Help for DOGE - What Should the NIH's Indirect Cost Rate Actually Be?
Michael Johnson, Ph.D.
President of NJII, Forbes 30 Under 30, NJBIZ 40 Under 40, YPO Member, TEDx Speaker
Friday, the NIH announced that its indirect cost rate was being slashed from over 60% in some cases (institutions negotiate this with the granting agency) to 15%.
The goal of this cut is to reduce government waste and to push research universities towards increased efficiency like we see in industry. However, this begs a very important question which is what is the right indirect cost rate for academia and where does 15% come from?
First off, it's important to explain what the indirect cost rate actually means and what indirect costs are as there is a lot of confusion about this. Imagine a researcher is working at a university with an indirect cost rate of 50% and they are awarded a $1.2M grant. Despite what is being portrayed in many media outlets, $600K does not go to cover indirect costs (e.g., administrative staff, compliance staff, Wi-Fi, rent, electricity, heating etc.).
Instead, the 50% is 50% of the direct costs of the grant such as salaries for the researchers working on the grant and the direct material expenses. Therefore, the grant would have $800K in direct costs and $400K in indirect costs which makes the effective indirect cost rate 33%.
Now that this misconception is addressed, let's get down to the business of what the indirect cost should actually be and how DOGE and the NIH should calculate this. The simplest and best approach is to look at efficient and well run life science companies such as 辉瑞 , 赛默飞世尔科技 , Danaher Corporation , Bruker , Revvity and 安捷伦 . If you look at their selling general and administrative costs (SG&A) which is analogous to indirect costs as a function of revenue, they range from 20% to 37% with an average of 27.6%. Based upon this data, the indirect cost rate for NIH to match the efficiency of industry should be in the range of 25% to 59%.
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Today, 98% of universities are within this range with an average of about 28% which demonstrates their exceptional efficiency especially considering they operate at a much smaller scale than these organizations. Cutting the indirect cost rate down to 15% is analogous to reducing the SG&A rate to 13% of revenue which no life science company operates close to. Science is simply very overhead intensive.
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Associate Professor of Quantitative and Systems Biology
5 天前This is misleading because the actual cost of an FTE in academia is less than half of what it costs in industry.
Founder and Managing Principal at Onyx Equities
2 周Great information Michael! The headline is never the story but people too damn lazy to get beyond the headline.
Research Professor | Executive Director | STEMinist |Top 50 Women NJ BIZ | TEDx Speaker | Higher Education Innovator
2 周Thank you for digging in and explaining this so well.
Co-Founder & Director at Reagene Innovations Pvt Ltd
2 周Back in 1980s, we did not have disposables. Starting from test tubes, flasks, pipette tips, lab coats- everything was washed by students and post docs and reused. Perhaps we need to time travel back to 1980s?
I love this commentary thanks for sharing. Further informed discussion is needed and I might ask: Would it be more appropriate in your tables to compare SG&A expense as a % of R&D expense for these commercial entities? R&D is salaries and materials, akin to Direct costs in a grant award. Revenue includes markup above Total costs. If a Thermo received Yale/Stanford’s 60% “markup” on its direct R&D costs, they would not even come close to just covering their G&A (ex Sales and Marketing) by my math.