 |
 |
 |
 |
 |
 |
 |
 |
 |
 |
|
|||
| INTRODUCTORY REMARKS | |||
A Historical Perspective on Federal Support for Medical Research
Kei
Koizumi Trends in federal funding of nondefense research and development (R&D) over the past four decades reveal the changing priority of various national missions. In the 1960s, funding for space research and development increased dramatically as the United States sought to be the first nation to land a man on the moon. Energy R&D increased in the mid-to-late 1970s, closely tracking national concerns over dependence on foreign oil. Federal support for health-related R&D, however, has grown steadily and virtually uninterrupted over the past four decades. The primary supporter of health-related R&D is the Department of Health and Human Services (HHS) with nearly 95 percent of its R&D funds going to the National Institutes of Health (NIH). In the late 1950s and early 1960s, NIH represented a relatively small part of the federal government’s R&D portfolio, but during the past fifteen years, the NIH budget has doubled in inflation-adjusted terms, with real increases nearly every year. In FY 1999, NIH funding reached $15 billion. It is important
to note that agencies such as DOE, NSF, and NASA also support life
sciences research conducted in support of their missions, but with
potential medical applications. And not all NIH funding is categorized
as life sciences; it also supports research in engineering, social
sciences, psychology and physical sciences. According to NSF statistics,
life sciences research totaled $13 billion in FY 1998, of which
71 percent came from NIH. The trend in life sciences research is
remarkable when contrasted with other disciplines such as engineering
and physical sciences. Of the total federal research portfolio of
$33 billion (excluding development and R&D facilities) in FY 1999,
nearly 44 percent went to life sciences research, compared with
less than 30 percent in FY 1970.
The Future of Pharmaceutical Funding
Bert Spilker R&D investments by research-based pharmaceutical companies have grown tremendously over the last two decades, from $2.0 billion in 1980 to an estimated $21.1 billion in 1998. Approximately 36 percent of the world’s private-sector pharmaceutical R&D is carried out in the United States, and U.S. firms hold approximately 33 percent of the worldwide commercial market. Pharmaceutical companies spend a much larger percentage of their sales on R&D than most other firms. The industry average for pharmaceuticals is 20.8 percent, as compared with 4.1 percent in the automotive industry, 5.1 percent in telecommunications, and 3.7 percent in aerospace and defense. Of the total amount that the pharmaceutical industry invests in R&D, approximately 80 percent is devoted to research and development for the advancement of scientific knowledge and the creation of new products, versus 20 percent for applied research and development to improve and/or modify existing products. In the past,
most pharmaceutical R&D support of clinical trials has been carried
out in academic medical centers. Recent trends suggest that the
share of clinical research conducted in non-academic organizations
has been growing at the expense of academic medical centers, in
part due to delays caused by institutional review boards and legal
barriers. From a public policy perspective, the key issues impacting
the pharmaceutical industry are tax credits, mergers, patent reform,
and price controls.
The Future of Philanthropic Support for Medical/Health Research Enriqueta
C. Bond, Martha G. Peck, and Melanie Scott Foundations are non-profit, non-governmental organizations that are classified into one of four general types—independent, operating, community, and corporate. Overall, there are 41,588 grant-making foundations in the United States. Their support of medical research is quite modest, only about 22% of total health grants. These dollars, however, are nonetheless important because they provide critical “venture capital.” As of 1995, the top twenty-five independent foundations provided a total of $1.2 billion in grants to the broad category of health (e.g., hospitals, medical care, reproductive health, public health, health policy, and management). The share of medical research was 22 percent. The future outlook for increased giving from foundations already in existence is very good, and with a booming U.S. stock market, this should result in continued double-digit growth. The role of
philanthropic funding in strengthening health research is vital
in that it carries the unique capacity to invest in innovative and
creative risk-taking projects. With increasing federal commitment,
foundations can substantially leverage a growing national effort
and quickly move to fill gaps within the system. Gaps and opportunities
that currently exist that could be filled by foundations include:
training physicians and Ph.D. researchers to adapt to changing needs;
support for emerging fields and interdisciplinary research; support
for risky or politically unpopular research; speeding research from
bench to bedside; behavioral research; public understanding of science;
and new partnerships.
Norman J. Ornstein President Clinton’s January 1999 State of the Union Address stands in stark contrast to last year with respect to medical research. In 1998, the President called for a plan to double the NIH budget, contingent upon tobacco legislation. In 1999, only a passing reference to medical breakthroughs and Parkinson’s disease could be found in the transcript of the President’s remarks. Even more significantly, the President’s budget request called for an increase of only 2.1 percent for NIH, barely above the rate of inflation. While funding has increased significantly in the past few years, it has not come close to matching congressional rhetoric on this subject. One reason, of course, is budgetary. It turns out that the politics of surpluses is not that different from the politics of deficits. The Balanced Budget Act of 1997 still must apply the pay-as-you-go (PAYGO) rules, reinforcing the fact that discretionary budgets are tight and continue to operate in a zero-sum environment. Compounding this zero-sum game are the demands of Social Security and Medicare that squeeze discretionary budget items. Within R&D, other zero-sum games can be found, adding layers to this complicated formula. Due to its stable and increasing funding levels, medical research “competes” with other nondefense and defense R&D programs, as a political priority. Competition exists between NIH and other units of the Department of Health and Human Services, reinforcing a “politics of resentment.” Compounding this is the “disease-of-the-month” phenomenon, under which various advocacy groups vie for the attention of legislators and shares of the health research budget. Congress must
change the debate over Social Security and Medicare in the next
year, before it can deal with the task of research funding. Even
if more funding is forthcoming, the continued squeeze on discretionary
spending, along with other political dynamics, means that funding
will likely come with more, rather than fewer strings. Getting medical
research on the agenda means separating it enough from other budget
categories so that it can be considered on its own merits. Create
the focus and the climate for more research funding will be enhanced.
But it remains a daunting task.
Federal Financing for Medical Research Through Trust Funds and Entitlements
Roy T. Meyers Most federal funding for medical research is provided through the annual appropriations process, commonly known as the discretionary portion of the budget. Converting medical research from discretionary to mandatory funding would be a very difficult task. Most members of the appropriations committees would be reluctant to cede their authority over the budget and those within the budget committees would be concerned that mandatory status for medical research would decrease their flexibility to manage the aggregate budget. However, fear about the future of medical research is very reasonable given the recent changes in the health sectors. For example, the widespread adoption of managed care has reduced important cross-subsidies for teaching and research—will this continue? Discretionary appropriations for medical research are threatened by uncertainty at both the micro-budgetary and macro-budgetary levels. At the micro-budgetary level, the dysfunctionalities of the appropriations process are widely known. At the macro-budgetary level, discretionary spending caps loom and could force even those who have pledged to increase medical research funding to do the opposite. The assumption that the caps will remain in force is a major contributor to the large surpluses that are now projected. However, in my view, the budgetary outlook held by most Washington policymakers is too optimistic and projected future surpluses are not a sure thing. This general budgetary environment may provide the rationale for alternative mechanisms. There is no technical guidebook or overarching law on mandatory funding in general, and on trust funds and entitlements in particular. The details of a given program are governed by the specific law that creates it. The essence of both trust funds and entitlements is that, by law, either the receipt of funds by a program or the obligation of those funds becomes automatic. It is very important to note that automatic obligation of funds is not necessarily guaranteed, however, and some trust funds and entitlement programs are still subject to annual appropriations. If the goal of a trust fund is to provide stable growth in financing, this might be prevented by unpredictable variation in dedicated revenues, and by the possibility that politicians will substitute dedicated revenues for discretionary appropriations. In addition, the revenue gains of dedicating financing for medical research should be compared to the impacts of doing this. Some recent proposals for dedicating funds, if adopted, would likely have been regressive and would have reduced access to medical care. In either case, the question remains as to the type of revenue stream that will flow into a non-discretionary account. Some feasible sources of revenues could come in the form of taxes on insurance premiums, and taxes and/or royalties on sales from medical tools and products. A tax on insurance premiums would be similar to a mechanism that is currently being discussed for financing medical education. In this case, a policy decision would be required to determine what rate(s) to impose, in order to solve the problem of having to set funding levels for each outyear. A tax or royalty on medical products has been proposed by some manufacturers of proprietary pharmaceuticals. If granted up to ten years of additional market exclusivity for certain drugs and antibiotics, the companies would make royalty payments (as a percentage of sales) to the government for medical research. Even with these
mechanisms, questions remain as to how much additional revenue should
flow to a non-discretionary program, who should pay for it, and
how should it be allocated. There is a perception that mandatory
funding gives program advocates absolute independence from the “squalid
political process.” However, those who pay into a fund generally
believe they should hold greater political say in how it is spent.
And the creation of new mandatory spending must still conform to
the “PAYGO” rules that require offsets. This creates a new political
constituent base and an additional layer of complication to the
discretionary appropriations process.
The Future of Academic Medical Centers Under Increased Market Pressures: Private Payer Policy Considerations for the Next Millennium
Allen Dobson An increasingly competitive health care delivery system calls for reconsideration of Academic Medical Center (AMC) payment policies. Competitive markets make payers more sensitive to the higher costs of AMCs. And a shift in the location of care under managed care to community settings challenges AMCs to redirect their clinical training and research efforts to outpatient settings. Public and private payers do not fully understand the social missions and related public purposes of AMCs. Payers feel a need to separate the financial support of public goods from the purchase of clinical care. Unfortunately, it is difficult for payers to understand that they are paying for joint products from AMCs in the form of clinical care, teaching, and research, all of which are conducted in a multi-institutional environment involving teaching hospitals, medical schools, and universities. Therefore, to what extent should payers distinguish care provision for their patients from costs associated with broader public good components? The research
function within AMCs is by far the least understood. The payer community
wants to know how research impacts the cost of clinical care for
private pay patients. Managed care organizations increasingly question
the extent to which they need to participate in clinical trials
to meet enrollees’ and community expectations. Mechanisms for measuring
research productivity and accountability for what is purchased are
uncertain, especially the flow of funding. Hence, the benefits of
research, whether in the form of improved patient care or return
on investment to the local economy, are not clearly communicated.
Funding Medical Research Through Medicare
Joseph P. Newhouse The search for alternative funding mechanisms for medical research will naturally lead to the Medicare trust fund. It is only natural to expect some funding from a source which stands to save costs through the innovation of medical research. The author believes that Medicare funding of medical research is not feasible except perhaps in the case of funding clinical trials through Medicare. It should be acknowledged that Medicare already provides funds outside its basic mission of providing health care services. Medicare also pays for a share of salaries for hospital residents in order to defray costs for graduate medical education. In fact, these funds could already be paying indirectly for some clinical research. In addition, Medicare pays additional funds to hospitals in order to provide health care access to low-income populations. There are three reasons for recommending against the use of Medicare funds for medical research. First, whether a portion of medical research warrants an important enough mandate to be placed outside the discretionary portion of the budget is arguable. There very likely would be tremendous dissension from other competing interests such as the advocates of paying down the national debt. Second, Medicare is simply running out of money. The Part A Trust Fund, presumably the source from which a medical research fund would come, is projected to be depleted by 2001. Third, the source of Medicare’s revenue is from payroll taxes that are split between employers and employees. Generally, the employer’s costs are offset by lower wages and it is the employees who bear the burden of the tax. Therefore, a Medicare fund for medical research would entail payment by employees only. This would reallocate costs differently than if medical research funding remained in the appropriations process. It is also argued
that Medicare should pay for clinical trials involving beneficiaries
of Medicare. The reasoning is that Medicare would pay for the care
of those patients if they did not participate in the trial. The
clinical trial could provide valuable insights as well as cost-saving
remedies for those patients.
The Applicability of Tax Credits to Medical Research and Development
Kenneth Whang The research and experimentation (R&E) tax credit is intended to encourage companies to increase investments in research by lowering their marginal costs. As it was structured in the 1980s, the research credit stimulated as much as two dollars of additional R&D investment for every dollar of tax expenditure. As the credit stands today, it has become difficult for many firms to reap any incentive value for increases in R&D. In particular, its value as a stimulus for academic-industry partnerships is minimal. Companies can claim credit for their research expenses using a regular credit or an alternative credit. The 20 percent regular credit is based on a firm’s increment in research investments over a fixed historic base. The alternative credit is based on a three-tiered rate schedule (1.65 to 2.75 percent) and is independent of the firm’s previous history of research investment. Two other credit provisions are of special interest for medical research. A provision of the R&E credit known as the basic research credit is an incremental credit for research contracts with academic institutions. The orphan drug credit is a flat credit for clinical testing of drugs for rare diseases. In recent years, the R&E tax credit has been renewed on a year-to-year basis. A major criticism of the credit is its lack of permanence, which limits its value for long-term investments. Other aspects of the credit further reduce its effectiveness. The basic research credit does not apply to academic-industry R&D with a “specific commercial objective.” Unfavorable phase-in rules for the regular credit reduce its value for small start-up firms. And the fixed base creates a problem of winners and losers who are arbitrarily included or excluded from the regular credit. There are several proposals from legislators that seek to make up for some of these shortcomings. Some specifically target certain deficiencies by creating a 20 percent flat credit for firms’ contributions to public benefit research consortia or creating tax credits for clinical research partnerships. The two most
comprehensive bills for revamping the credit would make it permanent
and would modify the commercial objective clause to accommodate
university-industry partnerships and expand the types of qualifying
partnerships. These bills would also address the problems associated
with the fixed base. One bill would do so by improving the alternative
credit, so that all credit users could have access to a 20 percent
marginal rate, plus a 3 percent rate for maintained research intensity.
R&D would be defined according to the Financial Accounting Standards
definition, and the basic research credit and credit for research
consortia would be restructured with flat rates.
© 1999 American Association for the Advancement of Science |
