OMB grant rule raises compliance questions for hospital federal funding

Hospitals that receive federal grants are among the entities that would face new requirements under a Trump administration proposed rule.

The Office of Management and Budget (OMB) issued the rule, which would increase federal oversight of how grantees apply for and use funds. The intent is for the rule to take effect Oct. 1, covering FY27 grant awards and other forms of financial assistance from all federal agencies, such as the National Institutes of Health, the Health Resources and Services Administration and the Centers for Disease Control and Prevention.

“Research universities, academic medical centers, scientific associations and public-health organizations may experience the most immediate effects,” according to an analysis by the law firm of Spencer Fane.

An analysis by the firm of Nixon Peabody states that such entities should view the proposed rule as “not merely as a compliance update, but as a significant change in the federal government’s approach to discretionary grant funding and a potential new source of exposure to federal investigations, suspension and termination actions, repayment demands, and, in certain circumstances, False Claims Act liability.”

The proposal would clarify and strengthen the regulatory status of the Uniform Guidance by converting key requirements into OMB regulations that agencies would implement across the government. OMB would have “centralized, government-wide control over the grant rules going forward,” per the Spencer Fane analysis.

The 45-day comment period for the rule remains open until the evening of July 13 at regulations.gov.

How political review could alter discretionary grant funding

Under the proposed rule, grant programs would need to be designed to ensure alignment with administration policies.

After scientific or technical peer review of a grant application is completed, senior political appointees would review discretionary awards to ensure they are consistent with statutory provisions, agency priorities and the national interest.

“Discretionary awards must, where applicable, demonstrably advance the President’s policy priorities,” the proposed rule states.

The rule “would insert a political lens on top of a process that, for 80 years, has been run by scientists evaluating the work of other scientists,” David Skorton, president and CEO of the Association of American Medical Colleges (AAMC), wrote in an editorial.

Funding generally would be limited to U.S. domestic entities, with proposed restrictions on access for recipients and collaborating partners that are based overseas.

“Broad prohibitions on certain foreign collaboration risk undermining essential international collaborations designed to address global disease threats,” AAMC wrote in published comments.

Grant termination risk could expand

Agencies would have expanded criteria to partially or wholly terminate grants even if the grantee remains in compliance with the terms and conditions. The grant could be terminated if deemed to no longer be in the national interest, as long as the agency provides a rationale.

“No finding of cause, noncompliance or fraud [would be] required,” states the Spencer Fane analysis.

Federal grants should support only activities that are authorized by statute and directly tied to program objectives, according to the proposed rule.

Part of the administration’s stated incentive for implementing that standard is to phase out research that supports what it describes as “unlawful” diversity, equity and inclusion (DEI) mandates. The proposed rule also cites “gender ideology” as being outside the scope of federal grants.

“To the maximum extent permitted by law, the federal agency or pass-through entity must ensure that the federal award is not used to fund, promote, encourage, subsidize or facilitate ‘diversity, equity and inclusion’ (DEI) or ‘diversity, equity, inclusion and accessibility’ (DEIA) policies, principles or practices that violate any applicable federal anti-discrimination laws,” the rule states.

Although rural-based initiatives may be consistent with administration priorities, stakeholder comments have articulated concerns that some of the proposed processes would constrain rural health grants. For example, funding to support costs such as publication fees and conference travel appears to be excluded unless specifically stipulated in an award’s terms and conditions.

“Small institutions do not have the same ability to fund these activities from other sources; therefore, it will stifle the dissemination of innovations from these institutions,” a rural health researcher wrote in comments on regulations.gov.

Reimbursement requirements could add administrative work

The proposed rule states an aim of reducing administrative burden on grant recipients. For instance, an agency may require audits only as authorized by Single Audit Act statutory provisions.

“This revision balances proper oversight with limiting administrative burden, ensuring that core audit authority is preserved while constraining discretionary authority to expand audit requirements,” the proposed rule states.

Agencies still could conduct reviews to ensure compliance with “substantive programmatic or other legal requirements” such as federal civil rights laws or conscience protection laws.

In a provision that could add administrative burden, the rule would eliminate most fixed-amount awards and subawards. Any resulting shift toward cost reimbursement “may require more detailed documentation for labor, materials, indirect costs, overhead, contractor costs and reimbursement requests,” states an analysis by Aldrich.

Pass-through entities, some of which are hospitals, also would face new mandates with respect to subawards that are distributed to other entities. That funding would need to be reported to SAM.gov.

The proposed rule further states that pass-through entities “must ensure that subrecipients do not take actions that could significantly damage the reputation of the pass-through entity, awarding federal agency or the federal government. Where such actions occur, the pass-through entity must consult with the federal agency to determine whether termination of the award is warranted.”