Kate Heffernan Featured in “Can NIH Overturn a Court Order Blocking It from Slashing Overhead Payments? Unlikely, One Expert Says”

Kate Gallin Heffernan, Member of the Firm in the Health Care & Life Sciences practice, in the firm’s Boston office, was featured in Science, in “Can NIH Overturn a Court Order Blocking It from Slashing Overhead Payments? Unlikely, One Expert Says,” by Jeffrey Mervis. (Read the full version – subscription required.)

Following is an excerpt:

Last month, the National Institutes of Health lobbed a bombshell at universities that receive NIH grants by proposing to slash billions of dollars in overhead payments they receive to support cutting-edge research on their campuses.

But on 5 March a federal judge in Massachusetts defused the bomb before it could explode. In response to a lawsuit brought by 22 states and a coalition of research organizations, U.S. District Court Judge Angel Kelley issued an injunction that prevents NIH from implementing the rule change, which would lower the rate to a flat 15%—far below what NIH has previously negotiated with many universities.

The government now must decide whether it is going to appeal the decision. Kate Heffernan, a life sciences attorney with Epstein Becker Green, thinks the government’s arguments in trying to avoid the injunction suggest it has little chance of winning an appeal. But President Donald Trump’s administration still has a few options if it wants to try to shrink spending on indirect costs, she adds, including changing the rules governing how federal health agencies craft new policies.

Heffernan, whose clients include major recipients of NIH funding, spoke with Science this week to discuss the judge’s ruling and what the government might do next. …

Q: The judge found that NIH violated a 1946 law, called the Administrative Procedure Act (APA), when it issued its notice changing indirect cost rates on 7 February. What did NIH do wrong?

A: To sue the government, you need to show it has violated APA in at least one of three ways. The first basis is that it acted in an arbitrary and capricious manner. [In this case, the judge found NIH] failed to provide adequate reasoning as to why it was making this drastic change. … The judge also concluded that the government did not consider the plaintiffs’ reliance on their negotiated rate, which institutions use to set their overall budgets and do their strategic planning. Second, the judge ruled that NIH exceeded its statutory authority by making the change retroactive. That is, it was changing the terms of an agreement that had [already] been accepted by both sides. The third basis was that the government bypassed the requirement for public notice and comment in issuing the supplemental guidance notice [that lowered the indirect cost rate to 15%]. In particular, the judge said this action was more than an interpretation of an existing rule, for which there is a lower threshold of notice. She said it really was a change in the existing regulatory framework.

Q: Were there other reasons that led the judge to grant the injunction?

A: The judge starts out by saying the rate change notice conflicts with existing regulations on how indirect cost rates are set and violates the 224 rider [a provision Congress added to a 2018 spending bill and has since renewed that prevents the government from changing the rate]. That leads you to the APA because, if you are going to change existing regulations or do something that contravenes existing law, you need to follow certain processes.

Q: Can the government appeal?

A: The government has 60 days to appeal [to the U.S. Court of Appeals for the First Circuit]. However, I don’t think they have much of a leg to stand on. The judge’s ruling was very comprehensive. I don’t see much wriggle room for the government. It would need to argue that the judge did something wrong in interpreting the laws and regulations that pertain to indirect costs.

Q: Are there other options if NIH wants to reduce indirect cost rates?

A: The obvious one is to get Congress to repeal the 224 rider. That was triggered by the Trump administration asking Congress in 2017 to lower the indirect cost rate to 10%. If [a repeal] were to happen—and I don’t even know if it’s on the table—the next step would be to come up with something in line with [existing regulations], which the judge ruled was not met in any way, shape, or form in the 7 February notice. …