NIH Proposes Limits on Funding for Indirect Research Costs—What Do They Entail?

The National Institutes of Health (NIH) stands as the largest supporter of medical research globally, distributing billions annually to U.S. higher education institutions.

A contentious issue in NIH funding relates to the often-overlooked practice of reimbursing indirect costs associated with medical research.

Indirect costs refer to the expenses incurred by an organization while executing its primary functions.

Such costs encompass personnel management, payroll expenses, administrative support, cleaning services, and facility upkeep.

Generally, stakeholders concur that reimbursement for indirect costs is crucial for sustaining medical research, but the question remains: how much is adequate?

This article examines the nature of indirect costs, their calculation methods, and the debate surrounding efforts to reduce them.

Understanding Indirect Costs

When NIH awards a grant, the funds allocated to the actual research are classified as direct costs. This includes expenses like researcher salaries, graduate assistant stipends, laboratory supplies, equipment, and travel.

Indirect costs cover expenditures that cannot be pinpointed to any specific research project but are essential for maintaining overall operations. These costs are divided into two categories: facilities and administration.

Administrative costs consist of university administrator salaries, departmental staffing, and office supplies. The NIH has been providing reimbursement for these indirect costs for nearly 70 years, beginning with a rate of 8 percent in the 1950s. Since 1991, the NIH has limited administrative costs for universities to 26 percent of the direct grant costs.

Facility costs include building deprecation, interest on financing for specific structures and equipment, as well as a portion of the university’s general maintenance expenses.

For the NIH, the combination of administrative and facilities costs makes up the total indirect cost.

The process for calculating the indirect cost rate is intricate.

Institutions receiving NIH grants negotiate this rate every four years and must justify their need for these funds to support research.

The rate can be adjusted for specific projects based on a variety of factors.

Typically, indirect costs for a project are determined as a percentage of its direct costs.

If the NIH allocates $100,000 for a project, the university would also secure an additional $56,000 to cover indirect costs, totaling $156,000.

The NIH additionally provides grants for various research centers, other research-related activities, training, and development contracts.

The indirect cost rate is not fixed; it varies depending on the specific project and institution.

For instance, the University of Alabama at Birmingham received 407 NIH research project grants in 2024, with an average indirect cost of 40 percent.

Market Rates

During his initial term, President Donald Trump proposed limiting indirect cost reimbursement to 10 percent.

This suggestion was rejected by Congress, which chose instead to formalize the existing reimbursement formula into law.

The 2018 appropriations law prevented any modification of the rates in place at that time, and subsequent appropriations bills continued to include similar provisions.

The justification for this decision was the assertion that other grant-making bodies impose much lower caps on indirect costs, suggesting that the NIH should do the same to conserve taxpayer resources. The NIH estimated this change could save over $4 billion annually.

During the confirmation session for Dr. Jay Bhattacharya as NIH’s new director on March 5, Sen. Roger Marshall (R-Kan.) criticized the higher indirect cost rates some universities receive.

“I think it’s apparent to many that this merely serves as another revenue stream for universities, costing taxpayers for their overhead expenses,” Marshall remarked.

He emphasized that many universities in his state had rates lower than those of several other institutions.

The University of Kansas reported an average indirect cost rate of 40 percent on 39 NIH research project grants awarded in 2024, while Kansas State University had an average rate of 40 percent for 19 NIH research project grants.

Implementing a cap of 15 percent on indirect costs would have resulted in a reduction of more than $100 million in funding from the NIH for the University of Michigan for all grant types in 2024.

Additionally, Johns Hopkins University would have seen a decrease of over $130 million in funding that same year.

Significant Disagreement

Conversely, many believe that indirect research costs funded by the federal government are not excessively high, asserting that a reduction in reimbursement could lead to the discontinuation of crucial medical research.

Sen. Susan Collins (R-Maine) stated during the Bhattacharya confirmation hearing that “a uniform approach is ineffective; that’s why the NIH negotiates the indirect cost caps with each individual grant recipient.”

Collins highlighted that the indirect costs at Stanford University, for example, could rightfully diverge from those at the University of Maine.

The Council on Government Relations (COGR)—an organization promoting federal support for research—indicates that research universities fund a quarter of research expenses themselves.

This amounted to $6.8 billion in unreimbursed indirect costs in 2023 according to COGR.

When the administrative cost cap was set at 26 percent, most institutions operated at or below that threshold, as noted by the NIH.

However, by 2015, many universities reported administrative costs that surpassed that cap, according to an NIH staff member at the time.

The rise in costs is partly attributed to increasing compliance with stringent federal regulations concerning various aspects, including the treatment of human subjects, data security, and laboratory safety protocols.

This is due to differing calculations of foundation rates, which typically focus on fieldwork—an area that incurs lower costs compared to laboratory research.

Over a dozen research universities and collegiate groups have urged the NIH to revoke its recent limit of 15 percent on indirect costs, citing concerns that this cap will hinder their capabilities to conduct essential research.

Three lawsuits have been initiated to challenge the regulation.

The Epoch Times reached out for comments from the NIH, the University of Michigan, Johns Hopkins University, the University of Kansas, and Kansas State University. Kansas State University redirected inquiries to COGR.