[Senate Hearing 116-603]
[From the U.S. Government Publishing Office]
S. Hrg. 116-603
THE CORONAVIRUS AND AMERICA'S SMALL
BUSINESS SUPPLY CHAIN
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
MARCH 12, 2020
__________
Printed for the Committee on Small Business and Entrepreneurship
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
43-665 PDF WASHINGTON : 2023
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SIXTEENTH CONGRESS
----------
MARCO RUBIO, Florida, Chairman
BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
JAMES M. INHOFE, Oklahoma CHRISTOPHER A. COONS, Delaware
TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii
JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois
MITT ROMNEY, Utah JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
Meredith West, Republican Staff Director
Sean Moore, Democratic Staff Director
C O N T E N T S
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Opening Statements
Page
Rubio, Hon. Marco, Chairman, a U.S. Senator from Florida......... 1
Young, Hon. Todd, a U.S. Senator from Indiana.................... 1
Cardin, Hon. Benjamin L., Ranking Member, a U.S. Senator from
Maryland....................................................... 5
Witnesses
Gibson, Ms. Rosemary, Senior Advisor, The Hastings Center,
Arlington, VA.................................................. 7
Anderson, Dr. Gerard, Professor, Johns Hopkins University,
Baltimore, MD.................................................. 15
Morrison, Mr. Tim, Senior Fellow, The Hudson Institute,
Washington, DC................................................. 22
Briscoe, Ms. Wynne S., Acting Director, The Small Business
Development Center--Southern Maryland Region, La Plata, MD..... 30
Alphabetical Listing
Anderson, Dr. Gerard
Testimony.................................................... 15
Prepared statement........................................... 17
Responses to questions submitted by Senator Rosen............ 52
Briscoe, Ms. Wynne S.
Testimony.................................................... 30
Prepared statement........................................... 32
Responses to questions submitted by Senator Rosen............ 54
Cardin, Hon. Benjamin L.
Opening statement............................................ 5
Gibson, Ms. Rosemary
Testimony.................................................... 7
Prepared statement........................................... 10
Morrison, Mr. Tim
Testimony.................................................... 22
Prepared statement........................................... 24
Rubio, Hon. Marco
Opening statement............................................ 1
U.S. Chamber of Commerce Small Business Council
Letter dated March 11, 2020.................................. 56
Young, Hon. Todd
Testimony.................................................... 1
THE CORONAVIRUS AND AMERICA'S SMALL BUSINESS SUPPLY CHAIN
----------
THURSDAY, MARCH 12, 2020
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 10:35 a.m., in
Room 428A, Russell Senate Office Building, Hon. Marco Rubio,
Chairman of the Committee, presiding
Present: Senators Rubio, Ernst, Young, Romney, Hawley,
Cardin, Shaheen, Booker, Hirono, and Rosen.
OPENING STATEMENT OF HON. MARCO RUBIO, A U.S. SENATOR FROM
FLORIDA
Chairman Rubio. Thank you all for coming today, and I
appreciate the witnesses being here on this hearing. The
hearing will come to order. I am going to go out of order
quickly because Senator Young has another related topic event
that he has to be at and I wanted to recognize him just
quickly. He wanted to say a few words on this topic and I
wanted to make sure he was able to get on the record before we
begin.
OPENING STATEMENT OF HON. TODD YOUNG, A U.S. SENATOR FROM
INDIANA
Senator Young. Well thank you, Mr. Chairman, for holding
this important hearing, and I first want to get on the record
and thank all our subject matter experts. I think if there is
anything we legislative leaders ought to be doing, and more
broadly our government leaders, is listening to the public
health experts. So thank you so much to the experts in some of
these discrete areas that will be impacted by the coronavirus.
I do regret that in minutes I have another meeting that
also pertains to this important topic. I just want to publicly
express my intention to submit to the record some important
questions I have for you related to the increasingly integrated
supply chains that we now have between various enterprises. And
I guess this situation has exposed that that creates certain
vulnerabilities during times of what is now a pandemic. I have
some questions related to supply chain mapping that I am hoping
someone will be prepared to answer.
And lastly, our reliance on foreign-made medical supplies
is something that I think we are going to have to rethink over
the course of the coming weeks, months, and really years. But
it has certainly caused us to heighten awareness of this
important issue.
So your attention to those issues would be much
appreciated. Thank you again, Mr. Chairman, for this
opportunity to say a few words and for holding this important
hearing.
Chairman Rubio. Thank you. So we are going to begin and I
am going to give the Ranking Member the opportunity for opening
comments and then I will go to mine.
Senator Cardin. I do not mind if you go first.
Chairman Rubio. Well, he wants me to go first. Very nice
people here. We work on a lot of stuff together.
OPENING STATEMENT OF HON. MARCO RUBIO, CHAIRMAN, A U.S. SENATOR
FROM FLORIDA
Chairman Rubio. Anyway, as I said, today's hearing really
is timely, unfortunately, because of the challenges that we are
now seeing, and I want to sort of bifurcate it into two steps.
The first is what we can do, obviously, to help small business
weather the coming storm that is going to be created by the
fact that people are not going to be able to be together with
one another in places, and that is obviously going to impact
cash flows and the impact that has on employees, and in some
cases the threat it poses to a business' ability to continue to
function. And I think that is of immediate concern. That is the
one thing we have got to deal with if we are triaging this
problem right away.
But I think we are beginning to see the outlines of a
second problem, and that is what it means when your supply
chain is disrupted. And we all just left a meeting of the
entire Senate with leaders in our country and health care, and
what is becoming evident and apparent is that one of the
impediments to the widespread availability of testing is a
supply chain unpredictability. It is not just the tests. If you
do not have cotton swabs, if you do not have protective gear
for the lab technicians or the basic ingredients needed for the
test you are going to have a problem in conducting those tests.
And from our perspective is the role that small business
can play, structurally, now and for years to come, in ensuring
that these sources of supply chain disruptions do not become a
national threat to the country. A lot of it will be focused on
China, because that is where a lot of this activity has gone,
but it is not just China. If you are India, if you are South
Korea, if you are a country that also makes these things, and
you are facing this threat, you are going to hoard it. You are
going to act in the best interest of your nation, and that is
understandable. We need to start acting in the best interest of
our Nation in these regards, and so that is important.
Later today, if we can bring it here--because I believe we
can--we have been engaged before last night in conversations
with the White House, with Ranking Member Cardin and his team,
with individual members of this Committee, with our
counterparts in the House Small Business Committee, on what
relief to small businesses should look like and how we can help
them. And so hopefully later today we are going to have an
opportunity to present it, and the crux of it, as I have
already outlined to some, is taking the commitments the
President made last night and funneling it through our 7(a)
program and our community banks, because they are in the
community, they have, through Community Advantage and other
related programs as well, have the ability to process the paper
on this.
We are going to have to give a little flexibility. We are
going to have to allow small businesses to use the funds they
have borrowed to make payroll, to provide paid sick leave for
employees that are hurt or employees that are sick or employees
that, frankly, cannot come to work. We are going to have to
give them the flexibility to do that. We want to make sure that
the money is being lent is real and going to be paid back, but
by the same token--and that is where the community bank process
can help--but we also have to make it quick. These guys cannot
wait 90 days to get these funds, and workers cannot wait 90
days for the paid sick leave that these will give the small
businesses an opportunity.
I am not claiming this solves all the problems. It does
help. If we are going to make that kind of commitment to small
business I believe that it should be in a way that is most
effective and responsible with the taxpayer money, but also
most helpful to those small businesses.
On the supply chain issue, I think the backdrop to our
general economy, even before--and this Committee issued a
report a year ago that warned about it--even before all of this
is that we are dangerously reliant, in particular, on China for
the production of critical goods, and that includes goods, as I
have already outlined, that are needed to fight the
coronavirus.
And I think we rely on far more goods than we know, and
part of the economic pain that is going to be inflicted on the
country as a result of these disruptions will be directly
related to disruptions in the supply chain, because of an
outbreak that shut down factories that end up impacting the
availability of important consumer goods.
Just a brief review that our staff put together for this
hearing, last year--and this is according to the Census
Bureau--China accounted for 88 percent of electric hand drill
and saw imports, 87 percent of air conditioning machinery
imports, 83 percent of hydraulic jacks and hoists, 72 percent
for cell phones and its parts, 58 percent of forklifts, 51
percent of lithium ion batteries. The list goes on and on.
Disruptions in these supply chains tell you that even after the
virus is contained and starts coming under control we could
have shortages, and you know the industries that are reliant
upon this. This is where the spread of this becomes much more
serious.
So the focus is on three things that we really want to talk
about. First is the immediate consequence of not having the
capacity to produce these essentials to your home. And small
businesses are going to experience a great deal of economic
pain as a result of supply chain disruptions.
But there is also going to be increased demand, increased
demand for medical supplies and surgical masks and
pharmaceutical drugs, and our small businesses can be a part of
the answer to that, to filling in those gaps in the supply
chain for critical sectors that have been exposed, as weakened
because of offshoring of our productive capacity to China and
elsewhere.
The absence of having these domestic businesses that can
ramp up production to meet demand for these critical goods
limits our ability to mitigate the worst effects of this virus
beyond its broader economic impact, and the result is that the
virus could end up being more damaging than it needed to be,
and the economic impact, as a result, greater than it needed to
be.
As I pointed out earlier, we are already seeing this. One
of the reasons why we have struggled to produce the testing
kits is because we rely on foreign producers for the chemicals
that are needed to make them. And there is a growing shortage
because more people are testing, and as I said earlier, the
countries that have it are going to be less willing to provide
it.
So I truly believe that one of the things we should look at
after we provide the initial set is what can we do, through the
SBA, through the work of this Committee, and it has to be
bipartisan--there is no other way to do it--to help small
business be a growth sector in our economy to meet some of this
increased demand.
Second, obviously, that we will discuss, and I am sure you
will point to, is the long-term consequences of the
vulnerability, particularly when it comes to China. This was
not the accidental byproduct of globalization. It is an outcome
of a deliberate strategy on their part which made biomedicine
and high-end medical equipment a priority. In their Made in
China 2025 plan they put it in writing. It has long been
practiced. It encourages domestic companies and their predatory
practices, and provides a short-term bargain for foreign
companies, but big-time costs for our Nation and the world.
For years, China has been able to entice American
multinational corporations with access to its markets in
exchange for offshoring and sharing intellectual property, and
we have watched as Beijing captured critical portions of the
global supply chain. Today, 80 percent of the active
pharmaceutical ingredients in the United States, in the drugs
that are here, are sourced somewhere else, and a lot of that is
China. And now, in the face of the pandemic, as I said, the
absence of this capacity in the medical sector is endangering
our health care system, and that is something we have to figure
out, in the short term and forever.
So it is hopefully something that we are able to act on to
find out what role can small business play in growth and in
taking back the ability to make these critical goods in the
United States right now and in the future.
So I hope that we can come up with a second wave of
proposals that will empower small businesses to bring the
production of critical goods all in-house and getting American
multinationals to buy domestically from them, not as a matter
of economic protectionism but as a matter of national security
and national economic stability. This is good for our public
health, it is good for our economy, it is good for, as I said,
our national security, and it is good for our people.
So I look forward to hearing from our witnesses who are
experts on these topics about what we can do to help small
business be a part of solving this challenge, and now I turn it
to the Ranking Member.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, RANKING MEMBER, A
U.S. SENATOR FROM MARYLAND
Senator Cardin. Well, Mr. Chairman, thank you very much for
convening this hearing. As you pointed out, we came from an
all-Senate members briefing on the COVID-19 virus and its
consequences. We learned from that briefing, we heard last
night that it has struck our family. Senator Cantwell's staff
person has the virus, Senator Cantwell, former Chair and
Ranking Member of this Committee, and a senior member of this
Committee, and that there are members of her staff that are now
in quarantine as a result, and, of course, one needing
treatment. So we know this impacts all of us.
I want to just underscore the last point that you made. Our
first priority is to triage, to deal with the circumstances
that we are confronting today, whether they are the medical
circumstances or the economic circumstances. But I hope that we
will follow your advice and recognize this will not be the last
crisis that we are going to have, and in regards to the supply
chain we need to take a look at making sure that we are better
prepared for the next crisis that comes down than we were for
this one. So I agree and I look forward to working with you in
regards to those issues.
Clearly our first priority is to deal with the medical
challenges. That is our first priority. We still are not where
we should have been or need to be in regards to testing. We are
developing the vaccines and drugs that will hopefully be
available. The drugs, the therapeutic drugs, may be available
to help us in this crisis; it is possible. The vaccines will
not. But I am proud of our leadership in regards to those
developments at institutions located in the state of Maryland,
including the National Institutes of Health and Johns Hopkins
University and University of Maryland Medical Center.
We need to deal with local responses, make sure they have
the capacity, the hospital capacity, mitigate the spread. And
the emergency supplemental dealt with many of those needs, and
as the Chairman pointed out that is the first installment. It
is not going to be the last installment.
And we also have to deal with the economic impact,
including the disruption of the supply chain to American small
businesses. I was pleased to see that it was recognized in the
supplemental. There was a recognition of the problems small
businesses are confronting. We recognize that small businesses
are very much impacted by the facts that Americans are self-
quarantining and not using the business community as much as
they would, the avoidance of gatherings, the cancellation of
events, the school closures, the trip cancellations. All of
that has an impact on American small businesses.
I can give you specific examples in Maryland. Johns Hopkins
has just announced that they are closing their campus from the
point of view of students and faculty. I can tell you Charles
Village in Baltimore City, a lot of small businesses are
located in Charles Village. They depend upon the students and
faculty. They are not going to be there, and it is going to
impact those small businesses.
We can give you many, many more examples. Chanell Wallace,
who owns a hair salon in Bowie, Maryland, shared that order for
her hair extensions placed in January has yet to be filled with
her vendor in China because of the coronavirus. Jerry Chan, who
owns a noodle restaurant in Gaithersburg, reported in the
middle of February that his restaurant has already experienced
a 30 percent decline in sales, and the spread of the
coronavirus is only going to make that situation worse.
Sterling Forever, a jewelry company based in Towson, reported
that not only were some of the factories in their supply chain
closed, their distributors were requesting advanced payment to
help with the crisis. And the list goes on and on and on.
So we know that we are just starting to see this. It is
getting worse by the--I would say by the day, but it seems like
it is getting worse by the hour. So we know we have an
immediate crisis.
Capital is the lifeblood of small businesses. We need to
deal with that issue. The emergency supplemental allowed small
businesses to qualify for economic injury disaster loans, EIDL,
and provided some resources to the Small Business
Administration in order to administer that. We need to build on
that supplemental.
Let me point out, Mr. Chairman, that I have already heard
from some small businesses. They need to get the information on
how they qualify, so we need to get that help out to small
businesses so that they can take advantage of what was in the
first supplemental dealing with the coronavirus.
Our resource partners need to be better empowered. They are
the ones in which small businesses will go to for help. Our
Women Business Centers, our Minority Business Development
Centers, and the other resource partners, we need to make sure
that they have the resources.
We all heard last night, as President Trump mentioned a
number for small businesses that I thought was one that we
could work with, $50 billion. Let us work with that in the most
effective way. Chairman, I agree. We all need to come together
with a bipartisan solution.
I would hope that the disaster loans will provide help and
will deal with resiliency the issues that you talked about--
paid leave for the workers of small business, dealing with
telecommuting. That is going to cost some resources. Do we have
the resources to provide that? Let us take a look at the SBA
loan packages. Let us make them easier, more generous, and less
costly for small businesses to be able to take advantage of
those, including looking at the costs of taking out a small
business loan.
And Mr. Chairman, I would hope we would also look at one
additional factor. If you have seen a 30 percent decline in
your revenues, will you qualify for a loan? The disaster loans
are direct loans--that is good--from the SBA. But they have to
be repaid. If you do not have the revenues, how are you
expected to repay, and will the SBA structure allow those loans
to take place? We need to take a look at a targeted grant
program to keep small businesses afloat. Why? Because that is
where job growth, innovation, and our economy depends upon it.
This is an extraordinary crisis that requires us to respond
in kind. Let us act in that regard to triage the current
situation, be prepared for the future. I think we can work
together and get this done. We need to do that for the sake of
American businesses. As Congress begins to address this
economic impact of the coronavirus, we must ensure that we
focus on being prepared to withstand the economic disruption
that is occurring in our economy.
I look forward to hearing from our very distinguished
witness panel, and look forward to all their testimony.
Chairman Rubio. Thank you, and just along those lines,
before I turn it over to our witnesses, items we have discussed
with your staff, as you are aware, in the 7(a) loan part, is
allowing the loans to be used for payroll support. That would
include paid sick leave, so employers could use that. We waive
the fees on both the borrower and the lender to lower the
costs.
On the particular of the SBA express loans, increasing the
loan limit for those, those turn around in about 36 hours. And
on the EIDL loans, which have already been approved for
coronavirus impact, and 20 states have already applied, the SBA
will be able to determine repayment solely on the applicant's
credit score. They are not going to have to go and get tax
returns or transcripts, and they do not have to prove that they
could not get credit from somewhere else.
So some of those ideas to address some of the issues you
raised. It will not solve every problem, obviously, but
certainly we are trying to move as quickly as we can on these
topics. But it will have to be done, because of the nature of
this place, not to mention the nature of this crisis, in a
bipartisan way, and I think we can get to a point where we can
put something forward that would achieve the President's
purpose of getting $50 billion available to small business, but
do it in a way that works, is responsible, and works for the
borrower.
So with that I appreciate everyone who has come here. We
are going to try to move on this now, and we are going to begin
with all of our witnesses. I will begin with Ms. Gibson, who is
a Senior Advisor at The Hastings Center. She led the National
Health Care Quality and Safety Initiatives at the Robert Wood
Johnson Foundation. She is the author of China Rx: Exposing the
Risks of America's Dependence on China for Medicine. So, Ms.
Gibson, thank you for being here.
STATEMENT OF ROSEMARY GIBSON, SENIOR ADVISOR, THE HASTINGS
CENTER, ARLINGTON, VA
Ms. Gibson. Good morning. Thank you, Chairman Rubio and
members of the Committee for the opportunity to be here today.
I am here to talk about small businesses that are prepared to
start production of critical medicines that are in short
supply, that are needed to care for people who are hospitalized
with coronavirus.
The medicines I am talking about today are generic drugs,
and generics are 90 percent of the medicines that we take.
Members of Congress take them, occupants of the White House--
the focus is generic drugs. And right now we are rationing, in
the United States of America--the term is ``on allocation''--
essential medicines, including critical antibiotics that are
necessary to treat hospitalized patients with coronavirus.
I visited a hospital last week and there is an antibiotic
that they can no longer get. There are other antibiotics that
are in short supply. There was a volunteer EMS worker who goes
out on ambulances in her community and she said they do not
have epinephrine on their ambulance, which is used to revive
people. I said, ``So what do you do?'' and she said, ``We just
drive faster to the hospital.''
The $8.3 billion emergency package for coronavirus was an
important step forward. There is support for research for
vaccines for coronavirus, therapies to actually cure people
with coronavirus, but there was nothing in that supplemental
package to make, here in the United States, the essential
generic drugs that are necessary to treat critically ill people
with coronavirus, as well as critically ill people under normal
circumstances in our Nation's hospitals.
China is the dominant global producer of the core chemicals
to make thousands of our generic drugs. It was mentioned of the
active ingredients coming from China and other countries. We
have to look beyond the active ingredients. That is the data
the FDA has. But what is missing are the core chemicals to make
those active ingredients. For essential medicines to treat
coronavirus patients--sedative, pressers to raise their blood
pressure, antibiotics--90 percent of those core chemicals are
sourced in China.
There is talk that we should let the free market fix this.
The reality is that there is no free market. Generic
manufacturing has collapsed in the United States. There are
only two Western companies left that are making generic drugs,
and they announced last year they are dropping half their
products because they can no longer make them, so they are on
the FDA shortage list.
And how does this happen? It is because patterns of China
forming cartels, which has driven out production of so many of
our core medicines--we cannot make penicillin anymore because
of what I wrote about in China Rx, the penicillin cartel. We
cannot make vitamin C. We cannot even make aspirin, and
thousands and thousands of other medicines.
And India put out its export ban because its giant generic
industry, which supplies us with 25 percent of our generics,
depends on China for those core chemicals.
So what can we do? In doing this work on China Rx, small
companies have approached me, and these are brilliant people
prepared tomorrow to start using advanced manufacturing
technology to make medicines fully made here in the United
States that are in short supply.
There is a precedent for the U.S. government to fund
medicinal manufacture, namely flu vaccines, through HHS and
BARDA. BARDA knows how to do this. We could use that same model
to make critical essential generic drugs through BARDA, through
public-private partnerships. They do investment for capital and
for equipment, but the production costs of using new technology
would make our drugs much less expensive.
I would like to close by saying there is another thing we
have to address, and this has nothing to do with coronavirus.
But there are thousands of children who have died in recent
years because we can no longer make the old staple, generic
drugs that are necessary to sustain them. These are children
with rare diseases. There are small companies that approached
me. They want to make them, and together we can make a
difference, not only for coronavirus patients but for these
children.
I look forward to working with the Committee and the staff
on how we together can do a lot of good to ensure that every
patient has the medicines that they need when they need them.
Thank you very much.
[The prepared statement of Ms. Gibson follows:]
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Senator Cardin [presiding]. Thank you, Ms. Gibson, for your
testimony. I will now call on Dr. Gerald Anderson, who is a
professor of Health Policy and Management and professor of
International Health at the Johns Hopkins University Bloomberg
School of Public Health and a professor of Medicine at the
Johns Hopkins University School of Medicine. He is also the
director of the Johns Hopkins Center for Hospital Finance and
Management.
Dr. Anderson.
STATEMENT OF GERARD ANDERSON, Ph.D., JOHNS HOPKINS UNIVERSITY,
BALTIMORE, MD
Dr. Anderson. Thank you, Senator Cardin, Senator Rubio, and
members of the Committee.
I have been a professor at Johns Hopkins School of Public
Health for the last 37 years, and let me tell you about my
greatest fear about coronavirus.
Yesterday I went to the local grocery store. Tonight, I
will go to the dry cleaners and maybe go out to dinner with my
wife. My greatest concern is these people in these small
businesses will go to work with coronavirus. The shop keeper
will want to keep this business open because they do not have
the funds to keep the office closed for 14 days. The worker
will not want to report that she has coronavirus because she
probably does not have sick leave.
The uninsured worker will not have the $200 or so that is
necessary for the coronavirus test. Remember, 10 percent of
Americans are uninsured and they are most likely to be working
in small businesses.
So what Congress do to alleviate my fears? Pay the
shopkeeper to close the business for 14 days if they do have an
employee with coronavirus. A loan probably will not do the
trick because most of them have huge bad debts anyway. As
Senator Cardin said, grants may be necessary.
At least for the next 90 days, make sure the person has at
least 14 days of paid six leave. And for the next 90 days, pay
the provider giving the test to the uninsured person at
Medicare rates.
While larger companies allow the people to work from home,
and Johns Hopkins is doing that for me, many small businesses
do not have the option because they have to work with their
clients face-to-face. Helping the cruise line is under
discussion. From a public health perspective, small businesses
are so much more important than the cruise lines. We can get
along without vacations. We cannot get along without the small
businesses that feed us.
Let me change the subject for a minute. The good news in my
testimony is that small business is doing to develop the
vaccine for coronavirus. A significant portion of the world's
new drugs come from the uniquely American public-private
partnership that involves the NIH, our universities and medical
centers, small biotech companies and, finally, large
pharmaceutical companies. Most of the initial drug development
occurs in universities and small biotech companies, not the big
pharmaceutical industries.
For example, this is how the first drug that was effective
in treating hepatitis C was developed. It began in a lab at
Emory University with funding by the National Institutes for
Health. With promising results, they started a small business
and attracted venture capital. After the clinical trials showed
positive results, a big company, Gilead in this case, purchased
the small company Pharmasset. One year after that, we had
hepatitis C drugs with FDA approval and it was brought to
market.
One of the companies with a promising coronavirus right now
is a small business. Its name is Moderna. It began operations
in 2011. The first clinical-grade batch of this drug was
shipped to the NIH for a Phase 1 clinical trial in late 2019,
and the clinical trials have already begun.
In my written testimony, I list three other small companies
that are developing coronavirus and there are 40 other ones
developing vaccines.
So how can the Congress help these small biotech companies
develop a vaccine? The key is knowing that the small business
will get paid for developing the vaccine. Congress can
guarantee the purchase of a certain volume of vaccine at a
price or giving them advance market commitments to purchase
safe and effective products.
In my written testimony, I also discuss some other ways
that Congress could help the small businesses provide services
to address the coronavirus epidemic. Small business can provide
telehealth services to people in quarantine and in rural
communities. People in quarantine need to discuss their health
condition with medical professionals without subjecting the
clinician or the public to the disease. Medicare now pays for
telehealth but most private insurers do not.
Congress could ensure that more generic drugs are made in
America. In my written testimony, I explained how we helped
create a small non-profit company that is going to manufacture
drugs that are overpriced and in short supply. Working with
Intermountain Healthcare, we created Civica Rx. It has gotten
up and running and it is now manufacturing 20 drugs with 20
more in the pipeline. BlueCross just gave them $55 million to
expand into the outpatient market.
Finally, small business can assist in worker training. Many
hospitals are not prepared to train their employees, and small
business can do that.
I am happy to answer any questions.
[The prepared statement of Mr. Anderson follows:]
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Chairman Rubio [presiding]. Thank you, Dr. Anderson.
Tim Morrison is a Senior Fellow at the Hudson Institute,
where he specializes in Asia-Pacific security, missile defense,
nuclear deterrent modernization, and arms control. He was
previously Deputy Assistant to the president for national
security and has written and spoken extensively about the
national security aspects of supply chain issues.
Thank you for being here.
STATEMENT OF TIM MORRISON, SENIOR FELLOW, THE HUDSON INSTITUTE,
WASHINGTON, DC
Mr. Morrison. Thank you, Chairman Rubio, Ranking Member
Cardin, and members of the Senate Small Business Committee.
Thank you for the invitation to be here today.
I would like to start with the cold reality and the simple
fact: according to the World Health Organization, the National
Health Commission of the People's Republic of China initially
knew of the Wuhan virus as early as December 8 of 2019. Yet,
initial substantive disclosures to the WHO did not take place
until approximately January 11, 2020.
I do not think it is too much to ask how many people in the
United States and elsewhere have been infected, gotten sick, or
worse as a consequence of the Chinese Community Party's
decision to sit on the fact of this epidemic?
In fact, I think you as our elected officials must demand
the answer to this question and determine how to respond.
In 2004, as Ms. Gibson has explained, the United States
stopped making penicillin domestically. This happened without a
vote in this body. It happened without decision in the
Executive Branch. It is a decision that was consulted about
this decision. It was a decision prompted by China's Made in
2025 plan to dominate what the Chinese Community Party
determined were strategic sectors which Chinese industry should
control globally.
And so we are here today to ask, ``on a good day, what does
it mean to rely on the People's Republic of China for our basic
health care commodities?''
Larry Wortzel, a member of the U.S.-China Commission, will
tell you about his blood pressure medicine making him sick
because it was contaminated with rocket fuel in a Chinese
manufacturing facility. Rocket fuel.
Surgeons around this country may tell you about the
hundreds, if not thousands, of surgeries that were canceled
because millions of surgical gowns had to be recalled because
they may not have been sterile when they were packaged up in
the People's Republic of China and sent to the United States.
This was in January of this year.
Now what if there was a malign intent? For example, what if
this body passes a resolution demanding a high-level visit of
an American official to Taiwan in furtherance of the Taiwan
Travel Act of 2018? What if the United States chooses to
sanction Huawai, or another Chinese state-proxy, for the Uyghur
suppression? What if the Chinese Communist Party decides to
retaliate to these sovereign decisions by cutting off the
shipment of medicines to the United States?
Do you think it cannot happen? Ask the Japanese who lost
access to rare earth elements from the People's Republic of
China in 2010 over a territorial dispute.
The People's Republic of China's state-owned Xinhua, a
communist party propaganda outlet, recently noted that the PRC
could--and I quote--``plunge the U.S. into the mighty sea of
coronavirus'' if it wanted to do so.
I ask you to think about all of the tools of economic
statecraft that you can use to support American producers,
including small businesses and strategic industries. For
example, I know that several of you were involved in the
passage of the BUILD Act in 2018. This was an effort to
leverage private sector investment in international development
to counter China, Inc.
What other tools are available to do the same at the Small
Business Administration or the Export-Import Bank?
I urge you, do not allow America's job creators and
innovators to be unilaterally disarmed. Their government can
and should defend them from foreign aggression.
Chairman Rubio, your amendment to last year's National
Defense Authorization Act concerning reliance on the PRC for
pharmaceuticals was a key step. You sounded the alarm on this
risk.
Lastly, I know several of you serve on the Senate Foreign
Relations Committee and related national security committees. I
urge you to investigate the influence of the People's Republic
of China in international organizations like the World Health
Organization. Ask yourselves why, despite meeting all of its
established criteria, the World Health Organization waited more
than three months to label COVID-19 a pandemic? Why is the
World Health Organization choosing now to adopt the Chinese
Communist Party's playbook by removing Taiwan from its country
list?
I want to thank you for the opportunity to testify here
today and I stand ready to answer your questions.
[The prepared statement of Mr. Morrison follows:]
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Chairman Rubio. Thank you.
And our final witness is Ms. Wynne Briscoe, the Acting
Director of the Small Business Development Center in the
Southern Maryland Region. Thank you for being with us.
STATEMENT OF WYNNE S. BRISCOE, ACTING DIRECTOR, MARYLAND SMALL
BUSINESS DEVELOPMENT CENTER, SOUTHERN REGION, LA PLATA, MD
Ms. Briscoe. Good morning. Thank you all for having me this
morning. Again, Wynne Briscoe, the Acting Director for the
Small Business Development Center. In that capacity, I consult
with manufacturers throughout the State of Maryland. Based on
those experiences, I wish to offer some recommendations to your
Committee.
I see the coronavirus pandemic and the supply chain
disruptions that it has caused for some companies offering an
opportunity to address the supply chain concern with a longer-
term question: What opportunities do the current crisis offer
U.S. businesses to fill newly emerging supply chain
vulnerabilities within other companies? And how can these
supply chain opportunities assist American small businesses
long after the current health crisis has come and gone?
In other words, I believe that we should act and think
about the supply chain disruption and the current crisis in a
way that will take us beyond the current crisis and set our
economy on a level plane.
When I consult with Maryland manufacturing companies, I
insist that they have at least three alternative sources for
the products that they produce. This is something that is going
to be long beyond the current health crisis and something that
the SBA can help make happen. And my idea I have created based
on my experience with manufacturing companies is that I am
recommending that you direct the Small Business Administration
to produce a nationwide list of companies. Let them self-
identify their supply chain concerns, those that have current
supply chain concerns and those that forecast in the future of
having supply chain concerns.
From there, it would be a self-identified list of Made in
America products and services the SBA would be monitoring, and
these would be an opt-in list for those businesses that wish to
participate. This would be businesses that the SBA has worked
with throughout the country currently as well as over the last
10 years. This list would be compiled and it would be monitored
by the Small Business Administration.
For example, if they find when they are doing their
outreach efforts, hypothetically a company in Miami that might
be producing paper and its largest manufacturer might be China,
can we find an American company to replace that source?
Again, another example might be a Maryland-based company
that may be looking to replace its suppliers of key ingredients
for its bakery supply products of a specialty product that it
sells locally. The SBA does not have to do this process alone.
They can work together with other Federal agencies such as the
Department of Commerce or the Minority Business Development
Administration to identify additional smaller companies that
may be having concerns. With SBA compiling this Made in America
master list, it could be sorted through NAICS Codes and have
descriptions that would describe it, such as ``paper products''
or ``sweeteners'' so that it would be easy to sort and address.
These companies would receive this information on a regular
basis, and it would be distributed throughout our network of
Small Business Development Centers as well as the agencies that
the SBA regularly communicates with.
This process and something similar to it, using the SBA to
identify companies looking to expand their American supply
chain suppliers as well as the companies looking to bolster
their supplies domestically is essential to our Nation's
economy. May we learn from this time and learn from this crisis
using this to strengthen our Nation's supply chains well into
the future.
Developing alternative suppliers of key products and
services well in advance is how we like to prepare our
businesses with the Maryland Small Business Development Center.
And it is how I suggest that we move the Nation forward and
proceed. We should look at this situation as a way to
strengthen America's supply chain and ways to benefit America's
smaller businesses.
So I appreciate you listening to my suggestion of creating
a voluntary, opt-in nationwide list of supply chain
opportunities of Made in America products and services and for
recognizing the insights of America's Small Business
Development Center consultants and what we bring into solving
this national problem by inviting me to this panel today.
Thank you for your time.
[The prepared statement of Ms. Briscoe follows:]
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Chairman Rubio. Thank you.
The Ranking Member, are you ready for questions?
Senator Cardin. Let me thank all four of our witnesses. Ms.
Briscoe, let me just ask a question where you ended off. I
think your suggestion is an excellent suggestion, but it does
point out the fact that we need to be better prepared for the
next crisis. I said that in my opening statement. We need to
have better supply chains locally, and there is real
opportunity for small businesses in helping us in that regard.
The challenge will be to connect the opportunities with the
businesses that are there, and there is where our resource
partners can be of tremendous help. I appreciate what you do in
the State of Maryland in our Minority Business Development
Centers, our Women Business Centers. All those are places of
contact where this type of a list could connect to the
companies that are out there with investors to really provide
new opportunities for small businesses.
So I just really wanted to underscore and get from you your
capacity today to reach out. We have already modified the
disaster relief programs so that small businesses can qualify.
I know that they are going to be knocking on your door saying,
``Can we get help under this program?'' The State of Maryland
will help, but they are going to be your offices that are going
to be called upon to do this.
Do you have the capacity to expand your reach to take care
of, for example, the suggestion you made on developing a list?
Ms. Briscoe. Well, it would initially start with compiling
the data from the businesses, so the SBA is what I am
recommending start from the top down, utilizing the Small
Business Development Centers, utilizing all of the agencies
that work along with the SBA, and find the businesses that
currently do produce products here in this country that can be
of assistance to other businesses that they may not be aware
of.
So the first short term would be identifying what is made
here in this country, and from there SBA would then follow up
with sort of an opt-in matching, if there is a company that is
looking for that product or service and they are now being
matched with a product and service that is made here with that
business in exchange.
So that is how we see foresee this rolling out from the top
down through SBA, through the resource partners such as the
Small Business Development Center and SCORE and the Minority
Business Centers and the Women Business Centers and our Veteran
Business Centers, and connecting with the key stakeholders
throughout the State, and then not just doing it alone,
throughout the country working along with the Commerce
Department and all of the other Federal agencies that work with
businesses so that we can from a higher level identify what is
being made here currently and how that can be a gap in the
supply chain for the businesses that need them here nationally.
Senator Cardin. I think it is an excellent suggestion, and
I am just trying to figure out how we encourage that to be done
and where the resources need to be placed in order to make that
a reality. And I think you have given us a good blueprint, so I
thank you for that.
Ms. Briscoe. You are welcome.
Senator Cardin. Dr. Anderson, you gave a pretty chilling
account. You are small business owner. You are running a
cleaning establishment that depends upon you and perhaps one or
two other workers. You do not feel well. The advice is for you
to go home and stay home, and perhaps someone in your
operation, in fact, did get the virus. Now you have got to be
treated and be isolated for a period of time. That is what we
want you to do. We do not want you to spread that disease to
people coming into your establishment because you need to keep
your business open.
So how do we provide the financial help to that type of a
small business owner, which is in our interest to stop the
spread of the virus, but also to keep that business open
because of the impact it has on the local community? The
Chairman talked about and we are working on a program that is
going to make it easier for SBA loans, including how we
determine whether they are creditworthy. Those are important
steps. But if you are talking about closing a business, it is
hard to understand how you can deal with another loan on top of
that, and that is why I appreciate your response in regards to
perhaps looking at a grant program. It is a little more
complicated because we have not done that in the past. But I
take it that your comment means that in our toolbox, if we
really are interested in dealing with this crisis, we are going
to have to look beyond the traditional loans.
Dr. Anderson. Yeah, I mean, my local person that does my
dry cleaning--there are two people that work in that place. I
am sure there is somebody in the back office, but there are two
people in the front office. And if one of them has coronavirus,
that place has to close because they are essentially--you know,
they just cannot work with just one person. And they are not
going to be able necessarily to take out a loan. It is going to
be a lot of work. They are going to need help to open again 14
days later, and I think a grant is what they are going to
actually need.
Senator Cardin. I thank you. I think we just have to have--
we have got to be flexible. This is a crisis that no one could
anticipate how it is impacting. Every hour it is becoming more
and more devastating to our economy. So we are going to need to
develop in Congress a flexible toolkit in order to keep
businesses going in our community, particularly small
businesses.
Again, I thank you all for your testimony.
Chairman Rubio. Thank you.
Senator Hawley.
Senator Hawley. Thank you, Mr. Chairman, and thank you for
holding this hearing today and for focusing our attention on
what is obviously a very hugely significant topic. I think it
has been clear for a while now that we are far too reliant on
China for our domestic production, especially for essential
products that we rely on, and, of course, our medical supply
chain is at the very top of that list, as we are sadly finding
out. This is one of the reasons that I introduced legislation 2
weeks ago that would give the FDA more authority to require
that our medical product manufacturers report all the details
of their supply chain, report where they are facing potential
shortages, and then give the FDA new authority to speed
potential replacements, including, of course, replacements
ideally that are made in this country.
Ms. Gibson, can I just start with you? You stated in your
testimony that we know China produces about 9 percent of our
generic drugs, which is a lot, but do you have any sense of how
many of our drugs involve Chinese production? In other words,
maybe they are not made wholly there, but Chinese production is
involved.
Ms. Gibson. Thousands. Thousands of our generic drugs and
even some of the brand-name products and perhaps even new
therapies for coronavirus may depend on the chemicals that are
sourced primarily in China. If you are hospitalized with
coronavirus, if you have a severe case, which, thankfully, is
small numbers of people, a small percentage, you will need--you
might be on a ventilator, so you will need sedatives like
fentanyl and propofol. Your blood pressure may get dangerously
low, so you will need pressors like dopamine or epinephrine.
You might get a secondary infection, bacterial in nature, and
you will need antibiotics. You might become septic, which is
life-threatening.
I was sitting in a room where the people actually make
medicines. These are the men and women in pharmaceutical
engineering, pharmaceutical chemistry. I said, ``So tell me, if
you have to make these tomorrow, where do the core chemicals
come from to make it? How much are we dependent on China?''
They said 90 percent of the chemicals to make those basic
generic drugs depend on China.
The good news is that there are advanced manufacturing
technology and really brilliant chemists right here in the
United States that want to make it, are capable of starting
production tomorrow. And Civica Rx, they have committed to all
their APIs being made outside of China. But they want to take
the next step and make sure all the chemical components were
not dependent on China. Advanced manufacturing technology--and
we have brilliant people in this country, and they want to do
it. So we can make a lot of these medicines here. They just
need the investment to get started.
Senator Hawley. It just strikes me, based on your
testimony, which I think is really eye-opening, that we
probably do not appreciate or have not appreciated until now
the extent of our reliance, the true scale of the vulnerability
in our medical supply chain.
Dr. Anderson, let me ask you, in your view, what is the
most helpful thing the Federal Government can do to support
these small biotech companies that you have spoken about and
that you write about? What are the right incentives that we
ought to be proposing or adopting?
Dr. Anderson. Essentially, that they have a guaranteed
place to sell their products. So right now, they are coming up
with these great new ideas, and they do not always have a place
to sell their products. And it is true mostly in--not in cancer
where there is a lot of profit in there, but in anti-
infectives, in antibiotics, and things like that. You develop
something new in that area, and the current system does not
work. So that is why we had to create Civica Rx, which is this
thing that is run out of Intermountain Health Care in Utah and
other places. We just did not see that the marketplace was
producing certain areas because the profitability was not high
enough.
Senator Hawley. Let me ask you about something else I found
interesting. You wrote in your testimony that while small
biotech companies often make the initial discoveries during a
vaccine or drug development process, it is the large pharma
companies that then often buy them up.
Dr. Anderson. Correct.
Senator Hawley. And gain ownership over the IP. I am
wondering if that trend accelerates the offshoring of our
capacity to China. Are those things related?
Dr. Anderson. Well, I think what we are seeing now is, in
fact, that is happening. So all of a sudden, you know, Pfizer
has their major manufacturing plant in China. So the big
companies are looking where they can produce it the least
expensively and are going there, especially in the generic
because it is all price-driven.
Senator Hawley. Mr. Morrison, before I run out of time, I
was reading your testimony and was astounded to learn--you
reiterated this fact; Ms. Gibson, you mentioned it, too--that
we stopped making penicillin domestically in this country in
2004, right? Yet the CDC says 62 million penicillin
prescriptions were filled in the United States in 2015. I have
got two little boys at home. I think the Hawley household
accounted for a number of those prescriptions.
[Laughter.]
Just to make it clear here, is it correct to characterize
the decision to move the production of penicillin overseas as
an economic decision, it was economically driven, it was a
profit-driven decision? Is that your understanding?
Mr. Morrison. Yes, sir. I think the point of Made in China
2025 is essentially to destroy the free market and create
incentives to offshore production in China. And originally this
seemed like a good thing. We will save prices, we will move
value where value could be moved. We will continue to do the
innovation. But China is scooping that up as well. And so
without any decision by any Government authority, this
happened, and now we are going to deal with the consequences.
And, of course, an antibiotic is not instrumental to treat a
virus, but the respiratory infection, it is.
Senator Hawley. Right. It just strikes me--and this is my
last comment, Mr. Chairman--that our current drug policy seems
to privilege economic considerations of maybe a few companies
over public health considerations. Is that fair to say, Mr.
Morrison?
Mr. Morrison. I would largely agree, sir.
Senator Hawley. Thank you, Mr. Chairman.
Chairman Rubio. Senator Booker.
Senator Booker. Mr. Chairman, thank you very much.
I have got three areas that I want to try to get to in a
very short 5 minutes, and, Dr. Anderson, maybe I can just get
you, because I am uncomfortable right now. The Senate is about
to go on a recess. We see this curve, the bell curve that we
are in right now, of increasing levels of infections and it is
going to continue to go up. Any modeling would say that our
control actions to try to bend this curve are not doing that
well. Having been an executive during a number of crises,
including Superstorm Sandy, it is the first order of keeping
people safe, but it is the second-order consequences when
something like that happens.
We are about to face nationwide second-order consequences
of what it means to have schools closed, what it means to be
told to go home and stay home. And so could you just take 30
seconds for me to sound the alarm a little more dramatically
than you did, just like saying going out tonight to your--what
does it mean if we have large-scale orders for social isolation
as well as basically people sheltering in place in terms of the
local economies that depend upon small businesses? Can you just
paint this picture for me? Because I think that we need to be
taking a lot more dramatic action to try to stabilize a lot of
the small businesses and help people who are going through this
crisis.
Dr. Anderson. So I just walk through my neighborhood, and I
see basically restaurants basically empty. I see dry cleaners,
no one going. I see in the last week or so a fundamental change
in how the economy is working, and I think the stock market is
telling you that is what is happening. And I think what we are
seeing in the real world in our neighborhoods every day is just
so----
Senator Booker. So something as basic as schools closing,
child care crises--I live in a community at the poverty line
where people if they miss one paycheck, they cannot make a rent
payment, they cannot make their car payment. Their lives spiral
out of control. So telling a food service worker, for example,
to stay home for 2 weeks is just not going to happen, right?
Dr. Anderson. Unless they get paid.
Senator Booker. Right.
Dr. Anderson. And you have got to make sure that they are
willing to stay home because they are going to get paid.
Senator Booker. Eighty percent of our food service workers
do not have paid family leave. Every year we see the spread of
flu and like that because they are handling our food. Right now
in this crisis we cannot bend the curve unless we find a way to
make it so people can stay home without putting themselves in
pending doom.
I want to stop there and pivot real quick. The testimony of
Morrison and Gibson, I wish every Senator could read that
because clearly this is a national security issue. It is not
just pharmaceuticals. It is rare earth metals. I can go through
the things, should something more major in terms of a conflict
between us and China breaks out, that would cripple our economy
and our health and well-being and safety. And so this idea that
it is a free market, when I know this from New Jersey that
people are luring companies to manufacture over in China, and
so, again, knowing--here we are in a time of crisis, it is too
late. Shouldn't we as a Federal Government be doing more on
these issues to make sure we are building manufacturing
capacity here?
Ms. Gibson.
Ms. Gibson. Yes, what we can do and what small businesses
want to do to prevent a future situation with drug shortages,
they want to make the active ingredients, which is what makes
the medicine medicine. They can make it fully here in the
United States using advanced manufacturing technology.
Stockpile that, because it lasts longer than the finished
drugs. And if we have another coronavirus outbreak, have a
stand-up facility ready to go, which we have with--you know,
companies have these as backup, redundant capability. Take that
API out and make those medicines that are in critical
shortages. This is what small business, the innovative thinking
and the technology and the brilliance----
Senator Booker. But this takes conscious, long-term
planning. You cannot just flip a switch and have the
manufacturing capacity here. I have a bill that tries just
talking about seeding critical startup capacity here so that we
build it, correct?
Ms. Gibson. There are small businesses that can start
production of active ingredients made here in the United
States. They could start within weeks. It would take maybe 9
months to start making small quantities of these key
ingredients fully made in the United States, not dependent on
China for chemicals. They could do that in about 9 months.
Senator Booker. Mr. Morrison.
Ms. Gibson. And they could start for the stockpile DOD and
VA, use our Government purchasing power to stimulate that
market.
Mr. Morrison. That is, in fact, where I was going, sir. You
have tremendous purchasing power through Medicare, Medicaid,
TRICARE, the Department of Veterans Affairs. These are some of
the largest health care consumers in the world. You can control
their procurement regulations.
And if I could just make one more pitch, right now the
Federal Government may be about to allow the TSP I Fund to
invest in the MSCI Index. We are going to be investing in
Chinese enterprises. I have worked 19 years for the Federal
Government. Please do not put my pension in nontransparent
Chinese companies.
Senator Booker. And so I just want to make just a massive
appeal to my Chairman right now that this should be a Committee
urgency. We can address this. It is actually not that hard. We
just do not have the collective will. This is a national
security crisis that one of our serious adversaries is doing
things strategically to undermine our health and economic well-
being, which at any point they could cripple our economy. And,
actually, this has a win-win. It corrects for a national
security crisis, and it actually helps our overall economy, and
the fact that they are doing it and we are not.
So I would just appeal to the Chairman and the Ranking, let
us work on this as a project. This is an obvious area where we
should have bipartisan commitment to fill these vulnerabilities
and actually build more American economic manufacturing.
Chairman Rubio. Absolutely. And that is the goal of the
second tranche of work we are going to have to do on this. We
are trying to figure out what can we do to help assist small
business quickly right now. But we are going to have to come
back and do more on a host of issues. This hearing has actually
been scheduled for over a month and a half before this, so we
already identified this in our report last year. And I agree
with you. There are still a couple people that debate whether
we have a supply chain issue. I am not sure they will be able
to make that argument here any longer in any event.
Senator Cardin. Let me just underscore what the Chairman is
saying. We are going to try to see whether we can get something
done as early as today, if at all possible. We recognize that
within the next couple weeks we really need to put together a
package that is going to make a broader appeal to some of the
issues that are here. We are not talking about months. We are
talking about we need to respond while there is an interest.
So we are going to try to work with everyone and try to see
what we can get done.
Chairman Rubio. Yes, and one last point before I turn to
Senator Hirono. We want to do it in a way that obviously
respects the jurisdiction of this Committee, which is small
businesses that have supply chain disruption vulnerability, but
also small businesses as the answer to the supply chain
vulnerability. And that will require access to capital and the
ability to invest to ramp up. So we have got some work to do,
but I am glad we have a head start on some of this.
Senator Hirono.
Senator Hirono. Thank you, Mr. Chairman.
Did I hear you say that we can reduce or totally eliminate
the overdependence we have on China, that we in our country
have the capacity to create or manufacture these chemicals that
are so necessary?
Ms. Gibson. For a lot of medicines, brilliant chemists and
pharmaceutical engineers can make these chemicals here.
Senator Hirono. So why is that not happening?
Ms. Gibson. Well, on the generic side, the margins are so
slim that companies would not invest in the new plant and
equipment to do it, and also our last large generic company,
Mylan, in Morgantown, West Virginia, merged with Pfizer, and
Pfizer last year announced the opening of its global generic
headquarters in Shanghai. So we do not have these companies. In
5 years--there are two more Western companies--they will be
gone.
Senator Hirono. So we have a so-called free marketplace
where companies can make those kinds of relocation decisions.
So are you suggesting that there be some kind of legislation
that will prevent or effect a cost on these companies that will
take their manufacturing to places like China?
Ms. Gibson. Well, I think sort of the horse is out of the
barn on that. How can we grow and incent small businesses that
are eager to fill this very large vacuum that we have. They
want to do it. Civica, I am sure, would want to purchase
essential medicines and all their ingredients made here in the
United States. The DOD could purchase it, the VA. We could
start a whole new market with manufacturing here in the United
States.
Senator Hirono. I think we are going to need to figure out,
though, because if a small business creates these chemicals, et
cetera, and they get bought up by a larger company that is
interested in the bottom line, they go off to China, that is
not resolving the situation. So we are obviously going to need
to come up with some really, in my view, tightly drafted
legislation that will get us to where we need to go.
Ms. Gibson. There are some provisions that can be done,
that you cannot sell your plant for national security reasons.
If we make any investment, it----
Senator Hirono. I think those are the kind of ideas we need
to put in place, I would say.
Dr. Anderson, here we are in the midst of a pandemic. It is
here and now. And, you know, any State that is so dependent on
tourism as a major part of their economy, I would say most
States tourism is their number one or number two driving
factor. So we are already seeing thousands of people losing
their jobs. Most of them probably do not have paid leave, sick
leave, or anything else. So here and now, I agree with you that
we really need to figure out how to ease the impact on workers
and their families in the here and now, because if we expect
people, 20 percent who are not even insured, to go to the
doctor, that is not likely to happen.
I think this crisis has really illuminated and illustrated
the huge gaps in health care coverage in our country and how it
is creating a risk for all of us. So we can have that
conversation later. But for the here and now, I am wondering
whether you think, Dr. Anderson, that we obviously need to have
a lot more testing in our country so that we can get a sense of
how far this--how much of this virus is already in our country.
We do not know that, so testing.
And then, obviously, we are going to see this continue if
we do not develop a vaccine. Would you agree that testing and
developing a vaccine are critical to our ability to get a
handle on the spread of coronavirus in our country?
Dr. Anderson. First of all, the vaccine is absolutely
critical, but it is going to take a year or whatever.
Senator Hirono. And in the fall this virus can come back.
Dr. Anderson. Hopefully, it will not happen again, but it
may resurge in the fall. Let me go back to the question,
though, about what we can do besides for generic drugs, because
we are now working with the State of California, and they have
said that they want to essentially manufacture or produce drugs
for the 13 million people that they insure. And they are trying
now to do that based upon plants in California. And so they
have the power of 13 million people that could manufacture
drugs, and they are trying to do it with Civica and other
places based in the United States.
So the Government has this huge purchasing power and can
use it to do things that are manufactured or produced in the
United States.
Senator Hirono. I am all for Government using its
purchasing power, but I would note that we cannot even under
Medicare have a discussion about, you know, drug purchasing
where we cannot even negotiate those things. So I am all for
our Government using its power to create the kind of situation
where drugs that we need are being produced for our people, and
we apparently are not there yet. But whatever you can do to
raise your voices to head us in the right direction along these
lines, I am grateful.
Dr. Anderson. Medicare cannot, but Medicaid can. DOD can,
VA can. So there are a number of very important buyers in the
public system that can.
Senator Hirono. Yes. Medicare, though, is a huge gap.
Dr. Anderson. I understand.
Senator Hirono. Thank you.
Chairman Rubio. Senator Shaheen.
Senator Shaheen. Thank you all very much for being here and
for your testimony.
The President last night talked about one of the actions
that he was taking would be to invoke a travel ban on
passengers coming from the EU, and initially it sounded like he
was also saying cargo, although that got corrected later. But
given what Senator Hirono said and what I know to be true in
New Hampshire about the importance of the tourism industry and
the impact on so many small businesses of our European
travelers, can you speak to what the impact of that might be on
the small businesses that you are working with? I had some
questions, as did other Senators earlier, out of a briefing on
the coronavirus about why the U.K. was exempt from that travel
ban, and what we were told is because they are no longer,
because of Brexit, part of the Schengen zone, which is where
people can travel across borders without screening. But they
are a part of that zone until December of 2020, so they are
still very much in the Schengen zone, so I am just saying that
I guess as a point. I am not necessarily asking you to comment
on that, but if you could comment on what the impact you think
will be on small business of the travel ban from European
customers.
Dr. Anderson. So, I think it is going to be huge for the
people. I mean, if you are just in the Washington, D.C., area,
we get so many visitors. You get them for skiing and other
things. So you know, these are huge industries that are going
to lose 20, 30 percent of their business literally overnight.
They do not have contingency plans for a 20 or 30 percent
reduction in their business.
And it is not just oh, take out a loan. You are going to
need some real cash immediately that you know you do not have
to pay back because you are going to be in the hole for a
while.
Senator Shaheen. Ms. Briscoe, have you heard from any folks
through the SBDCs in Maryland about the potential impact? Or is
too soon to know?
Ms. Briscoe. We have not had, at this current time, any
businesses that have reached out to us specifically about the
supply chain impact at this moment. But we will be sending out
a correspondence to our caseload to ask them have they had an
impact or how do they feel about a future impact. They may have
supplies that can sustain them currently but is it something
that, for the long run, that they can maintain. So we will be
in communication with them.
Senator Shaheen. Great, thank you.
On February 27th, the FDA pointed out that it had received
its first notification from a drug manufacturer about a drug
shortage. I am sorry, I did not hear all of the testimony
earlier from Ms. Gibson and Dr. Anderson, so you may have
referenced this. But the question that I have is how do we
balance the public's need to know on an issue like that without
it creating a run on those drugs and a real panic about how to
respond to that kind of situation?
Ms. Gibson. I think the FDA did the right thing in not
naming the medicine because that would have contributed to
hoarding and precluded the opportunity to allocate it to those
people who need it the most.
But I also think, we have had drug shortages in this
country for more than 20 years and we have not been honest
about the impact that it has had on patients. So at some point,
maybe when coronavirus--we get through this, we have to have an
honest conversation about the shortages of medicines in this
country, the terrible impact it has, what the real root causes
are, and address those.
Dr. Anderson. So the FDA says there are about 100 drugs. At
places like Johns Hopkins, we know that there are 250, 300
drugs that are, in fact, on shortage. And we sort of borrow it
from the University of Pennsylvania and then pay it back to the
Mayo Clinic and do all sorts of bartering on this when there,
in fact, a shortage.
But this is not a new thing. It is just going to get worse
with the travel bans because so many of the drugs are
manufactured overseas.
Senator Shaheen. And of course, that does not address the
cost of so many drugs which, while they may be available, if
you cannot afford to use them because you do not have insurance
and cannot cover the cost, you are in the same position.
Dr. Anderson. Well, that is particularly true in this case
for the uninsured because if you go to the doctor, it is going
to cost you $200 just to get a simple test. And if you need to
get some kind of x-ray or something, it is going to be now
$1,000. And if I am uninsured, I probably do not have $200 or
$1,000.
Senator Shaheen. Well, as you all point out, this is an
opportunity for us to look at some of those issues and
hopefully respond in a more positive way going forward.
Mr. Morrison, I would just like to share your concern about
investment of the Thrift Savings Plan and the MSCI index, using
that as the index for how to make those investments. Senator
Rubio and I have been beating that drum for a while without
much support from the administration.
Mr. Morrison. Time is running out.
Senator Shaheen. Thank you.
Chairman Rubio. Just on that point, we have reason to
believe that they have actually expedited moving in that
direction. It is just crazy. It is crazy. And I mean, it is not
a term that you normally use to describe public policy, but
this is nuts, taking the retirement funds of Federal employees
and the military to be invested in companies in China that are
actively working to undermine our national security, our health
care security, and our economic security. It just cannot
happen. I mean, if it was not so serious, you would laugh at it
and say that cannot be true, that is something from the
Enquirer, or whatever.
But it is real, and hopefully we can see action taken on
this promptly, among other things.
Senator Rosen, are you ready?
Senator Rosen. Yes, thank you.
Thank you, Mr. Chairman. Thank you to the Ranking Member.
Thank you all for being here today.
Needless to say, it has been quite the roller coaster since
the coronavirus has reared its ugly head, and it is going to
probably get worse before it gets better.
And so, practically speaking, I can tell you that people
think of Nevada and Las Vegas as these giant casinos. And we
are those. But in fact, 99 percent of businesses in Nevada are
small businesses in support of a lot of--especially in the
Southern Nevada area--in support of those large businesses.
They provide over 40 percent of the private jobs in our state.
They really are the backbone of our economy. You think about
all of the weddings we have. They are the vendors who bring the
flowers and the candles. All of those people that make that
happen, make the magic happen in Las Vegas, of course, in Reno
and all across our state. And we have nearly 50 million of
those visitors a year.
So as far as small businesses go, what suggestions do you
have for those businesses to be able to adapt in some way to
the current environment. Maybe specifically, if you could speak
to the people in the travel and tourism industry, do you
suggest working through the Small Business Development Center?
Are they a good cooperative partner, the SBA? Can you just talk
about how some of these supportive businesses from our tourism
industry, if you can? Anyone at all? Or just in general?
Dr. Anderson. Let me try.
I mean, I think the key thing is to make sure that they are
going to be around in three months or two months. And I think
what the challenge is, if you just give them a loan, they are
going to be in trouble because they are now going to have to
pay for it and not get any money for the last two months or so
for the flowers and all those things because nobody is going to
be having weddings and using all those flowers because they
cannot bring all their friends and relatives to the wedding.
Senator Rosen. Right.
Dr. Anderson. And so, you are going to have to essentially,
if you want them to survive after two months, is to give them a
grant to survive. You are going to have to give the worker who
might have coronavirus 14 days of paid sick leave so that they
can quarantine at home. And you are going to have to give the
uninsured person who needs to go to the doctor but does not
have the $200 to go to the doctor some money and pay them on
the basis of Medicare rates. You will not make them a medicare
beneficiary but pay them on the basis of Medicare rates so they
actually do get tested. And so when they are working in one of
these small businesses, we know that you are safe to go to a
small business.
Because as soon as we feel like it is not safe to go to
small business, we are going to stay at home.
Senator Rosen. So we have to just remove the obstacles for
specifically getting testing and being quarantined. I think
that is the best thing. And then financial support that may not
need to be repaid back is really the way to do it because it is
going to take a while for everything to recover when we do,
hopefully, all go into recovery.
I know this is going to sound--this is happening, I know,
across the country and not specific to tourism. But we have a
lot of wonderful things about our entire Nation. A lot of it is
diversity. I have heard stories about people and businesses,
that they are not buying frozen Chinese food in a grocery
store. They are not going--because they think that the virus is
going to be at the Chinese restaurant. Or they think that oh,
now that it has been in Italy, so I should not do this or that.
So how do you think the mechanism for some of our small
businesses--I guess they can put up signs. But how do we just
try to dispel these myths that you shopping or going to a
Italian restaurant in Henderson, Nevada, is not going to give
you--it is not getting the coronavirus from Italy if we are
living there.
Ms. Gibson. Well, I will take a stab at that. To the extent
that food service companies import food from China, we do have
a lot of food imports from China, we should be mindful that the
FDA withdrew its inspectors from there to protect them from
what was going on.
So the big question is who is going to be inspecting the
places that are making our food in China or elsewhere to ensure
that it is safe? The same is true for our medicines.
Senator Rosen. Again, that is an imports issue.
Ms. Gibson. That is a different issue from what you are
talking about but there is some concern there. And I think it
is going to be a long time before the FDA meaningful can get
back into certainly China and some of these other countries to
really do the work they need to do to protect the American
people.
Senator Rosen. Thank you.
Chairman Rubio. Go ahead and follow up, because I have a
number of questions.
Senator Cardin. I just was going to thank your panelists.
But I do want to respond to Ms. Gibson's point about drug
shortages because there is no question the coronavirus is
causing a concern in our supply chain on drugs. That is a fact.
And we need to be able to have domestic productions. That is a
need.
But make no mistake about it, the couple hundred drugs that
were short before the coronavirus had nothing to do with the
supply chain issue because they were produced domestically. It
had all to do about the economics of productions of those
medicines because they were basically inexpensive medicines in
which the pharmaceutical companies were not making big profits
off of. And that is a fact.
So when we are dealing with the shortages of drugs, let us
make it clear that we have responsibilities to make sure drugs
are available in this country, and it is not just supply chain.
It is the economics of how the pharmaceutical industry is
organized here in the United States.
Dr. Anderson. And that is why, when we created Civica, we
had to have a guaranteed market. And so 1,200 hospitals jumped
up and said we know there are shortages. We will buy these
drugs from Civica. We will guarantee the purchase of those.
So having a guaranteed purchase is the key thing for these
small businesses.
Ms. Gibson. If I may add, American companies are competing
not with companies in China, they are competing with the
Chinese government because their domestic companies are
subsidized. So it really is an unlevel playing field.
Senator Cardin. Again, I want to thank the witnesses for
their testimony.
Chairman Rubio. Thank you.
Before we conclude, I had a number of observations and I
wanted to elicit points from you. Let us start with the first,
and that is--let me begin by saying I am a big believer in
capitalism. I am a big believer in free markets. And one of the
reasons I am is because I believe it provides for the most
efficient allocation of capital to the most productive place.
However, there are times in which the most efficient
allocation of capital does not align with our national
interests. And in those times in which it does not align with
our national interest, it is incumbent upon public policymakers
to make adjustments. So we are now facing that.
And for many months and years we have been making this
conversation, we have been talking about this in conversation
with people. The answer always was that either a denial that a
problem existed or accusing this of being some sort of
rejection of the market. It was theoretical.
Now, it is no longer theoretical. We have before us, just
in the health care and medical field, a market decision that it
was more efficient, that you can do it at lower costs despite
transportation and everything else, if you made these things
somewhere else. And that is what the market did, destroying
jobs and companies here and providing that there.
And this is now couched now in some anti-China narrative
and so forth, but it really is not. There is a national
security component to the fact that China is a geopolitical,
near-peer competitor. But beyond it is the reality that even if
they did not do it on purpose, the shutdown of factories
because of an outbreak of this virus has impacts that end up
hurting us here.
So the question now becomes how do we address it? And what
can we do to incentivize investment in critical industries? And
the topic of critical industries today is broader than it has
ever been in the history of the world.
So we have to identify what those critical industries are
and then decide, from a small business perspective, what do we
need to do to incentivize investment in those industries? And
that will require potentially government investment but also
incentivizing private investment in those fields.
Is that an accurate way to assess the challenge before us
now? That what we have seen these things leading is the
combination of our adherence to let the market decide where it
goes, which is generally the right decision, combined with a
deliberate policy aim on behalf of the Chinese government to
attract that capacity away from us. And the result is we have
reached an efficient market outcome despite market interference
in their part that now places our national security and
economic security interests in danger.
Dr. Anderson. So I agree with you totally. I would just
make one slight modification. That is saying not government
investment but government purchase. I think it is important for
these small businesses----
Chairman Rubio. Meaning on the demand side?
Dr. Anderson. On the demand side. That they essentially
have to have a guaranteed market. So when we are working in
California, they are going to buy for 13 million Californians--
the state is going to buy those. And that allows a company to
get started in California because they have a guaranteed
market.
Civica has a guaranteed market for 1,200 hospitals. They
are willing to get started. Otherwise, they would not get
started. So guaranteed purchase is the critical thing.
Chairman Rubio. And in that realm, let me say that there is
a court decision that undermined the ability to do that. There
is a DOD and VA requirement to Buy American on key components
and drugs. And the Court ruled against it. And so this requires
a legislative fix.
Dr. Anderson. Correct.
Chairman Rubio. And there is hopefully, any moment now or
any day now, an Executive Order issued by the White House that
will strengthen these Buy American requirements. Because now
the Federal Government, in addition to driving the investment,
one of the things that will drive investment is that there is a
customer that is going to buy it. And we can be a big customer
in some sectors.
Again, that is not government ownership of the means of
production, that is what socialism is. But it is government
saying it is in our national interest to do these things.
This is not just about--this is not even protectionism.
This is security. So I hope we can fix that.
Ms. Gibson. If I may add, Senator Rubio, and thank you for
your leadership on this. We would not have our aircraft
carriers or military equipment fully made in China. If we
wanted to do a free market, we could do that and just outsource
all of that. But we realize there is a point which we do not
want to cross.
I will say that if we want to have manufacturing here in
the United States for our essential drugs as a national
security issue, if we look at how we have been making medicines
it is the same way we have been doing it 100 years ago. We have
the opportunity to bring manufacturing home to make it more
efficient, less costly. And that will take some initial
investment so the DOD and the VA can have all of their
components made here in the U.S.
Otherwise, if we just buy--and Civica has found this.
Civica is still finding it. It still has to get the core
ingredients from China. New types of manufacturing, we can
bring all of it back to the United States.
Chairman Rubio. And this is something that I hope that we
will be able to do together. Part of these hearings and the
report we did is to create awareness about these challenges.
I wanted to ask you about that in a second, Mr. Morrison.
But I wanted to ask you, Ms. Briscoe, from the small
businesses perspective--so we view the small business sector as
a place that we can see some of the stuff happen. It is easy to
focus on the guys on the cover of the magazines and on the
stock market on a daily basis. But there is a lot of potential
capacity out there now. And you have done a good job of
addressing small businesses through your idea.
Small business is vulnerable to supply chain disruption.
But also, small businesses who could fill supply chain
disruptions.
Ms. Briscoe. Correct.
Chairman Rubio. But finding the way small businesses could
fill that is a key thing.
So right now we are focused on just keeping people in
business; right? There are a substantial number of small
businesses that cannot afford to go seven to 10 days without
operating. They do not have that kind of cash reserve, and
things of this nature.
Ms. Briscoe. They basically would be the problem and the
solution at the same time. And that is what we are looking to
do.
Chairman Rubio. So what can we do, as we move forward on
this first tranche of work, which is just making available in
the most appropriate way, through 7(a) and Community
Advantage--and using and leveraging the community banking
industry which is there and on the ground, providing an
increase in the percentage of guarantees to make the loans
easier to issue.
What would be the best thing we can do for small businesses
to be able to access it quickly and stay afloat? Obviously, we
have to make them aware of it, and from a paperwork standpoint
and so forth. Do you have any practical advice as to how to
make that--because one thing is to pass a bill that allows it
and another thing is utilization, knowing it is there. And for
some businesses, frankly, it may not be the solution.
But what can we do on the ground level to actually make the
program accessible?
Ms. Briscoe. It should be a step-by-step process that is
going to be easily and readily accessible for business owners
to understand what they make and how it can benefit. As they
have stated, a guaranteed buyer. If they have a matchmaking
process, if I know I am making something and I know you are
interested in purchasing, it should be just as simple as that.
They will need an infusion of capital if they are going to
scale up their production. So that is something that we are
going to have to address as far as cash flow. And also work
force. Those are two major things.
Chairman Rubio. And that second point, about the infusion
of capital, ties right in to one of the things that we have
been talking about as far as the second step, and that is not
only do you want to make more capital available for companies
to stay afloat. But to the extent possible, we want to try to
focus as much of that as possible not just to small business
writ large, but in specific critical industries that could help
fill these gaps and that are tied to all of this.
Which leads me to the question for you, Mr. Morrison, and
that is is not one of the challenges we face now that the
definition of a critical industry for the country has to be
broader than it has historically been? Everyone will agree
aircraft carriers and airplanes are things we need to make. It
takes a little while to convince people that making forklifts
or pharmaceutical ingredients that, at an individual level may
not mean anything to most people around this country but in the
cumulative have enormous impact. Part of the challenge we have
is identifying a much broader scope of what qualifies for a
critical industry or critical supply need for the country in
the 21st century which either we took for granted in the past
or never had to address.
Mr. Morrison. Mr. Chairman, I think that is exactly right.
There is a reason that we have effectively lost the race for
5G. It is because we have relied on the market and now there
are no American companies left that do this work.
The Chinese had a plan. They are on the cusp of their 14th
five-year plan. They have Made in China 2025 and Made in China
2035 is about to come out.
They have determined the strategic sectors that they want
to dominate in the future economy. And what they do in the
domestic market is they boost up the price, they restrict the
ability for outside companies, American companies and other
companies to compete, and then they provide all manner of trade
promotion tools, zero interest loans, to dominate export
markets.
And so our small businesses, our medium-sized businesses
and other American ventures are playing by one set of rules and
the Chinese companies are playing by another set of rules. In
another realm of national security, we would call that
unilateral disarmament.
And so that is the question to investigate. That is why I
talked about the BUILD Act. That is why I talked about your
amendment to the Defense Authorization Act last year.
Using our market power, determine what industries are
critical, and then taking steps to level the playing field. Do
not put our businesses on a different playing field and tie
them to different rules than the Chinese hold its businesses.
Chairman Rubio. I appreciate all of you being here today
and your patience on the hearing. The Senate is voting now, so
we will have to head to that.
But I want to thank you because your expertise and your
ideas are aligned with a lot of the work we are already doing.
We have come up with some good new ideas, as well.
The hearing record will stay open for two weeks and any
statements or questions for the record should be submitted by
Thursday, March 26 at 5:00 p.m.
With that, the hearing is adjourned.
[Whereupon, at 12:03 p.m., the Committee was adjourned.]
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