The Department of Health and Human Services (HHS) and the National Institutes of Health (NIH) have indicated a willingness to consider applying a 15% “VA-add on” to the negotiated indirect cost rate for NIH grants administered by affiliated universities on behalf of VA investigators. The 15% VA-add on would be provided in addition to university administrative off campus rates—capped at 26%—when work associated with NIH grants is performed in VA facilities. This plan can be considered a win-win model with universities maintaining their normal reimbursement for administrative costs and the VA receiving reimbursement for some of its infrastructure costs of supporting NIH-sponsored research in VA facilities.

In recent years, some VA-affiliated nonprofit research corporations (NPCs) have obtained HHS-approved indirect cost rates—referred to as Facilities and Administration (F&A) rates - and are administering NIH grants for VA researchers (NPCs at San Francisco and San Diego among others). Historically, however—and more commonly—VA-affiliated universities administer NIH grants on behalf of VA investigators. When work on grants is conducted in VA facilities, NIH provides the recipient university with its negotiated off-campus indirect cost rate for the administration component of the university's costs.

Current HHS policy does not allow reimbursement of grant related indirect costs incurred by federal agencies. This has been interpreted to preclude NIH from reimbursing VA hospitals for costs incurred in support of NIH-sponsored research grants. As a result, VA medical centers typically support the indirect costs associated with NIH research conducted in VA facilities.

15% VA Add-On: To address this imbalance, NAVREF recommends implementation of a mechanism that would allow HHS to add 15% to a university's off-campus F&A rate. Funds generated under this rate would be used to reimburse the affiliated VA medical center for its incremental costs for such items as custodial services, waste disposal, research space upgrades and maintenance, safety training/monitoring, library, telephone and various support services such as warehouse, mail, and WOC processing, etc., which are incurred as a result of NIH-sponsored research conducted in the VA facility. The VA-add on rate would be applicable only in instances where local choice and circumstances dictate that the university (rather than the VA-affiliated corporation) acts as the grant recipient, and the majority of the work on an individual grant is conducted in a VA facility.

• Various VAMCs that have applied to HHS for a VA-add on in conjunction with their affiliated universities (White River Junction, Seattle, West Haven, Houston) have provided sufficient justification for reimbursement ranging from 14.5% to 18%. Based on these detailed analyses, a flat national rate of 15% is recommended. Notably, a 15% overhead rate is routinely provided on NIH/VA interagency agreements (these are contracts, not grants, so HHS rules do not preclude reimbursement). This establishes precedents for 1) the 15% rate; 2) the notion that VA medical centers can receive and retain locally reimbursement for indirect costs on NIH-sponsored research; and 3) recognition that the sponsoring agency should support the direct and indirect costs of its own research.
• The VA add-on would strengthen the university-NIH-VA partnership. Universities still would receive and retain their off-campus rate. By supporting some of the indirect costs of its own research, NIH would benefit from VA's increased ability to support research. Also, VA would be in a better position to support NIH-sponsored research as a result of having funds available to relieve some of the pressure research imposes on the medical care appropriation and to improve research infrastructure.
• During 2001, the VA-add on would have generated nearly $30 million for VA medical centers to cover a portion of the costs that currently are being supported by VA's medical care appropriation. Last year, VA investigators received NIH grants totaling about $350 million. VA has calculated that typically 44% ($154 million) of NIH awards to VA investigators are conducted in university facilities and presumably qualify for the university's on-campus F&A rate. If applied to the 56% ($196 million) conducted in VA facilities, the 15% VA-add on rate would have generated a cash flow of nearly $30 million last year.
• Funds generated by the VA-add on would flow from NIH to universities to VA medical centers. It is anticipated that VAMCs would have to demonstrate that the funds are expended in ways consistent with HHS regulations (i.e., for research support), just as HHS requires accountability on F&A expenditures from universities.
• University stakeholders are communicating to HHS/NIH their support for the VA-add on. The following institutions have sent letters to HHS and NIH or have indicated that they will send letters shortly:

Additional academic affiliates of VA medical centers are encouraged to send HHS/NIH letters of support. Click here for a sample letter.  Letters should be addressed as follows: