A recent decision by a federal appeals court has confirmed that the Trump administration cannot proceed with plans to significantly reduce funding provided by the National Institutes of Health (NIH) for research grants. This decision underscores the importance of adhering to established Congressional provisions and the Department of Health and Human Services’ (HHS) own rules, which mandate that NIH reimburses external entities based on actual documented research expenses, rather than through fixed lump-sum payments.

Diving into the details of the ruling, the U.S. Court of Appeals for the 1st Circuit issued a comprehensive 38-page order outlining the reasons behind the decision. The court emphasized that any attempt to alter this reimbursement process would not only breach Congressional guidelines but also infringe upon HHS regulations. For those interested, the complete order can be viewed here.

The legal battle began when the NIH announced on February 7, 2025, a new “Supplemental Guidance” that proposed capping the reimbursement for “indirect costs” linked with NIH-funded research. This announcement, which threatened to take effect the next business day, prompted swift legal action from 22 state attorneys general, alongside various medical associations and universities. Collectively, these plaintiffs contested the cap on reimbursements, arguing it was unwarranted and damaging to ongoing research efforts.

Senior U.S. Circuit Judge Kermit Lipez, who authored the opinion, elaborated on the nature of NIH funding, which covers both direct and indirect research costs. While direct costs are straightforward, linked to specific research projects, indirect costs are more complex. These “facilities and administration” costs, also called F&A costs, include expenses that are not easily attributable to a single project, such as infrastructure maintenance, utility bills, and administrative staff salaries.

The Trump administration had sought to impose a 15% cap on these indirect costs, a move that would have effectively withheld around $4 billion in funding. This proposed cap was met with resistance and legal challenges. In response, Boston-based U.S. District Judge Angel Kelley issued a preliminary injunction, preventing the NIH from implementing the new guidance. This injunction was later solidified into a permanent injunction, rendering the guidance invalid in its entirety.

Boston-based U.S. District Judge Angel Kelley essentially said not so fast, issuing a preliminary injunction “barring NIH from taking any steps to implement, apply, or enforce the” new guidance. The preliminary injunction was converted to a permanent injunction, and the guidance was deemed invalid “in its entirety.”

Though the Trump administration would appeal, landing the case before the U.S. Court of Appeals for the 1st Circuit, Lipez and the other two judges on the panel found the administration’s arguments unavailing. For one reason, the judges noted, efforts by multiple presidential administrations to put limitations on reimbursements of indirect costs have, “with few exceptions,” failed.

According to the opinion:

One such failed effort is particularly relevant here. In 2017, the first Trump administration issued a budget proposal for 2018 advocating a 10% cap on NIH’s reimbursement of indirect costs. The proposal explained that reducing expenditures on indirect costs would allow “available funding [to] be better targeted toward supporting the highest priority research on diseases that affect human health” and would “bring NIH’s reimbursement rate for indirect costs more in line with the reimbursement rate used by private foundations.” Congress rejected that proposal, with the House Appropriations Committee explaining that it “would have a devastating impact on biomedical research across the country,” and the Senate Appropriations Committee noting that it “would radically change the nature of the [f]ederal [g]overnment’s relationship with the research community” and “jeopardiz[e] biomedical research nationwide.”

Congress went even further and “enacted an appropriations rider ‘directing NIH to continue reimbursing institutions for F&A costs’ and prohibiting NIH from using appropriated funds ‘to implement any further caps on F&A cost reimbursements,’” the opinion says. The Trump administration acknowledged in its 2019 budget proposal that it was indeed prohibited by law “‘from reducing grantee administrative costs and shifting these resources to support direct research’ and urged Congress to ‘eliminate the current prohibition.’”

“Congress declined to do so and instead reenacted the appropriations rider. It has continued to do so in every subsequent year,” the opinion adds, noting that in February 2025 the legislature announced that it would impose “a standard indirect rate of 15% across all NIH grants for indirect costs in lieu of a separately negotiated rate for indirect costs in every grant.”

“Congress went to great lengths to ensure that NIH could not displace negotiated indirect cost reimbursement rates with a uniform rate,” Lipez later wrote.

The opinion added that a sudden uniform cap on indirect costs would go against HHS’ very own regulations that set forth how NIH grant recipients are awarded funding.

The judges held that “NIH’s attempt, through its Supplemental Guidance, to impose a 15% indirect cost reimbursement rate violates the congressionally enacted appropriations rider and HHS’s duly adopted regulations,” Lipez finished by saying. “The district court’s decision is therefore affirmed.”