By: Palmer Dayhuff
A new policy proposed by the National Institute for Health could dramatically reduce the amount of federal funding universities and other research institutions conducting medical research receive.[1] The National Institute of Health (“NIH”), a part of the U.S. Department of Health and Human Services, is the nation’s medical research agency.[2]The NIH’s mission “is to seek fundamental knowledge about the nature and behavior of living systems and the application of that knowledge to enhance health, lengthen life, and reduce illness and disability.”[3] The NIH awards a large number of grants providing substantial federal funding for research purposes.[4] In the fiscal year 2023, NIH spent more than $35 billion on almost 50,000 competitive extramural grants to more than 300,000 researchers at more than 2,500 universities, medical schools, and other research institutions.[5]
On February 7, 2025, the Director of the NIH published Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates.[6] The suggested policy change sparked controversy as many grant recipients are concerned that the new policy will dramatically reduce their federal funding for medical research.[7] The policy change could disproportionately affect universities and research institutions in North Carolina “because of the concentration of medical research in [the] state[].”[8]
For federal grants awarded by the NIH, recipients may currently receive the direct costs of the program and indirect costs, also referred to as facilities and administration (“F&A”) costs.[9] “Direct costs are any cost that can be identified specifically with a particular sponsored project, an instructional activity, or any other institutional activity, or that can be directly assigned (allocated) to such activities relatively easily with a high degree of accuracy.”[10] Put simply, direct costs include things like salaries, equipment, and supplies directly supporting the grant-supported project.
Indirect costs or F&A costs, are defined as “costs incurred by a recipient for a common or joint purpose benefitting more than one cost objective, and not readily assignable to the cost objectives specifically benefitted, without effort disproportionate to the results achieved.”[11] Indirect costs cover expenses such as lab infrastructure, building maintenance and operations, administrative staff, and safety and compliance.[12] While these costs cannot be neatly attributed to one specific research project, they are nevertheless necessary to that research.
The Change in Policy:
The NIH announced in its supplemental guidance on February 7, that any new grants and all existing grants to institutions of higher education (“IHE”) would be subject to a fifteen percent indirect cost rate.[13] This would be a sharp departure from the way the NIH negotiated these rates. In the past, individual universities and other research organizations negotiated indirect cost rates with the federal government.[14] This process involved universities submitting indirect cost proposals every three to five years including cost summaries, floor plans, and other information relevant to the indirect costs that universities face when engaging in research.[15] The federal government would then review these proposals and negotiate with universities to determine the agreed upon indirect cost rate.[16] While the current average indirect cost rate is between twenty-seven and twenty-eight percent, certain universities and organizations have negotiated indirect cost rates over fifty or sixty percent.[17]
A reduction of indirect cost rates could reduce universities’ federal grant funding substantially. Of the $35 billion distributed by the NIH in fiscal year 2023, $9 billion was allocated to indirect costs.[18] Universities that receive the most funds and negotiate high indirect cost rates could stand to lose more than $100 million of funding per year on average.[19] The NIH took to X after publishing the guidance and claimed that the policy change “will save more than $4B a year effective immediately.”[20]
Fallout:
The response from the medical and academic community was swift. Multiple lawsuits have been filed in the U.S. District Court for the District of Massachusetts seeking to enjoin the NIH from implementing this policy change.[21] The first suit filed by a group of twenty-two state attorneys general prompted the district court to grant a temporary restraining order (TRO) enjoining NIH from “taking steps to implement, apply or enforce” the new policy in any of the Plaintiff states.[22] In a subsequent suit brought by the Association of American Medical Colleges and other higher education organizations and universities, the district court expanded its TRO nationwide.[23] On Friday, February 21, the district court extended the TRO pending a hearing on a preliminary injunction.[24]
Though the judiciary has temporarily restrained enforcement of this rate change, interested parties on both sides continue to argue over the potential costs and benefits. Those who support the change argue that indirect costs are “by their very nature . . . difficult for NIH to oversee.”[25] Further, universities are willing to accept lower indirect cost rates on funding from the private sector.[26] On the other side, critics argue that a decrease in funding will slow progress in vital medical research.[27] The Association of American Medical Colleges claimed that the loss in funding could “force universities to lay off staff, close laboratories and shutter certain research programs altogether.”[28] In North Carolina specifically, the proposed cuts could put thousands of jobs at risk and result in significant lost economic activity.[29]
Whether the NIH will be able to implement this change will hinge on the success of the plaintiffs’ claims that the policy change violates the Administrative Procedure Act and is outside of the agency’s authority under the Appropriations Act of FY 2024.[30] Some senators have weighed in on this issue and claimed that the agency’s decision to cut funding violates the appropriations law Congress passed last March.[31] Universities and research institutions across the country and in North Carolina will need to continue to monitor the situation closely because the outcome of the litigation could have a dramatic impact.
[1] See Nat’l Inst. of Health, Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates, (Feb. 7, 2025), https://grants.nih.gov/grants/guide/notice-files/NOT-OD-25-068.html.
[2] Who We Are, Nat’l Inst. of Health, https://www.nih.gov/about-nih/who-we-are (last visited Feb. 21, 2025).
[3] What We Do: Mission and Goals, Nat’l Inst. of Health, https://www.nih.gov/about-nih/what-we-do/mission-goals (last visited Feb. 21, 2025).
[4] Nat’l Inst. of Health, supra note 1.
[5] Id.
[6] Id.
[7] See, e.g., Penny Gordon-Larsen, Research VC Explains True Costs of Research, Univ. of N.C. at Chappel Hill (Feb. 14, 2025), https://www.unc.edu/posts/2025/02/14/the-true-costs-of-conducting-research/.
[8] Emily Badger et al., How Trump’s Medical Research Cuts Would Hit Colleges and Hospitals in Every State, N.Y. Times (Feb. 13, 2025), https://www.nytimes.com/interactive/2025/02/13/upshot/nih-trump-funding-cuts.html.
[9] Nat’l Inst. Of Health, NIH Grants Policy Statement, (Apr. 2024), https://grants.nih.gov/grants/policy/nihgps/nihgps.pdf.
[10] Id.
[11] Id.
[12] See, e.g., Penny Gordon-Larsen, supra note 7.
[13] See Nat’l Inst. of Health, supra note 1.
[14] Id.
[15] Penny Gordon-Larsen, supra note 7.
[16] Id.
[17] See Nat’l Inst. of Health, supra note 1.
[18] Id.
[19] Emily Badger et al., supra note 8.
[20] @NIH, X (Feb. 7, 2025, 6:19 PM), https://x.com/NIH/status/1888004759396958263.
[21] Michael T. Nietzel, Federal Judge Extends TRO Against NIH Cap On Indirect Cost Payments, Forbes (Feb. 21, 2025, 1:36 PM), https://www.forbes.com/sites/michaeltnietzel/2025/02/21/federal-judge-extends-tro-against-nih-cap-on-indirect-cost-payments/.
[22] Massachusetts v. Nat’l Inst. of Health, No. 25-CV-10338 (D. Mass. Feb. 10, 2025).
[23] Association of American Medical Colleges v. Nat’l Inst. of Health, No. 25-CV-10340 (D. Mass Feb. 10, 2025).
[24] Michael T. Nietzel, supra note 21.
[25] See Nat’l Inst. of Health, supra note 1.
[26] Id.
[27] Emily Badger et al., supra note 8.
[28] Christina Jewett and Teddy Rosenbluth, Court Pause on Trump Cuts to Medical Research Funds Is Expanded Nationwide, N.Y. Times (Feb. 11, 2025), https://www.nytimes.com/2025/02/11/health/nih-research-funding-lawsuit-injunction.html.
[29] Cindy Bae, Cuts to Research Funding Would Impact Jobs, Patients and NC’s Economy: ‘Ripple Effect’, ABC (Feb. 24, 2025, 7:39 PM), https://abc11.com/post/usaid-cuts-nc-duke-university-worries-medical-research-north-carolina-jobs-amid-funding/15951571/#:~:text=Cuts%20to%20research%20funding%20would,NC’s%20economy%3A%20’Ripple%20Effect’&text=Duke%20University%20said%20over%2025%2C000,DURHAM%2C%20N.C.
[30] Michael T. Nietzel, supra note 21,
[31] See, e.g., Erin Shumaker, Susan Collins Says Trump’s Research Cuts Violate the Law, as Judge Temporarily Blocks Them, POLITICO (Feb. 10, 2025), https://www.politico.com/news/2025/02/10/trump-nih-research-grant-lawsuit-00203376.
