Cost-Benefit Analysis, the FDA, and Tobacco

by Micah Berman — Tuesday, Sept. 16, 2014

I’m very pleased to be joining this blog as well.  I’ll blog about my area of interest – public health – with a focus on regulatory law and policy.  My specific area of expertise is tobacco policy, and as the FDA’s Center for Tobacco Products continues its efforts to regulate tobacco (and continues to get sued by the tobacco industry), there should be plenty to write about.

Tobacco presents unique regulatory challenges.  Indeed, because the Supreme Court could not figure out how to fit tobacco within the FDA’s regulatory framework—despite the fact that nicotine is unquestionably a drug—the Supreme Court rejected the FDA’s assertion of jurisdiction over tobacco in FDA v. Brown & Williamson (2000).   In 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act, giving the FDA regulatory authority over tobacco but establishing a unique legal standard (the “public health standard”) to guide the FDA’s actions.  I’ll certainly be writing more about that standard in the future…

Since the FDA was given the authority to regulate tobacco in 2009 and created the new Center for Tobacco Products (CTP), I’ve been closely watching its activities – and I spent one year at the CTP (2011-2012) as a policy advisor.  One of my (many) concerns about the FDA’s regulation of tobacco is that because tobacco is such a bizarre fit with the FDA’s portfolio— it is a product that, when used as intended, is lethal and provides no health benefit—regulatory approaches and policies that otherwise apply across the FDA make little sense when applied to tobacco.

One example that received some notable press attention in the past few weeks is the FDA’s conduct of cost-benefit analyses for tobacco regulations.  In short, the FDA’s analyses have been using a “consumer surplus” model which assumes that each person who quits smoking as result of the FDA’s regulations experiences a considerable amount of diminished utility, or pleasure (“lost consumer surplus”).  As a result, the health-related benefits attributable to the rule are deeply discounted (by 70%, in the latest analysis), resulting in a cost/benefit ratio that looks considerably less favorable to the FDA than it otherwise would.  (And this could have significant implications when the rules are later challenged in court.)

While the concept of lost consumer surplus is well established in economics, it makes no sense to apply it to tobacco, which is a product that the overwhelming majority of current users want to quit but struggle to because of its addictiveness.  An all-star team of economists (including Thomas Schelling, a Nobel laureate, and Jonathan Gruber, whose work the FDA purported to rely upon for its consumer surplus calculations), recently wrote a report explaining that “the notion of consumer surplus, predicated on well-informed rational behavior, does not apply in this instance in which the vast majority of smokers begin smoking, and become addicted, before the age of majority.”  The problem with the FDA’s approach was summed up even more succinctly by Doonesbury’s Mr. Butts.

This episode is troubling enough – but I fear it may be one of many examples to come of the FDA inappropriately applying its “standard” toolset to the very different set of issues presented by tobacco regulation.

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