For two-and-a-half days in mid-February 1999, more than thirty experts in the federal budget process, public policy, and several areas of scientific research met to discuss alternative funding mechanisms for medical research outside the traditional appropriations process. The objective was to stimulate a dialogue about these mechanisms, their potential advantages and disadvantages, and the barriers to their implementation. More importantly, the workshop was designed to move that dialogue beyond the conventional level of debate to the question of whether such alternative mechanisms are both feasible and compelling as a means of securing dedicated support for medical research.

Why seek alternative mechanisms and why now? After all, health-related research has enjoyed relatively uninterrupted growth since the early 1960s. Federal funding in the broad field of health-related research has increased from approximately $2 billion in fiscal year (FY) 1960—in constant, inflation-adjusted (FY 1999) dollars—to slightly less than $16 billion this fiscal year. Similarly, R&D investments by research-based pharmaceutical companies have grown from $2 billion in 1980 to $21.1 billion in 1998. The future for federally supported research, however, is far more uncertain than its record of growth might imply. The National Institutes of Health (NIH), the major source of federal dollars for medical research, and other federal research agencies rely on the annual decisions of congressional authorizers and appropriators. These decisions are subject to the fits and starts of current economic and political conditions and, in the future, outside pressures may upset the long-term stability that this field has enjoyed.

The extreme volatility of the budgetary environment can dramatically change the fiscal landscape within which priority decisions are made. For example, in the budget process for FY 1999, Congress appropriated a substantial 15 percent increase in NIH’s budget. Due to tight budgetary caps placed on discretionary spending, President Clinton’s FY 2000 budget proposal for NIH provides barely enough additional support to offset the effect of inflation during the coming year. The administration’s intention, based on policy statements, would have NIH funding increase 50 percent by FY 2004. The hopes and expectations of the medical research community have been raised. The reality is that issues such as Social Security, tax cuts, and Medicare are in the foreground, and the remaining discretionary pool of programs, within which research programs are funded, must live within budgetary constraints even in a time of anticipated multi-billion dollar surpluses.

Compounding the fiscal and economic unpredictability of federal funding for medical research is its growing complexity. Increasingly, advances in research to improve public health build upon basic research in other fields such as physics, chemistry, engineering and mathematics, all of which are supported by agencies other than NIH. Some of these agencies also contribute directly to medical advances through life sciences research in support of their own missions. The interdependence of research among many scientific and engineering disciplines requires long-term, stable commitments to ensure that a balanced portfolio of research programs is maintained. Stability in research funding among the various disciplines is needed to lay a solid foundation for securing our national intellectual capital through the creation of new knowledge, an educated workforce, and advanced tools.

Participants in the workshop on “How to Fund Science” were selected on the basis of their knowledge and experience and the institutional perspectives that they brought to the table (but not as representatives of those institutions). The group heard expert presentations on the federal funding environment for research; funding from both for-profit and non-profit sources; trust funds and entitlements; and research funding through private and public payer insurance, Medicare, and tax credits. The presentations were followed by spirited plenary discussions and then by breakout groups where recommendations for action were debated. While no effort was made to force consensus on the group, a sense of the meeting developed, which is reflected in the findings and recommendations below.

As Senator Mark Hatfield stated in his opening remarks, “History is composed of moments of opportunity for bold, creative, new, risky solutions to meet national needs.” This workshop is just a first step in this process.

Findings and Recommendations

General Finding. Medical research is an interdisciplinary, multi-agency effort involving the federal government, academic institutions, and the private sector, and requiring progress in many diverse fields of science and engineering to succeed. Therefore, medical research should be defined in the broadest possible sense, encompassing not only NIH but life sciences research in other agencies, health care and health services research in the Department of Health and Human Services, enabling research in other scientific and engineering disciplines, and infrastructure and facilities as well.

Recommendation 1. The primary source of federal funding for medical research should remain within the discretionary portion of the federal budget and should be allocated through established authorization and appropriations processes. Participants agreed that the existing funding system, while not perfect, does exemplify the democratic process upon which the principles of our government are based. While several potentially attractive ideas for supplementary funding mechanisms were discussed, none was seen as capable of replacing the current system. However, it will not be possible to accommodate significant growth in research under the Balanced Budget Agreement of 1997 without reductions in other important programs. Lawmakers should candidly and realistically address current limits on discretionary spending as Congress completes action on the FY 2000 budget.

Recommendation 2. A secondary source of funding, in the form of a trust or reserve fund for medical research, in addition to the regular discretionary budget, could provide an important supplement to annual appropriations. Any secondary source of funding should complement and not replace the annual appropriations, and should be analyzed for cost-benefit impact and political viability. Potential mechanisms for such a fund, which should feature a dedicated funding source, could include: a) taxes on tobacco products or allocations from state tobacco settlements; b) assessments on private health insurance premiums; c) fees on medical products resulting from federally funded research, in the form of payments in exchange for patent extensions; and d) federal reallocation of funds within the existing highway trust fund. These mechanisms are not listed in any priority order and the level of importance placed on them varied among the workshop participants.

Recommendation 3. Public and private insurance systems should be mandated to pay the cost of health care services for beneficiaries participating in federally-supported clinical trials. Insurance providers should be exempt in cases where a patentable product is foreseen or commercial profit can be specifically linked to the outcome of the trial.

Recommendation 4. The research and experimentation (R&E) tax credit should be made permanent and expanded to include research in clinical trials. The basic research credit, which applies to industry-academic research contracts, should be restructured as a flat credit at a 20 percent rate and enhanced with incentives to better encourage partnerships between industry and academic institutions.

© 1999 American Association for the Advancement of Science