Distilleries heroically stepped up during COVID. The FDA punished them.

DECEMBER 30, 2020, afternoon

Most people were packing up their offices. It was nearly New Year’s Eve of an election year at the Health and Human Services (HHS) offices in Washington, DC.

Regardless of the skullduggery that goes on there, DC is beautiful around the holidays. Congress is out, so the streets and sideways are emptier than usual. An outdoor Christmas market sets up shop downtown, selling gifts and ornaments. Brutalist government buildings are softened by wreaths and Christmas lights.

But on this particular December day, holiday cheer was the last thing on Brian Harrison’s mind.

Harrison was the chief of staff for HHS, and on that afternoon, he was furiously scrambling with the other remaining senior HHS staffers to finish as much work as possible before their term in office was over.

Amid all the meetings and memos, Harrison got a text from an officer in his communications department. The text had a link to an article from Reason magazine and a message to read. The piece, titled “When there wasn’t enough hand sanitizer, distilleries stepped up. Now they’re facing $14,060 FDA fees,” was about a fee that the Food and Drug Administration (which is housed within HHS) was charging distilleries that made hand sanitizer in the early days of the pandemic.

The officer was telling Harrison to read the article because neither of them had any knowledge of an FDA fee for these distilleries—usually not a good sign when talking about the chief of staff of a major federal government agency.

Harrison was troubled by the headline, but he didn’t have time to read through the full piece in the mad scramble they were all in. He set the article aside.

Flashback: MARCH 2020

It can feel surreal to think back to the world before COVID, but in March 2020, the pandemic was just beginning to spread in America, and nobody knew what to do. In those early days, the best advice people were given was to wash your hands often, and if you couldn’t wash, use hand sanitizer. Thus began the era when hand sanitizer became more valuable than gold.

Americans became obsessed with keeping their hands clean, and hand sanitizer quickly became scarce. A March 11, 2020, New York Times article headline read, “Coronavirus has caused a hand sanitizer shortage. What should you do?”

The news was filled with stories about empty grocery store shelves and hospitals running dangerously low on supplies. It seemed we might be on the verge of a crisis.

But—as often happens when market forces are allowed space to innovate—an unusual group of entrepreneurs soon found a way to meet the country’s new, urgent demand. Shutdown orders had shuttered every distillery around the country—you can’t run a tasting room or bar when people aren’t allowed out in public. But small business owners—which is the category for the majority of distilleries—are nothing if they’re not adaptable. And because the primary ingredient in hand sanitizer is ethanol (something distilleries manufacture), hundreds of distilleries across the nation began shifting their production floors from bourbon, vodka, tequila, and gin to hand sanitizer.

The World Health Organization was fully supportive: It released easy-to-follow guidelines for how distilleries could quickly shift their operations to make sanitizer.

But the FDA was a different story. The FDA issued rules requiring distilleries to “denature” any sanitizer they made, adding a foul taste so no one was tempted to drink it.

Despite the historic, world-changing pandemic raging through communities, killing Americans every day, our nation’s food and drug agency seemed preoccupied with the idea that someone might make a martini from their hand sanitizer.

This denaturing requirement added weeks of production time and substantial costs to the production process. Even with the added regulatory hoops, however, hundreds of distilleries stepped up and produced as much sanitizer as they could. For the distilleries, making hand sanitizer was a lifeline for their business and a way to help their communities during a pandemic.

For the healthcare workers battling an unknown virus, distillery-made hand sanitizer was a godsend.

DECEMBER 30, 2020, 10 p.m.

Brian Harrison got home around 10. This wasn’t unusual for him. HHS is one of the biggest federal government agencies, which means there’s always something that needs the chief of staff’s attention. He was exhausted. Leading the federal agency which oversees much of the country’s healthcare system during a global pandemic can be a herculean task.

After sending some emails and reviewing some notes from the day, Harrison finally was able to read the Reason article about the FDA fees being leveled on distilleries.

He was shocked at what he read.

The piece detailed how the FDA was charging distilleries that made hand sanitizer a $14,060 compliance fee because the agency now considered them drug manufacturers.

Most distilleries were notified of the fee (which was due in February) on December 29. But to make matters worse, the distilleries were also notified that if they still had even a bottle’s worth of sanitizer left in their inventory on January 1, 2021, 48 hours from the notice, they would be charged another $14,000 fee for 2021.

“I was horrified.” Harrison said. “I was horrified at the idea that the FDA could possibly have effectively levied a surprise tax on hundreds of these small business craft distillers that, from my perspective, were American heroes.”

There are some situations in life where you just know what you have to do. It might not be the most convenient thing, but you know there’s no other choice. This was one of those situations for Harrison.

After Harrison finished reading the article, he called his senior advisor and asked her to arrange an emergency conference call with the general counsel of HHS, the chief counsel of the FDA, and a few additional attorneys at the department. About an hour later, Harrison was on the phone with the top legal officers of HHS.

He recounts the discussion. “The first question I asked them was, ‘Is this true?’ They looked into it and came back and said, ‘Yes, they did actually do this.’ So I told them, ‘We are going to find a legally permissible way to undo this, and I want it undone by tomorrow.’”

Before Harrison read Reason’s article, he and his senior staff had never heard of the fee the FDA was charging distilleries. Now their big question was: How had the FDA managed to do this without anyone knowing? Figuring out how the fine was enacted could help solve the problem of undoing it.

After spending the entire night and part of the next morning combing through government rules and regulations, Harrison and the top HHS legal counsel finally found the way they could reverse the rule.

The key? The bureaucrat who signed the rule.

Flashback: JUNE 2019

Brian Harrison worked in the federal government for much of his career. He worked at posts in HHS, the Social Security Administration, the Department of Defense, and the White House. So when Harrison took the helm as chief of staff for HHS in June 2019, he already knew many of the reforms a federal agency like HHS needed.

Around the same time Harrison was taking the helm at HHS, PLF released a report called “But who rules the rulemakers?” The report revealed how nearly three-fourths of the rules issued by HHS were unconstitutional because the HHS employees issuing the rules were low- or mid-level bureaucrats with no constitutional authority to issue them.

The report was the first of its kind and provided hard data proving what many federal executives like Harrison had always known: Most of the rules and regulations governing Americans’ everyday lives don’t come from Congress or even those who are accountable to the president, but from mid-level career bureaucrats within the administrative state—violating separation of powers, the cornerstone of American democracy.

Armed with PLF’s report and his first-hand knowledge of this growing problem of unconstitutional rulemaking, Harrison formed a “deregulatory special team.” The team, which was comprised of a handful of HHS officers, worked with Harrison to figure out just how many staffers inside HHS were issuing these unconstitutional rules that act as law.

After months of research, Harrison’s officers informed him that while they didn’t have an exact count, there could be hundreds of HHS employees who were regularly issuing these rules. With that revelation (which was in line with the data revealed in PLF’s report), Harrison worked with HHS Secretary Alex Azar to issue a memo on September 15, 2019, stating that all rules coming out of the agency needed to follow the constitutional process and be signed off on by a presidentially appointed, Senate-confirmed officer (a.k.a., the Secretary of HHS).

In Washington, no good deed goes un-spun. After the release of the memo re-instituting the constitutional rulemaking process at HHS, the New York Times published a story describing the move as a “power grab.” But despite the misleading description of the change, Harrison had successfully sent a clear message that HHS would only govern and regulate constitutionally.

DECEMBER 31, 2020

“So one of the first things we wanted to know was who signed this reg?” Harrison said. “And we found out it was not the Secretary, it was not the Commissioner of the FDA, and it was not the Deputy Commissioner of the FDA. It was a mid-level administrator, four layers down from the Secretary—who was an acting [temporary] administrator, by the way—who signed this user fee regulation and sent this bill to the hundreds of small businesses across America.”

And the irony of this whole debacle? The FDA was able to send the $14,000 bill to distilleries because when the distilleries answered the government’s call to make hand sanitizer, the FDA forced them to register as over-the-counter drug manufacturers.

The FDA seemed intent on exerting control over distilleries—even though these distilleries had served a crucial function during the chaotic early days of the pandemic.

When Harrison and the HHS attorneys discovered that a temporary mid-level bureaucrat issued the distillery fee, they had their solution.

The directive that Harrison and Secretary Azar issued in 2019 prevented any HHS rule or regulation from going into effect without the Secretary’s signature. So legally, any rule (or fee) that was issued without the Secretary’s signature was null and void.

Harrison and HHS leadership withdrew the fee order and put out a statement explaining how the rule was unconstitutionally issued and hereby voided. At the end of the statement, Harrison added, “Small businesses who stepped up to fight COVID-19 should be applauded by their government, not taxed for doing so. I’m pleased to announce we have directed FDA to cease enforcement of these arbitrary, surprise user fees. Happy New Year, distilleries, and cheers to you for helping keep us safe!”

“When we finally got this done on the 31st,” Harrison remembers, “I was extremely emotional. We had gotten through the first year of COVID. We were going to turn a new leaf with the new year, and there were going to be a lot of transitions. But as corny as it might sound, it meant so much to be in a position to do one really great thing in the last hours of 2020.”

This was a story with a happy ending—thanks to Brian Harrison’s 9th-inning save over the holidays.

It could so easily have gone a different way: with helpful entrepreneurs being punished by their government for doing something good.

This story relies on many “ifs.” If PLF hadn’t written a report on illegal HHS rulemaking, if Brian Harrison hadn’t pushed to change HHS’ policy on rulemaking, if the HHS communications officer hadn’t texted Harrison, if Harrison hadn’t read the Reason article, if he hadn’t called an emergency meeting, if HHS leadership wasn’t able to figure out a solution in time…

If any one of those things hadn’t happened, hundreds of small businesses would have experienced the unjust and arbitrary cruelty of administrative state bureaucracy.

No member of Congress would have voted for a bill to impose a fine on distilleries because they chose to help during the pandemic. The administration would not have announced it as policy. The fine came from a person who will never have to face the voters, the president, or Congress.

Government will always make unpopular and unjust decisions. But when the separation of powers is taken seriously, unpopular decisions aren’t made unilaterally, behind closed doors, without explanation or accountability.

PLF works to ensure that consequential policy decisions are made by elected representatives—so that when they make mistakes, we the people can hold them accountable at the ballot box.