Mark Souder

Mr. SOUDER

Mr. SOUDER. When they need a new hip, the inventions are coming out of Warsaw, Indiana. The parts groups that work at some little companies like OrthoPediatrics, they're working on specialized hips for kids who are 4 years old and 6 years old. Are they going to go to Wal-Mart and pick one up off the shelf? Let's get real here. Innovation requires competition. It requires investment. The way you keep a cluster, according to Michael Porter in ``The Competitive Advantage of Nations,'' when you have a cluster, you need competition. There has to be innovation every week, how can I get better? And that's driven by profit and by competition. R&D in England is one of the highest in the world, yet they don't produce new products because the government is most of the R&D. It's not driven for what the consumer wants where the consumer basically rewards the market. And we are going to tax these little ones totally out and the big ones half, and we simply aren't going to get the products. So we don't have the option of going to Canada and England to get it.

Mr. SOUDER. They come here.

Mr. SOUDER. The little ones get hit harder.

Mr. SOUDER. Commodities. The head and founder of Biomet, Dane Miller, talks about in here, they didn't think titanium was going to work. He had somebody serendipitously put into his arm titanium. He walked around with it for 12 years and proved it worked. And they said, wow, this doesn't disintegrate. They used to use basic pieces of wood as your hip. Now we customize it. We try to make it so that when soldiers get hurt on the battlefield and they are 18 years old, they're not going to die in 5 years. Is this going to be flexible enough? How is the skin and bone going to go around it? Michael Porter points out, innovation comes when you have a cluster and there's competition. You destroy that, you take away the R&D. Medicare doesn't pay for that. Private pay pays for that. Furthermore, Zimmer is proposed to be taxed half. Stryker is proposed to be taxed half. Smith & Nephew is proposed to be taxed half of their R&D budget. Biomet, $82.2 million in research; $60.9 million is their tax. Because they were doing readjustments last year, they didn't even make any money. Now, how do you think we are going to have a single innovation in orthopedics if you tax half of the R&D? And furthermore, they don't call it a ``tax,'' they call it a ``fee,'' so it is not even tax deductible.

Mr. SOUDER. There's one point I wanted to make sure I got in here tonight, because part of my district is stunned today. The Senate Finance bill yesterday is proposing a tax that ranges from 10 to 30 percent on the medical device industry. Now, when we talk about Medicare, what we're really talking about is they cover not quite variable costs, but cover no mixed costs, and no fixed costs for hospitals or for reimbursement of other things. Private pay pays for the rest of it. And what this bill is in danger of is squeezing or taxing out private pay. Now what I hear often is why can't we just all go to the Medicare system? The Medicare system, people who are alive today wouldn't be alive if it were based on Medicare reimbursements because the pharmaceuticals wouldn't have been made. The hip replacements that they have, the shoulder replacements, the knees wouldn't have been invented, because the key is R&D. Lilly in Indianapolis, at one point, 60 percent of their profits were from Prozac. Every other drug that was invented was funded with R&D from that. But if they attach an R&D fixed amount to a particular drug, there will be no excess profits with which to experiment. The orthopedics industry, according to OrthoKnow, an article by John Engelhardt that was just released shows that the tax on the orthopedic, a little town of Warsaw, 15,000 people in that county, is one-third of the orthopedics industry in the world in my district. Three of the five biggest, they own the biggest companies in Europe, they are looking if this tax goes through and how they move out. This is one when we move up the ladder, we say we're not going to just flip hamburgers, we're going to go up, we're not going to do commodities, we're going to go higher, and then we get up to the higher areas, and we tax them. Here is Zimmer, the biggest, based in Warsaw. Their R&D budget was $194 million. The tax under the Senate bill is 94.7. Stryker--

Mr. SOUDER. Keep your own insurance, keep insurance the way it is? No. It was defeated. We had one that said catastrophic plus an HSA. That means that you could get flexibility to get catastrophic coverage that could be provided by the firm; they give you money so you get an HSA, and then if you want pregnancy coverage you could cover pregnancy. If you were older--like, we're probably not going to have any more babies; it would be a big shock if we did, since I am 59, about to turn 60, and my wife's similar. Much younger of course, but similar. I'm going to get killed when I get home. The bottom line is that we may not want pregnancy coverage, so why can't we get a health policy that's customized? Defeated. You know, this idea that the Senate bill in their talking points today says they're going to allow you to keep your own insurance. And then further down it says all these new things will be added. Mandatory. By the way, that wouldn't be your insurance. If your insurance doesn't have it, that's not your insurance. Your company would have to either raise the prices or drop your policy. If they're dictating, that's not your own insurance.

Mr. SOUDER. Another one for a second that you referred to earlier. That, you know, people can say things. We can stand up and say whatever we want. But when you vote it's your action. And in the action--

Mr. SOUDER. Putting aside that that may be why they don't bother to let us read the bill, because we can't amend it anyway, that you would think that there would at least be some public responsibility to give us 72-hour notice. In committee, we didn't get 72 hours. As my friend from Pennsylvania, Mr. Thompson, has pointed out, it was just, I mean, we got it basically when we sat down, the final bill. Then we're debating it in the middle of the night, which the other party said was shameful when the Republicans held a vote because of the debate which was actually on the floor. We don't do debates in the middle of the night anymore because we don't do debates, we don't offer amendments. But in the amendments in committee, the amendments on pro life, the amendments on trying to check ID, the amendments on a lot of these controversial provisions, nobody got to see the very eloquent debate. I thought we were pretty eloquent at 3 in the morning. You know, I took a little offense. I thought we were fairly good but nobody will witness it.

Mr. SOUDER. Also as a member of the Labor Committee, my friend from Pennsylvania and myself and probably three others, I thought, were actually very articulate in arguing some of these amendments at 3 in the morning. Our audience wasn't very big. You know, when people say, oh, what happened, why didn't you guys--I mean, the only place we can offer amendments usually is committee. We don't get to offer them here on the floor.

Mr. SOUDER. Can you imagine the outrage in America if liquor stores posted on their door, No IDs checked here? If you went to a gas station where we assume that tobacco cannot be sold to minors but you had a sign that said no IDs checked here, would you believe that the liquor store or the place selling the tobacco isn't going to sell to minors? On what basis? In effect, what we're telling them in this bill, no IDs checked here, so how do you know?

Mr. SOUDER. Will the gentleman yield?

Mr. SOUDER. I beg to differ just slightly. While that's the amount that people pay, what I hear from doctors in my district--and we have MedPro, which is one of the biggest insurers of doctors--that that's just part of the cost of defensive medicine. After the doctors are told to keep your insurance down, make sure they get an MRI if they're questioning at all rather than extra x rays so they can't sue you, make sure you do this extra test, that doesn't count all the things that they do to try to avoid their rates from going up. We don't know what the cap is. The problem with the studies that claim you don't save as much from tort reform by those who are proponents of it literally do not take into account what doctors are saying in their daily practice of things that they wouldn't do at the margins if they didn't think there was a potential of being sued that would drive up the rates.

Mr. SOUDER. Maybe he meant that he wasn't going to add one dime, that he was going to add a couple of trillion.

Mr. SOUDER. The challenge here is that people are confused. You hear the President or others say it's not in the bill, then you hear the Republicans make an allegation. Here is the thing. It doesn't specify, A, if we could read the bill, but what we see doesn't specify. What it does say is there will be counseling. In another section it says there's going to be savings, which implies rationing, and in another section--or implementing and procedures, a cut for hospice care. In another part of it it says, the first part says 5 years. Nobody knows exactly what that means, every 5, once in 5, not explained. Then later it says if you have a condition change. When you put those together, you come to a logical conclusion. But then the other side goes, well, it's not in the bill. Well, not precisely, but it's in there in five different places, and there is no other way to resolve it. There has to be some kind of unit that has to put this together to make these kinds of decisions. In this waste and abuse, one of the questions is what does waste and abuse mean. The cardiologists were in the other week, and the oncologists the week before that, because they were concerned because they have started to implement some of these procedures. What we hear is that, well, if there is waste and abuse, why aren't we checking it right now. Well, they are defining waste and abuse as underutilization of equipment. What does underutilization of a heart machine mean? What does underutilization of a heart center mean? What does nonefficient usage of oncology machines mean? In Indiana, what it means is everybody goes to Indianapolis. You are going to close your heart centers in Fort Wayne because you have a utilization of 44 percent, not the 80 they are mandating. It means South Bend, Evansville, northwest. In Missouri, maybe you get Kansas City and St. Louis. We had a number of Russian health care administrators in my district as well as people from the Duma a number of years ago. We took them to some of our hospital systems. They said we have seen most of this stuff in Moscow. What's unusual even in the United States is that even in towns of 15,000 you have hospitals like we have in our big cities. When we hear about lines in Canada and England, it's partly because, to be efficient, they have people drive 200 miles to a heart center, and they get to pay the mileage. They get to pay for the motel. They get to go back for repeat visits and the cost to them. That's not savings of waste and abuse; that's transferring the fees to individuals. What we have right now is a dispersed health care system that brings it closer to home with what we call RediMeds in our area. You have blended regional hospitals feeding up to bigger hospitals. They seem to think that these savings are going to become like they were trying to do in the veterans hospital system in Indiana and make everybody go to the biggest city in the State.

Mr. SOUDER. Well, it says they will present all the alternatives. But I assume that the real intent around that was to promote hospice care. But if they are cutting hospice care, and the hospice centers don't know what they are doing and you are rationing certain life supports, and if they are talking about how much is spent in the last years of life, this is really disturbing stuff. That's why we have to read the bill. We have to know precisely what's in it. What do you mean when you put that kind of stuff in? Where that section was on our House bill referred back to the Social Security act. It didn't even fit. The counseling part didn't even fit. Nothing else in there was counseling. It was things like liver and all this kind of stuff. It was incredibly sloppily written. It will be forever litigated. It seems to set up a pattern where you are going to be counseled and given a different alternative from hospice to euthanasia. You are going to be told you are going to get things reduced, or at least they should disclose that. But if there is no hospice that can survive, particularly in the smaller markets--which brings up another critical point. The cardiologists were here on the Hill just a couple of weeks ago.

Mr. SOUDER. The other body passed a Senate Finance bill, which has correctly been called a conceptual bill, that we heard the budget estimates of that bill. But as they said in the notes, in their report, you can't hold us accountable for these estimates because the bill doesn't specify how they are going to achieve certain savings, doesn't specify how certain things are going to be paid for, doesn't specify exactly what they are covering. It doesn't give enough specifics. Even when you are taking over this big a sector of the economy, 1,000 pages is like a sneeze at this problem. There has to be not only 72 hours to read it, but we need to actually see a real bill, not a conceptual bill. Now, there are a couple of things. Our friend from Pennsylvania alluded to this one. We have had this huge controversy about the so- called death counselors that are clearly in the bill to do counseling in the last 5 years of life and if your condition deteriorates. Many of us are strong supporters of hospice care. I think a lot of people thought this was for hospice care, but they are getting cut 18 percent. I just read a letter from someone in my district that says we don't know how our hospice care can survive with these cuts. What is the point of these counselors if you are wiping out the hospice care? No wonder some people are a tad paranoid. I don't know what it means. How can we know what it means? What we know is it looks like they are rationing because they are cutting off services to Medicare.

Mr. SOUDER. Right, and you have taken the lead here on the floor. Trying to make sure we present this, I have got a couple of specific points, but one, which you are doing through this, is at a minimum, the public needs to know what's in the bill, and the thought that something may come here without 72 hours to read it, which is not a long time, is just abhorrent.

Mr. SOUDER

Mr. SOUDER. Mr. Speaker, I'm going to make a number of comments here that will be in the Record tomorrow. We'll also have the things I refer to--because I'm going to make a number of points--on our Web site in the next hour. President Obama made his first visit after the stimulus package passed to Elkhart, Indiana, to Concord High School for a town hall meeting that straddles Congressman Donnelly's and my district. Unemployment was 15.3 percent when he visited. It went higher, up to close to 20 percent. It's now at 16.5, I believe. In other words, we've gone backwards. What he said that day--referring to a previous campaign visit there-- ``I promised you back then that, if elected, I'd do everything I could to help this community recover and that's why I come back today because I intend to keep my promise.'' Now, some interesting things have been happening. We've heard about blaming the banks. You know, business, to invest, has to have an idea that a recovery is coming. It has to request the money. And part of the challenge here if they're uncertain whether they're going to get taxed in a small business tax, if they're uncertain whether they are going to be taxed in health care, if they're uncertain of what the energy costs are going to be in Indiana--because ours are projected to get hit harder than any other congressional district in America, and I have the number one manufacturing district--they aren't asking to borrow and the banks don't know how to value the assets. We have to have a recovery, not taxes and pressures on industry. There's a classic book, ``Competitive Advantage of Nations'' by Michael Porter. He's written a lot of books since then, including one on health care I don't particularly agree with. But he's a very reflective man, and these are the basic principles of how you develop clusters. He says, ``Creating competitive advantage in sophisticated industries demands improvement and innovation--finding better ways to complete and exploiting them globally, and relentlessly upgrading the firm's products and processes.'' In another section of the book he says, We ``must create new advantages at least as fast as competitors can replicate old ones.'' He also points out the United Kingdom, in their R&D, is among the highest compared to GDP of any nations, but top heavy government R&D. They don't have the private sector R&D, so they don't have the growth, and the growth they have is in the wrong areas. Now, why do I bring this up? In a newsletter of ``ORTHOKNOW, Strategic Insights Into the Orthopedic Industry,'' John Engelhardt reports the 10 to 30 percent tax in the Senate Finance Committee's bill that was passed yesterday would lead to roughly a tax of 50 percent of the R&D that the orthopedics industry does. For example, Zimmer--based in my district--in the orthopedics cluster, Zimmer would be taxed $94.7 million and their R&D is $194 million. They're the biggest orthopedic company. Biomet--which I believe is the fourth or fifth biggest orthopedic company--would be taxed $60.9 million. R&D estimate for 2008 was 82.2, and they had a loss. Now, Michael Porter points out when you lose one or two, you lose that competitive pressure, that you cannot sustain R&D with the new taxes, especially if at the margins the cost of the tax is greater than the profits of the firm, let alone the R&D. I also refer to a USA Today article of this morning that says, ``Orthopedic Industry Has Enjoyed Fine Health.'' And it goes to Warsaw, Indiana in my district where three of the five biggest of the orthopedic companies, plus Medtronic, plus Orthopediatric, plus 6,000 direct feeding, plus as you move to South Bend and over to Fort Wayne and down to Indianapolis--and in fact throughout the Midwest--and then if you look at the whole industry of the United States, it's a cluster. We had this theory in America that we were going to move up the ladder. And as other countries beat us on labor, we would do things like pharmaceuticals, like orthopedics, like biotechnology. We'd be the cutting edge, except now we're going to tax them to death. So guess what this article says? They're looking at going overseas. I've already heard this. Why won't they go offshore if they can get cheaper labor? They can get engineering research, they can get government subsidies to some degree, but most importantly, they're going to go where they can do R&D and the combination cheaper than they can do it in the United States. A tax won't bring in revenue, a tax will drive our clusters away. To put the taxes on the most innovative clusters is unbelievable. I just don't understand, particularly in a State where the President said not 30 miles away from the center of the orthopedic industry where many of these parts people are, ``I promise you it will improve.'' The maverick CEO, Dane Miller, and the story of Biomet illustrates another myth that these are some sort of rich billionaires. It talks how he put a titanium hip in his own body because initially they wouldn't believe it, then it worked, and that's partly how we got the innovation today. I encourage people to read this bio of Dane Miller. [From Orthoknow, Oct. 2009] Success Fees for Orthopaedics? (By John A. Engelhardt) In the Senate Finance Committee's healthcare reform bill, partial financing will come from ``fees'' imposed on the manufacturers of medical devices. As I review what is being proposed, I am (nearly) at a loss for words. The total cost to medical device companies will be $40 billion over ten years. That's $4 billion a year. Here is how it shakes down. The U.S. medical device industry in 2009 is projected to be valued at $91.3 billion. Orthopaedic revenues generated in the U.S. in 2008 reached $21.7 billion. Assuming flat growth from 2008 to 2009, orthopaedics would then comprise 23.7% of the total medical device industry in the U.S. in 2009. America's Healthy Future Act of 2009, ``Annual Fee on Manufacturers and Importers of Medical Devices,'' would impose an aggregate fee of $4 billion on the medical device industry, payable annually, beginning in 2010. Each company's fee would be calculated based on its relative market share of U.S. sales for the prior year with covered domestic sales taken into account as follows: 0% of sales up to $5 million 50% of sales over $5 million and up to $25 million 100% of sales over $25 million According to our calculations, if orthopaedics represents 23.7% of the total medical device industry, then its portion of the $4 billion would be $949 million. Exhibit 1 summarizes the fees assessed for several companies. You will note that this is not being called a tax. Thus, it is NOT deductible by these companies as a legitimate business expense. Let me just repeat that for effect. It is NOT deductible by these companies as a legitimate business expense! The ``fee'' adds up to about four percent of orthopaedic product sales for the companies. Since it is not deductible, that automatically comes OFF the bottom line. The loss drops right through the P&L. Here are some highlights. In the case of Exactech, it wipes out nearly 40% of its earnings. The value of the company will decrease a pro rata amount, losing $60 million in shareholder value. In 2008, Osteotech made a small profit of $2.2 million. Under the Senate proposal, the company would pay $3MM in fees! This is a company struggling back to health. How long would they be able to remain a viable entity? Biomet, in the midst of a rebuilding and restructuring, lost $749MM in 2008. Under the new plan, it would pay almost $61MM. I am not making this up. Alphatec would have to pay about $3MM for the pleasure of having lost about $25MM! Study Exhibit 1 carefully. You'll find yourselves asking many questions. What planet are we on? Where did these Senators go to school? Did they even go to school? Maybe they didn't have math in their school. It is very hard to argue with the economics of orthopaedic care. It has been positively documented for a half century. Many people describe joint replacement as among mankind's most significant achievements, not only for the suffering it relieves but for its economic value to society. Recently, others have published the more compelling metrics of orthopaedic treatment in response to the reform debates. (See the ORTHOWORLD Position Paper on Healthcare Reform, www.orthoworld.com/site/index.php/main/healthcare, and Connections, the blog of Biomet CEO, Jeffrey R. Binder, www.biomet.com/corporate/ceo Blog/.) It's as if, in their infinite wisdom, our representatives have identified the achievers and propose to levy a cost on them to help support the underachievers. These companies have done too well, helped too many people, created too many good quality jobs. Shouldn't we be holding them up as an example to others, in order to encourage efficiency and reward performance? I can think of no other term for this than a penalty for success. In essence, these companies will have to pay for the right to do business in their own country. Forgive me if I am having trouble grasping the idea that if you fail, the government gives you taxpayer's money to bail you out. If you succeed, that same government fines you? I hope not to insult any of you reading this when I suggest exactly what this will cause, because it is so obvious to us thinking folks. 1. Jobs will be lost. These companies are massive providers of extremely high quality jobs. They will be forced to pare down their workforces. 2. Jobs will be moved overseas. In order to make up the margin deficits, good corporate stewards will examine all opportunities to drive costs down. 3. R&D budgets will be reduced and innovation will slow. 4. U.S. companies will focus on the markets outside the States where the penalties don't apply. They'll get four more cents on a dollar of sales if the sale is ex-U.S. 5. The cost of healthcare will not budge. 6. When the plan fails, the government will just come back for more. What's next? Bonus points for product recalls? And so it goes. We take from the most successful, and give to the least, until such time as a steady state of mediocrity is reached. This goes way beyond everyone getting an award in the T-Ball tournament. I will hereby propose a new Mediocrity Czar, whose job it will be to ensure that all aspects of society are put on an even playing field. Here are some suggestions. Sports LeBron James will be required to give every point over 20 per game to the other team. Michael Phelps will have to swim with a cinderblock tied to his leg to allow all those who have never won a gold medal to do so. Tiger Woods will be required to carry his own bag, and will not be allowed to set it down during play. Business Bill Gates and Steve Jobs will have a portion of their brains removed until such time as those pesky competitors of theirs catch up. Politics No action needed. Perhaps there is more that orthopaedics can do to contribute. All sales reps and distributors will have their commission structures modified such that the more they sell, the less they make. Those who sell more than $5MM per year will give a portion of their commissions to those who didn't sell squat. Surgeon reimbursement will be inversely proportional to surgical volume. If a surgeon is too talented and popular with patients, he/ she will be required to strike that patient soundly with a stick at the end of each office visit. This should help just about everyone rise to the middle. A generation ago, some of the people reading this article and their forebears were called upon by mankind to help eliminate the suffering of millions of people crippled by arthritis, debilitated by back pain and homebound by injuries. You responded with joint replacement, spinal fusion and arthroplasty, arthroscopy and soft tissue repair and trauma technologies, and the result was that these lost souls were able to return to active lives as healthy contributors to society. You are called upon again today, as we seek to find a way to treat the millions of new orthopaedic patients stressing the system. Only this time we're broke. So it looks as if we are being asked to pay for the right to contribute further. Surely there is a better solution that will not undo a century of progress in healing.

Mr. SOUDER

Mr. SOUDER. Madam Speaker, today the Senate Foreign Relations Subcommittee on East Asian and Pacific Affairs held a hearing on U.S. policy towards Burma. I would like to contribute some remarks on this important topic. I represent the Third District of Indiana, which is home to the largest concentration of people from Burma in the U.S. In recent years, resettlement agencies have placed well over 2,000 refugees in Fort Wayne, Indiana. Fort Wayne has also become a ``community of choice'' amongst the refugee community, and secondary migrants have increased Fort Wayne's population of people from Burma to over 6,000. As a result, the Third District is acutely aware of the atrocities and suffering that the people from Burma have faced at the hands of the State Peace and Development Council (SPDC). I am disappointed that this hearing, which is intended to evaluate the role the U.S. can play in facilitating democratic reform, did not invite testimony from a single representative of Burma's democracy movement or one individual who has endured the violence of the Tatmadow. A thorough evaluation is impossible without their perspective. Over the years, U.N. reports have documented some of the military regime's harrowing crimes, including widespread rape, conscription of child soldiers, torture, and the destruction of thousands of villages. It is clear that the SPDC has in part been conducting a war against its own citizens. In spite of these realities, the Administration has recently engaged in direct dialogues with the Burmese regime and the Senate Committee's hearings today are in part seeking to reevaluate the role of sanctions in U.S. policy. I support the establishment of a peaceful and democratic Burma. However, it is improbable that this can be achieved through negotiations with the junta--a dictatorship will not act in good faith and broker a deal that will lead to its own demise. Before such dramatic changes in policy can be made, it is necessary for the military dictatorship to demonstrate a clear movement towards democracy. This must include ending the current violence against its citizens, installing Daw Aung San Suu Kyi to her rightful place as Burma's democratically elected Prime Minister, and drafting a constitution that creates the possibility for true civilian leadership. Until we see this kind of progress, the U.S. cannot give validity to this illegitimate government.

Mr. SOUDER

Mr. SOUDER. This proposed provision would tax these companies 10 to 30 percent. Medical devices are currently paid for by hospitals. You don't declare that individually in Medicare or in any other health--it goes through a hospital. The hospitals have already been asked to lower their costs and put money into the system. So this would be a direct tax based on the sales and profits of these companies. Now there are three classes of medical devices. The joke that occurred around this was, in class one, Q-tips are called a medical device. Well, we heard today that Q-tips are going to be exempt, as are condoms, as are home pregnancy tests, as are scented Maxi Pads. So I guess that's the good news. The bad news is that what isn't exempt is class two and class three, which are going to have huge taxes on these companies and will restrict innovation. What are they? Heart valves, automatic cardiac defibrillators, heart imaging machines, insulin pumps, hearing aids, electric wheelchairs, and of course, all orthopedic joints--spine and neck implants included with that. They are going to be taxed. What in the world is going on here? I think that a lot of people are of the impression that this kind of stuff just comes, that somehow it magically appears. In fact, I've heard people say, Well, why don't we all just get on Medicare? Besides the fact that Medicare is broke, Medicare hasn't invented anything for hips. They only cover variable costs. No research comes out of Medicare. No research comes out of Medicaid. No research comes out of the Veterans Administration. All that's funded by private pay. All that's funded by profits of corporations. And if you take away the profits, they aren't going to be developing special hips for 18-year-old soldiers who are shot up. They now have body armor, but they are getting shot in their joints and now have to live for the rest of their lives with that. They aren't going to do it for the little kids. As people live longer and have this in their bodies longer, they aren't going to do all the variations. They aren't going to be able to do custom orders. R&D will tend to be shot. It may move offshore. It may totally disappear. This tax would be a disaster to America, and I hope it can be defeated.

Mr. SOUDER. In 1895, in this small town--which at that point was a lot smaller--a man named Revra DePuy founded DePuy Manufacturing in Warsaw. The problem back then was that they were using wooden barrel stays to do hips. So he thought a fiber splint would be better. So DePuy went on--and now is part of Johnson & Johnson--to become a major player there. In 1926, Justin Zimmer, a sales manager for DePuy, felt that he had a better idea for different types of splints, and he broke off and developed Zimmer Manufacturing, now based in Warsaw. In 1997, Dr. Dane Miller and a small group of innovators and entrepreneurs formed Biomet in Warsaw. Today these three companies are headquartered in Warsaw, Indiana, and are three of the five biggest orthopedic companies in the entire world. Zimmer, for example, employs 8,300 people and has $33.9 billion in sales in 100 countries around the world. In addition in Warsaw, other companies have come up--a division of Medtronic that does spinal research and production; Orthopediatrics specializes in anatomically appropriate, unique instrumentation and biologics for pediatric and small-stature patients because they're going to take different sized elbows, shoulders and knees. In addition, we have many tier one and tier two suppliers who are centered in this region--Paragon Medical, Micropulse and Symmetry are tier one suppliers to the orthopedic industry. C&A Tool, one of the remaining large-sized machine tool manufacturers in America, makes highly detailed parts that go into your body, takes tremendous precision, as they also do for NASA and for defense contractors because they've managed to survive by upgrading and putting in million-dollar equipment. Now Warsaw and Kosciusko County, along with the State of Indiana and the Lily Foundation, are proposing to develop a BioCrossroads project. This is the type of cluster that we need in America. We can't all be hamburger flippers. We can't all work in retail stores. You have to have R&D centers and clusters that you fight as a community, as a State and as a Nation to protect, just like other countries fight to protect those. Now the reason that all of a sudden this has become relevant is that last week, a health care proposal was floated in the other body that proposes to tax medical device companies 10 to 30 percent. I would like to insert into the Record from The Wall Street Journal ``The Innovation Tax'' editorial. [From the Wall Street Journal, Sept. 8, 2009.] The Innovation Tax--How Max Baucus Knifed the Medical Devices Industry Supposedly the Senate's version of ObamaCare was written by Finance Chairman Max Baucus, but we're beginning to wonder if the true authors were Abbott and Costello. The vaudeville logic of the plan is that Congress will tax health care to subsidize people to buy health care that new taxes and regulation make more expensive. Look no further than the $40 billion ``fee'' that Mr. Baucus wants to impose on medical devices and diagnostic equipment. Device manufacturers would pay $4 billion a year in excise taxes, divvied up among them based on U.S. sales. This translates to an annual income tax surcharge anywhere from 10% to 30%, depending on the corporation. Why $40 billion? No reason in particular, except that Mr. Baucus needs to finance nearly $900 billion in new spending and so he'll grab anything within arm's reach. While there are some exemptions, such as tongue depressors and eyeglasses, most of the devices tax will fall on hundreds of thousands of products that are basic components of modern medicine. Some are routine--surgical equipment, diabetes testing supplies--while others are cutting-edge technologies, like replacement joints, pacemakers, stents, and MRI and CT scanners. This new tax will eventually be passed through to patients, increasing health-care costs. It will also harm innovation, taking a big bite out of the research and development that leads to medical advancements. The core of the industry (excluding a few conglomerates like Johnson & Johnson) spent about $9.6 billion on product development in 2007, according to Ernst and Young. The Baucus tax is nearly half that, and also exceeds $3.7 billion, the total venture capital invested in device makers that same year. Even if consumers will ultimately pay one way or another, this tax also offers an instructive lesson in the perils of industry dealmaking in President Obama's Washington. Convinced by the White House that legislation was inevitable, most of the health-care lobbies decided to negotiate and pay ransoms so Democrats would spare their industries greater harm. Sure enough, the device maker lobby, AdvaMed, was among the ``stakeholders'' that joined with Mr. Obama in a Rose Garden ceremony in May and pledged to ``save'' $2 trillion over 10 years to fund his program. AdvaMed was nothing if not a team player. It endorsed Democratic inspirations like comparative-effectiveness research and value-based purchasing, despite the danger that under such centralized decision-making the government will decide that the most effective and valuable treatments also happen to be the cheapest--rather than those that are best for patients. It also suggested a variety of other taxes that would have resulted in a lower bottom line, much as Big Pharma promised $80 billion in drug discounts and the American Hospital Association agreed to $155 billion in Medicare and Medicaid reimbursement cuts. But the word on Capitol Hill is that AdvaMed's tribute wasn't handsome enough for Mr. Baucus's tastes. The massive new tax--which wasn't a part of any of his policy blueprints released earlier this year--is in part retaliation. Partly, too, the device makers simply don't have the same political clout as the other big players, making them an easier mark. Old Washington hands are saying the device lobby made a ``strategic mistake'' by not offering Mr. Baucus more protection money, but the real mistake was trying to buy into the ObamaCare process, instead of trying to defeat its worst ideas outright. And now it may be too late. As we've argued, liberal Democrats think that merely allowing an industry to continue to exist is a concession, and they're already taking the pharma and hospital concessions and running them higher. In the case of devices, patients will be left with higher costs for fewer life-saving technologies.

Mr. SOUDER. In my district there is a wonderful little town of around 12,000 people called Warsaw, Indiana. It's in Kosciusko County, a county with 100 lakes, including our biggest natural lake in the State of Indiana and many other sizable lakes. Tippecanoe, Syracuse, Webster Lake, North Webster, Big and Little Chapman as well as many other lakes. At this point I would like to insert into the Record from The Wall Street Journal ``Sticks and Stones May Break Bones, but Warsaw, Indiana, Makes Replacements.'' [From the Wall Street Journal, Oct. 26, 2006] Sticks and Stones May Break Bones, but Warsaw, Ind., Makes Replacements (By Timothy Aeppel) Warsaw, IN.--When Don Running and his two partners decided to start up a company specializing in orthopedic plates and screws to mend broken wrists two years ago, it was a given that they would set up shop here. Silicon Valley has computers. Detroit has cars. But in orthopedic devices, the undisputed world capital is Warsaw, a city of 12,500 with a silver-domed 19th-century courthouse and pickups angled into the curb on Main Street. Three of the world's five largest makers of artificial joints and related surgical tools have their headquarters here amid the lakes and fields of northeastern Indiana. The local industry has grown so much that it's now a regional force, with orthopedics companies popping up in nearby farm towns and the suburbs of Fort Wayne, about 50 miles to the east. ``How many orthopedic-implant engineers do you find walking around most places?'' asks Mr. Running. ``Well around here, you bump into them in the supermarket.'' Memphis, Tenn., and northern New Jersey are other industry hotspots, but none rivals Warsaw for sheer concentration. And while major orthopedics companies are looking overseas for cheaper places to produce items such as basic bone screws and metal plates, the U.S. retains a firm grip on the industry. A big reason is that the U.S., with its population of fast- aging baby boomers, injury-prone weekend athletes and overweight people, is by far the world's biggest market for artificial hips and knees. The U.S. represents an estimated $14 billion of the annual spending in a global market of $22.9 billion, according to Knowledge Enterprises Inc., a Chagrin Falls, Ohio, market research firm. The U.S. also effectively protects manufacturers in the sector with strict regulations for devices that go inside the human body. Rather than risk problems--and crippling lawsuits--U.S. health-care providers buy their artificial joints from companies they know, which generally means buying American. Profits are so good in the orthopedics industry that there isn't much pressure on suppliers to shave costs by going to low-cost countries. ``The reason this business is in Warsaw and not Mexico is because margins are 70% or better,'' says Ron Clark, an orthopedic surgeon who founded his own company in Fort Wayne, which is on the other side of the state from his home in Valparaiso, in part so he could be closer to Warsaw. Dr. Clark says savings from going abroad just aren't worth it. To be sure, the industry's dynamics may be starting to change. Health-care providers are starting to push back against the industry's steady price increases, raising concerns among investors about whether profits for Warsaw companies and others can keep up the brisk growth. There are other shadows over Warsaw's future. The U.S. Justice Department has opened two probes of orthopedics makers in the past two years, including an antitrust investigation in which Smith & Nephew PLC, of the U.K., has confirmed that one of its independent sales representatives tried to initiate an industry-pricing strategy in response to a U.S. hospital's bid request. Other producers, including those in Warsaw, have said they didn't respond to the suggestion. The big implant makers also received a separate batch of subpoenas in early 2005 regarding an investigation of any financial ties between them and surgeons who recommend their products. Doctors work closely with device makers to develop and refine artificial joints, and the companies have long paid surgeons as consultants and designers. At least for now, though, Warsaw's orthopedics businesses continue to hum. The industry got its start here over a century ago, when a Canadian pharmacist, Revra DePuy, came up with the idea of making flexible splints to replace the wooden barrel staves then used to set broken bones. The company he created thrived and exists today as DePuy Inc., a unit of Johnson & Johnson. It eventually spawned other companies, as people left to start competing operations. Indeed, Warsaw's largest employer is Zimmer Holdings Inc., founded by a DePuy salesman who broke out on his own in the 1920s. Today, about 60% of the workers who live within seven miles of Warsaw are directly or indirectly engaged in orthopedics manufacturing, says Joy McCarthy- Sessing, president of the local chamber of commerce. Such a concentration of one industry in such a small town is unusual, but the larger phenomenon isn't unusual at all. Many of the strongest U.S. manufacturers set up production far away from urban centers, with their high taxes, labor, and utility costs, and instead look for locations in small towns, close to major highways and railways. Proximity to transportation hubs allows for smooth logistics in an age of just-in-time deliveries. Warsaw, for instance, sits astride a highway, U.S. 30, connecting Fort Wayne and Chicago. Economists have long known that businesses thrive when they congregate in one place. Think of Hollywood movie studios, or the Route 128 technology ring around Boston. The same holds true in manufacturing. ``Companies that operate in clusters have greater access to talent,'' explains Jeffrey Grogan, partner at the Monitor Group, a Boston strategy consulting firm. They also serve as fertile ground for start-ups. Mr. Running's company, Deo Volente Orthopaedics LLC, is a prime example. Mr. Running first met his partners, Rod Mayer and Jeff Ondrla, when the three were working together at DePuy in the early 1990s. Mr. Running and Mr. Ondrla are engineers and inventors, and Mr. Mayer's background is in sales. Mr. Mayer got the idea for the company after seeing that the market for ``extremity'' devices, such as plates and screws for fixing broken wrists, wasn't then as developed as it was for major joints, such as hips and knees. The three were eager to get away from big-company bureaucracy. And as often happens in the close confines of Warsaw, the partners' connections stretch into their personal lives: They were attending the same evangelical church in 2004 when they launched the company. Deo Volente means ``God willing'' in Latin. The three men agree it is a hefty advantage to have so much of what they need at their fingertips. ``It's a lot easier to drive across town and visit a supplier then it is to pick up the phone and try to talk through some complicated issue,'' says Mr. Ondrla. Warsaw is dotted with small support businesses, from packaging firms that specialize in super-clean processes to machine shops. There are even multiple manufacturers of the plastic trays and cases needed to pack orthopedic kits. A total hip replacement, for instance, can require up to 22 cases of equipment and each case and tray is specially designed. The region surrounding Warsaw has long been home to the U.S. automotive and machinery industries, churning out a stream of skilled machinists, toolmakers and industrial engineers. Orthopedics makers opening up shop in Warsaw found a ready supply of skilled workers, particularly in recent years as the more-traditional sectors have slumped. Whole companies in the region have switched over to serving the orthopedics industry in recent years, including the small factory contracted to do most of the production for Deo Volente: Three years ago, Micropulse Inc., of nearby Columbia City, Ind., stopped doing any work for the automotive and other old-line industries--which once accounted for over half of its business--to focus on orthopedics. ``Half of our customers were closing, so we divorced them all,'' says Brian Emerick, president of Micropulse. His company is now growing 25% a year, he says.

Mr. SOUDER

Mr. SOUDER. Madam Speaker, I rise to recognize the 100th Anniversary of Brooks 1st Construction. Brooks Construction is the consummate local family business. It started in 1909 as a partnership between two friends, James Brooks and Lester Ginn, with a $7,000 dollar investment from a Fort Wayne businessman, and today has grown into a leader in the construction development industry. The capable hands of Brooks 1st Construction were responsible for much of the Third District's early infrastructure development. What is known today as Old Maumee Road was originally constructed by Brooks in 1911 to connect the cities of New Haven and Fort Wayne and was the first concrete road in the state of Indiana. With the growth of automobiles, Brooks Construction established itself as a leader in highway and road construction and in 1957 was charged with constructing the first section of the Indiana Toll Road. Today, it is the premier contractor in Northeast Indiana, constructing highways, paving residential and commercial areas, and installing underground utilities across the Midwest. It is the standard for quality--its expansion of I-69 was selected as one of only eight finalists for the 1999 National Quality Initiative Award and five of its plants have received Diamond Awards from the National Association of Pavement and Development Association for excellence in appearance, safety, permitting and compliance, operations, environmental practices, and community relations. Over the years, innovation has also defined Brooks 1st Construction, and its developments have led to the advances throughout the construction industry. They were one of the first companies to use self propelled concrete mixers. When the limitations of early trucks and drivers led to difficulty transporting materials, James Brooks developed a `turntable' to automatically turn around trucks and allow for accurate unloading. Early construction projects were often hindered by mobility and the amount of time it would take to move from one job to the next. To address this issue, Brooks Construction helped design ``portable'' plants, enabling them to move within 3 to 4 days. Their design soon became the industry standard greatly increasing efficiency. More recently, Brooks' innovative spirit has led to environmental advances. In collaboration with National Serv-All, it developed a Landfill Gas Energy Recovery Project that utilizes waste gases created at an area landfill to heat one of its asphalt production plants. It also attempts to incorporate recycled materials in its products working to constantly find new ways to reduce costs and create a green product. Throughout its long and successful history, Brooks 1st Construction has retained strong ties to the community where it got its start. The main facilities are still in Mishawaka, Goshen, Auburn and Fort Wayne Indiana. It is active with a number of local charities including Habitat for Humanity, the Boys and Girls Club, Family and Children Services to name a few. Brooks' contributions to educate young people and help them develop the leadership and entrepreneurial skills needed to succeed resulted in the company being inducted into the Junior Achievement Greater Business Hall of Fame. I ask my colleagues to join me in recognizing the 100th Anniversary of Brooks 1st Construction.

Mr. SOUDER

Mr. SOUDER. I wanted to briefly explain what happened to the Souder amendment in the student loan bill. We had worked out an agreement last night, and then I was occupied over in a border security hearing that was very important on SBInet and didn't make it over to the floor. I appreciate that Chairman Miller explained the compromise some, but I wanted to go through a little bit of what the history of this is. First, in existing law, both a possession conviction and a dealing conviction will result in your loss of a student loan. You can get that loan back by going through treatment, drug testing. You can get it back in the second year. The second time it happens--this is while you have a loan--if you get convicted, then you would be suspended for 2 years, unless you went through treatment and then were drug-tested as clean. The third time and you're out. Now, for dealing, it was two times. There's been a lot of ruckus about how this law was initially applied, but we fixed that. I had no intention ever of punishing people who at some time in their life had problems, whether it was in high school or in their later life that they had convictions. I believe in forgiveness. I believe it's important that people get back on the right track. I believe that we need to work in our prison population to get them to move back to school, to get the degrees possible. The initial debate on this law on the House floor and in committee said: You will lose your loan. You can't lose a loan if you don't have a loan. We had debate about that for many years. We got that fixed. But I believe, overwhelmingly, every poll shows that the American people believe that if you are convicted, which is not easy when you're on a college campus, while you're getting taxpayer funding, you should lose the funding. It doesn't mean you're going to lose school. It doesn't mean you're going to go out. But why should the taxpayers fund you if you're going to be basically drug-addled while you're at school? The challenge with this debate is that it has become kind of a cause celebre in the marijuana community. As this progressed, as we did the reauthorization on student loans, the so-called Souder amendment was not completely knocked out, but possession was knocked out. We left the law in place for dealing. So my amendment today would have reinstated possession as a grounds for losing a student loan. Congressman Perlmutter from Colorado came to me and said he had a suggested compromise. He made his compromise, which basically says that conviction of a felony offense of narcotics for possession, in addition to dealing--dealing is already covered in the Democratic bill--but would make felony conviction for possession also grounds for losing your student loan. Presumably, that's State and Federal felony conviction. Now, in this, I was faced with several choices. One, I'm a Republican in a Democratic Congress. I was probably going to lose today. This was a practical way. I didn't want to see possession go out of the bill. It basically means that marijuana won't be covered. If you have that much marijuana in your possession to be a felony, it probably means you're a dealer. You wouldn't have that much if you weren't a dealer. It's far more than individual use. It basically covers meth, cocaine, and all sorts of other drug convictions for felony possession. It means the United States Government still stands on record saying that both possession and dealing should restrict your ability to get a student loan. But there are some other practical things here. A lot of States, I believe, falsely and wrongly overrode Federal marijuana laws by decriminalizing marijuana, declaring that it was medical in some States when, in fact, marijuana is not medical. There are ingredients inside of marijuana that can be medical. We have Marinol, for example, that deals with that. But they affect chaos in marijuana laws across the United States. It's very similar to what we are dealing with in Canada, as I debated up there as they proposed changing laws, and now Mexico has; and that is when different provinces have different laws and there's complete chaos in the laws, the Federal courts are not likely to uphold a law because it would be unequal enforcement. So how would an Indiana student get denied a loan but a California student wouldn't get denied a loan? What about if it's somebody from Indiana who's in California going to school? What about if you're taking an online course combined with going to class, and the online course is based in California but you're going to school in Indiana? It's chaos. I do not believe, even had I won, the courts would have upheld my provision. This shows, in fact, Republicans and Democrats can work together. It's very difficult on the major fundamental debate arguments. For example, I felt this was a Federal takeover of private lending and will lead to more Federal takeover and a national bank. So we weren't going to be able to agree on the loans. But it doesn't mean inside, even on controversial provisions, that we can't work together. So I wanted to explain that, and I want to thank Chairman Miller and Congressman Perlmutter for working with me.

Mr. SOUDER

Mr. SOUDER. Thank you. The key question here is, the constitutional authority of the Federal Government is to regulate interstate commerce. Then we have the Federal Reserve System that was set up to provide a balance and stability in the funding of the United States. What we did not create is a national bank. This bill is the beginning of the creation of a national bank, and that there is no logical reason why every other lending category won't become a national bank, too. That's the big gulp we are hearing here and in many other areas, a massive government takeover in category after category.