Cutting federal grant funding will limit access to care and stymie research, providers warn.
Last week, the National Institutes of Health said it will cap the indirect cost payment rate for new and existing grants at 15%. Academic medical centers use that funding to cover the cost of administrative and infrastructure expenses tied to research.
Related: Democratic AGs sue Trump over NIH, HHS research funding cuts
The policy threatens billions of dollars in NIH grant funding distributed to health systems each year, potentially interrupting patient care, denting finances and sending hospitals scrambling for other revenue sources. The rate cut led to three lawsuits seeking to block the change and a national temporary restraining order issued Monday by the U.S. District Court for the District of Massachusetts.
Here’s what to know about how health systems use NIH grants.
What did the NIH guidance say?
On Friday, the agency issued guidance that said it will slash support for portions of NIH grant funds designed to help pay for an organization’s overhead.
The policy, which went into effect Monday before it was put on hold first in 22 states and then nationwide, caps indirect cost payments at 15% for new and existing grants. Organizations had previously negotiated indirect cost rates with the federal government, generally averaging between 27% and 28%, according to the NIH guidance.
President Donald Trump proposed a budget during his first term to reduce the indirect cost rate to 10%, but Congress rebuffed that proposal.
How much funding is at stake?
The funding rate reduction would eliminate billions of dollars of grant funding for academic systems in 2024.
The cap could reduce indirect funding payments distributed to 149 medical schools across the country in fiscal 2024 by as much as $3.3 billion, according to a Modern Healthcare analysis of NIH data. The analysis excluded grants that fell below the 15% threshold for indirect cost payments.
How do providers use NIH funding?
The cuts target indirect funds, which academic medical centers use to maintain buildings, pay for heat and electricity, uphold legal and regulatory compliance and hire administrative staff.
Limits on federal grant funding will harm lab operations and maintenance, security, data processing and storage and daily operations of critical research infrastructure, executives from the Association of American Medical Colleges said in a news release.
"Make no mistake. This announcement will mean less research. Lights in labs nationwide will literally go out," executives said in the release.
How will cuts impact health systems?
Academic health systems and the associations that represent those providers said NIH funding cuts may delay ongoing clinical trials, potentially postponing treatment and leading to sunk costs. AAMC executives said in the release researchers and staff will likely lose their jobs.
A spokesperson for the Washington State Hospital Association said reductions in federal grant support will threaten access to maternal care, opioid addiction prevention, rural staff training and other grant-fueled hospital services.
The Children’s Hospital Association urged the government to rescind the guidance, which spokesperson said in a news release will limit access to effective treatments and diagnostics for patients, as well as jeopardize the nation’s health and global competitiveness.
If grant funding rate reductions hold, health systems may rely more heavily on philanthropy, industry observers said.
Some organizations will be able to secure donations to fill funding gaps, but others will not, said Kevin Holloran, senior director with the credit ratings agency Fitch Ratings. As a result, some will be forced to cut research back or transition from ambitious research efforts to more practical endeavors, he said.
“Hospitals will have to ramp up fundraising from the private sector,” Holloran said.
Why are states getting involved?
In the complaint filed Monday, nearly two dozen states, including California, Massachusetts and North Carolina, allege the NIH does not have the authority to implement such broad and quick cuts.
State-backed academic systems and the patients they treat have a lot to lose if NIH does constrain funding, state officials and healthcare experts said.
Federal grant funding has propelled research across the country that has led to gene editing, vaccines, cancer treatments and other breakthroughs, experts said. The universities and the communities reap the rewards of these advancements in the form of improved care, thousands of jobs, education and investment opportunities, they said.
The NIH’s policy allegedly violated the Administrative Procedure Act, according to the lawsuit, which asks the court to declare the policy illegal. A hearing on the temporary restraining order is scheduled for Feb. 21.
The NIH did not immediately respond to a request for comment.
Update: The story was updated to reflect an expanded temporary restraining order.
