By Ginika Igboke
A federal appeals court ruled on Jan. 5 that the Trump administration may not reduce the amount the National Institutes of Health (NIH) pays grant recipients to cover indirect research costs, such as administrative expenses and facility maintenance.
The decision applies to three consolidated lawsuits brought by the attorneys general of Massachusetts and 21 other states, along with hospitals, universities, and associations representing research institutions.
NIH, an agency within the U.S. Department of Health and Human Services (HHS), issued guidance in February 2025 capping indirect cost reimbursements at 15 percent of direct research funding. Indirect costs include expenses that cannot be tied to a single project, such as building upkeep, equipment, compliance, and support staff. Under the guidance, institutions would have been barred from recovering more than 15 percent, regardless of their actual costs.
NIH justified the cap by arguing that it had a responsibility to ensure taxpayer funds were spent efficiently and in ways that benefit the public. The agency also pointed to major universities such as Johns Hopkins, Yale, and Harvard, which it said charged indirect cost rates exceeding 60 percent despite holding multibillion-dollar endowments.
Opponents of the policy countered that smaller universities and research hospitals lack such financial reserves. They warned that the cap would lead to widespread layoffs, stalled clinical trials, and laboratory closures if institutions could no longer cover essential operational expenses tied to federally funded research.
Lower Court Rulings Upheld
In April, U.S. District Judge Angel Kelley ruled in favor of the plaintiffs, finding that the administration violated the Administrative Procedure Act by acting outside its legal authority and in an arbitrary manner. The Administrative Procedure Act, enacted in 1946, governs how federal agencies may create and enforce regulations.
In an earlier March ruling, Kelley also determined that the proposed indirect cost cap conflicted with existing federal regulations and that the administration failed to follow the required step-by-step process for changing reimbursement rates. She concluded that NIH misinterpreted the scope of its authority.
As part of those rulings, Kelley issued a permanent injunction blocking the enforcement of the 15 percent cap.
Appeals Court Affirms Injunction
On Jan. 5, a unanimous three-judge panel of the U.S. Court of Appeals for the First Circuit affirmed Kelley’s decisions and upheld the permanent injunction. The panel rejected the Trump administration’s argument that the district court lacked jurisdiction over the case, finding that the lower court had proper authority to hear the claims.
The appeals court concluded that NIH’s action was unlawful because it violated both a federal appropriations statute and HHS’s own regulations.
Writing for the panel, Circuit Judge Kermit Lipez said that because the court found the agency’s action unlawful on statutory and regulatory grounds, it did not need to address additional arguments that the guidance was arbitrary and capricious, required formal notice-and-comment rulemaking, or was impermissibly retroactive.
The ruling ensures that NIH cannot impose a blanket cap on indirect cost reimbursements under the challenged guidance, preserving existing funding arrangements for research institutions nationwide.
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