On Friday, the National Institutes of Health (NIH) announced a sudden change to how it handles the indirect costs of research—the money that pays for things like support services and facilities maintenance. These costs help pay universities and research centers to provide the environment and resources all their researchers need to get research done. Previously, these had been set through negotiations with the university and audits of the spending. These averaged roughly 30 percent of the value of the grant itself and would frequently exceed 50 percent.
The NIH announcement set the rate at 15 percent for every campus. The new rate would start today and apply retroactively to existing grants, meaning most research universities are currently finding themselves facing catastrophic budget shortfalls.
Today, a coalition of 22 states filed a suit that seeks to block the new policy, alleging it violated both a long-standing law and a budget rider that Congress had passed in response to a 2017 attempt by Trump to drastically cut indirect costs. The suit seeks to prevent the new policy or its equivalent from being applied—something that Judge Angel Kelley of the District of Massachusetts granted later in the day. The injunction only applies to research centers located in the states that have joined the suit, however, essentially leaving red states to suffer the consequences of the funding cut.
Directly targeting indirects
Indirect costs cover a huge range of things that can’t be handled efficiently at the level of individual labs. This includes things like the maintenance of buildings, support staff, the care of animals and handling of dangerous wastes, and the administrative staff that provides things like IT support and ensuring compliance with the laws that apply to grant-funded research. Because they’re set through negotiations between the government and the universities, the rates of indirect funding can vary considerably. But large research universities typically receive tens of millions of dollars in overheads every year.
This isn’t the first time that indirect funding has been threatened, though. In 2017, Trump’s budget proposal would have set all indirect rates at 10 percent of the grant’s value, but it was blocked by congressional action (we’ll return to that). The Project 2025 document that seems to be guiding the initial weeks of the new administration also calls for indirect costs to be slashed, claiming “these reimbursements cross-subsidize leftist agendas.”
Regardless of what else they might be doing, the indirect costs pay for various critical campus services, including at research hospitals. Suddenly having that amount slashed would create a major budgetary shortfall that will be hard to cover without shutting programs down.
The resulting damage to research campuses in their states was one of the harms cited by the states that joined the suit as part of their effort to establish standing. The other was the harm caused by the general slowdown in biomedical research that the policy will trigger, which the states argue will delay the availability of treatments for their citizens.
The states taking part include most of those that were won by Kamala Harris in 2024, as well as states that voted for Trump but currently have Democratic governors and attorneys general: Arizona, Michigan, Nevada, North Carolina, and Wisconsin. Notably, the suit only seeks relief from the altered NIH policy for institutions located in those states; they’re essentially leaving states controlled by Republicans to suffer the damages caused by the new policy.
Allegations and backup allegations
The states allege that the new NIH policy, by applying to all grants in progress, is equivalent to rewriting a contract. It cites an earlier legal decision that determined that “Once the [Notice of Award] is signed or money is drawn, the [Notice of Award] and the grant terms are binding on the grantee and the government.” Beyond that, the states argue the policy violates two separate pieces of legislation.
The first is the Administrative Procedures Act, which describes the processes that agencies need to follow when they formulate formal rules to translate legislation into implementations. Among other things, this prevents agencies from formulating rules that are “arbitrary and capricious.” It argues that, by including audits and negotiations in the process of setting them, the current individualized indirect rates are anything but.
By contrast, the states argue, there’s no significant foundation for the 15 percent indirect rate. “The Rate Change Notice is arbitrary and capricious in, among other ways, its failure to articulate the bases for the categorical rate cap of 15 percent,” the suit alleges, “its failure to consider the grant recipients’ reliance on their negotiated rates, and its disregard for the factual findings that formed the bases for the currently operative negotiated indirect cost rates.”
The NIH announcement suggests that the process of deciding on the 15 percent rate involved checking the indirect rates of a handful of private foundations. The states are alleging that this fails to make the policy any less arbitrary or capricious.
Should the judge decide that the new NIH policy isn’t a federal rule governed by the Administrative Procedures Act, however, the states have a backup. As mentioned above, the first Trump administration had tried to slash indirect cost rates back in 2017. In response, the Democratic-controlled Congress of 2018 managed to attach a rider to an appropriations bill that prevented the NIH from spending any money to develop or implement any policy that alters the then-present system of determining indirect cost rates. That rider has remained in effect ever since, which suggests that, merely by announcing the new policy, the NIH has spent some of its budget in a manner specifically prevented by law.
Remedies
The states were seeking a number of forms of relief. These include formally declaring the new policy a violation of the Administrative Procedures Act and hitting it with a temporary injunction. In a different suit, an injunction had been granted against a different Trump administration policy, only to see the policy continued under a different authorization. Mindful of this, the states also want an injunction against similar policies being enacted in a different form or under a distinct name.
To make sure that no further action is needed to enforce the injunction, the suit asks the judge to order continued compliance reports from the NIH and the Department of Health and Human Services. Judge Kelley has agreed and ordered these reports to be delivered bi-weekly.
As noted above, the states only asked for this relief on behalf of institutions located within their borders, and that is all that was granted. So the NIH policy will be allowed to take effect in the other 28 states, creating a stark dichotomy between research support in neighboring states.
Update 2/10: The story was updated to reflect the fact that an injunction was granted on the day the suit was filed.