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Cost recovery implementation statement, V1.1

Version 1.1 June 2017

4 July 2017

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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 1 medical device (other than a class 1 medical device that has a measuring function or is supplied in a sterile state) is $80 whereas for a high risk prescription medicine (biologic) the annual charge is $6,990.

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 2015-16 there were 42,772 SAS notifications (category A), 25,577 SAS applications (category B) and 899 authorised prescriber applications. The annual cost of the two fee free services is estimated to be $3 million or around $43 per application. 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) Orphan drugs

A medicine, including vaccines or in vivo diagnostic agents, may be eligible for Orphan Drug designation if all four orphan criteria prescribed in regulations 16(3) or 16(4) are satisfied.

The orphan drug program is an activity undertaken for the public good, with the objective of bringing medicines for rare diseases 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.

While the orphan drug program provides incentive for developing drugs for use by a small patient population, the recently concluded public consultation on the orphan drug program has indicated strong industry support for the orphan drug scheme including a fee waiver. 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 2015-16, the TGA assessed 16 orphan drug applications, compared to the total fee paying applications of 117 for prescription medicines (new chemical entity, major variation and extension of indications). The total cost attributed to the orphan drug program in 2015-16 is $3.1 million.

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

2017-18 Fees and Annual Charges
a) Introduction of an annual charge for in-vitro diagnostic medical devices

A new framework for the regulation of in-vitro diagnostic medical devices (IVDs) was introduced in 2010. Annual charges for IVDs were not levied until the end of the transition period on 30 June 2017. The annual cost of post market monitoring and compliance of IVDs is estimated to be around $1.6 million. In order to recover these costs an annual charge of $660 will apply to all classes of IVDs, except for class 4 in-house IVDs. Class 4 in-house IVDs are included in the ARTG only for in-house use by laboratories and not for sale, therefore they will always be exempt from the annual charge under the ACE scheme. Levying an annual charge and then exempting them under the ACE scheme would create unnecessary administrative burden for both sponsors and the TGA.

There are currently 230 sponsors of 2,497 IVDs on the ARTG who will be required to pay the new annual charge, except where exempted under the ACE scheme. The TGA has advised the sponsors of IVDs of the applicable annual charge for 2017-18 ahead of the implementation date.

b) Introduction of a reinstatement fee

The Act provides the Secretary the power to reinstate an entry on the ARTG which was cancelled upon the sponsor's request or due to non-payment of the annual charge. The Act also prescribes that the Secretary may revoke the cancellation and reinstate the entry if the sponsor makes an application to revoke the cancellation and pays the prescribed application fee within 90 days of cancellation.

In order to recover administrative cost of the reinstatement process a two-tier fee structure will apply from 1 July 2017 to applications to reinstate an entry on the ARTG. The reinstatement application fee is set based on the cost of staff effort required in the processing of a typical reinstatement application which involves receipt of the application, payment processing, delegate decision and correction of the ARTG record. The new fees are:

  • $150 for a reinstatement application containing only one entry; and
  • if the application contains more than one entry, the fee is $150 for the first entry plus $50 for each additional entry.
c) Reduction in annual charges for some medical devices

Before the ACE scheme was implemented on 1 July 2015, replacing the previous LVT exemption scheme, it was recognised that the new scheme would reduce the number of entries that are eligible for an exemption to the annual charge (therefore increasing the number of entries for which an annual charge is payable). In light of this, when the ACE scheme was implemented, annual charge reductions were applied to several types of entries as follows:

  1. Prescription medicines (non-biologicals) - other than generic medicines: 5%
  2. Prescription medicines (non-biologicals) - generic medicines: 23%
  3. Medical devices - class IIA and above: 5%

On introduction, the TGA committed to monitor the impact of the new scheme on the therapeutic goods industry and adjust annual charges, if required, to ensure appropriate cost recovery for each industry sector.

After a year of operation an impact assessment of the new scheme was undertaken which suggested that annual charges revenue from medical devices was higher than forecast, due to a lower than anticipated cancellation of entries. Therefore a further reduction in annual charges for medical devices (other than class 1 medical devices which incur an annual charge of $80) by 6.5% has been implemented, subject to the general indexation increase of 1.65% to all TGA fees and charges- resulting in an overall reduction in annual charges for most medical devices of 4.96%.

d) Other fees and charges changes for 2017-18

A general increase of 1.65% has been applied to fees and charges from 1 July 2017 to meet estimated cost increases, mainly in employee expenses as a result of salary increases under the Department of Health Enterprise Agreement.

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 1.65%. The Office of Best Practice Regulation has advised that a Regulatory Impact Statement is not required for this change.

The amendment regulations were approved by the Executive Council at their meeting of 18 May 2017 to effect the above changes.

A link to the fees and charges applicable from 1 July 2017 is provided in Appendix 2.

Regulatory Reforms: Review of medicines and medical devices regulation

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 the Government has accepted 56. 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" has provided $20.4 million (to be met 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 require new fees from 1 July 2017 are 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, will be implemented from 1 July 2017. The Priority Review pathway will prioritise the evaluation of novel prescription medicines that meet the eligibility criteria and have a complete data dossier, with a view to reducing the target timeframe for a decision regarding registration of the medicine in the ARTG to 150 working days.

In order to recover the additional costs of the new processes the following new fees will apply for making applications under the Priority Review pathway.

Designation Fee

The new registration pathway will not be available for all registration applications but only to those which meet certain criteria. A sponsor of a new medicine will need to make a designation application to the TGA which will be assessed against the relevant eligibility criteria to determine whether the medicine should be granted access to the new pathway. Designation is a new process and an application for this will require payment of a designation fee of $12,300 per application. The fee is non-refundable regardless of the decision to accept or reject the application.

The fee has been set after taking into account estimated staff time/cost involved in having a pre-submission meeting with the applicant, assessing a designation application against the criteria, seeking expert advice, where needed, and decision making. As some of the designation applications may also accompany an application for designation for orphan drug status (for which a fee is not payable) the new fee has been appropriately loaded to ensure adequate cost recovery. This is consistent with the current practice for recovering the costs of orphan drug applications.

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

Application and evaluation fee

Once an application has been accepted the applicant may choose to make an application for registration of a New Chemical Entity (NCE) or an extension of indication (EOI) under the new pathway rather than the standard pathway. A higher than standard application and evaluation fees apply for registration applications under the new pathway.

The new application and evaluation fees will be slightly higher because of the additional effort required to complete the Priority Review registration process within a reduced target timeframe of 150 working days.

The application and evaluation fees are based on the staff effort involved in the prescription medicines registration process capturing the estimated average time taken to complete the tasks involved and the classifications of staff that typically carry out these tasks. While there will be some variation in the workload involved between different applications of the same type, as with many assessment processes, costings have been calculated taking into account the likelihood that certain steps will occur, and the minimum and maximum time taken in order to obtain an average fee which will facilitate cost recovery across a broad range of complexity in designation and registration applications. To estimate the fees for the Priority Review pathway, specific tasks within this process have been identified where more time and/or resources will be required to meet the priority timeframe. Estimates of the resource requirements for any new tasks have also been captured.

The fees for the standard pathway and Priority Review pathway are included in table below:

Application type Costing Application Fee Evaluation Fee Total
New Chemical Entity Standard Pathway $46,900 $188,200 $235,100
  Priority Review pathway $49,800 $199,000 $248,800
  Difference in fees $2,900 $10,800 $13,700
Extension of Indication Standard Pathway $28,000 $111,700 $139,700
  Priority Review pathway $29,600 $118,400 $148,000
  Difference in fees $1,600 $6,700 $8,300

Because the expedited pathway will be 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 designation 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 through the pathway.

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

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.

While this process will reduce manual staff effort, the new notification fee is set to recover the costs of associated activities in:

  • building and maintaining the IT system;
  • providing sponsor support;
  • ensuring currency of records; and
  • auditing notifications to ensure variations are being notified appropriately.

Based on the estimated costs of the above activities, a notification fee of $780 per notification has been set. This represents a reduction of more than 50% on the current minor variation fees for prescription medicines ($1,625) and OTC medicines ($1,565) respectively.

It is estimated that around 2/3rd 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 1/3rd 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.

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. In relation to priority approval for medicines, public consultation in November and December 2016 sought feedback on the main elements of the arrangements, including the proposed criteria for qualifying for the new pathway.

On notifiable variations, consultation was conducted with stakeholders including peak bodies and industry sponsors in November 2016 on the proposed variations and processes for notifying the TGA of these changes.

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.

Consultation on the new fees was conducted with peak therapeutic bodies in February 2017 along with the other changes to fees and charges proposed for 2017-18. Peak bodies welcomed the reduced fee for notifications and raised no concerns in relation to designation fees and application and evaluation fees under the Priority Review pathway.

The amendment regulations to prescribe the above fees were approved by the Executive Council at their meeting of 27 June 2017.

A link to the fees and charges (including the above fees) applicable from 1 July 2017 is provided in Appendix 2.

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