A legal challenge of the Prescription Drug User Fee Act.

• Author: Zhuang, Jimmy J.

1. PDUFA AND ITS CONTROVERSY 85 II. FDA'S OVERREACH 87 A. Value to the Recipient 87 B. Cost to the Government 88 III. WHAT THE FDA CAN LEARN FROM AIRLINES, ENVIRONMENTALISTS, AND PATENTS 89 A. The FAA's Overzealous Overflight 89 B. The New York DEC's Budget Shortfall 90 C. Not All User Fees Are Created Equal 92 IV. CONCLUSION 93 I. PDUFA AND ITS CONTROVERSY

   From the 1970s through the early 1990s, the Food and Drug Administration (FDA) was heavily criticized for its slow approval process, which the agency in turn blamed on its lack of resources. (1) As a compromise, the Prescription Drug User Fee Act (PDUFA) was passed in 1992 to permit the FDA to charge drug manufacturers a user fee for reviewing new drug applications in order to supplement its Congressional appropriation. (2) Drug manufacturers pay this user fee to have their drug approvals reviewed an expedited schedule. (3) Initially, PDUFA allowed the fees to be used only "to defray increases in the costs of... the review of human drug applications." (4) Over time, this restraint of using PDUFA fees only as a "supplement" has eroded. By 2015, user fees accounted for 42% of the total FDA budget (5) and 64% of the FDA drug approval process budget. (6) For comparison, in 1997, PDUFA user fees only accounted for 8.5% of the total FDA budget. (7) This trend has raised questions about conflicts of interest as well as the drug approval process's quality.

   Because PDUFA requires the FDA to respond to drug applications within 10 months, critics have noted the negative impacts this compressed timeframe could have on drug safety. (8) For every 10 month of reduced review time, there is a correlated 18% increase in serious adverse reactions, 11% increase in hospitalizations, and 7% increase in deaths related to an approved drug. (9) Even without gloomy empirical data, critics argue that this funding mechanism "systematically slants important policy choices," such as under-allocation of monies for post-approval safety surveillance, which drug manufacturers prefer not to be burdened with. (10) Finally, PDUFA opponents argue that its legislative history is replete with re-authorizations, extensions, and erosions of FDA independence, including explicitly allowing industry members to be on FDA advisory committees, which all point to thorough agency capture. (11)

   However, PDUFA proponents also present compelling counterarguments. Recent empirical studies show that there has been "[n]o significant effect of PDUFA... on the rate of withdrawals of new-drug approvals" when comparing drug safety data before and after the Act's passage. (12) Furthermore, proponents argue that "nearly all of the decrease in approval times [after the PDUFA passage] would have been achieved ... if the FDA received these funds as direct appropriations rather than relying on industry user fees," (13) which makes PDUFA an economically efficient piece of legislation for having the drug industry internalize its own costs of safety. Furthermore, analytically, FDA bias for specific instances of drug approvals seems unlikely, as the "FDA's decisions on drug applications are functionally independent... [since] funds from the particular company are not paid directly to any individual reviewer or division within the agency." (14) In other words, PDUFA is not a quid pro quo; rather, it is a pay-to-play.

   Thus, there are strong analytical and empirical arguments supporting both sides of this debate. Surprisingly, however, there is little legal analysis on PDUFA. In fact, the statute 21 U.S.C. [section] 379h on the FDA authority to assess user fees has hardly ever been litigated. Only three cases have been reported, and none of them challenge the legality or discretion of the FDA to charge these user fees, or even question the possible conflicts of interest PDUFA may pose. (15)

   In Part II, I present a legal challenge to PDUFA from an administrative law perspective. While I share sympathies with those who believe PDUFA represents an unacceptable conflict of interest for the FDA, I posit arguments purely from the framework of permissible administrative agency discretion, so as to avoid ambivalent analytical and empirical arguments. My argument is that given the statutory and case law determinations of permissible federal agency discretion, the FDA cannot assess a flat user fee for widely variable types of services it renders during the drug approval process. Thus, the current implementation of PDUFA is legally impermissible. Subsequently, in Part III, I compare PDUFA to three other agency user-fee mechanisms and propose specific improvements to PDFUA to minimize its conflict of interest while maintaining its revenue efficiency.

2. FDA'S OVERREACH

   To start examining PDUFA's legal issues, one has to ask whether administrative law permits user fees to be as prominent of an agency's budget as PDUFA is for the FDA. The answer lies in 31 U.S.C. [section] 9701(a), which explains that "Congress [intends] ... each service or thing of value provided by an agency... to be self-sustaining to the extent possible," and that the agency may "charge for a service or thing of value provided by the agency" to meet that self-sustaining goal. (16) At first glance, it seems that using PDUFA fees to sustain FDA operations is within an agency's discretion. However, the statute further elaborates that the agency discretion on the amount of fees to collect is to be based on four factors: equity, cost to the government for the service, value to the recipient of the service, and public interest. (17) PDUFA fails two of these factors: fees charged must be related to the value to the recipient and to the cost to the government for the service.

   1. Value to the Recipient

      As a constitutional matter, the Supreme Court held in National Cable Television v. FCC that Congress granted federal agencies the power to exact self-sustaining fees, but not a power to tax. (18) A fee "bestows a benefit on the applicant, not shared by other members of society," whereas a tax theoretically bestows benefits on everyone in society. (19) Thus, the Court held that any user fees charged by a federal agency should be scrutinized for and tied to a specific "value to the recipient." (20) In the related Federal Power Commission v. New England Power case, the Supreme Court clarified this standard by explaining...