Design of cost recovery charges

Fees and charges

The characteristics of a government activity determine the type of cost recovery charge used Cost recovery. There are two types of cost recovery charges:

• Cost recovery fees: fees charged when a good, service or regulation (in certain circumstances) is provided directly to a specific individual or organisation
• Cost recovery levies: charges imposed when a good, service or regulation is provided to a group of individuals or organisations (e.g. an industry sector) rather than to a specific individual or organisation. A cost recovery levy is a tax and is imposed via a separate taxation Act. It differs from general taxation as it is 'earmarked' to fund activities provided to the group that pays the levy.

Fees are used to recover the cost of the pre-market services performed. For registered prescription medicines, the fee structure is based on an application and evaluation fee. Fees are scaled to account for the effort undertaken with the highest fees applicable for evaluating a new chemical entity. Fees are also charged when a sponsor requires a change to the information contained in the ARTG.

Annual charges are payable for prescription medicines that are registered on the ARTG. Annual charges are used to recover cost of activities, usually post-market, where they cannot reasonably be assigned to individual sponsors, they maintain the integrity of the regulated industry to the benefit of all sponsors and when assigning costs to individual sponsors would deter sponsors from disclosing important public health information, such as reporting adverse events.

For the 2015-16 financial year, fees and charges were indexed by 2.12 percent in conjunction with other charges as outlined in this CRIS.

In past years, TGA fees and charges increases have been based on an indexation factor combining the Wage Price Index (50 percent) and the Consumer Price Index (50 percent). If we applied this formula to 2015-16 the increase would be 2.5 percent. However, based on an assessment of our budget outlook for the 2015-16 financial year of known direct cost increases an increase in fees and charges of 2.12 percent is required.

In addition to cost recovery, appropriation funding has been received on an annual basis since 2012-13 to fund activities outside of this CRIS. For example, the function of administering compliance frameworks for controlled drugs was transferred to the TGA group of the Department of Health in August 2014 and continues to be funded from the departmental appropriation. As a result, TGA now has multiple funding sources for its activities which all contribute to Outcome 7 'Health infrastructure, regulation, safety and quality'.

New fees for an extension of indications

Sponsors can apply to register additional indications for their prescription medicine post approval to stay in line with the indications already approved for the reference medicine in Australia, using an extension of indications (EOI) application.

From 1 July 2015 there will be two new fees introduced; an application fee for extension of indications to which Regulation 16G applies and an evaluation fee for extension of indications (other than an extension of indications to which paragraphs (bb) and (bc) in Schedule 9 apply).

These significantly reduced application and evaluation fees for generic medicines sponsors applying to extend their medicines' indications to match the indications of the corresponding innovator product, where there is no need for the TGA to assess clinical or bioequivalence data and better aligns those fees with the work required for the TGA to assess such applications.

Annual charges exemption scheme (ACE)

The ACE scheme replaces the low value turnover (LVT) scheme.

A sponsor of an ARTG entry that has not commenced generating turnover will be exempt from the requirement to pay an annual charge in respect of that entry, up until the first year that turnover occurs. The annual charge would then apply to the entry until it was removed from the ARTG. The rationale for this option is that, as these products have not yet generated turnover, they require minimal post-market surveillance and monitoring by the TGA. For example, if a product has not commenced sales in Australia, the TGA is not required to undertake pharmacovigilance activities related to domestic recalls, product testing or adverse drug reactions for the vast majority of these products; however must retain the capacity to do so.

We recognise that pharmacovigilance requirements apply after a product is first supplied (which could feasibly be earlier than when the product starts generating turnover), our assessment is that most products would generate turnover at the same time as they commence supply. Accordingly, no significant issue would arise from a cost recovery perspective as there are minimal administrative costs in relation to maintaining the entry on the ARTG until the entry is generating turnover.

Consultation was conducted on the previous LVT scheme and proposed alternative models. Although several submissions to the public consultation did not explicitly support a single model among those proposed for discussion, most submissions supported amendments to the LVT scheme and/or a scheme wherein exemptions from TGA annual charges be granted to those therapeutic goods which had not been supplied to the Australian market.

Several submissions proposed that a self-declaration of sales turnover of a product seeking exemption (rather than a statement of turnover certified by a third party accountant) should be sufficient for confirming a products' eligibility for an exemption. The submissions acknowledged that a move to self-declaration would need to be complemented by an audit program to deter and identify any undesired behaviour.

The ACE scheme better aligns with the CRGs, as those who create the need for post-market activities bear the costs of such activities, whilst still providing some relief to sponsors who have products which are yet to generate turnover.

It is estimated that approximately 74 percent of the ARTG entries which are expected to be exempted under the LVT scheme in 2014-15 would continue to be exempted under ACE (until first turnover). A likely impact of the implementation of the scheme is the removal of some products with low turnover from the ARTG that would no longer be exempt from annual charges. To address the risk that a public health issue is presented where the sponsor of an essential product proposes to remove that product from the ARTG due to the cost of the annual charge, a new waiver provision has been added to the Regulations in conjunction with the ACE scheme.

The benefits of the ACE scheme are:

• Reduction in the rates of annual charges for non-biological prescription medicines and medical devices class IIa and above
• No application fee (saving around $2.4m p.a. to industry)
• Automatic granting of exemption upon entry on the ARTG, until turnover first commences
• Administrative processes will be simpler as sponsors will only be required to provide a self-declaration of $0 turnover to confirm their exemption. This will particularly assist sponsors (in particular small businesses) who may not have dedicated regulatory affairs officers and third-party accountants
• A reduction in regulatory burden to industry of an estimated $30 million over the next ten years
• Relief from annual charges until the ARTG entry is generating turnover
• Annual charge invoices will only be issued for non-exempt entries
• A new waiver option will be introduced on public health/financial viability grounds.
• For further information about the options considered to replace the LVT scheme please refer to the Regulation impact statement - Review of the low value turnover annual charge exemption scheme. For further information on the new ACE scheme please refer to the TGA website.

Changes to annual charges

Different levels of charges have been set for different classes of therapeutic goods to reflect the differing levels of risk. The significant difference in annual charges for chemical prescription medicines ($3,955) and biological prescription medicines ($6,585), represents the difference in the level of pharmacovigilance required for the biological products and potentially higher costs (e.g. in laboratory analysis of this class of product).

Whilst there is a heightened risk of adverse events from biologics compared with other prescription medicines, the annual charges for 'innovator' or recent to market chemical prescription medicines and generic medicines, which are based on out-of-patent substances which have been in the market, historically have been set at the same annual charge rate.

Assessment of our effort level and therefore associated costs showed that TGA undertakes additional pharmacovigilance activities for new prescription medicines. This includes the development and agreement of a Risk Management Plan, together with annual Periodic Safety Update Reports (PSURs). There is also increased monitoring of new products relative to established and generic medicines.

In addition, because we charge the annual charge on a 'per ARTG entry' model, and that there are usually several generic versions of each out-of-patent medicine on the Register, we are potentially recovering more in annual charges in aggregate for many generic medicine substances than comparable new chemical entity (NCE) substances.

In view of the above we have introduced a separate rate of annual charge for generic chemical prescription medicines which is lower than the rate for an innovator product.

Under these changes, chemical prescription medicines that are new chemical entities (principally, this is where the active ingredient is a chemical or radiopharmaceutical substance that is not already in any other approved medicine), and chemical prescription medicines resulting from an extension of indications or a change to an intended patient group for an existing such product, would pay the higher amount in annual charges until the 8th anniversary of their registration. After that time, provided they are not the subject of further changes to add indications or patient groups, they would pay the lower amount. Medicines that are separate and distinct from new chemical entities (for instance, different dosage forms or different strengths) would generally pay same annual charge as the relevant new chemical entity. As a result of the ACE scheme the higher amount annual charge is five percent less than it would have been in 2015-16 and the lower amount is 23 percent less than it would have been in 2015-16 without the introduction of the ACE scheme.

All chemical prescription medicines containing any of six specified active ingredients that require particular post-market monitoring (e.g. thalidomide) would always pay the higher amount for so long as they remain in the Register. All other chemical prescription medicines, e.g. generic medicines, would pay the lower amount.

Fees and charges

Attachment 1: schedule of fees and charges from 1 July 2015