The effect of reduced reimbursements by the federal government for indirect research costs was analyzed for the typical academic medical center. The effects of simply cutting indirect cost reimbursement were contrasted with the impact of securing compensating levels of increased direct project support. To determine if the consequences differed as a function of the financial strength of the university, these scenarios were examined in two academic medical center environments. One setting was a fiscally sound operation with adequate income streams to maintain plant and equipment, and to achieve modest program and operational growth. The other setting did not have adequate income streams and was undergoing a long-term, moderate retrenchment. The objective of the comparison of the two settings was to determine if the impact of proposed federal policies would vary depending on the fiscal soundness of the affected institution. Significant negative multiplier effects were observed due to the required diversion of institutional funds. It was concluded that the simulated behavior patterns were indicative of those that any research-oriented university would experience. (SW)