March 9, 2016

FDA's Budget Should Not Be Labeled 'Mandatory' Spending

Richard Williams

Senior Affiliated Scholar

Jason J. Fichtner

Former Senior Research Fellow
Summary

Given that the FDA is already exceeding its mandate of approving safe and effective drugs, a temporary funding shortage well within a typical annual budget increase should not be a cause for concern.

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The gross federal debt of the United States currently exceeds $19 trillion, $1 trillion higher than the current size of the nation’s economy—or gross domestic product (GDP)—at $18 trillion. The largest driver of debt is entitlement, or so-called “mandatory,” spending (primarily, Social Security, Medicaid, the Affordable Care Act, Medicare and interest on the debt). Despite the growing debt, some in the federal government believe more programs should be put on the mandatory side of the budget ledger. 

For example, some have recently proposed moving funding for the Food and Drug Administration (FDA) from discretionary to mandatory spending. This would free the FDA from the hassle of regular budgetary review by Congressional appropriators. Instead, the agency’s funding would essentially be put on auto-pilot, as mandatory spending is not subject to annual review by Congress. Shifting the FDA’s funding to mandatory spending would also free the agency from the discretionary spending caps set in the Budget Control Act (BCA) of 2011 (the law’s spending limits were relaxed in 2013 and again in 2015). 

Mandatory spending programs currently constitute over 68 percent of the total federal budget and, according to the Congressional Budget Office (CBO), are projected to total 78 percent of all federal spending, including interest on the debt, just a decade from now. That means that everything else—defense, education, environment, transportation safety, financial market oversight and a host of other activities that the federal government operates—will have only 22 percent of the budget left over to split in 2026.

There is a concern that the FDA’s drug and device premarket approval activities are so valuable that any interruption in its services are unconscionable and, therefore, funding for the FDA should be automatic and on autopilot, just like Social Security. However, this assumes that the FDA is optimally organized to balance incentivizing innovation with protecting us from unsafe drugs and devices. If this were truly the case, then annual Congressional review would be unnecessary. But as Congresswoman Diana DeGette (D-Colo.) describes it, “Health research moves at a rapid pace, but the federal drug and device approval process is in many ways a relic of another era.” 

That’s no surprise as the FDA’s primary law governing drug pre-approvals is now 50 years old, and the law for pre-approving medical devices is now 40 years old. What’s worse, from the 1970s to the early 2000s, the FDA has continued to increase the total cost of bringing a drug to market from $179 million to $2,558 million in constant (2013) dollars. 

If the FDA doesn’t receive an increase in funding each year, would this unduly inhibit the agency from its on-going activity of approving drugs, biologics and devices? To answer that, bear in mind that between 2000 and 2015, the FDA’s budget increased from $1.2 billion to $5.0 billion, an average increase of $250 million each year. The 2013 sequestration (spending reductions that would have resulted had the original BCA caps been maintained) would have reduced federal spending on drugs by 5 percent, or about $209 million. That means that even if the sequester been fully enforced, the reduction in FDA spending would be less than one year’s average increase in its discretionary appropriations. 

Given that the FDA is already exceeding its mandate of approving safe and effective drugs, a temporary funding shortage well within a typical annual budget increase should not be a cause for concern. 

Another reason why moving the FDA’s funding to mandatory spending would be an incredibly bad idea is that it limits the role of Congress. With its unique “power of the purse,” Congress can set priorities for government by appropriating spending across the vast array of problems and activities that this country faces every year. 

Perhaps the solution isn’t changing how the FDA is funded, but rather, decreasing the amount of information that the FDA requires and reviews for drug development. Two authors suggested  changes in the New England Journal of Medicine “by redesigning trials to include fewer patients, providing conditional approval of drugs, and requiring postmarketing surveillance.” 

The FDA needs more oversight, not less. While mandatory funding may seem like a lifeline, it’s putting the agency at risk by codifying outdated practices. Let’s first review the activity being funded first and then determine the best way to pay for it.