Medical Device Link.

Originally Published MX January/February 2005

INDUSTRY ASSOCIATIONS

In light of current failings, careful collaboration will be required to preserve the future of medical device user fees.

Mark Leahey

Mark Leahey is executive director of the Medical Device Manufacturers Association (Washington, DC), a trade association representing more than 200 medical technology companies.

When Congress passed the Medical Device User Fee and Modernization Act of 2002 (MDUFMA, or the user-fee act), the goal of the user-fee program it created was to provide FDA with the resources it needed to review fully and in a timelier manner the safety and effectiveness of new medical devices. More than two years have passed since the inception of the program, time enough for many in the medical technology industry to evaluate seriously whether it is working as originally intended.

MDUFMA has not played out as expected, in a number of ways. Dramatic fee increases for industry, severe congressional appropriation shortfalls, and unimpressive regulatory performance goals all threaten to undermine the program's effectiveness. The medtech industry remains committed to ensuring that FDA receives the stable and predictable funding it needs to regulate the industry. However, the skyrocketing fees, lack of appropriations, and modest performance goals have led some to question the benefit of the substantial investment in the program by device manufacturers. Unless industry, FDA, and Congress can reconcile these concerns collaboratively, the future of the user-fee act is in jeopardy.

Background

Title I of the user-fee act was designed to enhance and expedite the process of medical device review by imposing reasonable fees on premarket approval (PMA) applications, PMA supplements, and 510(k) submissions reviewed by FDA's Center for Devices and Radiological Health (CDRH). The law provides for shared responsibility between manufacturers and the government in funding the program. Over a period of five years, the manufacturers' fees and congressional appropriations together were to furnish CDRH with $225 million in additional resources (along with adjustments to account for inflation) in exchange for an improvement in FDA review performance averaging 25% in terms of speed.

Of the $225 million in new funding, industry agreed to contribute $150 million in user fees, with the remaining $75 million coming from additional congressional appropriations. The act presented a structural problem, however. This was the fact that industry was responsible for paying user fees from the first day of the program, whereas Congress was given three years to appropriate the additional funds. In addition, FDA was given a grace period ranging from three to five years before it would be held accountable for meeting many of its performance goals.

However, Congress did include in the legislation a sunset provision, which stated that if that body did not manage to appropriate $60 million during the first three years of the program, the user-fee act would terminate. The sunset provision allows legislators and interested parties to reconsider the program's structure before allowing it to continue. Many believe that this is one of those cases in which a program's intent and reality have increasingly diverged. They think some important modifications are needed.

Inadequate Congressional Appropriations

In late November 2004, Congress passed the FDA budget for fiscal year 2005 (FY05), which included approximately $25 million in additional funds for device reviews. Unfortunately, the appropriations in the two previous fiscal years were not anywhere near as close to target. In FY03, Congress appropriated just $4 million out of the required $15 million in additional funds for device reviews. In FY04, the funding amount actually dropped; the device review function received an additional $1.5 million—against the $20 million necessary.

As a result, the total shortfall over the first three years of the program is close to $30 million, or 50% of the amount originally agreed upon by industry, the administration, and Congress. The sunset provision thus will be triggered unless the user-fee act is modified. Some medtech executives have expressed a willingness to forgive Congress the $30 million shortfall so long as other modifications are made that address the concerns of industry.

Soaring User Fees

In addition to the lack of Congressional appropriations, the first two years of the user-fee program created by the enactment of MDUFMA have seen fees skyrocket more than 60%. The original PMA fee of $154,000 is now $239,237. The initial 510(k) fee of $2187 now stands at $3502.

The fee increases stem primarily from the way in which the fees are calculated. While some in industry originally advocated establishing a set fee per submission, an amount that would increase in line with inflation in subsequent years, FDA was able to negotiate a system that gave the agency the flexibility to charge more per submission in a year following a year in which it received fewer fee-generating submissions. This compensating adjustment, as it is called, contributed significantly to the 34% fee increase for PMAs and PMA supplements, and the 59.1% fee increase for 510(k) submissions, in FY04.

The medtech industry weathered dramatic fee increases during the first two years of the user-fee act. However, those increases would have been worse had it not been for FDA's willingness to exercise administrative authority and defer the FY05 compensating adjustment until the next two fiscal years. Without that action, PMA fees would have been higher than $275,000 in 2005. Simply postponing this increase does not address the structural problems with the formula, of course. Many industry voices are calling for the compensating adjustment to be eliminated, not deferred.

Significantly, FDA recalibrated the number of fee-generating submissions it expects to receive in FY05 and beyond. The agency did this on the basis of less than 20 months' worth of data, whereas the original numbers were based on a five-year average. Nevertheless, FDA had the authority to make the changes, and it did. But even with these changes, the agency anticipates fewer PMA and 510(k) submissions in 2005 than in 2004. That will further contribute to the pattern of dramatic increases in user fees.

The medtech industry cannot be expected to compensate for the shortfalls resulting from decreasing fee revenues and congressional appropriations. User fees have to be stabilized either by eliminating the compensation and workload adjustments or by amending MDUFMA so as to provide a cap on future fee increases designed to allow only an annual inflation adjustment.

The Drug Industry Omen

The user-fee escalation that the device industry has experienced over the past two years was foreshadowed by a similar program. The outcome of the Prescription Drug User Fee Act of 1992 (PDUFA) should serve as a warning to the device industry. Continuing fee increases of a magnitude similar to those generated under PDUFA cannot be sustained by small medical device companies.

The fee for a new drug application (NDA) was $100,000 in the 1993 fiscal year. Twelve years later, an NDA costs $672,000. This represents an increase of 572% in little more than a decade. If the device user fees were to escalate at the same rate, a PMA fee would grow to $880,880 in less than 10 years from now. Furthermore, in the 12 years since PDUFA was enacted, the drug industry's user-fee contribution has risen more than 660%, from $36 million in fees in FY93 to $274 million in FY05. During the same period, congressional funding increased from $127 million to only $186 million, less than 50%.

Medical device manufacturers enjoy a far smaller per-device revenue potential than drug manufacturers do with their products. Devices have a much shorter life span than drugs, entail significant research and development costs, and often require continual technological improvement, modification, or upgrading. Thus, small medical device companies, which contribute preponderantly to device innovation, will be the ones most immediately affected by escalating user fees.

In fact, the decreasing number of submissions over the past two years may be a direct result of the user fee. Small entrepreneurial device companies having fewer than 50 employees are estimated to account for nearly 80% of the innovation in the device industry. Notwithstanding the user-fee act's two-tier structure, with lower fees being imposed on smaller companies, entrepreneurial companies continue to be disproportionately affected by user-fee increases. The result has been a stifling of innovation. Smaller companies simply cannot absorb an ongoing escalation in user fees, especially if the fees are not enabling them to get their products to market any faster.

Unimproved Review Times

In the absence of any significant acceleration of time-to-market, user-fee payers might well ask what the industry is paying for. The current MDUFMA performance goals for FDA do not represent faster review times.

Under the user-fee act, the medical device industry agreed to pay more than $150 million in fees to FDA in exchange for additional congressional appropriations and improved performance in the speed of regulatory review of new products. FDA's own recently released numbers, however, show that the MDUFMA performance goals do not represent anything close to the 25% improvement in review times for 510(k)s and PMAs the agency claimed it could achieve with the help of user fees and additional congressional appropriations. In fact, the goals in many cases would be met were FDA performance to decline.

FDA's performance goals were not part of the legislation, but were outlined in a letter to Congress from Tommy Thompson, secretary of Health and Human Services. For 99% of the regulatory submissions that are subject to the terms of the secretary's letter, however, the goals established would not result in faster review times. This is not due to any ill intent on the part of FDA or anyone else. Rather, it results from the fact that the goals were developed during the summer of 2002 using data from 1999. To FDA's credit, the agency has steadily improved its review times since 1999. For example, in FY99, 90% of PMA applications received a final decision in 404 FDA days or less. In FY00, the 90th percentile dropped to 341 FDA days.

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While PMA review times are important, original PMAs make up less than 2% of the submissions under the goals letter. By contrast, 510(k)s represent more than 90% of the submissions under the goals letter. They constitute a larger revenue-generating user-fee category than any other type of submission. In FY04, 510(k) submissions generated $11.4 million in user fees. The MDUFMA goal is for 75% of 510(k)s to receive a final decision within 90 FDA days in the current and next fiscal years. However, FDA was managing 75–77% of 510(k)s within that time frame before MDUFMA was implemented.

Real-time and 180-day PMA supplements make up the remaining 7% of submissions and accounted for approximately $6.6 million in user fees in FY04. The MDUFMA goal for the real-time supplements is that FDA "maintain current performance" with respect to review times, while 90% of the 180-day supplements are to have a final decision within 180 FDA days by the 2007 fiscal year. (The goal for the current fiscal year is 80%.) However, FDA was reaching decisions on 92% of PMA supplement submissions even before the user-fee act was implemented.

Now that additional data are available to analyze FDA's performance from FY00 through FY02—the three years immediately preceding the arrival of user fees—FDA should revisit the decision goals to see whether advances can be made. It is evident from a review of the CDRH Office of Device Evaluation 2003 annual report that FDA was already meeting or exceeding the decision goals specified by the user-fee act before the law was passed (see Table).

The industry's $150 million user-fee investment, coupled with the additional congressional appropriations, merits real improvement in FDA review practice. Any modification to the MDUFMA trigger must be accompanied by meaningful performance goals, just as any legislation to forgive Congress for its appropriation shortfall must be accompanied by a mechanism to stabilize user fees.

Necessary Changes

The medtech industry agrees that FDA needs additional resources to support its device review program. Nevertheless, its experience over the past few years has demonstrated that modifications to the user-fee act must be made in order to achieve the goals of timely reviews of new medical technologies and adequate, equitable funding for FDA while at the same time not stifling innovation.

In particular, the Medical Device Manufacturers Association has advocated stabilizing user fees by either eliminating the workload and compensation adjustments or capping fees at the rate of inflation. Other industry groups have recently proposed capping fees at single-digit rates of increase, including inflation-related adjustments.

Additionally, full funding in the current fiscal year and beyond is a prerequisite for continuing the user-fee act. Without the commitment of Congress and the Bush administration in the next few years, this program will not succeed.

But stable fees and additional Congressional appropriations are not sufficient. Truly enhanced FDA performance is required.

The medical device industry supports the reevaluation of FDA's resource needs by means of a third-party audit. FDA has acknowledged that it can meet the performance goals set forth in the user-fee act notwithstanding the significant appropriations shortfall. Clearly, the original baseline dollar amounts specified as necessary for FDA to attain those goals were inaccurate. FDA was already meeting, and even exceeding, many of the goals prior to receiving a single additional dollar from industry or from Congress. The approach taken by FDA in establishing user fees under PDUFA can serve as a model. The industry has recommended that an independent third party again reassess FDA's funding needs in order to more accurately define its resource requirements.

Accordingly, the actual amount of additional resources FDA needs to receive from industry fees and government appropriations should be properly reallocated. Genuine, meaningful performance goals should be established in return.

The medtech industry is pleased that FDA has undertaken steps to begin the audit process, and hopes that the resulting report will be available in the summer of 2005.

Conclusion

With the October 1, 2005, sunset date quickly approaching, the user-fee act should be a top priority for the device industry as the new Congress convenes. The $25 million increase in FY05 congressional appropriations was a critical step toward modifying the act. Many in the industry would have been unwilling to entertain any continuation of it had the funds not been appropriated.

However, now that this has occurred, efforts among industry, Congress, and FDA to strengthen the user-fee act in a way that achieves the funding goals of FDA while not overly burdening the industry will increase in the coming months. Skyrocketing user fees, inadequate appropriations, the need for better review performance, and other questionable MDUFMA provisions will all need to be addressed if the support of the entire medtech industry is to be won. If attempts to modify the user-fee act are made without input and agreement from the industry, the long-term viability of the act will be in jeopardy when it comes up for reauthorization in 2007.

Copyright ©2005 MX