[Congressional Record Volume 144, Number 39 (Tuesday, March 31, 1998)]
[Senate]
[Pages S2852-S2853]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. D'AMATO (for himself, Mr. Rockefeller, Mrs. Hutchison, 
        Mrs. Feinstein, and Mrs. Boxer):
  S. 1885. A bill to amend the Internal Revenue Code of 1986 to provide 
for a medical innovation tax credit for clinical testing research 
expenses attributable to academic medical centers and other qualified 
hospital research organizations; to the Committee on Finance.


             the medical innovation tax credit act of 1998

  Mr. D'AMATO.  Mr. President, I rise today to introduce legislation 
with my colleagues, Senators Rockefeller, Hutchison, Feinstein and 
Boxer, to create a new tax credit that will make it easier for medical 
schools, teaching hospitals, and non-for-profit research hospitals to 
invest in potentially life saving medical research. Our bill will add 
Section 41A to the Internal Revenue Code to establish a Medical 
Innovation Tax Credit. This new credit would apply to qualified medical 
innovation expenses for biopharmaceutical research activities, 
including clinical trials, at qualified academic institutions. The 
credit rate would be 20% of qualified expenses on research conducted in 
the United States. This tax incentive is necessary in order to assure 
that the United States maintains its position as the leading country 
for biomedical research.

  The Medical Innovation Tax Credit will supplement the current law 
Research and Experimental Tax Credit (R&E) which has allowed 
biopharmaceutical companies to invest hundreds of billions of dollars 
in research for new drug therapies. Clinical trials are conducted by 
these drug companies in order to obtain FDA approval. However, these 
initial studies are only a fraction of the applied research needed to 
follow patients and to discover possible combinations of drugs which 
provide the most effective therapy. These post-approval studies are 
performed by clinical investigators and major academic medical centers.
  Until recently, medical schools, teaching hospitals, and not-for-
profit hospitals were able to fund research from their operating 
profits. Many physicians chose to practice at these hospitals at a 
reduced salary based on the opportunity to engage in teaching and 
clinical research. With the profound changes in the health care 
industry over the last few years, this profit no longer exists. In the 
era of managed care, many insurance companies are reimbursing 
physicians and hospitals at the cost of services. Combined with cuts in 
Medicare payments and reduced subsidies for graduate medical education, 
teaching hospitals can barely afford to pay their medical staff's 
salary, let alone fund its research.
  These financing changes have had the largest impact on hospitals 
affiliated with academic medical centers. A recent study found a 22% 
decline in clinical research conducted at member hospitals of the 
Association of American Medical College's Council of Teaching 
Hospitals. This drop is alarming because it demonstrates that these 
hospitals no longer have the financial resources to contribute to the 
public's health. Traditionally, academic medical centers trained new 
doctors, supported applied biomedical research, and provided the bulk 
of uncompensated care for uninsured patients. Under this system medical 
residents had the opportunity to treat a wide spectrum of patients, 
regardless of their health insurance status. In addition, uninsured 
patients were able to receive the latest care within the scope of 
clinical trials performed at academic hospitals. With reductions in 
private and public funding these medical centers have been forced to 
reduce these social services to compete with for-profit-hospitals with 
no research agenda. This development promises only to stagnate the 
level of care and number of treatment options that the next generation 
of doctors can offer their patients.

  Mr. President, my state of New York has 12 medical schools and 40 
teaching hospitals, in addition to 8 designated cancer centers. Each of 
these institutions will be eligible for the Medical Innovation Tax 
Credit. Without continued funding of research at these institutions, 
many New Yorkers will recognize a profound effect upon the quality of 
their health care. Without the opportunity to conduct research many of 
the country's top doctors may leave to

[[Page S2853]]

practice in locations where they can earn more money. Such a move will 
also reduce the need for research specialists and their staffs. 
Patients will have to choose between hospitals that only recognize the 
bottom line while their children will not enjoy the same medical 
advances as they did. Many uninsured patients will not be able to 
receive uncompensated care and will not be able to receive the most 
advanced medicine possible.
  And these changes aren't just particular to my state. Almost every 
state has a medical school which serves as the epicenter for a network 
of teaching hospitals which employ thousands of physicians, nurses, 
research specialists, and support staff. A large percentage of each 
state's economy is based on these medical centers. Thus, we all stand 
to recognize two main benefits from the Medical Innovation Tax Credit, 
more jobs and better health. Only by encouraging private investment in 
medical research can our health care infrastructure develop new and 
innovative ways to deliver the most advanced care to all citizens of 
our country.
  We urge all of our colleagues to support this legislation that will 
restore to medical schools and teaching hospitals the ability to 
perform applied biomedical research to help treat and cure many of our 
pressing health needs such as cancer and heart disease. This is a 
targeted measure which has widespread benefits for all citizens.
  Mrs. FEINSTEIN. Mr. President, I rise today to join Senator D'Amato, 
Senator Boxer, Senator Rockefeller and others in support of legislation 
to create the Medical Innovation Tax Credit. The proposed tax credit 
can be an effective complement to the existing research and 
experimentation tax credit. The new proposal will support additional 
medical research at fine research universities, like the University of 
California and Stanford University, assisting in the development of new 
products to improve health and save lives. I am pleased to support 
Senator D'Amato's proposal.
  Under the legislation, the Medical Innovation Tax Credit would 
provide a pharmaceutical or biotechnology company with a tax credit 
equal to 20% of their expenditures for human drug clinical trials 
conducted at medical schools, university teaching hospitals or non-
profit research hospitals working in conjunction with the National 
Institutes of Health.
  The proposal will provide an important incentive to conduct the 
research trials in the university hospital setting, improving academic 
training, health care and the development of new research and bio-
medical products.
  The legislation will assist medical schools and research institutions 
leverage additional private sector support for medical schools and 
teaching hospitals. Teaching hospitals have historically been an 
important site of research activity. However, partially because of the 
universities' broad education mission, teaching hospitals face a cost-
disadvantage when compared to a ``for profit'' contract research 
organization. This new research credit will help level the playing 
field for medical schools and teaching hospitals.
  The proposal will help provide, in an indirect manner, additional 
resources for medical research. The administration and Congress both 
enthusiastically support increasing federal support for medical 
research through the National Institutes of Health. However, with our 
acute budget needs, Congress may face difficulty in meeting our goals. 
Congress can provide new sources of revenue for these research 
hospitals by encouraging them to serve as sites for clinical trials. 
Only clinical research activities conducted in the United States can 
qualify for the credit, decreasing the economic incentive to move the 
research activities to lower cost facilities off-shore.
  The support is appropriate because academic health centers address 
important societal priorities, accepting expenses other medical 
facilities may not have to incur.
  University-based teaching hospitals provide a disproportionate share 
of high-cost, critical services to low-income or uninsured individuals.
  University-based teaching hospitals carry a higher burden of 
necessary, but in many cases unprofitable, services, such as emergency 
trauma care and burn unit facilities. Academic health centers represent 
only 2% of all non-federal community hospitals, but have 33% of the 
trauma units and 50% of its burn units.
  The credit will help provide, in an indirect manner, additional funds 
for medical research by encouraging them to serve as clinical trial 
sites. The infusion of research dollars will support their vital 
missions.

  The proposal will help arrest the declining rate of clinical research 
trials conducted at these facilities.
  The American Association of Medical Colleges, which supports the 
legislation, reports a 22% drop in clinical research at member 
hospitals.
  A recent study of three pharmaceutical companies indicates that 
although pharmaceutical R&D is larger than the research funds of the 
National Institutes of Health, the level of university-based clinical 
trials has declined from 82% in 1989 to 68% in 1993.
  This proposal can help schools arrest the steady, five year decline 
and make the most of their research dollars.
  The credit will serve as an effective supplement to the current 
Research and Experimentation Credit and the Orphan Drug Tax Credit and 
provide a cost-effective incentive to encourage companies to pursue 
research in an academic setting. The credit will promote research at 
teaching hospitals, lead to the development of stronger research 
universities, contribute to new medical therapies and products and 
strengthen our world leadership in the important field of medical 
innovation. I am pleased to lend my support.
  Mrs. BOXER. Mr. President, I want to take a few minutes to talk about 
an important piece of legislation which is being introduced today, the 
``Medical Innovation Tax Credit.'' I am an original co-sponsor of this 
legislation.
  The Medical Innovation Tax Credit will establish a new, free-standing 
credit in the Internal Revenue Code. The credit, modeled after a law in 
my home state of California, provides a targeted tax incentive for 
companies to increase clinical trials at medical schools and teaching 
hospitals. The California law has been successful in encouraging 
biotechnology and pharmaceutical companies to expand their pioneering 
research activities at medical schools and teaching hospitals 
throughout the state. The Medical Innovation Tax Credit will encourage 
and stimulate such pioneering research in California and throughout the 
country.
  Many medical institutions today face significant financial pressures 
as a result of fundamental changes in the health care marketplace. With 
fewer funding sources available, medical schools, teaching hospitals, 
and charitable research hospitals designated as cancer centers by the 
National Cancer Institute (NCI), are having to cut back on their 
cutting-edge research activities.
  The Medical Innovation Tax Credit will help alleviate some of these 
financial pressures by encouraging more clinical trials to be conducted 
at medical schools, hospitals and NCI-designated cancer centers; thus 
providing these institutions additional private sector resources to 
fund cutting-edge medical research projects which otherwise may not 
have been funded. These extra resources will also enhance research and 
training opportunities, thereby ensuring our nation's continued 
leadership in innovative medical research.
  Moreover, the Medical Innovation Tax Credit encourages companies to 
conduct their research activities here in the United States since only 
domestic clinical trials are eligible for the credit. By decreasing the 
economic incentive to move such activities off-shore, more clinical 
research projects will be conducted in the U.S. Such domestic based 
research will ultimately lead to increased jobs, investments and 
productivity here at home.
  So, Mr. President, I am very proud to support this bill and I 
congratulate my colleague Senator D'Amato for his hard work on this 
legislation. The enactment of this legislation will provide important 
resources for our nation's leading medical schools, teaching hospitals 
and NCI-designated cancer centers and it will help ensure America's 
continued preeminence in innovative medical research. I encourage my 
colleagues to join in supporting the Medical Innovation Tax Credit.
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