The next breakthrough drug or industry-disrupting innovation may come from a university lab funded by a federal grant. But a policy shift around how the government supports overhead costs could change which projects are pursued, and which institutions can afford to compete.

When the federal government funds scientific research, universities negotiate overhead rates of 50 to 70% over the direct costs of research to cover expenses like lab space and utilities. In reality, they receive far less due to complex accounting rules. For more than 60 years, this complicated system of "indirect cost recovery” has funded America’s research infrastructure.

Now that system faces a major disruption. Professor Daniel P. Gross of Duke's Fuqua School of Business analyzed data from 350 U.S. research institutions over 60 years and found that while negotiated rates keep rising, the actual overhead rates paid to research institutions have in practice have been flat for decades. Recent policy proposals to cap indirect cost recovery rates at 15% would have major impacts on research operations. Focusing on NIH funding alone, Gross's analysis shows these changes would reduce universities’ NIH research funding by 15 to 20% annually, with some institutions losing over $100 million a year. Strikingly, the hardest-hit institutions would be those whose work most frequently leads to private sector patents and FDA-approved drugs.

In the interview, Gross walks through how seemingly technical policy changes could reshape American innovation and explores potential reforms that could address concerns about the current system. Drawing on historical examples from antibiotics to AI, Gross grounds these changes in a broader context, revealing how funding mechanisms shape what kinds of research gets done–and what’s at stake for the future of scientific discovery.

Duke Fuqua Insights features digestible conversations with our faculty about the most impactful research from their careers, including studies they teach in Fuqua classes. New episodes every other week in season.

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