Letter From the Department of Health and Human Services Concerning the SBIR Program In response to a December 8 request from Mr. Richard Fogel, I am enclosing a report reflecting this Department's judgment of the effects of the Small Business Innovation Research (SBIR) Program on Health and Human Services programs. In preparing this report, we have not attempted to address the issue of the quality of research nor the effectiveness of Phase I and Phase II. We understand that these issues will be the focus of the report being developed by the GAO. In summary, we have generally been pleased with the results of support Enclosure Sincerely, This BBowen M.O. Otis R. Bowen, M.D. Letter From the Department of Health and The Department of Health and Human Services Small Business Innovation Research Program Introduction This report, on the Department of Health and Human Services', Small Business Innovation Research (SBIR) Program, is in response to the request of the General Accounting Office (GAO) for views on the effect of the SBIR legislation on HHS research programs. It is the intent of this report to address, to the extent possible, the "effect" elements of the questions posed by the GAO without examining the other questions (stated in Public Law 99-443) concerning the effectiveness of Phase I and Phase II and the quality of research supported by the SBIR Program compared to that traditionally supported by the Department. Any assessment of "effect" or "impact" must take into consideration that SBIR funds constitute only 1.25% of the Department's extramural R&D budget. Thus SBIR projects make up a very small portion of the Department's research portfolio. To anticipate a significant impact from such a circumscribed research program would be neither realistic nor appropriate. Furthermore, since the SBIR enterprise is intended primarily to increase commercialization of the results of federally funded research, it is important to recognize that the technology transfer process is generally lengthy and time consuming. Therefore, any definitive assessment of the effect of the SBIR Program is somewhat premature at this time. It is our belief that, given sufficient time, the SBIR Program will allow more conclusive findings. Background The Department of Health and Human Services includes five Operating Divisions: the Public Health Service, the Social Security Administration, the Office of Human Development Services, the Health Care Financing Administration, and the Family Support Administration. Each of these Divisions, as well as the Office of the Secretary, administers an extramural research program. In HHS, extramural research spending has grown from approximately $3.3 billion in FY 83 to approximately $5.4 billion in FY 87. Of this amount, approximately 98% are funds of the Public Health Service. Over the same period of time, the SBIR set-aside goal has grown from $6.6 million to $67.1 million. When the SBIR Program was first implemented in DHHS, a policy decision was made to require all departmental components with extramural research activities to participate in the SBIR Program. Although the objectives of some HHS research programs were not compatible with the goals of the SBIR legislation, the Department attempted initially to insure uniform overall participation by all components. Concern over the incompatibility of these activities was rooted in the fact that there were and still are three types Letter From the Department of Health and SBIR Program of research programs within DHHS that experience significant difficulties in adapting the SBIR Program model. First, there are some very small departmental programs whose 1.25% set-aside is too limited to meaningfully support SBIR activities. Secondly, there are programs that are legislatively prohibited from making awards to for-profit enterprises and lastly there are programs whose missions are removed from either technological innovation or product commercialization. Consequently, a number of the smaller programs have since been dropped from the SBIR Program because either their extramural research budgets were too small to provide for a viable and cost effective program or their research objectives were not compatible with SBIR goals. Since the SBIR setaside requirement is applied against the overall departmental extramural budget rather than against individual programs, HHS has been able, through administrative action, to meet the set-aside requirement. The experiences of each of the Divisions participating in the SBIR Program are described below: The Public Health Service (PHS) 1 Experience Program Implementation Prior to the inception of the SBIR Program, the experience of the PHS agencies--particularly the National Institutes of Health (NIH) --with small businesses had been restricted generally to contracts for technical or logistical support services and for procurement of materials and supplies. While there were some R&D contracts, these were relatively few in number. The SBIR Program became the first, systematic, NIH-wide program to involve small businesses actively in grant supported research. This ushered in a new era for the research oriented PHS agencies which, until then, had interacted almost exclusively with academic institutions and not-for-profit research institutes. The SBIR Program also introduced an entirely new group of organizations and investigators to the PHS--companies and scientists that had never "done business" with the PHS agencies before FY 83. At the outset of program implementation, the Assistant Secretary for Health designated NIH as the lead agency in the Public Health Service for SBIR related activities. This decision was based largely on two factors: (1) the SBIR set-aside funds at NIH constitute 92% of all PHS SBIR set-aside funding and (2) NIH has had the largest program and the longest tradition in supporting research. As a result, NIH has played the principal role in developing SBIR implementing policies and procedures for the PHS. 1The Public Health Service agencies/offices participating in the SBIR Program include the National Institutes of Health, the Alcohol, Drug Abuse and Mental Health Administration, the Centers for Disease Control, the Food and Drug Administration, the National Center for Health Services Research and Health Care Technology Assessment and the Office of Adolescent Pregnancy Programs. 2 Letter From the Department of Health and SBIR Program In the initial conceptualization of the program, it was visualized that both assistance awards (grants) and acquisition awards (contracts) would be used to support SBIR projects. However, to facilitate program implementation and to allow PHS staff sufficient time to familiarize itself with a new set of policies and procedures, only the grant instrument was used in the first two years of the program. In FY 85 contracts were introduced and have since played an important though smaller role in supporting SBIR research. The decision to adopt both funding instruments was based on the recognition that a research agency, especially one such as NIH, needs to support both investigator initiated research as well as research that meets identified agency requirements. While grants have been used very effectively to support a variety of research projects whose ideas came from scientists in small businesses, this funding instrument cannot be used to support research for which the agency has identified a need. The latter type of research constitutes a technical requirement that must be met through a research contract. In implementing any new program, especially one that cuts across all research programs of the PHS and which involves a new sector of the research community, there is a critical need to invest a significant amount of agency resources, particularly staff, to educate the new constituency. The small businesses that approached the PHS for SBIR support in the first three to four years of the program were, by and large, totally unfamiliar with the agencies within the PHS, their organization, programs, policies and procedures. To counter this problem, PHS staff invested substantial amounts of time not only in familiarizing small research companies with "the way we do business" but also in monitoring and interacting with these firms following the award of SBIR funds. This investment has succeeded in educating our new "clientele" and, in the process, we have gained insights into a research community that heretofore was equally unfamiliar to us. General Program Information The SBIR set-aside funds for the PHS have grown from $6,478,998 in FY 83 to $66,267,301 in FY 88. In each of the past fiscal years, the PHS has not only met but also exceeded its set-aside requirements. This points to the fact that a number of funding components within the PHS received proposals of sufficient quality that they contributed more than their allotted share of SBIR funds in order to make additional awards. The annual amounts by which the PHS has exceeded its set-aside requirements has ranged from $163,000 to approximately $740,000. Since the initiation of the program, over 3000 small businesses have submitted SBIR grant applications and contract proposals to the PHS. Of these over 500 have been successful in competing for SBIR funds. Some companies have produced such high quality proposals that they have received more than 20 SBIR awards each. In fact, as of March 1988 at least 370 firms have received a minimum of two SBIR awards. Among those companies that have been successful, there is a significant percentage of minority/disadvantaged and women-owned small businesses. This percentage is actually higher than that for PHS' traditional small business 3 Letter From the Department of Health and set-aside contracts program. Based on data from FY 83 through FY 87, 94 awards have been made to minority/disadvantaged companies, 115 have been made to women-owned firms and 33 have been made to small businesses whose ownership is in the hands of minority/disadvantaged women. Although small businesses may submit grant applications for research on any subject matter within the mission of the participating PHS agencies, the SBIR solicitations issued by the PHS offer over 375 major topics as examples of areas of interest. These solicitations cover a very broad range of research topics, ranging from the development of antiviral drugs and biologicals for the treatment of Acquired Immunodeficiency Syndrome (AIDS) infections, to the refinement of technologies for screening of active anticancer agents, to the development of devices and instruments to help the visually impaired maximize the use of their residual vision, to research on the multiple biopsychosocial processes involved in the response to stress and how these responses relate to the onset and maintenance of physical and mental stress. There is hardly any area of biomedical or behavioral research in which small businesses are precluded from submitting proposals. To encourage small research oriented companies to participate in the PHS SBIR Program, a policy decision was made in the early stages of planning that grant applications would be considered in any program area within the mission of the participating PHS agencies. While the Small Business Administration was initially reluctant to accept this approach to proposal submission, eventually the PHS was able to negotiate this flexibility into its SBIR Program. As a result of this approach, the PHS was able to fund 245 meritorious research projects over the last five years that would not otherwise have been eligible for consideration. The Appendix to this report shows the number of grant applications and contract proposals that have been submitted to the PHS SBIR Program since FY 83 and the number of awards over the same period of time. Positive Features of the SBIR Program While the SBIR Program offers a variety of positive features, the specific benefits that the PHS has reaped from supporting SBIR research include the following: (1) SBIR addresses previously identified gaps in HHS research A large number of these gaps appear to be in the area of medical instrumentation, for example, the development of devices for the diagnosis, treatment and rehabilitation of patients with communicative and sensory disorders, i.e., patients with impairments of hearing, speech, language, taste, touch or smell. Instruments for the treatment of dermatological and corneal diseases had also been identified as research gaps but had received minimal attention from researchers prior to inception of the SBIR Program. Indeed, SBIR has proved to be a very effective means of encouraging the development of devices, instruments and other hardware that have not otherwise been addressed. Other 4 |