In a ruling that has financial implications for research universities across the United States, including Harvard, the U. S. Court of Appeals for the First Circuit this week barred the National Institutes of Health from retroactively capping the reimbursement of certain costs associated with NIH-funded research at 15 percent.
The Jan. 5 ruling makes permanent a preliminary injunction issued March 5, 2025 (following a temporary restraining order issued February 10) by U.S. District Judge Angel Kelley.
The NIH reimburses two types of documented expenses when it issues research grants: Direct costs associated with a single research project, and “indirect costs” that include overhead expenses for rent, salaries, building upkeep, and shared laboratory equipment. Indirect costs are sometimes referred to as facilities and administration costs, and as the court explained in background to its decision, may include “expenditures to build and maintain state-of-the-art laboratories and clinical spaces, purchase sophisticated technology for experiments, dispose of hazardous waste, pay for utilities, and obtain secure data storage.”
Research entities negotiate individual reimbursement rates with the federal government. The government’s most recent agreements with the Faculty of Arts and Sciences, Harvard Medical School, and the Harvard Chan School of Public Health set reimbursement rates (defined as the indirect costs of research divided by the direct costs of research) ranging from 34 to 91 percent.
In guidance issued Friday, February 7, 2025, the NIH stated that it would cap reimbursement of indirect costs at 15 percent, effective the next business day. The following Monday, three groups of plaintiffs, including 22 states’ attorneys general, five associations representing hospitals and colleges of medicine, pharmacy, and public health, and 16 higher education associations and universities sued to prevent this cap on reimbursement.
During the first Trump administration, the government also attempted to cap reimbursement for indirect costs. In a 2017 proposal that would have applied to the 2018 NIH budget, the administration proposed capping reimbursement for indirect costs at 10 percent. Congress, which controls such appropriations, rejected that proposal.
In a broad sense, the January 5 decision represents a case where the courts have defended Congressional “power of the purse” against Executive Branch attempts to assume control of such expenditures.
The NIH guidance capping indirect cost reimbursement would have harmed Harvard’s research enterprise had Kelley’s ruling not been upheld by the appeals court this week. But the Trump administration’s attempts to freeze or terminate more than $2 billion in federal grants to Harvard are a separate matter. In that litigation, the administration has appealed a September decision by Federal District Judge Allison D. Burroughs that restored Harvard’s research funding. That case will now go to the United States Court of Appeals for the First Circuit.
