Will Congress Provide Sequester “Flexibility” for User Fees?

Just about every federal program and affected interest group is pressing for relief from the 8% across-the-board cuts in funding imposed by the budget sequestration mandate. Recent fast action on Capitol Hill to curb personnel furloughs of air traffic controllers by the Federal Aviation Administration, though, has spurred lobbying for similar treatment across many fronts.

The Food and Drug Administration appears likely to benefit from sequester-flexibility efforts due to its unanticipated effect on user fee revenues. In addition to FDA contending with the 7.8% reduction in funding for its appropriated funds, as with other federal agencies, the Office of Management and Budget (OMB) has determined that the budget reduction policy applies to user fees paid by manufacturers to support specific FDA approval and oversight functions. FDA thus is collecting all its authorized fees, including recently renewed fees on prescription drugs and the new levy on generic drug companies, but is unable to touch a good chunk of the money.

FDA commissioner Margaret Hamburg explained at the annual meeting of the Food and Drug Law Institute (FDLI) last week that the agency will lose about $209 million this year due to sequestration - $126 million in budget authority and $83 million in user fees. FDA will continue to collect the fees, but the sequestered amount will remain on deposit in the U.S. Treasury and cannot be used to support “critical tasks” such as issuing regulations and guidances, conducting inspections and speeding approvals of new drugs and biologics.

At a recent hearing by the House Appropriations subcommittee that oversees FDA’s budget, Rep. Sam Farr (D-Calif) and other Democrats raised the possibility that Congress will look to provide flexibility in applying the sequestration policy to FDA, especially for fees collected from the private sector.

In response to questions about the impact of the sequester, Hamburg told the panel that without full user fee revenues, “we obviously will fall behind” in meeting performance goals. The agency will be slow putting out guidances, reviewing applications, making new hires to stand up new programs, improving business processes to make regulatory pathways more efficient and developing new regulatory tools that could “make our system better able to handle more sophisticated products.”

The budget cut could mean fewer meetings between FDA review staff and sponsors of new drugs. FDA’s system for regulating drugs and medical products “works better,” Hamburg explained to the legislators, when reviewers can work closely with sponsors to determine what data is needed and what kinds of studies are important to do to support a new product. And fewer resources “will certainly limit the staff’s ability to engage in those activities,” she said.

Hamburg said at the FDLI meeting that having adequate resources is a “constant concern,” and that she is “enormously troubled that FDA’s responsibilities continue to outstrip available resources.” And she told the House panel that it was very “troubling” to negotiate commitments with industry to justify fees and then see some of the money going “into a bank” and not available to support FDA programs and activities. If these cuts continue, she stated, “it will have an impact.”