Rebates Under the Uniform Grants Guidance: No Such Thing as a Free Lunch
by Elizabeth “Issie” Karan & Michael B. Glomb

Hemophilia Treatment Centers (HTCs) have asked whether rebates are considered “program income” under the Uniform Grants Guidance (UGG). Although rebates are excluded from the definition of program income, rebates constitute “applicable credits” under the UGG. Meaning, HTCs must utilize rebates to offset expenses accrued because of grant activities and appropriately account for their use. Given the confusion, the Hemophilia Alliance provides relevant legal citations below.

The UGG defines “Program Income” as:

“Gross income earned by the non-Federal entity that is directly generated by a supported activity or earned as a result of the Federal award during the period of performance except as provided in § 75.307(f). (See Period of performance.) Program income includes but is not limited to income from fees for services performed, the use or rental or real or personal property acquired under Federal awards, the sale of commodities or items fabricated under a Federal award, license fees and royalties on patents and copyrights, and principal and interest on loans made with Federal award funds. Interest earned on advances of Federal funds is not program income. Except as otherwise provided in Federal statutes, regulations, or the terms and conditions of the Federal award, program income does not include rebates, credits, discounts, and interest earned on any of them.” 45 C.F.R. §75.2

The text emphasized above may mislead HTCs into thinking that rebates can be treated as unrestricted funds. However, the UGG has more to say about reductions in costs under federal grant awards.

First, the UGG describes the costs that can be charged to a federal award as follows:

“Total cost. The total cost of a Federal award is the sum of the allowable direct and allocable indirect costs less any applicable credits.” (emphasis added) 42 C.F.R. §75.402

The UGG further states: “Applicable credits refer to those receipts or reduction-of-expenditure-type transactions that offset or reduce expense items allocable to the Federal award as direct or indirect (F&A) costs. Examples of such transactions are: Purchase discounts, rebates or allowances, recoveries or indemnities on losses, insurance refunds or rebates, and adjustments of overpayments or erroneous charges. To the extent that such credits accruing to or received by the non-Federal entity relate to allowable costs, they must be credited to the Federal award either as a cost reduction or cash refund, as appropriate.” (emphasis added) 42 C.F.R. §75.406(a)

These principles apply to both the expenditure of grant funds and to the expenditure of program income because program income must be used for the purposes and under the same conditions of the federal award. See 42 C.F.R § 307(e)(2).

We advise HTCs to seek advice from legal, accounting, and compliance experts about rebate funds. However, the Hemophilia Alliance team is also available to answer questions.