Cost recovery and the future of the medical device regulation program in Canada.

• Author: Alpert, Sheri

It is a perennial problem that some government programs seemingly have an abundance of financial capacity while others seem chronically under-funded. Over the years, legislators, ministers, and other government officials have tried a variety of methods to address under-funding. One such method was announced by the Treasury Board on April 16,1997--the cost recovery policy--which established a framework of fees for activities such as food inspection, agricultural services, and certification of drugs. (1)

Among the Departments instituting user fees was Health Canada, which collects fees from the industries it regulates (e.g., pharmaceutical and medical device manufacturers) to offset the cost of services provided by Health Canada (HC) (e.g., reviewing applications for new drugs and devices). In the case of HC and other regulatory authorities, the user fees have become a vital source of revenue, upon which program operations rely. This is certainly the case with the Medical Devices Bureau (MDB) within the Therapeutic Products Directorate of the Health Products and Food Branch.

According to a 2006 Auditor General's report (2) user fees are one of four sources of funding for Health Canada's programs. The primary source is "core funding", i.e., direct appropriations, which requires parliamentary approval. A second source (also requiring parliamentary approval) is funding for "special initiatives" (specific activities the relevant department would otherwise be unable to undertake absent the additional funding). In addition to the user fees, the final source of funding comes from internal departmental reallocations of funds from one program to another. (3) (Obviously, this is also a potential way for programs to lose funding, as well, which the MDB has experienced. (4)) This article will focus on user fees as a way to finance the medical device program and the impact they may increasingly have on the process of regulating medical devices in Canada.

Background and Issues

Before getting into the user fees specific to the medical devices program, it is worthwhile to briefly examine the government's stated rationale for instituting user fees in general. As described in a Treasury Board of Canada background document, there are essentially two arguments for charging user fees for government services: economic arguments and political/managerial arguments. (5) The economic arguments state that user fees promote economic efficiency in the expenditure of public funds by "providing information to public sector suppliers on how much clients are actually willing to pay for particular services...." (6) The political/managerial argument claims that user fees promote government accountability (particularly if they incorporate service standards and penalties for nonperformance). The applicability of both rationales can be questioned, especially in the context of medical device regulation, although the political/managerial argument is probably stronger.

The potentially more controversial aspect of user fees, generally, and their applicability to medical device regulation comes from the original policy document on cost recovery when describing the criteria for setting fees. (7) This policy objective has not changed with subsequent policy documents on the topic.

It is government policy to implement user charges for services that provide identifiable recipients with direct benefits beyond those received by the general public, unless overriding policy objectives would be compromised ... (8) Examples offered from the cost recovery document of the appropriate application of federal user charges include: national park entrance, race track supervision, grain inspection, fishing licenses, broadcasting licenses, specific statistical services, aircraft landing, terminal rentals and concessions, passports, scientific services (mapping, remote sensing), small business loan administration, import/export permits, and publications. (9)

It is arguable whether the review of medical device license applications should be considered an appropriate source of user fees, especially when looking at the other examples in the listing. It is certainly not the case the device manufacturers are the only beneficiaries of license approvals. The public also benefits. Indeed, medical devices (and pharmaceutical drugs, biologics, and arguably natural health products) are part of the Canadian public health care system--the very system that will likely be paying for the devices that Health Canada approves (e.g., artificial knees and hips). Granted that the device manufacturers are aiming to make a profit on their devices--still, since they have a direct impact on public health, it seems to go against the...