FDA’s Reliance on User Fees

by Erika Lietzan — Monday, Sept. 4, 2017@lietzan

Cross-posted on Objective Intent.

On August 18, the President signed the Food and Drug Administration Reauthorization Act of 2017 (FDARA), which reauthorized FDA to collect user fees in connection with new drugs, biologics, and medical devices for human use.  These user fee programs are colloquially known as PDUFA (innovator drugs and biologics), GDUFA (generic drugs), BsUFA (biosimilars), and MDUFMA (medical devices).

The White House had been urging Congress to change the structure of FDA’s user fee programs so that much of the agency’s programming is funded by user fees rather than appropriations.  Congress has more FDA user fee programs to reauthorize, however, and the Administration’s basic proposal is unlikely to go away.  I explain more of the history and the debate below.

What still has to be reauthorized?

Animal drug user fees and animal generic drug user fees.  The animal drug user fee statute (ADUFA) dates to 2003 and was reauthorized in 2008 and 2013.  The animal generic drug user fee statute (AGDUFA) dates to 2008 and was reauthorized in 2013.  Both must be reauthorized in 2018.

Are there other user fees at FDA?

Yes, many.  And some of the programs are quite old.  The original 1938 statute (section 706) required payment of user fees in connection with color additive certification.  Color additives are still subject to a batch certification user fee.  In 1941, Congress added section 506, which required fees to provide, equip, and maintain an insulin batch certification service.  This is gone now, but there are many more fee provisions today.

For instance, FDA regulates mammography facilities and collects user fees to cover inspections.  The agency also collects tobacco user fees as well as fees associated with export certificates and priority review vouchers.  FDA also collect fees relating to food, including fees to cover re-inspection costs and fees to cover food recall activities.

How did we end up with drug user fees?

The User Charge Act

Shortly after World War II, Congress passed legislation urging agencies to adopt user fees.  Title V of the Independent Offices Appropriations Act, enacted in 1951, expressed the “sense of Congress” that licenses, permits, benefits, privileges, and things of “value or utility” that were provided, prepared, or issued by federal agencies should be “self-sustaining.”  This law authorized each agency to issue regulations establishing charges for services and things of value provided by the agency.  A charge should be based on (1) the cost to the government, (2) the value to the recipient, (3) the public policy or interest served, and (4) other pertinent facts.  Many agencies charge user fees, now, and this provision — known as the “User Charge Act” — still appears, here, in the U.S. Code.

FDA’s objection to user fees

FDA was opposed to charging fees, for several reasons.  Among other things, agency leadership took the position that the agency’s regulatory scheme does not benefit private parties.  The entire point of the 1938 statute was to benefit the public and consumers.  Any benefits for companies were “secondary” – that is, they weren’t the point of the legislation.  Because the agency’s work was performed for the benefit of consumers, FDA reasoned, it should be supported by general taxpayer funds and not by the companies.

Two Supreme Court rulings in 1974 addressed user fees (imposed by another agency) that benefited both regulated parties and the general public.  These were National Cable Television Assn., Inc. v. United States and FPC v. New England Power Co..  These rulings made it clear that fees could be assessed under the User Charge Act only with respect to identifiable recipients of specific government benefits.  But they also made it clear that if an agency’s program benefited both the public and identifiable beneficiaries, the agency could collect user fees, as long as it allocated the cost of the program appropriately.

Although this provided a theoretical path forward for FDA, the agency continued to oppose user fees through the 1970s and early 1980s.

Although FDA faced significant pressure from other parts of the executive branch, including OMB, it consistently ended in the same place.  In a 1983 report, for instance, it concluded that drug, device, and food additive petition reviews were the best candidates for user fees, because the companies in question received a special benefit — permission to market.  But it rejected user fees, on the same ground as always.  The purpose of the scheme was to protect consumers.  (As the Administrative Conference of the United States pointed out in 1987, FDA was not the only agency as to which this disagreement – who benefits from regulation – had emerged.)

Resource problems turn the tide

In 1985, under Commissioner Frank Young, the agency finally changed its mind about the appropriateness of user fees.  In August, it issued a proposed rule to collect user fees in connection with new drug applications (here, at page 31726).  FDA now stated that user fees were appropriate because approval provides a “special benefit” to “identifiable individuals” – permission to market their products as well as enhanced public confidence in their products.  What had changed?  It cited “intense and growing concern about the size of the Federal deficit.”

Enactment of PDUFA

By the early 1990s FDA faced profound resource constraints.  The agency of the 1950s was poorly equipped to handle the modern new drug approval paradigm that had developed over the decades after the 1962 amendments.  New drugs were now supported by “adequate and well controlled” clinical trials designed to show effectiveness as well as safety.  With significant improvements in the basic science, new drugs were more complex and the diseases they tacked were more complex.  Statistical analysis and clinical trial designs had grown more sophisticated.  Applications were larger and more challenging for the agency, and the staff couldn’t review them in anything close to the 180 days required by statute.  Commissioner David Kessler pushed hard for user fee legislation, citing the agency’s funding situation before Congress in the spring of 1992.

The pharmaceutical industry was not opposed on principle.  But it was concerned that fees might simply be deposited in the Treasury and diverted to other federal programs. Application fees needed to benefit FDA and, in particular, improve the new drug review process.  Industry also opposed any proposal that substituted user fees for other funds; the end result should be that FDA had more resources.

Congress had been resisting the Administration’s overtures for FDA user fees since the mid 1980s.  But Commissioner Kessler’s support for user fees and involvement in the legislative process was critical.  Over the spring and summer of 1992, the agency worked with Congressional staff and industry to develop legislation that would provide the agency with relief by supplementing (rather than replacing) its appropriations with additional money from industry.

The final approach entailed three fees: a one-time application fees plus regular fees for products and facilities.  In return, the agency would commit to measurable improvements in the drug review process, such as eliminating its backlog of applications and prioritizing the review of important new drugs.  This agreement took the form of a negotiated side document specifying standards and goals.  PDUFA was enacted in September 1992, with robust bipartisan support.

What of the current proposals?

As I understand the ideas floated this past spring, the medical product programs — or perhaps just premarket review of applications — would be fully industry funded.  I would expect to see more conversation about this idea.  Assessing the legal and policy issues is well beyond my scope here, but I will just note a few.

First, the legal issue is a constitutional one.  The Supreme Court cases in 1974 were, at bottom, non-delegation doctrine cases.  Indeed, in the National Cable Television case, Justice Douglas both cited and quoted the 1935 Schechter case, one of the few Supreme Court rulings in which the Court has struck down a law for delegating legislative authority to the executive branch.  Taxation, the Court wrote in 1974, is a legislative function.  Congress is the “sole organ” for levying taxes.  A fee, by way of contrast, is incident to a voluntary act, such as requesting a permit to practice medicine.  Thus, an agency may exact a fee for the grant of a license like this, which “bestows a benefit on the applicant not shared by other members of society.”  But it may not impose a tax.  These considerations led the Court to read the User Fee Charge Act narrowly to avoid a potential delegation problem (on which it did not rule).  An authorized fee must be measured by the value of the service to the recipient and its cost to the government (not the benefit to the public).  It will be important to keep this issue in mind, if proposals circulate to make the medical product programs fully user fee funded.

Second, many of the policy issues relate to the nature of the relationship between the agency and industry. FDA was concerned in 1983 (see discussion here) that regulated industry might “exert more influence” if it was funding agency operations.  Given the way the funds are collected and deployed, it’s unlikely any particular company’s payment affects review of its application.  But some stakeholders still object to a process where the agency and industry jointly develop goals for each five-year window, on the ground that it gives industry an improper role in setting the agency’s priorities.  Others disagree, believing that the regulatory process works best – and therefore serves the public interest better – when the agency and industry collaborate.  Some members of the public hold to a belief that the agency is functionally beholden to industry, and this belief (even if not substantiated) undermines confidence in the agency and the products it regulates.  All of these concerns are worth reflecting on.

There are also policy issues relating to the level of funding needed.  To begin with, some stakeholders argued that a fully user-fee-funded system would disadvantage smaller companies (although there are some waivers and reductions available).  But the greater issue is that FDA desperately needs more funding.  Over the years Congress has added repeatedly to its programmatic responsibilities without increasing its appropriations adequately to handle the new assignments.  Substituting user fees for appropriations doesn’t solve the most pressing problem, which is that FDA needs more funds — not a shift in who writes the check.

Finally, the proposals raise a fundamental question about what it is that FDA does.  Do we really think that FDA’s medical product programs — or even just its reviews of marketing applications — are intended for the specific benefit of private companies alone, and not also (or especially) for the benefit of the general public?  Or is FDA at bottom a public health agency and, even when performing these functions, primarily serving the public interest?

 

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About Erika Lietzan

Professor Lietzan is an Associate Professor at the University of Missouri-Columbia and an Affiliate Scholar at the Center for Protection of Intellectual Property of the Antonin Scalia Law School (George Mason University). She also blogs at Objective Intent. She researches and teaches primarily in the areas of drug and device regulation, intellectual property, and administrative law. Her primary research focus lies at the intersection of intellectual property law and FDA regulation of medical products. Her scholarship has focused on the new drug research and development paradigm and its impact on incentives to innovate, innovation and competition in the marketplace for biological medicines, the incentive for generic drug applicants to challenge innovator patents, data exclusivity for drug and biological medicine innovators, and mandatory public disclosure of clinical data in drug applications, among other issues. Her scholarly articles can be downloaded here. Professor Lietzan brings to her scholarship and teaching eighteen years of private practice experience, eight of them as a partner in the Food & Drug Group at Covington & Burling in Washington, DC. Professor Lietzan is an elected member of the American Law Institute. She also serves in the leadership of the Food & Drug Law Institute and served for many years in the leadership of the Science and Technology Section of the American Bar Association. She is also an active member of the American Health Lawyers Association, the American Intellectual Property Law Association, and the American Society of Law, Medicine, and Ethics. Professor Lietzan received her law degree from Duke University, a master’s degree in history from UCLA, and bachelor’s degree in history from the University of North Carolina.

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