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Cost recovery implementation statement, V1.6

Version 1.6 February 2019

5 February 2019

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Financial and non-financial performance

a) Financial performance

2015-16 Actual
$'m
2016-17 Actual
$'m
2017-18 Actual
$'m
2018-19 Budget
$'m
2019-20 Estimate
$'m
A: Revenue
Revenue from Government 3.177 2.574 2.439 2.253 2.253
Sale of goods and services 141.539 139.037 152.905 161.063 165.292
Other revenue and gains 0.148 0.012 0.001 0.000 0.000
Total A 144.864 141.623 155.345 163.316 167.545
B: Expenses
Employee expenses 66.168 78.781 75.802 103.170 105.238
Suppliers 57.849 61.686 62.837 52.967 53.628
Depreciation and amortisation 4.672 4.286 6.846 7.179 8.679
Write-down and impairment of assets 0.105 1.961 2.895 0.000 0.000
Total B 128.784 146.715 148.380 163.316 167.545
Surplus (deficit) 16.080 (5.092) 6.965 0.000 0.000

TGA's activities are primarily cost recovered from industry except for the cost of the medicines and chemicals scheduling function for which an appropriation is provided by the Government. In addition, the TGA continues to receive appropriation funding in the form of an interest equivalency payment for funds held in the TGA special account (reserves).

The surplus in 2017-18 was $10.31 million above the approved budget. Revenue ended up above budget by $6.36 million following increased volumes in evaluation applications received towards the end of the financial year. Expenses were below budget by $3.96 million primarily due to employee expenses being below budget by $4.18 million, resulting from delays in recruitments and staff turnover.

Detailed financial performance information is discussed with industry representative bodies at bilateral meetings held each year.

The TGA aims to maintain reserves to provide a buffer for volatility in revenue streams (the number and type of evaluation applications) and respond to major external or unplanned impacts (recalls, product tampering). Depreciation is also accumulated for the replacement of assets. The Government expects the TGA to manage within its cost recovery resources and therefore investment in new, or replacement of existing, business systems, must also come from the responsible management of these reserves. The target for the reserve balance is set at around 25% of operating budget. While in 2015–16 the TGA's reserves remained above that target they reduced in 2016-17 as a result of the costs of implementing the 2016-17 Budget measure “Improving the Regulation of Therapeutic Goods in Australia” which involves expenditure of $20.4 million from TGA reserves over four years.

The surplus in 2017-18 allowed the TGA to repay earlier than planned a part of the $20.4 million drawn from its reserves.

Financial performance by industry sector group is included in Appendix 1.

b) Non-financial performance

  1. The Australian Government has developed a framework to measure the performance of regulators. The Regulator Performance Framework comprises six outcome-based key performance indicators (KPIs) to articulate the Government's overarching expectations of regulator performance: Regulators do not unnecessarily impede the efficient operation of regulated entities;
  2. Communication with regulated entities is clear, targeted and effective;
  3. Actions undertaken by regulators are proportionate to the regulatory risk being managed;
  4. Compliance and monitoring approaches are streamlined and coordinated;
  5. Regulators are open and transparent in their dealings with regulated entities; and
  6. Regulators actively contribute to the continuous improvement of regulatory frameworks.

This framework has been applied since 1 July 2015 with the first assessment period being the 2015-16 financial year. The TGA reports annually[4] to stakeholders on performance against a set of agreed KPIs. A series of qualitative and quantitative outputs and evidence to assess the TGA's achievement of the KPIs and associated measures were developed in consultation with the Australian Therapeutic Goods Advisory Council and the TGA-Industry Consultative Committee (TICC). These KPIs were endorsed by the then Assistant Minister and published on the TGA website in June 2015. More information on the TGA's KPIs is available at: TGA key performance indicators.

The TGA's self-assessment against the KPIs was externally validated by the TICC which comprises industry and consumer representatives. In terms of feedback on whether the self-assessment process provided sufficient, reliable and current evidence to support our overall performance rating of met, TICC members either agreed or somewhat agreed. Members noted that this is the first report of its kind, and although the majority of the evidence matrices are appropriate and an effective tool for assessing our compliance against the KPIs, the matrices should be subject to continuous improvement to ensure relevance.

Overall the TGA has met the requirements of the Framework through meeting KPIs 1, 2, 3, 4 and 6 with 'strong performance' against these measures and through substantially meeting KPI 5. The 2017-18 report is published on TGA's website, a brief summary is provided below.

Self-assessment rating and summary of overall performance
KPI Performance rating Comments
KPI 1. Regulators do not unnecessarily impede the efficient operation of regulated entities Met

We held regular formal stakeholder forums and participated in industry events as well as senior executive meetings with peak bodies.

We hosted a workshop for small to medium businesses 'Meeting Your Obligations' at the Good Manufacturing Practice (GMP) Forum, and implemented a number of initiatives through the Business Improvement Program.

KPI 2. Communication with regulated entities is clear, targeted and effective Met We communicated through webinars and other forums, delivery of changes to the therapeutic goods advertising framework through extensive targeted and public consultations, and changes to the regulation of autologous human cell and tissue products.
KPI 3. Actions undertaken by regulators are proportionate to the regulatory risk being managed Met

We took a risk-based approach which was proportionate to the therapeutic products we regulate.

We continued to monitor signals of non-compliance and considered compliance history when undertaking intervention.

We continued to triage and prioritise advertising complaints based on the risk that the advertising could pose to public health and safety.

KPI 4. Compliance and monitoring approaches are streamlined and coordinated Met

We have built a Case Categorisation and Prioritisation Model to ensure consistent triaging and risk based responses to alleged breaches of the Therapeutic Goods Act 1989.

A new notifications process for very low risk variations to biologicals and to the registered medicines was introduced, allowing the use of a single electronic form to request certain types of changes to a medicine.

KPI 5. Regulators are open and transparent in their dealings with regulated entities Substantially met

We continued to raise awareness of our regulatory framework through our various interactions with industry and other stakeholders through workshops, publication of educational material, engaging with the TGA Industry Forum, and maintaining our telephone and email enquiry lines.

In addition, we published monthly and annual performance reports on our website.

We have rated ourselves as 'substantially met' against this KPI because we did not meet the TGA Customer Service Standards in all cases when responding to email and telephone enquiries. This was partly due to the transition to a new enquiry management system, which resulted in some enquiry data being lost during the July-September 2017 period.

KPI 6. Regulators actively contribute to the continuous improvement of regulatory frameworks Met

We maintained high levels of stakeholder engagement through market research, continued business improvements as well as interactions with other Government Departments and comparable regulators.

We have implemented a number of reforms, including streamlining the advertising framework.

A new electronic notifications process for very low risk variations to prescription medicines was introduced in late 2017. This followed the earlier introduction of a similar process for non-prescription registered medicines. TGA approval for these variations is made automatically, if the application passes electronic validation and payment is received, reducing compliance costs and approval times.

We implemented an improved streamlined and coordinated approach to the implementation of the new provisional approval pathway for the registration of prescription medicines, providing earlier access to certain new medicines.

Risk assessment

A cost recovery risk assessment for the regulatory reform program was undertaken resulting in a medium risk rating for TGA's cost recovery arrangements. The cost recovery risk rating of medium is based on assessment of the criteria using the Charging Risk Assessment (CRA) template. The key medium to high risks for cost recovery are that the amount to cost recover exceeds $20 million, the source of recovery is through fees and levies, they involve an existing Act of Parliament (for TGA charges to be reviewed) and many stakeholders will be affected.

The most likely risks identified for any ongoing changes to cost recovery arrangements were:

  • cost recovery fees creating a disincentive to products entering the market;
  • inherent risks in implementing diverse cost recovery arrangements; and
  • potential for misunderstanding of how fees and charges are calculated.

These risks are addressed by:

  • continued improvements in regulatory and administrative functions;
  • implementing best practice in ABC methodology;
  • working closely with stakeholders and industry representatives to mitigate the cost impact to business; and
  • ensuring charging practices are aligned to our services and are transparent and defensible.

From a regulatory perspective risk management is applied to regulating therapeutic goods by:

  • identifying, assessing, and evaluating the risks posed by therapeutic goods before they can be approved for use in Australia (pre-market assessment or evaluation);
  • identifying, assessing, and evaluating the risks posed by manufacturing processes before a manufacturer is issued with a licence to manufacture therapeutic goods (licensing of manufacturers); and
  • identifying, assessing, and evaluating the risks that may arise following approval of the product and licensing of the manufacturer (post-market surveillance).

Footnotes

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