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REQUIRED BY THE
MEDICAL DEVICE USER FEE
AND MODERNIZATION ACT OF 2002
FOOD AND DRUG ADMINISTRATION
DEPARTMENT OF HEALTH AND HUMAN SERVICES
March 2005
The Honorable Richard Cheney
President of the Senate
United States Senate
Washington , D.C. 20510
Dear Mr. President:
Enclosed is the second annual financial report to Congress required by the Medical Device User Fee and Modernization Act of 2002 (MDUFMA). This report covers fiscal year (FY) 2004, documenting the extent to which the conditions specified in MDUFMA for the continued collection of medical device user fees were met.
The report also presents the user fee revenues and related expenses for FY 2004, and details the amounts carried over at the end of the year that remain available. For FY 2004, FDA collected $27.2 million in user fees, and obligated $23.9 million. Over 65 percent of the fees were spent for staff salaries and benefits, and the remainder went toward increased support and infrastructure for the device review program. This infusion of resources is essential to enabling FDA to meet the performance goals associated with MDUFMA--goals that become increasingly more Challenging each year.
Under current law, the program will end in October unless amendments are made to eliminate a statutory requirement for additional appropriations initially specified for FY 2003 and FY 2004. I urge Congress to modify MDUFMA quickly to assure continuation of this program through FY 2007.
Sincerely,
/s/
Michael O. Leavitt
Enclosure
Identical letters to:
The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) requires the Food and Drug Administration (FDA) to report annually on the financial aspects of its implementation. This is FDA's report for fiscal year (FY) 2004.
MDUFMA specifies that three conditions must be satisfied each year in order for FDA to collect and spend MDUFMA fees:
This report describes the extent to which these specific statutory conditions or "triggers" were met in FY 2004. The report also provides information on the user fee revenues and expenditures in FY 2004, and on the carryover balance.
In FY 2004, FDA collected $27.2 million in fees. Cumulative collections since the beginning of the program were $4.8 million less than the adjusted revenue amounts set in statute for FY 2003 and FY 2004. The shortfall is due to fewer applications that paid the highest fees, fewer supplements that paid the higher supplement fee, and to a larger number of applications than expected that qualified for exemption from fees.
In FY 2004, FDA obligated $23.9 million from MDUFMA revenues to support FDA's medical device review program, and carried a balance of $10.1 million forward for use in FY 2005. Over 65 percent of the funds spent in FY 2004 went for personnel salary and benefit costs. The balance was primarily operating costs and infrastructure necessary to support the staff. During FY 2005, FDA expects to spend user fees to pay for about 150 more staff to conduct and support medical device reviews, positioning the agency to be able to meet the challenging performance goals associated with this program in FY 2005 and beyond.
The MDUFMA program will end in October, however, unless MDUFMA is modified as discussed in the Management Challenges section of this report. The continuation of this program is in the best interests of the American public and timely action is essential.
Meeting the Legal Conditions for User Fees in FY 2004
Obligation of User Fee Revenues
Total Costs of the Process for the Review of Device Applications
Management Challenges for FY 2004
Appendices
Appendix A: Conditions for Collection and Use of Fees
Appendix B: Summary
of Application Fees Paid in FY 2004
Appendix C: Waivers, Reductions, and Exemptions
Appendix D: Allowable and Excluded
Costs for the Process for the Review of Device Applications
Appendix E: Development
of Costs for the Process for the Review of Device Applications
MDUFMA authorized FDA to collect fees from the medical device industry to augment appropriations spent on the device review process, and also required additional funding from appropriations. These resources are to be used to hire and support additional staff for the "process for the review of device applications" as defined in MDUFMA, so that safe and effective devices reach the American public more quickly. MDUFMA was patterned in part after the successful Prescription Drug User Fee Act (PDUFA).
Under MDUFMA, an application fee must be paid when certain device applications are submitted. Fee-paying applications include premarket applications (PMAs), product development protocols (PDPs), premarket reports (PMRs), modular PMAs, biologics license applications (BLAs), and certain supplements to all of them, as well as premarket notification submissions (510(k)s). The aggregate application fee revenue amount is set in statute, but is adjusted each year for cumulative inflation since FY 2003, and may be further adjusted for increases in workload and for revenue shortfalls from previous years. The individual fees for various types of applications are fixed in statute as a percent of the fee for a PMA. Fees are set in August of each year after the inflation, workload, and shortfall adjustments to the statutory fee amount have been determined. Unlike PDUFA, there are no product or establishment fees under MDUFMA.
MDUFMA requires FDA to submit two reports to Congress each fiscal year. A performance report is to be sent within 60 days of the end of the fiscal year, and a financial report is to be sent within 120 days. The FY 2004 MDUFMA Performance Report, which discusses FDA's progress in meeting the goals referred to in MDUFMA, is being separately transmitted to Congress. This is FDA's FY 2004 MDUFMA Financial Report, covering the period October 1, 2003 through September 30, 2004.
As required by statute, this report presents the legal conditions or "triggers" that must be satisfied before FDA can collect and spend the fees, and FDA's calculations showing the extent to which those conditions were met in FY 2004 (Appendix A). This report also describes in some detail (Appendix D) the process for the review of devices as defined in MDUFMA--a process that includes portions of activities in FDA's device and radiological health program, biologics program, field activities, and Office of the Commissioner. The total costs of the process for the review of medical device applications, as defined in MDUFMA, are presented--both the costs paid from fee revenues and the costs paid from appropriations. This report presents FY 2004 revenues and obligations from user fees and a summary statement of user fees collected.
In keeping with the requirements of the Chief Financial Officers Act of 1990, the Office of the Inspector General (OIG), Department of Health and Human Services, audits FDA's annual financial statements. The audit covers FDA's financial systems and funds, including MDUFMA revenues and expenses. The OIG issued unqualified audit opinions on FDA's financial statements for fiscal years 1998 through 2004. This is the most favorable category of audit opinion.
MDUFMA contains legal conditions or "triggers" that must be satisfied for FDA to collect and spend user fees. FDA's calculations showing the extent to which those conditions were met for FY 2003 and FY 2004 are summarized below and presented in more detail in Appendix A.
The first condition is a funding trigger which affects the collection of fees in FY 2006. MDUFMA set funding targets for FY 2003 -2006 equaling $205,720,000 for FY 2003, and that level adjusted for inflation in subsequent years. The appropriation of those specific funding levels was not required to collect fees in fiscal years 2003, 2004, and 2005. Instead, MDU FMA set a trigger that must be met before fees can be collected in FY 2006.
To collect fees in FY 2006, the sum of appropriations for FY 2003 - 2006 for the devices and radiological product program must equal the sum of the funding targets set by MDUFMA for those years. Given current projections of the April 2005 CPI -U, this amount is anticipated to equal $851,942,000.
In FY 2003, the final appropriation was $193,350,000, $12,370,000 below the MDUFMA target. The FY 2004 appropriation was $191,144,000, $19,154,000 below the MDUFMA target. Under current law, additional funds must be appropriated in FY 2005 or FY 2006, over and above the MDU FMA targets for those years, or FDA loses its ability to collect fees on October 1, 2005.
In a letter from the Director of the Office of Management and Budget dated October 29, 2003 , the Administration has proposed that the statutory requirement to make up appropriation shortfalls for FY 2003 and FY 2004 be eliminated. The October 29, 2003, letter also assured that the President's budget request for FY 2005 and subsequent fiscal year requests will each meet the MDUFMA required level. FDA has committed to achieving the original MDUFMA performance goals with the lower amounts enacted in FYs 2003 and 2004, as long as amounts in subsequent fiscal years meet the MDUFMA required minimum. MDUFMA stakeholders were consulted during the development of this plan and were supportive of the strategy. Congressional action on this proposal is urgently required.
The second condition is that the amount of user fees collected each year must be specifically included in Appropriation Acts. The President signed the Appropriation Act (Public Law 108-199) specifying amounts collectable from fees during FY 2004 on January 23, 2004. It provided $31,654,000 to be derived from fees collected. Thus, the second c ondition was met, and fees may be collected.
The third condition is that user fees may be collected and used only in years when FDA also spends a specified minimum amount of appropriated funds for the review of device applications. The specified minimum is the amount FDA spent on the process for the review of device applications from appropriations in FY 2002, adjusted for inflation. That adjusted amount was is $122,335,751 for FY 2004. FDA's actual obligations from appropriations in FY 2004 were $123,521,871. Since this is greater than the adjusted FY 2002 amount ($122,335,751) the third condition was met.
MDUFMA also contains a provision that must be met if FDA is to be able to continue to have accredited third parties conduct device establishment inspections in FY 2005 and beyond. That condition is that FDA obligations for inspections of device establishments may not fall below the amount FDA obligated for this purpose in FY 2002, increased by 5 percent each year, for at least one of the two immediately preceding fiscal years. The amount obligated for this purpose in FY 2002 was $19,425,000. With 5 percent increases each year, the MDUFMA targets (rounded to the nearest thousand dollars) for FYs 2003 and 2004 were $20,396,000 and $21,416,000, respectively. FDA's actual obligations for conducting device establishment inspections in FY 2003 and 2004 were $22,576,000 and $21,522,000, respectively. The amounts FDA obligated for device establishment inspections in FY 2003 and FY 2004 exceed the minimum spending requirement for each of these years. Since FDA spending meets the required level for both of the two fiscal years immediately preceding FY 2005 and for one of the two fiscal years immediately preceding FY 2006, FDA has met the MDUFMA financial requirement necessary to permit the Agency to continue to allow accredited third parties to conduct some inspections in FY 2005 and in FY 2006.
Appendix A provides more detail on the calculations that show the extent to which each of these statutory conditions were met.
MDUFMA specifies that fee revenues are to be collected only from application fees. The statute specifies annual application fee revenue total amounts and how they are adjusted each year for inflation, workload, and fee shortfalls or surpluses from previous years. FDA then establishes fees each year in an effort to assure that the total revenue collected matches the adjusted statutory total fee amount.
Under MDUFMA, any fees collected and appropriated but not spent by the end of a fiscal year continue to remain available to FDA to spend in future fiscal years. The balance carried to the next year is covered in the section on carryover balances beginning on page 7.
The following table shows user fees collected during the two fiscal years, 2003 and 2004.
Food and Drug Administration
Statement
of MDUFMA Fee Revenues
As of September 30, 2004
Fees Collected: |
FY 2003 |
FY 2004 |
Cumulative Total |
|---|---|---|---|
Total Fees Collected: |
$21,596,123 |
$27,169,321 |
$48,765,444 |
Unearned Fees Included: |
($13,120) |
($1,499,940) |
($1,513,060) |
Fees Receivable: |
$171,507 |
|
$171,507 |
Note that user fees collected (the first line above) are reported in the year the fee was received. However the revenues should be credited to the year the application is received--referred to as the cohort year. For example, in FY 2004, FDA may receive a fee for an application that has not been received in FY 2004. This is considered "unearned revenue" and will be attributed in the future to the year in which the fee was actually received. Totals reported for each year are net of any refunds for that year, as of September 30 th, but do not take into account any refunds that may be made after September 30 th. Information on the number of each type of fee received in FY 2004 is contained in Appendix B.
In addition to the revenue shown in the table above, a total of $171,507 is due from unpaid invoices for fees for applications that were submitted between October 1, 2002, and March 30, 2003 . These FY 2003 accounts receivable are over 120 days old, have been turned over to a collection agency, and by now are unlikely to be collected. After April 1, 2003, FDA no longer accepted applications for review unless a fee for the application had been received. Thus there are no accounts receivable for periods after FY 2003.
A summary of FY 2004 waivers, reductions, and exemptions is provided in Appendix C.
User fee revenues are expended only for costs necessary to support the process for the review of device applications, as defined in MDUFMA. Allowable and excludable costs for the process for the review of device applications are defined in Appendix D. In FY 2004, FDA obligated $23,875,200 from medical device user fee revenues.
Food and Drug Administration
FY 2004 Device
Review Obligations by Expense Category and Revenue Source
Expense Category |
From Appropriations |
From Fees |
Total |
|---|---|---|---|
Personnel Compensation and Benefits |
$75,511,078 |
$15,671,598 |
$91,182,676 |
Travel and Transportation |
2,559,798 |
263,835 |
2,823,633 |
Rent |
7,427,069 |
1,079,860 |
8,506,929 |
Communications |
2,434,157 |
342,002 |
2,776,159 |
Contract Services |
29,157,318 |
5,640,390 |
34,797,708 |
Equipment and Supplies |
4,486,372 |
841,343 |
5,327,715 |
Other |
1,946,079 |
36,172 |
1,982,251 |
TOTAL OBLIGATIONS: |
$123,521,871 |
$23,875,200 |
$147,397,071 |
As of September 30, 2004
FDA uses data from time reporting studies to determine the percentage of time each organizational component devoted to activities that are included in the process for the review of device applications, as defined in MDUFMA. This allowed for the calculation of costs. The development of the costs associated with the process for the review of device applications is described in more detail in Appendix E. The time percentages will be recalculated regularly in future years based on the results of regularly conducted time-reporting surveys. The table below shows the FTE spent on the process for the review of device applications by major organizational component beginning in FY 2002. In FY 2004, over 65 percent of the fee revenue obligated went for salaries and benefits of employees.
Food and Drug Administration
Process
for the Review of Device Applications--Total
FTE
As of September 30, 2002, 2003 and 2004, and estimate for
FY 2005
| FY 2002 |
FY 2003 |
FY 2004 |
FY 2005 |
|---|---|---|---|---|
Center for Devices and Radiological Health (CDRH) |
650 |
662 |
713 |
802 |
Center for Biologics Evaluation and Research (CBER) |
45 |
59 |
70 |
81 |
Office of Regulatory Affairs (ORA) |
54 |
59 |
60 |
64 |
Office of the Commissioner (OC) |
80 |
77 |
72 |
102 |
Total FTE |
829 |
857 |
915 |
1049 |
FTE numbers for FY 2004 and FY 2005 show CDRH, CBER, and ORA staff who have been transferred to the consolidated shared services organization in the Office of the Commissioner as if they are still in CDRH, CBER, and ORA, to make the numbers comparable to the FY 2002 and FY 2003 numbers.
As the two tables on the previous page illustrate, FDA expects to utilize over 200 more staff years in FY 2005 than in FY 2002 (1049 vs. 829), as the Agency ramps up its staffing to levels necessary to achieve the MDUFMA performance goals. In addition, CDRH used 713 FTEs in the device review process in FY 2004, 63 more than the 650 FTEs used in FY 2002. During FY 2004, CDRH also added outside expertise to the review process by expanding the Medical Device Fellowship Program by 64 fellows.
In FY 2004, CDRH also continued to fund the Institute of Medicine study on the adequacy of post-market surveillance for pediatric devices, as required by MDUFMA. CDRH also contracted with Georgetown University and Virginia Polytechnic Institute to provide continuing scientific education for its staff. Finally, to better enable reviewers and managers to monitor different types of marketing applications, such as those for combination products and pediatric indications, CDRH greatly expanded the capabilities of its tracking system. This contract is part of a larger effort to replace the paper-based, less efficient division tracking system.
In FY 2004, CBER added a module to the CBER Electronic Secure Mail system to add the capability for secure email delivery of 510k and PMA submissions and to allow for secure correspondence to be sent to and from FDA. CBER also created PDF smart form which allows for electronic submission of 510k and PMA submissions with automatic data extraction. In addition, CBER implemented new and enhanced queries to support MDUFMA needs.
Under MDUFMA, any fees appropriated and collected but not obligated by the end of a fiscal year continue to remain available to FDA in future fiscal years. These revenues are referred to as carryover balances. Operations in FY 2004 resulted in a net carryover balance of $10,052,644.
The table below captures the carryover balance at the beginning and end of each fiscal year.
Food and Drug Administration
Statement of Collections, Obligations, and Carryover
Balances by Fiscal Year
As of September 30, 2004
Fiscal Year |
Beginning Carryover |
Net Collections |
Obligations |
Year-End Carryover |
|---|---|---|---|---|
2003 |
- |
$21,936,910 |
$14,837,600 |
$7,099,310 |
2004 |
$7,099,310 |
$26,828,534 |
$23,875,200 |
$10,052,644 |
2005 |
$10,052,644 |
|
|
|
The balances above reflect cumulative cash at the beginning/end of each fiscal year, and net cash collected during each fiscal year. The net collection amount for FY 2004 is less than the fees collected in FY 2004, because it reflects the net of additional fees for FY 2003 collected in FY 2004, as well as refunds in FY 2004 of some fees that were collected in FY 2003.
Under MDUFMA, amounts below the adjusted cumulative statutory revenue amounts for previous years may be collected in future years by increasing fees using the MDUFMA compensating adjustment. Similarly, collections in excess of amounts stated in appropriations may be kept and used to reduce fees that would otherwise be assessed in a later fiscal year. The following table depicts cumulative net collections, collection ceilings, and cumulative shortfalls through the end of FY 2004.
Food and Drug Administration
Statement of Fees Collected, Collection Ceilings,
Shortfalls and Surpluses
As of September 30, 2004
Fiscal Year |
Cumulative Net Collections
|
Collection Ceiling (Adjusted Cumulative Statutory Revenue Amount) |
Cumulative Shortfall
|
Surplus |
|---|---|---|---|---|
2003 |
$ 21,936,910 |
$25,125,000 |
$3,188,090 |
|
2004 |
$48,765,444 |
$53,543,789 |
$4,778,345 |
|
The cumulative collection ceiling for FY 2004 in the table above is the FY 2003 amount of $25,125,000 plus the FY 2004 inflation adjusted amount of $28,418,789, with no compensating adjustment, for a total of $53,543,789. Cumulative fees collected through the end of FY 2004 fell short of this cumulative collection ceiling by $4,778,345, as the table above shows. When fees for FY 2005 were set on August 2, 2004 , FDA anticipated a revenue shortfall in FY 2004, but could not estimate the exact amount of the shortfall since there were still two months left in FY 2004. For that reason no compensating adjustment was applied in setting fees for FY 2005. FDA stated instead that any shortfall in FY 2004 would be measured after the end of the fiscal year, and that amount would become a compensating adjustment when fees for FY 2006 were set. The total shortfall of revenue below statutory revenue levels, adjusted, at the end of FY 2004, was $4,778,345. FDA intends to include half of this amount as a compensating adjustment when fees for FY 2006 are set and the remaining amount as a compensating adjustment when fees for FY 2007 are set.
When fees for FY 2005 were set in August 2004, FDA substantially revised the estimate of numbers of each category of fee-paying applications that would be received in FY 2005, based on experience in 2003 and 2004. This action should reduce or eliminate revenue shortfalls in FY 2005 and future years, thus eliminating the need for further compensating adjustments.
Of the total carryover balance of $10,052,644, $1,513,060 is unearned income from applications not yet received, and must be held in reserve. In addition, $1,000,000 is held in reserve for potential refunds. MDUFMA requires FDA to have at least a 3-month reserve for future operations at the end of FY 2007, when the statute sunsets. The carryover amount shown as available for allocation in the table below is enough to fund estimated FY 2005 operations for approximately 2.8 months. (FY 2005 Collection Ceiling of $ 32,429,908 divided by 12 yields an estimated monthly fee collection amount of $2,702,492.)
Food
and Drug Administration
Summary Statement of MDUMFA Fee Revenue Carryover
Balance
As of September 30, 2004
Status of Carryover Funds |
Amount |
|---|---|
Unearned Income |
$1,513,060 |
Reserve for Refunds of Excess Collections |
$1,000,000 |
Available for Allocation in FY 2005 |
$7, 539,584 |
TOTAL Carryover Balance |
$10,052,644 |
The following table presents the costs for the review of device applications for FYs 2002, 2003, and 2004 by organizational component. This presents the full cost of the process for the review of device applications, including costs paid both from appropriations and from user fee revenues. The amounts are based upon obligations recorded as of the end of each fiscal year. In the past, over 81 percent of obligated amounts are expended within one year, and 96 percent within two years. Thus, obligations represent an accurate measure of costs.
Food and Drug Administration
Process for the Review of Device Applications--Total
Cost by Component and Source
As of September 30, 2002 , 2003 and 20041
FDA Component |
FY 2002 |
FY 2003 |
FY 2004 |
|---|---|---|---|
Center for Devices and Radiological Health (CDRH) |
$95,973,640 |
$111,499,009 |
$115,537,033 |
Center for Biologics Evaluation and Research (CBER) |
$6,665,132 |
$10,970,557 |
$13,161,145 |
Field Inspection and Investigation Costs (ORA) |
$6,778,594 |
$7,671,835 |
$8,027,300 |
Agency General and Administrative Costs (OC) |
$10,255,659 |
$10,293,297 |
$10,671,593 |
Total Process Costs |
$119,673,026 |
$140,434,698 |
$147,397,071 |
Amount from Appropriations |
$ $119,673,026 |
$ $125,597,098 |
$123,521,871 |
Amount from Fees |
|
$14,837,600 |
$23,875,200 |
1 For comparability purposes, costs for FY 2004 for the Office of Shared Services are shown prorated back to the components where they were obligated in FY 2002 and FY 2003--CDRH, CBER, ORA, and OC.
The costs for all components rose in FY 2004. This increase primarily reflects enhanced spending made possible by the additional resources for device review in FY 2004 and increases in pay rates for federal employees.
The Agency General and Administrative Costs, though up slightly from FY 2002 levels, declined as a percent of total spending on the device review process. T he percent of device review process costs devoted to Agency General and Administrative costs decreased from 8.6 percent in FY 2002, to 7.3 percent in FY 2003, to 7.2 percent in 2004.
With the passage of MDUFMA, great expectations have been created for significantly reducing the time it takes to evaluate new device applications, while maintaining rigorous standards for device safety and effectiveness. In FY 2005, FDA must substantially increase personnel to support the review of device applications, and improve the infrastructure of the device program, to assure that the MDUFMA performance goals, which become quite challenging in FY 2005 and beyond, will be met.
Congress has enacted an appropriation for FDA's device and radiological health program for FY 2005 of $215 million. This is an increase of $23.8 million over the FY 2004 appropriation for this program. This amount, and the revenue from MDUFMA user fees, will enable FDA to add the staff and infrastructure crucial to meeting the MDUFMA performance goals. The agency appreciates this substantial support for its device and radiological health program.
Without legislative amendment, the statutory provisions that permit FDA to collect and spend MDUFMA fees will expire on October 1, 2005 . These legislative amendments would eliminate the requirement that shortfalls below MDUFMA appropriation triggers for FY 2003 and 2004 be made up by October 1, 2005 . The Director of the Office of Management and Budget has assured, in an October 29, 2003 , letter to the Speaker of the House and the President of the Senate that the Administration will request resources for FDA's device and radiological health program in FY 2005, 2006, and 2007 that will meet the levels required by MDUFMA. With that assurance, and the MDUFMA fee revenues, FDA is committed to meeting the MDUFMA performance goals.
If these legislative amendments are not enacted, FDA will no longer be able to collect or spend MDUFMA fees that would provide over $36 million for the device review program in FY 2006. This could have a drastic impact on FDA's device review process for years, even if the needed corrective amendments were passed later.
The challenge for FDA in FY 2005 is to aggressively add the additional staff and infrastructure needed to meet MDUFMA goals, in light of the possibility that the entire MDUFMA program could be terminated if essential legislative action is not taken within the next few months. The Administration is committed to making this program a success.
The Federal Food, Drug, and Cosmetic Act (the Act), as amended by MDUFMA, Public Law 107-250, specifies three major conditions that must be met to some extent for medical device user fees to be collected and spent. A summary of these conditions and the extent to which they were met was provided earlier on pages 2 and 3. Each of these conditions is described in more detail below, with an explanation of the extent to which the condition was met in FY 2004.
For making the comparisons to determine if statutory conditions are met, an adjustment factor, which is defined in section 737(7) of the Act, must be calculated and applied each year. The statute defines the term "adjustment factor" as follows:
The term 'adjustment factor' applicable to a fiscal year is the Consumer Price Index for all urban consumers (all items; United States city average) for April of the preceding fiscal year divided by such Index for April 2002.
The April preceding FY 2004, which began on October 1, 2003 , was April 2003. The consumer price index (CPI) for April 2003 was 183.8. The CPI for April 2002 was 179.8. Dividing the CPI of April 2003 by the CPI of April 2002 yields a MDUFMA adjustment factor of 1.02225 for FY 2004.
The first condition is a funding trigger which affects the collection of fees in FY 2006. MDUFMA set funding targets for FY 2003 -2006 equaling $205,720,000 for FY 2003, and that level adjusted for inflation in subsequent years. The appropriation of those specific funding levels was not required to collect fees in fiscal years 2003, 2004, and 2005. Instead, MDU FMA set a trigger that must be met before fees can be collected in FY 2006.
To collect fees in FY 2006, the sum of appropriations for FY 2003 - 2006 for the devices and radiological product program must equal the sum of the funding targets set by MDUFMA for those years. Given current projections of the April 2005 CPI -U, this amount is anticipated to equal $851,942,000.
In FY 2003, the final appropriation was $$193,350,000, $12,370,000 below the MDUFMA target. The FY 2004 appropriation was $191,144,000, $19,154,000 below the MDUFMA target. Under current law, additional funds must be appropriated in FY 2005 or FY 2006, over and above the MDU FMA targets for those years, or FDA loses its ability to collect fees on October 1, 2005.
In a letter from the Director of the Office of Management and Budget dated October 29, 2003 , the Administration proposed that the statutory requirement to make up appropriation shortfalls for FY 2003 and FY 2004 be eliminated, and draft legislation to implement this proposal was sent informally to Congress in May 2004. The Administration's FY 2005 budget authority request for the Medical Devices program was $216,699,000, exceeding the minimum level specified in MDUFMA. The administration has committed that FY 2006 and 2007 requests will each meet the MDUFMA specified level, and FDA has committed to achieving the original MDUFMA performance goals with the levels appropriated in FY 2003 and FY 2004, as long as appropriations in FY 2005 and subsequent fiscal years satisfy the MDUFMA specified levels.
The second condition comes from section 738(h)(2)(A)(i). It states that fees "shall be retained in each fiscal year in an amount not to exceed the amount specified in appropriation acts, or otherwise made available for obligation, for such fiscal year...." Without an appropriation, no fees may be collected.
The President signed the Appropriation Act (Public Law 108-199) specifying amounts collectable from fees during FY 2004 on January 23, 2004. It provided $31,654,000 to come from fees collected. Thus, the second condition was met.
The third condition of MDUFMA requires an annual minimum amount of spending from appropriations, exclusive of user fees, on the process for device review as defined in MDUFMA. This condition in section 738(h)(2)(A)(ii), states:
(Fees) shall only be collected and available to defray increases in the costs of the resources allocated for the process for the review of device applications (including increases in such costs for an additional number of full-time equivalent positions in the Department of Health and Human Services to be engaged in such process) over such costs, excluding costs paid from fees collected under this section, for fiscal year 2002 multiplied by the adjustment factor.
In FY 2002, FDA's actual obligations for the process for the review of device applications totaled $119,673,026. The adjustment factor for FY 2004 is 1.02225, as stated above. Multiplying by this adjustment factor, the minimum amount of spending from appropriations for the device review process in FY 2004 is $122,335,751.
The amount FDA obligated from appropriations for the process for the review of device applications for FY 2004 was $123,521,871. Since this is greater than the adjusted FY 2002 amount ($122,335,751) the third condition was met.
The table below shows amounts FDA spent on the process for the review of device applications in FY 2002, FY 2003, and FY 2004. It also shows the amount of these costs that was charged to appropriations and the amount spent from user fee revenues.
Food and Drug Administration
Obligations
for the Process for the Review of Device Applications
As of September
30, 2004
|
FY 2002 |
FY 2003 |
FY 2004 |
|---|---|---|---|
From Appropriations |
$119,673,026 |
$125,597,098 |
$123,521,871 |
From User Fee Revenues |
NA |
$14,837,600 |
$23,875,200 |
Total Obligations |
$119,673,026 |
$140,434,698 |
$147,397,071 |
In addition to the above conditions, MDUFMA imposes a fourth condition that must be met if FDA is to be able to continue to have accredited third parties conduct device establishment inspections in FY 2005 and beyond. That condition is that FDA obligations for inspections of device establishments may not fall below the amount FDA obligated for this purpose in FY 2002, increased by 5 percent each year, for at least one of the two immediately preceding fiscal years. Should obligations for device establishment inspections fall below this minimum spending level for two consecutive years, FDA would be prohibited from allowing accredited third parties to conduct such inspections. This fourth condition is in section 704(g)(10) of the Act. As the table below shows, the amount FDA obligated for device establishment inspections in both FY 2003 and FY 2004 exceeded the minimum specified. Since FDA spending meets this level for both of the two fiscal years immediately preceding FY 2005 and for one of the two fiscal years immediately preceding FY 2006, FDA has meet the MDUFMA financial requirement necessary to permit the Agency to continue to allow accredited third parties to conduct some inspections through FY 2006.
Food and Drug
Administration
Obligations for the Inspection of Device Establishments
As
of September 30, 2004 , Rounded
to the Nearest Thousand Dollars
|
FY 2002 Base |
FY 2003 |
FY 2004 |
|---|---|---|---|
2002 obligations, increased by 5 percent a year |
$19,425,000 |
$20,396,000 |
$21,416,000 |
Actual Obligations |
$19,425,000 |
$22,576,000 |
$21,522,000 |
Excess (Shortfall) |
NA |
$2,180,000 |
$106,000 |
MDUFMA sets fees for a number of different categories of applications. The highest fees are paid by premarket applications, premarket reports, panel track supplements, and efficacy supplements, all of which were required to pay $206,811 each in FY 2004. These are referred to collectively as full fee applications, even though those that were submitted by qualifying small businesses paid only 38 percent of the full fee rate, or $75,588, in FY 2004. There are two kinds of fee-paying supplements to these applications under MDUFMA, 180-day supplements and real time supplements. The 180-day supplements were assessed a fee of $44,464 each in FY 2004, except that those from qualifying small businesses paid only $16,896. The real time supplements were assessed a fee of $14,890 in FY 2004, except that those from qualifying small businesses paid $5,658. 510(k) notifications submitted in FY 2004 were assessed a fee of $3,480, except that those from qualifying small businesses paid a fee of $2,784.
The Table below summarizes the number and type of application fees received in FY 2004.
Application Type |
Number Paying Full Fee |
Number Paying Reduced Small Business Fee |
|---|---|---|
Full Fee Applications |
40.5 |
4 |
180-Day Supplements |
93 |
13 |
Real-Time Supplements |
157 |
20 |
510(k)s |
2,874 |
517 |
The Table below summarizes the number and type of application fees that FDA assumed it would receive in FY 2003 when MDUFMA was enacted.
Application Type |
Number Paying Full Fee |
Number Paying Reduced Small Business Fee |
|---|---|---|
Full Fee Applications |
58 |
10 |
180-Day Supplements |
171 |
24 |
Real-Time Supplements |
86 |
14 |
510(k)s |
|
4,0001 |
1When MDUFMA was enacted FDA did not yet have estimates of how many 510(k)s would pay each fee.
FDA revised its estimates of numbers of fee-paying applications in FY 2005 when fees for FY 2005 were set in August 2004.
MDUFMA directs FDA to waive the first premarket application fee from a qualified small business and any fees for applications submitted solely for pediatric indications. It also directs FDA to reduce premarket application and supplement fees for subsequent applications from qualified small businesses. Beginning in FY 2004, FDA also charged a reduced rate for premarket notifications (510(k)s) from qualified small businesses. In addition, MDUFMA fees are not to be collected for the following:
This appendix provides a summary of the MDUFMA fee waivers, reductions, and exemptions allowed in FY 2004.
FDA responded to thousands of e-mails and phone calls from firms asking for information regarding the small business waiver for MDUFMA fees. FDA granted 570 of the 626 written requests for small business status received in FY 2004. A total of 573 applications received in FY 2004 had fees either waived (if the application was their first PMA) or reduced because the submitter was a qualified small business. The following table summarizes the value of the small business reductions or waivers granted in FY 2004. Some qualifying small businesses submitted more than one application that had a fee reduced, and some did not submit an application in FY 2004.
FY 2004 Small Business Fee Waivers and Reductions Granted
|
Number |
Value for Each |
Total Value |
|---|---|---|---|
Full Fees Waived |
19 |
$206,811 |
$3,929,409 |
Full Fees Reduced |
4 |
$128,223 |
$512,892 |
180-Day Supplements Reduced |
13 |
$27,568 |
$358,384 |
Real-Time Supplements Reduced |
20 |
$9,232 |
$184,640 |
510(k) Fees Reduced |
517 |
$696 |
$359,832 |
Total Value of Small Business Waivers and Reductions: |
$5,345,157 |
||
FDA received fees totaling $27,169,321 in FY 2004. Had there been no small business waivers and reductions, FDA would have collected an additional $4,985,325. (The value of the 510(k) waivers is not included in this amount, since under MDUFMA the fees for 510(k)s from large firms is increased slightly to offset the reduction in 510(k) fees charged to qualifying small businesses.) The total with no small business waivers or reductions would have been $32,154,646. The small business waivers and reductions resulted in FDA's collecting about 15.5 percent less revenue than would have otherwise been the case.
FDA received 9 Humanitarian Device Exemption (HDE) applications and 29 supplements in FY 2004. None of these are subject to MDUFMA fees. It is assumed that none of them would have been submitted had they been subject to a fee, so this exemption probably did not result in any loss of revenue.
FDA received no exemption requests in FY 2004 for applications submitted under section 351 of the Public Health Service Act for a product licensed for further manufacturing use only.
FDA received and granted only one request from a State or Federal government entity for exemptions for an application (in this case a 510(k)) or a device that was not intended for commercial distribution . Total cost of this exemption in FY 2004 was $3,480.
Pediatric Exemptions were granted in FY 2004 for one full fee application, one 180-day supplement, one real-time supplement, and 21 510(k)s. Total value of these exemptions in FY 2004 was $339,245.
In FY 2004, FDA received 255 510(k)s that were subject to third party review and therefore did not pay MDUFMA fees. This is a 34% increase over the 190 510(k)s that were submitted for third party review in FY 2003, and a 100% increase over the 127 510(k)s that were submitted for third party review in FY 2002. Total value of these exemptions in FY 2004 was $887,400.
Summary of Value of All Fee Waivers and Reductions Granted
Reasons for Waiver |
FY 2003 |
FY 2004 |
|---|---|---|
Small Business |
$3,297,371 |
$5,345,157 |
Govt. Sponsored application not for Commercial Distribution |
$2,187 |
$3,480 |
Pediatric Indications |
$136,662 |
$339,245 |
510(k)s Reviewed by 3 rd Parties |
$415,530 |
$887,400 |
Total |
$3,851,750 |
$6,575,282 |
The Federal Food, Drug, and Cosmetic Act (the Act), as amended by MDUFMA, defines the process for the review of medical device applications and the costs that may be included in that process. Using these definitions (and further refinements identified below) and the methodologies described in this report, the Agency identified those activities that were applicable to the "process for the review of device applications."
Over 96 percent of amounts obligated are expended within two years. Therefore, obligations represent an accurate measure of costs.
Included Activities
[Section 737(5)(A)] The activities necessary for or in anticipation of the review of premarket applications, premarket reports, supplements, and premarket notification submissions, including, but not limited to, the following:
[Section 737(5)(B)] The issuance of action letters that allow marketing of devices or which set forth in detail the specific deficiencies in such applications, reports, supplements, or submissions and, where appropriate, the actions necessary to place them in condition for approval. This includes activities such as the issuance of deficiency letters, meetings with applicants to discuss such letters, and review of the responses.
[Section 737(5)(C)] The inspection of manufacturing establishments and facilities undertaken as part of the review of pending premarket applications, premarket reports, and supplements to include activities such as the review of manufacturing information submitted in premarket applications, pre-approval GMP inspections, and resolution of any identified GMP issues.
[Section 737(5)(D)] Monitoring of research conducted in connection with the review of such applications, reports, supplements, and submissions. For the types of applications identified above, this would include monitoring activities such as:
[Section 737(5)(E)] Review of device applications subject to section 351 of the Public Health Service Act for an investigational new drug application (IND) under section 505(i) or for an investigational device exemption (IDE) under section 520(g) and activities conducted in anticipation of the submission of such applications under section 505(i) and 520(g). This would include the review of the IDEs (original, amendments, and supplements) and INDs (amendments, supplements, and safety reports). Also included are pre-IDEs (review of the submission and any meetings or correspondence), significant/non-significant risk determinations, and Determination/Agreement meetings.
[Section 737(5)(F)] The development of guidance, policy documents, or regulations to improve the process for the review of premarket applications, premarket reports, supplements, and premarket notification submissions to include activities such as the development of device-specific, cross-cutting, special control, and program-related guidances as well as "Blue Book Memoranda" and Standard Operating Procedures.
[Section 737(5)(G)] The development of voluntary test methods, consensus standards, or mandatory performance standards under section 514 in connection with the review of applications listed above . This would include national and international standards development and coordination related to the review of premarket applications.
[Section 737(5)(H)] The provision of technical assistance to device manufacturers in connection with the submission of such applications, reports, supplements, or submissions to include activities such as:
[Section 737(5)(I)]Any a ctivity undertaken under section 513 or 515(i) in connection with the initial classification or reclassification of a device or under section 515 (b) in connection with any requirement for approval of a device to include activities such as the review of requests for information submitted under section 513(g) and the "call" for PMAs for pre-amendment devices.
[Section 737(5)(J)] Evaluation of post-market studies required as a condition of approval of a premarket application or premarket report under section 515 or section 351 of the PHS Act. This would include activities such as the review of:
[Section 737(5)(K)] Compiling, developing, and reviewing information on relevant devices to identify safety and effectiveness issues for devices subject to premarket applications, premarket reports, supplements, or premarket notification submissions to include activities such as:
Training related to premarket and post-market approval activities . This would include the following types of training:
User Fee Act implementation to include activities such as:
*All user fee related costs represented by the above activities are collectively referred to in this report as costs for the process for the review of medical device applications.
Section 737(6) of the Act defines the "costs of resources allocated for the process for the review of medical device applications" as the expenses incurred in connection with this process for:
(A) Officers and employees of the FDA, contractors of the FDA, advisory committees, and costs related to such officers, employees, committees and contracts;
(B) Management of information, and the acquisition, maintenance, and repair of computer resources;
(C) Leasing, maintenance, renovation, and repair of facilities and acquisition, maintenance, and repair of fixtures, furniture, scientific equipment, and other necessary materials and supplies; and
(D) Collecting user fees and accounting for resources allocated for the review of premarket applications, premarket reports, supplements, and submissions.
The costs associated with the process for the review of device applications are based on obligations recorded within FDA's Center for Devices and Radiological Health (CDRH) and the Center for Biologics Evaluation and Research (CBER), Office of Regulatory Affairs (ORA), and the Office of the Commissioner (OC). These organizations correspond to the cost categories presented on the Statement of Costs for the Process for the Review of Device Applications as follows:
Cost Category |
FDA Organization |
|---|---|
Costs for the Review of Premarket Applications (PMAs), Product Development Protocols (PDPs), Premarket Reports (PMRs), Modular PMAs and Supplements, and 510(k)s |
CDRH, CDER |
Costs for the Review of Biologic License Applications (BLAs) and Supplements, and 510(k)s |
CBER |
Field Inspection and Investigation Costs |
ORA |
Agency General and Administrative Costs |
OC |
The costs were accumulated using a variety of methods. Using the definitions of costs and activities included in the "process for the review of device applications" in the Act, as expanded in the discussion in Appendix D, a portion of the costs within each of the four organizations listed above was identified as part of the device review process.
Costs are accumulated in CDRH and CBER in cost centers corresponding to the organizational components within the centers. Most FDA components involved in the device review process perform a mixture of activities--some included in the definition of the process for the review of device applications, and some not included. These components fall into three categories: 1) direct review and laboratory components; 2) indirect review and support components; and 3) center-wide costs. Costs are accumulated by cost centers (usually organization components at the division level). The allocation of costs for the categories is discussed below.
Employees in all components of CDRH and CBER other than those noted below as center indirect review and support components reported their time in categories that could be used to differentiate between time spent on the process for the review of device applications and all other time.
Both CDRH and CBER have existing time reporting systems in place. These time reporting systems were modified after the enactment of MDUFMA, so that time could be reported in categories that could be separated into allowable and excluded activities with respect to the process for the review of device applications, as defined in MDUFMA and as further defined in Appendix D. This process is further explained below.
CDRH had a time reporting system that has been used to gather information about how employees spend their time for a two-week period one or two times each year for the past 10 years. After the definitions of allowable and excluded costs for the process for the review of device applications under MDUFMA were further refined, as presented in Appendix D, the time reporting categories in the CDRH time-reporting system were modified so that all data captured fit into either allowable or excluded costs. These modifications to the system were completed in mid-June, 2003.
Once these modifications were completed, all CDRH employees other than management and administrative personnel reported all of the time they worked against these revised categories for a period of eight consecutive weeks, from June 29 through August 23, 2003. Whether time categories were counted as allowable or excluded was not apparent to employees as they reported their time.
FDA Centers are very payroll-intensive organizations. In most years over 60 percent of all FDA funds go to pay for employee salaries and benefits. Almost all other costs directly support these employees. Thus the percent of time reported during this eight-week period as having been expended on allowable device review process activities for each cost center was then applied to all costs incurred for that cost center for the entire fiscal year, FY 2003.
Further, since these percentages of allowable costs had never been collected for earlier periods, the percentages of allowable costs reported in this eight-week period were likewise applied to each cost center's direct costs (obligations) incurred in FY 2002, to get the baseline FY 2002 device review process cost data required under MDUFMA.
For FY 2004, all CDRH employees, other than management and administrative personnel, reported all of the time they worked against these revised categories for one two-week period during each quarter of the fiscal year. The results from the eight weeks of time reporting data were then averaged and extrapolated to the entire year. This served as the basis for measuring CDRH costs for the device review process for FY 2004 for direct review and laboratory components, and the same pattern will be followed in future years.
A similar procedure was used in CBER's direct review and laboratory components to measure costs for the device review process. CBER was able to use the time reporting system it has had in place for over 10 years, and which was validated by studies done just after PDUFA was initiated. That system collects time reports from all employees other than management and administrative support personnel for a two-week period during each quarter of the fiscal year.
CBER's existing system was also modified to assure that categories against which time was reported could be clearly divided into those that were either allowable or excluded in the MDUFMA defined process for device application review. The time of the management and administrative support personnel is then assumed to follow the same pattern between process and non-process costs as the average time of those employees who reported their time. The eight weeks of time reporting data collected by CBER were collected for two weeks at a time for four different two-week periods over FY 2003 and 2004, and a similar process will take place each future fiscal year. The results from the eight weeks of time reporting data were then averaged and extrapolated to the entire year.
This process for determining allowable and excluded costs for MDUFMA direct review and laboratory costs is identical to how costs for the process for the review of human drug applications was measured by Arthur Andersen under PDUFA for 1992 and 1993.
Indirect review and support components provide the infrastructure for the review process. In CDRH, these are the Office of the Center Director and the Office of Management and Operations. In CBER, these components include the Office of the Center Director, Office of Management, Office of Information Management, and the Office of Communications, Training, and Manufacturers Assistance.
In both CDRH and CBER, the allowable costs for these indirect review and support components were determined by multiplying the average percent of allowable costs for all direct review and laboratory components by the total costs of each of these indirect review and support components.
A number of center-wide expenses are paid for centrally from agency funds each year rather than from funds allocated to the centers. These costs include rent, utilities, some computer equipment, facilities repair and maintenance, and some extramural and service contracts. Many of these costs, such as building rent, can be traced back to the specific organization component that generated the cost and were assigned the user fee related percentage calculated for the division to which the expenditure related. For the costs that benefited the center as a whole and could not be traced to a specific division, a weighted average user fee percentage was calculated based on the level of user fee related costs to total costs in the center.
All field inspection and investigation costs are incurred by FDA's Office of Regulatory Affairs (ORA). ORA costs are incurred in both district offices (the "field") and headquarters support offices. In FY 2002 the Agency began tracking accumulated ORA costs through the use of the Field Accomplishment and Compliance Tracking System (FACTS). FACTS is a time and activity tracking system which captures time in a variety of categories, including pre-approval inspections of manufacturing facilities, investigations of clinical studies, and analytical testing of samples--which are included in the process for the review of device applications.
Total direct hours reported in FACTS are used to calculate the total number of staff-years required by ORA to perform activities in the process for the review of device applications as defined in MDUFMA. In addition to the direct time, an allocation of support time is also included to represent the work done by the ORA administrative and management personnel. The Agency then applies the total number of user fee related staff years to the average salary cost in ORA to arrive at the ORA user fee related salary costs. The final step is to allocate ORA obligations for operations and rent to the device review process based upon the ratio of user fee related staff years to total ORA staff years. The following table summarizes the calculation for the FYs 2002, 2003, and 2004, respectively.
Food and Drug Administration
Office of Regulatory Affairs
Costs of the Process for the Review of Device
Applications
As of September 30, 2002 , 2003, and
2004
Cost Component |
FY 2002 |
FY 2003 |
FY 2004 |
|||||
|---|---|---|---|---|---|---|---|---|
Staff Years Utilized |
54 |
59 |
60 |
|||||
ORA Average Salary & Benefits |
$77,987 |
$79,696 |
$86,376 |
|||||
Salary and Benefits |
$4,211,289 |
$4,702,043 |
$5,182,556 |
|||||
Operations and Rent |
$2,567,305 |
$2,969,792 |
$2,844,744 |
|||||
Total |
$6,778,594 |
$7,671,835 |
$8,027,300 |
|||||
The ORA costs for the process for the review of device applications described above include total process costs, including costs paid from appropriations and costs paid from fee revenues.
The Agency general and administrative costs are incurred in the FDA's Office of the Commissioner (OC). During FY 2004, OC was comprised of the following offices:
The OC costs applicable to the process for the review of device applications were calculated using a method prescribed by the Division of Cost Determination Management, Office of Finance, Office of the Secretary, Department of Health and Human Services. The method uses the percentage derived by dividing total Office of the Commissioner costs by the total salary obligations of the Agency, excluding the Office of the Commissioner. That percentage is then multiplied by the total salaries (excluding benefits) applicable to the process for the review of devices in CDRH, CBER, and ORA to arrive at the total General and Administrative Costs.
Using this process, $10,293,297 and $10,671,593 in general and administrative obligations were dedicated to the device review process in FYs 2003 and 2004, respectively. These are total costs, including funds obligated both from appropriations and from fees. T he Agency general and administrative obligations in FY 2004 accounted for about 7.2 percent of the total FY 2004 cost of the process for the review of device applications. This is down slightly from 7.3 percent in FY 2003, and down significantly from 8.6 percent in FY 2002.
At the beginning of FY 2004, FDA implemented a major reorganization and streamlining of its administrative support activities. Many functions and resources from all FDA Centers, ORA, and from components of the Office of the Commissioner were consolidated into an Office of Shared Services under the Office of Management--a component of the Office of the Commissioner. This was done in an effort to achieve greater efficiency in the provision of these services. For reporting comparability purposes, however, resources expended by the Office of Shared Services in FY 2004 supporting the device review process are shown as having been incurred by CDRH, CBER, ORA, or OC, in proportion to the resources transferred from each these components to the Office of Shared Services. This makes the figures shown for FY 2004 comparable with figures for FY 2002 and 2003.