How can sequestration affect our industry?

news · 6 years ago
by Krisztián Niesz

I guess the two most important questions are: What the heck is sequestration and why should we care about it? The Sequestration Transparency Act, you can hear a lot about currently, is a Budget Control Act passed by Congress and signed in by the President of the United States last year, but is enacted today. . The act defines across-the-board federal cuts of spending for both defense and non-defense programs throughout the nation. With this the aim is to save over $1.2 trillion over ten years starting with the cut of $85 billion this year. Just for comparison, the estimated federal expenditure of the United States for 2012 is $3.8 trillion. So, the outcome of this act probably won’t cause the end of the world, but some industries will definitely feel the pain. Although even President Obama called the coming sequester a “dumb way to do things” in his speech delivered a few days ago in Newport News, VA. The cuts are set to begin on March 1st, while Republicans and Democrats are still “playing the blame game”.1

Although everybody agrees that the consequences won’t be felt overnight, and there are only safe speculations out there about the overall effect, it is predicted that the following areas are going to be hit significantly (the list is obviously not complete, but as you see it is very broad). Education, child care, public safety, defense workers, commercial airlines, health funding, food inspection, foreign aids, NASA, military and fighting forces and even fish and wildlife protection will most likely lose a great deal of money and see researchers moving to extended furlough or even being let go.

Calling for this sequestration act instead of trying to reduce the budget via other more painless or or rational ways, as sad as it is in itself, may also harshly influence the pharmaceutical industry. My guess is that the consequences won’t be felt in the US only, but because of the current way of doing things, namely outsourcing and externalization of research and development, it is going to make its mark on the industry worldwide. What we can see now is that pharma is very concerned about how agencies like the Food and Drug Administration (FDA) will react to the cuts. It is more than likely that those cuts will be taken from the user fees paid to the FDA by the industry, which in turn will have a serious effect on the drug approval rate. This, again, won’t be felt overnight, but will have an impact in longer time. National Institutes of Health (NIH) is also expected to get hit substantially from this act nationwide, which means that the basic research and drug development carried out within these facilities will suffer. Since pharma companies often sponsor NIH facilities or collaborate with them directly any effect on NIH funding will negatively impact pharma. Beyond NIH, pharma research will also be hit by reductions in research budgets for the National Science Foundation (NSF), an independent federal agency responsible for ~ 20% of federally sponsored academic research. It is believed that from NSF funding only $450 million will be cut over the next few years.2 Furthermore, Medicare providers will feel a rather significant 2% cut in reimbursement fees, which will in turn have its negative impact on the downstream support sectors including health centers, medical institutions employing many practitioners.

So, for now it seems there is nothing left but hope that sense will prevail in Washington and this act can be reined in with more rational approaches to cutting the budget.


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