Program Income Reporting: What You Need To Know Or “How to Make Your Regional Coordinator’s Life Easier!” Karen Droze, MS Regional Coordinator, Region IV-South The Hemophilia Alliance Membership Meeting, Pre-Conference October 1, 2008 Baltimore Marriott Waterfront Goals of Presentation Provide brief background of 340B Program Define Program Income Overview Program Income Reporting Provide Samples of Reporting Discuss Appropriate Uses of Program Income Address MCHB and Grant Requirements Question/Answer Overview of 340B Program 340B Drug Pricing Program – PL 102-585, Veterans Health Care Act of 1992 (aka Section 340B of the Public Health Service Act) Limits the cost of covered outpatient drugs to certain federal grantees, federally-qualified health center look-alikes and qualified disproportionate share hospitals. Significant saving on pharmaceuticals may be What This Means in Plain Language Section 340B requires drug manufacturers to provide outpatient drugs to eligible health care centers, clinics and hospitals (termed “covered entities”) at a reduced price The 340B price is a “ceiling price,” meaning it is the highest price the covered entity would have to pay for select outpatient and OTC drugs and minimum savings the manufacturer must provide - The PHS Section 340B Drug Pricing Program In Basic Language, Katheryne Richardson, Pharm.D. (2002) Examples of Covered Entities (not an exhaustive list) Federally-qualified health centers (e.g., Migrant) Disproportionate share hospitals (DSH) Comprehensive hemophilia diagnostic treatment centers (receiving grant $ under section 501 of SSA) Grantees under Part C of Ryan White State-operated AIDS Drug Assistance (ADAP) Black lung clinics Urban Indian organizations Native Hawaiian Health Center HTCs as Covered Entities Via Federal Maternal Child Health Bureau (MCHB) funds Other HTCs exist, but if not federally-funded – NOT covered as 340B entity Program Income Definitions DHS Definition: “Program Income means gross income earned by the recipient that is directly generated by a supported activity or earned as a result of the award” - 45 CFR 74 (Code of Federal Regulations) Further, “Costs incident to the generation of program income may be deducted from gross income to determine program income, provided these costs have not been charged to the award” - 45 CFR 74.24(f) This results in a net number Stipulations for Calculating Administrative Costs Per MCHB, it is inappropriate to use Factor Replacement Product (FRP) Costs as part of a methodology for determining FRP Sales Program Administrative Costs The June 17, 2003 Office of Inspector General’s (OIG) Report “Review of Hemophilia Treatment Centers’ Disposition of Program Income and Patient Choice for Factor Provider for Calendar Year 2000 (A-03-01-00350),” stated that “the cost of a drug does not drive the administrative costs of operating a pharmacy.” The Health Resources and Services Administration (HRSA) concurred with the recommendations presented in the OIG’s Report General Calculation + Total Revenues - Less Factor Cost - Less Contractual Fees, if applicable - Less Total Pharmacy Operating Costs - Less Indirects (may be based on: All/portion of Operating Costs, Medicare cost report step down, e.g. hospitals, Various methodologies) = Net Program Income General Calculation + Total Revenues - Less Factor Cost - Less Contractual Fees, if applicable - Less Total Pharmacy Operating Costs - Less Indirects (may be based on: All/portion of Operating Costs, Medicare cost report step down, e.g. hospitals, Various methodologies) = Net Program Income Pharmacy Operating Costs Can include: Pharmacy personnel (on staff or contracted) Personnel fringe (health/retirement) Office supplies Medical supplies Equipment maintenance and repair Shipping IT (consulting, hardware, support) Insurance (liability, worker’s comp, licenses) General Calculation + Total Revenues - Less Factor Cost - Less Contractual Fees, if applicable - Less Total Pharmacy Operating Costs - Less Indirects (may be based on: All/portion of Operating Costs, Medicare cost report step down, e.g. hospitals, Various methodologies) = Net Program Income Indirect Cost (Overhead) Calculations Various methodologies apply May be based on percentage of all/portion operating expenses May be institutionally driven Medicare cost report step down, e.g. hospitals MCHB suggests same indirect cost rate as the grant (e.g., 8%) versus your institution’s negotiated indirect cost rate NO written PHS policy to support this currently. However, many institutions have this requirement as part of their program income policy. Check with your institution regarding PI policy Calculation Example #1 Total 340B Factor Sales Less 340B Factor Cost Less Direct Pharmacy Cost Less Indirect Cost Allocation@8% Program Income $1,000,000 $ 800,000 $ 40,000 $ 3,200 $ 156,800 Determining Allowability For Use Of Federal Funds Reasonableness (including necessity) Allocable to grant goals and objectives Allowable under the Cost Principles - “Understanding HRSA Grants Management Requirements,” Helen Harpold, Health Resources Services Administration (June, 2008) Allowability Per CFR 74.2, Project Costs means: “All allowable costs, as set forth in the applicable Federal cost principles, incurred by a recipient and the value of the contributions made by third parties in accomplishing the objectives of the award during the project period.” That is, do the costs further the goals and objectives of the grant? Allowability: Cost Principles Program Income outlined in the Code of Federal Regulations (CFR) 74.24 Allowable Costs, CFR 74.27 “For each kind of recipient, there is a particular set of Federal principles that applies in determining allowable costs. Allowability of costs shall be determined in accordance with the cost principles applicable to the entity incurring the costs.” Allowability: Cost Principles (Continued) Cost Principles per Entity Type: Educational Institutions OMB Circular A-21 Non-Profit Organizations OMB Circular A-122 (cross references Circular A-110) Hospitals 45 CFR 74 (Appendix E) -Prepared by George M. Uber, Cost Allocation and Indirect Cost Specialist, prepared for The Hemophilia Alliance, Inc. Suggested Uses of Program Income HTC core center and support staff salary Outreach staff salary Consultant fees (e.g., Ortho, PT) Chapter support (made in form of financial assistance agreement - “donations” are not allowable) Staff travel/training Client Assistance/Uninsured support Community education Patient activities and educational materials Association Dues “Public Relations” (per A-122 guidelines) Unallowable Uses of Program Income Endowments Salary for personnel already covered by grant Travel expenses already covered by grant Clinical Research (may be considered) Donations to chapters, unless in form of financial assistance agreement Sample Financial Assistance Agreement FINANCIAL ASSISTANCE AGREEMENT THIS FINANCIAL ASSISTANCE AGREEMENT, dated the ___ day of ___________, 20__, by and between (INSERT HTC NAME HERE, a (INSERT STATE NAME HERE) non-profit corporation (“INSERT ANY ABBREVIATION OF HTC HERE”) and ______________________, a (INSERT NON-PROFIT’S STATE OF INCORPORATION HERE) non-profit corporation ("Corporation"). Recitals: WHEREAS, Corporation is engaged in the provision of services to support the needs of hemophilia patients and their families; and WHEREAS, (HTC ABBREVIATION OR NAME) desires to provide financial assistance to Corporation to assist Corporation in the furtherance of these goals upon the following terms and conditions. NOW THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties agree as follows: 1. Charitable Service. The parties agree that (HTC ABBREVIATION OR NAME) shall provide financial assistance to Corporation in order to provide needed funding for the Corporation to undertake a charitable endeavor(s) to be provided to persons with or affected hemophilia or related bleeding disorder and described at Schedule 1, attached hereto. 2. Financial Assistance. (HTC ABBREVIATION OR NAME ) shall provide financial assistance (the “Financial Assistance”) to Corporation in the amount set forth at Schedule 2, attached hereto, and pursuant to the payment terms provided therein. 3. Terms of Agreement. This agreement shall commence as of _____________, 20__, and shall continue in effect for one (1) year until ______________, 20__. Notwithstanding the foregoing, either party may terminate this agreement at any time upon giving the other party hereto at least thirty (30) days’ prior written notice. 4. Oversight. (HTC ABBREVIATION OR NAME) shall have the right to receive an accounting of the Financial Assistance to ensure that the funds received by Corporation are actually utilized for the charitable purposes for which they were provided. Corporation shall provide (HTC ABBREVIATION OR NAME) with a full accounting of the Financial Assistance. Upon reasonable notice, (HTC ABBREVIATION OR NAME)’s auditors will be provided with the accounting to confirm and verify that the Financial Assistance was utilized properly. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed the day and year first above written. (HTC ABBREVIATION OR NAME): CORPORATION: By __________________________________ By _________________________________ __________________________________ _________________________________ TITLE TITLE Calculation Example #2 Revenue - Factor - Contract Fees - Pharmacy Cost Personnel ($44,500) Fringe ($8,900) Supplies ($1,800) Printing ($504) - Indirects (8% of $55,704) Program Income $1,500,000 $1,173,000 $ 50,000 $ 55,704 $ 4,456 $ 216,840 Calculation Example #2 (Continued) Program Income $216,840 $150,000 $ 10,000 $ 6,000 $ 5,000 $ 2,000 $173,000 Staff Salaries Association Dues Staff Travel Chapter Support Patient Educational Activities Total Program Income Used Fund Balance Previous Fund Balance Total Balance Available $ 43,840 $ 50,000 $ 93,840 MCHB and Grant Timelines MCHB grant runs June 1 – May 31 Subgrantee Financial Status Report (FSR) due with or shortly after final invoice Grantee FSR due 90 days after close of grant period (usually August 31) Program Income back-up not consistently required in years past Moving forward, back-up will be required u a l Financial Status Report (Long Form 269) FSR: Program Income Fields MCHB suggests Additive Method, found on Line r., rather than Deduction Method MCHB Data Collection Form MCHB Data Form Submissions Recently passed OMB clearance process Likely required as back-up with 08/09 program income report Become familiar with form Direct questions to your regional coordinator and host institution Other Federal Audit Requirements OMB Circular A-133 Applicable to: Educational institutions Non-profit organizations Hospitals Can be required per consortium agreement Part of regional core center oversight Summary Understand 340B enabling legislation Know program income definition, regulations Be prepared to demonstrate methodology utilized in calculating program income, including institutional policies Maintain all back-up information Be aware of both allowable and unallowable uses of program income Be mindful of regional and federal timelines Keep your regional coordinator happy… He or she is your best ally!