Cuts in NIH “indirect” funding could have substantial impact on hospitals and research

February 21, 2025

The Trump Administration announced that effective last week it would lower reimbursement rates for “indirect costs” for National Institutes of Health (NIH) research grants to 15%. The indirect reimbursement rates currently average about 27-28%, although indirect reimbursement rates are sometimes over 50% in major research institutions. Stanford, Vanderbilt Medical Center, the University of Michigan and University of Texas would each lose over $100 million annually.

Direct costs in these research grants include researcher salary and benefits, and costs that can be directly tied to a specific research project. Indirect costs include administrative support, facility maintenance, utilities, and depreciation on equipment. Indirect reimbursement rates are negotiated between the NIH and the research facility and are based on audited financial statements.

A federal district court judge has temporarily blocked these cuts, although research institutions are already cutting their budgets.

Implications for employers:

• Many academic medical centers receive substantial NIH research funds, and they will face large budget shortfalls due to these cuts imposed with just a few days' notice.

• These hospitals are likely to seek higher rates from commercial payers, which could increase medical inflation.

• Over a longer time horizon, a decrease in basic research could lead to fewer therapeutic innovations. This could slow the rate of medical inflation, but some therapies that could improve or prolong lives will not be available.

  Some additional readings on this topic:

• NIH grants down over a billion dollars from 2024 so far this year (New York Times, February 17, 2025 [gift link])

• StatNews article by a pediatrician whose sister died of a rare disease at the NIH