How the US government shutdown could hamstring digital health

Ongoing FDA submissions and other HHS services are safe, but new regulatory filings will have to be put on hold.
By Dave Muoio
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As America rises to greet the new year, its leaders remain in a funding dispute over border security that has so far resulted in 13 days of a partial government shutdown. While the deadlock is certainly having a prolonged impact on more than 420,000 government employees who are working without pay, and the 380,000-plus who have been furloughed, each passing day threatens greater challenges for the numerous industries that rely on federal services.

Chief among those affected is the multi-trillion-dollar healthcare sector. While certain agencies such as the Department of Veterans Affairs have already been fully funded through 2019 and will remain unaffected, the Department of Health and Human Services has been forced to furlough 7,997 of its employees (approximately 24 percent of total staff) as well as shutter a number of its ongoing services and activities.

By and large, HHS and others have stressed that emergency services will continue functioning while longer-term and lower priority initiatives are temporarily on the shelf. For digital health, that includes the submission of new device applications, the release of certain new rules or guidances and the filing of IPOs.

FDA continues (most) of its work

The digital health sector is fueled by new devices and technologies, and the FDA plays an important role in the pipeline.

So first, the good news: an announcement from the agency highlighting which of its activities would and would not be impacted stressed that any regulatory applications with user fees that were submitted and accepted in 2018 will be able to move forward during the partial shutdown. These user fees will also continue to support the agency’s capacity to issue guidance and review requests for conducting clinical research into novel therapies.

New fee-supported submissions, however, are a different story.

“The FDA will continue to support activities funded by carryover user fee balances, which allows us to continue to bring new therapeutic options to the patients that need them,” the agency wrote in its notice. “However, during the lapse period, the FDA will not have legal authority to accept user fees assessed for FY 2019 until an FY 2019 appropriation or Continuing Resolution for the FDA is enacted. This will mean that the FDA will not be able to accept any regulatory submissions for FY 2019 that require a fee payment and that are submitted during the lapse period.”

Although roughly 41 percent of the agency will be furloughed, the majority of FDA’s staff will stay on to complete other “core functions.” Recall or investigation of medical products will continue, as will “mission critical surveillance for significant safety concerns.”

Bradley Merrill Thompson, a partner at Epstein Becker Green who specializes in FDA law, mused as to whether the lack of expected end-year policy announcements from the FDA might be attributed to an understaffed agency.

“I believe also that many of the policymaking folks at FDA are continuing at the agency, and are not part of the [roughly] 40 percent of the employees who were furloughed,” Thompson wrote in an email to MobiHealthNews. “That said, I haven't seen much in the way of important new policy being released. Often we see a flurry of new guidance documents and such at the end of the year. We didn’t this year.

“I was watching throughout December for FDA's promised release of its precertification program for software, but we haven't seen it yet. I don't know whether the furlough is impacting that. It shouldn't, because I hope that all the substantive work on it was done before the last week of December. The agency had been working on it for a year and [a half] and had promised to publish it in December. But the bottom line is I'm disappointed that we are now in 2019 and haven't yet seen the proposed precertification program for digital health.”

That being said, Thompson said the FDA’s service hiccups likely have yet to be felt across digital health, seeing as many in the industry have taken the last couple of weeks off for the holiday. The real challenges will come if this partial shutdown turns into a long-term arrangement.

“The bottom line is that the furlough isn't impacting industry very much as of yet, and for the next several days I don't anticipate there will be much of a problem,” Thompson said. “But obviously the longer the furlough goes on, the greater the risk of negatively impacting new product introductions.”

HHS policies, SEC services on hold

Only those at HHS staffing the Operating Divisions and programs funded through Agriculture and Interior appropriations were directly affected by the partial shutdown. Because CMS and others within HHS funded through the Labor, HHS and Education appropriation — as opposed to the Agriculture and Interior appropriations affected by the partial shutdown — many government-funded health services such as Medicare and Medicaid won’t be directly hamstrung throughout the continuing funding negotiations, noted Epstein Becker Green’s Robert E. Wanerman.

With that in mind, all eyes again turn to the releases of anticipated stakeholder guidances and rules, and questions as to whether the government’s turmoil could be having an indirect effect on their proceedings.

“CMS has just gotten over its annual crush to publish all of the Medicare fee schedule updates for 2019, [and] January is typically a slow period in any year. The agency catches its collective breath,” Wanerman, whose practice focuses on CMS, wrote in an email to MobiHealthNews. “As far as IT or AI is concerned, the biggest item to watch at CMS is to see how they roll out the coverage for the new CPT codes established for remote monitoring (99453, 99454, 99457).  … That guidance may be an important signal to gauge how receptive CMS will be to other AI applications.”

But at least one anticipated policy release has found itself stalled as a result of the partial shutdown. According to Politico, the Office of the National Coordinator for Health Information Technology’s information blocking rule has not yet progressed beyond review by the Office of Management and Budget, meaning that it cannot be returned and released to industry stakeholders until the government standoff sees its end.

Meanwhile, digital health entrepreneurs and others within the health tech private sector may also feel ripples of the shutdown coming from the SEC, which will only keep personnel who are involved in “emergencies involving the safety of human life or the protection of property” or are funded through outside contracts. For instance, the agency’s appropriations lapse operations plan specifies that the EDGAR system for automated collection and handling of mandatory filings will remain operational for the foreseeable future, and that staff will be on hand to process certain user requests regarding access or submissions.

“However, the Divisions of Corporation Finance, Investment Management, and Trading and Markets, and the Office of Compliance Inspections and Examinations will be unable to process filings, provide interpretive advice, issue no-action letters or conduct any other normal Division and Office activities. As a result, new or pending registration statements or applications for exemptive relief will not be processed regardless of the status of any review of those filings,” the commission wrote in its operations plan.

The commission’s limited capacity would also have a substantial impact on any companies looking to go public in the earlier part of 2019.

“Companies that had planned to file early in the new year will need to wait for things to fire back up before they can submit their initial documents. Basically, it puts the whole filing part of the process on hold,” IPO consultant Lise Buyer told Axios Pro Rata.

Only time will tell just how long the current shutdown will continue, and whether any compromise between Congress and the president will be a long- or short-term spending plan. In January of 2018, a similar face off on immigration resulted in a shutdown that furloughed more than 50 percent of HHS employees working at greater number of government offices. A three-week stop-gap bill was passed within just four days, although this resulted in another brief shutdown at its conclusion.