Late last week the National Institutes of Health (NIH) announced it would cut billions of dollars in overhead costs. In a social media post, NIH said the change would save more than $4 billion a year and would be effective immediately, and focused on “indirect costs,” which include administrative requirements, facilities and other operations. These costs would be capped at 15%, which represent a significant cut to research institutions across the country, and applies not only to future grants issued, but current grants as well.

In the announcement, NIH said that on average, indirect costs have been about 27% to 28% of grants but can stray much higher. The new policy will cap the rate at 15% and took effect Monday, cutting tens of millions of dollars in funding for many research institutions.

The NIH announcement is a change from how it awards grants to support scientific research on cancer, heart disease and diabetes. Grant awards also provide overhead funds to cover the costs of facilities, administration and other approved costs. The announcement went on to clarify the intent is to align federal spending on administrative activities more with that of private foundations; and noted that some foundations do not fund these expenses at all.

Almost immediately following the announcement, attorneys general representing 22 states sued and a Federal District Court judge has granted a temporary order blocking the policy in those states. Additional action is expected as more judicial challenges have been filed and this continues to unfold.