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FY 2006 MDUFMA Financial Report: Main Report

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Background

 

The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) authorizes the Food and Drug Administration (FDA) to collect fees from the medical device industry to augment appropriated expenses on the medical device review process.  MDUFMA also requires additional funding from appropriations.  FDA uses the additional funds from fees and appropriations to support the process for the review of medical device applications as defined in MDUFMA, so that safe and effective devices reach the American public more quickly. 

Under MDUFMA, companies must pay application fees when submitting certain device applications to FDA.  Fee-paying applications include premarket applications (PMAs), product development protocols (PDPs), premarket reports (PMRs), modular PMAs, biologics license applications (BLAs), certain supplements to all of these applications, and premarket notification submissions (510(k)s).  A fee for each application type is fixed in statute as a percent of a standard fee for a PMA.  The Medical Device User Fee Stabilization Act of 2005 (MDUFSA), Public Law 109-43, amended MDUFMA on August 1, 2005.  MDUFSA sets the standard fee for a premarket application for fiscal year (FY) 2006 at $259,600.  FDA then establishes fee rates for all other applications based on the percents specified in the statute.  Unlike the Prescription Drug User Fee Act (PDUFA), MDUFMA does not have product or establishment fees

MDUFMA requires FDA to submit two reports to Congress each fiscal year:  1) a performance report sent within 60 days, and 2) a financial report is to be sent within 120 days after September 30.  FDA transmits separately to Congress the FY 2006 MDUFMA Performance Report that discusses FDA's progress in meeting the goals referred to in MDUFMA.  This report is FDA's FY 2006 MDUFMA Financial Report covering the period October 1, 2005 through September 30, 2006..

As required by MDUFMA, this report reveals and discusses the following topics:

  • FY 2006 collections, obligations, and carryover balances;
  • the statutory conditions (Appendix A);
  • the process for the review of medical devices as defined in MDUFMA (Appendix D); and
  • the total costs of the process for the review of medical device applications, as defined in MDUFMA, from both fee collections and appropriations (Appendix E).

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Meeting the Statutory Conditions for User Fees in FY 2006

 

MDUFMA imposes three statutory conditions that FDA must satisfy before it can collect and spend user fees.  FDA's calculations show that FDA met these conditions in FY 2006.  See summaries set forth below.

The first condition is a funding condition that affects FDA's fee collections in FY 2006. MDUFMA, as amended by MDUFSA, sets the funding condition for FY 2006 equaling $205,720,000 multiplied by an adjustment factor.  FDA must meet this condition before it can collect fees for FY 2006.  To collect fees in FY 2006, the appropriation for the Devices and Radiological Health budget line must equal no more than 1 percent less than the funding condition that is $222,653,571 after applying the adjustment factor.  In FY 2006, FDA received $220,564,000 after rescission, which is within the 1 percent condition.  Therefore, FDA met the first condition.

The second condition is that the amount of user fees collected by FDA in each fiscal year must be specifically stated in the Appropriation Acts of November 10, 2005.  The President signed the FY 2006 Appropriation Act, Public Law 109-97.  It states that the amounts collectable from medical device user fees are $40,300,000.  Therefore, FDA met the second condition.

The third condition is that FDA must spend at or above a minimum level of appropriated funds for the review of medical device applications.  The minimum level is the appropriations that FDA spent on the process for the review of medical device applications in FY 2002, adjusted for inflation.  That adjusted minimum level for FY 2006 is $129,523,753.  FDA obligated $167,425,661 from appropriations.  Because FDA spent more than the minimum level, it met the third condition. 

MDUFMA also contains a provision that FDA obligations on medical device establishment inspections must be equal to or greater than it spent in FY 2002 with an increase of 5 percent for each fiscal year.   If FDA does not satisfy this condition for 2 consecutive years, FDA is not allowed to use accredited third parties to conduct medical device establishment inspections in the future years.  FDA spent more in FY 2003, FY 2004, and FY 2006.  Because FDA only failed to meet the condition in 1 year (FY 2005), FDA satisfied this requirement to continue to allow accredited third parties to conduct device establishment inspections in FY 2007. 

FDA provides more details on the calculations that show FDA satisfied the statutory conditions in Appendix A.

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User Fee Collections

 

MDUFMA directs FDA to receive fees only from the medical device applications, and set the application fee rates annually to cover the increases for inflation and workload.  The statute directs FDA to set the fee rate for each application type as a percentage of the standard fee for a PMA.  MDUFSA specifies that the standard fee for a premarket application for FY 2006 is $259,600.  FDA, then, establishes other application fees  [1] based on the specified percents mentioned in MDUFMA. 

Under MDUFMA, collections of medical device user fees continue to remain available to FDA if they are not spent at the end of a fiscal year.  The cash balance carried to the next fiscal year is discussed on page 9, section Carryover Balances. The table below shows the amount of user fees FDA has collected since MDUFMA began.

The following table shows user fees collected since MDUFMA began.

Food and Drug Administration
Statement of MDUFMA Fee Revenues
As of September 30, 2006
Fees Collected:
FY 2003
FY 2004
FY 2005
FY 2006
Cumulative Total
Total Fees Collected:
$21,619,813
$25,309,853
$31,905,542
$35,358,220
$114,193,428
Unearned Fees
Included: (Unearned income represents fees received for applications not received as of September 30, 2006. They are included above in the 'Total Fees Collected' amounts.)
$0
$0
($14,008)
($2,568,581)
($2,582,589)
Fees Receivable:
$58,509
$155,108
$0
$6,849
$220,466

Please note that the collections are reported in the year that the fees were originally due — referred to as the cohort years.  For example, a fee originally due in FY 2005, even if it is received in FY 2006, is attributed to FY 2005 collections.  The same concept applies to the refunds.  In addition, the collections reported in the table for each fiscal year are net of refunds for that year, as of September 30.  The collections do not take into account the refunds that were processed by FDA after September 30.  

Last year's financial report showed FDA collected $32,781,347 in FY 2005.  FDA reduced the FY 2005 collected fees to $31,905,542 in this report because FDA processed some refunds in FY 2006 that belong to FY 2005 cohort year.  Refunds reduce collections.

Unearned fees are included in the fee collected amounts.  The unearned fees exist because FDA received the fees for the applications that did not arrive to FDA before September 30.  FDA reduces the unearned fees after received the applications from the companies.

In addition to the collections shown in the table, FDA reported the fees receivables.  They exist for three reasons: 1) FY 2003 outstanding invoices, 2) FY 2005 error entry in FDA accounting system, and 3) FY 2006 partial payments.  $58,509 is due to unpaid fees for the applications that were submitted to FDA in FY 2003.  The FY 2003 fees receivables are over 120 days old, and have been turned over to a collection agency.  After April 1, 2003, FDA no longer accepts unpaid applications for review.  The fees receivables for FY 2005 were mistakenly recorded by FDA.  FDA will make a correction to write-off this amount in FY 2007.  The FY 2006 fees receivables are the partial payments outstanding as of September 30, 2006 when the medical device companies paid the fees in FY 2005 and submitted the applications to FDA in FY 2006.  Because the applications arrived in FY 2006, the companies had to pay the differences to make up FY 2006 new rates.  This amount will be reduced to zero in FY 2007 after FDA receives all the partial payments.

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Obligation of User Fee Collections

 

The user fee collections are expended only for costs necessary to support the process for the review of medical device applications, as defined in MDUFMA.  The allowable and the excludable costs for the process for the review of medical device applications are defined in Appendix D.

 In FY 2006, FDA obligated $32,068,610 or 16 percent from user fee collections and $167,425,661 or 84 percent from appropriations.  See table below.

Food and Drug Administration
FY 2006 Device Review Obligations by Expense Category and Revenue Source
As of September 30, 2006
Expense Category
From Appropriations
From Fees
Total
Personnel Compensation and Benefits
$120,815,520
$21,786,793
$142,602,313
Travel and Transportation
$1,772,147
$409,542
$2,181,689
GSA Rent
$10,865,220
$2,236,700
$13,101,920
Communications
$2,212,496
$720,006
$2,932,502
Contract Services
$26,064,157
$5,962,800
$32,026,957
Equipment and Supplies
$3,364,752
$833,022
$4,197,774
Other (Other includes expense categories like rent payments to others, printing & reproduction, and other miscellaneous expenses.)
$2,331,369
$119,747
$2,451,116
Total Obligations
$167,425,661
$32,068,610
$199,494,271

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Carryover Balances

 

Under MDUFMA, fees collected, appropriated, and not obligated by the end of a fiscal year remain available to FDA for future fiscal years.  They are referred to as carryover balances.  Operations in FY 2006 resulted in a net carryover balance of $16,240,618.

The table below captures FDA's carryover balances from FY 2003 to FY 2006.

Food and Drug Administration
Statement of Collections, Obligations, and Carryover Balances
By Fiscal Year
As of September 30, 2006
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
 
 
 
2007
$16,240,618
 
 
 

The carryover balances in the table reflect the cumulative cash from the beginning to the end of each fiscal year, the net cash collected, and any adjustments occurred during each fiscal year.  FDA subtracts the obligations to obtain year-end carryovers.

 

Availability of Carryover Balances

Of the FY 2006 carryover balance, $2,582,589 is the unearned fees from applications that are not yet received by FDA.  It must be held in reserve.  In addition, FDA holds $1,000,000 in reserve for potential refunds in future years.  MDUFSA requires FDA to have at least 1 month reserve at the end of FY 2007 for future operations when the MDUFMA program sunsets.  The table below shows the proposed allocation of FDA's carryover balance.

Food and Drug Administration
Summary Statement of MDUFMA Fee Revenue Carryover Balance
As of September 30, 2006
Status of Carryover Funds
Amount
Unearned Fees
$2,582,589
Reserve for Future Refunds
$1,000,000
1-Month Reserve
$3,600,000
Available Cash for Allocation in FY 2007
$9,058,029
Total Carryover Balance
$16,240,618

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Total Costs of the Process for the Review of Device Applications

 

FDA studies and records the MDUFMA costs by using time reporting surveys.  The surveys determine a percentage of time each FDA organizational component (such as the Center for Devices and Radiological Health (CDRH), the Center for Biologics Evaluation and Research (CBER), or the Office of Regulatory Affairs (ORA)) devote to the process for the review of medical device applications.  The percentages allow FDA to calculate the costs for the allowable activities in the medical device application review process.  FDA reassesses the percentages on a regular basis with the results of the time reporting surveys to closely monitor the costs for the medical device review process.  See Appendix D for the descriptions of the allowable activities and Appendix E for more discussions on cost development associated with the process for the review of medical device applications.   

The following table presents the total costs for the review of medical device applications for FY 2005 and FY 2006, by FDA organizational components and by funds (appropriations and user fee collections).  The amounts are based upon obligations recorded as of the end of each fiscal year.  In the past, over 81 percent of obligated funds in FDA are expended within 1 year, and 96 percent within 2 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 Funds
As of September 30, 2006
FDA Organizational Component
FY 2005
FY 2006
Center for Devices and Radiological Health
$140,704,264
$155,850,979
Center for Biologics Evaluation and Research
$15,534,783
$20,830,565
Field Inspection and Investigation
$9,674,368
$10,499,258
Agency General and Administrative Costs
$11,805,241
$12,313,468
Total Process Costs
$177,718,656
$199,494,271
Obligations from Appropriations
$150,547,256
$167,425,661
Obligations from Medical Device User Fee Collections
$27,171,400
$32,068,610

The costs for all organizational components increased in FY 2006.  The increase primarily reflects enhanced spending for medical device review program from appropriations and user fee collections in FY 2006. 

The agency's general and administrative costs continued to decline as a percent of total spending on the medical device review process.  The percent of medical device review process costs devoted to agency's 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 6.6 percent in FY 2005, and to 6.2 percent in FY 2006.

 

Full Time Equivalents

The table below presents the Full Time Equivalent (FTE) levels that support the medical device application review process by FDA organizational components. In FY 2006, FDA spent about 72 percent of its total funds for the salaries and benefits of the medical device process FTEs.

Food and Drug Administration
Process for the Review of Medical Device Applications
Total FTEs
As of September 30, 2006

 
Fiscal Years
 
2002
2003
2004
2005
2006
Center for Devices and Radiological Health
650
662
713
794
765
Center for Biologics Evaluation and Research
45
59
70
87
108
Office of Regulatory Affairs
54
59
60
64
65
Office of the Commissioner
80
77
72
89
82
Total FTE
829
857
915
1,034
1,020
Note: For comparability purpose, FY 2004 to FY 2006 FTEs represent all centers and offices and include Shared Services MDUFMA process FTEs.

In the table, the FTEs reported for FY 2004 through FY 2006 continue to show staff transferred to FDA's consolidated Shared Services organization in the Office of the Commissioner (OC) as if they were still in CDRH, CBER, and ORA.  FDA uses this approach to make the data reported for FY 2004 through FY 2006 comparable to the data reported for FY 2002 and FY 2003. 

Please note that CDRH had decreases in FTEs in FY 2006 compared to FY 2005.  There are two reasons for this decrease.

  1. The uncertainties about MDUFSA led to a hiring freeze in FY 2005, which reduced hiring in CDRH.  Restarting the hiring cycle took time.; Many of the new employees were hired in the middle or at the end of FY 2006.; Staff hired in FY 2006 will contribute a full-year work effort in FY 2007.;
  2. In FY 2006, CDRH modified its time reporting categories to better account for effort on training, guidance document and standards development, and outreach initiatives.; Prior to FY 2006, most of these areas were considered parts of the MDUFMA process.; These changes allowed CDRH to better distinguish between premarket and postmarket efforts.; Therefore, the decrease in FTEs from FY 2005 to FY 2006 is in part due to a change in time-reporting methodology.

In addition to the FTE numbers shown in the table, CDRH also expended 73 more contractor staff-years on the medical device review process in FY 2006 than it did in FY 2002.  CBER's FTE increase between FY 2005 and FY 2006 is the result of increased MDUFMA-related work effort. 

 

Performance Goals

In FY 2006, FDA made steady progress in implementing MDUFMA. FDA continued to focus on consulting with its stakeholders, developing guidance documents, and implementing new review processes and process improvements required to meet MDUFMA's progressively challenging performance goals. Among the key activities and accomplishments during FY 2006 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, FY 2005, and FY 2006 receipt cohorts.
  • Guidance documents. FDA issued six MDUFMA guidance documents during FY 2006; four provided new guidance and two provided updated editions of earlier guidance.  These include the final guidance, Compliance with Section 301 of the Medical Device User Fee and Modernization Act of 2002, as amended — Prominent and Conspicuous Mark of Manufacturers on Single-Use Devices, and new guidance on The Review and Inspection of Premarket Approval Application Manufacturing Information and Operations.
  • Stakeholder communication and consultation. FDA expanded its outreach to stakeholders, providing additional information through the MDUFMA internet site, FDA presentations at industry and professional meetings, and quarterly meetings with stakeholders. In November 2005, FDA held its Annual Stakeholder Meeting to report on the implementation of MDUFMA and to hear directly from stakeholders.  And in May 2006, FDA held a public meeting to consult with stakeholders and determine whether it is appropriate to implement two contingent decision goals for FY 2007.  With stakeholder input, FDA decided to implement the two review performance goals for FY 2007:  1) 50 percent of premarket approval applications received in FY 2007 will have an FDA decision in 180 days; and 2) 80 percent of premarket notifications received in FY 2007 will have an FDA decision in 90 days.
  • Public notification.  During FY 2006, FDA published 14 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.

CBER expects to achieve all its FY 2005 MDUFMA performance goals when the cohort is completed.  Thus far, CBER has met or exceeded all the FY 2006 MDUFMA decision-performance goals, but missed two interim action goals.  CBER continues to emphasize the medical device review process oversight, such as focusing on communication with sponsors during the first review cycle and updating 510(k) standard operating procedures and policies to implement process improvements.  CBER also continues to harmonize with CDRH on revisions or updates of common device review processes and policies to improve review efficiency, such as review of the Quality System Record section of a PMA, when to file supplements to PMAs and review of PMA annual reports.  During FY 2006, CBER made a number of modifications for information technology systems, Regulatory Management Systems/Biologics Licensing Application, and Blood Logging and Tracking.  These changes include updates to fields, forms, views, and reports for payment information and bundled submissions.  These enhancements facilitate the transfer of data between CBER and the Office of Financial Management for MDUFMA payments to expedite the start of application review.

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Management Challenges for FY 2007

 

The most important challenge for FY 2007 is to secure reauthorization of medical device user fees for FY 2008 through FY 2012.  The authority provided under MDUFMA will, under the current law, sunset on September 30, 2007.  During 2007, FDA consulted with stakeholders and has held a public meeting to discuss recommendations for Congressional consideration. Timely reauthorization is critical to the continued success of FDA's medical device review program.

FDA faces continuing 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 implement new and more demanding performance goals for FY 2007, providing more timely and efficient device reviews.

During FY 2007, 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 OC, 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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Footnote

 

[1] FDA published FY 2006 medical device user fee rates in the Federal Register Notice – FR Doc. 05–15863.

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