edical research can’t be done in the dark. But should taxpayers be covering the light bills at university labs across the country?

The Trump administration’s answer is no. The president has proposed a massive $7 billion budget cut for the National Institutes of Health over the next 18 months. And Secretary of Health and Human Services Tom Price said this week that he may find those savings in the “indirect expenses” that NIH funds, which includes everything from buying lab equipment to paying the electric bills for thousands of academic research labs from Harvard to Ohio State to Stanford.

Such pronouncements are sending ripples of alarm through universities, which last year received $16.9 billion in federal funding for research — and another $6.4 billion to cover their overhead costs.

STAT talked to more than a dozen university administrators and researchers across the nation. Some said they could, perhaps, find common ground with Trump in his quest to cut regulations; less red tape for federally funded labs, they said, would mean lower costs — and smaller overhead bills.

But nearly all expressed alarm at the thought of losing taxpayer support for “indirect costs” that they consider vital to their biomedical research — costs like keeping freezers running and labs heated.

“Unless you’re studying butterflies, you can’t conduct biomedical research in the middle of a field,” said Dr. Pamela Davis, dean of Case Western Reserve School of Medicine.

“It would be absolutely devastating. In fact, it would close down some research institutions,” said Dawn Bonnell, vice provost for research at University of Pennsylvania. “It’s just unthinkable to imagine how one would move forward.”

MIT President L. Rafael Reif was alarmed enough to write all employees this week to warn of potential cuts to “an arcane aspect of government funding that could have large budget implications for MIT.” He pointed out that 66 percent of MIT’s total research dollars come from federal funding — and said if the president’s budget blueprint were enacted, the university would lose a vast bulk of that money.  

But critics suggest the universities could do without such lavish reimbursements. They point out that foundations and philanthropists don’t pay nearly as much for overhead when they fund academic research. The Gates Foundation, for instance, caps its reimbursement for indirect costs at 10 percent. Yet researchers still apply for those grants.

“Unless you’re studying butterflies, you can’t conduct biomedical research in the middle of a field.”

Dr. Pamela Davis, dean of Case Western Reserve School of Medicine.

What’s more, many universities have huge endowments; Harvard’s is valued at more than $35 billion. Given that wealth, critics say, it makes little sense for taxpayers to foot the bill for lab utilities.

“I think, in a sense, universities make a profit off these indirect costs, and indeed, the research grants incentivize universities to increase their overhead costs and utilize bureaucracies,” said Richard Vedder, director of the Center for College Affordability and Productivity at Ohio University. “It’s contributed to the administrative bloat on college campuses.”

Or, as Price told members of a House committee this week: “I was struck by one thing at NIH, and that is that about 30 percent of the grant money that goes out is used for indirect expenses — which, as you know, means that that money goes for something other than the research that’s being done.”

MIT Labs
Taxpayers cover the costs of some university lab equipment through federal grants.

Funding rates spark controversy on campuses

Funding for overhead costs at labs has been a source of controversy — and, on some campuses, resentment — for years.

Since each university has unique costs — property values, for instance, vary by location and equipment needs depend on the type of research being conducted — each gets a different rate of reimbursement.

And these rates can vary substantially. A Nature investigation in 2014 found that universities negotiated reimbursement rates in the range of 20 percent of the total grant amount on the low end and 85 percent on the high end. Most rates fell between 50 and 60 percent.

Those deals, however, aren’t set in stone: Nature found that while the average negotiated rate was worth 53 percent of each grant application, the average payout was just 34 percent. That’s because the NIH caps some grants and expenditures.

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The top-earning school in fiscal 2013 was Johns Hopkins University, which negotiated a 62 percent reimbursement rate and brought in nearly $160 million in reimbursement for overhead. On the low end of the scale: Morehead State University in Kentucky, with a 24 percent reimbursement rate and less than $115,000 in indirect cost reimbursements.

Critics suggest that the system gives universities an incentive to bump up their overhead costs, since the reimbursement rates are negotiated based on their previous year’s spending. So if a school builds a fancy new lab one year, it can claim the need for a higher reimbursement rate the next.

Even so, administrators say the NIH funding never covers the full amount they spend on their research labs.

“MIT loses money on every research grant we get, even with full overhead,” said Maria Zuber, vice president of research at MIT.

MIT Labs
Dr. Xun Gong works in the Strano Research Group lab at MIT.

A powerful lobby keeps the money flowing

Colleges fight ferociously to keep their NIH reimbursements. They make a powerful lobby: Because the grant money is distributed to campuses across the country, members of Congress from every state get an earful every time they even contemplate cuts.

“Our faculty, including myself, have been going to Washington and meeting with members of Congress and the agencies for many years,” said Dr. Landon King, executive vice dean of Johns Hopkins University School of Medicine. “There’s been a longstanding, strong bipartisan support for biomedical science.”

Already, several key Republicans on the Hill have said they won’t accept the deep cuts Trump has laid out for NIH. Asked about Trump’s proposed $1.2 billion cut for the second half of this fiscal year — which the president wants to follow up with another $5.8 billion cut next year — Representative Tom Cole was succinct: “Not going to happen.”

The Trump administration, of course, isn’t the first to call indirect costs into question. Four years ago, the Obama administration floated legislation to try to standardized the rate of indirect costs. Lobbyists for major universities, like Harvard and MIT, shot that proposal down, the Boston Globe reported

These rates also came under heavy scrutiny by Congress in the 1990s, after auditors learned that many universities seemed to have a very generous definition of overhead costs. Stanford, for its part, had used reimbursements from the NIH to buy decorations and help pay for a university yacht.

The NIH tightened its rules and such incidents are far less common today. Still, Columbia University was fined $10 million by the federal government last year for over-billing NIH for psychiatric and neurological research that was actually conducted off-site, largely in government-owned offices.

Despite the occasional scandal, universities argue that reimbursements are crucial to helping them pay for basic research — particularly as NIH funding has been flat for a decade.

“People think these are bonus dollars or fees to universities, which they are not,” said Marcia Smith, associate vice chancellor for research at University of California, Los Angeles.

“I think, in a sense, universities make a profit off these indirect costs.”

Richard Vedder, Center for College Affordability and Productivity at Ohio University

The money also helps support medical research that wouldn’t likely interest pharmaceutical companies — at least, not in the early going, said John Zurawski, an intellectual property lawyer with Newark-based firm McCarter & English. 

“If you don’t have as much NIH money coming through the door, private companies will have to fill the coffers of the lab to get research done,” Zurawski said. “But there’s a big bias in terms of what a company wants out of a researcher.”

Or as Case Western’s Davis put it: “Our pharma industry leaders of the world —  where do you think they get their basic discovery? Let me give you a hint: It’s not the tooth fairy.”

Survival of the richest?

If substantial cuts to indirect funding do indeed come to pass, universities will have to scramble to find these dollars elsewhere.

They can’t count on making up that money by drawing it from the hospitals often affiliated with medical schools: Many have been fractured by the ongoing mergers and acquisitions in the hospital industry, said Dr. Ross McKinney, chief scientific officer of the Association of American Medical Colleges.

Tuition is already sky-high, particularly for medical students — so universities are reluctant to charge more. State funding continues to decrease for public universities. And philanthropy and foundation support is erratic and often narrowly targeted at specific diseases.

“The bottom line is, there’s nowhere to make up the revenue,” McKinney said. “If [indirect costs are] significantly diminished, the only thing is to do less research.”

It could become a survival of the richest: Schools with big endowments and rich alumni will likely find a way to carry on — but lesser-known institutions in more rural areas would feel the cuts keenly. All would have to find a way to make up the funding by taking from other areas in their budgets.

“It’s less funding that’s available for things like subsidizing student tuition and financial aid, and health benefits for workers,” said MIT’s Zuber. “It would just limit our ability to do other things.”

MIT Labs
MIT’s president sent a letter to all employees warning that cuts to federal research funding could be a major financial blow to the university.

A common foe in regulation

For all their angst about the potential cuts, universities may well be able to find common ground with the Trump administration on a related issue: cutting regulation.

Particularly after the Stanford scandal in the 1990s, regulatory requirements imposed on academicians have continually increased — while the reimbursement structure has stayed fairly static. Conflict of interest disclosures, in particular, are time-consuming.

“I think there’s a lot of needless paperwork — a lot of malarkey that has nothing to do with science — but that doesn’t come from the university,” said Dr. Frank Anania, a professor of digestive disease at Emory University. “We don’t make the law, we comply.”

Chase Spurlock, an immunology researcher at Vanderbilt University and CEO of a molecular diagnostics startup, said he believes Trump does want to keep funding biomedical research and sees the proposals for drastic budget cuts as a sort of opening gambit — “a preamble to a much larger discussion” on how to distribute NIH funds most efficiently.

His company, IQuity, has received NIH grants that cap indirect costs at 40 percent — and his experience in the startup realm convinced him that academia, too, could operate more efficiently.

“Given that we’ve seen the waxing and waning of NIH dollars over the past several years, it’s up to all of us to help control the costs,” Spurlock said.

Vedder offers a similar proposal: cap reimbursements for indirect costs at 25 or 30 percent of the grant amount, and offer that as a flat rate to all universities across the country. He also suggests that the NIH start evaluating research not only on its scientific merit, but also on its potential cost, “and downgrade proposals that have high research overhead requests,” he said.

“I think the goal should be to put the money where it’s supposed to be: in funding new ideas, new approaches to medicine,” Vedder said. “And that means cut away the overhead, the administrative costs, things like that.”

University administrators say they’re willing to listen. But they’re worried that nuance will be lost in the zeal to root out waste and slash budgets.

“If there were a well-thought-out and well-designed process for looking at ways to improve [indirect cost reimbursement], that would be welcome,” said Smith of UCLA. “But one worries that someone thinks they can fix it quickly. And it’s not a quick fix.”

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  • These grants are larded with salary money that can come from other sources, especially for MD’s. Jeez, 35 years ago my university medical center told MD’s holding RO1’s that when the soft money ran out they were on their own, so the smart ones picked up a stethoscope and joined the University Medical Practice Group to pay their salaries. Fair enough, they brought in the patients they should get the rewards, The ones that expected a free ride from the University after the soft money ran out soon found themselves looking for new jobs. Also, the NIH should provide training grant money for each postdoctoral research fellow for no more than 3 years. Some guys are career postdocs, bouncing around from place to place, looking for whomever has some training grant money. Time for these dudes to either find a tenure track position, or, as im my case get out of academia altogether and get a nice 40 hour/week job in Phat Pharma, which for me was a no brainer.

  • Dear Editors: the recent article published by STAT related to indirect costs incurred by universities on NIH awards did not address the reason that indirect cost rates at universities are so much higher than those at non-profits and foundations. The reason is that research universities have a much larger infrastructure because they conduct research that uses large machines, instruments, and service centers, and all those items require high usage of utilities. To maintain such facilities and equipment also requires a fairly large amount of funding. These costs are not charged directly to sponsored awards because the administrative and fiscal tracking of such costs directly would end up costing the government more than charging these costs as indirect costs. Indirect costs are charged to awards as a percentage of the direct costs and this percentage is negotiated on a regular basis with the federal government. The government reviews all costs charged to awards (direct and indirect) on a regular basis and all federal awardees with expenditures of $750K or more annually must undergo a single audit for those costs on an annual basis.

    In any event, although indirect cost rates at universities may appear to be high, it is due to the infrastructure utilized to conduct the cutting edge research undertaken. Research does not take place in a broom closet and researchers don’t work for free. It costs money, a lot of it. The consequences of divesting from research would be quite negative for the US (closing of some universities, fewer students educated, reduction of US prominence in science, fewer discoveries, drugs, machines, and technology). I think we all can agree that it would be wonderful to reduce the number of regulations to reduce administrative burden, but don’t expect universities to be able to continue producing world class research without covering their overhead.

    • I can relate in one area. When I was a grad student and post doc, when we had two order two dozen rats for experiments from the breeders, it was no harder then ordering two dozen pies from Pizza Hut. Then in the 1980s, based on a VERY small number of animal misuse cases that were well publicized by PETA, the feds came down hard on universities. Going from a one page order form the universities now require reams of paperwork, including not only housing conditions, but also detailed experimental procedures, pain management and other criteria akin to what might be in a 50 page clinical protocol. The protocols are reviewed by the equivalent of an IRB, that is perfectly willing to turn you down, and delay that long awaited PhD a few more months.

  • Is this making America great again?

    Lets see so far we have this administration wanting to :

    increase military spending 50 billion even though we already spend $380 billion more than any other nation

    cut medical research.

    strip the neediest children of CHIP by repealing obamacare and excluding them from the replacement

    raise rates of medical insurance for the elderly / retirees

    build a dumb wall that people can go over or under

    cut federal funding for our childrens future and reduce or eliminate the cores

    get rid of environmental protections

    allow our private internet data to be sold to the highest bidder

    make the CEO of Exxon our Secretary of state.

    shall I go on? are we great yet?

    And the metaphor of indirect costs paying for lightbulbs is just that a metaphor. they don’t pay for just lights and heat… America and our principles are under attack. they are trying to steal from the poor and give to the rich in everything they do! WAKE UP

  • In my experience the expression “size matters” does not apply to lab research. There is no relationship between the size of the lab, the number of lab techs, post docs and grad students and the quality of the work output. I’ve seen Nobel Prize winning work come out of labs hardly larger than a broom closet, with a single tech and low overhead.

  • Let me begin by stating that I am against every decision Trump and his administration have made so far, but on this one, I do have to agree. The reason is that US Universities (State and Private) have become extremely lucrative organizations. There is absolutely no reason why they can’t pay their utility bills!
    Universities which get NIH research grants and funding get to take ALL the credit for the research results, which ultimately builds their reputation and income from tuition. Our tax dollars should not subsidize profitable organizations; including all of Trump’s business.

    • In addition, many universities have developed patent and licensing agreements that allow them to realize significant benefits from research supported by NIH grants. Overheads are worthwhile and necessary for the conduct of research, but the negotiated rates that exceed 50% (or pick a percentage) are most often negotiated by larger universities to the detriment of other smaller ones and, if any, their non-profit partners.

    • This article shows a basic misunderstanding about what indirect costs are actually used for. We lose money on every grant, even if we get our full federal negotiated rate. The costs which indirects partially cover are more than the light bills. They are all of the staff not covered by the direct costs of the grant: research administration, computers, human subjects protections for human research and clinical trials, animal care facilities, and personnel to ensure that all of the regulations imposed on us by the government and other sponsors are taken care of in a compliant manner. None of these things are funded directly by grants, and none of the costs are fully covered by our indirect rates.

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