DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE

 

PUBLIC HEALTH SERVICE . BETHESDA 14, MD.

 

NATIONAL INSTITUTES OF HEALTH

June 19, 1958
PERSONAL

SPECIAL DELIVERY - ATR MATL

 

Dear John:

T have been thinking a great deal about our talk on overhead
yesterday. There is a lot to be said for your arguments against
payment of overhead costs, and I agree with many of them. On the
other hand, I must say frankly that payment of full overhead costs
on our research grants is to me, on balance, the wise, equitable
course of action.

My observation ig that payment of overhead costs on research
grants is not in any way a substitute for general financial aid to
medical schools. The research grant funds that have been made
available for research in the medical schools have added a heavy burden
to the schools because the Federal funds have caused them to expand
research far beyond what would be required to make their teaching
strong. Of course, you could say that they do not have to take the
research money. But, in fact, this research is in response to national
needs and pressures. The schools cannot actually say that, because this
expansion is not good for their teaching programs, they will not expand
their research, so they extend their research efforts, and in doing so
part of their own money and resources are used up through indirect
costs .

My view is that payment of overhead simply puts the schools
into a nonprofit, no-loss position, and does not allow them to "make
a profit on" research grants, or "make new money available for the
general expenses of the school."

Payment of full overhead would still leave the schools short
of money to run a first class educational show because payment of
full indirect costs just puts them back~-financially--to where they
would have been if they didn't take any research grants.

The net result of all this, in my mind, is that the two issues
of overhead cost payment and general aid to medical education are two
things that ought to be kept separate.

If general Federal aid to medical education were available~-and
my opinion is that this is not only inevitable but badly needed now--it
would still, in my opinion, be wise to pay full overhead on research
grants so long as we ask the medical schools to carry much more
research than is required for a balanced teaching-research program.

These are the main points that I wanted to make, but there are
a@ couple more.
~2.-

On the question whether university presidents-~as contrasted
with medical school deans--are concerned over the fact that we don't
pay full overhead, you and T must just talk with different people.

I know for a fact that the Presidents of practically all universities
that have made public statements or with whom I have discussed the
matter feel the financial drain of the medical school keenly. All

of the formal expressions of opinion of universities through the
Association of American University Presidents, the National Education
Association, and the American Council on Education strongly urge
payment of full indirect costs on research grants in order to have
the research programs pay their own way.

This bears on a second point--the politicking on indirect costs.
it know that General Cutler and the other Boston people have borne
down pretty hard on this issue. On the other hand, I don't think
they are misstating the actual situation, or misrepresenting the views
of the universities and medical schools generally.

Finally, it does not make sense to me to have the government
pay full indirect costs in research contracts with private profit
making concerns, and at the same time force the universities of the
Nation into a position where it costs them money to do research with
government money.

For all of these reasons I sincerely hope that you will find
it possible to go along with the Senate on this question.

As a positive suggestion, why not use this as the occasion for
setting up a study that will show authoritatively the status of the
finances of medical schools? A study of this kind would have a number
of implications and uses, and if you think the idea has any merit, I
would like to talk it over with you.

No matter how the indirect cost question is decided, you know
that we appreciate your help on everything relating to NIH.

Let's try to get together next week in Washington--or if more
convenient for you I can come up to Providence.

Sincerely yours,

ae

NN 3 Whe

James A. Shannon, M.D.
Hon. John E. Fogarty

200 Customs House Building
Providence 3, Rhode Island