Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Collins, Francis (NIH/OD) [E] Monday, January 9, 2017 5:15 AM Michael Kratsios; Blake Masters RE: meet with Peter Thiel re NIH? Thanks for the follow up – I have no dietary restrictions.    Best, Francis    From: Michael Kratsios [mailto:mkratsios@thielcapital.com]   Sent: Sunday, January 08, 2017 11:10 PM  To: Blake Masters ; Collins, Francis (NIH/OD) [E]   Subject: RE: meet with Peter Thiel re NIH?  Hi Francis – do you have any dietary restrictions we should pass along to the chef?    Also, one note about the location – the entrance to 15 Union Square West in actually on e15th st. between Union  Square West and 5th Ave.    Best,  Michael    From: Blake Masters [mailto:bgmasters@gmail.com]   Sent: Sunday, January 8, 2017 8:58 PM  To: Collins, Francis (NIH/OD) [E]   Cc: Michael Kratsios   Subject: Re: meet with Peter Thiel re NIH?  Of course! I should have figured. Let's do lunch at noon. The address is 15 Union Square West -- the doorman will let you up to Apartment 4B. My cell is 520-331-5514, and I've also copied here Michael Kratsios, Peter's chief of staff, in case anything comes up. Looking forward to speaking in person! . On Sun, Jan 8, 2017 at 3:56 PM Collins, Francis (NIH/OD) [E] wrote: 1 Hi Blake, Thanks for your note and your flexibility about Tuesday. But perhaps my statement about “all day Wednesday” was  poorly phrased. As I mentioned, I am hosting an important    recruitment dinner here on Tuesday night, so I’ll be travelling up from DC Wednesday morning. Even the 6 AM train  won’t get me to NYC until about 9 AM, and travel to Union Square would probably take at least 30 minutes. How about  around late morning for    brunch or noon for lunch? Best, Francis From: Blake Masters [mailto:bgmasters@gmail.com]          Sent: Sunday, January 08, 2017 5:07 PM       To: Collins, Francis (NIH/OD) [E]  Subject: Re: meet with Peter Thiel re NIH? 2 Hi Francis, Wednesday in NYC works -- could you do 8:30am breakfast at Peter's place in Union Square? Thanks! 3 Blake On Sun, Jan 8, 2017 at 9:08 AM Collins, Francis (NIH/OD) [E] wrote: 4 Hi Blake, Thanks for your note. I would welcome the chance to meet with you and Peter. I plan to    be in NYC all day Wednesday – but it would be difficult for me to be there Tuesday            because of important NIH meetings that day (and I’m hosting a recruiting dinner that evening). Might we meet  sometime on Wednesday instead? Best, Francis From:    Blake Masters [mailto:bgmasters@gmail.com]        6                       Sent: Sunday, January 08, 2017 6:30 AM                  To: Collins, Francis (NIH/OD) [E]                   Subject: meet with Peter Thiel re NIH? 7 Hi Francis, I work with Peter Thiel, and we are currently helping out with the presidential transition effort. Are you able to meet with me and Peter in NYC this coming Tuesday to discuss NIH? 9 Please let me know What's possible! 10 Blake 11 12 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Collins, Francis (NIH/OD) [E] Tuesday, January 10, 2017 1:19 PM Blake Masters RE: meet with Peter Thiel re NIH? Sounds good, thanks.    From: Blake Masters [mailto:bgmasters@gmail.com]   Sent: Tuesday, January 10, 2017 1:16 PM  To: Collins, Francis (NIH/OD) [E]   Cc: Michael Kratsios   Subject: Re: meet with Peter Thiel re NIH?  Hello -- no need for any specific prep, we are very happy to keep it casual. Just want to hear your perspective on how things are going and what ought to be done. Re Union Square -- actually, we have to be at the Tower in the afternoon as well, so let's shift locations to a nearby restaurant. Will confirm reservation details with you soon, but it will be within walking distance of Trump Tower! Thanks for your flexibility here -- looking forward to meeting in person. On Tue, Jan 10, 2017 at 1:06 PM, Collins, Francis (NIH/OD) [E] wrote: Hi again Blake, Is there anything in particular I should prepare for this lunch meeting with you and Peter? And will it be hard to get a cab or Uber from Union Square to Trump Tower at around 1 PM? See you tomorrow, Francis 1 From: Collins, Francis (NIH/OD) [E]   Sent: Sunday, January 08, 2017 9:05 PM  To: Blake Masters   Subject: RE: meet with Peter Thiel re NIH? Perfect. I will need to be at Trump Tower at 2 PM, but that should work out OK. Best, Francis From: Blake Masters [mailto:bgmasters@gmail.com]   Sent: Sunday, January 08, 2017 8:58 PM  To: Collins, Francis (NIH/OD) [E]   Cc: Michael Kratsios   Subject: Re: meet with Peter Thiel re NIH? Of course! I should have figured. Let's do lunch at noon. The address is 15 Union Square West -- the doorman will let you up to Apartment 4B. My cell is 520-331-5514, and I've also copied here Michael Kratsios, Peter's chief of staff, in case anything comes up. Looking forward to speaking in person! . On Sun, Jan 8, 2017 at 3:56 PM Collins, Francis (NIH/OD) [E] wrote: 2 Hi Blake, Thanks for your note and your flexibility about Tuesday. But perhaps my statement about “all day Wednesday” was  poorly phrased. As I mentioned, I am hosting an important    recruitment dinner here on Tuesday night, so I’ll be travelling up from DC Wednesday morning. Even the 6 AM train  won’t get me to NYC until about 9 AM, and travel to Union Square would probably take at least 30 minutes. How  about around late morning for    brunch or noon for lunch? Best, Francis From: Blake Masters [mailto:bgmasters@gmail.com]          Sent: Sunday, January 08, 2017 5:07 PM       To: Collins, Francis (NIH/OD) [E]  3 Subject: Re: meet with Peter Thiel re NIH? Hi Francis, Wednesday in NYC works -- could you do 8:30am breakfast at Peter's place in Union Square? Thanks! 4 Blake On Sun, Jan 8, 2017 at 9:08 AM Collins, Francis (NIH/OD) [E] wrote: 5 Hi Blake, Thanks for your note. I would welcome the chance to meet with you and Peter. I plan to    be in NYC all day Wednesday – but it would be difficult for me to be there Tuesday            because of important NIH meetings that day (and I’m hosting a recruiting dinner that evening). Might we meet  sometime on Wednesday instead? Best, Francis From:    7 Blake Masters [mailto:bgmasters@gmail.com]                              Sent: Sunday, January 08, 2017 6:30 AM                  To: Collins, Francis (NIH/OD) [E]                   Subject: meet with Peter Thiel re NIH? 8 Hi Francis, I work with Peter Thiel, and we are currently helping out with the presidential transition effort. Are you able to meet with me and Peter in NYC this coming Tuesday to discuss NIH? 10 Please let me know What's possible! 11 Blake 12 13 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Collins, Francis (NIH/OD) [E] Tuesday, January 10, 2017 5:15 PM Michael Kratsios RE: meet with Peter Thiel re NIH? Got it. If for any reason there’s a need for a change tomorrow, my cell is  need to reach out.    Francis    (b) (6)  I have Blake’s cell number if I  From: Michael Kratsios [mailto:mkratsios@thielcapital.com]   Sent: Tuesday, January 10, 2017 3:49 PM  To: Blake Masters ; Collins, Francis (NIH/OD) [E]   Subject: RE: meet with Peter Thiel re NIH?  Let’s do lunch at The Modern (9 W 53rd St, New York, NY 10019) at 1145am. Reservation is under Peter Thiel.    Thanks,  Michael    From: Blake Masters [mailto:bgmasters@gmail.com]   Sent: Tuesday, January 10, 2017 1:16 PM  To: Collins, Francis (NIH/OD) [E]   Cc: Michael Kratsios   Subject: Re: meet with Peter Thiel re NIH?  Hello -- no need for any specific prep, we are very happy to keep it casual. Just want to hear your perspective on how things are going and what ought to be done. Re Union Square -- actually, we have to be at the Tower in the afternoon as well, so let's shift locations to a nearby restaurant. Will confirm reservation details with you soon, but it will be within walking distance of Trump Tower! Thanks for your flexibility here -- looking forward to meeting in person. On Tue, Jan 10, 2017 at 1:06 PM, Collins, Francis (NIH/OD) [E] wrote: Hi again Blake, Is there anything in particular I should prepare for this lunch meeting with you and Peter? 1 And will it be hard to get a cab or Uber from Union Square to Trump Tower at around 1 PM? See you tomorrow, Francis From: Collins, Francis (NIH/OD) [E]   Sent: Sunday, January 08, 2017 9:05 PM  To: Blake Masters   Subject: RE: meet with Peter Thiel re NIH? Perfect. I will need to be at Trump Tower at 2 PM, but that should work out OK. Best, Francis From: Blake Masters [mailto:bgmasters@gmail.com]   Sent: Sunday, January 08, 2017 8:58 PM  To: Collins, Francis (NIH/OD) [E]   Cc: Michael Kratsios   Subject: Re: meet with Peter Thiel re NIH? Of course! I should have figured. Let's do lunch at noon. The address is 15 Union Square West -- the doorman will let you up to Apartment 4B. My cell is 520-331-5514, and I've also copied here Michael Kratsios, Peter's chief of staff, in case anything comes up. Looking forward to speaking in person! 2 . On Sun, Jan 8, 2017 at 3:56 PM Collins, Francis (NIH/OD) [E] wrote: Hi Blake, Thanks for your note and your flexibility about Tuesday. But perhaps my statement about “all day Wednesday” was  poorly phrased. As I mentioned, I am hosting an important    recruitment dinner here on Tuesday night, so I’ll be travelling up from DC Wednesday morning. Even the 6 AM train  won’t get me to NYC until about 9 AM, and travel to Union Square would probably take at least 30 minutes. How  about around late morning for    brunch or noon for lunch? Best, Francis 3 From: Blake Masters [mailto:bgmasters@gmail.com]          Sent: Sunday, January 08, 2017 5:07 PM       To: Collins, Francis (NIH/OD) [E]  Subject: Re: meet with Peter Thiel re NIH? Hi Francis, Wednesday in NYC works -- could you do 8:30am breakfast at Peter's place in Union Square? 4 Thanks! Blake On Sun, Jan 8, 2017 at 9:08 AM Collins, Francis (NIH/OD) [E] wrote: 5 Hi Blake, Thanks for your note. I would welcome the chance to meet with you and Peter. I plan to    be in NYC all day Wednesday – but it would be difficult for me to be there Tuesday            because of important NIH meetings that day (and I’m hosting a recruiting dinner that evening). Might we meet  sometime on Wednesday instead? Best, Francis 7 From:    Blake Masters [mailto:bgmasters@gmail.com]                              Sent: Sunday, January 08, 2017 6:30 AM                  To: Collins, Francis (NIH/OD) [E]                   Subject: meet with Peter Thiel re NIH? 8 Hi Francis, I work with Peter Thiel, and we are currently helping out with the presidential transition effort. 10 Are you able to meet with me and Peter in NYC this coming Tuesday to discuss NIH? Please let me know what's possible! 11 12 Blake 13 Porter, Kevin (NIH/OD) [E] Subject: Location: Lunch Peter Thiel, Francis Collins, and Blake Masters 15 Union Square West Start: End: Show Time As: Wed 1/11/2017 12:00 PM Wed 1/11/2017 1:30 PM Tentative Recurrence: (none) Organizer: Peter Thiel Admin Note: Entrance to 15 Union Square West is on E 15th St btw 5th ave. and USW.   No dietary    1 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Blake Masters Thursday, January 12, 2017 4:57 PM Collins, Francis (NIH/OD) [E] Re: following up Follow Up Flag: Flag Status: Follow up Completed Hi Francis,    Great to meet you yesterday! (I should have warned that the portions at the Modern, while tasty, are far too small!)     Absolutely ‐‐ you can reach Peter at peter@thielcapital.com    Best,    Blake        On Thu, Jan 12, 2017 at 4:24 PM, Collins, Francis (NIH/OD) [E]  wrote:  Hi Blake,  Thanks for organizing the lunch yesterday at the Modern. The conversation was very interesting – and the food was  pretty good too!  I’d like to reach out to Peter to thank him for his time, and follow up on a couple of things. Could I get an e‐mail address  for him?  Best, Francis    1 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Collins, Francis (NIH/OD) [E] Friday, January 13, 2017 10:31 AM bgmasters@gmail.com Fwd: following up from yesterday Just realized I forgot to cc you on this.  Best, Francis    Sent from my iPhone    Begin forwarded message:  From: "Collins, Francis (NIH/OD) [E]"   Date: January 12, 2017 at 5:23:29 PM EST  To: "peter@thielcapital.com"   Subject: following up from yesterday  Hi Peter,  I very much enjoyed our conversation at lunch yesterday. Clearly we both share the sense that  biomedical research is poised for rapid progress – but some of the ways in which we support it are  outdated.  I mentioned the Early Independence Award (otherwise known as “skip the postdoc”), which I would like  to see expanded. You can read more about that at  https://commonfund.nih.gov/earlyindependence/index. This is one of several approaches that NIH  needs to push to liberate young scientists from training periods that are much too long. Your ideas on  this are most welcome.  I also agree that partnerships with philanthropy and industry are more important than ever. The  Accelerating Medicines Partnership (https://www.nih.gov/research‐training/accelerating‐medicines‐ partnership‐amp), which I founded along with senior colleagues in pharma, is a model that seems to be  catching on – I predict that similar partnerships for cancer, and for Parkinson’s disease, will be  announced soon between NIH and industry. Projects are jointly designed, all data ends up in public  databases, and costs are shared 50:50.  I’m off to Davos Monday for a host of meetings and panels on health research. Among others, I will be  meeting with Shyam Sankar of Palantir, and I am looking forward to learning more about Palantir’s  current areas of interest.  I’d be happy to talk further about any of these topics.   Of course I’m also curious about what the next steps will be after the interview in Trump Tower. Is there  any way to predict the timing of a decision?  Best, Francis  1 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Peter Thiel Monday, January 16, 2017 4:45 PM Collins, Francis (NIH/OD) [E] Re: following up from yesterday Follow Up Flag: Flag Status: Follow up Completed Great.    From: Collins, Francis (NIH/OD) [E]   Sent: Monday, January 16, 2017 4:44:45 PM  To: Peter Thiel  Subject: Re: following up from yesterday   Will call in a couple minutes    Sent from my iPhone    On Jan 16, 2017, at 4:34 PM, Peter Thiel  wrote:  Hi Francis,    It was terrific to meet with you last week.    Would it be possible for us to speak on the phone in the next day or so? My cell is  am on the East Coast.    Best,  Peter  (b) (6)  and I    _____________________________  From: Collins, Francis (NIH/OD) [E]   Sent: Thursday, January 12, 2017 5:23 PM  Subject: following up from yesterday  To: Peter Thiel         Hi Peter,  I very much enjoyed our conversation at lunch yesterday. Clearly we both share the sense that  biomedical research is poised for rapid progress – but some of the ways in which we support it are  outdated.  I mentioned the Early Independence Award (otherwise known as “skip the postdoc”), which I would like  to see expanded. You can read more about that at  https://commonfund.nih.gov/earlyindependence/index. This is one of several approaches that NIH  1 needs to push to liberate young scientists from training periods that are much too long. Your ideas on  this are most welcome.  I also agree that partnerships with philanthropy and industry are more important than ever. The  Accelerating Medicines Partnership (https://www.nih.gov/research‐training/accelerating‐medicines‐ partnership‐amp), which I founded along with senior colleagues in pharma, is a model that seems to be  catching on – I predict that similar partnerships for cancer, and for Parkinson’s disease, will be  announced soon between NIH and industry. Projects are jointly designed, all data ends up in public  databases, and costs are shared 50:50.  I’m off to Davos Monday for a host of meetings and panels on health research. Among others, I will be  meeting with Shyam Sankar of Palantir, and I am looking forward to learning more about Palantir’s  current areas of interest.  I’d be happy to talk further about any of these topics.   Of course I’m also curious about what the next steps will be after the interview in Trump Tower. Is there  any way to predict the timing of a decision?  Best, Francis    2 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Collins, Francis (NIH/OD) [E] Tuesday, January 17, 2017 12:20 PM peter@thielcapital.com will have something for you in about 2 hours   1 Porter, Kevin (NIH/OD) [E] From: Sent: To: Subject: Attachments: Collins, Francis (NIH/OD) [E] Tuesday, January 17, 2017 3:37 PM peter@thielcapital.com Thoughts about how to support research 515326a[2].pdf; ThielIndirectCosts.docx Hi Peter,    Please see attached document with some thoughts that were stimulated by our call yesterday.     Glad to discuss.    Regards, Francis      1 NEWS FEATI IFIE KEEPINGTHE LIGHTSUN Every year, the US government gives research institutions billions of dollars towards infrastructure and administrative support. A Nature investigation reveals who is benefiting most. i BY HEIDI Leoronn 326 NATURE VOL 515 20 NOVEMBER 2014 LIGHT BULB: MARC SIMON/MASTERFILE/CORBIS; GLASSWARE: R. GINO SANTA MARIA/SHUTTERSTOCK FEATURE NEWS L ast year, Stanford University in California received US$358 million in biomedical-research funding from the US National Institutes of Health (NIH). Much of that money paid directly for the cutting-edge projects that make Stanford one of the top winners of NIH grants. But for every dollar that Stanford received for science, 31 cents went to pay for the less sexy side of research: about 15 cents for administrative support; 7 cents to operate and maintain facilities; 1 cent for equipment; and 2 cents for libraries, among other costs. The NIH doled out more than $5.7 billion in 2013 to cover these ‘indirect’ costs of doing research — about one-quarter of its $22.5-billion outlay to institutions around the world (see ‘Critical calculations’). That money has not been distributed evenly, however: research institutions negotiate individual rates with government authorities, a practice that is meant to compensate for the varying costs of doing business in different cities and different states. Data obtained by Nature through a Freedom of Information Act request reveal the disparities in the outcomes of these negotiations: the rates range from 20% to 85% at universities, and have an even wider spread at hospitals and non-profit research institutes. The highest negotiated rate in 2013, according to the data, was 103% — for the Boston Biomedical Research Institute (BBRI) in Watertown, Massachusetts. Under financial duress, it closed its doors that same year. Faculty members often chafe at high overheads, because they see them as eating up a portion of the NIH budget that could be spent on research. And lack of transparency about how the money is spent can raise suspicions. “Sometimes faculty feel like they’re at the end of the Colorado River,” says Joel Norris, a climatologist at the University of California, San Diego. “And all the water’s been diverted before it gets to them.” Nature compared the negotiated rates, as provided by the US Department of Health and Human Services, to the actual awards given to more than 600 hospitals, non-profit research institutions and universities listed in RePORTER, a public database of NIH funding (see ‘Overheads under the microscope’). The analysis shows that institutions often receive much less than what they have negotiated, thanks to numerous restrictions placed on what and how much they can claim. Administrators say that these conditions make it difficult to recoup the cash they spend on infrastructure. In addition, new administrative regulations have meant that universities have had to increase their spending, even as federal and state funding for research has diminished. “We lose money on every piece of research that we do,” says Maria Zuber, vice-president for research at the Massachusetts Institute of Technology (MIT) in Cambridge, which has negotiated a rate of 56%. But many worry that the negotiation process CRITICAL CALCU L ATIO NS What are indirect costs? Indirect costs — often called facilities-andadministrative costs — are expenses that are not directly associated with any one research project. This includes libraries, electricity, administrative expenses, facilities maintenance and building and equipment depreciation, among other things. The United States began reimbursing universities for indirect costs in the 1950s, as part of a push to encourage more research. An initial cap was set at 8%, but that had risen to 20% by 1966, when the government began to allow institutions to negotiate their rates. Institutions were assigned to negotiate with either the US Department of Health and Human Services or the Office of Naval Research, depending on which supplied the bulk of their research funding. And the agreed rate holds across allows universities to lavish money on new buildings and bloated administrations. “The current system is perverse,” says Richard Vedder, an economist at Ohio University in Athens who studies university financing. “There is a tendency to promote wasteful spending.” GLOBAL DISPARITY Reimbursement for overheads is dealt with differently around the world. The United Kingdom calculates indirect costs on a per-project basis. Japan has a flat rate of 30%. And last year, to the dismay of some institutions, the European Union announced that it would no longer negotiate rates and instituted a flat rate of 25% for all grant recipients in its Horizon 2020 funding programme (see Nature 499, 18–19; 2013). The comparatively high overhead reimbursement in the United States has generated envy, and at times controversy. About 20 years ago, government auditors found that Stanford was using funds for indirect costs to cover the depreciation in value of its 22-metre yacht moored in San Francisco Bay, and to buy decorations for the president’s house, including a $1,200 chest of drawers. Other universities — including MIT and Harvard University in Cambridge — soon came forward to correct overhead claims that they feared would be perceived as inappropriate. In the end, Stanford paid the government $1.2 million and accepted a large reduction — from 70% to 55.5% — in its negotiated rate. But the damage was done. The government layered on new regulations, including an explicit ban on reimbursement for housing and personal living expenses, and a 26% cap on administrative costs, although only for universities. Two decades later, researchers still worry that the system carries the taint of impropriety. all federal funders, irrespective of where the negotiations took place. A common misconception is that indirectcost rates are expressed as a percentage of the total grant, so a rate of 50% would mean that half of the award goes to overheads. Instead, they are expressed as a percentage of the direct costs to fund the research. So, a rate of 50% means that an institution receiving $150 million will get $100 million for the research and $50 million, or one-third of the total, for indirect costs. But there are multiple caps that lower the base amount from which the indirect rate is calculated, or that limit the amount of money that a research institution can request. So very few institutions receive the full negotiated rate on the direct funding they receive. H.L. Administrators say that changes at some institutions — such as increased transparency about spending and how indirect costs are calculated — have allayed faculty concerns. But not everywhere. “People often think this is about secretarial staff and bloating the mid-level research administration,” says Tobin Smith, vice-president for policy at the Association of American Universities in Washington DC. “The faculty doesn’t often think about all the other costs: the lights are on, the heat is on, you’re using online services the university provides.” Despite the high level of scrutiny for universities, they did not top the chart for negotiated rates in the data that Nature collected. Few universities have rates above 70%, and they would probably face an outcry from faculty if they raised rates too high, says Samuel Traina, vice-chancellor for research at the University of California, Merced. No such threshold seems to exist at nonprofit research institutes: more than one-quarter of the 198 institutes for which Nature obtained data negotiated rates above 70%. Fourteen of them have rates of 90% or higher, meaning that their indirect costs come close to equalling their direct research funding. According to Robert Forrester, an independent consultant in Belmont, Massachusetts, who helps institutions to determine their indirect costs, these institutes need to negotiate higher rates because the entire facility is dedicated to research, whereas universities and hospitals also use facilities for other things, such as teaching, that generate funding and must share the burden. Comparisons of negotiated rates against the RePORTER data mined by Nature come with caveats. For example, many smaller institutions negotiate a provisional rate with the NIH that is later adjusted to match actual overhead costs, C O R R E C T E D 2 3 D E C E M B E R 2 0 1 4 2 0 NOV E M B E R 2 0 1 4 VO L 5 1 5 NAT U R E 3 2 7 © 2015 Macmillan Publishers Limited. All rights reserved lilm FEATURE 100 IIVERHEAIIS UNDER THE MICROSCOPE In 2013, the US National Institutes of $5.802.769 90 Health (NIH) awarded more than UNIVERSITIES 103% billion to research institutes for Received 339 billion at 67% indirect costs: shared overhead an average rate of 31'% expenses such as lighting, heat and maintenance. Institutes negotiate the rate at which they will be reimbursed, 80 and it is expressed as a percentage of the direct costs for research in a grant. Data obtained by Nature reveal the dis ari in the outcomes of these . . . negpotiathons and show that the amount Received $550 at received is usually much lower than an average rate 0f 38% that negotiated. . 70 0 TOTAL NIH FUNDING FOR 2013, MILLION NUN PROFITS Received $611 million, at an average rate of 38% HOSPITALS $357.812.990 $6.070.096 17W 41%0 n. n: 20 $315.919.592 .70 .80. . 99 .100 NEGOTIATED RATE, FROM INSTITUTIONS (93) TOP In EARNERS The 10 universities that get the most money from the NIH together received more than $1.1 billion towards their indirect costs. Their negotiated and calculated rates were higher than the average for all universities. INDIRECT COSTS INSTITUTION TOTAL FUNDING I NEGOTIATED CALCULATED . 3 . For an interactive version and details on the methods used, see: p.mtun.oom/ i9ncld 328 I NATURE I VOL 515 I 20 NOVEMBER 2014 2015 Macmillan Publishers Limited. All rights reserved SOURCES: US DEPARTMENT OF HEALTH AND HUMAN SERVICES; NIH REPORTER DATABASE FEATURE NEWS so some grants in RePORTER seem to have a reimbursed rate that exceeds the negotiated value. A change to the negotiated rate in the middle of a year can also cause a disconnect between the data Nature obtained and the rates given in RePORTER. But overall, the data support administrators’ assertions that their actual recovery of indirect costs often falls well below their negotiated rates. Overall, the average negotiated rate is 53%, and the average reimbursed rate is 34%. The shortfall is largely due to caps imposed by the NIH on some grants and expenditures, says Tony DeCrappeo, president of the Council on Governmental Relations (COGR), an association in Washington DC that is focused on university finance. Some training grants, such as ‘K’ awards for early-career investigators, cap indirect costs at 8%. The NIH also does not award money for conference grants, fellowships or construction. And it has placed limits on specific categories, such as costs associated with research using genomic microarrays. Such restrictions can make it hard to make ends meet, says Eaton Lattman, who heads the Hauptman-Woodward Medical Research Institute in Buffalo, New York. The institute negotiated a rate of 94%, but received just 52%. Although it does not incur some of the costly administrative burdens of hospitals or universities, it still fails to recoup its full investment on research, Lattman says. The increasing competition for NIH grants is a major factor in that. Because funds used to support researchers who lose grants or have yet to win one cannot be reimbursed as indirect costs, Hauptman-Woodward must draw from its endowment to keep them working until they can support themselves. “If you don’t want to kill their research career, you have to provide bridge funding,” Lattman says. The BBRI faced similar strains. The institute was dependent on NIH funding, and could not cope when the NIH budget tightened and faculty members brought in less grant money (see Nature 491, 510; 2012). “The general cost of operating the organization did not diminish as fast as the direct dollars,” says Charles Emerson, former head of the institute and now a developmental biologist at the University of Massachusetts Medical School in Worcester. “So we were able to negotiate a higher rate at the end of our time there, just to keep the operation going.” By 2012, the BBRI’s negotiated rate had swelled to 103%, the highest for any organization in the data provided to Nature. But it ended up recouping just 70%, or $2.4 million on $3.4 million in direct funding. Although non-profit institutes command high rates, together they got just $611 million of the NIH’s money for indirect costs. The higher-learning institutes for which Nature obtained data received $3.9 billion, with more than $1 billion of that going to just nine institutions, including Johns Hopkins University in Baltimore, Maryland, and Stanford (see ‘Top 10 earners’). At 38%, the average rate for these nine institutions is about 4% higher than that for all institutions with available data. But the range for higher-learning institutions was wide, with one receiving 62% (York College in Jamaica, New York), and one receiving just under 3% (Dillard University in New Orleans, Louisiana). SHORT CHANGE Even if universities did receive the full, negotiated rate, it would still be less than the actual costs of supporting research, says DeCrappeo. The cap on administrative costs that emerged in the wake of the Stanford scandal has remained “THE RESEARCH BUREAUCRACY HAS INFLATED WILDLY IN UNIVERSITIES AND IT IS EXPENSIVE.” unchanged even though administrative burdens have swelled. COGR members maintain that their actual costs are about 5% higher than the cap, says DeCrappeo. The rest of the money must come from other revenue, such as tuition fees, donations and endowments. The best solution, according to Barry Bozeman, who studies technology policy at Arizona State University in Phoenix, is not to raise the cap, but to cut costs by getting rid of administrative rules and regulations that are simply wasting time and money. “The research bureaucracy has inflated wildly in universities and it is expensive.” That inflation, he says, is evident in grant applications. Thirty years ago, administrative requirements associated with grants were relatively low. “Nowadays, the actual content of the proposal — what people are going to do and why it’s important — is always a small fraction of what they submit,” he says. As an illustration of the growing bureaucracy, DeCrappeo says that when the COGR began to keep a guide to regulatory requirements for its members in 1989, the document was 20 pages long. Now it is 127 pages. And Bozeman says that he has to fill out forms relating to the care of laboratory animals when he applies for grants, even though he has never used animals. The regulatory burden can be particularly high for medical schools, which must adhere to regulations for human-subject research, privacy protection and financial conflicts of interest, among others. The Association of American Medical Colleges in Washington DC says that 70 of its members have spent $22.6 million implementing conflicts-of-interest reporting guidelines that came into effect this year. Other funders place strict limits on their reimbursements. The US Department of Agriculture, for example, caps many of its reimbursements at 30%. Many philanthropic organizations do not reimburse for overheads at all, and those that do often pay less than the government rate (see Nature 504, 343; 2013). As a result, some institutions are reluctant to allow researchers to apply for such grants — providing another source of friction between faculty members and the administration. Tight budgets and fierce competition for federal grants mean that faculty members are keenly sensitive to anything that might affect how much money they receive, says Lattman. Recipients of grants from the National Science Foundation (NSF) are particularly rankled, he says, because the NSF allocates money for indirect costs — at the federal negotiated rate — from the total grant awarded. In other words, researchers told that they will receive a $1-million NSF grant might see only 60% of the money. The NIH, by contrast, typically gives faculty members the full $1 million and then reimburses indirect costs in a separate payment to the university. Even so, would-be NIH grant recipients often fear that a high indirect-cost rate at their institution will hurt their chances of getting a grant funded, despite the lack of evidence supporting any such trend. Others are troubled by the lack of transparency at many institutions as to how the indirect costs are calculated and the funds distributed. Because indirect-cost revenue is considered a reimbursement for money the university has already spent, much of the cash received from the government disappears into a university’s general fund. “Faculty have always been somewhat in the dark,” says Edward Yelin, who studies health policy at the University of California, San Francisco. Although the payout for indirect costs is high, officials at the NIH say that the proportion of the NIH budget dedicated to overheads has held steady for more than two decades. When a 2013 report by the US Government Accountability Office warned that indirect costs could begin to eat up an increasing proportion of the NIH’s research budget, the NIH countered that this was unlikely. DeCrappeo is hopeful that regulations due to come into effect in December will rein in the proliferation of caps on indirect cost rates. The regulations will require officers at agencies such as the NIH to have any new caps on overhead reimbursement approved by the head of the agency and provide a public justification for the change. DeCrappeo says that this could lead to a more transparent process. And for those who fret about where this money is going, DeCrappeo urges them to look beyond their own research programmes. “If all you’re concerned about is the direct costs, it won’t take long for your facilities to deteriorate,” he says. “You can’t do research on the quad.” ■ Heidi Ledford writes for Nature from Cambridge, Massachusetts. C O R R E C T E D 2 3 D E C E M B E R 2 0 1 4 2 0 NOV E M B E R 2 0 1 4 VO L 5 1 5 NAT U R E 3 2 9 © 2015 Macmillan Publishers Limited. All rights reserved Dear Peter,  Thanks for your call yesterday.  I do agree that the arrival of the new administration presents a golden  opportunity to take some actions, including changing the formula for indirect costs, that could free up  more funds for research.  But such steps will need to be done with care, or what was intended as a  removal of fat will also remove muscle and bone.  A major reason for America’s leadership over many  decades has been the world class strength of our universities.  “First do no harm” comes to mind.  First of all, it’s important to define clearly what the problem is that we are trying to solve.  We want to  re‐invigorate biomedical research to accelerate discoveries that prevent and/or cure disease, alleviate  human suffering, stimulate our economy, and expand American leadership.  To make that happen, I  think you and I would agree that we need to find ways to make more funds directly available for  biomedical research, especially for early stage investigators.  Reducing indirect costs represents one  lever we might pull – but there are several others, including limiting the amount of salary that an  investigator can receive from grant funding (it’s 100% for some), and limiting the amount of funding  awarded to a single investigator.  (As I mentioned in our lunch meeting, we have data to show that  productivity per dollar tends to drop off when a principal investigator gets spread too thin.)  Tapping  into philanthropy is critical also.  And of course increasing the overall federal appropriation for  biomedical research (which now amounts to 20% less purchasing power than in 2003) will be critical,  and currently enjoys strong support from the Congress.  Let me clear: I am enthusiastic about the  opportunity of working with the new administration to pursue ALL of these options.  I’ve put some salient details about indirect costs in the Appendix, along with a possible strategy to  follow.  But after reflection, I think it would be a mistake to push exclusively on this lever.  Instead, I  would propose that in the first 30 – 45 days of the new administration, I would convene the senior  leaders of the 20 institutions with the greatest productivity in biomedical research, and charge them to  create a bold solution to provide more dollars for actual research.  I would want you to be a major  player in that meeting.  I have also had similar discussions with Newt Gingrich, who I know is advising  the Trump team, and I think his involvement would add additional gravitas.  I would also invite major  philanthropic leaders.  Ultimately academic institutions need to own the solutions ‐‐ NIH can only do so  much if those institutions are not committed to the outcome.  But I am willing to be a truly annoying  cattle prod, and I can also remind the cattle that NIH is the leading source of hay.  Peter, I am not trying to dodge your exhortation from yesterday.  I hope you can sense my strong  conviction about the need and opportunity for change – but also the need to organize a plan that looks  like Ready, Aim, Fire, rather than some other order of those verbs.    I’d be glad to discuss all of this further with you.  Cell is  Best regards, Francis      (b) (6)   Appendix on Indirect Costs  NIH started paying indirect costs in the 1950s, and these have been negotiated on an institutional basis  since the 1960s.  The rationale for indirect costs was to encourage institutions to invest in research –  otherwise this activity could be seen as a net negative.  The attached article from Nature is a good  summary of the current situation.  The average indirect cost rate for NIH grantee institutions is about  53%, but as you can see from the Figure, there is a wide range.    Why the variation?  The intention was to be responsive to local institutional circumstances.  For  instance, research institutes that aren’t part of a university have no other uses for their facilities than  research, and no tuition income, so they argue that they need higher rates.  NIH does not negotiate  indirect cost rates ourselves, that is done for us by the HHS Division of Cost Allocation (except we do it  for commercial organizations).  OMB’s circular A‐21 lays out the rules.  Typical items covered include  facilities and administrative costs (so called F&A).  Facilities include building and equipment  depreciation, interest on debt, core facilities, utilities, safety, and upkeep.  The administrative portion is  capped at 26%, including payroll, purchasing, personnel, accounting, President/Provost, departmental  administration, and student services.  Universities complain that NIH’s indirect cost rates don’t actually  cover all the costs, and they have to make up for that with tuition, donations, state funds (if they have  any), and endowment funds.  In 2012, the Council on Governmental Relations (COGR) estimated that  institutions put $13.7B of their own funds into subsidizing research.    A drastic option would be to eliminate indirect costs altogether.  That would have devastating  consequences. All but a few institutions would not be able to continue doing research in that setting,  and even those would probably have to raise their already sky‐high tuition charges to stay afloat.  The  diversity of research institutions that has been a major strength of American science would shrink  drastically.  The job opportunities that we want to see for young investigators would largely dry up, as  academic institutions hunkered down.  American biomedical science would take a giant step backward,  and other countries like China would surge ahead.  A flat rate of 20% would also have major negative effects.  Going for 40% would be more reasonable –  but pursuing a flat rate penalizes research institutes like Salk and Scripps, so it would be better to be  more surgical.  Another approach might be worth consideration: to begin reimbursing all grantee institutions at 95% of  their negotiated rate for indirect costs.  That would recognize the differences in their circumstances, but  would require all institutions to tighten their administrative belts.  And while this may seem like a rather  modest change, the consequences for funding new grant awards would be immediate and significant.  If  this reduced indirect cost rate was applied to all awards, an estimated additional 480 grants could be  funded each year.  (For context, we currently fund about 10,000 new grants each year.)  This approach  actually provides a more impressive outcome than if indirect costs were capped across the board at  40%, which we calculate would only result in 125 additional grants.  The formula used to negotiate indirect cost rates could also be altered by OMB, thought that would take  some time.  There could, for instance, be a prohibition to having any of the indirect costs used to  support the salary of the University President or other high ranking administrators.  Or there could be a  change in the way depreciation of buildings is credited, to slow down the proliferation of new facilities.  For any of these options, grantee institutions will be squeezed, since (as noted above) they already have  provided evidence that doing research requires expenditure of their own funds.  For our part, NIH can  seek ways to reduce their pain, by continuing our efforts to simplify existing regulations and reduce  administrative burdens – as we have just done for clinical trials and human subjects oversight.