GAB Decision 705
November 21, 1985
Northern Michigan Health Services;
Teitz, Alexander G.; Garrett, Donald F. Ballard, Judith D.
Docket No. 85-93
The Northern Michigan Health Services (NMHS) appealed the decision of
the Public Health Service (PHS) to disallow $10,412 in grant funds paid
to a National Health Service Corps (NHSC) physician for services
rendered as Medical Director during the period October 1, 1982 through
September 30, 1983. The basis for the disallowance was that NMHS failed
to comply with the conditions of a PHS Grants Policy Statement (GPS)
provision governing salary payments from federal grants to full-time
federal employees.
PHS asked the Board to rule on a single question which PHS contended
is
dispositive of the case: whether the undisputed fact that NMHS did
not
obtain PHS' prior approval of the salary payments from grant
funds
establishes that those payments are unallowable.
We conclude that it does not, and, accordingly, we remand the case to
PHS
to examine whether certain conditions of the GPS provision were met
and
whether PHS should agree to the salary payments. If PHS does
not
ultimately approve the payments, PHS should issue a new decision
stating
new grounds and giving NMHS the right to appeal.
This decision is based on the written record and tapes of a September
9,
1985 telephone conference call that have been included in the record.
Background
Northern Michigan Health Services is a non-profit corporation
which
provides health care and welfare services in a rural area of
northern
Michigan. NMHS receives grant funds from PHS under the Rural
Health
Initiative Program, funded under section 330 of Public Law 95-626
(which
replaced section 314(e) of the Public Health Service Act). For
the
budget period October 1, 1982 through September 30, 1983, NMHS
received
$271,935 from PHS.(2)$% A federal audit of that budget period
revealed
that NMHS had entered into an agreement with a medical doctor
working
for them on assignment from the National Health Service Corps
whereby
the doctor would, in addition to his normal duties, serve as
Medical
Director for the organization. They gave him a choice of
spending 80%
of his time on physician duties and 20% on Medical Director
duties or to
receive extra pay for the additional Medical Director
duties. He chose
the latter. While he had intended to enter private
practice after his
initial NHSC commitment, for various reasons he instead
renewed his NHSC
Commission. For the Medical Director service, he was to be
paid $10,000
plus 5.25% interest with payment deferred until he completed his
NHSC
assignment. On June 16, 1983, prior to the termination date of
the
renewed NHSC assignment on June 30, 1983, NMHS paid the doctor
$10,412
for being Medical Director. The audit report concluded that the
salary
payment was "precluded" by the doctor's agreement with the
NHSC.
(Respondent's July 11, 1985 submission, Tab F)
Based on that conclusion, PHS disallowed the $10,412 salary payment.
PHS
cited as a grounds for its action the PHS Grants Policy Statement
(12/1/82,
p. 32) and the Department's Standards of Conduct Regulation at
45 CFR
73.734-801. The GPS provision applied to the grantee, but the
federal
regulation applied only to the employee. A PHS preliminary
review board
upheld the disallowance. The PHS board cited 5 U.S.C.
5536 and 45 CFR
73.734-801 as the basis for the disallowance. The
statutory provision
also applied only to the employee, not the grantee.
The PHS board did not
cite the GPS provision. During proceedings before
us, PHS withdrew 45
CFR 73.734-801 and 5 U.S.C. 5536 as the basis for
the disallowance and stated
that PHS Grants Policy Statement (1976, p.
18) was the only basis for the
disallowance. PHS noted that the 1976
GPS provision was virtually
identical to the 1982 GPS provision cited in
the original disallowance
letter.
Standard of Review
The Board's procedures provide for a special expedited review for
appeals
of $25,000 or less in which there has already been a preliminary
review
resulting in a written decision based on a record. 45
CFR
16.12(d). That process would normally apply to this appeal.
Under the
special expedited process, the Board generally restricts its review
to
whether the decision of the preliminary reviewing authority was
clearly
erroneous. 45 CFR 16.12(d) (1). The rationale for the
standard is that
it would be a needless duplication of effort for the Board
to repeat
the(3) preliminary review board's development of a record.
That
rationale is inapplicable to this case. The preliminary
board's
decision did not even mention the grounds PHS relied on here as the
sole
legal basis for the disallowance. Moreover, during the course of
this
proceeding PHS withdrew as a basis for the disallowance the
legal
grounds cited by the preliminary review board. There is no basis
in the
record to conclude that the PHS preliminary review board considered
the
GPS provision aside from an unsupported statement by counsel for
PHS
during a September telephone conference call to the effect that
she
believed they had. Thus, we determined that use of the
expedited
procedures was inappropriate in the exceptional circumstances here,
and
the "clearly erroneous" standard does not apply.
Applicable Provision
The PHS Grants Policy Statement (1976, p. 18) reads as follows:
Federal (U.S. Government) employees. -- The following rules
apply to
payments made from a grant to Federal employees:
* * *
3. Salaries and travel: Allowable when the employee is:
a. Working under a grant to a Federal institution.
b. During nonduty hours, in leave-without-pay status, or
on detail
to a State or local government, provided (1) reimbursement is
in
accordance with terms mutually acceptable to the grantee institution
and
PHS, and (2) all parties concerned are assured that there is
no
possibility of dual compensation or a resulting conflict of interest.
NMHS did not dispute that this provision applied to the grant in
question,
and it is clear on the face of the Notice of Grant Award,
dated September 24,
1982, that the GPS was a term of the grant.
(Respondent's August 9, 1985
brief, Tab D)
Arguments
PHS argued, in effect, that the GPS provision in question required
prior
approval. PHS argued that, recognizing the highly sensitive
nature of a
federal employee receiving grant funds, PHS intended the
requirement to
protect the government from potential harm by giving PHS a
chance to
determine before the terms of employment are arranged whether there
is a
danger of dual compensation or conflict of interest. PHS also
argued
that(4) because there was no "mutual acceptance" in this case,
NMHS
violated the GPS provision and, as a matter of law, the
disallowance
should be sustained. (Respondent's October 11, 1985 brief,
p. 3) PHS
asked the Board to rule on that issue alone before exploring any
other
issues it might find to be present in the case. /1/
NMHS argued that the salary payments from grant funds were for
duties
beyond those normally required of a NHSC physician and did
not
constitute dual compensation. NMHS argued that the amount paid
was
consistent with the amount usually paid a medical director.
Finally,
NMHS averred that it entered into the arrangements in good faith,
albeit
ignorant of the GPS requirement, and paid the doctor for
legitimate
services rendered.
Does the undisputed fact that there was no prior "mutual acceptance"
of
the salary payments from grants funds establish that those payments
are
unallowable?
At the outset, we note that the GPS provision is not a prohibition
on
payment of additional compensation to a federal employee
altogether.
Rather, it provides that salaries and travel costs are allowable,
so
long as certain conditions are met. First, the services must
be
provided during nonduty hours, in leave-without-pay status, or on
detail
to a state or local government. This requirement is discussed
below
under the section "Duty Hours."
The two conditions which according to PHS could not have been met here
are
that the reimbursement must be in accordance with "terms mutually
acceptable
to the grantee institution and PHS" (section 3(b) (1) and
"all parties
concerned" must be "assured that there is no possibility of
dual compensation
or a resulting conflict of interest" (section 3(b)
(2)). PHS
interpreted this as requiring a prior "mutual agreement"
between NMHS and PHS
officials regarding the salary. In fact, the
provision merely says that
the terms (5) of the reimbursement must be
"acceptable" to "PHS" and that
"all parties" must be "assured" that
there is no problem with the
arrangement. The provision does not
require prior agreement from
PHS.
PHS argued that the GPS provision in question was different from other
GPS
provisions which allow for retroactive approval under certain
circumstances
where the GPS calls for prior approval. PHS attempted to
distinguish
such provisions on grounds that they deal generally with
matters of
expenditures by grantees while the provision at issue here
deals with the
much more sensitive area of a federal employee receiving
grant funds.
PHS asserted that while any harm done by a simple
expenditure could be
remedied retroactively, the "harm" done to the
federal government by dual
compensation or conflict of interest could
not.
We are not persuaded by this argument. We see no valid reason for
not
granting retroactive approval if a determination is first made
that
there was no conflict of interest or dual compensation. If there
is no
conflict or dual compensation, there is no "harm" PHS needs to
be
protected against and there is nothing achieved by denying
retroactive
approval. Moreover, the GPS provision does not state that
prior
approval is required or that retroactive approval will not be
allowed.
It makes no mention of a time frame for approval at all. It
merely
states a requirement that the Agency accept certain terms and
receive
certain assurances. We can see no basis for interpreting the
provision
more narrowly than other provisions which on their face specify
prior
approval. (See, e.g., GPS pp. 21, 22, 26, 28, 48) Indeed, the
term
"prior approval" triggers formal processes. (See, e.g., GPS p. 4,
pp.
64 - 70) The absence of the term from this provision could have
been
interpreted to indicate that the provision was less formal than
the
other provisions and that approval alone, regardless of when
given,
would be sufficient.
While there may be valid policy reasons why prior approval should
be
required and retroactive approval prohibited, that is not sufficient
to
transform a provision written as this was into a prior
approval
requirement. While the Board recognizes that PHS has
considerable
discretion in interpreting GPS provisions, PHS cannot apply
this
provision in a manner not warranted by its plain language.
We conclude that the fact that there was no mutual agreement of the
salary
arrangement does not compel a finding for PHS. We do think that
PHS
would be justified, however, in disallowing if NMHS cannot provide
reasonable
assurance that there was no dual compensation or conflict.(
6)
Duty Hours
As noted above, an additional GPS condition is that the services
be
provided "during nonduty hours, during leave-without-pay status,
on
detail to a state or local government." The parties did not argue
that
the services were provided while the physician was in
a
leave-without-pay status or while on detail to a state or
local
government and the record is clear that they were not. PHS
argued,
however, that the services were provided during duty rather than
non
duty hours. While PHS has not asked the Board to decide here
whether
the services were performed during duty or nonduty hours, and we do
not
do so, we note below for the guidance of the parties that the
current
record does not establish that the services were, in fact,
performed
during duty hours.
PHS argued that it was axiomatic that the doctor performed his
Medical
Director services during NHSC duty hours because Commissioned
Corps
doctors are on duty twenty-four hours a day. NMHS argued that
the
doctor's NHSC and Medical Director duties did not overlap and that
the
doctor performed full-time as an NHSC physician (equal hours to
any
other full-time physician on staff at NMHS) and, in addition,
worked
extra hours as Medical Director.
PHS presented no documentation that substantiated its argument that
NHSC
physicians are on duty 24 hours a day. In fact, the NHSC
Professional
Policies Manual (July 1982) presented by PHS implied that duty
hours may
be as few as 40 hours per week. (See section 4.a.,
Professional Time.)
Moreover, it is clear from the Manual that duty hours
need not be a
regular 9-5 schedule but may vary to include evenings and
weekends,
depending on the needs of the community. Thus, even if the
Medical
Director duties were performed during the day, it would not
necessarily
follow that they were performed during duty hours as long as the
doctor
was performing 40 hours of NHSC work per week in addition.
The Manual also contains a provision entitled "Moonlighting" which
further
supports the view that the doctor may not have been on duty 24
hours a
day. That provision states that a member of the NHSC "may not
engage in
the practice of (his) profession for personal renumeration
outside of (his)
normal Federal employment status." The prohibition
against an NHSC
professional practicing his profession outside his
normal federal status
implies that there are hours when, indeed, he is
not in that status.
Moreover, it is noteworthy that the provision does
not appear to prevent a
NHSC physician from engaging in work outside his
federal employee status if
that work does not involve the "practice" of
his profession. It is at
least arguable that the physician here was not
prohibited from performing the
Medical(7) Director duties. Those duties
were entirely administrative
and apparently involved no standard NHSC
physician duties. (Appellant's
September 16, 1985 breif, Attachment 2)
Remand
The Board remands to PHS to consider whether the physician's
compensation
from the PHS grant resulted in dual compensation or a
conflict of interest
and whether the services were provided during
nonduty hours. /2/
If PHS determines that there was no conflict of interest or
dual
compensation, that the services were provided during nonduty hours,
and
that reimbursement was in accordance with terms that are
acceptable,
then it appears the salary payments from the grant funds are
allowable.
If PHS officials determine there was a conflict or dual
compensation or
that the services were not (8) performed during nonduty
hours, or
reimbursement was not in accordance with terms that are acceptable,
PHS
must issue a new decision stating grounds and giving NHMS an
opportunity
to appeal. /1/ The Board's regulations do not specifically
provide for
a preliminary ruling
on a single issue but do provide that the
Board can take any action necessary
to resolve a dispute. (45 CFR
16.13) The Board informed the parties by
telephone that if it determined
that it was appropriate to decide that issue
alone and if it found
against PHS on that issue, the Board would remand the
case to PHS with
appropriate directions. The parties did not object to
this procedure.
Since it appeared that a resolution of the treshold issue in
PHS' favor
would resolve the case, the Board concluded that a decision on
that
issue was appropriate.
/2/ PHS seemed to argue in a footnote in
its final brief that it would have
no choice but to disapprove any
request now to allow the salary
payment. PHS' reason was that 45 CFR
73.735-704 "flatly prohibits"
federal employees from engaging in outside
professional duties in
organizations with which the employee's official
duties are directly related
(even if not paid). (Respondent's October
11 brief, p. 4, N. 2) Even if
PHS is correct that the official duties
were "directly related" (and we do
not reach this issue), PHS may not
disapprove the salary payments on this
basis. The regulation applies to
employees, not grantees. It
prohibits the employee from engaging in
such an activity. It does not
prohibit PHS from, after the fact,
allowing a legitimate grant expense,
assuming no dual compensation or
conflict of interest. When asked during the
conference call why PHS did
not proceed against the employee, if it indeed
believed the regulation
to be violated, counsel for PHS stated that PHS
viewed the remedies
against the employee and the grantee as separate, and,
therefore, PHS
had a right to proceed against either or both.
Recognizing that the
remedies are separate, PHS must apply the grantee
provision against the
grantee and the employee provision against the
employee. Using this
regulation as a basis for denying approval now
unfairly applies the
employee provision against the grantee.
MARCH 28, 1987