The recent developments surrounding NIH indirect funding cuts and blocked grant review meetings have placed hospitals, health systems, and research organizations in a precarious position. With federal funding reductions looming and grant disbursement delays continuing, healthcare organizations must find ways to adapt to maintain research efforts and financial stability.
Current Challenges: NIH Indirect Funding Cuts and Grant Review Delays
The National Institutes of Health (NIH) has proposed capping indirect funding for federal research grants at 15%, significantly reducing funds allocated for essential support costs such as:
- Facility maintenance (electricity, janitorial services, etc.)
- Administrative staff salaries
- Other non-research expenses that keep clinical studies operational
Additionally, a temporary federal block on grant review meetings has delayed NIH’s ability to process new grants, restricting the disbursement of federal funds. While some scientific review meetings have resumed as of February 26, many grant review processes remain frozen, leaving hospitals and research institutions uncertain about future funding.
The Impact on Hospitals and Health Systems
If implemented, the 15% cap on indirect funding would reduce total federal spending on research support costs by over $4 billion. This change will force hospitals and health systems to:
- Cut spending on research support services or shift funds from other areas
- Reduce research efforts, leading to furloughs or job cuts
- Disrupt clinical trials, directly impacting patient care and ongoing research initiatives
For many institutions, this funding shift could mean the difference between continuing life-saving research and having to scale back due to financial constraints.
How Healthcare Organizations Can Mitigate Risks
To navigate these funding reductions, healthcare organizations must prioritize cost-saving strategies across key operational areas. Pathstone Partners recommends the following:
Implement System-Wide Non-Labor Cost Reduction Strategies
- Evaluate high-spend categories such as Pharmacy, IT, HR, and Purchased Services to identify cost-saving opportunities.
Accelerate Speed to Value (S2V) Initiatives
- Address suppliers with significant year-over-year (YoY) spend increases and renegotiate contracts with upcoming expirations.
- Identify under-utilized service agreements and optimize vendor relationships.
Maximize Value Beyond Price Reductions
- Leverage utilization, standardization, and revenue-enhancement strategies to improve margins.
- Assess make-or-buy opportunities to optimize resource allocation.
Conduct a Comprehensive Labor Cost Review
- Analyze staffing patterns and pay structures to identify cost-reduction opportunities.
- Implement efficient workforce management strategies to minimize unnecessary expenses.
Pathstone Partners: Driving Cost Optimization in Uncertain Times
As hospitals and research organizations brace for potential funding reductions, proactive cost management will be essential to maintaining financial stability and research capabilities. Pathstone Partners specializes in helping healthcare organizations streamline costs, optimize operations, and maximize financial resilience in the face of evolving funding challenges.
Learn more about how Pathstone can support your organization in navigating federal research funding cuts.