User fee increases still outpace drug, device approvals

Although FDA drug, biologic, and medical device user fees have netted the agency $7.67 billion from manufacturers in the last quarter century, the drug or device approval process has not kept pace. In an Avalere analysis, fees have measurably increased in the last decade. User fees are increasingly important to the agency’s ability to fund the drug, biologic and device review programs. In some cases these fees account for a larger proportion of the FDA budget than the congressionally appropriated budget. For example, the report noted that user fees account for 68 percent of the FDA’s review budget for prescription drugs, while 58 percent of the review budget for generic drugs comes from user fees. The fees are touted as additional funding sources for the FDA to expedite the overall drug or device approval process.

For fiscal year (FY) 2017, the user fees rates are: $2,038,100 for applications requiring clinical data; $1,019,050 for applications not requiring clinical data or supplements requiring clinical data (one-half the amount of applications requiring clinical data rate); $512,200 for establishments; and $97,750 for products (see FY 2017 user fee rates issued for Rx and animal drugs, biosimilars, Health Law Daily, July 28, 2016).

Yet, Avalere analysis of data from FY 2013 suggests that the approval times are not improving; the standard prescription drug was reviewed and approved in 12 months with priority applications in almost 8 months. According to Avalere, there are significant amounts of unspent funds from the user fee programs, upwards of $300 million, that the FDA could use to “accelerate” product reviews, especially in light of public concern about rising drug costs.

Under the federal Food, Drug & Cosmetic Act (FDC Act) (21 U.S.C. §§379g and 379h), the FDA is authorized to set fees and schedules for these regulated areas. Prescription drug makers must account for three kinds of user fees: (1) product fees that are paid for each product being sold on the market; (2) establishment fees that are paid by all manufacturers annually; and (3) application review fees that are paid for every product application that is submitted. On September 30, 2017, all four FDA user fee programs will expire, including: Prescription Drug User Fee Act (PDUFA), Generic Drug User Fee Act (GDUFA), Medical Device Drug User Fee Act (MDUFA), and Biosimilar User Fee Act (BsUFA).

DME company owner convicted on 18 counts, receives 80-month sentence

The owner of a medical equipment supply company faces 80 months—just under seven years—in prison and was ordered to pay restitution of about $2 million after directing a fraud scheme. The New Orleans-based company, called Psalms 23 DME LLC (Psalms), used patient recruiters to get the names and billing information of local Medicare beneficiaries, and then fraudulently billed Medicare for durable medical equipment (DME) for these patients.


The government’s evidence at the trial showed that Psalms billed for equipment from power wheelchairs to back braces, mostly for beneficiaries that did not need, want, or even receive the equipment. Most of the $3.3 million in claims billed were fraudulent, and the company received $2 million in payment on these claims.

The owner was convicted of 18 counts of fraud, conspiracy, and other charges following a five-day trial.

FDA needs more strategic planning to coordinate centers and guide scientific initiatives

Two recent Government Accountability Office (GAO) reports concluded that (1) the FDA lacks measureable goals to assess its progress in advancing the regulatory science that supports the medical products it oversees, and (2) the FDA’s 2013 strategic integrated management plan (SIMP) for its three centers (drugs, biologics, and medical devices) does not incorporate leading practices for strategic planning or document a comprehensive strategy for the centers.

Regulatory science efforts

The FDA Safety and Innovation Act of 2012 (FDASIA) (P.L. 112-144) required the FDA to establish a plan for measuring its progress in its regulatory science efforts. As a result, the FDA issued strategic planning documents in 2011 and 2013 to guide its regulatory science efforts and identify priority areas for conducting work. However, according to the GAO (Report No. GAO-16-432), these documents  do not specify the targets and time frames necessary for the FDA to measure progress overall or within each of the priority areas related to medical products. In addition, while the FDA cited examples of its achievements in regulatory science in a 2015 report, the GAO found that the FDA is unable to assess how those achievements constitute progress towards its goals. In addition, the FDA lacks information about how funding targeted at regulatory science is distributed across the priority areas.

According to the GAO, standards for internal control in the federal government state that complete and accurate data are needed to make operating decisions and allocate resources. Furthermore, multiple centers or offices fund projects toward a given priority area and leading practices for strategic planning encourage agencies to manage efforts that cut across the agency. The GAO concluded that the lack of consistent information limits the FDA’s ability to examine obligations across, or progress within, specific priority areas.

To improve its strategic planning for regulatory science efforts, the GAO recommended that the FDA: (1) develop and document measurable goals, including targets and time frames: and (2) systematically track funding across its regulatory science priority areas.

The HHS agreed with the importance of strategic planning for regulatory science. It concurred with the GAO recommendation that the FDA should develop and document measureable goals. HHS suggested, however, that the FDA documents with a targeted focus, such as user fee commitment letters and specific planning documents, are a more appropriate place for such goals than an agency-level strategic plan. HHS also concurred with the GAO’s recommendation to systematically track funding across the FDA’s regulatory science priority areas. In its response, HHS also identified recent and planned activities of specific centers to improve such tracking.

Coordination between centers

In 2012, the FDASIA required the FDA to develop a SIMP for the three centers overseeing medical products. The SIMP was to identify initiatives for improving efficiency, initiatives for workforce development, and measures for assessing the progress of these initiatives. FDA issued the SIMP in July 2013.

In the  SIMP, the FDA compiled mostly preexisting initiatives to improve the efficiency of each center’s activities and develop its workforce. The GAO found (Report No. GAO-16-500) that the SIMP did not incorporate leading practices for strategic planning or document a comprehensive strategy for the centers. In response, the FDA officials explained that circumstances at the time of the SIMP’s development, including leadership gaps, limited its ability to structure the plan into an effective strategic planning document. The FDA officials told the GAO that they use a variety of other key documents for strategic planning—such as agency-level and initiative-specific plans. According to the GAO, however, these other plans do not describe a long-term strategy for addressing key issues that cut across medical product centers. The FDA officials acknowledged to the GAO that there is a growing need for strategic planning across the medical product centers to improve center collaboration and address emerging issues.

The GAO found that an absence of a comprehensive long-term plan for medical product oversight could hinder the FDA’s efforts to address emerging issues that require center collaboration, such as access to quality data. The GAO concluded that fully documenting such a strategy, either in a separate plan or through existing documents, would help the FDA identify measurable goals and objectives for their centers that align with its mission and help communicate its priorities to key stakeholders.

The GAO recommended that the FDA engage in a strategic planning process to identify challenges that cut across the medical product centers, and document how it will achieve measurable goals and objectives in these areas. The HHS agreed with the recommendation. It indicated that the FDA has already started a process to identify key crosscutting themes for the medical products centers, which it will use to develop an overarching strategic planning framework to guide the work of these centers.

Kusserow on Compliance: OIG identifies the top HHS challenges

The HHS Office of Inspector General (OIG), in its mid-year review of its work plan, included a summary of the Top Management Challenges (TMCs) facing HHS, along with associated recommendations for improvement. Some of the recommendations reflect persistent and concerning vulnerabilities that the OIG has highlighted for HHS over many years, while others forecast new and emerging issues for the upcoming year and beyond. The current TMCs are identified as follows:

  1. Protecting an expanding Medicaid program from fraud, waste, and abuse. Enrollment in Medicaid and Children’s Health Insurance Program (CHIP) programs has grown by 15 million people since October 2013, and the program remains a top management priority given long-standing program integrity issues and expanding eligibility. CMS needs to provide more oversight of Medicaid expansion, oversight of Medicaid managed care, improving the effectiveness of Medicaid data and systems, state policies that inflate federal costs, and ensuring quality care for Medicaid beneficiaries.
  1. Fighting fraud, waste, and abuse in Medicare Parts A and B. HHS must find ways to reduce wasteful spending and promote better health outcomes at lower costs in reducing improper payments, preventing and deterring fraud, and fostering economical payment policies. More effort is needed to better ensure that Medicare payments are accurate and appropriate, through (a) better identification of problems; (b) more timely recovery of overpayments; and (c) implementing better safeguards to prevent recurrence of problems. In that CMS relies on contractors for most of these crucial functions, the agency must ensure more effective on their part. The Medicare appeals system remains broken and needs fundamental changes to resolve appeals efficiently, effectively, and fairly.
  1. Meaningful and secure exchange and use of electronic information and health information. Technology, including electronic health records (EHRs), offers opportunities for improved patient care, more efficient practice management, and improved overall public health. HHS needs to find ways to measure the extent to which EHRs and other health information technologies (ITs) improve, and ensure that adopted policies advance towards this. HHS faces challenges safeguarding privacy and security of health IT, improving information flow, and ensuring a return on health IT investments. Threats to information privacy and security are evolving. Although progress was noted, more remains to be done to address health IT privacy and security issues, as well as the flow of information.
  1. Administration of grants, contracts, and financial and administrative management systems. HHS is the largest grant-making organization in the federal government, with over $402 billion awarded in FY 2014. The scale of this program can be understood by comparing it with the entire Department of Defense budget of $529 billion for the same period. Increased oversight is need for better grants and contract management, financial statement audit revelations of defective system controls, and improper payments. More can be done to identify poorly performing grantees and those at risk of misspending federal dollars.
  1. Ensuring appropriate use of prescription drugs. The prescription drug coverage is provided for 41 million Medicare Part D and another 71 million Medicaid beneficiaries. Part D is the fastest-growing component of the Medicare program. Management of these drug programs faces numerous challenges in oversight, drug abuse and diversion, and questionable, inappropriate utilization, and enrolling prescribers. Among actions needed include requiring sponsors to report probable fraud, waste, and abuse identified and corresponding actions.
  1. Ensuring quality in nursing home, hospice, and home- and community-based care. Fraud, waste, and abuse with nursing home, hospice, and home- and community-based care continues to be a serious problem. More needs to be done in improving internal controls and better guidance and training for surveyors to ensure that nursing homes with recorded quality and safety issues correct their deficiencies.
  1. Implementing, operating, and overseeing the health insurance marketplaces. The marketplaces are critical elements of the Patient Protection and Affordable Care Act (ACA). Initially the challenges centered on implementation, operation, and oversight of the marketplaces. Looking forward, the OIG anticipates challenges with payments, eligibility determinations, management and administration, and the security of the marketplaces; and calls upon CMS to strengthen marketplace operations and work with states to ensure compliance with federal requirements.
  1. Reforming delivery and payment in health care programs. In January 2015, the HHS Secretary announced goals to foster better care, smarter spending, and healthier people by tying traditional Medicare payments to alternative payment models (APMs), and to quality and value. CMS must establish policy, infrastructure, data systems, program integrity, and oversight mechanisms to successfully implement these and other changes. CMS must also strengthen Medicare Advantage to ensure that benefits are provided only to eligible beneficiaries and that data are available for fraud prevention and detection.
  1. Effectively operating public health and human services programs. HHS must focus on public health preparedness and emergency response, enabling access to and quality of services, and protecting vulnerable populations. Continued collaboration of federal, state, and communities is necessary for proper disaster response.
  1. Ensuring the safety of food, drugs, and medical devices. The FDA must address areas of particular high risk, including: compounded drugs, imported food and drugs, food facilities, off-label promotion and kickbacks, and dietary supplements.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2016 Strategic Management Services, LLC. Published with permission.