No ‘Surprise’ Facility Fees For Sanitizer Makers After Responding To COVID-19 Emergency In US

HHS says FDA made subject to monograph program facility fees businesses that began making hand sanitizers in response to temporary guidance easing manufacturing standards "about the same time” the department withdrew the user fee schedule.

The US user fee schedule for OTC monograph drug manufacturers will get the Department of Health and Human Services secretary’s approval when “small businesses who stepped up to fight COVID-19” by making hand sanitizers are excluded.

After withdrawing the Food and Drug Administration’s fiscal year 2021 user fee schedule for firms registered as manufacturers of OTC drugs that are available under the agency’s monograph program on 4 January, the HHS the next day said the FDA had made subject to the fees some firms the department expected would be exempted.

The HHS, in a notice prepared for publication in the Federal Register, also stated that the FDA had added to its website an explanation saying businesses that began making OTC hand sanitizers after the agency in March 2020 temporarily eased manufacturing standards to encourage additional production to meet surging demand due to the coronavirus pandemic would be subject to monograph program facility fees.

No Double Shot Of Taxes Served

The HHS noted that in addition to including FDA's OTC monograph program reform provisions, provisions in the CARES Act temporarily exempt excise taxes for distilled spirits used for or contained in hand sanitizers produced under FDA guidance related to the COVID-19 pandemic.

“It is unlikely Congress intended to save these entities from excise taxes only to impose tens of thousands of dollars in facility fees from an unfamiliar regulator. The Department declines to discern such a design under these circumstances,” according to the notice.

“These entities do not hold themselves out to the public as drug makers nor does the public generally encounter them as such. Under the extraordinary circumstances presented by the COVID-19 pandemic, the Department declines to identify these entities as OTC drug manufacturing facilities,” HHS added in a statement.

However, HHS says “that language was added about the same time” that the department published its notice of withdrawing the user fee schedule.

HHS chief of staff Brian Harrison says for businesses that began making sanitizer in response to COVID-19, many of them non-pharma firms, the FDA was imposing “arbitrary, surprise user fees.”

“Small businesses who stepped up to fight COVID-19 should be applauded by their government, not taxed for doing so,” Harrison said in a 5 January statement. 

Parsing 'Monograph Facility' Definition

In its notice yet published in the Federal Register, the HHS explained its regulatory argument for withdrawing the FDA's monograph user fee schedule, a step it said it took because Secretary Alex Azar had not approved the schedule. (Also see "US FDA’s First OTC Monograph Program User Fee Schedule Delayed For HHS Secretary’s Signature" - HBW Insight, 4 Jan, 2021.) 

The department stated the FDA’s “purported authority for these facility fees comes from” provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act Congress passed in April stating monograph user and facility fees for a fiscal year can be assessed from “each person that owns a facility identified as an OTC drug monograph facility” at any time during the preceding 12-month period.

The provisions define OTC drug monograph facility as “a foreign or domestic business or other entity that is under one management, either direct or indirect; and at one geographic location or address engaged in manufacturing or processing the finished dosage form of an OTC monograph drug,” the HHS states in its notice.

In March, the FDA published temporary guidances on manufacturing or compounding alcohol-based hand sanitizer products, and on manufacturing alcohol for those products, stating it will not enforce certain regulations to combat a shortage of these products during the COVID-19 pandemic. (Also see "Guidance Opening Sanitizer Production Stirs Firms Including Anheuser-Busch, Dow, Kodak" - HBW Insight, 2 Apr, 2020.)

The HHS says businesses that entered the US OTC drug market to produce hand sanitizers under the FDA’s temporary guidance are not “identified as . . . OTC drug monograph facilit[ies] and are thus not subject to the facility fees.”

FDA imposed "arbitrary, surprise user fees” on non-pharma firms making sanitizer in response to COVID-19. – Brian Harrison, HHS chief of staff

The notice also states that those companies “are not in the drug manufacturing business” and that many “produce alcoholic beverages.”

Some of the distilleries that threw their hats in the sanitizer ring were the source of some of the problems the FDA has encountered since loosening its production standards. Sanitizer intended for topical use sold in containers resembling liquor bottlers wasn’t safe, the agency told firms. (Also see "Hand Sanitizers Offered In Liquor Bottles Among Emerging Concerns Under US FDA's Pandemic Rule" - HBW Insight, 27 Apr, 2020.)

The FDA also has found methanol, rather than ethanol or isopropyl alcohol stated on labels as the active ingredient, in numerous brands of sanitizers made by Mexican firms that began providing the products under the temporary guidance. (Also see "Blanket Warning By US FDA For Sanitizers Made By Mexico Firms Linked To Methanol Contamination" - HBW Insight, 27 Jul, 2020.)

In response, the FDA updated the guidances on multiple occasions to improve compliance. It clarified that each lot of ethanol or isopropyl alcohol obtained from another source should be tested for methanol. It also added to the temporary guidances another formula for denaturing alcohol in sanitizers. (Also see "US FDA Clarifies Testing In Sanitizer Production Temporary Guidances To Tighten Compliance" - HBW Insight, 10 Aug, 2020.)

Fees: $14,060 Or $9,737

As required under the CARES Act provisions, the first year of monograph user fees included a deadline of 45 days from their publication, which would have been 12 February, for facility fees. The FY2021 fees are $14,060 for MDFs and $9,737 for CMOs.

Some distilleries that began making hand sanitizers in 2020 used CONTAINERS RESEMBLING LIQUOR BOTTLERS, which fda said WASN’T SAFE.

Firms subject to the fees are monograph drug facilities (MDFs) and contract manufacturing organizations (CMOs) which produce but do not sell OTC monograph drugs to wholesalers, retailers or consumers in the US.

While some sanitizer providers were surprised, other OTC drug firms not only expected to pay the fees but also were aware the first year’s payment had a short deadline. For subsequent years, monograph facility fees will be due “the first business day of June” or “the first business day after the enactment of an appropriations” bill that amounts for the FDA’;s user fee programs.

The FY2021 rates are based on the agency’s annual OMUFA target facility fee revenue of $23.7m calculated according to the OTC monograph reform provisions included in the CARES Act. The agency anticipates payments from 1,541 MDFs and 171 CMOs for FY2021.

In addition to the facility fees, the FDA set tiered rates for OTC monograph order requests (OMORs). Tier 2 OMORs, with fees set at $100,000, seek modifications to drug facts labels of monograph drugs, standardization of the concentration or dose of a specified finalized ingredient within a finalized monograph, or a change to ingredient nomenclature, among other asks specified by the law.

Tier 1 OMORs, with $500,000 fees, are any not identified as Tier 2, such as requests to develop monographs for new ingredients or add new medical conditions to existing monographs.

The schedule also started that when a facility fails to pay the fee within 20 days of the due date, all drugs manufactured there would be deemed misbranded until its fee is paid.