On December 29, 2020, the U.S. Food and Drug Administration (FDA) announced in a Federal Register notice the 2021 fee schedule for its Over-the-Counter Monograph Drug User Fee Program.  That user fee program was an addition made in the Coronavirus Aid, Relief, and Economic Security (CARES) Act and authorized FDA to assess and collect user fees from qualifying manufacturers of OTC monograph drugs and submitters of OTC monograph order requests.

These user fees concern over-the-counter (OTC) monograph drugs, which are nonprescription drugs without an approved new drug application which are governed by the provisions of section 505G of the Federal Food Drug and Cosmetic Act (21 U.S.C. 355h).  Under the new fee schedule, FDA will assess a fee for certain facilities registered with FDA and for the submission of an OTC monograph order request (OMOR).  An OMOR is an industry request for an administrative order to add, remove, or change an OTC drug monograph, which is submitted under section 505G(b)(5) of the Federal Food Drug and Cosmetic Act (21 U.S.C. § 355h(b)(5)).

The announcement took some by surprise, particularly those in the craft distilling industry that shifted production to FDA regulated hand sanitizers, a type of OTC monograph drug, during the COVID-19 public health emergency.  By December 31, 2020, the Department of Health and Human Services (HHS) took action over FDA’s fee schedule.  In a post on Twitter, the HHS Chief of Staff, citing the small businesses who stepped up to provide hand sanitizer in the face of the pandemic, announced that HHS had “directed FDA to cease enforcement of these arbitrary, surprise user fees.”  HHS Office of Public Affairs (Dec. 31, 2020), at https://twitter.com/SpoxHHS/status/1344782160084037639.

It is somewhat unclear what will happen to the FDA user fee schedule.  In an expanded press release, HHS provided the following details about its decision:

This action [by FDA] was not cleared by HHS leadership, who only learned of it through media reports late yesterday (December 30). HHS leadership convened an emergency meeting late last night to discuss the matter and requested an immediate legal review. The HHS Office of the General Counsel (OGC) has reviewed the matter and determined that the manner in which the fees were announced and issued has the force and effect of a legislative rule. Only the HHS Secretary has the authority to issue legislative rules, and he would never have authorized such an action during a time in which the Department is maximizing its regulatory flexibility to empower Americans to confront and defeat COVID-19. Because HHS OGC has determined the notice is really a legislative rule and that no one at FDA has been delegated authority to issue such a rule, the notice is void. HHS leadership, based on this legal opinion, has ordered the Federal Register Notice to be withdrawn from the Federal Register, meaning these surprise user fees will not need to be paid.

Mark Gillespie, WhiskyCast, “Distillers Win On New Year’s Eve as FDA Drops Hand Sanitizer ‘User Fee’” (Jan. 1, 2021), at https://whiskycast.com/distillers-win-on-new-years-eve-as-fda-drops-hand-sanitizer-user-fee-plan/.[1]

FDA, in response, announced in its own press release that it intended to reissue the fee schedule at some point in the future:

The FDA appreciates and understands the concerns raised by manufacturers, especially the small businesses that stepped up during the COVID-19 pandemic to help meet the increasing demand for alcohol-based hand sanitizers. The agency remains committed to working with all parties to ensure an adequate supply of this important public health tool to help all Americans practice good hand hygiene. With these concerns in mind, the FDA intends to appropriately and transparently implement the drug user fee program enacted by Congress and signed into law.

Id.

Based on FDA’s Federal Register announcement, there are two categories of manufacturers subject to user fees:

  • A “Monograph Drug Facility” (MDF), which is an OTC monograph drug facility that sells the OTC monograph drug produced at such facility directly to wholesalers, retailers, or consumers in the United States. Under the fee schedule announced in FDA’s Federal Register notice, an MDF would be subject to a $14,060 fee for fiscal year 2021 (October 1, 2020, through September 30, 2021).
  • A “Contract Manufacturing Organization Facility” (CMO Facility), which is an OTC monograph drug facility where neither the owner of such manufacturing facility nor any affiliate of such owner or facility sells the OTC monograph drug produced at such facility directly to wholesalers, retailers, or consumers in the United States. A CMO Facility would be subject to a $9,373 fee for fiscal year 2021, according to FDA’s Federal Register notice.

According to FDA, the user fee amounts were assessed based on FDA’s target fee revenue divided by the number of facilities registered in FDA’s Electronic Drug Registration and Listing System (eDRLS).  The user fee, once issued, is projected to climb annually as FDA will incrementally increase its target fee revenue.  Further, FDA may find its estimate overcounts the actual number of registered facilities subject to a fee.

The number of registered facilities is expected to decrease once the user fee schedule goes into effect.  Many new facilities registered in 2020 to meet the demand for hand sanitizer may opt to discontinue their registration once the user fee is assessed (given the size of the fee).  Also, as there was never a user fee requirement in the past, there may be an excess of registered facilities that are in minimal production or are not active.

Some facilities registered in eDRLS may not meet the definition of an OTC monograph drug facility under 21 U.S.C. § 379j–71(10), and therefore, may be exempt from the fee.  Under the new law, for example, separate buildings or locations that are within close proximity to one another may be considered one facility for the purposes of assessing user fees, so long as they “are (i) closely related to the same business enterprise; (ii) under the supervision of the same local management; and (iii) under a single FDA establishment identifier and capable of being inspected by the Food and Drug Administration during a single inspection.”  21 U.S.C. § 379j–71(10)(B).  Facilities may also be exempt from the fee if the “only manufacturing or processing activities are one or more of the following: production of clinical research supplies, testing, or placement of outer packaging on packages containing multiple products, for such purposes as creating multipacks, when each monograph drug product contained within the overpackaging is already in a final packaged form prior to placement in the outer overpackaging.”  21 U.S.C. § 379j–71(10)(A)(iii).  In advance of FDA (or HHS) reissuing the fee schedule, companies that operate OTC facilities registered in eDRLS should review whether their facilities are subject to the user fee based on these requirements.

At this time, it is not clear how industry may address the subject of user fees with FDA.  The eDRLS system with the current structured product labeling file format does not clearly capture the distinguishing criteria for OTC facilities set out in 21 U.S.C. § 379j–71.  Further, companies may want to reassess business practices in light of whatever fee schedule FDA ultimately issues and revise facility registrations accordingly.

It is also unknown how HHS’s decision on FDA’s Federal Register notice affects the fees associated with an OTC Monograph Order Request (OMOR).  An OMOR is a request by industry to initiate the administrative order process to add, remove, or change an OTC monograph.  Depending on the type of OMOR requested, the fees are as follows:

  • $100,000 for a “Tier 2” OMOR, which is an OMOR for:
    • reordering of existing information in the drug facts label,
    • addition of information to the other information section of the drug facts label,
    • modification to the directions for use section of the drug facts label,
    • standardization of concentration or dose of a specific finalized ingredient within a particular finalized monograph,
    • a change to ingredient nomenclature to align with nomenclature of a standards-setting organization, or
    • addition of an interchangeable term.
  • $500,000 for a “Tier 1” OMOR, which is an OMOR for anything other than a Tier 2 OMOR.

As the fee schedule for OMORs is included in the Federal Register notice that was withdrawn by HHS, it is not known if that leaves industry submitted OMOR submissions without a user fee.

Following the writing of this alert, a pre-publication copy of a Notice issued by HHS was made available.  The Notice, which is tentatively scheduled for publication in the Federal Register on January 6, 2020, formally withdraws FDA’s OTC fee schedule “because FDA lacked the delegated authority to issue the Notice.”  HHS also states that “FDA has also been ordered to cease collections activities related to the Over-the-Counter Monograph User Fee Program (‘OMUFA’) until, with the approval of the Secretary, the Department issues further direction concerning FDA’s administration of OMUFA which provides the public with notice and opportunity for comment.”  Based on this statement, we anticipate the next notice published by FDA will include a comment period providing the public and industry an opportunity to comment before the final fee schedule is enacted.

Husch Blackwell LLP continues to monitor developments with FDA’s OTC fee schedule.  Companies looking to review their OTC facility registrations may reach out to the authors of this alert for more information.  While the fee schedule is being reviewed, there should be opportunities for companies and trade groups to engage the incoming and outgoing administrations, as well as the relevant agencies and Congress, on this matter.

[1] Both the HHS and FDA press releases cited in this alert are, as of this writing, only found in trade press and not on either HHS or FDA’s web sites.