US Department of Health and Human Services (DHHS) Secretary Kathleen Sebelius has quietly confirmed what many in the industry have long known: User fees paid to the US Food and Drug Administration (FDA) under various legislative vehicles and agency programs are at risk under the sequester.
On 1 March 2013, without intervention from Congress, all federal agencies (with the exception of the Department of Defense) will be subjected to an annualized 8% reduction in their budgets, part of a larger series of measures meant to reduce the budget deficit.
The broader measure is known as budget sequestration ('the sequester'), and was passed in 2011 under the Budget Control Act. Sequestration was originally slated to come into effect on 2 January 2013, but was postponed as the result of a last-minute legislative deal known as the American Taxpayer Relief Act.
But what makes up a budget? For FDA, two things: appropriations from Congress, and user fees paid by industry.
As Regulatory Focus previously reported, a surprise emerged in September 2012 after the Office of Management and Budget (OMB) published a memo indicating that sequestration would also affect user fees, increasing the amount of pain FDA would feel if the cuts come into effect.
FDA generates more than a billion dollars in user fees each year, funds without which it would be unable to maintain its current levels of reviews, inspections and other regulatory activities.
If the sequester were to be implemented, not only would FDA lose $206 million from its base budget, but it would also lose $112 million from its user fee appropriations as well (on an annualized basis), according to OMB's analysis.
But if OMB's analysis is authoritative in its source, it has not always been well-known to either legislators or industry. At various meetings attended by Regulatory Focus staff in 2012, even well-versed members of both groups were often unaware of the sequester's impact on FDA user fees.
One of the root problems of that lack of awareness, as reported last week by Politico, is that heads of domestic agencies have largely been prevented from publicizing how the sequester will affect their respective organizations.
That is, until now.
In the aftermath of that report, the White House, members of Congress and now heads of agencies are starting to speak up about how budget cuts would affect various agencies.
In a letter sent on 1 February 2013 to Sen. Barbara Mikulski (D-MD), chair of the Senate Appropriations Committee, and released on 14 February 2013, Sebelius calls attention to the various ways in which the budget sequestration process has the potential to affect DHHS and FDA programs.
"Reduced funding for the Food and Drug Administration (FDA), including user fees, could increase risks to our nation's food safety," she wrote, adding that cuts could increase safety incidents, reduce inspections and harm the public.
"I share your concerns about the potential consequences of these cuts on the critical social service, public health and scientific research, and health care coverage and oversight programs administered by the Department of Health and Human Services (HHS)," Sebelius wrote to Mikulski. "[O]ur efforts to protect the health and enhance the well-being of all Americans, as well as our commitments to grantees, contractors, and state and local governments, would be significantly impacted by the potential sequester."
The inclusion of the notice about user fees is perhaps notable, as the letter summarizes cuts to DHHS programs in highly general terms, and doesn't even make note of FDA's regulation of healthcare products. That would therefore seem to indicate that the inclusion of the note about user fees was a deliberate choice.
Sebelius, FDA and industry now have just 14 days remaining in which to make this fact known to legislators. The good news for those against sequestration is that legislators seem to be moving to again delay its effects. The Hill reports that the Senate has proposed a plan to delay the sequester once again that already has the support of the White House. However, that plan may face a rough path to passage in the Republican-controlled House of Representatives, which has exhibited strong resistance to any recent plans involving increased tax rates.