Major Policy Shifts from NIH
Understanding the Potential Fallout for Higher Ed
In a move that's sending shockwaves through the higher education community, the National Institutes of Health (NIH) has announced a sweeping policy change: effective immediately, all NIH grants will standardize indirect cost rates at 15%.
This is a significant departure from the historically negotiated rates, which often ranged from 40% to 60% for many research-intensive institutions.
Understanding Indirect Costs
Indirect costs, often referred to as "overhead," encompass the essential yet less visible expenses that keep research programs operational. This includes lab space, utilities, compliance measures, and administrative support. Traditionally, institutions negotiated their indirect cost rates with the NIH to account for these expenses, leading to a wide variance in rates across universities.
Potential Impacts of the Policy Change
This abrupt policy shift could have profound implications for the higher education industry:
Financial Strain on Research-Intensive Universities: Institutions with substantial research operations, particularly those housing medical centers, may face significant financial challenges. The reduction in indirect cost rates means these universities will receive less funding to cover their overhead expenses, potentially leading to budget reallocations or cuts in other areas.
Budget Reallocations: To compensate for the decreased overhead funding, universities might need to divert funds from other sources to maintain their research infrastructure. But given the current state of our industry - with many institutions being financially challenged - even the ability to do this will be on an institution-by-institution basis.
Variable Impact on Smaller Institutions: Smaller universities, especially those that previously operated with lower indirect cost rates, might experience a less pronounced impact. However, the effect will vary on a case-by-case basis, depending on each institution's reliance on NIH funding.
Two of the biggest factors at play for institutions is the percentage of total revenue that NIH represents and the institution’s individual indirect cost rates.
Some early analysis on our end shows that there are many institutions where NIH funding represents upwards of 10% - 20%+ of total revenue for either an institution or a school within it. In many cases these are institutions with annual revenue in the billions, highlighting that the potential cuts needed to meet this new policy could very likely reach tens of millions of dollars for individual colleges of universities alone.
A Legal Battle Likely Ahead
Given the magnitude of this change, it's probable that affected institutions will challenge the policy in court. The sudden implementation, especially mid-budget cycle, adds to the complexity and could be a focal point in legal disputes. The success and timeline of such challenges though remains uncertain, leaving institutions in a state of flux.
Strategic Considerations for Institutions
In light of this news, and based on the early conversations emerging, it sounds like many universities are considering the following:
Financial Assessment: Conducting a thorough analysis to determine the specific financial impact of the reduced indirect cost rate on your specific institution.
Scenario Planning: Developing contingency plans that outline potential budget adjustments, including areas where costs can be reduced or alternative funding sources might be tapped.
Advocacy and Collaboration: Engaging with peer institutions, professional associations, and/or policymakers to advocate for a reconsideration or modification of the policy.
Legal Consultation: And finally, it’s likely many institutions are already seeking legal advice to understand the implications of the policy change and explore possible avenues for challenge in court.
A Black Swan Event for Higher Education?
It’s difficult to quantify just how significant the impact of this policy change could be, should it be allowed to move forward with immediate effect.
The higher education sector, already navigating challenges from evolving educational models and financial pressures, is now grappling with this significant potential change in research funding.
What remains unclear is if institutions will immediately move to reduce costs to either reach or move closer to compliance, or if they will wait to see how quickly legal challenges may be able to play out.
Beyond the financial viability of this new policy, which will impact institutions to varying degrees, there’s a larger question about just how sweeping this impact will be, how much it may impact the rate of discovery, and overall what the future of research will look like for post-secondary institutions historically reliant on NIH funds with far higher indirect cost rates.
Tracking the Headlines
Given the evolving nature of this story, I wanted to share a few of the articles I’ve been reading to keep up on just how significant the fallout from this policy change may be:
Politico: NIH Slashes Funding for Research Overhead, Leaving Universities Scrambling
NPR: NIH Announces New Funding Policy That Rattles Medical Researchers
Forbes: New NIH ‘Indirect Costs’ Funding Cuts Threat Universities, Science
Inside Higher Ed: NIH Moves to Slash Funding for Research, Leaving Universities on the Hook
Science: NIH Slashes Overhead Payments for Research, Sparking Outrage
About The Author
Seth is the founder and CEO of Kanahoma, a San Diego-based performance marketing agency on a mission to build a better agency for organizations building a better world.
You can learn more about who we are and what we do at www.Kanahoma.com.