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[House Report 107-728]
[From the U.S. Government Publishing Office]

107th Congress                                            Rept. 107-728
                        HOUSE OF REPRESENTATIVES
 2d Session                                                      Part 2
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         MEDICAL DEVICE USER FEE AND MODERNIZATION ACT OF 2002

                                _______
                                

                October 15, 2002.--Ordered to be printed

                                _______
                                

 Mr. Tauzin, from the Committee on Energy and Commerce, submitted the 
                               following

                          SUPPLEMENTAL REPORT

                        [To accompany H.R. 3580]

    This supplemental report shows the cost estimate of the 
Congressional Budget Office with respect to the bill (H.R. 
3580), as reported, which was not included in part 1 of the 
report submitted by the Committee on Energy and Commerce on 
October 7, 2002 (H. Rept. 107-728, pt. 1).
    This supplemental report is submitted in accordance with 
clause 3(a)(2) of rule XIII of the Rules of the House of 
Representatives.

                                CONTENTS

                                                                   Page
Committee Cost Estimate..........................................     1
Congressional Budget Office Estimate.............................     1
Federal Mandates Statement.......................................    10

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  CONGRESSIONAL BUDGET OFFICE ESTIMATE

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 11, 2002.
Hon. W.J. ``Billy'' Tauzin,
Chairman, Committee on Energy and Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3580, the Medical 
Device User Fee and Modernization Act.
    If you wish further details on this estimate, we will be 
placed to provide them. The CBO staff contacts are Shawn Bishop 
and Julia Christensen.
            Sincerely,
                                           Steven Lieberman
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 3580--Medical Device User Fee and Modernization Act

    Summary: H.R. 3580 would amend the Federal Food, Drug, and 
Cosmetic Act to change the regulatory and approval process for 
medical devices. It would authorize the Food and Drug 
Administration (FDA) to collect fees to cover the cost of 
expending the review of applications for approval to market 
medical devices. Such fees would be collected and made 
available for obligation only to the extent, and in the amount, 
provided in advance in appropriation acts.
    H.R. 3580 would expand and reauthorize certain activities 
related to FDA's regulation of medical devices. It would allow 
FDA to accredit third parties to inspect U.S. manufacturing 
facilities of medical devices and to establish new labeling and 
data requirements for manufacturers that reprocess single-use 
devices. Regulated products that do not comply with FDA's 
labeling requirements would be deemed misbranded and firms 
would be subject to civil penalties.
    H.R. 3580 also would authorize the creation of an office 
within FDA to oversee the review of applications for 
``combination products'' and would authorize additional 
appropriations for FDA's surveillance of medical devices on the 
market.
    CBO estimates that implementing H.R. 3580 would have a 
negligible effect on spending in 2003 and cost $36 million over 
the 2003-2007 period, assuming the appropriation of the 
necessary amounts. This estimate assumes that compliance with 
new labeling requirements would be widespread; thus, CBO 
estimates that revenues from civil monetary penalties would be 
negligible.
    FDA's authority to assess user fees and operate the third-
party inspection program would lapse unless appropriations for 
certain FDA activities reach specified levels. But the bill 
would not explicitly authorize additional funding, and the 
spending that would result is not included in CBO's estimate of 
the bill's costs. CBO estimates that $78 million in additional 
appropriations above baseline levels would be necessary between 
2003 and 2007 to avoid early terminations of the user fee 
program. A total of $5 million in additional funding over the 
five-year period would be necessary to maintain the third-party 
inspection program. Additional outlays would total $77 million.
    Changes made to the regulation of medical levels by the 
bill could affect the prices of medical devices on the market 
over the next five years. If so, the costs of federal health 
programs that pay for medical devices would be affected. 
Although the direction of the potential effect of various 
provisions of H.R. 3580 on the average price of medical devices 
is highly uncertain, CBO anticipates that the magnitude of any 
such effect would likely be small.
    H.R. 3580 would place a number of requirements on the 
manufacturers of medical devices, including the payment of 
fees. In some cases, state, local, or tribal governments could 
be manufacturers of those devices. Thus, those requirements 
would be both private-sector and intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA). Because 
many of those requirements would depend on future actions of 
the Secretary of Health and Human Services (HHS), however, CBO 
cannot determine whether their direct cost to the private 
sector would exceed the annual threshold specified in UMRA 
($115 million in 2002, adjusted annually for inflation) in any 
of the first five years the mandates would be effective. CBO 
estimates that the costs of those mandates to state, local, and 
tribal governments would be minimal.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3580 is shown in the following table. 
The costs of this legislation fall within budget function 550 
(health).
    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted in the fall of 2002 and that outlays will 
follow historical spending rates for the authorized activities. 
Where H.R. 3580 specifies the amounts authorized to be 
appropriated, CBO assumes that such appropriations will be 
made. Where appropriations of such sums as necessary are 
authorized, CBO assumes that the estimated amounts will be 
provided for each fiscal year.

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2003     2004     2005     2006     2007
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                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Food and Drug Administration:
    Estimated authorization level..................................        6       11       11       13       13
    Estimated outlays..............................................        5        9       11       12       13
Collection of user fees:
    Estimated authorization level..................................      -25      -29      -33      -38      -48
    Estimated outlays..............................................      -25      -29      -33      -38      -48
Spending of user fees:
    Estimated authorization level..................................       25       29       33       38       48
    Estimated outlays..............................................       19       27       32       36       45
Other:\1\
    Estimated authorization level..................................        2        0        0        0        0
    Estimated outlays..............................................        1        *        *        *        0
Total changes:
    Estimated authorization level..................................        8       11       11       13       13
    Estimated outlays..............................................        *        7        9       11       10
                             Memorandum
Additional appropriations for the CDRH necessary to avoid sunset
 provisions (user fee and third-party inspection programs):\2\
    Estimated authorization level..................................       18       17       16       16       15
    Estimated outlays..............................................       13       16       16       16       15
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\1\ H.R. 3580 would mandate that the General Accounting Office conduct as a study on information provided to
  patients about the benefits and risks of breast implants and the Institute of Medicine report on FDA's
  surveillance of devices on the market used on pediatric populations.
\2\ These figures represent CBO's estimates of the minimum levels of additional appropriations (above baseline
  levels) that would be necessary for FDA to maintain authority to both collect user fees and allow third-party
  inspections of facilities for the manufacture of medical devices. Although the amounts are shown on an annual
  basis, the user fee program would sunset if cumulative appropriations do not equal the sum of the minimum
  levels for certain years. CBO estimates the cumulative amount would need to reach $64 million by 2006 in order
  for the program to continue in that year; an additional $13 million in funding for 2007 would be necessary to
  continue the program in that year. A total of $5 million in additional funding over the five-year period would
  be necessary to maintain the third-party inspection program.
 Notes: *=Less than $500,000.
CDRH=Center for Device and Radiologic Health.

            Spending subject to appropriations
    H.R. 3580 would extend, expand, and modify activities of 
FDA related to the regulation of medical devices. It would also 
create a new user fee program, allow third-party review of 
manufacturing facilities, establish an office of combination 
products in the Center for Device and Radiologic Health (CDRH) 
at FDA, and mandate new studies related to medical devices.
            Title I
    Title I would establish a new user fee program to help 
defray FDA's costs of expediting review of device applications. 
The user fee program would be authorized through 2007 and would 
take effect only to the extent, and in the amount, provided in 
advance in appropriation acts. The bill contains a schedule of 
appropriation targets, which, if not met or exceeded on a 
cumulative basis, would trigger the sunset of the user fee 
program before 2007. Title I would also authorize additional 
appropriations for FDA's surveillance of medical devices on the 
market. CBO estimates that implementing the provisions of title 
I would save $4 million in 2003 and cost $15 million over the 
2003-2007 period, assuming appropriation of the necessary 
amounts.
    User Fee Program. H.R. 3580 would require FDA to assess and 
collect fees from manufacturers for review of medical device 
applications, with the intent of expediting review of device 
applications. Aggregate amounts of such fees are specified for 
each fiscal year 2003 through 2007; those amounts may be 
adjusted for inflation, workload estimates, and other 
compensating factors. CBO assumes FDA would collect amounts 
specified in the bill increased by the inflation index for 
wages and salaries of federal workers. Such fees could be 
collected and made available for obligation only to the extent, 
and in the amount, provided in advance in appropriation acts.
    CBO estimates that establishing the user fee program would 
save $6 million in 2003 and $15 million over the 2003-2007 
period. Because FDA would have the authority to spend the 
collections, the estimated budget authority for collections and 
spending offset each other exactly, while the outlays lag 
behind collections and result in small savings each year.
    FDA's authority to assess fees would expire at the end of 
2005 unless cumulative appropriations for salaries and expenses 
of CDRH for the 2003-2006 period equal or exceed a specified 
amount ($205.7 million) adjusted for inflation. (The 2002 
appropriation for CDRH is $181 million.) The bill would 
establish a similar requirement for continuing the assessment 
of fees in 2007. Because the bill would not explicitly 
authorize the appropriation of the amounts needed for FDA to 
continue to assess fees, the cost of these additional funds is 
not included in CBO's estimate for the bill. CBO estimates that 
$78 million in additional appropriations for CDRH, above 
baseline levels, would be necessary between 2003 and 2007 to 
avoid early termination of the user fee program. Additional 
outlays would total $73 million over that period.
    Other Provisions. The bill would authorize an increase 
above amounts obligated in 2002 of $3 million in 2003, $6 
million in 2004, and such sums as necessary thereafter, for FDA 
to expand surveillance of medical devices on the market, which 
includes tracking and responding to reports of adverse events. 
CBO assumes FDA's workload would increase under the bill as 
review times are reduced and devices come onto the market more 
quickly under the user fee program. The bill also would require 
FDA to report to the Congress on its performance under the user 
fee program and to consult with academic, manufacturer, and 
consumer groups before reauthorization of the program. CBO 
estimates that these provisions of title I would cost $2 
million in 2003 and $30 million through 2007.
            Title II
    This title would establish third-party inspections of 
facilities that manufacture medical devices and a new office to 
oversee combination products (such as products that can be 
considered both a drug and a device). Other provisions would 
extend third-party review of certain device applications, 
modify how FDA reviews applications to market devices, and 
require FDA to report to the Congress on certain devices. CBO 
estimates that implementing those provisions would cost about 
$3 million in 2003 and $18 million over the 2003-2007 period, 
assuming the appropriation of the necessary amounts.
    Third-Party Accreditation. Title II would establish a 
third-party inspection program for U.S. facilities that 
manufacture medical devices. To implement the program, FDA 
would issue guidance on accreditation criteria and conduct 
periodic audits of inspectors. FDA has some experience with 
this type of program in Europe, where third parties are allowed 
to inspect facilities but the practice is not widespread in all 
countries. FDA believes that companies in the United States 
would be more inclined to seek a third-party inspection than in 
Europe, which could make the program more popular here than 
abroad.
    The bill would limit to 15 the number of organizations that 
FDA could accredit in the first year. But according to FDA, 
roughly 110 organizations exist world-wide that could apply for 
accreditation. FDA anticipates, however, that some would not 
qualify because of the conflict-of-interest standards specified 
in the bill.
    CBO estimates that implementing this program would cost FDA 
less than $1 million in 2003 and $11 million over the 2003-2007 
period. We anticipate that 15 organizations would be accredited 
in 2003 and 10 additional organizations would be accredited by 
2005. We also assume that FDA would train and audit three 
people from each accredited organization, as it does in its 
European program.
    H.R. 3580 would require FDA to maintain its current level 
of effort to carry out inspections. In addition, the third-
party accreditation program would lapse if funding for 
inspections increases by less than 5 percent per year for any 
two consecutive years. (Over the 2003-2007 period, an increase 
of 5 percent per year over the 2002 level would add $5 million 
to funding above baseline amounts and result in additional 
outlays of $4 million.)
    Office for Combination Products. Title II would require FDA 
to better coordinate its review of combination products. Under 
current law, the FDA staff identifies which center within the 
agency should take the lead in reviewing combination products, 
but it does nothing further to track or facilitate review of 
such products. H.R. 3580 would establish a new office to 
coordinate review between centers, resolve disputes, and track 
the disposition of applications for combination products.
    CBO estimates that creating a new office would cost less 
than $1 million in 2003 and about $4 million over the 2003-2007 
period. This estimate assumes more staff would be needed in the 
first two years to establish the data tracking systems and 
procedures of the new office.
    Other Provisions. Title II would also extend by one year--
through 2007--the authority of FDA to allow third-party review 
of premarket notification submissions.\1\ To maintain this 
program, CBO assumes FDA would continue to issue guidance to 
persons seeking inspection and periodically audit reviewers who 
have been approved. The bill also would make permanent expiring 
provisions of the Federal Food, Drug, and Cosmetic Act that 
limit FDA's ability to hold or deny applications when an 
unapproved use of the device has been identified. Provisions of 
this title also would require FDA to accept and review partial 
applications from device manufacturers, expanding the scope of 
a current pilot project.
---------------------------------------------------------------------------
    \1\ Before certain devices can be commercially distributed, 
manufacturers must submit a ``premarket notification'' to FDA showing 
the device to be safe and effective for use, or substantially 
equivalent to a device currently deemed to be safe and effective. 
``Premarket'' means before the device is introduced into commercial 
distribution. FDA requires ``premarket notification'' for most devices 
and ``premarket approval'' for class III devices--those that sustain or 
support human life. Applications for premarket approval require a 
heightened level of scientific review to ensure the safety and 
effectiveness of class III devices.
---------------------------------------------------------------------------
    FDA would be required to use electronic technology to 
accept registrations from device manufacturers, when feasible. 
Currently, FDA does not have the data systems in place to 
accept electronic versions of 17,000 to 18,000 registrations a 
year. Finally, this title would require other administrative 
actions by FDA, such as reporting to the Congress on the 
timeliness of premarket reviews, including pediatric experts on 
review panels, and publishing information on the Internet. CBO 
estimates that implementing those provisions would cost less 
than $500,000 in 2003 and $1 million over the 2003-2007 period.
    Studies. Under title II, the Comptroller General would 
conduct a study and report on information provided to patients 
who receive breast implants. The Secretary of HHS would be 
required to contract with the Institute of Medicine for a study 
of the effectiveness of surveillance of devices on the market 
that are used by children. CBO estimates those studies would 
cost $1 million in 2003 and $2 million over the 2003-2007 
period. In addition, the bill would require the National 
Institutes of Health (NIH) to support research on breast 
implants. CBO estimates that the cost of the provision would be 
negligible because NIH recently completed a comprehensive 
breast implant study and continues to conduct research in this 
area.
            Title III
    This title would expand labeling and data requirements for 
medical devices. First, it would require manufacturers 
(including firms reprocessing single-use devices) to place 
their names or symbols on all devices. FDA could waive the 
requirement if it is not feasible or safe to label. According 
to industry and agency representatives, manufacturers of 
original devices already identify themselves on their devices, 
but firms reprocessing devices usually place their 
identification only on the package. In addition, the bill would 
require companies that reprocess single-use devices to state on 
their packaging that the device had been reprocessed. Products 
that do not comply with FDA's labeling requirements would be 
deemed misbranded and the firm would be subject to civil 
penalties.
    Further, firms reprocessing devices would be required to 
submit validation data that describe the procedures used to 
clean, sterilize, and test the functional performance of most 
reprocessed devices. Under current law, class I and some class 
II devices are exempt from filing premarket notifications with 
the FDA. Under this bill, FDA would be required to identify the 
class I and II devices that would no longer be exempt from 
filing. (Device classes I, II, and III refer to the level of 
CDRH regulation of a given device.) Firms reprocessing those 
devices would be required to submit notifications and include 
the validation data described in the bill. Firms that have 
submitted or will submit premarket notifications for non-exempt 
devices would also be required to submit validation data for 
those devices.
    Firms reprocessing class III devices would be allowed to 
submit ``premarket reports'' instead of premarket applications 
required under current law. Premarket reports are described in 
the bill are similar to premarket applications, except that 
they require less detailed information on the manufacturing 
specifications of the original device. Currently, the 
requirement for original specifications on class III devices 
has effectively barred companies from reprocessing class III 
devices because original manufacturers are reluctant to share 
this information. Firms reprocessing class III devices also 
would submit validation data with their premarket reports under 
the bill.
    CBO believes the workload of FDA would expand in order to 
implement these provisions. For example, FDA would have to 
issue several guidance documents related to the labeling and 
identification of exempt devices. It also would need to review 
premarket notifications, reports, and validation data submitted 
as a result of the bill. According to FDA, the workload might 
be highest initially as currently exempt devices become 
nonexempt and asthe agency determines how to review validation 
data. CBO estimates that implementing these provisions would cost less 
than $1 million in 2003 and $4 million over the 2003-2007 period, 
assuming the necessary amounts are appropriated.
    Estimated impact on state, local and tribal governments: 
H.R. 3580 would place a number of requirements on the 
manufacturers of medical devices and also require them to pay 
fees to the FDA for approval to market those devices. The bill 
would exempt state government entities from fees if the device 
will not be distributed commercially. In other cases, any 
state, local, or tribal government that manufactures medical 
devices would have to pay the fee and comply with other 
requirements in the bill. The fee and the other requirements of 
the bill would be intergovernmental mandates as defined in 
UMRA. However, CBO is unaware of any case in which a state, 
local, or tribal entity would be directly responsible for 
meeting these requirements or for paying the associated fees. 
Consequently, CBO estimates that any costs associated with the 
intergovernmental mandates would be minimal. Thus, the 
threshold established in UMRA ($58 million in 2002, adjusted 
annually for inflation) would not be exceeded.
    Estimated impact on the private sector: The bill contains a 
number of private-sector mandates as defined in URMA on the 
manufacturers of medical devices. Because many of those 
requirements would depend on future actions of the Secretary of 
HHS, however, CBO cannot determine whether their direct cost 
would exceed the annual threshold specified in UMRA ($115 
million in 2002, adjusted annually for inflation) in any of the 
first five years the mandates would be effective.
    Subject to approval in an appropriation act, title I of the 
bill would give the Secretary the authority to assess and 
collect user fees from manufacturers of medical devices to 
defray the cost to the FDA of reviewing applications for 
approval to market those devices. In 2003, the fees would be 
$139,000 for each premarket application, premarket report, and 
panel track supplement that FDA reviews, and about $2,400 for 
each premarket notification submission under section 510(k) of 
the Federal Food, Drug, and Cosmetic Act. Those fees would 
constitute mandates on the manufacturers. CBO estimates that 
the direct cost of those mandates would be $25 million in 2003, 
rising to about $48 million in 2007.
    Section 206 of the bill would require manufacturers of 
medical devices to submit their registrations electronically. 
Under current law, manufacturers of medical devices are 
required to register annually with FDA, and under other 
circumstances as specified by law. Those registrations are 
submitted on paper forms. Under H.R. 3580, if the Secretary 
found that electronic registration was feasible, then 
manufacturers would be required to submit all of their 
registrations electronically unless the Secretary granted a 
waiver to a particular manufacturer. While the requirement to 
submit registration electronically, rather than on paper forms, 
is a private-sector mandate, CBO cannot estimate its cost 
because it is uncertain when, or if, the Secretary would find 
that such electronic registration was feasible. FDA currently 
receives between 17,000 and 18,000 registrations per year, all 
on paper forms. If required to file electronically, 
manufacturers would incur a largely one-time cost for changing 
to electronic registration, but in the long run, electronic 
registrations could be less costly to submit than paper forms.
    Section 301 of the bill would require manufacturers of 
medical devices to label each device with the name of the 
manufacturer or an abbreviation or symbol of the manufacturer, 
unless the Secretary determined that compliance with the 
requirement was not feasible for the device or would compromise 
its safety or effectiveness. Under current law, manufacturers 
are required to put their names on the packaging of a device, 
but not on the device itself. Thus, the requirement is a 
private-sector mandates as defined in UMRA. The mandate would 
affect both manufacturers of original equipment and firms that 
reprocess single-use devices. According to the FDA, there are 
currently about 75,000 types of medical devices on the market, 
and about one-third of those are not labeled with the name or 
symbol of the original manufacturer. In most cases, this is 
because the device is too small to permit the manufacturer to 
label it. For this reason, CBO assumes that most manufacturers 
of devices that do not currently comply with the requirements 
in the bill would be eligible for a waiver. Industry experts 
also state that the vast majority of reprocessed medical 
devices bear an adhesive or laser-etched label on the device 
that identifies the reprocessing firm. Thus, CBO estimates that 
the overall cost of complying with the mandate would be small.
    Section 302 of the bill contains a number of private-sector 
mandates. It would require firms that reprocess single-use 
devices to place a statement on the device's label that 
identifies the device as a reprocessed device for single use 
and identifies the reprocessing firm. According to industry 
experts, the labels of most reprocessed single-use devices 
already contain this statement; thus, the cost of complying 
with this mandate would be minimal.
    Section 302 also would require firms that reprocess single-
use devices to submit validation data detail the procedures 
used to clean, sterilize, and assess the functional performance 
of those devices to demonstrate that the reprocessed device is 
substantially equivalent to its predicate device after the 
maximum number of times the device will be reprocessed. In the 
case of reprocessed single-use devices that, under current law, 
are exempt from submitting a premarket notification submission 
under section 510(k) of the Federal Food, Drug, and Cosmetic 
Act, the bill would require the Secretary to develop a list of 
devices that would no longer be exempt because they are 
critical or semi-critical single use devices (that is, 
theycontact mucous membranes or areas of the body that are sterile 
under normal conditions). The manufacturers of those devices would be 
required to submit both a premarket notification submission under 
section 510(k) and the validation data described above.
    Because the Secretary has the authority, under current law, 
to determine which devices are exempt from premarket 
notification requirements, the provision in the bill that would 
require manufacturers to complete a premarket notification 
submission is not a new private-sector mandate. However, the 
provision in the bill that would require manufacturers to 
submit validation data is a new mandate. CBO estimates that 
approximately 120 types of reprocessed single-use devices are 
currently exempt from premarket notification requirements. 
According to the FDA, about 70 of those device types are likely 
to meet the definition of critical or semi-critical single-use 
devices specified in the bill. If the Secretary revoked the 
exemptions of each of those device types, CBO estimates that 
the cost of submitting validation data would be approximately 
$50 million in the first year that the mandate was effective. 
The cost of the mandate could be substantially different, 
though, depending upon the actions of the Secretary.
    In the case of reprocessed single-use devices that, under 
current law, are required to submit a premarket notification 
submission under section 510(k) of the act, the Secretary would 
review those submissions (including those already approved 
prior to enactment of the bill) and publish a list of 
reprocessed single-use devices for which validation data, as 
described above, is required to ensure that the reprocessed 
device is substantially equivalent to a predicate device. 
Manufacturers of those devices selected by the Secretary would 
be required to submit validation data within nine months. The 
requirement to submit validation data is a private-sector 
mandate. CBO estimates that there are about 80 types of 
reprocessed single-use devices that are required to submit a 
premarket notification under current law and, thus, might be 
required to submit such validation data if the provision were 
to become law. However, since the Secretary would have 
discretion to choose which of those devices would require 
validation data, CBO cannot estimate the cost of complying with 
this mandate.
    Estimate prepared by: Federal costs: Shawn Bishop, Julia 
Christensen, and Chris Topoleski; impact on state, local, and 
tribal governments: Leo Lex, impact on the private sector: 
Jennifer Bowman.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                                
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