Late afternoon this past Friday, the National Institutes of Health (NIH) announced a significant reduction in indirect cost rates (ICR) for federally funded grants. The policy, innocuously titled “Supplemental Guidance to the 2024 NIH Grants Policy Statement: Indirect Cost Rates” takes effect on February 10, 2025, for all current and future grant awards and caps ICR at 15%. This represents a significant shift from the previous average of 27%, with some research-intensive institutions having negotiated rates as high as 60%. It is no surprise that the decision has sparked widespread concern among medical centers, research universities, and academic institutions that are dependent on NIH funding to support their research activities. Though less immediate, the longer-term implications of this policy for scholarly publishing are also significant.

The What and Why of ICR

From developing my own grant budgets, I am familiar with how grant budgets are structured and that “direct and indirect costs together comprise the real costs of conducting research.” However, I can also understand that for those not immersed in the details of federal grant budgets and applications, the notion that a grant budget supports both the direct costs of research as well as indirect costs may seem a bit nonsensical. Why should a grant cover more than the cost of the research itself? 

What this question conflates is how different costs are specified in preparing a grant budget for research with the question of whether those costs support the research itself. 

Some of the costs in a research grant are calculated as attributable to that specific project. These include salaries and benefits for researchers, lab equipment purchases, lab materials, and dissemination activities. These are the “direct costs.” Each of these items must be specified and justified in a grant budget.

Other costs are also necessary to support research but cannot be easily linked to a single project. These include expenses such as financial and legal support, office space and equipment, electricity and other utilities, building maintenance, and support for regulatory reporting and compliance. These are “indirect costs” – also known as “overhead” or “F&A” (facilities and administrative). Specifying the particulars of each of these items relative to a particular research project would be onerous, and tracking and reporting such expenditures even more so. Imagine for example trying to monitor the usage of electricity in your home so that you knew what was used for making dinner vs what was used for watching the evening news. Now extrapolate that to monitor the usage of a large research university so that it could be charged directly to a particular grant activity. 

Recognizing the burden and the expense it would represent to document such costs as direct costs, the indirect cost rate is a mechanism for charging for these costs, which are necessary to support research, by establishing a formula that is then used institution-wide and across all federal grant agencies. Specifically, the indirect cost rate is a percentage applied to eligible direct costs to determine the amount an organization can claim for indirect expenses for a federal grant. This rate is negotiated between the organization and the federal government, through a “cognizant agency,” which is the federal agency responsible for reviewing and approving indirect cost proposals for that organization. The indirect cost rate is calculated based on historical costs, which are carefully evidenced through established accounting practices, as well as projections. I have been working with Attain Partners as a Specialist Leader for Library Consulting on the Library Cost Study, which documents expenditures incurred by a library in support of funded research, and so I have first-hand knowledge of the effort institutions put into preparing their ICR proposals. Finally, it is worth noting that the ICR is not expected to be uniform across institutions due to regional variations in prices and the range of activities supporting grant-funded research undertaken by different institutions. 

The indirect cost rate plays a crucial role in ensuring that organizations can sustain their research programs, e.g., by maintaining infrastructure, hiring support staff, and managing compliance with federal regulations. Without those things that an ICR pays for, research cannot be done. A lab must be in a building, served by electricity and other utilities, managed by an institution with appropriate legal, financial, and regulatory policies and procedures in place, and staffed by those with access to computers, printers, and other standard office equipment and supplies. 

Strategies for Research Institutions Responding to the ICR Cut

No doubt many a research administrator’s weekend was completely consumed by Friday’s announcement as will be their days ahead. As a seemingly almost infinite number of stories have reported, the cut is a critical threat to the US research infrastructure, puts medical progress at risk, and is a “disastrously bad idea.” All of which may be true but the question at hand for research administrators is what can they do about the situation, particularly in light of concern that other granting agencies, such as the National Science Foundation (NSF) might implement a similar cut in the coming days. 

I imagine there are already lawyers preparing lawsuits on behalf of multiple institutions. These may include breach of contract claims as many universities have negotiated multi-year ICR agreements with the federal government and have grant existing contracts that reflect those rates. They might also file administrative procedure act lawsuits that challenge the process by which the NIH implemented the new policy, arguing that it was done without proper notice and comment or argue that NIH failed to meet the requirements for making “publicly available, the policies, procedures and general decision making criteria that their programs will follow to seek and justify deviations from negotiated rates” as required by the Code of Federal Regulations. 

If the policy remains in place, universities will have to weigh options to minimize damage while keeping their research enterprises sustainable. Research organizations will likely seek to remediate the immediate budget shortfall by internal reallocations and budget cuts as well as seeking additional revenue from other sources. Strategies might include layoffs, curtailing hiring of permanent positions and either keeping positions open or shifting to temporary positions, and shifting funds earmarked for other purposes. Universities may also seek to raise tuition, though that option is constrained by various state regulations and university commitments, as well as concerns over college affordability. Universities may also seek to budget some items as direct costs that are currently classified as indirect; however, options here are limited by grant budget regulations. 

Long-term it is unlikely that an institution can cover the kind of budgetary shortfall this ICR cut represents and will have to curtail researchers from applying for grants. In the past, I myself was not permitted to apply for a grant from a non-federal source that did not allow budgeting of indirect costs nor shifting those expenses to direct costs. If NIH grants are not financially sustainable for an institution, the institution might reduce or eliminate NIH applications or even seek to end an existing grant contract. Perhaps some institutions will be able to underwrite their indirect costs from endowments; however, there are very few institutions that have sufficient endowment income for this to be a sustainable strategy. No doubt institutions will also encourage researchers to seek alternative funding sources, including philanthropic fundraising and pursuit of additional partnerships with biotech, pharmaceutical, and technology companies or international research collaborations with a focus toward European or other funding agencies that offer higher indirect cost recovery rates.

Absent a legal victory, none of these strategies seem likely to stave off the damage this ICR cut portends for the US research enterprise.

Implications for Scholarly Publishing 

As research grants fund the research projects that generate scholarly articles, any decline or shifts in such grants or outputs can have significant impact on scholarly publishing.The NIH ICR cut may disproportionately affect fields that rely heavily on NIH support, such as biomedicine, neuroscience, and public health, not only potentially slowing the pace of scientific breakthroughs and innovation in these areas but also disrupting the publishers serving these fields. 

The implications for scholarly publishing are downstream and so difficult to predict at this time but the impacts may be far-reaching. 

Initially there may be a spike of submissions driven by researchers who are unable to apply for new grants due to limitations imposed by their institutions – many researchers likely have existing research that has not yet been published and so could focus their attention on producing manuscripts in order to show productivity, at least as measured by bibliometrics. In addition, they may do so in order to provide some support for postdocs and others who will no longer have jobs in their labs as grant dollars decline. Not long after, however, one can expect submissions to fall below current levels unless institutions significantly re-structure in order to shift support to NIH-funded research and take support from other activities. 

Publishers should also anticipate additional subscription cancellations and declining interest in transformative and pure publish agreements from research institutions. Library support for research is factored into an institution’s ICR and is an infrastructure expense that is easier to cut than, for example, support for mandated regulatory compliance. If not outright cancellations, publishers may face increased pressure to negotiate lower prices or provide additional services without charge.

Researchers may also further withdraw from editorial and peer reviewing roles as they navigate the stress and fallout from the layoffs that will result from the ICR cut. As institutions face budget shortfalls, administrative support staff—who handle essential tasks like grant management, compliance reporting, and research coordination—may be among the first to be let go. This would leave researchers with additional administrative burdens, forcing them to take on tasks that were previously managed by dedicated support teams and less time for other activities. As a result, fewer researchers may be willing to serve as peer reviewers or journal editors, roles that are already under increasing strain. 

Nonetheless, publishers that charge APCs for open access publishing may be buffered against some of the ICR cut implications because APCs are eligible to be budgeted as direct costs. With the OSTP Nelson Memo coming into force, research institutions were already primed to increase grant budget requests in the area of dissemination fees and this ICR cut will only reinforce that approach. 

Future Evolution

A characteristic of the first month of the second Trump administration is rapid action and policy deployment, using executive orders, agency rule changes, and regulatory rollbacks to swiftly implement its agenda. While this approach allows for quick action, it has also resulted in numerous legal challenges. As such, we will see what the coming weeks bring. While the details are unknown, we can anticipate further actions in this policy arena that will affect researchers, research institutions, and scholarly publishing as well as the broader US research enterprise and the lives of those who depend on medical research to find cures and alleviate suffering.