User-Fee Fix Offers Device Companies Temporary but Much-needed Relief
Before members of Congress left Washington for their August recess, they provided the FDA and medical device industry some much-needed relief–a fix for the Medical Device User Fee and Modernization Act (MDUFMA).
Mark Leahy |
Since the program began in 2002, fees have quickly climbed. A series of adjustors were included in the initial law providing FDA with flexibility to increase fee rates if the agency received fewer fee-generating submissions than anticipated in the preceding year. These adjustors primarily were responsible for the dramatic increases. With broad bipartisan support, identical versions passed both the House and Senate in late July before moving on to the White House for President Bush’s signature on August 1.
Given some of the divisions within government, the FDA, and industry on exactly how the program should be fixed, some had been concerned that an agreement could not be reached before the slated sunset date of Oct. 1.
Rep. Joe Barton (R-TX), chairman of the House Committee on Energy and Commerce, played a critical role in shepherding MDUFSA along. In addition, Sen. Mike Enzi (R-WY), chairman of the Senate’s Health, Education, Labor and Pensions (HELP) Committee, was instrumental in passing MDUFSA.
“We worked very hard and think that this will allow medical devices to still be handled in a streamlined way,” said Enzi. The HELP committee unanimously approved the legislation before sending it to the Senate for a full vote.
The new law makes a series of modifications to MDUFMA, primarily attempting to bring the fees back to a more reasonable level by eliminating certain adjustors, increasing the small business threshold and strengthening branding requirements for reprocessed SUDs. Despite the improvements, this is only a stopgap measure, as the user-fee program will be reevaluated in 2007 and subject to a more comprehensive overhaul. There is more work to be done, but for FY06 and FY07, the outlook is considerably improved.
MDUFMA was created 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 the FDA’s Center for Devices and Radiological Health (CDRH).
The law split the responsibility for funding the program between manufacturers and the government. Over a period of five years, manufacturers’ fees and congressional appropriations together were supposed to furnish CDRH with $225 million in additional resources, along with adjustments to account for inflation, in exchange for improved FDA review performance.
Of the $225 million in new funding, industry agreed to contribute $150 million in fees, with the remaining $75 million coming from congressional appropriations. The act suffered from a structural problem because industry was responsible for paying user fees from the first day of the program, but Congress was given three years to come up with the additional funds.
Lawmakers, however, included the sunset provision, which said that if Congress did not see its way clear to appropriating $60 million during the first three years of the program, the user-fee program would come to an end. The sunset provision allowed legislators and industry to reconsider the program’s structure before allowing it to continue.
The money from Congress didn’t exactly come rolling in. In FY03, Congress appropriated $4 million of the required $15 million. For FY04, funding actually dropped, and device reviews only received $1.5 million out of the proposed $20 million. For FY05, Congress passed an FDA budget that included approximately $25 million in additional funds. As a result, the total shortfall during the three years was close to $30 million, or half of the amount originally agreed upon.
Some in industry and at the FDA had sought to forgive Congress of its shortfall without making the same concession for industry. This kind of fix surely would have been unacceptable to most device companies, who are still on the hook for their share. During the first two years of MDUFMA, fees rose more than 60%. The original PMA fee of $154,000 increased to more than $239,000.
But even as device submissions to CDRH dropped, fees continued to rise. It made little sense that the formula allowed the FDA to collect more money if it had fewer fee-generating submissions.
First and foremost, the new law caps user-fee increases for all submissions at 8.5%. If left unchecked, the minimum increases would have been 21% for FY06 and 20% for FY07. MDUFSA fixes 2006 PMA fees at $259,600 rather than close to $300,000. For FY07, the fees will be approximately $281,666, compared with nearly $350,000 otherwise.
The proposed stabilization is expected to provide the FDA with an annual increase in fee revenues of approximately 6%. In addition, MDUFSA gets rid of the FDA’s workload and compensating adjustors. Roughly $32 million would have been required to make up the shortfall in fees and government appropriation from 2003 and 2004 without the fix. The new program wipes the slate clean. However, full Congressional funding is mandated for 2006 and 2007. The fix also absolves the industry from paying any of its shortfalls.
MDUFSA also increases the small-business threshold from $30 million in gross revenues to $100 million. This was a hotly contested point for a handful of larger device manufacturers and their association. However, members of Congress—Barton, Enzi and Sen. Orrin Hatch (R-UT), in particular—were committed to providing additional fee relief for smaller companies. They, as well as many in industry, understood the important role that entrepreneurial companies play in developing new, innovative products that improve the quality of care in this country. And while the submission fees may still be too high, increasing the threshold eases the burden on smaller innovators so they can bring their technology to market.
A firm’s status begins on the day of the FDA’s decision letter qualifying it as a small business. The agency said it expects to make its decision within 60 days of receiving material. What is important to note is if a company intends to benefit from the discount, it must receive confirmation from the FDA before submitting a fee payment. If an application is submitted before a determination is made, a full fee applies.
The FDA said it will not refund the difference between the standard fee and the small business fee if a company later qualifies as a small business. Small-business status expires on Sept. 30, 2006, and a new application must be submitted for 2007.
The new legislation also addresses the branding of reprocessed SUDs. During initial MDUFMA discussions, draft provisions were developed to ensure that physicians and patients were aware of reprocessed SUDs. However, the branding provision that was included in MDUFMA required both OEMs and reprocessors to comply with the branding provisions.
Under MDUFSA, Congress modified the requirement and made it applicable to only reprocessors. This modification is consistent with meeting the initial intent of the branding provisions and will assist hospitals in the reporting of adverse events associated with reprocessed SUDs.
Jumping ahead two years, much work remains to ensure that MDUFMA operates as intended. While MDUFSA allows the program to continue in the near term, reauthorization is needed to extend the program beyond Sept. 30, 2007. Industry, lawmakers and the FDA must continue to evaluate the program and determine what additional modifications are needed to ensure that patients have timely access to safe and effective products while not stifling innovation.
More data is needed to better determine CDRH’s resource needs. 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—the FDA should see where advances can be made. Without this data, it will be difficult to set reasonable fee rates as well as reasonable expectations from the FDA. However, many are confident that the will is there to reauthorize the program. Let’s just hope the data is there to support it. v
Editor’s note: Chris Delporte, MDMA’s director of member relations and communications, helped co-author this column.
Mark B. Leahey, Esq., is the executive director of the Medical Device Manufacturers Association (MDMA). MDMA is a national trade association based in Washington, D.C. that represents more than 200 dues-paying members consisting of manufacturers of medical devices, diagnostic products and health care information systems.