Seek savings from insurers, not medical research

Jill Burcum, Star TribuneThe Minneapolis Star Tribune

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If we’re going to swing the budget axe through the nation’s health care system, let’s start with well-documented overpayments to insurers and not with the scientists whose discoveries power new treatments and economic growth.

Unfortunately, the Trump-Musk crusade to slash federal spending is ignoring this common-sense approach by taking early aim at medical researchers instead of the health insurance industry. The ripple effects of this hasty, shortsighted cost-cutting policy threaten medical progress, the United States' scientific superpower status and state economies like Minnesota’s, which are reliant on both world-class research centers and the business ecosystem that takes breakthroughs from lab to market.

Despite these risks, this is what President Donald Trump’s administration has set in motion. On Friday, the National Institutes of Health (NIH) rolled out a new, ill-advised policy that could abruptly reduce funding by tens of millions of dollars for individual big research institutions such as Mayo Clinic and the University of Minnesota. The U estimates a $100-$130 million annual loss, a budget hole that will not be easy for the U or the state of Minnesota to make up.

Legal action by 22 state attorneys general, commendably including Minnesota’s Keith Ellison, and other organizations has halted the rate cut for now. But it’s only a temporary restraining order. As the U’s Peter Crawford noted in an interview this week, it’s not yet time to breathe a sigh of relief.

“This does remain a threat. ... if this were to persist, it would have dramatic and deleterious impact on the (U’s) ability to serve Minnesota,” said Crawford, the vice dean for research at the U’s medical school.

Some important background: The taxpayer-funded NIH is the "largest public funder of biomedical and behavioral research in the world." In fiscal 2023, NIH provided more than $35 billion “on almost 50,000 competitive grants to more than 300,000 researchers at more than 2,500 universities, medical schools, and other research institutions across all 50 states and the District of Columbia.”

That breadth and depth of support has made the U.S. a scientific superpower, a status of incalculable value. But it also means that even incremental NIH changes can have a big impact in places far removed from the agency’s headquarters.

The new cost-cutting policy is not a small change. It would cap payments at 15% for so-called “indirect” research costs, defined as facilities and administration or “F&A.” Some critics derisively dismiss this as overhead.

But in real life, we normally build these costs into what we pay for. Consider a regular doctor’s visit. You aren’t just billed for the doctor’s time. Instead, the price you pay reflects necessary other costs, such as the clinic building, the hardware and software necessary for electronic medical records and support staff that do everything from scheduling your next appointment to sending out paychecks for clinic staff.

Medical research requires the same support services, with additional specialized needs. Among them: ensuring regulatory compliance. Other related expenses: financial tracking to ensure federal dollars are used for their intended purpose, “clean rooms” to develop or use sensitive equipment, and computing power, data storage and connectivity to push high-tech medical imaging’s frontiers.

Currently, the NIH generally negotiates the indirect funding cap percentage with individual universities and other entities. At the University of Minnesota, for example, it’s currently 54%, a figure that Crawford said is middle of the pack compared to other institutions.

It’s important to note that the 54% cap does not mean that 54 cents of every research dollar goes to facilities and administration. Instead, it means that for every dollar awarded to a research team, the institution could receive 54 cents in additional funding for these related costs.

Nor does every research team seek or get this maximum level of indirect cost support. For grants awarded to the medical school in fiscal 2023, aggregate F&A costs came to around 27%, Crawford said.

Might that still be too high? It’s a fair question, especially with private philanthropy often capping the rate at 15%, which appears to be why NIH landed on this percentage.

But NIH funding generally dwarfs private foundation support. This may allow these organizations to piggyback on this to set a lower indirect cost rate in the specialized or niche areas they often fund. In this sense, the NIH and private philanthropy work in concert.

Much remains unknown about what the impact would be of scaling this much lower rate across all research endeavors. It’s also important to understand downstream economic effects. Minnesotans have a big stake in avoiding negative consequences. About 7,400 life sciences companies operate here, employing 326,301 workers, according to state data.

To sum up, an NIH change like this isn’t something to rush through. Doing so is especially frustrating when neither Trump nor Musk’s DOGE has tackled insurers, for whom publicly funded programs such as Medicare and Medicaid are a “major source of revenue and profits,” according to a 2023 analysis.

I’ve written previously about a glaringly obvious place to find federal savings: the Medicare Advantage program.

Medicare is the federal program providing medical coverage mainly to those 65 and up. Enrollees have the option to choose a Medicare Advantage program, which involves having the federal government pay private insurers to administer these enrollees’ coverage.

“Medicare spends an estimated 22 percent more for MA enrollees than it would spend” for traditional Medicare enrollees. That difference “translates into a projected $83 billion in 2024,” according to the Medicare Payment Advisory Commission’s March 2024 report to Congress.

In other words, tackling these overpayments could save $83 billion a year. In contrast, the NIH research cost-cutting is expected to save $4 billion annually.

The Trump administration’s zealous new cost cutters should take aim at the far bigger savings potential in Medicare Advantage insurer payments. Instead, they’re recklessly tampering with the medical research ecosystem already making America healthy and prosperous.