By Lou Caputo
Among the so-called winners and losers of Congress’ American Taxpayer Relief Act of 2012 (ATRA), otherwise referred to as the “Fiscal Cliff Bill,” the FDA and other agencies narrowly escaped having their federal allowance trimmed. This comes as welcome news to the agency; however, those who consider the FDA budget currently bloated and mismanaged will find the failure to make cuts disappointing. The new “deadline” is now slated for March 1, 2013. That is the date Congress has now set as the deadline for determining sequestration issues.
As currently discussed among political and economic observers, sequestration is supposed to be the tool by which the federal budget is automatically reduced to control government spending. Although the exact method of calculating how much will be cut from a particular federal agency or program budget has developed over the years, sequestration can be traced back to the Balanced Budget and Emergency Deficit Control Act of 1985, otherwise known as the “Gramm-Rudman Hollings Act,“ which is named after Senators Phil Graham (R-TX), Warren Rudman (R-NH), and Ernest Hollings (D-SC). I say sequestration is “supposed” to be the tool of reduction because it is a concept that is sound in theory, but remains elusive, with agency budgets expanding year after year in the face of record federal deficits (in excess of $1 trillion annually) and debt (in excess of $16.3 trillion). The ATRA is a good example. For the close of December 31, 2012, the Whitehouse Office of Management and Budget reported that the FDA’s budget was supposed to be reduced by approximately $319 million. See “OMB Report Pursuant to the Sequestration Transparency Act of 2012,” P.L. 112-155 (on pages 79 and 80 of the online PDF version). That reduction never came to pass, however, because Congress postponed the deadline by which the reduction would take place, which was January 2, 2013.
Compounding the issue further for the FDA is the conceivable loss of the use of user fee revenue, which has so far seemingly been included in the OMB’s calculations. FDA user fees remain a controversial topic, and the continuing possibility of sequestration does nothing to change that. While user fees for prescription drugs and medical devices have existed for more some time, Congress recently authorized such fees for generic drugs and “biosimilars,” under the Food and Drug Administration Safety and Innovation Act. The catch with user fees, however, is that they are meant to assist with, and not wholly replace, the funding of some of the FDA’s mission concerning premarket drug and device review. To that end, Congress included provisions, known colloquially as “triggers,” that would prevent the collection of user fees unless a certain amount of federal dollars are allocated for such purposes. See e.g. 21 USCA § 379j-42(i). How a sequestration of the FDA budget might ultimately affect the user fee collection generally remains uncertain. It is further unclear whether user fees that become subject to sequestration, yet are not used for their originally intended purpose, may be contested.
There is the chance that we may never know the answer to these questions if sequestration never becomes a reality. Leading up to March 1, there will certainly be much rhetoric and debate about why these agencies and programs should or should not be made to operate on a reduced budget. That conversation has actually already started, and there are some early signs that the FDA and other agencies have reason for concern. The most recent comments from Senate Minority Leader Mitch McConnell (R-KY) in the last 24 hours are illustrative of this point. In a Yahoo op-ed piece, Senator McConnell started:
“Was it a great deal? No. As I said, taxes shouldn’t be going up at all. Just as importantly, the transcendent issue of our time, the spiraling debt, remains completely unaddressed. Yet now that the President has gotten his long-sought tax hike on the ‘rich,’ we can finally turn squarely toward the real problem, which is spending.”
The Senator sees only one way ahead, and that is to cut federal spending, but having made concessions on the tax side to Presidential demands, might McConnell also make further concessions on the spending side that would spare FDA?
“The only way to achieve the balance the President claims to want is by cutting spending,” said McConnell. “As he himself has admitted, no amount of tax hikes or revenue could possibly keep up with the amount of money Washington is projected to spend in the coming years. At some point, high taxes become such a drag on the economy that the revenue stalls.”
There was also no mistaking the Senator’s position moving forward: “The President may not want to have a fight about government spending over the next few months, but it’s the fight he is going to have, because it’s a debate the country needs.”
Hanging in the balance of this fight for the FDA is the very real possibility of existence on a more meager diet. What this may consequently mean for the industry players is also unfortunately a mystery. A reallocation of personnel and other resources within the agency could negatively affect certain regulatees dependent on prompt agency action, not merely those that pay user fees. The FDA itself notes that prescription drug user fees help ensure the “timely review of new drug and biologic license applications.” See http://www.fda.gov/ForIndustry/UserFees/PrescriptionDrug UserFee/ucm144411.htm. Notwithstanding, cuts could very well affect smaller companies that may depend on FDA authorization or approval for lawful importation or introduction of a new product.