CASAA’s Comment to OMB/OIRA regarding Paperwork Reduction Act and FDA Deeming Regulation
To: Office of Information and Regulatory Affairs
From: Carl V Phillips, PhD
The Consumer Advocates for Smoke-free Alternatives Association (CASAA)
26 May 2014
Re: The Food and Drug Administration Deems Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations Restricting the Sale and Distribution of Tobacco Products and Required Warnings for Tobacco Product Packages and Advertisements.
I am writing on behalf of the Consumer Advocates for Smoke-free Alternatives Association (CASAA) to comment on issues stemming from the FDA’s proposed deeming regulation of e-cigarettes and other products as tobacco products that are related to the Paperwork Reduction Act (PRA). CASAA will comment later on other aspects of the proposed regulation.
CASAA is a public health and education NGO, and is the leading representative of consumers who use or might in the future use smoke-free tobacco/nicotine products as an alternative to smoking. CASAA is not an industry group and does not represent the interests of industry, and we realize that PRA issues are normally addressed by the regulated industry. However, in this case most of the cost burden created by paperwork will fall upon consumers. In particular, due to the paperwork burdens, hundreds of thousand of American consumers would lose access to the low-risk products that have allowed them to quit smoking and not return to it.
The spirit of the PRA and OIRA review of regulation includes an attempt to ensure that the mere paperwork burden – as opposed to beneficial substantive requirements – is not unduly burdensome. We believe that the FDA is defying the spirit of the PRA and OIRA review in their proposed regulation documentation. In particular, it appears that FDA is ignoring the greatest cost created by the paperwork burden: Most manufacturers will find the paperwork burden to be so great that they will abandon products or (for the vast majority) their entire businesses without even attempting to deal with it. This lowers the naively-measured burden of paperwork as reported by FDA – limited to the paperwork costs for products that are not driven from the market – by ignoring its greatest costs, the elimination of the products and the resulting loss of consumer surplus (as discussed in more detail below). This is blatantly contrary to the goals of the PRA.
FDA predicts that there will be no applications for e-cigarettes based on a product being equivalent to products on the market in February 2007. This is consistent with the fact that either no such products existed in the U.S. market at that time or that the very few available products were extremely primitive, bearing little similarity to today’s products. (There is some disagreement about which of these is the case, but no doubt that one or the other is.) FDA predicts that there will be only 25 new product premarket applications for e-cigarette products. This means that manufacturers will file paperwork for only 25 products. This contrasts with what we estimate are in the order of 100,000 e-cigarette products currently in the U.S. market, with new products being developed every day.
Clearly FDA has not underestimated the number of products on the market by four orders of magnitude. Rather, they realize that the vast majority of manufacturers cannot even attempt to comply with the enormous paperwork requirements they are imposing (and, indeed, FDA has basically stated as much). Thus, their estimated costs of paperwork compliance for those 25 products grossly underestimates the true effect of the paperwork burden in a manner that perverts the intent of the PRA. This burden is still substantial for the remaining 25 products; FDA predicts it would require over 5000 hours of work per product to just comply with the applications requirements. But the burden imposed upon the other thousands of products is even greater: It is effectively infinite.
It is important to note that the compliance requirements in question consist entirely of paperwork. FDA is predicting that in the order of 99.99% of the e-cigarette products in the market will disappear without even an attempt to comply with the filing requirements that could let them stay on the market. If the paperwork application burden were, say, 1 hour per SKU, we would predict that the vast majority of the products would see such an application. Thus, 99.99% of the products will disappear at the time of the filing deadline because of the paperwork requirements per se.
That estimate of 25 applications is approximately the number of e-cigarette products currently sold by the major traditional tobacco companies. Since these are the only companies that have the resources to comply with the paperwork burdens, this equivalence is clearly more than coincidence. While it certainly would be better for consumers and public health if these few e-cigarette products survived the paperwork burden, rather than none at all, these products are all the small, expensive, standardized products (often referred to as “cigalikes”) that are a dispreferred option for a large portion of those ex-smokers who quit smoking using e-cigarettes. The “cigalike” products manufactured by the traditional tobacco companies often attract many smokers to first try a lower-risk alternative, which is good for consumers and public health. However, many users of those products find that they never lose the urge to smoke, and often continue to smoke concurrently, until they discover other higher-quality products that let them become permanently abstinent from smoking. Those higher-quality products are among the 99.99% of the products on the market that would be eliminated by paperwork. This represents a huge public health cost and loss of consumer surplus, in addition to the costs to industry.
It could be argued that many e-cigarette manufacturers might believe that their products could never be approved under the premarket application process. However, there are fundamental ambiguities about this approval process and there are no clear reasons for many manufacturers to assume that their products would not qualify for premarket approval. FDA has not made clear what data and facts would be sufficient for such approval. Assuming the approval process is not just a façade and there is a genuine possibility of approval, this means that many products would have been allowed onto the market were there not a paperwork burden that prevents their manufacturers from even attempting to apply.
To put this in concrete terms, consider a scenario where a mere 1% of current e-cigarette products would meet the approval requirements. This is in the order of 1000 potential approvals. But the paperwork burden would preclude applications for all but 25 of them. So under this pessimistic scenario about approvals there would still be about 1000 products that could be approved but will instead exit the market because of the the paperwork burden. Since these products have been proven by real-world experience to pose no measurable hazard and are used as a substitute for a very hazardous behavior, it seems that far more than 1% should qualify, raising this number. (If not even 1% of such products could qualify, then the approval process should be acknowledged to be a de facto prohibition and should have been presented and evaluated as such.)
It is important to emphasize that no products could be driven from the market due to any substantive requirements of the proposed regulation; it is entirely due to the paperwork and the approval process. There are no such requirements – such as manufacturing standards or ingredients bans – in the current proposed regulation. All of the proposed regulations consist entirely of filings and approvals.
It is further worth noting that nowhere in the proposed regulations, nor in any other FDA publications to our knowledge, are there statements about how these filings and approvals (or disapprovals) would provide any benefit to consumers of the regulated products. There are allusions to benefits, but they are entirely just that – vague allusions, with no apparent connection between the concrete requirements to the ostensible positive outcomes, and no attempt by the FDA to argue that there is such a connection
In sum, the FDA is openly predicting that the paperwork burden alone will destroy almost all of the e-cigarette products on the market, and is making no concrete claim about how the paperwork burden or any other requirement they are imposing will lead to beneficial regulation. Even if we allow for the possibility that 99% of existing products would be banned on substantive grounds, the vast majority of the remaining potentially-approved products would still be eliminated due to the paperwork burden.
Imposing paperwork costs that are so great that they cannot possibly be complied with does not create zero paperwork cost. And yet this is exactly what FDA is claiming. The reported cost estimates assign no cost where there would not even be an attempt to comply. This is inappropriate at two levels: First, it is basically creating a hidden ban, using the paperwork burden to impose it. This clearly violates the fundamental goals of the PRA. Second, it is underestimating the true costs because no attempt is made to estimate the social costs of the paperwork requirements eliminating companies and products from the market. FDA is aware that such costs exist (from FDA’s regulatory impact analysis: “We acknowledge that product exit reduces product variety and the range of choices available to consumers, but we do not estimate the value of this loss of consumer choice.”). But they improperly ignore them in their quantification. By their logic, had FDA made the paperwork burden even more onerous, such that no one would try to meet it, they would have claimed that the paperwork costs were zero.
The elimination of most of the market due to paperwork burdens will create all the obvious costs for commerce, including loss of employment, reduction of consumer spending in an already depressed economy, and a loss of business profits. But much more important in this case is the enormous loss inflicted on consumers. The benefits of the higher-quality products that would be eliminated come overwhelmingly from the consumer surplus they create. A former smoker who has switched to e-cigarette products and has found these to be an appealing substitute has gained consumer surplus roughly equivalent to the health costs of smoking. That benefit will be lost if the appealing products are eliminated and those consumers return to smoking. A consumer of an eliminated e-cigarette product who does not return to smoking, but switches to one of the remaining few products that survived the paperwork burden or becomes abstinent, will suffer a smaller but potentially still substantial loss of consumer surplus.
Due to these gross and fundamental flaws in the calculation and reporting of the paperwork burden, we believe that it would be appropriate for the Office of Management and Budget to void the proposed regulation as it relates to e-cigarettes and other smoke-free products. FDA offers basically no concrete claims about how the paperwork burdens would create or facilitate substantive benefits, and yet the burden would do enormous damage.
Failing that, we ask that OMB reject as inaccurate FDA’s grossly understated reporting of the paperwork burdens of the proposed regulation and require FDA to issue a revised estimate that takes into consideration the true burdens of the paperwork. In particular, FDA should be required to estimate what portion of existing products, plus new products that will exist as of the filing deadline, could comply with application requirements were they able to afford the paperwork cost. It is inappropriate that FDA obfuscates this important figure by not separating products that they contend could not achieve approval for substantive reasons from those where the manufacture simply cannot afford to seek approval; this needs to be estimated and disclosed to comply with the spirit of the PRA. After estimating that, FDA should be required to estimate and report as paperwork costs the full social costs of eliminating products that would be approved if their manufacturers were able to afford the costs of application. After issuing of this correction, we would expect that we and the rest of the public would have the opportunity to comment on the proposed regulations in light of the information.