GAB Decision 642
April 19, 1985
Waterloo Primary Care Clinic;
Settle, Norval D.; Ballard, Judith Ford, Cecilia S.
Docket No. 85-51
The Waterloo Primary Care Clinic (Waterloo or Grantee) appealed the
denial of a noncompeting continuation grant by the Public Health Service
(PHS or Agency). With one narrow exception, this Board has no power to
review pre-award disputes such as this. This is because pre-award
determinations generally are matters completely committed to Agency
discretion. The narrow exception is that the Board will review "a
denial of a noncompeting continuation award under the project period
system of funding where the denial is for failure to comply with the
terms of a previous award." 45 CFR Part 16, Appendix A, Para. C.(a) (3).
Thus, the Board's role in this case is a narrow one: to find out
whether PHS established that Waterloo failed to comply with the terms of
a prior award. As discussed below, PHS presented two specific reasons
for the award denial. Our analysis shows that these did not constitute
failure to comply with the terms of a prior award. This does not mean,
however, that Grantee must now be awarded continuation assistance. The
practical effect of our decision is to require PHS to redetermine
whether denial of continuation funding is appropriate; if PHS, in its
discretion, determines that denial is appropriate under applicable
standards (discussed below), it should so advise Waterloo. BACKGROUND
Grantee received funds under the Rural Health Initiative program, Pub.
L. 94-63, section 330, as amended by Pub. L. 95-626. The project period
for federal funding ran from December 1, 1979 through November 30, 1985
and the budget period for which funding was disapproved ran from
December 1, 1984 through November 30, 1985. /1/
By letter dated January 8, 1985, the Regional Health Administrator,
Region IV advised Grantee that its application for funding for the final
budget year of its project had been disapproved. The reasons stated for
the disapproval were: (1) the project had failed to recruit a full-time
physician; and (2) the project served too few patients to justify
continued funding. The January 8 letter advised Grantee of its right to
appeal the decision to the Director, Division of Grants and Contracts,
PHS, under 42 CFR Part 50, Subpart D. The letter informed Grantee that
funding would continue through February 28, so that Grantee could find
alternative care for its patients. By letter dated January 29, 1985,
Waterloo appealed to the Director, Division of Grants and Contracts.
Thereafter, on February 11 the Director, Division of Grants forwarded
the case to the Departmental Grant Appeals Board. His letter stated
that, since the appeal involved the denial of a noncompeting
continuation application, the Board should review the matter under the
procedures at 45 CFR Part 16. Attached to that letter was a copy of a
letter to Grantee which informed it that the appeal had been forwarded
to the Board since only the Board could hear the appeal of a denial of a
noncompeting continuation award "for failure to comply with the terms
the previous award." Grantee sought and received additional funding
through April 30, 1985, pending the outcome of this appeal. ANALYSIS PHS
denied Waterloo's grant award for the last year of its approved five
year project. Agency policy statements explain that the commitment to
make such a continuation award is conditioned on various factors, such
as the (1) availability of funds, (2) whether the grantee is making
satisfactory progress in achieving the objectives of the grant award,
(3) whether the grantee has complied with the terms and conditions of
its grant, or (4) whether continued funding would be in the best
interests of the Government. /2/ In general a decision whether or not to
award a grant is left to the reasoned judgment of the Agency,
characterized as a decision which is committed to the Agency's
discretion. While the Agency may not be arbitrary and capricious in the
exercise of its discretion under the above mentioned standards, it has
wide latitude to make independent judgments about how to use grant
funds.
As stated above, the Board's regulations narrowly limit the Board's
authority to review denials of continuation funding. The issue for the
Board is only whether the denial is for failure to comply with the terms
of a previous award. PHS stated two grounds for the denial in its
written submission to the Board. Below, we discuss whether each ground
was a term of the previous award and, if so, whether Grantee failed to
comply with it. Failure to recruit a full-time physician. PHS's January
8, 1985 letter simply stated that Grantee failed to recruit a full-time
physician without establishing a relationship between that fact and the
result of denying funding. For this Board to conclude that a failure to
recruit a full-time physician was sufficient to warrant denial of
funding for the award in question, the requirement of hiring a full-time
physician had to be a term of a previous award and the record before us
would have to establish that Grantee failed to meet the requirement. The
record reveals that recruiting a full-time physician was not a term of
the previous award. While the grant application for the previous year
referred at page 18 to recruiting a full-time physician as an
"objective" of the grant, it also referred to providing physician
services two days per week (until there was a full-time physician) as an
"objective" of the grant. During the conference call on April 15,
PHS
representatives stated that the purpose of Waterloo's grant was to
provide health services, not to acquire a full-time physician, and that
hiring a full-time physician was not a "term" of the grant. The PHS
representative affirmed this during the April 16 call by responding "No"
to the Board's question whether Grantee's funding was contingent on
hiring a full-time physician. /3/
A document at Appendix B of Grantee's reply brief showed a budget
containing a line item allocating $10,026 for a full-time physician
"targeted" to begin at Waterloo on August 1, 1984. The parties agreed
this was the budget for the previous year. At one point in the April 15
conference call PHS stated that this made the recruitment of a full-time
physician a term of the grant. PHS clearly was not firm in this
position; the PHS representatives contradicted it at other points
during the April 15 and 16 calls. Nevertheless, we feel it necessary to
note that we do not agree. Merely because funds are allocated for some
activity does not in and of itself raise that activity to the level of a
term of the grant. Moreover, the line item on its face is equivocal in
that it used the word "targeted" rather that stating a firm date by
which the physician had to begin work. While PHS representatives may not
always have been clear in what they meant by the word "term", the
Board
found it dispositive in this case that PHS did not consider funding to
have been contingent on a full-time physician. Furthermore, we note
that, although the Grantee did not agree, PHS actually concluded in its
March 19, 1985 response to Grantee's appeal that, in any event, Grantee
did not really need a full-time physician. We conclude then that neither
the grant application nor the budget document statements regarding a
full-time physician raise this to the level of a term of the grant.
Accordingly, we do not see Grantee's failure to obtain a full-time
physician as supporting a conclusion that Grantee did not comply with
the terms of its previous grant award. The number of patients served.
PHS failed to establish the relationship between the number of patients
served and a failure to comply with the terms of the grant. The only
indication that numbers of patients served might be a term of the grant
came in the April 15 conference call when PHS representatives referred
to a Bureau of Common Reporting Requirements (BCRR) guideline which PHS
indicated required Grantee to have between 4200 and 6000 patients
encounters per full-time physician per year. On further inquiry it
became clear, however, that the "4200-6000 patient encounters" figure
was not a term of the grant. Rather, the guideline was one of several
"funding criteria" set forth in a document issued by the Bureau of
Health Care Delivery. The PHS representative explained that the BCRR
report itself was a biannual report which projects like Waterloo were
required to submit to PHS to demonstrate compliance with the criteria.
Furthermore, the PHS representative admitted that Grantee fell well
within the guideline. He explained during the April 15 call that
extrapolating from "patient/physician" encounter figures of three-tenths
(.3) physicians (physicians on-site 1 1/2 days/week) having 611
encounters during the first half of calendar 1984 yielded 4,273
patient/physician encounters per full-time physician for calendar 1984.
PHS representatives also indicated during the April 15 call that the
underlying reason for the denial was a change in "funding priorities"
in
Washington. The representatives indicated that PHS now sought to fund
only clinics that had full-time physicians because full-time physicians
could see more patients. While this may be true, fulfilling some
"quota" of patient/physician encounters was not a term of the previous
grant and cannot stand to justify the denial of funding on the ground
that Grantee failed to comply with the terms of its previous award.
Agency Discretion and Board Conclusion As stated above, the only
pre-award determination within the scope of Board review is whether
Grantee failed to comply with the terms of a previous award. All other
pre-award considerations, such as how to allocate limited resources or
whether continued funding is within the "best interests" of the Federal
Government, are left to the sound discretion of the awarding agency.
Here, we conclude that the Grantee did not violate the terms and
conditions of its grant award, and, therefore, discontinuing funding for
the budget year at issue cannot be sustained on that basis. PHS must
now reevaluate its decision to deny continuation funding for the
remaining months of the approved project period in light of this
decision and the applicable Agency policies. PHS should promptly inform
Grantee in writing whether or not it will continue to deny funding and,
if funding will be denied, should explain the reasons. /1/ A
"continuation award" is the funding for a particular "budget
period" within the overall "project period." A "project
period" is the
number of years for which funding is tentatively approved. Funds are
awarded by "budget period." While the grantee does not compete with
other grantees for such a "continuation award," the Department is
not
obligated to make it. The idea of the system is to allow the grantee
some certainty regarding how much money will problably be available for
the grant while allowing the Department some opportunity to discontinue
funding if necessary. /2/ General policies for funding HHS
projects are found at Chapter 1-85 of the Grants Administration Manual.
Specific provisions pertaining to the denial of funding for PHS funded
noncompeting continuation awards are found at Chapter PHS 1-85, Section
30-C.2 (GAM) and the PHS Grants Policy Statement (1982) at page 56. /3/
Furthermore, even if recruiting a full-time physician were
considered to be a term of the grant, Grantee could be considered to
have met the term in that it technically "recruited" a physician.
The
physician had an oral agreement to begin at Waterloo full-time in
September, 1984 and obtained an Alabama medical license. For personal
reasons he decided at the last minute not to go to Waterloo. (See
Attachment D to Grantee's reply brief)
JULY 18, 1985