Association of American Universities v. Department of Health and Human ServicesAssociation of American Universities v. Department of Health and Human Services
United States Court of Appeals For the First Circuit
No. 25-1343
COMMONWEALTH OF MASSACHUSETTS; DANA NESSEL, on behalf of the people of the State of Michigan; STATE OF ILLINOIS; STATE OF ARIZONA; STATE OF CALIFORNIA; STATE OF CONNECTICUT; STATE OF COLORADO; STATE OF HAWAII; STATE OF MAINE; STATE OF MARYLAND; STATE OF MINNESOTA; STATE OF NEVADA; STATE OF NEW JERSEY; STATE OF DELAWARE; STATE OF NEW MEXICO; STATE OF NEW YORK; STATE OF NORTH CAROLINA; STATE OF OREGON; STATE OF RHODE ISLAND; STATE OF VERMONT; STATE OF WASHINGTON; STATE OF WISCONSIN,
Plaintiffs, Appellees,
v.
NATIONAL INSTITUTES OF HEALTH; JAY BHATTACHARYA, M.D., Ph.D. in the official capacity as Director of the National Institutes of Health; U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS); ROBERT F. KENNEDY, JR., in the official capacity as Secretary of the U.S. Department of Health and Human Services,
Defendants, Appellants.
No. 25-1344
ASSOCIATION OF AMERICAN MEDICAL COLLEGES; THE AMERICAN ASSOCIATION OF COLLEGES OF PHARMACY; THE ASSOCIATION OF SCHOOLS AND PROGRAMS OF PUBLIC HEALTH; THE CONFERENCE OF BOSTON TEACHING HOSPITALS, INC.; GREATER NEW YORK HOSPITAL ASSOCIATION,
Plaintiffs, Appellees,
v.
NATIONAL INSTITUTES OF HEALTH; JAY BHATTACHARYA, M.D., Ph.D. in the official capacity as Director of the National Institutes of Health; U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES (HHS); ROBERT F. KENNEDY, JR., in the official capacity as Secretary of the U.S. Department of Health and Human Services,
Defendants, Appellants.
No. 25-1345
ASSOCIATION OF AMERICAN UNIVERSITIES; AMERICAN COUNCIL ON EDUCATION; ASSOCIATION OF PUBLIC AND LAND-GRANT UNIVERSITIES; BRANDEIS UNIVERSITY; BROWN UNIVERSITY; CARNEGIE MELLON UNIVERSITY; THE REGENTS OF THE UNIVERSITY OF CALIFORNIA; 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; TRUSTEES OF TUFTS COLLEGE; THE CALIFORNIA INSTITUTE OF TECHNOLOGY,
Plaintiffs, Appellees,
v.
DEPARTMENT OF HEALTH AND HUMAN SERVICES; NATIONAL INSTITUTES OF HEALTH; ROBERT F. KENNEDY, JR., in the official capacity as Secretary of the U.S. Department of Health and Human Services; JAY BHATTACHARYA, M.D., Ph.D. in the official capacity as Director of the National Institutes of Health,
Defendants, Appellants.
APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Angel Kelley, U.S. District Judge]
Before
Rikelman, Lipez, and Howard, Circuit Judges.
Jennifer Utrecht, with whom Yaakov M. Roth, Acting Assistant Attorney General, Brian C. Lea, Deputy Associate Attorney General, Eric D. McArthur, Deputy Assistant Attorney General, Courtney L. Dixon, and Jeffrey E. Sandberg, Attorneys, U.S. Department of Justice, were on brief, for appellants.
Paul D. Clement, with whom James Y. Xi, Kyle R. Eiswald, Clement & Murphy, PLLC, John P. Bueker, Douglas H. Hallward-Driemeier, Stephanie A. Webster, Ropes & Gray LLP, Ishan K. Bhabha, Lindsay C. Harrison, Lauren J. Hartz, Elizabeth Henthorne, Zachary C. Schauf, Adam G. Unikowsky, Shoba Pillay, and Jenner & Block LLP were on brief, for appellees.
David C. Kravitz, State Solicitor, with whom Andrea Joy Campbell, Attorney General of Massachusetts, Katherine Dirks, Chief State Trial Counsel, Allyson Slater, Chief, Reproductive Justice Unit, Chris Pappavaselio, Assistant Attorney General, Kwame Raoul, Attorney General of Illinois, Alex Hemmer, Deputy Solicitor General, R. Sam Horan, Assistant Attorney General, Dana Nessel, Attorney General of Michigan, Linus Banghart-Linn, Chief Legal Counsel, Neil Giovanatti, Joshua S. Smith, Kris Mayes, Attorney General of Arizona, Joshua D. Bendor, Solicitor General, Rob Bonta, Attorney General of California, Neli Palma, Senior Assistant Attorney General, Emilio Varanini, Supervising Deputy Attorney General, Sophia Tonnu, Daniel Ambar, Deputy Attorneys General, Philip J. Weiser, Attorney General of Colorado, Shannon Stevenson, Solicitor General, William Tong, Attorney General of Connecticut, Michael K. Skold, Solicitor General, Kathleen Jennings, Attorney General of Delaware, Ian R. Liston, Director of Impact Litigation, Vanessa L. Kassab, Deputy Attorney General, Anne E. Lopez, Attorney General of Hawai'i, David D. Day, Special Assistant to the Attorney General, Kaliko'onālani D. Fernandes, Solicitor General, Aaron M. Frey, Attorney General
Alexandra H. Deal, Paik Deal, LLP, Kelsey L. McLean, Alexandra Zegger, and PETA Foundation, on brief for People for the Ethical Treatment of Animals, Inc. as amicus curiae in support of neither party.
David J. Zimmer and Zimmer, Citron & Clarke LLP, on brief for the American Association of University Professors as amicus curiae in support of appellees.
Jessica L. Ellsworth, Stephanie J. Gold, Aleks Sverdlov, Michael J. West, Jackson B. Skeen, and Hogan Lovells US LLP, on brief for the National Association of College and University Business Officers and Seventeen Other Higher Education Associations as amici curiae in support of appellees.
Joshua B. Shiffrin, Jacob Karabell, and Bredhoff & Kaiser, P.L.L.C., on brief for United Auto Workers as amicus curiae in support of appellees.
Adam Cederbaum, Jonathan B. Miller, Elaine Poon, and Public Rights Project, on brief for Local Governments and Local Government Leaders as amici curiae in support of appellees.
Phillip R. Malone, Nina K. Srejovic, and Juelsgaard Intellectual Property and Innovation Clinic, on brief for Scholars of Economics and Innovation as amici curiae in support of appellees.
Molly A. Meegan, Francisco M. Negrón, Jr., Nicole A. Saharsky, Minh Nguyen-Dang, Wajdi C. Mallat, Sydney N. Royer, and Mayer Brown LLP, on brief for American College of Obstetricians and Gynecologists, American College of Physicians, American Psychiatric Association, American College of Chest Physicians, American College of Emergency Physicians, American College of Radiology, American Geriatrics Society, American Society for Clinical Pathology, American Urological Association, Council of Medical Specialty Societies, and Society for Maternal-Fetal Medicine as amici curiae in support of appellees.
Steve W. Berman, John M.
January 5, 2026
LIPEZ, Circuit Judge. On the night of Friday, February 7, 2025, the National Institutes of Health ("NIH"), an agency within the Department of Health and Human Services ("HHS"), issued a "Supplemental Guidance" to the 2024 NIH Grants Policy Statement, Notice Number NOT-OD-25-068. In fewer than three pages, NIH announced that it would be capping the reimbursement of the "indirect costs" associated with NIH-funded research at 15%, effective the following business day, Monday, February 10. On that Monday, three plaintiff groups filed suit in the District of Massachusetts, arguing, among other things, that NIH's action violated a congressional appropriations rider and contravened HHS's own regulations.
The district court granted the plaintiffs' ex parte requests for a temporary restraining order. Subsequently, after carefully considering the parties' briefing and arguments, as well as the more than eighty declarations submitted by the plaintiffs, the court issued a nationwide preliminary injunction barring NIH from taking any steps to implement, apply, or enforce the Supplemental Guidance. At the parties' request, the court converted its preliminary injunction into a permanent injunction and vacated the Supplemental Guidance in its entirety.
We affirm the decision of the district court.
I.
A. Background1
NIH is responsible by statute for encouraging, supporting, and promoting research projects that relate "to the causes, diagnosis, treatment, control, and prevention of physical and mental diseases and impairments."
Pursuant to regulations promulgated by HHS,2 NIH funds research conducted by outside entities on a reimbursement basis rather than via lump-sum awards, meaning that grant recipients recover their actual, documented research costs. See generally
capital improvement" and "operations and maintenance expenses,"
Under HHS's regulations, each grant recipient is instructed to identify and aggregate its indirect costs. See
recipient, during which a negotiated indirect cost reimbursement rate is agreed upon.7 See
There is a carefully circumscribed procedure that controls any deviation from the negotiated rate. "An HHS awarding agency may use a rate" other than the negotiated indirect cost reimbursement rate "for a class of [f]ederal awards or a single [f]ederal award," as relevant here, "only . . . when approved by a [f]ederal awarding agency head or delegate based on documented justification as described in paragraph (c)(3)" of
Although the described "methodology for negotiating indirect costs has been in place since 1965," S. Rep. No. 115-150, at 109 (2017), it has not existed without debate. Indeed, at several points, presidential administrations and members of Congress have proposed various limitations on the reimbursement of indirect costs. See Marcy E. Gallo & Laurie Harris, Cong. Rsch. Serv., R48540.2, Universities and Indirect Costs for Federally Funded Research 8-11 (2025). With few exceptions, those efforts to change the methodology have failed. See id.
One such failed effort is particularly relevant here. In 2017, the first Trump administration issued a budget proposal for 2018 advocating a 10% cap on NIH's reimbursement of indirect costs. The proposal explained that reducing expenditures on indirect costs would allow "available funding [to] be better targeted toward supporting the highest priority research on diseases that affect human health" and would "bring NIH's reimbursement rate for indirect costs more in line with the reimbursement rate used by private foundations." Congress rejected that proposal, with the House Appropriations Committee explaining that it "would have a devastating impact on biomedical research across the country," H.R. Rep. No. 115-244, at 50 (2017), and the Senate Appropriations Committee noting that it "would radically change the nature of the [f]ederal [g]overnment's relationship with the research community" and "jeopardiz[e]
biomedical research nationwide," S. Rep. No. 115-150, at 109. In addition to refusing to adopt the Trump administration's proposal, Congress enacted an appropriations rider "directing NIH to continue reimbursing institutions for F&A costs" and prohibiting NIH from using appropriated funds "to implement any further caps on F&A cost reimbursements." H.R. Rep. No. 115-244, at 50; see Consolidated Appropriations
In its budget proposal issued in 2019, the Trump administration acknowledged that the appropriations rider "prohibit[s] [NIH] by law from reducing grantee administrative costs and shifting these resources to support direct research" and urged Congress to "eliminate the current prohibition." Congress declined to do so and instead reenacted the appropriations rider. It has continued to do so in every subsequent year. See, e.g., Further Consolidated Appropriations Act, 2024, Pub. L. No. 118-47, § 224, 138 Stat. 460, 677.
As noted, on February 7, 2025, NIH -- invoking its deviation authority under
B. Procedural History
Following the NIH announcement, three plaintiff groups filed the suits underlying this appeal in the District of Massachusetts. The first group consists of twenty-two attorneys general suing on behalf of their states, the second group consists of five medical associations, and the third group consists of sixteen higher education associations and universities. Each plaintiff group alleged that the Supplemental Guidance is unlawful on multiple grounds and sought injunctive and declaratory relief. That same day, the district court granted two of the plaintiff groups' ex parte motions for a temporary restraining order (denying the third as moot the next day), and the court subsequently extended those orders while it considered the parties' arguments for and against a preliminary injunction.
Then, on March 5, 2025, the district court granted the plaintiffs' requests for a preliminary injunction based on three determinations. First, the court concluded that it had subject-matter jurisdiction over the plaintiffs' claims, rejecting NIH's argument that those claims were for breaches of contract and thus belonged in the Court of Federal Claims (the "CFC") pursuant to the Tucker Act,
because it was issued without notice and comment, and impermissibly applies retroactively. Third, the court determined that the remaining preliminary-injunction factors favored granting relief. The district court thus enjoined NIH "from taking any steps to implement, apply, or enforce the Supplemental Guidance." At the parties' request, the court subsequently converted the preliminary injunction into a permanent injunction and vacated the Supplemental Guidance. NIH timely appealed.
II.
NIH argues that the district court's decision to permanently enjoin the enforcement of and vacate the Supplemental Guidance was flawed in several respects. To begin, NIH contends that the district court erred in exercising jurisdiction pursuant to the Administrative Procedure Act's (the "APA's") waiver of sovereign immunity. As to the merits, NIH takes issue with the district court's holdings on each of the plaintiffs' claims. For the reasons we shall explain, we agree with the district court that it had jurisdiction over the plaintiffs' claims and that NIH's action is unlawful because it violates a statute and regulations. We therefore find it unnecessary to reach NIH's challenges to the district court's conclusions that the Supplemental
A. Jurisdiction
The threshold question before us is whether the district court properly exercised subject-matter jurisdiction over the plaintiffs' claims. The United States and its agencies are generally immune from suit in federal court absent an unequivocal waiver of sovereign immunity. The APA provides a clear but limited sovereign-immunity waiver for claims against the United States "seeking relief other than money damages" brought by persons "adversely affected or aggrieved by agency action."
a contract dispute" thus belongs in the CFC rather than in a district court. Am. Sci. & Eng'g, 571 F.2d at 61.
Courts have long contemplated the interplay between the APA and the Tucker Act, developing a robust body of caselaw to determine whether an ostensibly APA-based claim is a breach-of-contract claim in disguise. See, e.g., Megapulse, Inc. v. Lewis, 672 F.2d 959, 964-71 (D.C. Cir. 1982). To resolve the jurisdictional challenge in this appeal, however, we need look no further than the Supreme Court's recent emergency decisions in Department of Education v. California, 604 U.S. 650 (2025) (per curiam), and NIH v. American Public Health Association ("APHA"), 145 S. Ct. 2658 (2025) (mem.).10
Department of Education concerned the sudden terminations of more than 100 grants previously awarded to entities that provide for teacher and school leader recruitment and training. See California v. Dep't of Educ., 132 F.4th 92, 95 (1st Cir. 2025). Several states brought suit challenging the terminations as contrary to the APA, and the district court quickly issued a temporary restraining order that required the Department
of Education to "restore the status quo as it stood prior to the purported terminations." Id. at 95-96.
After we declined to stay the district court's order pending appeal, see id. at 101, the Supreme Court granted the Department of Education's application for a stay, see Dep't of Educ., 604 U.S. at 652. In its short opinion, the Court explained that while "a district court's jurisdiction 'is not barred by the possibility' that an order setting aside an agency's action may result in the disbursement of funds," the Court has recognized that "the APA's limited waiver of immunity
APHA involved a newly announced NIH policy, carried out through a series of guidance documents, "prohibit[ing] NIH from funding scientific research grants in certain categories," such as those "studies based on diversity, equity, and inclusion (DEI) and gender identity." Am. Pub. Health Ass'n v. NIH, 145 F.4th 39, 43, 45 (1st Cir. 2025) (citation modified). As a direct result of its new policy, NIH terminated hundreds of existing research grants.
See id. at 45-47. Following a bench trial, the district court entered two orders, separately setting aside both the new policy and the resulting grant terminations as unlawful under the APA. See id. at 43-44. Again, we declined to stay the district court's orders pending appeal. See id. at 44.
NIH then applied to the Supreme Court for a stay. See APHA, 145 S. Ct. at 2659. The application was granted in part and denied in part, with Justice Barrett casting the deciding vote. See id. In her controlling concurrence,11 Justice Barrett explained that, for the reasons stated in Department of Education, "the [d]istrict [c]ourt likely lacked jurisdiction to hear challenges to the grant terminations, which belong in the [CFC]." APHA, 145 S. Ct. at 2661 (Barrett, J., concurring). As for the challenge to the guidance itself, however, Justice Barrett explained that "the [d]istrict [c]ourt was likely correct to conclude that it had jurisdiction." Id. She observed that "[p]laintiffs frequently seek vacatur of internal agency guidance on arbitrary-and-capricious grounds in district court," and she reasoned that the fact "[t]hat the agency guidance discusses
internal policies related to grants does not transform a challenge to that guidance into a claim 'founded . . . upon' contract that only the CFC can hear." Id. (omission in original) (quoting
These two decisions -- which arose in "like cases" -- inform our jurisdictional analysis here, despite their lack of conclusiveness as to the merits. Trump v. Boyle, 145 S. Ct. 2653, 2654 (2025). Indeed, a straightforward application of APHA resolves the jurisdictional inquiry. Justice Barrett's concurrence in that case plainly distinguishes between challenges to agency-wide policies, which belong in district court, and challenges to the withholding of contractually awarded funds that result from those policies, which belong in the CFC. See APHA, 145 S. Ct. at 2661 (Barrett, J., concurring). Department of Education involved only the latter -- that is, it addressed
W., 534 U.S. at 212). The same is true with respect to the district court's order setting aside the grant terminations in APHA. See APHA, 145 S. Ct. at 2659. That vacatur effectively told NIH that it had to reinstate the terminated grant agreements, thus requiring NIH "to pay money" based on them. Dep't of Educ., 604 U.S. at 651 (quoting Great-W., 534 U.S. at 212); see APHA, 145 S. Ct. at 2659.
Unlike in Department of Education and APHA, the plaintiffs in this case do not challenge any withholding of funds promised under grant agreements. So, contrary to NIH's assertion at oral argument that the district court's order "require[s] payment under the contract," the district court's ruling is not an order "to pay money." Dep't of Educ., 604 U.S. at 651 (quoting Great-W., 534 U.S. at 212). Instead, the plaintiffs challenge only the agency-wide guidance announcing that NIH will reimburse indirect costs at a 15% rate going forward -- a policy that affects future grants as much as it does current ones. That guidance is a precise analogue to the agency-wide guidance in APHA, in which NIH announced that it would "not fund research related to" certain topics "[g]oing forward." APHA, 145 S. Ct. at 2661 (Barrett, J., concurring). And, as we have noted, a majority of the Supreme Court agreed that the plaintiffs' challenge to that guidance belonged in the district court. See id.; see also id. at 2662-63 (Roberts, C.J., concurring in part and dissenting in part).
Indeed, NIH effectively concedes in its briefing that the challenge brought by the plaintiffs does not belong in the CFC. Specifically, NIH asserts that if “NIH [had] withh[eld] any higher indirect-cost payments, jurisdiction would lie under the Tucker Act to determine whether that withholding was a breach of contract and, if so, to award money damages.” That unrealized possibility of jurisdiction in the CFC reveals why this case fits squarely within the two-track framework of APHA. While the withholding of funds for indirect-cost reimbursements may have followed from the Supplemental Guidance, the issuance of the Supplemental Guidance is a separate agency action from the withholding of funds promised under the grant agreements. The latter would have occurred only if an individual grant recipient had sought to obtain funds at the negotiated rate, and NIH refused to provide the money sought. And, of course, NIH could have refused to provide the money sought under that particular grant pursuant to a different policy or for some other reason entirely. Thus, any judicial decision setting aside the withholding of funds would not have vacated the Supplemental Guidance itself, and vacating the Supplemental Guidance would not on its own have “void[ed] [withholding] decisions made under it.” APHA, 145 S. Ct. at 2661 (Barrett, J., concurring). In line with APHA, then, jurisdiction is proper in the district court for the plaintiffs’ current challenge to the Supplemental Guidance.
We thus turn to NIH‘s arguments on the merits.
B. The Appropriations Rider
We begin with NIH‘s challenge to the district court‘s conclusion that the agency
In making [f]ederal financial assistance, the provisions relating to indirect costs in part 75 of title 45, Code of Federal Regulations, including with respect to the approval of deviations from negotiated rates, shall continue to apply to the National Institutes of Health to the same extent and in the same manner as such provisions were applied in the third quarter of fiscal year 2017. None of the funds appropriated in this or prior Acts or otherwise made available to the Department of Health and Human Services or to any department or agency may be used to develop or implement a modified approach to such provisions, or to intentionally or substantially expand the fiscal effect of the approval of such deviations from negotiated rates beyond the proportional effect of such approvals in such quarter.
1. The First Sentence
The rider‘s first sentence provides that the provisions of
2. The First Clause of the Second Sentence
Turning to the rider‘s second sentence, the first clause provides that no appropriated funds “made available to [HHS] or to any department or agency may be used to develop or implement a modified approach to” the provisions of
NIH counters that “[n]othing in the Supplemental Guidance purports to ‘develop or implement a modified approach’ to”
We disagree for two reasons. First, NIH asks us to interpret the first clause of the rider‘s second sentence to mean only that NIH may not “modify,” i.e., change, the provisions of
Second, and again as noted above, NIH acknowledges that the rider‘s first sentence requires NIH to abide by the provisions of
3. The Final Clause
Turning to the last clause of the appropriations rider, Congress provided that “[HHS] or . . . any department or agency” may not use appropriated funds “to intentionally or substantially expand the fiscal effect of the approval of . . . deviations from negotiated rates beyond the proportional effect of such approvals in” the third quarter of 2017.
NIH asserts that the final clause of the appropriations rider precludes NIH from “spend[ing] less on medical research activities altogether” -- that is, the clause “mandate[s]” against “spend[ing] less on research costs than Congress ha[s] appropriated” -- but does not prohibit NIH from reallocating appropriated money between direct and indirect-cost reimbursement. That reading is untenable. Nowhere in the final clause do we see the “mandate” that NIH reads into it -- that the agency cannot “reduce its spending on medical research.” Indeed, the phrase “medical research” is conspicuously absent from the rider‘s text. Moreover, NIH‘s proffered interpretation ignores the mandate that is clear from the rider‘s text -- namely, that there be “proportionality” between the “fiscal effect” of approved deviations in a given year and the “fiscal effect” of such deviations in 2017‘s third quarter.
Congress‘s instruction in the rider‘s final clause can reasonably be read in only one way. The “fiscal effect of the approval of
So, for example, say that in the third quarter of 2017, NIH approved deviations from negotiated rates that resulted in its paying out $10 million less than it would have paid absent those deviations, and it had a total appropriated budget of $40 billion. The dollar value of the approved deviations would equal .025% of NIH‘s budget. In subsequent fiscal years, NIH could only approve deviations that result in no more than roughly the same $10-million-to-$40-billion ratio, or, in other words, that represent around .025% of its appropriated budget. If that sameness is absent, the rider‘s proportionality requirement has been violated.
Per NIH‘s own public statement on Twitter,12 the Supplemental Guidance‘s displacement of negotiated rates would lead to $4 billion in annual savings. That is, NIH‘s imposition of a 15% indirect cost reimbursement rate would lead it to withhold $4 billion that it would have paid out pursuant to the negotiated rates. We have every reason to presume that if, in fact, $4 billion represented the same proportion of NIH‘s appropriated budget as did its approved deviations in the third quarter of 2017, NIH would have provided us with financial information to demonstrate that equivalence. But NIH has put forth nothing in the record that would allow us to conclude that the Supplemental Guidance‘s “fiscal effect” is “proportional” to the “fiscal effect” of the deviations allowed in the third quarter of 2017.13
Instead, NIH argues only that the “fiscal effect” of the 15% indirect cost reimbursement rate on the agency‘s overall medical-research spending would be negligible because the $4 billion in savings would be reallocated to reimburse direct costs. That representation is inconsistent with NIH‘s public statement, which touted $4 billion in savings, not in increased spending on direct costs. But even if we ignored that inconsistency, our conclusion would be the same for the reason we have already explained -- namely, there is no basis for determining that $4 billion represents the same proportion of NIH‘s appropriated budget as did its approved deviations in the third quarter of 2017.
***
Although the plain text of the appropriations rider prohibits NIH from imposing an across-the-board indirect cost reimbursement rate, statutory context provides further “confirmatory evidence of Congress‘s intent.” McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 424 (1st Cir. 2007). As noted above, the appropriations rider was a direct response to the first Trump administration‘s proposal to impose a uniform 10% indirect cost reimbursement rate. Not only did Congress decline to adopt the Trump administration‘s proposed cap on indirect cost reimbursements, but Congress also went further and enacted the rider. Even the first Trump administration recognized that this rider “prohibit[s] [NIH] by law from reducing grantee administrative costs and shifting these resources to support direct research.” We see no reason to ignore this backdrop against which the appropriations rider was enacted. After all, “we are not required to exhibit a naiveté from which ordinary citizens are free.” Dep‘t of Com. v. New York, 588 U.S. 752, 785 (2019) (citation modified).
We thus hold that the Supplemental Guidance violates the congressionally enacted appropriations rider.
C. The Regulatory Provisions
We turn now to NIH‘s contention that the district court erred in holding that the Supplemental Guidance contravenes HHS‘s regulations. As noted above, if the Supplemental Guidance violates HHS‘s regulations pertaining to deviations from the negotiated rates, it necessarily also violates the first sentence of the appropriations rider requiring NIH to comply with those regulations. See supra Section II.B.1.
To briefly recap, HHS‘s regulations require it to negotiate with each grant recipient to agree upon an indirect cost reimbursement rate. See generally
1. The “Class” Requirement
The district court held that the Supplemental Guidance does not apply to “a class of [f]ederal awards,” as
NIH argues in the alternative that the Supplemental Guidance does, in fact, apply to a “group” of awards -- those made to institutions of higher education (“IHEs“). As the plaintiffs correctly point out, NIH did not make this argument in its briefing before the district court. NIH therefore cannot so argue before us now. See U.S. ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116, 125 (1st Cir. 2013) (holding that plaintiff‘s argument “is waived, having been raised only in ‘cursory fashion’ before the district court“).15 But even if we entertain NIH‘s argument, it fails on its merit.
The Supplemental Guidance provides: “Pursuant to this Supplemental Guidance, there will be a standard indirect rate of 15% across all NIH grants for indirect
2. The Procedural Requirements
The district court also held that NIH‘s issuance of the Supplemental Guidance did not comply with the procedural requirements of
That contention reveals a fatal regulatory flaw in the Supplemental Guidance. The regulations contemplate precisely the “individualized” or group-specific “redetermination of indirect cost rates” that NIH disavows. Most obviously,
Relatedly, the district court concluded that
NIH concedes that it did not abide by a two-step sequential process in issuing the Supplemental Guidance. Instead, it asserts that “[n]othing in the text of [§] 75.414(c)(1) and (3) expressly calls for a multi-stage adjudicative process.” As explained above, however, paragraph (c)(3), particularly when read in conjunction with paragraph (c)(4), can only be interpreted as providing for a two-step process.
NIH also claims that
We therefore agree with the district court that the Supplemental Guidance is contrary to HHS‘s regulations.
III.
In sum, we conclude that the district court properly exercised subject-matter jurisdiction over the plaintiffs’ claims. We also hold that NIH‘s attempt, through its Supplemental Guidance, to impose a 15% indirect cost reimbursement rate violates the congressionally enacted appropriations rider and HHS‘s duly adopted regulations. The district court‘s decision is therefore affirmed.
So ordered.
Notes
Last year, $9B of the $35B that the National Institutes of Health (NIH) granted for research was used for administrative overhead, what is known as “indirect costs.” Today, NIH lowered the maximum indirect cost rate research institutions can charge the government to 15%, above what many major foundations allow and much lower than the 60%+ that some institutions charge the government today. This change will save more than $4B a year effective immediately.
(c) Federal Agency Acceptance of Negotiated Indirect Cost Rates.
(1) The negotiated rates must be accepted by all [f]ederal awarding agencies. An HHS awarding agency may use a rate different from the negotiated rate for a class of [f]ederal awards or a single [f]ederal award only . . . when approved by a [f]ederal awarding agency head or delegate based on documented justification as described in paragraph (c)(3) of this section.
. . .
(3) The HHS awarding agency must implement, and make publicly available, the policies, procedures and general decision making criteria that their programs will follow to seek and justify deviations from negotiated rates.
(4) As required under § 75.203(c), the HHS awarding agency must include in the notice of funding opportunity the policies relating to indirect cost rate reimbursement, matching, or cost share as approved. . . .