Cost Recovery Framework:
Stakeholder Consultation Report

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July 2007

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Contents

• Introduction
  • Background
  • Consultation Process
  • Participation
  • About This Report
  • What's Next?
• Principal Issues
• Proposed Cost Recovery Framework
• Fees
  • Rationale for Increases
  • Approach to Determining Fees
  • Categories and Cost-Sharing Ratios
  • Mitigation
• Service
  • Activities Subject to Cost Recovery
  • Standards
  • Penalty Calculation
• International Comparisons
• Additional Comments on the Cost Recovery Framework
• Annex A: Face-to-Face Meetings
  • Advisory Committee on Management
  • BIOTECanada
  • Canada's Research-Based Pharmaceutical Companies
  • Canadian Animal Health Institute
  • Canadian Association of Chain Drug Stores
  • Canadian Consumer Specialty Products Association
  • Canadian Cosmetic, Toiletry and Fragrance Association
  • Canadian Generic Pharmaceutical Association
  • Canadian Homeopathic Pharmaceutical Association
  • Compressed Gas Association
  • Consumer Cluster
  • Direct Sellers Association of Canada
  • Electro-Federation Canada
  • Management Advisory Committee, NHPD
  • MEDEC
  • Natural Health Products Cluster
  • NDMAC
  • Patient Cluster
  • Vancouver Chinatown Merchants Association
• Annex B: The Business Impact Test: Preliminary Findings
  • Business Impact
  • Costs and Benefits
  • Summary Impact
  • Fee Mitigation
  • Service Standards
  • Final BIT Report

Introduction

From April 4 to May 15, 2007, the Health Products and Food Branch (HPFB) held consultations on the proposed Cost Recovery Framework (CRF). A Consultation Document was posted, and answers were sought to online questions and a Business Impact Test. Key stakeholders were engaged in face-to-face discussions on the proposed Cost Recovery Framework.

This report on cost recovery consultations provides a summary of the results obtained. These results have been used to develop a revised Cost Recovery Framework, which is posted with this document. Specific areas altered as a result of consultation input are clearly identified in the revised Cost Recovery Framework.

Background

The proposed Cost Recovery Framework serves to update fees that were introduced in 1995 for drug regulatory activities, and by 2000 for regulation of medical devices. These fees initially covered approximately 50% of the costs associated with Branch regulatory activities, but have been neither indexed nor increased since then and therefore now cover just 25% of these costs.

Cost increases at HPFB have been driven not only by cost of living increases, but by increasing complexity and volume of regulatory work, increasing performance standards and investment in meeting existing performance standards, and the introduction of new activities. In both 2004 and 2006, the Auditor General of Canada raised concerns about the ability of Health Canada to continue to fulfill regulatory requirements with the resource levels in place at the time. Canada recovers a much lower percentage of its health regulatory costs from fees than do health regulators in comparable countries, such as the US, the UK and Australia.

The Framework is a key component of the Blueprint for Renewal, which aims to modernize the Canadian regulatory system and strengthen its position as an internationally recognized regulatory leader. Along with a review of the Branch's core funding, the Framework will ensure stable funding for the regulatory process and contribute to our ultimate priority: the health and safety of Canadians.

Consultation Process

Health Canada is committed to consultations as an integral part of quality service delivery. Consultations were conducted in keeping with Treasury Board and Health Canada guidelines as well as the User Fees Act (UFA, 2004).

In keeping with these guidelines, HPFB developed a consultation document that outlined fees and service standards, explained how fees and service standards were determined, identified cost and revenue elements of the fee, and provided international comparisons.

The document was posted online on April 4, and feedback was sought until May 15 through three mechanisms:

• A series of questions about the CRF;
• A Business Impact Test (BIT), which enabled affected companies to assess the expected impact of the CRF on affected businesses and organizations; and
• Face-to-face meetings with individual associations and groups and a multi-stakeholder meeting.

In addition to the preceding response mechanisms, stakeholder association groups were invited to provide written responses directly to Health Canada.

More than 5,000 stakeholders, including present and potential fee payers, were advised of the written consultations and invited to participate.

Concurrently, key stakeholders were invited to participate in face-to-face discussions. Eighteen of these meetings were held, allowing stakeholders to discuss specific issues of concern, flesh out solutions, and prepare written responses to the Consultation Document.

The bilateral and small group meetings were followed by a multi-stakeholder meeting that brought more than twenty diverse groups together to share their comments on the proposed framework. Because early feedback had identified service standards and fee mitigation as areas requiring further discussion, the multilateral meeting focussed on those two issues.

Participation

HPFB engaged more than 40 stakeholder groups in face-to-face meetings and garnered 300 completed BITs and 200 written responses, of which more than one-third came from the Natural Health Products (NHP) sector.

Participants in the consultations included

• Health product companies;
• Industry associations (including pharmaceutical, radiopharmaceuticals, biologics and genetic therapies, medical devices and NHPs);
• Consumer and public interest groups;
• Patient groups;
• Academia; and
• Health professional associations.

About This Report

Following input from the NHP sector about the challenges already posed by its nascent regulatory system, HPFB is currently reviewing the timeline for implementing cost recovery for that industry, and has consequently excluded their feedback from this analysis.

The first section of this report, "Principal Issues," provides a quick look at the themes that arose during both face-to-face sessions and written responses.

The remaining sections provide details of the feedback, and are divided into these topics:

• Proposed Cost Recovery Framework;
• Fees, including rationale for increases, the approach to determining fees, categories and cost-sharing ratios, and mitigation;
• Service, including activities subject to cost recovery, standards, and the penalty calculation;
• International comparisons; and
• Additional comments.

The sections are based on the questions asked online, and integrate feedback from both written responses and face-to-face meetings. There is a strong correlation between the feedback from written submissions and that gathered in face-to-face discussions.

Each section comprises the following elements:

• The question(s) posed in the Consultation Document, with numeral(s) corresponding to question number(s);
• Background information for context;
• What stakeholders said: a summary of written and oral feedback; and
• Specific concerns expressed in the written submissions that were considered to be of general interest, but not dominant themes.

Annex A provides summaries of the face-to-face meetings, with brief descriptions of the participating organizations.

Annex B provides an overview of findings from a preliminary analysis of the BIT.

What's Next?

A revised Cost Recovery Framework is being posted online--as the official notice of the revised fees and standards--at the same time as this Consultation Report. Stakeholders may make further comments in the fourteen-day period following the official notice; they have an additional 30 days to file a formal complaint.

Questions or inquiries can be channelled to the Cost Recovery Initiative by

• Telephone: (613) 946-0107;
• Email : CRI_IRC_consultations@hc-sc.gc.ca; or
• Cost Recovery Initiative website.

The revised Cost Recovery Framework will be submitted to Parliament in the fall of 2007, and will then follow the established review process to revise the regulations associated with fee setting. The proposed new and revised fees are scheduled to be implemented in the spring of 2008.

Principal Issues

This section provides an overview of the themes that generated the most interest and discussion in both bilateral sessions and written responses.

Impact of Fees

Several participants were concerned about the magnitude of the increases and the impact of implementation in spring 2008. Others wished to have fee levels set according to the level of risk associated with the product, or the level of effort required to regulate it. There was also discussion of component-based fees, rather than flat fees, where they were proposed. Concern was also expressed that the impact of the present cost regime on safety and access to health products should be studied before new fees are applied, and continue to be studied whenever new fees are applied.

A-base Funding Balanced with Fee Funding

Many sought assurances that higher fees would mean additional human resources to better manage workload. Several also wanted assurances that funds collected would remain with HPFB and would neither be applied outside the Branch, nor reduce the Branch's annual appropriations.

Service Delivery

Many respondents had suggestions regarding improvements to HPFB regulatory processes and service delivery. There was particular concern that service standards be meaningful to paying stakeholders and ensure the safety of consumers.

Specific Fees

Some worried that the proposed submission fees for pharmaceuticals and biologics would lead to reduced R&D in Canada. Concerns were also expressed about the relative fairness of a number of specific fees, including those for different classes of medical devices. Some argued that submission fees should not apply when switching a product from a prescription drug to a self-care health product.

Transparency of Costing

Many participants wanted more information about the activities covered by each fee, and the costing behind it.

Cost-Sharing Ratios

Some questioned the proposed public-private ratios, and the underlying reasoning of public-private benefit, particularly in the case of Establishment Licensing. Many participants wanted the costs at least partially recovered from additional beneficiaries, not just manufacturers or suppliers.

International Comparisons

Many wanted to see comparisons specifically for their sector. Among those who provided written comment on this topic, the need for harmonization of efforts with other jurisdictions was a strong central theme, and was mirrored in many bilateral discussions. Many would like to see the FDA and EMEA (no-fee) policy applied to their product lines of low-risk, topical, cosmetic-like drugs.

Mitigation

Many sectors expressed considerable concern about appropriate mitigation measures that would ensure access to health products and engender a good business environment for innovation and product development.

Service Standards

Although satisfied in many cases with existing performance standards, participants wanted more qualitative standards and, in some instances, more meaningful standards. Of particular concern were the service standards for Authority to Sell fees. They should be as rigorous as other fees, reflecting the actual activities performed and ensuring that the safety of consumers is protected. As elsewhere, more transparency was requested in how service standards would be achieved.

Performance Reporting

Many respondents wanted assurances that the final Cost Recovery Framework would include a description of how the Branch's performance would be evaluated and the potential impact on the following year's fees. They wanted to know which body would be responsible for this evaluation, and how HPFB and the evaluating body would ensure full transparency of evaluation and its conclusions. Accountability was paramount.

User Fees Act Penalty Calculation

In the March 2007 Consultation Document, HPFB indicated that service standard target times would be expressed in calendar days. If the performance were 110% or more of target, the service standard would be missed. It also mentioned that the User Fees Act provided a 10% leeway in meeting performance standards, and that HPFB consequently proposed that penalties would apply to performance that exceeded targets for a fee category by 121%. Fees would be reduced for the next reporting year by a percentage equivalent to the performance not achieved, up to a maximum of 50%.

Many felt that HPFB should not confer the additional 10% leeway. Additionally, several argued that the application of penalties could lead to a cycle of failure if the Branch failed to meet performance targets. It could lead to reduced funding for resources required to meet service standards, which in turn could cause it to continue to miss service standard targets in future years. Some were also concerned that imposed penalties could lead to safety hazards resulting from rushed review work.

Automatic Fee Adjustment

Some participants were glad to see an automatic fee adjustment, to avoid future large increases at one time. Others, however, objected to a yearly increase without any ongoing commitment to improve service. They suggested that yearly discussions of service improvements accompany the automatic fee adjustments.

NHP Timeline

Representatives of the NHP sector asked that its implementation be delayed until the full costs of compliance are better identified and absorbed, the current backlog is eliminated, and a more thorough study of the particular nature of the health product industry is conducted and taken into account in the proposed fees.

Proposed Cost Recovery Framework

Q 1 Do you support the proposed Cost Recovery Framework?

Background

The proposed CRF sets fees and associated service standards for the regulation, licensing, and post-market surveillance and compliance of health products. It includes pharmaceuticals, biologics and medical devices. Cost recovery options for NHPs and veterinary drugs will follow at a later date.

What Stakeholders Said

Of the 118 written responses received

• 60 (50.8%) supported the proposed CRF;
• 53 (44.9%) did not; and
• Five (4.2%) were undecided.

Although unable to say whether they favoured or opposed the proposed CRF, the undecided still responded to many of the questions. It is worth noting that a vote in support of the CRF in general did not always translate into support across the board for all elements. The converse was also true.

Those who supported the proposed CRF said that they looked forward to better service and more efficient, transparent processes, such as annual reporting on how fees were spent to sustain the drug review process. They realized that the higher fees could impose hardships for small companies, and were concerned about their effect on future product development, especially of niche products. As one respondent put it, "Existing fees do not reflect costs; however, increases do not necessarily reflect the paying capacity of users."

Some said the Cost Recovery Framework will strengthen Canada's position as an internationally recognized regulatory leader and make Canada competitive and comparable to the US and EU. They added that fees should be proportional to the work required, and only for services directly related to regulatory classification, safety, and complexity of the item regulated.

Still others sought assurances that higher fees would mean additional human resources to better manage workload. Several also wanted assurances that funds collected would remain with HPFB and would neither be applied outside the Branch, nor reduce the Branch's annual appropriations.

Many wanted to see the new fees phased in over two or three years, pointing out that in many organizations 2008 budgets had already been set, and increased fees would cause undue hardship or force companies to take money from other programs, lay off staff or reduce product offering.

Those who did not support the proposed CRF said that the increases were too steep-especially for small businesses, and given the size of the Canadian market-and that time targets for review were still not stringent enough. They worried that the quantity of available products would be reduced, and that foreign companies would cease to do business in Canada. Like a few CRF supporters, they also expressed concern that product development in Canada would decline as a result of the higher fees, while making Canada uncompetitive in the products and markets that it retained.

It should be noted that comments on the CRF were collected prior to stakeholders being informed of the details of Health Canada's plans for fee mitigation.

Some objected to the CRF because of the way it addressed cosmetics and disinfectants. They felt that regulatory burden should be proportional to risk, and that these products were too heavily regulated and expensive to license and sell.

Some offered alternatives to the new fees, such as full funding through appropriations, or recovering costs primarily from foreign inspections.

Much emphasis was placed on ways to improve service delivery and mitigate fees to make the framework acceptable to stakeholders. Many felt that they needed additional information on costing, service delivery and mitigation before they could make a final assessment of the framework.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about the proposed CRF:

• Compliance and enforcement (activities) need more support.
• HPFB should aim for a proper balance between cost recovery (fees) and appropriations.
• Canada needs a flexible framework that allows for adjustments...for new and emerging technologies, and takes into account the volume of data required to support new drug reviews.
• An ombudsman should monitor and report on the quality of both submissions and reviews, apart from the current dispute resolution process.
• No mention was made of radiopharmaceuticals, which normally do not contain a biological component and should not require the same effort to review or license.

Fees

Rationale for Increases

Q 2 Do you support the proposed rationale for fee increases?

Background

The current fees, implemented in the years leading up to 2000, were based on revenue required to operate the program at that time. While revenue levels have remained relatively stable, the scope and complexity of activities have expanded and costs have risen, resulting in significant and growing financial pressure.

Cost-recoverable services are a logical and reasonable source for contributing a greater share to overall Branch funds and reducing the impending funding shortfall.

What Stakeholders Said

Of the 118 responses received

• 49 (41.5%) supported the proposed rationale for fee increases;
• 48 (40.7%) did not;
• 19 (16.1%) did not answer the question; and
• Two (1.7%) were undecided.

To break the responses down further, of those who supported the proposed CRF, 41, or 68.3% of them, also supported the proposed rationale for fee increases, whereas 13, or 21.7% of them did not.

Of those who did not support the proposed CRF, seven, or 13.2% of them, supported the proposed rationale for fee increases, whereas 62.2% did not.

Some asked for a detailed list of activities associated with each fee, as well as transparency of services, service standards and revenues from fees. In a few cases, support was lent on condition that service improved. A few additionally requested more concrete, consistent guidance within and across directorates during the development process.

A few were against fees funding administrative and post-market activities and IT development. Others were in favour of fees funding new policy and IT development, but not post-market surveillance, adverse reaction monitoring, compliance and enforcement. The majority who were against the rationale for fee increases had no further comment. A few did express specific concerns, however.

One attributed his No answer to the lack of transparency with respect to how costs were calculated. A second felt that industry already bears enough responsibility for the cost of evaluations, inspections and post-market surveillance. A third mentioned that ATS fees in support of post-market surveillance do not equally apply to all drugs.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about the proposed rationale for fee increases:

• It is unclear why only some Notifiable Change drug submissions are subject to submission fees.
• Disinfectants should be exempted from certain activities, as the FDA has done, e.g., GMP, SLs, ATS.
• HPFB should adopt the European definition of cosmetics.
• A clear process should be established for consultation, metrics development and costing analysis before new activities are added to this framework.

Approach to Determining Fees

Q 3b Do you support the rationale for the approach to determining fees?

Q 4 Do you support the fees and service standards proposed?

Background

HPFB used an activity-based costing approach to identify the resources required to support each service or activity. These included not only the resources needed by the organization directly responsible for the program, but also those needed by supporting organizations. Therefore, costs include service support and program management activities-a variety of support functions and a share of corporate and administrative costs relating to finance, human resources and information technology support. They also include corporate governance activities such as legal services, program evaluation, and audit.

As HPFB is striving to achieve an appropriate balance of funding sources, not all costs will necessarily be fully recovered. The extent to which costs will be recovered is based on the relative level of benefit received by the fee paying industry in relation to the public benefit derived from the activity, as well as how Health Canada's fees compare with other international regulators.

Annex 1 of the Consultation Document describes each group of fees, allowing for a comparison between existing fees (if applicable), full unit cost as determined through the activity-based costing data, and proposed fees. Target times are also indicated and form the basis of the proposed service standards.

What Stakeholders Said

Although invited to talk about their support for fees and service standards in question 4, respondents talked only of fees, hence the combining of answers to questions 3b and 4 here.

A little more than one third of respondents said that they needed details on how costs were determined, for they found them lacking. Exacerbating this "absence of transparency" was a raising of fees with no commitment to improve service. This sentiment was strongly echoed in most bilateral sessions.

Several disagreed with the automatic annual increase of 2.5%, suggesting instead that subsequent increases in fees should be subject to the consultation requirements of the User Fees Act. Several associations echoed this concern and questioned the appropriateness of annual adjustments without costing.

Many respondents were unhappy about fees no longer being component-based; some did not seem to understand this change and asked questions about fees for various "simple" and "complex" submissions.

In addition to discussions during bilateral sessions, several respondents questioned the significantly higher costs for biologic submissions, and worried that this would put Canadian companies at a disadvantage.

Likewise, it was felt that the fees for Notifiable Changes might impede improvements to productivity and manufacturing efficiencies.

Several wondered which fees would pay for post-market surveillance, while others requested lower fees for lower-risk products.

The high fees for NDSs and SNDSs were thought likely to discourage early introduction of innovative therapies. Also, by introducing fees for Notifiable Changes, some were concerned that manufacturers might start to bundle these submissions, which was interpreted as being counter to the Progressive Licensing Framework.

Most bilateral sessions discussed the magnitude of the fee increases. Some specific examples of gaps in the proposed evaluation fees were identified, and suggestions made to revise the structure of the annual product renewal and establishment licensing fees to address level of risk or sector/product-specific effort.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about fees:

• The new fees are a disincentive for the timely introduction of new products into Canada, especially for rare diseases and biologics.
• Increased fees for pharmaceuticals and biologics could lead to reduced R&D in Canada.
• We worry about the cost of establishment licences, at fixed price, whether for a full inspection report or a one-page certificate of Good Manufacturing Practice compliance from a Mutual Recognition Agreement country.
• No distinction is made between the size or complexity of companies that import, distribute, and sell products.
• Establishment licence fees should be based on a company's size, the number of DIN products, and sales volume.
• Fees for non-prescription submissions and applications should be costed at a lower hourly rate than those for prescription drugs.
• Enforcement and post-market surveillance costs should not be borne by all companies, only those who are non-compliant.
• The international standards quoted are not relevant to Category IV medical devices; fee increases are therefore not sound.
• We want to know how a drug submission for a switch from prescription to non-prescription status will be charged.
• If a foreign review were included with a submission, would the fee be lower?
• Given the modest increases in Authority to Sell fees, which fees will pay for increased post-market surveillance?
• Higher fees on top of Canada 's existing extra requirements (labelling, warnings, dosage) will affect decisions to launch non-prescription drugs in Canada. Canadian patients will be denied access to innovative products.
• We question using fees to recover physical overhead and question ATS fees, whose use is not well delineated.

Categories and Cost-Sharing Ratios

Q 3d Do you support the rationale for fee categories and cost-sharing ratios?

Background

In determining an appropriate cost-sharing ratio, each fee category was assessed according to factors such as safety or access of therapeutic products for the public, financial or competitive advantage for the fee paying industry, business or innovation development to address unmet health needs, and ensuring compliance. Fees were defined accordingly, with the understanding that what is not covered by revenues from fees must be funded through the Department's appropriations.

Fee Category	Cost-Sharing Ratio (% paid by industry)
Submission and Evaluation Fees	75%
Establishment Licensing Fees	100%
Master Files and Certificates Fees	100%
Authority to Sell Fees	50%

What Stakeholders Said

This question had the lowest response rate-32.3%-of all topics. The replies centred around disagreements with specific proposed fees, rather than the categories themselves. Although a couple of associations questioned the appropriateness of charging 100% for establishment licensing fees, almost no mention was made of cost-sharing ratios through the written consultations, except for these three:

• The cost-sharing ratio is reasonable for each category, except some new proposed fees. Maybe industry should pay a higher proportion of submission fees in exchange for better service.
• I agree with ratios except for the Submission and Application Evaluation fees. Industry should pay 25%, not 75%, for the process depends on HPFB's performance.
• The ratios are not appropriate, for companies already go to significant expense to build in quality and safety.

Many respondents questioned the value or stated full unit costs of establishment licences. Others wanted the costs at least partially recovered from additional beneficiaries, not just manufacturers or suppliers.

There was also discussion with one association that if appropriate service standards related to private benefit activities could not be identified for Authority to Sell fees, the percentage recovered through fees should be reduced.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about fee categories and cost-sharing ratios:

• Fee categories are too broad.
• Fee increases should reflect both provincial and federal government policies on drug reimbursement and CPI to avoid divergence between fees and a sponsor's ability to recover development costs.
• We are concerned that the cost-sharing ratio between industry and other stakeholders, as well as amounts from appropriations, are not visible.
• If review of individual submissions were guaranteed within time targets, even higher fees could be tolerated.

Mitigation

Q 3g. Do you support the rationale for the two criteria for fee mitigation?

Q 5a. If you see a need for mitigation, describe how the proposed fees affect your organization, using the criteria provided.

Q 5b. List any financial support available to the product category or industry.

Q 5c. Provide the rationale for why and to what extent mitigation is necessary.

Q 5d. Describe the most realistic mechanism for applying mitigation.

Background

While HPFB charges fees to industries that use its services, it is recognized that in certain instances, these fees can result in an undue burden on certain groups or individual fee payers. As part of this consultation process, HPFB will consider measures to address this type of impact, referred to as fee mitigation, at the explicit request of affected stakeholders.

All requests for fee mitigation must be substantiated by evidence and meet these criteria:

• The recovery of the fee would have a significant, detrimental impact on the financial position of an individual or groups/classes of paying stakeholders.
• The fee would reduce access to such an extent that the achievement of important program objectives would be compromised.

What Stakeholders Said

Of the 72 who responded to this question, 20 (27.8%) opposed fee mitigation measures, and consequently did not respond to the remaining related questions, and 52 (72.2%) favoured fee mitigation measures. Unfortunately, only four answered the question as posed. The others concentrated instead on potential consequences if fee mitigation measures were not adopted, or on products/industries that should be considered for fee mitigation.

Those in favour of fee mitigation thought that reduced fees were necessary to stimulate innovation and research by smaller companies, and to give these companies a chance to get established. Failure to support such companies might reduce access to new therapies.

About 20% of those in favour of fee mitigation said that fee reductions should be based on volume of sales and revenue. Some suggested that companies with a sales volume under $1 million should qualify for fee mitigation; others suggested that a sales volume of $2.5 million might be appropriate, or that fees should be based on a percentage of sales. Respondents also thought that special consideration should be given to orphan drugs and uncomplicated supplemental new drug submissions, as well as niche, low-volume products.

Some in favour said that without such measures, smaller businesses might be kept out of Canada, or forced into bankruptcy, markets might be forced underground or to sell on the Internet, and usage of health products could fall and lead to more illness or outbreaks of disease.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about fee mitigation:

• Fee mitigation should be considered for ultra-rare diseases (<1:100,000), as with the FDA policy for orphan drugs.
• Without fee mitigation, we might not be able to introduce a device to the market.
• Without fee mitigation, further consolidation will happen as small companies disappear.
• For some sponsors of drugs for rare diseases, development costs and regulatory fees may impede a drug's availability on the Canadian market.
• Higher fees could be detrimental to small companies and to products with low sales potential.
• There must be ways to encourage companies to make a full range of imaging devices available, or they will offer only high-volume items in Canada, which will limit choice and reduce access vis à vis the US and EU.
• Proposed fees have a disproportionate impact on smaller companies and niche products.

Service

Activities Subject to Cost Recovery

Q 3a. Do you support the rationale for the categories of service or activities deemed appropriate and inappropriate for cost recovery?

Background

The proposed fees and associated service standards fall under four broad categories, each with its own service standard target times. The broad fee categories are:

• Submission Evaluation Fees for pharmaceutical and biologic drug evaluations, as well as medical device reviews;
• Establishment Licensing Fees for compliance activities such as site and facility inspections;
• Authority to Sell Fees for permission to continue to sell an approved or licensed therapeutic product in Canada, and for supporting post-market surveillance, compliance and enforcement, and policy and IT development; and
• Master File and Certification Fees for facilities/compliance activities relating to the processing, reviewing and administration of Drug Master Files, Certificates of Pharmaceutical Compliance, Medical Devices Certificates, International Trade Certificates, and Certifications of GMP Compliance.

What Stakeholders Said

Only 44.9% of the respondents answered this question. The majority agreed with the categories of services or activities deemed appropriate and inappropriate for cost recovery. Approximately 18%, nearly all of whom supported the CRF, demanded details on how costing was calculated for the various activities.

While agreeing that higher fees were necessary, many wanted assurances that they would be applied directly to the benefits and services received.

Several suggested adding Access to Information Requests to the list.

Others mentioned that submission fees should not apply when switching a product from a prescription drug to a self-care health product. The cost recovery criteria of direct benefit to paying stakeholders and not unduly affecting innovation should justify eliminating such fees.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about cost-recoverable services and activities:

• Categories should be broken down further by drug type and segment, e.g., the maintenance fee for pharmaceuticals should be less for low-risk drugs.
• Charging a fee for Notifiable Changes may deter companies from filing smaller changes, or they may consolidate changes into one submission, thereby delaying prompt submission.
• Fees for access to Drug Master Files is not appropriate.
• The list of exclusions omitted all government departments and agencies. Drugs and vaccines for emergency and terrorism response, which are for the public's safety and well-being, should be exempted from fees.

Standards

Q 3c. Do you support the rationale for the application of service standards?

Background

In addition to proposing more appropriate user fees, service standards were identified to reflect the level of service that could be expected for each fee. Given the direct relationship between service and the costs of delivery, which in turn affect fee levels, an appropriate balance between fees and service standards was kept in mind to minimize fee increases. Service standards can generally be described as time taken to review a submission, application, amendment or issue a licence, and are based on the number of calendar days required to complete that task.

The proposed service standards are consistent with the Branch's capacity to deliver within the level of resources that the proposed fees and associated appropriations would provide.

What Stakeholders Said

Only 45.8% of respondents answered this question, but 62.5% of those who did were supporters of the proposed CRF and had much to say. This was a common topic of discussion at bilateral sessions, with many associations challenging the proposed service standards as not always being appropriate or complete.

About one-fifth of those who answered this question emphasized how important it was to use additional criteria besides those based on review and administrative time to measure service. Most associations supported more service standards than those proposed. While quality of submission reviews was viewed as critical, many preferred less emphasis on the perceived clerical aspect of processing annual product licences. Some thought it advisable to add other activities to the list of criteria, such as how long it takes to investigate complaints and disclose the outcome. Another example given was establishment licences, which should be measured more in terms of activities following inspection or drug analysis, rather than primarily the perceived associated administrative tasks.

Respondents were eager to work with HPFB to enhance the service that it currently provides. For example, many spoke of more pre-submission meetings for guidance. This alone, they felt, would be a significant contributor to greater predictability in regulatory file processing. They also suggested increased interaction during a drug's development, and standards for when a review actually begins, after being screened. Last, they suggested meeting management standards such as targets for responding to meeting requests and the issuance of formal, approved minutes.

In the interests of transparency, respondents wanted details on how acceptable performance standards would be achieved, and pointed out that both process improvements and increased resources would be required.

In the same vein, many respondents wanted assurances that the final CRF would include a description of the detailed process for evaluating departmental performance reports and the potential impact on the following year's fees. They wanted to know exactly which body would be responsible for this evaluation (perhaps an FDA-like ombudsman?), along with a description of how HPFB and the evaluating body would ensure full transparency of evaluation and its conclusions. Accountability was paramount.

A sub-theme running throughout the responses was that many companies dealing with low-risk products already adhere to their own quality standards and other, international manufacturing standards such as ISO. They object to paying what they consider redundant fees for services that they do not need and to subsidizing activities for which they do not receive full value.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about service standards:

• Meaningful performance targets are more important than fees.
• In the name of greater transparency, we would prefer guaranteed times for reviewing individual submissions, rather than group averages.
• Additional measures are required to increase the number of one-cycle reviews and discourage the over-use of NONs to meet performance standards.
• Perhaps it would be advisable to set a maximum rate of NONs as part of NDS and SNDS reviews.
• We should not have to pay application fees for medical devices that have already been approved in comparable jurisdictions, e.g., the US.
• HPFB should institute a tracking process like FEDEX's to let a submitter check on progress, and advise immediately whether a submission is complete.

Penalty Calculation

Q 3e. Do you support the rationale for the fee penalty calculation?

Background

Service standard target times are expressed in calendar days. Existing timing measurement approaches will be used for the proposed service standards, using as a reference the guidance documents that are currently in effect.

Service standard performance is determined by calculating the average time to decision spent for all activities in a specific fee category, relative to the corresponding target times for that category. If the performance is 110% or more of target, the service standard is missed. The User Fees Act provides a 10% leeway on this performance standard. Thus, if the actual performance in a given fiscal year is more than 121% of the target for that fee category, penalties apply for the amount in excess. Fees are then to be reduced for the next reporting year by a percentage equivalent to the performance not achieved, up to a maximum of 50%.

What Stakeholders Said

Response to this question was low, with just 36.4% responding.

More than 20% of those who did respond expressed concern about the undesirable consequences of such a scheme, ranging from unmanageable budgets to reduced access to quality medicines.

The dominant theme on this topic was apprehension that the proposed fee penalty could encourage rushed reviews and compromise quality, while risking appropriation cutbacks. Such a scheme could easily lead to a downward spiral: missed standards this year, lower fees and more backlog and missed standards the next, and so on. Last, the disadvantaged sponsor gained nothing in this scenario; in fact, everyone stood to lose; it would be more effective to devise a positive incentive scheme.

A majority objected to the 121% fee penalty interpretation and several associations spoke about the original intent of the User Fees Act and the penalty clause, namely that it was to provide the only flexibility for performance and that the proposed time targets were actually service standards. In the written responses, those who spoke to this issue were unanimous, saying that this sort of penalty was not the most effective way to uphold service standards, calling it "of symbolic value" only. This was echoed during the bilateral sessions, where several associations indicated disagreement with the process of the penalty clause, indicating that alternative accountability measures might be more appropriate. It would likely prove counter-productive to timely and appropriate access to innovative medicines. One person suggested following the US lead, where Congress can suspend the entire regulatory program if standards are not met.

If the penalty scheme were implemented as proposed, several asked that it at least be applied on an individual, rather than collective, basis. Following the proposed scheme would also make year-to-year budgeting difficult.

Concerns

In written responses, stakeholders expressed these additional comments and concerns about fee penalty calculation:

• If penalties are implemented as proposed, we don't understand what will happen in the case of submissions submitted in one year, but carried over to the next.
• Such a scheme would be of no use to industry, for it contributes to unpredictable launch dates and industry would sustain a risk that is unrecoverable.
• The worst danger of the proposed penalty is the "downward spiral."

International Comparisons

Q 3f. Do you support the rationale for international comparability?

Background

Various countries with advanced regulatory systems collect user fees for therapeutic product regulatory activities. Four jurisdictions were chosen for international comparison with Canada because their regulatory frameworks are similar:

• United States;
• European Union;
• United Kingdom; and
• Australia

An international comparison of fees and service standards presents many challenges due to differences in the health product lines and product groupings, the fee structure for regulatory services, the rationale for charging user fees, and in the financial and business context within the four jurisdictions.

What Stakeholders Said

Just over half (51.7%) of respondents commented on this topic.

Among those who did comment, the need for harmonization of efforts with other jurisdictions was a strong central theme and mirrored in many bilateral discussions. Many would like to see the FDA and EMEA (no-fee) policy applied to their product lines of low-risk, topical, cosmetic-like drugs. They are also interested in seeing a detailed breakdown of international costs per activity. Associations also voiced suggestions that comparison countries be expanded (to potentially include G-8 countries), and that sector- and product-specific comparisons be conducted (for non-prescription, biologic or generic drugs, cosmetics, diagnostic devices and disinfectants).

Concerns

In written responses, stakeholders expressed these additional comments and concerns about international comparisons:

• We question international comparisons for low-risk non-prescription products.
• Full comparison should be made to the FDA and EPA, especially for non-prescription and disinfectant products.
• We should look at international (especially EU) efforts to mitigate fees and complexities of SMEs.
• We understand the rationale for comparison, but no comparisons have been made for review and approval times and other aspects of regulatory work.
• We lack information on performance standards in other jurisdictions, and for non-prescription products.

Additional Comments on the Cost Recovery Framework

Q 6. Please provide any additional general or specific comments you have on the Cost Recovery Framework.

What Stakeholders Said

Comments under this topic were varied and touched on everything from suggesting a CRF reassessment every three years, to inquiring about cost recovery targets in other jurisdictions, to the potential adverse consequences of implementing the proposed new CRF.

Some worried that "constantly increasing fees" could lead to higher prices that would limit or eliminate patient access, less choice for patients, lower entrepreneurial activity, and a deceleration of innovation. Put another way, one respondent said that the new fees might introduce another financial burden that would negatively affect the competitiveness and productivity of Canadian sponsors. Many stakeholders voiced similar concerns during meetings with HPFB. A few respondents requested that HC take a more proactive role during a drug's development phase.

A few respondents were urging HC to devise more innovative options for a "true performance-based approach to user's fees, e.g., tiered fees based on guaranteed timelines for final decisions."

Several felt that low-risk products were over-regulated, and that an increased fee burden, along with the usual regulatory burden, would cripple that industry, put it out of step globally, and hurt Canada's overall competitiveness. This sentiment was echoed at several bilateral discussions.

Other comments came in the form of practical questions, for example, how would the revised CRF help maintain or increase personnel levels at HC? How would workload increases be managed? Would quality suffer to meet time targets?

A few thanked HC for inviting them to provide feedback on the CRF.

Concerns

In written responses, stakeholders expressed these additional miscellaneous comments and concerns:

• Under the Food and Drug Act Division 1A & 2, disinfectants are exempt from Good Manufacturing Practices and Establishment Licences. Please clarify whether the Canada Gazette I proposal needs to explicitly state that disinfectants are exempt from Good Manufacturing Practices and Establishment Licences.
• A spring 2008 implementation would cause undue hardship on our firm, for our budget for next year has already been established.
• We emphasize the need for an independent office to administer the CRF.
• We are concerned that more efficient federal reviews will not be sufficient to guarantee more timely access to medications, given the longer time to listing over the last seven years (delays by CDR and formulary reviews).
• We request a two-year phase-in period to avoid the rush of submissions prior to the implementation date. This would help avoid an immediate backlog and an adverse effect on performance standards right at the beginning.

Annex A: Face-to-Face Meetings

Meetings with key stakeholders provided a valuable addition to the Business Impact Test and the written feedback. The meetings allowed stakeholders to set the agenda, in some cases providing questions in advance, and to focus on issues of particular concern. They helped stakeholders to prepare their written submissions, and gave them an opportunity to probe the reasoning behind the Cost Recovery Framework and suggest solutions to the issues they identified.

These discussions, together with early written responses, guided the agenda of a multi-stakeholder meeting held on May 14, 2007. Because service standards and mitigation were of concern among a wide variety of stakeholders across industry, consumer and patient sectors, the multi-stakeholder meeting focused on these two issues.

Summary reports from the bilateral, small group, and multi-stakeholder meetings held between April 17 and May 14, 2007 are included here. They have been reviewed and approved by all stakeholders involved, and are presented in alphabetical order.

Advisory Committee on Management

May 14, 2007 -Composed of various stakeholder representatives, the ACM is one of two permanent HPFB advisory committees. It has recently expanded its mandate to provide advice for the entire Branch.

Neil Yeates, Assistant Deputy Minister, HPFB, provided an overview of the importance of the revised cost recovery framework to the Branch. He pointed out that there was no indexing built into HPFB's fees and they have not been increased since they were introduced ten years ago, so revenues have eroded significantly as a proportion of costs. He explained the coming steps in the implementation of the framework.

Overview Presentation of Cost Recovery Framework

Christiane Villemure, Executive Director of the Cost Recovery Initiative, provided a brief overview of the initiative. She said that HPFB's aim is to strike an appropriate balance between costs and revenues from fees. She explained that HPFB will ultimately be going back to Parliament with a revised cost recovery proposal, and that there are numerous consultation opportunities between now and then. She reported that the Branch is revising its approach to cost recovery with NHPs, that the May 15 deadline is waived for this sector and next steps will be communicated later.

In response to a call for initial comments, participants requested that the costing be made more transparent, and asked whether international comparisons had taken into account product classification, regulation frameworks, and data protection. It was also mentioned that third party inspections might be an improvement to the present system. Additionally, it was said that government should not be implementing fees that would create costs for one type of product (self-care products under Part C regulations) without imposing the same fee structure on other products of similar risk, authorized under the same conditions of sale (self-care products under NHP regulations) because this would not provide a level playing field for self-care products.

HPFB responded that the revised framework would provide more information on costing, and those jurisdictions chosen for international comparisons were as similar as possible to Canada , though it was understood that any comparison would be imperfect because of systemic differences.

Service Standards Presentation and Discussion

Christiane Villemure presented an overview of service standards, concluding with three questions:

• What do you like about present service standards?
• What are your concerns?
• What suggestions do you have to address these concerns?

Clarification questions were addressed first, including several more questions about the overall framework:

• Could implementation be delayed, since most manufacturers had already determined their budgets for 2008-09?
• After the first cost recovery exercise, appropriations were diminished, making industry pay 75% of the costs of the Therapeutic Products Directorate. Would appropriations diminish with the new cost recovery framework?

HPFB responded that increased cost recovery was necessary for the Branch in early 2008-09, and that appropriations would be obtained to ensure that the percentage of cost recovery remained appropriate.

Concerning service standards, participants asked

• Whether HPFB is looking at the whole continuum of health product approvals;
• Who determines service standards;
• Why there is such a large difference between fees for biologics and pharmaceuticals;
• Whether the time targets are expanded for more complex submissions;
• What is included in the Medical Device standards; and
• Are proposed annual fee increases expected to be insufficient to cover Blueprint plans for enhanced post-market surveillance activities (e.g., data mining, research, evaluation of risk management, as envisioned under PLF)?

HPFB's Response

• The focus so far has been on the Branch, but as we move forward we will continue to work with all partners to address concerns as this has been identified by all stakeholders ( -consumers, patients and industry).
• Service standards are a function of resources available.
• Both salaries and processes are more expensive in biologics, however these are being reviewed.
• Time targets are equivalent for all submissions in any category; that only review components are included in the proposed service standards for Medical Devices.
• Fees will be indexed to increase regularly every three years, and the activities and fees will be reviewed every three years to ensure that they conform.

Participants said they liked the following about service standards:

• That they exist, and
• Predictability

Concerns

• Original intent of UFA was to give 10% leeway, 21% - with the revised framework, the service standards would actually drop, since the leeway on time targets is moving from 10% to 21%
• There is a lack of subcategories in regulations (Section 3) - parity issue (at large): question the fairness of different products being treated the same
• Want standard for entire process, from receipt to decision, including screening, processing
• Transparency related to processes
• Need standard for when submission will be picked up for review; current performance is close to limit of targets
• Need commitment at pre-meetings and better guidance
• Want more transparency related to costing, overhead
• Current focus of standards is only on time, i.e., days; need qualitative measures, e.g., customer surveys
• Need service standards that focus on public safety, comparable to time target standards for industry: create standards for reporting ADR and posting information on the web site
• If difficult to report on post-market activities, consider only appropriation funding
• Quality of process - industry and Health Canada
• Cost-sharing ratios not appropriate - 75% payment for submissions ignores benefits to patients

Suggestions, in addition to implicit suggestions above:

• Timeline for ADR reporting and posting to web, interactions with industry
• Reward compliant companies and those that file high-quality submissions with fee rebate
• Relevant standards for clinical trials, related to the quality of data submitted, e.g., surrogate endpoints

Presentation and Discussion on Fee Mitigation

Trish Larwill, Senior Policy Analyst with the Cost Recovery Initiative, provided a presentation (attached) on mitigation, and subsequently participants divided into three groups, looking at the key reasons to mitigate and the mechanisms that might address them. These groups (participant lists attached) then reported their conclusions to the plenary.

BIOTECanada

April 30, 2007 -BIOTECanada is the national organization dedicated to promoting a better understanding of biotechnology and the many ways it contributes to improving the quality of life of all Canadians.

Biotechnology is broadly defined as the use of living organisms (plants, animals and micro-organisms) to develop and improve products. BIOTECanada represents Canadian health care, agricultural, food, research and other organizations that are involved in biotechnology.

The vast majority of the approximately 450 biotech companies in Canada have fewer than 50 employees.

The main concerns of BIOTECanada include the fee structure, the magnitude of the fee increase, how these fees relate to other projects at HPFB such as Progressive Licensing, mitigation, and timelines for implementation. On the positive side, BIOTECanada members have been impressed with the clearing of the backlog and improvements to timelines for approval, and recognize the need to maintain those accomplishments.

After a brief presentation on the cost recovery framework from HPF, BIOTECanada raised concerns about the difference between fees for pharma vs biologic products, and said that other jurisdictions do not make this distinction. HPFB explained that the higher costs for Biologic are based on higher salaries and more expensive processes necessary to review the products, but committed to re-examining the fees for biologics. BIOTECanada also requested increased transparency and validation on activities and costing.

BIOTECanada suggested that the movement to a flat submission fee structure instead of a component-based system will increase the cost to sponsors for submissions that support additional indications, routes of administration or dosage forms. They added that increased costs of compliance could discourage innovation or motivate companies to leave Canada .

BIOTECanada indicated that the fee structure was inconsistent with the draft Post-Notice of Compliance (NOC) Guidance which was interpreted to discourage bundling of Notifiable Changes. HPFB provided clarification on the post NOC Guidance and which encourages the bundling of Notifiable Changes if they are supported by the same data packages or are related. A Notifiable Change fee will be levied only once if the changes are consistent with this criteria.

BIOTECanada also expressed concern that paying fees for every change to a submission would be a disincentive with a potential impact on productivity. HPFB replied that there is a distinction between related changes, which have no fee, and unrelated changes, which do.

BIOTECanada suggested that there could be lower fees for reviews which are similar to previous submissions.

Concerning mitigation, BIOTECanada's primary concern was around orphan products: all other comparable jurisdictions exempt or reduce fees for orphan products, and they would recommend that in Canada as well. BIOTECanada favours the more generous American definition of a rare product (as opposed to the European) and will be putting forward a concrete proposal for mitigation, including the suggestion that there be measures to support the innovation of Canadian products and companies. BIOTECanada was concerned about the proposed automatic yearly increases in fees and reminded HPFB that the PMPRB limits product price increases to the CPI. BIOTECanada also expressed a concern about fees for vaccines. HPFB encouraged all member companies to complete the BIT.

Concerning service standards, BIOTECanada said they were not sure they support the User Fees Act ( UFA ) penalty for failure to meet service standards, since it does not seem to benefit anyone. They would like to reduce Notices of Non-compliance / Notices of Deficiencies arising near the end of the review period. They would also like to see HPFB taking a more proactive role in the submission development phase, such as a dedicated reviewer to work with a company during clinical development. HPFB responded that the lack of resources is an obstacle to early attention to submissions at present. BIOTECanada also indicated concern with the inclusion of only review target times as submission evaluation service standards, and indicated they are looking for enhanced performance delivery.

BIOTECanada encouraged HPF to make use of foreign reviews a much as possible, and HPF replied that this being pursued but that every regulator reserves the right to make the ultimate decision on a product.

BIOTECanada asked why there was a service standard for Notice of Compliance, which is slated for elimination, and HPF replied that the Progressive Licensing Framework will require some time to come into force.

Concerning international comparisons, BIOTECanada asked why Canada is proposing to charge twice as much as Australia , which has a similar market size. BIOTECanada suggested that the United Kingdom is not a relevant comparator for biologic products as the UK is part of the EMEA system for the regulation of these products. The United States and EMEA are also difficult comparators as these agencies provide access to two of the largest markets in the world. HPFB explained that there are differences, but committed to re-examining the fees for biologics. BIOTECanada added that Canada creates hurdles for approval that are not created by other jurisdictions, and that this should be taken into account in the setting of fees.

They encouraged HPFB to consider the overall process of marketing a product in Canada , including the hurdles that exist as a result of the PMPRB and the Common Drug Review.

BIOTECanada reminded HPFB that many companies have finalized or are moving toward finalization of their 2008 budgets and that any significant fee increase early in 2008 will likely have a significant negative impact on 2008 operations. BIOTECanada concluded by reiterating their concern with what they consider to be a quite substantial fee increases, and setting January 2009 as a more appropriate date for implementation.

Canada 's Research-Based Pharmaceutical Companies

May 2, 2007 -Rx&D is the national association representing over 22,000 men and women who work for more than 50 research-based pharmaceutical companies in Canada . Approximately 10,000 medical researchers are employed as a result of member companies' investment in R&D. Of this total, about 4,000 work within Rx&D member companies and an estimated 6,000 work at universities, hospitals and research institutions. Member companies share a single primary objective: to discover new medicines that improve the quality of health care available for every Canadian. Comprised of companies of all sizes, Rx&D member companies are part of the global pharmaceutical industry whose members are responsible for developing in excess of 90% of the medicines available today.

Rx&D reported that their members had expressed concern about the timelines for implementation given that many have committed budgets up to 2010. The proposed implementation of this cost recovery initiative in 2008 could have serious repercussions, especially on smaller companies. Rx&D questioned the urgency of implementation and suggested that it may be prudent to delay until some of new HPFB initiatives such as progressive licensing currently being undertaken, are in place. HPFB indicated that the financial situation of the branch needs to be addressed in the short term, since fees have remained the same but costs have risen, therefore the goal is to have something in place by 2008-09. HPFB asked what form of fee mitigation would help, to which Rx& D replied that small companies, defined by revenue, should be considered, and that orphan drugs should also be an area of concern in this context. It is HPFB's intention to publish a fee mitigation proposal with the revised framework.

Rx&D expressed concern that with an increase in fees there is a risk that HPFB's A-base would decrease, and would therefore be insufficient to support present activities as well as potential ones planned under Progressive Licensing or other aspects of the Blueprint for Renewal. They also asked what mechanisms are in place to ensure that the fees are specifically used for the designated activities. HPFB answered that the funds will be tracked, and that this is a Branch commitment. Rx&D also questioned whether the Branch had a contingency plan in the event the Cost Recovery Initiative did not achieve its implementation date and TAS funding expired. HPFB said that pursuing funding through supplementary estimates would be an option under the proposed circumstance.

Concerning service standards, Rx&D would like to see the Branch have a series of metrics in place to monitor the efficiency of the drug review process. Some examples cited include a time-to-pick-up standard, to encourage reviews to start earlier in the review cycle to avoid the last minute pressure to complete the review HPFB replied that a number of efficiency gains were made through the Therapeutic Access Strategy and that a quality management system is being instituted in BGTD. Rx&D commented that their members were very interested in seeing both qualitative and quantitative service standards to justify the fees such as standards for meetings, training/expertise of inspectors. There is a willingness to pay for service improvements, provided they have service standards to ensure accountability.

With respect to the Authority to Sell (ATS) fees, Rx&D commented that the time to receive notification was an inadequate service standard and there should be other performance standards related to the activities performed. It was suggested that there should be standards for Adverse Drug Reaction reporting, and if there are existing internal standards, these should be made more transparent. HPFB said that there are service standards for specific aspects of that continuum, but that it is hard to set target times for reactive activities as it is more of an insurance model rather than a specific fee for service; an annual report on surveillance has been considered. In order to include ADR reporting in the cost recovery initiative there must a service standard as per the User Fee Act. Without such a standard, Rx&D questioned whether it was appropriate to include this activity at this time. Rx&D also encouraged HPFB to include more service information regarding ATS fees in the next iteration of the framework.

Rx&D requested more detail on the costing behind the fees, particularly with regards to the higher fees for biologics. HPFB responded that there is a different level of effort, salary expense and research involved, but that the Branch acknowledges this concern and will be re-examining the costing for biologics. There was a discussion on the submission evaluation fee structure, including why some of the combined fees are actually higher than the sum of their components (e.g. clinical only and chemistry and manufacturing only), and the number of indications per submission included in samples. The specific example related to Clinical / Chemistry & Manufacturing fee of $153 compared to the combined components of Clinical Only fee of $71K and Chemistry and Manufacturing fee of $20.5K which equates to $91.5K.

Concerning the change from a component-based fee to a flat fee, Rx&D said that the old system made sense, but was complicated. The new one is simpler, but will have to examine whether it raises any inequities.

Concerning Establishment Licensing, Rx&D's main concern was service standards, in particular the time to receive a licence. HPFB responded that there are internal targets, and that efficiencies and process improvements are being looked at, such as staggering licensing dates so that not all renewals come at one time.

Rx&D asked why vaccines had been included, particularly at the highest end of the recovery scale, given their public good, and HPFB committed to looking into this issue.

There was also discussion of the connection between the cost recovery framework and other Branch policies and guidances, such as the draft Post-Notice of Compliance Guidance. HPFB confirmed that there are ongoing dialogues within the Branch to ensure that there is consistency and awareness of impact of the various ongoing initiatives, including Blueprint for Renewal. It was acknowledged by all that there are issues to resolve in the drug approval continuum outside of HPFB such as the Common Drug Review. Although this falls outside of the scope of this consultation, HPFB committed to transmitting that message, which has been voiced by several stakeholders.

Concerning submission filing projections of it member companies, Rx&D said that they can provide solid information for one year, barring some uncertainties, but that beyond that it is very difficult to forecast. HPFB encouraged all member companies to respond to the consultation questions and complete the BIT.

Canadian Animal Health Institute

May 8, 2007 -CAHI is the trade association representing animal health companies that develop, manufacture and distribute animal health products. New animal health products are approved by Health Canada's Veterinary Drugs Directorate or Pest Management Regulatory Agency and the Veterinary Biologics Section or Feed Section of the Canadian Food Inspection Agency (CFIA). These products include pharmaceuticals, feed additives, biologics (vaccines), and animal pesticides.

CAHI inquired as to whether the present framework will affect establishment licensing or annual fees in the veterinary sector, and HPFB responded that the present framework does not address veterinary drugs at all.

Regarding service standards, CAHI said that time targets established by HPFB are service standards, and the intent of the UFA was not to provide an additional leeway of 10% CAHI added that the robust reporting required under the UFA is not presently being provided, and that reporting on backlog is not relevant. In response to a concern from CAHI that veterinary drug submission service standards may not be equivalent to other countries, HPFB replied that a comprehensive international comparison will be conducted, and that there will be a consultation process with the veterinary drug sector on proposed service standards and service delivery, as required under the UFA .

HPFB indicated that the intent is to eliminate the backlog in veterinary drug submission review before revised fees are applied and clarified that the veterinary drug sector was included in the discussion of the present framework in order to obtain input on the general principles of the framework.

Canadian Association of Chain Drug Stores

May 10, 2007 -CACDS is the national association that represents the community chain pharmacy industry in Canada. The twenty-two members of CACDS are traditional chain drug stores, grocery chains and mass merchandisers with pharmacies. Together, CACDS members operate 5,602 stores that dispense 78% of the nation's prescriptions each year.

CACDS members employ more than 97,000 Canadians, including 70% of the pharmacists in Canada . Its 180 Associate Members represent all supply categories and services in the retail pharmacy industry, including pharmaceuticals, health and wellness products, self-care medications, and other consumer products. CACDS' mission is to ensure a strong chain drug store sector which provides Canadian consumers with access to high quality products and health care services.

There was a discussion about the implications for retailers of post-marketing surveillance fees. HPFB said that they would have no direct impact on retailers, though they would have an impact on their suppliers. HPFB confirmed that wholesalers would continue to pay an Establishment Licensing fee.

CACD asked if the scope of the fees had changed, and HPFB indicated that fees for submission evaluation, annual product licensing and establishment licensing have been maintained, although the activities included under each fee have evolved since the fees were originally implemented. Continuing program evolution (through Blueprint for Renewal and other initiatives) will likely result in new activities to be considered for cost recovery in three years when the framework is reviewed again.

HPFB clarified that there is no link between the National Pharmaceutical Strategy and the proposed cost recovery framework.

There was a discussion of the percentage of costs to be recovered. HPFB explained that historically the percentage of recovery has fallen from 50% when fees were originally introduced to 25% at present, and the framework proposes that 66% of program costs, before mitigation, be recovered. The service standard penalty clause of the User Fees Act was also discussed.

HPFB reported that the Branch is revising is approach to cost recovery of NHPs, and consequently the May 15 deadline has been waived for that sector.

Canadian Consumer Specialty Products Association

May 10, 2007 -CCSPA is a national trade association representing the consumer, industrial and institutional specialty products industry.

Discussion focused on a series of general questions provided in advance by CCSPA.

HPFB introduced the Cost Recovery Initiative, reported that the Branch is revising its approach to cost recovery for NHPs and has waived the May 15 deadline for that sector, and asked for initial comments from CCSPA.

CCSPA asked if they could also obtain an extension on the deadline, but HPFB said that the deadline could not be extended for other sectors. HPFB confirmed that companies could fill out one BIT form for all their product types, as the electronic BIT was capable of handling such a request.

HPFB added that any additional comments from companies could be put into a letter and sent in with the submission, and that all comments are welcome. HPFB encouraged member companies to respond to the consultation questions and complete the BIT.

In an ensuing discussion about the history of the Cost Recovery Initiative, HPFB confirmed that key recommendations from the KPMG study of 2000 were integrated into the present proposal, and feedback from 2005 discussions was used to build the framework. In particular, public/private balance was used to determine the percentage of cost recovery for each type of fee.

HPFB explained they would be starting to use an index (similar to a cost of living index) to reflect the changes in costs and increase the fees yearly. This is permitted under the Financial and Administration Act. HPFB wants to avoid waiting 12 years to review fees and cost restructure and would like it to be more predictable. CCSPA had concerns with any potential changes in fees without an accompanying review of performance standards.

CCSPA questioned whether their industry receives the percentages of benefit noted for the fees, particularly Authority to Sell fees. CCSPA and the members were very concerned by the 400% increase in the annual fee and believe that it is not warranted because 2 out of the 4 elements of the compliance model currently being proposed have exemptions or soon-to-be-resolved policy issues. CCSPA was also concerned about the 120 days allowed to issue an ATS licence since there was no standard in place before. Health Canada clarified that the standard was put in place to adhere to the User Fee Act. HPFB responded that they are looking at whether there should be different annual fees for different kinds of products, and also looking at fee mitigation proposals in the case of undue business impact. HPFB recognized CCSPA points of view and said that their concerns would be taken into account for the next proposal consultation.

In submission fees, CCSPA were most concerned about fees related to monographs, which have increased from $310 to $1530 . They said that no data needs to be reviewed for these, making it hard to believe that a review under the current system costs 500% more. HPFB said that the increases are based on the actual cost of delivering the service, which was based on the level of effort required to carry out this service. Given that a key element of the KPMG report was HC providing adequate resources, CCSPA asked if there was any guarantee that more reviewers would be assigned to their sector, since there is only 1 and there used to 2. HPFB replied that it wasn't possible for them to say, they could only confirm that the service standards would remain the same, and there will be an increased urgency to meet service standards as a result of the penalties prescribed under the User Fee Act (UFA).

When asked by HC about our members reactions to the proposal - CCSPA stated that it would difficult for members to support HC's increase in fees while performance is staying the same or worsening.

CCSPA also provided input on the level of revenue that HPFB was anticipating since it is fixed on a certain number of products. Given the experience at PMRA and its re-evaluation program, there has been a decline of revenue due to products not being reregistered due to the fees and this could happen at HPFB.

CCSPA asked for clarification on the interpretation of HPFB's "rebate" for submissions that don't meet the timeline for review. HPFB explained that the fee penalty comes into effect if the service standards are missed by more than 10%, that service standards as presently defined as time targets that must be met 90% of the time, and that failure to meet standards results in decrease in fees in the following year. CCSPA expressed surprise at the lack of guidance from Treasury Board related to the UFA, and said that they believed that the intent of the Act was to compensate individual companies for any lapse in service standards, rather than to lower fees the following year.

CCSPA suggested phasing in the fees as per the last cost recovery initiative by Health Canada, and HPFB said that they had heard this suggestion from several stakeholders; they encouraged CCSPA to include it in their written proposal.

CCSPA raised the fact that they are exempt from Establishment Licensing fee and asked HPFB whether that would need to be clarified in the regulations or not. HPFB indicated that they would need to check but told CCSPA to ensure to include that in our comments.

CCSPA requested 90 days for the comment period for Canada Gazette, Part I and HPFB stated that due to the international implications, it would be either 75 or 90 days.

CCSPA expressed concern about HPFB receiving required appropriation funding, and about the percentage of funding to come from cost recovery. HPFB said that 66% of program costs, before mitigation, are to be covered by cost recovery, and that mitigation would decrease that percentage. The remaining portion would come from appropriations, and the cost recovery proposal provides a strong basis for discussions with Treasury Board to that end. CCSPA requested that HPFB's proposed budget for 2008 be shared with them - clearly outlining the proposed budget with A-base and cost recovery.

Canadian Cosmetic, Toiletry and Fragrance Association

May 8, 2007 -CCTFA members are at the forefront of a $5.4 billion (retail) industry in Canada. With over 175 member companies, CCTFA acts as the principal voice of the personal care products industry by maintaining a constant dialogue with government regulators to ensure the development and effective representation of industry positions on all regulatory matters. One of the Association's primary goals is to establish and maintain an optimum business environment that promotes Canadian industry's global competitiveness through smart regulation.

The Chair reported that the timeline of cost recovery for NHPs had been delayed, and asked for initial comments.

CCTFA fully supported the delay in implementation of cost recovery for NHPs. Additionally, they suggested that there be no fee to transition products with a Drug Identification Number to the NHP framework and for fees to be reduced for a site licence application if a Drug Establishment Licence has already been issued. HPFB responded that all fees will be based on costs.

CCTFA questioned the international comparisons provided in the initial framework since their products are regulated in Canada as drugs and NHPs but are considered cosmetics and not regulated to the same degree in other jurisdictions such as the US, Europe, and Australia. They asked that international comparisons be undertaken specifically in their sector. HPFB committed to providing a more detailed international comparison in the next iteration of the framework.

The magnitude of the proposed fee increases are quite major for their industry, and could lead companies not to bring certain brands or products to Canada . In particular, CCTFA cited the increase in labelling fees from $310 to $1530 and expressed concern that this fee was skewed by "drugs submissions" which they feel require a greater level of effort to review than what they term a "cosmetic" product.

Establishment licensing and authority to sell fees were their greatest areas of concern, and they suggested that fees be differentiated as regards the risk posed by the products and the level of effort required to regulate (i.e. different level of effort to inspect manufacturer of prescription product than sunscreen). They believe that their products are low risk because they don't often involve new science, are using well-known ingredients, are often topical and usually have a short product life. They are concerned that their sector is disproportionately hit by the proposed fees and would be contributing more than their fair share to program costs given their low risk compendial products.

They suggested a phase-in of the fees, particularly since many companies have already completed their budgets for 2008/09. They supported continued mitigation of fees for sales below an identified threshold.

CCTFA considered the proposed service standards to be timely, predictable, and appropriate as long as being met.

They supported updating the framework regularly to avoid large increases in fees in future.

They said that it is very difficult for the industry to provide forecasting information, since it is a very fast-moving seasonal and trend-related industry but that most companies introduce new product lines at least once a year. They added that, in the long term, they hope to address ongoing issues concerning the classification of cosmetics as drugs.

Canadian Generic Pharmaceutical Association

April 17, 2007 -CGPA represents manufacturers and distributors of finished generic pharmaceutical products, manufacturers and distributors of active pharmaceutical chemicals, and suppliers of other goods and services to the generic pharmaceutical industry. CGPA's 16 member companies spend approximately $250 million annually on R&D in Canada.

CGPA indicated they are looking for performance to be measured in an appropriate and meaningful way for them. They are still in the process of obtaining input from their member groups, and have encouraged all members to complete the BIT.

CGPA is concerned with overall financial impacts, as prices charged to the provinces have been frozen for more than ten years and have recently been cut, yet general operating costs are increasing.

There was discussion around performance standards, and clarification provided that certain performance standards are proposed to be set for cost recovery purposes, while these and others are established as part of good management practice (e.g. clinical trials). If an activity does not have a fee, then the service standard is not subject to the User Fees Act penalty clause for non-performance. HPFB assured CGPA that it intends to continue publishing service standards that are not required for UFA purposes and will consider publishing additional standards as part of good management practices as well.

CGPA suggested that Drug Master File review could be a candidate for a fee, although the proposed fees related to DMFs are only for the administration of the file. DMFs are currently only reviewed with the context of a drug submission, highlighting the relationship between the drug substance and drug product.

While acknowledging that the proposed service standard and time targets may be appropriate (i.e. 180 days), CGPA raised concerns with the length of time it takes for TPD to begin the review process, and issuance of NONs/NODs. CGPA regards it as unacceptable that the percentage of their submissions going through on first review has dropped from 59% two years ago to 19% at present. To address this problem, they suggested several options: a "time-to-pick up" service standard, a new metric of time of actual review (not counting shelf time), stopping the clock for clarifaxes, increased industry self-screening, and implementation of the Integrated Review Process, which has shown signs of promise in its trial applications.

In general, fees are considered the cost of doing business, but proposed increases may be opposed by CGPA in the absence of acceptable service standards.

CGPA suggested fee mitigation may be appropriate for products with lower sales levels, and was encouraged to include thresholds and detailed suggestions in their submission. Regarding annual product fees, CGPA indicated a tiered fee may be an option.

When asked about forecasting, CGPA indicated that type of information is extremely difficult to collect due to the direct competition between its member companies for the same market share.

CGPA signalled their intention to prepare a formal response to the Consultation Questions, including detailed comments on proposed fees and service standards.

Canadian Homeopathic Pharmaceutical Association

May 2, 2007 -CHPA was formed in 1990 to respond to Health Canada 's Information Letter no. 775, which was a proposal to modify the status of the homeopathic medicine from DIN to HM. The HM was proposed so that the consumer could distinguish homeopathic remedies from conventional drugs. CHPA sought to maintain recognition of homeopathic medicines as pharmaceutical products and succeeded in maintaining the drug status and drug identification numbers for homeopathic medicines. Since then, the association has been officially incorporated as a national, not-for-profit industry association and currently has 12 companies that are active members.

CHPA expressed concern that the proposed framework does not take into account the existing arrangements which are already in place, and the particular nature of the industry, which has many products and low volume of sales per product.

CHPA characterized the proposed model as unacceptable, saying that it would greatly increase costs for consumers and ultimately put companies out of business, make products unavailable and make it impossible for homeopaths to practice with the benefit of ready access to homeopathic medicines. They also suggested that in the event of decline in commercial manufacturing, importation and distribution of products for which there is a limited demand (and insufficient sales volume to support administrative costs and cost recovery fees) a black market could be created for these products, and that the proposal goes against Allan Rock's and House of Commons Standing Committee on Health's aim of ensuring availability of health products.

They pointed out that the price of conforming to the existing regulations is costly, and that the process of migrating products from TPD to NHPD is in the early stages. CHPA also noted that under TPD policy, one DIN can be assigned to a number of potencies and dosage forms. This will not be permitted for DIN-HM product license, requiring a number of DIN-HM product license applications per DIN in order to effect a migration of the product licenses. Homeopathic medicines is the last sub-category of NHPs to be transferred from TPD's authority (for products for which DINs have been issued) to NHPD's authority under the NHPD compliance policy.

CHPA suggested that the implementation of the framework should be delayed. They said that they were satisfied with the rules in place with TPD and would like the proposed framework to follow those and to maintain the same fee levels. They asked for a cost recovery framework tailored to the homeopathic industry, saying that industry earnings are minuscule compared to those of pharmaceutical products. They noted that despite the large number of products and related DINs, only a small number of profitable products support the overall product array. They felt that the product license review of homeopathic products requires much less effort and that they are low-maintenance in the post-market environment, meaning that adverse events are extremely rare as are incidences warranting HPFB Inspectorate intervention.

CHPA said that at present predictable service standards cannot be ensured by NHPD, making fees unacceptable under the UFA and NHPD is basing its proposed fees on disproportionately high costs incurred by start-up activities. They pointed out that in the United States there are no fees required for this sector to do business. They also noted, based on their previous experience, that the (first) invoicing could present problems that might take a long time to iron out. They cautioned HPFB to ensure that the first invoice is not issued without prior understanding of and agreement with the fee schedules upon which the invoices are based. This is preferable to resolution of disagreement after the fact.

Compressed Gas Association

April 30, 2007 -CGA is dedicated to the development and promotion of safety standards and safe practices in the industrial and medical gas industry. Amy Park noted that CGA has strict antitrust/competition law compliance guidelines and does not have information regarding costs, markets, or other related business practices. However, CGA could forward any Cost Recovery Initiative consultation requests or information from Health Canada to the CGA members.

HPFB confirmed that the time target for the renewal of establishment licensing is the same as the target for issuance (i.e., 250 days for drug establishment licences), and CGA members raised concern that this is too long, because they need that licence to operate: their products are sold to institutions or companies, both of which demand a current establishment licence. Solutions discussed included extending the licensing period, renewing licences by the end of the first quarter of the year or staggering the process of issuing licences (HPFB is looking at that currently). CGA members also expressed concern about compliance, since some small companies may not even be aware of licensing requirements, and may operate under the radar.

CGA members raised the concern that the majority of their products supplied to Canadians to allow them to live at home rather than in institutions are reimbursed by provincial plans, and that reimbursement levels have not increased. Further many of those provincial plans covering home care are on fixed three to five year contracts. They characterized cost recovery in this sector as one level of government taking from another level of government, as would be the case in blood services.

CGA members also raised the concern that many companies have a number of different facilities serving small markets, and that the proposed fee levels for establishment licensing would jeopardize the value of remaining in these smaller markets. Since larger companies could not qualify for fee mitigation based on their overall sales, they suggested that sales or revenue levels be looked at by location rather than overall. In an ensuing discussion of potential means to mitigate, some CGA members said that their accountants were currently looking at the difference in cost involved in supplying remote locations, and the percentage of their business which is done in remote locations. Some CGA member companies stated that their senior management is considering exiting some of these smaller markets if the cost for licences increases to the point of negatively impacting business viability in those areas. This exit would have direct negative impact on accessibility to health care for Canadians living in those rural areas. They were open to the idea of mitigation being applied to the remote sites, and agreed that it will be important to define remote.

CGA members raised the concern that medical gas is less complex than pharmaceutical products, and scientific complexity has not increased in this sector, therefore fees should not either. HPFB replied that fees have increased less where there was less scientific complexity, but that nonetheless they have increased because of increasing costs. HPFB agreed to examine the possibility of charging different fees to different sectors, based on criteria such as complexity.

CGA members suggested that there should be an absolute maximum time to review a product for a DIN application. HPFB pointed out that there is some motivation to get a long overdue product reviewed because performance is measured in averages. HPFB agreed to look at the possibility of reducing inspection frequency based on risk assessment from past inspections.

CGA members raised concerns about medical device manufacturers exiting the Canadian market as a direct result of increased fees relating to medical device licences. A number of manufacturers withdrew when the medical device licensing schema was first introduced, citing the increased costs and the licensing process (i.e., ISO 13485 vs ISO 9000 registration) as a prime factor in their decision.

CGA members raised concerns about small manufacturers leaving the country as a result of fees-or bigger players shutting down remote locations, leaving only smaller shops some of which may operate under the radar, without applying for Establishment Licences, thereby increasing public risk. A discussion ensued about whether HPFB will accept FDA approvals or corporate audits in future. There was also a discussion of the definition of foreign sites and sites in general, since multiple charges are arising from the use of the same foreign sites and CGA members are now paying for more sites than they previously were. HPFB agreed to look at ways to address this issue.

Consumer Cluster

May 7, 2007 -The Consumer Cluster is composed of the Canadian Council on Multicultural Health, the School of Health Policy and Management, Women and Health Protection, and the Consumer Interest Alliance.

Consumer representatives questioned the percentage of cost recovery reported. They asked that cost recovery percentages be reported for each of the different directorates, both at present and historically. HPFB

HPFB continued with a brief overview of the proposed cost recovery framework. It was commented that the revenues from NHPs seemed disproportionately high compared to pharmaceuticals - HPFB answered that this is because of the high volume of NHPs on the market.

Referring to a graph of submission volume fluctuations over time which they provided, WHP commented that it would be difficult for HPFB to ensure stable funding through cost recovery. HPFB replied that revenues from annual product fees are relatively stable and that the Branch is putting more emphasis on forecasting and finding ways to compensate for fluctuations.

A key concern of consumers was the absence of standards on safety issues, and the resulting gap in accountability, especially since HPFB would then not be liable to penalties under the User Fees Act (UFA). They feared this would result in fewer resources dedicated to address safety issues. In an ensuing discussion of the difficulty of setting standards for the unpredictable post-market surveillance environment, the following service standards were suggested: time to post adverse reaction information on the website (or to provide written reports), the time to communicate the need for change to drug companies, analysis and feedback on adverse drug reactions within a week (to the people making the reports), posting information on the website within a month.

Active surveillance, commissioning of studies and linking of databases were suggested process improvements for post-market activities.

While not interested in penalizing HPFB for not meeting standards, consumers want assurance that standards related to public safety are given equal value to other standards related to industry concerns, such as time to review.

While one consumer said that all HPFB work should be publicly funded, another indicated that their organization did not object to some measure of cost recovery. Additionally, the question of who has legal liability for safety under a cost recovery system was raised.

It was agreed that greater transparency of safety assurance activities would be desirable, but that the time to get products to market was also a consumer concern. There was concern expressed that consumers are not aware of the regulation system for NHPs, and do not know how to identify a regulated from an unregulated product. There was discussion of post-marketing surveillance of NHPs, which HPFB said is being done using both its own and foreign data, and licensing of foreign sites.

CCMH suggested that there be greater dissemination of ADR reporting to physicians and to institutions such as nursing homes and hospitals. He also asked whose role it is to report ADR, and whether interactions are being documented between NHPs and drugs - this being a concern to his constituency, who increasingly are mixing prescription and NHPs.

WHP presented a study undertaken in the United States , which found that health products approved late in the review period were more likely to be found to pose safety risks. They asked that HPFB study of the effects of cost-recovery on safety to date, and pointed out that the FDA conducted such a study by surveying their reviewers.

Consumers raised concerns that there is a greater need for transparency at HPFB and identified that other governments provide much more information and Canada should follow best practices available. They suggested release of redacted safety and efficacy data from clinical trials, as in the FDA redacted reviewer reports, because current Canadian published summary of data information is not sufficient. It was also suggested that there be greater transparency concerning how the timelines are met, and what occurs if and when the clock is stopped - there was concern both that HPFB could be pressured to approve products quickly, and that stopping the clock could be simply a way to avoid missing the service standard.

WHP distributed a study of the percentage of safety withdrawals over time, but said that it was impossible to know, with existing published information, why withdrawals occurred. He also pointed out that studies have shown that the percentage of positive decisions have gone up since cost recovery was instituted. They raised concerns that with time standards for reviews now being guaranteed under the UFA , there need to be standards set in place to assure quality of reviews, and greater transparency. It was suggested that there should be studies of safety issues that occur subsequent to approval, analysis of how closely estimates of efficacy matched effectiveness in the real world, and analysis of whether indications from the trial population could have predicted efficacy problems in order to measure quality.

There was a brief discussion of the difference between FDA and Canadian standards for review, and the reasons why Canada needs to maintain its own health product regulatory system.

Consumer Groups in Attendance

Canadian Council on Multicultural Health (CCMH) is a national, non-government, non-profit organization of people from all walks of life, working on a voluntary basis. Its aim is to promote and support an integrated health care system for persons who face inequities and barriers to access by virtue of their cultural and/or ethnic origin. CCMH has been in existence since 1986 and it has affiliate organizations in many provinces. It works closely with the Health Systems and Strategies directorate. CCMH has been the sponsoring organization for Removing Barriers Symposium 1 and 2.

Women and Health Protection is a coalition of community groups, researchers, journalists and activists concerned about the safety of pharmaceutical drugs. The group keeps a close watch over ongoing changes in the federal health protection legislation, examines the impacts of those changes on women's health, and makes recommendations to the government for Canadian legislation that truly provides "health protection."

The Consumer Interest Alliance Inc. (CIAI) is an emerging working coalition of members deeply concerned with and involved in representing the consumer interest through cooperation and discussion with other players in the Canadian economy. CIAI plans to do consumer research, submissions, and representation in the following areas: Food and Agriculture, Health as it relates to Food and Agriculture, Financial Services, Environment as it relates to Food and Agriculture, Standards - National and International.

Direct Sellers Association of Canada

May 3, 2007 -DSA is the national trade association of firms that manufacture and distribute goods and services to consumers through independent sales contractors away from a fixed retail location. DSA described its members as direct to customer sales organizations with 600,000 sellers with a total of $1.4 to $1.9 billion in sales per year; 70% have retail sales of less than $50 million annually; about 70% market NHPs.

DSA indicated that their concerns were only with the proposed fees for NHPs. They said that the cost for NHP companies to comply with HPFB regulations has been much higher than initially estimated About 55% of these companies can be characterized as small or micro, and they tend to sell to limited markets. Many companies could not survive with the added expense of these fees, and sales will be driven underground, with the net effect of decreasing government revenues and creating unemployment.

The association has a strong Code of Conduct and is encouraging all members to be compliant with all regulatory requirements. They accepted the necessity of cost recovery, but not its application as proposed. They pointed out that with NHPD still grappling with backlogs, and reduced service delivery, they were surprised at the proposed service standards. HPFB said that the fees would not be set in place until the backlog was cleared and DSA said that this would be beneficial, to allow companies more time to adapt to the regulations. They remained concerned that a significant amount of the fees may be passed on to consumers.

DSA said that they would discuss possibilities for mitigation with their membership, including caps, graduated scales (and threshold levels) and particular measures for orphan health products, and would make a submission to HPFB. They asked for an extension on the May 15 deadline, which at the time HPFB could not grant - however, the deadline for submissions concerning NHPs has since been extended.

DSA considers a level playing field as having value, and would support fees to that end. However, they are concerned with compliance and want to know what percentage of the fees would be going towards it. HPFB estimated that 25-30% of the post-market fees would support compliance activities.

In conclusion, DSA indicated that they have always been able to work with the government to arrive at win-win solutions, and is committed to continuing to do so.

Electro-Federation Canada

May 1, 2007 -EFC is a national, not-for-profit industry association. Together, its six councils represent over 300 member companies that manufacture, distribute and service electrical, electronic and telecommunication products, contributing over $50B to the Canadian economy. The Medical Imaging and Information Systems Council (MIISC) brings together 10 Canadian companies involved in the distribution of medical imaging and therapy equipment, including associated film and software products. Annual sales from these products totalled over $375M in 2003 and covered the modalities of X-Ray, Computed Tomography (CT), Magnetic Resonance Imaging (MRI), Nuclear Medicine and Ultrasound.

Electro-Federation stated that the cost-sharing ratios lacked the detailed information on individual cost elements needed to adequately review the proposals. For example for establishment licensing, Electro-Federation argued that other stakeholders, such as hospitals and the government, also benefit and therefore industry should not bear 100% of the cost. They also said that, given the current service provided, it is difficult to understand the significant proposed fee increase for this category.

Electro-Federation said that the proposed increases in fees would limit the number of product lines carried in Canada, because companies will simply choose not to market them here. Given that many medical device companies currently require fee mitigation (including over one third of Medical Device Establishment Licence holders) HPFB encouraged Electro-Federation members to fill in the BIT and make specific proposals for mitigation.

Electro-Federation encouraged HPFB to harmonize review processes with other jurisdictions as much as possible, as the existing Canadian regulatory process is also seen as a hurdle to the Canadian market. HPFB suggested that Electro-Federation members include the FDA review, if one exists, in their application, and use the Global Harmonization Task Force (GHTF) common template. Electro-Federation expressed interest in a more detailed discussion on these ideas on harmonization with HPFB at a later date.

Concerning service standards, Electro-Federation said the penalty imposed under the UFA for missing service standards was not of practical benefit. The most important service issues for them were predictability of the process and ability to know where a licence application is in the evaluation process, and particularly early warning if there is any problem with the submission, or any need for clarification. HPFB replied that they have been working on a tracking system which may be in place soon. Electro-Federation added that they are still interested in lowering review times, and look forward to a yearly review of the cost recovery system, to ensure that fees and service are related and that process improvements continue.

Concerning international comparisons, Electro Federation asked to see comparisons for their specific sector and expressed concern that the proposal seemed to be focused more on drug products. In particular, the current regulatory discussions underway in the US regarding medical device user fees were referenced as an example of a joint effort between industry and the regulatory authorities.

In closing, Electro-Federation expressed its interest in working with HPFB and its appreciation for the opportunity to provide input at this stage of the Cost Recovery Framework consultation.

Management Advisory Committee, NHPD

May 4, 2007 -MAC was formed in recognition of the need for a permanent NHPD vehicle for communicating and consulting with stakeholders in the application of NHP regulations.

The mandate of the committee is to provide the Director General and the leadership team of the NHPD with timely advice regarding the ongoing management of the regulatory framework for NHPs. The committee represents the NHP community, acts as a channel of communication to the larger NHP stakeholder community, and acts as panel for consultation purposes.

MAC membership is drawn from experts in the NHP field, representing a particular group or industry, and selected by the Director General, NHPD. The majority of members represent NHP consumers, industry, practitioners and retailers.

MAC members provided a number of comments on the proposed cost recovery framework:

• There is a need for meaningful consultations, including more consumer and public involvement.
• The timing to impose fees is bad, since the NHP industry is still adapting administratively and financially to regulations, NHPD has not yet cleared up its backlog and therefore cannot guarantee service standards, some product lines are still in the process of being transferred from drugs to NHPs, and costs calculated under the proposed framework are not reliable because the system is still starting up and not yet fully functional. It was suggested that cost recovery be delayed a few years after the program is fully implemented and service delivery is dependable, specifically 2010 was suggested. Phil Waddington said that HPFB would not apply fees until the backlog was eliminated.
• The question of "legality" arose: that NHPD does not have a budget line, hence no existence, hence it cannot have enforceable performance standards and cannot require fees.
• NHP companies would have a difficult time even filling out a BIT because there is so much uncertainty in both the industry and the regulatory system.
• The proposed cost recovery will be passed on to NHP consumers in the form of higher prices.
• The timing of consultations themselves is bad, since April is purchasing season for traditional Chinese medicine products, and the time to respond is insufficient to brief and received feedback from those concerned.
• The principle of paying fees is acceptable, but not the timing.
• The framework places an unfair burden on NHPs to support the Branch, expecting to collect $15 million from the NHP sector for ATS fees, slightly more than from the pharmaceutical sector, even though the NHP sector has much smaller resources.
• For mitigation, pro-rating according to business volume would help, because of the large number of products and low business volume of many NHPs; an umbrella fee for a number of sites would also help, since many businesses would be unable to pay for all sites.
• Under the proposed framework, 100% of NHP companies would require mitigation, therefore a different, more appropriate fee structure needs to be created.
• NHPs are taxed, and therefore contributing to government revenues, unlike prescription drugs - this fact should be taken into account in the calculation of private to public good in the costing model. At 6% GST, the industry contributes about $120 million.
• NHPs also contribute to keeping health costs down, and this should also be considered a public good - likewise the potential impact of this cost recovery program on that public good should be considered.
• There should be consistency between drug and NHP fees. Some products have stayed under pharma, while others have migrated to NHPs.
• The 2.5% annual index is not really necessary given the 3 year review.
• Question Site Licensing being 100% of benefit to the industry; would see that as a benefit for the public, in terms of safety; in fact many in industry receive no benefit from the Site Licensing, as international recognition requires inspections; are concerned that, because fees are charged per address and NH producers often have many foreign sites, the cost of foreign site licensing would be unaffordable even with mitigation.
• Services identified for fees are not accurate since there are no inspections currently provided under site licences; perhaps inspections should be done by third party, not government.
• If company holds an Establishment Licence, then the cost/fee of adding a Site Licence should be lower than proposed.
• Since FDA does not charge annual fees, these fees are unfair for Canadian NHP industries.
• Need to support small businesses. Many NHP companies may exit Canada because of these fees, defeating their purpose as the products will not be submitted to Health Canada and no revenue collected. Canadians will be denied access to NHPs.

HPFB recapped the main concerns expressed and committed to bringing them to the decision makers in the Branch and exploring both mitigation and the possibility of delaying the implementation of fees for the NHP sector. All members were encouraged to respond to the consultation questions and to complete the BIT.

MEDEC

May 3, 2007 -MEDEC is the national association for the Canadian medical device industry.

MEDEC provided an overview of their concerns, including

• The lack of information about the costing for fees is frustrating members, who feel that Canada is already not in a beneficial situation in terms of fees in relation to other jurisdictions.
• The increases are too steep, particularly in some areas, with the overall percentage of recovery jumping from 25% to 66%.
• There should be more separation between drugs, medical devices, and NHPs.
• Fees used to be low in some cases, higher in others, but now there are flat fees across the board.
• Timing of implementation is tight, given company budget cycles.
• MEDEC wants to be involved in goal-setting for the Branch since they are being asked to share costs, and wants to see better performance standards, implementation of the Blueprint.
• There should be increased harmonization with the United States, and subsequent decreases in review processes in Canada.

A discussion ensued, with HPFB answering that

• Transparency of costing would be increased in future reports.
• Cost recovery was originally set at 50%, but has been eroded by the lack of fee increases.
• Costs are based on activities by product line.
• Canada is actively pursuing harmonization agreements with the US and other countries, but that ultimately every jurisdiction wants to have the final decision.
• Performance targets in the Medical Devices area are being met 90% of the time.

Concerning international comparisons, MEDEC indicated that the US recovers only 25% of its costs for medical devices, and that a more comprehensive comparison of medical devices in the G8 countries would be useful.

MEDEC reported that they have not been able to increase their prices for ten years, and given the small size of the Canadian market and the number of importers in the sector, significantly increased fees will discourage introduction of new products into Canada. They also noted that it would be very difficult to pass on these increases through their product prices. MEDEC questioned why fees for Class 3 devices increased disproportionately compared to Class 4 products, although Class 3 products have a shorter target time for review so are presumably less complex. HPFB explained that the target time does not necessarily relate to the level of effort required to review.

For mitigation, MEDEC suggested that using the small business regulations in the US as a model (a 25-75% discount on fees, and exemption from fees for first-time applicants) would encourage Canadian innovation. They would also like to see an orphan products policy.

Concerning establishment licensing fees, MEDEC questioned the single flat fee for all licences, asking why distributors should pay the same fees as manufacturers, why renewal of the licence costs the same as the original issuance and why there is no differentiation of fees according to sub-categories such as the level of risk of the products. HPFB explained that issuing a licence involves post-market activities as well as administration; MEDEC felt that inclusion of post-market activities in Establishment Licensing was not necessarily appropriate. MEDEC suggested that Post-Market activities, e.g. enforcement etc. should be charged to the establishment concerned independently from any Licence Fee since it is a case-by-case situation that should not increase cost for establishments with excellent compliance. HPFB committed to increased transparency. All agreed that staggering the process for licence application would be worth considering.

Regarding service standards, MEDEC said predictability is crucial: the only value of the penalty under the User Fees Act ( UFA ) is to create some accountability for service standards. However, they questioned whether time alone was really any guarantee, raised the issue of Additional Information Letters to meet service standards, and suggested that qualitative service standards be set in place.

Natural Health Products Cluster

May 1, 2007 -The NHP Cluster is composed of the Canadian Herb, Spice and Natural Health Products Coalition, the Canadian Health Food Association (CHFA), the Canadian Association of Naturopathic Doctors (CAND), and the International Council of Ayurvedic Physicians.

NHP sector representatives expressed strong concern that they would not be able to respond by the May 15 deadline, because of the time necessary to inform their members or clients and to determine the impact of the framework. They also said that this was a particularly bad time-frame for NHP producers and distributors, since this is production season, there are important conferences, and there are upcoming NHPD deadlines. They also said that consumers should have the time to inform themselves of this initiative and its potential impact, and respond to the proposal. They suggested a late September deadline.

They were very concerned about the potential impacts of the cost recovery framework, given the existing costs of compliance with Natural Health Product Regulations. They suggested that there be a separate BIT created that specifically addresses the NHP industry, using language more appropriate to the NHP sector.

Christiane Villemure, Executive Director of the Cost Recovery Initiative, committed to bringing concerns about the deadline to the Assistant Deputy Minister, and to respond to the natural health community as soon as possible. She said that there had been many responses from the NHP sector on the BIT.

NHP representatives questioned whether their input to these consultations will be considered, since they have previously explained how NHPs should be considered differently in a cost recovery framework but they see no evidence that HPFB has taken that input into account. They spoke of consultation "burnout."

They suggested an audit of the NHPD and the implementation of the regulations, including required expertise, processes and associated costs. They argued that many companies would be bankrupted by the presently proposed cost recovery framework. HPFB indicated that mitigation will be considered across all product lines.

NHP representatives argued that at present 100% of the industry would require mitigation, therefore the framework needs to be fundamentally altered for NHPs - and should be in any case due to the newness of the natural health program and ongoing implementation issues. They added that they accept that cost recovery will have to be instituted at some time in the future, but that it needs to be delayed until the sector begins to see results from regulation, and the true costs of regulation can be calculated and factored into a framework developed in collaboration with the NHP sector. If fees were implemented at this time, the sector would be asked to pay for a service they are not yet receiving, at a time when the full costs of compliance to regulations are still being calculated. HPFB indicated that cost recovery will apply only when the NHP program gets through the backlog and operates within its time targets.

NHP representatives suggested a number ways to mitigate the impact of the framework: charge a 1% fee based on sales instead of established fees; delay implementation of cost recovery for 2 or 3 years, while companies complete product and site licence applications and begin to see benefits from regulation, and NHPD overcomes its backlog and assures NHP producers of the quality of its reviews; work with NHP representatives to devise a framework appropriate to the sector.

NHP representatives also argued that the suggested fees would increase the likelihood of NHPs being sold directly on the Internet in an unregulated way, by unlicensed or foreign sellers, because the costs of doing business legitimately will be pushed up too high for producers, retailers and consumers. They also pointed out that the production of Canadian NHPS or marketing of NHPS in Canada would be reduced because of the burden to do business if the suggested framework is be implemented: several well known manufacturers from the United States and South America have already decided they did not want to go to the time and expense of complying with the regulations, and have withdrawn their products from the Canadian marketplace.

They also pointed out that NHPs serve the public good by decreasing medical consultations, and health system expenses. Since NHPs are not covered by health plans, cost increases are more difficult for consumers to bear, making it more likely that products, especially innovative and low-sales products, will be taken off the market as a result of cost recovery fees (or sold illegitimately, as noted earlier). This is one of the reasons why NHPs cannot be grouped together with prescription drugs. They suggested that the Health Action Network, a consumer group particularly concerned with NHPs, be included in the upcoming consultation with consumer groups.

Discussion continued about the difficulty that the NHP industry would have paying these fees, and the public good that NHPs provide.

Phillip Waddington commented that HPFB might re-evaluate whether the cost recovery levels for this sector are appropriate, but in the meantime he suggested a discussion of how to mitigate the impact of the fees if they go through.

NHP representatives suggested that NHPD should decrease its costs rather than collect fees, and asked for more information about the costs being incurred by NHPD. They pointed out that an article about the impact of these fees had already been written by Common Ground magazine in the West.

A brief discussion of international comparisons ensued, with NHP representatives challenging Australia as a viable model for comparison. They suggested that HPFB look at other models, in particular how the NOP (US organic regulations) treat companies or producers.

The meeting ended with Christiane Villemure reiterating her commitment to bring the NHP community's concerns to the attention of the Assistant Deputy Minister and inform stakeholders early the next week if possible.

NHP Groups in Attendance

The Canadian Herb, Spice and Natural Health Products Coalition is a group of representatives across the country who represent the industry in their region. It was formed to work together nationally to tackle issues that are common nationally. The coalition is represented by the Saskatchewan Herb and Spice Association, an industry driven association directed by a board of volunteer directors that are themselves in the industry. SHSA is also the management body and the voice for the Canadian Herb and Spice and Natural Health Product Coalition. They support building a viable herb, spice and NHP industry that includes value added production and processing. They do this by linking and connecting the industry through communication, networking and education throughout the value chain. They represent industry from production to processing to manufacturing to research to regulations to practitioners to final product to consumers.

The Canadian Health Food Association (CHFA) is a non-profit federally chartered trade association. Its members include retailers, wholesalers, distributors and manufacturers in a variety of industry sub sectors such as supplements, vitamins, herbals, homeopathics, sports and nutrition supplements, packaged foods and organic foods. CHFA members believe that access to natural health foods and nutritional supplements is the democratic right of every Canadian. To that end, they are committed to protecting and furthering the interests of the Canadian health products industry.

The Canadian Association of Naturopathic Doctors (CAND) has been the national voice of the naturopathic profession since 1955. The Association's mandate includes promoting the profession across the country and facilitating communication within the profession. The CAND is a not-for-profit professional association representing the interests of licensed naturopathic doctors and promoting naturopathic medicine throughout Canada. Its membership consists of naturopathic doctors, naturopathic medical students, suppliers of natural remedies for professional use, and the provincial naturopathic associations. CAND advocates for regulatory change at the federal level to ensure the availability of botanical and homeopathic medicines, and dietary supplements for effective patient treatment. It ensures that the expertise of naturopathic doctors is utilized on Health Canada 's regulatory advisory committees. At present, the CAND's advocacy focus is on reform of the current regulation of NHPs under the Food and Drug Act, and in obtaining practitioner status for naturopathic doctors.

The International Council of Ayurvedic Physicians aims to promote education of Ayurveda and other therapies into all the communities & also to promote national integration to organise social, cultural programs.

NDMAC

April 25, 2007 -NDMAC (Advancing Canadian self-care) is the national association representing manufacturers, marketers and distributors of self-care products including non-prescription medications, herbal remedies/NHPs, nutritional supplements, home diagnostic kits and other personal care products.

NDMAC commented that indirect, service support costs factored into fees for non-prescription medicines were too high.

A discussion ensued on the percentage of the overall HPFB budget for next year which is intended to be cost-recovered, with Christiane indicating that about 66% overall, for a total of $125 million, is anticipated to be recovered (this amount was incorrectly provided at session: actual estimated revenue from cost recovery approximately $147M).

NDMAC said that no direct benefit exists for Canadian companies which switch a prescription drug to a self-care health product. They noted that in the US a three year protection period existed, and in the EU a one year period applied. Since Canadian companies that pay for such a switch are then vulnerable to competition with no protection, NDMAC argued that there should be no fee for the switch - it does not confer any direct benefit on the payee because of lack of data protection.

NDMAC proposed that Master Files should have service standards related to them, subject to the User Fees Act. HPFB responded that service standards for Master Files do exist and are being met, and that a legal opinion is being sought as to whether these service standards are subject to penalties under the UFA .

NDMAC noted that the UFA applies to all user fees fixed by a regulating authority.

NDMAC said one of their greatest concerns was with the appropriateness of service standards - their link to the activity being performed - especially as concerns Authority to Sell (ATS) and Drug Establishment Licensing fees: the performance standards proposed for ATS fees are based on time to process annual notification, but should instead be time to review adverse drug reaction reports or to respond to a product complaint, since these are the main activities. HPFB explained that those activities are reactive and hard to predict, and NDMAC responded that if an appropriate service standard cannot be set, then perhaps there should not be a fee. NDMAC also asked that, for Establishment Licensing, there be a more appropriate service standard than the length of time to get the paperwork done, such as time to send an inspection report or schedule a re-inspection could be a useful service standards. In ensuing discussion, NDMAC expressed interest in including a service standard around an annual report that would provide comprehensive information on post-market activities.

NDMAC additionally noted that: there should be a different annual product fee for non-prescription drugs, as there had been in the previous framework. NDMAC says that non-prescription drugs do not require the same post market surveillance and compliance efforts as prescription and this should be reflected in the ATS fee. They added that an annual report on investigations conducted by the Inspectorate would be a useful service.

NDMAC also asked that, for Establishment Licensing, there be a more appropriate service standard than the length of time to get the paperwork done, and agreed with the HPFB suggestion that length of the time to send a report could be a useful service standard. NDMAC asked that there be international comparisons of non-prescription fees, specifically referencing the MHRA, TGA and FDA. HPFB committed to including these in the revised framework to be posted in June.

NDMAC opposed the interpretation of User Fees Act as giving an additional 10% leeway on performance in addition to the 10% in the service standard, to total 121%, stating it does not respect the original intent of the UFA . HPFB suggested the possibility of stopping the clock at the time of clarification faxes, to make the service standards more viable. NDMAC did not comment on this suggestion but concluded that the most important issue is for service to be provided in an accountable way.

NDMAC asked if differences in costs between review of NHPs and therapeutic drugs had been looked at, and HPFB replied that they had and indicated although activities may be different, overall costs were similar, and there was more variability within each category than in comparison that the main difference was between the types of submissions in both categories. There was a request for clarification of the cost of reviewing published clinical reviews.

NDMAC asked whether yearly increases were in keeping with international practice, and in response to HPFB's answer that they are, suggested that there be a yearly opportunity for stakeholders to provide input on service delivery. NDMAC also made the request that fee mitigation be fairly applied, reported on, and not be an unreasonable paperwork burden, and that strategies not involve cross-subsidization. HPFB confirmed that there will be no cross-subsidization.

NDMAC also asked if there was consideration given to detail tracking of fee mitigation.

Patient Cluster

April 27, 2007 -The Patient Cluster is composed of the Canadian Arthritis Patients Association, the Best Medicines Coalition, the Canadian Skin Patient Alliance, the Thyroid Foundation of Canada, the Canadian AIDS Treatment Information Exchange, the Canadian Cancer Society, and the National Cancer Institute of Canada.

A brief discussion of how cost recovery in HPFB compares to cost recovery in other federal departments followed, concluding with a commitment from HPFB to provide more information on these comparisons.

All present expressed concern with the quality and quantity of post-market surveillance and the resources available to support improvements to it. The group discussed concrete ways to improve post-market surveillance, such as proactive post-market surveillance (including effectiveness data), data mining, involvement of patients as well as pharmaceutical teaching institutes, inclusion of positive as well as negative effects of medication in reporting, mandatory involvement of doctors and hospitals. In terms of resourcing, HPFB said that all the fees would be revisited and rebalanced in three years time, to reflect the actual cost of activities. As note in the Blueprint for Renewal II, several activities are contemplated to strengthen post-market surveillance.

HPFB suggested that members of the group be involved in ongoing Blueprint and Progressive Licensing Framework (PLF) discussions, and committed to pass on the comments from this meeting to those responsible for those consultations.

There was a concern shared by all the members of the group that cost recovery not impede access to drugs for rare diseases. A second concern shared by some but not all members of the group was that most NHP companies are small, and that cost recovery in this sector will be passed on to the consumer, for products which are not covered by medical plans and are already expensive. HPFB said that there would be fee mitigation.

Although there was praise for the improvements achieved in reviews within HPFB, there was considerable discussion about the importance of simplifying the federal and provincial systems by which a drug moves from inception to the market - in particular, it was suggested that the Common Drug Review be integrated at the federal level, and that more attention be paid to reviews already performed in other jurisdictions.

There was support for the idea of an annual report from HPFB on post-market surveillance, because it would provide useful information and the accountability that patient groups have been looking for.

Although there was some ambivalence about the Cost Recovery Initiative in general, with some supporting it as necessary and others questioning it on a philosophic level, it was generally agreed that the most important issue is to have a fair and reasonable system, with patient input throughout the process. It was suggested that the rationale for the cost sharing ratios be clarified, and that lower fees for older, established products be considered.

Vancouver Chinatown Merchants Association

May 8, 2007 -HPFB is revising its approach to cost recovery for NHPs and has waived the May 15 deadline for that sector, and asked for initial comments.

VCMA outlined the concerns that originally brought the Chinese Medicine industry together: the price of DIN applications, and the inability of TCM to meet Western medicine criteria, leading to the need to create a new paradigm for this industry. VCMA characterized its sector as featuring just a handful of major players, each of which has a huge volume of products -a reputable retailer would have at least 80 types of products, most costing around $6-and pointed out the difficulty this poses for cost recovery.

About 98% of these products are imported from China, and with rising costs the small "mom and pop" importers have increasingly dropped out. Obtaining foreign licences is challenging, and it is also challenging to convince exporters to do business with Canada's small market, given its costs. VCMA suggested that it be possible to register products with NHPD at either no or minimal cost, given that in the US and Hong Kong the products need to be registered but there is no cost. HPFB pointed out that there is no review of these products in those other locations. VCMA said that those who buy TCM products are knowledgeable about them and feel in general that they are safe, although there have been concerns raised about heavy metals and consumers are willing to pay a little more to ensure that the products are safe.

VCMA suggested that if there are fees charged, that there be caps on them based on quantity and on cost. They advocated the Department of Fisheries (DF) model of obtaining one licence that allows the company to import as much as they wish of anything. The DF charges $5000 a year for certifying foreign sites-for any number of products. Another form of licence, at $500, also exists from DF. This does not involve DF certifying sites. Products, however, are allowed to be imported but will be subjected to inspection and lab tests at random. Those are concepts that TCM could relate to because many are also importing marine products.

In response to a question from HPFB, VCMA said that sales via the web have not substantially developed. The clientele for these products is limited.

VCMA said that they understand that cost recovery is inevitable, but would like to see it phased in.

They suggested a phase-in time of at least two years, to allow time to educate consumers as to the benefits of regulating, the quality assurance, before the price increases, and also to allow those who cannot absorb cost recovery to exit.

HPFB expressed appreciation for VCMA's leadership in encouraging the TCM community to embrace regulations. VCMA said that it continues to be challenging for them to tell people that they have to conform to regulations, since access to products has decreased and they cost two to three times what people used to pay. The argument they make is that you pay for quality, that's the trade-off.

VCMA added that there are very vocal stakeholders ready to challenge cost recovery - upon distribution of the cost recovery framework, people said that they were prepared to protest actively - producers and consumers have the impression that we are regressing to the situation 11 years ago.

Annex B: The Business Impact Test: Preliminary Findings

The Business Impact Test Survey (BIT) enabled affected companies to assess the expected impact of the CRF on their businesses. HPFB received a total of 300 responses to the BIT. Excluding the 97 respondents who produce/ process natural health products exclusively, 203 responses remain, which can be characterized as follows:

• Most companies were involved in more than one sector and more than one product type.
• 93 responses were from manufacturers; 91 from distributors; 34 from packagers/labellers; 31 from suppliers, either solely or in combination with other activities.
• The largest number of responses by product type was from companies that produce/process medical devices (106), and non-prescription pharmaceuticals (75), either solely or in combination with other products.
• 30% have been in business fewer than 10 years.
• 27% reported total annual sales/revenues at less than $1M (only 4% at less than $30k).
• 59% are small businesses with fewer than 50 employees; 20% are micro businesses with fewer than five.
• Most were moderate growth (40%), or low growth (21%).
• 76% were incorporated.
• 55% were Canadian-owned.
• 64%were head offices.
• 60% had employees in Ontario, 23% in Quebec, and 20% in BC.
• 57% focussed on a national market; 29% on international markets.
• The main countries of export were:
  • US - 56%;
  • Europe - 50%; and
  • Asia - 48%.

Business Impact

• Most respondents anticipated that the proposed fees would decrease their sales revenues (67%), but would not affect the quality of their products (68%).
• 75% expected a decrease in the introduction of new product lines.
• 82% estimated that they would pass on the proposed fees to their customers; 48% estimated that they would, in fact, pass on all of the proposed fees.
• 67% predicted that access to existing/potential markets would be affected negatively.
• 68% expected fees to have a negative effect on their flexibility to meet customer requirements.
• 50% felt that the proposed fees would have a negative impact on consumer demand for their products.
• 45% expected that recognition and/or acceptance of their products/services would be affected negatively.
• 63% predicted that their sources, availability or cost of financing would be negatively affected.
• 29% expected no change in the number of employees; 28% expected to lay off employees.
• 64% anticipated a negative effect on in-house product/service development activities.
• 54% expected no impact on the way they protect intellectual property.
• 59% responded that the proposed fees would negatively affect timing to market.
• 60% predicted negative effects on research and development.
• 58% reported that the proposed fees would negatively affect their ownership structure/investment growth strategy in Canada.
• 36% felt that their intention or ability to divest would be affected negatively; but 29% predicted no impact.
• 37% did not know if the proposed fees would affect their intention or ability to restructure; 32% predicted no impact.
• The majority responded that there would be no impact on the costs, quality or availability of their workforce, business services, supply of materials, components and finished goods, equipment and software, and infrastructure (e.g., transportation, communications, and utilities).

Costs and Benefits

• Almost 2/3 (61%) do not expect to reformulate their products as a result of the fee changes.

Summary Impact

• 81% of respondents are currently paying fees.
• 74% expected a decreased cash flow as a result of the proposed fees.
• 84% estimated a decrease in profitability.
• 57% predicted a decreased ability to weather financial fluctuations.
• 46% anticipated no impact on their ability to secure financing.
• 52% anticipated a decreased ability to maintain a long-term return on financial investment.
• 64% expected that the proposed fees would negatively affect their ability to compete in Canada; 39% felt that their ability to compete in other countries would also be negatively affected.
• 48% felt that user fees should not be comparable to other countries with similar health regimes (28% did not know).
• 57% expected a decreased likelihood of carrying out clinical trials inside Canada .
• 50% predicted no impact on the firm's compliance with international trade agreements/obligations (27% did not know); 43% predicted no impact on the firm's compliance with foreign partnerships (25% did not know).

Fee Mitigation

• Almost 1/3 (32%) of the respondents qualified for fee reductions within the last three years; however, 57% would consider fee mitigation in the next three years.
• Of the companies that qualified for mitigation, 90 % qualified for fee caps .
• Fee mitigation was granted mainly for the authority to sell drugs (40%), and for medical device licences (27%).
• 48% qualified for fee mitigation on the basis of viability, and 42% qualified for less than $30K in sales.
• Responde nts were generally satisfied with the fairness (78%), efficiency (73%) and transparency (69%) of the delivery of fee mitigation mechanisms.
• 87% reported that fee mitigation has a high impact on their financial performance.
• In descending order, respondent s considered the most appropriate fee mitigations strategies to be: reduced fees, fee caps, exemptions, then fee delays.
• In the next three years, 60% responded that they would qualify for fee mitigation on the basis of viability, and a further 35% would qualify on the basis of less than $30K in sales.

Service Standards

• 51% responded that current service standards had no effect on their organization's research plans.
• 40% anticipated no impact on partnerships with stakeholders.
• 48% anticipated negative effects on financial performance, and 46% anticipated negative effects on product development.
• 63% believed that reliable, efficient service standards and costs of user fees were equally important.
• 57% agreed that all manufacturers subject to compliance/enforcement should be charged fees to ensure a consistent compliance standard.

Final BIT Report

A formal, in-depth report of the BIT results is scheduled for release mid-summer 2007.