Interim impact assessment of the Therapeutic Goods Administration annual charge exemption (ACE) scheme

Version 1.0, December 2015

5 February 2016

Purpose

This paper presents an analysis performed by TGA of the initial impact of the implementation of the annual charge exemption (ACE) scheme for the period to 31 October 2015. It is based on the entire set of data for each product category available to us at this point in time. The ACE scheme commenced on 1 July 2015, replacing the low value turnover (LVT) exemption scheme.

Review objective

While it is early in the operation of the new scheme, the objective of conducting an initial review was to identify the early impacts of the scheme across and between industry sectors and groups of like sponsors.

At the time of undertaking this assessment the new scheme has been in operation for less than 5 months. We will not know the full impact of the scheme until it has been in operation for a minimum of 2 years. However it was anticipated that by 31 October 2015 sponsors will have made decisions for 2015-16, on the products they will maintain on the Australian Register of Therapeutic Goods (ARTG), as annual charge invoices were due for payment by 15 September 2015.

Review methodology

We have conducted a comparative assessment of the revenue generated from annual charges on entries on the ARTG in 2013-14, 2014-15 and 2015-16. The review included an assessment of financial and related information on active and recently cancelled entries on the ARTG, including, but not limited to:

  • medicine product charges and exemptions
  • medical devices charges and exemptions, including an assessment of dental devices identified through the use of Global Medical Device Nomenclature (GMDN) codes
  • the spread of exemptions offered, noting that a complete analysis will take more than one year of information to assess, as only previously exempted products under the LVT scheme (referred to as LVT entries) have been transitioned into the new scheme and new entries from 1 July 2015 are provided an exemption automatically (thus the range of products with exemption will change over time)
  • the percentage of previously LVT exempt entries that pre-qualified for exemptions in 2015-16 (referred to as ACE entries) including the actual number of exempt entries before and after the introduction of the ACE scheme
  • an impact assessment of the ACE scheme (based on net annual charges paid) on a group of sponsors that reflect small businesses (i.e. defined as those sponsors with 10 or fewer products on the ARTG)
  • sponsor-initiated cancellations arising from cessation of the LVT scheme; and as a consequential observation the number of payment plans requested (as sponsors incur annual charges for the first time for certain previously exempt entries).

Out-of-scope

We did not consider the impact of the ACE scheme on export only goods as those goods do not incur annual charges or on IVD Class 1 to Class 4 devices as these will not incur annual charges until 1 July 2017.

Net revenue by industry sector

Table 1 sets out the net (actual) revenue paid by each industry sector for annual product charges and LVT exemption application fees, for entries on the ARTG between 2013-14 and 2014-15 under the LVT scheme, and 2015-16 under the ACE scheme.

  • Increases to the rates of annual charges (prices) which were applied in each financial year, using indexation, are included in the values reported (i.e. the effect of indexation increases on revenue has not been removed).
  • While dental products are not identified separately on the ARTG as a specific category, a review of medical device entries by the GMDN code confirms that dental devices comprise 12% of active medical device entries on the ARTG in 2013-14, 2014-15 and 2015-16. We have used GMDN codes to quantify the impact on the dental sector.
  • Revenue in 2015-16 includes the effect of reductions in annual charge rates from 1 July as a part of the introduction of ACE:
    • non-biological prescription medicines (generic medicines) - 23%
    • other non-biological prescription medicines - 5%
    • medical devices class IIa, IIb, class III and AIMD - 5%.
  • The 'Average Annual Increase or Decrease' (i.e. the average rate of change between 2013-14 and 2015-16) has been included as some sponsors commenced rationalising their ARTG entries (i.e. requesting their cancellation) before the end of 2014-15. Therefore, for the purposes of this analysis, it is reasonable to compare 2015-16 revenue with 2013-14 revenue. It is critical to recognise that revenue can change for two underlying reasons - a change in the rate (price) per product and/or a change in the number of products on the ARTG. For many years, there has been an increase in the number of ARTG entries each year. As a result of this increase in the number and diversity of products coming to market, the amount of work in post-market monitoring, laboratory testing and compliance activities of the TGA has increased in line.
Table 1. Annual charge revenue by industry sector (including average charge per product)
Industry category 2013-14 2014-15 2015-16 % variance 14-15 to 15-16 % variance 13-14 to 15-16 (2 year) Average Annual Increase / Decrease
Prescription Medicines Revenue $ $19,327,970 $20,281,347 $23,737,445 17% 23% 11%
Entries QTY 14,547 15,472 15,355 -0.8% 5.6% 2.8%
Average $ $1,329 $1,311 $1,546 17.9% 16.3% 8.2%
Complementary Medicines Revenue $ $8,077,750 $7,652,183 $8,903,935 16% 10% 5%
Entries QTY 12,335 12,424 10,793 -13.1% -12.5% -6.3%
Average $ $655 $616 $825 33.9% 26% 13%
Non-Prescription (OTC) Medicines Revenue $ $2,830,640 $2,830,672 $3,503,500 24% 24% 12%
Entries QTY 3,563 3,632 3,567 -1.8% 0.1% 0.1%
Average $ $794 $779 $982 26% 23.6% 11.8%
Medical Devices (non-dental devices) Revenue $ $15,932,354 $16,307,429 $16,910,835 4% 6% 3%
Entries QTY 38,168 39,754 39,128 -1.6% 2.5% 1.3%
Average $ $417 $410 $432 5.4% 3.5% 1.8%
Dental Devices Revenue $ $2,172,586 $2,223,737 $2,306,020 4% 6% 3%
Entries QTY 5,204 5,420 5,334 -1.6% 2.5% 1.2%
Average $ $417 $410 $432 5.4% 3.6% 1.8%
Other Therapeutic Goods Revenue $ $144,870 $95,783 $408,690 N/a N/a N/a
Entries QTY 74 51 138 N/a N/a N/a
Average $ $1,958 $1,878 $2,962 N/a N/a N/a
Total Revenue $ $48,486,170 $49,391,151 $55,770,425 13% 15% 7.5%
Entries QTY 73,891 76,753 74,315 -3.2% 0.6% 0.3%
Average $ $656 $644 $750 16.6% 14.3% 7.2%
  • If the annual indexation increase in rates (prices) of 4.5% (comprising 2.4% in 2014-15 and 2.12% in 2015-16) is excluded, the net revenue collected from annual charges in 2015-16 has increased in real terms by 9.8% (over 2 years). This growth includes new entries (net of cancellations) in the ARTG each year (refer to Figure 1).
  • For the dental sector the increase is 1.5% (over 2 years).

Figure 1. Number of entries on the ARTG (2009-10 to 2015-16)

Number of entries on the ARTG (2009-10 to 2015-16)
  • Over the last 7 years (to 2014) the number of ARTG entries increased by an average of 6.3% per year. There was a slight drop in the total number of ARTG entries in 2015-16 compared with 2014-15. When specific product categories are examined, the only category to show a drop in the number of entries is complementary medicines.

Exempt entries under the LVT and ACE schemes

Table 2 shows the number of entries on the ARTG which incur annual charges compared to the number of entries which were/are exempt from annual charges under the LVT and ACE schemes.

  • Entries which do not incur annual charges, specifically export only goods and IVD devices, are not included in the values reported.
Table 2. Proportion of exempt entries under the LVT and ACE schemes
Industry 13-14 LVT % 14-15 LVT % 15-16 ACE %
Prescription Medicines Gross Entries 14,547 69% 15,472 70% 15,335 55%
Exempt Entries 10,003 10,796 8,458
Net Entries 4,544 4,676 6,897
Complementary Medicines Gross Entries 12,335 36% 12,424 42% 10,793 16%
Exempt Entries 4,391 5,170 1,764
Net Entries 7,944 7,254 9,029
Non-Prescription (OTC) Medicines Gross Entries 3,563 41% 3,632 44% 3,567 27%
Exempt Entries 1,471 1,606 979
Net Entries 2,092 2,026 2,588
Medical Devices (Non-Dental) Gross Entries 38,168 14% 39,754 17% 39,128 12%
Exempt Entries 5,477 6,912 4,587
Net Entries 32,691 32,842 34,541
Dental Devices Gross Entries 5,204 14% 5,420 17% 5,334 12%
Exempt Entries 746 942 625
Net Entries 4,458 4,478 4,709
Other Therapeutic Goods Gross Entries 74 11% 51 24% 138 15%
Exempt Entries 8 12 21
Net Entries 66 39 117
Total Gross Entries 73,891 30% 76,753 33% 74,315 22%
Exempt Entries 22,096 25,438 16,434
Net Entries 51,795 51,315 57,881
  • There is an overall decrease in the proportion of exempt entries under the ACE scheme (in 2015-16) compared to the two previous financial years under the LVT exemption scheme. This is consistent with expectations, and our communications to industry on the anticipated changes following implementation of the ACE scheme.
  • The decrease was limited for medical (including dental) devices but more pronounced for medicines, in particular complementary medicines. It is anticipated that this change is due to sponsors initiating the cancellation of product lines that were no longer sold or did not have significant turnover.
  • While 33% of entries were exempt from the annual charge in 2014-15 (prior to the introduction of the ACE scheme), this represented over 50% of the annual charge revenue raised, and was increasing each year. 571 medicine entries which were granted a waiver of the annual charge by the Finance Minister’s delegate in 2013 14 or 2014-15 and 1,276 reclassified (hip, knee, joint replacement) medical device class III entries which did not incur annual charges in 2013-14 or 2014-15 are included in the relevant LVT and ACE exemption numbers above.

Small business

While the TGA does not specifically categorise or identify product sponsors by their business size, for the purpose of this analysis we have assumed that sponsors with 10 or fewer products on the ARTG (at 1 July 2015) are small businesses. The table below shows the impact of the ACE scheme on these businesses.

Table 3. Small business sponsor impact assessment (average net charges paid)
Sponsor size 2013-14 2014-15 2015-16 % variance 14-15 to 15-16 % variance 13-14 to 15-16 (2 year) Average Annual Increase/ Decrease
Sponsors with 10 entries (61 sponsors) $8,700 $8,220 $4,830 -41.2% -5.5% -20.6%
Sponsors with 9 entries (61 sponsors) $4,130 $4,560 $4,970 9.0% 10.4% 5.2%
Sponsors with 8 entries (68 sponsors) $5,610 $6,265 $6,060 -3.3% 11.7% 5.9%
Sponsors with 7 entries (80 sponsors) $3,470 $3,940 $4,130 4.8% 13.5% 6.8%
Sponsors with 6 entries (93 sponsors) $2,020 $2,440 $2,760 13.1% 20.8% 10.4%
Sponsors with 5 entries or less (2,099 sponsors) $1,000 $940 $1,050 11.7% -6.0% 3%
Total Net Charges Paid: Small Business Sponsors $3,728,570 $3,720,780 $3,800,910 2.1% 1.9% 1%

The assessment shows that the ACE scheme has not had a significant impact on the net average annual charges revenue collected from small business sponsors, (as reflected by the group of sponsors selected), which grew at an average of 1% per year between 2013-14 and 2015-16, less than the general indexation price increase of 2.4% in 2014-15 and 2.12% in 2015-16. Therefore in real terms the impact on small business has actually fallen.

Payment plans

A possible consequence of the implementation of the ACE scheme is an increase in the number of requests for extensions to invoice due dates or payment (by instalment) plans.

Table 4. Requests for payment plans
Category 2013-14 2014-15 2015-16
Due Date Extension 17 13 20
Instalment Plan 6 27 51
Total 23 40 71
  • The majority of sponsors who request extensions or payment plans are small business sponsors who have entries that did not pre-qualify for the ACE scheme exemption in 2015-16.
  • The TGA grants any such reasonable requests during transition to the ACE scheme.

Cancellations

One of the potential consequences of the ACE scheme was that some ARTG entries that were previously exempt may be cancelled at the request of sponsors. While in many cases there would be no consequence to the availability of a type of medicine or device in the market, in some situations it could lead to medicine shortages or a potential public health risk through unavailability of a "niche" product. To address this risk a new legislative provision was introduced under which a waiver to the annual charge can be granted for critical medicines or medical devices if the levy of the annual charge would make those medicines or medical devices financially unviable and they had a particular public health role. Since 1 July 2015, the TGA has approved annual charge waivers worth $547,835 for 82 products. The table below shows a 3 year comparative (pre and post ACE scheme) of the number of cancellations requested by sponsors, with information on dental medical devices shown specifically (medicines for dental use are not so indicated).

Table 5. Cancellations by sponsors - number of product entries
2012 2013 2014 2015
MEDICINES Dental Non Dental Total Dental Non Dental Total Dental Non Dental Total Dental Non Dental Total
Prescription Medicine - 223 223 - 278 278 - 291 291 - 130 130
Registered Complementary Medicine - 5 5 - 6 6 - 12 12 - 8 8
Registered OTC Medicine - 161 161 - 111 111 - 111 111 - 119 119
Listed Medicine - 1281 1281 - 915 915 - 1206 1206 - 1776 1776
Sub Total Medicines - 1670 1670 - 1310 1310 - 1620 1620 - 2033 2033
DEVICES Dental Non Dental Total Dental Non Dental Total Dental Non Dental Total Dental Non Dental Total
Medical Device Included Class I 'Other' 76 650 726 150 736 886 118 1029 1147 129 1082 1211
Medical Device Included Class I Measurement 1 14 15 2 13 15 - 16 16 3 26 29
Medical Device Included Class I Sterile - 76 76 - 51 51 1 76 77 - 119 119
Medical Device Included Class IIa 45 358 403 42 294 336 57 429 486 84 537 621
Medical Device Included Class IIb 4 235 239 10 165 175 15 276 291 26 486 512
Medical Device Included Class III - 172 172 - 83 83 1 123 124 9 135 144
Medical Device Included Class AIMD - 78 78 - 42 42 - 25 25 - 42 42
OTG Device (Incl Registered & Listed Devices) 1 53 54 - 43 43 - 63 63 - 136 136
Sub Total Devices 127 1636 1763 204 1427 1631 192 1427 1631 192 2037 2229
TOTAL 127 3306 3433 204 2737 2941 192 3657 3849 251 4596 4847

Notes: Cancelled Entries

*Reports all sponsor requested cancellations of entries between 1 May and 30 September in each respective year

  • 1,273 of 4,847 entries (or 26% of entries) which were previously exempt from annual charges (in 2013 and/or 2014) under the LVT exemption scheme were cancelled at the request of sponsors in 2015.
  • The number of entries cancelled in 2015-16 (shown as 2015) represents 6% of the entries on the ARTG (a further 74,315 entries remained active on 1 July 2015). The cancellations in 2015 are thus relatively consistent with previous years with 4% of then entries cancelled in 2013 (shown as 2013-14), and 5% cancelled in 2014 (shown as 2014-15).
  • 251 of the entries cancelled in 2015-16 were dental device products; and of those 251 entries only 47 entries were previously exempt from annual charges in 2013-14 and/or 2014-15.

Version history

Version Description of change Author Effective date
V1.0 Original publication Regulatory Pricing and Decision Review Section / Regulatory Services and Improvement Branch 21 January 2016