On the heels of a January 20, 2017 memorandum freezing the release of any new or pending regulations until they have been reviewed and approved by Trump administration appointees, the White House issued an executive order on January 30, 2017 requiring agencies and executive departments to "identify at least two existing regulations to be repealed" whenever they propose or promulgate a new regulation. In particular, the Executive Order requires the total incremental costs of any new regulation to be offset by the elimination of the costs associated with the repealed regulations. As described in the broader Arent Fox alert, it is not uncommon for a new administration to temporarily suspend regulatory activity pending review by the new President’s designees. However, the new Executive Order, colloquially known as the “2-for-1” rule, is by no means a common approach when administrations change, and it introduced considerable uncertainty into virtually all markets regulated by the Federal government, including in the medical device, pharmaceutical, and food industries. It was amidst, and likely in part due to, this confusion that on February 2, 2017, the Office of Information and Regulatory Affairs within the Office of Management and Budget issued an interim guidance intended to provide clarity on implementing Section 2 of the Executive Order, "Regulatory Cap for Fiscal Year 2017."

Take Away

The most critical information provided by the interim guidance, which is structured in question-and-answer format, is in response to the first question, "Which new regulations are covered?" In relevant part, the section of the guidance provides that the Executive Order’s requirements for fiscal year 2017 applies only to those regulatory actions that are considered "significant" under Executive Order 12866. Although Executive Order 12866 establishes four bases on which a regulatory action may be deemed significant, the most pertinent to the January 30 Executive Order is whether the regulatory action could have an annual effect on the economy of $100 million or more. The interim guidance’s clarification that the January 30 Executive Order will only apply to a subset of agency regulatory actions in FY 2017 is just one way in which OMB has scaled back the potentially expensive impact of the Executive Order. Another example is the policy that for significant regulatory actions in FY 2017, the relevant agency would only be expected to identify two regulatory actions that the agency plans to eliminate or propose for elimination.

Nevertheless, for regulatory actions that may have an annual effect on the economy of $100 million or more, the FDA will need to exercise very prudent decision-making. Given the FDA’s mission to protect the public health, the Executive Order presents unique challenges for the FDA because future proposed actions would need to be considered alongside two current actions that were also issued to promote the public health. The Executive Order provides that any new cost associated with new regulations should "to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations." It is therefore likely that both existing actions being "traded in" for a new action would need to have a comparable economic impact as the proposal. What this means is that when triaging current regulations that could be swapped for new regulations, FDA will need to consider not only the public health impact of the current action as a matter of policy, but also its relative economic impact as a matter of law.

In addition to the potential for repealing rules with significant public health benefit, this new paradigm is also expected to cause delay in the issuance of new regulations due to the requirement to identify and presumably propose the repeal of two current regulations. Consequently, because the issuance of a new rule is tethered to the repeal of two current rules, it could take significantly longer than the already protracted time frame to issue any new rule. Moreover, if after public comment the agency decides it is not in the interest of the public health to finalize the repeal of one or both of the current regulations, this could delay the finalization of the proposed new regulation even further. This may be particularly relevant when it comes to FDA’s statutory obligations, like those imposed by the recently-enacted 21st Century Cures Act. In an effort to accelerate the drug and device approval process, the Cures Act, among other things, directs the FDA to develop new pathways to approve medical devices and to evaluate biomarkers and other drug development tools. Requiring the FDA to "trade in" existing regulations and guidance documents to implement the Cures Act is likely to cause delay in the agency’s implementation.

As an agency frequently criticized for issuing rulemaking through guidance documents, the FDA may face additional complications as a result of this Executive Order. The interim guidance clarifies that the meaning of "regulation" employed in the Executive Order—"an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy, or to describe the procedure or practice requirements of an agency"—extends beyond notice-and-comment rulemaking to encompass guidance documents as well. FDA relies heavily on guidance documents to communicate its recommendations and "current thinking on a topic" to stakeholders; however, many stakeholders have taken the public position that the agency tends to go beyond communicating recommendations in guidance documents, and in fact asserts additional authority and expectations that are enforced. Against this backdrop, FDA will not be able to retreat to issuing guidance documents in lieu of regulations when instituting policy.

Because guidance documents are considered "regulations" for the purpose of the Executive Order, FDA will need to account for the economic impact of guidances, which previously had only been done in very limited situations. One thing is clear from both the Executive Order and interim guidance – the Trump administration will expect FDA to conduct more economic analyses for more actions than before. The interim guidance even specifies that previous economic impact analyses for regulations being considered for repeal will be presumed inaccurate and such analyses will need to be revised to determine the current cost-saving value. With increased emphasis on economic analyses as a consequence of the Executive Order, the agency’s current economic staff may find it difficult keep pace with demand. Further, with a federal government hiring freeze in effect barring the acquisition of additional economists, FDA may be further challenged to meet these new requirements.

Given the expected delays in rulemaking, state governments may fill the void by issuing their own conditions for marketing FDA-regulated products that will not necessarily coincide with other states and can therefore create varying requirements across jurisdictions. Not only would this create an enormous challenge for manufacturers and distributors to navigate, but state legislatures may also periodically propose updates to these requirements of which members of the supply chain will need to remain apprised in order to lobby in support of their views.

The guidance issued February 2, 2017 is prefaced as "interim" so readers should expect additional information relating to this topic. In addition, a lawsuit was filed against President Trump on February 8, 2017 by Public Citizen, the Natural Resource Defense Council, and the Communications Workers of America alleging that Trump exceeded his constitutional authority in issuing the Executive Order. Arent Fox will continue to monitor and report on this and other developments involving the January 20 Memorandum, January 30 Executive Order, February 2 interim guidance, and future policies from the Trump Administration that impact the medical device, pharmaceutical and food industries.