The US Food and Drug Administration (FDA) has published a new guidance document intended to establish user fees to fund its inspections of a new category of compounding pharmacy established under the Drug Quality and Security Act (DQSA) of 2013. FDA would collect fees much as it collects PDUFA fees to fund drug reviews.
The fees pay for supervision and include an annual $15,000 “establishment fee” ($5,000 for small businesses) and a $15,000 re-inspection fee. The guidance also includes an incentive: register as an outsourcing facility before October 1—the end of FY2014—and you don’t have to pay that year’s fees. These firms would still have to pay FY2015 fees.
Regulatory Focus has an excellent overview of the recent history between FDA and compound pharmacies:
In late 2012, a massive outbreak of fungal meningitis was traced to deficient manufacturing at a Massachusetts compounding pharmacy. In the wake of the outbreak, which killed more than 60 and left hundreds more injured, regulators and legislators scrambled to determine how future outbreaks might be avoided.
At the heart of the controversy were two factors: authority and funding.
FDA claimed that years of conflicting legal decisions had made it unclear if it had the authority to inspect compounding pharmacies, and that even if it had such authority, it lacked the resources to do so at scale.
Legislators ultimately passed the DQSA in November 2013, reflecting a compromise of sorts. While state regulators would continue to oversee many smaller compounding pharmacies, such as those that might operate within a hospital, compounding pharmacies could regulate as “outsourcing facilities” and be regulated by FDA. Legislators said they hoped many compounders would seek to be voluntarily regulated as outsourcing facilities, as FDA oversight might be seen as a proxy for quality products.
Additionally, FDA has previously published two guidance documents on outsourcing pharmacies, which are regulated under Section 503B of the Federal Food, Drug and Cosmetic Act (FD&C Act). Registration for Human Drug Compounding Outsourcing Facilities Under Section 503B of the Federal Food, Drug, and Cosmetic Act is meant to clarify the definition of what a compounding pharmacy is and how to register as a compounding pharmacy. Interim Product Reporting for Human Drug Compounding Outsourcing Facilities Under Section 503B of the Federal Food, Drug, and Cosmetic Act clarifies how compounding pharmacies should submit information to FDA on the products they manufacture.
I. BACKGROUND
On November 27, 2013, the President signed the DQSA into law. The DQSA added a new section 503B to the FD&C Act, creating a category of entities called “outsourcing facilities.” Outsourcing facilities, as defined in section 503B(d)(4) of the FD&C Act, are facilities that meet all of the conditions described in section 503B(a), including registering with FDA as an outsourcing facility and paying an annual establishment fee. If these conditions are satisfied, a drug compounded by or under the direct supervision of a licensed pharmacist in an outsourcing facility is exempt from two sections of the FD&C Act: (1) Section 502(f)(1) (21 U.S.C. 352(f)(1)) (concerning the labeling of drugs with adequate directions for use) and (2) section 505 (21 U.S.C. 355) (concerning the approval of human drug products under new drug applications (NDAs) or abbreviated new drug applications (ANDAs)). Drugs compounded in outsourcing facilities are not exempt from the requirements of section 501(a)(2)(B) of the FD&C Act (21 U.S.C. 351(a)(2)(B)) (concerning current good manufacturing practice for drugs). The fee provisions for outsourcing facilities in the FD&C Act.
II. FEES
A. Annual Establishment Fee
1. In General
Beginning in fiscal year (FY) 2015, outsourcing facilities that elect to register with FDA must pay an annual establishment fee. Each year, the registration period for outsourcing facilities begins on October 1 and ends on December 31. The annual establishment fee is paid at the time of registration and is equal to the sum of $15,000, multiplied by the inflation adjustment factor (described in Section III.B.1), plus the small business adjustment factor (described in Section III.B.2). The fee calculation is reflected in the following equation: Establishment fee = $15,000 x inflation adjustment factor + small business adjustment factor
FDA will publish a notice in the Federal Register announcing the amount of the establishment fee to be collected in a given FY (based on the calculation set forth above) no later than 60 calendar days before the start of that FY.
Upon receiving registration information from a facility that elects to register as an outsourcing facility, FDA will send an invoice for the fee. For a given FY, an outsourcing facility will not be considered registered for purposes of section 503B(b) until the annual establishment fee is paid.
2. Entities that Registered Before October 1, 2014
Outsourcing facilities that registered before October 1, 2014, do not have to pay a fee for FY 2014. To maintain their status as outsourcing facilities in FY 2015, however, those entities will have to register during the FY 2015 registration period (October 1 – December 31, 2014) and pay the relevant fees. Failure to pay the fee by December 31, 2014, will result in an entity losing its status as an outsourcing facility. FDA will remove the entity from the list of registered outsourcing facilities, and drugs compounded at the facility will no longer qualify for the exemptions under section 503B(a), unless and until the firm re-registers and pays all required fees.11 Registration and payment of the annual fee must be repeated every FY.
3. Entities that Register Outside of the Annual Registration Period
Entities that elect to register as outsourcing facilities may register outside of the annual registration period (October 1st to December 31st of each year). Registration is encouraged, and can be done at any time during the year. Registration, regardless of when completed, will last until the end of the official registration period for the year of registration (December 31st). For example, if an outsourcing facility registers on May 1, 2014, the registration will expire on December 31, 2014, and the outsourcing facility will need to register for the following FY during the annual registration period of that year (October 1, 2014 – December 31, 2014). Registration, whether within, or outside of the annual registration period, will incur a full registration fee, including relevant adjustments. Because an entity must complete payment of the registration fee before it will be considered registered for purposes of section 503B(b), drugs compounded in that facility prior to registration and payment of fees will not qualify for the exemptions for products compounded by registered outsourcing facilities under section 503B(a).
B. Adjustment Factors
1. Inflation Adjustment Factor
The inflation adjustment factor is a statutorily mandated increase of the annual establishment fee. The inflation adjustment factor is equal to the sum of:
- 1; plus
- the average annual percent change in the cost, per full-time equivalent (FTE) position at FDA, of all personnel compensation and benefits paid for those FTE positions for the first three years of the preceding four fiscal years, multiplied by the proportion of personnel compensation and benefits costs to total costs of an average FTE position at FDA for the first three years of the preceding four fiscal years; plus—
- the average annual percent change in the Consumer Price Index for urban consumers for the first three years of the preceding four years of available data multiplied by the proportion of all costs other than personnel compensation and
2. Small Business Adjustment Factor
Certain small businesses can qualify for a reduction of the annual establishment fee. Entities that qualify as small businesses under section 744K(c)(4) of the FD&C Act are required to pay only one-third of the annual establishment fee, or $5,000 140 multiplied by the inflation adjustment factor.19 This is referred to as a small business reduction.
Entities that do not qualify for a small business reduction will pay a small business adjustment factor, equal to the total amount lost from each outsourcing facility that was granted a small business reduction divided among all outsourcing facilities not granted such a reduction.
FDA will establish the small business adjustment factor every FY based on its best estimate of the number of small businesses that will pay a reduced fee for that year and the positive adjustment to the establishment fee of the remaining entities needed to achieve total fees equaling the amount FDA would have collected if no entity qualified for the small business reduction. The estimate of the number of small businesses and the amount of the small business adjustment factor will be published in the Federal Register at least 60 days before the start of each FY.
C. Reinspection Fee
1. In General
Under section 744K of the FD&C Act, beginning in FY 2015, an outsourcing facility will be assessed a reinspection fee each time it is subject to a reinspection. Reinspection is defined as: “one or more inspections conducted under section 704 subsequent to an inspection conducted under such provision which identified noncompliance materially related to an applicable requirement of this Act, specifically to determine whether compliance has been achieved to the Secretary’s satisfaction.”
The reinspection fee is designed to reimburse FDA when it must visit a particular outsourcing facility more than once because of noncompliance identified during a previous inspection. The reinspection fee assessed will be the reinspection fee for the fiscal year in which the reinspection takes place. Moreover, a reinspection fee will be incurred for each reinspection that occurs until FDA finds that the noncompliant conditions have been adequately addressed.
The reinspection fee will be equal to $15,000 multiplied by the inflation adjustment factor. The inflation-adjusted reinspection fee for each FY will be published in the Federal Register not later than 60 calendar days before the start of each FY.
2. Small Business Reinspection Fees
Section 744K of the FD&C Act provides a small business reduction only for the annual establishment fee, not for the reinspection fee. Therefore, an outsourcing facility that is subject to reinspection will be charged the full inflation-adjusted reinspection fee for each reinspection even if the facility qualifies as a small business.
D. How to Qualify for a Small Business Reduction
1. Which Entities Qualify for a Small Business Reduction?
An entity with gross annual sales totaling $1,000,000 or less in the 12 months ending on April 1 of the FY immediately preceding the FY in which the annual establishment fee is assessed may qualify for a small business reduction. Gross annual sales is defined as the “total worldwide gross annual sales, in United States dollars, for an outsourcing facility, including the sales of all of the affiliates of the outsourcing facility.” Affiliate is defined as a “business entity that has a relationship with a second business entity if, directly or indirectly—(A) one business entity controls, or has the power to control, the other business entity; or (B) a third party controls, or has power to control, both of the business entities.”
Entities that seek a small business reduction of the annual establishment fee must make a request for such a reduction by April 30th of the year preceding the fiscal year for which the entity is seeking a reduced fee.
2. Content and Format of Request
To qualify for a small business reduction of the annual establishment fee, an entity must submit to FDA a written request for such a reduction, and a certification that the entity meets the requirements for the reduction. The request must be submitted in a format specified by FDA in guidance, and it must be submitted every year that the firm seeks to qualify as a small business. This guidance specifies that the format for submitting requests for a small business reduction of the annual establishment fee is Form 3908. The completed form should be submitted via email to CDERCollections@FDA.HHS.gov, with the subject line containing “Outsourcing Facility Small Business Reduction request.” If an outsourcing facility does not have email access, it can mail a request to FDA via the carrier of its choice. For the most updated physical mailing address, visit this website.
3. Timing of Requests
Pursuant to section 744K(c)(4)(B) of the FD&C Act, an entity seeking a small business reduction must submit to FDA a written request for such a reduction no later than April 30th of the year immediately preceding the FY for which the fee reduction is sought, even if the entity has qualified for the small business reduction for the previous FY. For example, an entity seeking a 222 small business reduction for FY 2015 must submit its complete written small business reduction request no later than April 30, 2014. FDA will accept small business reduction requests until April 30 of each year, and intends to advise the requesting entity of its decision within 60 calendar days of receipt of the request. FDA intends to send a letter to the entity, via email (or regular mail if the request was by regular mail), notifying it of FDA’s decision. Entities granted a reduction should maintain a copy of the letter for their records.
E. How and When to Pay
1. Annual Establishment Registration Fees
Once an entity submits its registration information and FDA has reviewed the information and determined that it is complete, the entity will incur the annual establishment fee. FDA will send an invoice to the entity via email, to the email address indicated in the registration file, or via regular mail if email is not an option. The invoice will contain information about the obligations incurred; the amount owed, including the small business reduction if the entity has qualified for that reduction; and instructions for paying the fee. To facilitate timely payment of fees and registration, FDA expects to send invoices no later than three business days after receiving a registration submission. Because entities will not be considered to be registered as outsourcing facilities until payment is received, FDA suggests that entities pay the invoiced amount immediately upon receiving the invoice. If an entity does not pay the full invoiced amount within fifteen calendar days after FDA issues the invoice, FDA will consider the submission of registration information to have been withdrawn and adjust the invoice to reflect that no fee is due.
Entities that intend to submit registrations during the annual registration period that lasts from October 1 to December 31 should submit their registration information no later than December 10 of each year to allow enough time for review of the registration information, invoicing, and payment of fees before the end of the registration period. As discussed in Section IV, an entity that does not pay its annual establishment fee will not be considered registered as an outsourcing facility for that FY. Entities that have submitted registration information but have not completed the payment process by December 31st, the end of the registration period, will be removed from the list of registered outsourcing facilities as of January 1 of that FY, and drugs compounded at the facility will not qualify for the exemptions under section 503B(a), unless and until the firm has re-registered and paid the fee.
2. Reinspection Fees
After FDA conducts a reinspection, it will send an invoice to the entity via email, to the email address indicated in the registration file, or via regular mail if email is not an option. The invoice will contain information about the obligation incurred, the amount owed, and instructions for paying the fee. The invoiced amount should be paid immediately to avoid statutory penalties. Once an entity has incurred a reinspection fee, the obligation to pay the fee cannot be discharged except through payment of the fee, unless FDA adjusts the invoice to reflect that no fee is due as a result of a reconsideration decision or successful appeal. If FDA does not receive the reinspection fee within 30 calendar days after invoicing, the fee obligation will be treated as a claim of the United States Government, subject to the provisions of subchapter II of chapter 37 of tile 31, United States Code. Interest and fees will accrue until the obligation is satisfied.
IV. EFFECT OF FAILURE TO PAY FEES
An entity that does not pay its adjusted annual establishment fee for a given FY will not be considered registered as an outsourcing facility under section 503B of the FD&C Act for that FY. The facility will be considered registered, for purposes of § 503B(b), when it pays the total adjusted annual establishment fee for that FY.
Outsourcing facilities that registered in FY 2014 and wish to maintain their status as an outsourcing facility in FY 2015 must register during the FY 2015 registration period, which lasts from October 1, 2014, to December 31, 2014. Failure to register and complete payment by December 31, 2014, will result in the loss of status as an outsourcing facility on January 1, 2015.
Entities that submit registrations outside of the annual registration period must pay all relevant fees to be deemed registered; failure to pay fees will result in the facility being deemed not registered for purposes of § 503B(b).
Establishment and reinspection fees must be paid in their entirety. A shortfall in any amount will subject the facility to all relevant penalties. All drugs manufactured, prepared, propagated, compounded, or processed by a facility that has not paid the full amount of the required establishment fee or any applicable reinspection fee, will be deemed misbranded under section 502 of the FD&C Act. Such drugs will continue to be deemed misbranded until the fees owed by that facility have been paid in full. The facility cannot distribute misbranded drugs in interstate commerce. In addition, because one of the conditions of being an outsourcing facility is the payment of fees, drugs compounded in a facility that has failed to maintain its status as an outsourcing facility are also considered to be unapproved new drugs subject to the premarket approval requirements of section 505 of the FD&C Act.