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This article was originally published in The Gray Sheet

Executive Summary

MEDICAL DEVICE USER FEES PROPOSED BY THE CLINTON ADMINISTRATION form part of the deficit reduction element of the President's economic plan outlined in a speech to Congress on Feb. 17. In an accompanying document explaining the plan in detail, the administration states that "identifiable beneficiaries of government services should pay for the value conferred by certifying the safety and efficacy of drugs and medical devices." The document does not break out an estimate of the level of user fees that would be collected from the device industry. However, the administration projects that the aggregate of user fees collected from all sources would save the government more than $1 bil. over four years. The document estimates that FDA user fees, which would come primarily from the drug and device industries, are expected to generate savings of $167 mil. in fiscal 1994, which begins Oct. 1, 1993. According to the document, savings will increase to $230 mil. in 1995 and to $387 mil. by 1998, the fifth year of the proposed program. As part of the budget development process, FDA will be formulating estimates on the amount of user fee funding expected from specific industries such as devices and pharmaceuticals, according to a spokesperson at the Office of Management and Budget. Details on the user fee program will be included in the administration's formal budget proposal, which is expected to be completed in March. The Clinton plan, however, does not earmark explicitly the user fees to be collected from FDA-regulated companies for FDA operations. The omission of a clause allocating user fees directly back to the agency suggests that the administration may regard user fees as an instrument of general deficit reduction and not as a way to improve specific programs within FDA. However, that view runs counter to a law enacted last year affecting the pharmaceutical industry only. That measure, enacted last October, stipulated that the funds collected from the pharmaceutical industry for services such as new drug application review and establishment inspections and certification would go directly to FDA. That provision of the law was critical to its passage because the drug industry adamantly opposed any user fee proposal that did not require the collected fees to be used to improve the drug approval process. That law also made specific estimates of the amount of fees collected that would add to, rather than substitute for, annual congressional appropriations for the agency. The act (H.R. 6181) estimated that $36 mil. would be collected in fiscal 1993 with yearly increases to $84 mil. in fiscal 1997. Device user fees were included in a House draft of the user fee bill, but were dropped due to opposition from industry. An early version of the legislation called for the collection of $33,000 per premarket approval application, $2,100 for a PMA supplement, $800 for a 510(k) submission, and $120,000 for a biological product license application ("The Gray Sheet" June 15, p. 1). The bill also included establishment fees ranging between $100 and $10,000 depending on the size of the facility, annual product fees of $200 per device, and import fees of $1,250. Unlike the drug industry, the device industry has steadfastly opposed user fees, even with the assurance that the funds would go to FDA's device program. Manufacturers argue that the fees will act as a "tax on innovation," particularly for small companies with limited resources. At an August 1992 hearing on the drug user fee bill, FDA Commissioner Kessler urged implementation of device user fees to address funding shortfalls at the device center ("The Gray Sheet" Aug. 17, p. 2). Kessler estimated that the PMA backlog would double in two years absent user fees targeted to the device program. Another element of the administration's deficit reduction plan affecting the medical equipment industry calls for revision in Medicare reimbursement for durable medical equipment. The administration estimates that $510 mil. can be saved in the fiscal 1994-97 period if DME fee schedules are "adjusted downward with an upper limit based upon the median DME fee schedule, rather than the national average." The fee schedule for prosthetics and orthotics "would also be recomputed with a national median cap." Clinton's proposal would grant greater authority to HHS to "adjust DME rates based upon market factors, including surveys of what other providers," such as the Veterans Administration, the Department of Defense and the private sector are paying for DME. HHS also would be "authorized to initiate competitive bidding programs for DME supplies where appropriate" and would have "broader" discretion to "allow adjustments to be made to reflect changes in technology, utilization patterns and other market factors." In a Feb. 18 press release responding to Clinton's proposals for Medicare Part B cutbacks, the National Association of Medical Equipment Suppliers cautions that "additional Medicare Part B reimbursements cuts for home [durable] medical equipment services would be counterproductive and even damaging to the Medicare beneficiaries served." NAMES President Corrine Parver comments that cuts to the program in fiscal 1990 and 1991 "caused considerable hardship especially for the small, rural HME service providers."

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