HHS forces FDA to withdraw notice for OTC user fees and creates new exemptions

Hogan Lovells

Hogan Lovells

On January 6, 2021, the U.S. Department of Health and Human Services (HHS) ordered the Food and Drug Administration (FDA) to “cease further collection efforts” related to the Over-the-Counter (OTC) Drug Monograph User Fee Program, issuing a Withdrawal Notice for FDA’s December 29, 2020 Federal Register Notice on user fee rates. The December 29 Notice had sparked concern from distilleries and breweries that entered the market under FDA’s March 2020 temporary guidance, which encouraged firms that were not traditional drug manufacturers to make hand sanitizer for consumer use under certain conditions specified in the guidance. On January 8, HHS issued another notice (“Exemption Notice”) stating that distilleries and other small businesses that supplied hand sanitizer for the first time during the COVID-19 public health emergency cannot not be subject to OTC user fees.

On March 27, 2020, as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), President Trump signed into law a long-awaited overhaul of the regulatory system for OTC drugs, which we discussed online here. The OTC drug legislation included a new user fee program that, along with other new authorities, will allow FDA to streamline and accelerate its regulatory oversight of OTC drugs marketed under the monograph system. On December 29, FDA published the Federal Register Notice disclosing for the first time the OTC monograph user fees that will be charged for OTC monograph drug manufacturing facilities, including $14,060 for OTC monograph drug facilities and $9,373 for contract manufacturers that manufacture OTC monograph drugs. Then, on January 4, HHS released a Withdrawal Notice (published Jan. 6) for the December 29 Notice, stating that FDA will cease collection activities and provide the public with notice and the opportunity to comment, because the December 29 notice had been issued without the approval of the HHS Secretary.

On January 8, 2021, HHS posted the Exemption Notice purporting to clarify that persons who entered into the OTC drug industry for the first time in order to supply hand sanitizers during the COVID-19 Public Health Emergency are not subject to the OTC monograph user fees. However, the CARES Act does not expressly grant FDA user fee waiver authority, nor distinguish OTC monograph drugs made by distilleries during the COVID-19 emergency from other OTC drug makers. The Exemption Notice points out that a different CARES Act provision, relating to the Alcohol and Tobacco Tax and Trade Bureau (TTB) with the Treasury Department, provides a temporary exemption from certain (non-FDA) excise taxes for distilled spirits in hand sanitizers produced and distributed during the pandemic in accordance with FDA guidance. In addition, the Exemption Notice argues that facilities that began manufacturing hand sanitizer in reliance on FDA’s temporary guidance are not “OTC Drug monograph facilities” subject to the user fee.

Therefore, before moving forward in implementing OTC monograph facility fees, FDA will need to carefully analyze whether FDA has the statutory authority to exempt certain OTC drug monograph manufacturing facilities from paying the facility fee, or whether new legislation will be required. In addition, FDA will need to consider HHS’s position that the issuance of the fee notice is a legislative rule for which notice-and-comment rulemaking is required. FDA has issued numerous user fee notices since 1992 without undergoing notice-and-comment rulemaking, and FDA will have to determine whether rulemaking in this case is necessary or appropriate.

If FDA moves forward with the exemption for hand sanitizers made during the COVID-19 public health emergency, the agency may have to recalculate its OTC user fees to account for the loss of revenue from the exempt facilities. The facility fee is calculated based on the number of registered establishments as of Dec. 31, 2020 that had listed OTC monograph drug products. As a result, if FDA carves out facilities that were listed as making OTC drug monograph products for the first time during the pandemic, it may result in a somewhat higher facility fee for the remaining OTC monograph drug manufacturers as compared to the amounts stated in the December 29 Notice.

It is possible that FDA will hold off on taking any further action implementing OTC monograph user fees until the new Administration takes over. However, on January 11, FDA stated that it would implement OTC monograph fees “in accordance with the HHS notice.” We will continue to monitor HHS and FDA actions and keep you apprised of significant developments.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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