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Cost recovery implementation statement, V1.6

Version 1.6 February 2019

5 February 2019

Book pagination

Design of cost recovery charges

Costs of TGA activities

In line with the Australian Government Charging Framework costs are categorised into the following groups for cost allocation:

Direct costs: can be easily traced to a cost object with a high degree of accuracy. The allocation of direct costs to a cost object is relatively straightforward. The most common direct costs are staff salaries (including on-costs such as training, superannuation and leave) and supplier costs (e.g. office supplies).

Indirect costs: are the costs that cannot be easily linked to a cost object or for which the costs of tracking this outweigh the benefits. Indirect costs are apportioned to a cost object using the internal costing methodology. Common indirect costs include overhead costs such as corporate costs (e.g. finance, human resources, IT, office accommodation) and salaries of staff in support areas (e.g. regulatory practice and support functions).

The TGA uses a software solution for activity based costing (ABC). The staff work effort captured through a work effort survey attributes the time of regulatory staff to regulatory activities to determine direct cost. Indirect costs are allocated to regulatory activities on the basis of standard costing. More details on the cost of TGA activities can be found in Appendix 1 - Financial performance by industry sector group.

Fees and charges

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

Cost recovery fees: Fees are charged when a good, service or regulation (in certain circumstances) is provided directly to a specific individual or organisation.

Fees are used to recover the cost of the pre-market services performed. Fees are designed to reflect as closely as possible the underlying cost of service. TGA has limited authority under the Act to waive or reduce fees.

Cost recovery levies: Charges are 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.

All therapeutic products registered, listed or included on the ARTG are subject to annual charges except for export only products. Annual charges are used to recover the costs of pharmacovigilance and other post market monitoring and compliance activities where:

  • they cannot reasonably be assigned to individual sponsors;
  • they maintain the integrity of the regulated industry to the benefit of all sponsors; and
  • assigning costs to individual sponsors would deter sponsors from disclosing important public health information, such as reporting adverse events.

Different levels of pharmacovigilance are required for different classes of therapeutic goods depending on the level of risk the good could pose. Annual charges have been set to reflect the level of pharmacovigilance and post-market work required for the regulated good rather than the size of the individual business. For example, the annual charge for a class I medical device (other than a class I medical device that has a measuring function or is supplied in a sterile state or Class 1 IVD) is $90 whereas for a high risk prescription medicine (biologic) the annual charge is $7,120.

Fee-free regulatory activities

a) Patient access to unproved therapeutic goods via the SAS and AP schemes

While patient access to certain unapproved therapeutic goods is critical for the health of the Australian public, the TGA does not charge a fee directly to the users of these services. These services are provided free of charge to enable timely access to unapproved medicines or medical devices essential for treating or curing a terminally ill patient in highly time sensitive situations. These schemes are incentivised because it is in the public interest to save a life through timely access to critical therapeutic goods, where possible.

The fee waiver is consistent with the Regulations as they do not provide for charging of applications under these two schemes.

In 2016-17 there were 51,639 Special Access Notification (SAS) notifications (category A), 26,905 SAS applications (category B) and 1,042 authorised prescriber applications (noting category C commenced in 2017-18). The annual cost of these free services is estimated to be $3 million or around $35 per application/notification. Recovering this cost through a small application fee levied on patients and or the medical practitioner is unlikely to be cost efficient. Moreover, this would also impact on the access of an unapproved product to the seriously ill patient in a time critical manner.

The costs of these functions are recovered indirectly through the annual charges levied on therapeutic goods approved for supply in Australia which is in line with the Government decision that the TGA recovers the full cost of regulatory activity.

b) The orphan drug programme

A medicine, may be eligible for orphan drug designation if all orphan criteria prescribed in regulations 16J(3) or 16J(4) are satisfied. A medicine with a designation in force for the active, indication, dosage form and sponsor can have subsequent submissions reviewed as part of the programme.

The orphan drug programme is an activity undertaken for the public good, with the objective of assisting sponsors bring medicines for rare diseases or new dose forms for special patient populations to market that may otherwise not be available. The incentive provided is in the form of a fee waiver. Application and evaluation fees (under regulation 45 (12) of the Regulations) for the assessment of orphan drugs are not charged by the TGA but the quality, efficacy and safety of orphan drugs are assessed at the same standard as for other registered medicines.

The TGA orphan program can be seen as part of a global movement to address treatment of approximately 7,000 rare diseases worldwide. Orphan drug programs were launched in the US in 1983, in Japan in 1993, and by the European Union in 2000 and offer a wide range of incentives including fee waiver, scientific advice and market exclusivity.

The cost of assessment is met from the evaluation fees for certain types of prescription medicine applications (extensions of indications and new chemical entities). As the sponsors of orphan drugs are also mostly the sponsors of fee paying applications, cross-subsidisation is confined to a small group of sponsors and does not extend to broader industry.

In 2016-17, the TGA assessed 20 orphan drug applications, compared to the total fee paying applications of 122 for prescription medicines (new chemical entity, major variation and extension of indications). In addition, there were 2 orphan drug designations for registration of new generic products, compared to 95 fee paying applications in 2016-17. The total cost attributed to the orphan drug program in 2017-18 is $3.77 million.

Once an orphan drug is entered on the ARTG, the annual charge is payable subject to the annual charge exemption (ACE) scheme.

Regulatory reforms: Review of medicines and medical devices regulation

In 2015, an independent review of medicines and medical devices regulation (the Review) was undertaken to identify:

  • areas of unnecessary, duplicative, or ineffective regulation that could be removed or streamlined without undermining the safety or quality of therapeutic goods available in Australia; and
  • opportunities to enhance the regulatory framework so that Australia continues to be well positioned to respond effectively to global trends in the development, manufacture, marketing and regulation of therapeutic goods.

The review panel provided the Government with 58 recommendations of which 56 have been accepted. In summary, those recommendations are:

  • expanding the pathways by which sponsors can seek marketing approval for a medicine or medical device, including making provision for utilisation of assessments conducted by comparable overseas regulators, and for expedited assessments in defined circumstances;
  • identifying comparable overseas regulators using transparent criteria;
  • enhancing post-market monitoring of medicines and medical devices and streamlining post-market requirements for products in the ARTG;
  • improving transparency and predictability of processes and decisions, to ensure Australians have timely access to high quality, safe and efficacious products;
  • expanding the pathways by which sponsors can approve an ingredient for use in a listed medicine, and for marketing approval of a listed complementary medicine;
  • enhancing the transparency and predictability of processes and evidence requirements associated with ingredient approvals and complementary medicine marketing approvals;
  • improving and clarifying the interface and synergies between the market approval of therapeutic goods and advertising requirements that ensure consumer protections are balanced with the availability of information for consumers and health professionals to make informed spending and health decisions; and
  • enhancing and streamlining the advertising framework to facilitate and maximise compliance and the management of complaints.

The 2016-17 Budget measure "Improving the Regulation of Therapeutic Goods in Australia" provided $20.4 million (from TGA reserves) to meet the costs of implementation of the above reforms for completion within a period of 24 months. Any increase in ongoing costs will be met via cost recovery arrangements through new, and changes to existing, fees and charges.

The reforms that required changes to fees and charges which were implemented throughout 2017-18 are briefly discussed below.

Priority registration of certain medicines

The Review recommended that the TGA implement expedited pathways for the registration of new medicines in certain circumstances. One of the expedited pathways, the priority review pathway, to enable faster approval of certain medicines, was implemented from 1 July 2017. The pathway prioritises the evaluation of novel prescription medicines that meet the eligibility criteria and have a complete data dossier, with a target timeframe of 150 working days for a decision regarding registration of the medicine in the ARTG.

In order to recover the additional costs of the new processes a determination fee applies for making applications under the priority review pathway. The application and evaluation fees for registration under this pathway are higher than the fees under the standard pathway.

It is anticipated that on average the TGA will receive 18 determination applications every year.

Because the priority pathway is a new process, it is difficult to provide a definitive estimate of the total costs as there are many unknown factors such as:

  • how many applications for determination will be received;
  • how many of these applications will be eligible for the priority review pathway;
  • how many will also be eligible for orphan designation; and
  • how many applications will ultimately be registered using the fee waiver under the orphan drug program.

The new fees and the impact of introduction of the new pathway will be monitored and reassessed within 2 years.

Prescription medicine provisional approval pathway

The Review recommended that the TGA implement expedited pathways for the registration of new medicines in certain circumstances. The pathway allows sponsors to apply for time-limited provisional registration (maximum of 2 years in the first instance and renewable further twice) on the ARTG on the basis of preliminary clinical data. It provides earlier access to certain promising new medicines where the TGA assess that the benefit of early availability of the medicine outweighs the risk inherent in the fact that additional data are still required. Under the provisional approval pathway, medicines could come to the market up to two years sooner than under the current framework.

Extension of provisional determination

Sponsors may only apply for one six month extension of an approved provisional determination.

Provisional registration application

If the applicant makes an application for registration of a New Chemical Entity (NCE) or an extension of indication (EOI) and an applicable provisional determination is in force in relation to the applicant, the medicine and the indication, then the application is for provisional registration of the medicine.

In order to recover the additional costs of the new processes a determination fee applies for making applications under the provisional registration pathway A higher than standard application and evaluation fees apply for registration applications under the provisional pathway to reflect additional activities for example:

  • additional checking as part of the dossier acceptance process that the information supplied as part of the dossier supports the provisional designation that was previously granted;
  • assessment of rolling clinical data;
  • additional collaboration between evaluation sections;
  • additional expert advice during evaluation (actual advice plus procurement effort);
  • submissions may also be considered by ACM/ACV during first or second round assessment; and
  • additional time for RMP evaluation.
Extension of provisional registration

Sponsors may request up to two extensions of up to two years each during the provisional registration period (maximum of 6 years). Assessment of applications for extension of provisional registration may include:

  • checking progress against commitments;
  • re-assessment of conditions of registration; and
  • product information change (only if required).
Transition from provisional registration to full registration

Application and evaluation fees apply to transition provisionally registered goods to the ARTG as registered goods. The fee is set based on associated processes and activities being similar to a standard extension of indication application, taking into account additional activities undertaken by the evaluators and the clinical delegate to assess and make decisions about the application under section 29(9) of the Act. This section outlines how the TGA will consider whether all or part of the provisionally registered indication should continue to be provisionally registered, at the time of deciding on the application for full registration. Additional effort has also been included to obtain expert advice (if required) and for communication activities including updates to the website and the update of the ARTG.

Risk based approach for certain minor variations to registered medicines

The Review recommended that the TGA should apply a more risk-based approach to managing variations to registered medicines. This approach should provide for notification of variations in circumstances where the variation does not impact the quality, safety or efficacy of the medicine. The sponsor will be required to notify the TGA of the variation within a given timeframe.

In order to implement this recommendation the TGA has implemented a new notification system for minor variations to registered medicines. Under the new notification process, the sponsor will be able to notify the TGA of certain changes to their goods. This notification will need to occur before the change is made.

In submitting the notification, the sponsor will need to make a declaration that certain conditions are met and, in some circumstances, provide evidence, as outlined in the relevant guidance. Once the relevant fees have been processed, the sponsor would receive an automatic acknowledgment and can then proceed to implement the change. There will be no assessment of the notification or 'wait' time before acknowledgment.

As this process reduces manual staff effort, the notification fee is lower by around 50% than the minor variation application fee. It is estimated that around two thirds of current 'Safety Related Notifications' variation applications for prescription medicines, or around 850 annually, will come in as notifications under the new system. For over the counter medicines it is expected that one-third of the current C1 variation applications could be made under the new system. The estimated volume is around 175 notifications each year. As a result of this change, a reduction of around $0.85 million in revenue is estimated in a financial year.

Complementary medicines pre-market assessment pathways

The Review made 19 recommendations to improve the regulation of complementary medicines. The following recommendations from the Review are relevant to the development and revision of fees:

  • introduction of a new assessment pathway for listed complementary medicines that sits between the existing low risk listed medicine pathway and the higher risk registered medicine pathway (Recommendation 39). The introduction of a new 'assessed listed medicines' pathway requires the introduction of new application and evaluation fees to recover the administrative and evaluation costs associated with its use;
  • use of reports from comparable overseas regulators for the assessment of new ingredients, new registered medicines and products assessed through the new listing pathway (Recommendation 36, 39 and 40). The evaluation of complementary medicines using comparable overseas regulator reports requires less assessment than for de novo evaluations and consequently requires the introduction of additional categories of evaluation. The level of work effort associated with evaluating medicines via these new categories needs to be reflected in the application and evaluation fees;
  • review and appeal rights for evaluation of new complementary medicine ingredients (Recommendation 47). The introduction of an application fee for ingredient assessments will contribute to higher quality applications which support the introduction of appeal rights for ingredient assessments;
  • the establishment of a list of permitted indications for listed complementary medicines (Recommendation 38) requires a process to add new indications. It is proposed that these applications will incur an application fee only as these assessments will not involve evaluation of data. To support a smooth transition and minimise regulatory burden for industry, it is proposed that sponsors of existing listed products who apply to update their ARTG entry to select permitted indications will not be charged an application fee during the first 18 months from commencement of the new legislative package;
  • the introduction of legislated timeframes for assessment of complementary medicines and their ingredients (Recommendation 41) will create the need for a refund mechanism if the TGA fails to meet legislated timeframes. The removal of page count based fee structure may also improve application quality, with consequent improvements to assessment timeframes; and
  • the use of a risk-based approach to the management of variations. We are proposing to develop risk-based application categories for variations to medicines assessed via the assessed listed medicines and registered complementary medicines pathways (Recommendation 42).

The application and evaluation fees for complementary medicines were revised and new fees were introduced to allow for the implementation of recommendations arising from the Review. The fees are designed to reflect the amount of work effort and associated costs required to complete the relevant applications and evaluations, based on the complexity of documentation associated with them.

Types of assessed listed medicines pathway (L(A)1, L(A)2 and L(A)3)

L(A)1: Evaluation of a 'clone' of an existing product, where the only difference is the name and/or flavour, fragrance, printing ink or colour

L(A)2: Evaluation of a generic medicine or evaluation of efficacy based on reports from a comparable overseas regulator (COR)

L(A)3: Full de novo evaluation of efficacy for new products not covered by L(A)1 or L(A)2 or evaluation of an existing assessed listed medicine that is for a different active ingredient, indication, dosage form, strength or excipient.

New complementary medicine ingredients

A new fee structure was introduced in 2017-18 for making an application for a new ingredient. This replaced the inefficient and complex page-count structure for evaluation fees. The fees are based on the following application types:

  • IN1: Evaluation of safety and quality based on evaluation reports from comparable international regulators which meet the minimum data requirements;
  • IN2: Evaluation of safety based on evaluation reports from comparable international regulators which meet the minimum data requirements AND de novo evaluation of quality;
  • IN3: Evaluation of quality based on evaluation reports from comparable international regulators which meet the minimum data requirements or an accepted monograph AND de novo evaluation of safety; and
  • IN4: Full de novo evaluation of safety and quality.
Registered complementary medicines

In 2017-18, a new fee structure also replaced the previous page-count fee structure for registered complementary medicines.

RCM1: Evaluation of a 'clone' of an existing product, where the only difference is the name and/or flavour, fragrance, printing ink or colour

RCM2: Evaluation of safety, quality and efficacy based on evaluation reports from comparable international regulators

RCM3: Evaluation of a generic medicine for which bioequivalence data is not needed; or de novo evaluation of one of quality, safety or efficacy, with the remaining parameters evaluated based on evaluation reports from comparable international regulators

RCM4: Evaluation of a generic medicine for which bioequivalence data is needed; or de novo evaluation of one of two of safety, quality or efficacy, with the remaining parameter evaluated based on international evaluation reports from comparable international regulators; or evaluation of an existing registered medicine that is for an extension of indications, new directions for use or an increase in the target population of the medicine

RCM5: Full de novo evaluation of safety, quality and efficacy; or evaluation of an existing registered medicine that is for a new dosage form of the medicine, a new active ingredient in the medicine, an increase in strength of an active ingredient or addition of a new excipient in the medicine.

Variations to registered complementary medicines

The variation applications, and associated fees, are based on the level of risk associated with the variation. These are categorised as follows:

  • RCMC1 (section 9D) request: variations specified in the changes table as an RCMC1 (section 9D) level change. These are changes classified as negligible risk that do not need safety, efficacy and/or quality data;
  • RCMC2 (section 9D) request: variations specified in the changes table as an RCMC2 (section 9D) level change. These are low risk changes that require evaluation of quality data and do not need safety and/or efficacy data;
  • RCMC3 (section 9D) request: variations specified in the changes table as an RCMC3 (section 9D) level change. These are low risk changes to the quality and non-quality aspects of a medicine and requires evaluation of supporting safety and/or efficacy data;
  • RCMC4 (section 9D) request: variations specified in the changes table as an RCMC2 (section 9D) level change. These are non-quality changes classified as 'moderate risk'. Applications require evaluation of safety and/or efficacy data (clinical and/or toxicological) to support the proposed changes;
  • RCMC1 (section 23) application: variations specified in the changes table as an RCMC4 (section 23) level change. These are changes classified as negligible risk that do not need safety, efficacy and/or quality data;
  • RCMC2 (section 23) application: variations specified in the changes table as an RCMC2 (section 23) level change. These are low risk changes that require evaluation of quality data and do not need safety and/or efficacy data;
  • RCMC3 (section 23) application: variations specified in the changes table as an RCMC3 (section 23) level change. These are low risk changes to the quality and non-quality aspects of a medicine and requires evaluation of supporting safety and/or efficacy data; and
  • RCMC4 (section 23) application: variations specified in the changes table as an RCMC4 (section 23) level change. These are non-quality changes classified as 'moderate risk'. Applications require evaluation of safety and/or efficacy data (clinical and/or toxicological) to support the proposed changes.
Permitted indications for listed medicines

From 6 March 2018, indications available for use for listed medicines are contained in a 'list of permitted indications' which is contained in the Therapeutic Goods (Permissible Indications) Determination. The list of permitted indications is maintained by the TGA and provides a comprehensive list of indications currently accepted for listed medicines, provided appropriate evidence is held by the medicine sponsor. Sponsors who apply to list a new medicine will be required to select the indications for their medicine from the list of permitted indications.

Sponsors are able to apply to make additions to the list. Any applications for additions to the list will incur an application fee which is inclusive of the costs associated with maintaining the legislative instrument.

Accelerated assessments pathway for novel medical devices

As recommended by the Review, the TGA developed a new accelerated pathway for the conformity assessment and/or inclusion of novel medical devices in certain circumstances. The new pathways and associated fees commenced on 1 January 2018. This facilitates increased timeliness and access for Australian consumers and health professionals to new medical devices and assists industry through reducing regulatory delays.

Sponsors who can demonstrate that their medical device:

  • will treat a serious condition; and
  • addresses an unmet clinical need in Australian patients; and
  • represents a breakthrough in technology, or a clinical advantage, or (in the case of in vitro diagnostic devices) provides a major public health benefit.

Sponsors can apply for a priority assessment designation. If approved, the designation places the application to the front-of-queue during the assessment procedures for conformity and ARTG inclusion.

It is estimated that the TGA will receive 5 applications annually under the new pathway which will bring additional revenue of $48,300 to recover the additional TGA costs. This approach is consistent with CRGs.

Medical devices - conformity assessment bodies

In response to the Review the Government has developed a model where multiple bodies, designated by the TGA, are able to undertake conformity assessment certification in Australia (pre-market assessment) (MMDR Recommendation 15 (Pathway 2), 17 and 18).

Potential improvements are faster approval times and flexibility for the sponsors of medical devices.

The development of the Conformity Assessment Body (CAB) pathway requires establishment of technical, clinical competence and governance standards (including management of conflict of interest) which such bodies would need to meet in order to be designated. Designated Conformity Assessment Bodies will be subject to a complete re-assessment every five years.

The TGA will continue to make the final regulatory decisions to ensure that the Australian quality and safety standards are adhered to.

The application fee is an up-front, non-refundable fee to recover administrative costs associated with the reviewing the initial application, including preparing a plan for assessment and a quote for the assessment fee. The assessment fee covers three phases of assessment - the document review (Stage 1), initial assessment (Stage 2), and witnessed audit (Stage 3), resulting in the designation of successful applicants as an Australian conformity assessment bodies. This fee may be abridged where appropriate, such as where the scope of designation sought is limited, or where assessment work of the conformity assessment body by other regulators is available and may be used by the TGA (such as reports on designation as an MDSAP Auditing Organisation, etc.).

Full designation

This involves designation for CABs performing full QMS audits and conformity assessments (including design examination) for a range of medical devices.

Partial designation

This entails designation for limited scope, which could be either only QMS or a combination of QMS and certain devices.

Partial designation fees have been set based on two different assumptions:

  • Partial designation, Assumption 1: 100% QMS and 0% design to represent a CAB seeking designation to perform QMS certification only;
  • Undertaking conformity assessment of QMS only, and not offering design examination services required for conformity assessment of high risk devices (Class II and AIMD);
  • Partial designation, Assumption 2: 66.67% QMS and 50% design to represent a CAB seeking designation for a particular stream of devices only. This requires them to have 'product' type QMS as well as limited scope product certification; and

    Undertaking conformity assessment of QMS and design examination services required for conformity assessment of high risk devices (Class II and AIMD), but for a limited range of products (such as specialising in IVDs, or orthopaedic devices).

Competitive neutrality

In implementing these reforms the TGA considered whether the competitive neutrality policy applies to the TGA's conformity assessment function. The applicability of competitive neutrality policy is assessed on three criteria:

  • there must be user-charging for goods or services;
  • there must be an actual or potential competitor i.e. users are not restricted by law or policy from choosing alternative sources of supply; and
  • managers of the activity have a degree of independence in relation to the production or supply of the good or service and the price at which it is provided.

The TGA's conformity assessment function meets the first criterion, as all TGA activities are fully cost recovered through fees and charges from industry. With the introduction of a provision for Australian conformity assessment bodies to be designated by the TGA, the second 'competition' criterion is also potentially met.

However the third criterion does not appear to apply, particularly in relation to the independence of 'supply' of conformity assessment services. Under s.41EC of the Act the TGA must assess any valid application it receives, whereas commercial conformity assessment bodies are free to accept or reject clients as a business decision.

As the TGA's conformity assessment function does not meet all the criteria competitive neutrality does not apply to it.

The TGA consulted with the Productivity Commission, which administers the competitive neutrality complaints mechanism, who endorsed the interpretation that TGA does not meet all three test criteria for competitive neutrality. The Department of the Treasury also agreed to this view, on the additional ground that the current TGA conformity assessment activity results in user charges of around $7 million per year, which is below the indicative threshold of $10 million per year used by the Treasury to denote the size of a market above which competitive neutrality policy could be considered.

The Government has agreed not to apply competitive neutrality.

Consultations

Extensive consultation was undertaken in 2014-15 with consumers, industry and health professionals as part of the Review. Further public and targeted consultation, including in relation to the above regulatory requirements, has been conducted since late 2016.

A public consultation paper was published in September 2017 to seek comments from interested parties on the implementation of business process improvements supporting the complementary medicines assessment pathways. The consultation paper included draft application and evaluation fees for applications for new ingredients, assessed listed medicines and registered complementary medicines. Submissions received in response to the public consultation showed a majority of stakeholders support the proposed approach to implement these reforms.

Submissions from peak bodies (e.g. Medicines Australia) and industry sponsors, patient advocacy groups and healthcare professional bodies overall indicated support for the above reforms.

2018-19 Fees and Annual Charges - effective 1 July 2018

A. Changes to fees and charges for Good Manufacturing Practice

Background

There has been consistent under recovery in relation to the Good Manufacturing Practice (GMP) function. While the level of under recovery increased significantly last year, the average under recovery in the last 4 years was $2.1 million.

2013-14
$m
2014-15
$m
2015-16
$m
2016-17
$m
Average
$m
GMP Revenue 12.1 12.1 11.2 10 11.3
GMP Expenses 13.5 12.9 13.2 14.4 13.5
Under - Recovery (1.4) (0.7) (2.0) (4.4) (2.1)

In order to address the significant under recovery, the TGA engaged Deloitte to review the fees and charges for the GMP function and to suggest options, consistent with the Government's Cost Recovery Guidelines (CRGs).

Based on the comprehensive activity-based cost data on the TGA's regulatory activities, Deloitte developed three options for consultation with stakeholders. These options were designed to address under recovery of up to $2.1 million, rather than the $4.4 million under recovery in the 2016-17 financial year. While the Deloitte consultation paper included 3 options, an additional option (option 3B) was developed after feedback from stakeholders at the consultation roadshows. Option 3B is a more transparent and fairer option for Australian sponsors who hold GMP clearances whereas the other options would continue to cross subsidise the under-recovery of compliance verification (CV) assessment.

Option 1

Under this option, all GMP fees and charges would increase by 17.4% to arrive at an additional $2.1 million in revenue to address under recovery.

This option is administratively simple for the TGA and industry and proportionately spreads the additional cost. However, the proposed fees and charges under this option would not match with regulatory effort which would further complicate the misalignment of costs associated with revenue. However, this option does not actively encourage a higher level of compliance by manufacturers and is not consistent with the Australian Government Cost Recovery Guidelines (CRGs), was not recommended by Deloitte and was not a TGA preferred option.

Option 2

This option includes minimal changes to rectify only the two most obvious issues associated with under-recovery which are 'free' inspection hours included in annual charges and under recovery in domestic inspection fees. Under this option, the TGA would only recover the cost of all inspection hours as there would be no implied 'free' inspection hours.

This option does not actively encourage a higher level of compliance by manufacturers and does not specifically address under-recovery in the GMP clearance and compliance verification fees which has become an increasing and significant part of the GMP function. This option is also not consistent with the CRGs, was not recommended by Deloitte and was not a TGA preferred option.

Option 3

This option builds on option 2 but also addresses under-recovery in the GMP clearance applications. This option also includes a reduction in the hourly fee for inspections when compared to option 2, as these improved cost recoveries against GMP clearances and licences results in a lower level of remaining regulatory cost to be recovered through the inspection fee. This option was the most consistent with the CRGs. This option was recommended by Deloitte and was presented during consultation as the TGA's preferred option.

Option 3B

At the roadshows a suggestion was made to slightly modify option 3 to address under recovery for the compliance verification (CV) assessment application separately from the other GMP clearance application. As a result of this feedback Deloitte and the TGA developed option 3B where the proposed GMP clearance application fee would increase to $640 (rather than $790) and the proposed CV assessment fee would increase to $2,430 (rather than keeping it at $2,030). Additionally, some of the respondents to the consultation proposed a modification to option 3 to avoid cross subsidisation whereby a smaller increase to the Clearance Application Fee is accompanied by an increase in the CV fee. This feedback aligned with option 3B.

While the overall impact of option 3 or 3B on the GMP cost recovery is the same, option 3B better aligns with CRGs as it more accurately reflects staff effort and is fairer for all sponsors who use overseas manufacturers for their products. The financial impact on manufacturers where on-site inspections are required will not change with the implementation of option 3 or option 3B. The impact on sponsors would vary marginally depending on whether they use overseas manufactures located in countries where we have a Mutual Recognition Agreement in place or not.

The below tables outline the final fees based on option 3B which were approved by the Government.

These charges are in the Therapeutic Goods (Charges) Regulations 2018.

Annual charges for manufacturing licences Charge Therapeutic Goods (Charges) Regulations 2018
Manufacturing licence charge $4,590 Part 2 Item 7(5)(a-c, e)

These fees are in Schedule 9, Therapeutic Goods Regulations 1990.

Fees related to Australian manufacturing licences Fee Item in Schedule 9 Part 2
Australian manufacturing sites - application fee for a manufacturing licence $770 Item 8(a)
Application for variation of licence $770 Item 8A
Australian manufacturing sites - inspection fee $970/hour/inspector Item 9(a)

The impact of the changes on the top ten manufacturers/sponsors would be between $42,000 and $96,000 annually depending on the number of manufacturing licences held by them and/or the number of clearance applications they make in a year. In order to reduce the impact on industry, the increase in the GMP clearance application fee and compliance verification fee will be implemented from 1 July 2019 rather than 1 July 2018. This would result in under recovery of GMP clearance activities of $1.4M during the 2018-19 financial year.

The impact is also lessened for Australian manufacturers as the existing 'free' inspection hours already accrued by manufacturer's paying the annual licence charges will be honoured by TGA until 30 June 2020 or exhausted by an on-site inspection, whichever occurs first.

Consultation

Given the magnitude of under recovery and the potential multiple options to address this, the TGA consulted with its stakeholders through multiple avenues. Deloitte's paper was published on the TGA's website on 9 February 2018 asking impacted stakeholders and other interested parties to submit feedback by 5 March 2018. The TGA also wrote to the 9 peak industry bodies requesting them to make submissions and bring this to the attention of their member companies. Additionally, a number of roadshows were held in Sydney, Brisbane and Melbourne between 14 and 19 February 2018.

The issue of under recovery was also foreshadowed in preliminary meetings held in December 2017. The proposed options for the GMP fees and charges were discussed at bilateral meetings with peak therapeutic industry bodies in February /March 2018. Several follow-up discussions were subsequently arranged with a number of peak bodies. In addition, these proposals were discussed at the TGA Industry Working Group on GMP (TIWGG) meeting on 15 March 2018.

Most stakeholders supported the TGA's need to fully cost recover its activities and to do so under a model which encourages increased manufacturer compliance. However, a number of respondents raised concerns regarding the level of increased fees and charges and the impact these changes may have on manufacturers and sponsors of medicines, in particular generic medicines. Concerns were also raised about the short notice for the implementation of these changes proposed for 1 July 2018. In addressing concerns about impact on industry, the implementation of increases to some fees has been delayed to 1 July 2019.

All stakeholder feedback was taken into account when calculating the final fee and implementation timeframes.

B. Application fee for the inclusion of Class I medical device $530

From 1 July 2018, the Government approved the introduction of an application fee of $530 for inclusion of Class I medical devices in the ARTG. Prior to this, the TGA had not been charging a fee for such inclusions. As a result, the costs of inclusions and review of Class I medical device applications had been cross subsidised from other fees, such as those for prescription medicines or higher risk devices.

The fee of $530 was set to recover the staff costs of managing the eligibility verification activities and administrative work[3] (including the cost of IT systems) required in relation to new entries on the ARTG. The fee was determined according to the Australian Government Cost Recovery Guidelines, based on the administrative effort involved, which also included technical review of the correctness of the entry and maintenance cost of the relevant IT systems. To maintain the integrity of the regulatory framework for therapeutic goods, it is critical that the TGA ensures only appropriate entries are included in the ARTG. A recent review of Class I medical devices included in the ARTG has highlighted that such verification activities are required. It found that there were some products included as Class I devices that were of medium-high risk and thus should have been included as class II devices, and potentially require application audit by the TGA. In addition some products such as hospital furniture which are not medical devices were included on the ARTG.

The fee only applies to the new products included in the ARTG from 1 July 2018 and does not apply to any existing ARTG entries. Class I ARTG inclusions cover devices of the same kind (i.e. devices that have the same classification, manufacturer and sponsor are covered by the same GMDN code/term). The sponsor can supply all devices of the same kind under the same ARTG entry without any need for additional applications.

Based on average inclusions for the 1,288 sponsors that included new Class I medical devices during the three year period 2014-15 to 2016-17, the average number of inclusions per sponsor per year is 2.5, with a financial impact of up to $1,590 if the fee had been in place in those years. While one large sponsor included an average of 414 entries, more than 70% of the sponsors, on average, had one new entry included over the three year period which means the financial impact on them would be $530. Based on the previous trend, it is expected that the impact on 90% of sponsors would be up to $2,650 which means, overall, the new fee is not likely to have a significant impact on a majority of sponsors of Class I medical devices. The TGA held information sessions for sponsors to assist them with optimising their new entries in order to minimise the potential financial impact of the new fee.

The TGA will continue to monitor the implementation of the new Class I medical device process from 1 July 2018 and recommend to government to make any appropriate adjustment to the fee in accordance with cost recovery obligations, if necessary.

Consultation

Consistent with long standing practice, every year the TGA undertakes comprehensive targeted consultation by engaging with peak therapeutic industry bodies regarding the fees and charges proposal for the forthcoming financial year. The introduction of a Class I application fee is neither a change in TGA policy nor a complex matter involving restructuring a set of fees. As such, the proposal to introduce this fee was raised at the industry bilateral meetings. In accordance with usual practice, the expectation is that the peak bodies disseminate information and advise businesses about the fees and charges proposals discussed during these meetings.

The TGA first raised the Class I fee proposal (with an indicative fee of $600) at the February 2017 industry bilateral meetings when other fees and charges proposals for 2017-18 were discussed. At the December 2017 bilateral meeting the TGA advised that while the Class I fee, for implementation from 1 July 2018, was yet to be determined, it was expected to be comparable with other application fees (ranging from $800 to $1290). The final fee of $530 was discussed at bilateral meetings held in late February/early March 2018 and is less than the indicative fees flagged on these previous occasions.

In response to concerns by a peak industry body representing a small segment of the medical device industry and to support transparency, the TGA provided explanatory information on how the fee was set. The TGA also conveyed to the peak industry body the reason why a targeted consultation was employed, instead of additional and formal public consultations.

C. Review of low risk products - impact on revenue

As part of the implementation of a number of recommendations of the Review, the TGA has undertaken a review of a range of low risk products currently on the ARTG. A public consultation was undertaken in 2018. The TGA will remove a range of low risk products from the ARTG by moving them to ‘excluded' or exempted goods. A significant number of these products are currently included in the ARTG as Class I medical devices (around 8,500). When these products are removed from the ARTG they will not be required to pay the annual charges which will result in a reduction of revenue of up to $0.7 million annually for medical devices alone.

D. Annual charges for provisional registration

Early in 2018 the TGA implemented a pathway for the provisional registration of certain prescription medicines as part of the Government's response to the Review. The pathway allows sponsors to apply for time-limited provisional registration (maximum of 6 years) on the ARTG on the basis of preliminary clinical data. It provides earlier access to certain promising new medicines where we assess that the benefit of early availability of the medicine outweighs the risk inherent in the fact that additional data are still required.

As the medicines are made available earlier in their clinical development there is a need to monitor these medicines more closely in the post-market period. The need for increased monitoring is greatest in the period of provisional registration while confirmatory efficacy and safety trials are ongoing.

Post-market monitoring of provisionally registered products will include regular review of adverse drug reaction reports submitted to the TGA, Periodic Safety Update Reports (PSUR) review, monitoring of risk management plan (RMP) compliance and consideration of RMP updates. In addition, more frequent safety updates are expected as the product's safety profile evolves through monitoring of post-market safety and ongoing clinical trials. It is estimated that there will be eight new provisionally registered products per year, which will remain provisionally registered for an average of five years. These products are expected to include approximately two ARTG entries per product. Therefore, the number of provisionally registered products will accumulate over five years to approximately 40 products being monitored each year. The actual number of provisional registrations will be reviewed annually to compare against the estimated workload.

The additional staff cost in year 1 is estimated around $0.147 million which will increase every year proportionally with increase in the number of provisional registrations on a 5 year cycle basis. In order to recover the post market and pharmacovigilance costs, annual charges were introduced for provisionally registered prescription medicines from 1 July 2018. These charges are higher by $9,160 per entry than the annual charges for other registered biological and non-biological prescription medicines.

The annual charges for 2018-19 can be found in the Therapeutic Goods (Charges) Regulations 2018 Schedule 9.

Type of prescription medicine Charge Regulation
Provisionally registered biological medicine $16,100 9(1)(a)
Provisionally registered non-biological medicine $13,100 9(1)(b)
Consultation

Extensive public and targeted consultation with consumers, industry and health professionals on various regulatory reforms, including the new provisional registration pathway for prescription medicines, has been conducted since late 2016. The proposal to levy an annual charge for the provisionally registered prescription medicines was raised at a number of meetings with industry. The final annual charge was discussed at the bilateral meetings held in late February/early March 2018 and no concerns were raised by stakeholders.

E. Changes to Annual charges for listed medicines

The Review reforms envisaged a greater number of listed medicine compliance reviews. Since 2018 the TGA has been progressively implementing an enhanced compliance framework for listed medicines and costs have been absorbed within current annual charges. It was anticipated that the number of reviewers will need to increase progressively in future, especially after fully implementing complementary and other listed medicines reforms, in order to further strengthen the compliance framework for listed medicines. This will require more resources which must be cost recovered through annual charges. Based on the estimated increase in compliance costs, an increase of $80 per entry (in addition to the indexation increase) was approved in annual charge for listed medicines from 1 July 2018.

These charges can be found in the Therapeutic Goods (Charges) Regulations 2018 Section 7(1)(c).

Consultation

During the December 2017 bilateral meetings with industry, TGA had flagged that the annual charges for listed medicines would go up because of the increased compliance costs. The final annual charge of $1,120 was discussed at bilateral meetings held in late February/early March 2018 and no concerns were raised by stakeholders.

F. Other fees and charges changes for 2018-19

A general increase of 1.9% was also approved to fees and charges from 1 July 2018 to meet estimated cost increases, mainly in employee expenses as a result of salary increases under the Department of Health Enterprise Agreement as well as salary increments and increases in facility rental costs. A well-established formula for price indexation has been used in most years, based on the Australian Bureau of Statistics' Consumer Price Index (50%) and Wage Price Index (50%) (both for the year to September). This year the formula resulted in 1.9%.

In applying the indexation factor, fees and charges were rounded to the nearest $10 for items less than $10,000 and to the nearest $100 for items $10,000 and above, subject to a minimum increase of $10. Due to the rounding policy and low indexation increases, a number of low level fees had not changed for the last number of years. For example, the annual charge for Class I medical devices remained unchanged at $80 since 2013-14. The compound impact of approved indexation increases to TGA fees and charges, other than the low level fees, since 2013-14 is 8.7%. Therefore, the low level fees (less than $200) are to increase by $10.

The Office of Best Practice Regulation advised that a Regulatory Impact Statement was not required for the above changes to fees and charges.

The amendment regulations were approved by the Executive Council at their meeting of 7 June 2018 to effect the above changes.

Consultation

At the February/March 2018 bilateral meetings, held with the nine key industry representative bodies, the TGA discussed the fees and charges proposals for 2018-19. The representatives acknowledged that the proposed fee of 1.9% increase is consistent with past practice and would be reasonable. A link to the fees and charges applicable from 1 July 2018 is provided in Appendix 2.

G. Further changes - lowering the application fee for export only medical devices

Following the approval of the Therapeutic Goods Legislation Amendment (2018 Measures No. 2) Regulations 2018, the new application fee of $530 for applications to include Class I medical devices took effect from 1 July 2018. Previously, no fee was payable for such applications, meaning the cost of verification of applications was not being recovered directly from the sponsors of these devices.

While export only medical devices are included in the ARTG as Class I medical devices, the assessment process for inclusion of export only medical device is not the same as for other Class I medical devices. This is because the TGA principally focusses on verifying the correctness of the information provided by the sponsor of export only medical devices.

An opportunity was also identified to further streamline the processing of applications for export only medical devices by modifying existing software to automatically include such devices in the ARTG. Reflecting the automation of the approval process but allowing for the cost of maintaining the software, and consistent with the CRGs, a separate application fee of $90 was approved by the Government for applications to include export only medical devices (other than in-vitro diagnostic medical devices). The lower fee was set to cover the direct staff effort required for managing new export only medical device applications as well as a component of IT costs required to make a small modification to the TGA business system for such applications.

The amendment regulation to give effect to the new fee was approved by the Federal Executive Committee on 11 October 2018 which applied retrospectively from 1 July 2018. A small number of sponsors of affected products had already paid the higher application fee of $530 for the inclusion of the export only medical devices in the ARTG since 1 July 2018, which was $440 more than the new fee of $90. The excess amounts have been refunded to the affected sponsors.

On average, the TGA receives around 400 applications for inclusion of export only medical devices each year. The lower fee of $90 results in an overall reduction of approximately $0.172 million each year in the TGA's revenue. This reduction is unlikely to have a significant impact on the TGA's cost recovery.


Footnotes

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