Roadmap for Compliant Expenditures of Federal Funds: Highway to the Danger Zone!
By Elizabeth “Issie” Karan

Hemophilia Treatment Centers (HTCs) often ask the Hemophilia Alliance legal team how they can compliantly expend grant funds and resources. HTCs can do so in numerous ways. However, as a recipient of a Maternal and Child Health Bureau (MCHB) funds, HTCs are responsible for assuring compliance with the terms of their sub-recipient agreement with the prime, regional grantee recipient as well as the MCHB Regional Hemophilia Network program guidelines. HTCs are also subject to the Department of Health & Human Services’ (HHS’) Uniform Grants Guidance at 45 CFR part 75 (UGG), the HHS Grant Policy Statement, and likely the Regional MCHB Grant program guidance (HRSA 17-074). Please note that alarm bells should go off in your head anytime your HTC wants to give anything of value to a patient for less than fair market cost. Such actions could implicate the requirements of the beneficiary inducement prohibition law and the terms of their (or their host institutions’) private agreements with payers. We recommend working with legal counsel on these matters as they are incredibly fact specific and require individualized advice (although we are always happy to explain the context).

In thinking about how to spend program income in compliance with federal grant rules, we recommend analyzing the key questions described below and asking for advice from experts.

(1) Does this expenditure utilize federal funds, including program income?

The UGG defines what revenue constitutes federal funds and provides general rules for its expenditure. The UGG defines program income in 45 CFR § 75.307 as gross income that a grantee or subgrantee receives that is directly generated by a grant supported activity, or “earned as a result” of the award. Program income includes, but is not limited to, “income from fees for services performed, the use or rental of real or personal property acquired under federally-funded projects, the sale of commodities or items fabricated under an award, license fees and royalties on patents and copyrights, and interest on loans made with award funds.” HTCs must add program income to Federal funds and it “must be used for the purposes and under the conditions of the Federal award” under 45 CFR § 75.307(e)(2). MCHB regards any and all revenue that an HTC earns as program income.

(2) Does this expenditure further the purpose of the HTC grant which is to “promote and improve the comprehensive care of individuals with hemophilia and related bleeding disorders or clotting disorders such as thrombophilia”?

HTC program income must be added to federal funds and “must be used for the purposes and under the conditions of the Federal award.” Under the UGG, the HRSA grants office defines eligible activities to include patient health, education, and supportive services necessary to provide comprehensive care to patients served by the HTCs. If an HTC wishes to use its program income on an expenditure that does not meet the standard of eligible activities, the HTC must first seek and obtain approval from the Regional grantee and, ultimately, HRSA. The approval should be sought and received in writing.

(3) Does this expenditure comply with the grant rules, particularly the rules for procurement and the cost principle restrictions?

The UGG contains numerous other requirements for grantees (which include HTCs). To highlight a few, HTCs must: (1) maximize competition in procurement activities in accordance with the requirements of the UGG; (2) comply with the cost principles prohibiting expenditure of funds on such items as alcohol, international travel, and bad debts; and (3) report deviations from budget or project scope or objective and request prior approvals from HHS awarding agencies for budget and program plan revision. HTCs should familiarize themselves with the UGG and consider regularly educating relevant staff on its requirements.

If you have question, concerns, or would like more information, please contact Elizabeth at ekaran@ftlf.com.

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¹HHS’ grant administrative regulations are codified at45 CFR Part 75. The Cost Principles are codified in Subpart E of the same Part 75.

²Program Guidance for Regional Grantees, HRSA 17-074, at https://mchb.hrsa.gov/fundingopportunities/?id=b1459a1d-3397-401a-8ba2-bd53829fb76c.

³HRSA Memo to HTC Regional Grantees, dated May 23, 2003, and confirmed in 2011, indicates that all revenue is considered “program income” and must be used for activities that fall within the scope of the HTC program. This is HRSA’s position despite the very limited federal funding and despite legal arguments that only the revenue derived from 340B priced pharmaceuticals should be considered as program income because the 340B eligibility is based upon the subaward and therefore “earned as a result of the grant.”

⁴See 45 CFR § 75.307(e)(2).

⁵HRSA Memo to HTC Regional Grantees, dated May 23, 2003

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