Author: Catherine Kirby

Categories
Government and Policy McNair Center

Reducing Recidivism through Entrepreneurship

Reducing Recidivism through Entrepreneurship

High rates of recidivism in the United States negatively affect prisons, inmates, the government and tax-paying citizens. In 2013, the U.S. imprisoned 2,220,300 people. A Bureau of Justice Statistics study found that within three years of release, 67.8% of released prisoners were rearrested. Utah_State_Prison_Wasatch_FacilityWithin five years, 76.6% of released prisoners were rearrested.

Researchers typically link recidivism to unemployment, low levels of education, mental health problems, inability to re-integrate into society after prison, impulsiveness, association with other criminals, family instability and as well as other factors.

High levels of recidivism costs states millions of dollars; A Pew Charitable Trusts study estimated that if 41 states cut their recidivism rates by 10%, they would save $635 million. On top of the monetary costs for the states, recidivism rates have a negative effect on families and communities including family instability and a higher probability that a family will live in poverty. Solving the recidivism issue would not only save the government and taxpayers money, but it would also improve the lives of former inmates and those around them.

Entrepreneurship Potential of Inmates

A variety of entrepreneurs and public service organizations have developed programs to empower prisoners and combat high recidivism rates. Notable social entrepreneurship programs such as the Last Mile and Cafe Momentum provide leadership skills and help reduce recidivism through a variety of methods. The Last Mile, as the McNair Center’s Julia Wang describes, focuses on teaching inmates business and computer skills in California. Cafe Momentum, a functional restaurant in Dallas, gives released youth offenders transferable life skills related to the restaurant industry.

While social entrepreneurship is a start, what about actually teaching entrepreneurship skills to prisoners?

While some might assume that inmates are incapable of holding down a job, let alone establishing their own businesses, the reality is that many people leaving the prison system are potential entrepreneurs. Inmates that took the Miner Sentence Completion Scale-Form T test, an assessment of entrepreneurial aptitude, scored higher than average entrepreneurs, slow-growth entrepreneurs and manager scientists. Additionally, many inmates are in prison due to their participation in illegal forms of entrepreneurship, including drug trafficking and smuggling. In Freakonomics, Steven Levitt remarks that the gang in Sudhir Venkatesh’s study of the drug trade acted as a franchise for the larger Black Disciples organization. Coupled with the willingness to take risks that characterizes many inmates, prisoners could be prime candidates for entrepreneurship.

Prison Entrepreneurship Program

One of the most notable and successful programs is the Prison Entrepreneurship Program (PEP), an innovative rehabilitation program aimed at transforming inmates in Texas. PEP places carefully selected inmates through a four-month business education program. This program teaches them skills valuable in entrepreneurial settings, including financial literacy, an employment workshop, a business etiquette course and a Toastmasters class. Participants take over forty exams and interact with business executives. The final exam involves a thirty-minute business-plan presentation. PEP also provides a prison-release and post-prison components including follow-up and startup mentoring.

PEP’s results demonstrate a fantastic return on investment, especially given the 1,300+ participants. 100% of PEP graduates find jobs within 90 days of release. Nearly 100% of these graduates stay employed after a year. Since 2004, PEP graduates have launched more than 200 businesses. Six of these generate over $1 million in gross annual revenue. Most importantly, PEP graduates have a recidivism rate of less than 7%.

Defy Ventures

Defy Ventures also provides an entrepreneurial education to inmates. This national organization, which mostly operates in New York and California, describes itself as “an entrepreneurship, employment and character development training program for currently and formerly incarcerated men, women and youth.” It puts former inmates, mostly former leaders of drug rings and gangs, through a two-month training program. Defy Ventures graduates of this program are eligible to apply for a 12-month entrepreneurship program in which they compete for startup grants. This program has a 3% recidivism rate and has produced more than 150 startups. Most of these startups are small businesses, such as eco-friendly cleaning services. Defy has distributed over half a million dollars to these startups and small businesses through business-pitch competition awards and micro-loans. Additionally, participants report a 95% employment rate within 7 months of enrolling in Defy.

Inmates to Entrepreneurs

Inmates to Entrepreneurs provides educational seminars on entrepreneurship, online resources and group-based support to help former inmates start low-capital businesses. This program, based in North Carolina, focuses on giving seminars on starting businesses in local prisons to inmates with six or fewer months to serve. Additionally, the organization brings in ex-offender mentors who run successful businesses. A.J. Ware, a member of the Board of Directors for this nonprofit noted in a TEDxRaleigh talk that participating inmates had less than a 3% recidivism rate. Additionally, former inmates had 75% employment rate within 90 days of release. Ware also stated that in 2012, participants started 14 business. Inmates to Entrepreneurs is unique in its ability to provide large-scale learning. Its online resources and seminars are easier to implement in a variety of locations compared to the other two programs.

For the Future

These three programs illustrate the potential of entrepreneurship programs in reducing U.S. recidivism rates. Expansion of these programs could potentially make the same positive impact on prison populations across the nation. However, it is also possible that the small size of these programs is integral to their success.

All of the programs described here carefully select a small group of participants. It may not be possible to target all parts of the prison population. Many of these programs have a competitive application process and low acceptance rate. Researchers could conduct further studies to see the effects of entrepreneurship programs on a large scale without rigorous selection criteria.

It may be impossible to use these programs to help all prisoners, so how many can these programs help? A 2012 Bureau of Justice Statistics statistic table on federal arrests indicates that approximately 20% of inmates could have entrepreneurial potential based on their crime. White-collar crime and drug trafficking offenses all indicate entrepreneurship potential. Targeting these specific offenders with entrepreneurship programs can help reduce recidivism.

Focusing on a small subset of the population still has long-term beneficial effects for inmates and their communities. PEP has a 340% return on every dollar donated due to reduced recidivism and reliance on government assistance. The potential economic benefit of an expansion of these programs could save the government and taxpayers millions of dollars.

Categories
Government and Policy McNair Center

True Impact of the Bayh-Dole Act

Addressing the True Impact of the Bayh-Dole Act

Since the passage of the Bayh-Dole Act in 1980, many researchers have debated its contribution to the transfer of technology from universities to industry. Some credit the act as an engine of economic growth responsible for the emergence of the biotechnology industry. Critics say that the law decreased data sharing and basic research and increased health care costs. Others think that the act had little impact and that changes in university patenting were inevitable.

University patenting would have increased regardless of the Bayh-Dole Act. However, the act did help universities license patents, creating positive economic benefits especially in the biotechnology industry.

Background

The Bayh-Dole Act was intended to improve the commercialization of federally funded research.

Former Senator Birch Bayh and Senator Bob Dole, authors of the Bayh-Dole Act, in Washington D.C. on July 22, 1985.
Former Senator Birch Bayh and Senator Bob Dole, authors of the Bayh-Dole Act, in Washington D.C. on July 22, 1985.

Before 1980, only 5% of government-owned patents were ever utilized in industry. Corporations found it difficult, risky or unappealing to receive licenses for government patents. Several government agencies did not want to give up ownership of patents to universities or corporations. Agencies such as the National Science Foundation tended to give nonexclusive licenses to anyone, unappealing for companies. As it was easy for any company to procure licenses, the system did not incentivize companies to purchase licenses; most wanted exclusive rights.

The Bayh-Dole Act enabled institutions to keep control of patents invented using federally funded research. The university or business could then grant licenses on its own terms. The act also required universities or businesses to have clear patent policies and encourage development of inventions.

Did the Bill Work?

Claims that the Bayh-Dole Act alone led to increased patenting and economic activity surrounding university patenting are not true. Economic models show that the acceleration of patenting would still have occurred even without the act. David Mowery finds that universities increased their shares of patenting from 0.3% in 1963 to 4% by 1999. However, he notes that this increase had already begun before 1980, which indicates that the Bayh-Dole Act was not its cause.

Since the passage of the Bayh-Dole Act, more than 5,000 new companies have formed from federally funded university research. In 2008, more than 600 new university products were introduced to the marketplace. According to MIT, about 30 billion dollars of economic activity per year and 250,000 jobs can be attributed to technology born in academic institutions.

The Bayh-Dole Act may not have been the only contributor, but these large numbers show the importance of university innovation to the economy and make it clear that innovation spurring legislature can have enormous positive effects on economic growth.

Creation of the Biotechnology Industry

From the 1968-1970 period to the 1978-1980 period, biomedical university patents increased by 295%. Biomedicine, an important part of biotechnology, was therefore growing rapidly before the introduction of the Bayh-Dole Act. Most likely increased funding in the field, advances in science and emergence industry interest also played major roles in the growth of university patenting in this area.

The Bayh-Dole Act likely contributed to increased licensing of university biotechnology patents. The ability of universities to license patents created strong incentives for many scientist-entrepreneurs to form companies around their inventions. At least 50% of current biotech companies began as a result of a university license. Additionally, 76% of biotechnology companies have at least one license from a university.

These license based biotech companies have made huge impacts on the economy. University licensing of biotechnology patents generated more than $40 billion in economic activity in 1999. According to Boston University, biotechnology companies represented over 1.42 million jobs in 2008, and the bioscience sector as a whole represents an employment impact of 8 million jobs. By 2009, 1,699 biotech firms generated annual sales of $48.2 billion.

Addressing Criticisms

Critics of the Bayh-Dole Act cite the decrease of data sharing, higher health care costs and a shift away from fundamental research as flaws of the law.

Because researchers patent new inventions, they might tie up research data in patent rights. This could prevent other researchers from accessing this data, slowing the research process. An article by Neil Thompson and others suggest that this isn’t true in practice. They find no evidence that licensing of academic patents limits the sharing of research data. However, their work leaves open whether licenses on research tools lead to restrictions on continual research in a subject.

Many also argue that health care costs have increased as a result of the Act. Biomedical university patents often can be utilized in the process of drug creation. As these discoveries are not final products, companies must license each patent that they use to create a drug. The cost of licensing many of these patents allegedly drives up the cost of the final product, hurting the consumer. The NIH and USPTO have created guidelines to prevent the unreasonable licensing of biomedical patents. However, these guidelines are not all concrete.

While this “royalty stacking” may contribute to high prices, it is unfair to blame the costs solely on the Bayh-Dole Act. Drug development includes a multitude of phases with high costs that extend beyond patents at each step. Many drugs could also not have been developed without the help of the patented technologies.

Finally, others point out that applied research generates more money from patenting. They argue that the Bayh-Dole Act therefore incentivizes universities to focus on applied research instead of basic research. This too is not true. According to the National Science Foundation, the percentage of basic science research from 1980 to 2001 increased from 66.6% to 74.1%. Applied researched actually decreased from 33.4% to 25.9%.

Conclusion

The Bayh-Dole Act was not the sole factor in the increase of university patenting. However, it does appear to have played an important role in the licensing of university patents, particularly in the biotechnology industry.

The biotechnology is sector is large and growing. In 1980, it was almost nonexistent. By 2009, the sales of just 1,699 biotech firms were worth more than 2.5% of U.S. GDP. Academic intellectual property provides the crucial foundation for this sector. Further incentivizes for university patenting and its licensing could therefore drive yet more economic growth.

In addition, the government could encourage the use of unlicensed academic patents by offering tax breaks to companies who commercialize them. It could also encourage universities that excel at technology transfer such as Stanford or MIT to share best practices to other universities.

Categories
McNair Center Small Business

Small Business and Overtime Regulation

Clocking in: Small Business and Overtime Regulation

What is the New Overtime Regulation?

frustrated workerOn December 1, 2016, the Labor Department will officially institute new regulations on overtime eligibility for workers. Announced on May 17, the new rules require business owners to pay salary workers earning up to $47,476 a year time-and-a-half overtime pay when they work more than 40 hours during the week. This new regulation will be updated every three years to adjust for average pay in the United States.

Federal employment law stipulates two different ways for employees to receive overtime pay. First, if the employee is not an executive or a professional with decision-making authority they are eligible. Second, if the salary of an employee is below a certain amount, that employee can receive overtime pay.

Who is Affected?

While the Labor Department calculated that the new law will affect 4.2 million workers, the Economic Policy Institute estimates that this new regulation will affect 12.5 million employees. That is 23% of salaried workers. The institute expects these new rules to affect over one million Texans.

The new overtime rule will apply to any business that is subject to the Fair Labor Standards Act. This includes any business with sales of at least $500,000, or employers involved in interstate commerce. The National Federation of Independent Businesses says that the requirements will affect around 44% of US business with fewer than 500 employees.

History of Overtime Pay Regulations

The 1938 law that began federal minimum wage also started the overtime rule. While the government has raised the overtime pay salary cut-off several times over the years, the current cut-off is at $23,660. Vice President Biden noted that that more than 60 percent of salaried workers qualified for overtime in 1975 based on their salaries, but only 7 percent do today.

Complying with Regulations

To comply with these new regulations, employers will have to track employees work hours, even those of salaried employees. This change can involve costly adjustments as employers may have to buy new systems and spend time on regulatory compliance. Additionally, employers may have to change the way they manage their labor budget. Failure to comply can result in lawsuits or penalties.

Employers will most likely respond in a couple of ways. Some employers will choose to limit their employees’ work hours to avoid paying overtime. Others may hire additional workers and divide up existing jobs. Additionally, employers could raise the pay of employees whose salaries are close to the cutoff to avoid paying overtime work. Or employers could cut salaries of workers with the hope that overtime will make up the difference in income.

Oxford Economics predicted that a “disproportionate number[s] of workers” [that] became eligible for overtime and worked more than 40 hours would see their hourly rates decreased by an equal amount, leaving their total annual earnings unchanged.” On the other hand, the Institute for the Study of Labor, said that base wages would fall somewhat over time, but that the higher overtime payments would more than offset any loss in regular salary levels.

Positive Aspects of the New Regulations

The new regulations could potentially have positive effects on the labor force. Goldman Sachs and the Economic Policy Institute estimate that the new regulations will create about 120,000 jobs.

The main argument, however, it is only right for employees to earn overtime for working over 40 hours. Vice President Biden and other supporters of the change present the idea of fairness as the main positive aspect of the new regulation. The Obama Administration hopes that the rule change will give middle-class families additional income.

Negative Aspects of the New Regulations

Despite the potential for positive effects, the new regulations could bring numerous negative consequences for employers.

The new regulations will immediately require employers to keep track of employee attendance and hours. This tracking will impose implementation and operation expenses, which may be prohibitively high for smaller and less profitable firms. Payroll reclassification for small businesses can also be time consuming and expensive. Business owners must also figure out whether their workers are exempt from the new requirements. Misclassification can result in lawsuits and penalties. And, of course, small businesses may face increased payroll expense.

All of these changes can be costly for small businesses to implement. A study by the National Retail Federation estimated employers could end up having to pay as much as $874 million to update payroll systems, convert salaried employees to hourly wages and track their hours. The potential costs have not gone unnoticed; the National Federation of Independent Businesses filed a petition to delay the implementation of these new rules. Otherwise, the new regulation may drive some small firms out of business.

Hurting Workers

This new measure could even hurt employees by giving workers less flexibility, hour cuts and decreased morale. Salaried employees often enjoy flexibility in working hours that can allow them a certain amount of freedom. This flexibility is about to become more expensive as employees are required to record every hour of their work. Being a salaried employee, rather than per-hour labor, also has positive psychological benefits. Employee morale may therefore drop. Finally, employees will soon run the risk that their employers will cut their hours to avoid paying overtime.

Jobs may be created by this regulation. However, most of those new jobs could come from cutting a full-time job in half to avoid paying overtime. Coordinating two people to do one person’s job will make America’s workforce less productive.

Room for Improvement

These new regulations disproportionately hurt small businesses. It may be important to respect the rights of workers to earn more money for overtime. However, the government must find a solution to help low-income workers without imposing a burden on small business owners.

A step in the right direction would be to institute this new regulation in phases. The overtime income cutoff change from $23,660 to $47,476 is a huge difference. But unless government offsets these costs, perhaps by lowering taxes on small businesses, this new policy will discriminate against the 28 million small businesses that provide more than 8 million American jobs.

Categories
McNair Center Small Business

Big Problems for Small Practices

Big Problems for Small Practices: Examining the Effect of the Affordable Care Act on Entrepreneurship in the Healthcare Field

doctor-1461911946b29The doctor-patient relationship is an important aspect of healthcare. Small physician practices, offices with no more than a couple doctors, have been the long-standing foundation of this relationship. Unfortunately, legislative changes disincentivize doctors from being small business owners.

The Health Information Technology for Economic and Clinical Health Act (HITECH) and the Affordable Care Act (ACA) have discouraged physicians from starting their own businesses. They have done so by differing reimbursement rates and requiring unreasonable electronic medical record requirements. These conditions have decreased entrepreneurship in the healthcare field. A 2014 Physicians Foundation study found that among 20,000 U.S. doctors, only 35% described themselves as independent, not employed by a hospital or large group. This is a change from the 49% in 2012 and the 62% in 2008. Doctors now overwhelmingly choose employment at hospitals where they have less overhead, less administrative responsibilities, and better pay.

Reimbursement Rates

Reimbursement rates for Medicare actively discourage private practices. The government pays hospitals at a higher rate than independent offices for the same services. For example, the government reimburses hospitals $749 for heart scans but only gives small practices $503. Additionally, hospitals receive $876 but independent practices only get $402 for colonoscopies.

Electronic Medical Records

The required use of electronic medical records (EMR) increases administrative burdens and may decrease the quality of patient care.

Introduced as part of HITECH in 2009, EMRs were intended to increase efficiency, care coordination, and quality of patient care. Despite the apparent positive effects of EMRs, installation, maintenance, and training costs all serve as barriers to use.

The National Ambulatory Medical Care Survey found that quality of care was no different with the use of an EMR. The required system comes with an average cost of $163,765 for a single practice. For small practices this cost may be prohibitively expensive. As this is a fixed cost, it is cheaper to share the costs across multiple physicians, which incentivizes doctors to work at hospitals or large practices.

Meaningful Use and Quality of Care

Also introduced in HITECH, and further encouraged in the Affordable Care Act are “meaningful use” and “quality of care” measures. Meaningful use involves inputting specific codes that correspond with patient diagnosis into the EMR system. Many doctors find this a tedious process. However, they often have to spend a lot of time on it or risk losing a percentage of their reimbursements.

Quality of care involves the EMR system picking out documented points that are entered in a patient’s exam. It then calculates an improvement percentage that it requires doctors to meet. This is measured through filtering for certain code words or confirming that patient results are as good as the quality measure requires. For example, a month after cataract surgery, unless the patient has a previous condition, the patient should have achieved 20/40 vision.

The government instituted quality of care measures to help standardize patient care. However, this comes at the loss of human interaction between doctor and patient. Furthermore, all patients and their cases are different. Requiring certain points of improvement can be an impractical or impossible for doctors to meet. Quality of care should involve talking to patients and tailoring treatments to their needs, not a pre-defined set of instructions.

Penalties

Filing patient bills and participating in meaningful use or quality of care measures improperly can result in penalties. If a doctor cannot prove “meaningful use” of their EMR, they will receive a 2% deduction in medicare reimbursement. In 2017 the 2% will become a 3% deduction. If a physician even forgets to note that they sent a letter to the patient’s primary care doctor about a diagnosis of diabetes, the doctor can be penalized.

The quality of care requirement may seem beneficial. However, it is difficult for small practices to ensure that they meet the “meaningful use” and “quality of care” requirements. Reductions in reimbursement rates for hard to meet requirements further disincentivize doctors from owning their own offices. Independent doctors do not make as much money by seeing patients but still have to shoulder costs of running a business that hospital workers do not need to pay.

Time Wasted

Due to these new measures, physicians spend just 27% of their time in their offices seeing patients and 49.2% of time completing EMR paperwork. Even in the exam room, doctors spend 52.9% talking or examining patient and 37% of their time doing paperwork. A JAMA Internal Medicine survey stated that family practice physicians reported an EMR-associated loss of 48 minutes of free time per clinic day.

Some doctors who want to meet the regulatory burden while maintaining patient interaction choose to spend money to hire scribes or other technicians. However, this may pose too high of a cost for some small practices.

Benefits of Independent Practices

The close relationship that small practices can build between doctors and patients has shown to be helpful. The CommonWealth Fund found that small primary care practices have a lower rates of preventable hospital admissions. Hospitals or bigger practices may seem better or more efficient. However, the decrease in private practice can lower quality of patient care, increase the cost of health care, and harm the doctor-patient relationship.

Patients do want personal care. In fact, using a concierge health care service, is becoming more popular for those who can afford it. According to the American Academy of Private Physicians, in 2012, there were around 4,400 private doctors. This was a 25% increase from the previous year. This quality time, both in private practices and in concierge services, translates to being able to tailor treatments to patients needs individually.

Hospital Monopolies

The government must remedy the lack of incentive to operate a private practice. When hospitals get together, they can charge higher costs to patients for treatment. This raises the cost to the government for reimbursement rates. Reduced competition and the monopoly power of hospitals is bad for both patients and the government. The Journal of the American Medical Association found that patient costs are 19.8% higher for physician groups in multi-hospital systems compared with physician-owned organizations.

Policy Changes

The U.S. government should find a way to preserve the entrepreneurial spirit of the health profession. Without changes, doctors will lose the ability to start their own businesses as the system is rigged against them. Changing the reimbursement rates to be equal between hospitals and private practices would an important first step. Additionally, improving the requirements of meaningful use and quality of care measures so that they are less difficult to complete would alleviate the burden on private practices.

Overall, the requirements of the Affordable Care Act and other recent health laws should be changed to foster entrepreneurship in the healthcare community, not destroy it.