Trump’s proposal to increase FDA user fees could impact small digital health innovators

FDA
A portion of President Trump's budget that calls for an increase in FDA user fees could have a substantial impact on the digital health industry.

A vague and somewhat perplexing provision buried in President Donald Trump’s budget blueprint would double FDA user fees, placing a new burden on the digital health industry—particularly smaller startups that often drive innovation.

During interviews with FierceHealthcare, legal and policy experts questioned the viability of increasing user fees by $1 billion as stipulated in the budget proposal.

In exchange, the president's budget indicated it would offer the industry “a package of administrative actions designed to achieve regulatory efficiency and speed the development of safe and effective medical products,” a reference that many saw as vague and confusing.

It’s unclear exactly which medical product user fees the Trump administration is referencing. Although the proposed budget stated that adding $1 billion in user fees would bring “medical product user fees to over $2 billion in 2018,” the FDA already generated (PDF) more than $2 billion in total user fees in 2016.

More than $137 million came from medical devices, while prescription drugs, generics and biosimilars accounted for nearly $1.2 billion in user fees.

An FDA spokesperson declined to comment on the budget process and the Office of Management and Budget referred questions to the Department of Health and Human Services. An HHS spokesperson declined to "speculate."

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Experts said doubling FDA user fees would complicate existing agreements with the medical device industry that already went through an arduous process of negotiating user fees last year. The topic is expected to be addressed in a House Energy and Commerce subcommittee hearing next week.

Although it’s possible the FDA could increase user fees for the largest pharmaceutical companies, a more plausible solution would be a percentage increase for everyone, said Jeff Smith, vice president of public policy at the American Medical Informatics Association.

“Maybe if you’re a pharmaceutical company that has profits in the billions, your percentage is higher, but especially for the smaller companies, if you raise it even a few thousand dollars, that could be the difference between trying to go to market and not,” he said in an interview with FierceHealthcare.

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Bradley Merrill Thompson, an FDA attorney with Epstein Becker Green in Washington, D.C., said it’s impossible to know what the administration has in mind and questioned the substance behind the budget’s reference to a streamlined regulatory process.

But he echoed concerns that higher user fees would have a bigger impact on digital startups.

“A big concern will be small companies that don't have much cash to spend on user fees,” he said in an interview. “Small companies have been an enormous source of innovation in digital health.”

Higher user fees would increase regulatory barriers to market, added Michael H. Cohen, an FDA attorney in Palo Alto, California, but a shift in the way the FDA regulates digital health could ease that burden.

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“To the extent digital health companies want to market regulated medical devices, then larger fees may deter entry,” he told FierceHealthcare. “On the other hand, if they have mobile apps and software that fall outside medical device regulation, and these companies are working hard to stay in the non- or more lightly regulated space, then higher user fees will be irrelevant.”

Jeff Steinle, an attorney with Fredrikson & Bryon P.A. in Minneapolis, Minnesota, added that for venture capital-funded digital health startups, “every dollar is precious.”

An increase to FDA user fees might trigger one of three scenarios: Investors will fund those fees specifically, larger companies will acquire startups prior to receiving FDA approval or digital health startups will explore foreign markets instead.  

“I think you might have some company’s think about delaying U.S. regulatory approval and developing commercialized products outside of the U.S. first,” he said.

But a user fee increase will also depend largely on whether a digital health company is seeking 510(k) approval or premarket approval (PMA).

For fiscal year 2017, the 510(k) user fee is $4,690, while the PMA fee is more than $234,000. Both offer significant discounts for small businesses, but that only applies to a company’s first application. A PMA fee that approaches $500,000 might prompt companies to rethink their strategic approach, Steinle said.

Ultimately, the president’s budget blueprint doesn’t necessarily align with the FDA’s historical perspective that the money generated from user fees is used to cover the cost of the review. In other words, the agency doesn’t look at user fees as a revenue generator.

“Generally speaking, the FDA doesn’t look at these user fees as a way to create some kind of war chest,” Smith said.