PDUFA IV 5-Year Financial Plan (2008): Assumptions
Throughout this plan there are a number of tables. The numbers in the tables may not always add due to rounding.
The plan to utilize the PDUFA IV additional revenues to meet the challenging PDUFA IV goals is based on 13 major assumptions. A discussion of each of these assumptions follows.
The statute provides for annual adjustment of revenues for the costs of inflation after FY 2008. The inflation adjustment is the greater of: (1) the total percentage change that occurred in the Consumer Price Index (CPI) for all urban consumers for the 12 month period ending June 30 preceding the beginning of the fiscal year for which fees are being established; (2) the total percentage change for the previous fiscal year in pay for Federal employees stationed in the Washington DC metropolitan area; or (3) the average annual change in the cost, per full-time equivalent position of the Food and Drug Administration, of all personnel compensation and benefits paid with respect to such positions, for the first 5 years of the preceding 6 fiscal years. The third condition above is new, and was added by PDUFA IV, because the previous adjustments did not keep pace with FDA’s actual cost increases per paid staff year. It was expected, when this change was added, that this provision would result in a higher inflation adjustment than had been made in the past, when only the first 2 conditions were included in the law. The adjustment made each fiscal year by this subsection will be added on a compounded basis to the sum of all adjustments made each fiscal year after fiscal year 2008.
For FY 2009, the inflation adjustment factor is 5.64 percent. This is the average annual change in the cost, per full-time equivalent position of the Food and Drug Administration, of all personnel compensation and benefits paid with respect to such positions, for the first 5 years of the preceding 6 fiscal years. The specified amount for Federal pay is 4.49 percent—the rate of increase for employees in the Washington DC area that took place in January 2008. Both of these are greater than the CPI change for the 12-month period ending June 30, 2008—which is 5.05 percent. For purposes of this plan 5.64 percent will be rounded to the nearest tenth of a percent (5.6 percent) and this plan will use that amount (5.6 percent) as the estimated inflation adjuster to apply to FY 2009. For this unique inflation adjuster defined in PDUFA, which is based on the average cost increase of the most recent 5 fiscal years for which data is available, the plan will use 5.6 percent for future years.
The table below uses these values, adding them on a compounded basis to each successive year, as the statute directs. The value on the last line of the table is the estimated amount by which statutory fee revenues will be increased each year of the plan as a result of the statutory inflation adjustment.
Inflation Adjustment Estimates
The statute also provides for annual adjustment of revenues each year beginning in FY 2009 for increases in workload for the process of the review of human drug applications. This adjustment has been modified with PDUFA IV and will be implemented for the first time when fees for FY 2009 are set in August of 2008.
The workload adjuster will use as its base the average number of various types of applications received for the five-year period ending on June 30, 2007. The number of human drug applications will be adjusted for changes in review activities (number of meetings per IND/BLA, annual reports per NDA/BLA/ and labeling supplements per NDA/BLA). For each fiscal year after FY 2009,FDA will compare base workload numbers for each type of application to the average number of applications of each type for the most recent five-year period, and assign a weighting factor to represent the portion of drug review workload represented by each type of application. If the workload for the most recent five years is higher than the five-year average for the base period, then revenues will be increased proportionately. The statute directs that the adjustment may not result in fee revenues for a fiscal year that are less than the inflation adjusted fee revenues for the fiscal year, and that the adjustment made in FY 2009 may not increase revenues by more than 2 percent.
The workload adjuster that was calculated for FY 2009 and published in the Federal Register on August 1, 2008 was 2.98 percent. FDA has no way of gauging changes in this adjustment that will be made in future years, so the FY 2009 adjuster will be rounded to the nearest tenth of one percent (making it 3.0 percent) and this figure will be used for each year after FY 2008. This is a conservative assumption showing that each year workload remained as it was in FY 2009—3 percent greater than in the previous 5 years, not increasing at 3 percent each year. This assumption may change in future plan updates if, over time, actual experience shows workload adjustments at a significantly different rate.
Workload Adjustment Estimates
PDUFA IV specifies that the fee revenue amount for FY 2008 for all fees is $392,783,000 specified in 21 U.S.C. 379h(b)(1)(A). The statute specifies that $354,893,000 of this base amount is to be adjusted for workload in accordance with the workload adjustment provisions that were in effect for FY 2007, except that the adjustment for investigational new drug workload is based on the number of INDs with a submission in the previous 12 months rather than on the number of new commercial INDs submitted in the same 12 month period (see 21 U.S.C. 379h(b)(1) and (3)). FDA published that adjustment and the calculations and data that support it in the Federal Register on October 12, 2007 beginning at page 58103. This resulted in an increase of 11.73 percent, or $41,629,000, rounded to the nearest thousand dollars, for a total adjusted base amount of $434,412,000. The statute also specifies that an additional amount for drug safety (see 21 U.S.C. 379h(b)(4)) be added each year.
The table below shows the statutorily specified amounts for each year, including the drug safety addition, before inflation and workload adjustments are made.
PDUFA IV Statutory Revenue Levels Before Inflation & Workload Adjustments
|Statutory Base Amount||$392,783,000||$392,783,000||$392,783,000||$392,783,000||$392,783,000|
|Drug Safety Addition||$25,000,000||$35,000,000||$45,000,000||$55,000,000||$65,000,000|
These statutory revenue levels are to be adjusted for inflation after FY 2008. When the inflation assumptions described in Assumption 1 are applied to the statutory revenue levels above, the inflation adjusted revenue levels that result, adjusted to the nearest thousand dollars, are set forth in the table below:
PDUFA IV Inflation Adjusted Revenue Levels Each Year
The inflation adjusted revenue levels are to be adjusted again for workload (21 U.S.C. 379h(c)(2)). As stated in Assumption 2, above, the workload adjustment is being made as 3.0 percent for each year of the PDUFA IV Five-year Plan.
PDUFA IV Workload and Inflation Adjusted Revenue Levels Each Year
|Inflation Adj. Amt||$459,412,000||$495,699,000||$534,592,000||$576,332,000||$621,019,000|
The statute specifies that one-third of the revenue is to come from application fees, one-third from annual establishment fees, and one-third from annual product fees (21 U.S.C. 379h(b)(2)). The table below takes the total amount of fee revenue planned for each year and divides that number by 3, so that one-third of the revenue amount is estimated to come from application fees, one-third from establishment fees and one-third from product fees.
TABLE PDUFA IV Inflation and Workload Adjusted Revenue Levels Each Year and Fee Source
|Fiscal Year||2008||2009||2010||2011||2012||5-Year Total|
The two-thirds of PDUFA fee revenues that come from establishment fees and product fees are relatively stable, and can be counted on each year. However, the one-third of fee revenues that comes from application fees has proven fairly volatile and can fluctuate widely from year to year. In two of the five years of PDUFA II, fee revenues fell below anticipated collections. Because of this volatility, FDA only allocated 80% of the anticipated application fee revenues each year during PDUFA III.
The table below shows the difference in allocations over the 5 years of PDUFA IV if FDA allocates 100% of the anticipated application fee collections and if FDA allocates only 80% of the anticipated application fee collections.
Difference between Allocating 100% and 80% of Planned Application Fees
|Fiscal Year||td>||2009||2010||2011||2012||5-Year Total|
If FDA only allocated 80% of the anticipated application fee revenues each year for the 5 years of PDUFA IV, it would allocate a total of $183.6 million less than FDA hopes to collect. However, FDA experience indicates that it is very unlikely that FDA collections will fall short of anticipated collections in more than 2 or 3 of the 5 years of PDUFA IV. In addition, FDA is beginning PDUFA IV with over $130 million in carryover balances on hand. Therefore, in developing plans for the 5 years of PDUFA IV, FDA will routinely count on receiving and spending 100% of the establishment, product, and application fee revenues each year. If experience over the initial years of PDUFA IV proves this to be an imprudent assumption, future updates of the plan may alter this assumption. Anticipated total annual collections, and amounts available for allocation, are shown in the table below:
Anticipated PDUFA IV Collections
|Application Fees||$153,137,333||$170,190,000||$183,543,333||$197,873,667||$ 213,216,333|
Revenues at this level will be planned and allocated. If less than 100% of the application fee revenues are collected, the agency will utilize the PDUFA carryover balances to cover any shortfalls. This plan results in minimal carryover balances each year.
The fees collected during PDUFA III funded activities that became an integral part of FDA’s resources for reviewing human drug applications are referred to as the PDUFA III Fee Base. Before enactment of PDUFA IV, FDA estimated that in FY 2007, the last year of PDUFA III, before considering the funds added for the PDUFA III workload adjustment, FDA would spend a total of $305,455,400 from PDUFA fees to fund a total of 1,464 FTE, over and above the FTE level funded from appropriations. This was considered the PDUFA III Fee Base, and was the starting point for estimating the PDUFA IV base levels.
This funding and FTE level was substantially less than FDA needed to do the work that FDA had agreed to in the PDUFA III performance goals. The fact that the FTE levels were lower than the levels FDA needed were due to several factors that the PDUFA IV statute remedied in setting the PDUFA IV Fee Base. They included:
- The need for a cost increase going into FY 2008 to cover the increased FDA pay and benefit costs, which had increased at an average rate of 5.8% each year for the previous 5 years. $17,716,413 was added to the PDUFA IV fee base for these costs
- FDA had allocated funds each year of PDUFA III that supported 75 fewer FTE than originally planned for PDUFA III, out of caution that application fee revenues fluctuated substantially from year to year, and could not be counted on to pay for all of the planned FTE. It was agreed that carryover balances were sufficient at the end of PDUFA III (the beginning of PDUFA IV) to cover shortfalls in application fees that might occur for up to 3 or 4 years of PDUFA IV, so FDA should fully allocate the FTE needed in PDUFA IV.
- The workload adjustment for PDUFA III was conservatively calculated comparing the latest 5 years with the 5 years of PDUFA II. The adjustment would be the greatest only after the end of FY 2007 because for the first time it would not contain any of the base years in the most recent 5 years. Rather than specifying a number for this adjustment, the PDUFA IV statute called for calculating this number after the end of FY 2007 based on actual data,, and embedded the methodology for determining the PDUFA IV Fee base in the statute. Based on the data and this methodology, a total of $41,629,000 was added to the PDUFA fee base when FDA published the PDUFA IV fees for FY 2008 in the Federal Register on October 12, 2007. That amount should fund a total of 180 more FTE for the drug review process each year of PDUFA IV.
- The PDUFA III workload adjuster had flaws in that it did not adequately increase to cover FDA’s increase in workload associated with the increased number and complexity of meetings associated with the drug review process over the course of PDUFA III. To address this, a total of $20 million was added to the PDUFA IV fee base to fund a total of 87 additional FTE for work in the review process. In addition, a modification was made to the workload adjustment to remedy this situation in PDUFA IV.
- Finally, the mechanisms of PDUFA III did not provide increased funding to FDA for rent and rent related costs to keep pace with increasing rent and building security costs. To compensate for this, $11,721,000 was added to the PDUFA IV fee base.
The table below summarizes the FY 2008 PDUFA IV fee base before program increases:
PDUFA IV Fee Base before Program Increases
|PDUFA III in 2007 Before Workload Adjustment||$305,455,400||1,464 1|
|Inflation Adjustment for 2008 (5.8%)||$17,716,413|
|FTE Increase (Planning on full Application Fee receipts)||75|
|Adjustment for PDUFA III Workload Adjustment||$41,629,000||180|
|Adjustment for Increased Meeting Workload||$20,000,000||87|
|Adjustment for Rent costs||$11,721,000|
|PDUFA IV Fee Base before Program Increases||$396,521,813||1,806|
1 The actual number of FTE paid from fees in FY 2007 was 1516, but that number included those paid from funds generated by the workload adjustment. In making these estimates, the FTE paid from workload adjustment revenues were not counted, because the workload adjustment was separately calculated.
There are 4 specific sets of program increases for PDUFA IV. In the discussion below these increases are described with the FY 2008 level of funding. The first 3 areas are to increase each year by the inflation and workload adjustment discussed in the assumption 1 and 2 above. The 4th area is to increase by an additional $10 million each year, and then is to be increased by the inflation and workload adjustment. These increases are:
- $4,600,000 and 20 FTE for Critical Path projects.
- $29,290,000 and 82 FTE for enhanced drug safety and risk management.
- $4,000,000 for IT Enhancements.
- $25,000,000 and 81 FTE for an additional drug safety increase directed by Congress. This is the only program area that has specific increases each year. The specific additional increase each subsequent year is $10 million, plus inflation since 2008. The plan assumes that 75 percent of the funds for this increase go for allocated for additional staff and operating support each year, and 25 percent of the funds are allocated for contract support. This assumption is subject to modification over time, allowing more or less funds to go for contract support, with a corresponding adjustment in FTE levels for any modification that may be made.
The table below summarizes these initiatives and the dollars and FTE associated with them, including both inflation increases over the 5 years of PDUFA IV, and the additional $10 million for Drug Safety activities each year.
TABLE PDUFA IV Fee Revenue Estimates-Including Program Increases, Inflation, & Workload Increases
|PDUFA III Base in 2007||$305,455,400||1464|
|Inflation Adjustment for 2008(5.8%)||$17,716,413||0|
|Increase for Meeting Workload||$20,000,000||87|
|Adjustment For Rent Costs||$11,721,000|
|PDUFA IV Base Workload Adjustment||$41,629,000||180|
|PDUFA IV Base Before Increases||$396,521,813||1806||$418,727,035||1806||$442,161,474||1806||$466,944,087||1806||$493,074,875||1806|
|PDUFA IV Increases|
|Increase Drug Safety||$29,290,000||82||$30,930,240||82||$32,661,279||82||$34,491,904||82||$36,422,115||82|
|Congressional Drug Safety Addition||$25,000,000||81||$36,960,000||113||$50,179,500||145||$64,768,000||177||$80,827,500||209|
|PDUFA IV Increases||$62,890,000||183||$91,842,806||277||$108,468,402||309||$126,677,205||341||$146,574,273||373|
|PDUFA IV Total||$459,412,000||1989||$510,570,000||2083||$550,630,000||2115||$593,621,000||2147||$639,649,000||2179|
The law allows FDA to collect and spend PDUFA IV revenues each year only if three specific conditions are met. This plan assumes that each of the three statutory conditions will be met each year:
- Total FDA appropriations each year (exclusive of user fees and rent payments to GSA) must total at least as much as FDA received in FY 1997, $820 million, adjusted for inflation at the rate of change in the Consumer Price index between October 1996 and October of the year prior to the beginning of the fiscal year. For FY 2009 and later, the chart below estimates that this will be a change of 4 percent each year. The assumed rates may be revised in future updates of this plan based on more recent actual rates of change. The estimates are as follows:
|Fiscal Year||1997 Amount ($ Millions) Less Rent and User Fees||Est. Adjustment Factor (Actual factor for FY 2008, estimated for later years at 4% increase||Minimum Appropriation ($ Millions||Actual Appropriation ($Millions) Less Rent and Fees|
FDA meets this trigger consistently, even though for most years since FY 1997 FDA did not receive increases to cover the cost of pay increases and inflation for its core programs—which was the original intent of this trigger. FDA meets this trigger primarily because FDA has received appropriation increases earmarked for specific initiatives since FY 1997 (e.g., food safety, counter-terrorism, etc.).
- Each year FDA must actually spend at least as much from appropriations on the human drug review process as it spent from appropriations on this process in FY 1997, adjusted for inflation. For FY 2009 and later, the chart below assumes that this will be a change of 4.0 percent each year. The assumed rates may be revised in future updates of this plan based on more recent actual rates of change. The estimates are as follows:
|Fiscal Year||1997 Amount Spent on Drug Review from Appropriations ($ Millions)||Adjustment Factor (Actual factor for FY 2008, and est. at 4% each later year)||Minimum Drug Review Spending from Appropriations ($ Millions)||Actual Drug Review Spending from Appropriations ($Millions)|
If FDA spending from appropriations on the drug review process is less than 5 percent of the specified minimum above, no fees may legally be collected or spent for the year. FDA will not know exactly how much it has spent from appropriations until after the end of the fiscal year when final accounting reports are prepared and process costs can be calculated. FDA plans to spend this minimum from appropriations each year. In years when FDA programs do not receive appropriations to cover costs of inflation and mandatory pay increases, core FDA programs other than drug review may have to be reduced to assure that appropriated spending for drug review meets the requirements of this trigger.
PDUFA fee revenues may be collected and spent only to the extent provided each year in FDA’s appropriation. If collections in aggregate for the first 4 years of PDUFA IV exceed appropriations in aggregate over the same period, the surplus can be kept by FDA but must be used to reduce anticipated collections in the final year of PDUFA IV, FY 2012.
|Fiscal Year||PDUFA Fees Provided in Appropriations ($Millions)||Overage, if Any ($Millions)|
1 Actual amount shown for 2008. Updates of the plan, if any, will add amounts appropriated in subsequent years and amounts actually collected each year will be added to this table.
To develop cost estimates, it was assumed that human resources would be acquired by hiring additional employees. The centers and ORA are not constrained in how necessary additional human resources are acquired. They are encouraged to utilize contract support any time it is more practical or cost effective than hiring.
In 1992, before PDUFA was enacted, appropriations funded a total of 1,277 FTE dedicated to the process of human drug review, as defined in PDUFA. Over the course of PDUFA III, appropriated resources did not fund as many FTE as they did in FY 1992, before PDUFA was enacted, primarily because appropriations increases did not keep pace with the rate of increase in FDA’s cost for salary and benefits per FTE—which increased at an average cost of 5.6 percent per year over the 5 years of PDUFA III. As a result, by the last year of PDUFA III, appropriations funded a total of 1,222 FTE, while fees funded a total of 1,516 FTE.
For this plan, FDA is assuming that its appropriations, exclusive of user fees, will increase at an annual rate of 4 percent, compounded—although this figure is greater than the appropriated increases for inflationary costs over the past 5 years. As stated in assumption 1, FDA is also assuming that costs per FTE continue to increase at a rate of 5.6 percent compounded per year—the average for the most recent 5 years. Based on these 2 assumptions, FDA assumes that there will still be a small but steady erosion of the number of FTE funded from appropriations each year, as shown in the table below:
Estimate of FTE for Drug Review to be Funded from Appropriations rather than Fees
|Appropriations Increase at 4%, compounded||4.0%||8.2%||12.5%||17.0%||21.7%|
|Cost per FTE Increase at 5/6%, compounded||5.6%||11.5%||17.8%||24.4%||31.3%|
|Impact on 1,222 Appropriation-Funded FTE||-20||-41||-64||-90||-118|
|Estimated number of Appropriated FTE||1202||1181||1158||1132||1104|
These estimates are the number of FTE that FDA anticipates will be funded from its Salary and Expenses Appropriation, exclusive of user fees, for each year over the 5 years of PDUFA IV. The estimates are subject to revision in future plan updates, depending on FDA’s actual experience with appropriations increases to offset the impact of cost increases.
The table below uses the FTE’s funded from appropriations (Assumption 9) and the FTE’s to be funded from Fees (Assumption 6) to estimate the total FTE level FDA anticipates using each year of the PDUFA IV program.
Projection of Total FTE to be Expended for the Human Drug Review Process ($000)
|Source of Funds||FY 2008 Estimate||FY 2009 Estimate||FY 2010 Estimate||FY 2011 Estimate||FY 2012 Estimate|
|Fees from Industry||1,989||2,083||2,115||2,147||2,179|
FDA is assuming that amounts spent from appropriations will increase at 4 percent per year, to keep up with most but not all cost increases. Adding this amount to the amount FDA expects to spend from PDUFA fees (Assumption 4), by the final year of PDUFA IV, spending on the process for the review of human drug applications is expected to increase to about $949 million, as reflected in the table below. This is an increase of about 65 percent, or $374 million, compared with the $575 million FDA spent on the process for the review of human drug applications in FY 2007, the last year of PDUFA III.
Projection of Total Spending for the Human Drug Review Process ($000)
|Source of Funds||FY 2007 Actuals||FY 2008 Estimate||FY 2009 Estimate||FY 2010 Estimate||FY 2011 Estimate||FY 2012 Estimate|
|Fees from Industry||$320,430||$459,412||$510,570||$550,630||$593,621||$639,649|
These resources are available to FDA to assure that the agency has the additional resources it needs to meet the performance goals negotiated for PDUFA IV. The resources are being allocated with the expectation that all of the performance goals that were agreed to when PDUFA IV was reauthorized will be met. This plan provides the framework for fund allocations each year, to assure that funds are made available on a timely basis to all components involved in the process for the review of human drug applications at the beginning of each fiscal year.
All estimates in the plan are subject to review and reassessment each fiscal year as actual amounts for appropriations, workload, and revenue for the previous year are available and better estimates for the next year’s revenues are possible. Of course, adjustments will have to be made based on these assessments. The plan will continue to have value as the baseline from which future changes will be made. Depending on the magnitude of the adjustments, FDA may decide to publish an update of this plan at some time during PDUFA IV.
The amount appropriated to FDA from PDUFA fee revenue each year serves two purposes. First, it permits FDA to spend fee revenues that year. Second, the appropriated amount sets an upper limit on the amount that FDA may collect and spend for that fiscal year.
The fee revenue that FDA receives form establishment and product fees is fairly stable form year to year, but the amount that FDA collects from application fees is quite variable from year to year. The mechanism that FDA uses to estimate number of full application equivalents (FAEs) that will pay a fee for each fiscal year is based on the average number of FAEs that FDA actually received in the most recent 5-year period. The table below shows the projections at the beginning of the fiscal year, and the actual number collected for each fiscal year from FY 2001.
Estimated Full Application Equivalents When Fees Were Set before the Fiscal Year and Actual FAE Receipts at the End of the Fiscal Year
|Actual Fee-Paying FAEs Received||126.6||132.1||119.5||145.1||121.5||136.7||134.4||141.0|
|Estimated FAEs When Fees were Set based on 5-Year Avg.||163.5||158.3||139.3||140.0||138.1||129.0||131.0||130.0|
As this table shows, FDA actual FAE receipts have varied from 22.6 percent below FDA’s estimate to 8.5% above FDA’s estimate. It is not possible to exactly predict the number of FAEs that FDA will receive each year.
Since the amount appropriated to FDA from PDUFA fee revenue each sets an upper limit on the amount of fee revenue that FDA may keep and spend, FDA’s appropriation each year should be slightly higher than its fee revenue estimate before the beginning of the fiscal year. If FDA collects less than the fee estimate at the beginning of the year and less than the fee appropriation, collections rather than appropriations set the upper limit on how much FDA may actually keep and spend. If FDA collects more than fee estimates at the beginning of the year, however, a slightly higher fee appropriation will permit FDA to keep and spend the higher collections in order to respond to a very real surge in review workload that caused the increased collections—a unexpected increase in the number of applications that FDA must review in accord with PDUFA goals.
The PDUFA workload adjuster is a lagging adjustment dampened by averages over 5 years and will not help with the sudden increases in the number of applications to be reviewed in the current fiscal year. For this reason, over most of the history of PDUFA since 1993, actual appropriations have slightly exceeded PDUFA fee revenue estimates made each year. This plan continues the assumption of slightly higher appropriations. Appropriated amounts for PDUFA fee revenue each year are estimated in the table below at 5 percent higher than estimated fee revenues for each year, to provide FDA with the ability to cope with surges in application review workload should that occur. The following table shows FDA’s PDUFA fee revenue estimates for the 5 years of the plan, and projects the appropriated amounts for PDUFA fee revenue each year at 5 percent higher that the estimated fee revenue.
Estimated PDUFA Fee Revenue and Appropriations from PDUFA Fee Revenue ($000)
|Planned Fee Revenue||$459,412||$510,570||$550,630||$593,621||$639,649|
These calculations were made after the FY 2009 fee revenues were published in the Federal Register in August of 2008. Both the planned revenue amounts and the estimated appropriation amounts will need to be recalculated each year in August after the fees for the next fiscal year have been published. These revised amounts will reflect updated actual calculations for both inflation and workload adjustments as reflected in the August Federal Notice publication of fees.