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Sequestration Potentially to INCLUDE Industry User Fees

September 4, 2012

Sequestration (across-the-board cuts of federal programs scheduled by law to go into effect on January 2, 2013) poses a threat to the Food and Drug Administration (FDA). We have been working to address the problem in three ways:

  1. understanding how sequestration will impact FDA,
  2. coordinating with groups working to defend all non-defense discretionary programs from the impact of sequester, and
  3. encouraging an environment in which Congress sees the importance of funding national priorities (such as FDA).

Until recently, we have been working with the understanding that only budget authority (BA) appropriations (i.e., taxpayer-funded accounts) were at risk. In that scenario, we have estimated that FDA faced the potential loss of about $200 million (about 8%) of its $2.5 billion appropriation.

Recently, we have picked up an increasing number of signals that industry user fees paid to FDA are “non-voluntary payments to government” and subject to sequestration. For those of us who understood sequestration was about deficit reduction, this was confusing — as taxpayers don’t pay the user fees … and sequestration of these funds will not reduce the deficit.

Within the past few days, trusted sources in the government have indicated to us that it is highly likely that the Administration will determine user fees will be subject to sequestration.

At a sequestration rate of about 8%, we estimate that the sequestration would be about $200 million from BA appropriations and another $68 million revenue loss for FDA from PDUFA, MDUFA, and other smaller existing user fees, a $40 million loss for the tobacco programs, and a nearly $26 million loss of FY 13 revenues expected under the new generic and biosimilars user fees. Our understanding is that user fees would still be collected from industry; however, the sequestered amounts would stay in the relevant Treasury account rather than be available to FDA.

At an estimated sequestration rate of 8%, and excluding the tobacco programs, we project the combined impact of sequestration of appropriations and user fees to be $294 million out of a $3.65 billion budget.   This cut would be a devastating blow to the public health and medical benefits and the consumer protections that all Americans derive from an adequately funded FDA.

The Sequestration Transparency Act of 2012 requires that by Thursday, September 6, the Administration provide a detailed report on sequestration implementation.  While our numbers above represent our best estimate on the impact of sequestration on FDA, the report will provide an official position from the Administration on how it plans to implement sequestration.

Based on the solidity of information we are hearing, we felt it important to make the Alliance membership [and other interested parties] aware of what we estimate the full impact of sequestration to be on FDA.  The Alliance remains committed to advocating for FDA funding and hopes it can count on the support of each of its members in the difficult effort to retain FDA’s funding levels in the face of shrinking federal budgets and sequestration.

Note: This special communication is written by Ladd Wiley and Steven Grossman, the Executive Director and Deputy Executive Director of the Alliance for a Stronger FDA.

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