On January 5, 2026, the First Circuit Court of Appeals upheld a district court judgment preventing the National Institutes of Health (“NIH”) from implementing a policy that adopted a uniform cap of 15 percent on the reimbursement rates that federally funded research institutions receive for their Facilities & Administrative (“F&A”) costs (sometimes called “indirect costs”). The First Circuit’s decision in Massachusetts v. NIH, ___ F.4th ___ (1st Cir. Jan. 5, 2026), is a significant victory for the nation’s research institutions, which have relied for many decades on carefully negotiated, institution-specific Facilities & Administrative reimbursement rates to fund crucial overall research costs that cannot be assigned to a specific research project. The First Circuit’s decision also clarifies that litigants can continue to challenge agency-wide policies in federal district courts under the Administrative Procedure Act (“APA”), rather than resorting to contract-by-contract challenges for money damages in the Court of Federal Claims.
Background
On February 7, 2025, NIH issued guidance announcing that, starting on February 10, 2025, it would cap its reimbursement of F&A costs at 15 percent—far lower than most institutions’ individually negotiated rates. On the day the guidance went into effect, a group of health care associations and providers represented by Ropes & Gray – the 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, and the Greater New York Hospital Association – challenged NIH’s guidance and sought emergency relief in Massachusetts federal district court. Similar actions were filed by attorneys general of several states and a group of associations of higher education institutions. The court granted a temporary restraining order, then enjoined and vacated the guidance, holding that the court had subject matter jurisdiction to address the claims; that the guidance violated federal regulations, an appropriations rider passed by Congress, and the APA; and that the guidance would impose significant irreparable harm by harming ongoing research, including clinical trials. Massachusetts v. NIH, 770 F. Supp. 3d 277 (D. Mass. 2025) (preliminary injunction); 2025 WL 1063760 (D. Mass. Apr. 4, 2025) (permanent injunction).
NIH immediately appealed. NIH argued that, because the plaintiffs challenged the federal government’s award of money pursuant to individual research grants, their claims fell outside the APA’s waiver of sovereign immunity and belonged exclusively in the Court of Federal Claims. NIH also argued that its guidance complied with the relevant law and regulations.
The First Circuit’s Decision
In Massachusetts v. NIH, ___ F.4th ___ (1st Cir. 2026), the First Circuit agreed with the district court and rejected NIH’s arguments.
With respect to subject matter jurisdiction, the First Circuit relied on two recent emergency orders from the Supreme Court, and in particular, Justice Barrett’s concurrence in NIH v. American Public Health Association, ___ U.S. ___, 145 S. Ct. 2658, 222 L. Ed. 2d 1991 (2025), to distinguish between challenges to the withholding of funds under individual grants—which must be raised in the Court of Federal Claims—and challenges to agency-wide grant policies—which must be raised in a federal district court. (Slip op. at 15-22.) The First Circuit reasoned that the plaintiffs did not “challenge any withholding of funds promised under grant agreements,” and instead “challenge[d] 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.” (Slip op. at 22.) Thus, the First Circuit concluded that the district court had subject matter jurisdiction to address the plaintiffs’ claims.
On the merits, the First Circuit agreed with the district court that NIH’s guidance violated the relevant appropriations rider and federal regulations. The First Circuit carefully parsed the appropriation rider’s language—examining its meaning sentence-by-sentence and clause-by-clause—to decide that Congress had expressly prohibited NIH from deviating from the relevant regulations and the existing institution-specific framework for negotiating F&A reimbursement rates. (Slip op. at 11-12, 30-31.) Along with its textual analysis, the First Circuit found it “particularly relevant” that Congress had, in 2017, explicitly rejected a previous attempt to impose an across-the-board cap on F&A rates. (Slip op. at 30-31.) The First Circuit held that the guidance also violated the relevant regulations in two important ways. (Slip op. at 31-38.) First, the guidance instituted a universal and uniform F&A rate, even though the relevant regulations permitted deviations from negotiated F&A rates only for a single award or a class of awards. (Slip op. at 33-35.) Second, the guidance announced and implemented the rate cuts in a single step, collapsing the regulations’ sequential requirements that NIH first announce and then separately implement any change in such policy. (Slip op. at 35-38.)
Impact
While NIH could ask the Supreme Court to review the First Circuit’s decision, at least for now, the decision ensures that research institutions will continue to be reimbursed for their crucial F&A costs at previously negotiated, institution-specific rates. That predictability will allow research institutions to continue their groundbreaking scientific, medical, and technological research without the dramatic financial penalty that would have been imposed by the NIH policy. The First Circuit’s decision also underscores that courts will continue to hold agencies to their implementing regulations and to enforce Congress’s appropriations directives. Finally, the First Circuit’s decision reiterates that litigants can continue to challenge agency-wide policies in federal district courts even when, as here, those policies may have financial implications.
