The Impact of Capping Indirect Costs on Health Systems and Strategies to Manage Funding Shortfalls

Indirect costs, also known as facilities and administrative (F&A) costs, are essential for maintaining the infrastructure that supports research activities. Top research hospitals have indirect expenses ranging from 5 to 60 percent and will face substantial losses due to this cap. Losses could range from $5 million to $170 million, forcing hospitals to find ways to become more efficient due to the negative impact to their operational budgets.

This article explores potential impacts of this policy change on health systems and suggests strategies to manage resulting funding shortfalls.

Impact on Health Systems Research

Financial strain: Health systems and academic medical centers (AMCs) rely heavily on indirect cost funding to cover expenses such as utilities, maintenance, administrative support, and compliance with regulatory requirements. The new cap could reduce indirect funding payments by billions of dollars, leading to significant financial strain.

Research disruptions: The reduction in funding may lead to delays or cancellations of ongoing research projects. Essential services such as lab operations, data processing, and security could be compromised, affecting overall quality and progress of research.

Job losses: Health systems and AMCs may be forced to cut administrative and support staff, leading to job losses and decreased morale among remaining employees.

Infrastructure deterioration: The maintenance of research facilities and equipment could suffer, leading to a decline in the quality of the research environment. This deterioration could hinder the ability to attract and retain top talent.