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 Economists at the U.S. Food and Drug Administration incorporated
lost-pleasure calculations last year in analyzing proposed rules for
e-cigarettes and the posting of calorie counts on restaurant menus.
The agency said the analysis provided a more accurate picture of the
estimated benefits of a regulation.
A broad array of public health advocates, lawmakers, and economists
criticized the agency's use of the analysis, however, saying it was
applied incorrectly and sharply undercut the projected benefits of
regulations meant to improve public health. Some feared it would
weaken the government's ability to defend such rules in court.
Officials at the FDA and its parent agency, the U.S. Department of
Health and Human Services (HHS), have now intervened to curtail such
analysis, according to officials involved.
HHS Assistant Secretary Richard Frank, a healthcare economist on
leave from Harvard Medical School, asked leading researchers to
offer "ideas for new ways of analyzing lost consumer surplus in
these cases," according to a letter last month to members of
Congress, which was reviewed by Reuters.
 "Lost consumer surplus" is the technical term used by economists for
the lost pleasure that results when someone curtails an enjoyable
behavior.
Next, Frank convened a working group that included HHS officials,
Harvard economist David Cutler and other academics. They met for a
day-long meeting last summer with additional outside experts, and
have conducted further discussions by phone and email.
The group is now poised to issue a white paper in which it will
conclude that the FDA's lost-enjoyment calculations went too far,
according to two people familiar with the report.
FDA economists will not be barred from considering lost pleasure
altogether, but will not be permitted to use the concept to slash
the projected benefits of key public health regulations, these
people said.
There were "legitimate criticisms" of the FDA’s lost-pleasure
calculations, Frank said in an interview.
“We're not saying that lost consumer surplus is in no way useful,
but it's a matter of degree and how you apply it," he said. There
were concerns "that too much weight was put on it," he added. For
example, the approach reduced the projected benefits of tobacco and
e-cigarette regulation by 70 percent.
Frank said all relevant agencies, including the FDA, participated in
discussions leading up to the white paper and are expected to accept
its conclusions. "Realistically, we don't want to have spent a year
working on something no one will listen to," he said. He would not
say precisely when the report will be released.
FEWER CUPCAKES
The FDA aims to finalize by June the proposed tobacco products rule
that included the controversial lost-pleasure analysis. The rule
will give it authority to regulate all nicotine products, including
e-cigarettes. It is not clear how the HHS group's conclusions will
affect the tobacco rule, and the FDA declined to address that.
But one source familiar with the process said that if FDA economists
improperly incorporate lost enjoyment into future cost-benefit
analyses, especially when regulating addictive and other
habitually-used products, their reports would likely not be approved
by HHS, which has authority over the FDA.
Lost consumer surplus is a well-established idea in economic theory.
It reflects the fact that when people are deprived of something they
enjoy, they experience a sense of loss, which can be assigned a
dollar value.
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In the case of e-cigarettes and other non-traditional tobacco, the
FDA asserted that if the regulations succeeded in reducing tobacco
use, smokers would suffer lost enjoyment amounting to tens of
billions of dollars, Reuters first reported.
The agency's economists, led by Clark Nardinelli, estimated that
lost enjoyment would offset by 70 percent the societal benefits of
reduced smoking brought about by government regulations, including
lower rates of heart attacks and cancer. Nardinelli has not
responded to requests for comment.
The FDA economists performed a similar analysis for calorie counts
on fast-food menus and vending machines, Reuters found. They
estimated that consumers would make healthier choices, reducing
obesity, Type 2 diabetes, and heart disease, amounting to benefits
of $5.3 billion to $15.8 billion.
But the lost enjoyment people would feel by not eating their
favorite cupcakes or fried chicken would reduce that benefit by $2.2
billion to $5.27 billion.
By making the societal benefits of tobacco regulation and menu
labeling appear much lower, the lost-enjoyment factor left industry
an opening to argue in court that the rules would not bring net
benefits, as required by law, critics said. Many outside economists
argued that the analysis was incorrectly applied.
Kenneth Warner, a University of Michigan economist who participated
in the HHS working group, said that it was incorrect to apply lost
consumer surplus to an addictive behavior such as smoking. The vast
majority of smokers say they regret having started and wish they
could quit, he noted, so they would experience more satisfaction,
not less, if they did so.
"The traditional understanding of consumer surplus assumes a
rational consumer, and that becomes strange for a behavior that you
start in adolescence or that's addictive," said Harvard economist
Joseph Newhouse, also a working-group participant.
In the case of calorie counts, the lost-enjoyment analysis doesn't
account for the pleasure consumers may get from making healthier
choices, such as enjoying a sense of virtue, or shedding enough
pounds to wear a favorite pair of jeans again.
"That's just not in the (FDA) analysis, and it should be," said
Warner.
Public health advocates praised HHS for taking a fresh look at the
lost-enjoyment analysis and working to "get it right," said Matt
Myers, president of the Campaign for Tobacco-Free Kids.
(Reporting by Sharon Begley and Toni Clarke; Editing by Michele
Gershberg and Sue Horton)
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