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Report on cost recovery arrangements relating to the regulation of the medicines, medical devices and blood products by the Therapeutic Goods Administration

6 July 2005

Executive summary

The Australian community has an expectation that therapeutic products in the marketplace are safe and of high quality, to a standard equal to that of countries with comparable standards. The Therapeutic Goods Administration (TGA) is one of the world's front line regulators undertaking rigorous scientific and risk assessments of therapeutic products to ensure safety, quality and efficacy, without undue impact on the timely supply of essential products to consumers and patients.

Therapeutic products are regulated in Australia under the provisions of the Therapeutic Goods Act 1989 (the Act). In December 2003 the Australian and New Zealand governments agreed to develop a joint regulatory scheme with the objective of safeguarding public health and safety to citizens across the Tasman, consistent with international best practice. The joint scheme is planned to commence in July 2005.

In Australia, therapeutic products regulation is achieved through a risk management approach to pre-market evaluation and approval of therapeutic products intended for supply, licensing of manufacturers and post-market monitoring and surveillance. The principal activities of the regulatory scheme include:

  • Scientific evaluation of medicines, medical devices and blood and tissue products for supply in Australia;
  • Licensing and audit of manufacturing standards;
  • Monitoring compliance with standards, including testing of products, auditing product data, analysing reportable incidents, investigating complaints, and recalling non-compliant products from the market;
  • Surveillance, investigation and enforcement of the provisions of the Act;
  • Industry support activities, including the development of guidelines and promoting international harmonisation; and
  • Services to Government to support the objects of the Act.

The TGA recovers the full cost of its regulatory activities within the scope of the Act through fees and charges for services provided to product introducers (sponsors) and manufacturers. Fees and charges are prescribed in regulations made under the Therapeutic Goods Act 1990, Therapeutic Goods (Medical Devices) Act 2001 and the Therapeutic Goods (Charges) Act 1990. Certain activities undertaken for Government have been funded from departmental allocations.

Description 2003-04
Industry cost recovery 60.496 68.558 71.151
Government 6.246 6.177 0.000
Price of Outputs 66.742 74.735 71.151

The TGA completed a comprehensive review of its cost recovery arrangements to ensure compliance with Australian cost recovery Guidelines issued by the Department of Finance and Administration. Independent consultants were engaged to review current cost recovery arrangements, consult with industry and government stakeholders and undertake an assessment of the basis for setting fees and charges. This statement is based on this advice.

Given the establishment of a joint regulatory scheme with New Zealand, a secondary goal of the review was to propose a fees and charges framework to meet the needs of the joint scheme that would come into operation in July 2005. However, this cost recovery impact statement is limited to assessing cost recovery arrangements currently in place for the TGA. Fee arrangements for the joint scheme will be considered separately by the Interim Therapeutic Products Ministerial Council and will be subject to a separate cost recovery impact statement.

The review found that the cost recovery arrangements were consistent with the Guidelines. The level of recovery from fees is in line with costs, with variations observed attributable to fluctuations in activity levels. Pre-market fees were generally found to be cost reflective, including costs associated with access to essential medicines and clinical trials that are consistent with government policy and supported by industry. Annual charges ('cost recovery taxes') were sufficient to recover the cost of the TGA's monitoring, compliance and industry support activities. At less than 0.4% of total costs, the level of activity undertaken by the TGA that was not considered integral to the regulatory scheme was immaterial and did not warrant exclusion from fees and charges.

The TGA's cost base was found to be reflective of its activities with no evidence of 'gold-plating' of its regulatory activities. Since moving to achieve full cost recovery in 1998-99 the TGA cost base had been contained despite higher input costs and additional regulatory functions, with staffing levels reflecting business requirements. Despite differences in regulatory approach, the review found that the TGA's fee levels compared favourably to those in the US and Europe, and that TGA fees and charges represented between 0.3% and 0.7% of the turnover of each of the industry sectors regulated.

Stakeholder consultations were conducted with all of the major industry associations, the Consumer's Health Forum, and relevant government agencies. Whilst industry accepted the principle of cost recovery as an efficient form of funding regulation and the broad structure of fees and charges, most opposed full cost recovery where this included the cost of services to government, public health functions and information for consumers.

Industry also commented on the need for greater transparency of TGA's costs and fees, enhanced accountability to industry and improvements to current consultative arrangements. The TGA has acknowledged these concerns and together with industry is implementing recommendations of a review of consultative arrangements, including expanded industry membership of the TGA-Industry Consultative Committee (TICC), and has begun a process of improving reporting of TGA costs and regulatory performance to the TICC.

Alternate fee options were considered during the review and will be pursued further with stakeholders. However, changes may be best considered in the context of the implementation of the joint regulatory scheme with New Zealand. A further review of cost recovery arrangements will be completed ahead of the commencement of the joint regulatory scheme.