The groggy U.S. economy, which already is forcing cut-backs and pay freezes for federal workers, also may push FDA and industry to rethink how to calculate user fee revenue.

Agency and industry representatives have formed a small working group to “evaluate the financial underpinnings” of the PDUFA inflation adjuster, part of the federal formula used to calculate user fee revenue for a given fiscal year, according to minutes of a Nov. 22 PDUFA negotiation session.

The complexity factor of the PDUFA workload adjuster also could be changed, the agency said in minutes of a Dec. 6 session.

Annual inflation adjustments are determined by the highest of three factors:

Total percentage change in the Consumer Price Index
Total percentage pay change for federal government employees in the Washington D.C. area
Average annual percentage change in cost for pay and benefits per FDA full-time equivalent employee during the last five years

For 2011, the average change in pay per full-time equivalent (a 4.53% increase) was used, since it was higher than the increases for Washington-based employees (2.42%) and CPI (1.053%).

The inflation adjustment for 2011 was more than 1% lower than the adjustments for the previous two fiscal years: 5.64% for FY 2009 and 5.54% for FY 2010. During those periods, the figure that determined the increase also was the average annual change in cost per FDA FTE.

The formula helps determine the amount of personnel available for FDA, since user fees help pay for application review staff. FDA may be nervous the formula could not adequately account for increased costs in coming years, given the most recent decrease, and wants to make a change for PDUFA V.

Some of the adjustment factors also may not fall in favor of increased FDA user fee revenue in the future. Spending bills recently approved by Congress freeze federal employee pay for two calendar years beginning this year, according to a summary released by the Senate Appropriations Committee.

The average Consumer Price Index also decreased 0.4% between 2008 and 2009, according to Bureau of Labor Statistics data, but is tracking to increase in 2010.

Industry has indicated it is willing to talk about changing the inflation adjuster. The Dec. 6 minutes indicate the working group could consider several options for inflation adjustment calculations.

The actual inflation adjustment that was used to determine the next year’s user fees is more complicated than determining the figure for one year. The law also states the final number is cumulative and compounded based on the three fiscal years since FY 2008, according to an Aug. 4 Federal Register notice. After the computation, the final inflation adjustment to determine FY 2011 user fee revenue was 16.54%.

The agency also uses a separate workload adjustment formula to help determine user fee revenue. Rent and rent-related expenses also can lower user fee revenue if it is less than estimates made in FY 2006. Neither figure was included in the above calculation.

Workload Adjuster May Be Inadequate Again

The workload adjustment formula could undergo another change in PDUFA V, but the reason was not evident. The Dec. 6 minutes did not expand on the agency’s desire to revisit the complexity factor.

It appears the formula may not be increasing user fee revenue enough for FDA to handle the increasingly complex applications it now is receiving, just as during PDUFA IV negotiations, when the formula also was changed.

FDA now uses the average number of four types of applications it receives. Those averages also are adjusted based on changes in review activity, according to the Federal Register notice.

The final workload adjustment for FY 2011 was 8.54%, an increase from the FY 2010 adjustment of 6.82%.

When PDUFA IV was implemented, the workload adjuster was changed because it did not increase enough to account for the “number and complexity” of meetings during the review process, according to the PDUFA IV Financial Plan.

For PDUFA III, the workload formula was changed to account for the increased volume of submissions, but during the next round, the agency said the formula was not sufficient for the effort required for each submission (Also see "User Fee Hike Will Give Sponsors Clarity On Label, Postmarketing Discussions" - Pink Sheet, 15 January, 2007.).

It now appears another adjustment is eminent to account for more application complexity, even as the agency presses sponsors for more substantive submissions upfront (Also see "What’s A "Complete" Application? Clarity From FDA Could Speed Review Times" - Pink Sheet, 17 January, 2011.).

User Fees Already Going Up

The agency increased drug and biologic application fees 9.7% for FY 2011. Applications with clinical data will require a $1.54 million fee and those without clinical data will be charged $771,000.

Establishment fees were increased 8.7% and product fees were increased 8.5%.

Fiscal year 2010 also was expected to end with the lowest number of fee-paying full application equivalents since 1995 (Also see "FDA Expects Sharp Drop In Drug Applications This Year" - Pink Sheet, 4 August, 2010.).

By Derrick Gingery

User Fee Inflation Calculations May Need To Change Due To Slow Economic Recovery

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