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Rounds: A message from the President and CEO of VUMC

Jun. 30, 2017, 8:00 AM

Buried in plain sight

Dear Colleagues,

News from our nation’s capital about budget proposals that would reduce funding that universities and academic medical centers are reimbursed for providing health care to the nation’s poor and underserved, and for conducting research that supports the nation’s health, security, and economic leadership, has reached a cacophony. There are so many moving parts that impact the nation and our future at Vanderbilt, it is difficult to grasp it all.

Jeff Balser, M.D., Ph.D.

The entire country is focused on trying to understand the impact of the American Health Care Act (AHCA) passed by the House of Representatives, which strips Medicaid of $800 billion. An even more worrisome counterproposal is under consideration by the U.S. Senate.

Yet buried in plain sight is a far less visible, albeit potentially even more destructive proposal — one that would extract nearly 20 percent, or $7.2 billion, from the National Institutes of Health, but cloaked in a disarming way that makes it appealing to a general public already skeptical of big government expenditures. The proposal, crafted by the Trump administration and Health and Human Services (HHS), is being sold as an effort to force America’s nonprofit research institutions to be more cost effective. Marketed in this way, attitudes of the general public, and even some researchers not familiar with “behind the scenes” costs of research, have ranged from ambivalent to unconcerned.

To frameset, it is important to understand the NIH distributes research funds through two streams to cover research costs. “Direct” funds support the expenses of the research team, including salary costs and the supplies and equipment they use to perform the research. “Indirect” or Facilities and Administrative (F&A) funds help defray the cost our institutions incur as the research teams perform the research. These infrastructure expenses, required to support the full range of basic and clinical biomedical research at institutions like ours, are vast.

Built over decades, biomedical research in the modern research institution requires hundreds of programs with highly trained people, fully dedicated to supporting the research teams. Examples include regulatory compliance (such as our Institutional Review Board and animal care compliance programs), grants administration, environmental safety and waste disposal, high-speed data processing and storage, and energy and utility expenses, just to name a few.
In addition, F&A funds support our research facilities. Consider that when we build or renovate research facilities — such as the addition of labs in Light Hall or MRB III — we bear not only the construction costs, but also the upkeep and operating cost for these facilities. And importantly, federal F&A funding doesn’t come close to covering the full cost of our research infrastructure.

Like all NIH-supported institutions, we heavily subsidize our research programs — at Vanderbilt with an average of 38 cents for every dollar we receive from the NIH — above and beyond what we receive in F&A reimbursement. In the present fiscal year, to cover this cost, we invested more than $200 million in research and discovery.

So why draw attention to these nuances of research accounting? The administration and HHS have proposed a destabilizing reduction targeted at the F&A funding stream, capping these reimbursements at only 10 percent of actual cost. Notably, the range of NIH F&A reimbursement across the U.S. is typically 25-35 percent, and at VUMC is 33 percent.

F&A reimbursements are strictly tied to real costs — these payments undergo rigorous annual evaluation at each institution, and include on-site space and equipment reviews. For those interested in better understanding F&A costs, please see this excellent set of FAQs on the topic prepared by colleagues at the Association of American Universities.

For the Medical Center and the University combined, a 10 percent cap on F&A costs would amount to a reduction of more than $90 million per year. This eye-popping amount, similar to the reductions at our research-intensive peer institutions, is far too large to be managed through any other available source of funds.

While both political parties in Congress are largely opposed to these reductions, the risk is very real, as HHS can take this action without the consent of Congress. To be clear, this irresponsible action would force major immediate cost reductions in research programs across the country, including ours. It would cause lasting irreparable harm to the universities and medical centers that for a century have formed the basis of our nation’s biomedical science architecture. And the trust in our government’s commitment to science, built over 70 years since WWII, would be shattered.

We are taking the threat of reduced support for the NIH, including the proposed cap to F&A cost reimbursements, very seriously and have conveyed these concerns to our delegates in Congress. Our Tennessee Senator Lamar Alexander, a champion of federal investments in research, in comments last week at the Senate Appropriations Committee called the proposal “harebrained.” He commented, “I hope we can nip this idea in the bud. I hope it is just one of those ideas in the President’s budget that is just out there to stir up conversation. But it is a thoroughly awful idea. Bad policy.”

Our relationship with the NIH is a highly successful and efficient partnership that is the envy of the world, and has made the U.S. the world’s longstanding leader in biomedical research. A funding reduction at even a fraction of this magnitude will herald a dark age for biomedical science, in this country and potentially worldwide. We can only hope that Senator Alexander’s strong remarks were heard, and will be heeded.

Jeff Balser, M.D., Ph.D.
President and CEO, VUMC
Dean, Vanderbilt University School of Medicine

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