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	 
(25-JUN-07, GAO-07-882R).					 
                                                                 
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)	 
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.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-882R					        
    ACCNO:   A71327						        
  TITLE:     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					 
     DATE:   06/25/2007 
  SUBJECT:   Cost analysis					 
	     Financial statement audits 			 
	     Financial statements				 
	     Medical equipment					 
	     Medical technology 				 
	     Regulatory agencies				 
	     Reporting requirements				 
	     User fees						 
	     Medical devices					 

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GAO-07-882R

   

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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)^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.^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.^3

^1Pub. L. No. 107-250, 116 Stat. 1588.

^2Department 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).

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.^4
In this report, we evaluate (1) whether FDA's methodologies for
identifying its annual costs^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.

^3Dr. 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).

^4GAO, 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).

^5In 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.

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.^6 A measure of one FTE represents 40
hours of work per week over the course of a year.^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

^6Federal 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.

^7This 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.

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

           o reviewing specific types of device applications, such as a
           premarket application;^8

           o monitoring research conducted in connection with the review of
           device applications;

           o providing technical assistance to device manufacturers in
           connection with the submission of device applications; and

           o 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.

^8A 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.

There are five standards in SFFAS 4, four of which are applicable to FDA's
process for reviewing device applications.^9 These standards require FDA
to do the following:

           o 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.

           o 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.

           o 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.

           o 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.

^9The 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.

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.

           o 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.

           o 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,^10 which provides general management and oversight of all FDA
           activities, including the review of medical device applications.

           o 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.^11 Using this methodology, FDA
           identified the direct and indirect costs in several ways.
			  
^10The 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.

                        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^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.

           o 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.^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.

^11FDA'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.

^12Within 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.

^13The national accounting firm originally developed the methodology for
FDA's prescription drug user fee program.

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.^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)^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.

^14FDA'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.

^15A premarket approval application is an application to market a class
III medical device.

Figure 1: FDA Staffing for the Process of Reviewing Medical Device
Applications from Fiscal Years 2002 through 2006

According to FDA officials, the lower staffing levels in fiscal year 2006
are attributed to a hiring freeze.^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.^17
In 2005, Congress passed the Medical Device User Fee and Stabilization Act
of 2005 (MDUFSA),^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.

^16In 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.

^17Under 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.

^18Pub. L. No. 109-43, 119 Stat. 439.

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

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).

                                   - - - - -

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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
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[3]http://www.gao.gov . If you or your staff have questions about this
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[4][email protected] or Robert Martin at (202) 512-6131 or
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Key contributors to this report were James Musselwhite, Assistant
Director; Donald Neff, Assistant Director; Lisa Crye; Jessica Morris; and
Yorick F. Uzes.

Sincerely yours,

Randall B. Williamson
Acting Director, Health Care

Robert E. Martin
Director, Financial Management and Assurance

Enclosure - I

        Agency Comments from the Department of Health and Human Services

(290571)

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