April 8, 2025, Update: On April 4, 2025, at the request of all parties, the District Court entered a permanent injunction prohibiting the government from enforcing the Guidance, pending a future decision by an appellate court. On April 8, 2025, the government issued a Notice of Appeal to the First Circuit.
Separate from the above matter, on April 2, the ACLU, on behalf of individual researchers, sued the National Institutes of Health (NIH) in a Massachusetts federal court seeking to restore recently canceled funding for grants that failed to effectuate NIH’s current “agency priorities.” These grants purportedly relate to DEI research. Additionally, 16 states filed a lawsuit on April 4, seeking to restore $2.4 billion in similar funding, claiming that NIH’s reasoning—that NIH may cancel a grant solely because such research is not an “agency priority”—is not a statutorily valid basis for canceling or refusing to review grants until new HHS regulations become effective in October 2025. Accordingly, the two new complaints argue that without a different statutory basis underlying NIH’s decision, the funding must be immediately restored, regardless of the research’s focus.
March 5, 2025, Update: On March 5, 2025, the district court granted a nationwide preliminary injunction, enjoining the government from “taking any steps to implement, apply, or enforce the [Guidance] in any form with respect to institutions nationwide.” The court stressed that because the Guidance was so sweeping in substance, only a nationwide injunction could serve as an appropriate remedy.
The court substantiated all of the plaintiffs’ legal theories, finding that NIH may not issue a blanket rate for all awards, the Guidance was arbitrary and capricious, contradicted existing NIH policy, and is expressly prohibited by the existing congressional legislation. The government has 60 days to appeal the district court’s order, and the litigation remains ongoing pending a future full hearing on the merits.
The National Institutes of Health (NIH) published guidance on Feb. 7, 2025, titled “Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates” and announced that “this Guidance implements and makes publicly available NIH’s updated policy deviating from the negotiated indirect cost rate for new grant awards and existing grant awards, effective as of the date of this Guidance’s issuance. Pursuant to this Supplement Guidance, there will be a standard indirect rate of 15% across all NIH grants for indirect costs in lieu of a separately negotiated rate for indirect costs in every grant.”
The Guidance sent shock waves through medical and research institutions across the United States, as existing negotiated indirect cost rates range from approximately 20–60%, and the newly announced rate cap collectively threatens billions of dollars of academic and medical research funding.
NIH grants permit awardees to negotiate indirect cost allocation as a percentage of a research grant award. The indirect cost rate is intended to support facilities and administrative expenses, which encompass substantial expenses necessary to support vital scientific research. Indirect cost rates include, for example, infrastructure, equipment, and support staff costs.
District of Massachusetts Lawsuits
On February 10, 2025, three lawsuits were filed to enjoin the Guidance. The plaintiffs included twenty-two state governments,[1] five trade groups,[2] and sixteen universities.[3] The lawsuits asserted multiple Administrative Procedure Act (APA) violations, including the following.
- Plaintiffs alleged that the Guidance is arbitrary and capricious because it fails to justify its immediate and striking deviation from historic negotiated rates and account for each individual institution’s specific reliance on indirect costs.
- Plaintiffs alleged that the Guidance exceeds the NIH’s statutory authority because the manner in which the Guidance seeks to alter indirect cost rates directly violates an existing congressional directive. In 2017, the first Trump administration proposed a similar policy to set blanket rate caps at 10%.[4] Congress rejected this push and provided in the 2018 budget, and all subsequent budgets, including for 2025, that NIH may not alter indirect funding rates.[5]
- Plaintiffs alleged that the statutory authority giving NIH the power to negotiate individual rates with awardees implicitly prohibits the NIH from enacting a blanket rate.[6]
On February 10, 2025, the District Court for Massachusetts issued a nationwide TRO barring enforcement of the Guidance, pending a February 21, 2025, hearing. On March 5, 2025, the district court granted a nationwide preliminary injunction, enjoining the government from “taking any steps to implement, apply, or enforce the [Guidance] in any form with respect to institutions nationwide.”[7]
The complaints contain extensive allegations outlining the drastic impact of reducing indirect cost rates. For instance, the University of Michigan alleged that it currently had a negotiated indirect cost rate of 56%, similar to other research institutions like Oregon Health and Science University (56%) and the University of Colorado Anschutz Medical Campus (56%).[8] The Guidance’s rate cut would “eliminate approximately $181 million in funding” to the University of Michigan, $80 million to the Oregon Health and Science University, and $74 million to the University of Colorado Anschutz Medical Campus[9] and notably, limit research into areas that include “life-saving” treatments, “ongoing clinical trials,” and “new approaches for [treating] Alzheimer’s disease.[10] These examples reflect a small sampling of the scientific and clinical areas that would be affected by the rate decrease, as outlined in the complaints.
Additional Considerations
The funding shortfalls if indirect cost rates were reduced to 15% portend additional funding questions that institutions would need to address beyond FY 2025, as indirect cost rates are generally (with some exceptions) negotiated on an annual basis. The funding uncertainty will likely impact future planning and resource allocation unless and until more clarity is provided.
These funding uncertainties also may raise ancillary legal, business, and operational questions, such as adherence to contractual commitments with third-party sponsors or other research funders, personnel retention and HR implications, regulatory compliance commitments, and capital resource questions.
Nixon Peabody attorneys familiar with the Guidance and associated litigation are monitoring the fast-moving and related developments.
- Commonwealth of Massachusetts, et al. v. National Institutes of Health, et al., No. 1:25-cv-10338-AK (D. Mass., Feb. 10, 2025).
[back to reference ] - Association of American Medical Colleges, et al. v. National Institutes of Health, et al., No. 1:25-cv-10340-AK (D. Mass., Feb. 10, 2025).
[back to reference ] - Association of American Universities, et al. v. National Institutes of Health, et al., No. 1:25-cv-10346-AK (D. Mass., Feb. 10, 2025).
[back to reference ] - See OMB, Major Savings and Reforms: Budget of the US Government Fiscal Year 2018, at 43 (2017).
[back to reference ] - See Consolidated Appropriations Act, 2018, Pub. L. No. 115-141, § 224, 226; Consolidated Appropriations Act, 2025, Pub. L. No. 118-83, §§ 101, 106 and Further Consolidated Appropriations Act, 2025, Pub. L. No. 118-158, § 101.
[back to reference ] - 45 CFR § 75414(c)(1)-(3).
[back to reference ] - Order Granting Plaintiffs’ Emergency Motion for Temporary Restraining Order, Association of American Medical Colleges, et al. v. National Institutes of Health, et al., No. 1:25-cv-10340-AK (D. Mass., Feb. 10, 2025); Memorandum and Order on Motion for Preliminary Injunction, Association of American Medical Colleges, et al. v. National Institutes of Health, et al., No. 1:25-cv-10340-AK (D. Mass., Mar. 5, 2025).
[back to reference ] - Complaint at ¶¶ 98, 137, and 113, Commonwealth of Massachusetts, et al. v. National Institutes of Health, et al., No. 1:25-cv-10338-AK (D. Mass., Feb. 10, 2025).
[back to reference ] - Id.
[back to reference ] - Id. at ¶¶ 98, 104, and 112.
[back to reference ]