Twenty-two states secured a crucial victory against the National Institutes of Health (NIH) when a federal judge blocked the agency’s abrupt policy change that would have slashed research funding at universities nationwide.
The policy, which would have taken effect immediately and applied retroactively to existing grants, threatened to create catastrophic budget shortfalls at research institutions across the country.
The controversial policy aimed to standardize indirect cost rates—funds that cover essential research infrastructure and support services—at 15 percent across all institutions.
This marked a sharp departure from the previous system, where rates were individually negotiated with universities through detailed audits, typically averaging around 30 percent and sometimes exceeding 50 percent of the grant’s value.
Court Injunctions Halt NIH Funding Policy
Judge Angel Kelley of the District of Massachusetts issued two separate injunctions in response to legal challenges.
The first came from a coalition of 22 states, primarily those won by Kamala Harris in 2024, along with several Trump-voting states with Democratic governors. A second suit, filed by medical organizations including the Association of American Medical Colleges, resulted in the protection being extended nationwide.
The states’ legal challenge has multiple grounds. First, they argue that the policy violates existing contracts, citing legal precedent that grants become binding once a Notice of Award is signed or funds are drawn.
More significantly, they contend that the policy breaches the Administrative Procedures Act, which governs how federal agencies implement rules. The lawsuit characterizes the NIH’s decision as “arbitrary and capricious,” noting that the 15 percent rate appears to have been determined merely by reviewing rates at private foundations, without substantial justification.
The stakes are particularly high because indirect costs fund critical research infrastructure. These expenses include building maintenance, support staff, animal care facilities, hazardous waste handling, IT support, and administrative personnel ensuring compliance with research regulations.
A sudden funding reduction would force many institutions to either shut down programs or scramble to find alternative funding sources.
Court Blocks NIH Indirect Cost Rate Changes
As a backup argument, the states point to a 2018 congressional rider that specifically prohibited the NIH from implementing any changes to the indirect cost rate system. This legislation, which remains in effect, was originally passed in response to a similar attempt by the Trump administration in 2017 to cap indirect rates at 10 percent.
Notably, the current policy change appears to align with recommendations from Project 2025, a document guiding the new administration’s early actions, which characterizes these reimbursements as “cross-subsidiz[ing] leftist agendas.”
The court’s response has been notably thorough. In addition to blocking the policy, Judge Kelley ordered the NIH and the Department of Health and Human Services to submit bi-weekly compliance reports.
This unusual requirement reflects concerns about potential attempts to circumvent the injunction, as similar policies have been reintroduced in the past under different names or authorizations.
The states’ argument for standing in the case centered on two main points: the direct financial harm to research institutions within their borders and the broader impact on public health caused by potential delays in biomedical research.
Universities Win Reprieve in Research Funding Case
Interestingly, while the coalition includes several Republican-voting states with Democratic leadership, the initial suit only sought relief for institutions within the participating states, effectively leaving Republican-controlled states to face the policy’s consequences.
This legal challenge highlights the complex relationship between federal research funding and institutional sustainability. Research universities typically receive tens of millions of dollars annually in overhead costs, money that maintains the infrastructure necessary for conducting cutting-edge research. The attempted policy change threatens not just individual research projects but the entire ecosystem of academic research in the United States.
The case also underscores the ongoing political tensions surrounding research funding. While the NIH has traditionally operated with broad bipartisan support, recent years have seen increased attempts to reshape its funding mechanisms along political lines. The current injunction provides temporary relief, but the broader debate over research funding mechanisms and their oversight seems likely to continue.
As the legal process unfolds, research institutions nationwide can temporarily maintain their existing indirect cost rates, thanks to Judge Kelley’s nationwide injunction. However, the bi-weekly reporting requirement suggests ongoing vigilance will be necessary to ensure compliance and prevent alternative attempts to implement similar policies.
