Reining-in NIH spending is a good idea

As part of their grantmaking procedures, the National Institutes of Health (NIH) has historically provided institutions with “indirects;” cost-based percentages added on top of grants that are earmarked for administrative purposes but actually can be used for anything. Basically, this means that if a researcher at university X that charges an indirects rate of 25 percent gets a $10 million grant, the university also receives $2.5 million for costs associated with administering the grant. Although the average rate for indirects across the country is 27–28 percent, some universities charge upwards of 70–90 percent. As one can imagine, this represents a massive portion of the money spent on research by the NIH, $9 billion of the total $35 billion spent on research grants in fiscal year 2023. The Trump administration ordered the indirects rate to be capped at 15 percent as of February 7th. Although this cut may be painful in the interim, it may bring some good things for science.

First, capping indirects at 15 percent will provide more money for actual research. If the administration allocates the same total amount of money for scientific grant funding with indirects capped at 15 percent, that leaves approximately $3.5 billion additional dollars (based on 2023 estimates) for research. Although universities will balk at the decreased revenue for administrative support, it is commonplace in the nonprofit sector to fund anywhere between zero and 15 percent for indirects already, and many researchers happily accept funds from such organizations and are able to conduct their research without issue. Alongside 15 percent caps, Congress should continue to fund the NIH’s research budget as in previous years so that more dollars can support scientific advancements for all Americans.

Another potential benefit of capping indirects is that it may realign incentives for promotions within the academy. One of the major factors determining whether a researcher gets promoted is their amount of NIH-funded research. Historically, having NIH-funded research has been a signifier that one’s research is robust and providing a significant contribution to their academic field and society. However, the darker side of the story is that more NIH funding results in more indirects for universities. It is easy to see how a researcher with $100 million in NIH funding—which would garner the university $60 million in indirects—would be more likely to get a promotion than the professor with only $1 million in funding. Even if the magnitude of funding is correlated with the quality and volume of research, the perverse incentives remain.

Finally, capping indirects at 15 percent implements a force function to reduce unnecessary administrative spending. Although indirects are intended to cover administrative and overhead costs incurred by the university, they are not always used for these purposes. In the NIH’s own words, indirects are “by their very nature, ‘not readily assignable to the cost objectives specifically benefitted’ and are therefore difficult for NIH to oversee.” If there is no accountability, there is reason to believe the money is used for purposes other than research at the university. Capping Indirects at 15 percent will force universities to be efficient in their use of administrative dollars. 

Researchers, administrators, and other critics claim this will be a decisive blow to universities’ budgets and will force layoffs that will slow research. This may be true at some smaller universities with no or small endowments, and for those, adjustment to the indirects cap may be prudent. For those with behemoth endowments, however—e.g., Harvard ($53 billion endowment), Yale ($41 billion), or Columbia ($15 billion)—it is hard to imagine that this cap should force layoffs, especially considering that compensation for endowment managers nears $10 million. 

Concerns about layoffs or disruptions to existing research can be addressed. First, caps on indirects could be structured as a sliding scale dependent on a university’s endowment size. The top Ivy league schools, which are less likely to genuinely need the additional funding for administrative or overhead purposes, could have indirects capped at 15 percent, with the percentage reimbursement for indirects increasing up to 30 percent for universities with smaller endowments. Second, to avoid significant disruptions in ongoing research, caps on indirects should be proactively applied only to newly awarded NIH grants, not existing grants.

When the rubber meets the road, a re-evaluation may be needed. Smaller universities may need adjustments on the amount of indirects they are able to charge for NIH-funded research. In the meantime, Congress should use this cap to understand exactly how essential these indirects are for universities with larger endowments and be wary of claims that it will be lethal for university employees, budgets, and scientific breakthroughs.