Cost recovery impact statement: Good manufacturing practice, 1 July 2014 - 30 June 2015

Version 1.0, June 2014

26 June 2014

Version history

Version Description of change Author Effective date
V1.0 Original publication Office of Corporate Services/ Office of Manufacturing Quality 1 July 2014

© Commonwealth of Australia 2014
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1. Introduction

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1.1. Purpose of the Cost Recovery Impact Statement (CRIS)

The CRIS provides key information on how the TGA implements cost recovery of activities associated with the manufacture of medicines. TGA regulates manufacturers through application of Good Manufacturing Practice (GMP) principles. It also reports on financial and non-financial performance of GMP activities and contains up-to-date financial forecasts. The TGA will maintain the CRIS until the activity or its cost recovery has been discontinued.

This CRIS will apply from July 2014 to June 2015.

1.2. Description of the activity

The TGA forms a part of the Department of Health, responsible for evaluating the safety, quality and efficacy of medicines, medical devices and biologicals available for supply in, or export from Australia. The TGA recovers the full costs of its regulatory activities through fees and charges imposed on sponsors and manufacturers of therapeutic products.

The Australian community has an expectation that therapeutic products in the marketplace are safe and of high quality, to a level equal to that of countries with comparable standards.

In Australia, manufacturers of therapeutic goods are required to hold a licence. To obtain the licence, a manufacturer must demonstrate that they have the ability to comply with manufacturing principles, which include relevant Codes of GMP and Quality Systems, and have appropriate facilities to manufacture safely. Overseas manufacturers of therapeutic goods suppled to Australia must provide evidence of compliance with equivalent GMP standards or otherwise undergo on-site inspections in the same manner as manufacturers based in Australia.

GMP is a generally accepted term internationally to describe a set of principles and procedures that, when followed by manufacturers of medicines, helps insure that the products manufactured will possess the required quality.

1.3. Australian Government cost recovery framework

Cost recovery involves the government entities charging individuals or non-government organisations some or all of the efficient costs of a specific government activity. This may include goods, services or regulation, or a combination of these. The Australian Government Cost Recovery Guidelines (CRG) set out the overarching framework under which government entities design, implement and review cost recovered activities.

1.4. Policy and statutory authority to cost recover

1.4.1. Government policy approval to cost recover the activity

In the 1997-98 Budget1, the Government decided to cost recover 100 percent of all TGA's activities by 1998-99. This policy authority encompasses recovering expenses incurred by the TGA in the regulation of therapeutic medicines manufacture.

1.4.2. Statutory authority to impose cost recovery charges

The Therapeutic Goods Act 1989 (the Act) provides a legal authority for the TGA to charge for its regulatory activities within the scope of the Act on a cost recovery basis. Applicable fees and charges are prescribed in regulations made under the Act and the Therapeutic Goods (Charges) Act 1989 (the Charges Act). These regulations are included in the Therapeutic Goods (Charges) Regulations 1990 and the Therapeutic Goods Regulations 1990.

Footnote

  1. 1997-98 Budget Paper 2, Revenue Measures, Other Measures p 203.

2. Cost recovery model

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2.1. Outputs and business processes of the activity

The GMP related regulatory activities undertaken, are as follows.

2.1.1. Licencing

TGA usually undertakes on-site inspections of Australian manufacturers prior to the issue of a licence to ensure that the manufacturer can comply with the manufacturing principles set under the Act and has suitable premises to undertake the proposed manufacturing steps. The extent of the inspection depends on the size and complexity of the manufacturing processes.

The TGA communicates with overseas agencies to ensure that GMP requirements applied in Australia are world best practice.

2.1.2. Monitoring compliance

The TGA undertakes periodic planned and unplanned inspections of licensed manufacturers to assess the level of compliance with the GMP standards, both domestically and overseas. The level and frequency of inspections for a particular manufacturer is influenced by its size and complexity but also its previous compliance history. In particular, manufacturers with a history of lower levels of compliance are subject to a higher frequency of on-site inspections, compared with more compliant manufacturers, to ensure that those lower levels of compliance do not adversely affect the quality and safety of the products that they manufacture.

2.1.3. Investigation and enforcement

The TGA undertakes enforcement activities to promote compliance with the applicable GMP standards by manufacturers. Where a manufacturer breaches GMP, sanctions available range from (but are not limited to) revocation or suspension of the manufacturing licence to restriction of the type, kind or quantity of goods that can be manufactured for the Australian market at that site. Where required, sanctions are decided on a case-by-case basis after consideration of the circumstances involved and the best interests of the Australian consumer. Where the manufacturer is based outside Australia, limits are placed on the ability of sponsors to make the products available on the Australian market.

2.1.4. Information and education

The TGA promotes compliance with the GMP standards by producing guidelines and other informational materials primarily targeted at manufacturers whose products are supplied in Australia. These resources are made available through the TGA website. In addition, the TGA conducts seminars and information briefings to raise awareness of regulatory requirements, particularly when changes are proposed.

TGA contributes strongly to international programs to improve and harmonise manufacturing practices in developing regions through international meetings, seminars and training events.

2.1.5. Policy development and services to government

The TGA provides services to Government in relation to the regulation of manufacturers, including specific technical and policy advice that is considered to be integral to the regulation of manufacturers.

Broader policy advice is generally provided by the Department of Health as part of its tax payer funded activities and is not included in the fees and charges.

2.1.6. Risk management

TGA works with consumers, health professionals, industry, and its international counterparts in order to effectively regulate therapeutic products, many of which are increasingly complex as a result of rapid scientific developments.

The TGA applies a risk management approach 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).

2.2. Reform of business processes

TGA has embarked on a series of reforms designed to improve its communication and engagement with the community. The reform program is detailed in the report TGA reforms: a blueprint for TGA's future which can be accessed from the TGA website.

Reform activities in the GMP sector aim to

  • Provide more information on the regulatory framework so that stakeholders understand the regulatory processes and requirements
  • Improve the usability, accuracy and consistency of supporting guidelines
  • Consolidate trans-Tasman inspection processes
  • Improve stakeholder understanding and confidence in the regulatory processes
  • Make reliable and relevant information easily accessible to stakeholders
  • Develop technology to support business processes
  • Reform the charging structures for the GMP compliance program
  • Develop closer relationships with international regulators
  • Pursue administrative efficiencies in relationships with industry

2.3. Design of cost recovery charges

The cost of regulating therapeutics manufacturers is recovered through inspection fees and annual licence charges.

2.3.1. Licence and Inspection fees

Fees are used to recover the cost of the premarket services performed. For licensed domestic manufacturers, the fee structure is based on the licence and inspection fees. Prior to being granted an Australian licence, a domestic manufacturer is subject to an on-site inspection to ensure it could comply with the GMP code and standards and has suitable premises to conduct the manufacturing steps it proposes. The cost of the site inspection is based on the number of on-site hours, which reflects the size and complexity of the manufacturer's facilities. The inspection fee reflects the full cost of undertaking the inspection, including travel and preparation time.

Overseas manufacturers are not able to hold an Australian licence, but they must demonstrate that they operate to an acceptable good manufacturing standard before being granted access to the Australian market. Evidence relating to manufacturing standards is accepted from other Government authorities or may be achieved through an on-site inspection and a GMP clearance issued.

Overseas manufacturers are not subject to an annual licence charge. Inspections to approve overseas manufacturers attract an hourly fee for time on site, together with ancillary costs. Approval of an overseas manufacturer through the compliance verification process attracts one or more fixed fees per clearance application.

2.3.2. Annual licence charges

All domestic manufacturers of medicines are required to hold a licence with the level of annual charge reflecting the risk and complexity of the products manufactured. The TG Regulations prescribe a higher and lower annual charge for operations of higher and lower complexity. An allowance for the cost of periodically inspecting the manufacturer’s facilities is included in the annual charge, based on an estimated typical inspection required to routinely ensure compliance with the GMP code and standards. Compliant manufacturers are inspected less frequently and thus an incentive for compliance is built into the charges.

2.3.3. Reform program

The implementation of the reform program is scheduled to continue through to mid 2015-16. As changes in regulatory activities are implemented, fees and charges will be adjusted to ensure that they continue to accurately reflect the costs of underlying activities.

2.3.4. Indexation

For the 2014-15 financial year, fees and charges were indexed by 2.4% which is a 50:50 composite of the Australian Bureau of Statistics Consumer Price Index and the Wage Price Index.

2.4. Fees and charges

Good Manufacturing Practice fees
Good Manufacturing Practice fees 2013-14
$
2014-15
$
Licence application fee (excluding Biologicals) 920 940
Australian Manufacturers - GMP Inspection Fee for all types of therapeutic goods Hourly rate per Inspector 600 Hourly rate per Inspector 615
Overseas Manufacturers - GMP Inspection Fee for all types of therapeutic goods Hourly rate per Inspector 1,220 Hourly rate per Inspector 1,250
Overseas manufacturers - Assessment of GMP evidence (per manufacturer, per site and per sponsor) 350 360
Overseas manufacturers - Obtaining evidence from overseas regulatory agency (per manufacturer, per site and per sponsor) 620 635
Overseas manufacturers - Reinstatement of expired GMP clearance approval (per manufacturer, per site and per sponsor) 1,050 1,075
Overseas manufacturers - Compliance verification (in-lieu of an overseas GMP inspection) 1,870 1,915
Certificate of GMP Compliance 150 155
Quality Systems Certificate 150 155
Good Manufacturing Practice annual licence charges
Good Manufacturing Practice annual licence charges 2013-14
$
2014-15
$

Low level GMP licence

  • Single step / single medicine / single type of therapeutic device
  • In-vitro diagnostic products
  • Ingredients or components
  • Herbal / Homeopathic medicinal products
5,760 5,900

High level GMP licence

  • Other types of therapeutic goods, including containers in which therapeutic goods are to be packed
11,200 11,500

An allowance for inspection hours is incorporated in the annual licence charge. For manufacturers with low level licence charges, a total of 16 inspection hours over 3 financial years are included. For manufacturers with high level licence charges, a total of 48 inspection hours over 3 financial years are included. Standard GMP inspection fees are payable once the available hours have been exceeded.

3. Stakeholder engagement

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The TGA external communication and education framework: Priorities and projects 2013-2015 describes the TGA's approach to providing:

  • better information that is easily understood by consumers
  • therapeutic goods information that can be received and shared by health professionals
  • information that will provide greater certainty on regulatory arrangements for the therapeutic goods industry

It also details specific communication and education projects that will target consumers, health professionals or industry.

TGA consults with industry associations separately on regulatory matters and cost impacts relating to specific sectors. Industry associations are also consulted in the process of regulatory development and reform, and feedback is taken into account in developing regulatory implementation statements, and in developing cost recovery arrangements. Meetings are held with key industry representative bodies each year to discuss financial forecasts and as a part of the consultation process on cost recovery. The TGA also reports to stakeholders against a set of agreed Key Performance Indicators (KPIs).

4. Financial estimates

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4.1. Revenue

Total revenues are a factor of the expected activity volume and the fee or charge. In addition, reasonable travel expenses are recovered at cost.

Table 1: GMP estimated volumes
2013-14 2014-15
Overseas Manufacturers - GMP Inspection Fee for all types of therapeutic goods 3,740 3,856
Overseas manufacturers - Assessment of GMP evidence (per manufacturer, per site and per sponsor) 3,037 3,000
Overseas manufacturers - Compliance verification (in-lieu of an overseas GMP inspection) 307 305
Low level GMP licence 100 103
High level GMP licence 171 171
Table 2: GMP estimated revenue
2013-14
Estimated outcome
$m
2014-15
Forecast
$m
Annual charges 2.5 2.5
Application fees 1.5 1.5
Conformity assessments 0.7 0.7
Desktop/Application audits 0.6 0.6
Inspection fees 5.7 6.0
Other2 1.0 0.9
Total 12.0 12.2

4.2. Costs of the activity

Fees and charges are established to cover the cost of all direct, corporate and support costs for the sector. The costing methodology allows costs to be allocated to activities based on their resource consumption at each stage of the process through to the final product or services.

Total costs are categorised into the following groups for cost allocation and transparency purposes.

  1. direct costs: are costs directly related to the regulatory activity, mainly labour. Labour costs are based on the current Enterprise Agreement applicable to all Department of Health employees. Direct costs are incurred in the regulatory offices. Direct supplier costs include the use of contract staff, travel (where not otherwise recovered) and consumables.
  2. corporate costs: include rent and information technology that regulatory offices can control consumption of but not the unit price. The allocation of corporate costs uses a range of cost drivers including floor space, full time equivalent staff (FTE) numbers, and budget size, chosen according to the nature of the costs to be allocated.
  3. support costs: include costs for providing support services such as human resource management, finance, legal and information technology support. Regulatory offices have limited or no control over these costs. In allocating support costs, a cost driver is chosen from a range that includes FTE staff numbers, budget size and floor space, based on how closely these approximate use of the support service.

Cost allocation is undertaken in a three stage process.

In the first stage, the regulatory offices with significant contribution to the sector, as the source of direct costs, are identified. For the GMP sector, this is the Office of Manufacturing Quality.

In the second stage, corporate costs are allocated to all offices, both regulatory and support, based on the driver that best reflects the use of the corporate service. For example, rent and other property operating costs are allocated using floor space and information technology costs are allocated by FTE.

In the third stage, support costs are assigned to regulatory offices based on a driver that is related to the services provided by the support team.

Table 3: Costs included in the GMP sector
2013-14
Estimated outcome
$m
2014-15
Forecast
$m
Direct costs 7.9 8.5
Corporate costs 1.9 1.9
Support costs 3.3 3.2
Total 13.1 13.6
Table 4: Estimated revenue and expenses
2013-14
Estimated outcome
$m
2014-15
Forecast
$m
Expenses 13.1 13.6
Revenue 12.0 12.2
Balance (1.1) (1.4)

Footnotes

  1. Other revenue incorporates fee for service charges for review of advertising materials and appropriation in lieu of interest on cash holdings.

5. Financial performance

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Cost recovery revenue will be reported in the Department of Health's Annual Report in accordance with the Finance Minister's Orders.

The TGA executive is provided with monthly financial reports showing progress against budget and an analysis of financial performance and position undertaken by the TGA Chief Financial Officer.

Table 5: Financial results for the activity
2011-12
$m
2012-13
$m
2013-14
Estimated outcome
$m
Expenses 9.9 10.0 13.1
Revenue 13.6 12.3 12.0
Balance 3.7 2.3 1.1

6. Non-financial performance

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The TGA reports to stakeholders at six monthly intervals on our progress in delivery against a set of agreed Key Performance Indicators (KPIs). The KPIs have been endorsed by the Australian Therapeutic Goods Advisory Council following consultation with the TGA-Industry Consultative Committee. For more information on the TGA's KPIs please visit: TGA key performance indicators: Our indicators and reporting measures.

The KPIs are high-level indicators for the TGA's overall performance against our broad strategic intent. Within that matrix of KPIs is a requirement for measuring whether 'business operations are consistent and meet agreed service and timeliness standards'. Measures of specific business activities will continue to be documented in our Half-yearly performance reports.

These reports are provided to members of the TGA-Industry Consultative Committee to enable us to report on specific parameters of relevance to industry stakeholders and to enable stakeholders to provide performance feedback. They provide detailed quantitative information about our performance on the timeliness of business activities as well as information for industry about the volumes of work performed by the TGA.

7. Key forward events

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During 2014-15 a review of fees and charges will be undertaken following development of a new activity based costing prepared in 2013-14. Consultation with industry representatives will be carried out to gather input on the framework of fees and charges and on proposed changes identified by the TGA, leading to revised fees and charges where appropriate.

Opportunities include alignment of over-the-counter (OTC) medicine fees to the new risk based categorisation of applications, and review of Good Manufacturing Practice (GMP) fees and charges. Annual charges, which primarily fund post-market regulatory activities such as the monitoring of product safety and of compliance with regulatory obligations, are subject to possible change with the review of the low value turnover (LVT) exemption scheme and the proposed introduction of clinical quality registers for implantable cardiac and breast devices.

The LVT scheme, introduced in 1990, allows sponsors to seek an exemption from payment of an annual charge where the annual turnover of the product is less than or equal to 15 times the annual charge for that product. The TGA has commenced a policy and operational review of the LVT scheme, the first stage of which was the release of the public consultation paper with submissions received in May 2014.

In 2014-15, the TGA will continue to identify opportunities for reducing regulatory burden on industry, consistent with the Government's deregulation and red tape reduction agenda, while continuing to meet the objectives of safeguarding and enhancing the health of the Australian community. Changes to the regulatory framework arising from this work may have a flow on impact on fees and charges.

8. Certification

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I certify that this CRIS complies with the Australian Government Cost Recovery Guidelines.

Jane Halton

Secretary

Department of Health

Date: 26 June 2014