[Analytical Perspectives]
[Ranking Regulatory Investments in Public Health]
[24. Ranking Regulatory Investments in Public Health]
[From the U.S. Government Publishing Office, www.gpo.gov]



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             RANKING REGULATORY INVESTMENTS IN PUBLIC HEALTH

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        24.  RANKING REGULATORY INVESTMENTS IN PUBLIC HEALTH \1\
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  \1\This chapter is prepared pursuant to Section 624 of the Treasury 
and General Government Appropriations Act, 2001, also known as the 
``Regulatory Right to Know Act,'' Public Law 106-554 (Dec. 21, 2000).
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  An essential role of government is to protect citizens from risks to 
human health, safety and the environment. Since the nation does not 
possess enough resources to eliminate all risks, an important 
performance goal for government is to deploy risk-management resources 
in a way that achieves the greatest public health improvement for the 
resources available--that is the most ``cost-effective'' allocation of 
risk-management resources. In this chapter, we demonstrate how cost-
effectiveness ratios can be used to compare the payoffs from different 
regulatory investments in public health. We also discuss the promise and 
limitations of the use of cost-effectiveness analysis to inform 
decisions at regulatory agencies.

       Using Cost-Effectiveness Ratios to Construct League Tables

  A widely used tool for ranking purposes is the ``league table,'' first 
used by the English to rank their soccer teams by point standings and 
later to rank their schools by student achievement scores. More 
recently, league tables have been used to rank programs, technologies, 
regulations and therapies aimed at saving lives and improving public 
health. There is a significant academic literature on the use of league 
tables in public health that began in the 1960s and continues to grow. 
OMB believes that government and the public can benefit from the 
insights generated by league tables.
  The OMB first published a league table with the Budget in 1992. In 
this table, 50 risk-reducing regulations were ranked using cost per life 
saved as the measure of investment performance. The information in that 
table was based on analyses by Federal agencies and others in the 1970s 
and 1980s. The monetary resources required to save one ``statistical'' 
life ranged from several hundred thousand dollars to billions of 
dollars.
  In Table 24-1 below, OMB presents a league table of 10 risk-reducing 
regulations based on information developed by three Federal agencies 
(DOT, OSHA, and EPA) in the 1995 to 2000 period. Our purpose in 
presenting this table is to illustrate how cost-effectiveness analysis 
of public health has changed over the last decade and what technical and 
policy issues are raised by presentation of league tables. \2\
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  \2\ The technical details that support the information presented in 
Table 24-1, including ratios based on a ``lives saved'' metric, can be 
found at www.whitehouse.gov/omb under regulatory policy or upon request.
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                                                               Table 24-1.  COST PER LIFE-YEAR SAVED FOR TEN SELECTED REGULATIONS
 
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                                                                                                                                                                     Cost per life-year saved
                           Regulation                                Health or Safety                Net Costs ($2001)                   Life-years saved                     ($2001)
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Petroleum Refining NESHAP (EPA).................................  Health                  <0                                      <10 per year                    <0
Powered Industrial Truck Operating Training (OSHA)..............  Safety                  <0                                      146 per year                    <0
Head Impact Protection (DOT)....................................  Safety                  $390 to $516 million per year           8,360 to 10,007 per year        $50,00 to $53,000
Reflective Devices for Heavy Trucks (DOT).......................  Safety                  $65 million (PV)                        946 (PV)                        $69,000
Child Restraints (DOT)..........................................  Safety                  $54 to $112 million per year            370 to 515 per year             $105,000 to $331,000
Rail Roadway Workers (DOT) a....................................  Safety                  $227 million (PV)                       434 (PV)                        $523,000
Interim Enhanced Surface Water Treatment (EPA) b................  Health                  <0 to $95 million per year              140 to 640 per year             <0 to $679,000
NOx SIP Call (EPA) c............................................  Health                  $1265 million in 2007                   1590 to 3390 per year           $373,000 to $714,000
Methylene Chloride (OSHA) d.....................................  Health                  $112 million per year                   96 per year                     $1.16 million
Stage I Disinfection By-Products (EPA) e........................  Health                  <0 to $764 million per year             0 to 5130 per year              <0 to infinite
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Note: Net costs were calculated by subtracting from compliance costs an estimate of any non-fatality benefits such as a reduction in injuries or morbidity. PV = Present Value.
 
a The estimate does not include possible increased capacity of rail lines and improved worker morale.
 
b The estimate doe not include reduced risks from the pathogens (in addition to cryptosporidiosis) and avoided costs of averting behavior from a well-publicized outbreak.
 
c The estimate does not include a variety of potential benefit categories including possible reductions in ozone-related mortality, acute and chronic respiratory damage, nitrogen deposition in
  estuarine and coastal waters, damage to ecosystems and vegetation.
 
d The estimate does not include a variety of potential adverse health effects including: cancers resulting from dermal contact, central nervous system effects, and eye, nose, etc. irritation.
 
e The estimate does not include possible reductions in colon and rectal cancer and possible reductions in adverse reproductive and developmental effects.


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  These ten rules, which are a non-random sample of risk-related 
rulemakings, were selected because the regulatory analyses provided 
sufficient information to prepare a cost-effectiveness ratio. Many 
agency rules, even those with a primary purpose of protecting public 
health, do not provide adequate information to construct a cost-
effectiveness ratio. The estimates presented in the table are based on 
data and estimates provided by the agencies. Where the agencies did not 
provide estimates of life-years saved, we calculated life-years using 
standard assumptions about age and life expectancies. Each of the ten 
rules was reviewed by OMB under Executive Order 12866; five address 
health issues and five address safety issues.
  Interestingly, the tendency for safety rules to be more cost-effective 
than health rules (see Table 24-1) is consistent with the insights from 
the early league tables published more than a decade ago. The table also 
illustrates a finding not evident from the earlier league tables. The 
range of cost-effectiveness estimates for specific rules varies 
substantially. For example, the cost per life-year saved for EPA's 
disinfection by-products rule ranges from less than zero to infinite. 
The table suggests that we need to do a better job at both refining 
estimates of the cost-effectiveness of regulatory proposals and setting 
priorities for the use of the nation's limited resources to protect 
citizens from health, safety, and environmental risks.\3\
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  \3\ OMB set forth its program to improve regulatory outcomes in Making 
Sense of Regulation: 2001 Report to Congress on the Costs and Benefits 
of Regulations and Unfunded Mandates on State, Local, and Tribal 
Entities (OMB 2001) available on our website at www.whitehouse.gov/obm/
inforeg/costbenefitreport.pdf or upon request.
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                     Which Rules Should Be Compared?

  In constructing a league table, many issues arise about which rules to 
include. League tables are most useful if based on information about 
potential or proposed rules, since the decision makers can consider 
reallocating resources to those rulemaking opportunities that rank the 
highest in cost-effectiveness. The challenge is ensuring that league 
tables are generated early enough in the decision making process to 
inform regulatory priorities.
  When league tables include only recently adopted (final) rules, the 
utility for policy makers is reduced. Once the agency has adopted a 
rule, it is difficult to reverse course based on a ranking reported in a 
league table. Moreover, it may be infeasible for an agency to adopt 
``more'' of a final rule that ranks highly in a league table. 
Nonetheless, league tables of adopted rules can provide insight into 
their relative payoffs, which can provide a rough perspective to 
evaluate future rules.
  An intra-agency league table compares only those rules within the 
jurisdiction of a particular agency. This type of table is appropriate 
in certain budgetary contexts where only matters in the jurisdiction of 
a specific agency are subject to comparison, ranking, and decision 
making. An inter-agency league table, such as Table 24-1, is more useful 
for synoptic purposes or for decision making by governmental entities 
with inter-agency responsibility (e.g., appropriations committees and 
OMB).

                    Identifying a Performance Measure

  Early league tables in the public health field used the number of 
lives saved (premature deaths averted) as the metric of effectiveness. 
This metric has been criticized on the grounds that lives are never 
really saved, only extended. The expected number of life-years saved was 
developed as an alternative and continues to be used in the academic 
literature. ``Life-years'' gives relatively more credit to rules that 
reduce mortality rates early in the lifespan and less weight to rules 
that reduce mortality rates late in the lifespan. Although it is 
sometimes argued that ``life-years'' discriminates against the elderly, 
there are strong arguments that ``life-years'' is a better measure than 
``lives'' of the effectiveness of regulatory alternatives.

                     Which Costs Should be Counted?

  If one were only concerned about impacts on the Federal budget, then 
the only regulatory costs that would be counted would be those incurred 
(or saved) by a Federal agency. To reflect the full effect of a 
regulation, all costs to society--whether Federal, State, or private 
costs--should be counted when cost-effectiveness ratios are computed. 
This ``societal perspective'' on cost estimation is already embraced in 
OMB guidance and is widely practiced by Federal agencies and academic 
analysts.
  Rulemakings may also yield cost savings (e.g., energy savings 
associated with using new technologies). It is generally accepted that 
the numerator in the cost-effectiveness ratio presented in a league 
table should be based on net costs, defined as the total cost incurred 
in meeting the requirements minus any cost savings. Similarly, the 
denominator of the ratio should reflect net life-years saved if the rule 
has both beneficial and adverse impacts on public health, such as the 
side effects of a vaccine.

  Should Future Costs and Health Effectiveness be Discounted to Their 
                             Present Value?

  Analysts generally agree that future costs and health effects should 
be discounted at the same rate, but there is a range of opinion about 
the appropriate rate of discount (e.g., 3 to 7 percent). If future 
health savings were discounted at a lower rate than future costs, then 
it can be shown that it always makes sense to delay adoption of a cost-
effective rule. We have generally used 7 percent in our calculations, 
but following EPA's practice we have used a 5 percent discount rate in 
calculating life-years for EPA rules.

                      Limitations of League Tables

  Generally, league tables are most helpful for comparing a set of 
government actions with the same primary outcome (e.g., a reduction in 
premature mortality risk or acres of wetlands saved). Where an action 
yields a variety of beneficial outcomes, the comparison be

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comes more problematic because these multiple benefits all need to be 
considered. Where the agency analysis provides a monetary estimate for 
these other benefit categories, we have subtracted the value of these 
benefits from the aggregate cost estimate to yield a net cost estimate. 
In some cases, the resulting net cost estimate for the rule is 
negative--that is, the other (non-mortality) benefits exceed the cost of 
the rule. Where the agency analysis fails to provide estimates for key 
benefit categories, the cost-effectiveness ratio may be overstated 
substantially, and thus, the regulatory action may be a more attractive 
candidate than suggested by the league table. For rules that have 
significant ecological as well as public health benefits, it is not 
clear how to construct a league table. Ecological benefits deserve 
serious consideration, but it is infeasible to express them in the same 
units as public health benefits. Finally, in some cases, the mortality 
reduction benefits may be largely ancillary to the overall effect of the 
rule, and the opportunity for realizing cost-effective improvements in 
risk reduction may be limited because the risk reduction gains are 
relatively small.
  One of the most common ancillary benefits of lifesaving rules is a 
reduction in morbidity--i.e., the number of cases of nonfatal illness or 
injury. To account for such benefits, OMB is considering the use of new 
effectiveness measures that combine information on mortality and 
morbidity. Two such measures are already in widespread use in the 
academic literature. The ``quality-adjusted life-year'' (QALY) measure 
rates each year of life on a 0 to 1.0 scale based on an expert panel or 
patient assessment of the quality of life associated with different 
health states. The QALY measure is widely used in the medical literature 
in both the USA and Europe and has recently been recommended for use by 
an expert panel assembled by the U.S. Department of Health and Human 
Services. A close cousin to the QALY, the disability-adjusted life-year 
(DALY) measure, is widely used in the developing world and has been 
promoted by the World Health Organization and the World Bank. While the 
QALY measure values equally all healthy years of life, the DALY measure 
gives the greatest weight to healthy life-years in the prime of life, 
since these years--whether through work or child rearing--make a major 
contribution to societal production.
  Strictly speaking, ranking regulatory investments based on cost-
effectiveness ratios focuses on economic efficiency. Decision makers may 
desire (or be required) to consider other values as well (e.g., various 
notions of fairness and equity). There is no accepted approach to 
incorporating equity considerations into a league table. However, there 
is broad consensus that a qualitative description of equity and fairness 
concerns should be presented to regulators in a rulemaking process and 
such considerations are clearly authorized for consideration under E.O. 
12866.

    Taking Steps Toward Cost-Effectiveness in the Regulatory Process

  OMB is in the process of taking modest steps toward greater use of 
cost-effectiveness and league tables in decision making. First, OMB has 
issued government-wide guidelines on information quality that will 
promote greater transparency and consistency in agency analyses of 
health and safety risks. The development of league tables as an 
analytical construct depends on achieving a degree of analytical 
consistency across agency evaluation of health and safety risks. Second, 
OMB has committed to update periodically its guidelines for regulatory 
analysis, which are used when OMB reviews agency rulemakings. OMB 
intends to use guideline revision as a vehicle to consider the analytic 
measures of effectiveness and performance used by agencies and the 
informational burdens associated with moving toward greater analytic 
consistency in agency practices. This multi-year process will involve 
analysts from multiple agencies and will include opportunities for 
public comment and peer review.
  While this approach has been more fully developed in the public health 
and medical literature, it can be applied to other types of programs. 
One of the key challenges in extending this analysis into other areas, 
of course, is developing a suitable measure of the effectiveness of 
disparate programs directed toward enhancing other aspects of the 
nation's welfare (e.g., recreational opportunities). OMB encourages 
agencies to develop objective measures of program effectiveness that can 
facilitate cost-effectiveness analysis.