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Sequester Withholding of FDA User Fees Irks Industry

Chris Maddaloni/CQ Roll Call File Photo
Hamburg said industry members were surprised their payments to the FDA were subject to sequester cuts; the companies expect the money to be used for work.

The Food and Drug Administration is able to do its work in part because of a symbiotic relationship with the industries it regulates. But recently that relationship has been knocked off balance.

For years, makers of drugs for humans and animals, tobacco products and medical devices have paid the FDA in exchange for the agency committing to certain performance goals. Those user fees wind up constituting a significant part of the agency’s annual budget and help it do review and oversight work. But now the FDA may not be able to accomplish all those goals, because some of the funds are being cut by the sequester.

Lawmakers now are working to give the FDA the flexibility to access all funds it receives from private companies.

Companies that make drugs and devices are still paying the full amount established in the latest user fee reauthorization (PL 112-144), but the money is subject to the sequester cuts at the same level as the rest of the FDA’s budget authority. That means that portion of the user fees — $83 million, according to the agency — is being sliced off and is unavailable to the FDA.

“Those monies are being collected from industry, but they’re going into a bank so to speak ... and they can’t be used to support our programs and activities,” FDA Commissioner Margaret A. Hamburg explained at an April hearing of the House appropriations subcommittee that covers agriculture programs and the FDA. “At the same time, they can’t be used to offset the debt, as I understand it.”

Appropriators have raised concerns about how the sequester is affecting the agency — particularly when it comes to the user fees. The FDA negotiates the user fee rates with industry stakeholders before each reauthorization, with the agency committing to certain performance goals in exchange for the money.

With the FDA unable to access all the user fee funds, the agency and the paying companies are worried the FDA will not be able to reach those goals.

“We will not be able to use all of those user fees to achieve the performance goals that were negotiated with industry, and I think that will be reflected in a slowing of some of our ability to build up key programs, to advance medical products, review programs in critical ways,” Hamburg told a Senate appropriations subcommittee.

She added that industry members have been surprised that their payments were subject to the sequestration cuts, and said the companies expect their money to be used to fund work toward the goals.

J.C. Scott, senior executive vice president for government affairs at device association AdvaMed, said the sequester will prevent the FDA from using about $2.9 million in user fees meant for its device center.

“Although FDA has pledged to meet its user fee review commitments despite the funding cuts, AdvaMed believes that FDA should be properly funded and supports correcting the language in the sequester to prevent any further restriction on FDA’s access to industry user fees,” Scott said in an emailed statement.

The concerns have some lawmakers considering giving the FDA more flexibility to use those cut funds and work around the sequester — similar to the Federal Aviation Administration earlier this year. Congress passed a bill (PL 113-9) that gave the Transportation secretary more leeway in moving FAA funds to avoid furloughs of air traffic controllers.

Rep. Sam Farr of California, ranking member of the House Appropriations subcommittee that oversees the FDA, is drafting language to help the agency access the user fees, according to spokesman Adam Russell.

“We ought to give the flexibility in those fee structures to be used for the purposes for which they’re collected,” Farr said at the subcommittee hearing.

Farr has reached out to panel Republicans, who appear receptive to the idea, Russell added, and he plans to try to insert his language during the appropriations markup process.

The sequester cuts are already affecting FDA operations; the agency has reduced travel, conferences, retraining programs and a range of consulting contracts and grants, Hamburg said.

Although the FDA does not have to furlough workers, it is unable to hire “as much as we would like,” she added.

Some of those unfilled positions may come from the agency’s device area. Under the latest user fee reauthorization, the FDA was authorized to collect $595 million in device user fees over five years, and some of that money was meant to be used to hire more than 200 full-time equivalent workers.

Such agreements are the result of months of negotiations between the FDA and drug and device companies when they set the user fee level rates and performance goals for each reauthorization.

The latest reauthorization added two new user fees to reduce the backlog and speed the review of generic drug applications — more work that could be harmed because of the sequester cuts.

The FDA also agreed, for example, to make a decision on clearing certain medical device applications with 90 days of review for at least 91 percent of the submissions accepted in fiscal 2013. It remains to be seen whether the agency will be able to achieve that goal and others with the reduced user fee funds, but Hamburg was skeptical.

“Without the full funding that was evaluated as necessary to achieve those goals, we obviously will fall behind and will have implications for a number of important activities in terms of medical product reviews, training, and recruitment of staff,” she said at the House hearing.

It also remains unclear what will happen with the user fee money that has been cut and can’t be used by the FDA. Kansas Republican Rep. Kevin Yoder asked whether the money would be returned to the companies or saved for the FDA to use at a later date.

Hamburg noted that question “is still being resolved at higher levels” than herself.

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