Coming Down on the Medical School

Being first in the pack has its drawbacks. When someone gets caught with a hand in the cookie jar, everyone always turns to the person at the top. These days, Harvard is feeling that pressure more than ever.

Just last Friday, University officials received a call from the U.S. General Accounting Office notifying them that federal investigators will begin a new probe here next month.

But this story doesn't start in Cambridge.

This fall, government investigators found that Stanford University had overbilled taxpayers on federal grant overhead costs--to the tune of at least $184,000. Another investigator speculated last week that other agencies may have found an estimated $20 million more in inappropriate billing.

Stanford charges one of the nation's highest overhead rates: for every dollar in grant money awarded, the university requires the government to pay 74 cents for research-related "indirect" costs.

But while the West Coast school charges one of the highest rates in higher education, Harvard boasts the highest figure.

Looking at Harvard Medical School, where administrators charge 88 cents on the dollar for indirect costs, investigators say they want to see if the University's records show overbillings--like those found at Stanford.

For now, Harvard administrators are playing it cool. Back in Palo Alto, however, the ongoing federal inquiry has left Stanford a row of red faces. According to that investigation, U.S. taxpayers have helped buy flowers and cabinets for the home of Stanford President Donald Kennedy '52 and cover the depreciation on a 72-foot yacht (complete with jacuzzi), among other perks.

Early Friday morning, the GAO's Boston regional office telephoned Elizabeth C. Huidekoper, Harvard's director of the office of budgets and sponsored research. Huidekoper learned that the GAO would be coming to investigate, according to Kenneth J. Croke, an assistant manager for the federal office.

The Crimson had reported the impending investigation late last month, but top Harvard administrators--among them, Vice President and General Counsel Daniel Steiner '54 and Vice President for Finance Robert H. Scott--said at the time that they had not been told of any upcoming inquiry.

Huidekoper and Steiner would not comment Friday on the investigation, and Harvard spokes-person Peter Costa could not be reached for comment.

Apparently, though, Harvard administrators may have already been aware that an investigation was forthcoming.

"Most everybody seems to know," the GAO's Croke said Friday. "[Huidekoper] was aware of it. It wasn't a surprise."

The House Subcommittee on Oversight and Investigations, within the Committee on Energy and Commerce, is set to begin March 1. As of Friday, neither the subcommittee nor the General Accounting Office had found any evidence of wrongdoing at Harvard, according to members of the investigative team who spoke on condition of anonymity.

On the surface, this investigation may seem like just another routine check for the University. Yet the impending probe could have damaging consequences if Harvard's indirect cost accounting looks anything like the records now surfacing at Stanford.

If the investigation at the Medical School uncovers millions of dollars in improper billing for indirect costs, then Harvard might well be forced to pay back the taxpayers.

In addition, unfavorable findings would greatly weaken the Medical School's negotiating stance for an increase it is seeking in its indirect cost rate. This scenario would be the most costly for the University, which now hopes to work a deal promising more than $1 in overhead for each dollar received in grant monies.

What Are Indirect Costs?

The term "indirect cost," once merely bureaucratic jargon, has become a common phrase among higher education watchers. These issues have taken on crucial importance, as congressional leaders seek to clamp down on excessive spending of federal research dollars.

Under the provisions of Office and Management Budget Circular A-21, indirect costs are research-related expenditures that are not specifically linked to a grant project. Indirect costs are reimbursed by the federal government over and above the money awarded directly under a federal research contract.

The Medical School currently has a provisional agreement with the Department of Health and Human Services (HHS) for an indirect cost rate of 88 percent. This means that for every dollar the government awards in federal grants to the Medical School, the University can charge an additional 88 cents for overhead on that research.

Overhead can include such-costs as depreciation on buildings and equipment, operation and maintenance, administration and libraries. Lighting, heating, janitorial services and portions of administrative salaries at every level in the University can be billed as indirect costs, as long as the costs can be justified as research-related.

Rates Too High?

Private universities that are heavily involved in government research, such as Harvard and Stanford, tend to be aggressive in seeking a high rate of indirect cost. The institutions do need money, professors and government officials agree, to support massive new laboratories and expensive library systems that aid research.

But Congressional investigators and some researchers question why the rates are so high--even as institutions are looking to make the rates higher.

During this time of economic recession, Congress is concerned that so much federal money is going to science, but not to actual research. In response, the body dispatched the subcommittee that is investigating Stanford and will soon investigate the Medical School.

The committee may also investigate other institutions, like the Massachusetts Institute of Technology and Columbia University.

The congressional action has spurred inquiries by three other federal bodies, including a criminal investigation by Naval Investigative Services. The result could be an across-the-board reevaluation, and perhaps reduction, of indirect cost rates at private universities.

The Defense Contract Audit Agency, which is currently auditing Stanford, has said in a report that it can only justify a rate of 62 percent for the school, according to one federal investigator, who spoke on condition of anonymity. That figure is 12 percent lower than Stanford's rate in the fiscal year of 1990.

In addition, the Office of Naval Research has lowered Stanford's rate by four points during the investigation. According to Robert L. Byer, dean of research at Stanford, each percentage point drop in the indirect cost rate translates into a $750,000 loss for the school each year.

What Researchers Say

Despite some agreement in Washington that indirect costs may have climbed too high, researchers and scholars nationwide are torn on the issue.

Some professors express concern that the high rates of indirect cost may limit or drive away direct monies for research. If the rate at a particular university is much higher than at another, then the government may be more likely to award a grant to the institution with the lower rate, they say.

Terence F. Blaschke, associate professor of medicine and pharmacology at Stanford Medical School, would like a lower indirect cost rate. For one grant that he was awarded, he received significantly less research money than he wanted because of indirect costs.

"In at least one of the grants that supported my research, the funding agency was looking at a total dollar amount," Blaschke said of a grant application. "We couldn't get all the direct money we requested."

"Anybody would like to see the indirect cost rate as low as it could be, consistent with the university being able to provide those research services," Blaschke said.

The researcher added that right now the National Institutes of Health (NIH) is "indirect cost-blind." That is, NIH reviews grants primarily on the grounds of scientific merit, without looking at a school's overhead cost rate.

Priscilla A. Schaffer, a Harvard professor of microbiology and molecular genetics, also sees high indirect cost rates as a concern. Although NIH--the Medical School's largest federal grant sponsor--may be indirect-cost blind, Schaffer worries that an economic downturn may move the agency to change that policy.

"This is the great concern to all of us," Schaffer said. "That's a serious problem, potentially."

At NIH, one grant administrator says that although indirect costs are considered before a final funding decision is made, science is still the top priority.

"Science is the driving force," says Ronald G. Geller, who works at the National Heart, Lung and Blood Institute. "Right now, the initial review groups that review applications consider only direct costs."

Despite some colleagues' concerns, Leon Eisenberg, Presley professor of social medicine, says indirect costs are necessary for research.

"I don't think that the money is going to buy the dean a Mazzerati," Eisenberg said. "I think the school is entitled to it."

"If it's not paid as indirect costs, then how the hell is the school going to pay for it?" he asks. "Harvard has a lot of money, but not an infinite amount of money."

And Harvard's Lehman Professor of Microbiology and Molecular Genetics Bernard N. Fields agrees.

"I think that's probably just part of maintaining an institution that does research," Fields says. "It seems to me that that's a reasonable thing to do.

Stanford's Byer says that through "very cost-effective" means, the university can claim the indirect costs of research it is entitled and still retain competitiveness for grants. The school received more than $97 million in reimbursements for overhead expenses in fiscal 1990, according to Stanford Comptroller Franklin G. Riddle.

Jeffrey D. Ullman, chair of computer science at Stanford, says the problem is more with the national economy than with indirect cost rates.

"We're in the process of becoming a poor nation, and we can afford less and less," Ullman said. "We should get serious about becoming a competitive country again and getting enough money to support research again."

Ullman added that while there has been an increase in grants awarded to faculty members at the university, the grants are of decreasing amounts.

While the debate over federal funding continues, congressional cutbacks and belt tightening has brought the GAO to Palo Alto, Calif. and, recently, to Cambridge.

For now, University officials can only await General Accounting's arrival on March 1. Mean-while, at Harvard, Med School Professor Eisenberg takes the cynical approach. He says federal investigators will likely find accounting errors during their probe because, in general, mistakes will be made.

"They get paid for finding things wrong," Eisenberg says. "They don't get congratulated for finding a clean bill of health. If you can get the pointy-headed intellectuals at Harvard, well that's marvelous."