Administration, Congress Face Challenges in Funding Biomedical Research, FDA Initiatives

The end of the highly acrimonious election campaign has signaled a shift by policy-makers and interest groups to focus on dealing with the so-called government "fiscal cliff:" nearly $500 billion in tax increases and spending cuts are scheduled to kick in January 1, 2013 under an authorized "sequester" process unless Congress acts quickly. With Republicans maintaining tight control over the House of Representatives but losing ground in the Senate, much depends on the ability of President Obama to engineer some kind of fix to the mounting deficit during the year-end "lame duck" Congressional session—or for the White House and Congress to agree on delay and leave major budget decisions and tax reform for next year. Whatever the strategy, the outcome promises to have a major impact on federal funding for the Food and Drug Administration, the National Institutes of Health, and government healthcare programs such as Medicare and Medicaid.

Health policy was a key point of dispute during this past year's political contest, marked by promises of better coverage and warnings of soaring costs by both candidates. The Obama victory ended prospects for wholesale repeal of the Affordable Care Act (ACA) and spurred the Department of Health and Human Services to forge ahead with new rules and policies for establishing insurance exchanges, defining benefits, and expanding Medicaid. Those initiatives require action by the states, which have been reluctant to commit to new programs during a period of political uncertainty, but now face important go/no-go decisions. House Republicans will continue to challenge specific requirements of the health reform program, but key provisions for pharmaceutical companies, such as rebates on drugs for seniors in the Part D coverage gap and authorization for biosimilars, are unlikely to change.

Most important for the development of new drugs and medical products is the promise that Obamacare will provide coverage to some 30 million previously uninsured Americans and, consequently, significantly expand the US market for innovative medical treatments. Although all sides acknowledge the imperative of reducing both public and private outlays for US healthcare, important therapies that can document value for patients are likely to gain coverage from plans and payers.

That said, drug prices and reimbursement are a prime target of cost-cutters, particularly related to outlays for federal government health programs and Medicare drug plans. House Democrats have pressed for added rebates on drugs purchased by Part D plans for low-income "dual eligible" seniors, which could total more than $100 million over 10 years, and policy-makers are considering a range of options for reducing federal spending on prescription drugs and high-cost biologics.

Executives at biopharmaceutical companies are well aware that these tax and spending proposals will shape investment in medical innovation, but also are involved in a campaign by the business community to orchestrate significant reforms in corporate taxation to make US firms more competitive in the global economy. The difficult trade-off for industry leaders is that efforts to avoid looming tax increases and gain fiscal reform would require broad budget cuts that curb government reimbursement for medical products and squeeze resources at federal agencies.

NIH, FDA challenges

The Obama victory offers a degree of stability for FDA, NIH, and federal health programs. It avoids a wholesale change in executive branch leadership, although many top administration officials are likely to move on.

Yet, budget cuts would undermine R&D and regulatory initiatives. FDA could face delays in implementing the FDA Safety & Innovation Act (FDASIA) and its provisions to accelerate approval of new breakthrough therapies and much-needed treatments for infectious diseases and rare conditions. An 8.2% reduction in the FDA budget, as proposed under the budget sequester process, would reduce FDA's 2013 budget by $320 million and prompt the agency to lay off about 1000 employees, according to consultant Steven Grossman. Even without such a severe drop in funding, Grossman fears that the FDA budget will remain vulnerable to pressures to reduce federal spending for some years to come.

Parexel CEO Josef von Rickenbach says he's more worried about funding for NIH than for FDA, which he considers "such a public agency that the administration can't really unfund it without serious consequences." But NIH, von Rickenbach notes, "provides vital support for discovery that is important for small biotech companies." Severe budget reductions could jeopardize its recently expanded translational research programs that promise to spur innovation to fill depleted new drug pipelines. ­—Jill Wechsler