FDA’s Hopes For User Fee Un-Sequestration Likely Hinge On Senate Appropriations Panel

House leadership plans a comprehensive bill to undo sequestration for the government as a whole, but Rep. Robert Aderholt, who chairs the House subcommittee that originates appropriations for FDA, says he is willing to work with Senate appropriators in conference on a fix specific to the agency’s user fees.

The best hopes to liberate user fees from sequestration now rest on Senate appropriators, or on the ability of the House and Senate to agree to a comprehensive measure that includes tax reform as well as a sequestration fix.

During the June 13 House Appropriations Committee consideration of the bill funding USDA and FDA in the fiscal year that begins Oct. 1, Rep. Sam Farr, D-Calif., introduced an amendment that would have included the user fees in the list of programs exempt from sequestration.

“Industry is paying for a service that isn’t being delivered,” he said, noting that application reviews are being delayed and programs being short-changed include biomarkers and genomics that would help FDA and industry in their task of bringing medical products to market.

The ranking member of the Agriculture, Rural Development, FDA and Related Agencies Subcommittee withdrew the amendment, citing a reluctance to force a partisan vote and following a commitment from subcommittee Chairman Robert Aderholt, R-Ala., to work on a fix if it comes up during a conference with the Senate on the funding measure.

Full committee Chairman Hal Rogers, R-Ky., wants to take up a comprehensive solution to sequestration, not address individual situations, Aderholt explained after the markup, which sent a $139.5 billion appropriations bill for USDA, FDA and other agencies to the House floor on a voice vote. The FDA portion of the funding is $4.3 billion, with $2.5 billion provided by taxpayers and the rest by industry user fees.

The goal for remedying sequestration is “to make some sweeping changes. … There are so many areas that need to be dealt with that you’d be taking a piecemeal approach constantly,” Aderholt said.

But he acknowledged the importance of the FDA user fee money. “We do think it needs to be dealt with,” he noted, and when the Agriculture/FDA appropriations bill “comes to conference, if there’s a way that we can fix this, then certainly I’m open to some options.”

Farr did not answer questions about whether he would introduce his amendment when the bill goes to the floor in the Republican-controlled House, but instead said, “we’re going to get it worked out.”

The best bet for working it out in the near term appears to be in conference with Senate appropriators. The comprehensive bill sought by Rogers and House leadership would be designed to undo sequestration as a whole, not just individual spending items that members of Congress think should be exempt, according to appropriations committee aides.

House leadership also wants sequestration tied to some elements of tax reform. Putting such a bill together would require action by the congressional budget committees, as well as Senate Finance and House Ways and Means, the tax-writing panels – a task that will take a lot of deal making and a lot of time.

Any sequestration fix will apply to future spending. The affected fiscal 2013 user fees, more than $80 million, are lost. They cannot be recouped unless Congress finds an offset, i.e., cuts spending elsewhere. “How are you going to find $85 million in offsets right now? Who’re you going to steal it from?” Farr noted.

While not making provision for user fees, the committee report that accompanies the appropriations bill expresses concern about sequestering the fees as these “are not normal tax revenue.” Noting the importance of keeping industry on board with the user fees, the panel “encourages FDA to reevaluate its calculations of sequestration in regard to user fees.”

It is the Office of Management and Budget, however, that determined that most of the agency’s user fees are not exempt from sequestration (Also see "FDA’s 8.2% Solution: Sequestration Would Cut $319 Million" - Pink Sheet, 14 Sep, 2012.).

FDA Sits On $1 Billion In Unobligated User Fees

The committee report also includes a paragraph that highlights the contradictory world of government funding and spending. While supporters try to ensure that no more industry contributions to the FDA budget are sequestered, the appropriators point out the agency is sitting on more than $1 billion that not only has not been spent, but has not been obligated.

FDA has “large unobligated balances” of user fees and the committee asks for an accounting of why this is happening. In the prescription drug user fee program, the fees are set up to provide a cushion from one fiscal year to the next in case Congress is slow in appropriating the new year’s funds or in renewing the program.

“While Congress did allow for some exemptions from fiscal year limitations and for some amounts to be carried forward into subsequent fiscal years, it could not have been anticipated that FDA would be carrying in excess of $1,000,000,000 in unobligated user fees halfway into any fiscal year,” the report notes.

More than half the holdover – $600 million – is from the tobacco program. The committee says it is skeptical of FDA’s estimates that this will drop to $250 million by Sept. 30, the end of fiscal 2013, and directs the agency to report by Nov. 1, and monthly thereafter through fiscal 2014 on the fees collected and the monthly obligations incurred for those fees. The first report is to categorize the fees carried forward into FY ’14 by program, explain in detail why the money has not been used and what the balance will be spent on.

With regard to the recently authorized generic drug user fees, the panel suggests that small manufacturers cannot pay the same rates as larger companies and directs FDA to report within 180 days on the impact of the GDUFA fee structure on these smaller companies.

Priority To Drug Shortages

The FDA Safety and Innovation Act of 2102 requires drug companies to notify FDA six months before a known shutdown or meaningful disruption in the production process occurs, and the committee takes the opportunity in its report to stress the importance of efforts to mitigate manufacturing problems. FDA Commissioner Margaret Hamburg should “continue to prioritize the public reporting of manufacturing shortages and to work with industry to prevent conditions that might lead to drug shortages,” the panel says.

FDA is doing well with its new responsibilities, according to Joseph Hill, director of federal legislative affairs for the American Society of Health-System Pharmacists, although the problem is not one that can be solved quickly. Generics account for a significant portion of drugs in short supply and Hill noted that “hopefully things like the generic user fee program will be up and running sooner rather than later.”

“We’ve been hearing that roughly 30% of available, approved manufacturing capacity is off-line and that is troublesome,” he told “The Pink Sheet.”

However, “the early warning requirements of FDASIA have helped as we are only tracking 40 new drug shortages this year. In years past we’ve been over 100 at this point, so that is good. With this information, Hill noted, “we have seen the agency be able to import temporary supplies of product, which has helped.”

An agency strategic plan for incentivizing companies to improve manufacturing, an issue that often leads to shortages, is due out shortly ( (Also see "Drug Shortages: FDA Wants Ideas To Boost Manufacturing Quality For Strategic Plan" - Pink Sheet, 11 Feb, 2013.)

Allocation of the money and spending priorities set by the committee for FDA track those approved by the subcommittee and requested by FDA (Also see "FDA’s Sequestered User Fees From FY 2013 Likely Gone, But FY 2014 Fees Could Be Exempted" - Pink Sheet, 5 Jun, 2013.). These include $9.7 million for inspections in China and not less than $10.3 million for medical countermeasures.