NIH Policy Update 2025 + Meet The Team

On February 7, 2025, the National Institutes of Health (NIH) released a policy update that would significantly reduce the amount of funding that research institutions and universities can receive under their current and future grants with NIH. The updated policy, Notice Number NOT-OD-25-068, Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates, would deviate from negotiated indirect cost rates that these institutions and universities establish annually under longstanding applicable regulations, instead imposing a 15% cap on indirect cost rates regardless of whether the government previously agreed to higher rates. In 2024, NIH supported research amounted to more than $90 billion in economic activity and over 400,000 jobs, and this new rate cap would significantly adversely affect medical research.

The NIH planned on imposing the 15% cap on February 10, but a consortium of plaintiffs led by 22 state attorney generals sued. On February 10, the U.S. District Court in Boston placed the updated policy on hold by issuing a temporary restraining order. See Commonw. of Mass. et al. v. NIH et al., No. 1:25-cv-10338 (D. Mass.). On March 5, that same court issued a preliminary injunction preventing implementation of the policy while litigation ensues. The government has 60 days to appeal, and further hearings are pending.

The proposed 15% cap on indirect costs (commonly referred to as Facilities and Administration or F&A costs) will place widespread and severe strains on research institutions – many of which have historically negotiated indirect/F&A rates above 50%, and some as high as 70%. For example, a university with $100 million in grants with a 55% F&A rate would lose $40 million annually under the new cap. While larger private institutions with large endowments may be able to withstand these cuts, smaller or state universities are particularly vulnerable. The result will likely be that smaller institutions will be disproportionately affected, potentially resulting in consolidation of research at the larger, private institutions.

Kutak Rock is well positioned to help these institutions cope with the proposed caps in indirect F&A costs. First, for those with existing grants and negotiated indirect cost rates, there are several legal and practical arguments to advance that could protect those grants from the proposed cuts. Our team of public contracting lawyers have years of experience navigating the complicated world of cost reimbursements on government programs. We can help your institution assemble a strategy tailored to the particular circumstances for each grantee.

Second, for grantees pursuing new grants who may likely be subject to lower indirect cost/F&A rates, there are a number of legal, accounting, and practical steps to take to help drive down those rates and move the costs either to direct costs or other methods of cost allocation and cost reduction to arrive at a manageable position going forward.