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FY 2005 MDUFMA Financial Report: Main Report

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Background

 

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 funds are to be used for additional resources to support the "process for the review of device applications" as defined in MDUFMA, so that safe and effective devices reach the American public more quickly.

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 for FY 2005 was specified by MDUFMA, with a provision for adjustment for cumulative inflation since FY 2003. The individual fees for various types of applications are fixed in statute as a percent of the fee for a PMA. Fees for FY 2005 were set in August 2004 after the inflation, workload, and shortfall adjustments to the statutory fee amount have been determined.

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 2005 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 2005 MDUFMA Financial Report, covering the period October 1, 2004, through September 30, 2005.

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 2005 (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 2005 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. Auditors did not render an opinion on FDA's financial statements for FY 2005, primarily due to the mid-year conversion to the new HHS Unified Financial Management System, the need to draw financial data from 2 different systems, and the fact that UFMS financial reporting capabilities were still evolving in FY 2005.

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Meeting the Legal Conditions for User Fees in FY 2005

 

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, as amended by MDUFSA, sets funding targets for FY 2005-FY 2006 equaling $205,720,000 multiplied by the adjustment factors applicable for each of those years. The appropriation of this specific funding level was not required to collect fees in FY 2005. Instead, MDUFMA, as amended by MDUFSA, sets a trigger that must be met before fees can be collected for FY 2006.

To collect fees in FY 2006, the sum of appropriations for FY 2005-FY 2006 for the Devices and Radiological Health budget line must equal no more than one percent less than the sum of the funding targets set by MDUFMA, as amended by MDUFSA, for those years. The Agriculture, Rural Development and Food and Drug Administration Appropriation Acts for FY 2005 and FY 2006 are both no less than one percent less than the triggers for these respective years and FDA will therefore be able to collect and spend medical device user fees in FY 2006.

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 108-447) specifying amounts collectable from fees during FY 2005, on December 8, 2004. It provided $33,938,000 to come from fees collected. Thus, the second condition was met.

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 is $125,131,313 for FY 2005. FDA's actual obligations from appropriations in FY 2005 were $146,984,432. Since this is greater than the adjusted FY 2002 amount ($125,131,313), 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. Under this provision, 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 2004 and 2005 are $21,416,000 and $22,487,000, respectively. FDA's actual obligations for conducting device establishment inspections in FY 2004 and 2005 were $21,522,000 and $21,515,000 respectively. Spending in FY 2004 met the required spending level, but in FY 2005 the amount spent fell short of the requirement by $972,000. Since FDA spending met 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.

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User Fee Revenues

 

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 9.

The following table shows user fees collected since MDUFMA began.

Food and Drug Administration
Statement of MDUFMA Fee Revenues
As of September 30, 2005
Fees Collected:
FY 2003
FY 2004
FY 2005
Cumulative Total
Total Fees Collected:
$21,622,000
$25,464,961
$32,781,347
$79,868,308
Unearned Fees Included: (1)
($0)
($109,911)
($3,395,225)
($3,505,136)
Fees Receivable:
$87,911
$0
$187,838
$275,749

 (1) Unearned income represents fees received for applications not received as of September 30, 2005 

Note that user fees collected (the first line above) are initially credited to the year the fee was received. However, the revenues are later reassigned to the year the application is received — referred to as the cohort year. Last year's report showed $27,169,321 of fees collected in FY 2004, of which $1,499,940 was shown as "unearned income" since the application for which the fee was paid had not been received by the end of FY 2004. The FY 2004 total fees collected line is reduced to $25,464,961 in this report, since most of the unearned income reported last year has now been credited to FY 2005 — the year the application was actually received. In addition, the FY 2004 total fees collected line has also been reduced to reflect refunds that have been made over the last 12 months as well. The total fees collected line for FY 2005, when seen in next year's FY 2006 report, will also be substantially less than the figure shown here — reflecting both the reassignment of most of the unearned income to FY 2006, and the refunds that will be made over the next 12 months. Totals reported for each year are net of any refunds for that year, as of September 30th, but do not take into account any refunds that may be made after September 30th. Information on the number of each type of fee received in FY 2005 is contained in Appendix B.

In addition to the revenue shown in the table above, a total of $87,911 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. Accounts receivable FY 2005 represent additional amounts owed because the wrong fee amount was initially submitted.

A summary of FY 2005 waivers, reductions, and exemptions is provided in Appendix C.

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Obligation of User Fee Revenues

 

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 2005, FDA obligated $27,171,400 from medical device user fee revenues and $150,547,256 from appropriations.

Food and Drug Administration
FY 2005 Device Review Obligations by Expense Category and Revenue Source
As of September 30, 2005
Expense Category
From Appropriations
From Fees
Total
Personnel Compensation and Benefits
$97,720,160
$19,137,884
$116,858,044
Travel and Transportation
2,554,958
227,219
$2,782,177
Rent
10,301,690
2,236,700
$12,538,390
Communications
2,279,489
553,577
$2,833,066
Contract Services
28,526,535
4,499,724
$33,026,259
Equipment and Supplies
6,397,348
378,127
$6,775,475
Other
2,767,076
138,169
$2,905,245
 
Total Obligations
$150,547,256
$27,171,400
$177,718,656

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 2005, over 65 percent of all funds 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, 2004, and 2005
 
FY 2002
FY 2003
FY 2004
FY 2005
Center for Devices and Radiological Health (CDRH)
650
662
713
794
Center for Biologics Evaluation and Research (CBER)
45
59
70
87
Office of Regulatory Affairs (ORA)
54
59
60
64
Office of the Commissioner (OC)
80
77
72
89
Total FTE
829
857
915
1,034

FTE numbers for FY 2004 and FY 2005 show CDRH, CBER, and ORA staff 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. In addition to the FTE numbers shown in the table above, the Center for Devices and Radiological Health also expended about 70 more contractor staff-years on the device review process in FY 2005 than it did in FY 2002.

In FY 2005, FDA made steady progress in implementing MDUFMA. FDA continued to focus on consulting with its stakeholders, developing guidance documents, and building the new review processes and process improvements required to meet MDUFMA's progressively challenging performance goals. Among the key activities and accomplishments during FY 2005 were:

  • Steady progress in meeting MDUFMA performance goals. FDA is meeting, or is on track to meet, nearly all of the performance goals for FY 2003, FY 2004, and FY 2005 receipt cohorts.
  • Guidance documents. FDA issued six MDUFMA guidance documents during FY 2005; four provided new guidance and two provided updated editions of earlier guidance. These include guidances related to the Inspection by Accredited Persons Program authorized by section 201 of MDUFMA.
  • Stakeholder communication and consultation. FDA expanded its outreach to stakeholders, providing additional information through the MDUFMA Internet site (http://www.fda.gov/FDAgov/MedicalDevices/DeviceRegulationandGuidance/Overview/MedicalDeviceUserFeeandModernizationActMDUFMA/default.htm), FDA presentations at industry and professional meetings, and quarterly meetings with stakeholders. In November 2004, FDA held its Annual Stakeholder Meeting to report on the implementation of MDUFMA and to hear directly from stakeholders.
  • Public notification. FDA published 13 Federal Register notices to provide essential information to stakeholders on new guidance documents, proposed rules, regulatory actions, user fees, and other topics, and to also request comments and suggestions from stakeholders.

During the last FY, CDRH also began its evaluation of the post-market surveillance program to assess the need for improvement and additional funding, as required by MDUFMA. CDRH continued its contract 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 effort is part of a larger initiative to move towards electronic submission and review of applications.

During Fiscal Year (FY) 2005, CBER has met or exceeded all of the MDUFMA performance goals; review of all of CBER FY 2004 MDUFMA submissions have been completed. CBER continued emphasis on review process oversight, e.g., focusing on communication with sponsors during the first review cycle and updating 510(k) standard operating procedures and policies (SOPPs) to implement process improvements. CBER continues to harmonize with CDRH on revisions/updates of common device review processes and policies to improve review efficiency, e.g., review of the Quality System Record (QSR) section of a PMA, when to file supplements to PMAs and review of PMA annual reports. In FY 2005, CBER made a number of information technology system modifications including; new packages, views, tables, reports, and maintenance screens to facilitate the transfer of data between the CBER Blood Logging and Tracking System (BLT) and the Office of Financial Management (OFM) coversheet application which manages the receipt of MDUFMA payments.

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Carryover Balances

 

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 2005 resulted in a net carryover balance of $13,984,108.

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, 2005
Fiscal
Year
Beginning
Carryover
Net
Collection
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
$31,102,864
$27,171,400
$13,984,108
2006
$13,984,108
 
 
 

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 2005 is less than the fees credited to FY 2005, shown on page 4. Some of the fees credited to 2005 were actually collected in FY 2004, and reflected as FY 2004 collections that were unearned income in last year's report. In this report they are now credited to FY 2005, since the application for which the fee was submitted was received in FY 2005. The net collection in FY 2005 also reflects refunds in FY 2005 of some fees that were collected in FY 2004.

 

Collection Ceilings, Shortfalls and Surpluses

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 2005.

Food and Drug Administration
Statement of Fees Collected, Collection Ceilings, and Shortfalls
As of September 30, 2005
Fiscal Year
Cumulative Net Collections
Adjusted Cumulative Statutory Revenue Amount
Cumulative Shortfall
2003
$21,936,910
$25,125,000
$3,188,090
2004
$48,765,444
$53,543,789
$4,778,345
2005
$79,868,308
$85,973,697
$6,105,389

The cumulative collection ceiling for FY 2005, in the table above, is the FY 2003 amount of $25,125,000 plus the FY 2004 inflation adjusted amount of $28,418,789, plus the FY 2005 inflation adjusted amount of $32,429,908, with no compensating adjustment, for a total of $85,973,697. Cumulative fees collected through the end of FY 2005 fell short of this cumulative collection ceiling by $6,105,389, as the table above shows.

The MDUFSA amendments to MDUFMA, enacted in August 2005, eliminated revenue targets for MDUFMA, and established a new financial structure with fees for FY 2006 and FY 2007 set in statute rather than based on revenue targets. When fees for FY 2006 were set in August 2005, they were based on the new MDUFSA financial structure.

 

Availability of Carryover Balances

Of the total carryover balance of $13,984,108, $3,505,136 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. The MDUFSA amendments to MDUFMA require FDA to have at least a 1-month reserve for future operations at the end of FY 2007, when the statute sunsets — about $3 million. The amount shown as available for allocation in FY 2006 and FY 2007, in the table below, is subject to the requirement for Congressional notification as required under 21 U.S.C. 379j(c)(3).

Food and Drug Administration
Summary Statement of MDUFMA Fee Revenue Carryover Balance
As of September 30, 2005
Status of Carryover Funds
Amount
Unearned Income
$3,505,136
Reserve for Refunds
$1,000,000
Reserve for Operations at the end of FY 2007
$3,000,000
Available for allocation in FY 2006 and FY 2007
$6,478,972
Total Carryover Balance
$13,984,108

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Total Costs of the Process for the Review of Device Applications

 

The following table presents the costs for the review of device applications for FYs 2003, 2004, and 2005 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, 2003, 2004 and 2005 (1)
FDA Component
FY 2003
FY 2004
FY 2005
Center for Devices and Radiological Health (CDRH)
$111,499,009
$115,537,033
$140,704,264
Center for Biologics Evaluation and Research (CBER)
$10,970,557
$13,161,145
$15,534,783
Field Inspection and Investigation Costs (ORA)
$7,671,835
$8,027,300
$9,674,368
Agency General and Administrative Costs (OC)
$10,293,297
$10,671,593
$11,805,241
Total Process Costs
$140,434,698
$147,397,071
$177,718,656
Amount from Appropriations
$125,597,098
$123,521,871
$150,547,256
Amount from Fees
$14,837,600
$23,875,200
$27,171,400

 (1) For comparability purposes, costs for FY 2004 and FY 2005 for the Office of Shared Services are shown prorated back to the components where they were obligated in FY 2003 — CDRH, CBER, ORA, and OC. 

The costs for all components other than OC rose in FY 2005. This increase primarily reflects enhanced spending made possible by the additional resources, both from fees and from appropriations, for device review in FY 2005.

The Agency General and Administrative Costs continued to decline as a percent of total spending on the device review process. The 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 FY 2004, to 6.1 percent in FY 2005.

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Management Challenges for FY 2006

 

With the passage of MDUFMA, 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. The enactment of the MDUFSA amendments to MDUFMA in August 2005, and appropriations for FY 2005 and FY 2006 sufficient to meet the requirements of MDUFMA, as amended by MDUFSA, provides reasonable assurance of the continuation of this innovative program through the end of FY 2007.

FDA faces a number of challenges in meeting MDUFMA's performance goals and commitments. These include building critical infrastructure, hiring and training additional staff, making greater use of external expertise, and reengineering our review processes to provide for more timely and efficient device reviews. Additionally, FDA will work with stakeholders, the Administration, and Congress to ensure continued success of the device user fee program.

FDA needs to address the following specific challenges to achieve the improvements promised by MDUFMA.

  • Develop data systems that ensure each device review subject to a user fee is linked to the correct user fee payment and systems to measure FDA's review performance against the many goals established under MDUFMA. This will require new internal systems, as well as systems to link very different databases in FDA's Office of the Commissioner, CBER, and CDRH.
  • Move forward with electronic application submission and review systems and processes.
  • Continue to hire and train additional FDA scientists, engineers, statisticians, and other staff to: better distribute review workloads, expand the opportunity for meetings and other interactions with applicants, expand and update guidance documents used by applicants to prepare high-quality applications, and undertake the many additional efforts that will be required to meet or exceed MDUFMA's performance goals.
  • Make appropriate use of external expertise to ensure timely action on medical device reviews that involve novel new technologies or unusual efforts.
  • Ensure timely pre-approval inspections, both within the United States and abroad.
  • Refine the processes for modular PMA reviews, and to work with stakeholders to develop meaningful performance goals for these reviews.
  • Ensure that device reviews are completed in as few cycles as possible, thereby speeding the introduction of important new medical technologies and providing greater predictability in the reviews.

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