The United States District Court for the District of Massachusetts recently addressed three consolidated cases involving the Commonwealth of Massachusetts, medical associations, and universities against the National Institutes of Health (NIH) and the Department of Health and Human Services (HHS). The dispute arose from the NIH's sudden issuance of a Rate Change Notice that significantly altered the reimbursement structure for indirect costs related to grants. The plaintiffs challenged the agency's action, seeking a preliminary injunction to halt the implementation of the new rate policy.
On February 7, 2025, the NIH released a Supplemental Guidance (NOT-OD-25-068), effective February 10, 2025, which imposed a 15% cap on indirect cost rates across all current and future grants. This marked a departure from the previously negotiated Indirect Cost Rate Agreements (NICRAs), which institutions used to recover facility and administrative costs. The plaintiffs, including 22 state attorneys general, multiple medical associations, and leading universities, asserted that this change would severely disrupt ongoing biomedical research and clinical trials, with broader consequences for public health and research infrastructure.
The plaintiffs promptly filed suits on February 10, 2025, requesting temporary restraining orders and preliminary injunctions to prevent the Rate Change Notice from taking effect. The court granted temporary restraining orders and later consolidated the cases for preliminary injunction consideration. Following full briefing and oral argument, the court issued a nationwide preliminary injunction to maintain the preexisting indirect cost structure during the litigation.
The defendants challenged the court’s jurisdiction, arguing that the claims should be heard in the Court of Federal Claims under the Tucker Act. However, the court determined it had subject matter jurisdiction under the Administrative Procedure Act (APA), finding that the plaintiffs' claims arose from federal regulations rather than contract law.
The court evaluated the preliminary injunction request under four factors: likelihood of success on the merits, likelihood of irreparable harm, balance of equities, and the public interest.
The court found the plaintiffs were likely to succeed on several grounds:
The Rate Change Notice conflicted with existing regulations (45 C.F.R. § 75.414(c)), which govern deviations from negotiated indirect cost rates. The regulations require detailed justification and public availability of procedures, which NIH did not adequately provide.
The court determined that the Rate Change Notice was inconsistent with federal appropriations riders (Section 224) that prohibited modifying indirect cost reimbursements without adhering to specified standards.
The court concluded the agency action was arbitrary and capricious under the APA due to a lack of reasoned decision-making and failure to consider reliance interests and the impact on ongoing research and clinical trials.
The court found that the NIH violated notice-and-comment rulemaking procedures, as the Rate Change Notice constituted a legislative rule requiring formal rulemaking processes.
Finally, the court found the Rate Change Notice to be impermissibly retroactive in its application to existing grants, impairing vested rights based on previously negotiated agreements.
The court concluded that the plaintiffs demonstrated a high likelihood of irreparable harm absent injunctive relief. The anticipated harms included:
Disruption of life-saving clinical trials and ongoing biomedical research projects.
Immediate financial destabilization of research institutions reliant on negotiated indirect cost recovery.
Loss of skilled research personnel and long-term damage to the United States' biomedical research infrastructure.
The court found that the balance of equities favored the plaintiffs. Preserving the status quo would prevent irreparable harm to research institutions and public health initiatives. Furthermore, the public interest strongly supported continued funding of critical research without sudden and improperly justified financial disruptions.
Based on its findings, the court granted a nationwide preliminary injunction against the enforcement of the Rate Change Notice. The NIH was ordered to maintain the existing negotiated indirect cost rates for all current and future grants pending further litigation. The court's decision emphasized the importance of adhering to established administrative procedures and honoring prior regulatory commitments to safeguard public health research investments.
If you need assistance with regulatory compliance and government grant requirements, the team at Whitcomb, Selinsky, PC is available to help. Our attorneys provide guidance on navigating complex regulatory frameworks and ensuring compliance with federal and administrative rules.