Three areas where Obama can help America innovate 

(Editor's note: The following article was written prior to the State of the Union address.)

Pundits expect President Obama to tack to the center in his State of the Union Speech on Tuesday night, emphasizing innovation, job creation, and improving the global competitiveness of U.S. companies. While these are good themes, the president’s commitment to them should be measured not just by what he proposes to do, but by what he is willing to undo—particularly in the area of health-care regulation.

Here are three initiatives the president should announce that will help reduce costly health-care regulations and taxes that are strangling U.S. job creation and competitiveness:

Reform the drug-development process.  The Obama administration recently unveiled a new initiative at the National Institutes of Health (NIH) to engage in more early-stage drug development, effectively duplicating the basic animal and human testing that pharmaceutical companies conduct today.  The administration justifies the new initiative by pointing out that the pharmaceutical industry’s pipeline of new drugs is drying up, and that private-sector R&D investment is declining.  

But the pipeline for new drugs isn’t drying up because the industry isn’t spending enough money developing new drugs (about $1 billion per successful Food and Drug Administration-approved drug), but because FDA requirements for drug development and approval have become enormously complex, time-consuming, and expensive.

As a result, promising drug candidates are literally drowning in data, killed by unanticipated side effects that pop up in late-stage testing.

Take Pfizer’s failed heart drug, Torcetrapib, which failed in 2006 after more than 15 years in development and a massive 15,000-person clinical trial required for FDA approval. The discovery of rare heart risks during the large trial ended torcetrapib’s development and essentially flushed $800 million in Pfizer R&D spending down the drain. 

Instead of making the NIH a competitor with the drug companies, Obama should push the NIH, the FDA, patient’s groups, and industry to work together on an Apollo-like mission to streamline drug development, radically improve drug-development tools, and spur the science of personalized medicine.

To focus attention and rally bipartisan Congressional support for needed FDA reforms and targeted funding, interested parties should focus on making progress in two key disease areas where better treatments are desperately needed: cancer and Alzheimer’s, the 2nd and 6th leading causes of death in the U.S.

Companies would embrace the focus on innovation; patients would benefit from faster access to more innovative therapies; and the economy would benefit from a surge in high-paying biotech jobs and the profits from selling U.S.-developed products overseas.

Liberate Small Businesses from Obamacare’s Job-Killing Mandate.  The president’s health-care law requires that that small businesses issue 1099 forms to all vendors for purchases of goods and services over $600 and report the transactions to the IRS—creating an enormous administrative headache for small companies.

A report from former Congressional Budget Office director Douglas Holtz-Eakin and American Action Forum’s Michael Ramlet cautions that the requirement could have a chilling effect on small businesses, as companies “have an incentive to use large vendors that can produce Tax ID reports…[a]s a result, small business that lack [the] capacity to track customer purchases may lose customers.” 

Repealing the requirement has bipartisan support. Last week, three Senate Democrats (Ben Nelson, Neb., Maria Cantwell, Was., and Amy Klobuchar, Minn.) urged the House to repeal the 1099 provision because it is “is particularly onerous for small businesses…who cannot afford to employ extra lawyers and accountants to comply with the new rules.” Eliminating the 1099 requirement would prove that President Obama is committed to cutting job-killing red tape. 

Repeal Obamacare’s Medical Device Tax.  The U.S. has one of the most innovative medical-device industries in the world, but Obamacare imposes a 2.3 percent excise tax on medical devices—effectively a $20 billion tax over the next ten years. The tax will force the industry to spend less on R&D developing new medical devices.

It will also cost U.S. jobs, as companies that can’t pass along the costs to customers slash their workforce (or move them overseas to keep costs down).  The medical-device tax will hurt U.S. competitiveness and innovation in this vital industry and should be repealed.

Obama’s State of the Union speech should be the beginning of a serious discussion on how to improve the U.S.’s ability to innovate and compete, particularly in the vital field of biotechnology and health care. By repealing counterproductive and expensive regulations, reporting requirements, and taxes, Obama can signal that his administration is truly open for business. 

Paul Howard is a senior fellow at the Manhattan Institute and the director of its Center for Medical Progress.

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