A letter from David A. Brenner, MD, President and CEO of Sanford Burnham Prebys
Recently, the National Institutes of Health (NIH) announced it would immediately cut the indirect cost rate to an across-the-board 15% cap on all biomedical research funding, current and future. The action is abrupt, arbitrary and ill-conceived—and it represents a profound and unacceptable threat to universities, hospitals and research institutions like Sanford Burnham Prebys.
We stand adamantly opposed to the NIH policy change and, in alliance with scientific institutions and organizations on the Mesa and across the country, we are working to have the policy change revoked, and the future of good science assured.
There is always room for reasoned discussion, reforms and remedies to all issues, but the NIH’s decision creates a real and perhaps existential threat to the foundation, quality and prestige of U.S. science, now and in the years to come.
Since 1947, the federal government and thousands of research institutes, universities and hospitals across the country have benefitted from a strong and unshakeable partnership dedicated to advancing biomedical discovery in the search for and the development of new drugs, treatments and therapies for the common good.
This powerful collaboration has made U.S. science and medicine a global exemplar, from basic research that lays the foundations of knowledge and inspiration to translational and transformational science that results in the development and introduction of new and better treatments for everything from cancer to Alzheimer’s to infectious diseases to the ubiquitous metabolic disorders of obesity, diabetes and fatty liver disease.
Biomedical research is our bulwark against and the remedy for current and future threats to our health, both as individuals and as a society.
There are only two categories of funding in biomedical research. The first is “direct costs,” which are those easily ascribed to a specific research project, such as chemicals necessary for experiments and the salaries of those doing them.
Indirect costs cover the ways, means and tools necessary for scientists to do their work. They are the critical and unavoidable expenses related to the infrastructure of biomedical research, such as keeping the lights and heat on in laboratories, administering payrolls, purchasing specialized instruments, maintaining data cybersecurity and ensuring the safety of human participants.
A 15% cap on indirect costs support recklessly slashes biomedical research, negatively affecting almost every research institute, university and hospital, along with the biotechnology and pharmaceutical industries that rely upon our original and innovative efforts.
The ripple effect is immediate and long-term. The cap would measurably slow the pace of discovery and progress as scientists revised their goals, retrenched efforts, reduced investigations and, in some cases, just stopped doing or pursuing promising avenues of inquiry.
The cap poses particular impact in a place like San Diego, which has long been a hub for biomedical research. The region is home to nearly 2,000 leading universities, research institutes, hospitals, biotechnology companies and other life science enterprises that, according to Biocom. In 2023, these entities directly employed nearly 76,000 people (average annual salary: $163,177), supported more than 178,000 related jobs and generated more than $56 billion in total economic output.
The NIH and the National Science Foundation are major contributors to the region’s scientific success. In 2023, they provided $2.2 billion in overall funding.
CA-50 is the U.S. congressional district represented by Rep. Scott Peters. The district encompasses a large swath of coastal San Diego County, from Carlsbad to the U.S.-Mexico border, including La Jolla and Sanford Burnham Prebys. In 2023, according to FASEB, NIH research funding in the district exceeded $1.3 billion to 61 research sites. This year, Sanford Burnham Prebys researchers will receive more than $72 million in NIH funding.
These numbers are even greater and more impressive statewide: 466,888 Californians directly employed in life sciences and 1.24 million jobs supported for a total economic output of more than $414 billion in 2023.
No plausible or viable alternatives can match federal scientific support. Foundations and philanthropy provide only a relative fraction and their funding often comes with restrictions and little or no support for indirect costs.
Our response to the NIH action has been multi-pronged and evolving. As an institute, we are in communication with local, state and national officials to provide context, information and help them leverage their specific abilities to reverse course.
We are collaborating with our Mesa partners and with organizations like the Council on Governmental Relations, the Association of Independent Research Institutes (AIRI) and the Association of American Universities (AAU) to multiply the power of our message and influence.
We encourage those who share our commitment to scientific research to stay informed about this issue and engage with policymakers or organizations that advocate for sustained research funding.
Internally, we are assessing immediate and future effects of a 15% cut on programs and projects at Sanford Burnham Prebys, and developing plans and policies to mitigate adverse effects. This is an ongoing process that involves administration, faculty and staff.
The NIH’s policy change imperils the future of science in California and across the country, not only the continued development of life-saving therapeutics and treatments, but the training and prospering of new generations of scientists.
With a cap of 15%, fewer scientists will embrace the mission because they will lack sufficient means to do so. New generations of scientists will not have the same opportunities. The nation’s global leadership in life sciences will wither; the pipeline of new drugs, treatments and therapies will become a trickle.
No one advocates for such a future. The emergence of new tools like artificial intelligence, computational biology, machine learning and the rapid, maturing application of disciplines like epigenomics, transcriptomics and metabolomics have propelled biomedical research into a new era of unprecedented promise and potential.
Our mission and vision at Sanford Burnham Prebys embraces these opportunities and possibilities to excel—and we are determined to do so.
Sincerely, David A. Brenner, MD President and Chief Executive Officer Donald Bren Chief Executive Chair
Direct Costs
Salary support and benefits for faculty, research staff and postdocs working on the project
Stipends for graduate students assigned to the project
Laboratory supplies, chemicals, and glassware purchased for a project
Travel to a conference to present results of the project
Certain research equipment, including computers
Publication costs
Indirect Costs
Building, maintaining, operating, and renewing research buildings and equipment
Hazardous chemical and biological agent management
Internet
Data transmission and storage
Radiation safety
Insurance
Administrative systems and services
Compliance with federal, state, and local regulations (e.g., Institutional Review Boards (IRBs) for human subject or animal research)
Below are frequently asked questions about facilities and administrative costs (F&A), relevant to the recent National Institutes of Health’s announcement to cap these “indirect costs” at 15% across-the-board in biomedical research. The information is provided by the Association of Independent Research Institutes.
What are Facilities and Administrative costs? Commonly called F&A costs or “indirect costs,” these are essential costs of conducting research. The federal government’s longstanding recognition and payment of its share of these costs has helped U.S. colleges and research institutions build and support the required research infrastructure that has made the American research enterprise the best in the world.
When the government provides a grant to a research institution for a project, a portion (typically 67-75%) of the budget is available directly to the research team. These are known as “direct costs,” the portion of the grant that supports researcher salaries, graduate students, equipment and related supplies. Another portion (typically 25-33%) covers necessary research infrastructure and operating expenses that the institute provides to support the research.
These “indirect costs” include state-of-the art research laboratories; high-speed data processing; national security protections (e.g., export controls); patient safety (e.g., human subjects protections); radiation safety and hazardous waste disposal; personnel required to support essential administrative and regulatory compliance work, maintenance staff and other activities necessary for supporting research.
Why does the federal government provide support for F&A costs of research? F&A costs are research costs. Research institutions and the federal government have a long-standing and successful partnership that grew out of World War II. The federal government relies on institutions to conduct research in the national interest. This includes research aimed at meeting specific national goals, such as health and welfare, economic growth and national defense.
Performing research on behalf of federal agencies incurs a variety of expenses that would not otherwise exist for institutions. Research institutions—not the federal government—assume the risk of building the necessary infrastructure to support this research in anticipation that their research faculty will successfully compete for federal research grants and thus the institutions will be reimbursed for a part of the associated infrastructure costs.
Do research institutions contribute any of their own funds towards research? Yes. Behind the federal government, research institutions are the second leading sponsor of the academic research and development (R&D) that takes place on their campuses. Federal data show that colleges and research institutions pay one-quarter of total academic R&D expenditures from their own funds. In FY23, for example, research institution contributions for R&D amounted to $27.7 billion, including $6.8 billion in unreimbursed F&A costs.
These commitments to academic R&D by research institutions themselves significantly exceed the combined total of all other non-federal sources of support for academic R&D. In FY 22, those other sources were state and local government (5%), industry (6%) and foundations (6%).
Federal spending on higher education R&D was almost $60 billion in FY23, or 55% of all funding for academic R&D. While research institutions contribute significantly to the costs of research, their available resources continue to be stretched thin. State support for public research institutions has declined greatly over the past 20 years and, in many cases, research institutions are educating more students. The notion that research institutions should cover even more of the expense of conducting research for the federal government is not realistic.
Do research institutions “profit” from the F&A cost reimbursements they receive associated with federal research grants? No, research institutions absolutely do not. There is no financial gain from F&A recovery. As defined by the federal government, these are reimbursements for costs incurred by institutions in conducting research on behalf of the government. It is impossible for the reimbursements to result in a profit.
In fact, research institutions are not even fully reimbursed for the expenses they incur to provide the necessary infrastructure and support to conduct federal research. According to data collected by the National Science Foundation, in FY23 research institutions contributed approximately $6.8 billion in facilities and administrative expenditures not reimbursed by the government.
“$6,800,000,000”
F&A paid by research institutions to cover the full cost of research
Have institutional contributions to research been increasing or decreasing? Increasing. Since 2010, the amount of support in real dollars that colleges and research institutions provide for research conducted by their faculty has grown 65%, faster than any other sector, including the federal government which has seen only 13% growth in the same time period.
The increase in research institutions’ support for the R&D they conduct is due in part to the rising compliance costs associated with increased federal research regulations in areas like human subject protection, export control compliance, and ensuring research security and integrity. Unlike other sectors that conduct government research, research institutions must subsidize compliance costs from their own financial resources.
Has the percentage of federal funding for F&A cost reimbursements changed over time? No. F&A costs recovered by research institutions have remained flat for more than 20 years. For example, the National Institutes of Health’s percent of total funding going towards F&A cost reimbursements has remained unchanged at approximately 27-28% of total funding since 2002.
How much does the federal government pay for research institutions’ F&A expenses compared to what it pays other government research performers, such as the national laboratories and industrial contractors? Past studies suggest that proportionately, F&A expenses for research institutions are slightly less than those for other research performers. A study in 2000 by the RAND Corporation found research institutions had the lowest percentage total research costs classified as F&A (31%).
Federal laboratories were somewhat higher at 33% and industrial laboratories were higher still at 36%. This demonstrates that research institutions are efficient performers of research. Unfortunately, a study comparable to the RAND study has not been undertaken in recent years. Such a study would be welcomed by the research community.
And recall that the federal government’s payment to research institutions for its share of F&A costs does not reimburse their full expenses. This is unlike other sectors that receive full compensation for all their expenses.
The federal government has smartly invested in research
F&A costs at research institutions are lower than other sectors
The government does not pay a profit to research institutions like it must for industry research performers
There is a specific cap on the amount the government will cover for administrative
expenses
Can research institutions itemize F&A expenses for each research project grant? No. F&A expenses cannot be itemized for each research project because, by definition, they are costs incurred for common or joint purposes, benefit more than one activity and are not easy to allocate directly to their benefiting activities.
F&A costs are aggregated, with each institution totaling its costs incurred for hundreds or thousands of individual awards that faculty and institutions annually receive. Total F&A costs are then divided by a subset of direct research costs to arrive at an F&A cost rate, which is then reviewed and approved by the government and applied to the same subset of direct research costs, on a project-by-project basis.
This reimbursement methodology is widely accepted by the federal oversight and audit community, and it provides a much more efficient and rational approach to reimbursing research institutions for these costs than attempting to allocate them to individual projects or negotiating and determining an F&A rate for each individual research award.
The sheer volume of grants, contracts, and other awards received by research institutions from various federal agencies, many of which are small in size, means having an established F&A rate makes the grant process more efficient.
Since foundations pay less for F&A costs reimbursements than the federal government, is the federal government subsidizing the infrastructure required to do foundation-sponsored research? No. To the extent that a foundation does not pay for certain F&A expenses, these costs must be covered by the institution. OMB rules specifically require research institutions to ensure the federal government does not subsidize non-federally sponsored research activity, including research and associated infrastructure costs performed by institutions for private foundations.
However, foundations categorize and pay grant-related expenses very differently than the federal government. For example, foundations often categorize some items as direct expenses that federal rules require classification as F&A expenses. Many foundations do not have strict rules regarding consistent classification of costs. This further underscores that direct and F&A costs are all part of total research costs.
A core tenant of the partnership between the federal government and research institutions is that the government shares in the costs of research by providing institutions with competitively awarded grants to support the people, tools, and infrastructure necessary to conduct high-quality research for the nation.
Historically, most foundations view their grants as supplementing research that scientists are already conducting. To this day, most foundation research funding is viewed as supplementing existing federal and non-federal research.
Finally, foundation funding for research institutions remains a small proportion of total academic R&D funding (6%) compared to federal funding (55%) and the funding provided to support academic R&D by colleges and universities themselves (25%).
Are federal F&A cost reimbursements used to subsidize other campus accounts, such as athletics or student housing construction? No. OMB rules require that F&A cost reimbursement rates be based only on research facilities, operations and support used by federally funded research, not education or other university facilities or activities.
Is it true that research institutions with F&A rates over 50% spend more than half the grant funds they receive from the federal government to pay for F&A expenses? No. A research institution’s F&A cost rate is not a percent of the total grant, but rather a percentage of a subset of the research project’s direct costs. Currently, the average amount paid to research institutions for F&A expenses is approximately 25-33% of the total amount of a grant.
How does the F&A rate determine how much research institution receives for F&A costs on a grant? To determine the level of F&A expenses the federal government will cover, every two to four years, the agency responsible for setting a research institution’s F&A cost rate (either the Department of Defense Office of Naval Research or the Department of Health and Human Services) will comprehensively audit and/or assess these shared costs to determine the appropriate federal reimbursement rate based upon specific costs that have been deemed allowable expenses by the OMB.
The reimbursement rate is a percentage of a subset of direct research costs (not a percentage of total award). Some direct research costs (like equipment, capital expenditures, charges for patient care, rental costs, tuition remission and scholarships and fellowships) are excluded from the direct cost for F&A cost calculation purposes. This remaining amount is known as modified total direct cost (MTDC).
Why do F&A cost reimbursement rates vary between institutions? Federal agency officials and research institution administrators predetermine an overall percentage of allowed F&A cost reimbursements to be paid based on documented historical costs and cost analysis studies.
The final rates are based on a rigorous review and audit of the actual funds previously spent for such costs. F&A cost reimbursement rates vary from institution to institution because construction, maintenance, utilities, and administration costs vary by institution and by region.
Additionally, F&A rates depend upon other factors, such as the age and condition of facilities and buildings and the amount of renovation and construction needed to house certain types of research projects. For example, the F&A costs for a biomedical research facility built in an urban area that experiences earthquakes are different than an engineering research facility built in a rural area.
David A. Brenner, MD
Yes. Behind the federal government, research institutions are the second leading sponsor of the academic research and development (R&D) that takes place on their campuses. Federal data show that colleges and research institutions pay one-quarter of total academic R&D expenditures from their own funds. In FY23, for example, research institution contributions for R&D amounted to $27.7 billion, including $6.8 billion in unreimbursed F&A costs.