The Effects of HHS Workforce Reductions, Tariffs on Pharma, the ‘Pill Penalty’ and More

At a Glance

• The FDA’s capacity to review drug and device applications, conduct manufacturing inspections, and convene expert advisory committees may be hampered due to reduced support staff. States dealing with measles outbreaks may face difficulties due to reduced CDC support and an $11 billion clawback of public health funds. HIV treatment and prevention efforts are also being reconfigured, with the elimination of the Office of Infectious Disease and HIV/AIDS Policy and significant cuts to the CDC’s HIV Prevention Division.
• The White House issued an executive order aimed at lowering prescription drug prices by expanding access to generics and biosimilars and reforming Medicare payment policies. One major provision proposes eliminating the so-called “pill penalty” introduced under the Inflation Reduction Act (IRA), allowing Medicare to negotiate prices for small-molecule drugs nine years after FDA approval — four years earlier than for large-molecule biologics. The order would align both at 13 years before negotiation.

With the rapidly evolving regulatory landscape, staying on top of the latest updates is crucial for companies in biopharma and medical devices. In this briefing, we highlight recent regulatory and legislative developments that should be top-of-mind for companies in these industries.

Federal Workforce Reductions: HHS, FDA, CDC and More

The Department of Health and Human Services (HHS) is undergoing significant restructuring, reducing its workforce from 82,000 to 62,000 and consolidating its 28 divisions into 15. This includes substantial layoffs at key agencies: 3,500 at the Food and Drug Administration (FDA), 2,400 at the Centers for Disease Control (CDC) and Administration for Strategic Preparedness and Response (ASPR), 1,200 at the National Institutes of Health (NIH), and 300 at the Centers for Medicare and Medicaid Services (CMS).

A new entity, the Administration for a Healthy America (AHA), will be established to improve efficiency and coordination of health resources, focusing on primary care, maternal and child health, mental health, environmental health, HIV/AIDS, and workforce development. This broader restructuring reflects Secretary Robert F. Kennedy, Jr.’s vision for a streamlined HHS. However, these changes pose challenges. The FDA's capacity to review drug and device applications, conduct manufacturing inspections, and convene expert advisory committees may be hampered due to reduced support staff. Despite assurances from Secretary Kennedy and FDA Commissioner Makary that core reviewers and inspectors remain, concerns persist about meeting user fee agreement commitments. Former Center for Drug Evaluation and Research (CDER) and Center for Biologics Evaluation and Research (CBER) officials and industry say that staffing reductions in support offices could also undermine other key elements of the FDA’s role, such as adverse event surveillance and emergency response.

States dealing with measles outbreaks may face difficulties due to reduced CDC support and an $11 billion clawback of public health funds. HIV treatment and prevention efforts are also being reconfigured, with the elimination of the Office of Infectious Disease and HIV/AIDS Policy and significant cuts to the CDC’s HIV Prevention Division. Unless the work of those offices is transferred or already covered by another agency, these reductions could undermine efforts to combat the HIV epidemic and affect vulnerable populations.

Tariffs: Section 232 Investigation on Pharmaceutical Imports

The Department of Commerce’s Bureau of Industry and Security (BIS) initiated a Section 232 investigation on April 1, 2025, concerning the imports of pharmaceutical products. The scope includes finished generic and nongeneric drug products, medical countermeasures, critical inputs such as active pharmaceutical ingredients (APIs) and key starting materials, and derivative products. The comment period will end on May 7, 2025. Comments can cover any aspects of the investigation and may include business confidential information. Observations from recent investigations on copper and lumber and when those tariffs take effect could suggest a timeframe between comment period closure and tariff imposition for pharmaceutical tariffs. Read more here.

FDA’s Authority on Laboratory-Developed Tests (LDTs)

On March 31, 2025, the Eastern District of Texas vacated the FDA’s final rule attempting to regulate laboratory-developed tests (LDTs) as medical devices under the Food, Drug, and Cosmetic Act (FDCA). The court ruled that LDTs are professional services regulated by the CMS under the Clinical Laboratory Improvement Amendments (CLIA), not tangible products under FDA’s jurisdiction. This decision relies on the precedent set by the Supreme Court in Loper Bright Enterprises v. Raimondo, ensuring courts exercise independent judgment on agency authority. For now, the ruling has nationwide effect, but future legislative changes may impact such decisions. Read more here.

Drug-Pricing Executive Order Aims to Address “Pill Penalty”

On April 15, 2025, the White House issued an executive order aimed at lowering prescription drug prices by expanding access to generics and biosimilars and reforming Medicare payment policies. One major provision proposes eliminating the so-called “pill penalty” introduced under the Inflation Reduction Act (IRA), which currently allows Medicare to negotiate prices for small-molecule drugs (typically pills) nine years after FDA approval — four years earlier than for large-molecule biologics. The executive order would align both at 13 years before negotiation. Some in the industry say the “pill penalty” will limit innovation (away from small molecules). It could also lead some smaller companies to limit commercialization to countries that allow higher pricing, such as Germany. The greatest impact is expected among drugs mainly used by Medicare and Medicaid populations.

In Case You Missed It

• The Latest on Pharmaceutical Company-Sponsored Diagnostic Testing Programs
• HHS Rescission of the Richardson Waiver and Unintended Legal Consequences for Drug and Device Manufacturers
  
• Vacated FDA Final Rule Regulating Laboratory-Developed Tests
  
• Tariff Tactics and National Security: Decoding Section 232’s Role in Shaping Trade Policies