Appeals Court Rules Trump Admin Can’t Cap Overhead Reimbursement Rate for NIH Research Grants

The administration had argued that NIH followed existing laws and regulations.

The National Institutes of Health (NIH) Gateway Center in Bethesda, Md., on June 8, 2025. Elizabeth Frantz/File Photo/Reuters

A federal appeals court ruled on Jan. 5 that the Trump administration cannot reduce the amount of money the National Institutes of Health (NIH) pays grant recipients for indirect costs, such as administration or facility maintenance.

The ruling applies to three lawsuits filed by the attorneys general of Massachusetts and 21 other states, and hospitals, schools, and the associations that represent them.

NIH, which is a subdivision of the U.S. Department of Health and Human Services (HHS), published a guidance document in February 2025 to limit how much grant funding could flow to research institutions to cover their indirect costs. These are costs that cannot be directly attributed to an individual research project and include expenses related to funding equipment, facilities, and research staff.

The guidance document said that these indirect costs could not exceed 15 percent of funding for direct research costs, regardless of the costs incurred at universities. NIH said Johns Hopkins, Yale, and Harvard universities charged in excess of 60 percent for indirect costs even though they had endowments in the billions of dollars. Attorneys for those who filed suit said small universities don’t have such large endowments, and if the guidance took effect, there would be many layoffs, stalled clinical trials, and laboratory closures.

The agency said when announcing the new 15 percent ceiling that it was “obligated to carefully steward grant awards to ensure taxpayer dollars are used in ways that benefit the American people and improve their quality of life.”

In April, U.S. District Judge Angel Kelley ruled for the plaintiffs, finding that the Trump administration ran afoul of the Administrative Procedure Act by, among other things, not acting in accordance with the law and acting in an arbitrary way.

The Administrative Procedure Act is a federal statute enacted in 1946 that governs administrative law procedures for federal executive departments and independent agencies. The late U.S. Sen. Pat McCarran (D-Nev.) said the law was “a bill of rights for the hundreds of thousands of Americans whose affairs are controlled or regulated in one way or another by agencies of the federal government.”

In a separate ruling in March, Kelley had found that the federal government’s attempt to change the indirect cost rate conflicted with a federal regulation. She added that the administration did not comply with a step-by-step process mandated by the regulation and misinterpreted the scope of its authority in changing rates.

On Jan. 5, a three-judge panel of the U.S. Court of Appeals for the First Circuit unanimously affirmed Kelley’s rulings, including a permanent injunction she issued that blocked the funding cuts.

Although the Trump administration had argued that the district court lacked jurisdiction, or authority, over the plaintiffs’ claims, the panel found the district court had jurisdiction. It also found that NIH’s action “is unlawful because it violates a statute and regulations,” the panel said.

Circuit Judge Kermit Lipez wrote that because the panel found the district court had jurisdiction and that the NIH acted unlawfully, it was not necessary for the panel to rule on “NIH’s challenges to the district court’s conclusions that the Supplemental Guidance is arbitrary and capricious, required notice-and-comment rulemaking, and is impermissibly retroactive.”

The NIH’s attempt to impose a 15 percent indirect cost reimbursement rate violates a federal appropriations statute and HHS’s own regulations, Lipez added.

Sam Dorman and Reuters contributed to this report.