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Federal Agency Says FDA's Benefits Far Outweigh its Costs

Posted 05 June 2013 | By Alexander Gaffney, RAC

A new draft report out by the White House's Office of Management and Budget (OMB), the government's regulator of regulators, shows that the cost-benefit ratios of the US Food and Drug Administration (FDA) vastly outweigh its costs to industry and the public at large, potentially giving the regulator clout with legislators who are increasingly looking to make budget cuts.

The Report

The draft report was published in response to the Regulatory Right-to-Know Act of 2001, which requires OMB to prepare a cost-benefit report on the costs of federal regulations for the Congress. The influential report can be a strong case for agency officials to argue for additional funding, but can also provide a harsh spotlight on agencies that fail to promulgate well-tailored regulations.

OMB's draft report noted that in 2012, FDA released a total of eight regulations which cost an estimated $800 million to $1.2 billion.

While that may seem high given the cumulative nature of many regulations, OMB said the benefits afforded by those eight regulations exceeded the costs dramatically, with low-range estimates of $2.1 billion in societal benefits and a high range estimate of $21.9 billion-more than 2600% more than the lowest estimate, and 75% more than the most conservative estimate.

That cost/benefit ratio was the best out of any agency, far exceeding the runner-up,  the Environmental Protection Agency's (EPA) Office of Air, which had a high estimated return of over 2000%.

What are the Benefits of Good Regulation?

OMB explained later in the report that regulatory agencies like FDA have been found to actually promote economic growth and generate "desirable economic effects" by "establishing credible expectations of fairness and product safety."

So, for example, a consumer might be more confident in the quality of over-the-counter drugs he purchases, knowing that FDA exercises strong oversight over the producer of the drugs, whereas a consumer without access to those same assurances might choose to avoid purchasing that product altogether.

Or, to cite another possible example, if FDA's regulations result in approvals based on high-quality data, physicians may be more likely to prescribe drugs knowing that they don't have to worry about potentially weak supporting data.

In recent years, regulators have increasingly been asked to be mindful of the economic impact of their regulations in light of adverse economic conditions, and Executive Orders from President Barack Obama have asked agency officials to review regulations to see if efficiencies could be found. OMB's report noted that FDA had "tried to lessen the impact of regulatory requirements" in 2012 while simultaneously trying to maintain its mission to protect and promote public health.

The rules promulgated by FDA during 2012 included ones affecting the life sciences industry as well as food and tobacco products.

OMB: 2013 Draft Report to Congress

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