In the State of the Union along with a commentary published in the Wall Street Journal last week, President Obama laid out his proposal “Toward a 21st-Century Regulatory System.” He explained that although America’s free market has been the source of “dazzling ideas and path-breaking products” for two centuries, sometimes the rules that America has in place to preserve the freedom of commerce and to protect the public have “gotten out of balance, placing unreasonable burdens on business.”
As a result, President Obama asserted that these “burdens have stifled innovation and have had a chilling effect on growth and jobs.” To address the weaknesses and problems associated with the federal regulatory system, President Obama last week signed an Executive Order entitled “Improving Regulation and Regulatory Review.”
The order requires that federal agencies ensure that regulations protect public safety, health, and environment while promoting economic growth. The Executive Order also requires a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive.
President Obama explained that the purpose of the executive order is to create a regulatory system that seeks more affordable, less intrusive means to achieve the same ends—giving careful consideration to benefits and costs, both quantitative and qualitative. This means writing rules with more input from experts, businesses, and ordinary citizens. It means using disclosure as a tool to inform consumers of their choices, rather than restricting those choices. And it means making sure the government does more of its work online to ensure that regulations are accessible, consistent, written in plain language, and easy to understand, just like companies are doing.
Executive Order
Specifically, the Order requires that each agency must, among other things:
· Propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs;
· Tailor its regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations;
· Select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity);
· To the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and
· Identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information for the public to choose from
In addition, the Executive Order requires that agencies adopt regulations through a process that involves public participation. This means that regulations must be based on the open exchange of information and perspectives among State, local, and tribal officials, experts in relevant disciplines, affected stakeholders in the private sector, and the public as a whole.
To promote that open exchange, the order requires that each agency afford the public a meaningful opportunity to comment through the Internet on any proposed regulation, with a comment period that should generally be at least 60 days. Each agency must also provide, for both proposed and final rules, timely online access to the rulemaking docket on regulations.gov, including relevant scientific and technical findings, in an open format that can be easily searched and downloaded. For proposed rules, this will include an opportunity for public comment on all pertinent parts of the rulemaking docket, including relevant scientific and technical findings.
Before issuing a notice of proposed rulemaking, each agency must seek the views of those who are likely to be affected, including those who are likely to benefit from and those who are potentially subject to such rulemaking.
With respect to sectors and industries facing a significant number of regulatory requirements, the order requires greater coordination across agencies by developing regulatory actions that promote coordination, simplification, innovation and harmonization.
In addition, the order requires that agencies identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice for the public. These approaches include warnings, appropriate default rules, and disclosure requirements as well as provision of information to the public in a form that is clear and intelligible.
To facilitate the periodic review of existing significant regulations, agencies must consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned. Such retrospective analyses, including supporting data, will be released online whenever possible.
Consequently, the order requires that within 120 days, agencies must develop and submit to the Office of Information and Regulatory Affairs a preliminary plan that explains how the agency will periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency’s regulatory program more effective or less burdensome in achieving the regulatory objectives.
Discussion
The Executive Order signed by President Obama last week continues to demonstrate his administrations concern about the slowing pace of technology, business, jobs and the economy. In fact, the Administration is so concerned “about the slowing pace of new drugs coming out of the pharmaceutical industry that officials decided to start a billion-dollar government drug development center to help create medicines.”
As the New York Times reported last week, the new center, to be called the National Center for Advancing Translational Sciences, “will do as much research as it needs to do so that it can attract drug company investment.” This center could hold significant promise for pharmaceutical companies who have been unable to find enough new drugs that they are “paring back research.”
For example, “promising discoveries in illnesses like depression and Parkinson’s that once would have led to clinical trials are instead going unexplored because companies have neither the will nor the resources to undertake the effort.” Moreover, the drug industry’s research productivity has been declining for 15 years, “and it certainly doesn’t show any signs of turning upward,” said Dr. Francis S. Collins, Director of the National Institutes of Health (NIH).
The new drug center’s funding will initially be small, which could pose serious questions given that the costs of bringing a single drug to market can exceed $1 billion. Under the current plan, “more than $700 million in research projects already under way at various institutes and centers would be brought together at the new center.” In addition, “hope that the prospect of finding new drugs will lure Congress into increasing the center’s financing well beyond $1 billion.”
However, as Republicans plan to cut out provisions of the Affordable Care Act (ACA) or at least strip many of the legislations funding provisions, the likelihood of increased funding is minimal. Aware of this, Dr. Collins “has hinted that he might take money from other parts of the institute to fund the new center.”
While NIH typically has found chemicals that affect enzymes and might lead to the development of a drug or a cure, the Times reports that in some cases, the center may actually perform animal tests to ensure that the chemicals are safe and even start human trials to see if they work. According to Dr. Collins, the hope is that “any project that reaches the point of commercial appeal would be moved out of the academic support line and into the private sector.”
Although the success of the center remains uncertain, Department of Health and Human Services (HHS) Secretary, Kathleen Sebelius, sent a letter to Congress on Jan. 14 outlining the plan to open the new drug center by October. For the plan to go into effect by October, the administration “plans to downgrade the National Center for Research Resources, in part by giving some of its functions to the new drug center.”
Some are questioning the ability of the federal government to create drugs, something it has never done in the past. Others are concerned with wasting money on trying to find drugs for diseases that the medical field does not fully understand presently (i.e. mental disorders). Nevertheless, proponents of the center say it “could inspire universities to train a new generation of investigators who could straddle the divide between academia and industry. “
Conclusion
As President Obama correctly recognized, “vibrant entrepreneurialism is the key to America’s continued global leadership and the success of our people.” While the public’s input will certainly help shape the process—as it recently did with the Food and Drug Administration’s 510(k) recommendations—there is no mention about the amount of resources, staff and funding that will be necessary to achieve such a broad change to the regulatory system. As agencies begin to prepare their preliminary plans, it will be critical that the public and stakeholders, especially in healthcare, emphasize the importance of creating a regulatory system that truly promotes efficiency, collaboration, and innovation.
Over the past several months, numerous reports have indicated that America is losing its technological and scientific edge on other developing economies largely because of our unpredictable and arbitrary regulatory system. If America is to continue its lead in the world in medicine and science, our federal agencies must work with stakeholders in the health care industry to insure a well-balanced approach to collaboration and innovation.
Just as President Obama stated, America can no longer survive in a regulatory system that has created unreasonable burdens that have stifled innovation and hurt jobs.