1. Financial Aspects of MDUFMA Presentation at Public Meeting by Frank Claunts November 18, 2004

2. MDUFMA How fees are set FY 2004 financial results What’s working well What’s not

3. MDUFMA How Fees are Set

4. MDUFMA-- MDUFMA--How Fees are Set Determined by three things: 1. Revenue Target 2. Statutory Relationship of Fees 3. Numbers of Fee-paying Applications

5. HHS/FDA/Office of Management5 How Fees are Set— Revenue Target 2003200420052006 Estimate 2007 Estimate Target In 2003 $ $25,125,000$27,255,000$29,785,000$32,465,000$35,000,000 % Increase %Inflation Adjusted $ Target % Change Year to Year

6. HHS/FDA/Office of Management6 How Fees are Set— Revenue Target 2003200420052006 Estimate 2007 Estimate Target In 2003 $ $25,125,000$27,255,000$29,785,000$32,465,000$35,000,000 % Increase8.5%9.3%9.0%7.8% %Inflation Adjusted $ Target % Change Year to Year

7. HHS/FDA/Office of Management7 How Fees are Set— Revenue Target 2003200420052006 Estimate 2007 Estimate Target In 2003 $ $25,125,000$27,255,000$29,785,000$32,465,000$35,000,000 % Increase8.5%9.3%9.0%7.8% %Inflation4.3%4.4%4 % Adjusted $ Target % Change Year to Year

8. HHS/FDA/Office of Management8 How Fees are Set— Revenue Target 2003200420052006 Estimate 2007 Estimate Target In 2003 $ $25,125,000$27,255,000$29,785,000$32,465,000$35,000,000 % Increase8.5%9.3%9.0%7.8% %Inflation4.3%4.4%4 % Adjusted $ Target $25,125,000$28,418,789$32,429,908$36,761,380$41,217,134 % Change Year to Year

9. HHS/FDA/Office of Management9 How Fees are Set— Revenue Target 2003200420052006 Estimate 2007 Estimate Target In 2003 $ $25,125,000$27,255,000$29,785,000$32,465,000$35,000,000 % Increase8.5%9.3%9.0%7.8% %Inflation4.3%4.4%4 % Adjusted $ Target $25,125,000$28,418,789$32,429,908$36,761,380$41,217,134 % Change Year to Year 13.1%14.1%13.4 %12.1 % Revenue Amounts before Workload and Compensating Adjustments

10. HHS/FDA/Office of Management10 How Fees Are Set— Compensating Adjustment Purpose—Stable & Predictable Revenues Essential to have dependable revenue stream for program to grow Other FDA user fee programs use product, establishment and sponsor fees for stable revenue Device industry rejected these Preferred compensating adjustment instead Compensating adjustment: any shortfall would be added to revenue target for future years

11. HHS/FDA/Office of Management11 How Fees are Set Statutory Fee Relationships Application TypeFull Fee % of PMA Small Business % of Full Fee for Same Type PMA/BLA/Panel Track100% 180 Day Supplements Real Time Supplements 510(k)’s

12. HHS/FDA/Office of Management12 How Fees are Set Statutory Fee Relationships Application TypeFull Fee % of PMA Small Business % of Full Fee for Same Type PMA/BLA/Panel Track100% 180 Day Supplements21.5% Real Time Supplements 510(k)’s

13. HHS/FDA/Office of Management13 How Fees are Set Statutory Fee Relationships Application TypeFull Fee % of PMA Small Business % of Full Fee for Same Type PMA/BLA/Panel Track100% 180 Day Supplements21.5% Real Time Supplements7.2% 510(k)’s

14. HHS/FDA/Office of Management14 How Fees are Set Statutory Fee Relationships Application TypeFull Fee % of PMA Small Business % of Full Fee for Same Type PMA/BLA/Panel Track100%38% 180 Day Supplements21.5%38% Real Time Supplements7.2%38% 510(k)’s

15. HHS/FDA/Office of Management15 How Fees are Set Statutory Fee Relationships Application TypeFull Fee % of PMA Small Business % of Full Fee for Same Type PMA/BLA/Panel Track100%38% 180 Day Supplements21.5%38% Real Time Supplements7.2%38% 510(k)’s1.42%+80% + For 510(k)’s, fees are to be set to generate a level of revenue as if all applications were charged 1.42% of the full PMA fee, but adjusted so that revenues from reduced fees (80%), when added to revenues from full fees, equal this overall revenue level.

16. How Fees are Set Numbers of Fee-paying Applications 03/04 Estimate 03 Actual 04 Proj. 3-31-04 05 Fee Basis PMA/BLA58 “ S.B.10 180-Day171 “ S.B.24 Real-Time86 “ S.B.14 510(k)4000 “ S.B.

17. How Fees are Set Numbers of Fee-paying Applications 03/04 Estimate 03 Actual 04 Proj. 3-31-04 05 Fee Basis PMA/BLA5846 “ S.B.106 180-Day171118 “ S.B.2422 Real-Time86136 “ S.B.1419 510(k)40004001 “ S.B.

18. How Fees are Set Numbers of Fee-paying Applications 03/04 Estimate 03 Actual 04 Proj. 3-31-04 05 Fee Basis PMA/BLA584647 “ S.B.1065 180-Day17111886 “ S.B.24229 Real-Time86136159 “ S.B.141915 510(k)400040012853 “ S.B.482

19. How Fees are Set Numbers of Fee-paying Applications 03/04 Estimate 03 Actual 04 Proj. 3-31-04 05 Fee Basis PMA/BLA58464751 “ S.B.10656 180-Day17111886 “ S.B.242299 Real-Time86136159160 “ S.B.141915 510(k)4000400128533060 “ S.B.482540

20. HHS/FDA/Office of Management20 How Fees are Set for FY 2005 Doing the Math to Total $32,429,908 Application TypeFull Fee % of PMA Small Business % of Full Fee for Same Type PMA/BLA/Panel Track$239,237$90,910 180 Day Supplements$51,436$19,546 Real Time Supplements$17,225$6,546 510(k)’s$3,502$2,802 + For 510(k)’s, fees are to be set to generate a level of revenue as if all applications were charged 1.42% of the full PMA fee, but adjusted so that revenues from reduced fees (80%), when added to revenues from full fees, equal this overall revenue level.

21. MDUFMA FY 2004 Financial Results

22. HHS/FDA/Office of Management22 Revenue Percents by Quarter

23. HHS/FDA/Office of Management23 Revenue Percents by Quarter

24. HHS/FDA/Office of Management24 Numbers of PMA/BLA/Panel Track 03 Actual 04 Actual Original Forecast 05 Fee Basis Full Fee4540.55851 S.B. Fee64106 Fee Paying5144.56857 Exempt S.B.1619 Exempt Ped.01 Bundled24 Non Fee-Paying1824 Total6968.5

25. HHS/FDA/Office of Management25 Numbers of 180-Day Supplements 03 Actual 04 Actual Original Forecast 05 Fee Basis Full Fee1179317186 S.B. Fee2213249 Fee Paying13910619595 Exempt Ped.21 Bundled134 Non Fee-Paying155 Total154111

26. HHS/FDA/Office of Management26 Numbers of Real Time Supplements 03 Actual 04 Actual Original Forecast 05 Fee Basis Full Fee13615786160 S.B. Fee19201415 Fee Paying155177100175 Exempt Ped.11 Bundled2126 Non Fee-Paying2227 Total177204

27. HHS/FDA/Office of Management27 Numbers of 510k’s 03 Actual 04 Actual Original Forecast 05 Fee Basis Full Fee28743060 S.B. Fee517540 Fee Paying3999339140003600 Exempt 3 rd Party190255 Fee Exempt1321 Not a device/etc.67127 Non Fee-Paying270385 Total42693776

28. HHS/FDA/Office of Management28 FY 2004 Preliminary Revenue Summary Full FeeSB FeesTotal PMA/BLA/etc.$8,375,846$314,352$8,690,198 180 Day Supp’s$4,179,616$219,648$4,399,264 RT Supp’s$2,322,840$118,818$2,441,658 510k’s$10,001,520$1,149,328$11,440,848 Subtotal$26,971,968 FY 2003 Adj.($139,932) Net Collected$26,832,036

29. HHS/FDA/Office of Management29 FY 2004 Cumulative Fee Revenue Shortfall FY 2004 Revenue Target$31,654,207 FY 2004 Net Collected$26,852,036 Shortfall$4,802,171 Collection of shortfall will be spread between FY 2006 and 2007

30. MDUFMA What’s Working Well

31. HHS/FDA/Office of Management31 What’s Working Well Fee Collection Process Keeping Collection Apart from Review Small Business Determinations Setting Fees Timely Utilizing Fees for Device Review Work Without MDUFMA in 2004 – Program would have contracted – Performance would have deteriorated Visibility and Respect for Device Review Program

32. MDUFMA What’s Not Working Well

33. HHS/FDA/Office of Management33 What’s Not Working Well Revenues are NOT Stable and Predictable Fee revenues less than envisioned Appropriations less than envisioned Therefore – Staffing has increased more slowly than originally envisioned – Urgent need to add staff to meet MDUFMA goals

34. HHS/FDA/Office of Management34 What’s Not Working Well— Unstable Fee Revenue FY 2003FY 2004Combined Revenue Target Without Compensating Adjustment $25,125,000$28,418,789$53,543,789 Received Shortfall

35. HHS/FDA/Office of Management35 What’s Not Working Well— Unstable Fee Revenue FY 2003FY 2004Combined Revenue Target Without Compensating Adjustment $25,125,000$28,418,789$53,543,789 Received$21,889,582$26,852,036$48,741,618 Shortfall

36. HHS/FDA/Office of Management36 What’s Not Working Well— Unstable Fee Revenue FY 2003FY 2004Combined Revenue Target Without Compensating Adjustment $25,125,000$28,418,789$53,543,789 Received$21,889,582$26,852,036$48,741,618 Shortfall$3,235,418 (-13%)

37. HHS/FDA/Office of Management37 What’s Not Working Well— Unstable Fee Revenue FY 2003FY 2004Combined Revenue Target Without Compensating Adjustment $25,125,000$28,418,789$53,543,789 Received$21,889,582$26,852,036$48,741,618 Shortfall$3,235,418 (-13%) $1,566,753 (-6%)

38. HHS/FDA/Office of Management38 What’s Not Working Well— Unstable Fee Revenue FY 2003FY 2004Combined Revenue Target Without Compensating Adjustment $25,125,000$28,418,789$53,543,789 Received$21,889,582$26,852,036$48,741,618 Shortfall$3,235,418 (-13%) $1,566,753 (-6%) $4,802,171 (-9%)

39. HHS/FDA/Office of Management39 Fixing Fee Shortfalls Revised estimated number of fee-paying applications when fees were set for FY 2005 Fix may have been too modest Still expect collections closer to revenue targets in 2005 through 2007 Bigger issue now is appropriations shortfalls

40. HHS/FDA/Office of Management40 FY 2003 Funding Shortfalls In Millions of Dollars Appropriation Shortfall-- $12.4 Million or 6%

41. HHS/FDA/Office of Management41 FY 2004 Device Appropriations In Millions of Dollars Actual Appropriation down by $2.2 million from FY 2003 level Pay raise alone cost $8.5 million Cut over $11 million for IT and admin savings Impact of appropriation cuts barely offset by fee revenue Appropriation Shortfall-- $19.5 Million or 9%

42. HHS/FDA/Office of Management42 Appropriations Issues Increases in staffing have been less than planned due to FY 2004 appropriations Administration recognizes funding needs in 2005 & future years and will request funds at MDUFMA trigger levels Two things essential for program to survive and thrive

43. HHS/FDA/Office of Management43 Appropriations—Urgent Issues 1. FY 2005 device appropriations must be at level envisioned in MDUFMA ($217 million) 2. MDUFMA must be amended to eliminate the catch-up appropriation requirement for FY 2003 and FY 2004 Otherwise MDUFMA program will end October 1, 2005 – Performance will deteriorate dramatically – Fix needed now or staffing in jeopardy

44. HHS/FDA/Office of Management44 Brighter Prospects for FY 2005 Indications are that in FY 2005 the device program will get the appropriations increase envisioned in MDUFMA. The combination of increased appropriations and fee revenues should result in FDA receiving the amount envisioned in MDUFMA.

45. HHS/FDA/Office of Management45 FY 2005 Funding Prospects In Millions of Dollars Senate mark meets appropriation minimum— House mark is very close.

46. HHS/FDA/Office of Management46 FY 2005 Funding Prospects In Millions of Dollars In FY 2005, 85% of funds come from appropriations and 15% from fees

47. HHS/FDA/Office of Management47 Urgent Issues 2005 Appropriation that meets MDUFMA triggers MDUFMA must be amended to eliminate the catch-up appropriation requirement for FY 2003 and FY 2004