In March, at a hearing of the appropriations subcommittee in the U.S. House of Representatives, Secretary of Health and Human Services (HHS) Tom Price, while highlighting the importance of biomedical research performed through the National Institutes of Health (NIH), suggested that inefficiencies within the organization could be trimmed to meet proposed budget cuts within the America’s First “skinny” budget.

“I was struck by one thing at NIH,” Price said, “and that is that about 30 percent of the grant money that goes out is used for indirect expenses, which as you know means that that money goes for something other than the research that’s being done.” Last year, NIH paid $6.4 billion in overhead costs, which is more than what President Trump has proposed cutting, prompting Secretary Price to suggest that eliminating indirect cost reimbursement from federal grants and contracts would allow for an 18% budget cut.

This seemingly easy solution to reduce the budget of federal research agencies is simply not feasible, as these are real costs of performing research on federal grants and contracts awarded to investigators at universities such as UK that are not provided from any other source.

Facilities and administrative (F&A) costs, sometimes referred to as “indirect costs,” are a complicated subject to explain, but let’s try. F&A costs for a specific project awarded to a UK researcher, both leading up to and during the research, are real costs that the university would not otherwise incur except to perform research projects. They are costs incurred on behalf of the research project, but are not readily identifiable to an individual research project.

Perhaps it would help if we define the “F” and “A” piece of this story.

Facilities (F) refers to operational and maintenance costs (light, heat, telecommunications) that are consumed while performing the research, and include depreciation and use of buildings or equipment used for the research, and interest on debts associated with facilities and equipment.

Administrative (A) refers to general administrative expenses (costs associated with functions like financial management), unit administration expenses (clerical staff and supplies), sponsored projects administration (costs of administering and complying with regulations on projects and awards), student administration and services expenses. While this may sound trivial, this piece includes the critical infrastructure that is required to assure that research performed within the project adheres to federal regulations on the conduct of research and appropriate fiscal management of grant funds. This administrative piece of the F&A cost is capped at 26%.

F&A rates are negotiated based on the audited financial statements and a complex calculation submitted from UK to HHS, our federal cognizant agent.

While some are concerned that F&A costs from agencies such as the NIH have increased over time and thus make up a larger percentage of total research funding, for more than a decade NIH F&A costs have remained at a constant of less than 28 percent of the total dollars that are awarded from this agency. However, over that same period of time, regulations and reporting requirements to perform research outlined in grants and contracts awarded from federal research-supporting agencies have increased.

Research at UK is supported primarily from grants and contracts awarded to investigators from federal funding agencies. Over the last two years, the actual overall F&A costs reimbursement that UK received to support the research infrastructure on average was 26.9%. Of all federal funding agencies, research at UK is largely supported from the NIH, which contributes to the outstanding standard of care that the UK health care enterprise provides to patients across the Commonwealth.

Fair reimbursement of F&A costs is crucial to a stable and viable research enterprise. Without reimbursement of these incurred F&A costs that are the underpinning of the research enterprise, the research mission of the flagship land-grant research institution of the Commonwealth would be severely curtailed.