On October 22, President Obama made a passing remark in response to criticism on defense spending. “The sequester is not something that I’ve proposed,” he said. “It is something that Congress has proposed. It will not happen.”
For those of us watching the debate this statement brought on a brief a moment of excitement. In addition to applying to defense, sequestration budget cuts would apply to the user fees paid by the device industry, as well as appropriations for CDRH
But despite the clear language Obama used, it seems sequestration has not been downgraded to threat level green just yet. Following the debate, White House senior adviser, David Plouffe, worked to clarify Obama’s remark on sequestration. According to Reuters, Plouffe said that the president meant that no one in Washington “wants it to happen. . . .No one thinks it should happen.” Well, that sounds more like a politician.
The cuts are part of a fiscal cliff that would signal automatic spending reductions going into effect on January 2, 2013. The goal is to sequester government-wide budget items in an effort to prevent the United States from eventually defaulting on its financial obligations. A Congressional Joint Select Committee on Deficit Reduction was charged with reporting legislation to reduce the deficit by at least $1.5 trillion by November 23, 2011. The Committee was unable to reach agreement, thereby triggering automatic reductions to be spread evenly from fiscal years 2013 to 2021.
While appropriations for CDRH has always been at risk—and might involve a $26 million loss of funding under sequestration—it was only in September that it became evident that sequestration might apply to medical device user fees. According to Alliance for a Stronger FDA, the federal Office of Management and Budget considers user fees “non-voluntary payments to government,” and therefore subject to sequestration. The Alliance estimates that about $1.367 billion in FDA user fees would be subject to sequestration by OMB. The Alliance has provided a very preliminary estimate on the impact, concluding that about $5 million–$6 million would come from medical device user fees.
Simply put, sequestration of CDRH funding and medical device user fees stymies FDA’s ability to function efficiently and unravels the user fee system set up through the passage of FDASIA. And, since more than 80% of user fees goes to personnel,-related costs, the effect on FDA’s employment could be devastating.
Much of the industry criticism leveled at FDA centers around its lack of certainty and consistency, coupled with long decision times. FDA’s argument—and it’s a compelling one—is that the Agency can’t meet industry needs if it doesn’t have the funding to s to draw and keep talented people in sufficient numbers to meet the agency’s commitments.
“There is no way you can take an 8% cut and not have it affect jobs. And, if you are an FDA employee and you have three jobs instead of one, you are struggling every day,” says Steven Grossman of the Alliance for a Stronger FDA. “It hurts innovation—and the medtech community needs to appreciate that a strong FDA is their best interest.”
If FDA cannot use its funds to the fullest, patients, caregivers, and industry suffer. At Advamed’s annual meeting in October, chairman David Dvorak said that sequestration stands in opposition to the promises FDA has made to industry. “We want to come back to the substance of the argument, which is increased transparency for the regulatory process, better timetables, and a consistently improving processes,” Dvorak said. That can’t be done properly if FDA doesn’t get full use of its funds.
Despite Obama’s debate promise, the threat of sequestration has not abated. But let’s be fair, he really doesn’t have the power to fix it. And what happens next is unclear. “There is no secret plan for dealing with the sequester and the fiscal cliff,” Grossman says. “Anyone who tells you they know how it’s going to work out is trying to look good to voters.”
A lame-duck session of Congress, highly influenced by the presidential election, will decide how sequestration will proceed. Members of Congress, who have thus far been unable to come to an agreement, will be pressured to put differences aside and act fast. “The hardest part will not be figuring out the budget, but figuring out the politics,” Grossman says. A likely scenario is that Congressional leadership will do what they have done before and simply kick the can down the road.
In the short term, “FDA has assured us that it does have reserve funds, even if it cannot get user fees in full,” Steve Ubl of AdvaMed explained to reporters in October. FDA officials keep a surplus for an orderly shutdown of the user fee program. Let’s hope it doesn’t come to that.