Sequestration: How Big a Hit for FDA, Research and Pharma?

The greatly feared federal budget sequestration mandate went into effect March 1, and, initially, the impact was fairly muted. The stock market soared, employment rose and government workers continued on their jobs. Federal agencies, including the Food and Drug Administration (FDA), launched initiatives to comply with the mandated 5% across-the-board cut in spending (in reality a 9% cut that exceeds $200 million) to minimize the impact on basic operations. That means curbs on training and staff travel, no new hires and a delay in launching new programs.

In the usual political gamesmanship that accompanies government budget stalemates, the administration cancelled visitor tours of the White House and delayed access to national parks, blaming Congress for failing to deal with the budget impasse. Reductions in airport services threatened flight cancellations. The Centers for Disease Control and Prevention (CDC) predicted difficulties tracking and identifying outbreaks in infectious disease, and the Obama administration warned of reduced funds for childhood vaccines. The National Institutes of Health said its loss of $1.6 billion in funding (on its $31 billion budget) would translate into 2000 fewer research grants, diminishing prospects for new treatments for cancer and other serious diseases.

These and other reductions in government services really go into effect March 27, when employee furloughs without pay begin at many agencies. FDA officials say the agency can avoid reductions in staff, but that the impact will be felt on fewer field inspections and problems meeting application review time frames, scheduling meetings, developing new guidances and rules, and a host of agency functions.

A key issue is whether FDA can gain authorization to spend the new and increased user fees it has been collecting for the last six months. Congress needs to authorize the agency to collect the newly established and increased fees and to rule that sequestration should not apply to all the fees, but has been reluctant to do so. There is some $82 million in fees in question, which FDA desperately wants to tap.

Even more disastrous for the nation than sequestration is the prospect that Congress will let the current continuing budget resolution (CR) expire; if that occurs on March 27 it would end current funding for most government programs. Because Democrats and Republicans really don’t want to shut down the entire federal government, Senate and House leaders are working hard to at least extend the CR through September of this year.  Under the latest Senate budget proposal, the CR legislation also would provide additional funding in many areas for the rest of the 2013 fiscal year. Here, FDA benefits from Sen. Barbara Mikulski (D-MD) now chairing the Senate Appropriations Committee. She has engineered a 2013 budget plan with Republican support that provides $2.5 billion in funds for FDA for this year, including added resources for foreign inspections, food and drug safety and agency operations. With all its $1.8 billion in user fees, the agency would have $4.3 billion in funding, slightly more than for 2012.

The Senate plan also provides an extra $71 million for NIH, but that’s just a token in light of the $1.6 billion hit under sequestration. And no one expects sequestration cuts will be restored.

Key policymakers also are rolling out proposals for a compromise budget plan for 2014, due in April for the next fiscal year beginning Oct. 1, 2013. The latest Republican budget plan calls for transforming Medicare into a voucher program, cutting Medicaid and eliminating the Obama health reform program; at a minimum it cuts millions authorized for implementing insurance exchanges and other reform components. Those health proposals failed to gain public support last November and don’t carry much weight in the Senate. Yet Democrats will have to agree on serious reductions in outlays for entitlements and social programs to enact a workable spending program, and that will require strong presidential and congressional leadership. Every interest group – including research scientists and pharma companies – have been trooping up to Capitol Hill to beg for special treatment for their particularly vital programs, but there’s not much extra money lying around.

For guest blogger Tom Norton’s previous take on pharma and The Sequestration Transparency Act of 2011, click here.