The National Institutes of Health has jolted the academic research community with its Friday announcement that it would cap reimbursement for “indirect costs” on the grants it awards to universities to 15%.
Indirect costs involve a myriad of necessary overhead expenses that universities take on when they conduct research. They are typically divided into two categories – “facilities” and “administration” — and include items like maintenance of equipment, facility upgrades, the operation of labs, depreciation, employment of support staff, accounting, research compliance, legal expenses, and the salaries of key administrators in charge of an institution’s research enterprise.
Universities depend on indirect cost reimbursement to defray a significant portion of these expenses, and a cut of this magnitude will leave many of them scrambling to fill the huge budget holes that it almost immediately creates.
A social media post from NIH claimed that the policy change would save the federal government as much as $4 billion, and it pointed to the Harvard University, Yale University and Johns Hopkins University as examples of institutions with current indirect cost rates of more than 60% on their federal grants. The average NIH indirect cost rate has averaged 27%-28% over time.
According to the announcement, NIH spent more than $35 billion in Fiscal Year 2023 for nearly 50,000 competitive grants awarded to more than 300,000 researchers at 2,500 universities, medical schools, and other research institutions across the nation. Of that amount, about $26 billion went to direct costs for research, while $9 billion was allocated to overhead through NIH’s indirect cost rate.
As a justification for the decision, NIH pointed to the fact that universities often accept lower indirect cost reimbursement rates on grants from other federal and non-federal sources and that many granting organizations like private foundations typically impose a cap of 10% or 15% on how much indirect costs they will pay.
Reaction from a shocked research community and policy makers was swift.
American Council on Education President Ted Mitchell called the decision “short-sighted, naive, and dangerous,” and said it “sabotages the decades-long partnership that has ensured U.S. global leadership in life-saving medical research. This partnership has sparked innovations that have strengthened the U.S. economy, created good-paying jobs, and helped to educate generations of researchers and scientists.”
Mitchell added that the action amounts to “a surrender of U.S. supremacy in medical research. It is a self-inflicted wound that, if not reversed, will have dire consequences on U.S. jobs, global competitiveness, and the future growth of a skilled workforce.”
Jeffrey Flier, former dean of the Harvard Medical School, posted this on X: This approach to suddenly cutting @NIH grant indirect costs will cause chaos and harm biomedical research and researchers in hospitals, schools and institutes nationwide. A sane government would never do this.”
Senator Patty Murray (D-Washington) issued a statement saying that “by proposing an illegal and arbitrary indirect cost rate, Trump and Elon are functionally forcing an indiscriminate funding cut for research institutions across the country that will be nothing short of catastrophic for so much of the lifesaving research patients and families are counting on.”
Murray added that the new policy would “derail major breakthroughs by forcing research institutions—like the Fred Hutchinson Cancer Center and the University of Washington in my state—to now scramble to make up this massive shortfall, almost certainly forcing layoffs across the country,” and she urged Americans to call on the administration “to reverse this haphazard and dangerous funding cut.”
NIH insisted that the policy was necessary to “ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead.” Elon Musk, posted this on X: “Can you believe that universities with tens of billions in endowments were siphoning off 60% of research award money for ‘overhead’?”
The policy, which is set to go into effect Monday, will apply to indirect costs on all current grants incurred after February 10, 2025 as well as for all new grants. NIH said it would not apply the cap retroactively back to the initial date a current grant was issued even though it believed it had the authority to do so.