4. Administrative, Planning, and Evaluation Costs
This chapter is adapted from the Health Resources and Services Administration’s (HRSA) HIV/AIDS Bureau’s (HAB) Division of Service Systems’ (DSS) Issue Paper, “Administrative Costs,” released January 31, 1997.
The Ryan White Comprehensive AIDS Resources Emergency (CARE) Act of 2000 includes several requirements regarding the use of Title II funds to carry out administrative activities. Some of these requirements apply to grantees; others apply to lead agencies, consortia, and subcontractors.
This chapter outlines the legislative requirements and the expectations of the Health Resources and Services Administration's (HRSA) HIV/AIDS Bureau's (HAB) Division of Service Systems (DSS) regarding administrative costs and related issues such as planning and evaluation activities. The chapter also provides guidelines for AIDS Drug Assistance Programs (ADAPs) on how to measure administrative costs at the grantee and subcontractor levels.
Legislative Background TOP
The CARE Act of 1996 includes the following references to Title II administrative costs:
Section 2618(b)(4)(B) defines administrative activities for Title II grantees.
Section 2618(b)(3), (4) and (5) limit Title II grantees to spending not more than 10 percent of their grant on planning and evaluation activities, not more than 10 percent of their grant on administration, and, when combined, does not exceed 15 percent of their grant spent on planning, evaluation, and administration.
Section 2618(b)(4)(A) limits the administrative costs of entities to which Title II grantees distribute funds. These costs are capped at 10 percent of the aggregate amount distributed to those entities. It also limits the administrative costs of the grantee, which are capped at 10 percent of the grant award.
Section 2618(b)(4)(C) defines administrative costs for entities receiving CARE Act funds from Title II grantees.
Section 2618(b)(6) exempts from the administrative cost caps those States that receive a minimum allotment under the CARE Act Title II formula. Those States are limited to spending "not more than the amount required to support one full-time-equivalent employee."
EXCERPT FROM THE RYAN WHITE CARE ACT OF 2000, SECTION 2618:
(3) PLANNING AND EVALUATIONS.—Subject to paragraph (5) and except as provided in paragraph (6), a State may not use more than 10 percent of amounts received under a grant awarded under this part for planning and evaluation activities.
(A) IN GENERAL.—Subject to paragraph (5) and except as provided in paragraph (6), a State may not use more than 10 percent of amounts received under a grant awarded under this part for administration. In the case of entities and subcontractors to which the State allocates amounts received by the State under the grant (including consortia under section 2613), the State shall ensure that, of the aggregate amount so allocated, the total of the expenditures by such entities for administrative expenses does not exceed 10 percent (without regard to whether particular entities expend more than 10 percent for such expenses).
(B) ADMINISTRATIVE ACTIVITIES.—For the purposes of subparagraph (A), amounts may be used for administrative activities that include routine grant administration and monitoring activities.
(C) SUBCONTRACTOR ADMINISTRATIVE COSTS.—For the purposes of this paragraph, subcontractor administrative activities include—
(i) usual and recognized overhead, including established indirect rates for agencies;
(5) LIMITATION ON USE OF FUNDS.—Except as provided in paragraph (6), a State may not use more than a total of 15 percent of amounts received under a grant awarded under this part for the purposes described in paragraphs (3) and (4).
(6) EXCEPTION.—With respect to a State that receives the minimum allotment under subsection (a)(1) for a fiscal year, such State, from the amounts received under a grant awarded under this part for such fiscal year for the activities described in paragraphs (3) and (4), may, notwithstanding paragraphs (3), (4), and (5), use not more than that amount required to support one full-time-equivalent employee.
(7) CONSTRUCTION.—A State may not use amounts received under a grant awarded under this part to purchase or improve land, or to purchase, construct, or permanently improve (other than minor remodeling) any building or other facility, or to make cash payments to intended recipients of services.
Regarding the 10 percent administrative cost cap, the Joint Explanatory Statement of the Committee on Conference, which accompanies the CARE Act Amendments of 1996, states:
"...such expenditures [are limited] to 10 percent as measured across all entities receiving funding from Part A or Part B grantees, without regard to whether an individual entity is above or below that percentage. For example, if a State or eligible area awards $1 million to 10 service providers, regardless of the amount an individual provider spends on administration, the amount spent on administration added across all 10 providers cannot exceed $100,000 (10 percent of $1 million). For Part B grantees, entities subject to this cost cap include the lead agencies of consortia in carrying out their administrative duties associated with the operation of the consortium.
The Conferees wish to emphasize that grantees and subcontractors that can restrain administrative costs to less than 10 percent should do so. The set amount should be regarded as a ceiling, not a floor."
Supplemental Funding: Allocations made available under the ADAP Supplemental Treatment Drug Grants can only be used to purchase FDA-approved pharmaceuticals for the treatment of HIV/AIDS and those devices needed to administer them. States and Territories cannot apply administrative, planning/evaluation costs, or adherence/compliance activities to these dollars.
See Section V, Chapter 2 of this manual for more information on supplemental funding.
Flexibility: In addition to the 15% allowed for administrative and planning/evaluation activities, a State/Territory may request to use up to 5% of ADAP funds to provide services to increase access to medications, adherence to medication regimens, and to monitor the progress of therapy. A State/Territory may use up to 10% only if the State/Territory demonstrates that such additional services are essential and in no way diminish access to the therapeutics described in section 2616(a).
See Section V, Chapter 2 of this manual for more information on the flexible use of ADAP dollars.
Quality Management: States/Territories may use an additional 5% or 3 million dollars (whichever is less) of the total Title II grant to evaluate and improve the quality of primary care and healthrelated supportive services.
See Section V, Chapter 3 of this manual for more information on Quality Management programs.
Based on a legal interpretation by the Office of General Counsel, the term "subcontractor," as it is used in the legislation and the Conference Report, refers to entities that receive funding directly from the Title II grantee. In general, this interpretation means that other entities (commonly called subcontractors in grants management terminology) that receive funding from those direct recipients of funds are not subject to the 10 percent aggregate administrative cost cap. Exceptions and DSS expectations pertinent to this general rule are addressed in this chapter.
First-line entities are those entities receiving CARE Act funds directly from the Title II grantee. There are several types of first-line entities including service providers and pharmacy benefits managers. With some exceptions, first-line entities are subject only to the 10 percent aggregate administrative cost cap. A first-line entity that also serves as a State's lead agency (see below) may be subject also to the grantee administrative cost cap of 10 percent.
Lead Agency, Fiduciary Agent, or Fiscal Agent
Lead agency, fiduciary agent, or fiscal agent refers to the agency, organization, or other entity which functions within regional consortia to assist the grantee in carrying out administrative activities (i.e., disbursing program funds, developing reimbursement and accounting systems, developing RFPs, monitoring contracts, etc.). "Lead agency" is the term most commonly used by State grantees. The ADAP will simply want to work with the lead agency to assist in coordination with additional streams of funding for pharmaceuticals.
Defining Administrative Costs TOP
Following are definitions of administrative costs for Title II grantees, first-line entities, and first-line entities with management and oversight functions.
Title II Grantees
Administrative costs associated with the 10 percent administrative cap for Title II grantees include the following:
Administrative costs associated with the 10 percent aggregate cap for first-line entities funded directly by the grantee include the following:
First-Line Entities/Lead Agencies with Management and Oversight Functions
While first-line entities are subject to the aggregate cost cap associated with the administrative activities listed above, they may also be subject to the grantee administrative cap associated with the following activities:
Service costs include wages and benefits of employees who directly provide the service and the cost of materials, equipment, and supplies used to provide the service.
Direct costs are costs that can be identified specifically with a particular project, service, or other distinct activity of an organization. Direct costs can be either administrative or service-related.
Overhead and Indirect costs are often used interchangeably and usually refer to costs that have been incurred for common or joint purposes. These costs benefit more than one project, service, or other distinct activity of an organization and cannot be readily identified with a particular one of them. After direct costs have been determined and assigned to a grant and other activities as appropriate, indirect costs are those remaining to be allocated.
Indirect cost rate refers to a mechanism for determining, in a reasonable manner, the proportion of indirect costs each program should bear. It is the ratio of the indirect costs to a direct cost base.
Non-Administrative, Non-Service Activities
Planning and Evaluation (Grantees)
Planning and evaluation includes grantee activities related to planning for the use of ADAP funds and evaluating the effectiveness of those funds in delivering needed services. Specific activities that planning and evaluation funds may support for ADAPs include the following:
Program Support and Quality Control by First-Line Entities
Program support and quality control activities for first-line entities include the following:
Calculating Administrative Cost Caps TOP
Title II grantees must separate administrative costs from planning and evaluation costs. For each category of costs, grantees multiply their award by 10 percent and select a level of spending for each category that is within that calculated amount. Grantees must then also multiply their award by 15 percent and ensure that, when combined, the selected levels of spending for planning, evaluation, and administration are within that calculated amount. For example, if a Title II/ADAP grantee receives an award of $3,000,000, it can spend up to 10 percent ($300,000) on administration and up to 10 percent ($300,000) on planning and evaluation. However, the combined total cannot exceed 15 percent ($450,000).
The basis for calculating the aggregate administrative cost cap under Title II is the total amount remaining after the grantee takes its administrative, planning, and evaluation costs out of the award. The 10 percent factor is applied to this total amount. For example, if a grantee receives a grant award of $3,000,000 and uses the maximum amount of 15 percent ($450,000) for its own administrative, planning, and evaluation activities, $2,550,000 remains for distribution. For first-line entities that receive $2,550,000, a maximum of 10 percent ($255,000) can be charged to the Title II grant for administrative costs. That is, regardless of how much an individual first-line entity spends on administrative costs, when added across all such entities, administrative costs that are paid for with Title II CARE Act funds cannot exceed $255,000.
Applying Administrative Cost Caps TOP
Title II grantee administrative, planning, and evaluation costs charged to the Title II grant must fall within the limits as calculated above.
The 10 percent administrative cost cap applies only to first-line entities. First-line entities include consortia lead agencies, any service providers or other entity funded directly by the State, State-run programs such as ADAPs, Health Insurance Continuity Programs, and Home- and Community-Based Care programs. A program's administrative costs may be separated from the grantee's administrative costs if the program is run by the grantee itself or by a closely related unit of State government.
ADAPS AND ADMINISTRATIVE CAPS
If the Title II grant includes a Federal earmark for an AIDS Drug Assistance Program (ADAP), the calculations for administration, planning, and evaluation costs must be done separately on each portion of the grant. The selected percentages taken from each part of the grant do not have to be the same, but they each must fall within the caps as calculated above. Any funds taken out of the ADAP earmark must be spent on the grantee’s administration, planning, and evaluation costs related to the ADAP.
For example, suppose a State receives a total Title II grant of $4,000,000 and $1,000,000 is earmarked by the Federal Government for ADAP. Out of the ADAP earmark, the maximum available for the grantee’s ADAP-related administration is $100,000 (10 percent of the ADAP earmark) and the maximum available for the grantee’s ADAP-related planning and evaluation is $100,000 (10 percent of the ADAP earmark). When combined, the total for the grantee’s ADAP-related administration, planning, and evaluation is limited to $150,000 (15 percent of the ADAP earmark). If the grantee uses the maximum available, $850,000 of the earmark remains for ADAP services. Similar calculations would then be done on the $3,000,000 non-earmarked part of the Title II grant.
Title II grantees are free to use as much of that non-earmarked amount for ADAP as they see fit. There is no requirement that funds taken out of that non-earmarked amount for administration, planning, and evaluation be used in any set proportion between ADAP and other program components.
Second- or Third-Line Entities
Given the clear Congressional intent to limit administrative costs, grantees, through their contracts with first-line entities, should impose a separate 10 percent administrative cost cap on any "second- or third-line" entities which receive CARE Act funds from a first-line entity. That is, of the amount awarded to an individual second- or third-line entity, a maximum of 10 percent can be spent on administrative costs. Consortia, especially, should be required to limit the administrative costs of the entities to which the lead agency distributes funds. Without such a requirement, an entity receiving both Title I and II CARE Act funds could be subject to two different cost caps since it is a Title I first-line entity and a Title II second-line entity. While exact parity in costs caps is not necessary, some restriction on the Title II consortia funds should be required.
During the contracting process, grantees must work with their first-line entities to negotiate a final budget that appropriately classifies funded activities, personnel, supplies, material, and other expenditures as administrative or service costs. Administrative costs count against the 10 percent aggregate cost cap; service costs do not. For those situations in which a unit cost system is used to pay a contractor, the unit cost must be broken down so that the distinction can be made between administrative and service costs. The same administrative costs caps apply.
Because of the diverse characteristics and accounting practices of governmental units and nonprofit organizations, it is not possible to specify the types of costs that may be classified as administrative or service-related in all situations. A case management organization, for example, may include some telephone expenses as a service cost, since it is directly related to service delivery. A food distribution program may assign some or all rental expenses as a service cost because storing the food is directly related to delivering the service.
In general, grantees should utilize their own guidelines in making these classifications. Guidelines used to assign particular costs to the CARE Act should be consistent with guidelines used to assign particular costs to local funds or other, non-CARE Act, Federal funds. However, requirements specific to the CARE Act must be followed. The legislation stipulates that administrative costs for first-line entities include usual and recognized overhead (including indirect cost rates), costs associated with management and oversight of specific programs funded under Title II, and costs associated with program support such as quality assurance, quality control, and other related activities.
The legislatively mandated functions of consortia are not counted against the administrative cost cap. These activities include the consortium's planning and evaluation costs. Because consortia are subject to State requirements regarding their administration and functioning, Title II grantees should require consortia to identify these consortia support activities and allocate a reasonable amount of funds to carry them out.
Documentation and Compliance TOP
Title II grantees are required to submit categorical budgets and narrative justifications to the GMB for approval. These budgets must be submitted for administration, planning, evaluation, and services. Project officers and grants management staff review the grantee budgets and determine whether the grantee's administrative costs fall within the statutory limits.
Governors (or their designees) are required to sign program assurances with their application to DSS for funding (SF 424B, Program Assurances). Included among them is an assurance that the 10 percent aggregate administrative cost cap requirement will be met. Like all other program assurances and legal requirements, compliance is subject to audit by such entities as the Office of the Inspector General at the Department of Health and Human Services and the General Accounting Office. DSS strongly recommends that grantees encourage first-line entities to use a budget format that clearly identifies the costs for administration (as defined in this chapter under "Definitions, Defining Administrative Costs, First-Line Entities").
In their budget justifications, grantees will be required to identify the following information for "first-line" entities:
At the end of the budget year, as part of the final progress report submitted to the GMB, this information must be updated to reflect actual expenditures. Both the initial and final documentation of these figures will have to be signed by the financial officer in charge of the CARE Act grant.
ADAP Budget Consideration TOP
ADAP budget considerations include:
The greatest expenditure to the ADAP is obviously for pharmaceuticals. New classes of medications and evolving treatment standards will continue to present budgetary challenges.
The grantee may not spend more than 10 percent of their grant on administration of the program. Administration may be centralized or may be contracted/subcontracted.
Planning and Evaluation
The grantee may not spend more than 10 percent of their grant on planning and evaluation.
The grantee may not spend more than 10 percent of their grant to provide services to increase access to medications, adherence to medication regimens, or to monitor progress of therapy.
The grantee may not spend more than 5 percent or $3 million dollars of their grant (whichever is less) to evaluate and improve the quality of primary care and health-related supportive services.
Funds may be used to purchase health insurance that includes the full range of HIV treatments and access to comprehensive primary care services, subject to the conditions noted in the HAB Policy Notice 99-01, "The Use of Title II ADAP funds to Purchase Health Insurance."
An individual covered under ADAP may receive retroactive Medicaid eligibility status, and the ADAP may back-bill Medicaid for ADAP funds expended during the retroactive coverage period. This process can result in additional revenue to the ADAP.
Section 340B Drug Discount Program
ADAPs can achieve cost savings through participation in the Section 340B Drug Discount Program by utilizing one of the following four options:
Sources Used for This Chapter
HRSA, HIV/AIDS Bureau, Division of Service Systems. "Administrative Costs." Issue Paper, January 31, 1997.