[co-author: Danielle Scheer]
The proposed cuts would place a 15% indirect cost rate on all new and existing grant awards received by research institutions and universities.
On February 7, 2025, the National Institutes of Health (NIH) released a notice of updated policy that would significantly reduce the amount of funding that research institutions and universities can receive under the terms of their federal grants with the NIH. The updated policy would deviate from the negotiated indirect cost rates that these institutions establish annually under applicable regulations, and would instead place a 15% indirect cost rate on all new and existing grant awards regardless of whether actual indirect costs exceed this rate. The federal government requires many categories of costs to be treated as “indirect” under cost accounting regulations, and as a result of these rules, indirect rates at research institutions commonly exceed 15%.
According to the NIH, most of its nearly $48 billion budget is invested in “medical research seeking to enhance life and to reduce illness and disability.”1 Over 80% of the NIH’s funding is awarded for “extramural research” through competitive grants to thousands of researchers at universities, medical schools, and other research institutions across the US.2
Response to the Updated NIH Policy
The NIH planned to implement this rate cap on February 10, but states and research institutions rapidly filed lawsuits that placed the updated policy on a temporary hold, including a lawsuit filed by 22 state attorneys general, a lawsuit from the Association of American Universities, and a lawsuit from the Association of American Medical Colleges (AAMC). Select members of Congress also responded swiftly, with Senator Susan Collins (R-Maine), Senator Bill Cassidy (R-La.), and Senator Katie Britt (R-Ala.) publicly expressing concerns with the updated policy and the impact on universities and research facilities in their states.
On February 10, a judge from the US District Court of Massachusetts granted the state attorneys general request for a temporary restraining order (TRO), and granted a TRO in the AAMC case, enjoining the NIH from enforcing the new policy “in any form with respect to institutions nationwide.” The court has preliminarily assigned the three cases to the same judge, who has scheduled in-person hearings on the TROs for February 21. (The judge has also requested more information on how the multiple cases are related.)
Related Trump Administration Activity and Responses
The NIH’s change in position regarding indirect rates follows the Trump administration’s January decision to freeze funding broadly across federal government agencies and programs, which halted the grant review process at the NIH and review of applications for NIH fellowships and grants. (See more on the administration’s rollbacks, regulatory freezes, and investigations reviews here.) Further, the administration implemented a communications pause across the Department of Health and Human Services (HHS). (For more information on the communications pause, see this blog post.)
The funding freezes were also the subject of immediate lawsuits, and a Rhode Island district court granted a TRO stating that the administration is to take no action pausing or withholding any federal assistance awards (the “Rhode Island TRO”), and later clarified that the Rhode Island TRO covered federal assistance awards issued by the NIH. The limitation on indirect funding contemplated by the NIH’s updated policy could also implicate the Rhode Island TRO.
Additionally, the Trump administration has implemented a range of executive orders impacting grants and contracts in this sector, such as the executive order issued on January 28, 2025, that restricts grant funding to any institution that conducted research related to pediatric gender dysphoria. (For more information on that executive order, see this blog post.)
Latham & Watkins is closely monitoring healthcare and life sciences developments under the Trump administration and will continue to provide updates and guidance.
