FY 2003 MDUFMA Financial Report: Appendices
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- Appendix A: Conditions for Assessment and Use of Fees
- Appendix B: Summary of Application Fees Paid in FY 2003
- 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
Conditions for Assessment and Use of Fees
The Federal Food, Drug, and Cosmetic Act (the Act), as amended by the Medical Device User Fee and Modernization Act of 2002 (MDUFMA), Public Law 107-250, specifies three major conditions that must be met to some extent each year before medical device user fees may be collected and spent. A summary of these conditions and the extent to which they were met was provided earlier on page 2. Each of these conditions is described in more detail below, with an explanation of how the condition was met in FY 2003.
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 each year. It states:
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.
April preceding FY 2003, which began on October 1, 2002, was April 2002. Dividing the consumer price index (CPI) of April 2002 into itself yields an adjustment factor of 1.
The first condition relates to the amount of appropriation required annually for the device and radiological health program line in FDA's annual appropriation. (Note that this not the same as the process for the review of device applications as defined in MDUFMA — the third condition deals with spending on this process). This first condition is in section 738(g)(1) of the Act. It requires that appropriations for FDA's devices and radiological health program activities total $205,720,000 in FY 2003, and increase annually by an adjustment factor thereafter. In addition, MDUFMA specifies that any shortfall in appropriations below the amount specified above must be made up by October 1, 2005, or the MDUFMA program, fee revenues and performance goals, ends then.
For FY 2003, FDA's Salaries and Expenses appropriation, excluding user fees and after rescission, included $193,455,000 for devices and radiological health program. Thus the FY 2003 appropriation amount is $12,265,000 less than the amount specified in MDUFMA ($205,720,000). FDA may continue to collect user fees and strive to meet the MDUFMA performance goals, but the appropriation shortfall of $12,265,000 must be made up by October 1, 2005 (the first day of FY 2006) or the MDUFMA authority to collect and spend device user fees will terminate on that day.
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 Administration's FY 2005 budget authority request for the Medical Devices program is $216,699,000. It and subsequent fiscal year requests will each meet the MDUFMA specified level. FDA has committed to achieving the original MDUFMA performance goals with the levels enacted in FY 2003 and subsequent fiscal years. MDUFMA stakeholders and Congress were consulted during the development of this plan and are supportive of the revised strategy. Congressional action on this Administration proposal will be required after submission of the President's FY 2005 Budget.
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 a specific appropriation, no fees may be collected.
The President signed the Appropriation Act (Public Law 108-7) specifying amounts collectable from fees during FY 2003 on February 20, 2003. It provided $25,125,000 to come from fees collected. Thus, the second condition was met, and fees were collected.
The third condition of MDUFMA requires a minimum amount of spending from appropriations, exclusive of user fees, each year on the process for device review as newly 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 2003 was 1, as stated above.
The FDA costs (obligations) from appropriations for the process for the review of device applications for FY 2003 was $125,597,098. Since this is greater than the FY 2002 amount ($119,673,026) the third condition was met.
The table below shows amounts FDA spent on the process for the review of device applications in FY 2002 and FY 2003. It also shows the amount of these costs that was charged to appropriations and the amount spent from user fee revenues.
|From User Fee Revenues||
Summary of Application Fees Paid in FY 2003
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 $154,000 each in FY 2003. 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 $58,520 in FY 2003. 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 $33,110 each in FY 2003, except that those from qualifying small businesses paid only $12,582. The real time supplements were assessed a fee of $11,088 in FY 2003, except that those from qualifying small businesses paid only $4,213. All 510(k) notifications submitted in FY 2003 were assessed the same fee — $2,187 — regardless of whether or not they came from a small business. They are all shown in the small business fee rate column below, since there was no two-tier fee rate for 510(k)s in FY 2003, and the number for all was kept low this year. (The two-tier fee rate for 510(k) notifications does not go into effect until FY 2004.)
The Table below summarizes the number and type of application fees received in FY 2003.
Number Paying Full Fee
Number Paying Reduced Small Business Fee
|Full Fee Applications||
The Table below summarizes the number and type of application fees that FDA assumed it would receive in FY 2003 when MDUFMA was enacted.
Number Paying Full Fee
Number Paying Reduced
Small Business Fee
|Full Fee Applications||
1All 510(k) paid the same fee in FY 2003, so all are shown in the small business fee column.
Waivers, Reductions, and Exemptions
MDUFMA directs FDA to waive the first premarket application fee from a qualified small business, and to reduce premarket application and supplement fees for subsequent applications from qualified small businesses. Beginning in FY 2004, FDA will also charge 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:
- applications and notifications for humanitarian devices submitted under section 520(m);
- applications submitted under section 351 of the Public Health Service Act for a product licensed for further manufacturing use only;
- applications submitted by a State or Federal government entity which are not intended for commercial distribution;
- applications for products solely for use in pediatric populations; and,
- 510(k)s submitted to certified 3rd party reviewers, rather than to FDA, are not subject to an application fee.
This appendix provides a summary of the MDUFMA fee waivers, reductions, and exemptions allowed in FY 2003.
FDA responded to a large number of e-mails and phone calls from firms wanting to know how to qualify as a small business for purposes of MDUFMA fees. Most firms which learned from these phone calls and e-mails that they would not qualify as a small business did not send in a formal request for a small business determination. Likewise, most firms which learned that they would qualify as a small business did send in written requests. FDA granted 125 of the 135 written requests for small business status received in FY 2003. Of the 125 firms granted small business certification, 40 went on to submit applications in FY 2003 for which fees were either waived (if the application was their first PMA) or reduced. The following table summarizes the value of the small business reductions or waivers granted to these 40 firms for applications submitted to FDA in FY 2003. Some qualifying small businesses submitted more than one application that had a fee reduced.
Value for Each
|Full Fees Waived||
|Full Fees Reduced||
|180-Day Supplements Reduced||
|Real-Time Supplements Reduced||
Total Value of Small Business Waivers and Reductions:
FDA received fees totaling $ 21,889,582 in FY 2003. Had there been no small business waivers and reductions, FDA would have collected an additional $3,297,371, for a total of $25,186,953. The small business waivers and reductions resulted in FDA's collecting about 13.1 percent less revenue than would have otherwise been the case.
FDA received 10 Exempted Humanitarian Device applications and 29 supplements in FY 2003. None of these were subject to MDUFMA fees in FY 2003. 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 2003 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)) that was not intended for commercial distribution . Total cost of this exemption in FY 2003 was $2,187.
Pediatric Exemptions were granted in FY 2003 for three 180-day supplements, one real-time supplement, and 12 510(k)s. Total value of these exemptions in FY 2003 was $136,662.
In FY 2003, FDA received 190 510(k)s that were subject to third party review and therefore did not pay MDUFMA fees. This is a 50% increase over the 127 510(k)s that were submitted for third party review in FY 2002. Total value of these exemptions in FY 2003 was $415,530
Allowable and Excluded Costs for the Process for the Review of Device Applications
The Federal Food, Drug, and Cosmetic Act (the Act), as amended by the Medical Device User Fee and Modernization Act of 2002 (MDUFMA), Public Law 107-250, 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.
MDUFMA Related Costs
[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:
- 510(k)s — Traditional/Supplements/Abbreviated/Specials (third party and non-third party)
- Evaluation of Automatic Class III Designations
- Traditional and Expedited PMAs (includes amendments, supplements and annual reports)
- Modular PMAs (shell, modules, amendment, supplements, and annual reports)
- PDPs (including amendments, supplements, and annual reports)
- Premarket Reports (amendments, supplements, annual reports)
- Reclassification Petitions
- Class II Exemption Petitions
- Applications subject to 351 of the PHS Act
- Recruitment and use of outside experts during the review process
- Obtaining advisory committee input (e.g., convened meetings, homework assignments)
- Resolution of product jurisdictional issues
- Dispute resolution/appeals
- Information Technology (IT) support for review activities
- Recruitment of review staff
[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:
- Conduct of bioresearch monitoring inspections (both "for cause" and pre-approval) of sponsors, institutional review boards, and clinical investigators
- Adverse event and complaint investigations related to on-going clinical trials
- GLP inspections (21 CFR Part 58)
[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:
- Informal consultation via phone, meetings, e-mail, and facsimile
- Meetings between FDA and applicants, such as pre-submission meetings, Determination/Agreement meetings, and meetings to discuss deficiencies in premarket applications
- Use of outside experts in the review of premarket applications
- Review of labeling prior to approval of a premarket application or supplement
- FDA sponsored conferences/workshops related to premarket submissions
- Staff participation at non-FDA meetings related to such applications
[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:
- Protocols for the post-market studies
- Modifications to such protocols
- Data collected under the protocol
- Labeling changes (instructions for use, warnings, precautions, etc.), if needed as a result of the review of the data.
[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:
- Epidemiology studies
- Post-marketing problem identification/resolution, including reports filed under the Medical Device Report regulation
Training related to premarket and post-market approval activities . This would include the following types of training:
- Scientific, clinical, and statistical training
- Managerial or other administrative training
- Policy/regulatory training
- Professional development (coursework, attendance at professional meetings, library resources)
- "Vendor Days"
- Site Visit Program for premarket reviewers
User Fee Act implementation to include activities such as:
- Guidance/regulation development
- Stakeholder outreach for educational and comment purposes
- Training of agency staff
- IT support for implementation
*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:
- Officers and employees of the FDA, contractors of the FDA, advisory committees, and costs related to such officers, employees, committees and contracts;
- Management of information, and the acquisition, maintenance, and repair of computer resources;
- Leasing, maintenance, renovation, and repair of facilities and acquisition, maintenance, and repair of fixtures, furniture, scientific equipment, and other necessary materials and supplies; and
- Collecting user fees and accounting for resources allocated for the review of premarket applications, premarket reports, supplements, and submissions.
- Enforcement policy and regulation development
- Third-party inspection program
- Post-approval compliance actions and activities unrelated to PMA Conditions of Approval and investigations of safety and effectiveness issues for devices subject to FDA regulation
- Post-approval activities relating to:
promotion and advertising
International coordination/Mutual Recognition Aagreeement work
International standard development
Liaison/outreach and manufacturing assistance
- Inspections unrelated to the review of covered applications
- Export/Import activities unrelated to the conduct of a clinical trial
- Research related to future products
- All activities conducted under the Mammography Quality Standards Act, radiation safety authorities of the Federal Food, Drug, and Cosmetic Act (Sections 531 et. seq.), and the Clinical Laboratories Improvement Act.
Development of Costs for the Process for the Review of Device Applications
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:
|Costs for the Review of Premarket Applications (PMA's), Product Develompent Protocols (PDP's), Premarket Reports (PMR's), Modular PMA's and Supplements, and 510(k)s||
|Costs for the Review of Biologic License Applications (BLA's) and Supplements, and 510(k)s||
|Field Inspection and Investigation Costs||
|Agency General and Administrative Costs||
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, 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 are discussed below.
Direct Review and Laboratory Components:
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 — 60 percent of all FDA funds go to pay for employee salaries and benefits, and almost all other costs are directly supporting 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 percents of allowable costs had never been collected for earlier periods, the percents of allowable costs reported in this eight-week period were likewise applied to each cost centers direct costs (obligations) incurred in FY 2002, to get the baseline FY 2002 device review process cost data required under MDUFMA.
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. 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.
Center Indirect Review and Support Components
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 Systems and Management. 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 was 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.
Center Time Reporting Results for FY 2003
The time reporting systems operated by CDRH indicated that 681 (or over 66 percent) of the 1025 staff years expended by CDRH in FY 2003 were expended on the process for the review of device applications. The time reporting system operated by CBER indicated that 59 (or 6 percent) of the 978 staff years expended by CBER in FY 2003 were expended on the process for the review of device applications as defined in MDUFMA.
Field Inspection and Investigation Costs
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 FY's 2002 and 2003, respectively.
|Cost Component||FY 2002||FY 2003|
|Staff Years Utilized||54||59|
|ORA Average Salary & Benefits||$77,987||$79,696|
|Salary and Benefits||$4,211,289||$4,702,043|
|Operations and Rent||$2,567,305||$2,969,792|
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.
Agency General and Administrative Costs
The Agency general and administrative costs are incurred in the FDA's Office of the Commissioner (OC). During most of FY 2002 and FY 2003, OC was comprised of the following offices:
- Immediate Office of the Commissioner
- Office of the Chief Counsel
- Office of Equal Opportunity
- Office of the Administrative Law Judge
- Office of Science Coordination and Communication
- Office of Communications and Constituent Relations
- Office of International Affairs
- Office of Policy, Planning and Legislation
- Office of Management and Systems
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, $10,255,659 and $10,293,297 in general and administrative obligations were dedicated to the device review process in FY's 2002 and 2003, respectively. These are total costs, including funds obligated both from appropriations and from fees. The Agency general and administrative obligations in FY 2003 accounted for about 7.3 percent of the total FY 2003 cost of the process for the review of device applications. This is down significantly from 8.6 percent in FY 2002.