Cost Recovery Framework: International Comparison of Fees and Service Standards for Medical Devices

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August 2007

Contents

• Introduction
• Overview of Methodology
• Selection of Comparable Jurisdictions
• International Comparative Analysis
  • Pre-Market Review
    • Application Process and Assessment Procedures
    • Cost Recovery
    • Service Standards
  • Post-Approval Activities (Compliance, Surveillance, Assessment and Risk Management)
    • Quality Systems Compliance
    • Assessment and Risk Management
    • Cost Recovery Inspection / Auditing
    • Cost Recovery: Post-Market Surveillance
    • Service Standards
• Conclusion
  • Cost Recovery
  • Service Standards
• Source Notes

Introduction

The User Fees Act requires a regulating authority to establish standards which are comparable to those established by other countries with which a comparison is relevant and against which the performance of the regulating authority can be measured and to give reasons for the difference if the amount of user fee being proposed is higher than that existing in a country with which a comparison is relevant.

This document is a companion piece to the Cost Recovery Framework: Official Notice of Fee Proposal for Human Drugs and Medical Devices, and provides a more fulsome analysis of cost recovery and service standards internationally.

Overview of Methodology

Health Canada has devised an international comparison methodology which provides the basis for a consistent and objective comparison of health regulatory programs across international jurisdictions based on the following components:

Regulatory Context

the reasons underlying the regulations and the activities/services that are related to those regulations;

Regulatory service or product

what activities/services are associated with health related regulations being examined;

Performance standards

how the regulatory activities/services are delivered;

Type of clients / stakeholders

who is charged user fees for regulatory activities and services; and

User fees

identifies and explains similarities or differences between levels of fees charged.

Selection of Comparable Jurisdictions

Various countries with advanced regulatory systems collect user fees for medical device regulatory activities. An initial analysis was conducted to identify the relevant comparable jurisdictions. Based on that analysis, the countries for which a comparison has been deemed to be relevant are:

• the United States (US);
• Australia;
• the European Union (EU); and
• the United Kingdom (UK) (as a specific example of the application of EU legislation in a member country).

The four jurisdictions have been chosen for international comparison with Canada because of the similarity of their regulatory frameworks for therapeutic products to that in Canada, and are thus considered to be "comparable". Nonetheless, there are a number of comparison challenges and caveats regarding this international comparison of fees and service standards.

Although the "regulatory contexts" including the legislative basis and regulatory objectives are similar, there are differences in the health product lines and product groupings, as well as differences in the fee structure for regulatory services.

All four jurisdictions plus Canada are members of the Global Harmonization Task Force (GHTF), which coordinates and harmonizes medical devices regulatory activities. For instance, manufacturers are required to have an appropriate adverse event reporting program and a quality system in place for the production of medical devices. There is a good degree of exchange of information between the member countries with respect to both pre and post-approval information.

Each jurisdiction has a similar fee-paying clientele. Many of the clients are multinational companies that market/manufacture in all five jurisdictions. The remaining balance of clients tend to be small to medium sized enterprises that have developed a niche product to fill an identified need in the market.

Although the four jurisdictions that were reviewed make information regarding their fee structures readily accessible to the public, including via the Internet, there was some difficulty in obtaining information regarding performance standards, particularly to the level specified in Canada.

Table 1 - Comparison of Cost Recovery for Medical Devices

Jurisdiction	% Cost Recovered		Revisions to fees
	2005	2008 (estimated)
Canada1	43% ($7.5M)	70% ($21M)	None to date
US (FDA)2	14% ($29M) 6	22% ($52M)	Annually, legislation to be updated September 2007
Australia (TGA)3	100%		Annually; last updated August 2006
UK (MHRA)4	100%*		Annually, last updated April 2007
European Union EMEA)5	0% **		n/a

There are clearly differences in the rationale for charging user fees, and differences in the financial and business context within the jurisdictions. This also translates into a difference in the level of cost recovery that has been implemented.

A significant challenge is the ongoing changes to the regulatory and policy environments that result in continually changing levels for fees and service standards internationally. Canada is not alone in renewing medical device fee structures. Australia is moving towards the Trans Tasman Therapeutic Products Agency with New Zealand, which will result in a revised regulatory framework and fees for medical devices (and drugs); they are also in the process of completing the implementation of a new regulatory framework for medical devices, targeted for October 2007. The United States is in the process of renewing the Medical Device User Fee and Modernization Act (MDUFMA) in September 2007.

International Comparative Analysis

Pre-Market Review

All jurisdictions examined utilize some form of risk-based classification system, with lower-risk devices demanding less rigour in the pre-market approval process. Significantly more rigour is applied in the evaluation of higher-risk devices.

Application Process and Assessment Procedures

Canada's Medical Device License Application process applies different levels of assessment and charges fees based on risk level. Australia and the US have similar risk-based application processes.

In Canada, manufacturers must provide evidence of compliance with the appropriate regulatory quality system. While Class I devices are exempted in Canada, Class II, III and IV medical devices are required to be manufactured under the appropriate ISO standard. Australia has a similar exemption for Class I devices which applies to devices not intended to be supplied in a sterile state or that do not have a measuring function.

While not practised in Canada, third party reviews may be conducted in some situations in the US. The EU and UK both use third parties or Notified Bodies / Competent Authorities for pre-market approval, called a conformity assessment. Australia also allows EU Conformity Assessment Certificates in place of an assessment by the country's Therapeutic Goods Administration (TGA). In order to permit this, the Secretary of the Department must be satisfied that the Notified Body conducting the evaluation has the competence and authority to assess the device.

The US differs in that if the device (Class I, II and some III) is shown to be substantially equivalent to a legally marketed device that is not subject to pre-market approval, a limited review is allowed. The US-FDA has a detailed "blue book" memorandum regarding how it determines if a device is substantially equivalent. This limited review application is referred to as a 510(k) application. A full premarket approval application (PMA) is required for all new Class III devices.

The general relationship among the device classes of the jurisdictions is listed in Table 2. All follow a risk-based hierarchy for product classification, but have differing definitions and criteria resulting in devices sometimes being classified different among jurisdictions. However, there is significant overlap and some general consistency in classification and approach., as the examples below show

Table 2 - Comparison of Medical Device Classes Across Jurisdictions

Sample Device	United States	Australia	United Kingdom	European Council	Canada
coronary / vascular stent, breast implants	Class III	Class III	Class III	Class III	Class IV
joint replacement technology, cyclodestructive ultrasound	Class III	Class IIb	Class IIb	Class IIb	Class III
contact lenses, MRI	Class II	Class IIa	Class IIa	Class IIa	Class II
tongue depressor, forceps	Class I	Class I	Class I	Class I	Class I

Cost Recovery

Canada, Australia and the US all cost recover for pre-market review activities, but at different levels. l. The EU and UK process is based on third party accreditation, hence costs are recovered from and by third party Notified Bodies. However, the UK does recover costs associated with designating notified bodies. In Canada the fees offset costs for the activities undertaken to evaluate the application by a manufacturer to sell a Class II, III or IV medical device in Canada. In Australia the fees are based on 100% cost recovery of costs for the activities undertaken by the TGA in pre-market approval. The U.S. fees offset costs for the activities undertaken by the US-FDA's Center for Device and Radiological Health and help cover costs for all aspects of the regulation of medical devices. The US, Australia and Canada require extensive review of fees in consultation with industry.

There are significant differences in the application of fees in the five jurisdictions compared. The EU and UK use third parties (Notified Bodies) to assess pre-market approval and it is the Notified Bodies who collect fees from manufacturers. The Notified Bodies are only permitted to charge fees which represent reasonable costs incurred to perform conformity assessment activities and reasonable profit. In the UK, fees are charged by the MHRA for combination products which include both a device and a drug product (not listed here). Australia recovers 100% of the costs of pre-market approval through conformity assessment fees. The US and Canada are similar in that they recover only a portion of assessment costs through fees and the rest is covered through appropriations. In the United States, the PMA fee is established and the other fees are set as a percentage of that PMA fee.

Table 3 - Fees for Pre-market Approval Activities⁶

United States	Australia	United Kingdom	EU	Canada (proposed)
PMAs (Class III) $197,9500Cdn [USD 185,000] 510(k) (Class I, II or III exempt from PMA) $3,642 [USD 3,404] Panel-track PMA supplement $148,462 [USD 138,750] 180-day PMA supplement (i.e. clinical data not required to support change) $29,692 [USD 27,750] Real-time PMA supplement (i.e. minor changes) $13,856 [USD 12,950] 30-day notice (i.e. change to methods) $3,167 (new) [USD 2,960] Request for classification $2,672 (new) [USD 2,498]	initial conformity assessment $13,950 - $36,720 [AUD 15,500- 40,800] conformity assessment - changes $8,406 - $22,050 [AUD 9,340 - 24,500] audit fee $5,409 [AUD 6,010]	device registration $149 [GBP 70] Certification of Notified or Conformity Assessment Bodies $1,810 - $14,484 [GBP 850 - 6,800] plus $1,022 per diem plus travel expenses [GBP 480]	n/a	Class IV $10,960 - $20,030 Class III $5,050 - $8,600 Class II $350 Amendments $1,270 - $5,390

Service Standards

The US has service standards that are prescribed by legislation in the Medical Devices User Fees Modernization Act (2002). These standards are both quantitative and qualitative in nature, must be reported on annually, and will be revised in the renewal of MDUFMA in September 2007. Australia has qualitative and quantitative standards; the latter focus on specific timelines, the former on general, public health-focussed service standards. No other

jurisdictions examined approach the completeness of the US-FDA and TGA medical devices service standards, as they do not have as well defined service standards for cost recovery activities. Australia, due to their full cost recovery program, has service standards which are published in their business plan yearly. In addition to their global, general and qualitative service standards there are well defined quantitative process-oriented standards. The UK has a principle-based approach, which includes a commitment to effective and efficient delivery of its services. Canada has a service standard for the licence application review standard that has been reported against in the government wide Departmental Performance Report (DPR).

Table 4 - Service Standards for Pre-Approval Activities

United States	Australia	United Kingdom	EU	Canada (proposed)
PMAs 90% within 295 days 510(k) 90% within 90 days Panel-track PMA supplement 90% within 280 days 180-day supplement 95% within 210 days Real-time PMA supplement 90% within 90 days Additional qualitative standards such as - goals for interactive review, meetings, reviewer training - issue guidances on imaging devices, in vitro diagnostics	accepted for review/rejected within 30 days finalize submission within 90 days of acceptance amendments finalized within 90 days of receipt report on number of applications	n/a	n/a	Class IV 75 days Class III 60 days Class II 15 days Amendments 60 - 75 days

Post-Approval Activities (Compliance, Surveillance, Assessment and Risk Management)

The post-approval activities such as inspection/auditing and adverse event reporting, of the US, Australia, UK, Canada and the EU are similar. The post-approval regulatory context of all five jurisdictions is comparable, the differences relating not to what is done, but how it is done.

Quality Systems Compliance

As part of the requirements for marketing a product all of these countries require manufacturers to use a Quality Management System, often referred to as Good Manufacturing Practices (GMP). The US, Canada, UK and EU accept third party certification of the Quality Standard, often in the form of ISO certification. The TGA conducts these evaluations on a cost recovered basis; as does the FDA in certain circumstances.

In addition, all of the counties operate a compliance or audit evaluation of these Quality Systems on an ongoing basis. In Canada a portion of this cost is supported through Medical Device Establishment Licensing Fees and they support the regular inspection of manufacturing sites and an audit of the site's adherence to the Quality standard. In the US and the UK this cost is recovered from a mixture of establishment licence fees, fees for GMP inspections and appropriations. The TGA fully cost recovers for these activities though GMP inspections and establishment licence fees.

Canada and Australia inspect/audit to ensure that the quality system is in place and that the manufacturer meets ISO 1385:2003 requirements. The US allows for third-party inspection of certain manufacturers that meet the US-FDA's criteria (i.e., markets both in the US and abroad). These third parties must follow a US-designed Quality System Inspection Process called the Quality System Inspection Technique.

Assessment and Risk Management

All jurisdictions have similar processes in place to ensure that detected signals or problems are appropriately assessed. These are then dealt with through recalls, public/health professional communication or other risk mitigation and corrective actions if required. When a recall or health hazard alert is needed, the sponsor (e.g. manufacturer or distributor) of the affected goods assumes the responsibility (and therefore the costs) for recovery of the goods or any corrective action that is required under the supervision of the respective regulatory authority.

Cost Recovery Inspection / Auditing

Most jurisdictions cost recover for the inspection/auditing process, though the level of cost recovery varies. In Australia, the TGA conducts inspections and charges related fees to recover 100% of their costs. The US is revising its medical device fee structure by introducing facility fees for medical device manufacturers starting in 2008. Annual fees are listed below.

Table 5 - Fees for Inspection / Auditing Post-Approval Activities

United States	Australia	United Kingdom	EU	Canada (proposed)
$1,825 [USD 1,706]	GMP licence application fee $675 [AUD 700] GMP Annual licence charge $4,005 - $7,767 [AUD 4,450 - 8,630] Additionally hourly audit rate $414 [AUD 460]	n/a	n/a	$8,470 per company

Cost Recovery: Post-Market Surveillance

None of the jurisdictions currently charges fees directly for post-market surveillance, however all five use cost recovery revenues to support post-market surveillance activities. In Australia the post-market accreditation process is fully cost recovered from industry. The EU process is based on third party accreditation, hence they cost recover fees from third party Notified Bodies. Annual fees per product are listed below.

Table 6 - Fees for Post-Market Surveillance Activities

United States	Australia	United Kingdom	EU	Canada (proposed)
Class III $6,928 [USD 6,475]	Class I $54 [AUD 60] Class I (sterile, measuring), IIa, IIb $630 [AUD 700] Class III, Active Implantable $828 [AUD 920]	n/a	n/a	Class II, III, IV $330

Service Standards

Other than Canada, only Australia has service standards related to the post-market surveillance of medical devices.

Table 7 - Service Standards for Post-Approval Activities

United States	Australia	United Kingdom	EU	Canada (proposed)
no specific standards	average time for completion of investigation of IRIS (problem and adverse event) reports less than 90 days report number reports received, completed and in progress in annual report	Designate and monitor the performance of UK Notified Bodies and Conformity Assessment Bodies (CABs) for medical devices by: ensuring that organisations are designated only if they have the necessary facilities and expertise; auditing all active UK Notified Bodies and CABs at least annually and issuing any observations within 5 working days or taking immediate action where serious safety concerns have been identified; and taking appropriate action against UK Notified Bodies and CABs where shortcomings in their performance are identified. Promotion of the reporting scheme for adverse events for medical devices.	n/a	issue annual product licence 20 days issue annual establishment licence 120 days

Conclusion

The  User Fees Act requires a regulating authority to establish standards which are comparable to those established by other countries with which a comparison is relevant and against which the performance of the regulating authority can be measured and to give reasons for the difference if the amount of user fee being proposed is higher than that existing in a country with which a comparison is relevant.

The proposed fees and service standards are based on the Canadian medical device regulatory framework, including product classification, just as other jurisdictions have established their fees based on their activities and product classifications.

Cost Recovery

The proposed medical device establishment licensing fees are higher than those in the United States or Australia. However, the application review and annual product licensing fees are lower in Canada than in either of those countries. This is in part explained by the process used to establish fees in the other jurisdictions. For example, as per the Unit Cost Report of the FDA in 2005, the user fees specified in MDUFMA are not cost-based. As a result, revenue is collected generally and allocated to the overall program, not the specific activity which generated the revenue in the first place. This is considerably different from the Canadian model, where fees must be related to costs and revenue must be directed to the originating activity. Cross-subsidization between activities is not possible in the Canadian system, thus fees are set independently and based on specific related costs. As a result, the proposed establishment licensing fees cover the costs of the establishment licensing program and only that program, while the costs of the establishment licensing program in the US is supported by establishment licensing fees as well as application review and annual product fees.

Regarding Australia, in addition to the flat GMP licence application and annual licence fees, there is an hourly audit fee associated with inspection activities. The combination of these fees may result in the majority of companies paying fees in Australia that are the same or higher than those proposed in Canada.

The United Kingdom and European Union only have fees for the regulation of Notified Bodies for which there is no Canadian comparison or equivalent. Since those jurisdictions do not directly charge fees for the regulation of medical devices as these activities are conducted by Notified Bodies, a direct comparison of fees is not possible.

The proposed Canadian fees are considered comparable with the identified jurisdictions, and where the proposed fees are higher, appropriate reasons have been provided. While Canada may be recovering a greater percentage of costs compared to the US, Australia and the UK cover all of their medical device regulatory costs through fees.

Service Standards

The greatest discrepancy exists with respect to the medical device-related service standards in each jurisdiction. The U.S. has service standards that are prescribed by legislation in the Medical Devices User Fees Modernization Act (2002). These standards are both quantitative and qualitative in nature, and will be revised in the renewal of MDUFMA in September 2007. Australia has qualitative and quantitative standards; the latter focus on specific timelines, the former on general, public health-focused service standards. No other jurisdictions examined approach the completeness of the US-FDA and TGA medical devices service standards. Canada has a service standard for the licence application review process that is reported against in the Departmental Performance Report (DPR), and proposed service standards for annual product and establishment licensing. The EU is not directly involved in service standards as the regulatory function is largely privatized with manufacturers dealing directly with assessment companies. Assessment companies pay fees to governments for their certification as assessors, but no formal service standards are in place for this. The UK takes a principle-based approach, which includes a commitment to effective and efficient delivery of its services, including appropriate monitoring of the Notified Bodies.

In general, the proposed service standards for medical device regulatory activities with associated fees are considered to be comparable to those established by other countries with which a comparison is relevant. However, Canada is the only jurisdiction with specific financial penalties if service standards are not met.

Source Notes