Supporting FDA Product Reviews with User Fees Alone

by Erika Lietzan — Saturday, June 17, 2017@lietzan

Cross Posted on Objective Intent.

Budget documents released by the White House and FDA in May suggest the Administration intends to restructure medical product user fees, so that a greater percentage of the agency’s work is fully user fee funded.  The Secretary’s May 15 letter, explaining the President’s earlier Budget Blueprint, suggests the goal is for medical product user fee programs to be 100 percent user-fee supported.

Congress structures agency user fee provisions many different ways, and the current approach to medical product user fees is complex and unusual. Among other things, it ensures that annual appropriations play a role in supporting review activities. This means the Administration’s proposal would require revision of the bills currently winding their way through the legislative process.

When Congress structures an agency’s authority to collect user fees, it has to sort through several basic issues, including: how much control it is going to retain over fee setting, how the user fees will relate to other sources of funding for the agency, and what the user fees will support.  Even with the Federal Food, Drug, and Cosmetic Act, Congress has taken several different approaches.

Who sets the fees?  How much control does Congress retain?  

Under FDA’s medical product user fee authorities, the agency sets medical product user fees itself.  This means, for instance, it has decided that for FY 2017 a new drug application with clinical data must be accompanied by a fee of $2,038,100.  But Congress retains a lot of control — by (1) setting the total amount to be collected each year and (2) specifying the regulatory activities for which user fees must be paid.  It does this every five years.

Let’s use prescription drugs as the example.

Section 736(a) of the FDCA specifies that fees must be paid (1) in connection with submission of new drug applications, (2) on an annual basis for each establishment listed in an approved application, and (3) on an annual basis for each product.  Thus, the application fees are transaction-based, but the other fees are simply annual payments.  Section 736(b) sets a base revenue amount for the total revenue for all prescription drug fees at $693,099,000 for FY 2013.  {** For anyone following along at home: these are sections of the FDCA.  The 21 U.S.C cite is 379h, rather than 736.]

How does FDA set these fees?

Section 736(c) directs the agency to adjust this base revenue amount annually for inflation and workload, in accordance with detailed instructions (as to the math and as to the process) in the statute.

Each year, FDA calculates the adjusted amount and sets fees for the three things specified in the statute — applications, establishments, and products — so that revenue from each category will provide one third of the total revenue to be collected for that year.  The “one third” rule appears in section 736(b).  The agency announces the resulting fees in a Federal Register notice each fall, but it does not offer notice and an opportunity to comment — and the statute doesn’t require it to do so.

How do these fees relate to other sources of funding for the agency?

In addition to authorizing FDA to collect medical product user fees, Congress appropriates funds on an annual basis for the agency.  I noted in a previous post that a surprising amount of the medical product review process — probably more than 70 percent at this point — is user-fee funded.  But the statute is written to ensure that user fees supplement — rather than replace — annual appropriations.

First, under section 736(f), user fees must be refunded unless the annual appropriation for salaries and expenses (not counting user fees) equals or exceeds the annual appropriation for salaries and expenses (not counting user fees) in 1997, adjusted for inflation.  While this provision remains in the FDCA, Congress must continue appropriations for the agency — or FDA cannot rely on user fees.

Second, section 736(g)(1) provides that the amount of user fees collected in each year must also be specified in the relevant appropriation act.

Third, section 736(g)(2) says — in a very roundabout way — that FDA can spend user fees only to defray costs in the review of applications that exceed the amount of appropriations that were spent on that same activity in 1997.  In plain English, this means that FDA has to spend a certain amount of appropriated money on review activities before it can dip into the user fees.

What does FDA use the fees for, and who decides what they will be used for?

As a practical matter, the theory of the fees is that they fund faster reviews of pending applications, specifically by allowing FDA to hire more full time employees for the review division.  Of course they are also generally expected to support the agency’s mission with respect to prescription drugs — see section 1003 of the statute — (1) promotion of the public health “by promptly and efficiently reviewing clinical research and taking appropriate action on the marketing of regulated products in a timely manner,” and (2) protecting the public health by ensuring that these drugs are safe and effective.

But, on the narrow question above – here is where it gets interesting.

Section 735 of the statute lists the activities that comprise “review of human drug applications” for purposes of spending the user fees.  Examples?  The “activities necessary for the review of human drug applications and supplements,” and “the actions necessary to place such applications in condition for approval.”

But each user fee reauthorization law is accompanied by a side letter laying out “performance goals” for FDA.  This letter explains how FDA will deploy the user fees in the following five years, addressing everything from target deadlines for action on pending applications, to goals for the various steps along the way (the “Day 74 Letter” and the “Mid Cycle Communication”), guidance documents that will be developed, evaluation of drugs after approval, and so forth.

Section 736B lays out a process for FDA to follow in development of this side letter, including consultation with congressional committees, scientific and academic experts, health care professionals, and patient and consumer advocacy groups.  The centerpiece of this process is negotiation with the regulated industry, the minutes of which must now be made publicly available.  Following these negotiations and a period of public comment on the resulting proposal, FDA transmits its proposal to Congress.  When the user fee law is passed, the side letter is formally introduced and printed in the Congressional Record.  The proposed commitment letter for PDUFA VI can be found here.

How hard would it be to rewrite the statute so that medical product user fees fund 100 percent of the review process?

There are many different ways to write user fee legislation, and some agencies (like PTO) are essentially fully user fee funded.  My guess is that someone has already mocked up new language that eliminates the appropriations hook.  With current user fee authority expiring on September 30, some members of Congress are saying that it is way too late to make this change — that it would effectively require reopening the negotiations and drafting a new commitment letter.  It is not immediately obvious to me that this is correct (except perhaps as a statement of political reality).  The bigger question might be whether medical product user fees should fund 100 percent of the review process.  FDA resisted user fees for decades, and reams have been written on this issue.  It is a topic for another blog post, but I have my doubts that it can be fully explored by the end of September, particularly in view of the August recess.

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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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