reimbursed from research funds budgeted to pay for these services. At the present time identification of these occurrences is inconsistent in part because of the business systems and in part because the distinction between treatment and research is not always clear, however, identification and tracking of these events will facilitate billing and collecting for reimbursement. If Medical Care funds are appropriately reimbursed then provision of these clinical services does not incur a net cost for Research Support. If Medical Care funds are not reimbursed, then the services should be costed in the Other Clinical category.

6. Recommendations

A. Local leadership should use the principles of the VRSCR in assigning VA-paid time for research activities.

The aggregate cost identified for salary support (for Clinician Investigators, other research staff, bridge funds) in element a) (Form 3) should be used by local leadership (Director, Chief of Staff, Service Chiefs, Care Line Managers, ACOS for Research) in reviewing assigned VA-paid time in Medical Center departments. Identifying cost of salary support is a different process from assigning paid time for conducting research. Local leadership may assign less than full time to an investigator whose research activities qualify for more than full time credit, but in the VRSCR is capped at 1.0 FTEE. Where aggregate amounts for Clinician Investigator salary support permit, consideration may be given to some individuals who are conducting meritorious research that is important to the Medical Center, but who do not specifically qualify under the VRSCR guidelines.

B. Non-VA sources of research funds should provide appropriate salary support for VA based investigators.

The complex questions relating to Clinician Investigators receiving salary from multiple sources for different research activities (such as conducting research funded by VA and research funded by non-VA sources) should be examined. It is not currently possible for all Clinician Investigators to receive salary support from non-VA funding agencies (either federal or non-federal). However, VHA leadership should work with non-VA agencies to identify and eliminate barriers that currently make it difficult for the non-VA sponsors to provide salary support for the time that VA-based investigators devote to non-VA funded research projects.

C. The needs for Facilities and Administration support should be provided for.

The aggregate costs identified for Facilities and Administration should be used by local leadership to review levels of support provided for the research program.

D. Modifications to the DSS should be accomplished as soon as possible.

The specific enhancements to DSS that are necessary for it to produce a complete and accurate report of the cost of Research Support should be identified and implemented by the DSS Program Office before October 1, 2000 (or as soon thereafter as possible).

E. The VRSCR should be implemented immediately.

The VRSCR accounting system can be employed starting in April 2000 to account for VERA Research Support costs for the first two quarters of FY2000. A set of Forms and Instructions, embodying any modifications required by VHA, can be prepared for distribution to all Medical Centers with research programs.

F. The data collected by the VRSCR should be tested for validity.

The total cost of Research Support, at individual Medical Centers, at the Network level, and nationally, identified by the VRSCR may be compared with the VERA Research Support allocation. The VRSCR amounts may also be compared with the cost of Research Support identified in the CDR and in the DSS. The purpose of these comparisons is to assess the reasonableness of the total costs identified by the VRSCR. These different methods of cost accounting have been designed for different purposes and might be expected to yield different results for cost elements that appear similar but are actually defined according to different principles.

Respectfully submitted,

VERA Research Support Accounting Team, March 31, 2000

Fred S. Wright, MD, Chair
Ann Marie Wilk, Co-Chair
Albert L. Brese
Phil Cook
Steve Fihn, MD, MPH
Dan Hinshaw, MD
Gary Ingber
Frank Longo, MD, PhD
Richard Pasquale
Robert Schuster

Karen Wisentaner, liaison VHA Office of Finance
John M. Bradley and Bob Potts, liaison VHA Office of R&D

Final Report, April 1, 2000

[The maximum time credited to a single individual with multiple awards is capped at the actual appointment level (VA-paid FTEE) for that person.]

Bridge funds (10% of the above, capped, total)