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FY 2003 MDUFMA Financial Report: Main Report

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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 resources are to be used to hire and support additional staff for the "process for the review of device applications" as defined in MDUFMA, so that safe and effective devices reach the American public more quickly. MDUFMA was patterned in part after the very successful Prescription Drug User Fee Act (PDUFA).

Under MDUFMA, an application fee must be paid when certain device applications are submitted. Fee-paying applications include premarket applications (PMA's), product development protocols (PDP's), premarket reports (PMR's), modular PMA's, biologics license applications (BLA's), and certain supplements to all of them, as well as premarket notification submissions (510(k)s). The aggregate application fee revenue amount is set in statute, but is adjusted each year for cumulative inflation since FY 2003, and may be further adjusted for increases in workload and for revenue shortfalls from previous years. The individual fees for various types of applications are fixed in statute as a percent of the fee for a PMA. Fees are set in August of each year after the inflation, workload, and shortfall adjustments to the statutory fee amount have been determined. Unlike PDUFA, there are no product or establishment fees under MDUFMA.

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 2003 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 2003 MDUFMA Financial Report, covering the period October 1, 2002 through September 30, 2003.

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 2003 (Appendix A). This report also for the first time describes in some detail (Appendix D) the process for the review of devices as newly 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 2003 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 2003. This is the most favorable category of audit opinion.

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Meeting the Legal Conditions for User Fees in FY 2003


MDUFMA contains three legal conditions or "triggers" that must be satisfied each year before FDA can collect and spend user fees. FDA's calculations showing the extent to which those conditions were met for FY 2003 are summarized below and presented in more detail in Appendix A.

The first condition requires that appropriations for FDA's device and radiological products activities total $205,720,000 in FY 2003, and increase annually for inflation by an adjustment factor thereafter. For FY 2003, FDA's Salaries and Expenses appropriation, excluding user fees and after rescission , included $193,455,000 for the 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 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 108-7) specifying amounts collectable from fees during FY 2003 on February 20, 2003. It provided $25,125,000 to be derived from fees collected. Thus, the second condition was met, and fees may be collected.

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 amount was $119,673,026. FDA actually spent $125,597,098 from appropriations for the process for the review of device applications for FY 2003. Since this is greater than the FY 2002 amount ($119,673,026), adjusted for inflation, the third condition was met.

Appendix A provides more detail on the calculations that show how these three 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 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 6.

The following table provides a breakout of user fees by fee source during the two fiscal years, 2003 and 2004, and also reflects estimates of receivables.


as of September 30, 2003
FY 2003
FY 2004
Fees Collected:
Fees Receivable:

Note that user fee revenues are reported in the year the fee was originally due-referred to as the cohort year. For example, a fee due in FY 2004, even if it is received in FY 2003, is attributed to FY 2004 revenues. Totals reported for each year are net of any refunds for that year, as of September 30 th , but do not take into account any refunds that may be made after September 30 th . Information on the number of each type of fee received in FY 2003 is contained in Appendix B.

The FY 2003 accounts receivable are due to unpaid invoices for fees for applications that were submitted between October 1, 2002 and March 30, 2003. After April 1, 2003, FDA no longer accepted applications for review unless a fee for the application had been received. Fees receivable for FY 2003 are, for the most part, over 120 days old, and most have been turned over to a collection agency. A summary of FY 2003 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 2003, FDA obligated $14,837,600 from medical device user fee revenues.


as of September 30, 2003
Expense Category
FY 2003
Personnel Compensation and Benefits
Travel and Transportation
Contract Services
Equipment and Supplies

FDA dedicated 854 staff-years to the review of device applications in FY 2002, before MDUFMA was enacted. A time reporting study was undertaken in 2003 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 methodology used closely tracked the methodology used in 1993 when human drug review process costs were initially developed under PDUFA. 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.

In FY 2003, MDUFMA fees and appropriations paid for about 22 more staff-years than were used in FY 2002 for the process for the review of device applications. FDA is working to strengthen and expand our capacity to conduct efficient and timely reviews to ensure the safety and effectiveness of new medical devices.

For FY 2003, the Center for Devices and Radiological Health (CDRH) expended approximately 681 staff years on the process for the review of device applications. Most of the additional staff (about 67 of them) were hired very late in the fiscal year, and the impact of their full-year cost will not be incurred until FY 2004. In FY 2004, FDA expects to utilize over 100 more staff years than in FY 2002, as the Agency ramps up its staffing to levels necessary to meet the MDUFMA performance goals.

As can be seen from the table on the previous page, the remaining funds were spent on restoring support needs for the device review program, including enhanced information technology (IT) resources. FDA has modified device review tracking systems to monitor device review performance on new MDUFMA performance goals. CDRH has accelerated the training of staff using new guidance required to implement MDUFMA and has also developed training plans to significantly increase clinical and technical training in the coming year.

CDRH has also expanded the use of contractors, providing additional flexibility to meet nonrecurring workloads, to augment FDA resources in highly specialized areas, and to achieve particular tasks at a lower cost than would otherwise be possible.

CDRH contracts that improve IT Infrastructure included:

  • Electronic 510(k) Review/Submission Template Development
  • Support for the Document Scanning Contract
  • Development of IT Security Documentation
  • Design of a Statement of Work (SOW) to migrate files from Platter to Disk

Additionally, CDRH entered into contracts designed to improve specialized areas having a premarket impact including:

  • Global Medical Device Nomenclature
  • Institute of Medicine Study of the Adequacy of Postmarket Surveillance
  • Standards Utilization in Ophthalmic Premarket Application Study

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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 2003 resulted in a net carryover balance of $ 7,051,982 .

The table below captures the carryover balance, and will be updated each year in the future.


as of September 30, 2003
Fiscal Year
Year-End Carryover

The balances above reflect cumulative cash at the beginning/end of each fiscal year, and net cash collected during each fiscal year for all cohort years. The figures do not include accounts receivable.


Collection Ceilings, Shortfalls and Surpluses

Under MDUFMA, shortages below the cumulative statutory revenue amounts for previous years, after adjustment for inflation and workload, may be recouped by increasing fees in future years by means of the 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 net collections, collection ceilings, and amounts that may be either refunded or used to offset future collections.


as of September 30, 2003
Fiscal Year
Net Collections Realized
Collection Ceiling (Adjusted Cumulative Statutory Revenue Amount)
Shortfall (To be made up by increased future collections)
Surplus (To be offset by reduced future collections)

When fees for FY 2004 were set on August 1, 2003, FDA anticipated a revenue shortfall of $5,478,000, based on actual collections through the end of June 2003. As a result, when fees for FY 2004 were established, a compensating adjustment of $5,478,000 was added to the inflation adjusted statutory revenue target of $28,418,789, setting the FY 2004 final revenue target at $33,896,789. Collections at the end of FY 2003, especially in the month of September, came in at a much higher level than anticipated, reducing the final shortfall in FY 2003 to $3,235,418.

The actual compensating adjustment for FY 2004 should have been $3,235,418. Had this amount been added to the inflation adjusted statutory revenue target of $28,418,789, the revised revenue target after compensating adjustment would have been $31,654,207. This later amount will be regarded as the Collection Ceiling for FY 2004, and should revenues be collected in excess of this amount, then revenues for future years will be offset by such surplus collections. Given the shortfall in FY 2003, and the fact that FDA did not lower the estimated number of fee-paying submissions when fees were set for FY 2004, the Agency regards it as unlikely that collections in FY 2004 will exceed this Collection Ceiling.


Reserve for Future Operations

FDA should have at least a 1-month reserve for future operations at the end of each fiscal year — at least until FY 2007, when it is expected to have at least a three-month carryover balance before the statute sunsets. The carryover amount shown as available for allocation in the table below is enough to fund estimated FY 2004 operations for approximately 2.5 months. (Revised FY 2004 Collection Ceiling of $ 31,654,207 divided by 12 yields an estimated monthly fee amount of $2,637,851.)


as of September 30, 2003
Status of Carryover Funds
Reserve for Refunds of Excess Collections
Available for Allocation
TOTAL Carryover Balance

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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 FY's 2002 and 2003 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 in FY 2003. 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.


as of September 30, 2002 and 2003
FDA Component
FY 2002
FY 2003
Center for Drug Evaluation and Research (CDER)
Center for Biologics Evaluation and Research (CBER)
Field Inspection and Investigation Costs (ORA)
Agency General and Administrative Costs (OC)
Total Process Costs
Amount from Appropriations
Amount from Fees

The costs for all components rose in FY 2003. This increase primarily reflects enhanced spending made possible by the additional resources in FY 2003 and increases in pay rates for federal employees.

The Agency General and Administrative Costs, though up slightly from FY 2002 levels, declined 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 only 7.3 percent in FY 2003.

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Management Challenges for FY 2004


With the passage of MDUFMA, great expectations have been created for substantially reducing the time it takes to evaluate new device applications, while maintaining rigorous standards for device safety and effectiveness. In FY 2004, FDA must continue to increase personnel to support the review of device applications, and continue to restore the infrastructure of the device program, in order to assure that MDUFMA performance goals, which become quite challenging in FY 2005 and beyond, will be met.

The Agency is assuring the viability of MDUFMA in FY 2005 and beyond requesting appropriations of approximately $217 million in FY 2005 for FDA's device and radiological health program. This will assure that the key appropriations trigger for FY 2005 will be satisfied, assuming elimination of the requirement that appropriation shortfalls in FY 2003 and FY 2004 must be made up.

The challenge for the Agency in FY 2004 is to manage a combination of decreased appropriations and increased fee revenues in such a way that increases the most essential review staff and infrastructure needs of the program, and positions the Agency to hire the additional staff needed to meet performance goals at the end of FY 2004 and at the beginning of FY 2005.

FDA will continue to be challenged by the need to hire, train, and retain qualified reviewers and support staff in FY 2004, and to gear up for substantial staff increases near the end of FY 2004 and the beginning of FY 2005. CDRH, which does the largest portion of the device review activities, lost over 70 employees in FY 2002. FY 2003 recruiting efforts hired replacements for these employees, and added about 67 additional employees in the last few months of FY 2003. Retaining review staff and recruiting and training new review staff is a constant challenge. Yet, the Agency's ability to attract and retain outstanding review staff is critical to maintaining the FDA's commitment to meeting the MDUFMA performance goals. Recruiting and retaining top rate professional staff is among the Commissioner's highest priorities.

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