Medical Device Link.

Originally Published MDDI January 2003

MEDICAL DEVICE REGULATION

The newest medical device legislation will provide FDA with increased revenue and resources, but how will the changes affect industry?

Edward C. Wilson Jr.

The Medical Device User Fee and Modernization Act of 2002 (MDUFMA), which President Bush signed into law on October 26, 2002, will have a significant impact on the regulation of devices in the United States. The provisions are meant to address agency shortcomings, but medical device manufacturers will also be affected by the changes. Four of the major provisions involve issues of immediate concern for the industry: user fees, third-party inspections, combination products, and modular reviews.

User Fees

The most significant change made by the new law is the introduction of user fees for product filings. For the types of filings indicated in Table I, the user fees were scheduled to go into effect on or after October 1, 2002. Exactly when companies must first pay the fees, however, is up in the air as of this writing.

The law states that fees for applications submitted between October 1 and October 26, 2002, are due on October 26, 2002. For FDA to collect the fees, however, Congress must enact an enabling appropriation. Because Congress did not do so before adjourning for the year, FDA must wait until Congress reconvenes on January 11. Whenever the appropriation is passed, FDA will issue invoices for all applications submitted between October 1, 2002, and a date to be published in a Federal Register notice. The invoices will be due and payable within 30 days. After the specified date, fees must be submitted to FDA with the marketing applications.

Once this interim period has expired, FDA will consider applications that are not accompanied by the required fee to be incomplete. The agency will not accept the filing until the fee has been paid. If FDA refuses the filing for other reasons, or if the sponsor withdraws it before FDA makes a filing decision, the agency must refund 75% of the fee. In cases where a premarket application, premarket report, or supplement is withdrawn after filing but before a "first action," the law gives discretion to FDA to refund "some or all" of the fee. (Examples of first actions would be findings of major deficiency, not approvable, approvable, approval pending GMP inspection, or denial determinations.) The amount of the refund in such cases would be determined by the level of effort already expended on the review. The user fee provisions will expire on October 1, 2007, if they are not reauthorized by Congress before that day.

As indicated in Table II, sponsors of certain types of submissions are not required to pay user fees. In addition, smaller companies will be granted fee waivers or reductions under certain conditions. The law defines small-business applicants as entities with $30,000,000 or less of annual revenue in their most recent federal income tax return, including returns of all affiliates, partners, and parent firms. If it is the firm's first premarket application or report, it will be granted a one-time waiver of the user fee.

In addition, for subsequent premarket applications, premarket reports, and supplements submitted by a small business, the user fees may be paid at a reduced rate of 38% of the established fees (see Table I). To qualify for a waiver or lower fee rate, small-business applicants must submit supporting information to FDA 60 days before submitting their application. The ultimate decision of whether a company qualifies for small-business status is FDA's; its decision is not reviewable.

Small businesses submitting 510(k) notices may request a fee reduction of 20% of the established rate for the fiscal year beginning October 1, 2003. The request must be made at least 60 days before submitting the 510(k) notice. Again, FDA's decision on the request is not reviewable.

User fee rates will be based on meeting specific revenue projections. Adjustments for inflation and workload begin in fiscal year 2004. FDA must publish applicable fees in the Federal Register 60 days before the beginning of each fiscal year, beginning October 1, 2003.

The law also requires FDA to submit annual performance goals (relating to review times) to Congress. In a fiscal year when appropriations do not meet specified levels, FDA will not necessarily have to meet all of its goals. Instead, it will be "expected to meet such goals to the extent practicable, taking into account the amounts that are available . . . for such purpose." For fiscal years 2006 and 2007, if appropriations do not meet certain levels, FDA may not assess medical device user fees and will not be expected to meet its performance goals.

The new legislation includes additional funding for postmarket surveillance activities. This reflects Congress's concern about the effectiveness of the postmarket surveillance program in light of the more rapid clearances and approvals that are anticipated, thanks to the increased funding from user fees.

Commentary. For the first time, many device companies will be required to pay user fees for FDA review of product submissions. These fees are meant to address the dwindling resources at the device center and to alleviate fears that U.S. patients may not be benefiting from medical technology as quickly as those in other countries. Staff levels at CDRH have dropped by 8% since 1995; average total review time for a PMA is about 411 days.

In drafting the law, Congress recognized that user fees might place a significant financial burden on some companies. Accordingly, it built in reductions, exemptions, and waivers. Under the law, to receive a waiver or fee reduction a small company must submit a request to FDA 60 days before submitting its marketing submission. FDA will also be issuing a detailed Federal Register notice providing instructions for waiver applications and payment. During the transition period, the agency is instructing small- business applicants to wait until they receive an invoice or the notice is published before submitting income tax forms or requests to be classified as a small business.

User fees should yield about $225 million in increased resources over the next five years. With such an increase, FDA reviews should proceed more quickly, permitting devices to be marketed sooner.

Companies should not become unduly aggressive in their decisions not to file supplements or new 510(k) notices to avoid user fees. They should plan carefully to consolidate multiple changes into single filings, where practicable, to help reduce the amount of fees incurred.

Third-Party Inspections

Section 201 of the law permits accredited third parties to perform inspections of eligible device establishments in place of FDA—under certain circumstances. The manufacturer bears the cost of a third-party inspection.

By no means are all manufacturers eligible to use third-party inspectors. The eligibility requirements are extensive and complex:

• The most recent inspection of the manufacturer's facility must have been classified as "no action indicated" or "voluntary action indicated."
• The establishment must notify FDA of the accredited entity it intends to use to inspect its facility and receive clearance from FDA.
• The establishment must market a device in the United States and must market or intend to market a device "in one or more foreign countries," one of which countries certifies, accredits, or otherwise recognizes the entity accredited by FDA to conduct third-party inspections.
• The manufacturer must submit to FDA a statement that the law of the country in which the device is marketed recognizes FDA's inspections. Then the manufacturer must await confirmation from FDA that it may request clearance for the accredited individual to inspect the establishment.
• For domestic establishments, the facility may not have been inspected by a third party for the two immediately preceding inspections. FDA may choose to waive this requirement, however.
• For foreign establishments, FDA must periodically conduct inspections of the establishment.

FDA also has the right to inspect at any time any facility that is subject to the agency's inspection authority.

The agency has 30 days to respond to a manufacturer's request to use a third-party inspector. FDA may take one of two actions in its response. First, it may simply approve the request. Second, it may ask for more information. The law specifies that this may be information concerning the relationship between the establishment and the accredited person, or GMP compliance data for the establishment.

The compliance data may include complete reports of GMP inspections or other quality control audits that, during the preceding two years, were conducted by outside parties, together with all other compliance data that FDA deems necessary. If FDA requests such compliance data, the agency has 60 days to review the data before approving or rejecting the proposed inspector. If FDA fails to respond to the manufacturer within the deadlines described above, the request is considered cleared. If FDA rejects the company's proposed inspector, the establishment may propose a different inspector. If FDA refuses to allow a third party to conduct an inspection of an establishment, the decision may be reviewed by an entity designated by FDA.

If a manufacturer uses a third-party inspector and FDA classifies the results as "official action indicated," the manufacturer will lose its eligibility to use a third-party inspector until FDA issues a written statement that all violations have been resolved and notifies the establishment that it may again use third-party inspectors. If FDA does not conduct an inspection within 48 months of the firm's initial request to use a third party, however, the establishment again becomes eligible for third-party inspection.

To assure the overall quality of this program, the law requires FDA to periodically audit the performance of accredited parties. The authority for inspections by accredited parties expires on October 1, 2012. In addition, beginning with FY 2005, if appropriations to FDA for a given fiscal year fall below certain levels, no third-party inspections may be conducted during that fiscal year.

Commentary. On November 16, 2001, the External Review Subcommittee of CDRH issued a report entitled "Science at Work in CDRH: A Report on the Role of Science in the Regulatory Process." In it, the committee made several recommendations for creating partnerships with external parties. One reason for this was to address the fact that many agency employees are due to retire in the next several years. The third-party inspection provision of the new legislation is one example of this approach. It is intended to help remedy FDA's failure—due to a lack of resources—to conduct biennial inspections of Class II and Class III device manufacturers.

The involvement of third parties in facility inspections is not entirely new. FDA has, in certain circumstances, allowed third parties to certify to the agency that a manufacturer has implemented corrective actions to address prior inspectional observations. This has been particularly true in situations in which the establishment has repeatedly failed to take adequate corrective actions to alleged violations or is perceived as having serious, systemic quality system problems.

This new section of the law significantly expands this informal policy. It requires FDA to implement a formal accreditation program and to allow eligible manufacturers to choose to be inspected by a third party. It is likely that FDA will approve the use of third-party auditors primarily for those firms with good compliance histories. This will allow the agency to concentrate on manufacturers with more serious quality system problems.

FDA generally has not allowed third parties to conduct pre-PMA inspections. It does not appear from the statutory language that companies will be allowed to use third parties to conduct pre-PMA inspections under MDUFMA either.

Before choosing a third-party audit over an FDA inspection, manufacturers should consider the potential downsides of third-party audits. Perhaps the most serious concern is that the third party may find more inspectional observations and make more recommendations for corrective action than an FDA inspector. This outcome could result from the auditor's training and experience or a concern that failing to conduct a thorough inspection could result in the loss of accreditation or more-serious penalties.

There are other issues that should be considered as well. The third party's report must contain all of the auditor's observations and recommendations. But it is unclear whether the report may include the corrective actions that the manufacturer has taken or has committed to take to address the audit observations and recommendations. It is also unclear whether the manufacturer will be permitted to respond to the report before FDA issues a Form 483 to the company and classifies the inspection as "official action indicated" or otherwise. Industry should work with FDA to ensure that firms are afforded an adequate opportunity to respond to third-party audit observations before FDA issues a Form 483 or initiates any type of enforcement action.

Another argument against a third-party audit may be that the agency may request internal compliance data concerning the GMP status of the establishment. Some companies may not wish to provide this information, which FDA, by policy, does not routinely request during typical GMP inspections.

For a firm marketing its product in Europe, it also is unclear whether FDA will permit the notified body that the firm uses there to conduct the third-party inspection. This approach would reduce the number of third-party inspections at a firm. FDA, however, may perceive it as a conflict of interest, particularly if that notified body performs a consulting function for the manufacturer.

There also are logistical issues that FDA will need to address. For example, how much advance notice will the agency provide to manufacturers of a planned FDA inspection? If it is not sufficient notice, firms will not have adequate time to make the request for a third-party inspection.

Designation and Regulation of Combination Products

Section 503(g) of the FD&C Act required FDA to designate a "component" of FDA to regulate combination products. The new law changes this language by requiring FDA to assign an agency center to regulate such products. If the agency determines that the primary mode of action of the product is that of a drug (other than a biological product), the Center for Drug Evaluation and Research will have primary jurisdiction; if a device, CDRH will have primary jurisdiction; and if a biological product, the Center for Biologics Evaluation and Research will have primary jurisdiction.

The new law requires FDA to establish an office of combination products, within the Office of the Commissioner, no later than December 26, 2002. The new office, which must be managed by a director, is required to have appropriate scientific and medical expertise. It will be responsible for

• Promptly assigning each combination product to the agency center with primary jurisdiction (based on the product's primary mode of action).
• Overseeing the regulation of combination products to ensure timely and effective premarket reviews, and coordinating reviews by more than one center.
• Ensuring the consistency and appropriateness of postmarket regulation of like products.
• Resolving any disputes regarding the timeliness of reviews of combination products (unless they are clearly premature), and making recommendations to the commissioner with regard to the resolution of substantive disputes that arise during the review process. Such disputes must first be considered by the center with primary jurisdiction, using its scientific dispute- resolution procedures.
• Reviewing each agency agreement, guidance, or practice regarding the assignment of combination products to agency centers to determine whether each is consistent with the new law. These may be modified, revised, or eliminated as necessary (but FDA may follow these agreements, guidance documents, and practices in the meantime).
• Reporting to Congress on its activities regarding combination products by October 26, 2003, and annually thereafter.

Commentary. These provisions may improve FDA's handling of combination products. However, they fail to clarify some fundamental problems inherent in the FD&C Act. For example, neither the FD&C Act nor these amendments resolve the overlap in the definitions of the terms drug, device, and biological product. Confusion arises because the categories all include articles that are intended to prevent, treat, or cure disease.

Both the drug and device categories include articles intended to affect the structure or function of the body. Products that achieve their primary purpose through chemical action within the body or are dependent upon being metabolized are excluded from the definition of a device. But the terms chemical action and metabolism are ill-defined and uncertain, making the categorization of each product difficult.

Also, there is no requirement that a "drug" must depend on chemical action or on being metabolized. Thus, a product that meets the definition of a device also may meet the definition of a drug. FDA claims that this overlap gives it very broad discretion over whether to regulate an article as a drug or a device.

Finally, to make matters even more complicated, products that meet the definition of a biologic also meet the definition of a drug, and some biologics (such as tissues intended to perform a mechanical function in the body) also may meet the definition of a device.

In addition, the new law does nothing to clarify the often confusing issue of determining the "primary mode of action" of a combination product. Frequently, a combination product has two modes of action, neither of which can be said to be dominant or "primary." For example, a wound dressing impregnated with antibiotic is both a device and a drug. Because this product serves two essential purposes, i.e., to provide a physical barrier (device) and to kill microorganisms (drug), it is difficult to assign jurisdiction based on the "primary" mode of action.

Also, because of the overlap in the definitions (discussed above), it is often difficult to say with certainty that a product has, for example, a drug mode of action versus a biological mode of action. Nonetheless, under the statute, FDA is required to designate one mode of action as primary. The lack of definitional clarity, and the lack of publicly available information regarding pending marketing applications, give FDA extremely broad discretion in this regard.

Modular Review

The new law amends Section 515(c) (premarket approval provisions) of the FD&C Act to codify the existing CDRH policy on the submission of modular PMAs. This provision requires the agency to accept and review portions of a PMA that are ready for FDA review. (However, FDA may suspend the program when its authority to collect user fees has been suspended.) Each portion of a modular PMA that FDA finds acceptable may not be further reviewed, unless there is a compelling issue of safety and effectiveness. Furthermore, FDA is required to identify in writing any deficiencies in PMA modules that are deemed to be unacceptable, and describe in detail how those sections may be made acceptable. Under the new law, the entire fee is due when the first module is submitted to FDA; in addition, FDA has stated that applicants in the process of a modular PMA review before October 1, 2002, will have to pay the full PMA user fee if the final module was submitted after that date.

Commentary. A number of divisions within CDRH have by policy allowed companies to submit modular PMAs, even though there has been no statutory or regulatory requirement to do so. This section of the law now makes doing so a requirement. Modular PMAs allow companies to submit portions of their PMAs to FDA when they are ready for review, as opposed to submitting the entire PMA at one time. This allows FDA to review portions of the submission (e.g., device description, preclinical section) before other sections of the PMA (e.g., clinical section) are completed. Frequently, the applicant and FDA are able to resolve issues and questions regarding certain sections of the PMA while the remaining sections are being prepared. The expansion of this approach should enhance FDA's efficiency and help reduce premarket review times.

Reprocessed Single-Use Devices

The new law requires the labeling of a reprocessed single-use device to bear the statement: "Reprocessed device for single use. Reprocessed by XX." The name of the supplier of the reprocessed device must be placed in the space identifying the entity responsible for reprocessing. It is unclear whether the original equipment manufacturer also must be identified in the labeling. The regulations implementing this requirement will presumably address this issue. This amendment applies to reprocessed devices introduced into interstate commerce after January 26, 2004.

FDA must identify devices for which 510(k) clearance is required to determine that they remain substantially equivalent to a predicate device after reprocessing. The 510(k) notice must include validation data demonstrating that the single-use device will remain substantially equivalent to its predicate device after the device has been reprocessed a maximum number of times. FDA has until April 26, 2003, to publish in the Federal Register a list of the types of reprocessed devices that require 510(k) clearance, and must revise the list as appropriate.

If 510(k) notices for reprocessed devices have been submitted to FDA before the agency publishes its initial list of reprocessed devices that require 510(k) clearance, the holders of such notices must submit validation data as described above no later than nine months after the publication of the list. The agency is limited in its ability to take enforcement action against such devices during that nine-month period and while such validation data are under review.

FDA must identify which Class I and 510(k)-exempt Class II devices require 510(k) notices if the devices are intended to be reprocessed. The agency must publish by April 26, 2003, the list of "critical" reprocessed devices for which 510(k)s with validation data will be required. (Critical devices are defined as devices intended to contact normally sterile tissue or body spaces during use.)

By April 26, 2004, the agency must also publish the list of "semicritical" reprocessed devices requiring 510(k)s. (Semicritical devices are defined as those that are intended to contact intact mucous membranes and not penetrate normally sterile areas of the body.)

The 510(k) notices for these devices must include the validation data described above. They must be submitted to FDA no later than 15 months after the publication of the initial list, or revision of the list, depending on which action terminates the 510(k) exemption for the reprocessed device. FDA is limited in its ability to take enforcement action against such devices during that 15-month period and while such validation data are under review. The termination of the 510(k) exemption for a reprocessed device does not terminate the exemption for the original device.

Any person may file a report seeking approval for a Class III device that is a reprocessed single-use device. A report also will be required if a Class I or Class II reprocessed device is found not to be substantially equivalent to a predicate device. The report must contain much of the same information as a PMA. The reports are not required to contain clinical data; however, they must include validation data that demonstrate that the device will remain reasonably safe and effective after the product has been reprocessed the maximum number of times.

To facilitate reporting of adverse events involving reprocessed devices, FDA is required, by no later than April 26, 2003, to modify its MedWatch forms. The revised forms will provide for reporting by user facilities and distributors, as appropriate, of adverse events involving reprocessed single-use devices.

Commentary. The new provisions regarding reprocessed devices are the result of significant pressure from original equipment manufacturers and other groups. They have argued that reprocessors should be required to demonstrate that the reprocessing of single-use devices does not render the products unsafe, ineffective, or no longer substantially equivalent to a predicate device. The law formalizes certain initiatives that FDA has already taken to regulate the reprocessing of single-use devices. It also requires that the name of the reprocessor be on the label of the device, so that any malfunctions or injuries can be reported under the reprocessor's name. The reference to distributor reporting is somewhat confusing, because distributors are not currently required to submit MedWatch forms to FDA. It is unclear whether FDA will now require distributors to report adverse events only for reprocessed devices, or whether the statute is referring to voluntary reports from distributors.

Miscellaneous Provisions

The new law also includes a number of miscellaneous provisions related to pediatric device use, breast implants, the inclusion of manufacturer identification on products, electronic labeling and registration by manufacturers, and electronic posting of Class II devices exempt from 510(k)-notice requirements by FDA. In addition, the law makes permanent the "intended use" provision enacted in 1997 as part of FDAMA. This provision was scheduled to expire this year. It applies to FDA's determinations of the intended use of a device, for the purpose of determining substantial equivalence to a legally marketed product. It requires that such determinations be based on the proposed labeling submitted in the applicant's 510(k) notice, rather than "implied intended uses" asserted by the agency. Finally, the new law extends FDA's existing authority to allow accredited third parties to review some premarket notifications until October 1, 2007.

Edward C. Wilson Jr. is a partner in the Washington, DC–based law firm Hogan & Hartson LLP. His specialty is medical device law.

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