[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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