Cases & Developments

Order Granting Plaintiffs’ Ex Parte Emergency Motion for Temporary Restraining Order. Plaintiffs, the states of Massachusetts, Michigan, Illinois, Arizona, California, Connecticut, Colorado, Delaware, Hawai’i, Maine, Maryland, Minnesota, New Jersey, New York, Nevada, New Mexico, North Carolina, Oregon, Rhode Island, Vermont, Washington, and Wisconsin filed a complaint seeking injunctive relief against the National Institutes of Health (NIH) and the U.S. Department of Health and Human Services following the issuance of supplemental Guidance (Rate Change Notice), which lowered previously negotiated indirect cost rates to a flat 15% for all institutions receiving funding from NIH, including institutions of higher education, and that applied to new and existing grants. In their complaint, plaintiffs stated that “without relief from NIH’s action, these institutions’ cutting-edge work to cure and treat human disease will grind to a halt.” Plaintiffs also alleged the Rate Change Notice represents a substantive violation of the Administrative Procedure Act, and the action by the NIH is arbitrary, capricious, an abuse of discretion, and not in accordance with the Further Consolidated Appropriations Act, and in excess of statutory authority and Ultra Vires. In granting plaintiffs’ temporary restraining order, the Court enjoined defendants from taking any steps to implement, apply, or enforce the Rate Change Notice within plaintiff states until further order is issued by the Court. The Temporary restraining order is effective immediately and will remain in effect until further order of the Court. A hearing is set for February 21, 2025. 

Order granting Plaintiffs’ Emergency Motion for Temporary Restraining Order. Plaintiffs, the Association of American Medical Colleges, the American Association of Colleges of Pharmacy, the Association for Schools and Programs of Public Health, the Conference of Boston Teaching Hospitals, Inc., and the Greater New York Hospital Association filed a complaint against the National Institutes of Health (NIH) and the U.S. Department of Health and Human Services (HHS) regarding the supplemental Guidance (Rate Change Notice) that was issued February 7, 2025, which lowered previously negotiated indirect cost rates to a flat 15% for all institutions receiving funding from NIH, including institutions of higher education, and that purported to apply to both new and existing grants. In their complaint, plaintiffs contend that the Rate Change Notice is invalid under the Administrative Procedure Act (“APA”), contrary to HHS’s existing regulations, which require NIH to accept the previously negotiated F&A rates and permit NIH to depart from those rates only with justification and only for a limited and defined group of recipients. Plaintiffs further allege the Guidance is contrary to the 2024 Further Consolidated Appropriations Act and arbitrary and capricious as NIH failed to adequately account for reliance interests, failed to justify the switch, to explain the factual basis for the 15% determination, and further failed to undergo required notice and comment rulemaking, therefore depriving research institutions of receiving the negotiated F&A rates the agencies committed to provide. In addition to their request for a temporary restraining order, plaintiffs’ ask that the court declare the Guidance an abuse of discretion, contrary to constitutional rights, power, privilege, and immunity, order defendants to file a status report with the court within 24 hours of a temporary restraining order, and at regular intervals thereafter, to confirm the regular disbursement and obligation of federal financial assistance funds and issue a preliminary and permanent  injunction barring defendants from taking any steps to otherwise implement the Guidance. The Court found that plaintiffs made a sufficient showing that unless their Emergency Motion for Temporary Restraining Order is granted, they will sustain immediate and irreparable injury before there is an opportunity to hear from all parties. The Court enjoined defendants from taking any steps to implement, apply, or enforce the Rate Change Notice within plaintiff states until further order is issued by the Court, and ordered that defendants file a status report with the court within 24 hours of the temporary restraining order and at regular intervals thereafter. The restraining order is effective immediately and will remain in effect until further order of the Court. A hearing is set for February 21, 2025. 

Complaint requesting Injunctive Relief. Plaintiffs, the Association of American Universities, the American Council on Education, the Association of Public and Land-Grant Universities, Brandeis University, Brown University, The Regents of the University of California, the California Institute of Technology, Carnegie Mellon University, the University of Chicago, Cornell University, the George Washington University, Johns Hopkins University, Massachusetts Institute of Technology, Trustees of the University of Pennsylvania, University of Rochester, and the Trustees of Tufts College challenged the U.S. Department of Health and Human Services and the National Institutes of Health (NIH) in response to Guidance issued on February 7, 2025, which reduced previously negotiated indirect cost rates to 15% across the board for all institutions receiving funding from NIH, including institutions of higher education, and that purports to apply to new and existing grants alike. Plaintiffs contend the Guidance violates the Administrative Procedure Act (APA) and congressionally imposed limitations on deviations from negotiated rates for indirect costs that were previously set to remain in force through the Further Continuing Appropriations Act, 2025. Plaintiffs allege the Guidance is arbitrary, capricious, and an illegal departure from cost recovery regulations and policy guidance, as well as a violation of the Public Health Services Act, in excess of statutory authority, and an affront to the separation of powers. Plaintiffs further allege that if allowed to proceed with the Guidance, many institutions would have to reduce or halt a significant portion of their research operations and would be unable to continue to operate cutting-edge equipment and may also be required to close facilities and reduce the number of graduate students and research faculty. In response to the rationale for the Guidance, plaintiffs argue that differences in indirect cost rates do not reflect undeserved government subsidies; rather, institutions have different indirect cost rates because they engage in different types of research and have unique mixes of fixed and variable institutional costs that are appropriately allocated across multiple research projects or other cost objectives, and as such, a flat 15% rate is insufficient. Plaintiffs ask the court for vacatur of guidance; declaratory judgment finding the Guidance procedurally invalid, arbitrary, and capricious, and contrary to law; grant an injunction preliminarily and permanently prohibiting defendants, their agents, and anyone acting in concert or participation with defendants from implementing, instituting, maintaining, or giving effect to the Guidance in any form; from otherwise modifying negotiated indirect cost rates except as permitted by statute and by the regulations of OMB and HHS; and from expending appropriated funds in any manner contrary to Section 224. Plaintiffs’ complaint was accompanied by a motion for a temporary restraining order that Judge Angel Kelley confirmed on Tuesday, February 11, 2025, need not be separately granted since her prior temporary restraining order in favor of the Association of American Medical Colleges applies to all institutions and states nationwide. 

The U.S. National Institutes of Health (NIH) issued supplemental Guidance to the 2024 Grants Policy Statement: “Indirect Cost Rates.” The Guidance discusses updated policy deviating from the negotiated indirect cost rate for new grant awards and existing grant awards, effective immediately. There will now be a standard indirect rate of 15% across all NIH grants for indirect costs in lieu of a separately negotiated rate for indirect costs in each grant. The change in rate is made to steward grant awards to ensure taxpayer dollars are used in ways that benefit the American people and improve their quality of life, and indirect costs are “not readily assignable to the cost objectives specifically benefitted” and are more difficult for NIH to parse. The Guidance further rationalizes the change in rate by citing many private foundations having a maximum indirect rate of 10-15%. For any new grant issued, and for all existing grants to institutions of higher education retroactive to the date of the Guidance, award recipients are subject to a 15% indirect cost rate. The policy will also be applied to all current grants for go-forward expenses from February 10, 2025, as well as for all new grants issues and will not be applied retroactively to the initial date of issuance of current grants to postsecondary institutions.