Chapter 5: Government Funded Biotechnology Research
5.2 United States Government Funded Public Research Institute: National Institutes of
5.2.1 Executive Orders and Source of Funding
became a trend that federal government tends to focus on basic research while private firms concentrate on applied research to avoid overlap or crowd out. 2013 Pharmaceutical Research and Manufacturers of America (PhRMA) annual report also mentioned that government and biopharmaceutical industry research complement each other. It could be seen on Figure 4 that phRMA member companies73 contributed USD$ 48.5 Billion, but NIH alone contributed USD$ 30.9 Billion on biopharmaceutical research in 2012.
5.2.1 Executive Orders and Source of Funding
In 1930, Joseph E. Ransdell, a senator from Louisiana introduced an act, which later on was enacted as The Ransdell Act to reorganize, expand and redesignate the Laboratory of Hygiene as the National Institute of Health. The Ransdell Act says:
… to establish and operate a National Institute of Health, to create a system of fellowships in said institute, and to authorize the Government to accept donations for use in ascertaining the cause, prevention, and cure of disease affecting human beings, and for other purposes74.
The Ransdell Act allocated USD$ 750,000 in the bill to construct two NIH facilities and provide research fellowships. NIH today derives its statutory authority from the Public Health Service Act of 1944, as amended (42 U.S.C. §201-300ll-9).
There are five principles known as “HHS Strategic Goal” to be obliged when drafting NIH budget. Among them: i) Strengthen Health Care; ii) Advance Scientific Knowledge and Innovation; iii) Advance the Health, Safety, and Well-Being of American People75; iv) Increase Efficiency, Transparency, and Accountability of HHS Programs; and v) Strengthen the Nation’s Health & Human Service Infrastructure &
Workforce76.
73 phRMA member companies composed of many major private pharmaceutical companies around the globe, including Amgen Inc., AstraZeneca Pharmaceuticals, Inc., Bayer Healthcare LLC, Bristol-Myers Squibb Company, Daiichi Sankyo, Inc., Eli Lilly and Company, GlaxoSmithKline, Johnson & Johnson, Merck & Co., Inc., Novartis Pharmaceuticals Corporation, Pfizer Inc., Sanofi, Takeda Pharmaceuticals U.S.A., Inc. and etc.
74 42 U.S.C. § 21, 42 U.S.C. § 22, 42 U.S.C. § 23a-23g
75 Not met in FY 2011-2013, probably due to budget cut.
76 NIH FY 2013 Budget (2013), Department of Health and Human Services National Institutes of Health, Retrieved from http://officeofbudget.od.nih.gov/pdfs/FY13/FY2013_Overview.pdf
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however the process of determining a budget is not unilateral but multilateral with the participation of administration and scientist. It all starts before March annually, with the communication between scientists and each leader from NIH Institutes and Centers (ICs Leaders) to determine the most important and promising research direction. ICs leaders then feed the information to NIH management, of which later develop a budget request for new research proposals and continuing research. For more accurate budget allocation, the NIH considers the inflationary indexes77 throughout the budget process.Besides that, in order to maintain NIH-funded research activity at previous year’s level, NIH refers to Biomedical Research and Development Price Index (BRDPI)78 which measures changes in the weighted-average of the prices of all the inputs (e.g., personnel services, various supplies, and equipment) purchased with the NIH budget to support research79.
NIH then submits the budget request to HHS, before it is included in the President’s final budget. The President then sends NIH’s budget to the Congress in February for the next fiscal year’s allocations. By fall, the House and Senate will appropriate the budget and NIH could finally start its new fiscal year on October 1. The process of submitting budget and requesting for funding takes 18 months to complete.
77 The Department of Commerce's Bureau of Economic Analysis (BEA) computes “The Price Index for the Gross Domestic Product (GDP)” for budget maker to make reference during budget making. It measures the annual percentage price increase for all goods and services produced by labor and property located in the United States. For the Index table, please visit
http://officeofbudget.od.nih.gov/pdfs/FY14/GDPINDEX_Values_for_2012_2023.pdf
78 The Bureau of Economic Analysis (BEA) in the U.S. Department of Commerce developed the BRDPI, in the early 1980s. An updated table of BRDPI annual estimates and future-year projections is posted on the NIH website each year. Please refer to the following link for further information:
http://officeofbudget.od.nih.gov/gbiPriceIndexes.html
79 Biomedical Research and Development Price Index (BRDPI): Fiscal Year 2012 Update and Projections for FY 2013-FY 2018 (January 2013), Department of Health and Human Services, Retrieved from
http://officeofbudget.od.nih.gov/pdfs/FY13/BRDPI/BRDPI_Proj_Jan_2013_Final.pdf
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Figure 5 NIH Budget Process Calendar80,81
Figure 5 shows the Formulation (Red bar) of a budget often starts on April with scientist, Presentation (Green bar) to the Congress starts on March on the next fiscal year and finally starting the Execution (Blue bar) for a year on October 1.
Congress maintains a very high interest in NIH for a lot of reasons, among them including the achievement of Human Genome Project82 and great economic impact brought by the federal funds. According to a study by E. Ray Dorsey and collogues, industry accounted for 58% of all expenditures on biomedical research, followed by NIH (27%), state and local governments (5%), and private not-for-profit support (4%)83. The federal government increased its funding nearly 100% from 1994-2003 to NIH, making it the largest federal contributor to biomedical research84. For FY2012 the Obama Administration has requested USD$32 billion for NIH, an increase of USD$745 million (2.4%) over FY2010 as President Obama indicted his unwillingness to scale back the national investment in research and development and said that “maintaining our leadership in research and technology is crucial to America’s success”, despite the House, who have promised to focus on deficit reduction and shrinking the federal
budget 85 .
80 Budget Process Calendar (n.d.), National Institutes of Health, Retrieved from
http://officeofbudget.od.nih.gov/pdfs/FY14/Budget%20Process%20(Timeline%20Chart)-NEW1a.pdf
81 For more detailed information, please refer to Appendix 2: Budget Process Calendar of National Institute of Health (NIH.gov, n.d.).
82 The Human Genome Project is the largest collaborative biological project in the world to date. Sponsored by NIH and Department of Energy Office of Health and Environmental Research, this international scientific research project aimed to determining each of every chemical base pair that make up human DNA. The project successfully identified and mapped the total genes of the human genome from both a physical and functional standpoint.
83 Dorsey, E.R., Roulet, J., Thompson J.P., et al., Funding of US Biomedical Research, 2003-2008 (January 13, 2010), Journal of the American Medical Association, vol. 303, no. 2, pp. 137-143.
84 Dorsey, E.R., Roulet, J., Thompson J.P., et al.
85 Smith, P.W., p.6.
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Table 7 Budget Funding for NIH in FY 2013 (in USD$)76
Table 7 showed in 2013, NIH requests a program level of USD$30.086 billion, of which is flat from the FY 2012 enacted level. Although the budget sets on the same level as FY 2012, in reality it implies a decrease in budget because according to the Biomedical Research and Development Price Index (BRDPI) computed by Bureau of Economic Analysis, the growth in the BRDPI for FY 2013 is 2.5%. Theoretically, NIH budget should increase at least 2.5% (USD$31,631B) to maintain NIH-funded research activity at the previous year’s level. However, the most of the budget allocated to research increased compared to FY 2012. Funding for Intramural Research increased by 0.6 percent, compared to the FY 2012 Enacted level. More than 85% of the NIH budget (USD$26,207M) was allocated to research funding: Among them 12% was allocated to Intramural Research Program (USD$3,420M), 69% to Extramural Research Program (USD$21,252M)86 and 5% to Research Management and Support (USD$1,535M)87.
86 Includes budget for Research Project Grants (USD$16,463M), Research Centers (USD$2,966M) and Other Research (USD$1,823M) showed in Table 7.
87 NIH FY 2013 Budget (2013).
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