Is FDA’s 2013 Budget At Risk?

By Patrick O’Leary

Back in February, President Obama’s FY 2013 budget authorized $4.5 billion for the Food and Drug Administration (FDA), about $2 billion of which was to come from user fees, the fees paid by regulated industry under a variety of schemes including the Prescription Drug User Fee Act (PDUFA), the Medical Device User Fee Act (MDUFA) and newly-created programs for generic drugs and biosimilars. As of today, FDA’s ability to collect and use these fees is in question, endangering vital agency activities including drug and device premarket review.

The threat to FDA user fees crystallized on September 14, when the Office of Management and Budget released its Report Pursuant to the Sequestration Transparency Act of 2012, explaining what may happen if Congress fails to reach an accord on the federal budget as required by the Budget Control Act of 2011 (BCA). Such a failure would trigger sequestration resulting in an 8.2% reduction in non-exempt, non-defense discretionary funding. On pages 79-80, the report indicates that $3.873 billion of FDA’s budget for 2013 is considered eligible for sequestration. According to analysis by the Alliance For a Stronger FDA, this indicates that major user fee programs have been included as sequestration-eligible funds. According to the OMB report, the FDA budget would be reduced under sequestration by around $318 million.

What the exact effect on FDA would be is difficult to discern. The $318 million hit would, in itself, present a serious challenge to FDA’s ability to carry out its complex and growing regulatory mission. But the potentially greater threat lies in how the sequester would interact with laws governing the FDA user fee programs. One possibility is that the 8.2% budget reduction would merely limit FDA’s authority to collect or spend fees that would cause FDA’s budget to exceed the reduced total under the sequester. This approach would not serve the BCA’s general deficit-reduction purpose and would raise challenging questions about whether statutory performance goals would be reduced along with the authorized fees. In the alternative, it is possible that, as BioCentury has predicted, regulated industry would continue to pay user fees in full, but any fees over and above the reduced budget authority would flow to a designated Treasury Department account rather than to FDA. This would raise another interesting statutory question, since it would seem to violate provisions of the user fee statutes limiting the types of government activity that fees can fund.

In either case, the most serious question raised by the sequester is whether it will prevent FDA from meeting statutory “triggers” requiring baseline congressional appropriations to FDA (and in some cases, to specific programs within the agency) before user fees can be collected at all. The triggers, which have been included in the user fee schemes since their inception in 1992, are part of a compromise intended to ensure that user fees supplement rather than replace congressional appropriations. An analysis by the law firm Faegre Baker Daniels has suggested that while the across-the-board cut would not be enough to endanger those fees that are tied to agency-wide appropriations, triggers for the newly created generic and biosimilars fees (which were not included in the FY 2012 appropriations act) and those tied to allocations to specific programs may be at risk, as the agency is forced to “do more with less.”

However sequestration is ultimately applied to FDA user fees, the effect on the agency’s ability to carry out its regulatory mission will be dramatic. While this aspect of the current budget crisis is unlikely to garner much attention in broader public discourse, it merits the continued attention of anyone with an interest in FDA’s crucial role in protecting the public health.