FDA USER FEE PROGRAM COULD INCLUDE "HYBRID SYSTEM" OF ANNUAL CHARGES AND USER FEES FOR SPECIFIC ACTIVITIES IN ORDER TO CUT ADMINISTRATIVE EXPENSE -- IG REPORT

An FDA user fee program could be structured to include both annual charges to industry and user charges for specific agency activities, the HHS Office of Inspector General suggested in its final report on implementing FDA user fees. The report was released July 6. While the IG acknowledged that its examination of FDA user fee implementation was not exhaustive, it concluded that the "review does suggest a number of issues for consideration. One of these is possible use of a hybrid system of annual charges and specific user fees." The IG noted in its report, entitled "Implementing User Fees in the Food and Drug Administration: A Case Study," that annual fees at other agencies have worked well in combination with specific user charges. The report states that "such a hybrid system has increased cost recovery without requiring detailed assessment of charges for every agency activity." One concern raised in the ongoing debate on FDA user fees is that the collection of specific user charges may be overly time consuming and resource intensive. For the report, the IG surveyed officials from the Nuclear Regulatory Commission (NRC) and the Federal Energy Regulatory Commission (FERC) and found that annual fees are easier to administer than user fees for specific activities. According to the IG, the FERC officials also thought that "annual charges were better accepted by industry because they are based on a measure of 'ability to pay', even though such charges can result in firms which have not received a particularized benefit from the agency's activities." Despite the drawbacks involved in implementing a user fees system, the IG said, "the process of developing a fee system might have its own benefits, including increased scrutiny of procedures and tasks and the costs of doing business." In addition, the IG maintained that "Users themselves benefit from increased efficiency and accountability in agency operations, as well as from system maintenance and expansion made possible as a result of collected revenues." Revenues from user fees might be deposited in the general fund of the U.S. Treasury, the report suggests. It notes, however, that "earmarking the revenues for use by the agency for specific purposes (e.g., to fund improvements and expansions in existing service areas for which the user fee is imposed) may increase the likelihood of their acceptance by industry and others." Industry groups have been staunchly opposed to the imposition of user fees -- particularly if they are funneled into the general treasury. In March, the Pharmaceutical Manufacturers Association and the Health Industry Manufacturers Association testified before Congress that user fees could cost the industry $58 mil. while only $2.5 mil would be channeled to support direct improvements in the new drug evaluation process ("The Pink Sheet" April 2, p. 14). Noting that FDA is currently experiencing a variety of administrative and procedural changes, the IG commented that "significant changes in FDA functions or procedures might affect the advisability of charging a fee for a particular function, and might create a greater or lesser case for imposition of a fee." For example, if FDA were to reduce its role in the IND process as some manufacturers have suggested, companies which requested FDA consultation for their IND could be charged a user fee, the IG remarked. To provide equity in competition, the report suggests that fees be based on market factors. For example, "Larger firms might be charged at a higher rate than smaller firms to encourage new competitors in the market; firms requiring more frequent inspections because of past violations might be charged more than firms in continuous compliance. Rep. Dingell (D-Mich.) has said that Congress lacks time this year to enact legislation to authorize user fees ("The Pink Sheet" April 9, T&G-1). And the House Appropriations Committee rejected user fees at its July 13 meeting, sending the budget back to the Administration for a new proposal that would include appropriations to replace the $157 mil. in user fees originally proposed (see preceding story).