The Regulation Equation: Factoring In the Price of Health Controversy erupted early in 2003 after the U.S.
Office of Management and Budget (OMB) proposed that
the lives of older people were worth less in dollar
terms than those of younger people. The idea was included
in a plan published in the 3 February 2003 Federal
Register by the OMB’s Office of Information
and Regulatory Affairs (OIRA) that was designed to
improve how the federal government determines the benefits
and costs of proposed regulations, including environmental
regulations. A revised version issued 17 September
2003, called Circular A-4, stipulates that specific
age-adjustment factors should not be used. But it still
includes a number of calculation processes that many
perceive discount the value of health as people age.
To help address the controversy that still simmers
over how, or whether, to assign a specific value to
effects such as degraded human health, OIRA and several
federal agencies asked a committee of the National
Academies’ Institute of Medicine (IOM) to weigh
in with guidance on one type of cost-benefit analysis,
called cost-effectiveness analysis (CEA), which can
include calculations of the dollar value of human life
and which was included in Circular A-4. After an effort
spanning about two years, the committee issued its
report, Valuing Health for Regulatory Cost-Effectiveness
Analysis, on 11 January 2006.
The committee concluded that the techniques advocated
by the OMB, including CEA, have their place, but also
have important deficiencies, which could be addressed
to some extent by following the committee’s main
recommendations. In addition, the committee--whose
16 members represent several U.S. and Canadian
universities, health care systems, and state and federal
agencies--cautions that CEA
likely will remain an imperfect tool that
should be balanced with other objective and subjective
considerations
of a regulation’s impact.
Uncertainties about the future use of CEA, as well
as the OMB’s overall regulatory review approach,
continue to stir sharp divisions among critics and
supporters. All sides are closely watching the OMB
to see how it proceeds.
Calculating All Effects
OIRA oversees the implementation of many governmentwide
policies, including the adoption of new regulations.
For regulations, its emphasis is on impact analysis,
particularly of economic impacts, as well as interagency
coordination of regulations and consideration of alternative
rules and regulatory approaches.
Under former administrator John Graham, the OIRA
emphasized the importance of cost-benefit analysis
when reviewing proposed federal agency regulations
that had to funnel through his office. Cost-benefit
analysis looks at dollars gained and spent in both
the public and private sectors as the result of a regulation.
However, some regulatory impacts--such as effects
on human health--are difficult, if not impossible,
to express in dollars. As a result, OIRA also began
to emphasize CEA, which attempts to account for effects
like these by assigning a number, tied to some kind
of synthetic index, to the benefit side of the equation.
This number reflects impacts such as tons of pollutants
reduced or years of life gained. CEA has been evolving
for several decades in the medical field, but is in
its relative infancy when applied to other areas.
OIRA laid out its version of CEA requirements in
Circular A-4, and said its analytical process had to
be used for any proposed regulation estimated to have
an annual effect on the economy of $100 million or
more. The IOM committee found that only 18 regulations
meeting that standard were finalized in the period
from January 2000 to June 2004, out of thousands of
federal rules proposed every year. Among these were
the EPA’s efforts to address diesel engine emissions
and arsenic in drinking water, an FDA regulation on
juice processing contaminants, and a Food Safety and
Inspection Service regulation on Listeria contamination
in meat and poultry. The committee says a number of
upcoming regulations likely will need to complete a
CEA.
New Ways to Crunch the Numbers
The committee made a dozen primary recommendations
to improve the use of CEA. Many of these address exactly
how a CEA should be conducted. For instance, the committee
recommends the use of a measure called a quality-adjusted
life year, or QALY, to create the most viable measure
of human health impacts. Calculations of QALYs address
both length of life and degradation of health to create
a score. However, the committee says even this widely
used tool has limited data supporting it, and much
more information must be developed to improve it.
One way to do this is to acquire better baseline
information by adding appropriate questions to and
coordinating better among existing national surveys,
such as the National Health Interview Survey and the
Medical Expenditure Panel Survey. This would provide
a better perspective on how the general public judges
various health outcomes. For example, how would someone
score the effects of short-term arthritis versus long-term
arthritis that waxes and wanes but never resolves?
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image: Corbis |
Some research is already under way on the half dozen
most commonly used questionnaires designed
to gauge individual judgments on health impacts. A
team led
by IOM committee member Dennis Fryback,
a professor of population health sciences at the University
of
Wisconsin-Madison, is trying to develop
a “Rosetta
stone” that will aid comparison between the sometimes-disparate
results from different questionnaires,
increasing their statistical power. Based on three
studies of about
3,900 U.S. residents, Fryback hopes to
begin presenting results late in 2006, with journal
publication through
2007 and early 2008.
The committee also recommended that improved regulatory
analysis should include clearer and more prominent
explanations of the many uncertainties inherent in
CEAs; should better address differences in impacts
on various geographic areas and groups, such as infants,
the elderly, and those of different races and economic
classes; should be standardized so that all federal
agencies use a common approach; and should be more
transparent and open to public involvement and review.
A League of Their Own
Even with these recommendations, a CEA unavoidably
has to put a price on the health impacts and regulatory
costs involved in saving a QALY--that is, how much
are we, as individuals and as a society, willing to
pay per unit of gained healthy life? Controversy over
that concept may increase in the future, since one
OMB goal has been to use CEA and cost-benefit analysis
to develop tools called “league tables.”
Similar to sports league standings, league tables
could provide a simple way to compare regulations,
even if they cover diverse topics. A regulation to
cut Escherichia coli in food might be reduced
to a score of 27, while a regulation to slash auto
accident fatalities might have a score of 39, and a
regulation to throttle sulfur dioxide pollution might
have a score of 62. (These numbers are purely hypothetical,
for the sake of example, since the OMB has not yet
developed accepted scales for scoring.)
This strategy fits within OMB’s broader objective
to adopt “regulatory budgeting,” which
includes the idea that when all public and private
parties meet a preset dollar figure assigned to regulatory
expenditures each year, no more regulations can be
passed. These approaches are desirable, says Angela
Logomasini, director of risk and environmental policy
at the Competitive Enterprise Institute, a free enterprise
advocacy group, since government needs a tool to decide
where best to spend limited resources.
However, the IOM report specifically warns against
computing league tables across regulations or areas
of regulation, noting that what is considered a benefit
and what should be counted as a cost differs from analysis
to analysis. “It is analogous to looking at prices
of cars where one does not know whether they are comparably
equipped, have similar efficiency, and so on,” says
Fryback. “We can say that the price per car varies,
and that one looks more expensive than another, but
without the details these comparisons may be misleading.”
Furthermore, such important determinations can’t
rely solely on a tool such as a CEA, says Amy Sinden,
an associate professor at Temple University’s
Beasley School of Law and a member scholar of another
advocacy group, the Center for Progressive Reform. “There’s
just not enough data,” she says. “Important
aspects of ecological and human health impacts that
can’t be quantified get left out. A CEA produces
numbers that create an aura of scientific objectivity
but that may be misleading. The numbers tell only part
of the story.” The worry, she adds, is that when
agencies use methods like these, often all the public
sees are the numbers, not the nuances.
The Unknown Factor
The future of OMB’s approach is uncertain.
Graham left OIRA and assumed the role of dean of the
Frederick S. Pardee RAND Graduate School on 1 March
2006. His permanent successor had not been named as
of mid-April 2006. Robert Shull, director of regulatory
policy at the nonprofit OMB Watch, suspects the general
direction of OMB and OIRA won’t change much,
regardless of who is administrator, given that the
general direction has already been set by the Bush
administration.
IOM committee chairman Robert Lawrence, a professor
of preventive medicine at the Johns Hopkins Bloomberg
School of Public Health, says that, although initial
response by OMB and numerous federal agencies to the
report has been good, prospects for specific revisions
to current efforts and policies are unclear. Much will
be determined by the new OIRA administrator, he says,
and many of the affected agencies told him it would
be difficult in this budget climate to get additional
money to proceed with the committee’s recommendations.
Whatever the outcome, even supporters of the OMB
approach realize such measures are less than perfect. “All
of these things are highly subjective,” Logomasini
says. “Such regulatory reforms are often not
as effective as we would like them to be. Ultimately,
deciding whether or how to regulate is a policy decision.”
Bob Weinhold
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