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JiJL-31-1997 11:43 American Medical Association Phcsjciana dedicated to the health of ~1merica ANALYSIS, REPORT, AND RECOMMENDATIONS OF THE AMERICAN MEDICAL ASSOCIATION TASK FORCc ON THE PROPOSED TOBACCO SETfLEMENT AGREEMENT P.14i71 r

JUL-31-1997 11:43 ANALYSIS, REPORT, AND RECOMMENDATIONS OF THE AMERICAN MEDICAL ASSOCIATION TASK FORCE ON THE PROPOSED TOBACCO SETTLEMENT AGREEMENT George W. Anstadt, M.D., Chair • Michael J. Achinger, M.D. Michael W. Bigelow, M.D. David L. Callender, M.D. Ronald M. Davis, M.D. Patrick B. Harr, M.D. Staff: Kirk B. Johnson Thomas Houston, M.D. Michael L. Ile Richard Deem / J. Edward Hill, M.D. David R. Holley, M.D. Ronald H. Levine, M.D. D. Robert McCaffree, M.D. John Slade, M.D. Randolph D. Smoak, M.D. Consultants: SIDLEY & AUSTIN Newton N. Minow Jack R. Bierig Michael W. Davis Thomas W. Merrill Larry J. Nyhan P. 16/71

JUL-31-1997 11:44 P.20i71 (2) The Impact of Limitations on Liability ......................... 38 VIII. Preserving'Ihe Integrity Of The Settlement .......................... 39 (1) Nonsigning Tobacco Manufacturers .......................... 40 (2) Enforcement Of Consent Decrees ........................... 41 (3) Severability ..................................... . ... 42 (4) Global Extension ...................................... 42 IX. Recommendations .......................................... 43 (1) Essential Changes ..................................... 43 (2) Strongly Recommended Changes ............................ 45 (3) Recommended Changes ................................. 46

JUL-31-1997 11:43 TABLE_OF CONTENTS P.18i71 Introduction ................... ............................... I I. FDA Jurisdiction ........................................... 4 (1) (2) (3) Express Conferral of Jurisdiction on FDA ....................... 4 The Scope of FDA Jurisdiction .............................. 5 Limitations on FDA's Jurisdiction ............................ 6 (a) Except as Expressly Stated, FDA's Authority Over Tobacco Products Should Be No Different From Its General Authority Over Drugs and Devices ........................................6 (b) Restrictions on the FDA's Promulgation of "Perfotmance Standards" ............................................. 7 (c) The Definition of "Tobacco Product" .................... 10 II. Advertising and Marketing Restrictions ............................ 10 (1) First Amendment Issues ................................. 11 (2) Tombstone-Only Advertising in All Publications . ................. 12 (3) Advertising Restrictions As A Five Year Trial Period ............... 13 (4) Miscellaneous Clarifications ................................ 14 III. Restrictions on.Youth Access ................................... 14 IV. Economic Incentives -- Smokers ................................. 16 (1) Interpreting the Pass Through ...... . ....................... 18 (2) Tax Deductibility ......................... . . . . ......... 19 . (3) Public Health Benefits of Price Increases ....................... 20 V. Economic Incentives -- Tobacco Companies ......................... 22 (1) Automatic Pass Through and Tax Deductibility of the Surcharge ........ 23 (2) Collective Responsibility for the Surcharge ..................... 24 (3) Use of Profits Rather Than Social Costs ....................... 27 (4) The $2 Billion Annual Cap ............................... 29 (5) Rewards for Companies that Exceed the Targets .................. 30 (6) Future Targets and Targets for Smokeless Tobacco ................ 32. (7), The Role of the FDA .................................... 32 VI. Funding of Public Health Progratas ... ........................... 33 V1I. Civil Liability ............................................ 36 (1) Limitations on Liability .................................. . 36 2072041020 f 1

JUL-31-1997 11:41 • '[he preemptive effect of federal youth access restrictions should be narrowed and clarified so that states and local governments may impose civil sanctions on tobacco retailers beyond the federal mittimum. P.09i71 • The preemptive effect of federal advertising restrictions should be narrowed and clarified so that states and local governments may regulate local advertising and marketing and may impose counter-advertising requirements on tobacco companies. • The restriction on advertising to tombstone-only format should be extended to all publications. • A federalagency (such as HHS) should be given overall responsibility for disbursemetu of the Public Health component of the annual Payments. including oversight of grant recipients and authority to make adjusttnents in allocations in future years. • The provisions regarding nonsigning companies should be modified so as to avoid erecting unnecessary barriers to new entry. • The Look B'ack program should have targets for reduction of underage use of smokeless tobacco identical to the targets for reduction in underage smoking. Throughout its report, the Task Force recommends a number of additional clarifications or f refinements. If the changes that the Task Force has identified or equivalent changes are adopted by the Administration and Congress, the proposed settlement would be an historic event if the life-ordeath struggle to reduce tobacco use to a tninimum. Accordingly, the Board of Trustees of the AMA has conuttirted the resources of the AMA to press for the inclusion of these changes in any legislation adopted by Congress.

JUL-31-1997 11:46 P.27i'71 Tobacco product manufacturers would be subjected to good manufacturing practice standards in a manner similar to the oversight exercised by FDA over other drug and device manufacturers. • FDA would be permitted to adopt "performance standards" that could require the modification of tobacco products to reduce the harm they cause, including (subject to restrictions discussed below) modifications in nicotine content. These additional forms of regulation could be asserted by FDA on its own authority if its jurisdiction to promulgate the 1996 regulations is upheld by the courts. FIowever, the settlement probably accelerates the timing of these additional forms of regulation. • If there were no set:Iement. FDA might wait until all appeals are exhausted before moving to adopt any of the additional regulations contemplated by the settlement. These appeals might not be resolved for several years. FDA might also lack funding to take on some of these additional forms of regulation -- something which the settlement provides. Congress has not been eager to increase substantially the funds available to FDA to regulate tobacco products. (3) LImltations on FDA's Jurisdiction. Ideally, any legislation confirming FDA jurisdiction to regulate tobacco products would permit the agency to adopt any form of regulation consistent with the public interest. Tbis approach may not be possible within the context of a settlement. However, even if it is necessary to recognize some limitations on FDA authority - at least for a period of time - those limitations should not include substantive and procedural barriers that have no plausible public health justification and that are likely to frustrate FDA efforts to reduce the adverse public health effects of tobacco use. Set forth below are several'areas in which the proposed settlement imposes unacceptable limitations on FDA authority or where the language is sufficiently ambiguous to require clarification to assure that unacceptable limitations are not created through interpretation.

JUL-31-1997 11147 P.28i71 (a) Except as Expressly Stated, FDA's Authority Over Tobacco Products Should Be No Different From Its General Authority Over Drugs and Devices. The general approach to FDA authority in the proposed settlement appears to be cue of "enumerated powers." The settlement lists and describes a number of categories of FDA authority over tobacco products, including advertising and marketing, youth access, reduced risk products, perfortnance standards, manufacturing oversight, access to company information, and non-tobacco ingredients. • There is a danger that such an approach will lead to the inference that if a specific power is not granted to FDA, it is by implication denied. • For example, if FDA is not specifically given authority to regulate flavoring ingredients, can FDA regulate flavorings that have strong appeal to youths (such as cherry flavoring in smokeless tobacco) under its authority to regulate non- tobacco ingredients shown to be "harmful"? • Similarly, FDA may want to acquire information about, or require companies to perform safety assessments concerning, ingredients contained in substances derived fronl tobacco, as well as ingredients added to tobacco. It is not clear that the settlement as drafted would permit this (I.F.). A better approach would be to grant FDA full authority over tobacco products as "drugs" and "devices" under the Food, Drug and Cosmetic Act, subject to express exceptions. • The burden should be on the tobacco companies to spell out with specificity the ways in which FDA authority to regulate tobacco products as drugs or devices will be limited. • The burden should not be on government regulators and the public health community to imagine every conceivable issue that might arise in the future, and to devise specific statutory language conferring authority on FDA to tackle the problem. Any legislation implementing the settlement should therefore include a constructional principle stating that, except as otherwise expressly indicated, FDA has all power and authority to regulate all tobacco products as drugs and devices under the Food, Drug and Cosmetics Act.

JUL-31-1997 11:46 There thus remains a possibility that the courts will ultimately decide that FDA lacks any authority, or has only Iimited authority, to regulate tobacco products under current law. P.26i71 The settlement eliminates this legal uncertainty and expressly confers jurisdiction on the FDA to regulate tobacco products and ingredients, tobacco product manufacturing, marketing, and access to tobacco products. • Moreover, the adoption of legislation expressly conferring authority on FDA to regulate tobacco would lend legitimacy to the agency's efforts. 0 With a new legislative mandate, FDA will be more likely to receive support from the general public for its efforts aggressively to regulate tobacco products. Of course, Congress has the power to adopt legislation confuming FDA jurisdiction to regulate tobacco products without the settlement. Realistically, however, the chances of such legislation being adopted are greater if presented as part of a settlement that has the support of the tobacco industry. (2) The Scope of FDA Jurisdiction. In addition to confinning FDA's jurisdiction to regulate the sale and promotion of tobacco products, the settlement expressly directs FDA to regulate in ways that go significantly beyond that contemplated in the FDA's 1996 regulations, "Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco to Protect Children and Adolescettrs. "3 For - examplc: • The FDA would be authorized to promulgate rules governing the testing, reporting, and disclosure of tobacco smoke constituents about which the FDA believes the public should be informed in order to protect public health. Manufacturers would be required to provide FDA with a list of all ingredients, substances, and compounds which are added to their tobacco products and, within five years after enactment of the Act, to conduct safety assessments on such additives. Manufacturers would be required to notify FDA of any technology that they develop or acquire that reduces the risk from tobacco products and, for a reasonable fee, to license this technology to companies that are subject to the same restrictions. Additionally, FDA would have the authority to mandate the introduction of less hazardous tobacco products that are technologically feasible. ' 61 Federal Register 44396 (August 28, 1996). 5

JUL-31-1997 11:44 P.?271 ANALYSIS, REPORT, AND RECOMMENDATIONS OF THE AMERICAN MEDICAL ASSOCIATION TASK FORCE ON THE PROPOSED TOBACCO SETTLEMENT AGREEMENT Introduction The proposed tobacco litigation settlement represents an historic opportunity. Structured properly, the settlement could provide a powerful and effective tool for overcoming the scourge of underage smoking and for achieving substantial and permanent reductions in tobacco use. The settlement would also permit these goals to be pursued immediately, without the uncertainty and delay of further litigation. Yet the proposed settlement is also fraught with peril. It gives the tobacco industry what it most desperately wants: relief from the threat of significant civil liability. It is the threat of such liability, more than anything else, that has brought the industry to the bargaining table. Once that threat is removed, the industry will have little incentive to cooperate further. Thus, it is essential that the settlement produce real, permanent, and major public health benefits. ' The Task Force has undertaken a comprehensive analysis of the proposed settlement. We believe the negotiators have produced a framework that provides a promising ba'sis for delivering on the required public health benefits. On the other hand, a number of critical improvements must be m:.de if the settlement is to produce the desired results. In particular, the Task Force believes that two changes are essential: • The Food and Drug Administration (FDA) must be given express authority to regulate tobacco products in the same manner, using the same procedures, as would generally apply to drugs and devices, with one exception: FDA would be subject to a 12 year moratorium against implementing action that would ban the sale of traditional tobacco products or require the elimination of nicotine from such products. The Look Back surcharge program, designed to provide financial incentives to tobacco companies to achieve stated targets in the reduction of underage smoking, should be given real teeth. As structured in the proposed settlement, this program would be ineffectual. We propose realistic sanctions that assure that the targets for underage smoking reduction set by the negotiators will actually be met. An ideal legislative package for regulating tobacco products would contain all of the provisions set forth in previous AMA policy statements and many of the elements advocated in I :.

JUL-31-1997 11:45 P.25i71 The Board of Trustees of the American Medical Association has endorsed the recommendations of the Task Force. It has committed the resources of the AMA to press for their inclusion in any legislation adopted by Congress. Y. FDA Jurisdiction. The proposed settlement calls for legislation that would expressly confer jurisdiction on FDA to regulate tobacco products. Such legislation would immediately resolve the current legal challeage to FDA's authority, and would place the full weight and authority of Congress and the American people behind FDA regulatory efforts. In these respects, the settlement is clearly desirable. On the other hand, provisions in the proposed settlement that are likely to limit or frustrate the effectiveness of FDA oversight must be minimized. The tobacco industry would, of course, like to secure predictability about the future of FDA regulation of tobacco products. Such predictability, however, should not take the form of ill-advised substantive and procedural hurdles that may unduly burden FDA efforts to protect and enhance the public health. (1) Express Conferral of Jurisdiction on FDA. Although FDA has asserted jurisdiction over tobacco products under current law, its authority to do so is under challenge. • Strong arguments have been advanced in support of FDA jurisdiction under current law. Moreover, recent revelations about the intent of tobacco companies to use tobacco products to affect the structure or function of the human body enhance the force of FDA's conclusion that these products meet the legal definitions of "drug" and "device" under the Food, Drug and Cosmetic Act. • Further, a federal court in North Carolina has sustained FDA's jurisdiction over tobacco products in a thorough opinion.2 • Nevertheless, that ruling is now on appeal. Whether the Court of Appeals - or possibly the Supreme Court -- would ultimately sustain or reject FDA jurisdiction over tobacco products under current law is a difficult question that has divided legal experts. _C2yne Beahm. Inc. v. Kessl ~, 958 F.Supp. 1060 (D. N. Car., April 25, 1997).