Australian TGA Explains Reasons Behind 2019 Fee Increases
Executive Summary
From July 2019 the pharmaceutical industry will see an increase of just over 2% in the fees it is charged for regulatory services provided by the Australian TGA.
Australia’s regulator, the Therapeutic Goods Administration, is proposing to raise the fees it charges to pharmaceutical companies by 2.05% from July next year.
It says it could consider applying a higher percentage rise that would cover the expected increase in various costs in the 2019-20 financial year, but this might “compromise certainty and transparency” for both the regulator and industry.
The fee increase proposals, which have been released for stakeholder consultation from Dec. 21, 2018 to Feb. 8, 2019, were discussed this month with industry groups including Medicines Australia (originator firms), the Generic and Biosimilar Medicines Association, AusBiotech, and the Australian Self-Medication Industry.
The TGA’s funding comes almost entirely from industry cost recovery, in the form of fees charged for regulatory services. The fees are reviewed annually to ensure they are set at the appropriate level. The last increase was implemented in July this year. (Also see "Increased Fees For Pharma Imminent In Australia" - Pink Sheet, 13 Jun, 2018.)
“A disproportionate increase in the annual charges exemption entries puts pressure on the rates of annual charges.” - TGA
Following a review of its financial performance and 2019-20 budget forecast, which took account of expected increases in known costs and other cost pressures relating to a rise in regulatory activity, the TGA says that its expenses are forecast to rise by some AUD6-8m ($4.2-5.7m) in that year.
Salaries and other staff-related costs, which are the single largest component of the TGA’s expenditure, are expected to increase by around AUD2.7m in 2019-20 as a result of a new pay agreement with the Department of Health.
The TGA has also made “significant capital investment in its business systems” to implement a range of reforms under the recommendations of the Medicines and Medical Devices Review that have been accepted by the government. “The new items of software will require amortisation over their useful lives,” the TGA says, noting that the annual depreciation and amortisation costs of these items is estimated at around AUD1.5m annually.
There is also expected to be a rise in the costs of services provided to the TGA by the Department of Health in areas such as IT, property, human resources and financial management, which are paid for under a corporate charge-back arrangement.
While the number of listings on the Australian Register of Therapeutic Goods (ARTG) subject to an industry fee rose by 6% last year, the number of entries subject to the annual charges exemption (ACE) rose by 11%, meaning that the TGA had to forgo about AUD39m in revenue. “A disproportionate increase in the ACE entries puts pressure on the rates of annual charges,” the TGA observes.
The TGA also notes that it carries out a range of other regulatory activities for which no fees are charged. They include orphan drug evaluations (estimated forgone fee revenue AUD3.8m), special patient access schemes for certain unapproved medicines, which cost the TGA around AUD3m a year, and the new pharmacovigilance inspection program (cost about AUD1.3m).
The agency also plans to introduce a domestic Good Clinical Practice Program in early 2019 under which it will conduct GCP inspections of trial sites at a cost of some AUD300,000, while “significant investment” in its business and regulatory systems will also be needed.
Three Options Under Consideration
The TGA normally uses an indexation factor in calculating the annual fee increase. This is based on 50% of the cost price index (CPI) and 50% of the wage price index (WPI), and for 2019-20 it works out at 2.05%.
Before arriving at its preferred proposal for a fee increase in 2019-20, the agency discussed three options:
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No increase in fees and charges. This could lead to a deficit of up to AUD4.5m and is “likely to be inconsistent” with the cost recovery guidelines (CRGs), which set out the framework under which government agencies design, implement and review cost-recovered activities. It would also cause delays in completing the increasing number of applications for new medicines and medical devices within the agreed timeframe, “as well as hinder the implementation of its regulatory reforms program and oversight of product safety.”
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Percentage increase in line with costs. This would require a fee increase of 2.8%, with other indirect cost pressures being met through “continuous internal efficiencies and business process improvements.” However, while this would probably be consistent with the CRGs, “a fee increase that is inconsistent with the long established practice may compromise certainty and transparency for the TGA sponsors and manufacturers,”
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Increase all fees and charges by 2.05% as per the indexation factor. This is the TGA’s preferred option as it would be “consistent with the long established practice” and would also provide opportunities for efficiency gains through business process improvements. Fees would be rounded to the nearest AUD10 for items less than AUD10,000 and to the nearest AUD100 for items AUD10,000 and above. If this proposal were accepted by the government, the financial impact on sponsors would be a 2.05% increase from July 1, 2019.
"Industry bodies were generally supportive of the TGA’s preferred option of an increase to annual fees and charges by the indexation factor” – TGA
The TGA says that industry bodies were generally supportive of the agency's own preferred option of an increase to annual fees and charges by the indexation factor. “No additional issues were raised in respect of the proposed changes to next year’s fees and charges.”
The TGA says it will consider stakeholder feedback before seeking approval of the proposed fees and charges from the health minister. Subject to ministerial approval, the amendments would be submitted for consideration by the Federal Executive Committee before the next federal budget, which it says would give sponsors sufficient notice of the new fees and charges as of July 2019.
GMP Fees
In June this year, the government approved some changes to good manufacturing fees and charges, but their implementation was delayed until July 1, 2019. The GMP clearance application fee was set at AUD640 and that for compliance verification at AUD2,430, although the TGA points out that these would be subject to the indexation change for 2019-20.
From the editors of Scrip Regulatory Affairs.