There are parts of Washington quietly working even as cable news and politicians unabashedly speed down the road to the November elections. Federal agencies and key Congressional bodies are pushing forward on administrative and legislative initiatives this year that could significantly affect businesses and organizations well after 2020. Polsinelli outlines how D.C. is impacting regulation and future compliance in spite of this difficult political environment.
Even-numbered years in Washington can be frustratingly deceptive. A glimpse at this year’s Congressional calendar suggests that this is the perfect time to take advantage of the campaign exodus and visit our nation’s capital. However, professionals looking to create patriotic family memories should be advised that Washington does not grind to a halt even if its famous elected part-time residents are out of the office.
It doesn’t require a degree in political science from an elite university to note the divide in our country and our government. Observers ranging from the politically agnostic to the zealous opine about whether Washington is capable of producing results on an issue – any issue. Yet Cabinet and independent agencies staffed by political and career personnel have continued to execute their missions utilizing existing authorities and against the backdrop of political incivility. Even Congress has managed to elevate substantive policy questions and lay the foundation for future proposals in critical areas. These efforts have resulted in new opportunities, regulations, and revised oversight, all carrying implications for future corporate compliance. Some of these developments in health care, banking and financial services, and trade are outlined below.
Drug pricing and access to innovative therapies have dominated as top-tier priorities for both Democrats and Republicans since the 2016 Presidential election. Legislation in the Democratic-controlled House and Republican Senate ranges in its approach to reining in costs by exploring Medicare drug negotiation, inflationary rebates, and even revisions to decades-old patent and IP law. While Congress has failed to send significant consensus policies to the President’s desk, it has cast a spotlight on manufacturers and consumers at all links in the supply chain, and federal agencies are enacting important structural and regulatory changes that will impact how drugs are approved and launched.
In late 2019, FDA began implementing its four-phase restructuring of the Office of New Drugs to increase the number of drug review offices, better align therapeutic disease areas, and designate new division leaders. FDA’s Center for Drug Evaluation and Research director, Janet Woodcock, issued a strategic update to staff in January outlining FDA’s plan to explore new review processes and templates for integrated new drug applications and biologics license applications. FDA has completed additional projects in the first quarter of 2020, such as revisions to the prioritization policy for original abbreviated new drug applications for generics, as well as announcing interagency coordination with the Federal Trade Commission to promote greater competition for biologics and review patent settlements for antitrust violations. These initiatives follow a September 2019 revised guidance on citizen petitions that tightens submission rules to discourage “sham” petitions that are intended solely to delay the entry of generics into the market.
Most recently, the emerging threat posed by the coronavirus has spurred Congress and the White House to evaluate all available legislative and administrative tools to control the virus’ transmission, ensure adequate testing, and develop therapeutics. A number of Congressional committees with broad jurisdiction over health care, government oversight, and appropriations have called hearings to examine the country’s public health action plan, even as Cabinet and senior health officials testify before Capitol Hill on the Administration’s annual budget request. Congress also has moved quickly to consider an emergency supplemental funding bill to finance a response to the outbreak, including reimbursements to state and local governments, provisions to keep vaccines affordable, and assistance to small businesses. The White House additionally is considering legal avenues to boost domestic production of critical medical products, such as personal protective equipment, that may set important precedent for how the nation responds to emerging health threats in the future.
Banking and Financial Services
Perhaps the two acronyms that most consistently have landed on the banking industry’s radar this Congress are CECL and CRA: the Current Expected Credit Losses standard and Community Reinvestment Act. These are also prime examples of how Capitol Hill, particularly the House Committee on Financial Services, has actively exercised its authority to call hearings, introduce legislation, and facilitate serious discussion about standards and rules that would impact banking and consumers across the country.
A House Financial Services subcommittee kicked off 2020 by calling the chairman of the Financial Accounting Standards Board (FASB) to testify on the new CECL accounting standard, a major policy shift that requires banks to factor future conditions into their estimates of expected credit losses. The hearing marked the first time in over three years that Congress summoned the FASB chairman and allowed lawmakers to pose difficult, pointed questions about the Board’s research and methodology and effects on everyday borrowers. It followed bipartisan legislation last year introduced in both the House and Senate to modify or repeal the standard entirely, as well as final language enacted in the year-end spending law that requires a study by the Treasury Department on CECL’s potential adverse effects. Congress has demonstrated a willingness to examine this issue consistently and creatively within any legislative vehicle.
Banking regulators and the House also are examining updates to the CRA, a more than 25-year old law intended to curtail discriminatory redlining practices against low-income and minority communities deemed too credit risky. The OCC and FDIC formally released a proposed rewrite in January and are proceeding with notice and comment rulemaking, with a final rule originally slated for May. CRA already has generated a robust and contentious hearing in the full House Financial Services Committee this year and prompted the Federal Reserve to publicly discuss its divergent approach to the plan written by fellow regulators. Following Congressional pushback, the agencies in late February announced a 30-extension of the proposed rule’s comment period. The early and strong commitment to this task from Congress and multiple agencies within the executive branch suggests that Washington will not drop this issue lightly.
One of the issues receiving the greatest attention over the past two to three years is international trade. In a political success story, the White House and a divided Congress finalized an agreement last year on the USMCA acceptable to members of opposing parties. The White House next is eyeing upcoming talks with the EU and U.K. as our trading partners complete their principles for negotiation. The groundwork laid during these discussions will be critical to policy and economic timelines regardless of whether the U.S. signs agreements this year or under new political leadership in the future.
The Administration’s emphasis on trade has popularized the U.S. Trade Representative (USTR) into a household name among even casual policy wonks while guaranteeing that this issue resonates well into the next Congress or a potential new presidency. USTR’s Section 232 national security tariffs and Section 301 investigations into Chinese practices are well-documented and likely very familiar among many counsel, regardless of corporate domicile. The four major trade actions issued against China in 2018 and 2019, along with their corresponding tariff exclusions, will impact businesses and their competitors for quarters to come as the global marketplace continues absorbing the impact of even temporary new trade conditions on inventory, production, and competition. Moreover, Washington and the entire business community carefully await enactment of a Phase One China deal and terms of a pending Phase Two agreement.
In January, the Chairman of the Senate Finance Committee highlighted oversight of China trade relations and USMCA implementation in his 2020 trade agenda. He also reiterated his interest in examining the executive branch’s authority to levy Section 232 tariffs. These priorities, particularly expressed by a member of the President’s own party, are clear indications that this year’s legislative and executive actions will have long-term impacts on future trade relations and executive powers.
Falling into the trappings of political theater is an understandable and even forgivable offense. Election contests speak to an innate competitive spirit in some, occasionally lure in others with a compelling cast of characters, and for the rest of us – there’s nothing wrong with simply being drawn to the colorful maps and flashy touch screens. (Nothing at all.) However, it would be a mistake to view the latest election gossip as the only reflection of what is happening in our nation. Doing so would discount the fact that entire branches of government are still reporting to work and fulfilling their legal oaths and authorities even as the race to November seems to lap us each day. This is not intended as a word of caution to reconsider the annual family vacation to D.C. or any other destination. Instead, this is a reminder – and perhaps a reassurance in a time of emerging risk – that the lights are never completely turned off in Washington.