In just over two months since President Donald Trump assumed office, the Department of Health and Human Services (HHS), now under the leadership of Secretary Robert F. Kennedy Jr., has undergone a profound shift in its priorities. This transformation, coupled with the efforts of the newly established Department of Government Efficacy (DOGE), led by Elon Musk, has resulted in aggressive moves to reduce federal funding.
The looming threat of further cuts has created an increasingly uncertain financial landscape for the health care sector and sparked a wave of legal challenges, with several lawsuits that question the legality and constitutionality of these funding cuts.Over 100 lawsuits have been filed against the administration’s executive actions in President Trump’s second term.
The Trump administration’s actions call into question whether the Supreme Court could address a challenge to the Impoundment Control Act of 1974, the primary legal mechanism through which Congress considers and reviews executive branch withholdings of budget authority. Even as the Trump administration’s spending cuts are contested in the courts, the long-term effects on the health care industry are likely to persist and could shift the power of appropriated funding.
Proposed HHS Funding Cuts
CDC Cuts Billions in Grant Funding
The Centers for Disease Control and Prevention (CDC) attempted to pull back approximately $11.4 billion in funds allocated to state and community health departments, which includes federally qualified health centers (FQHCs), nongovernment organizations and international recipients. HHS sent notices out to state departments of health services on March 24, and awardees have 30 days to reconcile their expenditures. The clawed-back funds were largely used for the COVID-19 pandemic response, including testing, vaccination and hiring community health workers. However, the funds were also broadly used to track infectious diseases, address health disparities and provide vaccinations and mental health services, among other uses.
According to the notices, HHS cited that the “end of the pandemic provides cause to terminate COVID-19 related grants, which were issued for a limited purpose.” It added that “now that the pandemic is over, the grants are no longer necessary as their limited purpose has run out.” Furthermore, HHS highlighted that it is prioritizing funding projects that will “deliver on President Trump’s mandate to address the chronic disease epidemic and Make America Healthy Again.”
A government spokesperson confirmed the $11.4 billion for the grant cancellations, but it also directionally aligns with the “wall of receipts” of savings posted on DOGE’s website. Some of the largest cuts come from Texas and California. The Texas Department of State Health Services evaluated that it could lose around $877 million in federal funding through the grant cancellations. Similarly, the California Department of Public Health confirmed it could lose approximately $972 million in funds for the state, which went towards preparing for vaccinations, directing patients from hospitals to other health facilities during emergencies or providing substance use prevention services for youth. Broadly, the most immediate impact will be layoffs and a decline in preventative measures around infectious disease, COVID-19 research and substance abuse treatment.
In response, on April 1, a group of 23 states filed a lawsuit in the U.S. District Court in Rhode Island, asking the court to vacate the grant cancellations, declare them a violation of the Administrative Procedures Act (APA) and preliminarily and permanently enjoin the Trump administration from implementing or enforcing the cuts. It includes New York Attorney General Letitia James, Colorado Attorney General Phil Weiser, Gov. Andy Beshear (D-KY), Gov. Josh Shapiro (D-PA) as well as attorneys general in California, Minnesota and Wisconsin, among others. The lawsuit, filed against HHS and HHS Secretary Robert F. Kennedy Jr. argues the cuts are illegal, and that the federal government did not provide a “rational basis” or facts to support the cuts. The lawsuit says it will result in “serious harm to public health” and put states “at greater risk for future pandemics and the spread of otherwise preventable disease and cutting off vital public health services.” They also argued that Congress, which authorized the funding during the pandemic, rescinded a separate $27 billion when reviewing laws related to the COVID-19 pandemic but “determined not to rescind any of the funding at issue here.”
Reports about the exact dollar figures being cut continue to come in as state departments of health services determine the total amounts involved across multiple grants, with many grantees at various stages of drawing down funds. Given the lawsuit, it remains to be seen whether the cuts will remain in effect. In Congress, Democratic lawmakers have come out against the cuts. For example, Rep. Nancy Pelosi (D-CA) highlighted that the cuts would “put the health and safety of residents in jeopardy, gut vital public health initiatives and potentially axe hundreds of career civil servant jobs. She said Secretary Kennedy’s “extreme views on public health are out of step with the majority of the American people.” Sens. Jack Reed (D-RI) and Sheldon Whitehouse (D-RI) and Reps. Seth Magaziner (D-RI) and Gabe Amo (D-RI) also sent a letter to HHS demanding that the bipartisan-approved funding be delivered to Rhode Island and other states as intended by the law. They emphasized that the funding was also used to address systemic weaknesses in public health infrastructure, strengthen the capacity to respond to future disease outbreaks, protect vulnerable populations and improve communications with the public.
NIH Reduces Indirect Funding to Grantees
The National Institutes of Health (NIH) issued a directive on Feb. 8 stating that funds should go toward direct scientific research rather than administrative overhead. The NIH said it provided over $35 billion to almost 50,000 competitive grants to over 300,000 researchers at more than 2,500 universities, medical schools and other research institutions in 2023, but that it would now limit the amount granted toward payments for indirect costs to 15%. Indirect costs are often used for administrative and facility costs, such as utilities and staff salaries, which are necessary to conduct research. Previously, indirect cost rates averaged nearly 30% of a grant, with some universities’ indirect cost rates at over 60%. According to the NIH, the move would save approximately $4 billion annually. The agency noted that it is “obligated to carefully steward grant awards to ensure taxpayer dollars are used in ways that benefit the American people and improve their quality of life” and “indirect costs are, by their very nature, not readily assignable to the cost objectives specifically benefitted.”
In response to the directive, state attorneys general in 22 states sued HHS to block the Trump administration from slashing federal funding to universities and top research institutions. The lawsuit, which was filed in the U.S. District Court in Massachusetts, argues that cuts to indirect research overhead would “devastate critical public health research at universities and research institutions across the United States.” The attorneys general cite that “cutting-edge work to cure and treat diseases would grind to a halt.” Similarly, the lawsuit argues that NIH’s directive to cap funding for indirect costs “contravenes Congress’s express directives in the appropriation acts governing the NIH” as well as goes “beyond its statutory authority,” by failing to promulgate the change using notice and comment rulemaking.
The state attorneys general lawsuit was not the only one to quickly be filed. For instance, a multitude of medical associations filed a separate lawsuit in the same federal court challenging the legality of NIH’s directive to limit its federal funding. A dozen research universities, along with several higher education associations, also filed their own lawsuit in the Massachusetts court seeking to halt the cuts. On March 5, Judge Angel Kelley in the U.S. District Court for Massachusetts ordered a preliminary injunction that stops the NIH funding changes from occurring while she hears full arguments in the three lawsuits.
The Trump administration’s move has been met with strong opposition from university and health care stakeholders as well as both Republican and Democratic members of Congress. Notably, Senate Appropriations Committee Chairwoman Susan Collins (R-ME) said she strongly “opposes the poorly conceived directive imposing an arbitrary cap on the indirect costs that are part of NIH grants and negotiated between the grant recipient and NIH,” highlighting that the cuts would be “devastating, stopping vital biomedical research and leading to a loss of jobs.” She added that she spoke to HHS Secretary Kennedy, highlighting that he promised to “re-examine this initiative.” Senate Health, Education, Labor and Pensions (HELP) Committee Chairman Bill Cassidy (R-LA) said certain universities and research facilities could not shoulder the costs, highlighting that “people in Louisiana will suffer from the cuts,” although he simultaneously expressed there could be areas to reform. Sen. Katie Britt (R-AL) also said “while the administration works to achieve this goal at NIH, a smart, targeted approach is needed in order to not hinder lifesaving, groundbreaking research at high-achieving institutions like those in Alabama,” expressing concerns over the impact the cuts would have within her state.
Even if the NIH directive is ultimately struck down in the court, the Trump administration’s efforts to limit funding for research could continue to contribute to a scientific “brain drain” in the United States as unprecedented disruptions in grant funding, job openings and current climate are leaving researchers and clinicians frustrated and riddled with administrative burdens.
President Trump Freezes Funding to USAID
President Trump issued an executive order (EO) on his first day in office to reevaluate and realign U.S. foreign aid, issuing a freeze on all foreign aid for a 90-day review, which included the United States Agency for International Development (USAID). Specifically, the EO called for a pause on new obligations and disbursements alongside the review. Later, a notice on the implementation of the EO was issued, calling for a stop-work order to be provided for all existing foreign assistance awards, not just new obligations and disbursements. Although exemptions were granted for foreign military financing for Israel and Egypt, emergency food and related humanitarian assistance and the President’s Emergency Plan for AIDS Relief (PEPFAR), the lack of clear guidance created uncertainty among aid organizations and program administrators. Agency employees cited that lifesaving aid remained halted despite the waivers because of pressing obstacles, such as mass staff layoffs or a shutdown of payment systems.
Several lawsuits have been filed in response to the federal funding freeze for USAID and the mass layoffs at the agency. Each case claims that the Trump administration’s cuts violate the separation of powers as well as numerous provisions included in the Take Care Clause and APA, among other reasons. Each lawsuit has set out to prevent the freeze and shuttering of USAID from remaining in effect during the ongoing litigation.
Specifically, foreign aid recipients and other nonprofits filed lawsuits in the U.S. District Court in Washington, D.C., to challenge the funding freeze in early February. U.S. District Judge Amir Ali issued a temporary restraining order (TRO) prohibiting the Trump administration from ending or pausing payments for contracts in place prior to Jan. 20. The court later determined that the Trump administration must pay nearly $2 billion in already completed aid work, setting a deadline for midnight the next day, Feb. 26. The Trump administration asked the Supreme Court to intervene, and Chief Justice John Roberts canceled the lower court’s deadline of Feb. 26, which signaled the Supreme Court would intervene swiftly.
Ultimately, on March 5, the Supreme Court denied the government’s request to vacate the U.S. district court’s foreign aid freeze TRO by a 5-4 ruling, meaning the Trump administration must resume foreign aid disbursements, sending the order back to the U.S. district court to clarify its obligations for ensuring compliance with the TRO. The majority noted that given a court-ordered deadline to spend the money had already passed, the lower courts should “clarify what obligations the government must fulfill to ensure compliance with the TRO.”
The U.S. district court ordered the government to release all payments due to the plaintiffs March 10, stating that the government was “enjoined from unlawfully impounding congressionally appropriated foreign aid funds” and will make “available for obligation the full amounts that Congress appropriated for foreign assistance programs” through the appropriations process. As the district court made this decision regarding freezing funds, states can point to this court case when arguing about the cuts HHS made to the state departments of health services. If the Trump administration wishes to pursue its argument regarding the president’s powers to impound congressional funds through the Impoundment Control Act, they could still argue it in district court and ultimately bring it back up to the Supreme Court.
Democrats in Congress have pressed the Trump administration to lift the freeze on foreign assistance. House Foreign Affairs Committee Ranking Member Gregory Meeks (D-NY) and House National Security Department of State, and Related Programs Appropriations Subcommittee Ranking Member Lois Frankel (D-FL) sent a letter to Secretary of State Marco Rubio expressing concern over the damage and loss of life the freezing of aid assistance would have. Regardless of the court’s decisions, the future of USAID remains in limbo, as much of the staff remains on leave, has been fired or decided to quit. Many of its contracts and grants have also been terminated.
Republicans have also expressed concerns over shuttering USAID and halting assistance program funding. Rep. Young Kim (R-CA) said there have already been “reports of Chinese Communist Party officials signaling their willingness to replace USAID in Nepal and taking over de-mining activities in Cambodia. Even critics of USAID acknowledge the critical soft power of targeted and efficient programming.” However, other Republicans, including Rep. Michael Cloud (R-TX), have vehemently defended the administration’s actions, noting that the Department of State should provide greater supervision of the agency and Democrats are exaggerating the negative impacts of the funding cuts.
On the Horizon
As more funding cuts in the health care space are expected, legal challenges over congressionally appropriated spending are likely to continue, with states and advocacy groups fighting to preserve funding and the Trump administration potentially challenging the Impoundment Control Act. Meanwhile, political tension will likely continue to rise as those dependent on federal funding express frustration, potentially forcing lawmakers to rethink their response to growing public pressure.
