Subsidies paid by the federal government have two components. The direct costs for conducting the research, paying for salaries, equipment and consumables such as chemicals or enzymes are covered. But the government also pays what indirect costs are mentioned. These go to the universities and research institutes, which relate to the costs of delivering and maintaining the laboratory space, heat and electricity, administrative and HR functions, and more.
These indirect costs are negotiated with each research institution and on average almost 30 percent of the amount awarded that has been awarded for the study. Some institutions see indirect rates as high as half the value of the subsidy.
On Friday, the National Institutes of Health (NIH) announced that negotiated rates ended. Every existing subsidy, and everyone who is financed in the future, will see the indirect cost interest at only 15 percent. Without warning and no time to adapt to the change in policy, this will be catastrophic for the budget of almost every biomedical research institution.
Cut in two or more
The new policy is described in a supplementary guidance document that changes the policy statement of 2024. The document quotes federal regulations with which the NIH can use a different indirect cost percentage than negotiated with research institutions for “a class of federal prices or a single federal price”, but it must justify the decision. A large part of the document therefore describes the indirect costs that are paid by charity settings, which are usually much lower than the rate paid by the NIH.
The new rate of indirect cost reimbursement will be applied to newly funded subsidies and with retroactive effect on all existing subsidies, starting with the issue of this notification. The retroactive nature of this decision can ultimately be challenged because of the wording of the aforementioned regulations, which also state that “the federal agency must, in the notification of financing options, the policy with regard to indirect cost interest rates.” Even in the future, however, this will probably seriously limit biomedical research in the US.
