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TREATMENTS FOR AN AILING ECONOMY: 

PROTECTING HEALTHCARE COVERAGE AND INVESTING IN BIOMEDICAL RESEARCH 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

NOVEMBER 13, 2008 

Serial No. 110–153 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

JOHN D. DINGELL, Michigan, Chairman 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PROFESSIONAL STAFF

DENNIS B. FITZGIBBONS, Chief of Staff 

GREGG A. ROTHSCHILD, Chief Counsel 

SHARON E. DAVIS, Chief Clerk 

DAVID CAVICKE, Minority Staff Director 

(II)

(III) 

SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

Vice Chair 

TOM ALLEN, Maine 

TAMMY BALDWIN, Wisconsin 

ELIOT L. ENGEL, New York 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

MIKE ROSS, Arkansas 

DARLENE HOOLEY, Oregon 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JOHN D. DINGELL, Michigan (ex officio) 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 1 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 3 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 5 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 6 

Hon. John D. Dingell, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 120 

Hon. Edolphus Towns, a Representative in Congress from the State of New 

York, prepared statement .................................................................................... 136 

WITNESSES

Janet Napolitano, Governor, State of Arizona ...................................................... 8 

Prepared statement .......................................................................................... 10 

Gene Sperling, Senior Fellow, Center for American Progress Action Fund ....... 17 

Prepared statement .......................................................................................... 20 

Craig Zolotorow, Medicaid beneficiary ................................................................... 32 

Prepared statement .......................................................................................... 33 

Raymond E. Pinard, President and Chief Executive Officer, 48HourPrint.com 34 

Prepared statement .......................................................................................... 37 

Raynard S. Kington, M.D., Ph.D., Acting Director, National Institutes of 

Health ................................................................................................................... 75 

Prepared statement .......................................................................................... 78 

Ronald F. Pollack, Executive Director, Families USA .......................................... 82 

Prepared statement .......................................................................................... 84 

Rachel King, Chief Executive Officer, GlycoMimetics, Inc. .................................. 91 

Prepared statement .......................................................................................... 93 

Joachim Kohn, Ph.D., Director, New Jersey Center for Biomaterials and 

Professor, Rutgers, The State University of New Jersey .................................. 103 

Prepared statement .......................................................................................... 105 

SUBMITTED MATERIAL

Statement of the American Hospital Association ................................................. 122 

Letters of October 27, 2008, from the National Governors Association to 

Members of Congress ........................................................................................... 126 

‘‘Why Government Spending does not Stimulate Economic Growth,’’ article 

published by The Heritage Foundation, dated November 12, 2008 ................. 129 

Statement of David A. Paterson, Governor of the State of New York, before 

the House Committee on Ways and Means, October 29, 2008 ......................... 139 

‘‘Brooklyn Lab is Part of City’s Goal to be a Biotech Center,’’ New York 

Times, November 11, 2008 .................................................................................. 146 

Letter of October 30, 2008, from more than 230 patient groups, scientific 

and medical societies, research institutions, and industry organizations, 

to Nancy Pelosi ..................................................................................................... 150 

Statement of the California Healthcare Institute ................................................. 157 

(1) 

TREATMENTS FOR AN AILING ECONOMY: 

PROTECTING HEALTHCARE COVERAGE AND 

INVESTING IN BIOMEDICAL RESEARCH 

THURSDAY, NOVEMBER 13, 2008 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 10:00 a.m., in room 

2123 of the Rayburn House Office Building, Hon. Frank Pallone, 

Jr. (chairman) presiding. 

Members present: Representatives Pallone, Towns, Green, Burgess, and Blackburn. 

Staff present: Bridgett Taylor, Purvee Kempf, Jessica McNiece, 

Bobby Clark, Andrew Shin, Brin Frazier, Lauren Bloomberg, 

Hasan Sarsour, Ryan Long, Aarti Shah, Brandon Clark, and Chad 

Grant. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. The meeting of the subcommittee is called to 

order. 

Today we are having a hearing on ‘‘Treatments for an Ailing 

Economy: Protecting Healthcare Coverage and Investing in Biomedical Research.’’ I thank you all for being here today and I will 

recognize myself initially for an opening statement. 

Medicaid, as you know, provides 59 million Americans with access to medical care and specialized support and services. It protects our most vulnerable populations, the poor, disabled and elderly. It also accounts for nearly half of all nursing home care. The 

NIH is America’s leading medical research agency and the foremost 

biomedical research institute in the world. It is through the work 

of NIH that we are living longer and healthier lives and may some 

day soon find cures for the epidemics of our time like cancer and 

diabetes, and it will be through the NIH that we are protected from 

those that wish us harm through bioterrorism. 

No doubt the effects of the current economic crisis are on the 

forefront of everyone’s mind. Americans are facing uncertain times 

and wondering how they are going to pay for basic necessities like 

food, fuel and healthcare. Others are just hoping to hold on until 

they are lucky enough to find a job, and as this crisis hits both 

Wall Street and Main Street, Washington must act because the sitVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
2 

uation in the States, as I know we are going to hear from Governor 

Napolitano, is certainly dire. Due to shrinking State revenues, 

States may cut coverage and restrict new enrollment, which means 

millions of Americans may lose access to the healthcare coverage 

they desperately need and those who have lost their jobs will lose 

healthcare coverage also. Right now more than 10 million people 

are actively seeking work but are unable to find it. The unemployment rate is 6.5 percent, which is the highest level since 1994. In 

each month this year our economy has shed more jobs than it has 

created. To date, 1.2 million jobs have been lost. 

A study conducted by the Kaiser Family Foundation found that 

increasing the national unemployment rate by one percentage point 

increases Medicaid and SCHIP enrollment by 1 million people. 

Such a change would increase state spending by approximately 

$1.4 billion at a time when States are already struggling to balance 

their budgets, and to make matters worse, the State Medicaid programs, they not only impact Medicaid-eligible individuals with the 

cuts but they also adversely affect the healthcare job market. Medicaid cuts translate into healthcare job losses. Therefore, such cuts 

only contribute to the State’s unemployment rate and can exacerbate a worsening fiscal crisis. 

Now, earlier this year I introduced a bill with my colleagues, 

Chairman Dingell, Mr. King and Mr. Reynolds, to temporarily increase each State’s Federal Medical Assistance Percentage, what 

we call FMAP, during this economic downturn, to ensure that 

States can continue to provide critical services instead of cutting 

them. A similar provision was included in the recovery package 

that the House passed in September and I hope that this FMAP 

increase will be included in any economic recovery package that is 

crafted during a possible lame-duck session which, as you know, is 

likely to occur next week. 

As we explore the possibility of another economic recovery package, we should also discuss providing additional assistance to 

States in creating jobs by investing in biomedical innovation and 

research. While there is no question regarding the importance of 

the research NIH conducts to improve our health, it also provides 

real direct economic benefits at the local level including increased 

employment, growth opportunities for universities, medical centers, 

local companies and additional economic stimulus for the community. 

In 2007, NIH grants and contracts created and supported more 

than 350,000 jobs that generated wages in excess of $18 billion in 

the 50 States, and these are good paying jobs. The average wage 

was $52,000 a year. According to Families USA, if the amount NIH 

awards to the States were to increase by 6.6 percent, the national 

economic benefit would add up to $3.1 billion worth of new business activity, 9,185 additional jobs and $1.1 billion in new wages. 

We have a proud tradition in this country of persevering through 

tough times by investing in American innovation and ingenuity. 

What better way is there to tap into that great American spirit and 

industry than by investing in research to combat disease and lead 

the world in that noble endeavor. 

At a time of great economic uncertainty, Washington, in my opinion, must act. Last month Federal Reserve Chairman Ben 

3 

Bernanke voiced his support for an economic recovery package during testimony here on Capitol Hill. Some economists are saying 

that we need to pass a more robust package. I was reading Mr. 

Sperling’s testimony and I think he talked figures of $300, $400 billion. Each day we hear about more job losses and troubling economic trends. I would hope these headlines would serve as a 

wakeup call to the White House. House Democrats are prepared to 

work with President Bush and the Senate to pass another economic 

recovery package, probably last week, if the President finally recognizes the need for such action. 

I would like to thank each of our witnesses for being here today. 

I especially would like to welcome Arizona Governor Janet 

Napolitano. I told her before that I have a lot of relatives. I don’t 

know, it seems like people from New Jersey when they retire often 

go to Arizona, so I have been out there a lot to see my mother-inlaw and my brother-in-law. Thanks for being here today. It is also 

nice to see Gene Sperling, who has been to many of our message 

meetings over the last year to talk about where we are going on 

various economic issues, but I look forward to hearing all the testimony from all of our panelists today. 

Mr. PALLONE. I now recognize Mr. Burgess, who is our ranking 

member for the day. Welcome. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Mr. Chairman, and I will be brief because we do have a lot of witnesses to go through today and I have 

an opening statement that is prepared and I will submit it for the 

record. But I am grateful that we have such a varied panel of witnesses here in front of us today. I think it always speaks well for 

this committee that we do have such varied witnesses come and 

speak to us. I am a little concerned. I am grateful to be able to 

meet the acting head of the National Institutes of Health, but other 

than that individual, we have no practicing physician. Even with 

that individual we have no practicing physician in front of us, and 

I think it would be good to hear from a member of the provider 

community as we tackle these tough issues because they are obviously impacted by any increase in funding or any growth of the 

State Medicaid programs. It is all going to affect our physical communities across the country in ways that most of us frankly do not 

understand or do not care to understand. We heard from a pediatrician from Alabama last year who got my attention because she 

went into practice the same year that I did, 1981, so now after 

nearly 30 years of medical school, residency and practice, she had 

a practice that was 70 percent Medicaid and was borrowing from 

her retirement fund to keep her office open because as we all know, 

Medicaid pays about 30 to 40 percent of the cost of delivering the 

care, and I will tell you from my past as a practicing physician that 

if you are losing a little bit of money on each patient, it becomes 

very, very difficult to make it up in volume. One of the great concerns we had during the SCHIP expansion arguments last year 

was the fact that moving children off of private insurance onto 

SCHIP was subsequently going to have a very deleterious effect on 

the practicing pediatrician. 

4 

We heard testimony in this committee earlier in the fall from Mr. 

Jim Frogue from the Center for Health Transformation who asked 

if we were going to give more money into the system, which maybe 

we needed to do, but we shouldn’t give more money without asking 

for increased transparency and accountability. Now, we always at 

this committee are quick to harshly judge the physician community 

for being slow adopters on electronic medical records but I recall 

back in 1996 being required to purchase all kinds of computer 

equipment because electronic claim submission was now going to 

be required. In fact, that is what led to the HIPAA regulations that 

we now live with every day but at the same time there is no mechanism across the States for a hospital to identify who is responsible 

for covering for a patient. As a consequence, we end up with a situation where a Medicare patient may also be eligible to be covered 

by their private insurance but no one knows because that information is not readily available, and as a consequence, the Medicaid 

system itself unfairly has to pay for that which rightly should be 

paid by a private insurance company and the hospital and physician are reimbursed again at that 30 percent of the cost of delivering care that Medicaid provides. 

And then the other issue that we are not addressing today and 

that really just cries out for us to address is the issue of the lack 

of efficiency and the presence of fraud within the system. The GAO 

has uncovered this. A New York Times article, albeit this is several 

months old, from July of 2008, quoting here, ‘‘New York’s Medicaid 

program, once a beacon of the great society, has become so huge, 

so complex, so lightly policed that it is easily exploited.’’ This is the 

New York Times. Again quoting, ‘‘Though the program is a vital resource for 4.2 million people who rely on it for their healthcare, a 

yearlong investigation by the Times found that the program has 

been misspending billions of dollars annually because of fraud, 

waste and profiteering. A computer analysis of several million 

records obtained under the Freedom of Information Act revealed 

numerous indications of fraud and abuse and the State had never 

investigated.’’ Now, they go on to say later in the article New 

York’s Medicaid program is by far the most expensive and the most 

generous in the Nation. It spends nearly twice the national average, roughly $10,600, and that is more than any other State on 

each of its 4.2 million recipients, one of every five New Yorkers, 

and that was from 2005. I suspect that number would be a little 

higher today. The Kaiser Family Foundation last fall said that the 

average employer-sponsored insurance is $8,800. We could buy everyone a gold-plated insurance policy in New York on the Medicaid 

program for what we are spending today and at the very least our 

providers would be reimbursed more fairly and perhaps we would 

have less providers leaving the system. 

I am grateful that we have some representatives from the private 

sector here today. I am especially interested in hearing the comments that I read in the testimony about association health plans. 

Certainly we have multi-state corporations that are allowed to sell 

insurance across State lines but we don’t give the same break to 

the little guy, and I frankly do not understand that. In the NFL, 

for example, if a player is traded from Washington to Dallas, 2 

months ago I would have said it was an upgrade, but nevertheless, 

5 

if a player is traded from Washington to Dallas, their insurance 

goes with them. If a fan follows his favorite player from Washington to Dallas, he has got to start all over again, and that is a 

fundamental unfairness of our insurance system and really it is the 

obligation of this Congress or the next Congress to correct that. 

Thank you, Mr. Chairman. I will yield back. 

Mr. PALLONE. Thank you. I like the football analogies. 

I next recognize for an opening statement the gentleman from 

Texas, Mr. Green. 

OPENING STATEMENT OF HON. GENE GREEN, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. GREEN. Thank you, Mr. Chairman, and I appreciate the football analogy also, but since I am from Houston, I wouldn’t want 

anybody to be traded to Dallas but I will be glad to talk about the 

transferability of State-regulated insurance but I know Governor 

Napolitano, having served 20 years in the State legislature in 

Texas, and dealing with State health insurance, I am not so sure 

folks living in Arizona would be best served by our State agency 

regulating the policies that are sold in Arizona. With that, I will 

get into my remarks. 

Mr. Chairman, I thank you for holding the hearing today. As we 

know, the current economic state in this country is taking its toll 

nationally and at the state level. Many individuals are losing their 

jobs and the rate of unemployment is rising as is the number of 

uninsured in our company adding to the 46 million uninsured we 

already have in the United States. Unfortunately, when individuals 

lose their job, they often cannot afford medical care and often forego it. This leads to these individuals showing up in emergency 

rooms when their problems are much worse and more costly to 

treat and placing a larger burden on the system because they are 

uninsured. During the last economic downturn in 2003, President 

Bush provided a 2.5 percent increase in the States’ Federal Medical 

Assistance Percentage to help assist them in the rising number of 

individuals needing Medicaid coverage. In turn, the States agreed 

not to reduce their current standards for Medicaid eligibility. In 

order to avoid State deficits, many States will reduce their standards for Medicaid eligibility which will actually increase the number of uninsured. An increase in the FMAP funding would avert 

this potential problem and allow States to continue to provide Medicaid coverage to its uninsured population. I have supported providing the increase in FMAP in the past. In fact, Chairman Pallone 

introduced H.R. 5268, which would have increased FMAP by 2.95 

percent, and I supported that bill. 

I also supported increased NIH funding. The NIH is the world’s 

leading biomedical research institute. It is one of the great success 

stories of the Federal Government. Our investment in lifesaving research has lead to advances that have profoundly improved the 

length and quality of life of millions of Americans. Information 

gained from NIH research is revolutionizing the practice of medicine and future directions of scientific inquiry. Without a doubt, the 

work performed at the NIH is invaluable. The groundbreaking research supported by NIH has provided a lifeline of hope to countVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
6 

less Americans whether it be diabetes, cancer, HIV/AIDS and many 

other illnesses. 

Unfortunately, for the fifth consecutive year, NIH has received 

flat funding. The NIH employs thousands of researchers and generates wages in excess of $18 billion in 50 States. The economic 

benefit of funding the NIH is something that could help both the 

States and our medical research. While funding the NIH and increasing FMAP are not the answer to our financial situation, they 

are healthcare-related funding that can provide relief to the States. 

It is my hope that if Congress moves an economic stimulus next 

week, that it includes both FMAP increase and additional NIH 

funding. 

Again, Mr. Chairman, I thank you for calling this very timely 

hearing if we have a lame-duck session next week. Thank you. 

Mr. PALLONE. Thank you. 

Next for an opening statement, are we going to get the Nashville 

music analogies? 

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE 

Ms. BLACKBURN. Well, I could sit here and give you lots of wonderful Nashville music analogies. The CMAs were last night, the 

Country Music Awards, and if you missed the show, you missed a 

tremendous show, and Kid Rock came out wearing a Titans jersey, 

which I thought was terrific. He had a great presentation, and I 

will say to my colleague from the Houston area, sorry you lost your 

Oilers, but your Tennessee Titans are now just having the greatest 

year that they have had. And to the guys from Dallas, all the Texans are coming back to Tennessee. It wouldn’t have been a Texas 

without us so everything—— 

Mr. GREEN. Will the gentlelady yield? 

Ms. BLACKBURN. I will yield. 

Mr. PALLONE. I started this. It is my fault. 

Ms. BLACKBURN. With great sympathy I will yield. 

Mr. GREEN. Well, being a country western fan, I am glad George 

Strait, a good Texan, is still at the top and king of the CMAs but 

I also know I gave away all my Oiler paraphernalia to a predecessor from Nashville and said okay, we ended up keeping the 

owner and you got the team. It was supposed to be reserved. You 

all were supposed to get the owner and we kept the team but—— 

Ms. BLACKBURN. Reclaiming my time. 

Mr. GREEN [continuing]. Congratulations on the Titans success 

but the Texans are rebuilding every year. 

Ms. BLACKBURN. Your Oiler paraphernalia could probably be sold 

on eBay and you could reap a tidy sum, and George Strait is the 

king of country right now but the goodness in his career has happened out of that wonderful Nashville creative community. So we 

welcome all Texans to Tennessee and we welcome all of our guests 

here today coming in. We thank you for taking time to come before 

us and to work with us on this issue. 

We are all concerned about healthcare and the economy and the 

interface of the two and preserving that access to healthcare, and 

Mr. Chairman, as we are talking about spending more money, I 

7 

find it very interesting that over the past year the Administration 

and the Democrat-led Congress has chosen to spend about $1 trillion bailing out financial institutions and then after having waived 

the PAYGO rules, the Democrat-led Congress spent $283 billion in 

new spending and we know that has not been the cure for the economy. 

As we look at healthcare and the relationship between what is 

one-seventh of our Nation’s economy and the economic structure 

that we have, the chairman spoke very appropriately about the 

spirit of industry, the American spirit of industry that exists in this 

country, and our focus should be on what we do to energize that 

spirit of industry because we are the most creative people on the 

planet. We seek ways to solve problems that are laid in front of us 

and we are very good at it, and what the decisions that we make 

should be here to energize and create the right growth environment 

for small businesses, for science and medical research firms, to 

solve some of the problems that we have, for technology firms to 

solve some of the problems of data transfer and of records that can 

be kept and owned by individuals, and I would hope that as we 

look at tax policies and how it applies to healthcare, how it applies 

to innovation that we are going to do that. I will say, Mr. Chairman, I was a little bit concerned to learn that Judiciary is looking 

at moving intellectual property away from a subcommittee and just 

having it considered by the full committee because intellectual 

property is the basis of which all these innovators that are going 

to resolve the health IT problems, the biomedical research problems, that are going to deal with how industry provides healthcare 

for employees. They find their basis in that. 

So my hope is that as we look at the interface between 

healthcare and that being a seventh of our economy, that our 

course of action is not going to be throw some money at it and wait 

for government to solve it but our focus is going to be how we address the healthcare needs of individuals and create the right environment so that indeed innovators can innovate and find a way to 

help solve some of the healthcare issues, the health IT issues, the 

access issues that exist today, and with that, I yield back. 

Mr. PALLONE. Thank you. 

Before we proceed to the panel, let me ask a unanimous consent 

to include in the record first a statement of the American Hospital 

Association, and second, two letters from the National Governors 

Association supporting a temporary increase in FMAP and a new 

report released by the National Governors Association today on 

economic recovery. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PALLONE. Okay. That completes our opening statements, and 

we are going to turn to our witnesses on our first panel. I want to 

welcome all of you, and let me introduce the first panel. First is 

the Hon. Janet Napolitano, who is the Governor of the State of Arizona, and next is Gene Sperling, who is the Senior Fellow for the 

Center for American Progress Action Fund, and then we have Mr. 

Craig Zolotorow, a Medicaid beneficiary from Maryland, and then 

we have Mr. Raymond Pinard, President and Chief Executive Officer of 48HourPrint, and he is from Boston, and last is Dr. Alan 

Viard, who is a Resident Scholar with the American Enterprise InVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
8 

stitute here in Washington. We have 5-minute opening statements. 

They become part of the hearing record. But each of you may in 

the discretion of the committee submit additional brief and pertinent statements in writing for inclusion in the record. 

I will start with the governor. Thank you for being here today. 

STATEMENT OF HON. JANET NAPOLITANO, GOVERNOR, STATE 

OF ARIZONA 

Governor NAPOLITANO. Thank you, Mr. Chairman, members of 

the committee. Given the colloquy that just occurred, I have to put 

in a word for the Arizona Cardinals. We are four games ahead in 

the division and we look forward to meeting Tennessee later on in 

the year. 

I am here to testify about FMAP. I am the two-term governor of 

Arizona, and the reason I mention that is because I was governor 

the last time Congress addressed FMAP in the context of state 

deficits so I can speak directly to its effect on medical care in our 

States and also its effect on our State economies. 

There are two different issues pending before the Congress where 

States are concerned, two major ones today. In another committee 

they are hearing testimony on the need to invest in physical infrastructure, on projects that are ready to go that have cleared all the 

environmental impact statement requirements and the like as a 

means of stimulating jobs and job creation. That is very important 

and the governors on a bipartisan basis are in support of that. The 

letter you just incorporated into the record from the National Governors Association, which is a bipartisan organization as well, addresses FMAP, which is another major issue, and it deals, of course 

with the federal share of Medicaid payments. This is a very, very 

easy and efficient way for the Federal Government to work in partnership with the States to make sure that healthcare continues to 

be provided to most in need, and indeed, in a way is its own economic stimulus into the healthcare provider community. 

Let me give you a sense of what the condition of the states is 

today. Forty-nine States are required by law to have balanced 

budgets every year. Approximately 30 States now are already in 

deficit. We expect by the end of the year that will rise to 40 States. 

They expect cumulative deficits of over $140 billion by fiscal 2010. 

State fiscal years are different than federal. State fiscal years are 

generally July 1 to June 30 as opposed to the October 1 federal 

year. The States have been in this position now for some period of 

time so any easy options available to them have been exhausted. 

I will use Arizona as an example. Arizona was one of the first 

States to experience the economic downturn because of the heavy 

prevalence of the housing industry in our State. During the last 

few years we had set aside money for a rainy day fund. We had 

$750 million set aside to use in case of an economic downturn. By 

the end of our next special session, we will have totally depleted 

that fund. It is also important to note that State budget deficits 

tend to lag behind recovery so that whatever you do today, it needs 

to be done in the context of a timing cycle. It needs to be a 2-year 

approach and not simply a 1-year approach. 

Now, let me turn directly to Medicaid with my remaining few 

minutes. An increase in the federal Medicaid match allows us to 

9 

do two things. One is, it recognizes that when State economies are 

hurt, when revenues are down, the demand for enrollment in Medicaid goes up. More people simply become eligible. You are not expanding eligibility, you are not changing your program in any way 

whatsoever, you just simply have more people who aren’t making 

as much money as they used to. By way of example, in September 

of this year 13,000 more Arizonans qualified for Medicaid than in 

August. About 8 months ago we had 900,000 people on Medicaid 

in Arizona. Now we are approaching 1.15 million. That is a very 

tremendous rate of growth. In addition, what you find is, if you 

provide an FMAP correction now, you compensate for the way 

FMAP is calculated. As you know, FMAP is calculated with a 3- 

year rolling average, and what that means is that you have States 

that are currently in deficit now that are actually seeing their 

FMAPs decreased because they are experiencing the effect of the 

rollover average and so by way of example, you have at least nine 

States that next month will experience a decrease in their FMAP 

percentage even though they currently are in deficit. And so by 

looking at FMAP now, you can assist States with keeping on the 

rolls those who need healthcare, you can provide healthcare dollars 

into the healthcare system and you can make sure that States who 

have already used up their easy options do not have to either raise 

taxes or cut other spending in order to cover Medicaid which in a 

period of recession would be contraindicated. That would add to the 

recession, not help our Nation get out of the recession. 

So the Nation’s governors believe that this is an appropriate time 

to reemphasize FMAP. It is an easy calculation to do. It is efficient. 

You don’t need to invent a new program. We know it works. We 

have done it before. The need for this couldn’t be more serious than 

the present time. Thank you, Mr. Chairman. 

[The prepared statement of Governor Napolitano follows:] 

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Mr. PALLONE. Thank you, Governor. Thank you very much. 

Mr. Sperling. 

STATEMENT OF GENE SPERLING, SENIOR FELLOW, CENTER 

FOR AMERICAN PROGRESS ACTION FUND 

Mr. SPERLING. I guess in the spirit of this hearing, I have to note 

that I was born and raised in Michigan. My family still lives there. 

I am a Detroit Lions fan. We are 0 and 8. 

Ms. BLACKBURN. Mr. Chairman, speaking if I may—— 

Mr. PALLONE. Yes. 

Ms. BLACKBURN. Thank you for yielding. 

Mr. SPERLING. I know about Thanksgiving, Congressman. 

Ms. BLACKBURN. I am so glad that you do and we welcome so 

many Michiganders who have moved to Spring Hill, Tennessee, the 

southern area of my district. They are welcomed, they are at home 

there, and the Spring Hill Saturn plant is doing very well, and we 

are converting them daily to Titan fans. I yield back. 

Mr. SPERLING. Well, her undefeated team plays my winless team 

on Thanksgiving. The University of Michigan, which is usually our 

bright spot, is 3 and 7, so I am collectively 3 and 15 for the football 

season. I hope that will be seen as a sign of character and loyalty 

and not poor judgment that would make you disregard the rest of 

my statement. 

I think we have to start with the notion that we are in a demand 

crisis, and I think with the headlines every day on how the TARP 

is working, the financial crisis, liquidity crisis, capital market crisis 

is all appropriate, but I think we have to have an adjustment in 

our thinking. We have a demand crisis, and what I mean by that 

is, that as important as it is to fix our capital market crisis, it will 

not do the trick if nobody wants to buy or spend or borrow or expand. In my professional life, I have never been more worried 

about a coming economic year than the next year. The overwhelming amount of spending that has happened in the last seven 

years has been driven off people extracting equity from their home 

mortgages with rising prices. That energy is depleted. It is gone. 

But what scares me the most is I have never seen a moment where 

when you look out at the private sector and the American consumer and even the global economy, I can’t see where demand is 

coming from next year. 

In October, tens of millions of American families recognized that 

they had taken a significant hit in their home prices, in their home 

wealth and their mortgage wealth. Among the tens of millions of 

American families having conversations around their kitchen table 

right now, there is only one conversation going on: what are we 

going to cut back on. That may make sense for every single family 

but if 50 million families are making that decision at once, that is 

going to hurt spending and the businesses who see that are going 

to project that and lay people off and you are going to have that 

downward cycle. We were hopeful before that with a weak dollar 

that we might get a burst from manufacturing exports to the rest 

of the world that would hopefully be growing. There was a little 

while where that looked like that might be promising. Those hopes 

are dashed. The dollar is up. Europe is projecting virtually no 

growth, all of Europe. The IMF is almost projecting a global recesVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
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sion, and exports in the last few months, manufacturing in the last 

few months has gone to some of the greatest falls we have seen. 

So the question is, what is going to jumpstart this economy? 

I think again in my professional life, I have never seen a moment 

where I thought there was a greater case for a very large fiscal 

stimulus, and let me say, I understand that that would be subject 

to political tack. I understand. I understand that we have an extremely high deficit, and for 1 year that would make the deficit 

higher, but I don’t see where else the demand is coming from, and 

I encourage people to put aside their preconceptions and think 

about what I call the Powell Doctrine approach to stimulus, to 

come at this with overwhelming force, because the risk of being too 

slow, too small, too incremental are so much greater for our people 

than the risks of being too bold for a year. The pain of 8 or 9 percent unemployment for a year or 2 years would be far too great for 

our economy and would end up hurting the deficit even worse. I 

think as we look forward, we need to have not only a bigger stimulus, we need to be tough on stimulus, we need to make sure that 

it actually measures the get out during the period that will increase demand but I think, as Governor Napolitano said, we need 

to probably look at a longer window. We need to make sure that 

we are looking at how to get demand going over probably an 18- 

month or even longer period. I think this also means we should be 

looking for those areas where those short-term investments are 

win-wins. They are also down payments on long-term priorities. 

When possible, that should be our aspiration. 

Now, I believe that in that context, a significant increase in the 

FMAP makes an enormous amount of sense because I think that 

if you are trying to expand growth to have federal policies that ignore that as you are giving money with one hand, States are being 

forced to not only cut back on healthcare but to contract, to lay off 

people, to raise taxes is to have a policy that is going to lead to 

contraction at the State level. Increasing the FMAP is one of the 

quickest ways to inject demand. It helps the people who are often 

the innocent victims of the recession who have lost their 

healthcare, and I think it is one of those important things that we 

can do for demand and keeping States out of this, I think, very bad 

choice they will face, which is either to restrict the Medicaid coverage and see more people lose their healthcare, moving our country backwards, or to protect that and then have to cut back and 

do painful cuts or tax increases that will be harmful to the economy and their people in other ways. I believe that a very significant FMAP increase of over $35 billion is justified in this context 

and again I ask people to look at how risky the economy is last 

year and not look at this through its normal lens. I would never 

have been here in the previous two discussions on stimulus talking 

about this much. I think we are just in a very, very different situation. 

I also believe that if you are doing an SCHIP expansion, that 

while a permanent SCHIP expansion should have offsets to ensure 

that it protects against the deficit going up, in the short term for 

the first couple of years or so, it would again make sense to do this, 

to waive those pay-fors so that you are getting the full stimulative 

effect possible. 

19 

And then finally, I would just say that I would not let any of this 

prevent us from going forward on universal healthcare reform that 

includes with it the kind of tough measures and smart measures 

that would help us bring down our long-term healthcare costs. I 

think that is the way that we can marry an increase for a year or 

two to help in this period of recess with a long-term strategy to not 

only cover all Americans but start bringing down national 

healthcare cost growth, which is the best way to bring down the 

larger cost of Medicare and Medicaid growth which is obviously our 

greatest long-term entitlement challenge. 

Thank you. 

[The prepared statement of Mr. Sperling follows:] 

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Mr. PALLONE. Thank you really for your testimony, and I am 

going to have some follow-up questions later specifically on some 

of the points you mentioned. 

I think your name is actually spelled wrong there. It is 

Zolotorow? 

Mr. ZOLOTOROW. Zolotorow, Z-o-l-o-t-o-r-o-w. 

Mr. PALLONE. Oh, so it is correct there. 

Mr. ZOLOTOROW. It is right there. 

Mr. PALLONE. All right. Thanks. I recognize you for an opening 

statement. Thank you for being here. 

STATEMENT OF CRAIG ZOLOTOROW, MEDICAID BENEFICIARY 

Mr. ZOLOTOROW. Good morning and thank you to Chairman 

Pallone, Ranking Member Deal and members of the subcommittee 

for having this hearing and for inviting me to speak to you today. 

I come before this committee as a proud and grateful enrollee in 

Maryland’s Medicaid program. I am a student at Howard Community College. Right now I am only taking one class but I also work 

at the school newspaper as an advertising manager, copy editor 

and staff writer. I hope to major in journalism so that one day I 

can work for the Washington Post or for the Baltimore Sun. Medicaid has been a lifesaving program for me, allowing me access to 

critical healthcare services that my family would not otherwise 

have been able to afford. I am here today to ask you to help States 

preserve Medicaid coverage for the millions of people like me in 

this country who rely on it daily. 

I did not always rely on Medicaid. Until the age of 12, I had family health insurance coverage through my mother’s employer, and 

thank goodness I did. My numerous chronic illnesses started in 

1987 with the diagnosis at age 2 of common variable immunodeficiency, which is a mild form of the ‘‘boy in the bubble’’ syndrome, causing continuing serious viral infections. In 1995 at age 

10, I was diagnosed with Hodgkin’s lymphoma. I am now a proud 

13-year cancer survivor. Because of my diagnoses, my family faced 

$50,000 in medical bills, which is 20 percent of medical bills totaling $250,000, and our family income, I became eligible for SSI, 

which automatically made me eligible for Medicaid. 

In 1997, 2 years after cancer treatment, I reached my lifetime 

maximum of $250,000 on my mother’s health insurance, so I became reliant on Medicaid to cover the costs of chronic sinusitis, 

which required two surgeries, meningitis, three grand mal seizures, 

a life-threatening adrenocorticotropic, or ACTH endocrine deficiency, hypothyroid, anorexia, bipolar disorder, Asperger’s syndrome, colitis, growth hormone deficiency, hypertension, anemia, 

renal disease, nephrogenic diabetes insipidus, and fevers of up to 

105 degrees. With this many chronic conditions, it was essential 

that I receive ongoing medical attention. Luckily, my Medicaid coverage in Maryland allowed me to receive the care I needed to cope 

with my health challenges. 

Unfortunately, individual insurance is not accessible to somebody 

like me who is disabled because of various health problems. These 

plans simply do not offer coverage to someone with healthcare 

issues as extensive and expensive as mine. And even if I am lucky 

enough to reach my dream and work for a big newspaper, emVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
33 

ployer-sponsored coverage will probably not be enough. Just as I 

reached my lifetime limit on my mother’s employer-based coverage, 

I would likely quickly reach the limit on any coverage I receive 

through a future employer or be denied coverage due to preexisting 

conditions. Luckily, my Medicaid coverage in Maryland allowed me 

to receive the care I needed to cope with my health challenges. 

Medicaid is an irreplaceable lifeline for me. 

Given all my diagnoses and the treatment that I needed, I don’t 

know what I would have done without Medicaid. During my cancer 

chemotherapy in 1995, while still on my mother’s employee insurance, I was discharged from the hospital after a 1-week stay. I returned just 5 hours later with a fever of 104. The insurance company had refused to pay for any more days for that hospitalization. 

Medicaid never discharged me before my medical team felt it was 

appropriate. Instead, I was able to get the medically necessary care 

I needed. 

Medicaid will be covering my treatment for occupational and 

physical therapy. As a child, I never had the opportunity to just go 

out and play and build up my muscles like the other kids in the 

neighborhood did. The muscles in my hands are so weak that I cannot type as much as I should for school or in the future for work. 

I started college this fall and hope these therapies will increase my 

stamina and help me sustain the rigors of college and pursue a future career. In many States I would be in danger of losing access 

to these important services and that would put me at a severe disadvantage both in terms of my education and my future career 

prospects. 

As Congress considers how to protect Medicaid in these tough 

economic times, I hope you will think of the millions of people like 

me who rely on Medicaid and can see their lives significantly 

harmed if we are unable to receive the care we need through this 

important program. Now is the time for Congress to increase federal support for Medicaid to prevent States from making any further cuts. 

Thank you. 

[The prepared statement of Mr. Zolotorow follows:] 

STATEMENT OF CRAIG ZOLOTOROW

Good morning, and thank you to Chairman Pallone, Ranking Member Deal, and 

members of the Subcommittee for having this hearing and for inviting me to speak 

to you today. I come before this committee as a proud and grateful enrollee in Maryland’s Medicaid program. I am a student at Howard Community College. Right now 

I am only taking one class but I also work at the school newspaper as an advertising 

manager, copy editor, and staff writer. I hope to major in journalism so that one 

day I can work for the Washington Post or the Baltimore Sun. Medicaid has been 

a life-saving program for me, allowing me access to critical health care services that 

my family would not otherwise have been able to afford. I am here today to ask you 

to help states preserve Medicaid coverage for the millions of people like me in this 

country who rely on it every day. 

I did not always rely on Medicaid. Until the age of 12, I had family health insurance coverage through my mother’s employer. And thank goodness I did. My numerous chronic illnesses started in 1987 with the diagnosis, at age 2, of Common Variable Immunodeficiency, a mild form of the ‘‘Boy in the Bubble’’ Syndrome, causing 

continuing serious viral infections. In 1995, at age 10, I was diagnosed with Hodgkins Lymphoma. I am now a proud 13 year cancer survivor. Because of my diagnoses—my family faced $50,000 in medical bills (20 percent of medical bills totaling 

34 

$250,000)—and our family income, I became eligible for SSI, which automatically 

made me eligible for Medicaid. 

In 1997, two years after cancer treatment, I reached my lifetime maximum of 

$250,000 on my mother’s health insurance, so I became reliant on Medicaid to cover 

the costs of: Chronic Sinusitis (requiring two surgeries), Meningitis, three Grand 

Mal Seizures, ACTH Deficiency, Hypothyroid, Anorexia, Bipolar Disorder, Asperger 

Syndrome, Colitis, Growth Hormone Deficiency, Hypertention, Anemia, Renal Disease, Nephrogenic Diabetes Insipidus and fevers up to 105 degrees. With this many 

chronic conditions, it was essential that I receive ongoing medical attention. 

Unfortunately, individual insurance is not accessible to someone like me, who is 

disabled because of various health problems. These plans simply do not offer coverage to someone with health care needs as extensive—and expensive—as mine. 

And even if I am lucky enough to reach my dream and work for a big newspaper, 

employer sponsored coverage will probably not be enough. Just as I reached my lifetime limit one my mother’s employer based coverage, I would likely quickly reach 

the limit on any coverage I receive through a future employer. Luckily, my Medicaid 

coverage in Maryland allowed me to receive the care I needed to cope with my 

health challenges. Medicaid is an irreplaceable lifeline for me. 

Given all of my diagnoses and the treatment that I needed, I don’t know what 

I would have done without Medicaid. I have been followed by 12 different specialists 

at the Johns Hopkins Children’s Center and now in adult medicine for 20 years. 

During my cancer chemotherapy in 1995 while still on my mother’s employee insurance I was discharged after a one-week hospital stay. I returned just 5 hours later 

with a fever of 104. The insurance company had refused to pay for any more days 

for that hospitalization. Medicaid never discharged me before my medical team felt 

it was appropriate, instead I was able to get the medically necessary care I needed. 

Medicaid will be covering my treatment for Occupational and Physical Therapy. 

As a child, I never had the opportunity to just go out and play and build up my 

muscles like other kids in the neighborhood. The muscles in my hands are so weak 

that I cannot type as much as I should for school or, in the future, for work. I started college this fall and hope these therapies will increase my stamina and help me 

sustain the rigors of college and pursue a future career. In many states, I would 

be in danger of losing access to these important services, and that would put me 

at a severe disadvantage both in terms of my education and my future career prospects. 

Some services-including physical and occupational therapy as well as prescription 

drugs, dental services, and other important benefits-are optional under Medicaid. 

That is, although states must provide Medicaid to certain people, there are certain 

benefits they are not required to offer or that they can cut. Because states are facing 

such dramatic revenue declines and budget shortfalls in the coming year, many 

have enacted or are considering cuts to Medicaid, including to these so-called ‘‘optional services’’ that people like me rely on. 

Medicaid is an excellent program that provides excellent medical care to the most 

vulnerable Americans. It needs to be protected, particularly now when many states 

might be looking to make cuts. If my state cut had to cut Medicaid, I would be at 

risk of losing critical health care services that help me live, and that will allow me 

to achieve my potential and lead a productive life. 

As Congress considers how to protect Medicaid in these tough economic times, I 

hope you will think of the millions of people like me who rely on Medicaid and could 

see their lives significantly harmed if we are unable to receive the care we need 

through this important program. Now is the time for Congress to increase federal 

support for Medicaid to prevent states from making any further cuts. 

Mr. PALLONE. Thank you. 

Mr. Pinard. 

STATEMENT OF RAYMOND E. PINARD, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, 48HOURPRINT 

Mr. PINARD. Good morning, Chairman Pallone, Ranking Member 

Burgess and the committee. I am Ray Pinard, president and CEO 

for 48HourPrint.com, an 85-employee small business specializing in 

online commercial printing. We are headquartered in Boston and 

have state-of-the-art print shop facilities located in Cleveland and 

Phoenix. Because we are a multi-state operation, I am not taking 

35 

a position today on endorsing any one particular football team. I 

am also here on behalf of the U.S. Chamber of Commerce and serve 

as a member of its board of directors and Council on Small Business and Corporate Leadership Advisory Council. 

I believe the best way to treat an ailing economy and to protect 

healthcare coverage is for Congress to incentivize private sector job 

creation by providing tax cuts for businesses and making commonsense changes to the healthcare system that will help contain costs 

and promote small business pooling so more of those jobs will include healthcare as a benefit. 

At 48HourPrint.com, we responded to the tax incentives provided 

by the first stimulus package by jumpstarting spending on capital 

equipment. We purchased a 40-inch offset printing press at a cost 

of $2.25 million. The bonus depreciation provision for the stimulus 

package resulted in $300,000 of bonus depreciation in 2008, which 

we are able to plow back into further capital equipment and providing jobs. This purchase could have been delayed to a future date 

but the investment incentives provided by the stimulus package 

made this purchase possible in 2008. Taxes do matter. Low taxes 

and incentives like these have helped me grow my business and 

provide 85 well-paying jobs with healthcare benefits in the 5 short 

years that we have been operating. I think also when we look at 

healthcare benefits, we should look at benefit packages as a whole. 

We also provide healthcare insurance, we provide dental insurance, 

we provide life insurance, we provide short-term and long-term disability insurance, and we also provide a $10,000-a-year educational 

stipend for any employee who wants to go to college. For companies 

our size, I think this is a tremendous benefit package. 

48HourPrint.com’s story of utilizing the tax incentives provided 

by the first economic stimulus bill is just one example that represents thousands of similar actions taken by small businesses 

throughout the United States to invest in their companies. My decision and the decisions of many other business owners to make capital investments in our companies are directly the result of the tax 

incentives in the first stimulus package. As Congress moves forward in its consideration of a possible new stimulus plan, I would 

strongly encourage you to be mindful of this reality. 

I understand that Congress is facing very difficult decisions on 

what items to include in the second stimulus package. I am here 

to tell you today that the best way to protect healthcare benefits 

and to reduce healthcare costs incurred by States is to provide incentives for the private sector to create jobs. Creating private sector jobs is a win-win scenario for everyone: the employee, the employer and the government. As an employer, I feel that you will get 

more bang for the buck by considering a second round of tax incentives crafted for small businesses to invest and expand. This would 

further encourage employers to do what they do best: grow our 

businesses and create jobs. And as you know, most of the job creation in America is done by small- and mid-sized businesses with 

80 percent of net new jobs being created by businesses with less 

than 500 employees. In my written testimony, you will find a list 

of suggested tax incentives. 

One of the most basic elements to fostering economic prosperity 

is creating a private sector job and there is nothing more rewarding 

36 

to an employer than to be able to accompany that job with private 

sector healthcare benefits. If Congress could couple the tax incentives I have suggested with some commonsense healthcare reforms, 

not only would States have more money flowing into their coffers 

through increases in payroll rosters and resulting revenues but by 

making it easier for employers to provide healthcare benefits, they 

will also experience less need for Medicaid funding by reducing the 

rolls of the uninsured. 

Small businesses need more options to choose from when purchasing health insurance and a free enterprise system should ensure that affordable healthcare is available to everyone. A small 

business should not be penalized for its lack of size or diversity of 

workforce. Every small business owner I know wants to offer affordable, dependable health insurance to our employees and we 

need the type of flexibility that will keep up competitive in our respective marketplaces. To ensure this, we call upon Congress to 

help. 

With regard to a comment made by Congressman Burgess in his 

opening remarks, for years the chamber and businesses like mine 

have pushed for legislation that would provide relief by letting 

small businesses pool together across State lines to provide cost-effective and accessible insurance through trade and professional associations. In our situation, because we operate in three States and 

we offer three levels of medical coverage to our employees, we essentially offer nine different plans. It would be much easier if we 

could deal in our case with the printing industry and offer three 

different plans that span across all 50 States. By being part of a 

larger group, small businesses would have greater negotiating 

power and would also reduce costs by having uniform standards 

from State to State. The Congressional Budget Office has found 

that allowing this would cost nothing and in fact save money for 

the government while helping more Americans get insurance. 

Mr. PALLONE. Mr. Pinard, I just wanted to point out, you are a 

minute over so if you could kind of wrap it up? 

Mr. PINARD. In conclusion, being in the printing industry, I am 

very proud to quote one of the world’s most famous printers, founding father Benjamin Franklin. He once said, ‘‘Watch the pennies 

and the dollars will take care of themselves.’’ I cite this quote 

knowing full well that in discussing tax policies and possible stimulus ideas, you may be considering a package with a price tag in 

the billions, which is hardly pennies. But Franklin’s message does 

resonate in the sense that if Congress acts wisely in how it handles 

the pennies through reasonable tax incentives and commonsense 

market-based healthcare reforms, the ensuing investment and economic growth, the tax dollars generated by businesses across our 

Nation will be exponential. 

Thank you for this opportunity and I would be happy to answer 

any questions. 

[The prepared statement of Mr. Pinard follows:] 

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Mr. PALLONE. Thank you. 

Dr. Viard. 

STATEMENT OF ALAN D. VIARD, PH.D., RESIDENT SCHOLAR, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. VIARD. Thank you, Mr. Chairman, Mr. Ranking Member, 

members of the subcommittee. It is an honor to appear before you 

today to discuss this important and pressing topic. 

The U.S. economy is in a severe downturn. Although we do not 

yet have an official declaration to that effect, there can be no doubt 

that the downturn is a full-fledged recession. The severity of the 

economic difficulties that we are facing has understandably 

prompted calls for a fiscal stimulus package. I will submit today, 

however, that the case for a fiscal stimulus package is still quite 

uncertain and that if a fiscal stimulus package is adopted, the inclusion of an increase in Medicaid matching rates is an ineffective 

way to stimulate aggregate demand. I will also urge the subcommittee to continue to think about the need to promote long-run 

growth, even as we simultaneously address the short-run difficulties that we are facing. 

I would like to begin, Mr. Chairman, by clarifying the potential 

role of fiscal stimulus. Increases in aggregate demand by increasing 

the category of some public or private spending cannot permanently boost the level of output. In the long run, an increase in 

spending in one part of the economy creates jobs there but it displaces spending elsewhere in the economy, reducing employment in 

that sector. In the long run, the level of output in the economy is 

determined by the number of workers who are available, the labor 

market institutions that allow them to work, the supply of natural 

resources and the supply of capital and the availability of technology. We therefore need to be wary of arguments that increased 

spending on any particular item, whether it be Medicaid or defense 

or alternative energy, will permanently increase jobs. Instead, arguments for particular category of spending should always be based 

upon the output that that is expected to provide to the American 

people in the form of beneficial services. So it is perfectly reasonable to argue in favor of Medicaid spending on the grounds that it 

will provide healthcare to those who are in need or to argue in 

favor of defense spending because it will make the Nation more secure or to argue in favor of alternative-energy spending because it 

will give us a better, more reliable source of energy but that is 

quite a different matter from arguing for it on the notion that it 

will permanently create jobs. 

Of course, in the short run, increases in aggregate demand can 

increase employment and output, but what it effectively does is to 

borrow that output from the future. When spending decreases in 

some other item, we do experience an output loss. Obviously none 

of us would want to increase output at some random date and then 

later reduce it at some other random date. What we would like to 

do is of course to increase output in conditions like today’s when 

we clearly have a desperate need for more economic growth, even 

if we know that we need to pay it back at some future date. But 

to accomplish that goal, aggregate demand needs to be managed in 

a very careful manner. 

48 

Now, economists of all persuasions, liberals and conservatives, 

have long argued that in most cases the best ways to manage aggregate demand are through monetary policy and through the automatic fiscal stabilizers that are built into our economy. Monetary 

policy, of course, has already responded aggressively to the current 

downturn with interest rates having already been slashed by 425 

basis points. The Federal Reserve does still have a little bit of room 

to move further on monetary policy, although to be sure, it will 

soon begin to encounter the zero lower bound on interest rates. 

Monetary policy does take some time to work but the interest rate 

cuts began 14 months ago and so we will still see their impact. 

Automatic fiscal stabilizers are also an important part of today’s 

economy. In any recession, there are automatic reductions in tax 

receipts and automatic increases in government spending, and we 

have already seen that response in this downturn as we have in 

earlier ones. 

Now, there is always the possibility, Mr. Chairman, of 

supplementing these types of stabilization with some type of fiscal 

stimulus package, and that is one of the issues that you are considering today, but as the economists that I quote in my testimony, 

economists from the Brookings Institution note, that a fiscal stimulus package has to be designed carefully and that, Mr. Chairman, 

I submit probably does not include a temporary increase in Medicaid matching rates. An increase in Medicaid spending by the Federal Government does not directly increase aggregate demand. It is 

a transfer from the Federal Government to the State governments, 

and as such, is does not directly increase aggregate demand any 

more than would a transfer of money from one of the Federal Government’s bank accounts to another of its bank accounts. Of course, 

it will increase aggregate demand if state governments respond to 

that increase in federal aid in a manner that boosts spending and 

the economy. It is a little unclear to me, Mr. Chairman, exactly 

what effects are envisioned from this increase in the FMAP percentage. If States increase their Medicaid spending or avert their 

cuts that they otherwise would adopt, there may be some increase 

in aggregate demand but it is hard to see a substantial one. Recipients might be able to consume somewhat more medical care which 

as a result would be good in its own right but it is hard to imagine 

it being a large stimulus to aggregate demand. An increase in provider payments will of course increase the incomes of those providers but it is hard to imagine that they would increase dramatically their consumption in response to a temporary increase in incomes. 

It also is important to look at how the money would be distributed. An across-the-board increase in FMAPs rewards those States 

with the largest Medicaid programs. Allowing States to use an outdated FMAP percentage in place of the new FMAP percentage for 

a given fiscal year actually rewards those States that have had the 

fastest per capita income growth, which seems antithetical to targeting aid towards those States in need. Of course, any of these 

proposals would increase spending on a program that has grown 

unsustainably and that is projected to continue growing 

unsustainably. So Mr. Chairman, I don’t see an increase in MedVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
49 

icaid matching rates as being a useful part of a fiscal stimulus 

package. 

In closing, I would also urge the subcommittee to keep in mind 

the need that even as we address the short-term difficulties we face 

to also keep part of the focus on the need to promote long-run economic growth, particularly through tax-and-spending policies that 

will promote private business investment. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Viard follows:] 

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Mr. PALLONE. Thank you, Dr. Viard. 

Now we will have questions and I will start with myself for 5 

minutes. I wanted to start with Mr. Sperling. This is very complex 

and yet because of the economic downturn and the dire situation, 

we obviously have to get it right, and I was very interested in your 

comments because I read an article within the last few days, I 

guess it was in the New York Times, I forget who it was by, that 

was talking about Herbert Hoover and Franklin Roosevelt, dare we 

go back to those days, and saying that part of the problem, everyone assumes that when Roosevelt came into office that automatically he started this big stimulus package and got the government 

going again, I should say got the economy going again, but in reality, it was very much the opposite. He was reluctant to have a 

huge stimulus. He was worried about the debt. He actually increased taxes and it wasn’t that successful in the first few years 

and it wasn’t until World War II came along and so much money 

was being spent that the economy actually started to turn around 

in a significant way, and the advocate, I forget who it was, one of 

your colleagues was essentially saying you need a huge stimulus, 

we are just not talking enough money here. And in September I 

think we did a $60 billion package. We have talked about $150 billion. I think the FMAP part of that was only 14 or 15. You were 

using figures much larger, 300, maybe I thought you said 60 for 

FMAP. Maybe I got that wrong. But at the same time the issue, 

particularly to this subcommittee, is the FMAP part of it so part 

of it is, how big should the stimulus be and then, as Dr. Viard said, 

how effective is the FMAP part of this in terms of the total picture. 

So I guess I wanted to ask you those two questions again. I know 

you kind of got into it. What do you say to those, some of my colleagues, and I am not trying to distract from them, seem to be implying that well, what about the debt. Marsha mentioned PAYGO. 

What about all that? Do we just not worry about the debt, do we 

not worry about PAYGO because this is such a dire circumstance 

that we just have to spend and spend? And then the second thing, 

maybe responding to Dr. Viard, how effective is the FMAP part of 

this, if it becomes robust, in actually stimulating the economy? 

Mr. SPERLING. First of all, on the fiscal side, obviously my position and I believe the policies we had in the 8 years in the Clinton 

Administration were very strong on the importance of long-term 

fiscal discipline. I think Haines basically say that smart fiscal policy kind of leans against the wind. In other words, you are expansive when demand is very weak. The government is willing on a 

short-term basis, just on a short-term basis, a year or 2 years, to 

allow the deficit to go up to stimulate the economy and part of the 

thought too is that if you allow a deep recession to happen, the fall 

in revenues and the rise in automatic stabilizers would end up increasing the deficit anyways but with a worse economy. Now, the 

other side of that is to lean against the wind the other way, that 

as the economy is doing stronger, you want to increase savings, 

and I think we are learning that one of the reasons why you want 

to have good long-term fiscal policy is so that when you do come 

to a time of war or a time where you need a stimulus, you are in 

a position that you can do that for a year or two at less risk to the 

economy. 

67 

Again, I never in my life before advocated for a stimulus above around $150 billion. I am just extremely, extremely worried. I have 

never seen a situation like this where I just worry there is going 

to be such a broad cutback in spending, and if you look at the projections for 2009 in the rest of the global economy, I think this is 

a moment where you would actually like world leaders in the way 

that you do coordinated monetary policy to all say that they are 

going to do a significant fiscal stimulus. It absolutely is not a way 

to permanent job creation. What you are trying to do is stop an incredibly painful downward cycle with a temporary injection of demand, and I guess I would—and in that light, you do have to think 

more expansively, how could you get $300 billion or more into the 

economy. It sounds very large but it is really just around 2 percent 

of GDP. If you are worried that you are going to be in negative 

growth for an entire, that in and of itself is not an excessive 

amount. Now, I think having some smart small business tax cuts, 

extending the 179 expensing, those type of kind of use-it-or-lose-it 

tax incentives for businesses makes sense. I think giving tax cuts 

to ordinary people and hope they spend makes sense. I do think 

that the evidence does not suggest that you get quite as high of a 

bang for the buck as those measures but I have still supported 

them in the past and I still support them now but I think in this 

context, I am worried that people are hurting so bad and the economy will be so weak, it might not inject, inspire, incent the spending that you want. So I think there is a degree of what you have 

to kind of almost make sure there is going to be more spending and 

I think you do have to be tough. I think if you are looking at even 

things I support like green jobs or infrastructure, you do have to 

ask, is the money coming to come out in that 18-month window 

where you are trying to stimulate the economy? And if not, then 

you have to say it is a good measure but you have to do it as longterm policy and figure out how you pay for it. But if you can do 

some things that are good for the future and stimulate the economy 

in 18 months, you should have a hearing. One should give that a 

hearing and see if people can find things that would be good for 

energy independence or good for infrastructure that could spend 

out fast enough. If they can’t, they shouldn’t be part of a stimulus. 

If they can, we should be open to it. But in this environment, you 

do want to do some things that are surefire successes in getting demand out. And the truth is that things like unemployment insurance and food stamps and the FMAP are among, I believe economists think, among the most successful. Dr. Viard said you want 

to have automatic stabilizers but this is essentially an automatic 

stabilizer. Unemployment insurance goes up in a weak economy. 

Medicaid spending should go up in a weak economy. So essentially 

when you are increasing FMAP, you are simply making up for the 

fact that we don’t have Medicaid as an automatic stabilizer anyways. So by that very logic, we recognize that as unemployment 

goes up, you have both State pressure on other things and you 

have more people coming on the rolls. It is a terrible choice for 

States. I worked for 21⁄2 years for a governor during the 1990 recession. It is a terrible choice. You have less revenue and more demand, and I think the cutbacks that you make in those situations 

are contractionary, they hurt the economy, and because they are in 

68 

such things often as cutting back teachers, police officers, they are 

bad and they are also I think very damaging for consumer confidence. 

So the FMAP is one of the quickest, most automatic things that 

you can do right away to get stimulus in the economy, and I have 

to object to one thing. It is not a transfer of the Federal Government. The Federal Government can borrow. States have balancedbudget requirements. So States don’t have the opportunity to provide this temporary stimulus. This is the reason why you look to 

the Federal Government in a case like this to do temporary borrowing so that you can deal with the pain and distress but do so 

in ways that money will go out quickly. So in this context, I believe 

we need to think about a much larger FMAP, both because of the 

distress I see and because I think it is one of the most effective 

stimuluses. Mark Zandy, others who looked at what gets out the 

quickest and what has the highest multiplier effect find aid to 

State relief I believe among the top three. So this isn’t an all-ornothing thing. We can have smart tax incentives for people like Mr. 

Pinard and we have some consumer tax cuts but I think what is 

different this time around is we are just going to have to do more 

to directly get money into the economy because it may be so weak 

that we may have trouble incenting people to get there alone. That 

is why I think things like FMAP and State aid make a lot more 

sense this time around than in the past. 

Mr. PALLONE. Thank you. 

Dr. Burgess, I want to hear from Governor Napolitano so I will 

give you the same amount of time because this is important and 

I want to make sure we get everything out here. I wanted you to 

respond to the same thing, Governor, but in addition to that, if you 

will, you talked about being governor in 2003 when we did have 

the FMAP pass, but my understanding is that it took time to accomplish that, in other words, while we were working to do that, 

many families lost their Medicaid coverage, and one of the issues 

is, would it be preferable to have an automatic trigger for increases 

based on economic indicators, in other words, rather than just do 

this piecemeal. But I also wanted to hear if you wanted to respond 

to the same thing that Mr. Sperling was talking about. 

Governor NAPOLITANO. Thank you, Mr. Chairman. Let me answer the second question first. I think having sort of an automatic 

trigger built into Medicaid makes a lot of sense. How that is constructed requires some care but the fact of the matter is, it is a device that does help stabilize and is somewhat countercyclical so 

that instead of having to have these kinds of things every down 

cycle, if there was some automatic triggers, that would, I think, improve the Medicaid program. 

Mr. PALLONE. See, the other thing too, and you can comment on 

this as well, is that one of the reasons why a lot of people are saying the stimulus needs to be bigger is because they figure that as 

States cut back, whatever stimulus we do may be essentially eaten 

up by those State cuts and so that is why it needs to be larger. But 

anyway, go ahead. I want to hear from you rather than commenting myself. 

Governor NAPOLITANO. Well, thank you, Mr. Chairman, and I 

think it is important to understand, as Gene said: States cannot 

69 

borrow. We must balance our budgets every year. We have three 

basic functions we pay for: we educate, we medicate, and we incarcerate. And the medication part is Medicaid. Education is by far 

the largest part of State budgets and then incarceration costs. 

When you have a shortage of revenue as the States do now, you 

have to take that from somewhere. So unless there is an increase 

in FMAP, you have choices. You can either remove people from the 

Medicaid rolls and increase the number of uninsured, which has 

huge social costs beyond the offload of costs onto the healthcare 

provider community. You can cut back on education, and you began 

the hearing with a statement about the importance of investment 

in knowledge and biomedical research as long-term economic stimulus. Well, the largest discretionary item in the Arizona budget 

below prisons, if you call them discretionary, which I don’t, but are 

universities. So you have 40 States looking at large cuts to university budgets unless they get some help on the FMAP side of things. 

And beyond that, you are at a situation where States have already, 

as I mentioned before, already taken drastic measures. We have 

hiring freezes, we have laid off people, we have instituted moratoriums on school construction in a State that has the fastest growing 0-5 population of any State in the country. We have deleted optional State services like adult dental coverage for poor seniors. All 

those things have been done. So you are really down to the basics 

and now if you don’t do the FMAP, what you are going to have to 

do is force States either to do these cuts countercyclical, doesn’t 

help our Nation get out of a recession or to raise taxes, also countercyclical because I agree with several of the speakers here. I 

think some targeted tax cuts for small business make a lot of sense 

in a national economy such as we have today in order to stimulate, 

and it is all about stimulating demand and getting deals going 

again, getting business going again, getting job creation going 

again. 

So in a sense what you have is a program before you that has 

worked before in the short term. What I am suggesting is do it 

again. Our calculation is, it needs to be at least $25 billion for each 

of the next 2 years to really work and then to absolutely look at 

the Medicaid statute and structure itself so that we build in some 

economic triggers for future purposes. 

Mr. PALLONE. Thank you very much. 

Dr. Burgess. 

Mr. BURGESS. Thank you, Chairman. 

Dr. Viard, we heard Mr. Sperling just answer a question and he 

talked about the FMAP increase being one of those automatic stabilizers and your testimony seemed to be at odds with that. Do you 

have any further comment to make on that? 

Mr. VIARD. Yes. Thank you. The FMAP increase of course that 

we are considering today is not an automatic increase precisely because we are here holding hearings about it, which is one of the 

things that makes it problematic I think in a couple respects, Mr. 

Congressman. One is, of course, that we can’t be certain that we 

will get the timing right, and the other is that unlike the automatic 

stabilizers, which are automatically targeted to those parts of the 

country that are in the greatest distress, the FMAP increase that 

we are considering today doesn’t have that characteristic. I think 

70 

that some of the ideas that have been put forward in this hearing 

concerning setting up some type of automatic adjustment does 

make sense and I think there is a variety of things that could be 

explored. We could have a system set up where FMAP does automatically rise during weak economic conditions and automatically 

fall during strong economic times. We could have options available 

to States that in order to maintain their eligibility criteria during 

a downturn which would of course be sound policy that they could 

avail themselves of a temporarily higher FMAP if they accepted a 

temporarily lower FMAP when the economy recovered. But I think 

the proposals that we are considering today are really quite different, an increase in FMAP with no offsetting reduction later and 

a lack of targeting to those States that are in need. 

Mr. BURGESS. In the interest of full disclosure, I did vote in favor 

of the FMAP increase in 2003. I think I am the only person here 

who did. Did you vote for the FMAP increase in 2003? That was 

that $250 billion tax cut that you guys opposed so badly? 

Mr. PALLONE. I don’t remember. 

Mr. BURGESS. I think you voted against it. But I voted for it and 

I just want the record to show that. 

Dr. Viard, before we depart this subject, now on the next panel 

we are going to hear about NIH and funding in biomedical research 

as a form of economic stimulus. We don’t get an economist on that 

panel so I am going to impose upon you to be the adult in the room 

for the next panel and give us just a preview of what your feeling 

is about the increase in NIH funding being used as an economic 

stimulus as well. 

Mr. VIARD. Of all the types of spending that one might want to 

consider manipulating for purposes of stabilizing the business 

cycle, it really seems to me that biomedical research would be at 

the absolute bottom of the list. Now, let us be clear from the outset 

that it is a completely separate question of what value biomedical 

research may have because of course biomedical research could 

have enormous benefits in terms of promoting the health and the 

well-being and the longevity of the American people, but as a tool 

to stabilize the business cycle, I think it is completely ill suited. To 

use it for that purpose would imply that the budget for research 

would be increased during every recession and would then be cut 

back during every expansion, which would be absolutely identical 

to the notion of a long-run research strategy. 

I think that the comments that the Congressional Budget Office 

made with respect to a slightly different category of spending 

would apply here. CBO commented in a January report some of the 

candidates for public works such as grant-funded initiatives to develop alternative energy sources are totally impractical for countercyclical policy regardless of what other merits they may have. I 

think that comment absolutely applies to biomedical research. I 

think that biomedical research should be funded based upon the 

benefits that it can bring to the American people in terms of the 

research and the business cycle consideration should be completely 

divorced from that funding decision. 

Mr. BURGESS. Thank you. 

Mr. Sperling, let me just ask you, because we just had a presidential election. You may have heard. And during the run-up to 

71 

that election, there were several debates, and at least in the last 

debate, if I recall correctly, both candidates talked about the need 

for reducing spending and the need to move—I think the question 

was posed by Mr. Schieffer, are you going to pursue a balanced 

budget, and both indicated that they would. Senator McCain said 

he would do so by across-the-board cuts. Senator Obama, President-elect Obama said that it would be more surgical, but the only 

cut that he ever mentioned specifically was a cut to Medicare Advantage. Do you think we can cut Medicare Advantage enough to 

cover the expense of the increased FMAP and are we going to have 

to rely on that, for the cutting in Medicare Advantage to pay for 

other things or is the concept of PAYGO and cutting spending to 

offset any of this increased spending, is that just completely out the 

window at this point? 

Mr. SPERLING. Well, I think the idea of a stimulus is actually 

that you are not offsetting during that short window, and I think 

that it is an unfortunate situation that we have such a high deficit 

that the next administration will inherit such a large deficit, and 

in that context, you would normally not want to have to do a stimulus. So I think you call for such a large stimulus like this or I am, 

not because you want to but I feel that we have to. I do believe 

that a stimulus is not a get out of fiscal responsibility, free card 

forever. So in other words, the idea of a stimulus should be that 

you are letting the deficit go up for that period of time in which 

you are trying to get more spending into the economy but only for 

that period of time. So I do think, I may disagree, I have a slightly 

different attitude than Dr. Viard in the following way, but I think 

this is where I am sure we both agree, which is that money has 

to go out during that period to be a stimulus. If you pay for it, then 

it is not actually stimulating the economy, it is neutral, but on the 

other hand, if you call for a stimulus for 2 years and the money 

doesn’t spend out to year 3, it has obviously failed to meet its purposes. Now, I do think one thing you can do is let us say you had 

an investment that you thought was very wise over a 5-year period. 

Now, somebody might come in and say well, and this is, to be honest, what many of us criticize the previous administration for. They 

would say well, we are in a recession, we don’t have to pay for all 

of it, and we would say well, no, you don’t have to pay for it for 

the year or two that you are trying to stimulate the economy but 

in the long term you do. So for example, if you were doing a 10- 

year extension of SCHIP, I might think it might make sense for the 

first 2 or 21⁄2 years to waive the offsets for those 21⁄2 years because 

you are trying to stimulate the economy at that point but it 

wouldn’t be an excuse to never pay for it or have offsetting savings. 

So I think you really have to distinguish between the fact that you 

are allowing a short-term deficit and therefore it does add to the 

debt but it is just for that 1 year but you shouldn’t use it as an 

excuse, which is what I fear we did too much in the previous 7, 8 

years of using it as a way to do long-term permanent increases. 

Now, for me, what I would do on healthcare is, I would use the 

FMAP because I think even though it is not an automatic stabilizer 

right now, it kind of should be and it operates that way so I think 

having an increase right now would be helpful to stimulate the 

economy. It would mean temporary borrowing to help stimulate the 

72 

economy. For the long term what I would do is, I would encourage 

bipartisan work on a universal healthcare plan that would cover 

everybody but would also at the same time take on much broader 

issues of the waste that happens from people trying to discriminate 

against people with preexisting conditions, where there are negative incentives, the cost shifting, all of those things. Those are the 

broader things I think you have to do to bring down the growth of 

Medicare and Medicaid costs in the future. If you do that together 

in 2009, 2010, than you can say we are increasing healthcare costs 

temporarily to help us get out of this recession but we are also 

working on a long-term package to cover all Americans, make 

healthcare more efficient and thereby bring down the cost of 

healthcare. 

Mr. BURGESS. If I could just interrupt you for a moment, ever 

under the most optimistic of scenarios, to take on that second piece, 

it is $160 to $480 billion a year for the plan that was outlined by 

Senator Obama or President-elect Obama during the run-up to the 

campaign, so we have increased the debt limit three times this 

year. We are barely a month into the fiscal year and we have got 

a $1 trillion deficit on top of a $3.2 trillion budget. The Chinese 

won’t loan us any more money. Where do you propose that we get 

this if we are not going to restrain spending in some other quarter? 

Mr. SPERLING. Well, what I would argue personally is that as you 

are trying to do universal healthcare, you try to rationalize the 

healthcare system. Let me just tell you on an economic point of 

view—— 

Mr. BURGESS. Well, but I want to get back to Mr. Pinard before 

I run out of time, so very quickly. Go ahead but very quickly. 

Mr. SPERLING. Well, President-elect Obama has clearly talked 

about using offset from not extending the tax cut for people over 

$250,000 as a way of getting $100 billion or so savings, I believe 

to—— 

Mr. BURGESS. But in fairness, though, the Congressional Budget 

Office has already figured that in. The Bush tax cuts have expired 

as far as the Congressional Budget Office in their budget predictions for the next 10 years. 

Mr. SPERLING. Well, this is one place where the President-elect 

and the current President agree, that the baseline calls for extending that. It is still a choice and you are doing that for savings, but 

my point—— 

Mr. BURGESS. But that still becomes new spending. 

Mr. SPERLING. But my point is, and I just encourage you to think 

about it this way. Right now what hurts our country, the competitiveness, the costs to competitiveness for businesses, for people, is 

the rising cost of healthcare generally. To not try to fix that, to 

allow our national healthcare spending to grow so great and just 

feel comforted that you are keeping the public ledger part of it 

lower is just no comfort. Governor Schwarzenegger is the one who 

says very eloquently that when you allow massive uninsured Americans, that they end up getting too late expensive coverage which 

then ends up being a hidden tax on the premiums of all Americans. 

Now, you can feel comforted that that is not publicly on the ledger 

but I think that if you can have an upfront cost in subsidies for 

Americans and healthcare information technology but it is in part 

73 

of a plan that does have some touch medicine, we are slowing the 

growth of healthcare that in the long term for our long-term Medicare entitlement growth, a universal healthcare plan that brought 

down the growth of national healthcare spending overall—— 

Mr. BURGESS. But it won’t, and we have a graph somewhere in 

this packet that shows a projection in the increase in Medicaid 

spending over time which I think the term that is used is 

unsustainable. I do want to get to Mr. Pinard because you were so 

kind to come to the panel. I want to give you a chance to at least 

discuss this for just a moment. Now, we have heard the argument 

for universal insurance, and in the interests of full disclosure, I 

was a surrogate for Senator McCain during the campaign so, yes, 

I know McCain’s plan pretty well but as a consequence of being in 

15 cities in the last 2 months, I also know President-elect Obama’s 

plan pretty well also. If we go to a system where there is now a 

new like Medicaid, like Medicare, there is a new national health 

insurance patterned after the FEHBP that as a business you either 

are going to show credible coverage or your employees are going to 

be covered under this new national plan. What is the inclination 

there? You are offering a pretty generous package of benefits right 

now and I commend you for doing that. I had a small business and 

I had about the same number of employees as you so I fully know 

how expensive it is to provide those benefits. So if you look around 

you and you see your competitors, credible coverage, I can’t keep 

up with it, I will just pay the fine and get into the national plan, 

do you think that that is likely to—I know it is hard to project 

human behavior but do you think that that is likely to be a sentiment shared by some of your competitors and might that not also 

put pressure on you to look at that as well? 

Mr. PINARD. My fear in a universal plan of that nature, if it was 

a single system and everybody had to participate, sooner or later 

we are going to end up trying to satisfy everybody, and you may 

satisfy 1 percent with this coverage but 100 percent have to pay 

into it because you have to assume that the larger percentage is 

going to participate. So I think the costs involving in administering 

a national universal healthcare system I would imagine would have 

to be astronomical. So I think the system would be very burdensome and not attractive to private employers. I feel that with private employers that I deal with, they would prefer to preserve the 

free market healthcare system that currently exists as it exists 

today or even in a more free market with the AHPs to allow them 

to choose the coverages they want that best fits their employee profile. As you know, young technology companies have certainly a 

very different demographic than a machine shop that has been in 

business for 60 years and they require different kinds of coverage 

and different emphasis. So the private sector, as far as I know with 

the people that I deal with, prefer to see that there is a private sector healthcare system that is maintained that they can choose from 

and choose who their carrier is going to be and so on. 

Mr. BURGESS. From a competitive standpoint, what does it do to 

your printing business if you look around and every other printer 

in the cities in which you work have said oh, to heck with it, I will 

just pay the fine or the tax, whatever we call it and I will be in 

the national plan and yet you are obviously by nature very genVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
74 

erous and you are providing your employees with the Elysian 

Fields of benefits that you now spread before them. Are you going 

to have to rethink that? 

Mr. PINARD. Well, that would make us very uncompetitive be- cause, for instance I believe in Massachusetts the fine is $250. Two 

hundred and fifty dollars doesn’t go anywhere towards providing 

somebody with healthcare for the year. So it takes a lot of $250 

checks to fund that system, and as you know, Governor Patrick is 

having a devil of a time up there trying to deal with this. But it 

makes us uncompetitive if we elect to provide a more fuller, generous health insurance plan. It is an employee benefit and it is a 

job attraction tool. We would try to maintain our benefit plan so 

that we can attract better employees. 

Mr. BURGESS. Very good. I just wanted one comment to our 

friend from Maryland. I went to medical school in Houston. I didn’t 

know David but I knew of David and our medical school class was 

allowed to see him one day so I certainly appreciate the difficulties 

with which you have existed and obviously done very well. As a father who paid for a journalism degree for my middle daughter, I 

do wonder about your selection of a profession. I fully expect you 

to complete your studies, having heard from you today. I am not 

sure the Washington Post and the Baltimore Sun will still be there 

when you emerge on the other end. 

I will yield back, Mr. Chairman. 

Mr. PALLONE. Such optimism. You sound like me. Listen, first of 

all, let me thank all of you for being here today. I know we just 

had the questions from the two of us but I think it was very worthwhile and I appreciate your input as we move forward on this, and 

as you know, we are probably going to deal with the legislation 

next week so it is very timely that you were here today. Thank you 

very much. Thank you all. 

Mr. BURGESS. Mr. Chairman, as we go to our next panel, can I 

ask unanimous consent that the report ‘‘Why Government Spending Does Not Stimulate Economic Growth’’ from the Heritage Foundation be submitted into the record? The report is dated November 

12, and points out that every dollar the government injects into the 

economy is first taxed or borrowed out of the economy. In fact, it 

doesn’t create new purchasing power, it simply redistributes existing purchasing power, and I will submit this for the record. 

Mr. PALLONE. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PALLONE. I will ask the second panel to be seated. Before we 

go to the second panel, I have a unanimous consent request also. 

These are the remarks by Mr. Towns, who had to leave, and also 

three items: the testimony by the governor of New York, Mr. 

Paterson, before the House Ways and Means Committee on October 

29, which discusses New York’s dire need for at least a 5 percent 

increase in the FMAP through 2011; second, a November 12, 2008, 

New York Times article entitled ‘‘Brooklyn Lab as Part of City’s 

Goal to be a Biotech center,’’ which discusses a new HIV/AIDS lab 

in the Brooklyn Army Terminal section of the city and how it is 

the precursor to the city’s initiative to make New York City a 

biotech hub; and third, a letter to the Speaker, to Nancy Pelosi, 

from more than 230 patient groups, scientific and medical societies 

75 

and research institutions, urging support of increased NIH funding 

in the economic recovery package. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. BURGESS. And Mr. Chairman, I would also like to ask unanimous consent that the statement of the California Healthcare Institute, which was submitted to the House of Representatives, Energy 

and Commerce Subcommittee on Healthcare, for our hearing today. 

Mr. PALLONE. And without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PALLONE. Would the second panel be seated? Okay. Welcome. Thank you for being here on this important issue today, and 

let me introduce each of you. Starting from my left is Dr. Raynard 

Kington, who is Acting Director of the National Institutes of 

Health, and then we have Mr. Ron Pollack, who is Executive Director of Families USA, and Ms. Rachel King, who is Chief Executive 

Officer of GlycoMimetics, Inc. from Gaithersburg, Maryland, and 

lastly is Dr. Joachim Kohn, who is Director of the New Jersey Center for Biomaterials and he is a Professor at Rutgers University in 

my district in Piscataway. Thank you all for being here. I think you 

know the drill. We have 5-minute opening remarks. They become 

part of the record, and each of you may in the discretion of the 

committee submit additional statements in writing for inclusion in 

the record, and we will start with Dr. Kington. 

STATEMENT OF RAYNARD S. KINGTON, M.D., PH.D., ACTING 

DIRECTOR, NATIONAL INSTITUTES OF HEALTH 

Dr. KINGTON. Good morning, Chairman Pallone and Dr. Burgess, 

I am Raynard Kington and I am the acting director of the National 

Institutes of Health, and it is a pleasure to be here to testify before 

you today on the potential role of NIH in stimulating the economy 

during the current financial crisis of the country. 

The economic downturn, as we all know, is complex in its origins 

and its recovery process will be multifaceted, and stimulation of the 

economy is critical to this process. We believe that biomedical research can play a significant factor in stimulating the economy 

while more importantly advancing the discoveries to improve the 

health of the public. NIH has a unique ability to provide an influx 

of funds to an established network of research institutions across 

the country and this can be accomplished literally within weeks. 

With a long history of success in scientific discovery, the best peer 

review system in the world and the trust of Congress and the 

American people, our impact on public health is well known and 

is exemplified by substantial reductions in mortality from such diseases as heart disease, many infectious diseases, cancer. It is 

fueled by new advances such as the sequencing of the human genome, and we are poised to enter an era of personalized medicine 

that will allow us to accurately predict and then preempt the development of disease. 

Although our mission is and must remain first and foremost 

dedicated to seeking scientific knowledge to improve the health of 

all, our mechanisms for supporting research are ideally suited to 

stimulating the economy. NIH is a granting and contracting agency 

providing awards to research institutions that are an integral component of local economies, many of whom are the largest employers 

76 

in their communities. These awards support local economies by creating jobs, building infrastructure and conducting research that 

leads to new technologies and therapies. In turn, discoveries leads 

to patents and new businesses producing additional economic benefits, and you will hear more about this from other witnesses. 

In fiscal year 2007, NIH funded 47,000 grants worth approxi- mately $20 billion across the country. As you know, recent analyses 

indicate the NIH grants have a multiplier effect on the economy of 

up to 21⁄2 times their value and you will hear more about this later. 

In addition, there is a leveraging effect of 35 percent from the NIH 

budget in terms of additional private sector investments in medical 

research stimulated by NIH funding. NIH grants support jobs. We 

estimate NIH funding supports more than 300,000 jobs in the 

United States, approximately seven positions for each grant. In addition, through its training programs for Ph.D., postdoctoral, and 

clinical scientists, NIH supplies a major portion of the human capital required for U.S. biomedical enterprises to remain globally 

competitive. 

To determine the long-term effect of NIH-supported research, we 

recently reviewed the outcome of approximately 30,000 grants 

awarded in fiscal year 2000. These grants resulted in over 30,000 

invention disclosures, 17,000 non-provisional patent applications 

and more than 7,000 full patents. At least 17 percent of all drugs 

approved by the FDA between 1982 and 2006 cited NIH funding 

as a factor, and we believe that is an underestimate of the importance of NIH funding, especially basic science funding in the development of new drugs. NIH-supported research and training is key 

for U.S. global competitiveness in the biomedical industry. In today’s global environment, large pharmaceutical and biotech companies can choose to locate anywhere in the world. NIH-supported 

world-glass laboratories filled with the best scientists in the United 

States based at our universities and other research institutions 

offer the biomedical industry a tremendous resource in the form of 

valuable collaborators as well as a pool of the leading scientists to 

draw upon, a critical incentive to do these businesses in the United 

States. 

Failure to sustain the biomedical research enterprise in this 

country will have negative implications for science, medicine and 

public health as well as producing financial stresses on the research institutions that have already leveraged NIH funding with 

billions of dollars of their own to expand the research capabilities 

of a nation. With a flat NIH budget over the past 5 years, we have 

failed to sustain the NIH investment in the U.S. economy. The inability to sustain current levels of funding of scientific opportunity 

is quantifiable by the percentage of successful grant applications 

submitted to NIH. The historic norm for success rates has been 

about 30 percent. Five years of budgets that did not keep pace with 

medical research inflation have contributed to reductions in the 

success rate to about 20 percent, and if this trend continues, the 

success rate will continue to drop. 

During fiscal year 2008, NIH identified 14,000 scientifically meritorious research applications that could not be funded. These 

grants have already undergone peer review process and have been 

approved by our public advisory councils. With additional funding, 

77 

we would focus on these projects and others to fund important new 

science that otherwise would not be supported. Distribution of 

funds to many of the projects across the country could occur literally in a matter of weeks. The awards could be made with virtually no increase in NIH’s administrative costs through existing 

processes and mechanisms. Among the underfunded areas of research are clinical trials involving genomics research in multiple 

disease areas, translational research in heart disease and stroke, 

AIDS vaccine research, asthma research, health disparities research, research on mental illness and addiction and kidney diseases, advances in imaging and other areas of research. These critical areas of research among others could be immediately funded 

and expanded for the benefit of the economy as well as for the benefit of the long-term health of this country. 

NIH proposes two issues for Congress to consider as it struggles 

with current economic crisis. One is the potential effectiveness of 

biomedical research in directly stimulating the economy. The other 

is the consequence of failure to sustain the research enterprise in 

the United States at a time when so many important scientific opportunities have been identified. Investment in NIH is an investment in the U.S. economy and more importantly an investment in 

the future health of our nation. 

I thank you again for this opportunity to testify, and I will be 

happy to answer any questions you might have. 

[The prepared statement of Dr. Kington follows:] 

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Mr. PALLONE. Thank you, Doctor. 

Mr. Pollack. 

STATEMENT OF RONALD F. POLLACK, EXECUTIVE DIRECTOR, 

FAMILIES USA 

Mr. POLLACK. Thank you, Mr. Chairman. Dr. Burgess, I also 

want to thank you. When you spoke to Mr. Viard on the previous 

panel and said he would be the grownup to speak before this one, 

I want to thank you for recognizing my youth. I appreciate it. 

My testimony this morning will focus on how additional funding 

for NIH, America’s leading medical research agency and the foremost biomedical research institute in the world, can help the American economy. I do want to say one quick word, however, about the 

discussion you had in the prior panel. I think that an FMAP increase is critically important. If you look at the last Census Bureau 

report, it shows that there was a significant continuing drop over 

the last few years in terms of employer-sponsored insurance, and 

the fact that we actually had a reduction in the number of people 

uninsured was attributable to increases in enrollment in Medicaid 

and the Children’s Health Insurance Program. There are at least 

18 States that are in the process of significantly cutting back the 

Medicaid program, and if we don’t provide an FMAP increase, we 

are going to be digging a much bigger hole because as fewer people 

have coverage in the employer sector, we are not going to have a 

public safety net to pick them up and the States do not have the 

ability to do so. At the last pages of testimony, we cited some of 

the States in terms of what they are doing to cut back. It would 

make the economy a whole lot worse. 

Others on this panel are going to speak to the enormous importance that NIH plays with respect to medical breakthrough, as Dr. 

Kington just did. I want to testify about the positive economic force 

that NIH plays with respect to local economies including job creation. Between 80 to 90 percent of NIH’s approximate $29 billion 

budget funds extramural research that takes place in universities, 

medical research centers, hospitals and other research institutes. 

We tried to gauge what the economic impact is and we used as a 

tool for that the so-called RIMS II model that is created by the Department of Commerce, Bureau of Economic Analysis. Our report, 

which I hope can be entered into the record in your own backyard, 

describes this in greater detail, but I want to provide you with the 

most salient findings. 

In 2007, NIH awarded almost $23 billion in grants and contracts 

to universities and research institutions in the 50 States. This 

funding generated a total of $50.5 billion in new business activity 

in the form of increased output of goods and services. NIH funding 

created and supported more than 350,000 jobs, and I want to emphasize that the average wage associated with those jobs was approximately $52,000. These are not jobs that provide really low 

wages. It is about 25 percent higher than the average U.S. wage. 

Let me just exemplify that by what happened in New Jersey. In 

New Jersey, NIH provided grants and contracts of $280 million in 

2007. This generated $631 million in new business activity. It led 

to the creation of over 3,700 jobs. The average wage in New Jersey 

that was supported by these new jobs was $57,720, and this ocVerDate Nov 24 2008 13:04 Jan 11, 2011 Jkt 037690 PO 00000 Frm 00088 Fmt 6633 Sfmt 6633 P:\MY DOCS\HEARINGS 110\110-153 CHRIS
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curred as a result of major awards to institutions like the University of Medicine and Dentistry of New Jersey and Rutgers University. In my written testimony, we described what those grants and 

contracts supported. 

In 14 States, NIH funding generated over $1 billion in new business activity. Those states are California, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New York, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, and Washington. In 10 

States, each dollar of NIH funding generated at least $2.26 in economic activity, including in the State of New Jersey. In six States, 

more than 20,000 jobs were created, including in Texas. In seven 

States, the average wage per new job exceeded $55,000 including, 

as I mentioned before, New Jersey. This is all very important because as you heard in the testimony, NIH performs an enormously 

important service but it has done so with less than a flat budget. 

If you look at the budget compared to cost of living in real dollar 

terms, the budget has declined, so it is important that we increase 

funding for NIH both for the key medical purposes it serves and 

for the benefit of the economy. Thank you. 

[The prepared statement of Mr. Pollack follows:] 

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Mr. PALLONE. Thank you. 

Ms. King. 

STATEMENT OF RACHEL KING, CHIEF EXECUTIVE OFFICER, 

GLYCOMIMETICS, INC. 

Ms. KING. Thank you very much, Chairman Pallone and Dr. Burgess. I am delighted to be here today. I am the CEO of 

GlycoMimetics, which is a biotechnology company, and our lead 

product is in clinical trials today for the treatment of sickle cell disease. I am here today representing the Biotechnology Industry Organization where I serve as a member of the board of directors as 

well as chair of the emerging company section, and I am really 

happy to be here today to discuss policies that Congress can implement both to spur the economy and to ensure the continuation of 

biomedical research. 

Federal funding of the National Institutes of Health is clearly 

one of the most important things that we believe can be done both 

to stimulate the economy and to provide that critical research support, and BIO fully supports any and all efforts to do this. An increase in NIH funding though is just one of the things that Congress can do to invigorate the economy and to spur biomedical innovation. While some of these additional proposals may not fall directly within the jurisdiction of the Committee on Energy and Commerce, it is our hope that Congress will consider them as part of 

any stimulus package as they would have a meaningful impact on 

the ability of biomedical innovation to continue during these tough 

economic times. 

The biotechnology industry holds tremendous promise for the future of healthcare. The industry has already delivered over 250 

FDA-approved therapies, many of which address important areas of 

unmet medical need or are first in class treatments. Biomedical research and innovation and the development of new treatments and 

therapies are key economic drivers. Life science R&D, as has been 

mentioned, provides high-tech, high-wage jobs at both public research institutions and at the biotech companies that typically locate close to these centers of academic research. However, in this 

economic crisis, many biotechnology companies are now struggling 

for survival. In October alone, over 20 companies publicly announced layoffs. Many other companies are making programmatic 

adjustments such as shelving important research to conserve financial resources and to reduce cash burn rates. These companies are 

struggling because the financial markets are effectively closed to 

public biotechnology companies. Public market investors have been 

unwilling to participate in initial public offerings, and without 

strong governmental policies, the outlook for these companies remains dire. 

Increasing federal funding for biomedical research is a critical 

first step to alleviate the financial uncertainty that the industry is 

facing. An increase in NIH-supported research will yield more basic 

scientific findings and can also advance clinical and translational 

knowledge associated with the diagnosis and treatment of disease. 

NIH-supported research can potentially advance the early stages of 

development of new biotechnology products and thereby reduce the 

R&D burden on industry. The NIH also plays a critical role in the 

92 

transfer of technology through which the fruits of NIH intramural 

research are transferred to industry, ultimately where they can be 

developed into preventative, diagnostic and therapeutic products 

that will advance our ability to improve public health. 

Since completion of the doubling of the NIH budget over the 5- 

year period from 1998 to 2003, annual appropriations for the agency have fallen below the rate of biomedical research inflation. Congress has been able to provide incremental funding increases, however, we fall well short of the costs associated with biomedical research and technology development inflation. To maintain research 

grants at current funding levels, annual increases of at least 31⁄2

to 5 percent are required. The funding of the last 5 years has effectively resulted in a 17 percent decrease in spending power on research for the NIH, and this is a serious challenge to the biotechnology industry. BIO strongly supports an additional $1.9 billion in funding for the NIH. This increase in funding would put us 

on the track of sustainable growth that is necessary to realize the 

full potential that we see. 

While I acknowledge that this committee does not have jurisdiction over tax policy, I want to take this opportunity to highlight 

some potential proposals that would infuse much-needed capital 

into the industry at this critical juncture. For example, corporate 

tax proposals allowing loss-making companies to immediately utilize their accumulated tax assets such as net operating losses and 

research development tax credits would infuse much-needed capital 

into emerging biotech companies. Additionally, the enactment of 

certain investor tax proposals, a short-term stimulus for investments such as reductions in the capital gains rate, capital gains 

rollover or reduced capital gains specifically for funds invested in 

our industry would also serve to encourage investment. 

While the current crisis has substantially impacted the industry, 

I do remain optimistic that the biotech industry will triumph by 

working closely with the Congress, the Administration and by important institutions like the NIH we will be able to continue to support biomedical innovation by increasing these government investments as well as enacting financial policies that will incentivize investment in the industry. 

Thank you very much. 

[The prepared statement of Ms. King follows:] 

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Mr. PALLONE. Thank you. 

Dr. Kohn. 

STATEMENT OF JOACHIM KOHN, PH.D., DIRECTOR, NEW JERSEY CENTER FOR BIOMATERIALS AND PROFESSOR, RUTGERS, THE STATE UNIVERSITY OF NEW JERSEY 

Mr. KOHN. Thank you very much, Mr. Chairman, Congressman 

Burgess and members of the subcommittee. My name is Joachim 

Kohn and I am pleased to address this committee about the economic value to the nation of investment in the NIH. 

As a Rutgers professor, I hold the title of Board of Governors professor of chemistry. I am also the director of the New Jersey Center 

for Biomaterials and an adjunct associate professor for orthopedics. 

I am testifying here today because of my dual experience as an 

NIH-funded academic researcher as well as an entrepreneur who 

has started three companies and whose inventions have become 

FDA-approved medical products. 

I would like to make two key points. First, NIH funding has obviously an immediate short-term stimulating effect on the economy. 

This short-term effect has been well described in the report by 

Families USA. I would like to confirm that I agree with the findings of this report. My second key point is that NIH funding has 

a pronounced long-term effect on the economy and the well-being 

of our Nation. I describe this long-term benefit as economic leverage. Simply stated, the investments made by NIH-funded researchers are the basis of a substantial amount of economic activity relating to the translation of these inventions to medically useful products. 

In my personal experience, the economic leverage has been tre- mendous. As little as $4.5 million in NIH support for my research 

activities at Rutgers resulted in technology commercialization efforts in four startup companies. Briefly, TyRx Pharma, REVA Medical, Lux Biosciences, and Renova Biomaterials have licensed my 

NIH-derived inventions and have since then raised a total of $132 

million in private equity and I have now created over 100 high-paying jobs, all paid for by private funding without further NIH support. Let me emphasize again that without NIH funding, none of 

these companies would be in existence today. 

The NIH investment of $4.5 million made throughout the 1990s 

continues to bring benefits to our economy today. TyRx Pharma 

has obtained FDA market clearance for two products and continues 

its research and marketing operation in New Jersey. REVA Medical is testing a revolutionary coronary stent in clinical trials in 

Germany and Brazil with the expectation to start extensive clinical 

trials in the United States sometime in 2009 in the middle of our 

economic crisis. Lux Biosciences is completing phase III clinical 

trials of Voclosporin for the treatment of major and common diseases of the eye such as dry eye syndrome, uveitis and age-related 

macular degeneration. And Renova has just now been incorporated 

and has already attracted $1.2 million in its first round of financing. Renova has now started to operate in Somerset, New Jersey. 

This level of economic activity has been made possible by private 

follow-up investments which have so far leveraged the original government funding at a staggering ratio of 29 to 1. 

104 

Finally, in terms of the total benefit to society, I can see one additional economic incentive for the government’s investment, which 

I refer as the indirect health dividend. By this I mean the value 

of the improvement in the health of the Nation as well as the reduction in healthcare costs derived from new products developed 

with NIH funding. I can illustrate the health dividend best with a 

personal experience again. Macular degeneration threatens my 

aging mother with blindness. Twice a day a nurse has to come by 

my mother’s house to administer her prescription eye drops. My 

mother at age 84 is simply too frail to administer these drops herself. In response to this need shared by millions of disabled and elderly Americans, I am collaborating with Lux Biosciences to develop a new fully bioresorbable drug delivery system that can be 

inserted into the eye and that will deliver a variety of ophthalmic 

drops for 6 to 12 months continuously, eliminating the need for 

daily nurse visits. The polymers we are using to develop this drug 

delivery system were invented as part of an NIH-funded research 

project in my lab. 

An additional example of the indirect health dividend is provided 

by the antimicrobial sleeve developed by TyRx Pharma to protect 

patients with cardiac implants such as pacemakers from infection. 

This product alone has the potential to reduce the national 

healthcare costs by $240 million each year as outlined in my written testimony. 

In conclusion, Mr. Chairman, the NIH stimulates our economy in 

many ways. In the short term, we can quantify these economic benefits in terms of the direct stimulatory effect as well as the significant multiplier ripple effect that is felt throughout the Nation. In 

addition, in the long term, I believe that the grants and contracts 

provided by the NIH have a disproportionately large and lasting 

impact on our economy through the significant leverage of NIH 

funding by private capital and through the health dividend. I am 

firmly convinced that increasing the NIH budget whether in a 

near-term stimulus package or as part of future funding bills will 

pay off both now and in the long run. I encourage you to take this 

comprehensive view, and I thank you for the opportunity to testify. 

[The prepared statement of Mr. Kohn follows:] 

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Mr. PALLONE. Thank you, Doctor. 

I think Dr. Burgess is coming back but I am going to start with 

the questions here, and I will start with Ron Pollack. The reason 

we had this panel today is because of obviously a feeling on some 

of our parts on the committee that NIH funding could be a significant stimulus for the economy. It is not always thought of in that 

way, in the way that FMAP is though, and so I do want to kind 

of get into a little more exactly how it would be a significant stimulus. There is also the fact that in Congress many of us feel that 

innovation in itself is a good thing and that somehow innovation 

which you know we have been lacking in some respects should be 

part of the stimulus. So Ron, if you could say specifically about 

NIH how is this such an ideal mechanism, in other words, how is 

it that the innovation, the research, why should it be included as 

opposed to some other things? 

Mr. POLLACK. Well, an investment in NIH, which obviously has 

critically important health consequences, does help the economy in 

significant ways. Remember that the overwhelming majority of resources that NIH receives from the Congress are spent via institutions like universities and research centers, and they hire people 

right way. Also in the process, it leverages funds. Funds from the 

Federal Government attract other money, both at the State level 

and in the private sector, and so as a result there is an immediate 

impact in terms of people being hired. When you grant or contract, 

you have to deliver within time parameters, and so each of these 

institutions quickly staff up to make sure that they can fulfill the 

contract, and that has an immediate economic consequence. 

Mr. PALLONE. All right. Thank you. 

Now, I wanted to ask Dr. Kington sort of a negative and a positive, the negative being because in the past 5 years NIH has not 

received any increase in funding in real terms, well, actually it 

hasn’t received any increase. If you take the inflation factor, we 

have actually cut NIH budget for the past 5 years. So do you think 

you could estimate what our country has lost in economic benefit 

due to the past 6 years of flat funding? Can you explain what the 

impact of this level of funding has been on the NIH’s ability to spur 

medical innovation? And finally, your thoughts on what impact this 

has had on our ability to attract talented and promising young 

minds. Those are my negatives. Then I will get into the positives. 

Dr. KINGTON. Well, clearly we believe that we are at an extraordinary point in biomedical and behavioral science where there are 

tremendous opportunities, and because of the flat budget, we aren’t 

able to invest in those opportunities to the degree that we think 

would be optimal for the American people. I think that the drop in 

the success rates of funding applications is one indicator. Part of 

that reflects an appropriate reading in the academic community 

and the university and research community that the country was 

investing in the enterprise of biomedical research and that led to 

a priming of the pump. More people were being trained, there were 

substantial investments by institutions at local levels to strengthen 

the infrastructure, and just as they were able to do that, they were 

met by flat budgets with a drop in success rates. One of the greatest concerns of Dr. Zerhouni, whose tenure just ended, was the potentially horrible effect this might have on young investigators, on 

118 

new investigators, and we believe that that is a concern and that 

more and more young, new scientists are thinking long and hard 

before making investment in a scientific career because the outlook 

isn’t so positive when their success rates are 20 percent. Now, we 

are doing everything we can to target funds within the agency so 

that we can invest in new investigators but we have limited options 

in the face of a flat budget. 

Mr. PALLONE. Well, let me do the positive. Let us say we were 

to take the number used by Families USA and increase funding for 

NIH by 6.6 percent or $1.4 billion. What would that mean in terms 

of new grants being funded, and would you be able to fund grants 

immediately or will it take time? 

Dr. KINGTON. We have looked into this. We believe that we could 

fund several thousand grants within a matter of weeks. For every 

about $500 million or so, we could fund an additional 1,400 grants 

that would not have otherwise been funded. We believe that we can 

do it without increases in infrastructure. We are primed and ready 

to go. We have 10,000 grants that have already been approved from 

the last fiscal year that have been found to be scientifically meritorious and that have been approved for funding by our public advisory councils. So it is just a matter of getting these grants out 

the door. We have established relationships with 3,000 institutions 

across the country who are ready and primed to receive these 

funds. We are confident that we can make the investment within 

a period of 4 to 6 weeks. 

Mr. PALLONE. Okay. Great. 

Mr. POLLACK. And I want to just emphasize with the figure you 

used, this would, by the calculation using the RIMS model, would 

increase over 9,000 jobs over the course of the year. 

Mr. PALLONE. Okay. I am waiting for Dr. Burgess, and I am over 

my time. Let me see if he is coming. He is. Thank you. I yield to 

the gentleman. 

Mr. BURGESS. Let me first just say that this hearing is not about 

the value of the NIH because there is no one up here who disputes 

the value of the NIH. You are the crown jewel in the federal government. You are the agency, the system that works when all else 

fails, so I want to say that up front. Dr. Zerhouni was very good 

to me during his tenure. I took many field trips out to the NIH. 

I look forward, Dr. Kington, to getting out and visiting with you. 

One of the things that Dr. Zerhouni talked about, when I came on 

the committee two terms ago, it had been years since there had actually been an authorization bill for the NIH, and one of the things 

Dr. Zerhouni was very concerned about that it was feast or famine 

one year to the next. He never knew that was going to happen. He 

asked us for stability. He asked us for flexibility with the 

translational research, to be sure, but he asked us for some degree 

of stability in knowing what he could depend on from year to year 

because my understanding is, many of these grants aren’t just a 

few months’ time, they are like 60 months or 5 years, so if we give 

you something one year and don’t continue it the next year, then 

we have brought a young scientist in, we have staffed up a lab and 

now we are not continuing, and that is very disruptive obviously 

to the ongoing research. 

119 

We went through an extensive reauthorization process which 

concluded 2 years ago, December of 2006, right before the end of 

the 109th Congress, and in that reauthorization bill, and we took 

a lot of criticism for this, the baseline budget I believe was $29.5 

billion and it was to be a 5 percent authorization increase for the 

next 5 years was what was laid out, and Dr. Zerhouni felt very 

comfortable with that as a roadmap for going forward. I think, Ms. 

King, that would fit within your parameters of a 3.5 to 5 percent 

increase. Now, we were criticized because although the rate of biomedical inflation was 3.5 percent at the time, medical inflation was 

7 percent and there were people on this committee who argued that 

our numbers should be somewhere in between 3.5 and 7 percent, 

but 5 percent is where we ended up. And then we weren’t in charge 

of the appropriation, and so the next year when Chairman 

Pallone’s guys on the appropriations committee came up with a 2 

percent increase and then we didn’t do any appropriations at all 

last year, we did a continuing resolution. We will get to you in February if that is okay. So there is your problem, is the fact that we 

made a promise to you as authorizers on this committee and the 

appropriators have not executed that responsibility correctly, and 

it seems to me that we will be going down the same path that Dr. 

Zerhouni found bothersome a couple of years ago where we inject— 

I will agree that we are 6.6 percent behind what we should have 

been. If we gave you 2 or 3 percent in the fiscal year before and 

nothing this fiscal year, you should be up 10 percent. So yes, that 

6.6 percent figure makes sense but the reality is, that should have 

been a stable, dependable appropriation coming from a stable authorization that was laid out by this committee in agreement with 

Dr. Zerhouni, and at the end of December of that year we all 

clasped hands and said that was a good thing and we refrained 

from actually getting too much into the business of restructuring 

the NIH, which several people on the committee wanted to do, 

some areas where there might be duplication and perhaps the director should have greater authority. I remember those articles 

when I first came on board, 29 figures without a palm is not a usable appendage. 

So I just want to stress that this committee has done its work 

as far as the NIH is concerned. The problem is that the other committees in Congress haven’t followed suit and really I would call 

upon the chairman to insist with the Speaker that the Appropriations Committee do its work in February when we do finally get 

around to doing the appropriations for last year and then ongoing 

during the year that we do the work required in the Appropriations 

Committee and that we provide you with the funding that we 

promised, because if we don’t do it this fiscal year, yes, now you 

are down 15 percent of what you were promised of that increase. 

That is about $1.5 billion a year, and like old Everett Dirksen said, 

pretty soon you are talking about real money. 

So with that, again, I am so grateful that you all are here. I 

think the NIH is the crown jewel in the Federal Government and 

it is a national treasure and it is certainly something to be preserved. I am not sold on the idea of it being an economic stimulus 

engine. I do have to ask, Ms. King, what in the world are 

GlycoMimetics? Because I should know and I don’t and I couldn’t 

120 

find it in your testimony and I didn’t look it up on Google last 

night. 

Ms. KING. They are mimics of functional carbohydrates. As a 

physician, I am sure you appreciate it. 

Mr. BURGESS. Well, that is what I would infer from the name. 

And then what is the association with sickle cell disease, if I may 

be so bold as to ask? 

Ms. KING. The adhesive events associated with a sickle cell crisis 

are mediated by a mechanism that our drugs interfere with. So I 

will send you more about it. 

Mr. BURGESS. That is a fascinating field of study and just indicative of the type of basic research that is so critical for people who 

are afflicted with very, very onerous diseases and conditions. 

And Mr. Pollack, I just have to say, everyone remembers where 

they were during certain events in their life. I will never forget the 

night driving home in 1993 after a hard day of seeing patients and 

hearing you and Donna Shalala talk about your vision for 

healthcare reform. It made me politically active from that night, so 

although it was probably not your intention, I thank you for the 

impetus, and you were the catalyst for me suddenly becoming 

aware of my surroundings and the impact that Congress on my life. 

I am going to yield back, Mr. Chairman, in the interest of time. 

Mr. POLLACK. Doctor, I have to say we are delighted that we 

helped to facilitate a portion of your career. 

Mr. PALLONE. I am not sure that was a compliment. But in any 

case, thank you all for being here today. Again, it is such an important issue, and we would like to include the NIH in the stimulus 

at some point because I think it has to be part of it in some way. 

So thank you again. 

Let me just remind members that they, well, I should tell you as 

well that you may get written questions from members and those 

would be submitted to the clerk within the next 10 days so you 

may get a notification that we have additional written questions. 

But without objection, this meeting of the subcommittee is adjourned. Thank you. 

[Whereupon, at 12:15 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

PREPARED STATEMENT OF HON. JOHN D. DINGELL

I am pleased that we are having a second hearing on the role of health care as 

an economic stimulus. With the continued deterioration of the economy, it is clear 

that quick, decisive action is needed. 

Earlier this fall, after the collapse of the housing market and failures of key economic institutions, Congress acted to pass the Emergency Economic Stabilization 

Package of 2008, which was signed into law on October 3, 2008. However, the continued loss of jobs and revenues for States is underlying the need for a second stimulus package. That package needs to be targeted to include funding for infrastructure, unemployment insurance, and health care in the form of increased federal 

funding for Medicaid to the States. 

The ranks of the unemployed have risen by 2.2 million workers over the last 12 

months. Most States are experiencing considerable budget deficits along with declining or flat revenues. A one percentage-point increase in unemployment could raise 

the number of uninsured by 1.1 million, adding to the already staggering number 

of uninsured in this country and an increased burden on the States through their 

Medicaid programs. 

Health care spending, in the form of increased funding for Medicaid to the States, 

must be a critical component of any stimulus package. First, as workers lose their 

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jobs, so too goes their health insurance. States need additional resources to support 

the increased demand for services as their revenues are declining. States also need 

additional resources to prevent cutbacks in Medicaid coverage and benefits that 

would otherwise be required to help balance their budgets in a time of declining revenues. 

Second, additional health care spending acts as an economic booster. Increasing 

the federal funding of Medicaid is a powerful countercyclical tool; it is direct, immediate, and does not require any additional administrative costs or actions to implement. 

Third, increased investment in the National Institutes of Health (NIH) is vital to 

a successful economic stimulus package. An effective economic stimulus plan must 

quickly inject and circulate a significant amount of money into the domestic economy to reinvigorate consumer confidence, sustain employment, and contribute to 

more stable financial markets. The NIH is a proven vehicle to provide maximum 

economic stimulus effect, plus it offers additional opportunities to accelerate biomedical research, which will benefit all U.S. citizens. 

Unfortunately, for the past five years, federal funding for NIH has not kept pace 

with inflation. In addition to stifling scientific progress, these funding cuts have a 

negative economic impact on communities across the country. Eighty to ninety percent of the NIH’s $29 billion budget funds research that takes place at universities, 

medical research centers, hospitals, and research institutes in every state in the 

U.S. The federal dollars that NIH sends out into communities provide direct economic benefits at the local level, including increased employment and growth opportunities for universities, medical centers, and local companies. When NIH funding 

is cut, communities across the country pay the price. 

I look forward to the testimony of today’s witnesses, particularly Mr. Zolotorow 

who will provide a first-hand account of the importance of his Medicaid coverage 

and what is at stake if Congress does not act to provide States with the resources 

to ensure that they can continue to provide health care coverage to people, like Mr. 

Zolotorow, in this time of great need. 

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