[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
TREATMENTS FOR AN AILING ECONOMY:
PROTECTING HEALTHCARE COVERAGE AND INVESTING IN BIOMEDICAL RESEARCH
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
NOVEMBER 13, 2008
__________
Serial No. 110-153
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
JOHN D. DINGELL, Michigan, JOE BARTON, Texas
Chairman Ranking Member
HENRY A. WAXMAN, California RALPH M. HALL, Texas
EDWARD J. MARKEY, Massachusetts FRED UPTON, Michigan
RICK BOUCHER, Virginia CLIFF STEARNS, Florida
EDOLPHUS TOWNS, New York NATHAN DEAL, Georgia
FRANK PALLONE, Jr., New Jersey ED WHITFIELD, Kentucky
BART GORDON, Tennessee BARBARA CUBIN, Wyoming
BOBBY L. RUSH, Illinois JOHN SHIMKUS, Illinois
ANNA G. ESHOO, California HEATHER WILSON, New Mexico
BART STUPAK, Michigan JOHN SHADEGG, Arizona
ELIOT L. ENGEL, New York CHARLES W. ``CHIP'' PICKERING,
GENE GREEN, Texas Mississippi
DIANA DeGETTE, Colorado VITO FOSSELLA, New York
Vice Chairman ROY BLUNT, Missouri
LOIS CAPPS, California STEVE BUYER, Indiana
MIKE DOYLE, Pennsylvania GEORGE RADANOVICH, California
JANE HARMAN, California JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine MARY BONO MACK, California
JAN SCHAKOWSKY, Illinois GREG WALDEN, Oregon
HILDA L. SOLIS, California LEE TERRY, Nebraska
CHARLES A. GONZALEZ, Texas MIKE FERGUSON, New Jersey
JAY INSLEE, Washington MIKE ROGERS, Michigan
TAMMY BALDWIN, Wisconsin SUE WILKINS MYRICK, North Carolina
MIKE ROSS, Arkansas JOHN SULLIVAN, Oklahoma
DARLENE HOOLEY, Oregon TIM MURPHY, Pennsylvania
ANTHONY D. WEINER, New York MICHAEL C. BURGESS, Texas
JIM MATHESON, Utah MARSHA BLACKBURN, Tennessee
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
DORIS O. MATSUI, California
_________________________________________________________________
Professional Staff
Dennis B. Fitzgibbons, Chief of
Staff
Gregg A. Rothschild, Chief Counsel
Sharon E. Davis, Chief Clerk
David Cavicke, Minority Staff
Director
(ii)
Subcommittee on Health
FRANK PALLONE, Jr., New Jersey, Chairman
HENRY A. WAXMAN, California NATHAN DEAL, Georgia,
EDOLPHUS TOWNS, New York Ranking Member
BART GORDON, Tennessee RALPH M. HALL, Texas
ANNA G. ESHOO, California BARBARA CUBIN, Wyoming
GENE GREEN, Texas HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado JOHN B. SHADEGG, Arizona
LOIS CAPPS, California STEVE BUYER, Indiana
Vice Chair JOSEPH R. PITTS, Pennsylvania
TOM ALLEN, Maine MIKE FERGUSON, New Jersey
TAMMY BALDWIN, Wisconsin MIKE ROGERS, Michigan
ELIOT L. ENGEL, New York SUE WILKINS MYRICK, North Carolina
JAN SCHAKOWSKY, Illinois JOHN SULLIVAN, Oklahoma
HILDA L. SOLIS, California TIM MURPHY, Pennsylvania
MIKE ROSS, Arkansas MICHAEL C. BURGESS, Texas
DARLENE HOOLEY, Oregon MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York JOE BARTON, Texas (ex officio)
JIM MATHESON, Utah
JOHN D. DINGELL, Michigan (ex
officio)
C O N T E N T S
----------
Page
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 1
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 3
Hon. Gene Green, a Representative in Congress from the State of
Texas, opening statement....................................... 5
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 6
Hon. John D. Dingell, a Representative in Congress from the State
of Texas, prepared statement................................... 120
Hon. Edolphus Towns, a Representative in Congress from the State
of New York, prepared statement................................ 136
Witnesses
Janet Napolitano, Governor, State of Arizona..................... 8
Prepared statement........................................... 10
Gene Sperling, Senior Fellow, Center for American Progress Action
Fund........................................................... 17
Prepared statement........................................... 20
Craig Zolotorow, Medicaid beneficiary............................ 32
Prepared statement........................................... 33
Raymond E. Pinard, President and Chief Executive Officer,
48HourPrint.com................................................ 34
Prepared statement........................................... 37
Raynard S. Kington, M.D., Ph.D., Acting Director, National
Institutes of Health........................................... 75
Prepared statement........................................... 78
Ronald F. Pollack, Executive Director, Families USA.............. 82
Prepared statement........................................... 84
Rachel King, Chief Executive Officer, GlycoMimetics, Inc......... 91
Prepared statement........................................... 93
Joachim Kohn, Ph.D., Director, New Jersey Center for Biomaterials
and Professor, Rutgers, The State University of New Jersey..... 103
Prepared statement........................................... 105
Submitted Material
Statement of the American Hospital Association................... 122
Letters of October 27, 2008, from the National Governors
Association to Members of Congress............................. 126
``Why Government Spending does not Stimulate Economic Growth,''
article published by The Heritage Foundation, dated November
12, 2008....................................................... 129
Statement of David A. Paterson, Governor of the State of New
York, before the House Committee on Ways and Means, October 29,
2008........................................................... 139
``Brooklyn Lab is Part of City's Goal to be a Biotech Center,''
New York Times, November 11, 2008.............................. 146
Letter of October 30, 2008, from more than 230 patient groups,
scientific and medical societies, research institutions, and
industry organizations, to Nancy Pelosi........................ 150
Statement of the California Healthcare Institute................. 157
.................................................................
TREATMENTS FOR AN AILING ECONOMY: PROTECTING HEALTHCARE COVERAGE AND
INVESTING IN BIOMEDICAL RESEARCH
----------
THURSDAY, NOVEMBER 13, 2008
House of Representatives,
Subcommittee on Health,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
room 2123 of the Rayburn House Office Building, Hon. Frank
Pallone, Jr. (chairman) presiding.
Members present: Representatives Pallone, Towns, Green,
Burgess, and Blackburn.
Staff present: Bridgett Taylor, Purvee Kempf, Jessica
McNiece, Bobby Clark, Andrew Shin, Brin Frazier, Lauren
Bloomberg, Hasan Sarsour, Ryan Long, Aarti Shah, Brandon Clark,
and Chad Grant.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. The meeting of the subcommittee is called to
order.
Today we are having a hearing on ``Treatments for an Ailing
Economy: Protecting Healthcare Coverage and Investing in
Biomedical Research.'' I thank you all for being here today and
I will recognize myself initially for an opening statement.
Medicaid, as you know, provides 59 million Americans with
access to medical care and specialized support and services. It
protects our most vulnerable populations, the poor, disabled
and elderly. It also accounts for nearly half of all nursing
home care. The NIH is America's leading medical research agency
and the foremost biomedical research institute in the world. It
is through the work of NIH that we are living longer and
healthier lives and may some day soon find cures for the
epidemics of our time like cancer and diabetes, and it will be
through the NIH that we are protected from those that wish us
harm through bioterrorism.
No doubt the effects of the current economic crisis are on
the forefront of everyone's mind. Americans are facing
uncertain times and wondering how they are going to pay for
basic necessities like food, fuel and healthcare. Others are
just hoping to hold on until they are lucky enough to find a
job, and as this crisis hits both Wall Street and Main Street,
Washington must act because the situation in the States, as I
know we are going to hear from Governor Napolitano, is
certainly dire. Due to shrinking State revenues, States may cut
coverage and restrict new enrollment, which means millions of
Americans may lose access to the healthcare coverage they
desperately need and those who have lost their jobs will lose
healthcare coverage also. Right now more than 10 million people
are actively seeking work but are unable to find it. The
unemployment rate is 6.5 percent, which is the highest level
since 1994. In each month this year our economy has shed more
jobs than it has created. To date, 1.2 million jobs have been
lost.
A study conducted by the Kaiser Family Foundation found
that increasing the national unemployment rate by one
percentage point increases Medicaid and SCHIP enrollment by 1
million people. Such a change would increase state spending by
approximately $1.4 billion at a time when States are already
struggling to balance their budgets, and to make matters worse,
the State Medicaid programs, they not only impact Medicaid-
eligible individuals with the cuts but they also adversely
affect the healthcare job market. Medicaid cuts translate into
healthcare job losses. Therefore, such cuts only contribute to
the State's unemployment rate and can exacerbate a worsening
fiscal crisis.
Now, earlier this year I introduced a bill with my
colleagues, Chairman Dingell, Mr. King and Mr. Reynolds, to
temporarily increase each State's Federal Medical Assistance
Percentage, what we call FMAP, during this economic downturn,
to ensure that States can continue to provide critical services
instead of cutting them. A similar provision was included in
the recovery package that the House passed in September and I
hope that this FMAP increase will be included in any economic
recovery package that is crafted during a possible lame-duck
session which, as you know, is likely to occur next week.
As we explore the possibility of another economic recovery
package, we should also discuss providing additional assistance
to States in creating jobs by investing in biomedical
innovation and research. While there is no question regarding
the importance of the research NIH conducts to improve our
health, it also provides real direct economic benefits at the
local level including increased employment, growth
opportunities for universities, medical centers, local
companies and additional economic stimulus for the community.
In 2007, NIH grants and contracts created and supported
more than 350,000 jobs that generated wages in excess of $18
billion in the 50 States, and these are good paying jobs. The
average wage was $52,000 a year. According to Families USA, if
the amount NIH awards to the States were to increase by 6.6
percent, the national economic benefit would add up to $3.1
billion worth of new business activity, 9,185 additional jobs
and $1.1 billion in new wages. We have a proud tradition in
this country of persevering through tough times by investing in
American innovation and ingenuity. What better way is there to
tap into that great American spirit and industry than by
investing in research to combat disease and lead the world in
that noble endeavor.
At a time of great economic uncertainty, Washington, in my
opinion, must act. Last month Federal Reserve Chairman Ben
Bernanke voiced his support for an economic recovery package
during testimony here on Capitol Hill. Some economists are
saying that we need to pass a more robust package. I was
reading Mr. Sperling's testimony and I think he talked figures
of $300, $400 billion. Each day we hear about more job losses
and troubling economic trends. I would hope these headlines
would serve as a wakeup call to the White House. House
Democrats are prepared to work with President Bush and the
Senate to pass another economic recovery package, probably last
week, if the President finally recognizes the need for such
action.
I would like to thank each of our witnesses for being here
today. I especially would like to welcome Arizona Governor
Janet Napolitano. I told her before that I have a lot of
relatives. I don't know, it seems like people from New Jersey
when they retire often go to Arizona, so I have been out there
a lot to see my mother-in-law and my brother-in-law. Thanks for
being here today. It is also nice to see Gene Sperling, who has
been to many of our message meetings over the last year to talk
about where we are going on various economic issues, but I look
forward to hearing all the testimony from all of our panelists
today.
Mr. Pallone. I now recognize Mr. Burgess, who is our
ranking member for the day. Welcome.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. Thank you, Mr. Chairman, and I will be brief
because we do have a lot of witnesses to go through today and I
have an opening statement that is prepared and I will submit it
for the record. But I am grateful that we have such a varied
panel of witnesses here in front of us today. I think it always
speaks well for this committee that we do have such varied
witnesses come and speak to us. I am a little concerned. I am
grateful to be able to meet the acting head of the National
Institutes of Health, but other than that individual, we have
no practicing physician. Even with that individual we have no
practicing physician in front of us, and I think it would be
good to hear from a member of the provider community as we
tackle these tough issues because they are obviously impacted
by any increase in funding or any growth of the State Medicaid
programs. It is all going to affect our physical communities
across the country in ways that most of us frankly do not
understand or do not care to understand. We heard from a
pediatrician from Alabama last year who got my attention
because she went into practice the same year that I did, 1981,
so now after nearly 30 years of medical school, residency and
practice, she had a practice that was 70 percent Medicaid and
was borrowing from her retirement fund to keep her office open
because as we all know, Medicaid pays about 30 to 40 percent of
the cost of delivering the care, and I will tell you from my
past as a practicing physician that if you are losing a little
bit of money on each patient, it becomes very, very difficult
to make it up in volume. One of the great concerns we had
during the SCHIP expansion arguments last year was the fact
that moving children off of private insurance onto SCHIP was
subsequently going to have a very deleterious effect on the
practicing pediatrician.
We heard testimony in this committee earlier in the fall
from Mr. Jim Frogue from the Center for Health Transformation
who asked if we were going to give more money into the system,
which maybe we needed to do, but we shouldn't give more money
without asking for increased transparency and accountability.
Now, we always at this committee are quick to harshly judge the
physician community for being slow adopters on electronic
medical records but I recall back in 1996 being required to
purchase all kinds of computer equipment because electronic
claim submission was now going to be required. In fact, that is
what led to the HIPAA regulations that we now live with every
day but at the same time there is no mechanism across the
States for a hospital to identify who is responsible for
covering for a patient. As a consequence, we end up with a
situation where a Medicare patient may also be eligible to be
covered by their private insurance but no one knows because
that information is not readily available, and as a
consequence, the Medicaid system itself unfairly has to pay for
that which rightly should be paid by a private insurance
company and the hospital and physician are reimbursed again at
that 30 percent of the cost of delivering care that Medicaid
provides.
And then the other issue that we are not addressing today
and that really just cries out for us to address is the issue
of the lack of efficiency and the presence of fraud within the
system. The GAO has uncovered this. A New York Times article,
albeit this is several months old, from July of 2008, quoting
here, ``New York's Medicaid program, once a beacon of the great
society, has become so huge, so complex, so lightly policed
that it is easily exploited.'' This is the New York Times.
Again quoting, ``Though the program is a vital resource for 4.2
million people who rely on it for their healthcare, a yearlong
investigation by the Times found that the program has been
misspending billions of dollars annually because of fraud,
waste and profiteering. A computer analysis of several million
records obtained under the Freedom of Information Act revealed
numerous indications of fraud and abuse and the State had never
investigated.'' Now, they go on to say later in the article New
York's Medicaid program is by far the most expensive and the
most generous in the Nation. It spends nearly twice the
national average, roughly $10,600, and that is more than any
other State on each of its 4.2 million recipients, one of every
five New Yorkers, and that was from 2005. I suspect that number
would be a little higher today. The Kaiser Family Foundation
last fall said that the average employer-sponsored insurance is
$8,800. We could buy everyone a gold-plated insurance policy in
New York on the Medicaid program for what we are spending today
and at the very least our providers would be reimbursed more
fairly and perhaps we would have less providers leaving the
system.
I am grateful that we have some representatives from the
private sector here today. I am especially interested in
hearing the comments that I read in the testimony about
association health plans. Certainly we have multi-state
corporations that are allowed to sell insurance across State
lines but we don't give the same break to the little guy, and I
frankly do not understand that. In the NFL, for example, if a
player is traded from Washington to Dallas, 2 months ago I
would have said it was an upgrade, but nevertheless, if a
player is traded from Washington to Dallas, their insurance
goes with them. If a fan follows his favorite player from
Washington to Dallas, he has got to start all over again, and
that is a fundamental unfairness of our insurance system and
really it is the obligation of this Congress or the next
Congress to correct that.
Thank you, Mr. Chairman. I will yield back.
Mr. Pallone. Thank you. I like the football analogies.
I next recognize for an opening statement the gentleman
from Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman, and I appreciate the
football analogy also, but since I am from Houston, I wouldn't
want anybody to be traded to Dallas but I will be glad to talk
about the transferability of State-regulated insurance but I
know Governor Napolitano, having served 20 years in the State
legislature in Texas, and dealing with State health insurance,
I am not so sure folks living in Arizona would be best served
by our State agency regulating the policies that are sold in
Arizona. With that, I will get into my remarks.
Mr. Chairman, I thank you for holding the hearing today. As
we know, the current economic state in this country is taking
its toll nationally and at the state level. Many individuals
are losing their jobs and the rate of unemployment is rising as
is the number of uninsured in our company adding to the 46
million uninsured we already have in the United States.
Unfortunately, when individuals lose their job, they often
cannot afford medical care and often forego it. This leads to
these individuals showing up in emergency rooms when their
problems are much worse and more costly to treat and placing a
larger burden on the system because they are uninsured. During
the last economic downturn in 2003, President Bush provided a
2.5 percent increase in the States' Federal Medical Assistance
Percentage to help assist them in the rising number of
individuals needing Medicaid coverage. In turn, the States
agreed not to reduce their current standards for Medicaid
eligibility. In order to avoid State deficits, many States will
reduce their standards for Medicaid eligibility which will
actually increase the number of uninsured. An increase in the
FMAP funding would avert this potential problem and allow
States to continue to provide Medicaid coverage to its
uninsured population. I have supported providing the increase
in FMAP in the past. In fact, Chairman Pallone introduced H.R.
5268, which would have increased FMAP by 2.95 percent, and I
supported that bill.
I also supported increased NIH funding. The NIH is the
world's leading biomedical research institute. It is one of the
great success stories of the Federal Government. Our investment
in lifesaving research has lead to advances that have
profoundly improved the length and quality of life of millions
of Americans. Information gained from NIH research is
revolutionizing the practice of medicine and future directions
of scientific inquiry. Without a doubt, the work performed at
the NIH is invaluable. The groundbreaking research supported by
NIH has provided a lifeline of hope to countless Americans
whether it be diabetes, cancer, HIV/AIDS and many other
illnesses.
Unfortunately, for the fifth consecutive year, NIH has
received flat funding. The NIH employs thousands of researchers
and generates wages in excess of $18 billion in 50 States. The
economic benefit of funding the NIH is something that could
help both the States and our medical research. While funding
the NIH and increasing FMAP are not the answer to our financial
situation, they are healthcare-related funding that can provide
relief to the States. It is my hope that if Congress moves an
economic stimulus next week, that it includes both FMAP
increase and additional NIH funding.
Again, Mr. Chairman, I thank you for calling this very
timely hearing if we have a lame-duck session next week. Thank
you.
Mr. Pallone. Thank you.
Next for an opening statement, are we going to get the
Nashville music analogies?
OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE
Ms. Blackburn. Well, I could sit here and give you lots of
wonderful Nashville music analogies. The CMAs were last night,
the Country Music Awards, and if you missed the show, you
missed a tremendous show, and Kid Rock came out wearing a
Titans jersey, which I thought was terrific. He had a great
presentation, and I will say to my colleague from the Houston
area, sorry you lost your Oilers, but your Tennessee Titans are
now just having the greatest year that they have had. And to
the guys from Dallas, all the Texans are coming back to
Tennessee. It wouldn't have been a Texas without us so
everything----
Mr. Green. Will the gentlelady yield?
Ms. Blackburn. I will yield.
Mr. Pallone. I started this. It is my fault.
Ms. Blackburn. With great sympathy I will yield.
Mr. Green. Well, being a country western fan, I am glad
George Strait, a good Texan, is still at the top and king of
the CMAs but I also know I gave away all my Oiler paraphernalia
to a predecessor from Nashville and said okay, we ended up
keeping the owner and you got the team. It was supposed to be
reserved. You all were supposed to get the owner and we kept
the team but----
Ms. Blackburn. Reclaiming my time.
Mr. Green [continuing]. Congratulations on the Titans
success but the Texans are rebuilding every year.
Ms. Blackburn. Your Oiler paraphernalia could probably be
sold on eBay and you could reap a tidy sum, and George Strait
is the king of country right now but the goodness in his career
has happened out of that wonderful Nashville creative
community. So we welcome all Texans to Tennessee and we welcome
all of our guests here today coming in. We thank you for taking
time to come before us and to work with us on this issue.
We are all concerned about healthcare and the economy and
the interface of the two and preserving that access to
healthcare, and Mr. Chairman, as we are talking about spending
more money, I find it very interesting that over the past year
the Administration and the Democrat-led Congress has chosen to
spend about $1 trillion bailing out financial institutions and
then after having waived the PAYGO rules, the Democrat-led
Congress spent $283 billion in new spending and we know that
has not been the cure for the economy.
As we look at healthcare and the relationship between what
is one-seventh of our Nation's economy and the economic
structure that we have, the chairman spoke very appropriately
about the spirit of industry, the American spirit of industry
that exists in this country, and our focus should be on what we
do to energize that spirit of industry because we are the most
creative people on the planet. We seek ways to solve problems
that are laid in front of us and we are very good at it, and
what the decisions that we make should be here to energize and
create the right growth environment for small businesses, for
science and medical research firms, to solve some of the
problems that we have, for technology firms to solve some of
the problems of data transfer and of records that can be kept
and owned by individuals, and I would hope that as we look at
tax policies and how it applies to healthcare, how it applies
to innovation that we are going to do that. I will say, Mr.
Chairman, I was a little bit concerned to learn that Judiciary
is looking at moving intellectual property away from a
subcommittee and just having it considered by the full
committee because intellectual property is the basis of which
all these innovators that are going to resolve the health IT
problems, the biomedical research problems, that are going to
deal with how industry provides healthcare for employees. They
find their basis in that.
So my hope is that as we look at the interface between
healthcare and that being a seventh of our economy, that our
course of action is not going to be throw some money at it and
wait for government to solve it but our focus is going to be
how we address the healthcare needs of individuals and create
the right environment so that indeed innovators can innovate
and find a way to help solve some of the healthcare issues, the
health IT issues, the access issues that exist today, and with
that, I yield back.
Mr. Pallone. Thank you.
Before we proceed to the panel, let me ask a unanimous
consent to include in the record first a statement of the
American Hospital Association, and second, two letters from the
National Governors Association supporting a temporary increase
in FMAP and a new report released by the National Governors
Association today on economic recovery. Without objection, so
ordered.
[The information appears at the conclusion of the hearing.]
Mr. Pallone. Okay. That completes our opening statements,
and we are going to turn to our witnesses on our first panel. I
want to welcome all of you, and let me introduce the first
panel. First is the Hon. Janet Napolitano, who is the Governor
of the State of Arizona, and next is Gene Sperling, who is the
Senior Fellow for the Center for American Progress Action Fund,
and then we have Mr. Craig Zolotorow, a Medicaid beneficiary
from Maryland, and then we have Mr. Raymond Pinard, President
and Chief Executive Officer of 48HourPrint, and he is from
Boston, and last is Dr. Alan Viard, who is a Resident Scholar
with the American Enterprise Institute here in Washington. We
have 5-minute opening statements. They become part of the
hearing record. But each of you may in the discretion of the
committee submit additional brief and pertinent statements in
writing for inclusion in the record.
I will start with the governor. Thank you for being here
today.
STATEMENT OF HON. JANET NAPOLITANO, GOVERNOR, STATE OF ARIZONA
Governor Napolitano. Thank you, Mr. Chairman, members of
the committee. Given the colloquy that just occurred, I have to
put in a word for the Arizona Cardinals. We are four games
ahead in the division and we look forward to meeting Tennessee
later on in the year.
I am here to testify about FMAP. I am the two-term governor
of Arizona, and the reason I mention that is because I was
governor the last time Congress addressed FMAP in the context
of state deficits so I can speak directly to its effect on
medical care in our States and also its effect on our State
economies.
There are two different issues pending before the Congress
where States are concerned, two major ones today. In another
committee they are hearing testimony on the need to invest in
physical infrastructure, on projects that are ready to go that
have cleared all the environmental impact statement
requirements and the like as a means of stimulating jobs and
job creation. That is very important and the governors on a
bipartisan basis are in support of that. The letter you just
incorporated into the record from the National Governors
Association, which is a bipartisan organization as well,
addresses FMAP, which is another major issue, and it deals, of
course with the federal share of Medicaid payments. This is a
very, very easy and efficient way for the Federal Government to
work in partnership with the States to make sure that
healthcare continues to be provided to most in need, and
indeed, in a way is its own economic stimulus into the
healthcare provider community.
Let me give you a sense of what the condition of the states
is today. Forty-nine States are required by law to have
balanced budgets every year. Approximately 30 States now are
already in deficit. We expect by the end of the year that will
rise to 40 States. They expect cumulative deficits of over $140
billion by fiscal 2010. State fiscal years are different than
federal. State fiscal years are generally July 1 to June 30 as
opposed to the October 1 federal year. The States have been in
this position now for some period of time so any easy options
available to them have been exhausted. I will use Arizona as an
example. Arizona was one of the first States to experience the
economic downturn because of the heavy prevalence of the
housing industry in our State. During the last few years we had
set aside money for a rainy day fund. We had $750 million set
aside to use in case of an economic downturn. By the end of our
next special session, we will have totally depleted that fund.
It is also important to note that State budget deficits tend to
lag behind recovery so that whatever you do today, it needs to
be done in the context of a timing cycle. It needs to be a 2-
year approach and not simply a 1-year approach.
Now, let me turn directly to Medicaid with my remaining few
minutes. An increase in the federal Medicaid match allows us to
do two things. One is, it recognizes that when State economies
are hurt, when revenues are down, the demand for enrollment in
Medicaid goes up. More people simply become eligible. You are
not expanding eligibility, you are not changing your program in
any way whatsoever, you just simply have more people who aren't
making as much money as they used to. By way of example, in
September of this year 13,000 more Arizonans qualified for
Medicaid than in August. About 8 months ago we had 900,000
people on Medicaid in Arizona. Now we are approaching 1.15
million. That is a very tremendous rate of growth. In addition,
what you find is, if you provide an FMAP correction now, you
compensate for the way FMAP is calculated. As you know, FMAP is
calculated with a 3-year rolling average, and what that means
is that you have States that are currently in deficit now that
are actually seeing their FMAPs decreased because they are
experiencing the effect of the rollover average and so by way
of example, you have at least nine States that next month will
experience a decrease in their FMAP percentage even though they
currently are in deficit. And so by looking at FMAP now, you
can assist States with keeping on the rolls those who need
healthcare, you can provide healthcare dollars into the
healthcare system and you can make sure that States who have
already used up their easy options do not have to either raise
taxes or cut other spending in order to cover Medicaid which in
a period of recession would be contraindicated. That would add
to the recession, not help our Nation get out of the recession.
So the Nation's governors believe that this is an
appropriate time to reemphasize FMAP. It is an easy calculation
to do. It is efficient. You don't need to invent a new program.
We know it works. We have done it before. The need for this
couldn't be more serious than the present time. Thank you, Mr.
Chairman.
[The prepared statement of Governor Napolitano follows:]
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Mr. Pallone. Thank you, Governor. Thank you very much.
Mr. Sperling.
STATEMENT OF GENE SPERLING, SENIOR FELLOW, CENTER FOR AMERICAN
PROGRESS ACTION FUND
Mr. Sperling. I guess in the spirit of this hearing, I have
to note that I was born and raised in Michigan. My family still
lives there. I am a Detroit Lions fan. We are 0 and 8.
Ms. Blackburn. Mr. Chairman, speaking if I may----
Mr. Pallone. Yes.
Ms. Blackburn. Thank you for yielding.
Mr. Sperling. I know about Thanksgiving, Congressman.
Ms. Blackburn. I am so glad that you do and we welcome so
many Michiganders who have moved to Spring Hill, Tennessee, the
southern area of my district. They are welcomed, they are at
home there, and the Spring Hill Saturn plant is doing very
well, and we are converting them daily to Titan fans. I yield
back.
Mr. Sperling. Well, her undefeated team plays my winless
team on Thanksgiving. The University of Michigan, which is
usually our bright spot, is 3 and 7, so I am collectively 3 and
15 for the football season. I hope that will be seen as a sign
of character and loyalty and not poor judgment that would make
you disregard the rest of my statement.
I think we have to start with the notion that we are in a
demand crisis, and I think with the headlines every day on how
the TARP is working, the financial crisis, liquidity crisis,
capital market crisis is all appropriate, but I think we have
to have an adjustment in our thinking. We have a demand crisis,
and what I mean by that is, that as important as it is to fix
our capital market crisis, it will not do the trick if nobody
wants to buy or spend or borrow or expand. In my professional
life, I have never been more worried about a coming economic
year than the next year. The overwhelming amount of spending
that has happened in the last seven years has been driven off
people extracting equity from their home mortgages with rising
prices. That energy is depleted. It is gone. But what scares me
the most is I have never seen a moment where when you look out
at the private sector and the American consumer and even the
global economy, I can't see where demand is coming from next
year.
In October, tens of millions of American families
recognized that they had taken a significant hit in their home
prices, in their home wealth and their mortgage wealth. Among
the tens of millions of American families having conversations
around their kitchen table right now, there is only one
conversation going on: what are we going to cut back on. That
may make sense for every single family but if 50 million
families are making that decision at once, that is going to
hurt spending and the businesses who see that are going to
project that and lay people off and you are going to have that
downward cycle. We were hopeful before that with a weak dollar
that we might get a burst from manufacturing exports to the
rest of the world that would hopefully be growing. There was a
little while where that looked like that might be promising.
Those hopes are dashed. The dollar is up. Europe is projecting
virtually no growth, all of Europe. The IMF is almost
projecting a global recession, and exports in the last few
months, manufacturing in the last few months has gone to some
of the greatest falls we have seen. So the question is, what is
going to jumpstart this economy?
I think again in my professional life, I have never seen a
moment where I thought there was a greater case for a very
large fiscal stimulus, and let me say, I understand that that
would be subject to political tack. I understand. I understand
that we have an extremely high deficit, and for 1 year that
would make the deficit higher, but I don't see where else the
demand is coming from, and I encourage people to put aside
their preconceptions and think about what I call the Powell
Doctrine approach to stimulus, to come at this with
overwhelming force, because the risk of being too slow, too
small, too incremental are so much greater for our people than
the risks of being too bold for a year. The pain of 8 or 9
percent unemployment for a year or 2 years would be far too
great for our economy and would end up hurting the deficit even
worse. I think as we look forward, we need to have not only a
bigger stimulus, we need to be tough on stimulus, we need to
make sure that it actually measures the get out during the
period that will increase demand but I think, as Governor
Napolitano said, we need to probably look at a longer window.
We need to make sure that we are looking at how to get demand
going over probably an 18-month or even longer period. I think
this also means we should be looking for those areas where
those short-term investments are win-wins. They are also down
payments on long-term priorities. When possible, that should be
our aspiration.
Now, I believe that in that context, a significant increase
in the FMAP makes an enormous amount of sense because I think
that if you are trying to expand growth to have federal
policies that ignore that as you are giving money with one
hand, States are being forced to not only cut back on
healthcare but to contract, to lay off people, to raise taxes
is to have a policy that is going to lead to contraction at the
State level. Increasing the FMAP is one of the quickest ways to
inject demand. It helps the people who are often the innocent
victims of the recession who have lost their healthcare, and I
think it is one of those important things that we can do for
demand and keeping States out of this, I think, very bad choice
they will face, which is either to restrict the Medicaid
coverage and see more people lose their healthcare, moving our
country backwards, or to protect that and then have to cut back
and do painful cuts or tax increases that will be harmful to
the economy and their people in other ways. I believe that a
very significant FMAP increase of over $35 billion is justified
in this context and again I ask people to look at how risky the
economy is last year and not look at this through its normal
lens. I would never have been here in the previous two
discussions on stimulus talking about this much. I think we are
just in a very, very different situation.
I also believe that if you are doing an SCHIP expansion,
that while a permanent SCHIP expansion should have offsets to
ensure that it protects against the deficit going up, in the
short term for the first couple of years or so, it would again
make sense to do this, to waive those pay-fors so that you are
getting the full stimulative effect possible.
And then finally, I would just say that I would not let any
of this prevent us from going forward on universal healthcare
reform that includes with it the kind of tough measures and
smart measures that would help us bring down our long-term
healthcare costs. I think that is the way that we can marry an
increase for a year or two to help in this period of recess
with a long-term strategy to not only cover all Americans but
start bringing down national healthcare cost growth, which is
the best way to bring down the larger cost of Medicare and
Medicaid growth which is obviously our greatest long-term
entitlement challenge.
Thank you.
[The prepared statement of Mr. Sperling follows:]
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Mr. Pallone. Thank you really for your testimony, and I am
going to have some follow-up questions later specifically on
some of the points you mentioned.
I think your name is actually spelled wrong there. It is
Zolotorow?
Mr. Zolotorow. Zolotorow, Z-o-l-o-t-o-r-o-w.
Mr. Pallone. Oh, so it is correct there.
Mr. Zolotorow. It is right there.
Mr. Pallone. All right. Thanks. I recognize you for an
opening statement. Thank you for being here.
STATEMENT OF CRAIG ZOLOTOROW, MEDICAID BENEFICIARY
Mr. Zolotorow. Good morning and thank you to Chairman
Pallone, Ranking Member Deal and members of the subcommittee
for having this hearing and for inviting me to speak to you
today. I come before this committee as a proud and grateful
enrollee in Maryland's Medicaid program. I am a student at
Howard Community College. Right now I am only taking one class
but I also work at the school newspaper as an advertising
manager, copy editor and staff writer. I hope to major in
journalism so that one day I can work for the Washington Post
or for the Baltimore Sun. Medicaid has been a lifesaving
program for me, allowing me access to critical healthcare
services that my family would not otherwise have been able to
afford. I am here today to ask you to help States preserve
Medicaid coverage for the millions of people like me in this
country who rely on it daily.
I did not always rely on Medicaid. Until the age of 12, I
had family health insurance coverage through my mother's
employer, and thank goodness I did. My numerous chronic
illnesses started in 1987 with the diagnosis at age 2 of common
variable immunodeficiency, which is a mild form of the ``boy in
the bubble'' syndrome, causing continuing serious viral
infections. In 1995 at age 10, I was diagnosed with Hodgkin's
lymphoma. I am now a proud 13-year cancer survivor. Because of
my diagnoses, my family faced $50,000 in medical bills, which
is 20 percent of medical bills totaling $250,000, and our
family income, I became eligible for SSI, which automatically
made me eligible for Medicaid.
In 1997, 2 years after cancer treatment, I reached my
lifetime maximum of $250,000 on my mother's health insurance,
so I became reliant on Medicaid to cover the costs of chronic
sinusitis, which required two surgeries, meningitis, three
grand mal seizures, a life-threatening adrenocorticotropic, or
ACTH endocrine deficiency, hypothyroid, anorexia, bipolar
disorder, Asperger's syndrome, colitis, growth hormone
deficiency, hypertension, anemia, renal disease, nephrogenic
diabetes insipidus, and fevers of up to 105 degrees. With this
many chronic conditions, it was essential that I receive
ongoing medical attention. Luckily, my Medicaid coverage in
Maryland allowed me to receive the care I needed to cope with
my health challenges.
Unfortunately, individual insurance is not accessible to
somebody like me who is disabled because of various health
problems. These plans simply do not offer coverage to someone
with healthcare issues as extensive and expensive as mine. And
even if I am lucky enough to reach my dream and work for a big
newspaper, employer-sponsored coverage will probably not be
enough. Just as I reached my lifetime limit on my mother's
employer-based coverage, I would likely quickly reach the limit
on any coverage I receive through a future employer or be
denied coverage due to preexisting conditions. Luckily, my
Medicaid coverage in Maryland allowed me to receive the care I
needed to cope with my health challenges. Medicaid is an
irreplaceable lifeline for me.
Given all my diagnoses and the treatment that I needed, I
don't know what I would have done without Medicaid. During my
cancer chemotherapy in 1995, while still on my mother's
employee insurance, I was discharged from the hospital after a
1-week stay. I returned just 5 hours later with a fever of 104.
The insurance company had refused to pay for any more days for
that hospitalization. Medicaid never discharged me before my
medical team felt it was appropriate. Instead, I was able to
get the medically necessary care I needed.
Medicaid will be covering my treatment for occupational and
physical therapy. As a child, I never had the opportunity to
just go out and play and build up my muscles like the other
kids in the neighborhood did. The muscles in my hands are so
weak that I cannot type as much as I should for school or in
the future for work. I started college this fall and hope these
therapies will increase my stamina and help me sustain the
rigors of college and pursue a future career. In many States I
would be in danger of losing access to these important services
and that would put me at a severe disadvantage both in terms of
my education and my future career prospects.
As Congress considers how to protect Medicaid in these
tough economic times, I hope you will think of the millions of
people like me who rely on Medicaid and can see their lives
significantly harmed if we are unable to receive the care we
need through this important program. Now is the time for
Congress to increase federal support for Medicaid to prevent
States from making any further cuts.
Thank you.
[The prepared statement of Mr. Zolotorow follows:]
Statement of Craig Zolotorow
Good morning, and thank you to Chairman Pallone, Ranking
Member Deal, and members of the Subcommittee for having this
hearing and for inviting me to speak to you today. I come
before this committee as a proud and grateful enrollee in
Maryland's Medicaid program. I am a student at Howard Community
College. Right now I am only taking one class but I also work
at the school newspaper as an advertising manager, copy editor,
and staff writer. I hope to major in journalism so that one day
I can work for the Washington Post or the Baltimore Sun.
Medicaid has been a life-saving program for me, allowing me
access to critical health care services that my family would
not otherwise have been able to afford. I am here today to ask
you to help states preserve Medicaid coverage for the millions
of people like me in this country who rely on it every day.
I did not always rely on Medicaid. Until the age of 12, I
had family health insurance coverage through my mother's
employer. And thank goodness I did. My numerous chronic
illnesses started in 1987 with the diagnosis, at age 2, of
Common Variable Immunodeficiency, a mild form of the ``Boy in
the Bubble'' Syndrome, causing continuing serious viral
infections. In 1995, at age 10, I was diagnosed with Hodgkins
Lymphoma. I am now a proud 13 year cancer survivor. Because of
my diagnoses--my family faced $50,000 in medical bills (20
percent of medical bills totaling $250,000)--and our family
income, I became eligible for SSI, which automatically made me
eligible for Medicaid.
In 1997, two years after cancer treatment, I reached my
lifetime maximum of $250,000 on my mother's health insurance,
so I became reliant on Medicaid to cover the costs of: Chronic
Sinusitis (requiring two surgeries), Meningitis, three Grand
Mal Seizures, ACTH Deficiency, Hypothyroid, Anorexia, Bipolar
Disorder, Asperger Syndrome, Colitis, Growth Hormone
Deficiency, Hypertention, Anemia, Renal Disease, Nephrogenic
Diabetes Insipidus and fevers up to 105 degrees. With this many
chronic conditions, it was essential that I receive ongoing
medical attention.
Unfortunately, individual insurance is not accessible to
someone like me, who is disabled because of various health
problems. These plans simply do not offer coverage to someone
with health care needs as extensive--and expensive--as mine.
And even if I am lucky enough to reach my dream and work for a
big newspaper, employer sponsored coverage will probably not be
enough. Just as I reached my lifetime limit one my mother's
employer based coverage, I would likely quickly reach the limit
on any coverage I receive through a future employer. Luckily,
my Medicaid coverage in Maryland allowed me to receive the care
I needed to cope with my health challenges. Medicaid is an
irreplaceable lifeline for me.
Given all of my diagnoses and the treatment that I needed,
I don't know what I would have done without Medicaid. I have
been followed by 12 different specialists at the Johns Hopkins
Children's Center and now in adult medicine for 20 years.
During my cancer chemotherapy in 1995 while still on my
mother's employee insurance I was discharged after a one-week
hospital stay. I returned just 5 hours later with a fever of
104. The insurance company had refused to pay for any more days
for that hospitalization. Medicaid never discharged me before
my medical team felt it was appropriate, instead I was able to
get the medically necessary care I needed.
Medicaid will be covering my treatment for Occupational and
Physical Therapy. As a child, I never had the opportunity to
just go out and play and build up my muscles like other kids in
the neighborhood. The muscles in my hands are so weak that I
cannot type as much as I should for school or, in the future,
for work. I started college this fall and hope these therapies
will increase my stamina and help me sustain the rigors of
college and pursue a future career. In many states, I would be
in danger of losing access to these important services, and
that would put me at a severe disadvantage both in terms of my
education and my future career prospects.
Some services-including physical and occupational therapy
as well as prescription drugs, dental services, and other
important benefits-are optional under Medicaid. That is,
although states must provide Medicaid to certain people, there
are certain benefits they are not required to offer or that
they can cut. Because states are facing such dramatic revenue
declines and budget shortfalls in the coming year, many have
enacted or are considering cuts to Medicaid, including to these
so-called ``optional services'' that people like me rely on.
Medicaid is an excellent program that provides excellent
medical care to the most vulnerable Americans. It needs to be
protected, particularly now when many states might be looking
to make cuts. If my state cut had to cut Medicaid, I would be
at risk of losing critical health care services that help me
live, and that will allow me to achieve my potential and lead a
productive life.
As Congress considers how to protect Medicaid in these
tough economic times, I hope you will think of the millions of
people like me who rely on Medicaid and could see their lives
significantly harmed if we are unable to receive the care we
need through this important program. Now is the time for
Congress to increase federal support for Medicaid to prevent
states from making any further cuts.
----------
Mr. Pallone. Thank you.
Mr. Pinard.
STATEMENT OF RAYMOND E. PINARD, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, 48HOURPRINT
Mr. Pinard. Good morning, Chairman Pallone, Ranking Member
Burgess and the committee. I am Ray Pinard, president and CEO
for 48HourPrint.com, an 85-employee small business specializing
in online commercial printing. We are headquartered in Boston
and have state-of-the-art print shop facilities located in
Cleveland and Phoenix. Because we are a multi-state operation,
I am not taking a position today on endorsing any one
particular football team. I am also here on behalf of the U.S.
Chamber of Commerce and serve as a member of its board of
directors and Council on Small Business and Corporate
Leadership Advisory Council.
I believe the best way to treat an ailing economy and to
protect healthcare coverage is for Congress to incentivize
private sector job creation by providing tax cuts for
businesses and making commonsense changes to the healthcare
system that will help contain costs and promote small business
pooling so more of those jobs will include healthcare as a
benefit.
At 48HourPrint.com, we responded to the tax incentives
provided by the first stimulus package by jumpstarting spending
on capital equipment. We purchased a 40-inch offset printing
press at a cost of $2.25 million. The bonus depreciation
provision for the stimulus package resulted in $300,000 of
bonus depreciation in 2008, which we are able to plow back into
further capital equipment and providing jobs. This purchase
could have been delayed to a future date but the investment
incentives provided by the stimulus package made this purchase
possible in 2008. Taxes do matter. Low taxes and incentives
like these have helped me grow my business and provide 85 well-
paying jobs with healthcare benefits in the 5 short years that
we have been operating. I think also when we look at healthcare
benefits, we should look at benefit packages as a whole. We
also provide healthcare insurance, we provide dental insurance,
we provide life insurance, we provide short-term and long-term
disability insurance, and we also provide a $10,000-a-year
educational stipend for any employee who wants to go to
college. For companies our size, I think this is a tremendous
benefit package.
48HourPrint.com's story of utilizing the tax incentives
provided by the first economic stimulus bill is just one
example that represents thousands of similar actions taken by
small businesses throughout the United States to invest in
their companies. My decision and the decisions of many other
business owners to make capital investments in our companies
are directly the result of the tax incentives in the first
stimulus package. As Congress moves forward in its
consideration of a possible new stimulus plan, I would strongly
encourage you to be mindful of this reality.
I understand that Congress is facing very difficult
decisions on what items to include in the second stimulus
package. I am here to tell you today that the best way to
protect healthcare benefits and to reduce healthcare costs
incurred by States is to provide incentives for the private
sector to create jobs. Creating private sector jobs is a win-
win scenario for everyone: the employee, the employer and the
government. As an employer, I feel that you will get more bang
for the buck by considering a second round of tax incentives
crafted for small businesses to invest and expand. This would
further encourage employers to do what they do best: grow our
businesses and create jobs. And as you know, most of the job
creation in America is done by small- and mid-sized businesses
with 80 percent of net new jobs being created by businesses
with less than 500 employees. In my written testimony, you will
find a list of suggested tax incentives.
One of the most basic elements to fostering economic
prosperity is creating a private sector job and there is
nothing more rewarding to an employer than to be able to
accompany that job with private sector healthcare benefits. If
Congress could couple the tax incentives I have suggested with
some commonsense healthcare reforms, not only would States have
more money flowing into their coffers through increases in
payroll rosters and resulting revenues but by making it easier
for employers to provide healthcare benefits, they will also
experience less need for Medicaid funding by reducing the rolls
of the uninsured.
Small businesses need more options to choose from when
purchasing health insurance and a free enterprise system should
ensure that affordable healthcare is available to everyone. A
small business should not be penalized for its lack of size or
diversity of workforce. Every small business owner I know wants
to offer affordable, dependable health insurance to our
employees and we need the type of flexibility that will keep up
competitive in our respective marketplaces. To ensure this, we
call upon Congress to help.
With regard to a comment made by Congressman Burgess in his
opening remarks, for years the chamber and businesses like mine
have pushed for legislation that would provide relief by
letting small businesses pool together across State lines to
provide cost-effective and accessible insurance through trade
and professional associations. In our situation, because we
operate in three States and we offer three levels of medical
coverage to our employees, we essentially offer nine different
plans. It would be much easier if we could deal in our case
with the printing industry and offer three different plans that
span across all 50 States. By being part of a larger group,
small businesses would have greater negotiating power and would
also reduce costs by having uniform standards from State to
State. The Congressional Budget Office has found that allowing
this would cost nothing and in fact save money for the
government while helping more Americans get insurance.
Mr. Pallone. Mr. Pinard, I just wanted to point out, you
are a minute over so if you could kind of wrap it up?
Mr. Pinard. In conclusion, being in the printing industry,
I am very proud to quote one of the world's most famous
printers, founding father Benjamin Franklin. He once said,
``Watch the pennies and the dollars will take care of
themselves.'' I cite this quote knowing full well that in
discussing tax policies and possible stimulus ideas, you may be
considering a package with a price tag in the billions, which
is hardly pennies. But Franklin's message does resonate in the
sense that if Congress acts wisely in how it handles the
pennies through reasonable tax incentives and commonsense
market-based healthcare reforms, the ensuing investment and
economic growth, the tax dollars generated by businesses across
our Nation will be exponential.
Thank you for this opportunity and I would be happy to
answer any questions.
[The prepared statement of Mr. Pinard follows:]
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Mr. Pallone. Thank you.
Dr. Viard.
STATEMENT OF ALAN D. VIARD, PH.D., RESIDENT SCHOLAR, AMERICAN
ENTERPRISE INSTITUTE
Mr. Viard. Thank you, Mr. Chairman, Mr. Ranking Member,
members of the subcommittee. It is an honor to appear before
you today to discuss this important and pressing topic.
The U.S. economy is in a severe downturn. Although we do
not yet have an official declaration to that effect, there can
be no doubt that the downturn is a full-fledged recession. The
severity of the economic difficulties that we are facing has
understandably prompted calls for a fiscal stimulus package. I
will submit today, however, that the case for a fiscal stimulus
package is still quite uncertain and that if a fiscal stimulus
package is adopted, the inclusion of an increase in Medicaid
matching rates is an ineffective way to stimulate aggregate
demand. I will also urge the subcommittee to continue to think
about the need to promote long-run growth, even as we
simultaneously address the short-run difficulties that we are
facing.
I would like to begin, Mr. Chairman, by clarifying the
potential role of fiscal stimulus. Increases in aggregate
demand by increasing the category of some public or private
spending cannot permanently boost the level of output. In the
long run, an increase in spending in one part of the economy
creates jobs there but it displaces spending elsewhere in the
economy, reducing employment in that sector. In the long run,
the level of output in the economy is determined by the number
of workers who are available, the labor market institutions
that allow them to work, the supply of natural resources and
the supply of capital and the availability of technology. We
therefore need to be wary of arguments that increased spending
on any particular item, whether it be Medicaid or defense or
alternative energy, will permanently increase jobs. Instead,
arguments for particular category of spending should always be
based upon the output that that is expected to provide to the
American people in the form of beneficial services. So it is
perfectly reasonable to argue in favor of Medicaid spending on
the grounds that it will provide healthcare to those who are in
need or to argue in favor of defense spending because it will
make the Nation more secure or to argue in favor of
alternative-energy spending because it will give us a better,
more reliable source of energy but that is quite a different
matter from arguing for it on the notion that it will
permanently create jobs.
Of course, in the short run, increases in aggregate demand
can increase employment and output, but what it effectively
does is to borrow that output from the future. When spending
decreases in some other item, we do experience an output loss.
Obviously none of us would want to increase output at some
random date and then later reduce it at some other random date.
What we would like to do is of course to increase output in
conditions like today's when we clearly have a desperate need
for more economic growth, even if we know that we need to pay
it back at some future date. But to accomplish that goal,
aggregate demand needs to be managed in a very careful manner.
Now, economists of all persuasions, liberals and
conservatives, have long argued that in most cases the best
ways to manage aggregate demand are through monetary policy and
through the automatic fiscal stabilizers that are built into
our economy. Monetary policy, of course, has already responded
aggressively to the current downturn with interest rates having
already been slashed by 425 basis points. The Federal Reserve
does still have a little bit of room to move further on
monetary policy, although to be sure, it will soon begin to
encounter the zero lower bound on interest rates. Monetary
policy does take some time to work but the interest rate cuts
began 14 months ago and so we will still see their impact.
Automatic fiscal stabilizers are also an important part of
today's economy. In any recession, there are automatic
reductions in tax receipts and automatic increases in
government spending, and we have already seen that response in
this downturn as we have in earlier ones.
Now, there is always the possibility, Mr. Chairman, of
supplementing these types of stabilization with some type of
fiscal stimulus package, and that is one of the issues that you
are considering today, but as the economists that I quote in my
testimony, economists from the Brookings Institution note, that
a fiscal stimulus package has to be designed carefully and
that, Mr. Chairman, I submit probably does not include a
temporary increase in Medicaid matching rates. An increase in
Medicaid spending by the Federal Government does not directly
increase aggregate demand. It is a transfer from the Federal
Government to the State governments, and as such, is does not
directly increase aggregate demand any more than would a
transfer of money from one of the Federal Government's bank
accounts to another of its bank accounts. Of course, it will
increase aggregate demand if state governments respond to that
increase in federal aid in a manner that boosts spending and
the economy. It is a little unclear to me, Mr. Chairman,
exactly what effects are envisioned from this increase in the
FMAP percentage. If States increase their Medicaid spending or
avert their cuts that they otherwise would adopt, there may be
some increase in aggregate demand but it is hard to see a
substantial one. Recipients might be able to consume somewhat
more medical care which as a result would be good in its own
right but it is hard to imagine it being a large stimulus to
aggregate demand. An increase in provider payments will of
course increase the incomes of those providers but it is hard
to imagine that they would increase dramatically their
consumption in response to a temporary increase in incomes.
It also is important to look at how the money would be
distributed. An across-the-board increase in FMAPs rewards
those States with the largest Medicaid programs. Allowing
States to use an outdated FMAP percentage in place of the new
FMAP percentage for a given fiscal year actually rewards those
States that have had the fastest per capita income growth,
which seems antithetical to targeting aid towards those States
in need. Of course, any of these proposals would increase
spending on a program that has grown unsustainably and that is
projected to continue growing unsustainably. So Mr. Chairman, I
don't see an increase in Medicaid matching rates as being a
useful part of a fiscal stimulus package.
In closing, I would also urge the subcommittee to keep in
mind the need that even as we address the short-term
difficulties we face to also keep part of the focus on the need
to promote long-run economic growth, particularly through tax-
and-spending policies that will promote private business
investment.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Viard follows:]
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Mr. Pallone. Thank you, Dr. Viard.
Now we will have questions and I will start with myself for
5 minutes. I wanted to start with Mr. Sperling. This is very
complex and yet because of the economic downturn and the dire
situation, we obviously have to get it right, and I was very
interested in your comments because I read an article within
the last few days, I guess it was in the New York Times, I
forget who it was by, that was talking about Herbert Hoover and
Franklin Roosevelt, dare we go back to those days, and saying
that part of the problem, everyone assumes that when Roosevelt
came into office that automatically he started this big
stimulus package and got the government going again, I should
say got the economy going again, but in reality, it was very
much the opposite. He was reluctant to have a huge stimulus. He
was worried about the debt. He actually increased taxes and it
wasn't that successful in the first few years and it wasn't
until World War II came along and so much money was being spent
that the economy actually started to turn around in a
significant way, and the advocate, I forget who it was, one of
your colleagues was essentially saying you need a huge
stimulus, we are just not talking enough money here. And in
September I think we did a $60 billion package. We have talked
about $150 billion. I think the FMAP part of that was only 14
or 15. You were using figures much larger, 300, maybe I thought
you said 60 for FMAP. Maybe I got that wrong. But at the same
time the issue, particularly to this subcommittee, is the FMAP
part of it so part of it is, how big should the stimulus be and
then, as Dr. Viard said, how effective is the FMAP part of this
in terms of the total picture. So I guess I wanted to ask you
those two questions again. I know you kind of got into it. What
do you say to those, some of my colleagues, and I am not trying
to distract from them, seem to be implying that well, what
about the debt. Marsha mentioned PAYGO. What about all that? Do
we just not worry about the debt, do we not worry about PAYGO
because this is such a dire circumstance that we just have to
spend and spend? And then the second thing, maybe responding to
Dr. Viard, how effective is the FMAP part of this, if it
becomes robust, in actually stimulating the economy?
Mr. Sperling. First of all, on the fiscal side, obviously
my position and I believe the policies we had in the 8 years in
the Clinton Administration were very strong on the importance
of long-term fiscal discipline. I think Haines basically say
that smart fiscal policy kind of leans against the wind. In
other words, you are expansive when demand is very weak. The
government is willing on a short-term basis, just on a short-
term basis, a year or 2 years, to allow the deficit to go up to
stimulate the economy and part of the thought too is that if
you allow a deep recession to happen, the fall in revenues and
the rise in automatic stabilizers would end up increasing the
deficit anyways but with a worse economy. Now, the other side
of that is to lean against the wind the other way, that as the
economy is doing stronger, you want to increase savings, and I
think we are learning that one of the reasons why you want to
have good long-term fiscal policy is so that when you do come
to a time of war or a time where you need a stimulus, you are
in a position that you can do that for a year or two at less
risk to the economy.
Again, I never in my life before advocated for a stimulus
above around $150 billion. I am just extremely, extremely
worried. I have never seen a situation like this where I just
worry there is going to be such a broad cutback in spending,
and if you look at the projections for 2009 in the rest of the
global economy, I think this is a moment where you would
actually like world leaders in the way that you do coordinated
monetary policy to all say that they are going to do a
significant fiscal stimulus. It absolutely is not a way to
permanent job creation. What you are trying to do is stop an
incredibly painful downward cycle with a temporary injection of
demand, and I guess I would--and in that light, you do have to
think more expansively, how could you get $300 billion or more
into the economy. It sounds very large but it is really just
around 2 percent of GDP. If you are worried that you are going
to be in negative growth for an entire, that in and of itself
is not an excessive amount. Now, I think having some smart
small business tax cuts, extending the 179 expensing, those
type of kind of use-it-or-lose-it tax incentives for businesses
makes sense. I think giving tax cuts to ordinary people and
hope they spend makes sense. I do think that the evidence does
not suggest that you get quite as high of a bang for the buck
as those measures but I have still supported them in the past
and I still support them now but I think in this context, I am
worried that people are hurting so bad and the economy will be
so weak, it might not inject, inspire, incent the spending that
you want. So I think there is a degree of what you have to kind
of almost make sure there is going to be more spending and I
think you do have to be tough. I think if you are looking at
even things I support like green jobs or infrastructure, you do
have to ask, is the money coming to come out in that 18-month
window where you are trying to stimulate the economy? And if
not, then you have to say it is a good measure but you have to
do it as long-term policy and figure out how you pay for it.
But if you can do some things that are good for the future and
stimulate the economy in 18 months, you should have a hearing.
One should give that a hearing and see if people can find
things that would be good for energy independence or good for
infrastructure that could spend out fast enough. If they can't,
they shouldn't be part of a stimulus. If they can, we should be
open to it. But in this environment, you do want to do some
things that are surefire successes in getting demand out. And
the truth is that things like unemployment insurance and food
stamps and the FMAP are among, I believe economists think,
among the most successful. Dr. Viard said you want to have
automatic stabilizers but this is essentially an automatic
stabilizer. Unemployment insurance goes up in a weak economy.
Medicaid spending should go up in a weak economy. So
essentially when you are increasing FMAP, you are simply making
up for the fact that we don't have Medicaid as an automatic
stabilizer anyways. So by that very logic, we recognize that as
unemployment goes up, you have both State pressure on other
things and you have more people coming on the rolls. It is a
terrible choice for States. I worked for 2\1/2\ years for a
governor during the 1990 recession. It is a terrible choice.
You have less revenue and more demand, and I think the cutbacks
that you make in those situations are contractionary, they hurt
the economy, and because they are in such things often as
cutting back teachers, police officers, they are bad and they
are also I think very damaging for consumer confidence.
So the FMAP is one of the quickest, most automatic things
that you can do right away to get stimulus in the economy, and
I have to object to one thing. It is not a transfer of the
Federal Government. The Federal Government can borrow. States
have balanced-budget requirements. So States don't have the
opportunity to provide this temporary stimulus. This is the
reason why you look to the Federal Government in a case like
this to do temporary borrowing so that you can deal with the
pain and distress but do so in ways that money will go out
quickly. So in this context, I believe we need to think about a
much larger FMAP, both because of the distress I see and
because I think it is one of the most effective stimuluses.
Mark Zandy, others who looked at what gets out the quickest and
what has the highest multiplier effect find aid to State relief
I believe among the top three. So this isn't an all-or-nothing
thing. We can have smart tax incentives for people like Mr.
Pinard and we have some consumer tax cuts but I think what is
different this time around is we are just going to have to do
more to directly get money into the economy because it may be
so weak that we may have trouble incenting people to get there
alone. That is why I think things like FMAP and State aid make
a lot more sense this time around than in the past.
Mr. Pallone. Thank you.
Dr. Burgess, I want to hear from Governor Napolitano so I
will give you the same amount of time because this is important
and I want to make sure we get everything out here. I wanted
you to respond to the same thing, Governor, but in addition to
that, if you will, you talked about being governor in 2003 when
we did have the FMAP pass, but my understanding is that it took
time to accomplish that, in other words, while we were working
to do that, many families lost their Medicaid coverage, and one
of the issues is, would it be preferable to have an automatic
trigger for increases based on economic indicators, in other
words, rather than just do this piecemeal. But I also wanted to
hear if you wanted to respond to the same thing that Mr.
Sperling was talking about.
Governor Napolitano. Thank you, Mr. Chairman. Let me answer
the second question first. I think having sort of an automatic
trigger built into Medicaid makes a lot of sense. How that is
constructed requires some care but the fact of the matter is,
it is a device that does help stabilize and is somewhat
countercyclical so that instead of having to have these kinds
of things every down cycle, if there was some automatic
triggers, that would, I think, improve the Medicaid program.
Mr. Pallone. See, the other thing too, and you can comment
on this as well, is that one of the reasons why a lot of people
are saying the stimulus needs to be bigger is because they
figure that as States cut back, whatever stimulus we do may be
essentially eaten up by those State cuts and so that is why it
needs to be larger. But anyway, go ahead. I want to hear from
you rather than commenting myself.
Governor Napolitano. Well, thank you, Mr. Chairman, and I
think it is important to understand, as Gene said: States
cannot borrow. We must balance our budgets every year. We have
three basic functions we pay for: we educate, we medicate, and
we incarcerate. And the medication part is Medicaid. Education
is by far the largest part of State budgets and then
incarceration costs. When you have a shortage of revenue as the
States do now, you have to take that from somewhere. So unless
there is an increase in FMAP, you have choices. You can either
remove people from the Medicaid rolls and increase the number
of uninsured, which has huge social costs beyond the offload of
costs onto the healthcare provider community. You can cut back
on education, and you began the hearing with a statement about
the importance of investment in knowledge and biomedical
research as long-term economic stimulus. Well, the largest
discretionary item in the Arizona budget below prisons, if you
call them discretionary, which I don't, but are universities.
So you have 40 States looking at large cuts to university
budgets unless they get some help on the FMAP side of things.
And beyond that, you are at a situation where States have
already, as I mentioned before, already taken drastic measures.
We have hiring freezes, we have laid off people, we have
instituted moratoriums on school construction in a State that
has the fastest growing 0-5 population of any State in the
country. We have deleted optional State services like adult
dental coverage for poor seniors. All those things have been
done. So you are really down to the basics and now if you don't
do the FMAP, what you are going to have to do is force States
either to do these cuts countercyclical, doesn't help our
Nation get out of a recession or to raise taxes, also
countercyclical because I agree with several of the speakers
here. I think some targeted tax cuts for small business make a
lot of sense in a national economy such as we have today in
order to stimulate, and it is all about stimulating demand and
getting deals going again, getting business going again,
getting job creation going again.
So in a sense what you have is a program before you that
has worked before in the short term. What I am suggesting is do
it again. Our calculation is, it needs to be at least $25
billion for each of the next 2 years to really work and then to
absolutely look at the Medicaid statute and structure itself so
that we build in some economic triggers for future purposes.
Mr. Pallone. Thank you very much.
Dr. Burgess.
Mr. Burgess. Thank you, Chairman.
Dr. Viard, we heard Mr. Sperling just answer a question and
he talked about the FMAP increase being one of those automatic
stabilizers and your testimony seemed to be at odds with that.
Do you have any further comment to make on that?
Mr. Viard. Yes. Thank you. The FMAP increase of course that
we are considering today is not an automatic increase precisely
because we are here holding hearings about it, which is one of
the things that makes it problematic I think in a couple
respects, Mr. Congressman. One is, of course, that we can't be
certain that we will get the timing right, and the other is
that unlike the automatic stabilizers, which are automatically
targeted to those parts of the country that are in the greatest
distress, the FMAP increase that we are considering today
doesn't have that characteristic. I think that some of the
ideas that have been put forward in this hearing concerning
setting up some type of automatic adjustment does make sense
and I think there is a variety of things that could be
explored. We could have a system set up where FMAP does
automatically rise during weak economic conditions and
automatically fall during strong economic times. We could have
options available to States that in order to maintain their
eligibility criteria during a downturn which would of course be
sound policy that they could avail themselves of a temporarily
higher FMAP if they accepted a temporarily lower FMAP when the
economy recovered. But I think the proposals that we are
considering today are really quite different, an increase in
FMAP with no offsetting reduction later and a lack of targeting
to those States that are in need.
Mr. Burgess. In the interest of full disclosure, I did vote
in favor of the FMAP increase in 2003. I think I am the only
person here who did. Did you vote for the FMAP increase in
2003? That was that $250 billion tax cut that you guys opposed
so badly?
Mr. Pallone. I don't remember.
Mr. Burgess. I think you voted against it. But I voted for
it and I just want the record to show that.
Dr. Viard, before we depart this subject, now on the next
panel we are going to hear about NIH and funding in biomedical
research as a form of economic stimulus. We don't get an
economist on that panel so I am going to impose upon you to be
the adult in the room for the next panel and give us just a
preview of what your feeling is about the increase in NIH
funding being used as an economic stimulus as well.
Mr. Viard. Of all the types of spending that one might want
to consider manipulating for purposes of stabilizing the
business cycle, it really seems to me that biomedical research
would be at the absolute bottom of the list. Now, let us be
clear from the outset that it is a completely separate question
of what value biomedical research may have because of course
biomedical research could have enormous benefits in terms of
promoting the health and the well-being and the longevity of
the American people, but as a tool to stabilize the business
cycle, I think it is completely ill suited. To use it for that
purpose would imply that the budget for research would be
increased during every recession and would then be cut back
during every expansion, which would be absolutely identical to
the notion of a long-run research strategy.
I think that the comments that the Congressional Budget
Office made with respect to a slightly different category of
spending would apply here. CBO commented in a January report
some of the candidates for public works such as grant-funded
initiatives to develop alternative energy sources are totally
impractical for countercyclical policy regardless of what other
merits they may have. I think that comment absolutely applies
to biomedical research. I think that biomedical research should
be funded based upon the benefits that it can bring to the
American people in terms of the research and the business cycle
consideration should be completely divorced from that funding
decision.
Mr. Burgess. Thank you.
Mr. Sperling, let me just ask you, because we just had a
presidential election. You may have heard. And during the run-
up to that election, there were several debates, and at least
in the last debate, if I recall correctly, both candidates
talked about the need for reducing spending and the need to
move--I think the question was posed by Mr. Schieffer, are you
going to pursue a balanced budget, and both indicated that they
would. Senator McCain said he would do so by across-the-board
cuts. Senator Obama, President-elect Obama said that it would
be more surgical, but the only cut that he ever mentioned
specifically was a cut to Medicare Advantage. Do you think we
can cut Medicare Advantage enough to cover the expense of the
increased FMAP and are we going to have to rely on that, for
the cutting in Medicare Advantage to pay for other things or is
the concept of PAYGO and cutting spending to offset any of this
increased spending, is that just completely out the window at
this point?
Mr. Sperling. Well, I think the idea of a stimulus is
actually that you are not offsetting during that short window,
and I think that it is an unfortunate situation that we have
such a high deficit that the next administration will inherit
such a large deficit, and in that context, you would normally
not want to have to do a stimulus. So I think you call for such
a large stimulus like this or I am, not because you want to but
I feel that we have to. I do believe that a stimulus is not a
get out of fiscal responsibility, free card forever. So in
other words, the idea of a stimulus should be that you are
letting the deficit go up for that period of time in which you
are trying to get more spending into the economy but only for
that period of time. So I do think, I may disagree, I have a
slightly different attitude than Dr. Viard in the following
way, but I think this is where I am sure we both agree, which
is that money has to go out during that period to be a
stimulus. If you pay for it, then it is not actually
stimulating the economy, it is neutral, but on the other hand,
if you call for a stimulus for 2 years and the money doesn't
spend out to year 3, it has obviously failed to meet its
purposes. Now, I do think one thing you can do is let us say
you had an investment that you thought was very wise over a 5-
year period. Now, somebody might come in and say well, and this
is, to be honest, what many of us criticize the previous
administration for. They would say well, we are in a recession,
we don't have to pay for all of it, and we would say well, no,
you don't have to pay for it for the year or two that you are
trying to stimulate the economy but in the long term you do. So
for example, if you were doing a 10-year extension of SCHIP, I
might think it might make sense for the first 2 or 2\1/2\ years
to waive the offsets for those 2\1/2\ years because you are
trying to stimulate the economy at that point but it wouldn't
be an excuse to never pay for it or have offsetting savings. So
I think you really have to distinguish between the fact that
you are allowing a short-term deficit and therefore it does add
to the debt but it is just for that 1 year but you shouldn't
use it as an excuse, which is what I fear we did too much in
the previous 7, 8 years of using it as a way to do long-term
permanent increases.
Now, for me, what I would do on healthcare is, I would use
the FMAP because I think even though it is not an automatic
stabilizer right now, it kind of should be and it operates that
way so I think having an increase right now would be helpful to
stimulate the economy. It would mean temporary borrowing to
help stimulate the economy. For the long term what I would do
is, I would encourage bipartisan work on a universal healthcare
plan that would cover everybody but would also at the same time
take on much broader issues of the waste that happens from
people trying to discriminate against people with preexisting
conditions, where there are negative incentives, the cost
shifting, all of those things. Those are the broader things I
think you have to do to bring down the growth of Medicare and
Medicaid costs in the future. If you do that together in 2009,
2010, than you can say we are increasing healthcare costs
temporarily to help us get out of this recession but we are
also working on a long-term package to cover all Americans,
make healthcare more efficient and thereby bring down the cost
of healthcare.
Mr. Burgess. If I could just interrupt you for a moment,
ever under the most optimistic of scenarios, to take on that
second piece, it is $160 to $480 billion a year for the plan
that was outlined by Senator Obama or President-elect Obama
during the run-up to the campaign, so we have increased the
debt limit three times this year. We are barely a month into
the fiscal year and we have got a $1 trillion deficit on top of
a $3.2 trillion budget. The Chinese won't loan us any more
money. Where do you propose that we get this if we are not
going to restrain spending in some other quarter?
Mr. Sperling. Well, what I would argue personally is that
as you are trying to do universal healthcare, you try to
rationalize the healthcare system. Let me just tell you on an
economic point of view----
Mr. Burgess. Well, but I want to get back to Mr. Pinard
before I run out of time, so very quickly. Go ahead but very
quickly.
Mr. Sperling. Well, President-elect Obama has clearly
talked about using offset from not extending the tax cut for
people over $250,000 as a way of getting $100 billion or so
savings, I believe to----
Mr. Burgess. But in fairness, though, the Congressional
Budget Office has already figured that in. The Bush tax cuts
have expired as far as the Congressional Budget Office in their
budget predictions for the next 10 years.
Mr. Sperling. Well, this is one place where the President-
elect and the current President agree, that the baseline calls
for extending that. It is still a choice and you are doing that
for savings, but my point----
Mr. Burgess. But that still becomes new spending.
Mr. Sperling. But my point is, and I just encourage you to
think about it this way. Right now what hurts our country, the
competitiveness, the costs to competitiveness for businesses,
for people, is the rising cost of healthcare generally. To not
try to fix that, to allow our national healthcare spending to
grow so great and just feel comforted that you are keeping the
public ledger part of it lower is just no comfort. Governor
Schwarzenegger is the one who says very eloquently that when
you allow massive uninsured Americans, that they end up getting
too late expensive coverage which then ends up being a hidden
tax on the premiums of all Americans. Now, you can feel
comforted that that is not publicly on the ledger but I think
that if you can have an upfront cost in subsidies for Americans
and healthcare information technology but it is in part of a
plan that does have some touch medicine, we are slowing the
growth of healthcare that in the long term for our long-term
Medicare entitlement growth, a universal healthcare plan that
brought down the growth of national healthcare spending
overall----
Mr. Burgess. But it won't, and we have a graph somewhere in
this packet that shows a projection in the increase in Medicaid
spending over time which I think the term that is used is
unsustainable. I do want to get to Mr. Pinard because you were
so kind to come to the panel. I want to give you a chance to at
least discuss this for just a moment. Now, we have heard the
argument for universal insurance, and in the interests of full
disclosure, I was a surrogate for Senator McCain during the
campaign so, yes, I know McCain's plan pretty well but as a
consequence of being in 15 cities in the last 2 months, I also
know President-elect Obama's plan pretty well also. If we go to
a system where there is now a new like Medicaid, like Medicare,
there is a new national health insurance patterned after the
FEHBP that as a business you either are going to show credible
coverage or your employees are going to be covered under this
new national plan. What is the inclination there? You are
offering a pretty generous package of benefits right now and I
commend you for doing that. I had a small business and I had
about the same number of employees as you so I fully know how
expensive it is to provide those benefits. So if you look
around you and you see your competitors, credible coverage, I
can't keep up with it, I will just pay the fine and get into
the national plan, do you think that that is likely to--I know
it is hard to project human behavior but do you think that that
is likely to be a sentiment shared by some of your competitors
and might that not also put pressure on you to look at that as
well?
Mr. Pinard. My fear in a universal plan of that nature, if
it was a single system and everybody had to participate, sooner
or later we are going to end up trying to satisfy everybody,
and you may satisfy 1 percent with this coverage but 100
percent have to pay into it because you have to assume that the
larger percentage is going to participate. So I think the costs
involving in administering a national universal healthcare
system I would imagine would have to be astronomical. So I
think the system would be very burdensome and not attractive to
private employers. I feel that with private employers that I
deal with, they would prefer to preserve the free market
healthcare system that currently exists as it exists today or
even in a more free market with the AHPs to allow them to
choose the coverages they want that best fits their employee
profile. As you know, young technology companies have certainly
a very different demographic than a machine shop that has been
in business for 60 years and they require different kinds of
coverage and different emphasis. So the private sector, as far
as I know with the people that I deal with, prefer to see that
there is a private sector healthcare system that is maintained
that they can choose from and choose who their carrier is going
to be and so on.
Mr. Burgess. From a competitive standpoint, what does it do
to your printing business if you look around and every other
printer in the cities in which you work have said oh, to heck
with it, I will just pay the fine or the tax, whatever we call
it and I will be in the national plan and yet you are obviously
by nature very generous and you are providing your employees
with the Elysian Fields of benefits that you now spread before
them. Are you going to have to rethink that?
Mr. Pinard. Well, that would make us very uncompetitive
because, for instance I believe in Massachusetts the fine is
$250. Two hundred and fifty dollars doesn't go anywhere towards
providing somebody with healthcare for the year. So it takes a
lot of $250 checks to fund that system, and as you know,
Governor Patrick is having a devil of a time up there trying to
deal with this. But it makes us uncompetitive if we elect to
provide a more fuller, generous health insurance plan. It is an
employee benefit and it is a job attraction tool. We would try
to maintain our benefit plan so that we can attract better
employees.
Mr. Burgess. Very good. I just wanted one comment to our
friend from Maryland. I went to medical school in Houston. I
didn't know David but I knew of David and our medical school
class was allowed to see him one day so I certainly appreciate
the difficulties with which you have existed and obviously done
very well. As a father who paid for a journalism degree for my
middle daughter, I do wonder about your selection of a
profession. I fully expect you to complete your studies, having
heard from you today. I am not sure the Washington Post and the
Baltimore Sun will still be there when you emerge on the other
end.
I will yield back, Mr. Chairman.
Mr. Pallone. Such optimism. You sound like me. Listen,
first of all, let me thank all of you for being here today. I
know we just had the questions from the two of us but I think
it was very worthwhile and I appreciate your input as we move
forward on this, and as you know, we are probably going to deal
with the legislation next week so it is very timely that you
were here today. Thank you very much. Thank you all.
Mr. Burgess. Mr. Chairman, as we go to our next panel, can
I ask unanimous consent that the report ``Why Government
Spending Does Not Stimulate Economic Growth'' from the Heritage
Foundation be submitted into the record? The report is dated
November 12, and points out that every dollar the government
injects into the economy is first taxed or borrowed out of the
economy. In fact, it doesn't create new purchasing power, it
simply redistributes existing purchasing power, and I will
submit this for the record.
Mr. Pallone. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Pallone. I will ask the second panel to be seated.
Before we go to the second panel, I have a unanimous consent
request also. These are the remarks by Mr. Towns, who had to
leave, and also three items: the testimony by the governor of
New York, Mr. Paterson, before the House Ways and Means
Committee on October 29, which discusses New York's dire need
for at least a 5 percent increase in the FMAP through 2011;
second, a November 12, 2008, New York Times article entitled
``Brooklyn Lab as Part of City's Goal to be a Biotech center,''
which discusses a new HIV/AIDS lab in the Brooklyn Army
Terminal section of the city and how it is the precursor to the
city's initiative to make New York City a biotech hub; and
third, a letter to the Speaker, to Nancy Pelosi, from more than
230 patient groups, scientific and medical societies and
research institutions, urging support of increased NIH funding
in the economic recovery package. Without objection, so
ordered.
[The information appears at the conclusion of the hearing.]
Mr. Burgess. And Mr. Chairman, I would also like to ask
unanimous consent that the statement of the California
Healthcare Institute, which was submitted to the House of
Representatives, Energy and Commerce Subcommittee on
Healthcare, for our hearing today.
Mr. Pallone. And without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Pallone. Would the second panel be seated? Okay.
Welcome. Thank you for being here on this important issue
today, and let me introduce each of you. Starting from my left
is Dr. Raynard Kington, who is Acting Director of the National
Institutes of Health, and then we have Mr. Ron Pollack, who is
Executive Director of Families USA, and Ms. Rachel King, who is
Chief Executive Officer of GlycoMimetics, Inc. from
Gaithersburg, Maryland, and lastly is Dr. Joachim Kohn, who is
Director of the New Jersey Center for Biomaterials and he is a
Professor at Rutgers University in my district in Piscataway.
Thank you all for being here. I think you know the drill. We
have 5-minute opening remarks. They become part of the record,
and each of you may in the discretion of the committee submit
additional statements in writing for inclusion in the record,
and we will start with Dr. Kington.
STATEMENT OF RAYNARD S. KINGTON, M.D., PH.D., ACTING DIRECTOR,
NATIONAL INSTITUTES OF HEALTH
Dr. Kington. Good morning, Chairman Pallone and Dr.
Burgess, I am Raynard Kington and I am the acting director of
the National Institutes of Health, and it is a pleasure to be
here to testify before you today on the potential role of NIH
in stimulating the economy during the current financial crisis
of the country.
The economic downturn, as we all know, is complex in its
origins and its recovery process will be multifaceted, and
stimulation of the economy is critical to this process. We
believe that biomedical research can play a significant factor
in stimulating the economy while more importantly advancing the
discoveries to improve the health of the public. NIH has a
unique ability to provide an influx of funds to an established
network of research institutions across the country and this
can be accomplished literally within weeks. With a long history
of success in scientific discovery, the best peer review system
in the world and the trust of Congress and the American people,
our impact on public health is well known and is exemplified by
substantial reductions in mortality from such diseases as heart
disease, many infectious diseases, cancer. It is fueled by new
advances such as the sequencing of the human genome, and we are
poised to enter an era of personalized medicine that will allow
us to accurately predict and then preempt the development of
disease.
Although our mission is and must remain first and foremost
dedicated to seeking scientific knowledge to improve the health
of all, our mechanisms for supporting research are ideally
suited to stimulating the economy. NIH is a granting and
contracting agency providing awards to research institutions
that are an integral component of local economies, many of whom
are the largest employers in their communities. These awards
support local economies by creating jobs, building
infrastructure and conducting research that leads to new
technologies and therapies. In turn, discoveries leads to
patents and new businesses producing additional economic
benefits, and you will hear more about this from other
witnesses.
In fiscal year 2007, NIH funded 47,000 grants worth
approximately $20 billion across the country. As you know,
recent analyses indicate the NIH grants have a multiplier
effect on the economy of up to 2\1/2\ times their value and you
will hear more about this later. In addition, there is a
leveraging effect of 35 percent from the NIH budget in terms of
additional private sector investments in medical research
stimulated by NIH funding. NIH grants support jobs. We estimate
NIH funding supports more than 300,000 jobs in the United
States, approximately seven positions for each grant. In
addition, through its training programs for Ph.D.,
postdoctoral, and clinical scientists, NIH supplies a major
portion of the human capital required for U.S. biomedical
enterprises to remain globally competitive.
To determine the long-term effect of NIH-supported
research, we recently reviewed the outcome of approximately
30,000 grants awarded in fiscal year 2000. These grants
resulted in over 30,000 invention disclosures, 17,000 non-
provisional patent applications and more than 7,000 full
patents. At least 17 percent of all drugs approved by the FDA
between 1982 and 2006 cited NIH funding as a factor, and we
believe that is an underestimate of the importance of NIH
funding, especially basic science funding in the development of
new drugs. NIH-supported research and training is key for U.S.
global competitiveness in the biomedical industry. In today's
global environment, large pharmaceutical and biotech companies
can choose to locate anywhere in the world. NIH-supported
world-glass laboratories filled with the best scientists in the
United States based at our universities and other research
institutions offer the biomedical industry a tremendous
resource in the form of valuable collaborators as well as a
pool of the leading scientists to draw upon, a critical
incentive to do these businesses in the United States.
Failure to sustain the biomedical research enterprise in
this country will have negative implications for science,
medicine and public health as well as producing financial
stresses on the research institutions that have already
leveraged NIH funding with billions of dollars of their own to
expand the research capabilities of a nation. With a flat NIH
budget over the past 5 years, we have failed to sustain the NIH
investment in the U.S. economy. The inability to sustain
current levels of funding of scientific opportunity is
quantifiable by the percentage of successful grant applications
submitted to NIH. The historic norm for success rates has been
about 30 percent. Five years of budgets that did not keep pace
with medical research inflation have contributed to reductions
in the success rate to about 20 percent, and if this trend
continues, the success rate will continue to drop.
During fiscal year 2008, NIH identified 14,000
scientifically meritorious research applications that could not
be funded. These grants have already undergone peer review
process and have been approved by our public advisory councils.
With additional funding, we would focus on these projects and
others to fund important new science that otherwise would not
be supported. Distribution of funds to many of the projects
across the country could occur literally in a matter of weeks.
The awards could be made with virtually no increase in NIH's
administrative costs through existing processes and mechanisms.
Among the underfunded areas of research are clinical trials
involving genomics research in multiple disease areas,
translational research in heart disease and stroke, AIDS
vaccine research, asthma research, health disparities research,
research on mental illness and addiction and kidney diseases,
advances in imaging and other areas of research. These critical
areas of research among others could be immediately funded and
expanded for the benefit of the economy as well as for the
benefit of the long-term health of this country.
NIH proposes two issues for Congress to consider as it
struggles with current economic crisis. One is the potential
effectiveness of biomedical research in directly stimulating
the economy. The other is the consequence of failure to sustain
the research enterprise in the United States at a time when so
many important scientific opportunities have been identified.
Investment in NIH is an investment in the U.S. economy and more
importantly an investment in the future health of our nation.
I thank you again for this opportunity to testify, and I
will be happy to answer any questions you might have.
[The prepared statement of Dr. Kington follows:]
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Mr. Pallone. Thank you, Doctor.
Mr. Pollack.
STATEMENT OF RONALD F. POLLACK, EXECUTIVE DIRECTOR, FAMILIES
USA
Mr. Pollack. Thank you, Mr. Chairman. Dr. Burgess, I also
want to thank you. When you spoke to Mr. Viard on the previous
panel and said he would be the grownup to speak before this
one, I want to thank you for recognizing my youth. I appreciate
it.
My testimony this morning will focus on how additional
funding for NIH, America's leading medical research agency and
the foremost biomedical research institute in the world, can
help the American economy. I do want to say one quick word,
however, about the discussion you had in the prior panel. I
think that an FMAP increase is critically important. If you
look at the last Census Bureau report, it shows that there was
a significant continuing drop over the last few years in terms
of employer-sponsored insurance, and the fact that we actually
had a reduction in the number of people uninsured was
attributable to increases in enrollment in Medicaid and the
Children's Health Insurance Program. There are at least 18
States that are in the process of significantly cutting back
the Medicaid program, and if we don't provide an FMAP increase,
we are going to be digging a much bigger hole because as fewer
people have coverage in the employer sector, we are not going
to have a public safety net to pick them up and the States do
not have the ability to do so. At the last pages of testimony,
we cited some of the States in terms of what they are doing to
cut back. It would make the economy a whole lot worse.
Others on this panel are going to speak to the enormous
importance that NIH plays with respect to medical breakthrough,
as Dr. Kington just did. I want to testify about the positive
economic force that NIH plays with respect to local economies
including job creation. Between 80 to 90 percent of NIH's
approximate $29 billion budget funds extramural research that
takes place in universities, medical research centers,
hospitals and other research institutes. We tried to gauge what
the economic impact is and we used as a tool for that the so-
called RIMS II model that is created by the Department of
Commerce, Bureau of Economic Analysis. Our report, which I hope
can be entered into the record in your own backyard, describes
this in greater detail, but I want to provide you with the most
salient findings.
In 2007, NIH awarded almost $23 billion in grants and
contracts to universities and research institutions in the 50
States. This funding generated a total of $50.5 billion in new
business activity in the form of increased output of goods and
services. NIH funding created and supported more than 350,000
jobs, and I want to emphasize that the average wage associated
with those jobs was approximately $52,000. These are not jobs
that provide really low wages. It is about 25 percent higher
than the average U.S. wage.
Let me just exemplify that by what happened in New Jersey.
In New Jersey, NIH provided grants and contracts of $280
million in 2007. This generated $631 million in new business
activity. It led to the creation of over 3,700 jobs. The
average wage in New Jersey that was supported by these new jobs
was $57,720, and this occurred as a result of major awards to
institutions like the University of Medicine and Dentistry of
New Jersey and Rutgers University. In my written testimony, we
described what those grants and contracts supported.
In 14 States, NIH funding generated over $1 billion in new
business activity. Those states are California, Illinois,
Maryland, Massachusetts, Michigan, Minnesota, Missouri, New
York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, and
Washington. In 10 States, each dollar of NIH funding generated
at least $2.26 in economic activity, including in the State of
New Jersey. In six States, more than 20,000 jobs were created,
including in Texas. In seven States, the average wage per new
job exceeded $55,000 including, as I mentioned before, New
Jersey. This is all very important because as you heard in the
testimony, NIH performs an enormously important service but it
has done so with less than a flat budget. If you look at the
budget compared to cost of living in real dollar terms, the
budget has declined, so it is important that we increase
funding for NIH both for the key medical purposes it serves and
for the benefit of the economy. Thank you.
[The prepared statement of Mr. Pollack follows:]
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Mr. Pallone. Thank you.
Ms. King.
STATEMENT OF RACHEL KING, CHIEF EXECUTIVE OFFICER,
GLYCOMIMETICS, INC.
Ms. King. Thank you very much, Chairman Pallone and Dr.
Burgess. I am delighted to be here today. I am the CEO of
GlycoMimetics, which is a biotechnology company, and our lead
product is in clinical trials today for the treatment of sickle
cell disease. I am here today representing the Biotechnology
Industry Organization where I serve as a member of the board of
directors as well as chair of the emerging company section, and
I am really happy to be here today to discuss policies that
Congress can implement both to spur the economy and to ensure
the continuation of biomedical research.
Federal funding of the National Institutes of Health is
clearly one of the most important things that we believe can be
done both to stimulate the economy and to provide that critical
research support, and BIO fully supports any and all efforts to
do this. An increase in NIH funding though is just one of the
things that Congress can do to invigorate the economy and to
spur biomedical innovation. While some of these additional
proposals may not fall directly within the jurisdiction of the
Committee on Energy and Commerce, it is our hope that Congress
will consider them as part of any stimulus package as they
would have a meaningful impact on the ability of biomedical
innovation to continue during these tough economic times.
The biotechnology industry holds tremendous promise for the
future of healthcare. The industry has already delivered over
250 FDA-approved therapies, many of which address important
areas of unmet medical need or are first in class treatments.
Biomedical research and innovation and the development of new
treatments and therapies are key economic drivers. Life science
R&D, as has been mentioned, provides high-tech, high-wage jobs
at both public research institutions and at the biotech
companies that typically locate close to these centers of
academic research. However, in this economic crisis, many
biotechnology companies are now struggling for survival. In
October alone, over 20 companies publicly announced layoffs.
Many other companies are making programmatic adjustments such
as shelving important research to conserve financial resources
and to reduce cash burn rates. These companies are struggling
because the financial markets are effectively closed to public
biotechnology companies. Public market investors have been
unwilling to participate in initial public offerings, and
without strong governmental policies, the outlook for these
companies remains dire.
Increasing federal funding for biomedical research is a
critical first step to alleviate the financial uncertainty that
the industry is facing. An increase in NIH-supported research
will yield more basic scientific findings and can also advance
clinical and translational knowledge associated with the
diagnosis and treatment of disease. NIH-supported research can
potentially advance the early stages of development of new
biotechnology products and thereby reduce the R&D burden on
industry. The NIH also plays a critical role in the transfer of
technology through which the fruits of NIH intramural research
are transferred to industry, ultimately where they can be
developed into preventative, diagnostic and therapeutic
products that will advance our ability to improve public
health.
Since completion of the doubling of the NIH budget over the
5-year period from 1998 to 2003, annual appropriations for the
agency have fallen below the rate of biomedical research
inflation. Congress has been able to provide incremental
funding increases, however, we fall well short of the costs
associated with biomedical research and technology development
inflation. To maintain research grants at current funding
levels, annual increases of at least 3\1/2\ to 5 percent are
required. The funding of the last 5 years has effectively
resulted in a 17 percent decrease in spending power on research
for the NIH, and this is a serious challenge to the
biotechnology industry. BIO strongly supports an additional
$1.9 billion in funding for the NIH. This increase in funding
would put us on the track of sustainable growth that is
necessary to realize the full potential that we see.
While I acknowledge that this committee does not have
jurisdiction over tax policy, I want to take this opportunity
to highlight some potential proposals that would infuse much-
needed capital into the industry at this critical juncture. For
example, corporate tax proposals allowing loss-making companies
to immediately utilize their accumulated tax assets such as net
operating losses and research development tax credits would
infuse much-needed capital into emerging biotech companies.
Additionally, the enactment of certain investor tax proposals,
a short-term stimulus for investments such as reductions in the
capital gains rate, capital gains rollover or reduced capital
gains specifically for funds invested in our industry would
also serve to encourage investment.
While the current crisis has substantially impacted the
industry, I do remain optimistic that the biotech industry will
triumph by working closely with the Congress, the
Administration and by important institutions like the NIH we
will be able to continue to support biomedical innovation by
increasing these government investments as well as enacting
financial policies that will incentivize investment in the
industry.
Thank you very much.
[The prepared statement of Ms. King follows:]
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Mr. Pallone. Thank you.
Dr. Kohn.
STATEMENT OF JOACHIM KOHN, PH.D., DIRECTOR, NEW JERSEY CENTER
FOR BIOMATERIALS AND PROFESSOR, RUTGERS, THE STATE UNIVERSITY
OF NEW JERSEY
Mr. Kohn. Thank you very much, Mr. Chairman, Congressman
Burgess and members of the subcommittee. My name is Joachim
Kohn and I am pleased to address this committee about the
economic value to the nation of investment in the NIH.
As a Rutgers professor, I hold the title of Board of
Governors professor of chemistry. I am also the director of the
New Jersey Center for Biomaterials and an adjunct associate
professor for orthopedics. I am testifying here today because
of my dual experience as an NIH-funded academic researcher as
well as an entrepreneur who has started three companies and
whose inventions have become FDA-approved medical products.
I would like to make two key points. First, NIH funding has
obviously an immediate short-term stimulating effect on the
economy. This short-term effect has been well described in the
report by Families USA. I would like to confirm that I agree
with the findings of this report. My second key point is that
NIH funding has a pronounced long-term effect on the economy
and the well-being of our Nation. I describe this long-term
benefit as economic leverage. Simply stated, the investments
made by NIH-funded researchers are the basis of a substantial
amount of economic activity relating to the translation of
these inventions to medically useful products.
In my personal experience, the economic leverage has been
tremendous. As little as $4.5 million in NIH support for my
research activities at Rutgers resulted in technology
commercialization efforts in four startup companies. Briefly,
TyRx Pharma, REVA Medical, Lux Biosciences, and Renova
Biomaterials have licensed my NIH-derived inventions and have
since then raised a total of $132 million in private equity and
I have now created over 100 high-paying jobs, all paid for by
private funding without further NIH support. Let me emphasize
again that without NIH funding, none of these companies would
be in existence today.
The NIH investment of $4.5 million made throughout the
1990s continues to bring benefits to our economy today. TyRx
Pharma has obtained FDA market clearance for two products and
continues its research and marketing operation in New Jersey.
REVA Medical is testing a revolutionary coronary stent in
clinical trials in Germany and Brazil with the expectation to
start extensive clinical trials in the United States sometime
in 2009 in the middle of our economic crisis. Lux Biosciences
is completing phase III clinical trials of Voclosporin for the
treatment of major and common diseases of the eye such as dry
eye syndrome, uveitis and age-related macular degeneration. And
Renova has just now been incorporated and has already attracted
$1.2 million in its first round of financing. Renova has now
started to operate in Somerset, New Jersey. This level of
economic activity has been made possible by private follow-up
investments which have so far leveraged the original government
funding at a staggering ratio of 29 to 1.
Finally, in terms of the total benefit to society, I can
see one additional economic incentive for the government's
investment, which I refer as the indirect health dividend. By
this I mean the value of the improvement in the health of the
Nation as well as the reduction in healthcare costs derived
from new products developed with NIH funding. I can illustrate
the health dividend best with a personal experience again.
Macular degeneration threatens my aging mother with blindness.
Twice a day a nurse has to come by my mother's house to
administer her prescription eye drops. My mother at age 84 is
simply too frail to administer these drops herself. In response
to this need shared by millions of disabled and elderly
Americans, I am collaborating with Lux Biosciences to develop a
new fully bioresorbable drug delivery system that can be
inserted into the eye and that will deliver a variety of
ophthalmic drops for 6 to 12 months continuously, eliminating
the need for daily nurse visits. The polymers we are using to
develop this drug delivery system were invented as part of an
NIH-funded research project in my lab.
An additional example of the indirect health dividend is
provided by the antimicrobial sleeve developed by TyRx Pharma
to protect patients with cardiac implants such as pacemakers
from infection. This product alone has the potential to reduce
the national healthcare costs by $240 million each year as
outlined in my written testimony.
In conclusion, Mr. Chairman, the NIH stimulates our economy
in many ways. In the short term, we can quantify these economic
benefits in terms of the direct stimulatory effect as well as
the significant multiplier ripple effect that is felt
throughout the Nation. In addition, in the long term, I believe
that the grants and contracts provided by the NIH have a
disproportionately large and lasting impact on our economy
through the significant leverage of NIH funding by private
capital and through the health dividend. I am firmly convinced
that increasing the NIH budget whether in a near-term stimulus
package or as part of future funding bills will pay off both
now and in the long run. I encourage you to take this
comprehensive view, and I thank you for the opportunity to
testify.
[The prepared statement of Mr. Kohn follows:]
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Mr. Pallone. Thank you, Doctor.
I think Dr. Burgess is coming back but I am going to start
with the questions here, and I will start with Ron Pollack. The
reason we had this panel today is because of obviously a
feeling on some of our parts on the committee that NIH funding
could be a significant stimulus for the economy. It is not
always thought of in that way, in the way that FMAP is though,
and so I do want to kind of get into a little more exactly how
it would be a significant stimulus. There is also the fact that
in Congress many of us feel that innovation in itself is a good
thing and that somehow innovation which you know we have been
lacking in some respects should be part of the stimulus. So
Ron, if you could say specifically about NIH how is this such
an ideal mechanism, in other words, how is it that the
innovation, the research, why should it be included as opposed
to some other things?
Mr. Pollack. Well, an investment in NIH, which obviously
has critically important health consequences, does help the
economy in significant ways. Remember that the overwhelming
majority of resources that NIH receives from the Congress are
spent via institutions like universities and research centers,
and they hire people right way. Also in the process, it
leverages funds. Funds from the Federal Government attract
other money, both at the State level and in the private sector,
and so as a result there is an immediate impact in terms of
people being hired. When you grant or contract, you have to
deliver within time parameters, and so each of these
institutions quickly staff up to make sure that they can
fulfill the contract, and that has an immediate economic
consequence.
Mr. Pallone. All right. Thank you.
Now, I wanted to ask Dr. Kington sort of a negative and a
positive, the negative being because in the past 5 years NIH
has not received any increase in funding in real terms, well,
actually it hasn't received any increase. If you take the
inflation factor, we have actually cut NIH budget for the past
5 years. So do you think you could estimate what our country
has lost in economic benefit due to the past 6 years of flat
funding? Can you explain what the impact of this level of
funding has been on the NIH's ability to spur medical
innovation? And finally, your thoughts on what impact this has
had on our ability to attract talented and promising young
minds. Those are my negatives. Then I will get into the
positives.
Dr. Kington. Well, clearly we believe that we are at an
extraordinary point in biomedical and behavioral science where
there are tremendous opportunities, and because of the flat
budget, we aren't able to invest in those opportunities to the
degree that we think would be optimal for the American people.
I think that the drop in the success rates of funding
applications is one indicator. Part of that reflects an
appropriate reading in the academic community and the
university and research community that the country was
investing in the enterprise of biomedical research and that led
to a priming of the pump. More people were being trained, there
were substantial investments by institutions at local levels to
strengthen the infrastructure, and just as they were able to do
that, they were met by flat budgets with a drop in success
rates. One of the greatest concerns of Dr. Zerhouni, whose
tenure just ended, was the potentially horrible effect this
might have on young investigators, on new investigators, and we
believe that that is a concern and that more and more young,
new scientists are thinking long and hard before making
investment in a scientific career because the outlook isn't so
positive when their success rates are 20 percent. Now, we are
doing everything we can to target funds within the agency so
that we can invest in new investigators but we have limited
options in the face of a flat budget.
Mr. Pallone. Well, let me do the positive. Let us say we
were to take the number used by Families USA and increase
funding for NIH by 6.6 percent or $1.4 billion. What would that
mean in terms of new grants being funded, and would you be able
to fund grants immediately or will it take time?
Dr. Kington. We have looked into this. We believe that we
could fund several thousand grants within a matter of weeks.
For every about $500 million or so, we could fund an additional
1,400 grants that would not have otherwise been funded. We
believe that we can do it without increases in infrastructure.
We are primed and ready to go. We have 10,000 grants that have
already been approved from the last fiscal year that have been
found to be scientifically meritorious and that have been
approved for funding by our public advisory councils. So it is
just a matter of getting these grants out the door. We have
established relationships with 3,000 institutions across the
country who are ready and primed to receive these funds. We are
confident that we can make the investment within a period of 4
to 6 weeks.
Mr. Pallone. Okay. Great.
Mr. Pollack. And I want to just emphasize with the figure
you used, this would, by the calculation using the RIMS model,
would increase over 9,000 jobs over the course of the year.
Mr. Pallone. Okay. I am waiting for Dr. Burgess, and I am
over my time. Let me see if he is coming. He is. Thank you. I
yield to the gentleman.
Mr. Burgess. Let me first just say that this hearing is not
about the value of the NIH because there is no one up here who
disputes the value of the NIH. You are the crown jewel in the
federal government. You are the agency, the system that works
when all else fails, so I want to say that up front. Dr.
Zerhouni was very good to me during his tenure. I took many
field trips out to the NIH. I look forward, Dr. Kington, to
getting out and visiting with you. One of the things that Dr.
Zerhouni talked about, when I came on the committee two terms
ago, it had been years since there had actually been an
authorization bill for the NIH, and one of the things Dr.
Zerhouni was very concerned about that it was feast or famine
one year to the next. He never knew that was going to happen.
He asked us for stability. He asked us for flexibility with the
translational research, to be sure, but he asked us for some
degree of stability in knowing what he could depend on from
year to year because my understanding is, many of these grants
aren't just a few months' time, they are like 60 months or 5
years, so if we give you something one year and don't continue
it the next year, then we have brought a young scientist in, we
have staffed up a lab and now we are not continuing, and that
is very disruptive obviously to the ongoing research.
We went through an extensive reauthorization process which
concluded 2 years ago, December of 2006, right before the end
of the 109th Congress, and in that reauthorization bill, and we
took a lot of criticism for this, the baseline budget I believe
was $29.5 billion and it was to be a 5 percent authorization
increase for the next 5 years was what was laid out, and Dr.
Zerhouni felt very comfortable with that as a roadmap for going
forward. I think, Ms. King, that would fit within your
parameters of a 3.5 to 5 percent increase. Now, we were
criticized because although the rate of biomedical inflation
was 3.5 percent at the time, medical inflation was 7 percent
and there were people on this committee who argued that our
numbers should be somewhere in between 3.5 and 7 percent, but 5
percent is where we ended up. And then we weren't in charge of
the appropriation, and so the next year when Chairman Pallone's
guys on the appropriations committee came up with a 2 percent
increase and then we didn't do any appropriations at all last
year, we did a continuing resolution. We will get to you in
February if that is okay. So there is your problem, is the fact
that we made a promise to you as authorizers on this committee
and the appropriators have not executed that responsibility
correctly, and it seems to me that we will be going down the
same path that Dr. Zerhouni found bothersome a couple of years
ago where we inject--I will agree that we are 6.6 percent
behind what we should have been. If we gave you 2 or 3 percent
in the fiscal year before and nothing this fiscal year, you
should be up 10 percent. So yes, that 6.6 percent figure makes
sense but the reality is, that should have been a stable,
dependable appropriation coming from a stable authorization
that was laid out by this committee in agreement with Dr.
Zerhouni, and at the end of December of that year we all
clasped hands and said that was a good thing and we refrained
from actually getting too much into the business of
restructuring the NIH, which several people on the committee
wanted to do, some areas where there might be duplication and
perhaps the director should have greater authority. I remember
those articles when I first came on board, 29 figures without a
palm is not a usable appendage.
So I just want to stress that this committee has done its
work as far as the NIH is concerned. The problem is that the
other committees in Congress haven't followed suit and really I
would call upon the chairman to insist with the Speaker that
the Appropriations Committee do its work in February when we do
finally get around to doing the appropriations for last year
and then ongoing during the year that we do the work required
in the Appropriations Committee and that we provide you with
the funding that we promised, because if we don't do it this
fiscal year, yes, now you are down 15 percent of what you were
promised of that increase. That is about $1.5 billion a year,
and like old Everett Dirksen said, pretty soon you are talking
about real money.
So with that, again, I am so grateful that you all are
here. I think the NIH is the crown jewel in the Federal
Government and it is a national treasure and it is certainly
something to be preserved. I am not sold on the idea of it
being an economic stimulus engine. I do have to ask, Ms. King,
what in the world are GlycoMimetics? Because I should know and
I don't and I couldn't find it in your testimony and I didn't
look it up on Google last night.
Ms. King. They are mimics of functional carbohydrates. As a
physician, I am sure you appreciate it.
Mr. Burgess. Well, that is what I would infer from the
name. And then what is the association with sickle cell
disease, if I may be so bold as to ask?
Ms. King. The adhesive events associated with a sickle cell
crisis are mediated by a mechanism that our drugs interfere
with. So I will send you more about it.
Mr. Burgess. That is a fascinating field of study and just
indicative of the type of basic research that is so critical
for people who are afflicted with very, very onerous diseases
and conditions.
And Mr. Pollack, I just have to say, everyone remembers
where they were during certain events in their life. I will
never forget the night driving home in 1993 after a hard day of
seeing patients and hearing you and Donna Shalala talk about
your vision for healthcare reform. It made me politically
active from that night, so although it was probably not your
intention, I thank you for the impetus, and you were the
catalyst for me suddenly becoming aware of my surroundings and
the impact that Congress on my life.
I am going to yield back, Mr. Chairman, in the interest of
time.
Mr. Pollack. Doctor, I have to say we are delighted that we
helped to facilitate a portion of your career.
Mr. Pallone. I am not sure that was a compliment. But in
any case, thank you all for being here today. Again, it is such
an important issue, and we would like to include the NIH in the
stimulus at some point because I think it has to be part of it
in some way. So thank you again.
Let me just remind members that they, well, I should tell
you as well that you may get written questions from members and
those would be submitted to the clerk within the next 10 days
so you may get a notification that we have additional written
questions.
But without objection, this meeting of the subcommittee is
adjourned. Thank you.
[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
Prepared statement of Hon. John D. Dingell
I am pleased that we are having a second hearing on the
role of health care as an economic stimulus. With the continued
deterioration of the economy, it is clear that quick, decisive
action is needed.
Earlier this fall, after the collapse of the housing market
and failures of key economic institutions, Congress acted to
pass the Emergency Economic Stabilization Package of 2008,
which was signed into law on October 3, 2008. However, the
continued loss of jobs and revenues for States is underlying
the need for a second stimulus package. That package needs to
be targeted to include funding for infrastructure, unemployment
insurance, and health care in the form of increased federal
funding for Medicaid to the States.
The ranks of the unemployed have risen by 2.2 million
workers over the last 12 months. Most States are experiencing
considerable budget deficits along with declining or flat
revenues. A one percentage-point increase in unemployment could
raise the number of uninsured by 1.1 million, adding to the
already staggering number of uninsured in this country and an
increased burden on the States through their Medicaid programs.
Health care spending, in the form of increased funding for
Medicaid to the States, must be a critical component of any
stimulus package. First, as workers lose their jobs, so too
goes their health insurance. States need additional resources
to support the increased demand for services as their revenues
are declining. States also need additional resources to prevent
cutbacks in Medicaid coverage and benefits that would otherwise
be required to help balance their budgets in a time of
declining revenues.
Second, additional health care spending acts as an economic
booster. Increasing the federal funding of Medicaid is a
powerful countercyclical tool; it is direct, immediate, and
does not require any additional administrative costs or actions
to implement.
Third, increased investment in the National Institutes of
Health (NIH) is vital to a successful economic stimulus
package. An effective economic stimulus plan must quickly
inject and circulate a significant amount of money into the
domestic economy to reinvigorate consumer confidence, sustain
employment, and contribute to more stable financial markets.
The NIH is a proven vehicle to provide maximum economic
stimulus effect, plus it offers additional opportunities to
accelerate biomedical research, which will benefit all U.S.
citizens.
Unfortunately, for the past five years, federal funding for
NIH has not kept pace with inflation. In addition to stifling
scientific progress, these funding cuts have a negative
economic impact on communities across the country. Eighty to
ninety percent of the NIH's $29 billion budget funds research
that takes place at universities, medical research centers,
hospitals, and research institutes in every state in the U.S.
The federal dollars that NIH sends out into communities provide
direct economic benefits at the local level, including
increased employment and growth opportunities for universities,
medical centers, and local companies. When NIH funding is cut,
communities across the country pay the price.
I look forward to the testimony of today's witnesses,
particularly Mr. Zolotorow who will provide a first-hand
account of the importance of his Medicaid coverage and what is
at stake if Congress does not act to provide States with the
resources to ensure that they can continue to provide health
care coverage to people, like Mr. Zolotorow, in this time of
great need.
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