GAB Decision 263
March 4, 1982 Chapin Medical Center; Docket No. 81-50 Settle, Norval;
Teitz, Alexander Garrett, Donald
Chapin Medical Center (Grantee) appealed a decision of the Public
Health Service Grant Appeals Board sustaining in part a determination by
the Executive Officer, PHS, Region IV. The PHS Grant Appeals Board
disagreed with the Executive Officer's determination disapproving the
full amount of salary increases for two physicians funded under a
Community Health Services grant, but did find that salary increases of
8.35% for one physician and 12.5% for the other should have been limited
to 7%. In response to a request for clarification by the Board's
Executive Secretary, Grantee stated that it intended to appeal only the
disapproval of the 12.5% salary increase. (Grantee's letter dated May
5, 1981, p. 2) PHS later identified the amount in dispute with respect
to the physician receiving the 12.5% increase as $2,640. (PHS's
memorandum dated May 18, 1981, p. 3)
This decision is based on the written record before the Board. We
uphold the decision of the PHS Grant Appeals Board to limit the salary
increase to 7 percent.
Statement of the case
Grantee was awarded a grant pursuant to Section 330 of the Public
Health Service Act (42 U.S.C. 254c) for operating a community health
center to provide health services to a medically underserved population.
Funds were awarded for the budget period August 1, 1979 through July 31,
1980; however, Grantee had also operated as a community health center
the previous year, receiving funds as a subgrantee of the Lexington
County Hospital.
The grant application submitted by Grantee provided in the "Detailed
Budget" for two family practitioners (physicians whose specialty is
family practice) at an annual salary of $48,000 each. (Although the
budget indicated that the necessary funds would be provided by the
applicant, arrangements were apparently made thereafter for PHS to
provide the funding.) The grant application also stated, in a section
headed "Budget Justification," that "(s)alaries reflect a 7%
increase
over last year except for the physicians. They will be getting the (2)
same amount." The physician whose salary increase is the subject of
Grantee's appeal had a contract with the Lexington County Hospital to
provide medical services at the satellite health center at Chapin for a
one-year period beginning July 1, 1978 at an annual salary of $48,000.
This prior year salary is the basis for the salary provided in the grant
budget.
The physician in question continued to work for Grantee after his
contract expired on June 30, 1979. He was paid at an annual rate of
$48,000, as stipulated in the grant application, although no contract
was executed.On January 30, 1979, the president of Grantee's governing
board signed a new contract with the physician for $54,000 annually,
retroactive to August 1, 1979. This amounted to a 12.5% increase over
his previous salary.
Discussion
Although the Agency in proceedings before this Board initially
appeared to call into question the reasonableness of the entire 12.5%
salary increase, it later maintained that the sole issue to be
considered "is the question of the excessiveness of the salary increase
above 7%." (Response to Order to Show Cause, dated 12/22/81) The
Agency's position that the remaining 5.5% of the salary increase was
excessive was based on a survey of five other PHS-funded health services
providers in South Carolina, only one of which paid its Medical Director
more ($57,941) than the $54,000 salary paid here. The Agency pointed
out that three of the organizations (including the organization paying
the higher salary) were larger than Grantee in size and scope, having
multiple delivery sites and a large staff under the supervision of the
Medical Director. It also pointed out that, of the two organizations
which were comparable to Grantee in size and scope, one paid its Medical
Director substantially less ($42,500) than $54,000 and the other paid
$50,000 only because of the special qulifications (as an internist and
cardiologist) of its Medical Director. The Agency also asserted that
since the salaries in the survey were current ones whereas the salary
questioned pertains to a period 1 1/2 to 2 years ago, the latter was
even more excessive than it might appear.
Since the Agency's survey only included five organizations, we do not
believe that it conclusively answers the question of whether the full
amount of the salary increase in this case was reasonsable. Cf. Oregon
Research Institute, Inc., DGAB Decision No. 34, March 9, 1977, at p. 4.
Grantee, however, has not come forward with evidence that contradicts
the survey or with evidence which would otherwise demonstrate that the
Agency's decision was without support. Therefore, as indicated below,
we find that Grantee has failed to justify more than the 7% increase
which the PHS Grant Appeals Board has already approved.
(3)Grantee attributed the 12.5% increase in question to a number of
factors. Part of the increase it termed a cost-of-living increase. The
Agency itself indicated in its original disallowance determination that
the increase "would not necessarily be out of line if it had come as a
yearly cost-of-living increase . . . . " (Letter dated May 22, 1980, p.
1) Further, as much as 7% of the increase could reasonably be claimed as
a cost-of-living increase based on the provision in the grant
application cited in the decision of the PHS Grant Appeals Board. That
provision, approved by the Agency, gave a 7% across-the-board increase
to all employees (except physicians) without regard to type of position,
length of service or merit. Such an increase would necessarily be a
cost-of-living increase, and no reason appears why the physician should
not have been entitled to the same increase, although Grantee at the
time it submitted its application determined not to give it.
Grantee also contended that the increase was given to establish a
differential between the salary of the physician in question and the
salary of another physician employed by it with less seniority and fewer
responsibilities. It is not clear why Grantee could not have
established a relative equity between the salaries by paying the other
physician a lower starting salary, however.
Grantee also accounted for part of the increase by nothing that the
physician in question had substantial administrative functions until a
full-time project director was hired in February 1980. If there was
already a part-time project director funded by the grant, however, any
payment to the physician for the performance of the project director's
duties may have constituted an impermissible double payment. It is
noted, moreover, that the performance of administrative duties could not
have been a factor in the granting of a 12.5 percent increase after the
full-time project director was hired in February 1980.
Grantee argued further that the increase was necessary in order to
persuade the physician not to seek other employment. This is certainly
a factor which Grantee was entitled to consider. However, it does not
justify charging to the federal government the "premium" which Grantee
found necessary to secure the physician's services.
Grantee also ascribed 5.5% of the 12.5% increase to an attempt to
compensate the physician for the fact that he was the sole physician
during the year when he was under contract with the prior grantee, when
two physicians had originally been called for. This is not a valid
consideration, however, since the contract with the prior grantee
covered the period July 1, 1978 to June 30, 1979 whereas the 12.5%
increase was retroactive only to August 1, 1979. Moreover, assuming (4)
Grantee's argument to otherwise have merit, the additional costs would
have been allocable to the grant awarded to the prior grantee and could
not, under the applicable regulations, be properly, charged to the grant
awarded to Grantee. See 45 CFR Part 74, Appendix F, Sections B.2. and
B.4(a), which provide that a cost, in order to be allowable, must be
allocable to a grant, and that a cost is allocable if it "(is) incurred
specifically for the grant. . . ."
Accordingly, we find that 7% of the 12.5% increase was justifiable as
a cost-of-living increase, but that Grantee has not met its burden of
showing that the amount of the increase above 7% was reasonable.
Although the Board provided Grantee with the above analysis in the form
of tentative findings in its Order to Show Cause, Grantee declined to
provide further evidence or argument. In the absence of a showing of
reasonableness in the record as a whole, the decision of the PHS Grant
Appeals Board must be sustained.
Conclusion
Grantee's appeal of a salary increase equalling $2,640 is denied.
OCTOBER 22, 1983