Lecg Bid For Cirm Economic Study

PROPOSAL TO CONDUCT AN ECONOMIC IMPACT ANALYSIS OF THE ACTIVITIES OF THE CALIFORNIA INSTITUTE FOR REGENERATIVE MEDICINE SUBMITTED IN RESPONSE TO RFP# CIRM 2184 October 24, 2008

Submitted to: California Institute for Regenerative Medicine Submitted by: LECG, LLC Contact:

Henry Miller, Ph.D., Managing Director LECG, LLC 1725 I Street, N.W. Washington, DC 20006 (202) 973-9872 [email protected]

1. INTRODUCTION LECG, LLC (LECG) is pleased to present this proposal to the California Institute of Regenerative Medicine (CIRM) to conduct an economic impact analysis of the Institute’s programs. We have conducted economic impact analyses of other healthcare efforts as well as a significant number of economic impact analyses in California. The need to understand the economic impact of CIRM activities is clear. CIRM is spending substantial funds on innovative contributions to science and its activities are of great interest to the state, to the private sector and to the people of California. We have prepared this proposal in five sections. In this first section, we discuss CIRM, the project’s objectives and the key issues that need to be addressed in completing the economic impact analysis. We present our approach and task plan in the second section. In the third section, we describe our approach to managing the project and identify our key staff members. LECG’s background and experience in conducting economic impact analyses are discussed in the fourth section and our proposed project costs are delineated in the final section. Required attachments are included in the Appendix. 1.1 CIRM and the Need for the Economic Impact Analysis The California Institute of Regenerative Medicine was created when Proposition 71 was passed in 2004. Passage of Proposition 71 came at a time when considerable attention was being paid to stem cell research at the Federal level and throughout the world. The reluctance of the Federal government to invest in stem cell research because of methods of gathering cells was a much discussed issue. Proposition 71 was a clear signal that the State of California was prepared to invest in and foster stem cell research. Proposition 71 amends the California constitution by adding Section XXXV, which calls for the creation of CIRM and identifies the following three purposes of the Institute: •

•

•

To make grants and loans for stem cell research, for research facilities, and for other vital research opportunities to realize therapies, protocols, and/or medical procedures that will result in, as speedily as possible, the cure for, and/or substantial mitigation of, major diseases, injuries and orphan diseases. To support all stages of the process of developing cures, from laboratory research through successful clinical trials. To establish the appropriate regulatory standards and oversight bodies for research and facilities development.

Fulfillment of these purposes requires CIRM to be an active participant in both the California medical research community and the State’s economy. Its grants and loans create jobs and are expected to result in the realization of therapies for diseases and injuries that now affect thousands in the State as well as millions throughout the U.S. and

the world. Without question, CIRM will have a profound impact on the economy of California. Proposition 71 also created the Independent Citizens Oversight committee (ICOC), which is responsible for governing the Institute. It consists of 29 members, including representatives of universities, State government, research hospitals and medical schools, certain disease advocacy groups and a life sciences commercial entity not involved in stem cell research. The ICOC manages the CIRM budget, develops its short and long-term strategic plans and makes decisions on research grants and loans. The ICOC’s concern about measuring CIRM’s economic impact on the State of California is understandable. Stem cell research continues to be controversial. Although California is not the only state that has encouraged stem cell research, it has made the largest amount of funding available and has been required to respond to efforts to stop its activities. The constitutionality of Proposition 71 was challenged and it was not until May 2007 when the California Supreme Court denied plaintiff petitions for appeal of lower court rulings that the matter was definitively settled. CIRM will undergo continuing scrutiny and needs to document its value in order to meet concerns that may be raised. CIRM’s economic impact is an important part of value measurement. Since legal challenges were overcome (and earlier), CIRM has been actively involved in fulfilling its mission. It has developed a strategic plan, made more than $600 million in grants and loans and has established several working groups to carry out its mission, including a strategic planning working group and a Scientific and Medical Accountability Standards Working Group. CIRM’s later than expected start has meant that it is at an earlier stage in its activities than it would prefer. Most importantly, it was required to delay issuance of grants and loans. As a result, the economic impact of its activities is only beginning to be realized. We understand that not only does CIRM want an analysis of its impact to date, it also wants to have an economic impact model that it can update regularly as its activities continue and their effects expand. For this reason, this project includes the preparation of a data collection approach that can be used to gather data from grantees and loan recipients on an ongoing basis. In 2004, an economic impact study of Proposition 71 was carried out by The Analysis Group, with the assistance of Dr. Laurence Baker of Stanford Medical School. The study was, by necessity, hypothetical, in that CIRM had not yet begun its activities and measurement was focused on impacts that might be obtained. In 2008, The Analysis Group updated its economic impact analysis with an interim study that focused on the impact of CIRM activities. The interim study was able to report on the activities that have been undertaken, but made it clear that activities funded to date represent barely twenty percent of the total funding available to CIRM. Furthermore, the study identified economic impact but did not include the development of an approach that could be used on an ongoing basis. Such an approach will be developed in this project. It will provide

insights on the value of jobs that have been created and income that has been affected through the identification of all of the inputs and outputs associated with CIRM activities. Although the limited history of CIRM made such an analysis difficult until now, it is important to structure the proposed economic impact analysis in a way that will promote more comprehensive and generally accepted methods of analysis. 1.2 Project Objectives The RFP identifies four objectives for the economic impact analysis: • • • •

Identify the metrics to be used to measure CIRM’s economic impact, Identify the best methodology for measuring CIRM’s economic impact, Prepare a preliminary economic impact study, and Identify methods for ongoing collection of economic impact data from grantees and loan recipients.

Identification of the metrics used to measure economic impact and the methodology for measurement are interrelated objectives. Many methods can be used to measure economic impact, with some methods being less formal than others. It is possible to identify all of the possible impacts without using a formal structure (e.g., creation of jobs, impact of increased income on the purchase of goods and services, impact on the environment, impact on lengthening people’s lives and increased income that may result). Input-output analysis may be the most widely used method. Input-output analysis quantifies the multiple economic effects resulting from a change in the final outcome of an activity. For example, a person being paid to work on a research project will spend some of those wages to buy goods and services. The money he or she spends shows up as sales and wages to other parties, who spend the money elsewhere, and so on. This chain of effects, known as the "multiplier," captures the distributive effects of spending and operating benefits across a broad range of activities. Typically, the input-output multipliers are driven by the initial direct benefits and costs of the activities that are funded. Input-output applications are "static" in the sense that they provide a view of economic effects at a point in time. More sophisticated applications of regional economic models supplement input-output relationships with simulation techniques to forecast the year-toyear effects of projects on economic and demographic patterns. These applications also are used to incorporate behavioral changes that are brought about by the activities that are being measured. The most complex economic impact analysis models are those that integrate dynamic simulation economic models and input-output models. We have used models based on Computable General Equilibrium (CGE) concepts to turn static inputoutput analyses into dynamic analyses that can identify the changing impact of activities over time and model the impact of changes in behavior. The CGE model was developed by the University of California for measurement of economic impact in the State. This type of approach seems especially important to CIRM, who is interested in the long-term

impacts of its activities as well as the ability to measure changing impacts over time. We have used CGE concepts in other economic impact analyses related to California government activities. These projects are discussed in Section 4 of this proposal. The CGE concept allows consideration of a broad definition of the metrics to be used in the analysis. We discuss possible metrics in greater detail in the next chapter. The fourth project objective, development of an approach to collect data from grantees and loan recipients to allow the measurement of economic impact to be routinely updated is also related to the methodology selected. 1.3 Key Issues to be Addressed The CIRM economic impact analysis will be complex. The unique nature of the research activities that CIRM funds means that the measurement process will be complex. We believe that the complexity of CIRM’s activities is one of at least four key issues that we will need to address. Our concern is with the economic complexity of the activities and not their research implications. The economic analysis is focused on the resources put into the activities and the outputs that they create. In many economic impact analyses, the effects of a single activity are measured, e.g., when a construction project is undertaken, the effects of the project are the focus of study. CIRM undertakes many projects and the impact of each one needs to be considered as well as potential interactions between projects. The second key issue that needs to be addressed is the broad scope of issues to be included in the economic impact analysis. All of the issues that were included in the interim study completed earlier this year need to be considered (jobs created, increased purchase of goods and services, increased tax receipts). In addition, the growing impact of matching funds invested by philanthropy and grantees, the impact of international cooperative agreements and benefits to the health of California residents, which in turn may lead to increased purchasing of goods and services and increased tax receipts that flow from increased earning opportunities for residents. These issues require special attention. The scope of the analysis will be decided through discussions with CIRM’s study committee. We have already discussed the importance of selecting an appropriate economic impact analysis methodology. This need is the third key issue that will need to be addressed. As noted, we prefer the use of a dynamic model that will have long-term value, but recognize the need to consult with the study oversight committee to identify the methodology that will be used. The ability of grantees and loan recipients to meet the data collection needs of a model is a fourth key issue. We have developed data collection procedures for economic impact models as well as for many other purposes. We have developed comprehensive data collection approaches for grantees of Federal government programs and have learned the

importance of being certain that grantees can meet the requirements that are being imposed. We have also learned the importance of being certain that grantees can understand the data needs and how data are to be collected. At times, it becomes necessary to scale back a proposed methodology to be certain that data of sufficient quality will be collected. The quality of ongoing data submissions is a key issue that CIRM must consider. 1.4 Strengths of this Proposal We are submitting this proposal because of our strong interest in the work of the Institute and because of our experience in measuring economic impact in California. We believe that we have prepared an exceptionally strong proposal and that we have certain attributes that assure CIRM that we can do excellent work in completing the project. These attributes include: • • • •

Our independence, Our experience and expertise in conducting economic impact analyses, Our innovative approach to measurement of economic impact, and Our history of working closely with our clients to assure the responsiveness of our efforts.

We will approach the project with a strong sense of independence. Although we have followed the creation and initial efforts of the Institute, we were not involved in the political environment inherent in the preparation and passage of Proposition 71. It will be important for CIRM to be able to put forth an economic impact analysis that will be perceived as objective. As noted and as discussed in detail in section 4 of this proposal, we have conducted several economic impact analyses, including recent efforts in California. In addition, we are experienced in the analysis and measurement of the economic value of medical research. Our proposed co-project director, Dr. Jose Alberro, has exceptional experience in developing and applying comprehensive economic impact models. Our other proposed co-project director, Dr. Henry Miller, has worked with several clients on the valuation of new drugs and medical devices based on the research that has been completed to develop them. His work has been completed for pharmaceutical companies, medical device companies, academic medical centers and schools of medicine. It should be understood that Dr. Alberro will lead tasks related to the development and operation of the economic model used to measure impact and Dr. Miller will lead tasks related to preparation of data collection methods and the management of the project. We are experts in the measurement of economic impact. Our approach, which is presented in the next section, identifies the importance of being innovative when measuring the economic impact of an activity as complex as CIRM.

We work closely with our clients and have had many prior engagements in which we have worked with committees such as the one that will oversee this study. We maintain communication with the committee members, follow the lead of the committee chairman on the extent and nature of communication and we listen to the concerns of our clients and respond to them. We will make ourselves available for telephonic and in person meetings as needed and will always express ourselves in writing and in person in ways that assure that non-technical audiences can understand the technical issues that we are addressing. We have frequently been in positions where government agencies have retained us to not only conduct studies, but to present them to specialized audiences and to the general public.

2. APPROACH

2.1 Introduction We outlined the objectives of the study in the previous section and identified four key activities that will need to be completed: • • • •

Identify the metrics to be used to measure CIRM’s economic impact, Identify the best methodology for measuring CIRM’s economic impact, Prepare a preliminary economic impact study, and Identify methods for ongoing collection of economic impact data from grantees and loan recipients.

Our schedule for completing these activities and a detailed description of the tasks that we will undertake are presented in this section of the proposal. Prior to this discussion, we outline methodological issues that will need to be considered. 2.2 Methodological Issues: Metrics, Analysis Method and Data Collection There are three key methodological issues that will need to be addressed in the project – the metrics to be used in measuring economic impact, the economic impact analysis methodology and the approach for collecting data to support ongoing use of the model. Each of these issues is discussed in this section of the proposal. It should be understood that each issue will also be discussed with the study oversight committee before final methodological decisions are made. Metrics. CIRM’s economic impact is complex. Whenever expenditures are made, there are economic impacts that ripple through the environment in which they are made. Expenditures result in new jobs, which, in turn, result in increased income which is used to purchase goods and services that might not otherwise be purchased. Additional expenditures on goods and services, in turn, lead to additional job creation and the cycle continues. As the cycle continues, government obtains additional tax receipts, which adds to its capability to make expenditures and which further adds to economic impact. Traditional economic impact analyses measure these effects through the use of multiplier algorithms that have been developed over time. The metrics that are used focus on job creation, purchases of goods and services and tax receipts. CIRM does considerably more, however, than simply add expenditures to the economy. It funds research aimed at developing treatments and cures for diseases which now limit the productivity and the lives of the people who suffer from them. The economic impact of establishing a cure for a disease can be measured. People who were afflicted or would have been afflicted with the disease may live longer and are likely to be productive through their extended life. Others, who might otherwise have been disabled, may also experience increased productivity. The economic effects of increased productivity must

be considered in the development of the economic impact model and metrics for its measurement must be included. The research funded by CIRM is very much on the cutting edge, which means that early breakthroughs not only create economic impacts themselves, they attract additional capital to expand breakthroughs and which, in turn, may lead to new research. Additional capital includes independent investments and matching funds. Each expansion has its own economic impact. It is critical for the economic model used to measure impact include metrics that address these effects as well. We believe that CIRM is seeking a comprehensive study of economic impact that includes all of the elements that have been identified. Such a study would include traditional metrics related to the impact of CIRM expenditures, such as job creation, expenditures for goods and services and increased tax revenues as well as metrics relating to independent investments in CIRM-sponsored activities and the impact of extended productive life spans due to the products of funded research. We will prepare an initial description of economic impact and the metrics required to measure it shortly after beginning work. We will review this description and the accompanying metrics with the study oversight committee at the earliest possible time. Economic Impact Analysis Methodology. We identified alternative approaches for conducting an economic impact analysis in the preceding section. Although there are several methods that can be used, methods are, in a general sense, either static or dynamic. Static methods measure impact at a specific point in time, frequently without considering the effect of behavioral changes that may occur. Dynamic methods measure impact as it changes over time and more importantly, more sophisticated versions of dynamic models can simulate the effects of behavioral change. This capability is especially important for measuring the impact of CIRM activities, because the activities themselves are intended to create change. The use of a sophisticated methodology such as the Computable General Equilibrium approach will allow CIRM to not only measure and report on the economic impact it is creating, it will allow CIRM to investigate the potential impact of decisions that may be made before they are made. We propose, therefore to use, among others, the Dynamic Revenue Analysis Model (DRAM) which was developed jointly by the California Department of Finance and the University of California expressly for the purpose of estimating the dynamic effects of changes in State policy to analyze employment, general fund revenues and state funded services including education, public safety and health care. We present a general description of the CGE approach in the paragraphs that follow. It must be understood that although we believe that the CGE model offers an excellent methodological option to CIRM, it must be adapted to meet the Institute’s specific needs.

Moreover, we will discuss it with the study oversight committee at the earliest possible time to be certain that it is understood and its value is of interest to CIRM. A CGE model is used to provide the foundation for examining the impact of a specific set of expenditures such as those that are made by CIRM. It describes how those expenditures affect the relationship among producers, households, government, and the rest of the world. Once the expenditures are identified, they can be placed within the model to measure economic impact. However, the model cannot include an accounting of every individual producer, household, or government agency in the economy. To provide focus to the model, each of these types of actors in the economy must be aggregated into sectors. Aggregation. Aggregation is the first step in the preparation of the model. The DRAM, like all other empirical economic models, uses aggregates to provide focus for the analysis and to contain the number of variables that need to be considered. Aggregation or sectoring determines the flows that the model will be able to trace explicitly. In our past use of the DRAM model, we divided the California economy into distinct industrial sectors, factor sectors (labor and capital), household sectors, an investment sector, government sectors, and one sector that represents the rest of the world. For industry, a group of firms that make similar, though by no means identical, products is called a sector. For example, all firms producing pharmaceutical products may be grouped together. The value of all their California activities is added together, and this is the value of output for the pharmaceutical sector. The total use of labor by the pharmaceutical sector is added together, and this is the sector’s labor usage. Data for the industrial sectors originated with the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce, based on the Census of Business — a detailed survey of companies conducted in the United States every five years. In this survey, information is gathered about purchases by industries, payments for labor, capital, land and entrepreneurship, and taxes. Although the survey is quite extensive, it yields only enough detail to be able to make inferences about groups of firms at the national level. The conversion of national data to updated California data is accomplished by Impact Analysis for Planning (IMPLAN), a program which uses state-level employment data to scale national-level industrial data down to the size of a state. Like firms, households are also aggregated. In our prior use of the CGE model, California households were divided into categories based upon their income. The government sectors in DRAM are organized so that both government revenue flows and expenditure flows can be traced explicitly. Data for the government sectors come from published federal, state, and local government reports.

Producers and Households. The beginning point for the CGE model is the identification of the relationship between producers and households. As discussed, producers, or firms, are represented in the model as aggregates or sectors, where each sector is treated as a representative firm. Households make two types of decisions. They decide to buy goods and services. They decide to sell labor and capital services. They are assumed to make these decisions in the way that maximizes their happiness (called “utility” in the economics literature). Like the firms, they take the prices of the goods that they buy and the wage of the labor that they sell as fixed.

Equilibrium. Firms and households relate to each other through two types of markets: factor markets and goods-and-services markets. Firms sell goods and services to households on the goods-and-services markets. Households sell labor and capital services to firms on the factor markets. There is a price in each of these markets. There is a price for labor, called the “wage,” and a price for capital services, called the “rental rate.” Equilibrium in a market means that the quantity supplied (which is a function of price) is equal to the quantity demanded (which is also a function of price) in that market. Equilibrium in the factor markets for labor and capital and in the goods-and-services markets for goods and services defines a simple general equilibrium system. These relationships are shown in more detail in the figure below, called a “circular-flow diagram.” The outer set of flows, shown as solid lines, are the flows of “real” items, goods, services, labor, and capital. The inner set of flows, shown as broken lines, are the monetary flows. Thus, firms supply goods and services to the goods-and-services market in return for revenues that they receive from the goods-and-services markets. Firms demand capital and labor from the factor markets and in return pay wages and rents to the factor markets. Households buy, or in economic parlance, demand, goods and services from the goodsand-services markets and give up their expenditure as compensation. They sell capital and labor services on the factor markets and receive income in exchange.

Figure 0-1.The Basic Circular-Flow Diagram Goods & Services

Demand

Expenditure

Supply Revenue Firms

Households Income Supply

Rents Demand

Factors

Intermediate Goods. The economy of California is far more complex than that shown in the figure above. There are not only final goods-and-services markets but also intermediate goods markets in which firms sell to firms. A typical example of this would be chemicals sold to pharmaceutical firms. The final output of the chemical industry is said to be an intermediate good in the pharmaceutical industry. This type of market is demonstrated in the figure below. Here, part of the supply of a firm (chemical industry in the example) is not sold to households but rather to another firm in exchange for revenue. From the other firm’s point of view, it buys an input to production from a firm rather than from a household. The expense of buying the input is a cost of production. Figure 0-2. The Circular-Flow Diagram with Intermediate Goods Goods & Services Supply Revenue Households

Firms

Intermediates Costs Demand

Factors

Rest of the World. California is an open economy, which means that it trades goods, services, labor, and capital readily with neighboring states and countries. In the CGE model, all producers and households outside California are modeled in one group called “Rest of World.” No distinction is made between the rest of the US and foreign countries. California interacts with foreign consumers and foreign producers. Taking the producers

first, the figure below shows that the producers sell goods on the (final) goods-andservices markets and on the intermediate markets, i.e., they sell goods to both households and firms. The model takes these goods as being imperfect substitutes for the goods made in California. Figure 0-3. The Circular-Flow Diagram with Intermediate Goods and Trade Demand (Exports)

Goods & Services

Capital Inflow

Capital Inflow

Supply (Imports) Supply (Imports) Capital Outflow

HouseHolds

Foreign HouseHolds

Firms

Intermediates

Foreign Firms Capital Inflow

Capital Outflow Supply

Demand (Exports) Factors

Capital Inflow Demand

Government. Finally, government is considered. Combining the taxing and spending effects of the three levels of government (federal, state, and local) gives the additional flows in the figure below. Beginning at the top, the figure shows that government buys goods and services and gives up expenditures. It supplies goods and services for which it may or may not receive revenue. Government also supplies factors of production, such as roads and education. The model does not currently include goods such as K-12 education as such goods are not always traded in organized markets. Government also makes transfers to households, which are not shown in the diagram. The middle section of the diagram shows the myriad of ways in which government raises revenue through taxation.

Figure 0-4. The Complete Circular-Flow Diagram Expenditure

Demand

Supply

Revenue

Import Duties Goods & Services

Sales Taxes

Income Taxes Foreign Households

Households

Property Taxes

Firms

Intermediates

Foreign Firms

Social Insurance Factors Non-Resident Income Tax Fees Licenses Rents

Corporate Income Taxes Rents

Supply

Demand

The model is a methodology and not the final output of the economic impact analysis. Data on the activities funded by CIRM must be input into the model to measure economic impact. Once data have been introduced, the model defines and calculates impact for all aspects of the economy. The effort is made more complex by the need to consider the effects of the investments that exist only because CIRM made an investment (matching funds, independent investments) and the need to consider how households and firms will change if new technologies funded by CIRM produce therapies and cures. Approach for Collecting Data to Support Ongoing Use of the Model. CIRM would like to be able to use the economic impact model developed in this project as a foundation for future efforts to measure its economic impact. Such an effort would be facilitated by the availability of routine data collection from grantees and loan recipients. Initial data collection for the model will be undertaken in this project. Data will come from three sources: government (both Federal and California agencies), CIRM and grantees and loan recipients. Data available from government agencies are required for the operation of the impact model as described in the preceding section. CIRM data will be used both for the model and to identify recipients of its funds. These recipients will provide the foundation for the data that are needed to complete the model. We will use a data collection approach for the preliminary Economic Impact Study that can be replicated. We assume that requirements to submit data will be included in grant and loan agreements once specific data needs are identified. We will not only identify data needs, we will develop methods for grantees and loan recipients to submit data on a periodic

basis. Data submission may be tied to existing reporting requirements or may be completed independently. It will be important to understand how frequently CIRM would like the economic impact model to be updated. In addition, we are concerned about the accuracy of data that are submitted, which implies a need for more frequent data submission to allow for reviews and desk audits to be completed before data collection problems become difficult to resolve. In similar instances, we have preferred quarterly data submission as part of the submission of quarterly reports for those grantees that submit quarterly reports. Without question, data must be submitted at least annually. We will discuss the timing of future measures of economic impact with the study oversight committee when we begin work and structure our data collection concepts and methods in accordance with CIRM’s perceived needs. 2.3 Project Schedule We will complete the project as it is described in the RFP and as it is discussed in the next section, which is a description of each task that we will undertake, in six months. We assume that we will start in early November 2008 and that there is a need to present a draft economic impact report in early March 2009. Each project task and its estimated completion date are identified in the table presented below. We are confident that we can meet the schedule as it is proposed. We recognize that the final schedule will be subject to CIRM’s approval and have identified securing that approval as our initial task. Project Schedule Task 1. Review Project Work Plan and Schedule with CIRM 2. Prepare Draft Report on Metrics Used in Study 3. Prepare Draft Report on Alternative Economic Impact Models 4. Meet with Study Oversight Committee 5. Prepare Report on Metrics and Measurement Model 6. Prepare Data Collection Approach 7. Collect Data 8. Prepare Draft Preliminary Economic Impact Analysis 9. Meet with Study Oversight Committee 10. Prepare Final Preliminary Economic Impact Analysis 11. Prepare Methodology for Ongoing Data Collection 12. Present Final Report to Study Oversight Committee

Completion By 11-07-08 11-28-08 11-28-08 12-10-08 12-15-08 12-31-08 2-13-09 3-06-09 3-18-09 3-27-09 4-03-09 4-17-09

2.5 Task Plan Each task that will be completed is discussed in the paragraphs that follow. We have also identified staff responsibilities for tasks. We expect this task plan to serve as our project work plan after it has been reviewed by CIRM and modified as needed after that review. Task 1 – Review Project Work Plan and Schedule with CIRM

We will meet with the study oversight committee and CIRM staff as soon after a consulting agreement is signed as possible. The meeting will be held in CIRM’s offices unless another location is specified by CIRM. The meeting will focus on introductions of project participants and a review of the proposed project schedule and work plan. We expect the discussion to lead to modifications in the work plan – we will revise the work plan after the meeting and share it with CIRM. We expect the work plan to continue to serve as a guide throughout the project. We will also use the initial meeting to discuss the key issues related to the project. The meeting will provide an opportunity for an early discussion of metrics to be used and the cope of the economic impact model. We will also request any available documentation that CIRM believes will be useful as we proceed to complete the project. The meeting will be attended by both Dr. Henry Miller and Dr. Jose Alberro. Task Deliverable: Revised Project Work Plan and Schedule Task Leaders: Dr. Henry Miller, Dr. Jose Alberro Expected Start Date: November 6, 2008 Expected Completion Date: November 11, 2008 Task 2 – Prepare Draft Report on Metrics to be Used in Study We discussed the metrics that could be included in our analysis in preceding sections. We plan to review these ideas with the study oversight committee when we meet with them to review the project work plan. After the discussion, we will prepare a report on the metrics that we believe should be used. We will describe the importance of including each metric in the analysis. We will identify the strengths and weaknesses of each selected metrics and the role that it will play in the model. We will also identify any data collection concerns that we have as related to each metric that we select. The draft report will be submitted to the study oversight committee and others at CIRM as identified by the committee. We believe that the formal preparation of a report for this purpose will facilitate discussion and review of key ideas. The report will be submitted by November 28, 2008 Task Deliverable: Draft Report on Metrics Task Leaders: Dr. Jose Alberro Expected Start Date: November 10, 2008 Expected Completion Date: November 28, 2008 Task 3 – Prepare Draft Report on Alternative Economic Impact Models We will also prepare a draft report on alternative models that can be used to measure the economic impact of CIRM activities. The report on impact analysis models will be completed for the same reasons as the report on metrics. Preparation of a formal report will facilitate discussion with the study oversight committee and provide an explanation o

alternative approaches that can be used to measure economic impact. This report will describe the models that could be used, identify strengths and weaknesses of their key attributes and it will include our recommendation for the model to be used. It should be understood that the model used for this analysis will be similar to models used in other analyses in that it will include elements of different approaches, combined so that it meets the needs of the work to be undertaken. We will, as requested in the RFP, emphasize the measurement of impact in the commercial sector. We have already indicated our preference for a dynamic model that can measure not only existing impact, but which can be used to model possible changes in behavior of the entities that affect economic impact. We believe, however, that it will be important to share a detailed explanation of how the model will work, what it will calculate and project and how it can be used in future efforts to measure economic impact. These issues will be addressed in the draft report, which will be submitted on November 28, 2008. Task Deliverable: Draft Report on Economic Impact Model Task Leaders: Dr. Jose Alberro Expected Start Date: November 10, 2008 Expected Completion Date: November 28, 2008 Task 4 - Meet with Study Oversight Committee Once the draft reports on metrics and the impact model have been submitted and reviewed by the study oversight committee, we will meet with the committee to review them, answer questions and arrive at decisions regarding which metrics will be used and how the model will be applied. This approach will allow these decisions to be made jointly with the Committee. Task Deliverable: Meeting with Study Oversight Committee Task Leaders: Dr. Henry Miller, Dr. Jose Alberro Expected Start Date: December 10, 2008 Expected Completion Date: December 10, 2008 Task 5 – Select Metrics and Measurement Model The metrics to be used and the key attributes of the economic impact model will be identified during the meeting with the oversight committee. After the meeting is completed, we will revise the draft reports prepared in tasks 3 and 4 as needed and submit them to CIRM. We do not expect that substantial revisions will be required. Task Deliverables:

Revised Reports on Metrics and the Economic Model Task Leaders: Dr. Jose Alberro, Dr. Henry Miller Expected Start Date: December 10, 2008 Expected Completion Date: December 15, 2008

Task 6 – Prepare Data Collection Approach Once we reach agreement on the metrics to be included and the attributes of the model that will be used, we will prepare our approach to collect the data we need to implement the model. As indicated previously, data will be needed from federal and state government agencies. We are familiar with these data requirements and have access to portions of the data that will be needed, although we may need to update the data that we maintain. Some additional government data that relates specifically to the products of activities funded by CIRM will also be required. We will also need data from CIRM to document its expenditures and to identify the organizations and individuals to which it has granted or loaned funds. We will also review CIRM records to identify matching funds and expenditures made by related parties. The most complex element of the data collection process will be collection of data from grantees and loan recipients. In other studies, we have collected data from both existing submissions by grantees and through direct data collection at grantee/loan recipient locations. Preparation of the data collection approach will require us to review the documentation maintained by CIRM and extract as much data as we can from it. Prior experience has taught us that we need to limit the data to be collected from grant and loan recipients to that which is necessary and not duplicative of data already submitted. Grantees and loan recipients appreciate efforts that limit their need to duplicate previous efforts. We will not be able to determine how much data will need to be collected from grantees and loan recipients until we review existing submissions. Task Deliverable: Data Collection Approach Task Leaders: Dr. Henry Miller Expected Start Date: December 15, 2008 Expected Completion Date: December 31, 2008 Task 7 – Collect Data We will collect data in accordance with the approach that we prepare in Task 6. WE expect to collect data from CIRM and refresh our government data sources during the first two weeks of January 2009. We will collect data from grantees and loan recipients over a six week period. Task Deliverable: None Task Leaders: Dr. Henry Miller Expected Start Date: January 2, 2009 Expected Completion Date: February 13, 2009

Task 8 – Prepare Draft Preliminary Economic Impact Analysis

We will prepare a draft of the preliminary economic impact analysis and share it with the study oversight committee. The preliminary analysis will be comprehensive and include all of the metrics that have been identified. It will include a description of the model that was used as well as its underlying assumptions. It will be more comprehensive than the preliminary report prepared by The Analysis Group earlier this year in that it will include measurement of several variables that were not addressed. The report is designated as a preliminary economic impact analysis because it will include measurement of the impact of the CIRM activities undertaken through late 2008. The report will be accompanied by a discussion of how it can be updated as the Institute continues its work. Task Deliverable: Draft Preliminary Economic Impact Analysis Task Leaders: Dr. Jose Alberro Expected Start Date: February 16, 2009 Expected Completion Date: March 6, 2009 Task 9 – Meet with Study Oversight Committee We will meet with the study oversight committee to review the draft preliminary economic impact analysis. We will answer questions relating to the analysis and gather comments for revisions. The meeting will occur approximately two weeks after the draft report is submitted. Task Deliverable: Meeting with Study Oversight Committee Task Leaders: Dr. Henry Miller, Dr. Jose Alberro Expected Start Date: March 18, 2009 Expected Completion Date: March 18, 2009 Task 10 – Prepare Final Economic Impact Analysis After the meeting with the study oversight committee, we will revise the preliminary economic impact analysis and submit it to CIRM in final form. The analysis will be presented as a formal report that can be distributed by CIRM if desired. Task Deliverable: Final Preliminary Economic Impact Analysis Task Leaders: Dr. Jose Alberro Expected Start Date: March 19, 2009 Expected Completion Date: March 27, 2009 Task 11 – Prepare Methodology for Ongoing Data Collection The data collection approach developed in Task 6 will be reviewed and restructured as a standardized data collection methodology to be used by CIRM to allow it to prepare economic impact analyses in the future. The methodology will address only data that need to be collected from grantees and loan recipients. The scope of the methodology will be based on the conclusions reached during Task 6, in which we will identify additional data needs over and above data that are already being collected from grantees and loan

recipients. It is important to understand that it may be beneficial to revise CIRM’s existing reporting requirements and formats to allow for the most convenient organization of data in reports. We will discuss such changes with the study oversight committee during the preparation and review of the products of Task 6. Task Deliverable: Methodology for Ongoing Data Collection Task Leaders: Dr. Henry Miller Expected Start Date: March 16, 2009 Expected Completion Date: April 3, 2009 Task 12 – Present Final Report to Study Oversight Committee Although it is not required by the RFP, we believe that it will be useful to have a final meeting with the study oversight committee to clarify any issues that may have arisen and to provide the committee with a summary of the activities we undertook. We will prepare a final report that identifies the activities we completed, the deliverables that we prepared and our recommendations for ongoing measurement of CIRM’s economic impact. The report will be prepared in a PowerPoint format and presented to the committee by the codirectors of the project. Task Deliverable: Final Report Task Leaders: Dr. Henry Miller, Dr. Jose Alberro Expected Start Date: April 6, 2009 Expected Completion Date: April 17, 2009

3. PROJECT ORGANIZATION AND STAFFING 3.1 Introduction Our plan for managing the CIRM economic impact analysis is presented in this section of the proposal. We are proposing to have two of our senior experts lead the project. Dr. Henry Miller will serve as co-Project Director and will be responsible for managing the project’s deliverables and schedule. He will play a key role in the completion of several technical tasks, including data collection and the development of data collection methods. Dr. Jose Alberro will serve as co-Project Director and will be responsible for the development of the economic impact analysis methodology. These senior members of LECG’s staff will be supported by other staff members as needed. Both Dr. Miller and Dr. Alberro will participate in discussions with the study oversight committee. The backgrounds and experience of these staff members are discussed below. Complete resumes are included at the end of this chapter. Co-Project Director – Henry Miller, Ph.D. Henry Miller is a managing director in the Washington, DC office of LECG. Dr Miller has more than 35 years of experience as a healthcare consultant and researcher specializing in cost measurement, economic analysis, public policy and regulatory analysis, and strategic planning. In addition, he has provided expert testimony to the US Congress, several state legislatures, in the courts, and in arbitration proceedings.

3.2

Dr. Miller has worked on economic impact analyses for several clients, including hospitals, academic medical centers and life sciences companies. His economic impact analysis work has focused on measurement of new products and new facilities on state and local environments. Dr. Miller developed resource costing, a tool for the measurement of costs in healthcare settings in a series of projects completed for the Office of the Assistant Secretary for Planning and Evaluation in the Department of Health and Human Services. Resource costing is a combination of management engineering and cost accounting approaches that is used to calculate costs in instances where traditional accounting data are insufficient. Dr. Miller subsequently applied resource costing to a project for the Medicare Payment Advisory Commission (MedPAC) in which he used the approach to assess the accuracy of Medicare cost reports as a research and policy analysis tool. Dr. Miller has used resource costing in several other efforts, including the measurement of the cost of services associated with new technologies, including the costs of radiotherapy for non-Hodgkins lymphoma, the costs of implanting a new device for the treatment of posterior uveitis and the costs associated with the use of a cryogenic stent. He also used resource costing to develop a method to measure the cost to implement clinical guidelines for the Agency for Healthcare Research and Quality.

Dr. Miller has also directed several public policy and regulatory analysis projects. He was the economic advisor to the Alaska Department of Insurance in its review of the application by Premera Blue Cross to convert to for-profit status. He recently directed key elements of the work conducted by the governor’s commission for rationalizing healthcare in New Jersey. He assisted several primary care trusts and strategic health authorities in the UK as they addressed changes in National Health Service requirements. He has also directed the evaluation of several programs for the Department of Health and Human Services, including programs managed by the Office of Women’s Health, the Health Resources and Services Administration, the National Center for Health Statistics, the Agency for Healthcare Research and Quality and the National Institutes of Health. Dr. Miller’s work includes the design of several grantee data collection systems. Dr. Miller’s work includes several projects for California state agencies and private sector clients. Most recently, he completed a major analytic project for the California Prison Receivership and previously worked for the Administration for Developmental Disabilities. He also completed major analytic studies for hospital clients including the Sutter Health System. Dr. Miller was awarded his Ph.D. in economics and accounting by the University of Illinois. 3.3

Co-Project Director – Jose Alberro, Ph.D.

Dr. Alberro has been a Director at LECG, LLC. since 2002. He holds a Ph.D. degree in Economics from the University of Chicago and taught economics at universities in the United States, Mexico and the United Kingdom for 15 years. He is a member of the Mexican Academy of Science and has published extensively in academic journals, books and the popular media (CNN, Financial Times, Forbes). One of his papers was cited in the 1995 Nobel Price in Economics Lecture. Dr. Alberro’s expertise focuses on economic and financial modeling in different economic sectors. For the last 25 years, he has evaluated the economic impact of industries at the national, regional and local levels using different models and techniques [Input-Output methods; computable general equilibrium models; shift share analysis and cluster analysis]. He has worked on the analysis and design of public policy; the analysis of economic, social, and political feasibility of projects; industry deregulation; mergers and acquisitions and restructuring and refocusing business plans for the last 25 years. Over the last five years, he has studied the economic importance of different industries in California and has analyzed the economic impact of propositions and changes in tax measures at both the state and county level in California.

Prior Experience Dr. Alberro had a distinguished as a public official in the Mexican government: he was chief economic advisor to the Secretary of the Treasury; Chief of Staff of the Secretary of Commerce and Industrial Promotion and Economic Advisor to the Secretary of Programming and the Budget. He was Petróleos Mexicanos’ chief representative during the North American Free Trade Agreement negotiations and the founding Director General (President and CEO) of Pemex Gas y Petroquímica Básica (PGPB), one of the ten largest companies in Mexico. Dr. Alberro has consulted for the International Monetary Fund, the World Bank, the United Nations Development Programme, the Economic Commission for Latin America and the Caribbean. He has been an arbitrator at the World Bank's International Centre for Settlement of Investment Disputes. 3.4

Project Staff

As noted, Dr. Miller and Dr. Alberro will draw on LECG staff in its Washington, DC and San Francisco offices as needed. These staff members have master’s degrees in economics and other related disciplines and have worked on economic impact analyses in a variety of industries.

RESUMES

HENRY MILLER, PhD. Henry Miller is a Managing Director in the Washington, DC office of LECG. He has more than 35 years of experience as a healthcare consultant and researcher specializing in cost measurement, public policy and regulatory analysis and strategic planning. In addition, he has provided expert testimony to the U.S. Congress, several state legislatures, in the courts and in arbitration proceedings. Dr. Miller developed resource costing, a tool for the measurement of costs in healthcare settings in a series of projects completed for the Office of the Assistant Secretary for Planning and Evaluation of the Department of Health and Human Services. Resource costing is a combination of management engineering and cost accounting approaches that is used to calculate costs in instances where traditional accounting data are insufficient. Dr. Miller subsequently applied resource costing to a project for the Medicare Payment Advisory Commission (MedPAC) in which he used the approach to assess the accuracy of Medicare Cost Reports as a research and policy analysis tool. After completing the MedPAC study, Dr. Miller used resource costing to measure the costs of more than 300 hospital outpatient procedures to support efforts by the Centers for Medicare and Medicaid Services (CMS) to develop the Medicare Hospital Outpatient Prospective Payment System (HOPPS) based on APCs. Dr. Miller has used resource costing is several other efforts, including the measurement of physician office costs for the American College of Radiology and the American College of Cardiologists. More recently, he has applied resource costing to the measurement of the cost of services associated with new technologies, including the costs of a radiotherapy for non-Hodgkins lymphoma, the costs of implanting a new device for the treatment of posterior uveitis and the costs associated with the use of a cryogenic stent. He also used resource costing to develop a method to measure the cost to implement clinical guidelines for the Agency for Healthcare Research and Quality. Dr. Miller has worked on provider payment systems for more than thirty years. He was a member of the Medicare oversight committee for the effort to develop the practice expense component of the RBRVS physician fee schedule. He assisted CMS on several projects related to the development of the Medicare Hospital Outpatient Prospective Payment System and directed a project to assess opportunities to improve the Medicare Inpatient Prospective Payment System (IPPS) based on DRGs. He has designed hospital and physician payment systems for seven Medicaid programs and more than twenty-five Blue Cross and Blue Shield plans and other health plans. Dr. Miller has also directed several public policy, economic impact analysis and regulatory analysis projects. He was the economic advisor to the Alaska Department of Insurance in its review of the application by Premera Blue Cross to convert to for-profit status. He recently directed key elements of the work conducted by the Governor’s Commission for Rationalizing Healthcare in New Jersey. He assisted several Primary

Care Trusts and Strategic Health Authorities in the U.K. as they addressed changes in National Health Service requirements. He has also directed the evaluation of several programs for the Department of Health and Human Services, including programs managed by the Office of Women’s Health, the Health Resources and Services Administration, the National Center for Health Statistics, the Agency for Healthcare Research and Quality and the National Institutes of Health. PROFESSIONAL EXPERIENCE Public Policy and Regulatory Analysis Dr. Miller has directed several major studies of key public policy issues for the Federal government as well as for states and private sector clients. Examples of this work include: • • •

• •

•

• • •

• •

Economic advisor to the Alaska Insurance Department on the application by Premera Blue Cross to convert to for-profit status, Financial advisor to the Governor’s Commission for the Rationalization of Healthcare in New Jersey, Consultant to several U.K agencies on development of responses to changes in the National Health Service, including Yorkshire and the Humber Strategic Health Authority, North Lincolnshire Primary Care Trust, Calderdale Primary Care Trust and the Swansea Primary Care Trust, Analysis of the Highmark Blue Cross and Blue Shield and Independence Blue Cross proposal to merge, Validation of the diagnostic information used in the CMS-RCC risk adjustment formula used by the Medicare program to develop payment rates for Medicare Advantage plans, Analysis and recommendation of innovative approaches to improve access to primary care services for low income populations for the Greater Rochester Health Foundation, Evaluation of the Rural and Frontier Coordinating Center program of the Federal Office of Women’s Health, Evaluation of the use of case management in an experimental home health care program funded by the Federal government, Evaluation of the impact of the New York State All-Payer Case-Based Prospective Hospital Reimbursement System (NYPHRM) for the Council on Health Care Financing and the New York State legislature, Evaluation of several Federal and New York State programs to provide services to people with HIV/AIDS, Development and evaluation of community-based healthcare data systems, including a data system to collect and manage data that describe health care markets for the Agency for Healthcare Research and Quality, the Maryland Medical Care Database for the Maryland Health Care Commission and the

•

• •

database used to support hospital quality initiatives by the American Data Network, Evaluation of the Healthcare Community Access Program (HCAP), a national effort to reduce uncompensated care in over 150 communities for the Health Resources and Services Administration, Evaluation of the Federal government’s Black Lung Clinics program, and Completion of several projects for the National Center for Health Statistics including an assessment of the impact of using ICD-10 for diagnosis coding, an evaluation of the uses of provider surveys including the National Hospital Discharge Survey and the National Ambulatory Medical Care Survey and the design of a national survey of ambulatory surgery.

Strategic Planning Dr. Miller’s strategic planning work includes assignments completed for hospitals, managed care companies, major employers and government agencies. These projects include: • • • •

• •

Studies of alternative strategies for health care delivery for a major academic medical center, Evaluation of health benefits options for major employers including AT&T and Verizon, Preparation of a strategic and operational plan for an innovative managed care plan for the uninsured in Hillsborough County, Florida, Support for the preparation of the initial Vermont Health Resources Allocation Plan for the Vermont Bureau of Insurance, Securities and Health Care Administration, Support to the State of New York for the development of a Global Budgeting program, and Several studies of the comparative value of health care benefit programs provided by health plans in efforts to identify optimal arrays of benefits.

Provider Payment System Design and Evaluation Dr. Miller played a key role in the development of the Medicare Hospital Outpatient Prospective Payment System (HOPPS). In this work for CMS, he conducted a major pricing study, analyzed the impact of key aspects of the APC approach and assisted in drafting regulations. Subsequently, he conducted a study of the impact of the HOPPS on the quality of care provided to Medicare beneficiaries for MedPAC. Dr. Miller also designed hospital outpatient payment systems for Medicaid programs in New York, New Jersey, North Dakota and the District of Columbia. He has developed hospital outpatient payment approaches for Blue Cross and Blue Shield plans in New York, New Jersey, Virginia, Georgia, Arkansas, Minnesota and California.

Dr. Miller also directed a recent assessment of opportunities to improve the Medicare Inpatient Prospective Payment System (IPPS), based on DRGs. He has designed or evaluated hospital inpatient payment systems for Medicaid programs in Virginia, Pennsylvania, Iowa, New York and West Virginia. His inpatient payment system design work for health plans includes projects conducted for Blue Cross and Blue Shield plans in Virginia, Pennsylvania, Florida, Texas, North Dakota, Illinois, Colorado, Kansas City and Tennessee. Dr. Miller also evaluated the method used by the Federal government to pay children’s hospitals for their investment in medical education. Dr. Miller recently completed a study to update the payment system used by the Medicare program to pay Federally Qualified Health Centers (FQHCs). This work was undertaken to address payment issues that arose because payment levels had not been adjusted other than for inflation for more than fifteen years. Recommendations were made to the Health Resources and Services Administration and the Centers for Medicare and Medicaid Services. Dr. Miller led the design of nursing home reimbursement systems for the Medicaid programs in Virginia, Pennsylvania, Vermont and Iowa. He directed a study of the Medicare laboratory fee schedule for the National Institute of Medicine. His reimbursement system design work for health plans includes design of systems to pay hospitals, ambulatory surgery centers, physicians, nursing homes, home healthcare agencies and other providers. He has also developed fee schedules used for out of network payment for several large health plans. He has worked with more than twothirds of the nation’s Blue Cross and Blue Shield plans as well as national health plans on reimbursement issues. EDUCATION Ph.D., (Accounting and Economics), University of Illinois, 1971 M.B.A., City College of New York, 1967 B.B.A., City College of New York, 1965 PRESENT POSITIONS LECG, LLC, Managing Director, 2008 to present Johns Hopkins University School of Public Health, Associate Faculty, 2003 to present TEACHING EXPERIENCE University of Baltimore, Associate Professor, 1980-1983 State University of New York at Binghamton, Assistant Professor, 1970-1972 University of Illinois, Instructor, 1968-1969

OTHER POSITIONS HELD Navigant Consulting, Inc., Managing Director, 2002-2008 Center for Health Policy Studies, President, 1979-2002 Miller & Byrne, Inc., President, 1975-1979 ACTIVITIES AND HONORS United Cerebral Palsy of Central Maryland, Chairman, Board of Directors, 2007 to present Glenelg Country School, Treasurer, Board of Trustees, 1991-2000 Howard County General Hospital, Chairman, Board of Trustees, 1987-1989 PUBLICATIONS

1. C. Turck, W. Marsh, J. Stevenson, J. York, H. Miller and S. Patel,

2.

3.

4. 5.

6.

7. 8. 9.

“Pharmacoeconomics of surgical Interventions vs. Cyclooxygenase Inhibitors for the Treatment of Patent Ductus Arteriosus,” The Journal of Pediatric Pharmacology and Therapeutics, Vol. 12, No. 3, July-September, 2007 H. Miller, “Outpatient Payment in the Private Sector,” in N. Goldfield and W. Kelly, Outpatient Prospective Payment, (Gaithersburg, MD, Aspen Publishing, 1999) H. Miller, B. Cassidy and D. Karr, “Resource Costing for Healthcare Services,” in N. Goldfield and W. Kelly, Outpatient Prospective Payment, (Gaithersburg, MD, Aspen Publishing, 1999) D. Karr, H. Miller and S. McCue, “the Effect of Instrument Type on the Cost of Laparoscopic Surgery,” Surgical Endoscopy, 1996 H. Miller and W. Kelly, “Prospective Per Case Payment in New York State: An Analysis,” in N. Goldfield and P. Boland, Physician Profiling and Risk Adjustment, (Gaithersburg, MD Aspen Publishing, 1996) B. Balicki, H. Miller, W. Kelly, “Benchmarks and Tools for Evaluating Ambulatory Surgery: A Model for Examining Cost Competitiveness,” Healthcare Financial Management, Spring, 1995 W. Kelly, H. Miller, T. Parciak, “The Need for Alternatives to Capitation Under Managed Care,” Managed Care Quarterly, Summer, 1994 H. Miller, “Outpatient Prospective Payment Approaches for Use by Insurers,” Journal of Ambulatory Care Management, Spring, 1993 B. Balicki, H. Miller, W. Kelly, T. Yates, “Guidelines for Managing Ambulatory Surgery Programs in the 1990’s, Journal of Ambulatory Care Management, Winter, 1991

10. H. Miller, et.al., “Costs of Ambulatory Care: Implications for Outpatient

Prospective Payment Systems,” Journal of Ambulatory Care Management, Winter, 1991 11. W. Kelly, P. Tenan, H. Fillmore, H. Miller, “Products of Ambulatory Care Patient Classification System,” Journal of Ambulatory Care Management, Winter, 1990

TESTIMONY University of California – Irvine and the Regents of the University of California vs. Health Net, Inc. (Arbitration). Natalie M. Grider, M.D. and Kutztown Family Medicine vs. Keystone Health Plan Central, Inc., Joseph Pfister, Highmark, Inc., John S. Brouse, Capital Blue Cross and James M. Mead, United States District Court, Eastern District of Pennsylvania, Civil Action No. 01-5641. Robert Wood Johnson Hospital, Inc., et. al., v. Tommy Thompson, et. al., United States District Court, District of New Jersey, Civil Action No. 04-142. Cardiac surgery associates, P A. vs. Midatlantic Cardiovascular Associates, P A., Circuit Court for Baltimore County, MD. Biomedical Systems Corporation vs. Mead Johnson & Company, Inc. Circuit Court of St. Louis County, MO, 21st Judicial Circuit, Case No. 01CC-003428 Meadows Holdings, L.P. vs. DVI Mortgage Funding, Inc., Superior Court of Arizona, Maricopa County, No. CV2001-012668. HealthAmerica Pennsylvania, Inc. et. al., Susquehanna Health System, et.al., United States District Court, Middle District of Pennsylvania, Case No. 4:CV-00-1525. Trigon Insurance Company vs. United States of America, Eastern District of Virginia, Richmond Division, No. 3:00-CV-365. Blue Cross and Blue Shield of New Jersey, Inc., et. al. vs. Philip Morris, Inc., et. al., Eastern District of New York, 98 Civ. 3287.

José ALBERRO, Ph.D. Dr. Alberro has been a Director at LECG, LLC. since 2002. He holds a Ph.D. degree in Economics from the University of Chicago and taught economics at universities in the United States, Mexico and the United Kingdom for 15 years. He is a member of the Mexican Academy of Science and has published extensively in academic journals, books and the popular media (CNN, Financial Times, Forbes). One of his papers was cited in the 1995 Nobel Price in Economics Lecture. Dr. Alberro’s expertise focuses on economic and financial modeling in different economic sectors. For the last 25 years, he has evaluated the economic impact of industries at the national, regional and local levels using different models and techniques [Input-Output methods; computable general equilibrium models; shift share analysis and cluster analysis]. He has worked on the analysis and design of public policy; the analysis of economic, social, and political feasibility of projects; industry deregulation; mergers and acquisitions and restructuring and refocusing business plans for the last 25 years. Over the last five years, he has studied the economic importance of different industries in California and has analyzed the economic impact of propositions and changes in tax measures at both the state and county level in California. Prior Experience Dr. Alberro had a distinguished as a public official in the Mexican government: he was chief economic advisor to the Secretary of the Treasury; Chief of Staff of the Secretary of Commerce and Industrial Promotion and Economic Advisor to the Secretary of Programming and the Budget. He was Petróleos Mexicanos’ chief representative during the North American Free Trade Agreement negotiations and the founding Director General (President and CEO) of Pemex Gas y Petroquímica Básica (PGPB), one of the ten largest companies in Mexico. Dr. Alberro has consulted for the International Monetary Fund, the World Bank, the United Nations Development Programme, the Economic Commission for Latin America and the Caribbean. He has been an arbitrator at the World Bank's International Centre for Settlement of Investment Disputes. Professional Honors and Associations

♦ ♦ ♦ ♦

Member, Mexican Council on Foreign Affairs (COMEXI), 2005-2007 Member, Mexican Academy of Law and Economics, 2005-2006 Founding Member, Northern California International Arbitration Club, 2003Member, Mexican Academy of Sciences, 1988♦ National Research Fellow (Investigador Nacional-México), 1984-1990 ♦ Founding Editor, Estudios Económicos de El Colegio de México, 1985-1991

CONSULTING EXPERIENCE Director, LECG LLC., leading expert services firm, 2002Vice President, CRAI Inc., economic consulting firm, 1999-2002.

GOVERNMENT SERVICE-MEXICO ♦

Secretaría de Comercio y Fomento Industrial (SECOFI) (Department of Commerce and Industrial Promotion). Mexico. Chief of Staff, Secretary's Office, 1995- March 1996.

♦ Petróleos Mexicanos (PEMEX), México 1991-1994. Director General, Pemex-Gas and Basic Petrochemicals (1992-1994). Board Member, Pemex Exploration and Production (1992-1994). Board Member, Pemex Refining (1992-1994). Board Member, Pemex Petrochemicals (1992-1994). Chief Representative during the NAFTA negotiations

♦

Secretaría de Programación y Presupuesto (SPP) (Department of Budgeting and Planning), México, 1983-1988. Chief Economic Advisor to the Under-Secretary of Planning and Budget, 1988. Economic Advisor to the Secretary, 1983-1987.

♦

Secretaría de Hacienda y Crédito Público (SHCP) (Department of the Treasury), México, 1978. Chief Economic Advisor to the Secretary.

ACADEMIC EXPERIENCE Visiting Professor of Economics, University of London, Queen Mary and Westfield College and Center for Latin American Studies, May-July 1990. Professor of Economics, El Colegio de México, Centro de Estudios Económicos, 1982 - 1992. Assistant Professor, Department of Economics, University of Illinois at Chicago, 1978-1982.

Visiting Assistant Professor, Department of Economics, University of Illinois at Chicago, 1976-1978.

UNITED NATIONS EXPERIENCE Senior Economist and Regional Advisor in Economic Development, Economic Commission for Latin America and the Caribbean (1989-1990). Consultant, World Bank 1987-1990. Senior Economist and Project Administrator, United Nations Development Programme, 1986-1987. Detached to the Secretary of Budgeting and Planning, Mexico. RECENT ECONOMIC IMPACT STUDIES

1. The Importance of the Petroleum Industry to the Economy of the Western States, April 2007.

2. Comparison of Oil and Gas Tax Burdens in Ten Major Producing States, with Ronald H. Schmidt, March 2007.

3. Potential for Bond Repayment Default Under the Proposed Severance Tax Initiative with William Hamm and Ronald H. Schmidt, July 2006.

4. Economic and Fiscal Impacts of California’s Severance Tax Initiative with William Hamm and Ronald H. Schmidt, May 2006.

5. Apportioning Corporate Income: If California Adopts the Single-Factor Apportionment Formula, What Will Be the Economic and Revenue Impact? with William G. Hamm and Christopher Groves August 2005.

6. The Importance of the Oil Industry in the Western States, April 2005. 7. The Importance of the Beauty Industry to the California Economy, with Tapan Munroe, Ronald Schmidt and Mark Westwind, July 2005.

4. CORPORATE QUALIFICATIONS LECG, LLC Corporate Background LECG is a global expert services and consulting firm, with its corporate office in Emeryville, California, that provides independent expert testimony, original authoritative studies, and strategic advisory services to clients including Fortune Global 500 corporations, major law firms, and local, state, and federal governments and agencies worldwide. LECG’s highly credentialed experts and professional staff conduct economic and financial analyses to provide objective opinions and advice regarding complex disputes and inform legislative, judicial, regulatory, and business decision makers. LECG’s experts are renowned academics, former senior government officials, experienced industry leaders, and seasoned consultants.

4.1

LECG has more than 800 experts and professional staff in offices that are located in nineteen major U.S. cities and in ten countries. We work in more than thirty disciplines, including healthcare, although we emphasize our capabilities in economic analysis. In this section of the proposal, we outline our experience in economic impact analysis and in related healthcare projects. We also present descriptions of related projects that we have completed. Our client references are presented in Attachment 1 in the Appendix. 4.2 Experience in Economic Impact Analysis We have completed several economic impact analysis projects in recent years. Some of these projects have been undertaken in California and used similar approaches to those that we have proposed. Examples of these projects are presented below: In August, 2008, we prepared a study of the economic effects of California adopting a split roll property tax. In this project, we used, among others, the Dynamic Revenue Analysis Model (DRAM) -developed jointly by the California Department of Finance and the University of California expressly for the purpose of estimating the dynamic effects of changes in State policy- to answer the following questions: • • • • •

How would adoption of a split-roll affect the number of jobs and personal income generated by the California economy? How would a split-roll affect employees, consumers, and renters? How would a split-roll affect small businesses in California? To what extent would a split-roll have a disproportionate impact on racial minorities? How would a split-roll affect the fair market value of the assets held by public retirement funds in California, on which millions of Californians depend for retirement benefits?

Earlier in 2008, we analyzed the economic impacts of Canadian content requirements in the purchase of light rail vehicles by the Toronto Transit Commission. This study estimated the economic impacts of different Canadian Content Requirements (CCRs) included in the Toronto Transit Commission’s (TTC) request for proposals (RFP) for the purchase of Low Floor Light Rail Vehicles (LFLRVs). We used an Input-Output/SAM methodology to analyze the impact on output, new employment, wages, salaries, and tax revenues. In a 2007 study, LECG staff conducted an analysis of the economic impact of the replacement of a large hospital facility, including its move to a new location near Peoria, Illinois. The study used input-output analysis to measure the impact of the move on employment, expenditures and healthcare. In a 2006 study, we measured the economic and fiscal impacts of California’s severance tax initiative. In this study, we analyzed the economic and revenue effects that would result from the introduction of a severance tax on oil production in California. Specifically this study used, among others, the Dynamic Revenue Analysis Model (DRAM) to analyze the employment, general fund revenues and state funded services including education, public safety and health care of such a measure. In 2005, we conducted a study entitled: Apportioning Corporate Income: If California Adopts the Single-Factor Apportionment Formula, What Will Be the Economic and Revenue Impact? This study analyzed the economic and revenue effects that would result from adopting a single-factor formula to apportion corporate income. It also analyzed how California would be affected if it opted not to abandon its current formula, but additional states make the switch from the three-factor formula to the single-factor formula for purposes of apportioning corporate income. The study used, among others, the Dynamic Revenue Analysis Model (DRAM). In another 2005 study, we measured the importance of the beauty industry to the California economy. This study used an Input-Output/SAM methodology to estimate the impact of the Beauty Industry on employment, wages, property income, taxes, output, and opportunities for women, minorities and immigrants to start their own business. 4.3 Relevant Healthcare Experience LECG staff members who will be assigned to this project have extensive experience in measuring the effects of new medical technology on the environments in which they are introduced. Although these efforts were not traditional economic impact analyses, they addressed similar issues. For example, we studied the economic and healthcare impact of new cardiac care technologies, including the use of a cryogenic stent for peripheral arterial disease. We also studied the economic and healthcare impact of Bexxar, a radiotherapy for the treatment of Non-Hodgkins Lymphoma. Bexxar was unique at the time that it was first introduced, in that it was a radioactive drug that was applied using chemotherapy

methods. In another study, we examined the economic and healthcare impacts of a new drug/medical device combination for the treatment of posterior uveitis (retinal damage). In each of these and many other similar efforts, we reviewed the results of clinical trials, evaluated financial impact and worked closely with researchers who were developing new approaches to address long-standing medical issues, as are CIRM grantees and loan recipients. Our staff has also worked extensively with hospitals, academic medical centers and medical schools on strategic and financial issues. This work has allowed us to understand the operations of these organizations and their capability to provide data needed to measure economic impact. In other projects, we developed data collection approaches similar to those that will be needed for future use of the CIRM economic impact model. These approaches were developed for a wide array of federal health grantees who received funding from the National Institutes of Health, the Agency for Healthcare Research and Quality, the Health Resources Administration and the Office of Women’s Health.

5. PROJECT COSTS

We propose to complete the project to develop the CIRM economic impact model for a total cost of $300,000, including all professional time and expenses, including travel to CIRM. We will minimize travel expenses by using California-based staff whenever possible and by completing much of our work off-site. We recognize, however, the need to maintain close communication with CIRM and the study oversight committee. We are prepared to meet with the committee, its leadership and CIRM staff as often as necessary to fulfill the objectives of the project. We will bill CIRM monthly for time and expenses incurred during the previous month, but will not exceed total billings of $300,000. Our rate for Dr. Miller and Dr. Alberro is $--- per hour. We expect these two experts to spend at least 300 hours on the project. They will be supported by staff members whose billing rates range from $--- per hour to $--- per hour. These staff members are expected to spend more than 650 hours on the project. We recognize that because we will work closely with the CIRM oversight committee, it is difficult to project the precise number of hours that will be needed. We are committed, however, to completing the project within the $300,000 budget cap as long as the scope of our efforts remains within that described in the RFP.