B-170688 Dear Mr. McClory: Your letter of August 19, 1970, referred for our consideration a letter dated August 10, 1970, from your constituent, Mr. Sheldon I. Dorenfest, President of Compucare, Inc. Mr. Dorenfest expressed con- cern about the use of Government funds to develop a shared computer system for hospitals, which was subsequently sold to a private corn- pany--a competitor of Compucare-- and requested comments on the legality of the action and suggestions concerning what recourse his company might have a We previously advised you that the Department of Health, Educa- tion, and Welfare (HEW) had received from Senator Charles II. Percy a copy of a similar letter from Mr. Dorenfest and was investigating the matter for a reply to Senator Percy. HEW 1s investigation concluded that a large part of the computer system in question had been developed through tbe use of private funds and that there was no reason to doubt that the portion developed with Government funds would be made avail- able to all interested parties in the immediate future. We were in- formed that HEW had no plans for future action on this matter, Effective January 1 9 1967, the Public Health Service (PHS) of HEW awarded a grant to the Sisters of the Third Order of St. Francis--a re- ligious group which operates I.1 hospitals in Illinois, IQW~, and Michi- gan-for a research project entitled “Demonstration of a Shared Hos- pital Information System.” The grant was approved for a period of 3 years, from January 1, 1967, through December 31, 1969; the project period subsequently was extended, without additional funding, through January 31, 1971. The costs reimbursed by HEW during the 3-year pe- riod totaled about $9.4 million, subject to final settlement of indirect costs. HEW records showed that the Third Order had made a cost- sharing contribution of about 25 percent of the total project costs. The purpose of the project was to demonstrate the shared use, by a group of participating hospitals, of a central computer system to pro- vide communication between various hospital departments and between physicians and hospitals and to automate patient records and hospital procedures for such operations as admittance, laboratory, and radiology. . . HEW” recorde showed that the Third Order previously had demon- strated its ability to operate an automated ~ystern with aszsociated hos- pitals through the e&ablis ent and operation of a shared braslinetsa management comptex~ 8ydxsno whichha~ been opsrational since 1964. The system was comectad by a central computea: to some 20 hoqSta.ls in the Adidwe~t and provided for such functions as patient billing, acm countps payable, payroll, and financial reporting. We were informed by Third Qrder officials that x-10 P funds had been used to develop this i3yfltem. Near the end of the origiraal project eriod, the Third Order mxbm milteda proposal for a 2-year renewal of he grant and requested addi* tional ftuxb for direct coslts totaling about $2.6 miLlion, plus an unapec- ified amount for indirect costs. After review and consideration by an HEW advisory group, the requeslt was denied in March 1970. T$e proj- ect period, however, VVZLBextended by W through January 31, k97l, to permit the grantee to complete certain analyses and to iosue a final report on the gmoject. IWe have been informed that the final report is ected to be available in early 1971. Effective March 1, 1970, the Third rder sold its entire data ~proceseing division to the McBonmA.1 Aut atiom. Company, a division of the McDomelll Douglas Ckrporation. crating employees were oft fered their choice of remaining tith the Third Order or of accepting poEiCons with McDonnell Automation; they al.1 cho~le exnpkoyment with the latter. McDomePl Automation alrso entered into a long- term oervice contract with the Third Order to provide all data processing services required by the hospital group. The principal inveotigator, who wan responsible for the scientific and technical direction of the grant project, is now an employee of McDomeEl Automation. We advined HEW that the agreermmt betwaen the Third Order and McDonneB1 Automation s @cifically excluded any ppom prietary rights to the Shared Was itd Inibrmation Syestetil (SHE) developed with grp.nt funds. He fdattea, hovmver, th@14: the computer programe used in SHIS -wmre dissek.nated to McDonnell Automatiarn as property in the public domain. 2 B- 170688 clinical investigation, and patient status reporting applications (Phase IT applications in the agreement) are yet to be developed. We were informed by the principal investigator that SHIS was not marketable at March 1, 1970, because it was only partially developed and covered only a portion of hospital operations. He stated that McDonnell Automation had lost money on SWIS operations at the three pilot hospitals and had not been successful to any extent in marketing the system. He stated also that McDonnell Automation would probably invest up to $500,000 to complete development of SHIS and indicated that the system would probably not be marketable until 1972. Our review of pertinent Federal laws and HE’,W regulations rem vealed no provision covering the dissemination, before publication, of information developed under grants funded by HEW. Discussions with representatives of the HEW Office of the General Counsel confirmed that there was no such provision, either in regulation or in statute. / These officials also expressed the opinion that this was a relatively unique case and that any competitive advantage to McDonnell Automation resulting from the earlier availability of the information was difficult to assess. Information provided to us by Mr. Dorenfest indicated that McDonnell Automation also may have gained some advantage over its competitors by hiring the employees who were associated with the proj- ect supported by the grant and by using certain hospitals operated by the Third Order as demonstration sites to market the systems. As noted above, the operating employees were offered their choice of remaining with the Third Order or of working for McDonnell Automation. We know of no restriction or prohibition which would have prevented such actions in this case. In the absence of any provision relating to the premature disclow sure of information developed under grants funded by I-IEVY~ we know of no b,asis for questioning the legality of the actions of HEW, the grantee, or McDonneill Automation. Moreover, the only recourse that we can suggest to Compucare is to obtain the grantee’s final report when it is 4 B- 170688 published and/or to obtain the magnetic tapes containing the SHB pro- grams developed to date, which the principal investigator and the Third Order have agreed to release to anyone requesting them before publim cation of the report. We believe, however, that McDonneU. Automation tentia1 antage over its corn titers a~ a result of t of the rd Order’s data pro sing d.iviEa ion and tha have pPayed some part in the development of the capabilities of that di- Ulll Vis;iOlL In our opinion, the benefits obtained from the i Federal funds should be available, to the matimm ext “,,. beneficiaries on an equal basisl. Therefore we plan to explore the advisability of establishing gr conditions which would prohibit the premature disclosure of valuable i rmation developed with Federal funds in situations similar to the one described above. W, Third Order, and McDonnehl Automation officials have not been given an opportunity to comment on the matters di cusirsed in this report. Sincerely yours, of the United States The Honorable Robert McClory Houli~e of Representatives
Advantage Obtained in Selling a Product Developed With Government Grant Funds
Published by the Government Accountability Office on 1971-01-08.
Below is a raw (and likely hideous) rendition of the original report. (PDF)