GREATER BOSTON’S acclaimed universities, hospitals, and affiliated research institutions are the fuel that has made the region a juggernaut of the 21st-century knowledge economy. Now they are making it a target.
The clearest sign of that came with last week’s announcement from the Trump administration of a dramatic cut in the share of medical research grants from the federal government that can be used for overhead expenses. That followed executive orders taking aim at campus DEI initiatives and calls to tax endowments at top schools. Perhaps the most direct proclamation has come from Vice President JD Vance, who has hardly been coy about his thinking on higher ed institutions, titling a 2021 talk to a national conservative group “The universities are the enemy.”
The state’s vaunted “eds and meds” economy has enjoyed a degree of insulation from the ups and downs of economic cycles. Big research universities tend to maintain a stable financial footing amid downturns, while health care delivery and research is not whipsawed in the same way as other sectors. The stability of the eds and meds sector was key to “our resilience and recovery after both the Great Recession [of 2008 and 2009] and Covid,” said Mark Melnik, director of economic and public policy research at the UMass Donahue Institute.
But that now seems turned on its head, as the things that have been mainstays of the Massachusetts economy face sudden headwinds from a flurry of policy directives from the new administration, which is moving to upend many areas of American life touched by the federal government.
It’s sending chills through a region whose economy has been built on the innovation that has spun off from its world-renowned universities and hospitals. The biggest alarm was sounded last Friday, when a new order from the National Institutes of Health capped spending on overhead costs at 15 percent of the grant amount devoted directly to medical research.
It’s a complicated change to what seems like an obscure bookkeeping detail of biomedical research. One thing, however, is clear. “Massachusetts is the state in the union most impacted by this,” said US Rep. Jake Auchincloss, who called the move “a $2 billion tax on the Massachusetts eds and meds enterprise.”
Massachusetts is the top per capita recipient of NIH funds and ranks second in actual dollars received, with $3.5 billion in NIH funding flowing to the state each year, or about 10 percent of the federal government’s total outlay of $35 billion in medical research grants.
Overhead costs, also termed indirect costs, of research grants cover everything from lab facilities to computer systems, support staff salaries, and maintenance. Grant recipients devote considerably more than 15 percent of their award to such expenses. The typical rate is about 30 percent, but at Harvard, it’s a whopping 69 percent. Other institutions have rates greater than 50 percent.
Auchincloss said it’s fair to question and consider changes to the high overhead rates at some institutions, which claim more building costs than others or cite expensive equipment needed for research. But an overnight slashing of the overhead rate for all grants to 15 percent, he said, “is not a collaborative way to improve research efficiency. That is just taking a buzzsaw to research infrastructure.”
In a joint letter on Wednesday to the heads of the NIH and the National Science Foundation, Sens. Elizabeth Warren and Ed Markey asked for clearer explanation of the move and decried the “chaos and upheaval” of “weeks of illegal and unprecedented funding cut offs, communication pauses, and cuts to indirect cost rates” imposed by the Trump administration.
Many institutions said the lower level of overhead funding would force them to pare back research efforts, slowing progress on work to better understand the causes of and cures for disease.
On Monday, Attorney General Andrea Campbell and AGs from 21 other states filed suit in federal court to block the NIH order, arguing that it violated a law passed by Congress during Trump’s first term to prevent “categorical and indiscriminate” changes to indirect cost funding. A US District Court judge in Boston issued a temporary restraining order blocking the NIH moves in the 22 states, and extended it later on Monday evening to other states in response to a separate lawsuit.
“Massachusetts is the medical research capital of the country,” Campbell said in a statement. “We are the proud home of nation-leading universities and research institutions that save lives, create jobs, and help secure a better future. We will not allow the Trump administration to unlawfully undermine our economy, hamstring our competitiveness, or play politics with our public health.”
The administration has said capping overhead on grants will enhance efficiency, but the move also seems to dovetail with its attack on diversity initiatives.
“President Trump is doing away with Liberal DEI Deans’ slush fund,” is how the cap on grant to overhead rates was described by Katie Miller, a spokesperson for Elon Musk’s Department of Government Efficiency, on the Musk-owned social media site X. “This cuts just Harvard’s outrageous price gouging by ~$250M/ year.”
Although California, Massachusetts, and New York are the top recipients of NIH funds, it’s not just blue states that would feel the impact of Friday’s order.
Some Republicans and red state officials have voiced their objections.
“I oppose the poorly conceived directive imposing an arbitrary cap on the indirect costs that are part of NIH grants and negotiated between the grant recipient and NIH,” Republican Sen. Susan Collins of Maine said in a statement. “There is no investment that pays greater dividends to American families than our investment in biomedical research. In Maine, scientists are conducting much-needed research on Lyme disease and other tick-borne illnesses, Alzheimer’s, diabetes, Duchenne’s muscular dystrophy, and on how to improve efficiency in drug discovery, helping to lower the cost of prescription drugs, and conducting many other life-enhancing or life-saving research.”
Other Republicans seemed to be gingerly trying to question the Trump administration’s move without questioning it too directly – the kind of careful contortions that many Republicans now regard as necessary acts of political self-preservation in the face of a notoriously vengeful president.
Sen. Katie Britt, Republican of Alabama, applauded the Trump administration’s effort to ensure research money is spent “efficiently, judiciously, and accountably.” She then added, “While the administration works to achieve this goal at NIH, a smart, targeted approach is needed in order to not hinder life-saving, groundbreaking research at high-achieving institutions like those in Alabama.”
Peter Levine, an economics professor at Wellesley College, said a similar reaction would play out if Republicans in Congress follow through on threats to impose a substantial increase in the tax on university endowments – something Vance proposed while in the Senate.
“It’s going to harm blue states more than red states, but it will do its share of damage to red states,” he said. Levine said a portion of endowment gains supports university research, while roughly half of the income supports financial aid for lower- and middle-income families, money that would be cut if a tax were approved.
Robert McCarron, president of the Association of Independent Colleges and Universities in Massachusetts, said higher education and medical research have been such reliable anchors of the state’s economy that they play a role in “why bonds can be priced as they are,” giving the state and city of Boston more favorable interest rates when they borrow money. “The medical and research agenda really drives so much of what the economy is now,” he said.
The state’s innovation economy saw $44.9 billion in R&D investment in 2021, according to the MassTech Collaborative, while the biotech and biopharmaceutical sector alone employs more than 130,000 people in the state.
For all of Trump’s talk about putting America first, Auchincloss, a Newton Democrat, said the grant change proposed at the NIH would not just harm Massachusetts but would be a huge blow to the country’s competitiveness in the global economy. He said the two top issues at last month’s annual JP Morgan Healthcare Conference in California, the premier event for health care investors, were the role of AI in health care and China’s rapid advances in biomedical research.
The proposed funding change at NIH “attacks American infrastructure on both fronts,” said Auchincloss, who sits on the House Energy and Commerce Committee, which oversees NIH funding.
Theodore Iwashnya, an ICU physician and professor of health medicine and health policy at Johns Hopkins University, made that point Tuesday night on the PBS NewsHour, explaining that research being done there on pneumonia depends on extensive computation modeling paid for with overhead funds. “What’s at stake here is the US’s dominance in the world of biomedical and health research,” he said, describing the impact of the new funding rule.
Auchincloss said Trump made a similar move in his first term, with an effort to cap overhead funding for NIH grants at 10 percent. It was overwhelmingly rejected by the House Appropriations Committee. “Republicans are on the record voting not to let them do it,” he said.
“My goal is to build bipartisan support in Congress,” Auchincloss said of efforts to push back against the new edict. But he voiced concern that Republicans may not be as willing to oppose a bad idea this time, worrying that “they’re going to huff and puff and give in to Trump.”
Meanwhile, McCarron, of the Association of Independent Colleges and Universities, is convening a meeting next week of presidents of the 59 Massachusetts private higher education institutions that belong to his organization to brainstorm how to respond to the blizzard of steps being taken by the new administration.
He likened it to the regular online meetings of campus leaders that the association held during Covid to share ideas for coping with the sudden shock it delivered. As with a cataclysmic pandemic no one saw coming, McCarron said the meeting may not be a one-off and colleges and universities need to dig in for the long haul in the face of what may be coming from Washington.
“I wouldn’t be surprised if we shifted to ‘let’s do a call every other Friday,’” he said.