Australian Regulator Proposes Fee Increase To Offset Rising Costs
PwC Review Also Looking At New Costing Model
Executive Summary
A growing role in dealing with medicines shortages, COVID-19-related pressures and the costs of relocating to new premises are among the factors behind the TGA’s proposal to raise the fees it charges pharma firms for its regulatory services.
The Australian Therapeutic Goods Administration has launched a consultation in which it tables three options for covering its growing operational costs, with a 2.6% increase in industry fees from July this year looking the most likely scenario.
Almost all the TGA’s operations (about 96%) are funded through fees and charges to industry for its regulatory activities. The fee structure is reviewed each year to make sure the charges are “set at the appropriate level” and that cost recovery for each therapeutic industry sector is appropriate.
The agency levies fees on sponsors and manufacturers of medicines, biologicals and medical devices for specific regulatory services, such as annual charges, application and evaluation fees, conformity assessment fees and inspection fees.
But it also provides free services that “cannot be appropriately recovered from a particular sponsor or industry group” and are resulting in growing cost pressures, the TGA says in a consultation paper published on 25 January.
These services include providing timely access to unapproved medicines (including medicinal cannabis, cell and tissue therapies and medical devices) under the Special Access Scheme (SAS), the Authorised Prescriber (AP) Scheme and the Orphan Drug Program. These services are now partly covered by appropriation funding, but demand for them “is continuing to significantly increase.”
Medicine Shortages Initiative
The agency’s reporting, compliance, legal and enforcement activities are also on the rise, including mandatory reporting of, and TGA action on, medicines shortages. The Medicine Shortages Information Initiative was launched in May 2014, initially with voluntary reporting of prescription drug shortages. In January 2019 mandatory reporting of shortages or discontinuations was introduced, resulting in a 400% increase in the number of reported notifications compared with 2018.
“As such, the workload required to manage medicine shortages has increased significantly, from a monthly average of 20 in July-December 2014 to 410 in January-October 2021,” the consultation paper says.
The total costs of all such fee free services, where direct cost recovery is not appropriate, is estimated to reach AUD28m ($20m) in 2022-23, an increase of nearly AUD14m since 2018-19, it notes.
On top of this, in mid-2022 the TGA is scheduled to relocate to new, more modern facilities at Fairbairn, Canberra, and it will be required to fund relocation and fit-out costs of AUD13.7m, of which AUD8.7m will be spent in 2021-22.
Additionally, in the coming years, the TGA expects cost pressures due to the continuing reforms in medical devices, additional maintenance and depreciation of recent IT investments, and fit- out and equipment costs of the new building.
COVID-19 Role
COVID-19 has also played a role, with the requirements and expectations of the TGA having “substantially increased” in areas including sponsor support, compliance and enforcement, and consumer communications.
“While fees and charges partially cover the costs of approving and regulating COVID-19 treatments and vaccines, a rolling review of data is very expensive and there has been a remarkable increase in post market efforts in respect of these products,” the TGA remarks.
The agency also expects an increase in salary, contractor and other staff-related costs, as well as a rise in corporate costs (including the relocation), while revenue growth is projected to be limited.
Three Fee Options For 2022-23
Following consultations with industry bodies during 2021, the TGA has proposed three options for increasing its revenues through changes to the fees for 2022-23.
Its preferred option is to increase all fees and charges by 2.6%, subject to rounding to the nearest AUD10 for items below AUD10,000 and to the nearest AUD100 for items AUD10,000 and above. A company that paid AUD10,000 in annual charges, for example, would be required to pay AUD260 more in the next financial year starting on 1 July 2022.
This would be “consistent with long-established practice” and would provide “opportunities for efficiency gains through business process improvements,” the agency says. If accepted by the government, it would bring in additional revenues of AUD4.6m.
A second option would be to fully recover the expected increase in known costs by pushing up fees and charges by 3.26%, the TGA says. However, while this would likely be consistent with the cost recovery guidelines, “a fee increase that is inconsistent with the long-established indexation practice may compromise certainty for sponsors and manufacturers.”
It says that the third option – no increase in fees or charges – would risk it running into a deficit of up to AUD7.8m, and would be unlikely to be consistent with the government’s charging framework. The agency would need to “reduce its staffing significantly” and would be unable to perform its regulatory duties in a timely manner.
For example, there would probably be “delays in completing applications for new medicines and medical devices within the agreed timeframe, or in the implementation of its regulatory reforms program and oversight of product safety.”
Those wishing to respond to the proposals in the consultation paper have until 7 March to do so. Companies that belong to industry bodies with which the TGA held bilateral meetings are encouraged to present their comments through those bodies in order to “present a consolidated industry feedback to the TGA,” the agency suggests.
PwC Review Of Fees
The TGA also notes that consulting company PricewaterhouseCoopers completed a review of all the agency’s fees and charges in mid-2021. This included an assessment of the appropriate levels of cost recovery for services to the pharmaceutical industry and the identification of “public health/public good and other activities that may not be appropriate to cost recover.”
PwC made five recommendations, the main one being that the TGA should implement a consolidated workflow management system (including a time tracking system) that “clearly determines the costs of chargeable and non-chargeable activities in accordance with the Australian Government Charging Framework.”
However, the TGA points out that the data captured in the review did not represent “business as usual” because significant numbers of its staff were engaged in COVID-19-related work. “Further data collection will be undertaken in the first half of 2022 which will be used to enhance the costing model built by PwC.”
The agency stresses that the consultation paper only focuses on changes required to TGA fees and charges for 2022-23 and not those that may result from the PwC review. “Decisions on any changes to fees and charges arising from the review will be made by Government after consultation with industry if significant changes are required for 2023-24 and beyond.”