[Congressional Record (Bound Edition), Volume 147 (2001), Part 5]
[Senate]
[Pages 7222-7231]
[From the U.S. 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

[[Page 7223]]

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:

                                 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. 1320d-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 ``virtual'' office a reality and allow

[[Page 7224]]

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 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

[[Page 7225]]

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 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 undue 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,

[[Page 7226]]

       ``(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
       ``(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

[[Page 7227]]

     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. 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.

[[Page 7228]]

  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 Mothers 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''.

     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

[[Page 7229]]

     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.''.

     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

[[Page 7230]]

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 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

[[Page 7231]]

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.

                          ____________________