[Congressional Record Volume 147, Number 61 (Monday, May 7, 2001)]
[Senate]
[Pages S4417-S4425]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. CRAIG (for himself, Mr. Dorgan, and Mr. Crapo):
S. 836. A bill to amend part C of title XI of the Social Security Act
to provide for coordination of implementation of administrative
simplification standards for health care information; to the Committee
on Finance.
Mr. CRAIG. Mr. President, I rise today to introduce a bill to amend
the Administrative Simplification provisions of the Health Insurance
Portability and Accountability Act. I am pleased that Senator Byron
Dorgan and Senator Mike Crapo are joining with me in this effort today.
I understand the benefits of administration simplification and
support the goal of getting healthcare providers to use uniform codes
to reduce overall costs through increased efficiencies. However, it was
originally intended for the entire package of administrative
simplification regulations to be released at one time. This would have
allowed for system changes to be included in a comprehensive upgrade.
These final provisions are now expected to be released over time, which
will drive up the cost substantially for providers and health plans as
they will be forced to adapt their systems with every new regulation.
For example, identifiers for providers, plans and employers have yet to
be finalized, making it impossible to incorporate this information into
new computer systems.
In addition to the costs of repeatedly updating systems to be
incurred by providers, the overall cost of compliance with the Health
Insurance Portability and Accountability Act is expected to exceed the
costs of Y2K readiness. Small providers, like those in my state of
Idaho, cannot afford the high cost in such a short time frame. A longer
timeframe will allow these small providers to pay incrementally for
systems upgrades.
In addition, if health plans and providers hurry implementation of
these provisions, there is the serious possibility that service
problems will arise for consumers, including inaccurate payments and
customer service issues. A longer implementation timeframe will also
allow providers and plans to address any unanticipated consequences as
they arise.
For these reasons, with my colleagues Senators Dorgan and Crapo, I am
introducing this legislation to delay implementation of the
administrative provisions until the later date of either October 16,
2004 or two years after the final adoption of all regulations. The
regulations that would be impacted by this legislation include
electronic transactions, code sets, security standards for the
electronic standards, and identifiers for health plans and providers.
To avoid confusion, let me be clear that this legislation does not
affect implementation of the Health Insurance Portability and
Accountability Act medical privacy issues and does not deal with unique
health identifiers for individuals.
To ensure that providers, plans and the Department of Health and
Human Services are working towards compliance to these provisions, this
legislation calls for the General Accounting Office to evaluate the
progress of implementation no later than October 31, 2003.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
[[Page S4418]]
S. 836
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. COORDINATION OF IMPLEMENTATION OF ADMINISTRATIVE
SIMPLIFICATION STANDARDS FOR HEALTH CARE
INFORMATION.
(a) In General.--Section 1175(b)(1) of the Social Security
Act (42 U.S.C. 1320d-4(b)(1)) is amended to read as follows:
``(1) In General.--Each person to whom an initial standard
or implementation specification is adopted or established
under sections 1172 and 1173 applies shall comply with the
standard or specification by the later of--
``(A) 24 months after the date on which the Secretary
determines that--
``(i) regulations with respect to all of the standards and
specifications required by such sections (other than
standards for unique health identifiers for individuals under
section 1173(b)(1)) have been adopted in final form;
``(ii) regulations implementing section 1176 have been
issued in final form; and
``(iii) reliable national unique health identifiers for
health plans and health care providers are ready and
available; or
``(B) October 16, 2004.''.
(b) Rule of Construction.--For purposes of section
1175(b)(1) of the Social Security Act (42 U.S.C. 1320d-
4(b)(1)), as amended by subsection (a)--
(1) the requirements of such section (relating to issuance
of a regulation ``in final form'') shall be considered to be
met with respect to a standard, specification, or section if
a regulation implementing such standard, specification, or
section is issued and becomes effective in accordance with
section 553 of title 5, United States Code;
(2) nothing in such section 1175(b)(1) shall be construed
as requiring the Secretary of Health and Human Services to
take into account subsequent modifications made to such
regulation pursuant to section 1174(b) of the Social Security
Act (42 U.S.C. 1 320d-3(b)) in making the determination that
a regulation has been issued ``in final form'' with respect
to a standard, specification, or section; and
(3) nothing in such section 1175(b)(1) shall be construed
as limiting or affecting the authority of the Secretary of
Health and Human Services to issue or implement the final
regulations establishing standards for privacy of
individually identifiable health information published in the
Federal Register by the Secretary on December 28, 2000 (65
Fed. Reg. 82462), including the requirements of section
164.530 of title 45 of the Code of Federal Regulations.
(c) Study of Compliance with Health Insurance Portability
and Accountability Act of 1996.--
(1) In general.--The Comptroller General of the United
States shall conduct a study to examine the effect of the
enactment of section 262 of the Health Insurance Portability
and Accountability Act of 1996 (Public Law 104-191; 110 Stat.
2021), and regulations issued thereunder, on health plans,
health care providers, the medicare and medicaid programs,
and the Department of Health and Human Services, including
the progress of such entities or programs in complying with
the amendments made by such section.
(2) Report.--Not later than October 31, 2003, the
Comptroller General shall submit to the appropriate
committees of Congress a report on the study conducted under
paragraph (1).
(d) Effective Date.--The amendment made by subsection (a)
shall take effect as if included in the enactment of section
262 of the Health Insurance Portability and Accountability
Act of 1996 (Public Law 104-191; 110 Stat. 2021).
______
By Mr. BOND:
S. 837. A bill to amend the Internal Revenue Code of 1986 to provide
a safe harbor for determining that certain individuals are not
employees; to the Committee on Finance.
Mr. BOND. Mr. President, for the past several months we have focused
extensively on the need for tax relief and the means for achieving it.
As the chairman of the Committee on Small Business, I have argued time
and again that the individual rate cuts included in the President's tax
package will have tremendous benefits for small-business owners, the
vast majority of whom pay taxes at the individual rather than the
entity level. And time is of the essence since many of these hard-
working Americans are now feeling real pain from the down turn in our
economy. While I continue to believe that tax relief deserves our
immediate attention, I cannot ignore another tax priority for small
businesses, simplification of the tax code.
With the year 2000 tax-filing season now behind us, thousands of
small-business owners have once again been reacquainted with the stark
realities of our current tax code. To keep that picture clearly in
mind, let me remind my colleague of the results of an investigation
that the General Accounting Office provided to my committee in the last
Congress. A small-business owner faces more than 200 Internal Revenue
Service, IRS, forms and schedules that could apply in a given year.
While no business will have to file them all, it is a daunting universe
of forms, including more than 8,000 lines, boxes, and data
requirements, which are accompanied by over 700 pages.
Even more disturbing is that in recent years more than three quarters
of small-business owners hired a tax professional to help them fulfill
their tax obligations. When we consider the complexity of the forms,
rules, and regulations, no one should be surprised. And these tax
professionals are far from inexpensive. By some estimates, small-
business owners pay more than 5 percent of their revenues just to
comply with the tax law, five cents out of every dollar to make sure
that all of the records are kept and the forms completed, all before
the tax check is even written.
The list of tax provisions crying out for simplification has grown
considerably in recent years. Therefore, earlier this year, I
introduced the Small Business Works Act, (S. 189), which includes a
number of tax-simplification proposals. Today, I rise to introduce
additional legislation focusing on a particularly troubling and long-
standing area of complexity for America's businesses and
entrepreneurs--the status of independent contractors.
Beginning in the last decade and continuing today, there has been an
important shift in the American workplace, with an increasing emphasis
on independent business relationships. The traditional single-employer
career is rapidly being supplanted by independent entrepreneurs who
provide specialized services on an ``as needed'' basis. They seek out
individual contracts, apply their expertise, and move onto the next
opportunity, bound only to their creativity and stamina. The members of
this new workforce are often described as independent
contractors, temps, freelancers, self-employed, home-based businesses,
and even free agents. Whatever their title, they are a rapidly growing
segment of our economy and one that cannot be ignored.
Women in particular are playing an important role in this new
business reality. Since the National Women's Small Business Summit,
which I hosted in Kansas City last June, I have heard a steady stream
of success stories about women entrepreneurs who have left the
traditional workforce to start their own independent businesses, often
times out of their homes. Today thousands of women are running dynamic
businessess in fields like public and media relations, executive
assistance, medical transcription, financial planning, management-
information-systems consulting, and event planning, to name just a few.
There are a number of reasons for this new business paradigm.
Continuing innovations in computer and communication technology have
made the ``victual'' office a reality and allow many Americans to
compete in marketplaces that not so long ago required huge investments
in equipment and personnel. In addition, many men and women in this
country have turned to home-based business in an effort to spend more
time with their children. By working at home, these families can
benefit from two incomes, while avoiding the added time and expense of
day-care and commuting. Corporate downsizing, glass ceilings, and
company politics, too, contribute to the growth in this sector as many
skilled individuals convert their knowledge and experience from
corporate life into successful enterprises operated on their own.
The rewards of being an independent entrepreneur are also numerous.
The added flexibility and self-reliance of having your own business
provide not only economic rewards but also personal satisfaction. You
are the boss. You set your own hours, develop your own business plans,
and choose your customers and clients. In many ways, this new paradigm
provides the greatest avenue for the entrepreneurial spirit, which has
long been the driving force behind the success of this country.
With these rewards, however, come a number of obstacles, not the
least of which are burdens imposed by the Federal government. In fact,
the tax laws, and in particular the IRS, are frequently cited as the
most significant problems for independent entrepreneurs today. Changes
in tax policy
[[Page S4419]]
must be considered by this Congress to recognize this new paradigm and
ensure that our laws do not stall the growth and development of this
successful sector of our economy.
Since 1995, we have made substantial headway on a number of tax
issues critical to these independent entrepreneurs. In the Taxpayer
Relief Act of 1997, we restored the home-office deduction putting home-
based entrepreneurs on a level-playing field with storefront
businesses. The Small Business Job Protection Act of 1996 and the
Taxpayer Relief Act also made some important strides on the
unbelievably complex pension rules so that the freelance writer, home-
based medical transcriber, and other small businesses have the
opportunity to plan for their retirement as they see fit. Finally, and
arguably most importantly, through several pieces of legislation in the
last six years, we have finally made the self-employed health-insurance
deduction permanent and placed it on a path to full deductibility by
2003, although still too long in my opinion. These examples are just a
few of the tax law changes already enacted that are helping men and
women who chose to work as independent entrepreneurs to enjoy a level-
playing field with their larger competitors and still maintain the
flexibility of their independent business lives.
Amid this progress, however, one glaring problem still remains
unsolved for this growing segment of the workplace--there are no
simple, clear, and objective rules for determining who is an
independent contractor and who is an employee. Through the Committee on
Small Business, I have heard from countless small-business owners who
are caught in the environment of fear and confusion that now surround
the classification of workers. This situation is stifling the
entrepreneurial spirit of many entrepreneurs who find that they do not
have the flexibility to conduct their businesses in a manner that makes
the best economic sense and that serves their personal and family
goals. And it is the antithesis of the new business paradigm.
The root of this problem is found in the IRS' test for determining
whether a worker is an independent contractor or an employee. Over the
past three decades, the IRS has relied on a 20-factor test based on the
common law to make this determination. At first glance, a 20-factor
test sounds like a reasonable approach, if our home-based financial
planner demonstrates a majority of the factors, she is an independent
contractor. Not surprisingly, the IRS' test is not that simple. It is a
complex set of extremely subjective criteria with no clear weight
assigned to any of the factors. As a result, small-business taxpayers
are not able to predict which of the 20 factors will be most important
to a particular IRS agent, and finding a certain number of these
factors in any given case does not guarantee the outcome.
To make matters worse, the IRS' determination inevitably occurs two
or three years after the parties have determined in good faith that
they have an independent-contractor relationship. And the consequences
can be devastating. For example, the business that contracts with a
management-information-systems consultant is forced to reclassify the
consultant from an independent contractor to an employee and must come
up with the payroll taxes the IRS says should have been collected in
the prior years. Interest and penalties are also piled on. The result
for many small businesses is a tax bill that bankrupts the company. But
that is not the end of the story. The IRS then goes after the
consultant, who is now classified as an employee, and disallows a
portion of her business expenses, again resulting in additional taxes,
interest, and penalties.
All of us recognize that the IRS has a duty to collect Federal
revenues and enforce the tax laws. The problem in this case is that the
IRS is using a procedure that is patently unfair and subjective and one
that forces today's independent entrepreneurs into the business model
of the 1950s. The result is that businesses must spend thousands of
dollars on lawyers and accountants to try to satisfy the IRS'
procedures, but with no certainty that the conclusions will be
respected. That is no way for businesses to operate in today's rapidly
changing economy.
For its part, the IRS adopted a worker-classification training manual
several years ago. According to then-Commissioner Richardson, the
manual was an ``attempt to identify, simplify, and clarify the relevant
facts that should be evaluated in order to accurately determine worker
classification. . . .'' While I support the agency's efforts to address
this issue, the manual represents one of the most compelling reasons
for immediate action. The IRS' training manual is more than 150 pages
in length and is riddled with references to court cases and rulings. If
it takes that many pages to teach revenue agents how to ``simplify and
clarify'' this small-business tax issue, I can only imagine how an
independent event planner is going to feel when she tries to figure it
out on her own.
In recognition of the new paradigm and the IRS' archaic 20-factor
test, I am introducing the ``Independent Contractor Determination Act
of 2001.'' This bill is substantially similar to the legislation I have
introduced in the past two Congresses to resolve the classification
problem for independent entrepreneurs. It removes the need for so many
pages of instruction on the IRS' 20-factor test by establishing clear
rules for classifying workers based on objective criteria. Under these
criteria, if there is a written agreement between the parties, and if
our medical transcriber demonstrates economic independence and
independence with respect to the workplace, based on objective criteria
set forth in the bill, she will be treated as an independent contractor
rather than an employee. Moreover, the service recipient, e.g., the
doctor or hospital, will not be treated as an employer. In addition,
individuals who perform services through their own corporation or
limited-liability company will also qualify as independent contractors
as long as there is a written agreement and the individuals provide for
their own benefits.
The safe harbor is simple, straightforward, and final. To take
advantage of it, payments above $600 per year to an individual service
provider must be reported to the IRS, just as is required under current
law. This will help ensure that taxes properly due to the Treasury will
continue to be collected.
While the IRS contends that there are millions of independent
contractors who should be classified as employees, which costs the
Federal government billions of dollars a year, this assertion is
plainly incorrect. Classification of a worker has no cost to the
government. What costs the government are taxpayers who do not pay
their taxes.
The Independent Contractor Determination Act has three requirements
that will improve compliance among independent contractors using the
new rules set forth in the bill. First, there must be a detailed,
written agreement between the parties--this will put the home-based
media-relations consultant on notice at the outset that she is
responsible for her own tax payments. Second, the new rules will not
apply if the service recipient does not comply with the reporting
requirements and issue 1099s to individuals who perform services.
Third, an independent contractor operating through her own corporation
or limited-liability company must file all required income and
employment tax returns in order to be protected under the bill.
The bill also addresses concerns that have been raised about
permitting individuals who provide their services through their own
corporation or limited-liability company to qualify as independent
contractors. Because some have contended that this option would lead to
abusive situations at the expense of workers who should be treated as
employees, the bill continues to limit the number of former employees
that a service recipient may engage as independent contractors under
the incorporation option. This limit will protect against misuse of the
incorporation option while still allowing individuals to start their
own businesses and have a former employer as one of their initial
clients.
Much has also been made to the improperly classified employee who is
denied benefits by the unscrupulous employer. This issue raises two
important points. First, the legislation that I am introducing would
not facilitate this troubling situation. Under the provisions of the
bill, it is highly doubtful that a typical employee, like a janitor,
would qualify as an independent contractor. In reality, this issue
relates to
[[Page S4420]]
enforcement, which my bill simply makes easier through clear and
objective rules. Second, the issue of benefits, like health insurance
and pension plans, is extremely important to independent entrepreneurs.
But the answer is not to force them to all be employees. Rather, we
should continue to enact legislation like the Small Business Job
Protection Act, the Taxpayer Relief Act, and the legislation vetoed by
the Clinton Administration, that permit full deductibility of health
insurance for the self-employed and better access to retirement savings
plans.
The Independent Contractor Determination Act also addresses a special
concern of technical-service providers, such as engineers, designers,
drafters, computer programmers, and system analysts. In certain cases,
Section 1706 of the 1986 Tax Reform Act precludes businesses engaging
individuals in these professions from applying the reclassification
protections under section 530 of the Revenue Act of 1978. When section
1706 was enacted, its proponents argued that technical-service workers
were less compliant in paying their taxes. Later examination of this
issue by the Treasury Department found that technical-service workers
are in fact more likely to pay their taxes than most other types of
independent contractors. This revelation underscores the need to repeal
section 1706 and level the playing field for individuals in these
professions.
In the last three Congresses, proposals to repeal section 1706
enjoyed wide bipartisan support. The Independent Contractor
Determination Act is designed to treat individuals in these professions
fairly by providing the businesses that engage them with the same
protections that businesses using other types of independent
contractors have enjoyed for more than 20 years.
Another major concern of many businesses and independent
entrepreneurs is the issue of reclassification. The bill I am
introducing provides relief to these taxpayers when the IRS determines
that a worker was misclassified. If the business and the independent
contractor have a written agreement, if the applicable reporting
requirements were met, and if there was a reasonable basis for the
parties to believe that the worker is an independent contractor, then
an IRS reclassification will only apply prospectively. This provision
gives important peace of mind to small businesses that act in good
faith by removing the unpredictable threat of retroactive
reclassification and substantial interest and penalties.
For too long, independent entrepreneurs and the businesses with which
they work have struggled for a neutral tax environment. For an equally
long time, that tax environment has been unfairly and unnecessarily
biased against them. It is well past time that the tax code embraces
one of the fundamental tenets of our country, the free market. We must
allow individuals the freedom to pursue new opportunities in the ever-
changing marketplace through business relationships that make the best
sense for them. Our tax code should facilitate those opportunities
through fair and simple rules that permit the freelance writer, home-
based day-care provider, and every other independent entrepreneur to
pay their taxes without under interference from the government. Trying
to force today's dynamic workforce into a 1950s model serves no one. It
only stands to stifle the entrepreneurial spirit in this country and
dampen the continued success of our economy.
The Independent Contractor Determination Act is a common-sense
measure that answers the urgent plea from independent entrepreneurs and
the businesses that engage them for fairness and simplicity in the tax
law. As we work toward the day when the entire tax law is based on
these principles, we can make a positive difference today by enacting
this legislation. Entrepreneurs have waited too long, let's get the job
done!
I ask unanimous consent that the text of the bill and a description
of its provisions be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:
S. 837
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Independent Contractor
Determination Act of 2001''.
SEC. 2. SAFE HARBOR FOR DETERMINING THAT CERTAIN INDIVIDUALS
ARE NOT EMPLOYEES.
(a) In General.--Chapter 25 of the Internal Revenue Code of
1986 (relating to general provisions relating to employment
taxes) is amended by adding after section 3510 the following
new section:
``SEC. 3511. SAFE HARBOR FOR DETERMINING THAT CERTAIN
INDIVIDUALS ARE NOT EMPLOYEES.
``(a) Safe Harbor.--
``(1) In general.--For purposes of this title, if the
requirements of subsections (b), (c), and (d), or the
requirements of subsections (d) and (e), are met with respect
to any service performed by any individual, then with respect
to such service--
``(A) the service provider shall not be treated as an
employee,
``(B) the service recipient shall not be treated as an
employer,
``(C) the payor shall not be treated as an employer, and
``(D) compensation paid or received for such service shall
not be treated as paid or received with respect to
employment.
``(2) Availability of safe harbor not to limit application
of other laws.--Nothing in this section shall be construed--
``(A) as limiting the ability of a service provider,
service recipient, or payor to apply other provisions of this
title, section 530 of the Revenue Act of 1978, or the common
law in determining whether an individual is not an employee,
or
``(B) as a prerequisite for the application of any
provision of law described in subparagraph (A).
``(b) Service Provider Requirements With Regard to the
Service Recipient.--For purposes of subsection (a), the
requirements of this subsection are met if the service
provider, in connection with performing the service--
``(1) has the ability to realize a profit or loss,
``(2) agrees to perform services for a particular amount of
time or to complete a specific result or task, and
``(3) either--
``(A) has a significant investment in assets, or
``(B) incurs unreimbursed expenses which are ordinary and
necessary to the service provider's industry and which
represent an amount equal to at least 2 percent of the
service provider's gross income attributable to services
performed pursuant to 1 or more contracts described in
subsection (d).
``(c) Additional Service Provider Requirements With Regard
to Others.--For the purposes of subsection (a), the
requirements of this subsection are met if the service
provider--
``(1) has a principal place of business,
``(2) does not primarily provide the service at a single
service recipient's facilities,
``(3) pays a fair market rent for use of the service
recipient's facilities, or
``(4) operates primarily from equipment supplied by the
service provider.
``(d) Written Document Requirements.--For purposes of
subsection (a), the requirements of this subsection are met
if the services performed by the service provider are
performed pursuant to a written contract between such service
provider and the service recipient, or the payor, and such
contract provides that the service provider will not be
treated as an employee with respect to such services for
Federal tax purposes and that the service provider is
responsible for the provider's own Federal, State, and local
income taxes, including self-employment taxes and any other
taxes.
``(e) Business Structure and Benefits Requirements.--For
purposes of subsection (a), the requirements of this
subsection are met if the service provider--
``(1) conducts business as a properly constituted
corporation or limited liability company under applicable
State laws, and
``(2) does not receive from the service recipient or payor
any benefits that are provided to employees of the service
recipient.
``(f) Special Rules.--For purposes of this section--
``(1) Failure to meet reporting requirements.--If for any
taxable year any service recipient or payor fails to meet the
applicable reporting requirements of section 6041(a) or
6041A(a) with respect to a service provider, then, unless the
failure is due to reasonable cause and not willful neglect,
the safe harbor provided by this section for determining
whether individuals are not employees shall not apply to such
service recipient or payor with respect to that service
provider.
``(2) Corporation and limited liability company service
providers.--
``(A) Returns required.--If, for any taxable year, any
corporation or limited liability company fails to file all
Federal income and employment tax returns required under this
title, unless the failure is due to reasonable cause and not
willful neglect, subsection (e) shall not apply to such
corporation or limited liability company.
``(B) Reliance by service recipient or payor.--If a service
recipient or a payor--
``(i) obtains a written statement from a service provider
which states that the service provider is a properly
constituted corporation or limited liability company,
provides the State (or in the case of a foreign entity, the
country), and year of, incorporation or formation, provides a
mailing address, and includes the service provider's employer
identification number, and
[[Page S4421]]
``(ii) makes all payments attributable to services
performed pursuant to 1 or more contracts described in
subsection (d) to such corporation or limited liability
company,
then the requirements of subsection (e)(1) shall be deemed to
have been satisfied.
``(C) Availability of safe harbor.--
``(i) In general.--For purposes of this section, unless
otherwise established to the satisfaction of the Secretary,
the number of covered workers which are not treated as
employees by reason of subsection (e) for any calendar year
shall not exceed the threshold number for the calendar year.
``(ii) Threshold number.--For purposes of this paragraph,
the term `threshold number' means, for any calendar year, the
greater of (I) 10 covered workers, or (II) a number equal to
3 percent of covered workers.
``(iii) Covered worker.--For purposes of this paragraph,
the term `covered worker' means an individual for whom the
service recipient or payor paid employment taxes under
subtitle C in all 4 quarters of the preceding calendar year.
``(3) Burden of proof.--For purposes of subsection (a),
if--
``(A) a service provider, service recipient, or payor
establishes a prima facie case that it was reasonable not to
treat a service provider as an employee for purposes of this
section, and
``(B) the service provider, service recipient, or payor has
fully cooperated with reasonable requests from the Secretary
or his delegate,
then the burden of proof with respect to such treatment shall
be on the Secretary.
``(4) Related entities.--If the service provider is
performing services through an entity owned in whole or in
part by such service provider, the references to service
provider in subsections (b) through (e) shall include such
entity if the written contract referred to in subsection (d)
is with such entity.
``(g) Determinations by the Secretary.--For purposes of
this title--
``(1) In general.--
``(A) Determinations with respect to a service recipient or
a payor.--A determination by the Secretary that a service
recipient or a payor should have treated a service provider
as an employee shall be effective no earlier than the notice
date if--
``(i) the service recipient or the payor entered into a
written contract satisfying the requirements of subsection
(d),
``(ii) the service recipient or the payor satisfied the
applicable reporting requirements of section 6041(a) or
6041A(a) for all taxable years covered by the contract
described in clause (i), and
``(iii) the service recipient or the payor demonstrates a
reasonable basis for determining that the service provider is
not an employee and that such determination was made in good
faith.
``(B) Determinations with respect to a service provider.--A
determination by the Secretary that a service provider should
have been treated as an employee shall be effective no
earlier than the notice date if--
``(i) the service provider entered into a contract
satisfying the requirements of subsection (d),
``(ii) the service provider satisfied the applicable
reporting requirements of sections 6012(a) and 6017 for all
taxable years covered by the contract described in clause
(i), and
``(iii) the service provider demonstrates a reasonable
basis for determining that the service provider is not an
employee and that such determination was made in good faith.
``(C) Reasonable cause exception.--The requirements of
subparagraph (A)(ii) or (B)(ii) shall be treated as being met
if the failure to satisfy the applicable reporting
requirements is due to reasonable cause and not willful
neglect.
``(2) Construction.--Nothing in this subsection shall be
construed as limiting any provision of law that provides an
opportunity for administrative or judicial review of a
determination by the Secretary.
``(3) Notice date.--For purposes of this subsection, the
notice date is the 30th day after the earlier of--
``(A) the date on which the first letter of proposed
deficiency that allows the service provider, the service
recipient, or the payor an opportunity for administrative
review in the Internal Revenue Service Office of Appeals is
sent, or
``(B) the date on which the deficiency notice under section
6212 is sent.
``(h) Definitions.--For the purposes of this section--
``(1) Service provider.--The term `service provider' means
any individual who performs a service for another person.
``(2) Service recipient.--Except as provided in paragraph
(4), the term `service recipient' means the person for whom
the service provider performs such service.
``(3) Payor.--Except as provided in paragraph (4), the term
`payor' means the person who pays the service provider for
the performance of such service in the event that the service
recipient does not pay the service provider.
``(4) Exceptions.--The terms `service recipient' and
`payor' do not include any entity in which the service
provider owns in excess of 5 percent of--
``(A) in the case of a corporation, the total combined
voting power of stock in the corporation, or
``(B) in the case of an entity other than a corporation,
the profits or beneficial interests in the entity.
``(5) In connection with performing the service.--The term
`in connection with performing the service' means in
connection or related to the operation of the service
provider's trade or business.
``(6) Principal place of business.--For purposes of
subsection (c), the term `principal place of business' has
the same meaning as under section 280A(c)(1).
``(7) Fair market rent.--The term `fair market rent' means
a periodic, fixed minimum rental fee which is based on the
fair rental value of the facilities and is established
pursuant to a written contract with terms similar to those
offered to unrelated persons for facilities of similar type
and quality.''.
(b) Repeal of Section 530(d) of the Revenue Act of 1978.--
Section 530(d) of the Revenue Act of 1978 (as added by
section 1706 of the Tax Reform Act of 1986) is repealed.
(c) Clerical Amendment.--The table of sections for chapter
25 of the Internal Revenue Code of 1986 is amended by adding
at the end the following new item:
``Sec. 3511. Safe harbor for determining that certain individuals are
not employees.''
(d) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to services performed after the date of the enactment
of this Act.
(2) Determinations by the secretary.--Section 3511(g) of
the Internal Revenue Code of 1986 (as added by subsection
(a)) shall apply to determinations after the date of the
enactment of this Act.
(3) Section 530(d).--The amendment made by subsection (b)
shall apply to periods ending after the date of the enactment
of this Act.
____
Independent Contractor Determination Act of 2001--Description of
Provisions
The bill addresses the worker-classification issue (e.g.,
whether a worker is an employee or an independent contractor)
by creating a new section 3511 of the Internal Revenue Code.
The new section will provide straightforward rules for
classifying workers and provide relief from the Internal
Revenue Service's (IRS) reclassification of an independent
contractor in certain circumstances. The bill is designed to
provide certainty for businesses that enter into independent-
contractor relationships and minimize the risk of huge tax
bills for back taxes interest, and penalties if a worker is
misclassified after the parties have entered into an
independent-contractor relationship in good faith.
Clear Rules for Worker Classification: Under the bill's new
worker-classification rules, an individual will be treated as
an independent contractor and the service recipient will not
be treated as an employer if either of two tests is met--the
``general test'' or the ``incorporation test.''
General Test: The general test requires that the
independent contractor demonstrate economic independence and
workplace independence in addition to a written contract with
the service recipient.
Economic independence exists if the independent contractor
has the ability to realize a profit or loss and agrees to
perform services for a particular amount of time or to
complete a specific result or task. In addition, the
independent contractor must either have a significant
investment in the assets of his or her business or incur
unreimbursed expenses that are consistent with industry
practice and that equal at least 2% of the independent
contractor's gross income from the performance of services
during the taxable year.
Workplace independence exists if one of the following
applies: The independent contractor has a principal place of
business (including a ``home office'' as expanded by the
Taxpayer Relief Act of 1997); he or she performs services at
more than one service recipients facilities; he or she pays a
fair-market rent for the use of the service recipient's
facilities; or the independent contractor uses his or her own
equipment.
The written contract between the independent contractor and
the service recipient must provide that the independent
contractor will not be treated as an employee and is
responsible for his or her own taxes.
Incorporation Test: Under this test, an individual will be
treated as an independent contractor if he or she conducts
business through a corporation or a limited-liability
company. In addition, the independent contractor must be
responsible for his or her own benefits, instead of receiving
benefits from the service recipient. The independent
contractor must also have a written contract with the service
provider stating that the independent contractor will not
be treated as an employee and is responsible for his or
her own taxes.
To prevent the incorporation test from being abused, the
bill limits the number of former employees that a service
recipient may engage as independent contractors under this
test. The limitation is based on the number of people
employed by the service recipient in the preceding year and
is equal to the greater of 10 persons or 3% of the service
recipient's employees in the preceding year. For example,
Business X has 500 employees in 2000. In 2001 up to 15
employees (the greater of 3% of Business X's 500 employees in
2000 or 10 individuals) could incorporate their own
businesses and still have Business X as one of their initial
clients.
[[Page S4422]]
This limitation would not affect the number of incorporated
independent contractors who were not former employees of the
service recipient or independent contractors meeting the
general test.
Additional Provisions: The new worker-classification rules
also apply to three-party situations in which the independent
contractor is paid by a third party, such as a payroll
company, rather than directly by the service recipient. The
new worker-classification rules, however, will not apply to a
service recipient or a third-party payor if they do not
comply with the existing reporting requirements and file
1099s for individuals who work as independent contractors. A
limited exception is provided for cases in which the failure
to file a 1099 is due to reasonable cause and not willful
neglect.
New Worker-Classification Rules Do Not Replace Other
Options: In the event that the new worker-classification
rules do not apply, the bill makes clear that the independent
contractor or service recipient can still rely on the 20-
factor common law test or other provisions of the Internal
Revenue Code applicable in determining whether an individual
is an independent contractor or employee. In addition, the
bill does not limit any relief to which a taxpayer may be
entitled under Section 530 of the Revenue Act of 1978. The
bill also makes clear that the new rules will not be
construed as a prerequisite for these other provisions of the
law.
Relief From Reclassification: The bill provides relief from
reclassification by the IRS of an independent contractor as
an employee. For many service recipients who make a good-
faith effort to classify the worker correctly, this event can
result in extensive liability for back employment taxes,
interest, and penalties.
Relief Under the New Worker-Classification Rules: The bill
provides relief for cases in which a worker is treated as an
independent contractor under the new worker-classification
rules and the IRS later contends that the new rules do not
apply. In that case, the burden of proof will fall on the
IRS, rather than the taxpayer, to prove that the new worker-
classification rules do not apply. To qualify for this relief
the taxpayer must demonstrate a credible argument that it was
reasonable to treat the service provider as an independent
contractor under the new rules, and the taxpayer must fully
cooperate with reasonable requests from the IRS.
Protection Against Retroactive Reclassification: If the IRS
notifies a service recipient that an independent contractor
should have been classified as an employee (under the new or
old rules), the bill provides that the IRS' determination can
become effective only 30 days after the date that the IRS
sends the notification. To qualify for this provision, the
service recipient must show that:
There was a written agreement between the parties;
The service recipient satisfied the applicable reporting
requirements for all taxable years covered by the contract;
and
There was a reasonable basis for determining that the
independent contractor was not an employee and the service
provider made the determination in good faith.
The bill provides similar protection for independent
contractors who are notified by the IRS that they should have
been treated as an employee.
The protection against retroactive reclassification is
intended to remove some of the uncertainty for businesses
contracting with independent contractors, especially those
who must use the IRS' 20-factor common law test. While the
bill would prevent the IRS from forcing a service recipient
to treat an independent contractor as an employee for past
years, the bill makes clear that a service recipient or an
independent contractor can still challenge the IRS'
prospective reclassification of an independent contractor
through administrative or judicial proceedings.
Repeal of Section 1706 of the Revenue Act of 1978: The bill
repeals section 530(d) of the Revenue Act of 1978, which was
added by section 1706 of the Tax Reform Act of 1986. This
provision precludes businesses that engage technical service
providers (e.g., engineers, designers, drafters, computer
programmers, systems analysts, and other similarly qualified
individuals) in certain cases from applying the
reclassification protections under section 530. The bill is
designed to level the playing field for individuals in these
professions by providing the businesses that engage them with
the same protections that businesses using other types of
independent contractors have enjoyed for more than 20 years.
Effective Dates: In general, the independent-contractor
provisions of the bill, including the new worker-
classification rules, will be effective for services
performed after the date of enactment of the bill. The
protection against retroactive reclassification will be
effective for IRS determinations after the date of enactment,
and the repeal of section 530(d) will be effective for
periods ending after the date of enactment of the bill.
______
By Mr. DODD (for himself and Mr. DeWine):
S. 838. A bill to amend the Federal Food, Drug, and Cosmetic Act to
improve the safety and efficacy of pharmaceuticals for children; to the
Committee on Health, Education, Labor, and Pensions.
Mr. DODD. Mr. President, I rise today to join my colleague, Senator
DeWine in introducing the Best Pharmaceuticals for Children Act. I hope
that this will be the continuation of our long-term efforts to improve
the health of America's children.
According to the American Academy of Pediatrics, only 20 percent of
the drugs on the market have been tested and labeled specifically for
their safety and effectiveness in children. Children are simply not
smaller version of adults, their bodies actually react to drugs
differently. The absence of pediatric labeling poses significant risks
for children, without adequate information about how a drug works in
children of different ages and sizes, children are more likely to be
under- or over-dosed or to experience dangerous side effects.
We have labels on the food children eat, on the shows they watch and
the music they listen to. Why should we have less information when it
comes to the medicine they take? And while ``off-labeling prescribing''
is neither illegal nor improper, forcing our children to use
medications without adequate safety information, is a lot like playing
Russian roulette with their health.
That's why four years ago, Senator DeWine and I introduced
legislation to take the guess work out of children's medicine. This
legislation, the Better Pharmaceuticals for Children Act, provided a
market incentive for drug companies to test their products for use in
children or to create kid-friendly drug formulations. And, just a few
years later, we've made extraordinary strides in closing the dangerous
gap in knowledge.
In the 3 years since the initiative was launched, over 300 pediatric
drug studies have gotten underway, compared to the 11 studies conducted
in the 6 years prior to the legislation. New pediatric information has
been or will soon be added to the labels of 28 products, including
drugs for AIDS, diabetes, mental health, and asthma. Not only has the
initiative led to significant advances in pediatric medicines, in the
long run it will also save the nation money by reducing hospital stays,
doctors' visits and parents' taking time off of work.
But while tremendous progress has been made, we still have a long way
to go to make sure that children aren't an afterthought when it comes
to pharmaceutical research. Hundreds of drugs are on the market today
that are used in children, but still have not been tested for pediatric
needs. Yet, unless reauthorized, the pediatric testing incentive, and
the explosion of research it has prompted, will expire on January 1,
2002.
In addition to ensuring that critical pediatric drug studies
continue, the Best Pharmaceuticals for Children Act will also ensure
that the new safety information from pediatric studies is promptly
added to drug labels, require drug manufacturers to pay user fees to
participate in the program, and require the Food and Drug
Administration to quickly disseminate information gathered from
pediatric studies to pediatricians and parents. It will also fund
studies of older, ``off-patent'' drugs which are not eligible for the
existing pediatric testing incentive, and create a new Office of
Pediatric Therapeutics at the Food and Drug Administration to
coordinate activities related to children.
The bill is endorsed by the American Academy of Pediatrics, the
Elizabeth Glaser Pediatric AIDS Foundation, the National Association of
Children's Hospitals, the American Society for Clinical Pharmacology
and Therapeutics, and the Allergy and Asthma Network Mother of
Asthmatics.
I call on my colleagues to move quickly to enact the Best
Pharmaceuticals for Children Act, commonsense legislation that will
ensure that our children received only the very best of what medicine
has to offer.
I ask unanimous consent that the text of the bill be printed in the
Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 838
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Best Pharmaceuticals for
Children Act''.
[[Page S4423]]
SEC. 2. PEDIATRIC STUDIES OF ALREADY-MARKETED DRUGS.
Section 505A of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 355a) is amended--
(1) by striking subsection (b); and
(2) in subsection (c)--
(A) by inserting after ``the Secretary'' the following:
``determines that information relating to the use of an
approved drug in the pediatric population may produce health
benefits in that population and''; and
(B) by striking ``concerning a drug identified in the list
described in subsection (b)''.
SEC. 3. RESEARCH FUND FOR THE STUDY OF OFF-PATENT DRUGS.
Part B of title IV of the Public Health Service Act (42
U.S.C. 284 et seq.) is amended--
(1) by redesignating the second section 409C, relating to
clinical research (42 U.S.C. 284k), as section 409G;
(2) by redesignating the second section 409D, relating to
enhancement awards (42 U.S.C. 284l), as section 409H; and
(3) by adding at the end the following:
``SEC. 409I. PROGRAM FOR PEDIATRIC STUDIES OF OFF-PATENT
DRUGS.
``(a) List of Off-Patent Drugs for Which Pediatric Studies
are Needed.--
``(1) In general.--Not later than 1 year after the date of
enactment of this section, the Secretary, acting through the
Director of the National Institutes of Health and in
consultation with the Commissioner of Food and Drugs and
experts in pediatric research (including United States
Pharmacopoeia), shall develop, prioritize, and publish a list
of approved drugs for which--
``(A) there is no patent or market exclusivity protection;
and
``(B) additional studies are needed to assess the safety
and effectiveness of the use of the drug in the pediatric
population.
``(2) Consideration of available information.--In
developing the list under paragraph (1), the Secretary shall
consider, for each drug on the list--
``(A) the availability of information concerning the safe
and effective use of the drug in the pediatric population;
``(B) whether additional information is needed; and
``(C) whether new pediatric studies concerning the drug may
produce health benefits in the pediatric population.
``(b) Contracts for Pediatric Studies.--The Secretary shall
award contracts to entities that have the expertise to
conduct pediatric clinical trials (including qualified
universities, hospitals, laboratories, contract research
organizations, federally funded programs such as pediatric
pharmacology research units, other public or private
institutions, or individuals) to enable the entities to
conduct pediatric studies concerning one or more drugs
identified in the list described in subsection (a).
``(c) Process for Contracts and Labeling Changes.--
``(1) Written request to holders of approved applications
for off-patent drugs.--
``(A) In general.--The Commissioner of Food and Drugs, in
consultation with the Director of National Institutes of
Health, may issue a written request for pediatric studies
concerning a drug identified in the list described in
subsection (a) to all holders of an approved application for
the drug under section 505 of the Federal Food, Drug, and
Cosmetic Act. Such a request shall be made in accordance with
section 505A of the Federal Food, Drug, and Cosmetic Act.
``(B) Publication of request.--If the Commissioner of Food
and Drugs does not receive a response to a written request
issued under subparagraph (A) within 30 days of the date on
which a request was issued, the Secretary, acting through the
Director of National Institutes of Health, shall publish a
request for contract proposals to conduct the pediatric
studies described in the written request.
``(2) Contracts.--A contract under this section may be
awarded only if a proposal for the contract is submitted to
the Secretary in such form and manner, and containing such
agreements, assurances, and information as the Secretary
determines to be necessary to carry out this section.
``(3) Reporting of studies.--
``(A) Upon completion of a pediatric study in accordance
with a contract awarded under this section, a report
concerning the study shall be submitted to the Director of
National Institutes of Health and the Commissioner of Food
and Drugs. The report shall include all data generated in
connection with the study.
``(B) Availability of reports.--Each report submitted under
subparagraph (A) shall be considered to be in the public
domain, and shall be assigned a docket number by the
Commissioner of Food and Drugs. An interested person may
submit written comments concerning such pediatric studies to
the Commissioner of Food and Drugs, and the written comments
shall become part of the docket file with respect to each the
drug.
``(C) Action by commissioner.--The Commissioner of Food and
Drugs shall take appropriate action in response to the
reports submitted under subparagraph (A) in accordance with
paragraph (4).
``(4) Request for labeling changes.--During the 180-day
period after the date on which a report is submitted under
paragraph (3)(A), the Commissioner of Food and Drugs shall--
``(A) review the report and such other data as are
available concerning the safe and effective use in the
pediatric population of the drug studied; and
``(B) negotiate with the holders of approved applications
for the drug studied for any labeling changes that the
Commissioner of Food and Drugs determines to be appropriate
and requests the holders to make; and
``(C)(i) place in the public docket file a copy of the
report and of any requested labeling changes; and
``(ii) publish in the Federal Register a summary of the
report and a copy of any requested labeling changes.
``(5) Dispute resolution.--If, not later than the end of
the 180-day period specified in paragraph (4), the holder of
an approved application for the drug involved does not agree
to any labeling change requested by the Commissioner of Food
and Drugs under that paragraph--
``(A) the Commissioner of Food and Drugs shall immediately
refer the request to the Pediatric Advisory Subcommittee of
the Anti-Infective Drugs Advisory Committee; and
``(B) not later than 60 days after receiving the referral,
the Subcommittee shall--
``(i) review the available information on the safe and
effective use of the drug in the pediatric population,
including study reports submitted under this section; and
``(ii) make a recommendation to the Commissioner of Food
and Drugs as to appropriate labeling changes, if any.
``(6) FDA determination.--Not later than 30 days after
receiving a recommendation from the Subcommittee under
paragraph (5)B(ii) with respect to a drug, the Commissioner
of Food and Drugs shall consider the recommendation and, if
appropriate, make a request to the holders of approved
applications for the drug to make any labeling change that
the Commissioner of Food and Drugs determines to be
appropriate.
``(7) Failure to agree.--If a holder of an approved
application for a drug, within 30 days after receiving a
request to make a labeling change under paragraph (6), does
not agree to make a requested labeling change, the
Commissioner may deem the drug to be misbranded under the
Federal Food, Drug, and Cosmetic Act.
``(d) Authorization of Appropriations.--
``(1) In general.--There are authorized to be appropriated
to carry out this section--
``(A) $200,000,000 for fiscal year 2002; and
``(B) such sums as are necessary for each of the 5
succeeding fiscal years.
``(2) Availability.--Any amount appropriated under
paragraph (1) shall remain available to carry out this
section until expended.''.
SEC. 4. TIMELY LABELING CHANGES FOR DRUGS GRANTED
EXCLUSIVITY; DRUG FEES.
(a) Elimination of User Fee Waiver for Pediatric
Supplements.--Section 736(a)(1) of the Federal Food, Drug,
and Cosmetic Act (21 U.S.C. 379h(A)(1)) is amended--
(1) by striking subparagraph (F); and
(2) by redesignating subparagraph (G) as subparagraph (F).
(b) Labeling Changes.--Section 505A of the Federal Food,
Drug, and Cosmetic Act (21 U.S.C. 355a) is amended by adding
at the end the following:
``(l) Labeling Supplements.--
``(1) Priority status for pediatric supplements.--Any
supplement to a human drug application submitted under this
section--
``(A) shall be considered to be a priority supplement; and
``(B) shall be subject to the performance goals established
by the Commissioner for priority drugs.
``(2) Dispute resolution.--If the Commissioner determines
that a supplemental application submitted under this section
is approvable and that the only open issue for final action
on the supplement is the reaching of an agreement between the
sponsor of the application and the Commissioner on
appropriate changes to the labeling for the drug that is the
subject of the application--
``(A) not later than 180 days after the date of submission
of the supplemental application--
``(i) the Commissioner shall request that the sponsor of
the application make any labeling change that the
Commissioner determines to be appropriate; and
``(ii) if the sponsor of the application does not agree to
make a labeling change requested by the Commissioner by that
date, the Commissioner shall immediately refer the matter to
the Pediatric Advisory Subcommittee of the Anti-Infective
Drugs Advisory Committee;
``(B) not later than 60 days after receiving the referral,
the Pediatric Advisory Subcommittee of the Anti-Infective
Drugs Advisory Committee shall--
``(i) review the pediatric study reports; and
``(ii) make a recommendation to the Commissioner concerning
appropriate labeling changes, if any;
``(C) the Commissioner shall consider the recommendations
of the Pediatric Advisory Subcommittee of the Anti-Infective
Drugs Advisory Committee and, if appropriate, not later than
30 days after receiving the recommendation, make a request to
the sponsor of the application to make any labeling change
that the Commissioner determines to be appropriate; and
``(D) if the sponsor of the application, within 30 days
after receiving a request under subparagraph (D), does not
agree to make a labeling change requested by the
Commissioner, the Commissioner may deem the drug that is the
subject of the application to be misbranded.''.
[[Page S4424]]
SEC. 5. OFFICE OF PEDIATRIC THERAPEUTICS.
(a) Establishment.--The Secretary of Health and Human
Services shall establish an Office of Pediatric Therapeutics
within the Office of the Commissioner of Food and Drugs.
(b) Duties.--The Office of Pediatric Therapeutics shall be
responsible for oversight and coordination of all activities
of the Food and Drug Administration that may have any effect
on a pediatric population or the practice of pediatrics or
may in any other way involve pediatric issues.
(c) Staff.--The staff of the Office of Pediatric
Therapeutics shall include--
(1) 1 or more individuals with expertise concerning ethical
issues presented by the conduct of clinical research in the
pediatric population; and
(2) 1 or more individuals with expertise in pediatrics who
shall consult with all components of the Food and Drug
Administration concerning activities described in subsection
(b).
SEC. 6. NEONATES.
Section 505A(g) of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 355a(g)) is amended by inserting ``(including
neonates in appropriate cases)'' after ``pediatric age
groups''.
SEC. 7. SUNSET.
Section 505A of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 355a) is amended by striking subsection (j) and
inserting the following:
``(j) Sunset.--A drug may not receive any 6-month period
under subsection (a) or (c) unless--
``(1) on or before October 1, 2007, the Secretary makes a
written request for pediatric studies of the drug;
``(2) on or before October 1, 2007, an application for the
drug is submitted under section 505(b)(1); and
``(3) all requirements of this section are met.''.
SEC. 8. DISSEMINATION OF PEDIATRIC INFORMATION.
Section 505A of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C 355a) (as amended by section 4(b)) is amended by
adding at the end the following:
``(m) Dissemination of Pediatric Information.--
``(1) In general.--Not later than 180 days after the date
of submission of a supplemental application under this
section, the Commissioner shall make available to the public
a summary of the medical and clinical pharmacology reviews of
pediatric studies conducted for the supplement, including by
publication in the Federal Register.
``(2) Effect of subsection.--Nothing in this subsection
alters or amends in any way section 552 of title 5 or section
1905 of title 18, United States Code.''.
SEC. 9. TECHNICAL AND CONFORMING AMENDMENTS.
Section 505A of the Federal Food, Drug, and Cosmetic Act
(21 U.S.C. 355a) (as amended by sections 2(1), 4(b), 7, and
8) is amended--
(1) by redesignating subsections (a), (g), (h), (i), (j),
(l), and (m) as subsections (b), (a), (g), (h), (l), (i), and
(j), respectively;
(2) by moving the subsections so as to appear in
alphabetical order; and
(3) in paragraphs (1), (2), and (3) of subsection (d) and
subsections (e), (g) (as redesignated by paragraph (1)), and
(l) (as redesignated by paragraph (1)), by striking
``subsection (a) or (c)'' and inserting ``subsection (b) or
(c)''.
Mr. DeWINE. Mr. President, I rise today to join my friend and
colleague from Connecticut, Senator Dodd, to introduce a bill that
builds on a previous law that he and I wrote four years ago, called the
``Better Pharmaceuticals for Children Act.'' The bill we are
introducing today the ``Best Pharmaceuticals for Children Act'', re-
authorizes our 1997 law and makes additional improvements.
I'd like to thank Senator Dodd for his tireless dedication to this
effort and to other vital children's health initiatives. We have worked
together on many bipartisan efforts that protect children, and I
commend him for his commitment to ensuring that all children are safe
and healthy. I also would like to recognize the efforts of Elaine
Vining with the American Academy of Pediatrics and Mark Isaac with the
Elizabeth Glaser Pediatric AIDS Foundation, who have devoted countless
hours to providing us with technical assistance and ideas for how to
improve our already successful pediatric studies law.
Under our law, the FDA has granted market exclusivity extensions for
28 products, of which 18 include new labeling. Let me tell you what
this means for me as a parent: We now have dosage, safety and adverse
event information that we did not previously have to help us provide
our children the correct dose of these medicines and to avoid potential
adverse effects. The more information doctors and parents have on
dosing, toxicity, adverse effects, and adverse drug interactions--the
more informed our decisions will be when giving medicines to children
and ultimately, the more we will be protecting our kids.
Creating the proper formulation, such as a liquid form, of a drug is
also essential. I know that my children all went through a stage in
which a pill form was problematic for them to swallow or the taste of
the medicine was unacceptable. Having a child spit out a tablet or
having to crush a tablet in order to give half of the recommended adult
dose are compliance issues that we, as parents, have all experienced.
When Senator Dodd and I set out in 1997 to change the fact that only
20 percent of all prescription drugs marketed in this country were
labeled for pediatric use, we heard many proposals on how to fix the
problem, from giving tax incentives for research to offering this
market exclusivity extension. Since children only account for 30
percent of the population and less than 12 percent of personal health
care spending, they were not getting the kind of pediatric-focused
research that they deserve.
Because of the help and support of many of my colleagues like
Senators Frist, Kennedy, Jeffords, Bond, Mikulski, Hutchinson, Collins,
and many others who helped us pass this landmark law, we have begun to
turn the tide in favor of children. In considering any proposals to
change the current law, however, we must not lose sight of the fact
that the goal of this law is to encourage pediatric studies of new and
already marketed drugs that are currently used in children, but are not
labeled for such use. Anything that hinders the ability of the FDA to
implement this law will impede future progress in pediatric research
and ultimately defeat the purposes of this law.
FDA and others, including the American Academy of Pediatrics and the
Elizabeth Glaser Pediatric AIDS Foundation, have offered many helpful
suggestions on how we can improve the current law. The most significant
improvement I would like to stress is something our original law was
never intended to address--the issue of how to get off-patent drugs
tested for use in children. The market exclusivity extension only works
as a pediatric testing incentive if a company has an existing patent to
which we can attach an additional six months of market exclusivity.
Once the patent expires, however, there is no way to prevent
competition from entering the market for that drug.
So, in the new bill that Senator Dodd and I are introducing today--
the ``Best Pharmaceuticals for Children Act'', we propose creating a
``Research Fund.'' This Fund would require the Secretary of HHS to
award contracts for entities with expertise in conducting pediatric
clinical trials (such as PPRU's, hospitals, universities) to conduct
pediatric studies of certain drugs that are off-patent. The list of
these off-patent drugs would be developed according to criteria--such
as whether new studies might produce health benefits for children, and
then prioritized and published by the Secretary, acting through the NIH
Director and in consultation with the FDA Commissioner and experts in
pediatric research. Written requests would be issued by the FDA
Commissioner.
The significance of this Research Fund is that off-patent drugs, like
Ritalin, would be tested for pediatric use. Currently, many drugs are
being prescribed off-label, based on limited, if any, pediatric studies
and/or on the personal experiences of health professionals. Ritalin,
for example, includes the following precaution and warning:
Precaution: Long-term effects of Ritalin in children have
not been well established. Warning: Ritalin should not be
used in children under six years, since safety and
[effectiveness] in this age group has not been established.
The point is that Ritalin is being prescribed off-label for children
under six, and yet we don't know the safety and long-term effects on
children. This Research Fund would establish the means by which testing
on this and other off-patent drugs could be performed.
Our new bill makes other improvements to current law including:
expediting the dissemination of information generated by pediatric
studies to the public; expediting labeling changes; acknowledging the
need to study the neonate, zero to one month in age, population if
appropriate and at the appropriate point in pediatric studies; applying
prescription drug user fees to pediatric studies to give FDA the
resources
[[Page S4425]]
it needs to conduct timely reviews of studies and labeling changes; and
establishing an Office of Pediatric Therapeutics within FDA to
coordinate activities among review divisions and provide oversight for
all pediatric activities undertaken by FDA.
Finally, I would like to address a concern that has been expressed by
many in the press, and rightfully so. No one can ignore the risk
involved in having children participate in clinical trials. Parents
with sick children, sadly, have to weigh these risks and make treatment
decisions. I want to commend Senator Dodd for his foresight in this
area of providing research protections for children involved in
clinical trials. With the increase in pediatric research through this
law and other laws, we needed to ensure that research protections exist
and are strengthened, if necessary.
That is why last year, in the ``Children's Health Act,'' Senator Dodd
and I proposed language that would ensure that federally funded,
conducted, and regulated research adheres to scientific and ethical
review standards. There is currently a review of these federal
protections for children involved in clinical trials to further ensure
that the highest standards of scientific and ethical review are in
place. The alternative to clinical trials is uncontrolled, unregulated,
and unreported studies of smaller groups of children. Pediatric experts
agree that controlled clinical trials are the much-preferred
alternative.
We must make the health of our children a priority. Through our new
bill we are doing that. We are furthering the success of current law by
providing parents and doctors with more information to make better
informed decisions when medicating children. Our children deserve no
less.
I urge my colleagues to support this important measure.
F_____
By Mrs. HUTCHISON (for herself, Mr. Bayh, Mr. Hutchinson, Mr.
Burns, Mr. Kerry, Mr. Chafee, Mr. Kennedy, Mr. Helms, Mrs.
Clinton, Mr. Schumer, and Mr. Biden):
S. 839. A bill to amend title XVIII of the Social Security Act to
increase the amount of payment for inpatient hospital services under
the medicare program and to freeze the reduction in payments to
hospitals for indirect costs of medical education; to the Committee on
Finance.
Mrs. HUTCHISON. Mr. President, I rise today to introduce, along with
Senators Bayh, Hutchinson, and several other distinguished colleagues,
the American Hospital Preservation Act.
Our hospitals are the very foundation of our health care system, a
system that is considered the best in the world. To ensure this quality
of care remains at this high level, we cannot ask yet more cuts of our
financially troubled hospitals.
Two such cuts currently being faced by our nation's hospitals are a
reduction in the annual inflation update hospitals receive for their
Medicare payments, and a reduction in the Medicare adjustment teaching
hospitals receive to support their medical education programs. Both of
these issues are critical to the long-term stability of hospitals, and
to maintaining the scope and quality of the care they provide.
We do have the best health care in the world. Why should we put it at
risk? Especially when the savings we have achieved already are far in
excess of what was originally estimated. In other words, the cuts that
were enacted have more than achieved their goals. There is no more fat
left to trim.
Last year, through enactment of the Medicare, Medicaid and SCHIP
Benefit Improvement and Protection Act, BIPA, we were successful in
getting approximately half of the annual market basket update restored
for our hospitals. In addition, we delayed further reductions in the
indirect medical education, IME, adjustment for teaching hospitals.
This legislation would build upon that success, and would help to
ensure hospitals' long-term financial stability. In effect, it would
preserve the ability of American hospitals to continue to provide the
highest level of health care to be found anywhere in the world.
With respect to the IME provisions of this bill, all of the evidence
points to the fact that the financial health of major teaching
hospitals continues to deteriorate. In fact, with projections that
Medicare margins could drop to negative 3.8 percent by 2005, it is
becoming an increasingly common phenomenon that when a Medicare patient
walks in to a hospital, he or she represents a money loser for that
institution. While our hospitals must remain committed to providing
care no matter the patients' circumstance, that sort of monetary
shortfall will logically result in many hospitals closing down. Or, as
we have seen happen many times recently, many hospitals will
dramatically scale back their outpatient and other services for those
in need.
Particularly in the rural areas of our nation, having a hospital
close down would mean losing access to life-saving medical services. It
would also have a dramatic effect on the community's economy. Hospitals
are often the core components of the local community. To have the
hospital close down would mean the loss of jobs and of businesses. It
would have a ripple effect on the neighborhood, destroying its sense of
stability and community.
This legislation addresses the unique situation of teaching
hospitals. These hospitals, which are centers of experimental,
innovative and technically sophisticated services as well as routine
care and services, tend to incur much higher costs. We must recognize
the higher costs these teaching hospitals incur to provide adequate
learning experiences and faculty support to medical students. To do
this, we must increase the indirect medical education adjustment one
percentage point to 6.4 percent for FY 2003 and the future.
In addition, this legislation will reverse cuts previously enacted by
Congress regarding the annual market basket updates. These cuts are
unnecessary and harmful. For a hospital to effectively compete for
skilled workers, especially in these days of tight labor markets, it is
critical to have an adequate overall revenue stream. Medicare's measure
of inflation, the market basket update, plays a key role in determining
the adequacy of these payments from year to year.
As hospital costs increase rapidly in every area from labor to
pharmaceuticals to blood and blood products to the costs of compliance
with new regulations, the market basket update must keep pace. This
legislation eliminates the update reductions mandated earlier.
It is critical that we not neglect our health care system and that we
continue to invest in the very foundation of that system, our
hospitals. I look forward to working with my colleagues on both sides
of the aisle to ensure that this bill meets that objective yet still
fits within our overall budgetary constraints.
This legislation represents our obligation to not only our most
vulnerable citizens, but also to all Americans. Our hospitals provide
the highest level and quality of care in the world. This bill ensures
that they will be able to continue to do so, and I urge my colleagues
to cosponsor and support it.
____________________