The National Institutes of Health, a major funder of medical research, issued a 'Supplemental Guidance' on February 7, 2025, announcing it would cap the reimbursement of indirect costs—expenses for facilities and administration—at 15% for all grants, effective immediately. This action replaced the established system where grant recipients negotiate specific indirect cost rates based on their actual documented costs. Twenty-two state attorneys general, along with medical and higher education associations, sued in the District of Massachusetts, arguing the cap violated a congressional appropriations rider and HHS regulations. The district court granted a nationwide preliminary injunction and, at the parties' request, converted it into a permanent injunction, vacating the guidance entirely. The NIH appealed, challenging the district court's jurisdiction and the merits of the injunction.
The First Circuit, writing through Circuit Judge Lipez, affirmed the district court on jurisdiction and the merits. First, the court addressed the NIH's claim that the Tucker Act gave the Court of Federal Claims exclusive jurisdiction over contract claims. Relying on recent Supreme Court guidance in Department of Education v. California and NIH v. American Public Health Association, the First Circuit distinguished this case. Unlike those cases, which involved challenges to the withholding of funds already promised under specific contracts, this case challenged an agency-wide policy. The court held that vacating the guidance does not order the government to pay money under a contract, so the district court properly exercised jurisdiction under the Administrative Procedure Act. On the merits, the court focused on two primary grounds. First, the court analyzed a congressional appropriations rider enacted in 2018 and reenacted every year since. The rider mandates that NIH follow the regulations governing indirect costs as they existed in the third quarter of 2017, prohibits a 'modified approach' to those provisions, and forbids expanding the fiscal effect of deviations beyond the proportional level of that same quarter. The court found the 15% cap violated all three provisions: it disregarded the regulatory framework, constituted a 'modified approach' by imposing a uniform rate where none existed before, and resulted in a fiscal impact of $4 billion that was not proportional to the deviations approved in 2017. Second, the court held the guidance violated HHS regulations at 45 C.F.R. § 75.414. The regulations allow deviations from negotiated rates only for a 'class of federal awards,' defined as a specific group of awards or entities, not all grants. The court rejected the NIH's argument that the cap applied only to institutions of higher education, noting the guidance explicitly stated it applied to 'all NIH grants.' Furthermore, the regulations require a two-step process: agencies must first publish policies and criteria for deviations before applying them. The court found the NIH violated this by announcing the cap in a single step without prior policy establishment or notice to applicants.
The decision preserves the negotiated indirect cost rate system for NIH-funded research, preventing the agency from unilaterally capping reimbursement at 15%. The NIH must continue to honor existing Negotiated Indirect Cost Rate Agreements (NICRAs) and cannot implement a uniform cap. The ruling clarifies that challenges to agency-wide guidance affecting future grants belong in district courts, not the Court of Federal Claims. The district court's permanent injunction remains in place, and the Supplemental Guidance is vacated.
Podcast (federal-narrative-summaries): Play in new window | Download