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Regulation impact statement: Changes to premarket assessment requirements for medical devices

26 June 2013

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Costs and benefits

The estimated costs and benefits associated with the options outlined in the RIS are detailed below.

The original cost modelling prepared for the RIS exposure draft has been reviewed for this RIS, to take into account some of the MTAA's comments on the modelling where the assumptions used by the MTAA were considered valid.

Option 1 - No immediate action

As this option proposes to make no changes to the regulatory system, no additional direct regulatory costs over the status quo are anticipated. However, this option does not achieve the majority of the objectives of this RIS, particularly the primary objective of providing greater assurance that higher risk medical devices do not compromise public health and safety.

Option 2 - Changes to premarket assessment of medical devices

The TGA costs associated with each proposal contained within this option are presented below. As the TGA operates on a 100 per cent cost-recovery basis, the additional costs associated with increased regulation are borne by the regulated industry through increases to the application fees and annual charges.

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Proposal A: Increased scrutiny of conformity assessment

Proposal A increases scrutiny of conformity assessment through targeting of mandatory audits for a wider range of high risk medical devices (primarily Class IIb implantable devices) and increasing assessment of additional evidence of conformity assessment for the highest risk devices (AIMD and Class III implantable devices).

Assumptions

The following two elements of this proposal were costed:

  • Mandatory audits for Class IIb implanted devices, assuming:
    • An additional 139 mandatory audits33
    • An estimated 49 per cent of these audits would be Level 1 audits, while 51 per cent would be Level 2 audits34
    • Existing Level 1 and Level 2 audit fees will apply (at the 2012-13 rates)
    • .
    • All these audits are additional, as these medical devices are currently not subject to mandatory audit
  • Level 3 audits for AIMD and Class III implanted devices, assuming:
    • 289 applications requiring auditing per year35
    • Level 3 audit to include36:
      • desk audit of manufacturer's quality management system (20 per cent of all Level 3 audits)37
      • design examination report (100 per cent of Level 3 audits)
      • raw clinical data underpinning conformity assessment (100 per cent of Level 3 audits)
    • All of these Class III devices are already subject to mandatory audit, and a Level 2 audit would be currently expected for 100 per cent of these applications38.
Cost

Mandatory audits for Class IIb implanted devices: The cost of the additional audits for Class IIb implantable devices is $3,360 (2012-2013 rate) for a Level 1 audit and $6,170 (2012-2013 rate) for a Level 2 audit. Based on the 2012 applications volume data, this estimated that 20 per cent of Class IIb medical device applications will be newly subject to mandatory audit under this proposal, with approximately 49 per cent of these subject to a Level 1 audit and 51 per cent subject to a Level 2 audit. In 2012, 697 Class IIb applications were received, so if 20 per cent, or 139 applications, were audited as outlined above, this would cost the industry a total of $668,158 per annum.

Level 3 audits for AIMD and Class III implanted devices: The estimated cost of a Level 3 audit is $16,38239 which is $10,212 more than the current Level 2 audit fee, reflecting the additional work to be undertaken for the Level 3 audit. This is a very significant increase in costs, which would be experienced by an estimated 289 applications each year, costing the industry $4,734,296 per annum.

A Cost Recovery Impact Statement (CRIS) is currently being prepared by the TGA for medical devices. This includes assessment of actual TGA costs against the fees for these assessment tasks. While development of the CRIS is at an early stage, initial results indicate that the TGA is under-recovering against a range of premarket assessment processes including conformity assessment and audit fees. The outcomes of the CRIS however will also need to reflect business process reengineering aimed to increase the efficiency of TGA premarket assessment. While the existing fee structure is used for this costing, any changes to audit fees arising from the CRIS will flow through to these processes.

How has the cost estimate changed since the May 2013 consultation?

There have been two key changes to the cost estimate for this proposal since the RIS exposure draft:

  • It has been estimated that 49 per cent of these Class IIb mandatory audits would be Level 1 audits, while 51 per cent would be Level 2 audits. This was altered from the earlier assumption that 70 per cent of audits would be Level 1 and 30 per cent would be Level 2 (changed based on MTAA feedback). This increased the cost estimate by $82,260 (from $585,89840 to $668,158).
  • The number of Level 3 audits for AIMD and Class III implanted devices has been increased to 289 from 261 used in the RIS exposure draft costing, as this now includes 28 expected Level 3 audits of reclassified joint replacement implants (in line with MTAA feedback). This increased the cost estimate by $458,687 (from $4,275,609 to $4,734,296).

These changes have increased the estimated cost of Proposal A by a total of $540,947, from $4,861,507 to $5,402,454.

However these cost estimates represent the worst case scenario as they do not take into account savings arising from

  • the potential reduction in the need for Level 3 audits where conformity assessment certification was issued by notified bodies in which confidence has been built (with confidence building to be undertaken during 2013 and 2014)
  • grouping applications for related devices, which can reduce audit fees by 28 per cent.

More detail on the comparison of the TGA and MTAA cost estimates are outlined in the 'Cost analysis provided by industry' section below.

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Proposal B - Publication of information about regulatory decisions

Proposal B increases transparency of TGA decision making, by publishing a summary of the decision made by the TGA in a format similar to the AusPAR.

This is likely to be quite an extensive document where the TGA decision is complex, such as when it is based on analysis of evidence through conformity assessment and application audit. Decisions for applications for inclusion on the ARTG which are not audited will not require an extensive document to be prepared, though these decisions will still be published with an explanation of the assessment process which the device underwent prior to inclusion.

Assumptions

For costing purposes, this proposal assumes:

  • Publication of 3,339 decisions per annum, 1,068 of these are expected to be complex decisions requiring specific explanation of the decision made41
  • Complex decisions are estimated to take 7.5 hours to accurately document, including preparing the AusPAR style document, checking to ensure confidential information is not included, and liaison with the applicant to ensure accuracy prior to publication
  • Simple decisions are estimated to take 1.5 hours to complete, as there will be little to include in the AusPAR style document other than information included with the application. It is anticipated that checking to ensure confidential information is not included, and liaison with the applicant to ensure accuracy prior to publication will still be required.
Cost

The estimated cost of publishing decisions is $1,767,798 per annum, with 1,068 complex decisions at an estimated cost of $1,197 per decision, and 2,271 simple decisions at an estimated cost of $215 per decision. This results in an average cost per decision of $529.

How has cost estimate changed since the May 2013 consultation?

This cost estimate has been revised since the RIS exposure draft, and now includes decisions on both medical devices and IVDs. IVD decisions were omitted from the exposure draft cost estimate, but are included here as it is intended that these decisions will also be published. This raised the cost of this proposal by $200,972 (from $1,566,826 to $1,767,798).

In addition the scope of the proposal has been narrowed to only include publication of negative decisions where these relate to reasons of safety and/or efficacy, however this change has not be factored in to the cost estimate.

As a result this cost estimate overestimates the complex decisions as those applications and conformity assessments rejected due to reasons NOT relating to safety and/or efficacy will not require publication of a decision document.

An estimate of this reduction in cost will be required for the preparation of the CRIS. However consultation with stakeholders will be required to determine how this change will apply in practice, to allow the impacts to be modelled. For the purposes of this RIS it is noted that this cost is overstated, and the eventual cost to industry will be lower.

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Proposal C - Removing the requirement for TGA conformity assessment for Australian manufacturers except for Class 4 IVDs

Proposal C would remove the requirement for Australian manufacturers to seek TGA conformity assessment. Australian manufacturers, like all manufacturers, would continue to be required to seek TGA conformity assessment. They would also still need to hold appropriate conformity assessment (such as certification from the European notified body) and would be subject to the mandatory audit requirements (including the new requirements outlined above) if using certification from a European notified body.

Assumptions

Due to the small numbers of Australian manufacturers, and the large variation in the type and cost of conformity assessments, costing of this proposal is subject to large variations from year to year, and so not necessarily representative.

For costing purposes, this proposal assumes:

  • The TGA received 44 conformity assessment applications from Australian manufacturers per year42
  • There are total of 115 Australian manufacturers currently holding TGA conformity assessment certification43
  • Five per cent of Australian manufacturers produce AIMD or Class III devices (requiring design examination)44
  • Two thirds of Australian manufacturers will not seek TGA conformity assessment, but rather use conformity assessment from a notified body45
  • The cost of conformity assessment varies significantly depending on the nature of the assessment (from as little as $13,600 for a renewal of a Production Quality Management System Audit, to $51,200 for a new design examination). The actual fee will depend on the nature of the device and the assessment required.
Cost

If two thirds of Australian manufacturers opted not to continue with TGA conformity assessment, this may result in a reduced cost to industry (and a reduction in TGA fees) of between $448,301 and $650,662 per annum (with this variation relating to whether the applications were for changes to existing applications or applications for new devices).

Manufacturers holding quality manufacturing certification also need to undergo surveillance inspections every 12 to 18 months to maintain their certification, with an audit fee of $7,560. Given there are 115 Australian manufacturers, assuming two thirds do not seek to maintain their TGA certification, this would be a reduced cost to industry (and a reduction in TGA fees) of $390,274 per annum.

In considering application and audit fees the savings to industry for this proposal (in the form of reduced revenue and workload for TGA) are estimated to range from $838,575 to $1,040,936 per annum.

How has cost estimate changed since the May 2013 consultation?

This cost estimate has not changed since the RIS exposure draft.

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Cost analysis provided by industry

TGA costed the implementation of Option 2 conservatively and although MTAA costs initially are higher than those calculated by the TGA, once recalculated to remove anomalies or invalid assumptions, the MTAA costs are lower than those proposed by the TGA. Table 7 below provides a comparison of the TGA and MTAA cost estimates.

Table 7 – Option 2 - Comparison of TGA and MTAA Cost Estimates47
Option 2 TGA MTAA Variance
Volume Price Cost to industry Volume Price Cost to industry Total
Proposal A – Increased scrutiny of conformity assessment
Mandatory audits for Class IIb1
Level 1 audit 68.31 $3,360 $229,508 82 $3,360 $275,520
Level 2 audit 70.09 $6,170 $438,650 84 $6,170 $518,520
Level 3 audit (joint reclassification) - - - 28 $16,382 $458,696a
Sub Total $668,158 $1,252,496 $584,338
Level 3 audits2
Level 2 audits – Class III - - - 186 $6,170 $1,147,620b
Level 3 audit - Class III 235 $16,382 $3,849,687 159 $16,382 $2,604,738
Level 3 audit – AIMD 54 $16,382 $884,609 60 $16,382 $982,920
NB Reports - - - 219 $10,000 $2,190,000c
Sub Total $4,734,296 $6,925,278 $2,190,982
Proposal A Total $5,402,454 $8,177,774 $2,775,320
Proposal B - Publication of information about regulatory decisions
Simple decision 2,271 $215 $489,160 82 $215 $17,630
Complex decision 1,068 $1,197 $1,278,638 538 $1,197 $643,986
Proposal B Total $1,767,798 $661,616 $1,106,181d
Proposal C – Removal of mandatory TGA conformity assessment for Australian manufacturers
Surveillance inspections -52 $7,560 -$390,274 -52 $7,560 -$390,274
Conformity assessments -1.5 $51,200 -$78,750 -1.5 $51,200 -$78,750
Conformity assessments -29.5 $19,400 -$571,912 -29.5 $19,400 -$571,912
Proposal C Total -$1,040,936 -$1,040,936 Nil
OPTION 2 TOTAL $6,129,316 $7,798,454 $1,669,139

There are a number of smaller differences in assumptions between the TGA and MTAA cost estimates, however the fundamental differences relate to:

  1. The MTAA included joint reclassification audits under the expansion of Class IIb audits separately from other Level 3 audits. However the TGA has accounted for these 28 application audits as part of the total number of Level 3 audits.
  2. The MTAA included $1,147,620 for Level 2 audits for Class III devices in its cost estimate. However these are excluded from the TGA costing on the basis that these devices are already subject to a Level 2 audit, and it is not a cost arising from these reforms.
  3. The MTAA included a cost to industry of $10,000 per Level 3 audit to obtain notified body design examination reports (at a total of cost of $2,190,000). However sponsors are already legally required to either hold this information or be able to obtain the information in 20 working days. Counting this as an additional cost is inappropriate as these costs are already factored in to current arrangements and are not a new cost. What is new is that the TGA has, for a considerable length of time, not requested these reports to be provided to it on a regular basis.
  4. The MTAA has included decisions for publication under Proposal B only where these have been audited, and assumed a Level 1 audit would be a simple decision to document, while a Level 2 or 3 audit would be a complex decision to document (at an estimated cost of $661,616). The TGA cost estimate of $1,767,798 includes all decisions on ARTG inclusion and all conformity assessment decisions for both medical devices and IVDs, as this is the proposed scope of the reform. Under the TGA cost estimate all decisions subject to application audit and all conformity assessment decisions would be complex (as there will be an audit process to document, and checks with sponsors on the content to be published) while those ARTG inclusion decisions not subject to audit would be simple, as only those documents included with the application will need to be referenced in the decision publication, and it is anticipated that minimal checking of the publication content with the sponsor will be required.

When the last three of these differences are excluded from their cost estimate, the MTAA cost estimate is actually $562,300 lower (at $5,567,015) than the TGA cost estimate ($6,129,315), even with the TGA cost estimate increasing due to some changed assumptions after taking into account MTAA feedback.

The differences identified between the TGA and MTAA methodology have been outlined and explained in more detail at Attachment E: Methodology Comparison - MTAA and TGA Cost Estimates.

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Summary

The following table summarises the costs outlined above:

Table 8: Option 2 - Costs
Option 2
Proposal Element
Increase in TGA Costs Reduction in TGA Revenue Net Cost for industry
Proposal A
Mandatory Class IIb audits $668,158 $668,158
Level 3 audits $4,734,296 $4,734,296
Proposal B
Publication of decisions $1,767,798 $1,767,798
Proposal C
Abolish TGA conformity assessment for Australian manufacturers $1,040,936 -$1,040,936
TOTAL $7,170,251 $1,040,936 $6,129,316

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Option 3 - Expand TGA mandatory conformity assessment for AIMD and Class III implantable medical devices and allow third party conformity assessment for other devices except Class 4 IVDs

This Option parallels Option 2 in a number of areas.

The key difference between Option 2 and Option 3 relates to Proposal A. Rather than introducing a Level 3 audit for AIMD and Class III implantable devices, under Option 3 manufacturers would be required to seek TGA conformity assessment for these devices. Option 3 also omits the publication of decisions (as outlined in Option 2 Proposal B). If that were to be included the additional costs, as outlined above, would apply.

Mandatory TGA conformity assessment for AIMD and Class III implantable medical devices

Assumptions

For costing purposes, this proposal assumes:

  • 289 applications for ARTG inclusion received by the TGA each year for AIMD and Class III implantable medical devices, which under this proposal would require TGA conformity assessment;
  • Conformity assessment fees for these applications may range from $58,400 to $77,20049 per application, depending on the conformity assessment procedure applied for, with an average cost of $67,800. These are higher than the conformity assessment fees assessed for Australian manufacturers, as it is assumed none of these manufacturers hold current TGA conformity assessment, and as Class III devices all applications will require both a design examination and quality management system certification.
  • These figures do not take into account:
    • fee reductions which may apply, such as where European notified body certification exists and can be used to support an abridged assessment
    • savings on audit fees when applying for ARTG inclusion, as Class III devices supported by TGA conformity assessment certification are not subject to mandatory audit requirement, given the rigorous assessment these devices have already undergone with the TGA
    • the cost to manufacturers of maintaining TGA conformity assessment certification, such as fees for onsite audits, variations, etc
    • behavioural impacts, such as manufacturers choosing not to supply devices in Australia due to the requirement for TGA conformity assessment.

Given these assumptions, the cost to manufacturers of requiring TGA conformity assessment for AIMD and Class III implantable medical devices would amount to an estimated $19,594,200 in fees industry would pay the TGA for conducting conformity assessment procedures. This cost incurred is before any of the affected medical device applications are included in the ARTG and allowed to be sold to the Australian public.

Summary

The following table summarises the costs outlined above:

Table 9: Option 3 - Costs
Option 3
Proposal Element
Increase in TGA Costs Reduction in TGA Revenue Net Cost for industry
Mandatory conformity assessment for AIMD and Class III implantable $19,594,200 $19,594,200
Abolish TGA conformity assessment for Australian manufacturers $1,040,936 -$1,040,936
TOTAL $19,594,200 $1,040,936 $18,553,264

While the introduction of TGA conformity assessment for all AIMD and Class III implantable medical devices lowers the risk of inappropriate conformity assessment certification for these high risk devices, this approach imposes high financial cost on the medical device industry.

How has cost estimate changed since the May 2013 consultation?

There have been two key changes to the cost estimate for this proposal since the RIS exposure draft:

  • The number of applications for AIMD and Class III implanted devices has been increased to 289 from 261 used in the RIS exposure draft costing, as this now includes 28 additional conformity assessment for reclassified joint replacement implants (in line with MTAA feedback). This increased the cost estimate by $1,312,920 (from $18,281,280 to $19,594,200).

This increased the overall cost estimate for Option 3 from $17,240,344 to $18,553,264.

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Footnotes

  1. A total of 697 Class IIb applications were received in 2012. These applications were analysed (using GMDN codes) to identify the number of these Class IIb applications which would be affected by mandatory audit requirements (against the list of devices outlined above in Table 1). This analysis indicated that 20 per cent of Class IIb applications (139.4) would be affected by the proposed Class IIb mandatory audit.
  2. Calculated based on the GMDN analysis of the 139.4 Class IIb applications received in 2012 which would be affected by mandatory audit requirements (against the indicative audit levels included in the list of devices outlined above), using an estimate that 49 per cent of the Class IIb mandatory audits would be Level 1 audits, and 51 per cent would be Level 2 audits. The estimated percentage of applications subjected to mandatory audits has been changed since the RIS exposure draft to reflect the MTAA GMDN analysis.
  3. Analysing the 468 AIMD and Class III applications received during 2012, it is estimated a total of 289 would be selected for a Level 3 audit (54 AIMD, 207 Class III and 28 joint reclassification applications). This is based on a sensitivity analysis which concluded that 50 per cent of Class III medical devices (those which are implantable) and 100 per cent of AIMD medical device applications will require a Level 3 audit – an average of 56% of all AIMD and Class III devices.
  4. This calculation assumes there will be no microbiology assessment for Level 3 audits. Microbiology assessments as part of application audits are typically undertaken for medical device disinfectants, which are Class IIb products and so are not affected by Level 3 audits. There were 16 Level 2 audits in 2012 which involved microbiology assessment.
  5. Analysis of the ARTG indicates that for AIMD and Class III devices, on average five separate ARTG entries are based on each quality management system certificate. Analysis by TGA’s Office of Manufacturing Quality (OMQ) will be undertaken for the first Level 3 audit undertaken relating to a quality management system certificate, and not duplicated for the following four applications which will, on average, be received relying on the same quality management system certificate. On this basis it is assumed that only 20 per cent of Level 3 audits will, in practice, include an OMQ assessment (at a reduced cost for second and subsequent applications of $2,992).
  6. This costing calculates the additional cost of the Level 3 audit. The AIMD and Class III devices affected by the Level 3 audit would already be subject to a Level 2, with an associated audit fee of $6,170. The estimated cost of a Level 3 audit is $16,381.65, but this costing includes only the additional $10,211.65, being the difference between the current cost of a Level 2 audit and the cost of a Level 3 audit under the proposed changes.
  7. The full cost of a Level 3 audit would be $17,579, but this has been reduced in this section by the cost of the publishing an AusPAR style document, which is included in Proposal B.
  8. Note that the RIS exposure draft quoted the cost for mandatory audits of Class IIb implanted devices at $694,770 per annum. The actual cost, as quoted above, should have been $585,898, for 98.58 Level 1 audits (70 per cent of 139.4 Class IIb audits) and 41.82 Level 2 audits (30 per cent of 139.4 Class IIb audits).
  9. Based on 2012 data there was a total of 3,339 decisions (2,970 for medical device and 369 for IVDs), of which 1068 (944 for medical devices and 124 for IVDs) would be complex decisions (200 medical device and 45 IVD conformity assessment decisions, and 744 medical device and 79 IVD audited applications). Note that all rejected conformity assessments and applications for ARTG inclusion are also assumed to be complex. All of these decisions will be captured in the above figures. There were 2,271 simple decisions, which are those applications for ARTG inclusion not audited (2,026 medical device and 245 IVD applications). Applications withdrawn prior to a decision have been excluded.
  10. This is based on 44 conformity assessment applications having been received from Australian manufacturers during 2012 (out of a total of 200 conformity assessment applications received). It is assumed that this number is representative of the expected application volume per annum.
  11. The 115 Australian manufacturers were identified from TGA conformity assessment data.
  12. This is calculated on the basis that 6 of the 115 Australian manufacturers (5.2 per cent) currently maintain design examination certification with the TGA.
  13. The assumptions that two thirds of Australian manufacturers would opt for TGA not to undertake conformity assessment given the option is based on supposition only; No data is available to verify this figure. The MTAA has however verified this supposition in their submission to the RIS exposure draft.
  14. The assumption that two thirds of Australian manufacturers will no longer seek conformity assessment from the TGA is a rough estimate only, and more definitive data on the likely behaviour effects of this change is not available. This assumption was not disputed by stakeholders in the RIS exposure draft consultation.
  15. Note that some subtotals do not equal the sum of the two rows above, due to rounding used in calculations.
  16. The first - audits of 28 joint reclassification applications (Table 7 - a - $458,696) - are not excluded as both cost estimates include this expense in different places. This calculation excludes the (Table 7 - b - $1,147,620) and (Table 7 - c - $2,190,000) and adds in the difference in the publication of decisions cost estimate (Table 7 - d - $1,106,181).
  17. Figures based on 2012-2013 fees- minimum conformity assessment requirements for Class III and AIMD medical devices- Schedule 3, Part 1- Full quality management system and design examination, and Schedule 3, Part 2- Type examination, and the least expensive, Schedule 3, part 4- production quality management system audit.

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