Vol. 133, No. 52 — December 25, 1999

Regulations Amending the Fees in Respect of Medical Devices Regulations

Statutory Authority

Financial Administration Act

Sponsoring Department

Department of Health

REGULATORY IMPACT ANALYSIS STATEMENT

Background and Description

This regulatory amendment proposes a fee reduction provision for medical device establishment licencing fees which are scheduled to come into effect on January 1, 2000. The requirement for a medical device firm to hold an establishment licence is detailed in section 44 of the Medical Devices Regulations. This section states the following:

(1) No person shall import or sell a medical device unless the person holds an establishment licence.

(2) Subsection (1) does not apply to the importation or sale of a medical device by

The Fees in Respect of Medical Devices Regulations, which were published in the Canada Gazette, Part II, on September 16, 1998, are scheduled for implementation in three stages. The fees for medical devices licences were introduced on September 1, 1998. The annual fees for product licencing renewal were effective November 1, 1999. The final stage of implementation is the fees for establishment licences, effective on January 1, 2000.

Manufacturers of Class I medical devices are not subject to the medical devices licencing requirements and the associated medical devices licencing fees. They are, however, subject to the establishment licencing requirements. Under the Fee Regulations, which are to come into effect on January 1, 2000, these manufacturers will be subject to the establishment licencing fees, if they do not sell through a licensed Canadian importer or distributor. Manufacturers of Class II, III and IV devices are subject to medical devices licencing fees. This provision was introduced to allow a portion of the cost of post-market activities to be charged back to manufacturers, importers and distributors. This mechanism was deemed to be fair and appropriate at the time the establishment licence fees were implemented.

The medical device industry has expressed concerns regarding the impact of the establishment licence fee on firms with a limited number of products and low annual sales volumes. The analysis conducted prior to the passage of the fees in September 1998 suggested that the fees would not present a major impact. As a result, the regulations were passed without a fee reduction provision for establishment licencing. This decision was based on the assumption that the removal of the requirement for product licences for Class I devices would be sufficient to reduce the impact. However, new information from stakeholders has been received indicating that fees would have a negative impact on some unique, low volume product lines, such as motorized patient lifts and neck braces. It is therefore proposed that these fees be modified to introduce a fee reduction provision now, until such time as Health Canada has fully evaluated the impact of these fees on the industry, and their effect on product availability.

It is proposed that the fee would be the lesser of $2,120 or 1 percent of the establishment's annual gross revenue for the previous fiscal year. In the case of an establishment with no annual gross revenue for its first fiscal year, a fee reduction and remission provision is proposed. Under this proposed amendment, the full fee would be paid by such an establishment at the time of the issuance of the Establishment Licence, subject to a possible reduction once annual gross revenue has been determined. In addition, it is proposed that the $2,530 initial licencing fee be revoked. There is a provision for a remission of $410 to be granted automatically to those who have paid the $2,530 fee for the year 2000. This proposed remission will provide equal treatment to every applicant for an establishment licence for calendar year 2000.

The Therapeutic Products Programme (TPP) is currently conducting a comprehensive review (Phase IV Cost Recovery) of the impact of fees on both the drug and medical devices industry, the health care sector and the TPP as a regulator. The review of the impact of the drug fees and the medical devices licencing fees is planned to be completed by the summer of 2000. Once that review is complete, the TPP will undertake a further analysis of the impact of the annual licence renewal fees for medical device products and of the fees for device establishment licences, scheduled to be implemented in November 1999 and January 2000, respectively. This subsequent review is to be delayed as the evaluation currently underway began prior to the introduction of these latter two fees. Therefore, the TPP will be better able to recommend appropriate fee adjustments by the end of 2001, after collection and evaluation of the impact of these fees.

Alternatives

There were four options considered:

One option is to maintain the status quo until the full impact of the fees could be objectively evaluated. However, it is anticipated that the results of such an evaluation will not be available soon enough. If the proposed changes are not amended in the near future, the industry will be subject to the current fees on January 1, 2000. The introduction of these fees at that time could result in the closure of some firms and loss of some unique product lines. Therefore, the status quo is not an acceptable option.

Another alternative considered was the structuring of an interim fee schedule whereby the fees payable would be reduced in specified steps according to company sales. This approach is expected to have a number of disadvantages. A number of fee steps would be required to ensure a reasonably equitable benefit to firms of different sizes. This would therefore increase the complexity and cost of administering the fee regulations. Additionally, a series of fixed fee reductions would be less equitable than the recommended alternative which incorporates a maximum fee of 1,0 percent of gross revenues.

A third option considered was to propose an increase in fees for the establishment licences along with the proposed reductions to offset the loss of revenue to the Therapeutic Products Programme. Although the TPP needs adequate resourcing to fund the activities related to establishment licencing, it is of utmost importance to ensure that fees imposed do not limit the availability of medical devices to the Canadian public. It is therefore recommended that an increase not be introduced at this time. The introduction of higher fees would require new evidence to justify and demonstrate the acceptability of the proposed increase. Currently, such data are not available.

This proposal is the preferred solution given data currently available and the need to introduce a maximum fee as soon as possible. Pre-publication consultation on the proposed amendment elicited few responses. Those most affected by the existing fee have expressed support. Reduction in the maximum fee (fee cap) to 1 percent is expected to address the concerns that the initial proposed cap of 1.5 percent was too high.

It is the TPP's intent to conduct a comprehensive evaluation of the impact and make any necessary adjustments at a later date. Any subsequent change to the fees is not expected to occur until 2002. This proposal also respects the commitment made in the Regulatory Impact Analysis Statement (RIAS) accompanying the Fees in Respect of Medical Devices Regulations (September 16, 1998). The RIAS stated that TPP would consider the introduction of a fee reduction provision for establishment licences and/or an overall cap on annual establishment licence fees before the implementation of these fees on January 1, 2000. Although this amendment is not expected to come into force by January 1, 2000, the transitional provisions for fee remissions should address industry concerns about the delay.

Benefits and Costs

This proposal is expected to impact on the following sectors as outlined below:

Public

The public should benefit from continued availability of necessary medical devices. Some medical devices are considered to be unique product lines and although they generate low sales volume, they fulfill specific patient needs. In addition, the continued viability of these small firms in Canada provides additional employment opportunities for Canadians.

However, the proposal would result in indirect costs to the Canadian public. Taxpayers, through funding received by the TPP from government appropriations, will be expected to support a slightly higher portion of the cost of post-approval activities.

Industry

The proposal would benefit smaller firms as they would be subject to a more economically acceptable fee schedule.

Overall about 50 licenced medical device establishments are expected to benefit to some degree from the proposed 1.0 percent fee cap. Although the fee reduction will vary based on individual establishment revenue, the major benefit will be to a relatively small number of companies. While the number of firms with very low sales (less than $50,000) is estimated at between five and ten, the availability of this fee cap may be critical to their survival. Proprietors of small firms confirmed that failure to introduce some form of fee reduction for firms with very low sales could result in closure of companies and non-availability of products.

The proposed fees also provide a timely response to economic and product availability concerns expressed by industry.

Government

The reduction in revenue from establishment licencing due to the fee cap provision in this proposal is estimated to be $50,000 per year.

Consultation

Extensive consultation was conducted prior to the passage of the current regulations which were published on September 16, 1998.

A Business Impact Test (BIT) was conducted in December 1997 on an earlier version of the current fee schedule for medical devices. The results of the test included general comments on the burden licencing fees would have on Class 1 manufacturers. Input from the BIT resulted in:

(a) removing the requirement for product licencing of Class 1 medical devices; and

(b) retaining only the requirement for an Establishment Licence for Class 1 manufacturers.

However stakeholders have since indicated that this did not address adequately concerns about the burden of fees on small businesses.

Written comments have been received from seven firms regarding the severe economic impact of annual establishment licence fees. Four of these letters have included suggestions for a fee reduction proposal for small companies to minimize the impact of the fees on their operations. Most of these suggestions were for a fee reduction based on gross annual sales. One option proposed spreading the fees over a longer period of time if the fees were to remain unchanged.

In addition, telephone calls and personal communications with TPP personnel have been received expressing concern over the medical devices establishment licence fees. Stakeholders have identified the need for a maximum fee for a given company, and a fee reduction mechanism for small companies. This issue was also raised repeatedly at meetings held with devices industry associations.

The comprehensive evaluation (Phase IV) of the impact of TPP's current fee structure began in January 1999. During February and March 1999, four workshops were held. Industry, non-industry stakeholders, and internal staff have participated in these workshops. Issues discussed included such items as fee reductions, fee caps and the overall impact of cost recovery on the medical device industry. A medical device industry association requested that the economic impact of cost recovery on their industry be included in the Phase IV evaluation; however the results of this evaluation will not be available until after the current fees become effective.

In order to determine if this initiative would receive the support of the affected industry, a preliminary consultation document was sent September 1999 to MEDEC, a device industry association, and a sample of 18 firms expected to potentially be eligible for the fee reduction provision. Subsequently, this consultation document was made available to a wider audience through publication on the TPP Web site. This preliminary consultation document had proposed a 1.5 percent fee cap.

MEDEC and nine individuals responded to this document. The majority of the respondents agreed that some type of fee reduction was required, but many felt that the 1.5 percent cap was still too high. As a result, the percentage was lowered to 1 percent to accommodate these concerns.

A 30 day comment period will be provided upon prepublication in the Canada Gazette, Part I. All comments received will be considered in the development of the final regulatory amendment. The final regulatory amendment will then be published in the Canada Gazette, Part II.

Compliance and Enforcement

This amendment does not alter existing compliance mechanisms under the provisions of the Food and Drugs Act and Food and Drug Regulations enforced by the Therapeutic Product Programme inspectors.

The implementation of this proposal will not require additional compliance or enforcement mechanisms. It is expected to receive stakeholder support and therefore reduce the number of noncompliant parties.

Contact

Dorothy Walker or Karolyn Lui, Policy Division, Bureau of Policy and Coordination, Therapeutic Products Programme, 1600 Scott Street, 2nd Floor, Address Locator 3102C5, Ottawa, Ontario K1A 1B6, (613) 957-9998 (Telephone) [Dorothy Walker], (613) 941-3693 (Telephone) [Karolyn Lui], (613) 941-6458 (Facsimile), dorothy_walker@hc-sc.gc.ca (Electronic mail), karolyn_lui@hc-sc.gc.ca (Electronic mail).

definition	description
	PROPOSED REGULATORY TEXT
	Notice is hereby given that the Governor in Council proposes, pursuant to paragraphs 19(1)(a)(see footnote a) and 19.1(a)(see footnote b) and subsection 23(2.1)(see footnote c) of the Financial Administration Act, to make the annexed Regulations Amending the Fees in Respect of Medical Devices Regulations.
	Interested persons may make representations with respect to the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Karolyn Lui, Therapeutic Products Programme, Health Canada, Tower "B", 2nd Floor, 1600 Scott Street, Address Locator 3102C5, Ottawa, Ontario K1A 1B6, (613) 941-6458 (Facsimile), Karolyn_Lui@hc-sc.gc.ca (Electronic mail).
	The representations should stipulate those parts of the representations that should not be disclosed pursuant to the Access to Information Act, in particular, pursuant to sections 19 and 20 of that Act, the reason why those parts should not be disclosed and the period during which those parts should remain undisclosed. The representations should also stipulate those parts of the representations in respect of which there is consent to disclosure pursuant to the Access to Information Act.
	Ottawa, December 16, 1999
	MARC O'SULLIVAN Assistant Clerk of the Privy Council
	REGULATIONS AMENDING THE FEES IN RESPECT OF MEDICAL DEVICES REGULATIONS
	AMENDMENTS
"annual gross revenue" « recettes brutes annuelles "	1. The definition "annual gross revenue" in subsection 1(1) of the Fees in Respect of Medical Devices Regulations(see footnote 1) is replaced by the following: "annual gross revenue" means (a) in sections 12 and 13, the amount billed by a manufacturer during a fiscal year for sales in Canada of a medical device for which the manufacturer holds a medical device licence; and (b) in sections 15 to 15.3, 16.1 and 16.2, the amount billed by an establishment during a fiscal year for sales in Canada of medical devices.
	2. Section 15 of the Regulations and the heading before it are replaced by the following:
	Fee — Establishment with Revenue in Previous Fiscal Year
Amount	15. (1) The fee to be paid by an establishment for the issuance of an establishment licence under section 46 of the Medical Devices Regulations or for the reinstatement of an establishment licence under section 51 of those Regulations is, if, as of the date the establishment submits its application for the issuance or reinstatement of the licence, the establishment had annual gross revenue for its previous fiscal year, (a) $2,120; or (b) an amount equal to 1 per cent of the establishment's annual gross revenue for its previous fiscal year, if that amount is less than the amount set out in paragraph (a) and the establishment submits the statement referred to in subsection (3).
When payable	(2) The fee is payable on the day on which the licence is issued or reinstated.
Statement of revenue	(3) If the amount set out in paragraph (1)(a) exceeds an amount equal to 1 per cent of an establishment's annual gross revenue for its previous fiscal year, the establishment may submit with its application for the issuance or reinstatement of an establishment licence a statement, certified as true and correct by the person responsible for the establishment's financial affairs, that sets out the establishment's annual gross revenue for its previous fiscal year.
	Fee — Establishment with No Revenue in Previous Fiscal Year
Fee	15.1 (1) Subject to section 15.2, if, as of the date an establishment submits an application for the issuance or reinstatement of an establishment licence referred to in subsection 15(1), the establishment had no annual gross revenue for its previous fiscal year, the fee to be paid by the establishment for the issuance or reinstatement of the licence is $2,120.
When payable	(2) The fee is payable on the day on which the licence is issued or reinstated.
	Reduced Fee and Remission
Application for fee reduction	15.2 (1) If, as of the date an establishment referred to in subsection 15.1(1) submits an application for the issuance or reinstatement of an establishment licence, the establishment expects that the fee specified in that subsection will be greater than an amount equal to 1 per cent of the establishment's annual gross revenue for its first fiscal year in which it will have annual gross revenue, the establishment may submit to the Minister an application for a fee reduction together with its application for the issuance or reinstatement of the licence.
Initial statement	(2) The establishment shall submit with the application for a fee reduction a statement, certified as true and correct by the person responsible for the establishment's financial affairs, that (a) indicates that, as of the date the application is submitted, the establishment had no annual gross revenue for its previous fiscal year; (b) sets out the date the establishment began or will begin to sell medical devices in Canada; and (c) sets out the date of the end of the establishment's first fiscal year in which it will have annual gross revenue.
Statement of revenue	(3) Within 90 days after the end of the establishment's first fiscal year in which it has annual gross revenue, the establishment shall submit to the Minister a statement, certified as true and correct by the person responsible for the establishment's financial affairs, that sets out the establishment's annual gross revenue for that fiscal year.
Reduced fee and remission	(4) After the statement referred to in subsection (3) is received by the Minister, if the amount paid by the establishment for the issuance or reinstatement of the licence is greater than an amount equal to 1 per cent of the establishment's annual gross revenue for its first fiscal year in which it has annual gross revenue, the fee is reduced to that latter amount and remission is hereby granted of an amount equal to the difference between those amounts, which amount the Minister shall refund to the establishment.
Audited sales records	Verification of Annual Gross Revenue
	15.3 (1) If the Minister determines, on the basis of any information available to the Minister, that a statement submitted under subsection 15(3), 15.2(3), 16.1(2) or 16.2(3) is not adequate to determine an establishment's annual gross revenue, the Minister may require the establishment to submit sales records that have been audited by a qualified independent auditor and those records shall be used for the purpose of determining the fee payable or the amount of remission.
Full fee payable	(2) If, on the expiry of 60 days after the Minister requires an establishment to submit audited sales records, the establishment fails to submit those records to the Minister, the difference between the amount specified in paragraph 15(1)(a) or subsection 15.1(1), as applicable, and the amount already paid is immediately payable.
Correct fee payable on verification	(3) If the audit referred to in subsection (1) determines that the amount already paid is less than the amount that should have been paid, the difference between those amounts is immediately payable.
Remission	(4) If the audit referred to in subsection (1) determines that the amount that should have been paid is less than the amount already paid, remission is hereby granted of an amount equal to the difference between those amounts, which amount the Minister shall refund to the establishment.
Definition	(5) In this section, "amount already paid" means the amount that has been paid less the amount, if any, for which remission has been granted under subsection 15.2(4).
	3. The Regulations are amended by adding the following after section 16:
Revenue in previous year	16.1 (1) This section applies to an establishment that (a) before the day on which this section comes into force, submitted an application for the issuance or reinstatement of an establishment licence referred to in subsection 15(1) in respect of the year 2000; and (b) as of the date it submitted the application referred to in paragraph (a), had annual gross revenue for its previous fiscal year.
Application for fee reduction	(2) If the amount paid by the establishment in respect of the application referred to in subsection (1) exceeds an amount equal to 1 per cent of the establishment's annual gross revenue for its previous fiscal year, the establishment may submit an application for a fee reduction together with the statement referred to in subsection 15(3) no later than 60 days after the day on which this section comes into force.
Reduced fee and remission	(3) After the statement is received by the Minister, if the amount paid by the establishment in respect of the application referred to in subsection (1) is greater than an amount equal to 1 per cent of the establishment's annual gross revenue for its previous fiscal year, the fee is reduced to that latter amount and remission is hereby granted of an amount equal to the difference between those amounts, which amount the Minister shall refund to the establishment.
No revenue in previous year	16.2 (1) This section applies to an establishment that (a) before the day on which this section comes into force, submitted an application for the issuance or reinstatement of an establishment licence referred to in subsection 15(1) in respect of the year 2000; and (b) as of the date it submitted the application referred to in paragraph (a), had no annual gross revenue for its previous fiscal year.
Remission	(2) If the establishment paid a fee of $2,530 in respect of the application referred to in subsection (1), remission is hereby granted to the establishment of an amount equal to $410, which amount the Minister shall refund to the establishment.
Application for fee reduction	(3) If the establishment expects that the amount paid by the establishment in respect of the application referred to in subsection (1), less any amount refundable to the establishment under subsection (2), will be greater than an amount equal to 1 per cent of the establishment's annual gross revenue for its first fiscal year in which it has annual gross revenue, the establishment may submit an application for a fee reduction together with the statement referred to in subsection 15.2(2) no later than 60 days after the day on which this section comes into force, if it submits the statement referred to in subsection 15.2(3) within 90 days after the end of that fiscal year.
Reduced fee and remission	(4) After the statement referred to in subsection 15.2(3) is received by the Minister, if the amount paid by the establishment in respect of the application referred to in subsection (1), less any amount refundable to the establishment under subsection (2), is greater than an amount equal to 1 per cent of the establishment's annual gross revenue for its first fiscal year in which it has annual gross revenue, the fee is reduced to that latter amount and remission is hereby granted of an amount equal to the difference between those amounts, which amount the Minister shall refund to the establishment.
	COMING INTO FORCE
	4. These Regulations come into force on the day on which they are registered.
	[52-1-o]

Footnote a

S.C. 1991, c. 24, s. 6

Footnote b

S.C. 1991, c. 24, s. 6

Footnote c

S.C. 1991, c. 24, ss. 7(2)

Footnote 1

SOR/98-432

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