The Hidden and Vital Costs of Doing Science

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Scientists rejoiced when Congress voted to increase the National Institutes of Health (NIH) budget by $2 billion, bucking the Trump administration’s proposal to cut it in fiscal year 2017.

The sobering news, though, is that the administration’s FY 2018 budget proposal would slash the NIH budget by $7.2 billion. As a major part of that cut, reimbursement for research facilities and administrative expenses, as opposed to “direct” research support, would be capped at 10% of NIH’s total research budget. This cut would place a multi-million dollar hole in all research institutions budgets, which critics say would lead to less research overall.

Facilities and Administrative (F&A) costs are included in every federally supported grant. F&A includes the underlying costs required to maintain state-of-the-art research laboratories, such as precision climate control, utilities, high-speed data and telecommunications, security for sensitive and dangerous chemicals and microbes, radiation and hazardous waste disposal, computer systems and software, and infrastructure necessary to ensure compliance with federal and other rules and requirements.

F&A funds: a primer

The NIH is the major funder of biomedical research in the United States and currently invests more than $34 billion each year in biomedical research. Most of the grant money pays for direct research costs—lab supplies, specialized equipment, salaries of researchers and lab staff, travel costs, and the cost of disseminating results. But about 27% of the NIH extramural budget pays for F&A.

“I think there’s a misconception that they [F&A] are not real costs. But you’ve got to turn on the lights. You need state-of-the-art research laboratories. You need to maintain those laboratories. You need to comply with federal rules and regulations. And you’ve got to administer the grants.”

David Kennedy
Council on Governmental Relations

The F&A rate varies from institution to institution and is derived through a rigorous negotiation and audit process with either HHS Cost Allocation Services or the Department of Defense, Office of Naval Research. Rates depend on many factors, including local costs (such as labor and utility rates) and the age and condition of the research facilities.

F&A costs are foundational—they pay for costs an institution incurs because of the research conducted. “Good accounting takes place to make sure that the costs that are recovered are really directly attributable to federal research expenses,” said David Browdy, chief financial officer for the health sciences and associate vice president for finance at the University of Utah.

While necessary for research, the federal F&A share still doesn’t pay the full cost of facilities and administration related to research. According to the AAMC report Academic Medicine: Investment in Medical Research, for every federal dollar of direct and F&A support a medical school receives, it contributes, on average, an additional $0.53, for a total average investment of $111 million per medical school in 2013. A substantial portion of the institutional contribution is used to cover the gap between the federal F&A reimbursement and the additional expenses the institution actually incurs.

Tuesday, May 30, 2017

Costs of Research

The total cost of federally sponsored research includes a combination of both direct and facilities and administration (F&A) costs. F&A consists of the construction and maintenance costs of laboratories and high-tech facilities; energy and utility expenses; and safety, security, and other government-mandated expenses. These costs are real and research cannot be conducted without them.

Some have argued that F&A reimbursements should not be a public obligation. These critics point to research sponsored by private foundations, which often limit the amount they are willing to pay for F&A, typically a range of 10% to 20%. Why should taxpayers pay a higher rate to support research than nongovernmental foundations?

Foundation support is not even 10% of the academic research portfolio, responds AAMC Chief Scientific Officer Ross McKinney Jr., MD. “Universities may be able to use their own fundraising apparatus to raise the money to pay the very real F&A costs the foundations aren’t covering up to a point,” he said. “If the scale was larger, institutions could not afford to accept the money for a new project, because someone has to pay for internet access, waste disposal, and water bills associated with that research.”

Comparisons to foundations can also be misleading, he pointed out, because foundations often have more flexibility to account for certain F&A expenses as “direct” costs, unlike the federal government. Under the current formula, said McKinney, the academic–federal partnership has built the largest, most productive medical research system in the world in a way that is maximally efficient for taxpayers.

Cutting F&A would threaten research

Many researchers and administrators believe that driving down F&A payments would only weaken research by forcing institutions to scale back their research portfolios.

“I think there’s a misconception that they [F&A] are not real costs,” said David Kennedy, director of costing policies for the Council on Governmental Relations. “But you’ve got to turn on the lights. You need state-of-the-art research laboratories. You need to maintain those laboratories. You need to comply with federal rules and regulations. And you’ve got to administer the grants. Some would like to say those aren’t real costs. But you know what? They’re real costs [of doing research].”

If F&A funding is reduced, schools will be hard-pressed to find alternative sources for the money, too.

“Much of what F&A covers are kind of unglamorous but necessary things like utility costs, interest payments, and administrative functions like the institutional review board. It’s tough to find donations to cover that.”

David Browdy
University of Utah

When F&A funding is insufficient, “you’ve got a hole in your budget because you have some fixed costs in the size of your buildings,” said Browdy. “So, in the short term, we have to divert an existing revenue source to cover those costs. And then in the longer term we can look to adjust our expense base.” University administrations would cancel new projects and “dial back on” current projects. “I would imagine that the impact of [those changes] would not be limited to the research mission,” he said. “It would affect the entire institution.”

State funds and philanthropy are unlikely to fill the gap. “Much of what F&A covers are kind of unglamorous but necessary things like utility costs, interest payments, and administrative functions like the institutional review board,” Browdy said. “It’s tough to find donations to cover that.”

Alex Ommaya, DSc, AAMC senior director of clinical and translational research and policy, concurred. “Usually, private donors aren’t interested in paying for the lights. They want to support specific areas of research or specific types of activities, sometimes in ‘high-risk’ or innovative areas that the federal government isn’t yet supporting,” said Ommaya. Plus, finding alternative funding sources for F&A expenses is a challenge, he noted. “Grants and contracts, as demonstrated by the AAMC report [noted above], already require additional investment by the institution.”

“If F&A reimbursements are reduced, institutions will have to seriously rethink what they can support,” Ommaya said. “And if something has to give, it could be the research itself.  Make no mistake – if you are cutting F&A, you’re cutting research.”