The United States Court of Appeals for the First Circuit affirmed a permanent injunction blocking the Trump administration’s effort to cut billions of dollars in funding for biomedical research on Monday.
The three-judge panel, in a 38-page opinion written by Circuit Judge Kermit Lipez, ruled that the National Institutes of Health’s attempt to impose a 15% cap on indirect cost reimbursements violated both a congressionally enacted appropriations rider and the Department of Health and Human Services’ own adopted regulations.
On February 7, 2025, NIH issued what it called “Supplemental Guidance” announcing that it would cap indirect cost reimbursement for NIH-funded research at 15%, effective the following business day.
Indirect costs, also known as facilities and administration costs, cover expenses that cannot be attributed to a single research project but are nonetheless essential to conducting research. These include maintaining state-of-the-art laboratories and clinical spaces, purchasing advanced equipment for experiments, managing hazardous waste, paying utility bills, securing data storage, and supporting administrative, accounting, and IT personnel. Under existing regulations, NIH negotiates individual indirect cost rates with each grant recipient, which typically range from 25% to 60% based on the actual costs of administration, facilities, equipment, utilities, compliance infrastructure, and other overhead essential to conducting research.
NIH claimed the cap would save more than $4 billion annually, allowing funds to be “better targeted toward supporting the highest priority research.”
On February 10, 2025, three separate plaintiff groups filed lawsuits in the U.S. District Court for the District of Massachusetts.
U.S. District Judge Angel Kelley granted temporary restraining orders and, on March 5, 2025, issued a preliminary injunction blocking the policy nationwide. The court subsequently converted that preliminary injunction into a permanent injunction and vacated the Supplemental Guidance in its entirety.
NIH, under the direction of Dr. Jay Bhattacharya and HHS Secretary Robert F. Kennedy Jr., appealed the ruling to the First Circuit.
The appellate panel affirmed the district court’s decision on multiple independent grounds.
The court addressed NIH’s argument that the case belonged in the Court of Federal Claims rather than the district court. Relying on recent Supreme Court precedents, the panel distinguished between challenges to agency-wide policies and challenges to withholding of funds under specific grant agreements, which would go to the Court of Federal Claims.
The court also found three ways the policy violated an appropriations rider that Congress has enacted every year since 2018. That rider was Congress’s direct response to a similar proposal by the first Trump administration in 2017 to cap indirect costs at 10%, a proposal Congress rejected and explicitly prohibited.
The rider requires that NIH follow regulations governing indirect costs “to the same extent and in the same manner” as they were applied in the third quarter of fiscal year 2017, prohibits NIH from using funds to “develop or implement a modified approach” to those provisions, and bars the agency from “intentionally or substantially expand[ing] the fiscal effect” of deviations from negotiated rates beyond what occurred in 2017.
The court noted that NIH had never before invoked its deviation authority to impose an across-the-board rate, making the Supplemental Guidance “plainly taking a modified approach” to the regulations in violation of the statute.
The panel also found that the policy violated HHS’s own regulations in multiple ways.
First, the regulations permit deviations only for “a class of federal awards”, defined as awards under a specific program or to a specific type of entity, not for all NIH grants universally. Second, the regulations require a two-step sequential process: NIH must first announce the policies and criteria it will use to justify deviations, and then apply those criteria to determine whether departing from a negotiated rate is warranted for a particular award or class. NIH’s one-step imposition of a universal 15% rate bypassed this required process.
The decision preserves billions of dollars in funding essential to conducting medical research. NIH is the largest source of funding for medical research in the United States, providing more than $35 billion annually in grants that support the work of over 300,000 researchers.
NIH-funded research has led to lifesaving breakthroughs, including new treatments for cancer and diabetes, advancement of gene and RNA therapies, drugs to treat HIV and acute lymphoblastic leukemia, and a better understanding of infectious diseases. Research institutions warned that the 15% cap would have forced them to either absorb substantial losses, lay off staff, shut down laboratories, or curtail research activities. Many universities’ actual indirect costs exceed 50% of direct research costs.
