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This advisory was updated on January 13, 2021 to reflect additional guidance from HHS.

Just days before the end of the year, the U.S. Food and Drug Administration (FDA or the Agency) caused a stir when it announced fee rates under the Over-the-Counter (OTC) Monograph Drug User Fee Program (OMUFA) for fiscal year (FY) 2021. In addition to fees for requests to change an existing OTC Monograph, FDA also announced that facilities engaged in the manufacturing or processing of finished dosage forms of OTC monograph drugs would be assessed a fee of $14,060 for FY2021, with payment due on February 12, 2021. Facilities engaged in contract manufacturing of OTC drugs on behalf of other companies would be assessed a fee of $9,373.

On its face, the announcement of OTC user fee rates was not surprising, as the OTC monograph drug user fee program had been established as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) in early 2020, and FDA had previously stated that it would be publishing a Federal Register Notice to establish fees following Congress’s enactment of a FY2021 appropriations act for the Agency. What was surprising, and caused a considerable amount of outrage, was FDA’s decision to apply these fees to certain companies, such as craft liquor distilleries, that had been producing hand sanitizer to aid in the fight against COVID-19.

In the early days of the pandemic, huge increases in public demand for antibacterial and antimicrobial products led to a sudden and unexpected shortage of hand sanitizer in the United States. In response to this growing need, FDA issued a temporary policy that enabled entities not currently registered as drug manufacturers to temporarily register as OTC drug manufacturers and prepare alcohol-based hand sanitizers during the public health emergency. During this time, hundreds of distilleries stepped into the breach, registered as OTC drug manufacturers, and began producing hand sanitizer – a move that made sense as the primary ingredient in sanitizer is ethanol, which distillers are in the business of making. The efforts of these distilleries helped alleviate the shortage and granted Americans much-needed access to a steady supply of hand sanitizer when it otherwise would have been unobtainable.

FDA’s decision to levy user fees against all OTC drug manufacturing facilities, with no special carve-outs for those temporarily engaged in OTC manufacturing to help combat COVID-19 (indeed, FDA’s website at the time explicitly noted that facilities that produced sanitizer under the agency’s temporary COVID-19 policy were not exempt), has widely been viewed by the public as tone deaf and inappropriate under the circumstances.

Fortunately, this view was shared by the Department of Health and Human Services (HHS). On December 30, 2020, just one day after FDA’s announcement, HHS Chief of Staff Brian Harris issued a statement on Twitter that “Small businesses who stepped up to fight COVID-19 should be applauded by their government, not taxed for doing so. I’m pleased to announce we have directed FDA to cease enforcement of these arbitrary, surprise user fees.” A longer statement by HHS on the same day noted as follows:

[FDA’s OTC drug user fee notice] was not cleared by HHS leadership, who only learned of it through media reports late yesterday. 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.

Shortly thereafter, on December 31, 2020, in a prepublication of the Federal Register, HHS issued a notice to withdraw FDA’s previous notice regarding OTC user fee rates. HHS also announced that FDA had been ordered to cease all collection efforts related to 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.”

Therefore, makers of hand sanitizer and other OTC drug products can continue to enjoy an existence free from FDA user fees for the time being. More importantly, those manufacturers that jumped into the market to produce hand sanitizer for COVID-19 have no reason to fear surprise fees being levied again in the future as FDA will be required to provide the public with opportunity for comment the next time it decides to propose user fee rates. Nevertheless, companies engaged in OTC drug manufacturing should continue to monitor FDA’s actions for further updates on this front.

Update

Since this advisory was published, HHS has issued another Federal Register notice that further clarifies its position that entities who entered the OTC market for the first time to supply hand sanitizer during the COVID-19 public health emergency are not subject to the OMUFA facility fee. This determination was based on two factors:

  1. HHS concluded that these persons (e.g., liquor distillers) do not qualify as “OTC drug monograph facilities” as defined by the FFDCA because they are not in the drug manufacturing business – they do not hold themselves out to the public as drug makers, and the public does not generally encounter them as such; and
  2. Elsewhere in the CARES Act, Congress had exempted distilleries and other entities that entered into the hand-sanitizer market in response to the COVID-19 public health emergency from alcohol excise taxes. HHS felt it was unlikely that Congress would have saved these entities from excise taxes only to then turn around and levy $14,000+ in facility fees against them.

We note, however, that HHS’s conclusions (and therefore the exemption from OMUFA facility fees) do not apply to entities that (1) manufacture, distribute, and sell OTC drugs in addition to hand sanitizer; or (2) continue to manufacture hand sanitizer products (beyond simply getting rid of existing inventories) as of December 31 of the year immediately following the year during which the COVID-19 public health emergency is terminated.

If any company needs help in dealing with FDA on user fee issues, the experienced FDA team at Buchanan Ingersoll & Rooney is here to help.