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October 18, 2011

Food Labeling; Nutrition Labeling of Standard Menu Items in Restaurants and Similar Retail Food Establishments

Proposed Rule

Score: 28 / 60

RULE SUMMARY

To implement the menu labeling provisions of the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act), the FDA is proposing requirements for providing certain nutrition information for standard menu items in certain chain restaurants and similar retail food establishments. The Affordable Care Act, in part, amended the Federal Food, Drug, and Cosmetic Act (FD&C Act), among other things, to require restaurants and similar retail food establishments that are part of a chain with 20 or more locations doing business under the same name and offering for sale substantially the same menu items to provide calorie and other nutrition information for standard menu items, including food on display and self-service food.

MONETIZED COSTS & BENEFITS (AS REPORTED BY AGENCY)

Dollar Year	2009
Time Horizon (Years)	10
Discount Rates	3%	7%
Expected Costs (Annualized)	$33.4-$120.5 million	$34.9-$130.1 million
Expected Benefits (Annualized)
Expected Costs (Total)
Expected Benefits (Total)
Net Benefits (Annualized)
Net Benefits (Total)

METHODOLOGY

There are twelve criteria within our evaluation within three broad categories: Openness, Analysis and Use. For each criterion, the evaluators assign a score ranging from 0 (no useful content) to 5 (comprehensive analysis with potential best practices). Thus, each analysis has the opportunity to earn between 0 and 60 points.

Criterion	Score
Openness
1. How easily were the RIA , the proposed rule, and any supplementary materials found online? The agency's website and regulation.gov both contain direct links to the proposed rule and the RIA, both of which can be found through a keyword search of the regulation's title.	5/5
2. How verifiable are the data used in the analysis? RIA displays few summary tables and raw data is rarely shown or displayed. General data sources are mostly listed but not clearly sourced for specific use.	3/5
3. How verifiable are the models and assumptions used in the analysis? Fairly clear, but despite FDA's acknowledgement of little available evidence on how the proposed rule might affect consumption choices, there is little discussion of how assumptions or alternatives were chosen.	2/5
4. Was the analysis comprehensible to an informed layperson? Analysis could be easily followed by an interested layperson with few abbreviations and little jargon. Much of the analysis was clear.	4/5
Analysis
5. How well does the analysis identify the desired outcomes and demonstrate that the regulation will achieve them?	3/5
Does the analysis clearly identify ultimate outcomes that affect citizens’ quality of life? Primary risk factors for overweight and obesity are overconsumption of calories and physical inactivity. Excess body weight has many health, social, psychological, and economic consequences for affected individuals. FDA uses Quality Adjusted Life Years (QALYs) to measure loss of well-being individual suffers due to obesity. But FDA notes estimates used for annual lost QALYs of all obese adults are not estimates of benefits of the proposed requirements. Such estimates (and not examined in RIA) would include lower medical costs and higher productivity brought on by lower obesity prevalence and of co-morbidities.	4/5
Does the analysis identify how these outcomes are to be measured? Instead of estimating the reductions in obesity or medical costs and the increase in QALYs, FDA conducted a breakeven analysis that determined what proportion of the U.S. obese adult population would need to attain a "minimal response" (100-calorie per week reduction per individual) from the proposed rule in order to yield a positive net benefit. FDA estimates that at least 0.06 percent of the adult obese population would need to reach at least this benchmark in order for the rule to break even on the primary mean annualized cost.	3/5
Does the analysis provide a coherent and testable theory showing how the regulation will produce the desired outcomes? Theory is that providing calorie and other nutrition information in restaurants and similar retail food establishments would assist consumers in making healthier dietary choices. It is believed proposed rule will help consumers limit excess calorie intake and understand how the foods purchased at these establishments fit within their daily caloric and other nutritional needs.	4/5
Does the analysis present credible empirical support for the theory? FDA is unaware of any comprehensive data allowing accurate predictions of the effect of the proposed requirements on consumer choice and establishment menus. The primary empirical evidence given by FDA is that restaurant food and restaurant-type food form a significant and increasing part of U.S. diets. These foods are often relatively high in calories, fat and portion size, and lower in fiber and other essential nutrients. The proportion of total food expenditure spent on food offered for sale by such establishments increased from 34% during the 1970s up to approximately 50% through 2009. So empirical support is that proposed regulation will direct consumers to healthier food choices in an industry that has been providing more of their food choices.	2/5
Does the analysis adequately assess uncertainty about the outcomes? FDA notes that any reduction in calorie intake from proposed rule may be at least partially offset by increases in calorie intake during other meals or snacks as has been demonstrated in the contexts of menu labeling and other attempts to modify food choices. FDA admits there is available evidence of substitution of one calorie source for another in the context of menu labeling. This casts some degree of uncertainty on the hypothesized benefits of the proposed rule. To partially compensate, FDA constructs a "plausible" individual effect of a 100-calorie per week reduction for individuals that is used to estimate a breakeven point that would meet a minimal response yielding a positive net benefit.	1/5
6. How well does the analysis identify and demonstrate the existence of a market failure or other systemic problem the regulation is supposed to solve?	2/5
Does the analysis identify a market failure or other systemic problem? FDA acknowledges the market for restaurant-type foods is highly competitive and this fact might suggest many consumers would be willing to pay for and discriminate based on availability of nutrition information and thus the industry would provide it. Indeed, they discuss evidence that many retail food establishments do provide nutrition information through brochures and/or the Internet. However, mandating disclosure requirements is believed to be justified due to an absence of sufficient nutritional information produced by an inadequate incentive for restaurants to produce it on their own. Primary blame for the ensuing market failure is placed on consumer demand because of systematic biases in how consumers weigh current or immediate benefits (from eating more, or higher calorie, foods) against future or long-term costs (higher probability of obesity and its co-morbidities). These biases are argued to work against an efficient provision of nutrition information for food. However, FDA ignores that failure of some individuals to process information rationally is not synomous with market failure.	3/5
Does the analysis outline a coherent and testable theory that explains why the problem (associated with the outcome above) is systemic rather than anecdotal? FDA cites studies suggesting that one problem arises because food decisions are made so often, and the marginal effect of any one meal on future obesity is small, and so cumulative costs of a large number of relevant decisions may be neglected. Studies suggest some consumers will not demand calorie information, because the issue of calories often lacks salience, or relevance, at the time of purchase and consumption, even though they may experience future regret. FDA also argues establishments have costs of providing nutrition information, including opportunity costs of limited time and space, and that providing calorie information may exert unintended effects on profits. Thus costs and the uncertain reception of displayed calorie information lead most establishments to not display this information. Surprisingly, FDA does not distinguish between the obese and non-obese in their discussion nor do they delve deeper into why some establishments apparently volunteer more nutrition information than others and whether it is likely that the market will provide more such information in the future on its own.	2/5
Does the analysis present credible empirical support for the theory? FDA hypothesizes that providing more nutrition information will likely promote more informed choice and also likely raise consumer awareness regarding the number of calories in foods thus raising awareness of potential future costs of additional calorie consumption. But FDA acknowledges that it is unaware of any comprehensive data allowing accurate predictions of the effect of the proposed requirements on consumer choice and establishment menus. This acknowledgement suggests weak empirical support.	1/5
Does the analysis adequately assess uncertainty about the existence or size of the problem? FDA does not present much evidence supporting the hypothesis that consumers suffer from time-preference bias or that proposed rule will reduce caloric intake. FDA ignores whether proposed rules will differentially affect behavior of obese and non-obese customers. Moreover, the proposed rule applies to chain retail food establishments (defined as those part of chain with 20 or more locations doing business under the same name and offering for sale substantially the same menu items) but does not discuss whether consumers at these establishments are subject to different (in nature or extent) market failures than those the rule does not regulate.	1/5
7. How well does the analysis assess the effectiveness of alternative approaches?	2/5
Does the analysis enumerate other alternatives to address the problem? Four options: (1) covers all establishments in proposed rule with the exception that grocery and convenience stores would not be subject to the proposed requirements; (2) scope of proposed rule broadened to include a wide variety of establishments that serve restaurant or restaurant-type food; (3) effective date starting three months after publication of the final rule instead of six months; and (4) effective date starting 12 months after publication of the final rule instead of six months.	4/5
Is the range of alternatives considered narrow (e.g., some exemptions to a regulation) or broad (e.g., performance-based regulation vs. command and control, market mechanisms, nonbinding guidance, information disclosure, addressing any government failures that caused the original problem)? Narrow range of alternative options and all based on government regulation. No mention of taxing high calorie food, bans, subsidies, information campaigns, or other commonly considered government interventions.	2/5
Does the analysis evaluate how alternative approaches would affect the amount of the outcome achieved? Only estimated annualized compliance costs for each option are presented. Compliance is assumed to be perfect.	1/5
Does the analysis adequately address the baseline? That is, what the state of the world is likely to be in the absence of federal intervention not just now but in the future? Baseline is no new regulation and does not address what the state of the world would likely be in the absence of this regulation. There is little discussion of how consumers and sellers would behave in the future and in the absence of the proposed regulation, despite FDA acknowledging that firms appear to be increasingly providing nutritional information.	1/5
8. How well does the analysis assess costs and benefits?	2/5
Does the analysis identify and quantify incremental costs of all alternatives considered? High, low, and median estimates (with 3% and 7% discount rates) of costs are provided for alternatives.	4/5
Does the analysis identify all expenditures likely to arise as a result of the regulation? Three costs are identified (1) collecting and managing records of nutritional analysis for each standard menu item; (2) revising or replacing existing menus, menu boards, and other affected displays; and (3) training employees to understand nutrition information to help ensure compliance with the proposed requirements. FDA states that, although it is likely the proposed rule will cause firms to reformulate food and menu items, these costs are not estimated. However, FDA does include costs associated with analyzing nutritional content of new or reformulated items.	3/5
Does the analysis identify how the regulation would likely affect the prices of goods and services? FDA acknowledges costs of proposed rule are borne by both consumers and firms: prices rise to reflect new costs, but generally not by enough to completely offset them. FDA does not estimate or explore likely price hikes, or whether some foods (and thus consumers) might rise (or fall) more than others.	1/5
Does the analysis examine costs that stem from changes in human behavior as consumers and producers respond to the regulation? FDA hypothesizes price increases are likely to cause consumption of affected foods to fall, further reducing profits for some, or all, of these establishments. Consumers would need to pay more for this food, requiring some reduction in valued consumption. These effects are not estimated or explored.	1/5
If costs are uncertain, does the analysis present a range of estimates and/or perform a sensitivity analysis? High, mean, and low estimates of costs of proposed rule are provided using 3% or 7% discount rates. Little discussion of the uncertainty surrounding theory or previous empirical analysis finds its way to analysis of the rule. FDA acknowledges some establishments may respond to increased consumer interest on caloric content by reformulating existing menu items or by introducing new, lower calorie items. Such costs are not included by FDA, but they request comment and data on whether the proposed requirements will accelerate the rate of new item introduction and how the cost of these items may be affected by the proposed requirements.	2/5
Does the analysis identify the alternative that maximizes net benefits? FDA conducted a breakeven analysis to determine proportion of obese adult population needed to attain minimal response in order for proposed rule to yield a positive net benefit. However, FDA admits it does not directly estimate benefits and thus does not clearly measure net benefits, nor does it present analysis of net benefits for the four options.	3/5
Does the analysis identify the cost-effectiveness of each alternative considered? FDA presents a breakeven analysis that is suggestive of cost-effectiveness analysis. Perfect compliance is implicitly assumed. Costs are estimated for alternatives, but costs are very insensitive to different alternatives (and minor in comparison to costs of obesity) and so breakevens are essentially the same.	3/5
Does the analysis identify all parties who would bear costs and assess the incidence of costs? Various costs are estimated but there is little discussion of who bears burdens, whether these burdens are higher on different parties (obese vs. non-obese, large vs. small establishments, children vs. adults, by location, by type of food served, etc.) Enforcement costs by government are not discussed.	1/5
Does the analysis identify all parties who would receive benefits and assess the incidence of benefits? Benefits are assessed for the adult obese population, but not for obese children even though FDA states that about 31% of those aged 2-19 are overweight or obese. No benefits are assessed for the overweight, but not obese adult population with BMI of 25-29.9.	1/5
Use
9. Does the proposed rule or the RIA present evidence that the agency used the analysis? FDA provides a breakeven cost point, but options are highly correlated to the rule FDA proposes. RIA does not attempt to tailor rule to information provided or developed. FDA asks for comments about the data and the methods used for estimating the regulatory impact of the proposed rule.	1/5
10. Did the agency maximize net benefits or explain why it chose another alternative? FDA does not directly assess benefits. FDA estimates the percent of the adult obese population that would need to reduce caloric intake by at least 100-calories per week for a breakeven point on annualized costs.	2/5
11. Does the proposed rule establish measures and goals that can be used to track the regulation's results in the future? FDA does not directly assess benefits of its proposed rule due to many acknowledged complications. Estimates the percent (0.06%) of the adult obese population that would need to reduce caloric intake by at least 100-calories per week for a breakeven point on annualized costs. However, obesity is also caused by factors that lie outside the domain of this proposed regulation and, therefore, it is not clear how the independent impact of this regulation on obesity can be clearly estimated in the future.	1/5
12. Did the agency indicate what data it will use to assess the regulation's performance in the future and establish provisions for doing so? FDA made no commitment to goals or measures. FDA does not directly assess this issue, though RIA indicates access to relevant data that could be used to assess regulation's future performance.	1/5

Total	28 / 60

Additional details

Agency: Department of Health and Human Services
Regulatory Identification Number: 0910–AG57
Agency Name: Department of Health and Human Services
Rule Publication Date: 04/06/2011
Comment Closing Date: 06/06/2011
Dollar Year: 2009
Time Horizon (Years): 10