The following is a rush transcript of the July 26, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

BRET BAIER, GUEST HOST: And hello again from FOX News in Washington. With us now to discuss a range of issues, Robert Gibbs, assistant to the president and White House press secretary.

Robert, welcome back to "FOX News Sunday."

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Thanks for having me.

BAIER: Presidents, before prime time news conferences, usually have detailed preparation sessions. And President Obama has already had four time prime time news conferences.

Before Wednesday's news conference, did you prepare him for a question about Henry Gates' arrest in Cambridge?

GIBBS: Well, look, let's just say, it's safe to say we went over a whole lot of topics that we thought might come up, and certainly, this was a topic that was and has been in the news.

I think the president, on Friday, spoke about the fact that he hadn't calibrated his words well probably unnecessarily added to the media frenzy around what was going on in Cambridge, so much so that even the police officer, Sergeant Crowley, that he talked to, from Cambridge, asked him for advice on how to get the press off of his — off of his lawn, and the president said, "I'm trying to figure out how to get the press off my lawn, too."

BAIER: You know, you — so you prepared him for the question, or at least made him aware that it could come up. Did he read the police report beforehand?

GIBBS: I don't know if the president read the police report. I think the president was clear in discussing the fact that he did not know all the details of what had transpired in Cambridge.

My guess is that only a very few people know exactly what happened in every instance in that. Again, I know the president...

(CROSSTALK)

BAIER: I guess my question is, early on, did he determine that he was going to take sides to back his friend to the extent that he did Wednesday?

GIBBS: Well, again, I think the president discussed the notion that saying beforehand that he knew Professor Gates, that he didn't have all the details, and in hindsight understands that his words were not calibrated as they should have been.

And, look, Bret, it's our hope that, as the president said, there can be — this can be part of a teachable moment, that we can create a better communication and a dialogue between communities and police and help everyone do their job a little bit better.

And it's our hope that soon Professor Gates and Sergeant Crowley can sit at the White House and talk about some of these issues and have a beer with the president.

BAIER: Has that been scheduled yet?

GIBBS: I don't know that it's been scheduled, but it's our hope that we're going to get it done. I know Sergeant Crowley told the president he was game, and I've read that Professor Gates is the same way, so hopefully we can get that done in the next several days.

BAIER: In fact, accepting that invitation for the beer, Mr. Gates wrote this. He said that he hopes it helps. Quote, "my unfortunate experience will only have a larger meaning if we can all use this to diminish racial profiling."

So does the president believe, as Mr. Gates clearly still does, that this was an instance of racial profiling?

GIBBS: Well, I think that's an issue that the president has worked on and been concerned about. I don't think the president has come down on one side of that or the other. Again, I think he would tell you he doesn't know all the details of this.

But, if what we can do is bring Professor Gates and Sergeant Crowley together to discuss some of the issues and the events that surrounded that day in Cambridge, and if that helps communities and law enforcement work together as they did in Illinois on this important issue with then-state senator Barack Obama; if communities and law enforcement throughout the country can do that, I think we'll all be a little bit better off.

And that's what this is really all about.

BAIER: You're talking about law enforcement, here, and Friday morning, you were asked by — about a statement by the Fraternal Order of Police supporting Sergeant Crowley.

And in response, you said, quote, "I think the Fraternal Order of Police endorsed McCain."

Were you suggesting that the Fraternal Order of Police...

GIBBS: No, no, no.

BAIER: ... was being disingenuous in their statement?

GIBBS: No, no, no, no. Let's be clear. I was asked about their statement, and then the follow-up — before I answered, they said, "I think these guys supported — didn't these guys all support you?"

And I said, "No, I think they — I think this organization supported John McCain."

BAIER: But, just by bringing up the politics, do you regret...

GIBBS: No, no, no, no, no. I don't — I will take responsibility for a lot of things, but I'm not going to take responsibility for a question that was asked of me, where somebody says, "Didn't these guys support you?"

I've got friends that work for the Fraternal Order of Police.

This was something that was asked of me; I'm simply pointing that out. It doesn't matter who they supported in the last election or who they supported 10 elections ago. That wasn't the point here. That's not what the president thought was the point here.

This was about the notion that the president had calibrated his words wrongly. The president understands and respects the job that law enforcement has to do each and every day. It's not an easy job.

But I wasn't injecting politics into that. That was — that was part of the question that was asked of me.

BAIER: Fair enough. Last thing: Friday, when the president came back out and said he needed to calibrate his words differently, how much, if any, did the news conference Friday afternoon, in which Cambridge police officers and union leaders said that the president should apologize to, quote, "all law enforcement personnel throughout the country," affect the president's decision to come out Friday afternoon?

GIBBS: He did not watch that news conference. He was working in the Oval Office throughout most of that day. I think that at that point, he understood that his words have unnecessarily contributed to the frenzy around this, that he felt it was important to reach out to the police officer, to explain what he was trying to say.

They had a very good conversation, and I think cooler heads have prevailed.

BAIER: Another topic. Today, Vice President Biden writes in an op-ed in the New York Times about the stimulus package, quote, "The act was intended to provide steady support for our economy over an extended period, not a jolt that would last only a few months."

The vice president has used the term jolt before to describe the stimulus, and the president has previously described the stimulus as a jolt. He said we need a big stimulus package that would jolt the economy back into shape. His first news conference, he said the federal government is the only entity left with the resources to jolt our economy back to life. So is the administration trying to move the goal posts here about what the stimulus was intended to do?

GIBBS: I think the important part of the statement that the vice president makes in the op-ed is a jolt over only a few months. There isn't — remember, we are experiencing an economic downturn unlike anything we've seen since the Great Depression. In fact, when we came into office, that was the real discussion, were we headed for a second Great Depression? We've now pulled back from the precipice of that, in some part because of the contributions of the recovery plan.

But understand that one piece of legislation isn't going to fully get our economy back on track. What its intention was to do was to cushion that downturn not over a one- or two- or four-month period of time, but over a two-plus year period of time, by putting money into the pockets of hard-working Americans, investing in infrastructure and investment programs, and laying that foundation to create jobs for the long term.

BAIER: So the president still thinks it's working?

GIBBS: Absolutely. I think there's no doubt that the severity of the downturn would have been longer and deeper were not for the Recovery Act.

BAIER: Health care. What's the president's expectation now? We've heard Senate leaders saying they are not going to make August 7 to get a bill done. House leaders are suggesting that it might not happen next week either. What is the president's expectation?

GIBBS: Well, our expectation and the reason that we're still very optimistic about this is that we're continuing to make progress. You know, it's unique that we are at a point in this debate where about 80 percent of what we need to get — comprehensive health care reform that cuts costs for small businesses and families, makes it affordable for them — we've got about 80 percent agreement. We're still working on that last 20 percent. So we are enthusiastic about the progress that's been made.

BAIER: Does the House vote this week?

GIBBS: I don't know whether the House votes this week, Bret, but I know that even this weekend, there have been meetings at the committee level to get a proposal moving forward to get more progress.

The president's test is continued progress on this. He set a deadline in order to poke and prod Congress into moving, because as you well know, having spent any time in this now, without a little poking and prodding, not a lot gets done.

We're pleased to see progress, and as long as we see continued progress, we think we're on the road to getting comprehensive health care reform by this fall.

BAIER: Why not say it to lawmakers? Stay in town until you hammer out a deal. The president has, you know, both parties — both chambers, rather. His party controlling both chambers. Why not say, hey, just stay here, knock it out?

GIBBS: Well, we're going to evaluate throughout the week sort of where we are on progress.

BAIER: So that's still a possibility?

GIBBS: Well, look, if by the end of the week we've made enough progress that we're moving in that right direction, then having lawmakers go home for the regularly scheduled August recess is probably a good thing.

The key test on this is are we making progress, are we getting closer and closer to being able to tell that small business owner in New Jersey that the president talked about yesterday that is having to lay off people because of the high cost of insurance, who may drop his insurance coverage altogether, that we're actually acting on doing something that will help his business be more competitive.

BAIER: After watching the legislative process with the stimulus bill and now watching what's happening with health care reform legislation, does the president think perhaps now that it might have been wiser to get more involved in the early stages with producing or creating a bill, producing language from the White House, from the executive?

GIBBS: Well, Bret, each and every day our staff is up on Capitol Hill. I know the president spoke with Democrats and Republicans throughout the week about their progress on health care reform. Staff and the president met for several hours with Democrats in the White House this week again. He's been on the phone with major players in the Republican Party on health care reform. I think the White House is very intimately involved in this.

We understand that Congress has to do its job, just as the president is doing his job. Again, the test is making progress on getting affordable, accessible health insurance, and I think we're getting closer.

BAIER: Just last week, the executive branch wrote a piece of legislation, a section, sending it to Congress to be included in the bill, called the Independent Medicare Advisory Council Act, IMAC. The CBO, Congressional Budget Office, sent a letter analyzing that particular section, designed to keep Medicare costs down and produce savings, and they estimate that it would only, as drafted, yield about $2 billion over the next 10 years. And they say in this letter, quote, "in the CBO's judgment, the probability is high that no savings would be realized." The CBO goes on to say that potentially substantial savings could be down the road, but that doesn't seem like a ringing endorsement...

GIBBS: Well, you didn't put that quote up on the screen, right?

(LAUGHTER)

(CROSSTALK)

BAIER: ... a little wishy-washy. It says there is a chance for substantial savings down the road, is the next sentence. So...

GIBBS: CBO analyses are always about whether or not there's going to be a chance.

But let's understand this, Bret. The IMAC proposal was not intended to garner savings, a huge amount of savings in the first 10 years, including in that legislation and included in the CBO estimate is recommendations wouldn't come from IMAC until 2015. So the notion that you wouldn't see a lot of savings in the first 10 years for a proposal that's not going to make recommendations for at least another six years isn't that surprising.

What IMAC is modeled after is something called MedPAC, which is what Republicans in 1997 developed, in order to cut waste and inefficiency out of Medicare and Medicaid without doing harm to the quality of care.

Let's use an example. Each and every year that this MedPAC has been available, they have forwarded to Congress a suggestion that we cut the fee that is paid to private insurance companies to handle Medicare — basically, to do on top of what the government is always doing by paying them a subsidy. Each and every year, that recommendation comes before Congress, and Congress doesn't act. The president has included cutting that subsidy to the tune of almost $200 billion in more than half a trillion dollars worth of savings that he's identified in the first 10 years.

BAIER: I understand that, but the CBO projects that the House bill as of now increases the deficit over the 10 years by $230 billion. And this was talked about, the IMAC thing, was talked about as a key component. And the president Wednesday said, I have also pledged that health insurance reform will not add to our deficit over the next decade, being very specific, saying, "I mean it."

Now, if you extrapolate out the CBO's analysis of the House bill, the Republicans on the House Ways & Means Committee say it could raise the deficit by $750 billion or more, $1.6 trillion if you keep on going.

(LAUGHTER)

BAIER: So what I'm saying is...

(CROSSTALK)

GIBBS: Forty years — if we add 40 years to the end of this, you could get numbers like that.

BAIER: No, no, it starts in 2015, goes to 2025. And by 2024, you're at $750 billion...

GIBBS: Well...

BAIER: ... if you're talking about savings in the long run...

(CROSSTALK)

GIBBS: I'm sorry, you didn't add 40 years; you added a decade and a half.

BAIER: When the program starts in 2015.

GIBBS: But here's what's important, Bret, and the president said this on Wednesday, and we talked, a little bit, about what the president said on Wednesday. The president meant what he said on Wednesday about the fact that health care reform would not add to our deficit, period.

BAIER: Period, not in the next 10 years?

GIBBS: We're not going to sign legislation that — that adds to the deficit in order to provide health reform for tens of millions of Americans who are struggling under the increasingly high cost of health insurance.

I think what's the most important in this debate is what happens if we do nothing.

Bret, if we do nothing, millions of people are going to lose their health insurance. If we do nothing, millions of small businesses aren't going to be able to afford the coverage that they already provide. Some of them are going to have to lay people off. Some of those people that get laid off are going to enter a private insurance market that will discriminate against them if they're already sick or they have a preexisting condition.

That's what happens if we do nothing.

BAIER: Back to Wednesday's news conference. Here's the president talking about what is wrong with the system.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Your child has a bad sore throat or has repeated sore throats. Your doctor may look at the reimbursement system and say to himself, "You know what? I make a lot more money if I take this kid's tonsils out."

(END VIDEO CLIP)

BAIER: Now, since then, I've talked to a lot of doctors who were offended by that language. One of them sent me an e-mail to say, "To think that I spent 14 years training and borrowed $150,000 to become a doctor just so I can take out a kid's tonsils because it's good for my bottom line is insulting, demeaning. I'm appalled."

How do you respond?

GIBBS: Well, what we have to do is get a system in our — a health care system that works for both the doctors and the patients.

Right now, in this country, we pay twice as much as virtually every other developed country in the world, and our health outcomes are less, right?

You heard the president talk about, imagine if you and your next- door neighbor bought the same car, yours didn't perform as well, and you paid $6,000 more. That's what our health care system is right now.

BAIER: Does the president believe that doctors literally make their decisions forced on the bottom line, that they're forced to make these decisions based on the fee payment schedule. Is that what his — really — his thinking is on the process?

GIBBS: The president thinks that what we ought to do is provide incentives for doctors to treat and cure patients, not be a slave to or have to just simply conform a fee schedule.

BAIER: You can understand where doctors would be offended?

GIBBS: Absolutely. But I also understand that we need to think about, just as doctors do, the whole quality of care, instead of worrying about how much somebody gets paid to amputate the foot of a diabetic patient at the — basically toward the end course of that disease, rather than trying to look at health care — health prevention and wellness when a kid is younger, to address childhood obesity, to ensure that that person never gets to the point where they're diagnosed with diabetes.

There's absolutely no incentive in our health care system, right now, to look at health wellness and prevention to prevent some child from becoming obese and developing diabetes, but there's the fee schedule at the end of this for what happens when you have to amputate their foot.

That's what we're trying to change. That's what will make the quality of health care better in this country.

BAIER: Robert, thanks for being here today.

GIBBS: Thanks for having me.

BAIER: Please come back.

GIBBS: I'll be glad to do it.

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