As the workshop participants represented a diverse group of individuals, the plenary sessions and paper presentations were organized to provide all workshop participants a “level playing field” in order to ensure a thorough and candid discussion.

Papers on historical funding trends from federal, private for-profit, and private non-profit sources provided a foundation on the state of research funding. In total dollars, the support is certainly strong. Federal support for the broad category of health-related research has grown from $2 billion to slightly less than $16 billion since the 1960’s. Within the private-sector, pharmaceutical companies that conduct research have increased their R&D support from $2 billion to an estimated level of $21.1 billion in 1998. Non-profit, non-governmental organizations also provide significant support to health-related activities. As of 1995, the top twenty-five independent foundations provided a total of $1.2 billion in grants, of which the share for medical research was 22 percent.

While the appropriation of monies to support medical research has been relatively stable, the political environment has not. Even though funding increased significantly in the past few years, it has not come close to matching the rhetoric on the subject. The 15 percent increase in FY 1999, may just become a spike in the historical record, regardless of the fact that our nation appears to be operating in a surplus environment. As it turns out, the politics of surpluses is not that different from the politics of deficits.

The alternative funding mechanisms (i.e., outside the existing appropriations process) that were presented and discussed centered on five general sources: trust funds, entitlements, public- and private-payer insurance, Medicare, and tax credits. These five sources are already utilized in some fashion to fund federal programs and activities.

It was noted that converting medical research from discretionary to mandatory funding would be a difficult task, given that most congressional leaders would not want to cede authority over the budget. Another important point was that automatic obligation of funds, for example in the case of a trust fund, does not necessarily guarantee that it will be removed from appropriations oversight. Even mandatory spending programs have their own political constituent base, and still would compete with other national priorities within the mandatory portion of the federal budget. Another concern raised was the assumption that the surplus will actually remain in the future. If the surplus disappears, one must consider the impact that additional mandatory spending will have on other discretionary programs. In the case of Medicare, a portion of its trust fund is expected to be depleted by 2001. Generally, the employer’s costs to Medicare are offset by lower wages. Employees would therefore have to carry the burden in their payroll taxes. Other funding streams, for example private insurance premiums, may not be available to fill the gap. Premiums pay for products beyond general health care delivery, such as research conducted at teaching hospitals, medical schools, and universities. However with the increased use of managed care organizations it has become difficult to balance the costs of patient care with the benefits associated with broader public good investments. Finally, research tax credits are considered by some to be too small a pool of funds to significantly impact medical research spending.

Nevertheless, arguments were made in support of the creation of alternative funding mechanisms. Public and congressional pressure to fund disease-specific projects could imperil basic scientific research that provides an underpinning of knowledge across the spectrum of diseases and health needs. Independence from the discretionary appropriations process could ensure that the underpinnings of basic research remain strong. In the case of clinical research trials conducted in academic institutions or other non-profit institutions, pressure is growing within the private insurance community to reduce financial support. Even Medicare, which can benefit from the generation of shared knowledge, often does not cover the cost of treatment. Our nation risks creating a gap in an important element of research if it relies strictly on the private-sector to support clinical research trials. Therefore, new and alternative mechanisms for public-sector funding may be warranted. In the case of research and experimentation tax credits, an argument could be made to strengthen incentives for private-sector firms to collaborate with academic institutions on basic research. Building partnerships between academia and industry may reduce the need for federal support in some areas, and in the case of clinical research trials, it may help to bridge any potential gaps.

Whichever alternative mechanism is utilized, questions still remain as to how much additional revenue should flow to a non-discretionary program: Who should pay for it? How should it be allocated? What are the fiscal impacts on the discretionary budget? What additional costs, if any, will be carried by private individuals and institutions? Balancing any near-term costs to the public with the long-term benefits arising from investments that the public will reap is a major challenge.

Following the presentations and initial plenary discussions, the conferees were divided into three breakout groups in order to discuss further the various mechanisms that had been presented and to consider specific recommendations regarding alternative sources of funding for medical research. These groups met twice: on the afternoon of the second day and on the morning of the third. Each included a discussion leader and rapporteur, and each gave a report to the final plenary session, the results of which are described in the following section.

It became obvious in the discussions of funding, whether by public or private sources, that the definition and scope of health-related activities varied. Within federally supported activities, support for research came under the term life sciences. Philanthropic organizations broaden their perspective to include hospitals, medical care, public health, and health policy. Private, for-profit firms conduct research in pharmaceuticals, vaccines, and medical devices. Even the performance of R&D is conducted within a wide array of venues including public and private labs, academic institutions, and hospitals.

There was general recognition of the fact that progress in medical research depends on more that just increased funding for NIH. In addition to NIH, the Department of Health and Human Services supports research at the Centers for Disease Control, the Agency for Health Care Policy and Research, and the Health Care Financing Administration. Medical research is embedded in the fabric of science and engineering. It is an interdisciplinary, multi-agency effort. Advances in such fields as chemistry, physics, electronics, and mechanical engineering, supported by the National Science Foundation, the Department of Energy, the National Aeronautics and Space Administration, and the Department of Defense, among others, illuminate medical science and provide instruments and insights that complement it. Other agencies should not treat areas that address medical issues as solely NIH’s bailiwick, and advocates for medical research should not ignore the contributions of agencies other than NIH and the importance of addressing their budgetary needs.

Participants entered the breakout sessions with a general sense that the current system of annual appropriations within the discretionary budget was the best vehicle for overall continued federal funding of medical research. And while each discussion group approached the problem of alternative funding mechanisms differently, there was a consensus opinion that any alternative mechanisms that might be proposed should supplement the current process in a complementary fashion rather than replace it. Funding mechanisms outside the current system were recognized as useful tools to provide a modicum of stability to such an important research area. The main concern about the current budgetary process was that the caps on discretionary spending had become too restrictive and were not adequate to meet essential program needs.

Among the ideas that emerged from the breakout groups were the following:

Establish a trust fund for medical research. The idea would be to create a dedicated funding source in order to buffer medical research from any drastic changes in funding through the discretionary process. One group suggested that the trust fund be given a specific, targeted mission supplementary to medical research such as infrastructure development, funding for clinical trials, or support for behavioral science research. Suggestions for revenue sources for the trust fund included “sin” taxes on tobacco; fees for medical products resulting from federally funded research in the form of patent extensions; and a tax on private insurance premiums.

Reallocate the costs of clinical trials to free up federal research dollars. Clinical trial funding should be absorbed or at least shared by those who would profit from the trials. Suggestions for payers included pharmaceutical companies and public and private health care payers.

Dedicate portions of the individual states’ tobacco settlements to medical research. One idea proposed was to withhold the amount of each state’s settlement from its federal Medicare payments. It was noted that the settlement formula varies from state to state, and therefore any withholding would likely require a sliding scale to parallel state settlements.

There was strong sentiment, not just in the discussion groups but during all the proceedings of the conference, for providing additional resources for medical research infrastructure. Apart from establishing a trust fund, one group suggested a government-backed borrowing authority to lower the cost of non-government investments in equipment and construction. This could involve issuing bonds, subsidized loans for equipment or facilities, or a guaranteed student loan program.

A novel idea that came out of one group was to earmark funds from the Highway Trust Fund for medical research. This money could go to medical research in fields related to motor vehicle injuries, such as spinal cord injury, treatment of trauma, or alcoholism. An extra tax on gasoline could also be added for this purpose.

Finally, one group devoted a considerable amount of attention to the need to revise the research and experimentation (R&E) tax credit and make it permanent. This group recommended that the credit should be altered to strengthen incentives for industry partnerships with universities as well as clinical research. Also, the credit should be a flat credit rather than an incremental one. These ideas found considerable support in the final plenary session.

The findings and recommendations outlined in the next section of this report are based on discussions from which these points were derived. They are the ideas that, in the view of the workshop staff, received general support among the participants in the meeting. This should not be taken to mean that all of the ideas met with universal approval. Most of the debates on the various funding concepts centered on their political viability, definition and scope of the research objective, and the cost-benefit ratios. The level of importance placed on these issues varied among the diverse group of workshop participants.

Some participants suggested, for example, that using taxes on insurance premiums to support a medical research trust fund would be regressive and ultimately increase the cost of health care. So-called “sin” taxes were discussed and viewed by some participants in the same manner. Others argued that if the objective were narrowly defined to support research in behavioral science, infrastructure development, and models of care delivery, for example, it could ultimately work to lower health care costs. In the case of using the tobacco settlement, some participants felt that such an account should be required to support research directly related to health impacts from tobacco products. Others felt that funds made available should benefit research in all relevant areas, including health services research and prevention studies.

Nevertheless, to the extent that there was a “sense of the meeting,” the authors of this report have tried to reflect it fairly and objectively. The circulation of this report in draft to the participants has, hopefully, helped to assure that this has been accomplished.

© 1999 American Association for the Advancement of Science