NIH Cannot Impose an Across-the-Board Indirect-Cost Cap by “Guidance” Where an Appropriations Rider and HHS Regulations Preserve Negotiated Rates

1. Introduction

In Association of American Universities v. Department of Health and Human Services (consolidated with actions brought by multiple States and medical associations), the First Circuit reviewed NIH’s February 7, 2025 “Supplemental Guidance” (Notice Number NOT-OD-25-068), which abruptly capped reimbursement of “indirect costs” (facilities and administration, or “F&A”) on NIH-funded research at 15%, effective the next business day.

The plaintiffs—(1) a coalition of States, (2) major medical and hospital associations, and (3) higher-education associations and universities—challenged the cap as unlawful, arguing it violated a recurring congressional appropriations rider and conflicted with HHS’s own grant regulations governing negotiated indirect-cost rates and deviations. The district court entered nationwide injunctive relief, later converted (by request) into a permanent injunction, and vacated the Supplemental Guidance entirely. NIH appealed.

The First Circuit affirmed on two core grounds: (i) the district court had APA jurisdiction because the suit challenged agency-wide guidance rather than enforcement of payment obligations under specific grant agreements; and (ii) the Guidance violated both the appropriations rider and HHS’s regulations.

2. Summary of the Opinion

Jurisdiction: The district court properly exercised jurisdiction under the APA to review and vacate NIH’s agency-wide Guidance; the case was not an “essentially contract dispute” belonging exclusively in the Court of Federal Claims under the Tucker Act.
Appropriations rider: NIH’s 15% cap violated the rider reenacted annually since 2018, which preserves the indirect-cost regulatory regime as applied in FY2017 Q3 and prohibits “modified” approaches and disproportionate fiscal expansion of deviation approvals.
Regulations: The Guidance contravened 45 C.F.R. § 75.414(c) and related provisions by (a) not limiting the deviation to a permissible “class of Federal awards,” and (b) failing to comply with the required public, criteria-driven deviation framework (including the notice-of-funding-opportunity linkage).
What the court did not reach: Because the Guidance was unlawful under statute and regulation, the court did not decide whether it was arbitrary and capricious, required notice-and-comment rulemaking, or was impermissibly retroactive.

3. Analysis

3.1 Precedents Cited

A. APA vs. Tucker Act boundary: guidance challenges in district court; payment enforcement in the CFC

Department of Education v. California, 604 U.S. 650 (2025) (per curiam)
The Supreme Court stayed an order that effectively compelled restoration of terminated grants—i.e., “enforce a contractual obligation to pay money.” The First Circuit treated this as confirming that district courts lack APA jurisdiction when relief effectively orders payment under grant contracts.
NIH v. American Public Health Association ("APHA"), 145 S. Ct. 2658 (2025) (mem.)
Justice Barrett’s controlling concurrence (identified via Marks v. United States, 430 U.S. 188 (1977), with its quoted background from Gregg v. Georgia, 428 U.S. 153 (1976)) drew a crucial forum distinction: challenges to agency-wide guidance may proceed in district court, but challenges to grant terminations (or equivalent payment-withholding decisions) likely belong in the CFC. The First Circuit applied that “two-track framework” directly: this suit attacked NIH’s prospective, agency-wide cap guidance—so APA jurisdiction was proper.
California v. Dep't of Educ., 132 F.4th 92 (1st Cir. 2025) and Am. Pub. Health Ass'n v. NIH, 145 F.4th 39 (1st Cir. 2025)
These First Circuit decisions supplied procedural and factual context for the Supreme Court’s emergency interventions and helped the panel situate the present case within the same grants-law landscape.
Bowen v. Massachusetts, 487 U.S. 879 (1988) and Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002)
Cited through Department of Education to sharpen the line between permissible APA “set-aside” relief and impermissible relief that functions as specific enforcement of a money obligation. The panel emphasized that vacating the Guidance did not itself order NIH to pay particular sums under particular grant contracts.
Am. Sci. & Eng'g, Inc. v. Califano, 571 F.2d 58 (1st Cir. 1978), Megapulse, Inc. v. Lewis, 672 F.2d 959 (D.C. Cir. 1982), and Albrecht v. Comm. on Emp. Benefits of the Fed. Rsrv. Emp. Benefits Sys., 357 F.3d 62 (D.C. Cir. 2004)
These cases provide the classic “contract-dispute-in-disguise” framework under the Tucker Act. The panel acknowledged the broader doctrine but found it unnecessary to re-derive it given the decisive guidance in Department of Education and APHA.
Trump v. Boyle, 145 S. Ct. 2653 (2025)
Cited for the proposition that even non-final emergency decisions in “like cases” can be meaningfully instructive for the jurisdictional analysis.

B. Textual interpretation and anti-surplusage principles

Corley v. United States, 556 U.S. 303 (2009)
Used to reject interpretations that would render statutory or regulatory clauses superfluous—central to the panel’s reading of the appropriations rider’s “modified approach” clause and the regulation’s “class of Federal awards” limitation.
McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. 2007)
Cited for using statutory context as “confirmatory evidence” of congressional intent—important because the rider was enacted against the backdrop of a rejected proposal to cap indirect costs.
Dep't of Com. v. New York, 588 U.S. 752 (2019)
Invoked to justify considering real-world context and rejecting implausibly naive readings of legislative action.

C. Waiver/forfeiture of arguments

U.S. ex rel. Ge v. Takeda Pharm. Co., 737 F.3d 116 (1st Cir. 2013) and United States v. Zannino, 895 F.2d 1 (1st Cir. 1990)
Applied to deem waived NIH’s late-blooming attempt to recharacterize the Guidance as limited to institutions of higher education (IHEs), and to police underdeveloped appellate arguments.

3.2 Legal Reasoning

A. Jurisdiction: the court adopts APHA’s “two-track” approach

The First Circuit’s jurisdiction analysis is effectively a consolidation and operationalization of the Supreme Court’s emergency guidance in Department of Education and APHA:

District court track (APA): facial or programmatic challenges to “internal agency guidance” that sets prospective policy—even if it concerns grants. Vacatur of such guidance does not, by itself, reinstate particular awards or compel payment on a contract.
CFC track (Tucker Act): challenges that, functionally, seek enforcement of a government obligation to pay money under specific grant agreements (e.g., terminations, withholdings).

Here, plaintiffs attacked the Guidance itself (a generally applicable cap affecting future grants and administration), not a discrete refusal to pay under particular awards. That framing prevented NIH from converting the lawsuit into an exclusive-jurisdiction contract case.

B. The appropriations rider: three independent statutory barriers to NIH’s cap

The court read the rider (as reenacted, e.g., Further Consolidated Appropriations Act, 2024, § 224) to impose three distinct constraints:

Regulations must “continue to apply” as in FY2017 Q3: NIH must follow the indirect-cost provisions of Part 75 “to the same extent and in the same manner” as applied in the third quarter of FY2017. Because the Guidance violated the deviation regulations, it necessarily violated this statutory command as well.
No funds to “develop or implement a modified approach”: Even if NIH claimed to act within the same regulatory text, using deviation authority to impose a uniform, across-the-board cap—something NIH had never done and did not do in FY2017 Q3—was itself a “modified approach.” The court rejected NIH’s attempt to collapse this clause into the first sentence (anti-surplusage reasoning).
No intentional/substantial expansion of the “fiscal effect” of deviations beyond FY2017 Q3’s proportional effect: NIH’s publicly touted $4 billion “savings” underscored the magnitude of the cap’s fiscal impact, and NIH provided no record basis to show proportionality to deviation effects in FY2017 Q3. The rider thus independently barred the Guidance.

Context reinforced the textual reading: Congress enacted the rider after rejecting a proposed 10% cap and repeatedly reenacted it thereafter, signaling a durable legislative choice to preserve negotiated-rate mechanics.

C. The regulations: deviations are limited, class-bound, and procedurally constrained

The court held the Guidance conflicted with 45 C.F.R. § 75.414(c) in multiple ways:

Failure to target a permissible “class of Federal awards” (45 C.F.R. § 75.414(c)(1) and § 75.2): A “class” must be a “specific” program/group of programs or a “specific type” of entity. “All NIH grants” is not a “class”; treating it as such would drain the term of meaning. NIH’s post hoc effort to characterize the Guidance as limited to IHEs was waived and, in any event, contradicted by the Guidance’s own broad phrasing (“across all NIH grants”; “any new grant”).
Procedural noncompliance with the deviation framework (45 C.F.R. § 75.414(c)(3)–(4), § 75.203(c)(2)): The regulation contemplates a structured, public, criteria-driven system for when and why deviations will be sought and justified, and it ties those policies to notices of funding opportunity so applicants can make “informed” choices. NIH’s one-step announcement of a universal cap displaced negotiated rates rather than implementing a publicly articulated, forward-looking deviation policy applied to defined award classes.

3.3 Impact

A. Practical impact on federal research funding

Preserves negotiated indirect-cost rates: The decision blocks NIH from unilaterally replacing NICRA-based reimbursement with an across-the-board percentage via guidance.
Stabilizes budgeting expectations: The opinion reinforces the regulatory promise that negotiated rates facilitate multi-year budgeting and funding opportunity decisions.

B. Administrative law impact: forum selection after APHA

Clearer plead-and-remedy architecture: Plaintiffs challenging general grant policy guidance can proceed in district court under the APA; plaintiffs seeking restoration of funds under specific awards may be pushed to the CFC.
Agency litigation strategy constrained: Agencies will have less ability to reframe facial challenges to grant guidance as Tucker Act contract suits unless the requested remedy effectively compels payment under specific agreements.

C. Separation of powers and appropriations control

Appropriations riders as enforceable constraints: The court treated the rider not as hortatory but as a binding statutory limit on how NIH may use funds to alter indirect-cost reimbursement practices.
Signal to agencies: Where Congress has responded to prior executive proposals by reenacting restrictive riders, attempts to achieve similar ends through “guidance” face high risk of vacatur.

4. Complex Concepts Simplified

Indirect (F&A) costs: Research support costs that cannot be tied to a single project (labs, utilities, compliance, IT, administration), reimbursed as a percentage of certain direct costs.
NICRA (Negotiated Indirect Cost Rate Agreement): A time-limited agreement fixing an institution’s indirect-cost rate after negotiation with the “cognizant” federal agency; other agencies generally must honor it for awards made during its term.
Deviation from negotiated rates: A permitted departure from NICRA rates, but only under defined conditions: approval by agency leadership and a publicly available policy framework, and typically disclosed in funding opportunity materials.
Appropriations rider: A condition Congress attaches to appropriated funds—legally binding for the covered fiscal period(s)—that can prohibit certain agency actions or uses of money.
APA jurisdiction vs. Tucker Act jurisdiction: District courts can review unlawful “agency action” under the APA when plaintiffs seek non-monetary relief. But if the suit is essentially to enforce payment under a government contract, the Court of Federal Claims usually has exclusive jurisdiction under the Tucker Act.
Vacatur vs. injunction: Vacatur sets aside the agency action itself; an injunction prohibits enforcement. Here, both operated to halt the Guidance nationwide.
Marks rule: When the Supreme Court issues a split decision without a single majority rationale, the controlling rule may be the narrowest ground supporting the judgment.

5. Conclusion

The First Circuit’s decision stands for a pointed administrative-law and appropriations principle: NIH cannot use deviation authority and informal “guidance” to impose an across-the-board indirect-cost cap where Congress has repeatedly preserved negotiated-rate reimbursement and barred “modified” approaches and disproportionate fiscal effects. Doctrinally, the opinion also crystallizes—using Department of Education v. California and NIH v. American Public Health Association ("APHA")—a workable jurisdictional split: district courts may review facial challenges to grant-policy guidance, while contract-like disputes seeking payment under specific awards are generally routed to the Court of Federal Claims.