Legislative Bulletin: H.R. 1256, Family Smoking Prevention and Tobacco Control Act

Order of Business: H.R. 1256 is being considered under a structured rule making in order certain amendments.  The legislation was introduced by Rep. Henry Waxman (D-CA) on March 3, 2009, and was referred to the Committee on Energy and Commerce, which on March 4, 2009, reported the bill by a 39-13 vote.

Under new PAYGO rules in the 111th Congress, savings from prior bills passed by the House may count towards meeting PAYGO requirements.  Because the Congressional Budget Office projects a $955 million revenue loss over ten years associated with H.R. 1256’s provisions regulating tobacco due to a 2% reduction in adult smoking after ten years, the majority intends to pass H.R. 1804 under suspension of the rules to offset this lost tax revenue prior to the consideration of H.R. 1256.  The rule for consideration of H.R. 1256 provides that, at the time of engrossment, the Clerk will add the text of H.R. 1804 to the end of H.R. 1256, in order to meet PAYGO.

Summary: H.R. 1256 would grant the Food and Drug Administration (FDA) the authority to regulate tobacco products—financed through a tax on tobacco companies—and increase federal regulation of tobacco advertising and marketing.  Highlights of the legislation include the following:

FDA Authority:  The bill grants the federal government authority to regulate tobacco products through a new Center for Tobacco Products created as part of the FDA; however, the bill limits FDA’s authority to the manufacture of tobacco products, as opposed to the growth of tobacco itself.  Some Members may be concerned by the implications of giving an agency charged with approving the safety of food and drugs the authority to regulate an inherently unsafe product, echoing the concerns of then-FDA Commissioner Andrew von Eschenbach, who in a statement to the Energy and Commerce Committee in 2007 stated that regulating tobacco products would dramatically alter the FDA’s mission, and not for the better: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

Some Members may also note the statements from many Congressional Democrats that the salmonella and other crises demonstrate that the FDA is not undertaking its current mission effectively, and question whether now is the appropriate time to be burdening the FDA with imposing a sizable new regulatory regime.  In addition, some Members may be concerned that the bill’s provisions expressly retaining the Federal Trade Commission’s authority to regulate the sale of tobacco products may result in duplicate and/or conflicting regulatory regimes at the federal level.

The bill contains definitions related to tobacco products.  Under the bill, an “adulterated” tobacco product consists of materials “injurious to health.”  Using this definition, some Members may question how the FDA will be able to distinguish adulterated from un-adulterated tobacco products, given that tobacco is inherently injurious to human health.

Labeling and Branding Disclosure:  H.R. 1256 places numerous restrictions on tobacco products to prevent their “misbranding.”  Under the bill language, tobacco products will be considered misbranded if (among other things) “any word, statement, or other information required…to appear on the label…is not prominently placed thereon with such conspicuousness…as to render it likely to be read and understood by the ordinary individual” or if the label excludes “a full description of the components of such tobacco product or the formula showing quantitatively each ingredient of such tobacco product.”  The bill also grants the FDA the authority to require prior approval of statements on tobacco labels.  Despite language in the bill prohibiting tobacco companies from making such claims, some Members may be concerned that members of the public may construe FDA regulation of tobacco products as the federal government’s “approval” of a product now deemed safe, when in reality tobacco products are inherently unhealthy.

H.R. 1256 requires tobacco manufacturers to disclose to FDA “a listing of all ingredients…substances, compounds, and additives that are…added by the manufacturer,” as well as “any or all documents (including underlying scientific information) relating to research activities, and research findings, conducted, supported, or possessed by the manufacturer” regarding tobacco products, their health risks (including any adverse events), and tobacco marketing.  The bill also requires FDA to compile publicly searchable databases of additives and potentially harmful components with respect to each brand of tobacco product.

Registration and Inspection:  The bill requires tobacco manufacturers to register their establishments with FDA and provides for inspections every two years to each registered establishment—including those located overseas.

Scope of Regulations:  The bill grants FDA the authority to impose restrictions “on the sale and distribution of a tobacco product” where the agency “determines that such regulation would be appropriate for the protection of the public health,” and also permits restrictions on tobacco advertising and promotion.  Specifically, the bill requires FDA to promulgate regulations regarding remote (i.e. not face-to-face) sales of tobacco products, and regarding good manufacturing standards “to ensure the public health is protected.”

Product Standards; Menthol Loophole:  The bill prohibits most flavor additives in tobacco products following enactment, and gives the FDA the authority to adopt additional standards for tobacco products through a notice-and-comment process.  However, the bill expressly prohibits FDA from banning whole classes of tobacco products, or “requiring the reduction of nicotine yields of a tobacco product to zero…because of the importance” of such decision.

As noted above, the bill prohibits most tobacco flavor additives but expressly excludes menthol as the only “FDA approved” additive permitted to remain in tobacco products.  Some Members may echo the concerns of then-Health and Human Services Secretary Mike Leavitt, who last year pointed out that this provision—by prohibiting the sale of clove and other flavored cigarettes manufactured overseas, while permitting the continued sale of menthol cigarettes manufactured in the United States—could violate international trade commitments, potentially sparking trade disputes and retaliatory action during a recession.

Studies confirm that African-Americans and other racial minorities comprise a disproportionate number of menthol smokers; Centers for Disease Control data indicate that 75% of African-American smokers use menthol cigarettes.  Some Members may also note that seven former Health and Human Services Secretaries wrote to Congress to criticize a menthol “loophole” that “caves to the financial interests of tobacco companies” by “send[ing] a message that African-American youngsters are valued less than white youngsters.”

Notification and Recalls:  The bill grants the FDA authority to make public notifications about tobacco products—through public service announcements and other means—if FDA believes the product “presents an unreasonable risk of substantial harm to the public health,” and further grants FDA authority to recall defective tobacco products, subject to an informal hearing.

Pre-Approval of New Products:  The bill requires any new tobacco products introduced after February 15, 2007, or any substantially modifications of existing tobacco products, to complete a pre-approval process prior to their commercial introduction, and also grants FDA the authority to withdraw and/or suspend a prior issued approval of such new products on the basis of new information or non-compliance with the regulatory regime put in place by the bill.  H.R. 1256 also prohibits FDA to approve any new products if “there is a lack of a showing that permitting such tobacco product to be marketed would be appropriate for the protection of the public health.”

Modified Risk Products:  H.R. 1256 prohibits the sale of “modified risk” tobacco products—defined as those advertised as “less harmful than…other commercially marketed tobacco products,” including those labeled as “light” or “mild”—unless where expressly approved by the FDA.  The bill permits the commercial sale of modified risk products only where the FDA finds said products will “significantly reduce harm…to individual tobacco users; and benefit the health of the population as a whole.”  In cases where long-term epidemiological studies have yet to be conducted on modified risk products, the bill permits the FDA to grant authority to approve the products’ sale for a fixed but renewable term of up to five years, provided certain other requirements are met.  Some Members may be concerned that these burdensome restrictions—which effectively prohibit modified risk products unless expressly approved by federal authorities—may hinder the introduction and development of tobacco products that could reduce (but not eliminate) the adverse health consequences associated with tobacco consumption.

The bill also imposes additional marketing restrictions on modified risk products approved for sale, specifically regarding the quantitative comparisons of reduced levels of substances, and requires post-market surveillance of modified risk products—which relate to the FDA’s requirement to revoke approval in cases where additional research finds that the statements of modified risk no longer apply.

State and Local Authority; “Indian Country” Loophole:  The bill provides limited federal pre-emption of state and local laws with respect to product standards, labeling and branding, federal registration, and modified risk products; however, state and local governments retain authority in all other areas regarding “the sale, distribution, possession, exposure to, access to, advertising and promotion of or use of” tobacco products.

The bill requires FDA to contract with the states to carry out inspection of retailers to enforce its provisions.  However, the bill prohibits FDA from having its state contractors carry out inspections on Indian country lands “without the express written consent of the Indian tribe involved.”

Other Provisions:  The bill establishes a Tobacco Products Scientific Advisory Committee to evaluate technical evidence and make recommendations with respect to tobacco products and their effects.  The bill also contains provisions designed to accelerate the regulatory approval of certain smoking cessation and nicotine replacement products, and includes delays of up to five years in regulatory compliance and testing requirements for small tobacco product manufacturers (defined as those employing fewer than 350 employees).

“User Fees”:  H.R. 1256 imposes “user fees” on tobacco companies to finance the new Center for Tobacco Products within FDA.  Fees would total nearly $5.4 billion over ten years: $235 million in Fiscal Year 2010, rising to $712 million in Fiscal 2019 and all subsequent years.  Fees would be assessed to classes of tobacco products (i.e. cigarettes, cigars, etc.), and to individual companies within each class, in the same percentages applied to tobacco buyout legislation previously passed by Congress (P.L. 108-357) in October 2004.

Some Members may consider this “user fee” a tax on the tobacco industry, which manufacturers will pass on to their customers.  Some Members may also be concerned that tobacco taxes are among the most regressive forms of taxation, and that raising tobacco taxes still higher—on top of the 62-cent per-pack increase in taxes used to finance children’s health insurance legislation (P.L. 111-3)—will place additional burdens on working families during a recession.

Final Rule:  The bill would require the FDA to re-issue a 1996 rule (struck down by the Supreme Court as exceeding the agency’s authority in 2000) and would make several amendments to said final rule.  The original regulations would restrict tobacco advertising by, among other things, prohibiting billboards within 1,000 feet of schools and permitting only black-and-white advertising.  The amendments would prohibit the distribution of free tobacco products at all sporting or entertainment events, and would permit free samples only in a “qualified adult-only facility;” such facilities are specifically defined, and must include “a temporary structure…enclosed by a barrier that is constructed of, or covered with, an opaque material…[and] extends from no more than 12 inches above the ground or floor…to at least 8 feet above the ground or floor.”  However, the bill expressly strikes the preambles and findings to several FDA rules promulgated in 1995 and 1996 designed to regulate nicotine as a drug, and tobacco as a nicotine delivery device.  Some Members may be concerned at the level of prescriptive detail being written into law by these provisions—particularly as H.R. 1256 exempts the entire final rule from the provisions of the Congressional Review Act.

Retail Penalties:  The bill permits FDA to issue “no tobacco sale” orders against retailers that repeatedly violate the federal regulatory regime, subject to a hearing, and also imposes federal penalties for violations by retailers with respect to tobacco purchases.  A first offense would not be subject to a fine, provided the retailer has an “approved training program” in place; however, penalties would increase for additional incidents, such that a sixth (and subsequent) offense within a four-year period would warrant a fine of $10,000, regardless of whether the retailer participates in a training program.  The bill requires FDA to “consider” applicable state penalties for purposes of mitigating federal sanctions, but does not automatically reduce or eliminate federal sanctions where states have imposed their own (potentially higher) fines.

Advertising Warnings:  The bill imposes numerous new requirements on advertising for cigarettes and smokeless tobacco, and prohibits the sale or advertisement of any product not meeting the restrictions. Specifically, the bill requires labels carrying warnings in at least 17-point font or that comprise 70% of the label area, and requires advertisements to carry warnings of at least 20% of the total area (or, in the case of newspaper advertisements, a specific size font related to the overall size of the advertisement).  The bill gives the FDA the authority to change required statements through a notice-and-comment rulemaking process, pre-empts state or local activities only with respect to the content of tobacco advertising—permitting more stringent state and local regulations on the “time, place, and manner” of advertisements—and imposes a prohibition on television or radio advertisements for smokeless tobacco.

Some Members may be concerned that these prescriptive requirements exceed the voluntary restrictions that tobacco companies imposed upon themselves as part of the 1998 Master Settlement Agreement with state attorneys general, infringing on companies’ First Amendment rights to promote a product which H.R. 1256 would expressly keep legal.  Some Members may also be concerned that the lack of federal pre-emption would permit states and localities to impose more onerous, and potentially conflicting, restrictions on companies’ constitutional right to market their products.

Trade in Tobacco Products:  The bill requires tobacco manufacturers to label their products as “sale only allowed in the United States,” and requires federal regulations related to record-keeping, tracking, and tracing tobacco products in order to combat illicit activities.

Cost: According to the Congressional Budget Office, H.R. 1256 would cost the FDA $2.1 billion to implement over five years and nearly $5.4 billion over ten.  These costs would be offset by “user fees” assessed on tobacco companies.

CBO also projects a $955 million revenue loss over ten years associated with H.R. 1256’s provisions regulating tobacco, as the budget estimate assumes a 2% reduction in adult smoking after ten years.

Under new PAYGO rules in the 111th Congress, savings from prior bills passed by the House may count towards meeting PAYGO requirements.  Because the Congressional Budget Office projects a $955 million revenue loss over ten years associated with H.R. 1256’s provisions regulating tobacco due to a 2% reduction in adult smoking after ten years, the majority intends to pass H.R. 1804 under suspension of the rules to offset this lost tax revenue.

Lastly, CBO notes that the “user fees” imposed on tobacco companies by H.R. 1256 would constitute a private-sector mandate for the purposes of the Unfunded Mandates Reform Act (UMRA), and that other provisions associated with limited pre-emption of state tobacco laws would constitute an intergovernmental mandate under UMRA.  Some Members may be concerned by the impact of the billions of dollars in unfunded mandates placed on tobacco companies amount to a tax that will be passed on to consumers.

Amendment Made in Order Under the Rule:

Buyer (R-IN) Substitute:   Keeps FDA’s focus on its current mission by establishing a Tobacco Harm Reduction Center within the Department of Health and Human Services (but outside of FDA) to regulate tobacco products.  Requires Administrator of the new Center to assess the impact of proposed regulations having an economic impact greater than $50 million.  Pre-empts new state and local laws conflicting with the regulatory regime, and prohibits private rights of action.  Statutorily requires reduction in tar levels included in tobacco products, but defers prohibition of flavor additives or other chemicals to medical experts within the new Tobacco Harm Reduction Center.

Permits the introduction (without fixed-term time limits) of modified risk products, provided such products result in “measurable and substantial reductions in morbidity and mortality among individual tobacco users.”   Requires disclosure of tobacco product ingredients on product packaging.

Focuses tobacco efforts on youth smoking by reducing state substance abuse block grants by up to 40% in the case of states which have not enacted laws imposing civil penalties on sale or distribution of tobacco products to underage minors and restricting certain sales practices (e.g. self-service displays, licensing of tobacco vendors, etc.) to prevent the improper sale of tobacco products to minors.  Imposes penalties of up to one year imprisonment for willful violations of regulatory regime.  Reduces state substance abuse block grants by up to 40% for states which do not spend at least 20% of their Master Settlement Agreement funds on tobacco control programs.

Legislative Bulletin: H.R. 1108, Family Smoking Prevention and Tobacco Control Act

Order of Business:  The bill is scheduled to be considered under suspension of the rules on Wednesday, July 30, 2008.

Summary of Changes Made:  The latest draft text would make several substantive changes to the bill.  First, the revised text would require the Secretary of Health and Human Services to contract with states to enforce the FDA-promulgated regulations with respect to tobacco products.  However, the bill would also prohibit the Secretary from contracting with states to enforce the tobacco regulations on Indian tribal lands—or directly engage in enforcement activity on tribal lands—without the express written consent of the tribe involved.  This last change was made to resolve a jurisdictional issue raised by the Natural Resources Committee, which has jurisdiction over Indian tribal matters.

Some conservatives may note that the language discussed above creates a significant loophole in the enforcement mechanism for tobacco products—namely, that Indian tribal areas could represent a “no-man’s land” with respect to tobacco enforcement.  Some conservatives may question whether this loophole could allow unregulated products to be bought and sold on tribal lands, effectively undermining the entire regulatory regime for tobacco products which H.R. 1108 is intended to establish.

The bill includes two new offsets to pay for federal tax revenue lost as a result of the projected 2% reduction in tobacco use, which the Congressional Budget Office (CBO) estimates would cost $114 million over five years, and $446 over ten.  To offset this foregone revenue, the bill would incorporate the text of a measure (H.R. 6500) making changes to the Thrift Savings Plan (TSP) for federal workers.  That bill would require auto-enrollment of workers in the TSP, costing $225 million over five years, and $736 million over ten, due to revenue loss associated with additional employees making pre-tax TSP contributions.  However, H.R. 6500 (as incorporated into H.R. 1108) would result in a net revenue gain, due to an additional provision establishing an after-tax savings component (similar to the Roth IRA or Roth 401(k) options) in the TSP, which CBO estimates would generate $382 million in revenue over five years, and $2.0 billion over ten, resulting from employees substituting pre-tax TSP contributions with after-tax ones.

The second offset for the lost tobacco tax revenue would come from the elimination of unused sick leave in the calculation of survivors’ annuity benefits for participants in the Federal Employees Retirement System (FERS).

Press reports indicate that further language may be added to the bill requiring a study of the so-called “menthol loophole;” however, such language was not available at press time.

Summary:  H.R. 1108 would amend the Federal Food, Drug, and Cosmetic Act to grant new authority to the Food and Drug Administration (FDA) to regulate tobacco products and advertising, and amend the Federal Cigarette Labeling and Advertising Act to impose new restrictions on tobacco product labels and disclosure.  Specific bill provisions include the following:

Findings and Purpose.  The bill contains 13 pages of findings purporting the need to regulate tobacco products to protect the public health, and language designed to ensure that the bill does not affect the authorities of the Secretaries of Agriculture or Treasury.  The bill also includes severability language providing that judicial invalidation of one or more sections of the legislation will not result in the nullification of the entire regulatory regime proposed by the bill.

Regulatory Authority.  H.R. 1108 gives FDA the authority to regulate tobacco products, which are defined as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product” and establishes a new Center for Tobacco Products within the FDA to exercise regulatory authority.  The bill states that tobacco does not qualify as a drug or medical device for purposes of FDA regulation, and limits the FDA’s regulatory authority to tobacco leaf in the possession of tobacco manufacturers (thus excluding tobacco growers).

Adulterated and Misbranded Products.  The bill defines adulterated and misbranded tobacco products, defining the former to include products that “consists in whole or in part of any filthy, putrid, or decomposed substance,” and defining misbranded products to include those that are “false or misleading,” as well as those which do not adhere to the registration, labeling, and other regulatory regimes established under the bill.  The bill grants the FDA, through the Secretary of Health and Human Services, the right to pre-approve statements made on tobacco product labels.

Information Disclosure.  The bill requires all tobacco manufacturers to disclose to the Secretary the names and descriptions of all ingredients, components, and compounds in tobacco products, including the nicotine content of same.  The bill grants authority to the Secretary to obtain information from tobacco companies on the health effects of smoking and requires the Secretary to publish “a list of harmful and potentially harmful constituents” in tobacco products by brand.

Registration and Inspection.  H.R. 1108 requires all tobacco manufacturers to register their names and places of business with the Secretary and requires the Secretary to make such information public.  The bill also requires inspection of every domestic tobacco manufacturing establishment at least once every two years, and a requirement that overseas tobacco manufacturing establishments have “adequate and effective means” for the Secretary to ensure that tobacco products manufactured overseas should be refused entry into the United States.

General Authority.  The bill would permit the Secretary to restrict by regulation the sale, distribution, and advertising of tobacco products “if the secretary determines that such regulation would be appropriate for the protection of the public health.”  In exercising this authority, the Secretary may not 1) “prohibit the sale of any tobacco product in face-to-face transactions by a specific category of retail outlets;” 2) set an age limit on the sale of tobacco products higher than 18 years of age; or 3) require use of a physician’s prescription in order to obtain tobacco products.  However, the bill does require the Secretary to promulgate regulations addressing the sale, distribution, and marketing of tobacco products remotely so as to discourage the purchase of tobacco products by underage individuals.

Product Standards.  H.R. 1108 would ban all “artificial or natural flavors” except for menthol, and requires all tobacco products to meet domestic standards with respect to pesticide use.  The bill permits the Secretary to impose further restrictions should the regulations be in the interest of the public health.  However, “because of the importance of a decision of the Secretary to issue a regulation” banning all cigarettes or reducing the level of nicotine permitted in tobacco products to zero, the bill explicitly prohibits the Secretary from taking either action.

Notification and Recalls.  The bill grants the Secretary the authority to order notification to the public, through public service announcements or other means, of tobacco products that “present an unreasonable risk of substantial harm to the public health…and no more practicable means is available…to eliminate such risk.”  The bill also authorizes the Secretary to order recalls in the event that “there is a reasonable probability that a tobacco product contains a manufacturing or other defect not ordinarily contained in other tobacco products on the market that would cause serious, adverse health consequences or death.”

Record-Keeping.  H.R. 1108 requires tobacco companies to create and preserve records, as established by regulation, designed to determine that tobacco products are not adulterated or misbranded and to protect the public health, and to provide reports of any corrective action taken by tobacco manufacturers to remove products from the market for health reasons.  The bill language states that identities of any patients discussed in applicable records should remain confidential, unless disclosure is necessary “to determine risks to public health of a tobacco product.”

Review of New Tobacco Products.  The bill requires pre-market review for all new tobacco products introduced after February 15, 2007, unless the product is “substantially equivalent” to existing products.  The application for pre-market review requires full disclosure of the products’ components, and research of the health effects of same.  The bill would require the Secretary to reject such new tobacco products if “there is a lack of a showing that permitting such tobacco products to be marketed would be appropriate for the protection of the public health,” among other conditions necessary for approval.  The bill also permits the Secretary to withdraw pre-market approval, due to a company’s non-compliance with regulations or new information on the public health effects of a product, effectively removing the product from the marketplace.

Modified Risk Tobacco Products.  H.R. 1108 places restrictions on the introduction or marketing of modified risk tobacco products.  Specifically, the bill requires that any product marketed as modified risk must “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and “benefit the health of the population as a whole,” including both tobacco users and non-users.  In the event that the Secretary cannot make such a determination without long-term epidemiological data that is not available, the Secretary may issue a temporary approval of not more than five years for the marketing of modified risk products, provided that “the reasonably likely overall impact of use of the product remains a substantial and measurable reduction in overall morbidity and mortality among individual tobacco users,” and the product is subject to annual post-market surveillance review.  The bill also places additional restrictions on the marketing, advertising, and comparative claims presented by modified risk tobacco products.

Judicial Review.  The bill provides a process for individuals adversely affected by regulations issued pursuant to the bill, or whose application for pre-market approval was denied, to seek judicial review with the U.S. Court of Appeals for the circuit in which the party resides or has a principal place of business, subject to review by the Supreme Court.

Regulatory Requirements.  H.R. 1108 requires the Secretary to issue regulations within three years of enactment regarding tobacco product testing and disclosure of product constituents, and permits the Secretary to require label or advertising disclosure of tobacco product constituents.  The bill provides for delays of regulatory and testing requirements for “small tobacco product manufacturers,” defined as those employing fewer than 350 individuals.  The bill also clarifies that none of its provisions prohibit the Federal Trade Commission (FTC) from regulating tobacco advertising or sales.

Limited Pre-Emption.  H.R. 1108 pre-empts state laws relating to tobacco product standards, mis-labeling, adulteration, labeling, and related product standards; according to the Congressional Budget Office (CBO), this pre-emption language constitutes an intergovernmental mandate as defined in the Unfunded Mandates Reform Act.  However, the bill retains states’ ability to enact more stringent standards with respect to tobacco advertising and promotion.

Scientific Advisory Committee.  The bill establishes the Tobacco Products Scientific Advisory Committee to provide technical expertise and recommendations to the Secretary regarding the regulation of tobacco products.

Smoking Cessation.  The bill requires the Secretary to consider approving the extended use of nicotine replacement products “for the treatment of tobacco dependence.”

User Fee.  The bill assesses user fees on tobacco companies and funds FDA regulation of tobacco activities in the amount of $85 million in Fiscal Year 2008, increasing each year until reaching $712 million in Fiscal Year 2018 and each subsequent year.  The bill assesses user fees by class of tobacco products (e.g. cigarettes, cigars, etc.), and allocates them to companies within a class of tobacco products, based on the percentages outlined in tobacco buyout legislation (P.L. 108-357) passed in October 2004.

Restores 1996 Rule on Tobacco Advertising.  The bill requires the Secretary to publish within 180 days of the bill’s enactment a final rule on regulation of tobacco identical to regulations published on October 28, 1996, with an effective date of one year following the bill’s enactment.  The original regulations would restrict tobacco advertising by, among other things, prohibiting billboards within 1,000 feet of schools and permitting only black-and-white advertising.  The bill would modify the original regulation to permit the free distribution of smokeless tobacco only, and only in quantities of fewer than 15 grams (0.53 ounces) in certain “qualified adult-only facilities.”  The bill exempts the final rule, as modified, from review under the Congressional Review Act.

Nullifies Earlier Documents.  H.R. 1108 would nullify the precedent of certain documents issued by FDA during 1995-96 as they relate to a prior attempt to classify nicotine in tobacco products as a drug for purposes of FDA regulation. (H.R. 1108 would make tobacco subject to FDA regulation, but as a “tobacco product,” not a drug or medical device.)

New Penalties.  The bill would add failure to comply with the bill’s requirements as grounds for imposition of fines and/or criminal penalties, along with other offenses relating to counterfeiting tobacco products or “the charitable distribution of tobacco products.”  The bill also gives the Secretary the authority to impose a “no-tobacco sale order” against retail outlets and establishes a new system of federal fines against retail establishments selling tobacco products improperly, authorizing fines of up to $10,000 for establishments with six or more violations within a four-year period.

Studies.  The bill would require the Government Accountability Office to submit studies regarding youth smoking as well as cross-border trade and counterfeiting in tobacco products, and requires a specific study by HHS on raising the minimum age to purchase tobacco products, as well as an FTC report on concentration within the tobacco industry.

Labeling Requirements.  The bill requires all cigarettes and smokeless tobacco sold in the United States to bear clear warnings about the risks associated with tobacco use and prescribes the wording, typeface, and font size associated with such warnings. (Tobacco products manufactured domestically for international use are exempt from this requirement.)  H.R. 1108 further requires that all advertising, including matchbooks, contain language from the warning labels, and prescribes the proportions by which such labeling warning must relate to the overall size of the advertisement.  The bill gives the Secretary of HHS the authority to alter or increase the size of the labeling requirements, permits states to further regulate the type and manner, but not the content, of cigarette advertising, and extends a prohibition on television and radio advertising to smokeless tobacco products subject to the jurisdiction of the Federal Communications Commission.

Tar and Nicotine Disclosure.  The bill gives the Secretary the authority to conduct a rulemaking process to determine whether to require the disclosure of tar, nicotine, and other constituent levels in tobacco advertising, subject to a memorandum of understanding with the Federal Trade Commission.

Shipping Requirements.  H.R. 1108 requires that all packaging and shipping containers shall bear statements stating “sale only allowed in the United States” and requires the Secretary to issue regulations regarding the maintenance of records by entities manufacturing, transporting, or distributing tobacco products.  The bill also requires tobacco manufacturers and distributors to notify the Attorney General and the Secretary of the Treasury upon obtaining information “which reasonably supports the conclusion” that tobacco products formerly held by the entity have circumvented payment of applicable taxes or “diverted for possible illicit marketing.”

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 1108 would result in $2.1 billion in mandatory spending over five years, and $5.3 billion over ten, related to the Food and Drug Administration’s regulation of tobacco.  The bill would offset these costs by imposing a “fee” on tobacco companies to finance the FDA regulation.

CBO also estimates a decline in revenues of $114 million over five years, and $446 million over ten, related to a 2% reduction in overall smoking levels due to tobacco regulation, and loss of commensurate tobacco tax revenue.  In order to pay for this reduced revenue, H.R. 1108 incorporates provisions relating to the federal Thrift Savings Plan (TSP).  The bill would establish a system of auto-enrollment in TSP for all federal employees, causing a minor revenue loss, but would on balance generate additional tax revenue by establishing a new plan to permit after-tax TSP contributions, similar to a Roth IRA or the recently-established Roth 401(k) option.

Finally, CBO estimates a five-year increase in spending subject to appropriation of $3 million as a result of H.R. 1108’s enactment.

Committee Action:  The bill was introduced on February 15, 2007, and referred to the Energy and Commerce, which held a hearing and, on April 2, 2008, reported the bill as amended by a 38-12 vote.

Possible Conservative Concerns:  Numerous aspects of H.R. 1108 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  Some conservatives may be concerned that a 190-page bill seeking to establish new federal authority to regulate a multi-billion dollar industry is being considered under expedited procedures on the suspension calendar.
  • User Fee as Tax Increase.  The bill includes more than $5 billion in assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.
  • Restricts Free Speech Rights.  In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

  • Hinders Introduction of Reduced Risk Tobacco Products.  H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Some conservatives may be concerned that such onerous restrictions on the introduction of reduced risk tobacco products could have the effect of inhibiting the use of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.
  • FDA Improper Agency to Regulate Tobacco.  As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

  • Other Important Priorities for FDA.  Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.
  • Multiple Layers of Regulation.  While establishing FDA authority to regulate tobacco products, H.R. 1108 would also retain the FTC’s authority to regulate tobacco advertising and distribution on the federal level, and would provide only limited pre-emption of state laws, allowing more stringent state restrictions on tobacco advertising and promotion.  Some conservatives may be concerned that these multiple layers of regulation will impose undue bureaucratic and logistical difficulties on tobacco manufacturers—even though H.R. 1108 would explicitly retain tobacco as a lawful product.
  • Little Impact on Tobacco Use.  The CBO estimate of H.R. 1108 notes that under its budgetary model, smoking by adults would decline by only 2% after 10 years.  Some conservatives may question whether this marginal reduction in smoking levels warrants the significant intrusion on free speech rights and government-run regulatory bureaucracy that would be created under the legislation.
  • Billions in Unfunded Mandates; UMRA Point of Order.  The Congressional Budget Office, in its score of H.R. 1108, calculates that the fee imposed in the bill would constitute an unfunded mandate on tobacco companies of $249.1 million in Fiscal Year 2009, and more than $2.3 billion over five years, greatly exceeding the threshold established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).   CBO also notes that the bill includes several unfunded mandates that would both pre-empt existing state tobacco regulations and require tribal governments manufacturing or distributing tobacco products to comply with the new federal regulatory regime.
  • Violates Trade Agreements.  HHS Secretary Leavitt, writing to Energy and Commerce Committee Ranking Member Barton on H.R. 1108, noted that the legislation could be viewed by foreign governments as a hostile trade action.  Because the bill bans clove and other flavored cigarettes—many of which are manufactured in foreign countries—while expressly permitting production of menthol cigarettes, Indonesia or other foreign governments could file complaints at the World Trade Organization claiming discrimination against their products.  Some conservatives may be concerned that passage of H.R. 1108 could ultimately result in retaliatory measures being taken against American-made products—and could lead to trade disputes with a negative effect on economic growth.
  • Menthol Loophole.  As noted above, H.R. 1108 would prohibit the use of all “artificial or natural” cigarette flavorings—with the exception of menthol, which is permitted under the bill.  Because data from the Centers for Disease Control indicate that 75% of African-American smokers consume menthol cigarettes, seven former Secretaries of Health and Human Services, representing both political parties, wrote to Congress to criticize a menthol “loophole” that “caves to the financial interests of tobacco companies” by “send[ing] a message that African-American youngsters are valued less than white youngsters.”

Because the bill is being considered under suspension of the rules, no amendments addressing the menthol issue can be considered.  Some conservatives may note that the House Democrat leadership would apparently rather retain the support of the major tobacco company (Philip Morris) supporting the legislation than permit a vote on amendments that seven former HHS Secretaries believe are in the best interests of African-Americans.

Administration Position:  Although a formal Statement of Administration Policy (SAP) was unavailable at press time, a letter from Health and Human Services Secretary Leavitt to Energy and Commerce Ranking Member Barton indicated that the Administration “strongly opposes” H.R. 1108.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would grant new authority to the Food and Drug Administration to regulate tobacco products.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  Yes, the bill imposes new fees on tobacco companies, which CBO estimates would total $235 million in Fiscal Year 2009, $2.1 billion over five years, and nearly $5.4 billion over ten years, all greatly exceeding the thresholds established in the Unfunded Mandates Reform Act ($136 million in 2008, adjusted annually for inflation).

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  The Committee on Energy and Commerce, in House Report 110-762, reports that “H.R. 1108 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9(d), 9(e) or 9(f) of rule XXI.”

Constitutional Authority:  The Committee on Energy and Commerce, in House Report 110-762, cites constitutional authority under Article I, Section 8, Clause 3 (relating to the regulation of interstate commerce) and Article I, Section 8, Clause 1 (relating to legislation promoting the general welfare of the United States).

Question and Answer: Tobacco Regulation Bill

The House may soon be faced with a vote on a measure (H.R. 1108) to include tobacco products under the regulatory authority of the Food and Drug Administration (FDA).  The RSC has prepared the following analysis providing background information on the legislation, as passed by the House Energy and Commerce Committee on April 2, 2008.

What is the purpose of the provisions of H.R. 1108 regulating tobacco products? 

Both the stated purpose and expansive scope of the proposed FDA regulation of tobacco under H.R. 1108 can be observed in Title I of the bill: “The Secretary [of Health and Human Services] may by regulation require restrictions on the sale and distribution of a tobacco product, including restrictions on the access to, and the advertising and promotion of, the tobacco product, if the Secretary determines that such regulation would be appropriate for the protection of the public health.”  Under the bill, the definition of the public health is extended to both users and non-users of tobacco products.

Some conservatives may note that this language is a significant modification from the original justification for tobacco regulation—namely, the need to protect children from gaining access to tobacco products.  In fact, while children are mentioned several times in the findings section of H.R. 1108, the word “children” appears only four times in the remaining 176 pages of the bill.  Some conservatives may be concerned that this new focus on a more expansive goal of protecting the public health may divert energy away from efforts to combat underage consumption of tobacco products.

Does H.R. 1108 contain a tax increase?

Many conservatives may be concerned that it does.  The bill includes assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.  However, the Congressional Budget Office estimates that tobacco regulation will reduce the number of smokers—thus decreasing the amount of revenue derived to the federal government from tobacco taxes.

While the version of H.R. 1108 reported from full Committee attempted to address this matter by including a finding that the bill’s scope was not intended to intrude upon any authority under the Internal Revenue Code, the House Ways and Means Committee has requested a referral on the grounds that the fee ultimately constitutes a tax.  As Ways and Means Chairman Rangel wrote to Speaker Pelosi on April 3, 2008:

The amount of money raised by the assessment of the user fee is more than the amount of money being made available to the Secretary of Health and Human Services (HHS) for the regulation of tobacco….Since the bill forbids the funds from being spent on anything other than tobacco regulation, [the funds] would in fact revert back to the general fund of the U.S. Treasury.  The Committee on Energy and Commerce would then be financing the costs of government generally, which is clearly the jurisdiction of the Committee on Ways and Means.

Therefore, many conservatives may be concerned that, following Chairman Rangel’s own logic, the “user fee” in H.R. 1108 in fact constitutes a tax increase on tobacco companies.

Under what standard would tobacco be regulated under H.R. 1108?

The bill would re-institute standards first proposed in 1996 to regulate tobacco as a medical device.  However, it remains unclear how these standards can be reconciled with the inherent nature of tobacco products.  For instance, Title I of H.R. 1108 deems a tobacco product as “adulterated” if “it consists in whole or in part of any filthy, putrid, or decomposed substance, or is otherwise contaminated by any added poisonous or added deleterious substance that may render the product injurious to health.”  Based on this description, it is unclear how any tobacco product would fail to qualify as “adulterated,” raising questions as to how the standards can be appropriately applied.

Will H.R. 1108 impede the introduction of reduced-risk tobacco products?

H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Other reduced risk products may be approved for distribution, but will be subjected to further marketing restrictions, post-market surveillance, and potential revocation of the distribution license after a five-year period.  Some conservatives may be concerned that such onerous restrictions on the introduction of new reduced risk tobacco products could have the effect of inhibiting the introduction of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.

How would tobacco advertising be regulated under H.R. 1108?

In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising, while simultaneously eliminating federal pre-emption by allowing states to enact legislation “imposing specific bans or restrictions on the time, place, and manner, but not content, of the advertising or promotion” of tobacco products.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

What implications might consumers draw from FDA’s proposed role in regulating tobacco?

As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

Is FDA competent to regulate tobacco products?

The statements of several Congressional Democrats—who have criticized the agency’s handling of food and drug safety, particularly with regard to imported products—raise questions as to why they would support granting new and broad authority to FDA with regard to tobacco regulation.  For instance, Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.

Weekly Newsletter: April 7, 2008

Democrats Plot Restrictions on Health Savings Accounts

Reports surfaced this week that the Democratic majority may be attempting to enact new restrictions on Health Savings Accounts (HSAs) as part of upcoming health legislation. The proposal being discussed would require that all HSA account holders submit information showing what portion of their HSA expenditures in a given year have been independently verified as constituting qualified medical expenses.

Available data suggest that the percentage of HSA funds being used for non-medical expenses is comparatively low—particularly upon close examination. For instance, purchases in a grocery store may at first blush appear irrelevant to HSA use—but in reality many of these transactions could involve permissible medical items (over-the-counter pharmaceuticals, prescriptions, medical supplies, etc.). And in those instances when individuals do use their HSA funds to make major non-health expenditures, the Internal Revenue Service has audit procedures in place to ensure that account-holders pay income taxes on non-qualified distributions—plus a 10% penalty to discourage such behavior.

When drafting the regulations implementing Health Savings Accounts in 2004, the Treasury Department attempted to create a framework that would ensure that HSA funds would be used for bona fide medical expenses, while avoiding burdensome regulations that would inhibit the growth of this innovative consumer-driven health product. The proposal under discussion places an additional burden on account holders to document their purchases—even the $3 bottle of cough syrup an individual might choose to buy at a grocery store like Safeway rather than at a CVS or other pharmacy—and may have a similarly chilling effect on insurance carriers and banks currently offering account-based products to individuals and employers.

Some conservatives may be concerned that this proposal represents the first of many impending attempts by the Democrat majority to enact burdensome and bureaucratic regulations undermining HSAs, which in a few short years have proven successful at slowing the growth of health costs and insurance premiums for millions of individuals and small businesses. Some conservatives may also be concerned that this particular provision, brought to the attention of the Democratic Ways and Means Committee staff by a former Republican staffer-turned-lobbyist, may constitute a legislative “earmark” drafted specifically to benefit one company (Evolution Benefits) seeking to market its substantiation technology to HSA administrators.

The attached policy brief explains the issue in further detail. The RSC will continue to monitor this or any similar attempts to enact burdensome restrictions on HSAs, and will weigh in to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

House Committee Attempts to Override Medicaid Regulations Restoring Fiscal Integrity…

This past Thursday, the House Energy and Commerce Committee held a Subcommittee hearing on legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. The regulations come as a response to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program, reducing their share of program spending through various mechanisms designed primarily to increase the amount of federal matching funds received. The Energy and Commerce Committee may mark up legislation overriding the regulations as soon as this week.

While several state officials testified about the impact that the proposed regulations would have on their Medicaid programs in the current economic downturn, many conservatives may be concerned about the ways in which various questionable financing schemes—some of which have been used by states for more than a decade—have left Medicaid paying for non-health-related activities, such as trips to grocery stores and bingo games. With the proposed regulations reducing the federal share of Medicaid spending by only 1% over the next five years, some conservatives may have concerns should Congress attempt to override CMS’ modest attempts to restore fiscal integrity to Medicaid. However, some conservatives may embrace the opportunity presented by this discussion to advance concepts for more comprehensive reform of Medicaid program financing, to control health care costs and set clear fiscal priorities for the use of scarce federal dollars.

RSC Policy Briefs on the federal-state Medicaid relationship can be found here and here.

…While Marking Up New Regulations on Tobacco

Thursday’s hearing in the Health Subcommittee followed Wednesday’s full Energy and Commerce Committee markup of legislation (H.R. 1108) that would impose authority on the Food and Drug Administration (FDA) to regulate tobacco. While the bill as modified in Committee altered proposed “user fee” language, some conservatives may remain concerned that the bill would impose additional free speech and marketing restrictions on tobacco companies, and could increase black market activity of tobacco products. Some conservatives may also echo the statements of FDA Commissioner Andrew von Eschenbach, who has stated that tobacco regulation is not in line with FDA’s core mission—and question why Congressional Democrats who have criticized the FDA’s handling of various matters related to food and drug safety now consider the agency competent to regulate tobacco products.

The RSC will be monitoring this legislation as it makes its way to the House floor, and will be weighing in during the process to express conservatives’ concerns.

Interview of Note: “Crisis? What Crisis?”

This past week, Chairman of the House Ways and Means Health Subcommittee Pete Stark (D-CA) appeared on C-SPAN’s Washington Journal to discuss the Medicare trustees’ report released during the congressional recess. When asked about the impact of the trustees’ projection that the Medicare Hospital Insurance Trust Fund would become insolvent in 2019—just over one decade from now—Stark answered: “I don’t think it makes any difference what they say.” This followed on the heels of his statement at Tuesday’s Health Subcommittee hearing that “Medicare is not in crisis.”

Many conservatives may be concerned by Chairman Stark’s insouciance at a time when the federal government faces spiraling costs for Medicaid, Medicare, and Social Security that both the Medicare trustees and most independent observers agree are unsustainable. Many conservatives believe that the time has long since arrived for the federal government to place its own fiscal house in order, because, as countless homeowners have observed in recent months, further delay will do nothing to prevent the problem—and will only make the ultimate solution harder on all parties.