NEW YORK – A coalition of state attorneys general has sued the National Institutes of Health, hoping to block a recent directive to cap costs paid to institutions to support research, a move that would reduce grant spending overall by billions of dollars.
The suit was filed in response to guidance issued late Friday establishing "a standard indirect rate of 15 percent across all NIH grants for indirect costs in lieu of a separately negotiated rate for indirect costs in every grant." These costs include administrative and direct support of federally funded research, including physical and computational infrastructure. NIH's guidance noted the statutory minimum is 10 percent, while the national average is approximately 27 percent, and some universities have individually negotiated rates of as much as 60 percent.
NIH funding in 2023 was more than $35 billion, including approximately $9 billion in indirect costs. In a social media post, NIH said the change would save more than $4 billion a year.
In a complaint filed Monday in the US District Court for the District of Massachusetts, the plaintiffs, led by Massachusetts Attorney General Andrea Campbell, wrote that an NIH directive set to take effect Monday was "unlawful" and "will devastate critical public health research at universities and research institutions in the US."
The lawsuit alleges that the NIH's actions violate the Administrative Procedure Act and asks the court for a temporary restraining order as well as preliminary and permanent injunctions against taking steps to implement, apply, or enforce the rate change.
The NIH's actions further cloud the picture of grant funding available to researchers. It follows a late January memo from acting White House Office of Management and Budget Director Matthew Vaeth to freeze all federal grant payments pending a review. Vaeth rescinded the memo just days later; however, White House Press Secretary Karoline Leavitt said only the memo itself had been rescinded and not the proposed payment freeze. Earlier this month, a federal judge issued a temporary restraining order to prevent the White House from imposing the freeze.
"I worry this uncertainty will begin affecting lab spending and has me rethinking reagent and instrument purchases so we have more capital on hand to weather any potential storms," said one sequencing core lab director in California, who spoke on the condition of anonymity due to the sensitivity of the issue. "This will negatively affect biomedical science companies," they added.
The stock prices of many genomics tools firms fell on Monday in response to the NIH directive. According to a research note issued by investment bank UBS Securities on Sunday, firms with the most exposure to NIH funding include 10x Genomics, Pacific Biosciences, Illumina, Bio-Techne, Bruker, and Qiagen.
In Monday afternoon trade, shares of 10x Genomics were down 15 percent at $12.16; Pacific Biosciences was also down 15 percent at $1.33; Bruker was down 8 percent at $51.17; Illumina fell 6 percent at $104.35; and shares of Thermo Fisher Scientific had declined 3 percent at $552.59.
University and research institute leaders also have criticized the NIH rate change. "Let there be no mistake: this is a direct and massive cut to lifesaving medical research," Association of Public and Land-grant Universities President Mark Becker said in a statement. "We urge the administration to reconsider this self-defeating action."
In a statement, the University of Wisconsin-Madison said that the proposed change would disrupt research and negatively impact the ability of students to engage in research. "Drastic reduction to this funding will not only disrupt the day-to-day important work of the university but will ultimately harm the livelihoods of real people across Wisconsin and the country, harm the innovation economy and will make our nation less competitive," the university said.
"I would be perfectly happy to change the system to something more consistent, more transparent," said Edison Liu, a researcher, president emeritus, and former CEO at the Jackson Laboratory. "But that will take thoughtfulness, not … [giving] a surgeon a hacksaw to go in to take care of an appendectomy."
So-called indirect costs are collected by institutions to cover administrative and facility expenditures to support NIH-funded research activities. "These real and documented research expenses include physical lab operations and maintenance, security, data processing and storage, and daily operations of critical research infrastructure," the Association of American Medical Colleges President David Skorton and CSO Elena Fuentes-Afflick said in a joint statement. "This announcement will mean less research. Lights in labs nationwide will literally go out. Researchers and staff will lose their jobs."
NIH began offering individually negotiated indirect cost rates in the 1960s, and some institutions receive rates of more than 50 percent. As reported by the Harvard Crimson, Harvard University collects a rate of 69 percent. The University of Michigan's current negotiated rate is 56 percent.
In its directive, NIH wrote that it is "vital to ensure that as many funds as possible go towards direct scientific research costs rather than administrative overhead." According to NIH, the new rate is in line with indirect cost rates provided by private research funding organizations such as the Chan Zuckerberg Initiative in the range of 10 percent to 15 percent.
However, even the indirect costs provided by NIH do not cover the total cost to an institution to support research, Liu said. "What the government actually funds for a grant is between 50 and 60 percent of the true cost of doing research," he said.
The state AG lawsuit noted that in his first term, President Donald Trump proposed a budget that would have reduced the indirect cost rate to 10 percent. However, in 2018, Congress enacted an appropriations rider "prohibiting [the Department of Health and Human Services] or NIH from spending appropriated funds 'to develop or implement a modified approach to' the reimbursement of 'indirect costs' and 'deviations from negotiated rates.'"
In addition to Massachusetts, plaintiffs include the states of Arizona, California, Connecticut, Colorado, Delaware, Hawaii, Illinois, Maine, Maryland, Michigan, Minnesota, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, Washington, and Wisconsin.
The lawsuit shows how the NIH proposal could affect state university budgets on the order of tens of millions of dollars per year. For example, at UW-Madison, which receives approximately $513 million a year from HHS, mostly from NIH, the rate cut would "eliminate approximately $65 million in funding in the current year, and result in a similar reduction in resources available to support research each year." UW-Madison's current negotiated rate is approximately 56 percent.
While the majority of the AGs bringing the suit are affiliated with the Democratic Party, at least one Republican politician has expressed concern over the rate cut. US Sen. Katie Britt, R-Ala., said "a smart, targeted approach is needed in order to not hinder life-saving, groundbreaking research at high-achieving institutions like those in Alabama," as reported by AL.com.
The Department of Health and Human Services said it does not comment on ongoing litigation.
"For institutions of higher education, we have the authority to make these changes retrospective for current grants and require grantees to return the excess overhead they have previously received, but we have currently chosen not to do so to ease the implementation of the new rate," HHS Director of Communications Andrew Nixon said in an email. "However, we will continue to assess this policy choice and whether it is in the best interest of the American taxpayer."
This story includes additional reporting by Ben Butkus, Adam Bonislawski, Kelsy Ketchum, Huanjia Zhang, and Madeleine Johnson.