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Transcript of Federal News Service

Location: Washington, DC

Federal News Service June 3, 2003



SEN. LARRY CRAIG (R-ID): The Senate Special Committee on Aging is convened. Good morning, everyone, and let me thank you all for attending today. What a pleasure it is to share with you a phenomenal fact current in America today. People are living longer than ever before, and in most instances living better.ericans enjoy an average life expectancy of almost 80 years of age and if you are Bob Hope, that life expectancy is 100 years and holding. Just last week he turned 100 years and in typical Hope style declared that he was so old that they had cancelled his blood type. We are currently investigating that type of blood.

The future of human longevity, especially for Americans, seems bright indeed. Research on extending longevity has been legitimized over the past decade by advances in biotechnology and genetics. These advances have occurred largely in industrialized, free enterprise democracies. We hope to learn more about the powerful link among market processes, innovation and human longevity. Longer life spans will have dramatic impacts on America.

Today's hearing will examine and educate us on the market innovations connections to longevity and the impact such trends could have on our lives. Specifically, we want to learn more about the power of market forces to quietly spawn medical innovation, promoting longer lives and improving the quality of life for older Americans. And, we want to better understand the long run pressures on Medicare and Social Security, looking at the future of life expectancy in this country.

The topic of today's hearing is especially relevant at this time. Within the month, legislation to improve and strengthen Medicare will likely be before the full Senate. Increasing choices in Medicare as the baby boomers move into retirement over the next five to 20 years is critical to delivering high quality and cost effective care.

Similarly, our Social Security system faces the same challenge of an aging population. The future of Social Security is no less important than Medicare to America's seniors. Our hearing today will help enlighten the Congress regarding the promises, blessings and challenges of increased longevity.

So with that, today's first panel. We are pleased to have three witnesses testifying before the committee today. As a long time friend and associate, congressman, former speaker of the House, Newt Gingrich, an expert in markets innovation and in healthcare. Joining Speaker Gingrich on the first panel is Dr. Richard Hodes, director of the National Institute of Aging, and Dr. Peter Boettke, Director of Global Prosperity Initiative at George Mason University, at the—Mercatus, is it?

MR. PETER BOETTKE: (Off mike.) Mercatus.

SEN. CRAIG: Mercatus. At the Mercatus Center. So, gentlemen, thank you all very much for being with us. And Newt, Congressman, Speaker, welcome to the committee and we'll turn the time to you.

MR. NEWT GINGRICH: Well, let me say first of all thank you very much, Mr. Chairman. I think the topic you've raised is amazingly important. Let me just give you a specific example. I talked to one of my closest advisors last night, Dr. Steve Handser (ph), who has just spent a month in Europe, and I said, "What were you seeing in Europe?" And being a typical American with President Bush traveling, I thought I'd get sort of a feedback about U.S./European relations.

And what he said—he said, "I was in four countries and I saw four topics: pensions, pensions, pensions, pensions." He said there's a crisis in every country that he was in in Europe about the pension system, followed by a crisis on the health system, followed by unemployment because the European answer has been to stagnate with a welfare state they can't afford, which has actually caused tremendous loss of jobs.

So you are putting on the map with this hearing the moment to decide whether successful aging in America is an opportunity or a problem. And I would argue that it is an opportunity that only bad public policies turn it into a problem. I believe if you look at the total range of scientific breakthroughs, that we are developing at about four times the speed we were in the 20th century. That is, literally between 2000 and 2025 I think we will have as many breakthroughs in new science and new technology as we had in the entire 20th century.

Information technology, biology and nanoscale science and technology are the key areas. And let me point out that Dr. Sam Stupp, who is a world class specialist in nanoscale science, is working on and believes, at a firm called NanoMateria, that within a decade we will begin to see the ability to regenerate spinal cord injuries, to potentially regenerate retinas and that this kind of breakthrough, this consistent evolution, is really, really important in developing the future. If I could draw sharply the contrast, something that Bill Novelli, the head of AARP, has talked about a lot.

Baby boomers want a second start. They don't want a long retirement, they don't want a period of doing nothing, they don't want to decay, they don't want to be a burden. They want to see the years of aging as a process of healthy, independent living where they are doing interesting things in a way that is significant.

And it's vital, it seems, that we not allow bureaucracy to cut off access to all the new developments, all the new technologies and all the new opportunities. I find it a great irony that in competing with the Soviet Union and in advising Third World countries we consistently say that market systems work better than centralized bureaucracies, yet in health we stay with centralized bureaucracies. In the book that just came out that I coauthored, "Saving Lives and Saving Money," we outline how to move towards a much more market- oriented system, and at the Center for Health Transformation we're developing those ideas.

But I think I can summarize it in four driving principles and then one example. The first principle is patient safety and patient outcome.

If we simply design a system where we allow patient safety and patient outcome to be the dominant factor, we will rapidly see the kind of changes we need. For example, electronic prescribing would save dramatically in doctors' time, in money, and in patient safety.

Forty percent of all prescriptions today require a callback either because the pharmacist can't read the writing, because the medicine prescribed is inappropriate, or because there's a less expensive medication available that the doctor could choose. Forty percent of all prescriptions. The result is people die, people get sick. Medication error is the largest single cause of senior citizens going to emergency rooms, and yet we've had for years a PalmPilot model of electronic prescription which would save money and save lives.

So the first thing we've got to look at is what are the appropriate outcomes? In Medicare, for example, you clearly would have a co-morbidity management system for everybody in Medicare, because 50 percent of all Medicare spending is on 5 percent of the population, and that 5 percent has five or more co-morbidities. That is, they have five different diseases simultaneously. And if you handle them as five separate diseases in one human being, you get all sorts of secondary effects. But if you deal with the person as a single person, you have enormous improvement in their outcomes.

Two quick examples. There's a firm called Evercare which specializes in people in nursing homes over 80 years of age, a third of them with Alzheimer's. They put together an electronic medical record and the first thing they do on average is reduce the senior citizen from 22 medications a day to six. Sixteen fewer drugs a day. That reduces hospitalization by 50 percent. It is an amazing outcome story. So the Medicare reform this year should absolutely include co- morbidity management and making sure that people have all their diseases treated in a medically correct way, something which Dr. Zerhouni out at NIH is working on and believes can save up to 40 percent of the costs for the current system.

The second challenge is to take all the breakthroughs in information technology and computerization and apply them directly to the health system. It is possible today to have an electronic intensive care unit. There's a firm called Visicu that has one. All these are in "Saving Lives and Saving Money." And that electronic intensive care unit, it's estimated by the Centera Hospital System is saving one life per bed per year in better care. It is accelerating recovery by 20 percent, allowing them to use the same amount of intensive care beds more often, and it is improving nurse retention while minimizing hospital induced illnesses.

Now, this is a fact. What I am describing is not a theory. The Senate can visit Norfolk and see a facility at work today which is changing history. And if you apply information technology across the board, you get computer order entry of drugs in hospitals which could save up to 50 percent of medication errors in hospitals, that's an Administration for Health, Research and Quality report. You get a series of breakthroughs to make things—Britain, for example, now has put out to bid having an electronic health record for every person in Britain.

One of the people who designed that program, the head of Health Trio, which runs an electronic health record program for Brigham and Women's Hospital in Boston, estimates we could have an electronic health record for every American for about 10 cents per month per person. That's $28 million a month for the whole country to have an electronic health record which would dramatically improve outcomes, dramatically improve accuracy and would both save lives and save money, which it seems to me ought to be the goals.

The third step is to create a culture of quality. And I will just give you two examples where the funding is perverse. If you're a hospital and you give somebody a disease today—and two million people a year get diseases in hospitals and 1.5 million a year get diseases in nursing homes.

That is, if you're in a hospital for more than four days, the odds are even money the hospital will give you a disease, which it will then charge you to cure. But if you're a hospital that does a fabulous job, if you had a perfect record and nobody in your hospital got an additional disease, you would reduce the number of days of hospitalization. And you would lower your gross revenue, and you would end up losing money.

Now, it is fairly easy to have CMS decide that the best 25 percent of all hospitals will get a bonus, and to share with the hospitals one-third of the money they save the government. This is—there is no question we can have a database to statistically prove this. There's no question you could create the right incentives, but we don't today. The same thing happens—for example, I met recently with the hip and knee surgeons.

If you are a great hip and knee surgeon and you have a fabulous outcome and everything works perfectly, you actually get paid less than if you are an inadequate hip and knee surgeon. That's exactly the opposite. It's as though we paid for a Ferrari and we got a Subaru, and we paid for a Subaru and we got a Ferrari. I mean it is exactly the opposite of a sound, intelligent system of using the market to create a culture of quality and to create a system of quality.

Lastly, you really want a health system—you want to rethink the health system from the ground up. From individuals first, then going to the patient and then going to intense care. And let me make this clear. I originally—when we first started drafting "Saving Lives and Saving Money" we talked about patient centered care until we visited the Nestles Laboratories in Switzerland. Nestles have over 150 scientists who work on nutrition every day. They made the point that probiotics, that is the right bacteria in your tummy, is as important as antibiotics. And that you can invent, for example, a priobar that would be for osteoporosis. So that you literally can change or even invent a health bar for diabetics.

Their argument is—and this is something Dr. Zerhouni at NIH agrees with emphatically—that you can design a system that starts not with a patient, but it starts with the individual in a pre- diabetic environment, a pre-illness environment. We're working well with Nogle and Ortis (ph) to design a national standard for diabetes. And part of that national standard will be to know that you're pre- diabetic, and how you ought to change your diet and exercise before you ever become diabetic.

Then the minute you become diabetic, if that does happen to you, to learn as early as possible before any damage is done to you, and to learn how to manage yourself to minimize the four great risks of diabetes. And I mention diabetes because it is the largest single health driver in Medicare. It is every seventh dollar of Medicare.

Heart disease, kidney dialysis, amputation of legs and blindness are the four major outcomes of diabetes. And we undervalue—this is 17 million Americans who are diabetic, another eight million who are pre-diabetic. So—and by the way, the rate's gone up because of diet and exercise patterns in the country.

So my point is you really want to think about aging, as you're pointing out here today, from the standpoint of keeping the individual healthy as long as possible, incentivizing health, informing health, then going to taking care of self-management by the individual as a patient, and then going to traditional medical care. It's a very different model than the current system. I'll close with one example of what is clearly technically possible, and let me just thank you again for chairing this and calling this hearing.

I start with every general audience when I'm out on the speaking circuit, and I walk them through automatic teller machines, self- service gas stations with credit cards, and using Travelocity or Expedia or one of the Internet-based airline and hotel reservation systems. And I do that to get audiences into the rhythm of realizing that in their daily life now they do things that involve very sophisticated levels of information handling, and they do it routinely and they don't even notice it. And then I say now let's talk about health, where you get paper records, paper prescriptions, paper billing, et cetera.

I would hope that the Congress as it looks at Medicare would think of a 21st century model of a drug benefit. And let me describe it very, very briefly, somewhat based on the Travelocity model but it goes back to your market point. Because I really worry about going to a pharmacy benefit manager model, where you're going to have aggregated purchasing by third parties, rebates which will become kickbacks in political language, and it will be a mess.

What I want to recommend is that you'd go to the doctor, under the—think of it as a Travelocity model of Medicare benefit. You would go to the doctor.

If you had a very rare disease or a very rare genetic circumstance, the doctor would give you the precise prescription for one drug only. The government should then figure out what it's willing to subsidize that purchase. But in most cases, particularly for chronic illnesses and for things that aren't tremendously acute, what you're going to get is a prescription for a class of drugs. This is how the whole pharmacy benefit management model works where you have $10 co-pay, $20 co-pay, $30.

But I would reverse the system. The doctor and you should have access to a Travelocity style page where you see every drug available for that particular problem, and I would include medically appropriate over-the-counter medicine. I mean, it is absurd to take Claritin, which was one of the most widely prescribed drugs in the country until it went over-the-counter, and the second the price crashed we don't count it as a medical expense.

So we're incentivizing high cost and then we're shocked that we get high cost. The current system encourages the pharmaceutical company to have the highest possible price, so they can offer the biggest rebate to the pharmacy benefit manager, so that they then have a lower price based on this—it's like going into a car dealership and being told, "We have a $600,000 Ford but for you, Senator Craig, we'll give you a $560,000 rebate, so you're getting a $40,000 purchase. Don't you feel good about that rebate?" That's how the drug business is today, it's totally backwards.

What ought to happen is that the senior citizen, in consultation with the doctor and with their pharmacist, could pick any drug out of this list and the government ought to finance 100 percent of the least expensive drug. And then make that dollar value available on an open formulary for anybody else to buy any drug they want. So if you saw the commercial last night and you loved the commercial and you were convinced and you want to put up to $150 out of your own pocket, it's your right as an American.

But if you decide you need an effective—and, again, medically effective quantitative data analysis based, FDA and NIH supervised, if you want the medically appropriate, least expensive drug, your government will pay for all of it. Now, if you want to have a range of choices, fine. We shouldn't restrict you. I just suggest you look at that and think about that. That would be a market-oriented system that would teach the drug companies to worry about the value of their drugs, teach them to have an end state price, would teach the individual to look at what their choices are and make the choice, and dramatically increase I think the range of freedom and be the right step towards a Medicare for the baby boomers that allowed the baby boomers to have control of their own lives.

SEN. CRAIG: Well, Mr. Speaker, Congressman, you've challenged us once again and that's why I was excited when we found you would be available to come with this panel today to visit about the innovations in the marketplace, the thinking you're doing, and the work you're doing with others. Before we turn to our other two panelists, let me recognize colleagues that have joined us today, and ask if—Senator Stabenow, would you wish to make any comment before we can resume the panel?

SEN. DEBBIE STABENOW (D-MI): Thank you, Mr. Chairman.

And welcome to all panelists and welcome former colleague in the House of Representatives. It's a pleasure to have you with us, thank you.

SEN. CRAIG: And when I was in the House, Senator Carper was there along with Congressman Gingrich and we worked together on many issues.


SEN. THOMAS CARPER (D-DE): I don't know that we were the Three Amigos, but sometimes we were.

SEN. CRAIG: On occasion.

SEN. CARPER: Maybe on some of these issues we can be again.

Newt, it's great to see you. Thank you for joining us.

And to our other witnesses, we are delighted that you are here and look forward to your testimony, thank you.

SEN. CRAIG: Well, thank you both. Now let me turn to Dr. Richard Hodes, director of the National Institute of Aging.

Doctor, welcome. Glad to have you with us today.

DR. RICHARD HODES: Thank you, Mr. Chairman and members of the committee, for the invitation to speak to you about longevity and innovation in aging research. As the chairman mentioned and as Mr. Gingrich reinforced, we are really living in area of unprecedented longevity, as well as quality of life in which more and more Americans and citizens of the world live not only longer lives, but lives that are robust and of high quality. Longevity has increased from round 1900 where life expectancy in this country was about 49 years of age, to current time where we are in the high 70s and approaching 80, facts we'll hear a good deal more about in the demography session to follow this.

However, there remain great challenges to those in older life, challenges of disease and disability. These challenges will be addressed by new areas of technology. Some of them we've heard mentioned: nano technology, computational biology, proteomics, genomics, and I hope to share with you in these next few moments some of the examples of this. It is urgent that we apply such technologies to early diagnosis, to identification of people at risk, ultimately to the installation of favorable behaviors, to engender lifestyles that will minimize disease and disability. And in the examples that I'd like to share with you before today, I think we see on the horizon the outcomes of an ever accelerating degree of discovery, which I agree with our previous speaker really bodes well for the future if we are only able to apply this success of research in a variety of areas.

Let me begin with some examples. One of the most intriguing areas of research in longevity is that which deals with the role of genes and life expectancy and longevity. And this is research which has proceeded in a variety of species, ranging from yeast to worms to flies ultimately with application to humans. But illustrated here is one example in the graph to the right, which shows you the life expectancy of C. elegans, a worm. And you can see what is plotted here is the number of the population that survive at various ages, and in the first curve that falls off to the left you can see that about 50 percent of animals have died by about two weeks of age, and some live as long as 20 days. But the remarkable finding illustrated here is that mutation in a single gene of the 17,000 some odd genes in the species results in the curve you see to the right, a shift which is equivalent to a doubling or tripling of lifespan.

Moreover, if one looks at the table to the left, one can see this is only typical of a variety of mutations that have this kind of effect and, importantly, they teach us something in that they fall into defined and understood pathways of metabolism. In this case, for example, pathways that have homologues in the human and relate to insulin and insulin like receptors and so they point the way towards the biology of human behavior, disease and open avenues to understand what determines longevity, absence of disease and multiple targets for future interventions.

In addition to research aimed at longevity itself, it is critical that we address some of those diseases which still challenge both lifespan and quality of life and I'd like to address just briefly examples from two of those arenas. The first that I'll touch upon is the area of neuro degenerative diseases. These are diseases such as Alzheimer's disease and Parkinson's which take a terrible toll on those who are affected, predominantly those in older age. And much of what we have learned about these diseases has come from technical innovation. One of the innovations that have been most exciting is that in imaging. So we have learned and many of you are aware the techniques such as MRI or PET scanning allow us now to have structural and functional insights into what goes on in the brain, including the human brain.

Illustrated here are some recent findings yet to published, but soon to be published, which illustrate a new technique in which a gene has been engineered that acts as a reporter. So that when cells and parts of the brain are damaged by an insult they actually induce a product which causes the emission of light, a luminescence that can be detected by cameras, very sensitive, modeled on those used to detect light from stars at a great distance.

And what you see here is actually the colored image of damage to brain cells, caused by in this case a chemical insult, that makes it possible to study both the normal biology of brain, the effect of insults, ultimately the effect of interventions designed to reverse or prevent damage to nerve cells, all this in the living animal, and hopefully therefore a technology that will be translated to understanding of the human condition in human disease.

A second area, mentioned moments ago, that is an enormous cause of disability and disease is that of obesity, secondary in large measure to behavioral changes in the population and responsible for a good deal of the morbidity associated with diabetes, heart disease and cancer. What's illustrated here is yet another new technology, that of using RNA interference in which RNA species are capable of neutralizing the messages which are encoded by each of the genes in an organism's genome or chromosomes. And this experiment was carried out to use such technique in understanding what influences fat accumulation, again in a model organism C. elegans.

In this case every one of the 17,000 genes effectively was neutralized and the effect of each of these events plotted. And, as you can see, the discovery here was that some 305 genes when inactivated caused a decrease in fat. That's decrease in the red staining you see. Some 112 genes when inactivated caused obesity, again providing now multiple targets for our understanding of this important public health problem and our opportunity to address it.

These examples pose a reason for being optimistic of our ability to maintain not only the extension of longevity that has been evident over the past years, but to do so in a way that minimizes disease and disability. And I thank you, Mr. Chairman and members of the committee, for holding an important hearing on this very important subject. Thank you.

SEN. CRAIG: Well, thank you very much, Doctor. We appreciate your presentation in some of those new—some of that new work that's going on. I think you filled the bill this morning.

Now let me turn to Dr. Peter Boettke, director of Global Prosperity Initiative.

MR. PETER BOETTKE: Yes. Thank you, Mr. Chairman and members of the committee, for this opportunity to add my comments to the record on this very important public policy issue. I have spent my entire career—I'm an economist. I've spent my entire career investigating the basic question of why some countries are rich while other countries --

SEN. CRAIG: Doctor, would you turn that mike a little more toward you?

MR. PETER BOETTKE: This way? Here? Can you—is that better?

SEN. CRAIG: Everybody can hear you better.

MR. BOETTKE: I've spent my entire career investigating the basic questions of why some countries are rich while other countries are poor, particularly with respect to countries that are now referred to as transitioning economies or less developed economies. The main points that I want to make on the relationship between economics and the question of longevity is the first one, which is to reinforce a comment that's been made by both of our speakers, which is that modern man in Western democratic capitalist society benefits from medical care, medicines and medical technologies that enable them to live longer and more fruitful lives to such an extent that even kings and queens of a previous era would have been envious of.

Economic growth, GDP, is not an end in itself. We don't eat growth rates. We pursue economic growth because it enables people to live better lives. Economic growth is the greatest hope for the world's poor and measurements of economic freedom are positively correlated with economic growth, and economic growth is positively correlated with human longevity. I have these graphs here which are plotting different countries that we have data for. And in the graph on the left we have countries ranked by their economic freedom and we have their per capita GNP rates over here. And what we see is that countries that are defined as repressed are the ones that we find struggling in terms of economic survival, and the ones that we rank as most free—on this index of freedom we're looking at things like monetary policy, security of property rights, tax rates, regulation, open international trade, basically a composite of about 10 different variables. Then on the next graph, on the right what we're looking at is the per capita GDP rates and then the life expectancy that's experienced in those countries. And we see in both of these examples what we have is a relationship between—as we get more economic freedom we get higher rates of economic growth, and as we have more per capita GNP what we end up by having is longer lives. To put it simply, wealthier is healthier. And so the most important public policy issue that we face in addressing the problems of less developed economies or the transition economies, or in our own country, is to pursue public policies which allow markets to flourish and to generate economic wealth.

The contrast between the commanding control approach versus the open society is most evident in the Soviet Union and in the less developed. Just last week in the New York Times, Murray Feshbach, a demographer from Georgetown University, reported findings about the difficulties that confront Russia. The data provided shows that the Russian economy—or the population. Excuse me, the population will decline by 30 to 40 percent by the year 2050.

For every 10 babies that are born in Russia, 17 Russians die. Death by tuberculosis in 2001, for examples, were 29,000 compared to 781 in the United States. Heart disease deaths per 1,000 people in 2001 were recorded as 893 compared to 352 in the United States, more than twice as many. Current life expectancy in Russia is 58 for men, 72 for women versus the life expectancy we experience in the United States.

On that issue I should point out that between 1960 and 1985 the Soviet Union was actually the only industrialized country in the world to experience a decline in life expectancy, and so it's not because of the recent transitions that life expectancy is going south in Russia. This is actually a longer term trend that dates back to the Soviet era.

Markets, in contrast, give us the freedom and innovation that enables us to live longer lives. Human longevity, I would argue, is the function of four things: the increases in technological efficiency and economic organization that reduce the physical labor required for us to produce output. Second, the increases in technological efficiency that improve the work and general environment in which we work and live. Environment—the general environment, environmental quality, is actually a luxury good.

As our incomes go up, we actually consume more environmental quality. So one of the things that we want to do is make sure that incomes are going up. Increases in medical knowledge, including treatments in medicine and increases in medical technology, which include diagnostic techniques, surgical procedures and equipment. Each of these four things are the result of an open society and its market economy. Markets give us the freedom to prosper.

In conclusion, I just want to emphasize the point that an open society is a necessary precondition for the sort of improvements in our economic environment and generates the medical innovations that enable us to live longer and more enjoyable lives. And I want to take this opportunity to thank the committee for holding these meetings on this very important topic. Thank you.

SEN. CRAIG: Dr. Boettke, thank you very much for your testimony and those analyses of different countries. I think that's extremely illuminating. I was just in Russia. I think that my life would be much shorter if I had to live there.

The only thing enjoyable about it was the visiting of the Winter Palace. And I must say that. And that's not a criticism of Russia, it's just the reality at never having been there before. It was a shock to me that I wasn't prepared for as it relates to the sister country and how it was functioning and not functioning, and recognizing that the things we take for granted just weren't there.

Having said that, Mr. Speaker, let me turn to you. And as I ask this question, the rest of you may wish to respond to it because obviously, Dr. Hodes, your testimony certainly lends to what Speaker Gingrich has said in his opening statement that breakthroughs of the next 20 years will equal the entire 20th century as it relates to health and health related areas. And, clearly, some of the things you were talking about is on the cutting edge of that kind of innovation and technology.

Newt, I've known you as a congressman and a historian and now you're an observer of technological development and trying to bring it into context with your books and your speaking. Why? Why are we on this phenomenal path of acceleration at this moment in our nation's history? I'm obviously much more aware of it, probably because I am getting older but also because I chair this committee and I tend to focus and read more.

And I found it interesting the other day the attention of a small clip on the news and in the paper. A lady out in California died, oldest living American, 113 years of age. She had worked until she was 97, she had lived independent until she was 102. She passes away at 113. Obviously she's been assisted along the way. She probably had some good genes too. But respond to that comment if you would about that phenomenal acceleration that's currently underway.

MR. GINGRICH: Well, I think there are a couple of factors. First of all, I think the Congress and the political system deserves some of the credit. We came out of the Second World War having discovered, with Vannevar Bush's leadership, how dramatically science could impact national security and we created institutions like the National Science Foundation, the National Institute of Health. Even—as you'll remember, even in the middle of trying to balance the budget and work on spending in the late '90s, we committed to doubling the size of the National Institute of Health budget.

I would point out that the Hart-Rudman Commission, which I helped create with President Clinton and then served on after I stepped down, its first warning when it came out in March of 2001 was that the greatest threat to the U.S. was a weapon of mass destruction going off in an American city, probably by terrorists, and it called for a homeland security agency. After September 11 that got a great deal more attention than it got before September 11. But the second warning that we made was that the failure to continue investing in science and math, and the failure of science and math education we thought was the second greatest threat to the U.S. after a weapon of mass destruction going off in a city. And we said that it was in fact—the failure of math and science education, this is a direct quote because we put it in very specifically, is a larger threat to the United States than any conceivable conventional war in the next 25 years.

So I would say to you on the one hand I am very optimistic about the scale of change. On the other hand, I am very worried about how much of that will be done by Americans in American labs as you project out over the next 20 years. But what's happened is basically I think a three-part process, a massively bigger invest of resources. Without the scale of investing and without the Advanced Research Projects Agency you probably don't get the Internet for another 30 years.

It was a government funded program. It was government funding which led to the breakthroughs that created modern personal computing. The whole process of that investment in basic education, in graduate fellowships, in research grants, in research facilities is very important.

The second is that the rise of the Internet creates—and this was the dream of people like Lechleiter (ph) who developed it, creates an ability to transmit knowledge in real time, which becomes its own multiplier. So ideas that used to take 20 years or 30 years to be transmitted suddenly start to permeate the system almost overnight. The third is that there's a cumulative breakthrough in knowledge. And I would say one of the things we tend to undervalue as non-scientists and in instrumentation. It was impossible 25 years ago to look at an atom. There are now instruments that allow you to look at a single atom.

Now, that breakthrough creates new capabilities. And I say this because I think one of the mistakes I participated in as Speaker was too narrowly focusing our investment. I think we should have insisted on dramatically increasing the National Science Foundation at the same time that we increased NIH. And I say that because it is math and physics which makes possible MRIs and CAT scans and things like that. So what you have today is more scientists and technicians working at much higher speeds through the Internet, times very significant investments getting breakthroughs.

And my last comment would be on nanoscale science and technology, where I participated with the NSF in several workshops. This is not a topic to take the committee off on in detail, but it is very hard to overstate how profound the transition is when you enter the area of nanoscale science and technology and you enter the zone of quantum mechanics. And the reason I was intrigued with what Dr. Stupp is doing is that you're beginning to get folks who approach all of this biological activity not as a function of genetics, but as a function of what actually happens at the atom and molecule level on the presumption that if you can recreate that, without regard to how it happens, that the impact is stunning. So that they literally are thinking—are beginning to think you can re-grow spinal cords by developing precisely what happens when the atoms and the molecules work together to create the original spinal cord. Now, this is so profoundly different than any approach we had 15 or 20 years ago that it would be a great surprise to me if we didn't equal the 20th century in the next 20 or 22 years.

SEN. CRAIG: Either of you gentlemen wish to add to or make comment in relation to that?

DR. HODES: Certainly I'd be happy to. I would echo very strongly the very perceptive comments that have been made. While it's always a little uncomfortable for scientists to make specific predictions, I think if one simply takes the trajectory of scientific discovery as measured in almost any parameter conceivable and projects from recent past to the future, it is hard to arrive at any expectation or prediction other than that which was just expressed. Namely, that we are on such an accelerated rate of increased discovery that the next decades are going to proceed at a pace that we have never seen before. And I would also agree very strongly with the general comments made about the contributants to this role. There is, above all, to be credited the genius of individual scientists, but scientists have always had that genius.

And I think the way in which their contributions have been accelerated and multiplied is very much reflective of just what you've heard. When a single discovery is communicated almost instantaneously and enhanced by the availability of technologies and means of communication, this produces the exponential change in rate of discovery, communication, translation from one step to the next. It's no longer the laboratory in an individual room by an investigator meticulously crafting a conclusion which he puts down on paper, which weeks or months later is presented to a scientific meeting. It is now nearly instantaneous communication of technologically enhanced discovery that are responsible for this growth.

It is important I think as well to reinforce the significance of the support by Congress over these past years, most notably in these past five years, with a doubling of the NIH budget. A great deal of what I've reported as examples, as case studies into the progress that has been made has been enormously dependent upon the investment by the American people through Congress and the administration in these areas.

SEN. CRAIG: Doctor? Well, the good news is while we recognize the value of that investment in the biological sciences and health, we're beginning to recognize that we're not making an equivalent investment in the physical sciences. And I think that's beginning now to percolate upward here because we're seeing, as you've explained, Congressman, the clear co-mingling of those and the acceleration that happens when those sciences come together effectively. And that work—or at least those considerations are well underway now in advancing that.

Let me turn to my colleague, Senator Stabenow.

SEN. STABENOW: Thank you, Mr. Chairman.

And thank you again to everyone. I couldn't agree more that this is an exciting time in terms of technology and innovation, and that there is much to do in this area and that it's a wise investment for the United States to be able to be focused in those areas.

And, Newt, you were talking about prevention. I think one of the important areas for us to refocus both Medicare, Medicaid, other insurance systems, is on prevention and the dollars that can be saved there. But I'm wondering—we're about to enter into a Medicare debate this month about how we proceed under Medicare. Medicare is the one piece of universal healthcare we have in this country. We've made a commitment for older adults and for the disabled in our country.

We also will be debating issues of cost in prescription drugs and how we bring down those costs using market factors in order to be able to lower prices for our businesses large and small and individuals and so on.

And I'm wondering, Mr. Speaker, if you might speak—you were talking about market forces, and I know in reading just a little bit of the beginning of your book you talk about the market forces and how we use that to bring down prices, which will affect what we can do under Medicare prescription drug benefit, what we can do in the private sector. I live in Michigan, right next to Canada. We can look across the river and see another country where American-made drugs are offered at half the price that they are in our country. I wonder if you might speak to the notion of opening the border. We have free trade around the world, we have free trade between Canada and Mexico and other countries. I have legislation with colleagues that is specific to Canada that would open the border to free competition, understanding that their safety system in terms of FDA type approvals are very, very similar to the United States and the fact that those prescription drugs already come back and forth, it's just under the auspices of the companies right now as opposed to individuals or pharmacists. But how do you see market pressures in the global economy as it relates to pricing for prescription drugs, which are such a big driver today in the whole question of cost, as well as quality of care?

MR. GINGRICH: Yeah, let me—you've asked an extremely important question and I appreciate your raising it this way. And it really breaks everything into three components, if I might, because it—first of all on the Canadian issue, I think as long as the regulations are the same, I personally don't see why NAFTA doesn't apply to Canada. I would draw a difference with Mexico, where I think it's very hard to determine whether you're getting counterfeit drugs or inappropriate drugs. But it does strike me as utterly irrational to expect somebody in Detroit, in a free society, to voluntarily only buy from their own drugstore, knowing that if they go across that bridge they can get it at half price.

Now, I would point out that in both France and Canada generics are much more expensive than they are in the U.S. So when people use drug pricing—but I still agree with you that—maybe to the horror of some of my former colleagues, but I think you're actually --

SEN. STABENOW: I can quote you --

MR. GINGRICH: You're—you're --

SEN. STABENOW: -- supporting our bill in this --

MR. GINGRICH: Well, I—as you know, Congressman—the congressman from Minnesota is also—Gil Gutknecht has also had a similar bill on the House side. And I said two years ago that I did not understand why we were punishing Americans by artificially restricting them as long as the drugs are effective. So, first of all, I do think that you make a strong case. There are two other considerations, and the reason I proposed the Travelocity model and would hope you would really look at it seriously for dealing with Medicare drug benefits is I am really worried, and your state is taking a leading role in this—and, by the way, I don't blame them for this—on Medicaid. When you get to aggregated purchasing with governments, governments inevitably cheat.

I mean, why do the Canadians get such cheap prices? In part because they say to the drug companies, "We will steal your license if you don't sell it to us." Why do the French get such cheap prices? Because they say, "We will steal the license and give it away." And, by the way, in France they actually spend more per capita on drugs than we do. But the American-made drugs are very cheap, while the French-made generics are very expensive. It's pure nationalism masquerading as health policy.

I think in the long run if every place in the world cheated the drug companies at the same rate the French do, you would have very little new drugs coming in and it would be a very severe problem. But I think the answer is not to artificially keep high drug prices. I think the answer first of all is to get to a genuine pricing mechanism that's real where you know that of these 12 drugs, this is what their real price is and you choose. And I think that the sooner we can get to that, you'll have exactly the same downward pressure on pricing you get from Travelocity and Expedia on the airlines industry. This is not a pro big company position. I mean, all the old airlines find it very hard to compete with Southwest, and Southwest has made a profit for 29 consecutive years because they're structured differently in their cost structure.

I think you would save a similar period of difficulty—the other comment I just want to make when you think about health cost it is true for the last couple of years the drug prices went up faster. However, last year hospital prices went up faster. And I think you will find very rapidly that trying to solve one piece at a time never quite works because costs just shift around in the system. And that's why I think you want to go with as much as you can—and this is not about transferring money. I mean, taking care of senior citizens is important and we should do it. But getting the decision as close to the senior citizen as possible and as far away from the public and private bureaucracies I think actually leads to better decisions and ultimately to lower costs.

SEN. STABENOW: Well, I think it's an interesting comment using the Travelocity approach. In Michigan one of the things that was done under a prior governor was setting up formulas, essentially, what prices—what kinds of drugs would be paid for under Medicaid and you would have to justify going beyond that in terms of efforts or looking at costs, cost effective drugs and so on. Of course, this is something highly fought and in fact our state was sued by the major companies as a result of trying to get a handle on something like this. So I think assuming that—I would guess they might call this price fixing, or something like that. But I think you're absolutely correct that finding what is the lowest effective medication and pricing that and being willing to pay for that, and then people can have a different drug if they choose, if they want to go with the pretty pictures on television and go with something higher, they can. I think that that's an interesting approach to look at.

MR. GINGRICH: If I might just comment very briefly? There are two distinctions. The first is I believe in an open formula and I think when you get into closed formularies you end up with somebody other than you making the decision. It eliminates your right to choose a drug. So this will be an open formulary but you'd pay the difference. The second is the co-payment model we got to is actually perversely reversed. If I go in and I know I've got to pay $10, I actually have an incentive to buy the most expensive drug because psychologically I think I'm getting a better return on my 10 bucks. So I'm actually driven towards more expensive drugs because, joy, if it's an $80 drug I get back $8 for every $1 I put in. Whereas, if I only get that $40 drug I'm only getting back $4.

If, on the other hand, you subsidize upfront then I get the least expensive drug for free and I'm taken care of. But if I want to then add out of my own pocket beyond that, it's a much clearer economic system than the way we historically in the last 20 years evolved into the current co-pay model.

SEN. STABENOW: Well, just in closing a comment. I would say for those who have insurance at this point, they're not probably looking at the price, I would say, in terms of what you're talking about. But for those who don't have insurance, and most of whom are seniors and so on, they're clearly looking for the cheapest price that they can find at this point in time given the choices that they have to make. And I think the debate this month in the Senate will be very important as we decide how to strengthen Medicare.

Thank you, Mr. Chairman.

SEN. CRAIG: Thank you.

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