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 ID: GAO-07-882R June 25, 2007The 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.
GAO-07-882R, 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
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June 25, 2007:
The Honorable Joe Barton:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
Subject: 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:
Dear Mr. Barton:
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)[Footnote 1] 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.[Footnote 2] 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.[Footnote 3]
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. We previously provided you with
revenue information on certain companies participating in the medical
device user fee program.[Footnote 4] In this report, we evaluate (1)
whether FDA's methodologies for identifying its annual costs[Footnote
5] 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.
To evaluate whether the methodologies used by FDA to identify its
annual costs of reviewing device applications and to allocate the costs
used to calculate the average cost of reviewing various application
types are consistent with federal cost accounting standards, we
interviewed staff from FDA's Office of Management and Systems who are
responsible for preparing the annual MDUFMA financial reports to
Congress. We reviewed the Statement of Federal Financial Accounting
Standards No. 4 (SFFAS 4): Managerial Cost Accounting Concepts and
Standards for the Federal Government. We also reviewed the annual
MDUFMA financial reports to Congress for fiscal years 2003 through 2005
and the detailed supporting financial data used to prepare the fiscal
year 2005 report. Using SFFAS 4, we analyzed the cost accounting
methodology used by FDA to calculate the costs of reviewing device
applications and the methodology to estimate the average cost of
reviewing various types of device applications. We limited our analysis
to the appropriateness of the methodologies in relation to federal cost
accounting standards. We did not verify the reliability of the data FDA
used in either methodology. We also did not determine whether the
amounts of the user fees for medical device applications are
appropriate.
To evaluate the extent to which FDA staffing for the process of
reviewing device applications has changed since MDUFMA went into effect
in fiscal year 2003, and how these changes in staffing levels were
distributed within FDA, we interviewed FDA officials involved in the
process of reviewing device applications and obtained information from
FDA on annual staffing for the process of reviewing device
applications. Our analysis reflects data for fiscal year 2002, the
baseline year before MDUFMA went into effect, and data for fiscal years
2003 through 2006, the first 4 years MDUFMA was implemented. We measure
staffing for this analysis as full-time equivalent (FTE)
employees.[Footnote 6] A measure of one FTE represents 40 hours of work
per week over the course of a year.[Footnote 7] We assessed the
reliability of FDA data by conducting interviews with FDA staff to
better understand how FDA collects and uses these data and by examining
FDA documents. We determined that the data are adequate for our
purposes. We conducted our work from November 2006 through June 2007 in
accordance with generally accepted government auditing standards.
Results in Brief:
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.
Background:
MDUFMA authorizes FDA to assess and collect fees for the review of
medical device applications and identifies the costs that those fees
may be used to help recover. These include the costs of activities such
as:
* reviewing specific types of device applications, such as a premarket
application;[Footnote 8]
* monitoring research conducted in connection with the review of device
applications;
* providing technical assistance to device manufacturers in connection
with the submission of device applications; and:
* developing guidance, policy documents, or regulations to improve the
process for the review of device applications.
Under MDUFMA, FDA must report annually to the Committee on Energy and
Commerce of the U.S. House of Representatives and the Committee on
Health, Education, Labor and Pensions of the U.S. Senate on how it is
implementing the user fee program, among other things. FDA has
published annual MDUFMA financial reports since fiscal year 2003 that
elaborate on the amount collected from user fees, the annual cost of
the process of reviewing device applications, and staff levels
involved.
In response to industry concerns about the need for more information
about the costs FDA incurred to review medical device applications, FDA
hired a private contractor to develop a methodology to calculate the
average cost of different application types for fiscal years 2003
through 2005.
In calculating the costs associated with reviewing device applications,
FDA needed to consider not only MDUFMA requirements, but also federal
financial management requirements and accounting standards. SFFAS 4,
which became effective in fiscal year 1998, sets forth the fundamental
elements for managerial cost accounting in government agencies.
There are five standards in SFFAS 4, four of which are applicable to
FDA's process for reviewing device applications.[Footnote 9] These
standards require FDA to do the following:
* Accumulate and report the costs of activities on a regular basis for
management information purposes. An agency should report costs in a
timely manner, on a regular basis, consistently, so that costs can be
compared over time. This reporting should meet the needs of management
and the requirements of budgetary and financial reporting.
* Establish responsibility segments to match costs with outputs. This
involves identifying the responsibility segments, or components of an
agency involved in carrying out the activity or program, and collecting
and reporting cost information for these segments. For example, if an
office within an agency has the responsibility for inspecting
facilities or collecting user fees, that office would be considered the
relevant responsibility segment for those activities. Therefore, the
agency should collect and report cost information from that office for
the activities associated with those outputs.
* Determine and report the full costs of government goods and services,
including direct and indirect costs. Full costs include direct and
indirect costs. Direct costs are costs that can be specifically
identified with an output; they may include salaries and benefits for
employees working directly on the output, and costs for materials,
supplies, and facilities used exclusively to produce the output.
Indirect costs are costs that are not specifically identifiable with
any output; they may include costs for general administration, research
and technical support, and operations and maintenance for all an
agency's buildings and equipment.
* Use and consistently follow costing methodologies or cost-finding
techniques most appropriate to the segment's operating environment to
accumulate and assign costs to outputs. When it is feasible and
economically practical, the standards state, the best results may be
obtained by directly measuring costs. For example, an agency could use
the detailed time-reporting system for its employees to directly
measure the time employees spend on activities related to the program
versus activities unrelated to the program. In certain cases, measuring
costs directly may not be feasible or economically practical. For
example, it may not be economically feasible or even possible for an
agency to directly measure the portion of staff or management salaries
associated with a program. In such circumstances, the standards state
that costs should be estimated on a reasonable and consistent basis.
For instance, an agency can calculate the ratio of direct costs for an
activity to the total direct costs for a program as a basis for
estimating the applicable indirect costs.
While each entity's managerial cost accounting should meet SFFAS 4, the
standards do not specify the degree of complexity or sophistication of
any managerial cost accounting process. SFFAS 4 gives management the
flexibility to determine the appropriate detail for its cost accounting
processes and procedures based on several factors, including (1) the
nature of the entity's operations, (2) precision desired and needed in
cost information, (3) practicality of data collection and processing,
(4) availability of electronic data-handling facilities, (5) cost of
installing, operating, and maintaining the cost accounting processes,
and (6) any specific information needs of management. Therefore,
agencies' cost accounting processes and results may vary and still be
acceptable under the standards.
FDA's Methodologies for Identifying Costs of Reviewing Device
Applications and Allocating Them to Various Application Types Are
Consistent with Federal Cost Accounting Standards:
In providing financial information to Congress in its annual MDUFMA
financial reports, FDA used a methodology to identify the annual cost
of reviewing device applications that was consistent with federal cost
accounting standards as set forth in SFFAS 4. In response to industry
requests for more detailed cost information, FDA developed a
methodology for allocating the costs it had identified to various types
of device applications to meet the annual reporting requirements of
MDUFMA. This allocation was also consistent with SFFAS 4.
FDA's Methodology for Identifying the Cost of Reviewing Device
Applications Is Consistent with SFFAS 4:
FDA complied with SFFAS 4 in the following ways.
* Consistent with the SFFAS 4 standard for timely, regular cost
reporting, FDA has reported the costs of the device review program in
annual MDUFMA financial reports to the congressional committees of
jurisdiction in fiscal years 2003 through 2005 and made the reports
available to the public on its Web site. This provided FDA, Congress,
and the public with the ability to compare the costs of reviewing
applications for these years. In addition, FDA responded to industry
requests for more cost information by reporting the estimated average
cost of device application reviews in fiscal years 2003 through 2005.
* FDA's methodology for identifying the cost of the process of
reviewing device applications is consistent with the SFFAS 4 standard
for identifying responsibility segments. Under MDUFMA, the annual cost
reported by FDA must include the cost of specific activities associated
with the process of reviewing device applications. To be consistent
with SFFAS 4, FDA identified the four components of the agency
responsible for carrying out these activities. These components are
CDRH and CBER, which evaluated device applications submitted to FDA;
ORA, which inspects facilities where devices under review are
manufactured; and the OC,[Footnote 10] which provides general
management and oversight of all FDA activities, including the review of
medical device applications.
* FDA's methodology is consistent with the SFFAS 4 standard for
capturing the full costs of the review process--both direct and
indirect costs--within each of the four components, or responsibility
segments, involved in the process for reviewing device applications
under MDUFMA.[Footnote 11] Using this methodology, FDA identified the
direct and indirect costs in several ways.
1. Within CDRH, FDA analyzed time charges to identify the direct
salaries and benefit costs incurred by staff involved in reviewing
device applications. FDA used a similar procedure to measure these
costs for CBER's direct review and laboratory components. To identify
the portion of salaries and benefits incurred by management and
administrative support personnel to assign to the process for the
review of device applications, FDA used the average percentage of time
charged to the process compared to total costs incurred by these units
for all programs.
2. FDA also identified a portion of the indirect review and support
costs[Footnote 12] incurred by CDRH and CBER that are associated with
reviewing device applications. The portion of these costs that are
assigned to the process equaled the average percentage of allowable
costs for the direct review and laboratory components compared to the
total costs incurred by CDRH and CBER. FDA also allocated certain
expenses incurred by CDRH and CBER that it paid for centrally, such as
rent, utilities, and facilities repair and maintenance, based on the
level of user fee-related costs to total costs of the two centers.
3. Within ORA, FDA used a time-reporting system to identify the number
of direct hours devoted to the application review process by its
inspection, investigations, administrative, and management staff. FDA
multiplied the total number of staff hours devoted to the process by
the average salary and benefit cost to arrive at the costs ORA incurred
for the process. FDA also allocated a portion of ORA's operating and
rent expenses based on the ratio of total staff years devoted to the
process compared to total ORA staff years.
4. FDA determined that the costs incurred by its Office of the
Commissioner (OC) represent the agency's general and administrative
costs. FDA calculated the OC's percentage of total costs by dividing
the total OC costs by the total salary obligations of FDA, excluding
the OC. FDA then multiplied this percentage by the total salaries (not
including benefits) applicable to the process in CDRH, CBER, and ORA to
arrive at the total OC costs, or general and administrative costs
applicable to the process.
* Consistent with the SFFAS 4 standard for selecting a methodology that
is economically feasible and practical, FDA adapted a methodology
developed by a national accounting firm for a similar FDA
program.[Footnote 13] The methodology had already been used
successfully and it allowed FDA to obtain the cost information it
needed from the financial data produced by its accounting and budgeting
system, which it uses to prepare its annual financial statements. Using
this methodology, FDA directly measured costs when doing so was
economically feasible and met management's needs. For example, FDA used
quarterly time-reporting data to directly measure the percentage of
time device reviewers in CDRH and CBER spent on activities related to
the review of device applications over the course of a fiscal year. FDA
then applied this percentage of time to the total cost of salaries and
benefits for device reviewers in CDRH and CBER--the two device review
centers. FDA also used appropriate and consistent methods to estimate
costs when direct measurement was not economically feasible. For
example, within CDRH and CBER, a number of expenses such as rent,
equipment, and maintenance are paid for from central funds. FDA
allocated costs that could not be traced to a specific activity, based
on the ratio of direct costs of device application reviews to total
costs each center incurred.
FDA's Methodology for Allocating the Costs Used in Calculating the
Average Costs of Reviewing the Various Application Types Is Consistent
with SFFAS 4:
FDA allocated the annual costs incurred by CDRH and CBER--organized by
cost categories--to 13 types of applications.[Footnote 14] In addition,
FDA added an amount to each application type for costs incurred by ORA
for field inspections and investigations conducted on behalf of the
review process, and OC for administrative and general support costs.
For example, in allocating CDRH and CBER costs, FDA directly assigned
cost categories to a particular application type if all of the costs in
the categories pertained to that type of application. For those
categories that pertained to more than one application type, FDA
management used its knowledge of the device application process to
allocate costs. This allocation process is consistent with SFFAS 4
standards for capturing full costs and using a reasonable methodology.
To calculate the average cost of reviewing various application types,
FDA divided the annual costs by the number of reviews completed during
the year for each application type. For example, in fiscal year 2005,
FDA estimated that of the $177 million costs to review applications,
$46.1 million, or 26 percent, pertained to premarket approval
applications (PMA)[Footnote 15]. FDA then divided $46.1 million by the
53 completed PMAs in fiscal year 2005, which resulted in a calculated
average cost of $870,400 per PMA. FDA used completed applications
because the agency wanted to reflect actual performance achieved with
program dollars. Because FDA's resources and workloads fluctuate from
year to year, which directly affects unit cost estimates, FDA's
management suggested that the annual unit cost estimates be viewed as
benchmarks for future comparisons.
FDA Staffing for the Process of Reviewing Device Applications Increased
from Fiscal Years 2002 through 2005, but Decreased Slightly in Fiscal
Year 2006:
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. Specifically, total FTEs for government and contract
employees combined increased from 917 to 1,192 FTEs, or about 30
percent, from fiscal year 2002 through fiscal year 2005. (See fig. 1.)
In fiscal year 2006, total FTEs declined to 1,181.
Figure 1: FDA Staffing for the Process of Reviewing Medical Device
Applications from Fiscal Years 2002 through 2006:
[See PDF for image]
Source: GAO analysis of FDA data.
[End of figure]
According to FDA officials, the lower staffing levels in fiscal year
2006 are attributed to a hiring freeze.[Footnote 16] In fiscal year
2005, FDA imposed a hiring freeze on CDRH, the component that reviews
the largest number of device applications. This freeze led to a delay
in the hiring process in fiscal year 2006. FDA officials told us that
the agency froze hiring in CDRH because of uncertainty over FDA's
authority to assess and collect user fees in fiscal years 2006 and 2007
due to a provision in MDUFMA.[Footnote 17] In 2005, Congress passed the
Medical Device User Fee and Stabilization Act of 2005
(MDUFSA),[Footnote 18] which amended the law, allowing FDA to retain
its authority to assess and collect user fees in fiscal years 2006 and
2007. According to FDA officials, the agency resumed hiring in 2006
following the approval of the fiscal year 2006 federal budget, which
reflected the changes in MDUFSA.
The overall increase in staffing for the process of reviewing device
applications for fiscal year 2002 through 2006 was primarily due to an
increase in government employees. According to FDA officials, this
increase was accomplished through the transfer of existing FDA
employees from other programs and activities, with the remaining staff
increases from new hires such as temporary or special government
employees. In addition, FDA used contract employees to increase
staffing of the process of reviewing device applications.
Fiscal year 2002 through 2005 increases in FTEs were spread among the
four FDA components involved in the process of reviewing device
applications: CDRH, CBER, the ORA, and the OC. The largest increase of
FTEs occurred in CDRH, with an increase of 188 FTEs. Staffing in the
three other offices--CBER, ORA, and OC--increased 63, 11, and 2 FTEs
respectively. (See fig. 2.) The overall decline of 11 FTEs in fiscal
year 2006 was due primarily to a decline of FTEs in CDRH, which
decreased by 26 FTEs. OC decreased by 7 FTEs, while CBER and ORA
increased by 21 and 1, respectively.
Figure 2: FDA Staffing, by Component, for the Process of Reviewing
Medical Device Applications from Fiscal Years 2002 through 2006:
[See PDF for image]
Source: GAO analysis of FDA data.
[End of figure]
Agency Comments:
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 (see enc. I).
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this report. At that time, we will send copies of
this report to the Secretary of Health and Human Services, the
Commissioner of FDA, appropriate congressional committees, and other
interested parties. We will also make copies available to others on
request. In addition, the report will be available at no charge on
GAO's Web site at http://www.gao.gov. If you or your staff have
questions about this report, please contact Randall B. Williamson at
(206) 287-4860 or williamsonr@gao.gov or Robert Martin at (202) 512-
6131 or martinr@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report were James
Musselwhite, Assistant Director; Donald Neff, Assistant Director; Lisa
Crye; Jessica Morris; and Yorick F. Uzes.
Sincerely yours,
Signed by:
Randall B. Williamson:
Acting Director, Health Care:
Signed by:
Robert E. Martin:
Director, Financial Management and Assurance:
[End of section]
Enclosure - I: Agency Comments from the Department of Health and Human
Services:
Office of the Assistant Secretary for Legislation:
Department Of Health & Human Services:
Washington, D.C. 20201:
Jun 18 2007:
Randall B. Williamson:
Director, Health Care:
U.S. Government Accountability Office:
Washington, DC 20548:
Dear Mr. Williamson:
Enclosed please find the department's comments on the U.S. Government
Accountability Office's draft report entitled, "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).
We appreciate the opportunity to review and comment on_ this draft
correspondence before it is published.
Sincerely,
Signed for:
Vincent J. Ventimiglia:
Assistant Secretary for Legislation:
Comments Of The Department Of Health And Human Services On The
Government Accountability Office Draft Report Entitled, "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):
HHS Comments:
GAO's draft correspondence fairly and accurately describes FDA's
efforts to provide a reasonable accounting of the costs of medical
device reviews. The correspondence provides a clear and complete
explanation of FDA's methodology and our successful efforts to add
resources to the medical device review program. The report does not
require any corrections or clarifications.
[End of section]
(290571):
FOOTNOTES
[1] Pub. L. No. 107-250, 116 Stat. 1588.
[2] Department of Health and Human Services, Food and Drug
Administration, FY 2003 MDUFMA Financial Report: Required by the
Medical Device User Fee and Modernization Act of 2002 (Washington,
D.C., March 2004); FY 2004 MDUFMA Financial Report: Required by the
Medical Device User Fee and Modernization Act of 2002 (Washington,
D.C., March 2005); FY 2005 MDUFMA Financial Report: Required by the
Medical Device User Fee and Modernization Act of 2002 (Washington,
D.C., July 2006).
[3] Dr. Dale R. Geiger, FY 2003 and FY 2004 Unit Costs for the Process
of Medical Device Review, prepared for the Food and Drug Administration
(September 2005). Dr. Dale R. Geiger, Extension of Analysis of Unit
Costs for the Process for the Review of Medical Devices for Fiscal Year
2005 (July 2006).
[4] GAO, Food and Drug Administration: Revenue Information on Certain
Companies Participating in the Medical Device User Fee Program, GAO-07-
571R (Washington, D.C.: Mar. 30, 2007).
[5] In this report, costs represent obligations recorded at the end of
the fiscal years--regardless of whether related expenditures have been
made--because the cost information in FDA's annual MDUFMA financial
reports is based on obligations. FDA believes obligations represent a
reasonable estimate of cost because FDA's financial records have
historically shown that over 81 percent of obligated amounts are
expended within 1 year, and 96 percent within 2 years.
[6] Federal government employee FTEs for all FDA activities from fiscal
year 2002 through 2006 were 9,468, 10,257, 10,141, 9,910, and 9,698,
respectively.
[7] This could measure the time one full-time employee works on a
regular basis, or it may measure the time more than one employee works
on a part time basis. For example, if two employees each work 20 hours
per week on a regular basis, the time they work equals one FTE
employee. For our analysis of MDUFMA FTE levels, we included both
federal government employees and contract employees involved in device
review activities based on the results of a time-reporting survey of
MDUFMA-related activities that FDA conducted on a quarterly basis.
[8] A premarket application is a medical device application, for
example, that is submitted to obtain premarket approval for a Class III
device, that is, one that supports or sustains human life, is of
substantial importance in preventing impairment of human health, or
presents a potential unreasonable risk of illness or injury.
[9] The fifth standard states that federal agencies should recognize
the costs of goods and services provided among federal entities, also
known as the standard for Inter-Entity Costs. According to FDA
officials, through an interagency service agreement the Department of
Energy provides some services to FDA related to the process for
reviewing device applications. Because of the limited nature of this
agreement, we did not consider it material to FDA's process. Thus we
did not consider the standard for Inter-Entity Costs to be relevant to
our evaluation.
[10] The Office of the Commissioner (OC) includes the following
offices: (1) Immediate Office of the Commissioner, (2) Office of the
Chief Counsel, (3) Office of Equal Employment Opportunity and Diversity
Management, (4) Office of Administrative Law Judge, (5) Office of
Science and Health Coordination, (6) Office of International Activities
and Strategic Initiatives, (7) Office of Crisis Management, (8) Office
of Legislation, (9) Office of External Relations, (10) Office of Policy
and Planning, and (11) Office of Management.
[11] FDA's methodology did not capture certain costs related to Civil
Service Retirement System pension and postretirement health benefits
that are paid for by the Office of Personnel Management on behalf of
current and retired federal employees.
[12] Within CDRH these costs relate to the Office of the Center
Director, and Office of Management and Operations. Within CBER, these
costs relate to the Office of the Center Director, Office of
Management, Office of Information Management, and Office of
Communications, Training, and Manufacturers Assistance.
[13] The national accounting firm originally developed the methodology
for FDA's prescription drug user fee program.
[14] FDA's original plan was to develop cost information for 15
different types of application reviews. However, according to FDA
officials, data quality concerns and limitations in the time-reporting
process within CDRH limited the scope of cost estimation to 8
application types in fiscal years 2003 and 2004. As a result of CDRH
expanding the categories in its time-reporting system and retraining
reviewers in the methods and importance of time reporting, FDA expanded
the number of unit cost estimates in fiscal year 2005 to 13 application
types. FDA has indicated that it is committed to continuing to enhance
its time-reporting system and increasing the number of future cost
estimates.
[15] A premarket approval application is an application to market a
class III medical device.
[16] In addition, according to FDA officials, efforts to improve time
reporting may have contributed to reduced fiscal year 2006 FTE numbers.
FDA officials stated that the agency improved its measurement of FTEs
in fiscal year 2006 by using more precise measures that, in some cases,
eliminated some activities not related to medical device reviews that
had been included in less precise measures used to calculate FTEs in
prior years.
[17] Under MDUFMA, FDA would not have had the authority to continue
assessing and collecting user fees if total appropriations for fiscal
years 2003 through 2006, excluding user fees, did not meet specified
amounts. FDA officials told us that the agency imposed a hiring freeze
on CDRH on March 3, 2005, because the required total appropriation
level had not yet been met and the agency did not know if it would have
the authority to continue to assess and collect user fees.
[18] Pub. L. No. 109-43, 119 Stat. 439.
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