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Regulation impact statement: Amendments to the new regulatory framework for in vitro diagnostic medical devices (IVDs)

Version 1.0, October 2014 - OBPR Reference: 14631

17 October 2014

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Cost analysis

Quantification of cost to business and the community

The TGA is fully funded by the businesses it regulates. The cost of regulation is recovered by way of fees and charges. The fees are based on the costs of direct service provided by the regulator and charges are the tax imposed by the TGA annually on users. Annual charges are used to recover costs or resource functions which cannot reasonably be assigned to individual businesses or where such assignment would act as a deterrent to effective delivery of service.

Prior to the introduction of the new regulatory framework for IVDs in July 2010 only a select group IVDs were required to be registered or listed on the ARTG. All others were exempt from regulation and the associated regulatory compliance costs.

The 2004 RIS estimated that, for both commercial and non-commercial manufacturers, the one off cost of compliance would be between $15,000-$60,000, depending on the size and complexity of the business. Additionally there would be a cost to employ staff to implement, meet and maintain the regulatory requirements of the framework.

Needless to say all within the sector would like to see a reduction in both the level of regulation and cost of compliance. Industry considers the current TGA conformity assessment process to be an intensive and expensive process resulting in the unnecessary duplication of work that drives up the cost of IVDs and creates a disincentive to supply products in Australia’s relatively small market. However industry (commercial) does not want to see a return to the pre-2010 level of regulation for IVDs, in particular the lack of regulation of high risk laboratory developed or modified IVDs.

The elements of cost for a manufacturer of IVDs are the administrative and developmental costs and regulatory compliance costs. Administrative and developmental costs include the cost of generating performance data, implementing a quality system, the generation and holding of documentation. Most of these costs are incurred as part of normal business practice and are not considered to arise from government regulatory requirements. The regulatory compliance costs can be ascribed to the need to employ regulatory personnel. The TGA fees and charges (for audit, application, assessment of data and annual charges) are considered to be the financial cost of compliance for business.

Overall the amendments to the IVD regulatory framework in the recommended proposals will have a cost negative impact on most stakeholders, particularly laboratories. There will be a significant reduction in regulatory burden and the degree of evaluation required by the TGA for Class 4 IVDs and Australian manufacturers of Class 2 and 3 IVDs. Additionally there will be savings for many businesses by reducing the regulatory requirements and removing any duplication.

It is not possible to fully quantify the overall fiscal impact on the sector as the total number of IVDs to be included in the ARTG is unknown, therefore some assumptions have been made and calculations on the impact of each recommended proposal are provided below.

It is anticipated that the preferred proposals will minimise any additional regulatory costs on the commercial and laboratory sector, particularly laboratories providing specialised services. Overall the three recommended proposals would provide business an estimated saving of $1.0 million over ten years (not including fees and charges).

Additionally there would be an overall reduction in the direct financial cost (fees and charges) of compliance for business of approximately $5.7 million over ten years.

Regulatory burden and cost offsets
Average annual change in compliance costs (from BAU)
Cost ($m) Business Community Organisations Individuals Total by cost category
Total by Sector ($0.1) 0 0 ($0.1)
Annual Cost Offset ($m) Business Community Organisations Individuals Total by Source
Agency 0 0 0 0
Within portfolio 0 0 0 0
Outside portfolio 0 0 0 0
Total by Sector 0 0 0 0

Proposal is cost neutral? No, cost negative

Proposal is deregulatory? Yes

Balance of cost offsets to be banked: $0.1 Million P/A

Cost to business per issue

Issue 2: Regulatory requirements for Class 4 IVDs and Australian Manufacturers of Class 2 and 3 IVDs.

The recommended proposal would provide a modified conformity assessment procedure for the regulation of all Class 4 IVDs, with fees to be determined by the level of evaluation undertaken by the TGA. It presents a fee structure where the fees payable would be reduced for both the commercial manufacturer and laboratory sectors.

Additionally, the recommended proposal would allow Australian manufacturers of Class 2 and 3 IVDs to provide acceptable evidence of third party conformity assessment to support their applications for inclusion of Class 2 and 3 IVDs in the ARTG. This would mean that Australian manufacturers would not be required to obtain a TGA conformity assessment certificate which in turn would represent a saving to the sector.

However, Australian manufacturers would still retain the option of applying and paying for a TGA conformity assessment certificate if this was more applicable to their business. Additionally, for manufacturers with multiple ARTG entries that require a mandatory application audit it may be more cost effective for them to apply for a TGA conformity assessment as opposed to undergoing multiple application audits for inclusion of their products in the ARTG. This option would still be available to them.

Minor compliance cost savings would be achieved by the removal of the requirement for laboratories to provide the TGA with a list of their Class 1-3 in-house IVDs.

The recommended proposal would provide a compliance cost saving (not including fees and charges) of approximately $2.2 million over ten years for business.

Additionally there would be a reduction in the direct financial cost (fees and charges) of for business of approximately $6.2 million over ten years.

If the current compliance requirements for Class 4 IVDs and Australian manufacturers of Class 2 and 3 IVDs are maintained there will be no savings as the level of evaluation required by the TGA would be unchanged.

Issue 3: Performance evaluations for Class 4 IVDs.

The regulations will remain unchanged. There is no cost to the sector as the TGA would not conduct premarket performance testing for Class 4 IVDs undergoing an evaluation for a design examination certificate.

Issue 4: Amend the definition of a medical device to include predisposition and susceptibility tests.

IVDs used to determine predisposition or susceptibility to a disease or condition are not subject to fees and charges as they are currently not required to comply with the new IVD regulations. However it should be noted that many of these IVDs may already be included in the ARTG by the choice of the sponsor. If the recommended proposal is adopted all these IVDs would either require inclusion in the ARTG (commercial products) or comply with the requirements for in-house IVDs. The majority of these tests are likely to be Class 3 IVDs. Consistent with the current Regulations, it would remain unlawful to supply IVD self-tests for genetic testing to determine the presence of, or predict susceptibility to, diseases in humans.

The recommended proposal is likely to cost business $0.9 million over ten years to comply with the regulatory requirements (not including fees and charges).

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