Input:
	Background

After a possible hazardous waste site is reported to EPA, it is evaluated to determine whether it should be placed on the National Priorities List (NPL), EPA’s list of sites that present serious threats to human health and the environment. The cleanup at an NPL site consists of several phases. First, through the remedial investigation and feasibility study, the conditions at a site are studied, problems are identified, and alternative methods to clean up the site are evaluated. Then, a final remedy is selected, and the decision is documented in a record of decision. Next, during an engineering phase, called the remedial design, technical drawings and specifications are developed for the selected remedy. Finally, in the remedial action phase, a cleanup contractor begins constructing the remedy according to the remedial design. Under the Comprehensive Environmental Response, Compensation, and Liability Act, (CERCLA), which established the Superfund program, EPA must give preference to those long-term cleanup actions that permanently and significantly reduce the volume, toxicity, or mobility of hazardous substances at a site. Under CERCLA, parties responsible for cleaning up sites can include site owners and operators, as well as generators and transporters of hazardous waste.
As of August 1998, 1,193 sites were listed on the NPL, and another 56 were proposed for listing. Remedies had been constructed at 526 sites. Since the Superfund program began, 175 sites have been deleted from the NPL. In addition, the program has conducted about 5,000 removal actions—short-term response actions to address emergency and other situations—at NPL and other sites.
Our reviews have shown that the Superfund cleanup process can be long and expensive. In March 1997, we reported that the cleanup of nonfederal sites completing the cleanup process in 1996 had taken an average of 10.6 years after placement on the NPL and that remedy selection at sites completing that phase of the cleanup process in 1996 had taken an average of 8.1 years after a site’s listing. In September 1997, we reported on a growing number of expensive Superfund cleanups. We said that in 1996 EPA had spent $10 million or more in that year alone on nine sites, up from two sites with the same level of annual spending in 1989. Spending on the nine sites, which represented less than 3 percent of the sites where EPA spent money for remedial actions, totaled about $238 million, almost 57 percent of remedial action spending at all sites.
Beginning in 1993, EPA launched a series of administrative reforms to address a wide range of Superfund concerns. These reforms have attempted to speed up site investigations, choose more cost-effective remedies, reduce litigation, and make other improvements. According to EPA officials, the reforms have begun to work. EPA officials believe that cleanup durations have recently been reduced to an average of 8 years. In addition, the National Remedy Review Board EPA created to review proposed site cleanup remedies, had saved $37 million as of November 1997 through its examination of 20 remedies. EPA has also encouraged its regions to revisit remedy decisions when new information or technical advances indicate that the intended level of health or environmental protectiveness might be achieved at less cost. According to EPA, these remedy updates had saved at least $725 million at over 120 sites as of November 1997. EPA also made it easier for parties with only minimal responsibility for site contamination to settle their liability with lower legal expenses.
All 50 states have established their own clean up programs for hazardous waste sites, according to a 1998 survey by the Environmental Law Institute. Some of these state programs can handle highly contaminated sites, whose risks could qualify them for the Superfund program, as well as less dangerous sites. Some states initially patterned their cleanup programs after the Superfund program, but over the years, in an effort to clean up more sites faster and less expensively, have developed their own approaches to cleaning up sites.  States accomplish cleanups under three programs: (1) voluntary cleanup programs that allow parties to clean up their sites without enforcement action, often to increase the site’s economic value; (2) brownfields programs that encourage the voluntary cleanup of sites in urban industrial areas to reuse the sites and avoid the expansion of industry into “greenfields,” that is, undeveloped land; and (3) enforcement programs that oversee the cleanup of the most serious sites and force uncooperative responsible parties to clean up their sites.States generally use their voluntary and brownfields programs to clean up less complex sites by offering various incentives to responsible parties, such as reduced state oversight. Some states maintain cleanup funds to pay all or a portion of the costs of cleanups at sites for which responsible parties able to pay for full cleanups cannot be found.

	State Practices That Officials Believe May Facilitate Faster, Less Costly Hazardous Waste Cleanups

Hazardous waste officials in each of the seven states we contacted identified practices used at sites sufficiently contaminated to be included in the Superfund program that they believe achieve faster and less costly cleanups than would occur under the Superfund program. Some of these practices are designed to facilitate faster remedy selection, thereby saving time or money before site cleanup begins. Other practices allow the implementation of less expensive cleanup remedies that officials believe are nonetheless protective of human health and the environment. Two states have adopted practices that reduce the liability of parties who might be responsible for cleanup costs under Superfund’s liability rules. State officials said that these practices have been applied to some state program sites that are sufficiently contaminated to qualify for the NPL. Although the officials described instances in which these practices have yielded benefits, none could formally document the time and cost savings of the practices.

		States Contend Approaches to Site Assessment and Remedy Selection Can Save Time

State officials from all seven states described practices that they believe facilitate faster remedy selection at contaminated sites, including sites contaminated enough to qualify for Superfund cleanups. These officials said that the use of preestablished cleanup standards or of presumptive remedies, that is, remedies proven to be effective for certain cleanup problems, without extensive consideration of alternate remedies, can expedite remedy selection. Officials of five states said that more flexible public involvement requirements can save time when cleanups are not controversial.

			Fixed Standards for Soil and Groundwater

Officials representing six state programs said that selecting cleanup remedies for sites on the basis of preestablished standards that specify the maximum concentrations of contaminants in soil and water after cleanup, without conducting time-consuming, site-specific risk assessments, speeds up the remedy-selection process. Illinois, for example, allows the use of “look-up tables” that specify maximum concentration levels for about 150 specific soil and groundwater contaminants. These look-up tables, according to the state officials, quickly and clearly defined the end goal of the site cleanup without a risk assessment, allowing the state and the responsible parties to determine how best to achieve this standard.
According to the state officials, the use of the statewide standards offers a time savings when compared to the approach that the sites in EPA’s Superfund program follow. EPA has developed a few soil cleanup standards and may in certain circumstances apply standards from its water programs and state standards at Superfund sites; however, the Superfund regulations require that each site receive a baseline risk assessment showing the need for action. These risk assessments characterize the current and potential threats to human health and the environment posed by contaminants at the site. Officials in both Illinois and Pennsylvania said that eliminating risk assessments can save considerable time. According to an Illinois official, while the duration of risk assessments varies by site, a risk assessment can add as much as 2 years to the remedy-selection process, while a Pennsylvania official said that many months can be saved.

			More Limited Public Involvement Efforts

Officials in five states said that, in comparison to EPA, they have less rigorous requirements for extensive public involvement in remedy selection. According to New Jersey program officials, state law requires that program officials notify local officials—such as the mayor’s office or the municipal health department—about an impending site cleanup. The state then generally defers the decision about public meetings or other more extensive forms of public outreach to local officials. State officials explained that more extensive public involvement measures are not required—although the state may pursue them if it sees the need—because public meetings are often sparsely attended, and the results of such efforts do not justify the time and resources required.
New Jersey’s approach contrasts with EPA’s more extensive public involvement requirements. The Superfund program’s regulations require that at each NPL site, EPA develop a community relations plan describing a community’s information needs and outlining ways that the agency will meet these needs. Furthermore, EPA must notify groups affected by the site of the availability of technical assistance grants that can be used to hire experts to explain technical information about the site. EPA must also allow adequate opportunity for public comment, such as at a public meeting. A transcript of the public meeting must be made available to the public as well. The final cleanup plan must include a response to each significant comment and question received. EPA headquarters officials said that they could tailor community involvement procedures at sites, depending on the circumstances, but according to the officials, the minimum EPA requirements exceeded the simple notice procedures New Jersey used.

			Greater Use of Presumptive Remedies

Texas officials said that their program’s greater use of standard cleanup approaches—known as presumptive remedies—has significantly reduced the time and expense involved in the remedy-selection process. Presumptive remedies are remedies that have proven effective in cleaning up a particular kind of hazardous waste site and would presumably work at similar sites in the future. Such remedies can be viewed as off-the-shelf solutions that can be selected with less study of alternative remedies in the absence of site-specific conditions requiring such consideration. Because presumptive remedies allow the state to focus quickly on one or a limited range of remedies, they can save considerable time and expense in the remedy-selection process. On the basis of a comparison of a limited number of state sites, Texas officials estimated that the studies at presumptive remedy sites were less than half as costly as the full feasibility studies that were conducted at other sites. Officials of three other states said that they also had a greater number of presumptive remedies than did EPA.
EPA has also developed presumptive cleanup remedies for some types of NPL sites. However, as table 1 indicates, Texas has developed presumptive remedies for four contaminants—metals, semivolatile organic compounds, pesticides, and polychlorinated biphenyls (PCB)—for which EPA has not.These contaminants are frequently found at Superfund sites.

		Potential for Cleaning Up Sites at Lower Costs

Some states have adopted two practices that state officials believe result in less expensive remedies than those used in the Superfund program and that could be useful even at highly contaminated sites. These practices are (1) greater acceptance of remedies that contain waste on site rather than removing or destroying it and (2) more willingness to assume that sites will be used for industrial or commercial rather than residential purposes.

			Acceptance of Containment Remedies

State officials in Illinois, Pennsylvania, and Texas told us that their states’ authorizing statutes do not contain a preference for permanent cleanup remedies. Permanent cleanup remedies are those that remove or treat the principal waste threats, permanently eliminating hazardous waste from the site or reducing the volume, toxicity, or mobility of the waste, through techniques such as incineration or bioremediation. Because the state programs lack such preferences, more nonpermanent containment cleanup remedies may be used. Nonpermanent remedies typically prevent human contact with contaminants by containing the waste in place—by, for example, placing a clay cap or a parking lot over contaminated soil, restricting the land’s use, or placing barriers around the contamination. These remedies tend to be less expensive to implement than permanent ones.
Although the states had no studies documenting cost reductions from containment remedies, some officials did cite cases in which cost savings resulted. Pennsylvania officials described how a change in the state cleanup statute that eliminated a preference for permanence had reduced cleanup costs for a site. The remedy proposed by the state for the site under the old statute—a $30 million- to $40 million-permanent remedy consisting of the excavation and treatment of contaminants—was changed with the passage of the new statute to an excavation and containment remedy with a cost of $2 million to $3 million. According to state officials, containment remedies remain protective of human health and the environment if properly controlled and maintained. We reported in April 1997 that cleanup managers for Illinois, Minnesota, and New Jersey estimated that containment methods were used for at least half of the cleanups of contaminated soil in their voluntary cleanup programs.
In contrast, the Superfund program operates under the requirements of CERCLA, which establishes a preference for permanent remedies. EPA’s remedy-selection criteria require the selection of a permanent remedy to the maximum extent practicable, though other factors, such as cost and implementation concerns must also be taken into account. EPA officials said that they attempt to adhere to the preference whenever possible. EPA officials also noted that in recent years the agency has moved away from a “treatment for treatment’s sake” approach to one of applying treatment to principal threats. Principal threats include liquids, areas contaminated with high concentrations of toxic compounds, and highly mobile materials. According to a September 1997 EPA analysis, between 1988 and 1993, 70 percent of all remedies dealing with the source of contamination involved treatment, while in 1995, this number dropped to 53 percent. Where contaminants are left on site, EPA requires periodic site reviews to monitor and analyze the implementation and effectiveness of the containment remedies.

			Consideration of Future Land Use

Some of the states believed that, in setting cleanup standards and selecting remedies, their cleanup programs were more likely than Superfund to determine that sites would be used for future industrial or commercial purposes rather than for residential purposes. The determination of how sites will be used in the future is important because a site whose expected use is industrial or commercial may be cleaned to less strict standards, resulting in less costly cleanups. The states that believe they base site cleanups on assumptions of industrial or commercial uses more readily than EPA have established specific cleanup standards for industrial sites.
Until several years ago, EPA generally assumed that a residential use of land was possible in the future, unless there was substantial evidence to the contrary. Because EPA cannot control local zoning or other institutional controls that restrict the land’s use, its guidance suggested that those assessing the sites’ risk assume that in the future the land would be residential even though no one was living there at the time. Critics contended that EPA was assuming residential uses for sites that would be used solely for industrial purposes in the foreseeable future. In 1995, however, EPA issued new guidance for considering future land use in making remedy selection decisions at NPL sites. The guidance encouraged parties cleaning up sites to collect as much information as possible about the site’s future use and to obtain the local community’s consensus regarding its future. Furthermore, EPA officials believe that as a result of this policy, EPA has evolved toward a new balancing of the various mandates contained in CERCLA and that now EPA is as likely as the states to opt for nonresidential future land-use scenarios. An EPA analysis found that only 38 percent of remedies selected in 1995 included residential land-use scenarios.
States did not have data to confirm their beliefs that they base cleanup decisions on future industrial or commercial uses of sites more often than does EPA. However, our April 1997 report noted that voluntary cleanup programs in four of the states we covered in our current review used industrial standards most frequently for their cleanups. Some states believed that EPA’s requirement for obtaining a local community’s consensus on the future uses of sites could make it more difficult to consider a land use other than residential. EPA officials, however, believe that early community involvement, with a particular focus on the community’s desired future use of the property associated with an NPL site, can result in a more democratic decision-making process; greater community support for remedies selected as a result of this process; and more expedited, cost-effective cleanups. In addition, EPA officials said that communities were willing to accept cleanups based on continued nonresidential uses of sites.

		State Liability Policies Are Intended to Reduce Litigation and Speed Up Cleanups

Two of the states we surveyed had adopted policies on the cleanup liability of parties associated with sites that they believed reduce litigation costs and encouraged faster cleanups. These policies involved reducing the liability of site owners and operators for cleanups and making the cleanup of municipal landfills a state responsibility.

			Michigan Limits Liability for Owners and Operators

A Michigan law adopted in 1995 provides that the owners and operators of contaminated sites are liable only if they are responsible for an activity causing a release of hazardous substances into the environment. By contrast, under CERCLA, responsible parties—including owners and operators—are liable regardless of whether they actually caused the release. Thus, anyone seeking to recover cleanup costs under Michigan law from owners and operators must prove causation, while parties seeking to recover cleanup costs under CERCLA generally need not address the issue.
The causation standard, according to a state official, results in more expeditious cleanups of facilities because it reduces litigation and transaction costs and disruptions or delays. In addition, a Michigan survey of 33 municipalities indicated that the causation standard has facilitated the redevelopment of sites. A state official also noted, however, that some fraction of the contaminated sites that would have been cleaned up by owners and operators under a strict liability standard may need to be addressed at public expense.

			Minnesota Assumes Cost of Closed Municipal Landfills

Minnesota state officials cited the state’s Closed Landfill Program as a better way to clean up and care for landfills and protect innocent parties. Under this program, the state performs cleanup actions, takes over the long-term operation and maintenance of the cleanup remedy, and reimburses eligible parties for past cleanup costs. Although this approach is costly to the state, which assumes the cost of remediating the site, it reduces litigation costs and protects parties that may have made a very small contribution to site contamination but that could be caught up in litigation if all contributors were liable. According to state officials, it is difficult to assign responsibility to the many parties that contribute to the contamination of municipal landfills, and very small contributors often face potentially bankrupting lawsuits. State officials said that it is preferable that the cost of addressing the problems of closed landfills be viewed as a societal cost. The officials said that Minnesota is the only state that has adopted this program, and it has signed an agreement with EPA to end federal involvement in 10 closed landfills on the NPL within the state.
In contrast, EPA’s “polluter pays” approach, according to Minnesota officials, does not work well for most landfills, where a large portion of the waste comes from many small businesses and households. However, EPA is currently mitigating the impact of Superfund liability on the smallest contributors by offering expedited or low-cost settlements to parties that contribute small amounts of hazardous substances. These settlements protect the parties from further litigation.

	EPA and Other Stakeholders Identified Potential Disadvantages of Applying State Practices to the Superfund Program

Environmental policy stakeholders that we interviewed, including EPA, state and national environmental organizations, and representatives of state and local government associations, generally did not dispute that the state practices had the efficiency benefits described by state officials. Some of the environmental organizations and a local government organization, however, identified potentials risks of applying these practices to the Superfund program. Since the state practices can reduce cleanup costs, they are generally advantageous for businesses and others responsible for cleaning up sites. (See app. III for the list of stakeholders that we contacted.)

		Stakeholders’ Views on State Practices That Could Facilitate Faster Remedy Selection

The stakeholders that we contacted generally supported the broader use of presumptive remedies in the Superfund program. A representative of Resources for the Future (RFF), an independent environmental research organization, said that the use of presumptive remedies where particular contaminants predominate—as Texas does for pesticides, PCBs and semivolatile organic compounds—is a sound approach because there are only a limited number of ways to deal with certain contaminants. A representative of citizens groups and environmental organizations in Texas noted that presumptive remedies can make sense, as long as the remedies that have been designed are truly protective. Similarly, the representatives of an environmental organization cautioned that the value of presumptive remedies depends on the level of protection they provide.
EPA officials cited another advantage of presumptive remedies: consistency in remedy selection from site to site.
The stakeholders were more cautious about the use of preestablished standards to specify the goal of the remediation process without a site-specific risk assessment and with reduced public involvement. EPA regional officials believed that the use of the automatically applied standards without a risk assessment is more appropriate for sites that have fairly simple contamination problems, but would not be appropriate for the very large and complex sites that come under the Superfund program. Superfund sites can be over 100 acres, with 30 contaminant sources and 100 different contaminants, and according to EPA officials, using a look-up table would be too simplistic an approach to remedy selection at such sites. These tables are based on assumptions about exposure to contaminants that they said needed to be verified at more complex sites through a risk assessment. An Illinois official said, however, that the preestablished standards could be appropriate for portions of complex sites, even if they could not be used throughout the site.
Other stakeholders were not familiar with the details of the state cleanup standards. However, a representative of RFF said that while the standards may reduce debate about appropriate cleanup levels, there is a tradeoff involved if the standard is not sufficiently protective of public health. Representatives of the Sierra Club said that use of look-up tables to define the end goal can be overly simplistic, and it was important that parties responsible for the original contamination remain liable if events prove that the cleanup to specified standards was not adequate.
Regarding reduced requirements for public involvement based on a presumed lack of public interest, an EPA regional official said that low attendance at meetings arranged for public input may be less a reflection of public indifference than a sign that the public has not been sufficiently informed of issues surrounding a contaminated site. This official said that it is necessary to be very proactive in public outreach efforts. For example, he said that it may be necessary to contact churches in order to reach some ethnic communities. A representative of an environmental organization noted that while limiting public involvement may conserve resources in the short term, it may lead to greater costs in the long run if members of the public believe that they have been excluded from the process and decide to litigate. The representative emphasized that the Superfund cleanup process should produce no surprises, and an effective public involvement effort is critical.

		Stakeholder’s Views on Practices That Could Lead to Lower-Cost Remedies

The representatives of the environmental groups and others that we contacted, such as the Sierra Club, John Snow Institute, RFF, and EPA regions, generally believed that the states’ lack of preference for permanent cleanup remedies and their greater readiness to consider that sites will not be used for residential purposes in the future tend to weaken the long-term effectiveness of site remediation programs. These groups were concerned that nonpermanent remedies, like clay caps designed to isolate contaminants, would not be maintained over time, and that institutional controls, like zoning or deed restrictions needed to prevent the residential or other higher-risk use of sites, would be changed or not enforced. Representatives of the International City/County Management Association (ICMA) said that the land-use and other institutional controls required by nonpermanent remedies require better cooperation and communication between state and local governments than often currently exists. Furthermore, according to an ICMA representative, a recent ICMA focus group indicated that many state and local officials do not fully appreciate the long-term demands—including oversight and enforcement—that institutional controls may place upon local governments. According to an EPA official, some contaminants cannot be contained over the long term (50 to 100 years) and that Superfund’s preference for permanent cleanup remedies is necessary for such long-term protection. In addition, EPA officials said that the costs of long-term operations and maintenance of nonpermanent remedies may partially offset initial cost savings.
A report by RFF conducted under a grant from EPA, discussed the implications of basing remedy selection on land-use assumptions. The report stated that land-use categories (such as residential, industrial, and commercial) are used to estimate the future exposure of people to contaminants; yet the relation between land use and exposure is often not known and may vary widely. Anticipating the likely future use of a site is no easy task, according to the report, given the competing interests that want different land uses. The report noted that EPA does not have the authority to ensure that local land-use controls are maintained and enforced over time at sites where residual contamination precludes unrestricted use. Local land-use restrictions are typically the province of local government and private property law. The report observed that land-use controls are subject to various pressures, such as demands for property development, that may limit their effectiveness. Two major challenges result from a cleanup policy linking land use to remedy selection, according to the report: first, how to involve the public more effectively in cleanup and reuse decisions, and second, how to ensure the effectiveness of property-use restrictions when the legal authority for such controls is the private property laws of each state.

		Stakeholders’ Views on State Liability Practices

Some stakeholders were not supportive of the changes Michigan made in its liability provision. A representative of the Michigan Environmental Council said that causation would increase public expense for cleanup and that because there would be fewer responsible parties available for cleanup, fewer contaminated sites would be remediated. According to an EPA official, CERCLA establishes a defense to liability for innocent landowners who obtain property without knowing that it was contaminated, despite taking due care to discover potential contaminants. However, an EPA official acknowledged that owners are generally unable to qualify for this defense because it is rare that an in-depth investigation of a contaminated site would not detect the contamination.
While not disagreeing with Minnesota’s policy of assuming the cost of closed municipal landfills, representatives of the Sierra Club said that it is important that the policy not be extended to privately owned landfills because this would burden the taxpayers with costs that are the responsibility of a private party. EPA officials said that Minnesota’s approach is a potentially very costly program from the government’s standpoint, and EPA could probably not afford to adopt such a policy without significant additional funding.

		Views on the Importance of the Superfund Program’s Continued Role

Several state officials told us that, although they believe the practices of their state programs facilitate faster and less costly cleanup, they also wanted to stress the importance of an ongoing Superfund program. For example, officials in Massachusetts said that the existence of the federal program, with what they characterized as more daunting requirements and procedures than exist in state programs, was an important element in obtaining the cooperation of responsible parties in the state program. If these parties are not cooperative and the site is sufficiently dangerous, responsible parties risk being brought into the Superfund program.

	Agency Comments

We provided a draft of this report to EPA for its review and comment. We spoke with EPA officials, including the Director of the State, Tribal, and Site Identification Center, in EPA’s Office of Solid Waste and Emergency Response, to obtain the agency’s comments. EPA generally agreed with the description of the Superfund practices presented in the report but made technical comments and corrections, which we incorporated as appropriate. In addition, EPA officials said that the agency’s recent administrative reforms had reduced the cost and duration of Superfund cleanups. The officials provided us with data on the cost and time savings achieved by certain of these reforms,which we included in our report. EPA also believed that the report should highlight the fact that containment remedies require long-term management and monitoring and may fail without such attention. We pointed out that this issue was addressed in the report’s section summarizing stakeholders’ views.
We also provided selected portions of this report to officials responsible for the state programs we discussed. We incorporated state comments and corrections as necessary.

	Scope and Methodology

To identify practices that may facilitate cleanups of hazardous waste sites that are faster or less costly in comparison with the federal Superfund program, we selected seven states—Illinois, Massachusetts, Michigan, Minnesota, New Jersey, Pennsylvania, and Texas—with cleanup programs that are among the largest in the nation and that were recommended by various stakeholders—including EPA, industry organizations, and environmental groups—as states that had implemented time- and cost-saving practices. We then conducted interviews with these states’ program officials, who identified and described program practices that, in comparison with the practices of the federal Superfund program, they believe facilitated faster or less costly cleanup of hazardous waste sites. We also reviewed pertinent laws, regulations, and other available documentation describing these practices. We did not independently verify the officials’ statements regarding time and cost savings.
To identify issues that should be considered before these practices would be adopted by the Superfund program, we talked with officials from environmental and local governmental organizations, and EPA regional and headquarters offices. Where possible, we obtained references to these organizations from states and EPA. We interviewed officials in each of EPA’s regional offices whose jurisdiction includes the selected states, environmental groups in the selected states, and national environmental groups.
We conducted out work from July through December 1998 in accordance with generally accepted government auditing standards.
As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 10 days from its date. At that time, we will send copies of this report to appropriate congressional committees; interested Members of Congress; the Administrator of EPA; state program managers; and other interested parties. We will also make copies available to others upon request.
Please call me at (202) 512-6111 if you or your staff have any questions. Major contributors to this report are listed in appendix IV.

State Program Profiles as of Fiscal Year 1997

State Practices That State Officials Believe Facilitate Faster or Less Costly Hazardous Waste Site Cleanup

List of Organizations GAO Contacted

	Federal Agencies

	State Agencies

	Environmental Organizations

	State and Local Government and Other Organizations

We contacted this organization in a preliminary phase of our work in order to obtain its views on the best states to survey.

Major Contributors to This Report

	Resources, Community, and Economic Development Division

	Office of the General Counsel

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Output:
Why GAO Did This Study

Pursuant to a congressional request, GAO: (1) identified practices that are both used in selected state programs at sites that may be contaminated enough to qualify for long-term cleanup under the Superfund program and that are believed by state officials to reduce the time and expense of cleanups; and (2) obtained the views of the Environmental Protection Agency (EPA), environmentalists, and other stakeholders about whether the states' practices may be applicable to the Superfund program.

What GAO Found

GAO noted that: (1) state hazardous waste program officials identified cleanup practices that they believe lead to faster or less costly cleanup of sites and that have been applied at sites that qualify for the Superfund Program, and said that the practices facilitated cleanups in that: (a) some practices promoted faster decisionmaking about how to clean up sites, that is, decisions about which cleanup remedies to use; (b) their programs allow less costly cleanup remedies than the Superfund law requires, which are nevertheless, they believe, protective of health and the environment; and (c) two state programs reduce litigation costs, speed up cleanups, and improve the fairness of the cleanup process by not holding some parties responsible for cleanup who would be liable under the Superfund law; (2) although the officials provided some anecdotal evidence illustrating the benefits of these practices, none could provide a formal assessment of time and cost savings; (3) environmental policy stakeholders that GAO interviewed, including EPA, state and national environmental organizations, and representatives of local governments, generally did not dispute that the state practices identified can facilitate faster or less costly cleanups; (4) because they can reduce costs, the state practices are generally advantageous to private companies and others responsible for cleaning up sites; (5) however, EPA and environmental and local government groups said that applying some of the practices to the Superfund program could have disadvantages; (6) environmental groups, as well as representatives of state and local officials, noted that containment remedies leaving contamination at sites would require control over the use of the sites, such as restrictive zoning, to reduce human exposure to the contaminants; (7) a number of stakeholders, including state officials, said that a lessening of the Superfund program's more rigorous cleanup requirements or liability standards could negatively affect the state programs; (8) they noted that states can refer sites at which parties responsible for cleanup refuse to comply with state requirements to EPA for possible action under the Superfund program; and (9) the belief of responsible parties that the Superfund requirements are more onerous than the states' is a powerful incentive for cooperation with state authorities that might be weakened if the Superfund program became more like the state programs.


Input:
	Background

Since the onset of OIF and OEF, over 1 million servicemembers have been  deployed. As of the end of June 2005, more than 393,000 active duty,  Reserve, and National Guard servicemembers from OIF and OEF have  separated from active duty. Of these, over 100,000 have sought health care  services from VA, including over 2,400 who received inpatient care at VA  medical centers. The Reserves and National Guard account for about  54,000 of those servicemembers who sought health care services from VA.  The three most common health problems have been musculoskeletal  ailments (primarily joint and back disorders), dental problems, and mental  health disorders.
Servicemembers injured during OIF and OEF are surviving injuries that  would have been fatal in past conflicts. In World War II, 30 percent of  Americans injured in combat died; this proportion dropped to 24 percent  for those injured in the Vietnam War and further dropped to about   10 percent for those injured in OIF and OEF. Many of the injured OIF and  OEF servicemembers are returning with severe disabilities, including  traumatic brain injuries and missing limbs.
About 65 percent of OIF and OEF combat injuries are from improvised  explosive devices, blasts, landmines, and fragments. Of those injured  personnel, about 60 percent have some degree of traumatic brain injury  and may require comprehensive inpatient rehabilitation services to  address complex cognitive, physical, and mental health issues resulting  from trauma. Traumatic brain injuries may cause problems with cognition  (concentration, memory, judgment, and mood), movement (strength,  coordination, and balance), sensation (tactile sensation and vision), and  emotion (instability and impulsivity). The Department of Health and  Human Services’ Centers for Disease Control and Prevention reports that  an estimated 15 percent of persons who sustain a mild brain injury  continue to experience symptoms 1 year after injury.
Initially, most severely injured servicemembers, including Reserve and  National Guard members, are brought to Landstuhl Regional Medical  Center in Germany for treatment. From there, they are transported to  appropriate U.S. military medical facilities, with most of the seriously  injured admitted to Walter Reed Army Medical Center or the National  Naval Medical Center, both located in the Washington, D.C., area. Once  these servicemembers are medically stabilized, many are relocated closer  to their homes or military commands and continue recovering either on an  inpatient or outpatient basis at a VA medical facility, a DOD military  treatment facility (MTF), or DOD civilian provider.
Those who have served, or are now serving, in OIF and OEF may receive  care from VA for conditions that are or may be related to their combat  services for a 2-year period following the date of their separation from  active duty without copayment requirements. Following this 2-year period,  they may continue to receive VA care but may be subject to a copayment  for their health care.
To ensure that servicemembers engaged in conflicts receive the health  care services they need, Congress passed legislation in May 1982 that  authorized VA to provide medical services to members of the armed forces  during and immediately following wartime or national emergencies  involving the armed forces in armed conflict. The law authorized the  Secretary of VA to give servicemembers responding to or involved in a war  or national emergency a higher priority for medical services than all  veterans, except those with a service-connected disability. VA has  established an enrollment system to manage veterans’ access to care. This  system includes eight priority categories for enrollment, with higher  priority given to veterans with service-connected disabilities, lower  incomes, or other recognized statuses such as former prisoners of war.
Separation from the military and return to civilian life may entail the  exchange of individually identifiable health information between DOD and  VA. The exchange of this information must comply with the Health  Insurance Portability and Accountability Act of 1996 (HIPAA) and the  HIPAA Privacy Rule, which became effective April 14, 2001. The HIPAA  Privacy Rule permits DOD and VA to share servicemembers’ health  information under certain circumstances, such as for continuity of health  care treatment or if the individual signs a proper authorization.

		VA Has Established Policies and Outreach Efforts Intended to Smooth the Transition from DOD Health Care

VA has taken several steps to provide OIF and OEF servicemembers with  timely access to health care and information on health care services.  These steps include setting policies and developing outreach efforts  targeting OIF and OEF servicemembers.

			Recent VA Policies Designed to Facilitate Transition to VA Health Care

Since 2002, VA has issued a memorandum and four directives addressing  eligibility criteria and the health care needs of recently discharged  servicemembers.
A September 2002 directive established policies and procedures for  offering hospital care, medical services, and nursing home care to recently  discharged servicemembers for a 2-year period, beginning on their  discharge date, for any illness, without requiring proof of its link to  military service. Under this directive, these veterans are enrolled in the  lowest priority category for service-connected veterans.  In April 2003, when the President declared a national emergency with  respect to the conflict in Iraq, the Secretary of VA issued a memorandum  authorizing VA to give priority health care to servicemembers who  sustained an injury, over veterans and others eligible for VA care, except  those with service-connected disabilities.
An October 2003 directive (1) provided instructions to VA employees for  determining the eligibility of recent combat veterans to be enrolled for VA  health care; (2) required each VA medical facility to designate a clinically  trained combat case manager, usually a social worker or nurse, to  coordinate all of the medical care and services provided to recent combat  veterans by VA and non-VA agencies until the veterans no longer need  care; and (3) required VA medical facilities to designate a point of  contact—administrative staff, social worker, or nurse—to receive and  expedite transfers of servicemembers from MTFs to VA medical facilities  and coordinate with VA’s combat case managers.
A June 2005 directive specified the dates of service and combat locations  to determine whether recent combat veterans are eligible for health care  services.
Another June 2005 directive expanded the scope of care at VA’s four  regional traumatic brain injury rehabilitation centers and redefined these  facilities as polytrauma rehabilitation centers. These centers’ inclusion of  psychological treatment for family members and rehabilitation services  using high-technology prosthetics reflect VA’s intention to provide more  coordinated care for patients, including the growing number of OIF and  OEF servicemembers with severe and disabling trauma. The directive  states that coordination of care, including intensive clinical and social  work case management services, is essential in these severe trauma  cases, as patients transition from acute hospitalization through acute  rehabilitation and ultimately to their home communities.
In addition to VA’s directives, a joint DOD and VA program was  established in August 2003 to assign VA social workers to selected MTFs  to coordinate patient transfers between MTFs and VA medical facilities.  The social workers make appointments for care, ensure continuity of  therapy and medications, and followup with patients to verify success of  the discharge. By mid-July 2005, the social workers had received 3,907  requests for transfer of care—almost two-thirds of them had been  transferred to VA facilities; the rest were pending. Further, VA benefits  counselors work with the social workers to inform servicemembers about  VA benefits and to initiate paperwork for disability compensation claims,  vocational rehabilitation and employment assistance, and other VA  benefits.
Also in August 2003, VA created the Taskforce for the Seamless Transition  of Returning Service Members. The taskforce, composed of senior VA  leadership, focused on developing and implementing VA policies to  improve the transition of injured servicemembers to civilian life. In  January 2005, VA established the Seamless Transition Office to further  improve coordination within the Veterans Benefits Administration and the  Veterans Health Administration as well as between DOD and VA. The  goals of the Seamless Transition Office include improving communication,  coordination, and collaboration within VA and with DOD with respect to  health care; educating VA staff about veteran’s health care and other  needs; and ensuring that policies and procedures are in place to enhance  the transition from servicemember to veteran. The Seamless Transition  Office uses the taskforce in an advisory capacity.
To help ensure that VA staff assisting OIF and OEF servicemembers can  be responsive to their health care needs, the agency created an internal  Web site to provide a single source of access to VA policies, procedures,  and directives for wounded, ill, and seriously injured servicemembers and  veterans. According to VA, the internal Web site also includes a list of the  points of contact at medical facilities and articles about transition-related  activities.

			VA Outreach Efforts to OIF and OEF Servicemembers

VA has instituted several outreach strategies to provide information about  the health care services available to OIF and OEF servicemembers who  have been discharged. These include the use of newsletters, personal  letters, an external Web site, counseling services, and briefings on VA  benefits and services.
Using DOD rosters of OIF and OEF servicemembers who have separated  from active duty, VA sends newsletters and personal letters with pertinent  information to these new veterans. VA has sent three newsletters since  December 2003, with information on benefits and health issues specific to  OIF and OEF veterans. In addition, the Secretary of VA sends these new  veterans a letter thanking them for their service to the country and  informing them about VA health care services and assistance to aid in their  transition to civilian life. The letter includes a toll-free number for  obtaining information on VA health care and two brochures on VA health  care as well as benefit information, including disability compensation,  education and training, vocational rehabilitation and employment, home  loans, and life insurance. In addition, the Secretary of VA has sent letters  to all the Adjutants General and Chiefs of the Reserves to inform them of  VA services and benefits.
VA has also sought to improve access to health care information. It  created a Web site that provides information specific to those who served  in OIF and OEF, such as information on VA health and medical services;  dependents’ benefits and services; transition assistance; and benefits for  active duty military, Reserve, and National Guard personnel. In addition,  VA developed a wallet-sized card with relevant toll-free telephone  numbers and Web site addresses. VA officials reported that the agency has  distributed 1 million copies of this wallet card.
VA has enhanced outreach to those who served in OIF and OEF and their  families through its Vet Center Readjustment Counseling Service,  consisting of 207 centers. Vet Centers function as community points of  access by providing information and referrals to VA medical facilities.  Additionally, they offer counseling, employment services, and a range of  social services to assist individuals in readjusting from wartime military  service to civilian life. VA reported that during 2004, it hired 50 peer  counselors and placed them at Vet Centers where significant numbers of  servicemembers were returning from OIF and OEF. According to a VA  official, VA is in the process of hiring an additional 50 peer counselors.
Briefings are another form of outreach used by VA to inform OIF and OEF  servicemembers about health care services.
From fiscal year 2001 through the third quarter of fiscal year 2005, VA held  more than 30,800 briefings on VA benefits for more than 1.1 million  servicemembers. These briefings include about 3,700 predeployment and  postdeployment briefings for about 230,000 activated Reserve and  National Guard servicemembers.
For OIF and OEF servicemembers who may potentially use VA  services, DOD and VA share some types of administrative data, such as  individuals’ names and addresses; however, the sharing of health  information between the two departments remains limited.
VA could not report how many of these were OIF and OEF servicemembers.
MOU for the sharing of individually identifiable health information. The  MOU constitutes an agreement on the circumstances under which DOD  and VA will exchange individually identifiable health information and  includes references to provisions of the HIPAA Privacy Rule and  applicable laws that permit sharing. The MOU does not specify particular  types of individually identifiable heath information that will be exchanged  and when the information will be shared. The absence of specific data  sharing procedures continues to hinder VA’s efforts to obtain needed  health information from DOD.
For example, DOD does not have specific procedures to routinely provide  VA with health information on servicemembers who have injuries or  illnesses that preclude them from continuing on active duty and, as a  result, are being evaluated by a DOD physical evaluation board (PEB) for  separation from the military. According to VA officials, if a list of these  individuals were transmitted routinely to VA, it would enable VA to  contact the individuals to make the appropriate transfer of health care to a  VA medical facility before the individuals are discharged from the military.  Such information could reduce the potential for interruption to these  individuals’ health care treatment plans. DOD officials told us that they are  in the process of developing a policy directive that would establish  procedures for sharing information with VA on servicemembers who are  entering the PEB process, but they could not determine when this policy  directive would become effective.
Recent progress in VA and DOD data sharing involves a health assessment  questionnaire that DOD requires servicemembers to complete following  deployment. This document contains, among other things, self-reported  information about a servicemember’s potential exposure to toxic  substances and includes four questions that can be used to identify  individuals at risk of developing post-traumatic stress disorder. In July  2005, DOD transmitted to VA postdeployment health assessment data for  those individuals who have been discharged from the military. According  to VA officials, DOD is expected to transmit these data monthly beginning  in October 2005. For these individuals, VA clinicians will be able to access  the data through VA’s computerized medical record system when the  individuals seek VA health care services. However, according to VA  officials, DOD is not providing health assessment information to VA for  Reserve and National Guard members, who comprise 35 percent of the  OIF and OEF forces.
In addition to individual health information from the postdeployment  questionnaire, VA officials state that the agency could use aggregate data  from the questionnaire to plan for the needs of current servicemembers  who may one day be eligible for health care and benefits from VA. This is  consistent with an observation made by the President’s task force that  comprehensive servicemember health data are essential for forecasting  and preparing for changes in the demand for health care services.  Currently, the data from the individual postdeployment assessments are  not accessible in a format that can be aggregated and manipulated to  provide the desired trend information.
Mr. Chairman, this concludes my prepared remarks. I will be pleased to  answer any questions you or other members of the committee may have.

	Contacts and Acknowledgments

For further information regarding this testimony, please contact   Cynthia A. Bascetta at (202) 512-7101 or bascettac@gao.gov.   Michael T. Blair, Jr., Assistant Director; Mary Ann Curran; Hannah Fein;  Cynthia Forbes; Marcia Mann; Kevin Milne; and Cherie Starck also  contributed to this statement.

Related GAO Products

Military and Veterans’ Benefits: Improvements Needed in Transition  Assistance Services for Reserves and National Guard. GAO-05-844T.  Washington, D.C.: June 29, 2005.
Military and Veterans’ Benefits: Enhanced Services Could Improve  Transition Assistance for Reserves and National Guard. GAO-05-544.  Washington, D.C.: May 20, 2005.
DOD and VA: Systematic Data Sharing Would Help Expedite  Servicemembers’ Transition to VA Services. GAO-05-722T. Washington,  D.C.: May 19, 2005.
Vocational Rehabilitation: VA Has Opportunities to Improve Services,  but Faces Significant Challenges. GAO-05-572T. Washington, D.C.:   April 20, 2005.
VA Disability Benefits and Health Care: Providing Certain Services to  the Seriously Injured Poses Challenges. GAO-05-444T. Washington, D.C.:  March 17, 2005.
Vocational Rehabilitation: More VA and DOD Collaboration Needed to  Expedite Services for Severely Injured Servicemembers. GAO-05-167.  Washington, D.C.: January 14, 2005.
VA and Defense Health Care: More Information Needed to Determine if  VA Can Meet an Increase in Demand for Post-Traumatic Stress Disorder  Services. GAO-04-1069. Washington, D.C.: September 20, 2004.
Major Management Challenges and Program Risks: Department of  Veterans Affairs. GAO-03-110. Washington, D.C.: January 2003.
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Output:
Why GAO Did This Study

Operation Iraqi Freedom (OIF) and Operation Enduring Freedom (OEF) servicemembers and those who are discharged from military service may receive health care from the Department of Veterans Affairs (VA). Since the onset of OIF and OEF, the Department of Defense (DOD) has reported that more than 15,000 servicemembers have been wounded in combat. Those who are seriously injured require comprehensive health care services and may be treated at either DOD or VA medical facilities. Because VA is expected to provide health care to many of the injured OIF and OEF servicemembers, concerns have been raised about the ease with which these individuals and their health care information transition from DOD's to VA's health care system. This statement is based on GAO's preliminary work on "seamless transition" and focuses on (1) the policies and outreach efforts that VA has instituted to provide timely access to health care to OIF and OEF servicemembers and (2) the extent to which individually identifiable health information is shared systematically between DOD and VA. Since GAO's work is still in the early stages of review, the statement is limited to information gathered to date.

What GAO Found

Since 2002, VA has developed policies and procedures that direct its medical facilities to provide OIF and OEF servicemembers timely access to care. Most notably, VA assigned VA social workers to selected military treatment facilities in August 2003, directed VA facilities to designate combat case managers in October 2003, and directed the establishment of four VA polytrauma centers for OIF and OEF servicemembers in June 2005. In January 2005, VA established the Seamless Transition Office to further improve coordination within the Veterans Benefits Administration and the Veterans Health Administration as well as between DOD and VA. In addition, VA has increased outreach efforts by providing OIF and OEF servicemembers who have been discharged with personal letters and newsletters, a Web site for health information tailored to OIF and OEF servicemembers, counseling services, and briefings on available VA health care services. GAO is in the beginning stages of reviewing VA's efforts to provide a smooth transition from DOD health care and has not yet evaluated the effectiveness of VA's related policies, procedures, and outreach initiatives. An important issue associated with transitioning servicemembers to VA health care is the sharing of health care information between DOD and VA. The two departments have signed a memorandum of understanding for sharing individually identifiable health information, but the memorandum does not specify the particular types of individually identifiable health information that will be exchanged and when the information will be shared. The absence of specific procedures continues to hinder VA's efforts to obtain needed health information from DOD. Recently, DOD has begun to share certain health assessment information with VA on individuals who have been discharged from the military, and the transmitting of this information to VA on a routine basis is expected to occur in October 2005. However, according to VA officials, DOD is not providing health assessment information to VA for Reserve and National Guard members, who comprise 35 percent of the OIF and OEF forces.


Input:
	Background

NIH conducts and sponsors biomedical research through its institutes and  centers (IC), each of which is charged with a specific mission. ICs’  missions generally focus on a given disease; a particular organ; or a  stage in development, such as childhood or old age. ICs accomplish their  missions chiefly through intramural and extramural research. Intramural  research entails government scientists working in the ICs’ own  laboratories and clinics, whereas extramural research is conducted at  outside research institutions, primarily universities, by scientists who have  been awarded extramural research grants from an IC through NIH’s  competitive process.$30 billion in fiscal year 2012 was used to support extramural research.  Of this $25.2 billion in extramural research grant funding, NIH provided  about $16.1 billion to universities.

		Components of Direct and Indirect Costs

Extramural research grants reimburse universities for the direct costs of  each research project covered by the grants and a portion of the indirect  costs of maintaining their facilities for research use and covering the  administrative expenses of the university. Direct costs can be specifically  identified with or directly assigned to individual research projects and are  relatively easy to define and measure. They include, for example, the  researcher’s salary, subawards, equipment, and travel. Indirect costs  represent a university’s general support expenses and cannot be  specifically identified with individual research projects or institutional  activities. They include, for example, building utilities, administrative staff  salaries, and library operations. OMB Circular No. A-21 establishes the  principles for determining the types of direct and indirect costs that are  allowed to be claimed and the methods for allocating such costs to  federally funded research at educational institutions, including the  establishment and use of indirect cost rates.
Indirect costs are divided into two main components, facilities costs and  administrative costs. Facilities costs include operations and maintenance expenses, such as for utilities; allowances for depreciation and use of buildings and equipment; interest on debt associated with building and equipment; and  library expenses, such as for the use of the library and library  materials purchased for research use. general administration expenses, such as the costs associated with  executive functions like financial management; departmental administration expenses, including clerical staff and  supplies for academic departments;  sponsored projects’ administration expenses, which are the costs  associated with the office responsible for administering projects and  awards funded by external sources; and  student administration and services expenses, such as the  administration of the student health clinic.

		Calculation of the Indirect Cost Rate

Because indirect costs cannot be specifically attributed to a particular  research grant, they are charged via an indirect cost rate that serves as  the mechanism for determining the proportion of indirect costs that may  be charged to federally funded research awards. OMB Circular No. A-21  outlines the process for establishing an indirect cost rate for universities  performing federally funded research. Each university develops a  proposed indirect cost rate that is based on university cost data from prior  years, which is subsequently negotiated with the federal government to  arrive at a final indirect cost rate, in compliance with the principles of  OMB Circular A-21.
To calculate a university’s indirect cost rate, a percentage of each indirect  cost component is allocated to the university’s research function on the  basis of benefits received from that component by the research function.  For example, a university can measure the square footage of floor space  used for research and use this measure to allocate the amount of costs it  claims for operating and using the space as a component in its indirect  cost rate proposal. Each indirect cost component allocated to research is  applied to a modified set of direct costs referred to as “modified total  direct costs” (MTDC) to obtain an individual rate for each component. MTDC includes the salaries and wages of those conducting the research,  fringe benefits (e.g., pensions), materials and supplies, travel, and the  first $25,000 of each subaward. MTDC excludes costs such as equipment  costs, capital expenditures, tuition remission, equipment or space rental  costs, and the portion of each subaward in excess of $25,000. (See   fig. 1.)
Universities use a standard format, also known as the long form, for submitting their  indirect cost rate proposals to their cognizant rate-setting agency. However, universities  whose total direct costs on federal awards do not exceed $10 million in a fiscal year may  use a simplified method for determining the indirect cost rate applicable to all federal  awards. Whereas universities above the $10 million threshold must use an MTDC base,  universities using the simplified method may use either salaries and wages as their base,  or MTDC. As already noted, this report focuses on those universities that used the  standard format for proposal submission.

		Proposed Changes to OMB Circular No. A-21

In February 2013, OMB issued proposed guidance that includes revisions  to cost principles of OMB Circular No. A-21. The proposed guidance  reflects input from the federal and nonfederal financial community,  including the Interagency Council on Financial Assistance Reform. The  proposed guidance would, among other things, allow more items to be  directly charged rather than included as a component of the indirect cost  rate. As of September 2013, OMB had not issued final guidance.

	From 2002 to 2012, NIH Indirect Cost Reimbursements to Universities Increased Faster than for Direct Costs, with Most Going to a Small Number of Universities

From fiscal year 2002 to fiscal year 2012, NIH reimbursements to  universities for indirect costs associated with NIH-funded extramural  research increased at a slightly faster rate than those for direct costs, and  during some portions of this period indirect cost growth increased notably  faster than direct cost growth. In fiscal year 2012, the 50 universities with  the largest research programs received over two thirds of total indirect  cost reimbursement. Higher indirect cost rates tended to be associated  with universities located in high-cost-of-living areas and privately owned  universities.

		From 2002 to 2012, Reimbursements for Indirect Costs Increased Slightly Faster than Those for Direct Costs, but Increased Notably Faster During Some Periods

Reimbursements for indirect costs from fiscal year 2002 through fiscal  year 2012 increased slightly faster than reimbursements for direct costs,  but increased notably faster during some periods. Over this period, NIH  reimbursements for indirect costs grew by about 28.1 percent, from   $3.6 billion to $4.6 billion. Over the same period, NIH reimbursement for  direct costs grew by about 27.0 percent, from $9 billion to $11.5 billion.  However, because there were large differences between indirect and  direct growth in some years, indirect cost reimbursements increased  notably faster than direct cost reimbursements during some periods. For  example, from fiscal year 2002 to 2003, the first year of this period, there  was a large increase in direct costs that compensated for greater growth  in indirect costs during other years. As a result, from fiscal year 2003 to  2012 indirect costs increased 16.9 percent, from about $3.9 billion to   $4.6 billion, while direct costs increased 11.7 percent, from about   $10.3 billion to $11.5 billion. Furthermore, in 6 of the 10 years,  reimbursements for indirect costs increased relative to those for direct  costs, by either increasing at a faster rate or declining at a slower rate.  After fiscal year 2005, annual changes in reimbursements were generally  small but consistent, with reimbursements for indirect costs increasing  relative to direct costs in 5 of 7 years. (See fig. 2 for more details on the  annual change in costs.)
NIH officials noted that, historically, NIH’s reimbursements for indirect  costs have remained a stable percentage of NIH’s total funding for all NIH  awards overall. Our analysis specifically for university research, which  accounted for almost two-thirds of NIH’s funding for extramural research  in fiscal year 2012, indicates that in 2003 about 27.7 percent of NIH  reimbursement for university research was for indirect costs, and in 2012  this percentage increased slightly to 28.6 percent. This occurred while  NIH’s budget for extramural research conducted at universities—which  needs to cover both the direct and the indirect costs of research—slowed  in the last few years. For example, during the most recent 5 years (fiscal  year 2008 to fiscal year 2012), NIH’s total funding for extramural research  conducted at universities increased about 5 percent, whereas it had  increased about 21 percent in the 5 previous years (fiscal year 2002 to  fiscal year 2007).

		In 2012 the 50 Universities with the Largest Research Programs Received Most of the Indirect Cost Reimbursements

In fiscal year 2012, almost 70 percent of NIH indirect cost reimbursement  to universities was provided to about 10 percent of the universities (50 of  a total of about 500) receiving NIH funding for extramural research.(See app. I for the indirect cost reimbursements for these top 50  universities.) These top 50 universities had the largest research  programs, as defined by the largest amount of reimbursement for direct  costs and a relatively large number of research grants.
Indirect cost rates for 5 universities out of the top 50 were not available from DCA. adjustment.the highest indirect cost rates among the 50 universities receiving the  highest amounts of indirect cost reimbursement in fiscal year 2012.  Among the 10 universities in the table, those with the highest indirect cost  rates were Mount Sinai Medical School and New York University School  of Medicine; Johns Hopkins University and Yale University had the largest  research programs as measured by the number of NIH grants awarded.

	Stakeholders Identified Factors Related to Facilities and Administrative Costs That May Increase Reimbursements for Indirect Costs, but NIH Has Not Assessed Their Potential Impact

Stakeholders—university officials, DCA officials, and others—whom we  interviewed identified several key factors that may lead to increases in  reimbursements for indirect costs provided to universities. Some factors  are related to the facilities costs, and others are related to administrative  costs. NIH has not assessed the potential impact of future increases in  indirect costs on its research mission, including planning for how to deal  with these potential increases.

		Uncapped Facilities Component of the Indirect Cost Rate Provides Few, If Any, Incentives to Control Costs

Some stakeholders underscored the importance to the research effort of  providing funding for the costs of facilities. They explained that  reimbursements for the facilities component of indirect costs—such as the  amount of reimbursable square footage, operations and maintenance,  building depreciation, and interest costs—help to support research  innovation by providing funding for the development and maintenance of  state-of-the-art research facilities. Some university officials we  interviewed noted that these research facilities are necessary for  conducting innovative biomedical research, such as research devoted to  the role of genetic mutation for breast cancer that uses advanced lab  space and equipment. They also noted that costs for these facilities have  increased over time as biomedical research has become increasingly  sophisticated. For example, a university’s officials stated that from fiscal  year 2002 to fiscal year 2009, the cost of its facilities to support  research—including those used to support advancement in data and  computing—has grown from about $88 million to about $145 million.
DCA officials stated that the uncapped facilities component of the indirect  cost rate provides universities few, if any, incentives for controlling these  potentially increasing costs. For example, DCA officials noted that there is  no limit on reimbursement for interest costs under the facilities  component. DCA officials stated that while reimbursements for interest  costs may allow universities to support needed renovations or  construction of new facilities, the fact that these reimbursements are not  capped may also encourage universities to borrow money to build new  facilities, which could lead to the building of more new space than is  necessary for research needs. Officials also noted that these interest  costs are out of DCA’s control and may vary. For example, at the time of  our work, interest rates—which are used to determine interest costs— were very low, but they could increase over time, which could increase  costs for ongoing building projects or buildings that have already been  completed, regardless of future building decisions by universities.  Because of this factor, the indirect cost rate could be expected to  increase, resulting in a potential increase in the amount of indirect cost  reimbursements provided by NIH.
In addition, some stakeholders noted that, at the time of our work, 65 of  about 500 universities receiving reimbursement for indirect costs in fiscal  year 2012 were eligible for a rate increase of 1.3 percent to account for  the higher cost of utilities. DCA officials added that OMB’s proposed  revisions to Circular No. A-21 would allow all universities to receive some  reimbursement for utility costs based on a revised formula. As a result,  NIH reimbursements for indirect costs could be expected to increase as  more universities would be eligible to include this cost in their indirect cost  rates.

		Administrative Cap Controls Potential Increases in Cost Reimbursement due to Growth in Administrative Costs Incurred by Universities

Some stakeholders noted that while the cap on the reimbursement rate  for administrative costs—26 percent—helps to control reimbursements for  indirect costs, it does not account for the recent increases in  administrative costs reportedly incurred by universities. For example,  university officials explained that their administrative costs have increased  in order to comply with recent changes in regulatory reporting  requirements, such as those related to reporting conflicts of interest.  Some university officials explained that they have hired additional full-time  staff to review and manage various reporting requirements as well as  invested in additional information technology (IT) to support new software  related to regulatory requirements. Additionally, some stakeholders noted  that administrative costs also have increased due to trends in the way  biomedical research is conducted, such as an increase in collaboration  between universities in research studies and an increased use of IT for  biomedical research. For example, some university officials explained that  many biomedical research projects now use advanced technology—such  as high-sequencing technology or imaging—that requires greater  investment in computing resources by the university. Additionally, one  university’s officials noted that the advancements in IT provide support for  interconnectivity, complex data security and data privacy requirements,  and requirements for long-term storage and maintenance of electronic  data. According to university officials at another university, in some  instances they may charge some advanced computing equipment as a  direct cost because it is specifically related to research; however, in most  instances these computing resources are included in the administrative  component of the indirect cost rate.
According to DCA officials, if costs that are part of the capped  administrative component increase significantly, indirect cost  reimbursements overall could increase if universities begin to categorize  some of the costs as part of the uncapped facilities component.  Specifically, DCA officials explained that currently there is a provision in  Circular No. A-21 that advises certain limits on changing the  categorization of certain costs—such as those costs incurred by a  university that are associated with increased use of information  technology—from the administrative to the facilities component. However,  they noted that the proposed revisions to Circular No. A-21 did not  include such a provision. DCA officials stated that they may be limited in  their ability to control increases in reimbursements associated with these  categorization changes if this provision is removed and if university  administrative costs continue to increase.

		NIH Has Not Assessed the Potential Impact of Increases in Indirect Costs on Its Mission

NIH has not assessed the potential impact of future increases in indirect  costs on its research mission, including planning for how to deal with  potential future increases of these costs. As we previously reported, NIH  has a program to periodically identify, analyze, and manage significant  risks to its objectives, strategy and mission. NIH officials noted that they  assess risks related to all extramural research funding as part of this  program, and that this assessment does not specifically focus on indirect  costs for universities. According to NIH officials, NIH has not conducted  such planning because overall indirect costs have remained around 27  percent of NIH’s total budget for all extramural research, and, in their  opinion, future cost increases are unlikely to change this figure  significantly in spite of factors that may contribute to increased indirect  costs.
Therefore, NIH officials stated that they do not anticipate the need to  consider adjusting reimbursements for indirect costs for most grants  below the amount determined by a university’s negotiated indirect cost  rate, which would require a change in law or regulation. However, NIH  officials told us that should indirect costs rise significantly, they may need  to reduce the number of research projects, which have already been  reduced in part because of budget limitations and increases in the direct  costs of research. NIH noted that the reduced budget in fiscal year 2013  resulted in 700 fewer individual research grants. Even at current levels,  indirect costs constitute a significant portion of NIH’s budget at about 20  percent. Therefore, over time, increases in indirect costs could cause  further reductions in the number of research projects that NIH could  support.

	Conclusions

NIH has indicated that NIH funding for both the indirect and the direct  costs of university research provides critical support for biomedical  research, covering the indirect costs of operating a research institution  and the direct costs of specific research projects. NIH faces uncertainty  related to the potential impact of increasing indirect costs on its funding of  future research. Among research grants to universities specifically, NIH’s  indirect costs are increasing at a faster rate than direct costs. While  changes in recent years have generally been small, annual changes in  reimbursement for indirect costs have consistently increased relative to  those for direct costs, by either increasing at a faster rate or declining at a  slower rate. Further, this has occurred while the growth in NIH’s budget  for extramural research has slowed in recent years, putting pressure on  NIH to find ways to continue to maximize its support of innovative  biomedical research. Several factors are expected to contribute to future  growth in indirect costs for NIH. These factors include that NIH’s current  system of reimbursing indirect costs—through indirect cost rates for each  university calculated according to OMB guidance—provides few, if any,  incentives for universities to control facilities costs. At the same time, the  cost of university facilities to support biomedical research is increasing  over time, as cutting-edge research requires more advanced labs and  equipment.
NIH has not made plans for options that might address these trends—in  part because it views increases in indirect costs as having been modest.  However, indirect costs already represent one-fifth of NIH’s overall budget  and about one-quarter of NIH’s budget for extramural research. NIH has  experienced small but consistent increases in indirect costs, and factors  suggest that indirect costs could increase more quickly over time in the  future. If so, such increases could have an effect over the long term on  the number and size of research grants that could be funded, thus posing  a risk to scientific discoveries and knowledge.

	Recommendation

To help address the uncertainty NIH faces related to the potential impact  of increasing indirect costs on its funding of future research, we  recommend that the Director of NIH assess the impact of growth in  indirect costs on its research mission, including, as necessary, planning  for how to deal with potential future increases in indirect costs that could  limit the amount of funding available for total research, including the direct  costs of research projects.

	Agency Comments and Our Evaluation

We provided a draft of this report to HHS, and HHS provided written  comments (reprinted in app. II). HHS also provided technical comments,  which we incorporated as appropriate.
HHS indicated that it agreed with our recommendation and that NIH had  already taken steps to implement it, but HHS disagreed with a number of  our conclusions. Specifically, HHS stated that NIH assesses the impact of  indirect costs through its annual budget projections, through planning and  congressional justifications, and as part of its risk management program.  The draft report acknowledged NIH’s efforts in assessing risk facing its  extramural research program. However, NIH has not indicated how these  actions would address our recommendation by assessing the potential  ongoing impact of indirect costs for universities on its funding of future  research. Moreover, NIH has not developed a plan for how to deal with  potential continuing increases in indirect costs for universities. Instead,  HHS indicated that, in past years, increases in indirect costs have been  proportionally consistent with increases in direct costs, and therefore,  there is not an immediate risk to NIH’s research portfolio. While the draft  report acknowledged that indirect costs have remained a stable  percentage of NIH’s overall research costs, it also noted that, for  universities—which received almost two-thirds of NIH’s funding for  extramural research—indirect costs increased notably faster than direct  costs during some recent periods. Further, as indicated in the draft report,  there are multiple indications that, for universities, indirect costs are likely  to increase at a faster rate in the future, so past stability may not be  sustained in future years. We remain convinced that increases in indirect  costs could have an effect over the long term on the number and size of  research grants that could be funded, thus posing a risk to scientific  discoveries and knowledge.
In addition, in its comments, HHS included an analysis of indirect costs  over the past decade for its overall extramural research portfolio. This  analysis was different from our analysis because it focused generally on  extramural research rather than specifically on university research. As  noted in the draft report, our research questions were focused specifically  on universities. Moreover, as institutions of higher education, universities  generally have a broader focus on education than research institutions.  Further, as noted in the draft report, universities are subject to OMB  Circular No. A-21 and their administrative costs are capped, unlike other  research institutions. Because of the unique issues that universities face,  our analysis of indirect costs excluded nonuniversity research institutions  to avoid the possibility of data from these other NIH grantees masking  trends for universities, which are the recipients of the largest portion of  NIH’s grant funding.
Finally, HHS stated that we did not provide an opportunity for the  department to provide input on our review of NIH’s assessment of the  potential impact of indirect costs on NIH’s research mission. We disagree  with this characterization. NIH provided input on this issue to us during  three separate meetings. For all three meetings, we provided discussion  questions in advance. During one of the meetings, we and NIH officials  discussed the key facts that were to be included in the draft report,  including this issue. In addition, we offered NIH officials the opportunity to  provide additional information in writing, as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to the  Secretary of the Department of Health and Human Services, the Director  of the National Institutes of Health, and other interested parties. In  addition, the report will be available at no charge on GAO’s website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-7114 or at kohnl@gao.gov. Contact points for our Office  of Congressional Relations and Office of Public Affairs can be found on  the last page of this report. Other major contributors to this report are  listed in appendix III.

Appendix I: Indirect Costs and Rates for the Top 50 National Institutes of Health—Funded Universities, Fiscal Year 2012

Weill Medical College of Cornell University  Indiana University—Purdue University at Indianapolis  n/a = not available: this institution does not negotiate its indirect cost rate with DCA.

Appendix II: Comments from the Department of Health and Human Services

Appendix III: GAO Contact and Staff Acknowledgments

	GAO Contact

	Acknowledgments

In addition to the contact named above, Will Simerl, Assistant Director;   N. Rotimi Adebonojo; George Bogart; Amy Leone; and Roseanne Price  made key contributions to this report.

Output:
Why GAO Did This Study

NIH reimburses universities for both the direct and indirect costs of conducting research. Indirect costs cover general facility and administrative expenses, and are paid as a percentage, or rate, of certain direct costs of awarded grants. GAO was asked to look at the indirect costs of NIH-funded research. This report (1) identifies changes in reimbursements by NIH to universities for indirect costs of NIH-funded research; and (2) examines key factors affecting NIH reimbursement to universities for indirect costs and what assessment NIH has done to address any impact of these costs on NIH's research mission. GAO analyzed NIH data and interviewed officials at NIH, six universities, and other stakeholders. Universities were selected based on the number of grants and amount of funding received from NIH and their negotiated indirect cost rates.

What GAO Found

From fiscal year 2002 to fiscal year 2012, indirect cost reimbursements from the National Institutes of Health (NIH) to universities increased slightly faster than those for direct costs, but increased notably faster during some periods. Specifically, from fiscal years 2002 to 2012, indirect costs increased 28.1 percent while direct costs increased 27.0 percent. However, for the fiscal years 2003 to 2012, indirect costs increased notably faster than direct costs, at 16.9 percent and 11.7 percent, respectively. In more recent years, annual changes were generally small but consistent. This increase occurred during a time when growth in NIH's budget for extramural research slowed to 5 percent from fiscal years 2008 to 2012, compared to about 21 percent from fiscal years 2002 to 2007. In fiscal year 2012, about 10 percent of the universities (50 out of about 500) receiving NIH extramural research funding received almost 70 percent of all indirect cost reimbursement provided to universities. Higher indirect cost rates tended to be associated with universities located in high-cost-of-living areas and privately owned universities.
Stakeholders--university officials, Department of Health and Human Services (HHS) officials, and others--whom GAO interviewed identified several key factors that may lead to increases in reimbursements for indirect costs provided to universities. Some stakeholders reported that reimbursements for one part of indirect costs--the facilities component--help to support research innovation by providing funding for the development and maintenance of state-of-the-art research facilities. However, officials in HHS's Division of Cost Allocation, which is responsible for determining indirect cost rates, stated that the uncapped facilities component of the indirect cost rate provides universities with few, if any, incentives for controlling these costs. For example, these officials noted that there is no limit on reimbursement for interest costs under the facilities component. This may encourage universities to borrow money to build new facilities, which could lead to building more new space than is necessary for research. Some stakeholders also noted that a 26 percent cap on the reimbursement rate for administrative costs--a second component of indirect costs--helps to control reimbursements for those costs; however, they reported it does not account for the recent increases in costs, such as those for regulatory reporting requirements and changing research needs that require advanced medical and information technologies that are considered administrative.
The combination of these trends and factors results in indirect costs growing at a faster rate than direct costs. Indirect costs are one-fifth of NIH's total budget--or $6.2 billion in fiscal year 2012--but NIH officials reported that they have not taken steps to assess the significance of future indirect cost growth for universities, or planned for options that might address these trends or factors--in part because they view increases in indirect costs as having been modest. However, factors suggest that indirect costs could increase more quickly in the future. Over the long term, they could lead to a reduction in the number of research grants that could be funded, thus potentially affecting scientific discoveries and knowledge.

What GAO Recommends

GAO recommends that NIH assess the impact of growth in indirect costs on its mission, including, as necessary, planning for how to deal with potential future increases in indirect costs that could limit the amount of funding available for total research. HHS agreed with GAO's recommendation but disagreed with a number of GAO's conclusions, stating that risk to NIH's mission is low because indirect costs remain a stable percentage of NIH's budget. Due to indications that indirect costs for universities may increase in the future, GAO believes that continually assessing and planning for the impact of growth over the long term is important.