The National Institutes of Health (NIH) is the world’s largest funder of medical research, granting billions of dollars to U.S. colleges and universities each year.
A point of contention in NIH funding is the little-known and less well-understood practice of paying indirect costs for medical researchers.
Indirect costs are the expenses an organization incurs while performing its primary work.
These include personnel and payroll management, administrative support, janitorial services, and building maintenance.
All stakeholders tend to agree that indirect cost reimbursement is necessary for ongoing medical research. But how much is enough?
How Indirect Costs Work
When the NIH issues a grant, the amount spent on the research itself is called the direct cost. That includes things such as researcher salaries, graduate assistant stipends, lab supplies and equipment, and travel.Indirect costs cover things that can’t be attributed to any one research project but are necessary to keep the operation going. These come in two kinds: facilities and administration.
Administrative costs include things like university administrator salaries, departmental staff, and office supplies. The NIH said it has paid such indirect costs for nearly 70 years, starting with an 8 percent rate in the 1950s. Since 1991 NIH has capped administrative costs for universities at 26 percent of the direct cost of the grant.
Facilities costs include building depreciation, interest on debt for certain buildings and equipment, and a share of the university’s maintenance costs.
For NIH purposes, the administrative cost plus the facilities cost equals the indirect cost.
The formula for calculating the indirect cost rate is complex.
Universities that receive grants from the NIH negotiate this rate every four years and must show why the money is needed to support research.
The rate can be raised or lowered for certain projects depending on a host of factors.
Generally speaking, the indirect cost for a given project is calculated as a percentage of the direct cost.
If the NIH grants $100,000 for a project, the university would likely receive an additional $56,000 for indirect costs for a total of $156,000.
NIH also awards grants for research centers, other research-related work, training, research and development contracts, construction, and other purposes.
The rate varies by project and by university.
The University of Alabama at Birmingham received 407 NIH research project grants in 2024 with an average indirect cost of 40 percent.
Market Pricing
President Donald Trump, during his first administration, suggested limiting indirect cost reimbursement to 10 percent.Congress rejected the idea and instead codified the existing cost reimbursement formula into law.
The 2018 appropriations law prohibited changes to the rates in place at the time. Subsequent appropriations laws have included the same language.
The rationale was that other grant-making organizations cap indirect costs at a much lower rate, so NIH should follow suit to save taxpayer funds. The NIH predicted the change will save more than $4 billion a year.
Sen. Roger Marshall (R-Kan.) took aim at the NIH’s higher rates received by some universities during the confirmation hearing for Dr. Jay Bhattacharya as the agency’s incoming director on March 5.
“I think most of us understand that that’s just another grift for universities, and we’re paying their share of overhead,” Marshall said.
Marshall pointed out that the indirect cost rate for universities in his state was less than that of many other schools.
The University of Kansas had an average indirect cost rate of 40 percent on 39 NIH research project grants awarded in 2024. Kansas State University had an average rate of 40 percent on 19 NIH research project grants.
Capping indirect costs at 15 percent would have reduced the amount of funding provided by NIH to the University of Michigan for all types of grants by more than $100 million in 2024.
The amount of funding provided to Johns Hopkins University for all types of grants would have been reduced by more than $130 million that year.
Strong Disagreement
Others disagree that indirect research costs paid by the federal government are inflated and say a reduction in the reimbursement would result in the cancellation of important medical research.“A one-size-fits-all-all approach makes absolutely no sense, and that is why NIH negotiates with the individual grant recipient what the indirect cost cap should be,” Sen. Susan Collins (R-Maine) said during the Bhattacharya hearing.
Collins noted that the indirect costs at Stanford University, for example, might legitimately differ from those at the University of Maine.
Research universities pay a quarter of the cost of research themselves according to the Council on Government Relations (COGR), an association advocating for federal support of research.
That totaled $6.8 billion in unreimbursed indirect costs in 2023 according to COGR.
When the administrative cost cap was set at 26 percent, most institutions had administrative costs at or below that mark, according to NIH.
By 2015, however, most universities had administrative costs exceeding that rate, an NIH staff member said at the time.
The increase was driven in part by the need to comply with ever-increasing federal regulations concerning everything from the treatment of human subjects to the security of computer data to laboratory safety.
That’s because foundation rates are often calculated differently and the projects are usually focused on field work, which is less costly than laboratory research.
More than a dozen research universities and collegiate associations have called on NIH to reverse its new 15 percent limit on indirect costs, saying the cap will hamper their ability to do vital research.
Three lawsuits have been filed to block the measure.
The Epoch Times requested comments from the NIH, the University of Michigan, Johns Hopkins University, the University of Kansas, and Kansas State University. Kansas State University referred queries to COGR.
