Explainer: What a government shutdown would mean for the FDA (Updated)

Before we talk about how a government shutdown would affect the FDA, let’s take a quick look at how the federal budgeting process works

• Federal appropriations: Technically, the federal government is funded through 12 separate “appropriations” bills, which break down federal funding by subject area. While most of the U.S. Department of Health and Human Services’ (HHS) funding comes through the Labor-HHS appropriations bill, FDA (which is an agency within HHS) is actually funded through the Agriculture, Rural Development, Food and Drug Administration (Ag-FDA) appropriations bill. This is because FDA began as an agency in the Agriculture Department, and wasn’t moved into what was then called the Department of Health, Education and Welfare (HEW) until 1953. The House of Representatives’ appropriations subcommittee on agriculture has retained authority over FDA’s funding.
• When the federal appropriations process is working as intended, the budget process starts with the President’s budget request, in which the agencies submit budget justifications for their operational costs and requests for funding and the President submits a high-level request to legislators. These budget requests, notably, can provide key insight into what the federal agencies intend to do during the next fiscal year, and serve as a vehicle to submit a legislative wish list to Congress [see AgencyIQ’s analysis of FDA’s FY2024 budget request here]. For legislators, the funding process is supposed to begin in the House of Representatives, with the House’s appropriations subcommittees, broken down into different authority areas, developing and advancing all twelve bills for consideration by the Senate (which may seek to develop its own appropriations measure). The federal fiscal year begins in October, which means that ideally the appropriations process should be wrapped up by September 30 every year.
• What is a government shut down? If appropriations measures are not agreed to by midnight on September 30, then the government personnel and operations that are funded legislatively must halt. Notably, shutdowns can be either total or partial – as noted above, there are 12 appropriations bills, and if a subset of those bills are passed then only those agencies and Departments without an appropriations package will shut down (partial shutdown). If none of the 12 bills are completed, then all government operations shut down. Notably, legislators do have an option to stave off a shutdown temporarily by passing something known as a Continuing Resolution (CR), under which they allow government agencies to continue operating at current (or near-current) funding levels for a set period of time (usually 30-60 days).
• What is happening now? In November, Congress passed a short-term CR that extended some federal funding (at current levels) through March 1, 2024. This CR was “laddered” – meaning that Congress extended different funding bills through different times. The appropriations bills that expire March 1 include the Agriculture-FDA appropriations bill. The other funding measures – including funding for HHS more broadly – will expire March 8. Currently, POLITICO reports that lawmakers on the Hill are discussing the potential for another CR through March 22, as well as continuing to negotiate on full fiscal year funding measures for Ag-FDA along with other Departments. However, the tight timeline, Congressional calendar and disagreements about the path forward continue to raise concerns about the potential for a shut down at the end of the week.

What does a shutdown mean for the FDA?

• AgencyIQ thought this would be a good time to go over what a government shutdown means for the FDA, and therefore what regulated industry needs to know.
• FDA has some unusual attributes from a funding perspective as compared to similar health care agencies. As noted above, FDA is funded not through the Labor-HHS measure, but as part of the Ag-FDA funding bill. This means that FDA could be shut down even if HHS is funded (partially), or vice versa – as noted above, FDA would shut down if not funded by Friday March 1, while the rest of HHS is funded through March 8. Second, as the life sciences industry well knows, the FDA is funded in part by user fees that are paid by industry, rather than by fully by federal appropriations. That means that at least some of FDA’s work can continue – for a time – while the government is shut down.
• What happens to FDA staff in the event of a shutdown? Per FDA’s newest FY 2024 contingency plan: “In the event of a lapse of appropriation, 14,585 (74%) of FDA staff will be retained including 12,953 (66%) who are exempt (their activities or position are already funded or otherwise exempted) and 1,632 (8%) who are excepted” from shutdown as their activities are “deemed necessary.” In other words, many FDA staff would continue to work in some capacity (more on that in a minute). “Exempted” staff include those with user fee-funded positions, who will be able to keep working for a period of time thanks to a combination of a balance of industry-paid “carryover” user fees, Working Capital Fund and the Covid-19 supplemental funding. The rest of the agency staff would be furloughed, through the end of the shutdown.
• Notably, this is a different staffing number than at the last update. In September 2023’s version of the FY 2024 contingency plan, the agency stated that 81% of staff would be retained: “15,602 (81%) of FDA staff will be retained including 12,300 (64%) who are exempt (their activities or position are already funded or otherwise exempted) and 3,302 (17%) who are excepted.” In effect, the total number of excepted staff – those whose work is “deemed necessary” – would be retained during a lapse has gone down in the new contingency plan.
• What does “excepted” staff do? Excepted staff (8% of retained staff, compared to 66% of exempted staff) are those that can continue their activities without appropriations and in non-exempted (user fee, other funding) capacities. There are three general categories of excepted staff: 1) work that is “necessary for the safety of human life”; 2) those whose work is “necessary for the protection of property”; and 3) “those whose work is “necessarily implied” from the authorized continuation of other activities.” From the current 2024 contingency plan, this includes staff in emergency response, managing recalls, criminal and some civil enforcement and investigations, import entry reviews, for-cause and “certain surveillance” inspections, adverse event surveillance, “and other critical public health issues as appropriate” – including drug shortage work. Notably, however, a key aspect of FDA’s ability to manage drug shortages comes from its authority to accept and fast-track applications (i.e., an application for a generic drug under the GDUFA program) to provide alternatives, which is not a lapse activity – more on this below.
• Excepted staff can provide some support for exempted staff, which falls into the third bucket (“necessarily implied”). In effect, the agency can leverage the exceptions to retain staff for which “ongoing support and operations of activities to avert imminent threats to the safety of human life; necessary to ensure the ongoing support and operation activities to protect government property; or if they are needed for the orderly phase down and suspension of non-funded activities.” Notably, this explanation of what “excepted staff” does is different in both version of the 2024 contingency plan than what appeared in the 2023 contingency plan. Per that plan, “excepted staff” were those “necessary to ensure the ongoing support and operation of funded activities” (emphasis added) – with the agency providing examples of “excepted” functions including “work that supports the approval of new medical products (for both humans and animals), the ability to review requests to conduct important clinical research, issue guidance, and other necessary activities to help patients have access to new therapies and important generic and biosimilar treatment options.” In the FY 2024 version, the agency simply states that excepted staff “will continue to provide the necessary operational support to ensure the centers and offices can continue authorized activities” – but doesn’t offer concrete examples.
• What does “exempted” staff do? This is largely user fee funded work, as FDA positions and work that are directly user fee funded do not rely on Congressional appropriations to keep working. This includes the review of specific applications and submissions and, per the FDA’s 2024 contingency plan, “the ability to review requests to conduct important clinical research [but not actually conduct that research], issue guidance, and conduct other necessary activities to help patients have access to new therapies and important generic and biosimilar treatment options.”

What are the impacts for regulated industry? There’s quite a bit that we know from recent shutdowns – and some things we don’t.

• The longest shutdown in U.S. history was in 2018-2019, totaling 35 days. At the time, then-FDA Commissioner Scott Gottlieb provided some information about what could and could not happen during the shutdown. Notably, he shared this information on his Twitter account, which was later scrubbed clean of his Tweets when Stephen Hahn took the helm of the agency, and is therefore no longer available (see here for a Regulatory Focus article summarizing Gottlieb’s statements). At a high level: Some FDA work can continue during a shutdown, while some key activities halt, given that (see below) the agency cannot accept new user fees during a shutdown. This means that some work for which a user fee has already been received or that does not require a user fee (e.g., some Investigational New Drug reviews or applications that qualify for fee exemptions) can continue, or that some work can continue but other processes in those workflows are halted (e.g., FDA can accept Drug Master Files for generic drug applications, but can’t conduct initial completeness assessments on certain ones).

• The user fee problem: The FDA can’t accept or process new user fees during a shutdown (though it can use the ones it already has). If an application or submission has already been received by the agency, and its user fee has also been received by the agency, then work on that application or submission can continue. However, if no user fee has yet been accepted by the agency, they lose the legal authority to accept new user fees at the time of shutdown – referred to by the FDA as within the “lapse period.” Per a statement from a 2014 shutdown (which has been scrubbed from the FDA’s web pages, but was captured in this FDA Law Blog article), the agency “will not be able to accept any regulatory submissions… that require a fee payment and that are submitted during the lapse period.”
• This can result in some weird situations in which applications will not be considered to have been received, even if the FDA is in possession of the application. According to an FDA guidance (see Footnote 9) on regulatory submissions in electronic format: “During a lapse in appropriations, however, FDA cannot accept new applications for which required user fees were not paid prior to the lapse in appropriations. This means that, for purposes of receipt of such new applications, the government is considered not to be open for business during a lapse in appropriations. For that reason, even if document rooms are open during the lapse period, those rooms will not be considered to have received physical submissions of such new applications during that period. Similarly, for ESG submissions, new applications for which required user fees were not paid prior to the lapse in appropriations will not be received until the lapse ends (i.e., the FDA office that will review the submissions will not be considered to be open for business during the lapse period).”
• In other words, if an application/submission has been submitted to the FDA and its user fee has not been received by the time the agency receives the submission, that submission is considered “incomplete” until the user fee is processed, and the agency can’t move forward with review. Per drug program documents, the FDA’s user fee staff “conducts a user fee assessment within 10 calendar days” of receiving a new application or supplement to see if the user fee obligation has been met – but it’s not entirely clear what happens for submissions received within that 10 day window and before the user fee assessment has been conducted. It’s worth noting here that according to one drug sponsor, their application submitted “the day before the shutdown started” in 2018 was not able to be reviewed during the “lapse” period, meaning there is some sort of pre-shutdown deadline. Notably, some “clean up invoices” for drug program fees are “generally issued mid-December of the fiscal year and the fees are generally due mid-January of the fiscal year – an activity which could be disrupted if there is an end-of-year shutdown.
• What is the “carryover” balance, and how much is there? With the FDA unable to accept new user fees, the “carryover” balance that exempted staff are working under is the amount of previously paid user fee funding that remains available for use (i.e., received and processed by the agency, not otherwise obligated) before the lapse period. There isn’t exactly a real-time public accounting of the carryover balance, so it’s not entirely clear how much is in those accounts, or how long it would carry a pared-back FDA workforce through, at any given time. Carryover balances also vary significantly by user fee program. In general, the FDA “considers maintaining a carryover balance of between 8-10 weeks of available funds as a reasonable range to mitigate [the] risks” of a lapse in authority, per its financial planning documents. However, numbers and authorities vary by program. For example, statutorily, the prescription drug user fee program (PDUFA) has a statutory cap of total carryover for operating reserves of 14 weeks, while the biosimilar user fee program (BsUFA) had a goal of bringing the carryover balance down to “no greater than 21 weeks of operating reserves” by the end of the 2022 fiscal year. All carryover balances, however, include two main components: the carryover balance that is available for use and the carryover balance that is unavailable for use. If the funds are already obligated, or subject to claims or restrictions, they cannot be used as an operational reserve. Again, the total amounts are typically identified retrospectively through federal accounting, and are not available in real time.
• Carryover balances vary by user fee program, but again it’s not clear by how much. Notably, during the process to reauthorize FDA’s user fee programs in 2022, we learned that PDUFA had the smallest carryover amount in reserve. At the time, FDA Commissioner Califf said that PDUFA had enough in carryover to “cover only about 5 weeks,” although lawmakers indicated a belief that the FDA had sufficient carryover for several months of continued operation (but did not name a specific user fee program). The carryover balance was notably a consistent point of contention during the negotiations for the newest iteration of the medical device user fee program (MDUFA V), with both lawmakers and industry flagging concerns that the device program seemed to have a significant amount of carryover, which raised questions about potential issues with CDRH’s accounting or the possibility that the device office was using user fee funding for non-user fee-funded programming. In fact, the approved uses of carryover funding were built into the MDUFA V agreement, which states that CDRH will need to use carryover first to reduce registration fees if it has “more than 13 weeks of operating reserves in the carryover balance.”
• So, how long can the exempted FDA staff continue in a shut down? That’s not totally clear, and again, their work would be limited only to the scope of their user fee funded or otherwise exempted activities.
• What happens to FDA meetings? User fee funded meetings on specific applications can continue with exempted staff during the lapse period. However, other types of meetings – including advisory committee meetings and policy-focused meetings – are paused during the lapse period. AgencyIQ would note that this is a particularly busy time for the agency, as an enormous quantity of meetings are already on the books, given both the freshly re-authorized user fee programs and the to-do list the agency has from the 2023 omnibus bill. [ Read AgencyIQ’s monthly look-ahead calendar here.]
• What happens to inspections? As noted above, “excepted” staff can continue to conduct activities that are deemed necessary for safety – including for-cause inspections. However, with the total workforce pared back, the inspections staff has more limited capacity than usual. Per Gottlieb’s testimony before Congress in 2019 (see a Senate report here), the agency’s field staff conducted “high risk” inspections, but paused routine inspections.
• What happens in the longer term? Extended shutdowns impact the FDA for longer than their actual occurrence. As Gottlieb noted in 2019, the agency had to adjust its expectations following the 35 day shutdown, “lowering our inspectional and import and field sampling goals for the year,” as focusing solely on higher-risk issues meant that regular inspections got delayed, especially for biologics and devices. Further, “certain policy work” was delayed – in effect, everything not considered high risk or critical for public health. AgencyIQ would note that in this first user fee program year, the agency has some aggressive performance targets that could be impacted by an extended shutdown. This is potentially most important for MDUFA, which has the first-ever incentive-based performance system, in which the agency is working to meet performance goals to unlock additional funding in future years – and currently does not account for a government shutdown.
• A key concern: Hiring and retention. The FDA has a difficult time hiring staff, which has been a serious challenge in recent years (see remarks from CBER’s Marks here, and CDRH’s Shuren here). As Gottlieb put it in 2019, “I also know that Federal service is hard. The FDA can be hard,” and shutdowns (both for furloughed staff and staff that continued with limited support) are not great incentives for staying on with the agency – or for new staff to join. This is both a concern for an agency struggling to hire, but also for an agency with agreed-upon hiring targets from the user fee agreements. As FDA Commissioner Califf noted at a recent meeting (see POLITICO reporting): “We have a veteran staff at FDA that has been through this many times before; it’s almost become an expectation that we will end up in this situation for some period of time.”
• What about OMUFA? Since the last government shutdown, the FDA has a new user fee program: The Over-the-Counter Drug Monograph User Fee Act (OMUFA). According to a FY 2022 report, the program had $13.1 million in carryovers as of the start of the fiscal year, but it’s not clear how that might have changed over the next two years. The program is able to maintain 10 weeks of operating reserves to help mitigate the risk of a government shutdown, according to the 2022 report. However, as this program has never before been through a government shutdown, it’s unclear how it might operate during one.

To contact the author of this item, please email Laura DiAngelo ( [email protected]).
To contact the editor of this item, please email Alexander Gaffney ( [email protected])