Managing Critical Isotopes: DOE's Isotope Program Needs Better Planning for Setting Prices and Managing Production Risks
Published: 2012-05-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOE is the only domestic supplier for many of the over 300 different isotopes it sells that are critical to medical, commercial, research, and national security applications. Previous shortages of some isotopes, such as helium-3, an isotope used to detect radiation at seaports and border crossings, highlight the importance of managing supplies of and demand for critical isotopes. Prior reports by GAO and others highlighted risks and challenges faced by the Isotope Program, such as assessing demand for certain isotopes. GAO was asked to determine (1) which isotopes are produced, sold, or distributed either by the Isotope Program or NNSA and how the two agencies make isotopes available for commercial and research applications; (2) what steps the Isotope Program takes to provide isotopes for commercial and research applications; and (3) the extent to which DOE is assessing and mitigating risks facing the Isotope Program. GAO reviewed DOE and NNSA documents, visited Oak Ridge National Laboratory, and interviewed cognizant agency officials.
section_title: What GAO Found
paragraphs: The Department of Energys (DOE) Isotope Development and Production for Research and Applications program (Isotope Program) provides over 300 different isotopes for commercial and research applications. The Isotope Program is responsible for 243 stable isotopes that are no longer produced in the United States but are sold from the programs existing inventory and for 55 radioactive isotopes, called radioisotopes, that the program is able to produce at DOE facilities. An additional 10 isotopes sold by the Isotope Program are provided by the National Nuclear Security Administration (NNSA), a separate agency within DOE, as by-products of its nuclear weapons program.
The Isotope Program may be forgoing revenue that could further its mission because of the manner in which it sets prices for commercial isotopes. The Isotope Program determines demand, coordinates production, and sets prices for commercial isotopes. To set prices for radioisotopes, the program considers the full cost of production, including direct costs (e.g., labor costs) and indirect costs (e.g., infrastructure costs). For research applications, isotope prices are set to recover direct costs to reduce prices and encourage research. For commercial applications, prices are set at full cost recoveryof both direct and indirect costsor at an isotopes market price when a market price higher than full cost recovery already exists. The program, however, has not fully assessed the pricing of most of these isotopes, as required by its 1990 pricing policy. This policy provides latitude for setting prices and states that prices should be assessed annually. Factors that may be considered when establishing prices include the value of an isotope to the customer, demand, and the number of suppliers. The program, however, has not assessed the value of isotopes to customers or defined what factors it will consider when it sets prices for commercial isotopes, including defining under what circumstances it will set prices at or above full cost recovery. As a result, the program does not know if its full-cost-recovery prices are set at appropriate levels so as not to distort the market, and it may be forgoing revenue that could further support its mission.
The Isotope Program has begun taking some actions to identify and manage risks to achieving its mission of producing isotopes, but because it has not established clear, consistent program objectives, the programs risk assessment efforts are not comprehensive. Actions the Isotope Program is taking include, among other things, identifying high-priority isotopes and using its revolving fund to mitigate risks from unforeseen events. For example, the Isotope Program has identified five lists of high-priority isotopesthose at risk of supply problems because they are already in short supply or are important to users. Isotope Program officials reported using these lists to set program priorities. The Isotope Program is taking these actions, however, without first establishing clear, consistent objectives. The federal standards for internal control state that a precondition to risk assessment is the establishment of clear objectives. Without clearly defined objectives, the program cannot be assured that it is assessing risks from all sources or that its efforts are focusing on the most significant risks to achieving its mission. Furthermore, without consolidating the multiple high-priority lists, Isotope Program managers may not be directing limited resources to the most important isotopes.
section_title: What GAO Recommends
paragraphs: GAO recommends, among other actions, that DOEs Isotope Program define what factors it considers when setting isotope prices, create clear objectives as a basis for risk assessment, and consolidate the lists of high-priority isotopes. DOE stated that it will address GAOs recommendations through the Isotope Programs current efforts to update its pricing policy and develop a strategic plan.

section_title: Letter
paragraphs: The Department of Energy’s (DOE) Isotope Development and Production  for Research and Applications program (Isotope Program) is the only  domestic supplier for many of the more than 300 different isotopes that it  sells, many of which are critical to medical, commercial, research, and  national security applications. For example, the program produces and  sells strontium-82, an isotope used to generate rubidium-82, which is  used in the diagnosis of heart disease. Overall, approximately 20 million  medical procedures are performed each year in the United States using  isotopes. Other applications for isotopes include oil and gas exploration,  physics research, and radiation detection monitors that screen cargo and  vehicles at ports and border crossings. Additionally, a January 2012  federal workshop on isotopes was held by the Isotope Program and the  National Nuclear Security Administration (NNSA), a separately organized  agency within DOE, to discuss isotope supply and demand. At this  workshop, more than 20 federal government entities, including the  Department of Defense’s Defense Threat Reduction Agency, Department  of Homeland Security’s Domestic Nuclear Detection Office, National  Aeronautics and Space Administration, National Institutes of Health, and  Federal Bureau of Investigation identified more than 100 different  isotopes that are key to achieving their missions, according to program  officials.
Previous shortages of some isotopes, such as helium-3, highlight the  importance of managing supplies of and demand for critical isotopes. For  example, in May 2011 we reported on a shortage of helium-3—an isotope  used in radiation detection monitors deployed at ports and border  crossings to detect nuclear material and prevent terrorists from smuggling  such material into the United States. DOE is the only domestic supplier  of helium-3, producing about 8,000 liters per year. As demand for helium- 3 increased beginning in 2001, sales quickly outpaced production levels,  resulting in a critical shortage in 2008. As a result, the federal government  was forced to quickly begin developing alternatives to helium-3 in order to  continue deploying radiation detection monitors.
In fiscal year 2009, DOE transferred the Isotope Program from its Office  of Nuclear Energy to its Office of Science and revised the program’s  mission to three purposes: (1) produce or distribute isotopes in short  supply, their associated by-products and surplus materials, and deliver  isotope-related services; (2) maintain the infrastructure required to  produce and supply isotopes and related services; and (3) investigate and  develop new or improved isotope production and processing techniques  that can make new isotopes available for research and other applications.  To meet this three-pronged mission, the Isotope Program operates from  an annual budget consisting of yearly appropriations and revenues from isotope sales. In fiscal year 2011, appropriations totaled almost $20  million, and revenues from sales of isotopes alone totaled almost $27  million, according to data provided by agency officials.
In addition to DOE’s Isotope Program, NNSA generates or provides some  additional isotopes as by-products of the weapons program and research  activities. Through its Office of Nuclear Materials Integration, NNSA  makes these isotopes available to other federal entities, including DOE’s  Isotope Program, which then coordinates their sale and distribution to  researchers and commercial entities.
Since 2008, the Isotope Program has been addressing programmatic  risks and challenges as identified by external stakeholders as part of a  series of program reviews. The risks and challenges the reviews identified  included concerns over supply limitations for some isotopes, the need for  long-term infrastructure investments to maintain the capacity for isotope  production, and difficulties with accurately forecasting isotope demand.  Specifically, in August 2008, DOE organized a workshop bringing  together a wide range of stakeholders to discuss the nation’s current and  future isotope needs and to consider options for improving the availability  of needed isotopes. This workshop identified 30 key isotopes that were in  short supply at that time, including 12 whose supplies had been  exhausted or were likely to run out within the following 3 years. Also in  2008, DOE requested that the Nuclear Science Advisory Committee form  an isotope subcommittee to advise the program on specific isotope risks.  The subcommittee produced two reports in response: one identifying and  setting priorities for compelling research opportunities using isotopes and  another report presenting opportunities and priorities for ensuring a robust  national isotope program. These reports highlighted short-term and long- term risks and challenges facing the Isotope Program, such as the  program’s reliance on DOE laboratories to produce certain isotopes.  Specifically, the report expressed concern that the Isotope Program relies  on the linear particle accelerators at Brookhaven National Laboratory  and Los Alamos National Laboratory for isotope production, even though  isotope production is not the primary mission of these laboratories.
In light of the importance of the isotopes sold by the Isotope Program and  the various challenges it faces, you asked us to review the program.  Specifically, our objectives were to determine (1) which isotopes are  produced, sold, or distributed either by the Isotope Program or NNSA and  how the two entities make isotopes available for commercial and research  applications; (2) what steps the Isotope Program takes to provide  isotopes for commercial and research applications; and (3) the extent to  which DOE is assessing and mitigating risks facing the Isotope Program.
subsections: section_title: Scope and Methodology
paragraphs: To identify which isotopes are produced, sold, or distributed either by the  Isotope Program or NNSA and how the two agencies make isotopes  available for commercial and research applications, we reviewed the DOE  Isotope Program’s information on available isotopes, isotope sales data,  and information on NNSA’s isotopes. We also visited Oak Ridge National  Laboratory in Tennessee, where the Isotope Program’s business office  and the program’s inventory of stable isotopes are located, to view  production facilities and interview officials about isotope production and  sales. We interviewed officials at the national laboratories that produce  isotopes for the Isotope Program: Brookhaven National Laboratory in  New York, Idaho National Laboratory in Idaho, Los Alamos National  Laboratory in New Mexico, Oak Ridge National Laboratory in Tennessee,  and Pacific Northwest National Laboratory in Washington State. We also  interviewed headquarters officials with the Isotope Program and NNSA  about isotope production and how the two entities work together. To  determine what steps the Isotope Program takes to provide isotopes for  commercial and research applications, we reviewed the Isotope  Program’s production schedules, pricing policy, and documents related to  how the program gathers information on customers’ needs. We also  interviewed representatives from commercial companies and researchers  who purchase isotopes from the Isotope Program. We interviewed  officials from the National Isotope Development Center; the Isotope  Program; and Brookhaven, Los Alamos, and Oak Ridge National  Laboratories because officials at these locations are involved in producing  and selling isotopes to customers. To determine the extent to which DOE  is assessing risks facing the Isotope Program, we reviewed reports from  the Nuclear Science Advisory Committee’s isotope subcommittee and the  report from the isotope workshop DOE held in 2008. We also reviewed  the strategic plans, risk assessment plans, and related documents from  Brookhaven, Los Alamos, and Oak Ridge National Laboratories because  the Isotope Program is the steward of isotope production at these sites.  We reviewed and compared lists of high-priority isotopes that were  prepared by the Isotope Program, the Nuclear Science Advisory  Committee’s isotope subcommittee, the National Institutes of Health, and  stakeholders at the 2008 isotope workshop. We also interviewed officials  from the Isotope Program and Brookhaven, Los Alamos, and Oak Ridge  National Laboratories to learn about risk assessment planning at each  site and for the Isotope Program. In addition, we compared actions the  Isotope Program is taking to assess risks with federal standards for  internal control.
We conducted this performance audit from June 2011 to May 2012, in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Background
paragraphs: Isotope production and distribution have been part of DOE’s mission  since at least 1954, when the Atomic Energy Act of 1954 specified the  role of the U.S. government in isotope distribution. DOE’s Isotope  Program fills this role by providing isotopes to support the national and  international need for a reliable supply for use in medicine, industry, and  research. The Isotope Program provides both radioactive isotopes, called  radioisotopes, and stable isotopes, which are not radioactive. In  addition, the Isotope Program provides a range of isotope-related  services to customers worldwide. For example, the program may lease  some stable isotopes and also provides irradiation and isotope- processing services for research and commercial applications.
DOE transferred the Isotope Program from the department’s Office of  Nuclear Energy to its Office of Science in 2009, at which time DOE  restructured the program. The program currently consists of four DOE  headquarters employees who oversee operations and set policy, plus the  National Isotope Development Center, which is a virtual organization  consisting of DOE contract employees located at Los Alamos National  Laboratory and Oak Ridge National Laboratory. National Isotope  Development Center employees carry out day-to-day operations of the  Isotope Program, which include interacting with the isotope user  community though a variety of outreach activities, monitoring short-term  and long-term isotope demand, coordinating isotope production across  DOE’s isotope production facilities, and distributing isotopes. The  National Isotope Development Center includes DOE contract employees  at the Isotope Business Office, located at Oak Ridge National Laboratory,  who manage business operations involved in the production, sale, and  distribution of isotopes. In addition, officials from the National Isotope  Development Center and DOE headquarters coordinate with many  federal programs, including the National Institutes of Health, to identify  current and future isotope needs.
The Isotope Program produces most of its radioisotopes at three DOE  production sites: the linear particle accelerators at Brookhaven National  Laboratory in New York and Los Alamos National Laboratory in New  Mexico, and the nuclear reactor at Oak Ridge National Laboratory in  Tennessee. The program also produces a small number of radioisotopes  at the Pacific Northwest National Laboratory in Washington State and at  Idaho National Laboratory. The DOE facilities associated with the Isotope  Program are recognized as uniquely capable of producing radioisotopes.  Although the Isotope Program uses these DOE sites to produce  radioisotopes, the program does not manage all the sites’ operations.  Rather, the Isotope Program shares the use of these sites with other  missions, which consist of a diverse combination of DOE activities related  to nuclear science, materials research, or defense. The production sites  are therefore not always available to the Isotope Program, and at times  the program may not control the timing and duration of isotope  production.
The Isotope Program relies on appropriations and revenues from isotope  sales for funding its operations. Both yearly appropriations and sales  revenues are deposited into a revolving fund from which the program  draws funds to operate its facilities, produce isotopes, pay employees’  salaries, and fund research, among other activities. Funds remain  available to the program in the revolving fund, which allows the program  to carry over balances from year to year, giving the program budgeting  flexibility. Table 1 shows the Isotope Program’s revolving fund balances,  annual appropriations, annual sales revenues, and obligations to operate  the program for fiscal years 2009 through 2011. The Isotope Program’s  annual spending on research and development is generally aimed at  developing new or more efficient isotope production techniques.
The Isotope Program sold isotopes or provided isotope-related services  to more than 100 customers in fiscal year 2011, both in the United States  and internationally, with 6 of those customers accounting for more than  80 percent of all sales revenue in fiscal year 2011. More than 95 percent  of the Isotope Program’s annual revenue came from the sale of eight  different isotopes in fiscal year 2011; these eight isotopes generated  almost $26 million in revenue (see table 2).
section_title: DOE’s Isotope Program and NNSA Together Produce or Make Available over 300 Isotopes for Research and Commercial Applications
paragraphs: DOE’s Isotope Program produces or makes available for sale and  distribution over 300 different isotopes for research and commercial  applications. NNSA generates or provides additional isotopes that are  transferred to other federal agencies or sold by the Isotope Program (see  app. I). The program may produce or make available to customers more  than 300 different isotopes, but fewer than that number are sold in a given  year. In fiscal year 2011, for example, the program sold less than 170  distinct isotopes. The isotopes sold by the Isotope Program can be  categorized as (1) radioisotopes currently produced by the Isotope  Program at DOE production sites; (2) stable isotopes from the Isotope  Program’s inventory, which are no longer produced in the United States;  and (3) isotopes generated or provided by NNSA as by-products of its  nuclear weapons program (see table 3).
The Isotope Program is responsible for the production and sale of 55  radioisotopes produced at five DOE laboratories—Brookhaven, Los  Alamos, Oak Ridge, Pacific Northwest, and Idaho National Laboratories.  In any given year, the Isotope Program does not produce all 55  radioisotopes; rather, it produces and sells those for which customer  demand exists and is unmet by supply from commercial sources. At  times, the Isotope Program may choose to begin or stop producing a  given isotope depending on whether commercial entities are meeting  demand, whether an isotope’s market price is so high that it inhibits  research, or whether DOE has the facilities necessary to produce the  isotope, among other considerations. For example, in 2009 the Isotope  Program reestablished production of californium-252, which is used in a  variety of applications, including oil exploration and medical applications,  because of customer demand. Californium-252 was previously produced  by the Isotope Program in partnership with NNSA and sold through the  Isotope Program. When NNSA no longer needed californium-252 for its  mission, it stopped supporting its production in 2007, according to an  Isotope Program official. The Isotope Program worked with a coalition of  commercial customers to continue producing californium-252 to meet the  needs of the coalition and researchers. Isotope Program officials  indicated, however, that a change like this in the program’s production  portfolio does not happen often.
In addition to the radioisotopes it produces, the Isotope Program also  maintains an inventory of 243 stable isotopes that it sells to customers.  These stable isotopes were produced by DOE until the late 1990s at DOE  facilities that are no longer in use, and since these isotopes are stable,  they can remain in storage almost indefinitely. Because stable isotopes  are no longer produced, supplies of some of them have been exhausted,  and supplies of others are dwindling. Specifically, according to current  Isotope Program data, nine stable isotopes that were in the program’s  inventory are no longer available, and six have less than 10 years’ supply  at current rates of use (see table 4).
According to program officials, the Isotope Program occasionally  purchases quantities of some stable isotopes from foreign sources, such  as Russia, in an effort to maintain the program’s supply. Isotope Program  officials explained that the program buys stable isotopes from foreign  sources and then resells them to domestic customers because the  Isotope Program can take steps to ensure isotope quality and offer other  services that foreign suppliers are unwilling to provide, such as leasing  some stable isotopes for research or other applications. Given dwindling  supplies in DOE’s inventory and increasing reliance on foreign sources,  whose supplies for some isotopes are also dwindling, the Nuclear  Science Advisory Committee recommended in 2009 that the Isotope  Program reestablish capability to produce stable isotopes in the United  States. The Isotope Program is funding several projects in response to  this recommendation, including the development of stable isotope  production at Oak Ridge National Laboratory, in part, using funds it  received in fiscal year 2009 from the American Recovery and  Reinvestment Act. Isotope Program officials stated that the project is  expected to be completed in 2014.
The Isotope Program sells an additional 10 isotopes that are provided by  NNSA. The program does not control the supply of these isotopes but  coordinates with NNSA to sell and distribute them. Isotope Program  officials coordinate with NNSA’s Office of Nuclear Materials Integration,  which was created in 2008 to work across DOE to, among other things,  make NNSA’s isotopes and other materials available to government  entities. For example, NNSA has a stockpile of lithium-6, some of which it  provides to the Isotope Program to sell; lithium-6 is used in research and  security equipment to detect neutrons given off by other nuclear  materials. The Isotope Program also coordinates with NNSA to produce  isotopes that the Isotope Program does not have the capability to  produce, such as americium-241, which is used in smoke detectors and  medical diagnostic devices.
section_title: In Providing Commercial Isotopes, DOE’s Isotope Program May Be Forgoing Revenue That Could Further Support Its Mission
paragraphs: To provide isotopes for commercial and research applications, the  Isotope Program takes steps to determine the demand for isotopes,  coordinate production across production sites, and set prices for isotopes,  but the program is not using thorough assessments to establish prices for  commercial isotopes. The Isotope Program has flexibility to set prices at  market levels for isotopes sold for commercial applications but instead,  for most isotopes where the program is the only domestic supplier, sets  prices at the level necessary to recover its cost to produce them. In  setting prices for commercial isotopes, however, the Isotope Program is  not assessing the value of the isotope to the customer or prices of  alternatives, as permitted under its pricing policy. As a result, the Isotope  Program may be forgoing revenue that could be used to further its  mission and address unmet needs.
subsections: section_title: To Ensure the Availability of Isotopes, DOE’s Isotope Program Determines Demand, Coordinates Production, and Sets Prices
paragraphs: To ensure the availability of isotopes for research and commercial  applications, the Isotope Program annually determines demand,  coordinates production across its production sites, and sets prices for  selling isotopes. To determine annual demand, Isotope Program officials  said they start with a general sense of demand based on historical sales  data and frequent interaction with customers, through which they learn  about changes in isotope needs. According to program officials, the Isotope  Program asks customers to provide information on expected demand for  the next year and as far as 5 years into the future, although some  customers said such estimates are difficult to make. The Isotope Program  also takes customers’ orders for isotopes throughout the year via e-mail,  telephone, or the program’s website. These orders, for radioisotopes and  stable isotopes, are received by the Isotope Program’s business office. To  determine annual demand for strontium-82, for example, Isotope Program  officials ask customers how much strontium-82 they need for the coming  year, and each customer commits to a certain amount for that year. These  customers then provide updates throughout the year to clarify actual  strontium-82 quantities and delivery dates.
Orders for stable isotopes are received and processed throughout the  year by the Isotope Program, but producing radioisotopes to meet  demand requires considerable planning, according to program officials.  When the Isotope Program receives an order for a stable isotope, such as  calcium-48, it can be filled from the existing inventory of stable isotopes.  In contrast, orders for radioisotopes are taken throughout the year and  used to plan production during the Isotope Program’s annual production  planning meeting. The outcome of the meeting is a production schedule  for the production sites, which identifies radioisotopes needed for the  coming year. The production schedule outlines the projected dates when  each isotope will be produced and which site will produce it, but the exact  schedule depends on a variety of factors. Specifically, because the  Isotope Program generally does not control the operation of reactors or  accelerators, it uses the facilities at the same time as other DOE  programs, thus limiting the Isotope Program’s capability to produce  isotopes, according to program officials. For instance, according to  program officials, the accelerator at Los Alamos National Laboratory  typically operates from July through December, and the accelerator at  Brookhaven National Laboratory typically operates from January through  June. In addition, because many radioisotopes decay rapidly after  production, they need to be delivered in a timely manner, and officials  must consider customers’ desired delivery times when determining the  production schedule. For instance, strontium-82 has a half-life26 days and, according to one customer, must arrive predictably to be  used for its intended purpose. Other isotopes have even shorter life  spans and need to be delivered on a precise day before they decay too  much to be useful. An Isotope Program official told us that that the  production schedule is adjusted throughout the year as customers’  demands change, as new isotopes are ordered, as facilities experience  unanticipated shutdowns, or for other reasons. During our discussions  with several Isotope Program customers, we found that they were  generally satisfied with the timeliness of isotope delivery.
To set prices for radioisotopes, program officials annually request detailed  production cost data, including both direct and indirect costs, from the  individual DOE and NNSA production sites that provided the isotope.  According to program officials, direct costs include labor costs and costs  for chemical processing, among others; indirect costs include facility  maintenance costs and other infrastructure costs. These officials said that  the Isotope Program uses cost data from the production sites to  determine the sales price for each isotope and prices isotopes differently  depending on whether the intended use is for research or commercial  applications. For research applications, isotope prices are set to recover  only direct costs. In addition, according to program officials, research  isotopes are priced by unit, instead of batch, so researchers can buy  small quantities of isotopes and not have to pay for production of an  entire batch. Isotope Program, with indirect costs covered by the program’s yearly  appropriation. Program officials told us that the intent of this subsidy is to  promote independent research on uses of isotopes by making them more  affordable to the research community. Overall, the result is that some  research isotopes are priced significantly lower—from about 9 percent to  75 percent less, in some cases—than the same isotope used for  commercial applications.
A batch of isotopes is the amount produced by an entire production cycle. Researchers  may require a smaller quantity of an isotope than what is produced in a batch.
For isotopes used in commercial applications, prices are generally set to  recover, at a minimum, the full cost of isotope production, including both  direct costs and indirect costs. For orders of large quantities of  commercial isotopes, the per-unit cost of production is lower, so the  Isotope Program can provide volume discounts. In addition, according to  program officials, the Isotope Program adds a nominal fee to isotopes  sold commercially, which amounts to approximately 10 percent in  additional costs for commercial isotopes—6 percent for administrative  costs to process orders for isotopes and 4 percent as a contingency  charge to cover unanticipated events. A recent unanticipated event, for  example, occurred in fiscal year 2011. According to a program official,  orders for strontium-82, which had accounted for more than a third of the  program’s sales revenue in 2010, decreased significantly and  unexpectedly as the result of a recall of the cardiac imaging device that  was the main application for strontium-82. According to program officials,  the Isotope Program sales revenue declined by over $5 million from July  2011 through January 2012 as a result, and program officials said they  had to draw from the revolving fund to maintain operations.
For stable isotopes that are sold from its existing inventory, Isotope  Program officials told us that prices are based on historical production  costs adjusted annually for inflation, rather than on current replacement  costs; the prices are the same regardless of whether they are used for  research or commercial applications. Officials told us that they do not  base the prices of stable isotopes on current replacement costs because  DOE does not have the capability to produce these stable isotopes.  Isotope Program officials told us that market studies were in the early  stages of being carried out in preparation for reestablishing the capability  to produce stable isotopes in 2014; these studies are intended to help the  program determine which stable isotopes to produce and in what  quantities.
section_title: In Setting Prices for Most Commercial Isotopes, DOE’s Isotope Program May Be Forgoing Revenue That Could Further Support Its Mission
paragraphs: The Isotope Program generally charges full cost recovery for commercial  isotopes, but the program has not fully assessed the pricing of most of the  commercial isotopes it sells, as required by its current policy, such as  assessing the value of the isotopes to the customer or prices of similar  isotopes. As a result, the program may be discouraging others from  producing isotopes and, at the same time, forgoing sales revenue that  could further support its mission to deliver needed isotopes, maintain  isotope production infrastructure, and support research, in addition to  addressing unmet needs. The Atomic Energy Act of 1954 states that the  federal government should be reasonably compensated for isotopes it  sells and that isotope prices should not discourage commercial isotope  producers from entering the market. Aside from these constraints, the  Isotope Program has broad authority in setting isotope prices. To this  end, the Isotope Program established a pricing policy in 1990 that  provides latitude for establishing prices at full cost recovery or at market  prices that are higher or lower than full cost recovery, but also states that  when a market price already exists that is higher than full cost recovery,  the market price should be used. The policy also states that prices should  be assessed annually and that additional factors may be considered  when establishing prices, including the number of suppliers, demand,  competitors’ prices, and the value of the isotope to the customer. This  policy appears to be consistent with guidance from the Office of  Management and Budget on the sale of government goods and services,  which suggests that sales should be self-sustaining and based on market  prices. In cases where no market currently exists, such as many of the  commercial isotopes produced and sold by the Isotope Program, the  Office of Management and Budget’s guidance states that prices can be  set by taking into account the prevailing prices for goods that are the  same as or substantially similar to those provided by the government and  then adjusting the supply made available, prices of the goods, or both so  that there will be neither a shortage nor a surplus.
According to program officials, at present the Isotope Program has set the price above  full cost recovery for helium-3 and two other isotopes. These three isotopes are priced  above full cost recovery because, according to officials, market prices exist that are  greater than the full cost of production, and setting the prices lower would distort their  market prices. recovery for most of the commercial isotopes it sells. First, officials told us  they believe many customers are sensitive to prices and already consider  prices for isotopes to be too high. Isotope Program officials said that  some potential customers are already unwilling or unable to pay current  prices for many isotopes and that some existing customers have  suggested that any price increases would make isotopes unaffordable  and force them to seek other isotope sources. Second, Isotope Program  officials stated that the program’s role is not to maximize revenue from  isotope sales but to make isotopes widely available. Isotope Program  officials told us that, consistent with the program’s mission and the Atomic  Energy Act, the Isotope Program strives to supply isotopes at reasonable  prices to encourage their use.
For most of the isotopes it produces and sells, however, program officials  told us that in instances where the Isotope Program is the only domestic  supplier, the program has not formally determined the value of isotopes to  commercial customers or prices of alternatives. Program officials told us  that they gain a sense of customers’ value for isotopes through various  interactions with these customers, although they did not provide a formal  analysis as described in the pricing policy. According to documents  provided by the Isotope Program, the program has also collected limited  market information for a small number of isotopes, but these studies are  outdated or do not consider pricing. For example, a market study  provided by the Isotope Program that was conducted in 2002 projects the  future demand and potential revenues for 25 different radioisotopes used  in medicine over the next 5 to 10 years, but that study is now outdated.  Additionally, according to one program official, the market study to be  conducted for the Isotope Program’s isotopes beginning in 2012 is to  provide information on which isotopes are in greatest demand so officials  will know which stable isotopes to produce, although the study will not  address isotope prices.
Without formally assessing the value of isotopes to commercial  customers or the prices of alternatives for isotopes where the Isotope  Program is the only domestic supplier, the Isotope Program does not  know if its full cost recovery prices for isotopes are in fact discouraging  others from producing isotopes, discouraging commercial entities and  researchers from developing alternatives, and/or encouraging  overconsumption. If assessments of customers’ value for isotopes and  the prices of potential alternatives show that prices can be increased  above full cost recovery for some commercial isotopes, the additional  revenue could be used to further the Isotope Program’s mission and  address unmet needs. For example, revenues could be used to fund  research for the development of new or more efficient production  capabilities for additional isotopes. Also, the Nuclear Science Advisory  Committee recommended in its report on opportunities and priorities for  ensuring a robust national isotope program that the Isotope Program  invest in a facility dedicated to producing radioisotopes. Such a facility,  according to the advisory committee, is the most cost-effective option to  position the Isotope Program to ensure continuous access to many of the  needed radioactive isotopes. Program officials told us they were  developing a new pricing policy, but because the policy is in draft form  and subject to change, we were unable to determine, among other things,  whether the new policy would provide direction on how commercial  isotope prices are to reflect the value of the isotope to the customer, the  prices of alternatives, or both.
section_title: DOE’s Isotope Program Has Taken Some Actions to Identify and Manage Risks, but Its Efforts Are Not Comprehensive
paragraphs: The Isotope Program has begun taking some actions to identify and  mitigate risks to achieving its mission of producing isotopes, such as the  risk of relying on sales of a small number of commercial isotopes for a  large percentage of its revenues, but without first establishing clear,  consistent program objectives, the program’s risk assessment efforts are  not comprehensive.
subsections: section_title: DOE’s Isotope Program Is Taking Varied Actions to Identify and Mitigate Program Risks
paragraphs: The Isotope Program is taking some actions to assess risks to achieving  its mission, including identifying high-priority isotopes and using its  revolving fund to mitigate risks from unforeseen events. Risk assessment  first involves, according to federal standards for internal control,  identifying and analyzing risks associated with achieving a program’s  objectives and then determining how to manage such risks. Our analysis  shows that the Isotope Program currently assesses risks through several  methods. First, Isotope Program officials, National Isotope Development  Center staff, and production site managers identify risks to providing  isotopes by monitoring long-term changes in demand within the isotope  community that could affect isotope supply. Unlike determining demand  for annual production planning, these monitoring activities focus on  changes that could influence isotope supply and demand in the longer  term, such as new products that could eventually increase demand for a  specific isotope, according to Isotope Program documents. According to  program officials, long-term monitoring activities help them stay abreast of  changes in the isotope community that may warrant adjustments to the  program’s product portfolio. In addition, program officials told us that  these activities play a role in long-range program planning, as well as  informing decisions regarding research and development. Some  monitoring activities are performed on a continuous basis, such as  discussing new developments in isotope uses and production capacity  with foreign isotope suppliers, while others occur once or a few times a  year, such as attending industry conferences to collect information about  new commercial products that use isotopes. To manage risks created by  changes in demand, according to Isotope Program officials, the program  gathers additional information on the issue and may convene workgroups  that bring together isotope community stakeholders to discuss trends for  one or several isotopes. For example, the program organized a working  group in 2008 with representatives from the National Institutes of Health  to explore supply and demand for medical research isotopes. It also  convened a workshop of federal stakeholders in January 2012 to discuss  isotope priorities, supply, and demand among federal entities.
The Isotope Program also assesses risks to the program by identifying  high-priority isotopes—those at risk of supply problems, either because  the isotopes are already in short supply or are important to users. Five  lists of high-priority isotopes have been created by isotope stakeholders,  and Isotope Program officials said that they use the lists to set program  priorities. The following describes each of the lists and the entity that  created them:
The 2008 workshop of isotope community stakeholders created an  unranked list of more than 47 isotopes considered to be in short  supply or unavailable from DOE for research and applications.
In 2009, the National Institutes of Health isotope working group  developed a list of important medical research isotopes that are not  commercially available; the list was updated and ranked in order of  priority in January 2012.
In 2009, the Nuclear Science Advisory Committee’s isotope  subcommittee produced a list of isotopes important for medical and  scientific research purposes and prioritized them according to the  importance of the research opportunities.
In 2011, the National Isotope Development Center listed stable  isotopes in priority order according to the importance of the isotopes  in research and commercial applications.
In 2011, the National Isotope Development Center listed specific  isotopes called nuclear materials and heavy elements and prioritized  them on the basis of importance of the isotopes in research and  commercial applications.
Program officials told us they use the high-priority lists to establish  program priorities, such as determining what research and development  initiatives to undertake. For example, according to program officials, for  some of the listed isotopes, the program has reached out to universities  to research new production methods. In addition, the Nuclear Science  Advisory Committee’s isotope subcommittee’s list serves as a criterion for  awarding research and development grants; research projects for  isotopes on the list receive higher priority for funding than projects for  isotopes not on this list. Four of the lists rank the isotopes in order of  priority, and one does not; the prioritized lists rank isotopes according to  different criteria. For example, the National Institutes of Health prioritized  isotopes on the basis of their importance to medical research, while the  National Isotope Development Center prioritized isotopes on the basis of  their importance to research and commercial applications. In total, 104  different isotopes appear on the five lists—about 18 percent of the total  number of isotopes currently available from the program. Although a few  isotopes are found on more than one list, most isotopes are found on only  a single list.
The Isotope Program mitigates risks by using the flexibility of its revolving  fund to help manage unexpected events, such as losses in revenues. The  Isotope Program is authorized to carry over revenues and yearly  appropriations in its revolving fund from fiscal year to fiscal year. The law  authorizing the revolving fund provides the program broad discretion for  managing the fund, stating that appropriations and revenues deposited  into the fund are to be used for “activities related to the production,  distribution, and sale of isotopes and related services.”uses its flexibility in managing the revolving fund to prepare for and  mitigate unexpected events. To this end, of the 10 percent fee the  program adds to the price of isotopes sold to commercial customers, it  deposits 4 percent into the revolving fund to cover unanticipated events.  For example, the program drew on the fund to maintain operations in  2011 and 2012 in the face of a significant, unexpected decline in revenue  from the sale of strontium-82.
The Isotope Program also assesses risks at its three primary isotope  production facilities by identifying and managing risks to the production  sites. The isotope production facilities at Oak Ridge and Los Alamos  National Laboratories in 2011 developed plans that describe processes  for identifying and managing risks at the sites that could be detrimental to  isotope production. such as infrastructure, chemical processing, and shipping processes— should be assessed for risks and describe how site officials are to  determine the likelihood and consequence of any identified risks. In  conjunction with the plans, Oak Ridge and Los Alamos National  Laboratories created spreadsheets for tracking risks—called risk  registers—that list each identified risk, its likelihood, consequence, and  mitigation strategy, among other things. Many of the identified risks focus  on equipment failure or malfunction, such as risks that components of a  processing facility shut down unexpectedly. Other risks are related to  management and regulatory issues. Brookhaven National Laboratory has  developed a similar risk-tracking spreadsheet that focuses exclusively on  risks to production equipment. According to one program official, the risk  management plans and spreadsheets help the program set priorities for  investments that will help manage risks. For example, on the basis of Los  Alamos National Laboratory’s risk register, the program decided to modify  its facilities to reduce radiation risks. These risk management plans and  risk registers are specific to the three production sites and do not identify  risks to the entire Isotope Program.
The plans also describe a similar process for identifying and managing opportunities.  The third production site at Brookhaven National Laboratory has not developed a similar  risk and opportunity assessment and management plan.
section_title: DOE’s Isotope Program Does Not Have Clear Objectives That Enable It to Comprehensively Assess Program Risks
paragraphs: The Isotope Program is taking risk assessment actions without first  establishing clear, consistent objectives; that is, it does not identify and  mitigate risks to achieving program objectives in a comprehensive way.  One of the federal standards for internal control—risk assessment— states that a precondition to risk assessment is the establishment of clear,  consistent objectives. Long-term goals and objectives describe how the  program will implement its mission, when actions will be taken, and what  resources are needed to reach these goals. Once objectives have been  set, the program then identifies risks that could keep it from efficiently and  effectively achieving those objectives at all levels. After risks have been  identified, they are to be analyzed for their possible effect and decisions  made on how to manage the identified risks.
DOE’s Isotope Program has not established clear, consistent objectives  to serve as a basis for risk assessment. Isotope Program officials told us  the program is relying on two reports from the Nuclear Science Advisory  Committee’s isotope subcommittee to guide its decisions and that these  two reports provide adequate guidance. Together, these reports  recommend 15 different long-term actions for the program but do not  provide clear objectives for the program or a description of how those  objectives are to be achieved. For example, one report recommends that  the program construct and operate an electromagnetic isotope separator  facility for stable and long-lived radioisotopes but does not describe how  this recommendation is to be achieved. The report also does not provide  criteria for measuring progress toward meeting this or other  recommendations. Isotope Program officials told us, however, that the  program is undertaking a new strategic planning process in 2012 to  develop a 5-year strategic plan.
Without clearly defined objectives that lay out what the program is to  accomplish, the Isotope Program cannot be assured that its current risk  assessment and mitigation efforts focus on the most significant issues  that could impede achievement of its mission. For example, the program  does not have objectives that could provide direction about which of the  five high-priority isotope lists warrants the most attention. Instead,  program officials reported that they take all the lists into account when  making production and research decisions. They could not tell us if one  list of isotopes is a higher priority than the others. Furthermore, without  clear objectives, program officials cannot determine how important one  isotope on a list is relative to isotopes on the other lists because they are  prioritized using different criteria, or they are not prioritized. For example,   thallium-203 is ranked as the most important isotope on the National  Isotope Development Center’s list of stable isotopes; actinium-225, astatine-211, and lead-212 are identified as the most  important isotopes in medicine, pharmaceuticals, and biology in the  report of the Nuclear Science Advisory Committee’s isotope  subcommittee; and californium-252 and radium-225 are identified as the most important  isotopes for physical science and engineering in this same report.
Without consolidating the multiple lists of high-priority isotopes, however,  it is unclear which isotopes have greater priority than others. Thus,  program managers may not be focusing limited resources on the most  important isotopes.
Furthermore, because the program does not have clear objectives, it  cannot be assured that it is assessing and mitigating risks from all  relevant external and internal sources. In particular, the program has not  assessed risks associated with relying on a small handful of isotopes for a  large percentage of annual revenue. This issue is important in the context  of the unexpected decline in strontium-82 orders that occurred in 2011,  which resulted in a large reduction in expected revenue. The program  likely could not have anticipated this loss, but comprehensive risk  assessment efforts might have identified the risk of relying on strontium- 82 and a few other isotopes for a large amount of revenue. Without  identifying all relevant risks, the program also cannot determine how to  manage such risks. When the strontium-82 orders declined, the program  was able to rely on its revolving fund to make up for unexpected revenue  loss, but it may not always be able to do so. Isotope Program officials told  us there is no guiding document for how the revolving fund should be  spent or managed. Without guidance on how to manage the revolving  fund in a way that helps mitigate risk, the program cannot be assured that  it will be able to continue using the fund to both advance program  missions and mitigate risks. For example, if the program unexpectedly  loses revenue for several years in a row, the revolving fund may not  provide sufficient reserves to maintain program operations.
section_title: Conclusions
paragraphs: Managing the production and sale of over 300 different isotopes for  various research, commercial, industrial, and medical applications is a  daunting task. With a wide variety of customers, whose needs may  change over time, it is difficult for the Isotope Program to determine  demand, plan production, and project revenue streams to avoid shortages  of important isotopes or interruptions in the revenues that help to sustain  the program. The Isotope Program is taking several actions to assess  demand and plan production. In addition, the Isotope Program has clearly  defined under what circumstances it will charge reduced prices for  research isotopes. The program has not, however, defined what factors it  will consider when it sets prices for isotopes sold commercially, including  defining under what circumstances it will set prices for such isotopes at or  above full cost recovery. Without transparency in decisions on pricing, it is  unclear if Isotope Program officials are setting prices consistently.  Moreover, in the absence of established market prices and without  current information on the value customers place on isotopes and prices  of similar products, the Isotope Program cannot ensure that the prices it  sets are appropriate and thus may be forgoing revenues that could be  used to further its mission and ensure the program’s long-term viability.
As the Isotope Program moves forward with its process to establish a 5- year strategic plan, creating clear goals and objectives is the first step in  being able to identify and manage risks to achieving the program’s  mission. Identifying high-priority isotopes that may need additional  oversight is a good step toward managing risks, but without consolidating  those lists and prioritizing them, program managers may not direct limited  resources toward the most important isotopes.
Finally, when the Isotope Program’s revenues from strontium-82  unexpectedly stopped, program officials were fortunate to have the  revolving fund to mitigate the unexpected loss in revenue and maintain  operations without disrupting supplies of other isotopes. Without clear  guidance on when and how to use the revolving fund to mitigate future  unexpected losses in revenue, the program cannot ensure that it will have  sufficient funds to maintain operations, or for other activities, such as  funding research and other projects that help the Isotope Program  achieve its mission.
section_title: Recommendations for Executive Action
paragraphs: We are making four recommendations to the Secretary of Energy  designed to improve the Isotope Program’s transparency in setting prices  and efficiency in managing isotopes. Specifically, we recommend that the  Secretary of Energy direct the Isotope Program to take the following four  actions:
Clearly define the factors to be considered when the program sets  prices for isotopes sold commercially, including defining under what  circumstances it will set prices at or above full cost recovery. This  should include assessing, when appropriate, current information on  the value of isotopes to customers and the prices of similar products.
In conjunction with strategic planning efforts already under way,  create clear goals and objectives to serve as a basis for risk  assessment, identify risks to achieving its goals and objectives, and  determine what actions to take to manage the risks.
Consolidate the lists of high-priority isotopes so the program can  ensure that its resources are focused on the most important isotopes.
Establish clear guidance for managing the revolving fund to ensure  that the fund is sufficient to use as a contingency for unexpected  losses in revenue.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOE for review and comment. In its  written response, reproduced in appendix II, DOE explained that our  recommendations will generally be addressed through the Isotope  Program’s current efforts to update its pricing policy and develop a  strategic plan. DOE took exception, however, to our characterization of  how the Isotope Program sets prices for commercial isotopes.  Specifically, according to DOE’s letter, the Isotope Program does  consider “value of isotopes to customers” when setting prices for  commercial isotopes. Nevertheless, none of the documents provided by  the Isotope Program during our review show that the program conducted  a current, formal analysis of what customers are willing to pay for  commercial isotopes. Our report points out that program officials gain a  sense of the value customers place on commercial isotopes through  informal interactions with the customers themselves. Such interactions, in  our view, do not provide a rigorous approach to determining a customer’s  value for commercial isotopes as customers generally strive to obtain  needed materials, including isotopes, at the lowest possible cost. We are  encouraged to see that, according to DOE’s comments, the Isotope  Program’s updated pricing policy is to identify which factors are to be  considered in setting prices, including formal analysis of the value of  commercial isotopes to customers.
In its comments, DOE expressed concern that our report suggests  maximizing revenue and pricing commercial isotopes to increase  revenue. DOE explained that the Isotope Program generally sets prices to  fulfill the mandate established by the Atomic Energy Act of 1954 to  provide isotopes at prices that do not discourage their use. Our report  does not emphasize maximizing revenue or setting prices solely to  increase revenue. It does point out that the Isotope Program has not  performed the formal market analyses required by its own pricing policy.  DOE further stated that the Isotope Program considers several factors  when determining prices for commercial isotopes, including a “bottom-up  activity-based costing for isotope production,” and it has initiated two  market studies that will provide input into the assessment of market  prices. Comprehensive market studies would determine the prices  customers are willing to pay for isotopes and prices of alternatives,  among other factors, and would thus determine if the Isotope Program’s  prices for commercial isotopes are set at the appropriate level. Such  analyses would also show whether the full-cost-recovery price, which is  used for all but three of the commercially sold isotopes, is resulting in  unintended, but avoidable, consequences. General economic  considerations suggest that setting prices of isotopes at artificially low  levels could have unintended consequences such as discouraging other  entities from producing isotopes, discouraging commercial entities and  researchers from developing alternatives, and encouraging  overconsumption. Furthermore, our report points out that the Atomic  Energy Act of 1954 states that isotope prices should not discourage  commercial isotope producers from entering the market.
With regard to our recommendations, DOE’s letter indicates that three of  our four recommendations are being addressed through the Isotope  Program’s present efforts to update its pricing policy and develop a  comprehensive strategic plan and risk assessment. With regard to our  fourth recommendation—to consolidate and prioritize isotopes from the  lists of high-priority isotopes—DOE stated that it “will need to assess the  value added of doing an overall prioritization.” DOE further states that  even though an isotope may be a high priority for the isotope community,  there is no guarantee that an entity is capable of producing it. In our view,  this situation highlights the need for our recommendation. The Isotope  Program has done outreach with the isotope community to identify the  most important isotopes and has created a peer-review process that  considers isotopes on the various high-priority lists as one of its factors in  selecting projects for funding. This process alone, however, cannot  ensure that the program’s resources are accurately focused on the most- needed isotopes. Therefore, we believe it is up to the Isotope Program to  consolidate the lists of high-priority isotopes and develop criteria to  determine on which isotopes resources are to be focused.
Finally, DOE’s letter stated that we mischaracterized NNSA’s mission,  which does not include providing isotopes to stakeholders. We clarified  this statement and have made changes throughout the report as needed.  DOE also provided technical comments that we incorporated in the report  as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, Secretary of Energy, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or aloisee@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.
section_title: Appendix I: Isotopes Available from DOE’s Isotope Program
paragraphs: This table identifies the isotopes provided at the time of this report for sale  by the Department of Energy’s (DOE) Isotope Development and  Production for Research and Applications program (Isotope Program).  According to Isotope Program officials, the availability of these isotopes  may change and some isotopes may be provided in different chemical  forms. For example, bromine-79 is available as sodium bromide but also  as potassium bromide, silver bromide, and ammonium bromide. The table  also shows how the Isotope Program classifies each isotope—as a  radioisotope or stable isotope—and if an isotope is provided by the  National Nuclear Security Administration (NNSA) and sold by the Isotope  Program.
section_title: Appendix II: Comments from the Department of Energy
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Ned H. Woodward, Assistant  Director; Wyatt R. Hundrup; Katherine Killebrew; and Michael Krafve  made key contributions to this report. Eric Bachhuber, Ellen W. Chu, R.  Scott Fletcher, Cindy Gilbert, Jonathan Kucskar, Mehrzad Nadji, and  Timothy M. Persons also made important contributions.