Regulatory Focus™ > News Articles > Analysis: As Sequester Looms Large, Experts Say Four Options Likely for FDA Cuts

Analysis: As Sequester Looms Large, Experts Say Four Options Likely for FDA Cuts

Posted 28 February 2013 | By Alexander Gaffney, RAC

Starting 1 March 2013, the US Food and Drug Administration (FDA) has a tough job ahead of it. Thanks to the effects of mandatory budget sequestration, it will have to cut 5.1% out of its budget by the end of the year. The good news, as reported by the Philadelphia Inquirer on Wednesday, is that FDA staff appears to be safe from furloughs. The bad news: FDA still has to cut $210 million from its budget. But how?

The answer to that question is simultaneously simple and complex.

New Developments: No Furloughs

As the Inquirer reported on Wednesday-and we should note that FDA has not yet confirmed this quote to Focus-the agency is preparing to meet its sequestration obligations by cutting travel, training, contracts and collaborations with other entities.

That likely means fewer FDA staff traveling to industry conferences and potentially fewer staff flying abroad for inspections as well.

But the biggest impact could be felt in the latter two categories. FDA is in the midst of bringing on a huge number of staff to meet its obligations under the Generic Drug User Fee Act (GDUFA) and other user fee acts reauthorized in 2012 under the FDA Safety and Innovation Act (FDASIA). And those staffers need training.

"You can't just bring people in off the street to work at FDA," explained one expert on FDA's budget who requested to remain anonymous. "These people need training on FDA's regulations and processes."

That means FDA could be slower to meet its approval goals under the user fee acts as more staff members would require on-the-job training.

It could also mean fewer training opportunities for industry. FDA regularly puts on training events at various locations around the country to educate industry on particular topics of interest, everything from 510(k)s to new regulatory pathways for pharmaceuticals. But if budgets are cut, you might expect to see fewer FDA staff members in person, and potentially far more of them in webcasts and other online media. FDA's Center for Devices and Radiological Health (CDRH), for example, maintains a television studio from which it regularly films webcasts and other media for distribution, particularly when staff members are unable to attend an event in person.

Collaborations and Contracts

Collaborations, too, are slated to feel the brunt of cuts, but it's unclear which programs would be affected, and by how much. FDA is deeply involved in several regulatory harmonization and science initiatives as of late, most of which are touted as investments intended to improve the agency's ability to function while ultimately reducing costs in the long run. For example, its Office of International Programs regularly meets with international regulators to launch training programs and advocate for more funding. FDA's hope, they have said in the past, is that by strengthening local regulatory bodies, they can reduce the inflow of counterfeit and substandard goods into the US.

But those cuts might not amount to much, particularly insofar as several of them are critical to FDA's ability to function. You can, for example, only cut the travel budget so far before you are unable to conduct international inspections of pharmaceutical, active pharmaceutical ingredient, or medical device manufacturing facilities.

This is especially true after a debacle last year involving the General Services Administration (GSA), which held an infamously poorly managed conference that led to the Office of Management and Budget (OMB) directing agencies to scale back on travel and training budgets. This may have left some of the "easier" programs to cut already gone, leaving behind a higher proportion of necessary or valued programs.

A final area, contracts, could potentially take further hits, but it's unclear which ones could come to be canceled or not renewed and when. The agency has dozens, if not hundreds of contracts with various vendors, ranging from information technology, to ongoing services for research and intelligence, to laboratories supplies and animals.

Not Furloughs, But Still $210 Million

These cuts, though not furloughs, will still deeply impact the agency, sources said. "Just because there are no furloughs doesn't mean these cuts are of no consequence," said one source, adding that the cuts would undo much of what Congress aimed to accomplish by giving the agency more funding under FDASIA.

The cuts also come just as the agency is being asked to do more-far more, in fact. Between FDASIA, new authority to regulate tobacco products and the passage of the Food Safety Modernization Act, as well as a number of other bills coming down the pipeline, FDA's responsibilities have become swollen even as its funding has remained relatively flat, said members of The Alliance for a Stronger FDA in public testimony on Wednesday.

"Device imports are growing about 10% annually," explained Diane Dorman, president of the Alliance. "Currently, about 50% of all medical devices used in the US are imported. Drug Imports are growing even more quickly, about 13% annually. Approximately 80% of active pharmaceutical ingredients (API) are manufactured abroad, as are 40% of finished drugs."

All of this leaves FDA in a position of considerable weakness, Dorman said.

"Sequestration is the most immediate threat to the FDA's already-inadequate funding. Just a few days from now, the agency faces a loss of 5.1% of its FY 13 (current year) budget. This is the nominal rate. The Alliance's analysis, confirmed by OMB testimony, is that the actual impact will be close to 9%."

"Is FDA's mission again at risk?," asked Dorman. "Absolutely, yes."

How do you Manage to Lessen the Impact of These Cuts?

But how will FDA make cuts to its budget manageable and less likely to impact operations? Sources said four potential scenarios emerge as being the most likely, and perhaps a combination of all.

In the first scenario, it's possible FDA has stashed away a significant amount of savings early in the year, aware of the impending sequester. From contracts never realized or savings found in a number of other programs, this money could potentially lessen the depth of the cuts in other areas, if only for the remainder of this fiscal year.

In the second scenario, it's possible FDA will re-deploy resources from other areas to have them be supported by FDA-supported user fees, which could preserve otherwise-furloughed staff and keep them on as agency employees. This could also solve potential training problems, although only by asking staff to do far more with far less.

The third scenario, sources said, was that considerable savings would need to be found in the form of contracts, as it is unlikely that FDA can find $210 million in savings based on travel and training alone. While it's possible that a single large contract, such as a new information technologies system, could account for this saving, this would depend largely on the terms of the contract and the options FDA possesses to terminate it early.

It's also possible that some staff could leave the agency. A report earlier this year by the group Partnership for Public Servicenoted that FDA has an attrition rate across its center ranging between 7% and 10% per year. With staff leaving the agency, it's possible that FDA might choose to let those positions remain unfilled, or might have trouble filling them with equally talented replacements. These departures or unfilled positions could save the agency money, though would likely affect the agency's ability to meet review times and complete other functions.

What's Next?

Ultimately, what will happen to the agency will play out in the coming 10 months unless Congress decides to modify or otherwise eliminate the cuts.

It's also worth noting that the agency faces another budget battle in just three weeks, when the previous year's budget authority runs out, and yet another battle shortly thereafter regarding the debt ceiling.

As Regulatory Focuswrote on January 2013, FDA faces three paths of fiscal calamity in the first three months of 2013. This is just the first.


Regulatory Focus reached out to FDA for comment, but did not hear back at the time of this article's publication.


Tags: Sequester

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