October 30, 2021
The Food and Drug Administration (FDA) is responsible for the oversight of more than $3 trillion per year in spending for food, medical products, and tobacco. It does an excellent job in fulfilling its mandate of consumer safety for these items.
However, the FDA was formed long before spiraling healthcare costs became the industry’s not-so-hidden albatross. Therefore, the FDA’s charter is not focused on costs, despite the fact that the majority of healthcare costs are generated by chronic illnesses. In fact, when applied to drug development, the FDA’s cultural bias for safety has erected a long-standing barrier to finding cures for complex illnesses.
This paper provides an alternative organizational approach for the federal government to address and overcome the biggest obstacle to managing healthcare costs, namely the spiraling costs generated by chronic illnesses.
A Snapshot of the FDA’s Organizational Design
The Commissioner of the FDA reports to the Department of Health and Human Services, which is a cabinet-level position. According to the agency’s organization chart, the Commissioner has 19 direct reports.
Of these direct reports, nine are referred to as “Centers”, carrying operational responsibilities.
There also are four “directorates” listed on the website as Medical Products and Tobacco, Foods and Veterinary Medicine, Global Regulatory Operations and Policy, and Operations. These directorates do not appear on the organizational chart, but the website specifies that they oversee the core functions of the agency.
Many of the functions provided by the directorates are staff-oriented in nature such as facilities management, security management, etc. However, the all-important Center for Drug Evaluation and Research appears to report to the Medical Products and Tobacco directorate.
From a functional standpoint, the largest department is Drug Evaluation and Research with over 5000 people and the second largest is Regulatory Affairs with slightly fewer people. In total, the FDA employs over 18,000 people.
With the rapid growth in the Center for Drug Evaluation and Research, the FDA saw the need in 2017 to form an Office of New Drugs (OND). The reorganization became effective in 2020. The FDA website describes the reorganization as:
“The office is now comprised of six cross-functional support offices and eight clinical offices. The six cross-functional support offices oversee 12 divisions and several staff groups. The eight clinical offices oversee OND’s 27 clinical divisions and six pharm/tox review divisions”.
The 33-slide presentation at the OND kick-off meeting was self-complementary on virtually every slide. For example, one slide was entitled “2019 Continues a Strong Track Record for Drug Innovation”.
A Critique of the FDA’s Organizational Approach
The FDA’s organizational structure is neither clear nor well-designed. First, if the Commissioner has 19 direct reports as the organizational chart on the website portrays, this would render her unable to lead in several key areas. On the other hand, reducing the number of direct reports should not result in a key unit such as Drug Evaluation and Research being buried under an unrelated bureaucratic layer such as the Office of Medical Products and Tobacco. Neither approach will optimize the efficiency of the organization or its people.
Second, the FDA rightly needed to reorganize the drug approval process. But it’s hard to imagine a more convoluted approach than that described on its website. To begin, three years is too long to complete a reorganization. Work-output goes down as soon as rumors of a reorganization are “in-the-air”. In addition, the explanation (quoted above) of the new process is incomprehensible. Establishing eight independent review offices and 27 review divisions is a classic example of government bureaucracy at its worse and a bridge to further delay. Moreover, the self-complementary nature of the kick-off presentation missed what should have been the real reason for the need for reorganization. That is, the need to expedite the discovery of cures given the burden of chronic illnesses to society.
Third, the FDA’ employs 961 people in headquarters providing "strategic oversight". In today’s world of flat organizational structures, there should be 20 employees or less working on strategic oversight in an organization of this size.
What Should the FDA’s Organizational Design Seek to Achieve?
An entity’s organizational design should address its priorities in overcoming the challenges it faces. The following attributes of the healthcare industry highlight the greatest challenges that the industry participants, including the FDA, face:
* U.S. healthcare spending grew 4.6 percent in 2019, reaching $3.8 trillion or $11,582 per person. As a share of the nation's Gross Domestic Product, health spending accounted for 17.7 percent. These expenses are expected to grow to 19.7% of GDP in 2028. For purposes of comparison, this ratio was 8.9% in 1980.
* The Centers for Disease Control and Prevention (CDC) estimates that 90% of healthcare spending is for people with chronic or mental health conditions.
* The United States does not rank in the Top 10 countries for the provision of quality healthcare service.
* At this point, the federal government is the largest source of funds (payor) for healthcare expenses. This gravy train will slow down considerably as the federal debt races past the annual tax collections at the same time that the interest rate on the outstanding debt begins to rise.
Organizational Lessons Learned in the Private Sector
If it were in the private sector, the FDA would be a conglomerate. Of course, we know that conglomerates went out of favor in the 1980’s. The reason is straightforward: these entities operated more efficiently when they were split apart. Market forces incented leveraged-buyout-firms (LBO’s) to buy the conglomerates and sell off the divisions after improving performance.
In the 1990’s, after conglomerates had fallen by the wayside, market forces focused on the pursuit of outsourcing. Outsourcing provided several advantages including fewer distractions from the core business, better control over costs, greater access to subject matter expertise, access to newer technology, freedom from the stringent employment rules that apply internally, etc.
The third major area of organizational change in the private sector came in the 00’s in a movement for companies to get closer to their customers. The lines of responsibility for providing service were pushed further and further down the line of command and closer to the end user. Organizations became flatter.
How Should the FDA’s Personnel Be Organized to Better Meet the Industry’s Challenges?
It does not take great strategic insight to see the path to a better outcome in the healthcare industry. The approach is apparent when looking at what the numbers are saying:
• Healthcare costs are very large and growing at a faster rate than the economy as a whole
• The ability of federal government to fund these costs is declining
• The major cause of these costs and their growth rate is chronic and mental health illnesses
Simply put, the U.S. needs a plan for curing chronic illnesses. The FDA is not equipped or organized to lead the charge. If anything, its rigid and inflexible cultural practice of ensuring safety has contributed to the problem.
Before jumping into the application of modern management practices to the FDA, it should be noted that the FDA does an excellent job in its policing role. It has almost 5000 people in “regulatory affairs” (who coincidentally do not work on regulatory affairs issues). Regulatory Affairs consists of the 227 field offices that:
• Conduct Inspections of firms and plants producing FDA-regulated products;
• Pursue investigations of consumer complaints, emergencies and criminal activity; and
• Enforce FDA regulations; among other things.
The FDA’s strict hierarchal structure, culture and objectives fit well with the practices of the Regulatory Affairs unit.
On the other hand, the FDA’s culture of safety is the death knell to the mission conducted by the Center for Drug Evaluation and Research.
Given this juxtaposition, the first step for Congress to take to get drug discovery on the right track would be to split the agency into two separate entities and create a more focused structure and mission for the drug development unit.
We know that the cost of chronic diseases is an excessive and growing problem, impacting the entire economy. The focus and resources devoted to this issue should be commensurate with the size of the problem. In particular, drug discovery for chronic and mental health illnesses should be broken out into a separate cabinet-level department.
This new Department would consist of the personnel currently working in the FDA’s Drug Evaluation and Research, Biologics Evaluation and Research, and 21st Century Cures units, in addition to those people working under NIH in the National Institute of Neurological Disorders and Strokes, the National Cancer Institute, and the National Institute of Mental Health.
The new Department’s mission would be clear: eliminate chronic diseases within ten years. If after one year it could not present a 10-year plan to cure each of the top 15 chronic diseases, the new Department would submit a plan for each disease with a realistic time period to secure approval of a cure. The plans submitted after one year would include revised budgets consistent with the new milestones and timelines.
The Proposed Organizational Structure of the New Department
The organizational design of the new Department would be straightforward: 1) a Secretary would lead the Department and be supported by a small group of assistants covering personal, press, and legislative and financial matters; 2) every other employee would be assigned to a team working on a particular disease (or combination of diseases); and 3) the staff functions supporting the teams and corporate office such as finance, legal, systems, security, etc. would be outsourced.
The Secretary’s role would not be to proactively micromanage the teams. Rather, the Secretary would review the work-flow with each team’s management on a regular two-week rolling schedule to ensure the proper people were in place in the key positions of the various teams and were getting the job done.
The “team” would be comparable to a “business unit” in the private sector. Each team would be a self-contained unit assigned with developing a plan, an associated budget, and a timeline of tasks to achieve the objective.
Each team would be headed by a person who was as much a business manager as a subject matter expert. Ownership of all of the issues relating to the team’s assigned illness would rest with this person, including integration of the various functions on the team.
In addition to scientists and researchers, each team would have a project management group, a regulatory group and a partnership group for collaboration with outside research organizations. The regulatory group would devise a new review process for its disease that would conduct product evaluation and approval on a cost/benefit basis. The Congressional import would be for the teams to put less responsibility on the new Department for the drug approval process and more responsibilities on the private entities seeking approval, including substantial penalties for any unsafe outcomes.
The person heading up scientific research for each team would assign personnel to fulfilling discrete milestones by certain dates. Program Management would issue regular reports on the progress of each assignment.
Each team would also have the responsibility to choose what company(s) to select for outsourcing services, and to manage those relationships.
The current base salaries would be supplemented by annual incentive pay bonuses that would span from $10,000 to $100,000 per person for timely delivery of key milestones. There would be a team bonus of $25 million to $50 million for each team finding of a cure for a Top 15 chronic disease on time and on budget.
The other Centers would remain under the continuing jurisdiction of the FDA. However, the four “directorates” of the FDA would be spun off and privatized. They would have to compete for the Centers’ and drug discovery teams’ business against the other companies providing outsourced services. The thousand people in headquarters providing strategic oversight would be redeployed.
The healthcare industry is heading upstream against a strong current. The FDA has not recognized the magnitude of the challenge and does not have the institutional capability to solve it.
Rather, the people in the FDA and the NIH that deal with drug discovery should be spun off and combined into a new cabinet-level department whose mission is to find cures for each of the Top 15 illnesses within 10 years (or a timeframe that is supported by reasonable regulatory, budgetary and scientific benchmarks).
Such an approach provides for less bureaucracy, better coordination, and a laser-like focus on the key strategic issue facing the healthcare industry, namely the cost of chronic and mental health illnesses. These attributes are the hallmarks of improved performance and are a harbinger of the eventual success against the massive healthcare challenge facing all of us.
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