Do President Trump’s Regulatory Freeze-Out and “1-in-2-Out” Orders Affect the Regulation of Compounding?

On Inauguration Day (January 20, 2017) President Trump’s assistant Reince Priebus circulated a regulatory “freeze order” blogged here affecting regulations and guidance published in the Federal Register but that had not yet taken effect, postponing their effective date for 60 days (from January 20, 2017). The purpose of the regulatory freeze is to permit the agency or department to “consider potentially proposing further notice-and-comment rulemaking” and whether further action is appropriate.  Several compounding guidance documents (see chart below) were published within Priebus “window” because they are still within their comment period, thus leaving industry to wonder whether and when they will become effective.  In addition, similar questions also linger surrounding the impact of the regulatory freeze on other earlier draft guidance documents.  The chart at the end of this blog contains a list of compounding guidances, policies and proposed regulations, and, for recently published drafts, when their comment period expires.

Compounding the confusion, on January 30, 2017, President Trump issued the Executive Order (“E.O.”) titled, “Reducing Regulation and Controlling Regulatory Costs,” to create a policy of the executive branch “to be prudent and financially responsible in the expenditure of funds, from both public and private sources…” as well as “to manage the costs associated with governmental imposition of private expenditures required to comply with Federal regulations” (see E.O. here).  While this E.O. has generated a great deal of interest across regulated industries, the regulatory framework for prescription drug compounding is relatively new and still being actively considered by FDA (i.e., with at least 2 proposed rules and 13 draft guidance documents still outstanding, and likely more to follow).  This raises the question of whether – and what – effect the E.O. will have on compounders.

Requirements of the E.O. & OMB’s Implementation

The E.O. establishes two primary requirements. The first requirement is that, “[u]nless prohibited by law, whenever an executive department or agency…publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed”.  The second requirement of this “1-in-2-out” E.O. is that the total incremental costs of all new regulations, including repealed regulations, finalized this fiscal year must be no greater than zero, unless otherwise required by law or consistent with advice provided in writing by the Office of Management and Budget (“OMB”).  To aid executive departments and agencies in complying with these two requirements, the E.O. directs OMB to issue guidance.  Among other things, OMB’s guidance is to cover emergencies and other circumstances that might justify individual waivers from this regulatory cap.

On February 2, 2017, OMB’s Office of Information and Regulatory affairs issued Interim Guidance on implementation of the E.O. (available here).  The key question that the Interim Guidance addresses is: which new regulations are covered?  OMB appears to have narrowed the scope of the E.O.’s coverage by limiting it to only those “significant regulatory actions,” which are defined as those that have an annual effect on the economy of $100 million or more or adversely affect the economy in a material way.  With regard to guidance and other interpretive documents (which are the most significant roots of the policies affecting compounding), OMB stated that whether they are significant “will be addressed on a case-by-case basis.”

Regarding the circumstances where a waiver might be available, OMB’s Interim Guidance provides that emergencies addressing, among other things, critical health and safety matters may qualify for a waiver from some or all of the requirements of the E.O. In addition, where a significant regulatory action needs to be finalized in order to comply with a statutory or judicial deadline, OMB states that agencies may proceed with those actions even if they are not able to identify offsetting regulatory actions by the time of issuance.  However, in all cases, OMB provides that agencies should identify additional regulatory actions to be repealed in order to offset the cost of the new significant regulatory action, even if it is required by law.

Effect of the Regulatory Cap on Compounding

The framework for the regulation of prescription drug compounding has been in flux, with at least 26 draft or final guidance documents and rules having been published since mid-2014. While many of these regulatory actions have already been finalized, 2 proposed rules and 13 draft guidance documents are still outstanding (see table below). Now that the E.O. is in effect, to finalize these regulatory actions, FDA will have to determine if they are within the E.O.’s scope.  If they are subject to the E.O., FDA will have to take two “deregulatory” actions, as well as factor the regulatory and deregulatory actions into its incremental cost calculation for the fiscal year.  To make such a determination, FDA will need to answer the following questions:

• Does the guidance/rule address a critical health and safety matter?
• Is the guidance/rule significant?
• Is the guidance/rule required by a statutory or judicial deadline?

FDA might first consider whether the regulation of prescription drug compounding is a critical health and safety matter, and therefore might allow for finalizing of guidance documents and rules under a waiver. FDA and other executive branch agencies have historically considered compounded drugs to serve an important medical need for patients, as well as presenting a potential risk to patients (especially post NECC).  Therefore, FDA may be able to justify that drug compounding regulations and guidance address an “emergency,” and that unsafe, ineffective, and poor quality compounded drugs are a critical health and/or safety matter.  If OMB agrees, FDA may be able to finalize the proposed rules and draft guidance documents without needing to offset those regulatory actions.  In addition the relevant statutes do require implementation of regulations at least in the context of creating the so-called “bulks” lists of drugs that may and may not be used in compounding under Sections 503A (Section 503A(b)(1)(A)(III)) and 503B (Section 503B(a)(2),(6)).

For the questions of whether the regulatory actions would be significant or are required by a statutory or judicial deadline, we have provided a preliminary analysis in the table below. Notwithstanding this analysis, we likely will need to take a “wait and see” approach concerning FDA’s development of finalization of guidance and regulations addressing compounding under Sections 503A and 503B.