Food and Drug Administration:

Methodologies for Identifying and Allocating Costs of Reviewing Medical Device Applications Are Consistent with Federal Cost Accounting Standards, and Staffing Levels for Reviews Have Generally Increased in Recent Years

GAO-07-882R: Published: Jun 25, 2007. Publicly Released: Jul 25, 2007.

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The Food and Drug Administration (FDA) is the agency responsible for ensuring the safety and effectiveness of medical devices--such as catheters and artificial hearts--marketed in the United States. As part of its regulatory responsibilities, FDA reviews applications submitted by medical device companies for devices they wish to market, including devices that are new or those that include modifications to already approved devices. The Medical Device User Fee and Modernization Act of 2002 (MDUFMA) authorized FDA, beginning in fiscal year 2003, to charge user fees for various types of device applications. User fees were intended to provide resources to FDA, to increase staffing for medical device reviews and speed the timeliness of reviews, in addition to resources otherwise provided through the annual appropriations process. Under MDUFMA, FDA is required to report to the congressional committees of jurisdiction annually on the implementation of the user fee program. FDA submitted financial reports that include information such as amounts collected from user fees, the costs of reviewing device applications, and staffing levels FDA dedicated to the review of medical device applications for each fiscal year from 2003 through 2005. In response to industry concerns about the need for more cost information, FDA supplemented these MDUFMA financial reports by reporting more detailed information on the estimated average cost of reviewing medical device applications in those 3 years. Industry has challenged the appropriateness of the methodologies FDA used to identify the total cost of the process for reviewing medical device applications and the average costs of reviewing various types of applications. Industry has also questioned the degree to which staffing of the device review process has increased since the enactment of MDUFMA. MDUFMA will expire on October 1, 2007, and Congress is currently deliberating its reauthorization. You asked us to review FDA's methodology for determining costs of the process of reviewing device applications, as well as changes in the staff levels dedicated to that process since MDUFMA was implemented. In this report, we evaluate (1) whether FDA's methodologies for identifying its annual costs of reviewing device applications and its method for allocating these costs among various application types are consistent with federal cost accounting standards, and (2) the extent to which staffing levels for the process of reviewing device applications have changed since fiscal year 2002, the baseline year before MDUFMA went into effect, and how these changes in staffing levels have been distributed within FDA.

FDA's methodologies for identifying its annual costs of reviewing device applications and for allocating the costs used in calculating the average cost of reviewing the various application types are consistent with federal cost accounting standards. In this regard, FDA took four steps to identify its annual costs. First, it identified which of its components were responsible for carrying out the activities related to medical device application reviews. Second, it developed a methodology to determine the full costs of reviewing device applications within each of the responsible components. Third, it used an economically feasible, appropriate method to measure the costs by identifying direct costs and allocating a reasonable portion of indirect costs to the process. Finally, it reported its costs regularly and publicly in annual MDUFMA financial reports to the congressional committees of jurisdiction. To allocate the annual costs of reviewing applications to the various application types, FDA allocated the annual MDUFMA costs to different application types, and divided the amount for each application type by the number of medical device application reviews completed during the year. FDA directly assigned a cost category to a particular application type if all of the costs in that category related directly to that type of application. For those cost categories related to more than one application type, FDA management used its judgment appropriately to allocate the costs, consistent with federal cost accounting standards. From fiscal year 2002, the baseline year before MDUFMA went into effect, through fiscal year 2005, staffing for the process of reviewing device applications increased. However, staffing decreased slightly in fiscal year 2006. From fiscal year 2002 through fiscal year 2005, staffing associated with the process of reviewing device applications increased from 917 to 1,192 FTEs, or about 30 percent. These increases were spread among four components of the agency involved in the process of reviewing device applications: the Center for Devices and Radiological Health (CDRH), the Center for Biologics Evaluation and Research (CBER), the Office of Regulatory Affairs (ORA), and the Office of the Commissioner (OC). In fiscal year 2006, FTEs associated with the process of reviewing device applications declined to 1,181; FDA attributed this slight decrease to a hiring freeze during the prior year. HHS reviewed a draft of this report and stated the report fairly and accurately describes FDA's accounting for the costs of medical device reviews and the resources FDA added to the medical device review program.

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