U.S. Risking its Scientific Research Edge?

Lisa Larrimore Ouellette: There are clinical trials that have been stopped, which—if there’s someone who has cancer and they’re in a trial that’s giving them a drug that may be helping them—is devastating consequences for their lives and for the people working in these labs. This is a lot of research that could be very promising and is now being put on hold.

Pam Karlan: This is Stanford Legal, where we look at the cases, questions, conflicts, and legal stories that affect us all every day. I’m Pam Karlan. Please subscribe or follow this feed on your favorite podcast app. That way you’ll have access to all our new episodes as soon as they’re available.

One of the things that’s most striking, I think, about the United States in the 20th and then into the 21st century, is just how much of our economy, and how much of the way we live, is a function of federal investment in basic science in all sorts of ways. Public investment in medicine, in technology—everything from the Internet to the drugs we use—is a product of that kind of investment. And in a recent Just Security essay, my colleague here at the law school, Lisa Larrimore Ouellette, looks at how, since World War II, the federal government has set a standard for public investment, and then what’s been happening during this second Trump administration.

Lisa’s interest in these areas stems from many articles she’s written about innovation policy, particularly in the medical context. Based on her work, she was appointed last year to a committee for the National Academies of Sciences, Engineering, and Medicine, which recently released a report on the fact that some of the diseases causing the most suffering and death in the United States don’t always attract investment in new treatments.

Today we’re going to dive into this topic of federal investment in research and what we’re seeing now that’s quite new and different. I want to welcome you to the show, Lisa. Thanks for joining us.

Lisa Larrimore Ouellette: Thanks for having me.

Pam Karlan:  In this Just Security piece, which I think people should just Google “Just Security” and your name because it’s a very accessible piece, even for people who aren’t steeped in these issues, you make a point about some really fundamental changes, I think, to how the federal government has been treating research. And I thought maybe we should start with the baseline of: what used to be the rule before this Trump administration came in. How did things used to operate?

Lisa Larrimore Ouellette: Sure. The current structure has been in place since World War II when Vannevar Bush and other scientists convinced FDR to fund a lot of science research that might be relevant for the war effort, and that was really the first time the federal government provided substantial external funding to researchers at universities and firms.

And it led to all kinds of key technologies, like not just the atomic bomb, but also medical breakthroughs like penicillin and malaria treatments, plus radar and early computing. The success was so obvious that after the war, there was bipartisan agreements to keep it going, which is how we got the National Science Foundation, or NSF, and a much bigger NIH and the basic model that we use today where the government funds a lot of competitive research at universities, while giving professors the freedom to see where that research leads. And the amount of money we’re talking about is enormous. Today the federal government’s total annual research budgets around $200 billion. A lot of that’s for research at government labs, but over $50 billion of those goes to universities largely for basic research.

Pam Karlan: And when you say basic research, what does that mean?

Lisa Larrimore Ouellette: It means research where it’s not clear exactly what we’re going to get out of it, the exact technological application. We’re not trying to make a particular widget. It’s more trying to understand the fundamental mechanisms of how the world works. So, in the medical context, it’s understanding basic cell biology or the mechanisms behind the disease, which maybe will lead to breakthroughs like a particular drug, but it’s less directed than that. Or understanding things like basic physics which have led to all kinds of technologies and modern computing and things we use today.

Pam Karlan: So, the way this money was handed out was through, as I understand it, was through a competitive process. How did that process work?

Lisa Larrimore Ouellette: Congress appropriates money to the federal funding agencies, which define priorities like general areas of research. Like the NIH might say, we want to study things generally related to cancer and then scientists at universities will submit grant proposals for specific projects of what aspect of cancer research they want to learn about. And that pool of grants is then all evaluated by peer review by other experts who rank proposals based on their scientific merit and potential impact. And then the grants that lead that rise to the top of that peer review process get funded.

Pam Karlan: Yes, and as I understand it, when you get one of these grants, there’s money for the basic thing you’re doing, and then there’s something called “indirect costs” that comes on top of that. What’s that about?

Lisa Larrimore Ouellette: So indirect costs—they fund all the things that aren’t specific to a project like the lab space or the computing or the utilities or the regulatory compliance to deal with all the federal regulations related to that. And for over 60 years, the NIH and other grant-making agencies have reimbursed universities for these indirect costs. And these are based off the actual negotiated costs based on audits of what the university’s costs are and that averages now over 50%.

Pam Karlan: Yes, and that 50% goes to everything from keeping the lights on in the building where the scientist is working, or having a custodial crew that cleans the building, or the fringe benefits for the employees who work. So it makes it possible to do the research at essentially no cost to the researcher.

Lisa Larrimore Ouellette: Yes, that’s exactly right.

Pam Karlan: Yes, so this system has worked really well overall. The United States, the universities in the United States, are the envy of universities everywhere in the world. The number of inventions coming out of U.S. universities and the number of kind of basic understandings of, as you say, the way the world works—it’s been a pretty successful system overall. And yet one of the things that your Just Security piece points out is that we’re seeing three really huge changes to this system that have been just thrust onto the system in quite a catastrophic way. And I want to go through them kind of one by one and start with the one that you call blacklisting research topics. What’s this about? I’ve only heard like anecdotal stories. Like I have a friend in the medical school who studies the germs and bacteria that are in people’s mouths, and he said that he got held up for a while because he talked about the diversity of the oral biome or something like that. What’s going on here?

Lisa Larrimore Ouellette: I think … so funding is being cut for a variety of reasons, and one of them has been to target blacklisted research topics that the administration doesn’t like. A lot of the canceled grants have been related to DEI or vaccine hesitancy or misinformation or climate research. And the grants that have been targeted have been found through over-inclusive searches for words like “diversity” or “equity” in the grant proposal. I think it’s been a super troubling development—and these are grants that have already gone through this rigorous peer review process we’ve talked about and been approved for funding.

So they’re now being canceled because of the viewpoint of what the grant is about, which unsurprisingly has led to the legal challenges to these cancellations. There was one Reagan-appointed judge in Massachusetts who said that he’s never seen government racial discrimination like this, and the way that the government was just canceling grants based on things like talking about “diversity.”

Pam Karlan: You and I talked about this offline once and interesting question of, clearly the government has the right to say, “We want you to do cancer research with this money rather than doing acne research with this money,” or “We want you to look at climate change rather than at economic inequality” or whatever.

They were big content things. And the government, obviously it’s the government’s money, they should make a decision through whatever process they make it. But then there’s what sometimes is referred to as viewpoint discrimination, which is: should the government be deciding we care more about the cancers that disproportionately strike men, or we care more about the kind of cancer that disproportionately strikes Caucasians or something like that. We’re not interested in doing any more research on sickle cell because that’s a disease that’s primarily afflicts people who are Black. So what’s really going on here is the government is taking a side in scientific disputes.

Lisa Larrimore Ouellette: Yes, I think it’s doing more than simply setting broad research priorities. And obviously, as you just indicated, it’s a tricky line, this line between like when is it setting an overall goal and defining the scope of a program versus discriminating based on viewpoint and people who are applying for that program. But I think what they’ve been doing here has been crossing that line and that’s led to injunctions from the district courts so far that have determined this. And the government’s raised the defense, “Oh, this is government speech, we can spend our money how we want.” And so far, the courts that thought about that have said, “No, you’re not just defining the scope of program you are targeting specific programs because of I’m talking about things you don’t like.”

Pam Karlan: And these, as you pointed out just a moment ago, these are actually grants that were already given and the government is now saying “actually no, we’re not going to give you this money that we already signed a deal with you on.”

And after you published your piece, which again, I just want to commend to our listeners because I think it does a terrific job of laying this all out. There’s actually a decision last Friday from a Trump-appointed judge who said, “I’m not going to decide whether this is okay or not, this was in a lawsuit brought by a number of states, I’m going tell you, you have to go to what’s called the Federal Court of Claims,” which is a special court when you sue over government contracts as opposed to what’s been going on like in Massachusetts, or as you say in the article with Judge Lin out here in the Northern District of California, is this going just gum up the work so it’s going to take even longer to figure out whether the government has to stand by its word or not?

Lisa Larrimore Ouellette: It may, I saw that it was the case in SDNY against the NSF. I think it’s a tricky…

Pam Karlan: So for our listeners, I should say SDNY is the Southern District of New York and NSF is the National Science Foundation.

Lisa Larrimore Ouellette: Yes. And the district court there, as you say, they denied this preliminary injunction and said they likely don’t have jurisdiction. The case ought to be filed in the Court of Federal Claims as a suit for money damages under what’s called the Tucker Act, which is basically the law that governs when you can sue the government for money. And I think that will make it harder if there are more courts, and this Supreme Court may be sympathetic to that argument that some of these suits that are being filed against the grant-making agencies really belong in the Court of Federal Claims.

But if it requires everyone who has received a grant to go to the Court of Federal Claims, then ask for their money, that’s not really remedying the underlying concern that the government is engaged in viewpoint discrimination in these cases or engaged in violations of the Administrative Procedure Act and things like that.

Pam Karlan: Yes and one of the things, I think some of the people who are doing biomedical research have pointed out, is: while they’re not getting the money, what’s the effect of this in the short term of not getting the money that you were already promised?

Lisa Larrimore Ouellette: It’s enormous. There are clinical trials that have been stopped, which—if there’s someone who has cancer and they’re in a trial that’s giving them a drug that may be helping them—is devastating consequences for their lives and for the people working in these labs. This is a lot of research that could be very promising and is now being put on hold.

Pam Karlan: It’s like they’re not bringing … they’re not admitting people to graduate programs, PhD programs, they’re euthanizing lab animals that were having drugs, that were being given these drugs, they’re stopping clinical trials. And this is all in the context of things that could take years to work their way through the system, and these are on the grants that have already been given.

And … we’ll get in a moment, I think, to your third bucket, which is what about the stuff that hasn’t yet been given and what’s going to happen there? But I wanted first to actually turn to your second bucket, which is about what’s sometimes called the indirect cost controversy and what’s happened there?

Lisa Larrimore Ouellette: So, I think this has gotten less media attention, but it could be truly devastating. We’ve already talked about how indirect costs cover these non-project specific costs, like keeping the lights on in the lab or covering other people involved in lab administration, and how these have been for 60 years based on these negotiated rates currently averaging over 50%. This spring, a number of the grant-making agencies—the National Institute of Health, the National Science Foundation, the Department of Energy, Department of Defense—all announced that they are capping indirect costs at just 15%, which doesn’t even come close to covering the real cost of doing research. And so far, the courts have blocked this, like all of these have been enjoined for now.

And I actually worked with some of the leading economists on this—Dan Gross, Bhaven Sampat, and Pierre Azoulay—to file an amicus brief in the pending appeal in the First Circuit because … we’ll see what happens on appeal. And I think there is a good argument that the way all of these agencies did this is a violation of the Administrative Procedure Act and not being reasoned at all. It was a very short opinion that makes a number of fundamental mistakes, but we’ll see what the First Circuit does.

Pam Karlan: So it’s kind of taking a meat axe to the money that’s traditionally gone into this, and they’ve done this at the same time that the so-called Big Beautiful Bill has increased the tax on university endowments. So universities are getting hit from both sides. That is, the money that’s theirs, they’re taking some of that away, and then on the money that they’re supposed to give … Do you think the government’s theory here is that the universities will just suck it up and eat this cost, or are they trying to use this as another way of stopping research they don’t like, because the university will just look and say, “Well, if you can’t cover the indirect cost of this research, we’re not going to let you do the research at all?”

Lisa Larrimore Ouellette: It’s hard to know. It’s probably some of both. I think some of what’s been going on is general leverage over universities. We’ve seen the administration trying to use federal funding as leverage for other things that are not really related to the cancel grant at all. Trying to get them to adopt their view of viewpoint diversity and have more government oversight over university operations. And maybe this is…

Pam Karlan: It seems odd to say we’re going to take away several hundred million dollars of your medical school funding because we don’t like what your department of Mid-East Studies is teaching.

Lisa Larrimore Ouellette: Yes, exactly, but it is putting institutions in impossible positions where they like, in some ways have to trade off the academic freedom of scientists who are working on these threatened projects with the academic freedom of other aspects of university operations.

Pam Karlan: Yes, it’s a just a kind of amazing assault on … its part of, I guess from my perspective, a series of assaults on various aspects of civil society, on the media, on universities, on law firms, on scientific knowledge generally.

And then we come to your third bucket, which is what you call “attacking institutions and agency budgets.” And this is not just attacking institutions like universities, but attacking the government’s own institutions, like some sort of weird autoimmune response.

Lisa Larrimore Ouellette: Yes, there are a bunch of things you can put under this bucket. There are the proposals going forward, like the proposed budget cuts for all the grant-making agencies are just staggering, like 40% for the National Institute of Health and 57% for the National Science Foundation and they want to completely zero out climate research at the National Oceanic and Atmospheric Administration. But there are also a lot of attacks on agencies that aren’t giving out grants, but that are deeply involved in research, like USAID. And collectively, all of this has been just blow after blow for the U.S. research enterprise.

Pam Karlan:  If you think about all of this happening, what’s going to… when we look forward from all of these huge attacks, what does this mean for the future of research in the United States?

Lisa Larrimore Ouellette: I think it’s unclear. In my post, I go through a lot of the lawsuits over this, and many of the plaintiffs have been successful in stopping some of these short-term things, but we will see what happens on  appeal. And the Supreme Court, as we talked about, might be attracted to arguments that some of these belong in the Court of Federal Claims. But I think more importantly, all of this fighting over existing grants and short-term funding may not matter much in the long term if Congress simply appropriates much less funding for research in the future. Or even if the agencies do a less sloppy job in setting their priorities to insulate them for some of these legal vulnerabilities.

Pam Karlan: When you say that NOAA has had its climate change budget zeroed out, then we don’t have to worry about whether there’s viewpoint discrimination, or whether they’re not giving enough in the way of indirect costs to a grant recipient, because there’s going to be no grant recipient at all.

Lisa Larrimore Ouellette: Yes, though, it’s unclear whether those budgets will be approved and I think that is why it is essential for universities and researchers to not just be challenging the illegal actions in court, but also lobby to preserve long federal investment. I saw at the end of July, the Senate Appropriations Committee voted for a $400 million increase in the NIH budget, even though Trump had asked for an $18 billion decrease and they rejected the White House’s proposals for eliminating some of the NIH institutes and kept the statutory language on preventing the administration from changing how it pays for indirect costs.

We’d still have to see what the house does, though from the reporting I’ve seen so far, suggests that they maintain this. So research funding has historically been something that’s had widespread bipartisan support, and that’s true even in surveys I saw this spring, that like a majority of voters, and even Trump voters, support federal funding of scientific research, particularly in the medical context. So it is possible that some of these impacts may not be as severe as what Trump is asking for, but there’s still a real risk to our long-term welfare as a country and some changes will be hard to undo, especially if we lose a cohort of young scientists who look at this funding environment and decide to either choose other careers or choose other countries to do their work in.

Pam Karlan: Yes, I don’t think we want them all to turn into people who do crypto modeling instead of disease modeling and the like.

I wondered if we could now turn to the report that you were just one of the co-authors on about aligning investment in therapeutic development with therapeutic need because that seems to go to both basic and applied research in a way. Can you tell us a little bit about that?

Lisa Larrimore Ouellette: Sure. I think this report really gets to a fundamental problem that existed even before the current crisis, which is that while our drug development system has produced a lot of amazing discoveries, it could be doing even better because it’s not systematically prioritizing the diseases where we have the biggest unmet needs.

So, this National Academies committee I was a part of found that both public and private funders have a lot of considerations that pull them away from focusing on what would actually help the most people. And some of these problems are scientific, like not having enough research on the kind of basic science biological mechanisms underlying certain diseases, and some of the problems are about the market forces not aligning with public health needs. So, you end up with gaps where important diseases don’t get the research attention they deserve while other areas might be overinvested in relative to their actual impact on health.

Pam Karlan: Can you give this example of each of those kinds of diseases?

Lisa Larrimore Ouellette: I think the report is not actually about identifying which diseases get under over investments. And that’s for two different reasons. One, the ultimate judgment there requires some ethical value judgments about how to prioritize different health gains. But I think more importantly, there’s just a shocking lack of good data here, and that’s why one of the key recommendations of the report is creating a better data infrastructure to systematically track unmet therapeutic needs and compare that against current investments.

Pam Karlan: So maybe …  if we can’t get a sort of “this is where the money should be going rather than here,” can you give me, because I think it’ll help the listeners, an example of what you mean by an unmet therapeutic need?

Lisa Larrimore Ouellette: Diseases where if you look at the amount of health impact on the U.S. of people who are dying from disease or affected by it and ways that negatively affect their lives, that it seems like the amount of investment in it is not proportional at all to what that health impact is.

Pam Karlan: For example, for some points in our history, it would be something like: lots of people in a particular industry are getting, are coming down with a disease, miners and black lung in the 1950s and 1960s, and we’re just not putting any resources into figuring out how do we treat this or how do we prevent this. Or some mental health conditions maybe even today would be like that?

Lisa Larrimore Ouellette: Yes, exactly.

Pam Karlan: Yes. And one of the things that’s amazing there is that the point you, that you’re making in part you say in the essay, but also just right here is: we don’t even know whether we’re investing enough in some of these areas or not. How is it that, that we don’t know that with all of these billions of dollars that have been going to this, how is it that we don’t know something that seems that fundamental?

Lisa Larrimore Ouellette: We don’t do a good job of tracking either disease burden or where money is going. We have a good sense of where money is going through public funding mechanisms, and there the report does some work at comparing NIH investment with disease burden and that isn’t always aligned. But more importantly than the outcome, just the process of how we’re thinking about NIH funding. As we’ve discussed, Congress allocates money to different NIH institutes, which is partly based on lobbying and political considerations. And then researchers apply for grants based on their expertise and interests. And grants are selected for funding, primarily based on their scientific significance and rigor. And there’s nowhere in that process that thinking about how much … is this the kind of thing the market isn’t going to be providing where there’s currently under investment, where there is a huge unmet need. Those aren’t explicitly part of the process now.

And so that’s one of the key recommendations of the report, that this process of allocating funding should explicitly consider unmet need and social significance in addition to scientific merit and including research on new methods and platforms that could be applicable across disease areas, but where there’s not a lot of incentive for any private firm to be investing.

Pam Karlan: So, what’s an example of that?

Lisa Larrimore Ouellette: Like new techniques for making a drug or manufacturing them, or platform technologies and things like the MRNA technology that led to COVID vaccines and was so successful there. Scientists had been working on that for well over a decade before COVID, without any clear sense of what it might end up being good for.

Pam Karlan: It does … this takes us back to where we were starting, which is, it seems so ironic that if you think about what was the biggest kind of policy triumph of the first Trump administration? It was Operation Warp Speed, right? Which got us from a complete shutdown of the country to basically COVID now being an endemic, but not catastrophic at the kind of macro level disease in a very short order. And what made that possible was the fact that we had all of these researchers who’d been doing all of this basic research for years and years, and we had a huge amount of government funding that went into it. And now what we’re seeing is the Trump administration returns to office and seems to want to spit on the thing that was its largest triumph the first time around.

Lisa Larrimore Ouellette: Yes, it’s hard to understand. You’re exactly right, like from the first Trump administration, that was an enormous success that I wish Trump would take credit for and celebrate going forward. The fact that we got those vaccines developed in that amount of time was a miracle. No one thought that was going to be possible, but it illustrates that what you can do when the government’s putting sufficient resources behind something and building on that kind of foundation we had of the basic science there.

And that’s the kind of success that we should take going forward. That saved millions and millions of lives.

Pam Karlan: And probably trillions of dollars if you think about the economy. I felt like… and this is on the more on the technology side than the medicine side, but if it hadn’t been for all of the basic research that went into things like DARPA and then the Internet and the like, we also couldn’t have done any of what we did while we were in COVID lockdown. You and I could not have taught law students 10 years earlier, and yet I don’t think anybody was thinking when they started developing what turned into the Internet, oh, this will be a way of delivering instruction to law students if we ever have an epidemic that requires us to shut down schools for a year and a half.

Lisa Larrimore Ouellette: Yes, that’s exactly right. And that’s why this kind of basic research, where the outcomes are unclear, we don’t know what exactly the benefit’s going to be, but we know that on average, historically, we have, as a society, gotten huge benefit from all of these technologies.

Pam Karlan: In the article, you actually have a dollar number, if I remember it correctly, that’s…

Lisa Larrimore Ouellette: Yes, for every dollar we invest in research, it gives us back somewhere between $5 and $20 in societal benefits, things like economic growth and more jobs and better health outcomes and the ability to benefit from all these technologies, including the Internet and lifesaving drugs and lots of smartphone components, GPS. There are entire industries that have come out of federal funding of research.

Pam Karlan: And when you say that for every dollar you invest, it gives you $20 back, that’s $20 of the things we measure in dollars. It’s not $20 … you know if we also ask, how much does it mean that somebody’s alive in order to see their child graduate from college, or to go and watch a beautiful sunset or just more years of healthy living as opposed to being mobility impaired and the like—that doesn’t even get measured in there.

After I read your piece, I thought to myself: How could anybody be doing what we’re now seeing the government do? It does baffle me.

Lisa Larrimore Ouellette: It is hard to understand. I think part of it is broader ideological push to shrink the federal government and run it more like a business, which I mean really completely misses the point of public research funding because the NIH isn’t supposed to turn a profit, it’s supposed to fund this kind of long-term, risky research that private companies won’t touch because the payoff may be decades away or too uncertain. That’s the exactly the kind of research that ends up creating entire new industries and having enormous benefits for all of us.

Pam Karlan: I would love to have you come back and we could delve more deeply into the IP side of your work. One of the things that’s amazing is: I was thinking about this when you said the cases are going to maybe go to the Federal Court of Claims, because you spend a lot of time thinking about the Federal Circuit from the IP side of things. That is … that’s the court that adjudicates patent issues and the like. But it also adjudicates these claims, contract claims against the government, and so you’re perfectly positioned at this intersection.

Lisa Larrimore Ouellette: Yes, when I was clerking at the Federal Circuit, we heard some of the appeals from the Court of Federal Claims.

Pam Karlan: Yes, I think everybody who goes there goes for the IP, but now it may turn out in some ways that even for the intellectual property, or at least for innovation and like, understanding that other side of the of the Federal Circuit may turn out to be almost equally important.

Lisa Larrimore Ouellette: That’s right.

Pam Karlan: So I want to thank our guest, Lisa Larrimore Ouellette. This is Stanford Legal. If you’re enjoying the show, please tell a friend and leave us a rating or review on your favorite podcast app. Your feedback improves the show and helps new listeners to discover us. I’m Pam Karlan. See you next time.