By Dan Walworth, Rolando Sanchez, Frederick Ball, Geoffrey Goodale and Sara Smith
Since taking office, the Trump Administration has taken steps to reshape the United States’ federal funding infrastructure. One such action relates to the National Institutes of Health’s (“NIH”) rate change, imposing a 15% cap for indirect costs, for new grants and for existing grants awarded to institutions of higher education (“IHEs”). This rate change, which represents a drastic reduction from historical rates normally negotiated by grant recipients, will impact ongoing research programs and clinical trials, and will have a long-term impact on the United States’ research infrastructure and abilities.
On February 10, 2025, the day the rate change was intended to go into effect, three lawsuits were filed in the U.S. District Court for the District of Massachusetts challenging the rate change. The lawsuits were filed by a group of stakeholders, including twenty-two states, thirteen universities, three university associations and five associations. Also on February 10, 2025, a district court judge granted two temporary restraining orders (“TROs”), enjoining enforcement of the rate change within the 22 Plaintiff states, and enjoining enforcement nationwide with respect to institutions. On February 21, 2025, following a hearing on the Plaintiffs’ motions for injunctive relief, the district court ordered that the TROs entered on February 10, 2025 are extended and will remain in effect until further order of the Court.
NIH Rate Change Notice
On February 7, 2025, the NIH announced in NOT-OD-25-068: Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates (“NIH Rate Change Notice”) that “there will be a standard indirect rate of 15% across all NIH grants for indirect costs in lieu of a separately negotiated rate for indirect costs in every grant.” This rate change applies to any new grants issued from February 10, 2025, and for all IHEs with existing grants, the rate change applies to “all current grants for go forward expenses from February 10, 2025.”
The NIH Rate Change Notice states that NIH is acting pursuant to its authority under 45 C.F.R. 75.414(c)(1), which allows it to deviate from negotiated rates for future grant awards, and in the case of grants to IHEs, for existing grants.
Indirect Costs
NIH defines “indirect costs” as “facilities” and “administration.” “Facilities” is defined as “depreciation on buildings, equipment and capital improvements, interest on debt associated with certain buildings, equipment and capital improvements, and operations and maintenance expenses.” “Administration” is defined as “general administration and general expenses such as the director’s office, accounting, personnel, and all other types of expenditures not listed specifically under one of the subcategories of ‘Facilities.’”
According to the NIH, it spent more than $35 billion in Fiscal Year 2023 on grants to researchers, universities, medical schools, and other research institutions. Of that $35 billion, approximately $9 billion was allocated to indirect costs.
As discussed further below, although indirect costs are not attributed to a specific research project, they are vital to an institution’s ability to carry out all of its research projects.
Litigation Pending in the U.S. District Court for the District of Massachusetts
On February 10, 2025, three lawsuits were filed in the U.S. District Court for the District of Massachusetts challenging the NIH Rate Change Notice. All three lawsuits name the following as Defendants: the NIH; Matthew Memoli, M.D., M.S., the Acting Director of NIH; the U.S. Department of Human and Health Services (“HHS”); and Dorothy Fink, M.D., the Acting Secretary of HHS (the “Defendants”).
Twenty-two states, including Massachusetts, Michigan, Illinois, Arizona, California, Connecticut, Colorado, Delaware, Hawaii, Maine, Maryland, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Washington, and Wisconsin (the “Plaintiff States”) filed a complaint “to protect their states and residents from unlawful action by the National Institutes of Health (“NIH”) that will devastate critical public health research at universities and research institutions in the United States.” According to the Plaintiff States, “[w]ithout relief from NIH’s action, these institutions’ cutting-edge work to cure and treat human disease will grind to a halt.”
Regarding the “indirect cost rates,” the Plaintiff States allege that “in order to conduct research, a university needs buildings, and needs to maintain those buildings and supply them with heat and electricity. A university also needs the infrastructure necessary to comply with legal, regulatory, and reporting requirements. These facilities costs cannot be attributed to any particular research project, but are still necessary for any research to occur.” As a result, the Plaintiff States allege that the effect of the NIH Rate Change Notice “will be immediate and devastating,” including “layoffs, suspension of clinical trials, disruption of ongoing research programs, and laboratory closures.”
The same day the Plaintiff States’ filed their complaint, Judge Angel Kelley, of the U.S. District Court for the District of Massachusetts, granted a TRO preventing Defendants, including the NIH, “from taking any steps to implement, apply, or enforce the Rate Change Notice (NOT-OD-25- 068) within Plaintiff States until further order is issued by this Court.” The TRO also requires that Defendants file biweekly status reports “confirming the regular disbursement and obligation of federal financial assistance funds” and reporting on the steps the NIH has taken to comply with the TRO.
Several associations, including The Association of American Medical Colleges, The American Association of Colleges of Pharmacy, The Association for Schools and Programs of Public Health, The Conference of Boston Teaching Hospitals, Inc., and Greater New York Hospital Association also filed suit challenging the NIH Rate Change Notice on February 10, 2025. These Plaintiffs similarly allege that indirect costs are vital to their research efforts. They allege that although these costs “cannot easily be assigned to a specific project,” they are necessary to support the research carried out by the organizations. The Plaintiffs claim that the implementation of the NIH Rate Change Notice will “hinder scientific progress and ultimately harm patients. It will impede progress on American medical, scientific, technical, and economic priorities; result in fewer jobs and slower economic growth; cede to other nations American companies’ competitive advantage as a catalyst of new industries; and threaten the nation’s long-term competitiveness against global adversaries.”
Judge Kelley issued a nationwide TRO on February 10, 2025 preventing implementation of the NIH Rate Change Notice “in any form with respect to institutions nationwide until further order is issued by the Court.” Defendants were again ordered to file biweekly status reports with the Court regarding the disbursement of federal funds.
Finally, the Association of American Universities, American Council on Education, Association of Public and Land-Grant Universities, Brandeis University, Brown University, The Regents of the University of California, The California Institute of Technology, Carnegie Mellon University, The University of Chicago, Cornell University, The George Washington University, Johns Hopkins University, Massachusetts Institute of Technology, Trustees of the University of Pennsylvania, University of Rochester, and Trustees of Tufts College filed suit challenging the NIH Rate Change Notice. These Plaintiffs allege that the effects of the NIH Rate Change Notice “will impose enormous harms, including on these institutions’ ability to contribute to medical and scientific breakthroughs.” They further allege that “NIH’s extraordinary attempt to disrupt all existing and future grants not only poses an immediate threat to the national research infrastructure but will also have a long-lasting impact on the country’s research capabilities, and in turn, its ability to deliver positive outcomes for all Americans and individuals around the world.”
Judge Kelley, on February 11, 2025, denied these Plaintiffs’ motion for a TRO as moot in light of the TRO entered in Association of America Medical College et al. v. National Institutes of Health et al., No. 25-cv-10320 (D. Mass. Feb. 10, 2025) [Dkt. 8]enjoining enforcement of the NIH Rate Change Notice “in any form with respect to institutions nationwide.”
On February 21, 2025, Judge Kelley held a hearing with the parties from all three cases challenging the NIH Rate Change Notice to address the Plaintiffs’ respective motions for injunctive relief. Following the hearing, Judge Kelley ordered that the existing TROs, entered on February 10, 2025, are extended and will remain in effect until further order of the Court.
What Next?
Per the court’s February 21st order, the TROs will continue to remain in place. States and institutions should monitor the status of the NIH Rate Change Notice as the litigation in the District of Massachusetts continues to unfold, and as other challenges to the NIH Rate Change Notice are raised. Institutions should also reach out to experienced counsel with multi-disciplinary expertise in education, government contracts, life sciences, and government investigations and enforcement matters, to work with counsel to develop potential responses and compliance strategies as this issue develops.
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