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92–255 PDF 2004

S. HRG. 108–710 

AVOIDING CONFLICTS OF INTEREST AT THE 

NATIONAL INSTITUTES OF HEALTH 

HEARING 

BEFORE A

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

UNITED STATES SENATE 

ONE HUNDRED EIGHTH CONGRESS 

SECOND SESSION 

SPECIAL HEARING 

JANUARY 22, 2004—WASHINGTON, DC 

Printed for the use of the Committee on Appropriations 

( 

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate 
(II) 

COMMITTEE ON APPROPRIATIONS 

TED STEVENS, Alaska, Chairman 

THAD COCHRAN, Mississippi 

ARLEN SPECTER, Pennsylvania 

PETE V. DOMENICI, New Mexico 

CHRISTOPHER S. BOND, Missouri 

MITCH MCCONNELL, Kentucky 

CONRAD BURNS, Montana 

RICHARD C. SHELBY, Alabama 

JUDD GREGG, New Hampshire 

ROBERT F. BENNETT, Utah 

BEN NIGHTHORSE CAMPBELL, Colorado 

LARRY CRAIG, Idaho 

KAY BAILEY HUTCHISON, Texas 

MIKE DEWINE, Ohio 

SAM BROWNBACK, Kansas 

ROBERT C. BYRD, West Virginia 

DANIEL K. INOUYE, Hawaii 

ERNEST F. HOLLINGS, South Carolina 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

BARBARA A. MIKULSKI, Maryland 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

PATTY MURRAY, Washington 

BYRON L. DORGAN, North Dakota 

DIANNE FEINSTEIN, California 

RICHARD J. DURBIN, Illinois 

TIM JOHNSON, South Dakota 

MARY L. LANDRIEU, Louisiana 

JAMES W. MORHARD, Staff Director 

LISA SUTHERLAND, Deputy Staff Director 

TERRENCE E. SAUVAIN, Minority Staff Director 

SUBCOMMITTEE ON DEPARTMENTS OF LABOR, HEALTH AND HUMAN SERVICES, AND

EDUCATION, AND RELATED AGENCIES

ARLEN SPECTER, Pennsylvania, Chairman 

THAD COCHRAN, Mississippi 

JUDD GREGG, New Hampshire 

LARRY CRAIG, Idaho 

KAY BAILEY HUTCHISON, Texas 

TED STEVENS, Alaska 

MIKE DEWINE, Ohio 

RICHARD C. SHELBY, Alabama 

TOM HARKIN, Iowa 

ERNEST F. HOLLINGS, South Carolina 

DANIEL K. INOUYE, Hawaii 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

PATTY MURRAY, Washington 

MARY L. LANDRIEU, Louisiana 

ROBERT C. BYRD, West Virginia (Ex officio) 

Professional Staff 

BETTILOU TAYLOR

JIM SOURWINE

MARK LAISCH

SUDIP SHRIKANT PARIKH

CANDICE ROGERS

ELLEN MURRAY (Minority) 

ERIK FATEMI (Minority) 

ADRIENNE HALLETT (Minority) 

Administrative Support 

CAROLE GEAGLEY
(III) 

C O N T E N T S 

Page 

Opening statement of Senator Arlen Specter ........................................................ 1 

Opening statement of Senator Tom Harkin .......................................................... 3 

Statement of Elias Zerhouni, M.D., Director, National Institutes of Health, 

Department of Health and Human Services ...................................................... 4 

Prepared statement .......................................................................................... 6 

Statement of Senator Ted Stevens ......................................................................... 16 

Prepared statement .......................................................................................... 17 

Statement of Marilyn L. Glynn, Acting Director, Office of Government 

Ethics .................................................................................................................... 19 

Prepared statement .......................................................................................... 21 

Statement of Edgar M. Swindell, Associate General Counsel, Ethics Division, 

Office of the General Counsel, Department of Health and Human Services .. 27 

Prepared statement .......................................................................................... 29 

Statement of Ruth Kirschstein, M.D., Senior Advisor to the Director, National 

Institutes of Health, Department of Health and Human Services .................. 31 

Prepared statement .......................................................................................... 33 

Statement of Stephen Katz, M.D., Ph.D., Director, National Institute of Arthritis and Musculoskeletal and Skin Diseases, National Institutes of 

Health, Department of Health and Human Services ........................................ 40 

Prepared statement .......................................................................................... 41 

Statement of John Gallin, M.D., Director, Clinical Center, National Institutes 

of Health, Department of Health and Human Services .................................... 44 

Prepared statement .......................................................................................... 45 

Statement of Jeffrey Schlom, M.D., Chief of the Laboratory of Tumor, Immunology, and Biology, Center for Cancer Research, National Cancer Institute, 

National Institutes of Health, Department of Health and Human Services .. 47 

Response to the Information in the L.A. Times Article Concerning J. 

Schlom ............................................................................................................ 47 

Statement of Ronald N. Germain, M.D., Chief, Immunology Laboratory, Institute of Allergy and Infectious Diseases, National Institutes of Health, Department of Health and Human Services .......................................................... 50 

Prepared statement .......................................................................................... 50 

Prepared Statement of Senator Mary L. Landrieu ............................................... 57 

Prepared Statement of Dr. Harold Varmus, President, Memorial Sloan-Kettering Cancer Center ........................................................................................... 58 

(1) 

AVOIDING CONFLICTS OF INTEREST AT THE 

NATIONAL INSTITUTES OF HEALTH 

THURSDAY, JANUARY 22, 2004 

U.S. SENATE,

SUBCOMMITTEE ON LABOR, HEALTH AND HUMAN

SERVICES, AND EDUCATION, AND RELATED AGENCIES, 

COMMITTEE ON APPROPRIATIONS, 

Washington, DC. 

The subcommittee met at 9:33 a.m., in room SD–192, Dirksen 

Senate Office Building, Hon. Arlen Specter (chairman) presiding. 

Present: Senators Specter, Stevens, and Harkin. 

OPENING STATEMENT OF SENATOR ARLEN SPECTER

Senator SPECTER. Good morning, ladies and gentlemen. The Appropriations Subcommittee on Labor, Health and Human Services, 

and Education will now proceed with this hearing on the issue of 

potential conflict of interest in the National Institutes of Health 

with the consulting arrangements for the private pharmaceutical 

companies. 

The issue has been raised about whether there is a conflict 

where employees of the National Institutes of Health consult with 

private pharmaceutical companies. The employees of NIH, like all 

Federal employees, have a fiduciary obligation to the Federal Government and may not use their positions for collateral financial 

gain. 

There is a public policy interest in having an exchange of ideas 

with the pharmaceutical companies, but that has to be conducted 

in an organized, systematic way with transparency and integrity, 

and the employees of the NIH are compensated on a very modest 

basis, so there is some public policy interest in having those incomes supplemented. But in reviewing the compensation level, I 

find that they are higher than the compensation of my distinguished colleague, Senator Harkin, and other Members of Congress. 

The issue of integrity is one of utmost importance. I am pleased 

to report that Dr. Zerhouni has taken an active role in moving forward to try to deal with this issue. Our staffs have conferred. He 

and I have met and discussed the matter, but there has to be a 

thorough public airing, and I believe there will have to be some 

very substantial remedial steps taken to make sure that the wall 

of separation between public duties and private gain is maintained. 

There had been in the past highly notarized situations where researchers at a prominent university were disclosed to have a finan-
2 

cial interest in the company which was involved with a medicine, 

and that has to be prevented. 

There had been some question as to whether this hearing would 

go beyond the conflict of interest issue and take up some of the 

studies that the National Institutes of Health has conducted on 

truck stops and sexual habits of older men and the two spirited Indians and the arousal issues, but this hearing is going to be very, 

very involved with a very large number of witnesses and we’ll be 

fully occupied with this subject. 

The other issues have already been the subject of oversight by 

this subcommittee. Staffs have already been working. Dr. Zerhouni 

and I have discussed it and we are now making inquiries as to 

whether there ought to be a separate oversight hearing on that 

subject, and we will make that determination after we complete the 

preliminary inquiry which has already been underway. 

Now, fresh back from Iowa, I am delighted to welcome my distinguished colleague, Senator Harkin, who is the author of the famous 

Harkin amendment on overtime pay—which is holding up a $373 

billion appropriations bill. When Senator Harkin offers an amendment, he does not have an instinct for the capillaries. He has an 

instinct for the jugular. 

I think that he was right on his amendment. And we had a very 

detailed hearing day before yesterday when we understood Senator 

Harkin could not be with us because he was heavily engaged to 

very late the night before in the Iowa caucuses. 

I am sorry to see the provision in the bill. It is worth just a 

minute. The grave difficulty is that the regulation on overtime pay 

will cut back on compensation to many workers in America, men 

and women, at a time when they need every dollar they can get 

with a fragile economy, I think recovering but still not fully recovered. And the new regulation which we have analyzed is no improvement over the old regulation. There is general agreement that 

we ought to make the regulation specific to avoid litigation, but the 

new regulation does not do that. 

In the interest of reciprocity, we had hoped that the Secretary of 

Labor would accommodate a brief delay. We are not talking about 

very much, just a few weeks, perhaps a few months, less than 6 

months, in the interest of reciprocity where we try very hard to accommodate the Department of Labor’s interests. 

But we are not between a rock and a hard place on this issue. 

It is just a total loser. If we hold up the omnibus appropriations 

bill, we have a continuing resolution, and the overtime regulation 

goes into effect because there is nothing in the continuing resolution to stop it. And if we take the omnibus appropriations bill, the 

regulation goes into effect because there is nothing in the bill to 

stop it. So either way we go, we lose the issue on the regulation, 

and in our subcommittee alone, we lose $3,700,000,000, a large 

chunk of which would go to NIH and others, to Head Start and 

education. 

So it is my hope that we will be able to pass the bill today, but 

that remains to be seen as the political process works out. And as 

Winston Churchill said, a democracy is a very terrible system except when compared to every other system. 

Senator Harkin. 
3 

OPENING STATEMENT OF SENATOR TOM HARKIN

Senator HARKIN. Mr. Chairman, thank you very much for a number of things, first, for being a really great chairman of this very 

vital and important subcommittee. I can say without any hesitation 

that our relationship has been one of working together mutually for 

the benefit of the public policy that we cover in this subcommittee, 

which covers a wide range of different things, from health to education and labor. Someone once described this subcommittee as the 

subcommittee that defines America and what we stand for. And so 

I have been proud to work alongside you now for, I guess, 15 years 

now I think it has been, either as chairman or ranking member, 

which bounces back and forth periodically. Of course, I always hope 

it bounces my way, but that is another thing. But we have had a 

great collaboration and working relationship. I thank you for that. 

I thank you for your comments regarding the overtime. We have 

worked closely on that, and I know of your strong support for ensuring that people in this country do not lose their overtime pay 

protections. 

I also want to thank you for calling this hearing today and thank 

all the witnesses for being here. 

Everyone knows how strongly we support the National Institutes 

of Health. It is Senator Specter who has said many times that it 

is the crown jewel of our Federal Government. I think that is your 

phrase. Thanks to NIH, countless lives have been saved and new 

cures and treatments developed. A thriving biomedical research industry has been created in this country. 

That is why we worked so hard to double the funding for NIH 

between 1998 and 2003. We take pride in the fact that this was 

a truly bipartisan effort, spanning two presidential administrations. And when we reached the goal last year, I think for both 

Senator Specter and I, it was one of our proudest moments in the 

Senate. 

So when I read in the press about concerns that some NIH scientists are receiving consulting fees that may pose a conflict of interest with their duties at NIH, I became very concerned. I became 

concerned not only because of my personal passion for NIH, but 

also on behalf of the taxpayers, the advocacy groups, and researchers who lobbied so diligently to increase funding for this agency. 

As appropriators, we have a responsibility to exercise oversight 

of NIH. So this hearing is not only appropriate, it is required. We 

come here with open minds. We have made no pre-judgments. I appreciate this opportunity for us to ask questions and find out for 

ourselves whether there is a problem at NIH. If so, how do we address it? 

NIH is the premier biomedical research agency in the world. It 

has an unparalleled reputation for honesty and integrity and I 

want to make sure it stays that way. 

Thank you very much, Mr. Chairman. 

Senator SPECTER. Thank you, Senator Harkin. Thank you for 

your outstanding service to the country and the Senate and this 

subcommittee. 
4 

STATEMENT OF ELIAS ZERHOUNI, M.D., DIRECTOR, NATIONAL INSTITUTES OF HEALTH, DEPARTMENT OF HEALTH AND HUMAN 

SERVICES 

Senator SPECTER. We turn now to Dr. Elias Zerhouni, the Director of the National Institutes of Health. Prior to becoming Director, 

Dr. Zerhouni was executive vice dean of John Hopkins University 

School of Medicine, had the Chair of the Russell Morgan Department of Radiology, and Martin Donner Professor of Biomedical Engineering. He received his medical degree from the University of 

Algiers School of Medicine and completed his residency in diagnostic radiology at Johns Hopkins. Dr. Zerhouni brings an extraordinary record to this very, very important position. 

I have had the privilege of working with him in some detail and 

I find him to be very, very thoughtful, very, very responsive, and 

very, very dedicated to the duties of the very important position 

which he holds. And when this issue arose, which has some potential for embarrassment, he and I agreed immediately that we 

would work it through, we would let the chips fall where they may, 

and we would see to it that whatever problems existed would be 

corrected and corrected promptly. 

Dr. Zerhouni, we again welcome you here and look forward to 

your testimony. 

Dr. ZERHOUNI. Thank you, Mr. Chairman, Senator Harkin, and 

other members of the subcommittee. Thank you for the opportunity 

to testify today about the implementation of ethics rules at the National Institutes of Health. 

Clearly, as Senator Harkin mentioned, NIH has historically been 

successful because of its outstanding record of excellence in independent scientific inquiry and its reputation for high integrity. Our 

mission is too important to the health of this Nation to have it undermined in any way by any real or perceived conflict of interest. 

And I personally want to do everything possible to make sure that 

that perception does not persist. 

I personally began reviewing ethics rules policies and practices 

last July when the House Energy and Commerce Committee raised 

questions about NIH employees receiving monetary lecture awards, 

and based on my initial review of policies and procedures, I announced on November 20, 2003 the formation of a new trans-NIH 

ethics advisory committee in the Office of the Director to provide 

independent peer review of outside activity. I asked all senior managers to exercise great prudence in entering into any arrangement 

that reflects poorly on NIH or creates the appearance of conflict, 

even in cases where the arrangements are allowed. 

In addition to the questions from the House committee, a recent 

press report has suggested that arrangements between our scientists and outside organizations have potentially harmed individual patients and tainted the integrity of administrative decisions at NIH. There cannot be more serious allegations against an 

institution, and I felt that it was imperative that NIH tackle this 

issue as quickly, transparently, and aggressively as possible. 

From my experience as a an administrator at a major institution 

prior to this job and my experience at NIH, there are four fundamental tenets that we absolutely need to honor. One is full transparency. The second is full disclosure of these relationships, inde-
5 

pendent peer review, and active management and monitoring of 

any and all relationships. 

So that is why I ordered an immediate review not only of the allegations in the press but of all existing outside activities to ensure 

that there have been no breaches of current rules and to determine 

the entire scope of these activities. Pending this review, applications to receive compensation from pharmaceutical or biotechnology 

companies and payments that exceed certain thresholds will be examined directly in the director’s office by the new ethics advisory 

committee. As of this date, we have not approved any agreement, 

and the new committee has been formed, has met, and all of those 

will be reviewed personally in my office to make sure that indeed 

rules have been followed and no rules have been broken. 

Further, I have ordered that the NIH ethics system be restructured to ensure consistency and rigorous oversight. 

But my first and foremost concern as a physician was to ascertain whether or not any patient had been harmed as alleged or if 

decisions had been unduly influenced as a result of such outside relationships. Was there a reality of conflict here that harmed individuals or harmed our decisional processes? 

I want to inform you that thus far we have not identified any situations where patients were harmed as a result of financial arrangements NIH employees had with outside parties. We have not 

identified any situations where outside activities resulted in undue 

influence on grant approvals or other decisions. I will, however, reserve final judgment until all internal and external reviews are 

completed. 

Ethics standards are set by the Office of Government Ethics 

which promulgates rules for the entire Federal Government. Pursuant to new government-wide ethics regulations, NIH revised its 

policies in 1995. The Acting Director of the Office of Government 

Ethics is here today to testify about its role regarding NIH. 

But in regard to supplemental compensation for NIH employees, 

I echo what Senator Specter said. We need to find the balance between the public interest at large of making sure that our knowledge gets translated into real applications and we have the question of figuring out what should be allowed and not allowed. 

On one hand, I believe it’s essential that NIH retain the ability 

to recruit and retain the best scientific researchers in the world. In 

order to do this, one must be able to compete for their services. So 

I think it is important that our scientists be allowed to be involved 

in the process of translation. 

On the other hand, the research landscape has changed since 

1995. Investments in research by pharmaceutical companies have 

surpassed the current budget of NIH. We have a new industry, the 

biotechnology industry, that has exploded with new companies and 

resources as well. There are now many more opportunities for NIH 

scientists to be asked to collaborate with the private sector to share 

their knowledge and help apply it for tangible treatments. 

Given these events, I have reached the conclusion that it is appropriate for NIH and the Congress to completely review the 1995 

policy and its implementation at NIH. This is why I have asked 

that a blue ribbon task force, as an adjunct to the existing advisory 

committee to the Director, be formed and review all of our ethics 
6 

policies and evaluate the policy issue of what types of collaborations are in the public interest and which ones are not, and how 

do we reform our policies to make sure that we achieve the goal 

of the highest integrity and transparency possible. 

I am announcing today that the panel will be co-chaired by two 

distinguished individuals: Dr. Bruce Alberts, the president of the 

National Academy of Sciences, and Norman Augustine, former 

Chairman of Lockheed Martin and a noted government, industry, 

and academic expert. They will be joined by committee members of 

the highest reputation for independence and competence. 

PREPARED STATEMENT

Finally and most importantly, I have reached the conclusion that 

NIH must make changes that will appropriately restrict current 

practices and manage current practices to the point where no questions will remain in anybody’s mind that NIH is deserving of the 

trust of the Congress and has continuously made every attempt to 

make sure that the rules, first and foremost, serve the American 

people and no other interests. 

Thank you very much. 

[The statement follows:] 

PREPARED STATEMENT OF DR. ELIAS A. ZERHOUNI

Mr. Chairman, Senator Harkin, Members of the Subcommittee, thank you for the 

opportunity to testify today about the implementation of ethics rules at the National 

Institutes of Health. 

The NIH budget doubled over a recent five-year period. This milestone is a reflection of the trust that the American people have in our ability to advance scientific 

knowledge for their benefit. 

NIH has historically been successful because of its outstanding record of excellence through independent scientific inquiry and its reputation for high integrity. 

But recently, the relationships of NIH employees with outside entities have raised 

the concerns of Congress and the media about conflicts of interest. Our public health 

mission—written in law—is too important to have it undermined by any real or perceived conflicts of interest. 

So I am responding to these concerns. I am applying the principles I have learned 

from previous experience, that managing conflicts of interest in science is a continuous process best served by: transparency, full disclosure, independent review and 

continuous monitoring. 

I personally began reviewing ethics rules, policies and practices last July, when 

the House Energy and Commerce Committee raised questions about NIH employees 

receiving monetary lecture awards. I was advised by NIH ethics officials that the 

receipt of lecture awards is proper under Federal ethics regulations in specific circumstances. Nonetheless, based on an initial review of policies and procedures, I announced on November 20, 2003 the formation of a new trans-NIH ethics advisory 

committee in the office of the director to provide independent peer review of outside 

relationships and advice for improvements in our policies and procedures. I advised 

all senior managers to exercise great prudence in entering into any arrangement 

that could reflect poorly on NIH or could create the appearance of conflict, even in 

cases where the arrangements are permitted by law. I ask that my memorandum 

be included in the hearing record. 

In addition to the questions from the House Committee, recent press reports have 

suggested that arrangements between our scientists and outside organizations have 

potentially harmed individual patients and corrupted the integrity of administrative 

decisions at NIH. There cannot be more serious allegations against an institution. 

I felt that it was imperative that NIH tackle this issue as quickly, transparently 

and aggressively as possible. 

I ordered an immediate review, not only of the allegations in the press, but of all 

existing outside activities, to ensure that there have not been breaches of current 

rules, and to determine the entire scope of these activities. 
7 

My first and foremost concern was to ascertain whether any patient had been 

harmed or if decisions had been unduly influenced as a result of such outside relationships. I want to inform you that, thus far, we have not identified any situations 

where patients were harmed as the result of financial arrangements NIH employees 

had with outside parties. Nor have we identified any situations where outside activities resulted in undue influence on grant approvals or other decisions. I will, however, reserve final judgment until all internal and external reviews are completed. 

Furthermore, press reports have implied that NIH and its employees willfully 

used alternative federal pay systems to avoid disclosing their outside activities. This 

is simply not true. Outside activities are internally disclosed to Ethics officers and 

supervisors. But it is true that federal rules sometimes do not allow public disclosure of that information. I believe that this needs to be revisited as transparency 

and full disclosure are core requirements of any viable process of oversight of these 

relationships. 

Clearly, even though real conflict may not have occurred, it is obvious that our 

practices lead to a perception of widespread conflicts that needs to be corrected as 

soon as possible. 

The governing regulations are set by the Office of Government Ethics (OGE), 

which promulgates rules for the entire executive branch of the Federal Government. 

In 1993, the OGE promulgated executive branch-wide Standards of Conduct regulations. Agencies were then required to repeal their ethics regulations and follow the 

new OGE regulation or propose supplemental regulations, jointly promulgated by 

the agency and OGE. 

Until 1995, NIH policies on outside activities were more restrictive than they are 

today. Employees could earn no more than $25,000 per year from any single outside 

source, and no more than $50,000 in total annually. Payments from outside sources 

in the form of stocks or stock options were prohibited. High-level NIH officials were 

not allowed to accept payments from outside sources. 

I was advised that NIH revised its ethics policies in 1995, after the OGE audited 

NIH’s implementation of federal ethics regulations and determined that the Agency’s policies were more stringent than the existing executive branch-wide regulations. OGE offered NIH two options at that time: either change the policies to conform to the regulations or seek supplemental regulations from OGE. 

Although I was not at NIH at that time, my understanding is that Agency management was concerned that NIH was at a disadvantage in competing with the private sector for the best scientists due to lower salaries, benefits and the reduced 

ability to supplement incomes with outside activities as compared to scientists in 

the private sector. In light of these concerns, NIH management elected to change 

its ethics policies to conform to the OGE regulations and not pursue supplemental 

rules, thus easing restrictions on many outside activities. Since then, outside activities have been approved by NIH or Department ethics counselors in accordance with 

federal regulations. 

What should be allowed and what should not be allowed? 

On one hand, I believe it is essential that NIH retain the ability to recruit and 

retain the best scientific researchers in the world. In order to do this, we must be 

able to compete for their services. So, I think it is important that our scientists be 

allowed to receive bona fide awards for scientific accomplishments. NIH researchers 

should be allowed to teach, write textbooks, be inventors on NIH-held patents, and 

collaborate with for-profit and non-profit companies and institutions, but with appropriate limitations. As the German philosopher Goethe said, ‘‘knowing is not 

enough, you must apply what you know.’’ 

On the other hand, the research landscape has changed since 1995. Investments 

in research by pharmaceutical companies have surpassed the current budget of 

NIH. The biotechnology industry exploded with new companies and resources, as 

well. There are now many more opportunities for NIH scientists to be asked to collaborate with the private sector to share their knowledge and help apply it for tangible treatments. 

Given these events and the passage of time, I have reached the conclusion that 

it is appropriate for NIH to completely review the 1995 decision and its implementation by NIH. 

This is why I have asked that a Blue Ribbon Task Force, as an adjunct to the 

existing independent Advisory Committee to the Director of NIH, review all NIH 

ethics practices, ponder what types of collaborations with non-government organizations are necessary and appropriate, and make recommendations to me on reforms 

of our policies and procedures within 90 days of its formation. This panel will be 

co-chaired by two prominent individuals and will be composed of members of the 

highest reputation for independence and competence. 
8 

In the meantime, I have ordered that the NIH system for implementing ethics 

regulations be restructured to ensure consistency and a strict level of review. A new 

NIH Ethics Advisory Committee will review applications to receive compensation for 

certain outside activities, including payments from pharmaceutical or biotechnology 

companies and payments that exceed certain dollar thresholds. 

Finally, and most importantly, I have reached the conclusion that NIH must 

make changes that will appropriately restrict current practices. I will reserve judgment on specific changes until our internal review and the work of the Blue Ribbon 

Task Force is completed. 

I have discussed these steps with all of the NIH Institute and Center directors, 

who reaffirm that NIH’s first and foremost duty is to serve the American people. 

They are committed to helping me implement all necessary measures to insure that 

we eliminate real and apparent conflicts of interest. My goal is to erase any doubts 

that we remain worthy of the trust and confidence you have placed in us. 

Thank you for the opportunity to testify. I look forward to working with the Congress as we move forward. I will be pleased to answer any questions you may have. 

Senator SPECTER. Thank you, Dr. Zerhouni. 

We have a very large attendance here today. We have quite a 

few chairs on the dais. Those of you who are standing in the rear 

are welcome to come up and sit on the staff chairs. You may do 

so without any obligations to do staff work. 

After all the staff chairs are filled, you may sit where the Senators sit and you will be subject to all the disadvantages of being 

a Member of the Senate if you sit in the Senator’s chair. But you 

are all welcome to come up, and I would urge you to do so so that 

people who are in the hall can gain access and as many people as 

possible will be able to hear what we are doing in the room. 

Dr. Zerhouni, thank you for your testimony. 

The funding of NIH has always been difficult. As Senator Harkin 

has noted, we have more than doubled NIH funding. Since he and 

I took over the joint operation of this subcommittee, it moved from 

$12 billion to $28 billion. Last year we did not get as much as we 

wanted, and when the opponents of additional funding have something to look to or to pick at, it is going to make it very difficult 

or perhaps impossible, so that we have to answer these questions. 

Let me take up with you, without identifying the individuals involved or the companies, some specific cases. 

One pharmaceutical company paid an NIH employee in excess of $100,000 when the company was working on a way to produce a 

cancer drug, and the individual who received the fee in excess of 

$100,000 helped lead two NIH-funded studies in which the pharmaceutical company played a crucial role. 

Now, first of all, under your procedures, how does a pharmaceutical company play a crucial role in an NIH-funded study? 

Dr. ZERHOUNI. There are many ways this can happen. In some 

instances, the pharmaceutical company may have a reagent or compound or drug that needs to be tested. In other cases the disease 

that is under consideration is a rare disease, a disease that needs 

to have trials made, and so—— 

Senator SPECTER. Let me move on to the second part. We have 

a very limited amount of time and many witnesses. 

In that context, is there not an inherent conflict in having the 

NIH employee paid very substantially by the pharmaceutical company and collaborate with the pharmaceutical company in NIHfunded studies? 

Dr. ZERHOUNI. It will be a conflict if anything that the scientist 

does is related to his or her Government work or any activities 
9 

within the NIH. Those activities are forbidden. The only activities 

that are allowed is when the scientist is giving advice in an area 

of knowledge that is not part of his official duties. 

Senator SPECTER. Well, it would require a very intensive investigation to make a determination as to whether that line was 

crossed. 

Dr. ZERHOUNI. I totally agree. 

Senator SPECTER. Your Department nor this oversight committee 

is in a position to make that kind of an intensive investigation. So 

what I want you to do is to make a determination as to whether 

it is realistic to have that kind of activity undertaken. 

Let me move to a second example. A certain biotech company 

was engaged in gene therapy research, and an NIH investigator became a paid consultant receiving in excess of $300,000 in consulting fees and stock options. Now, the individual became a shareholder in the company and for 2 years did not disclose the holding 

on his annual financial report. There is no question about that 

being a violation, and it was explained by the individual saying 

that it was an error. 

What is the consequence to an NIH employee who has this kind 

of a relationship and does not make the required financial disclosure? 

Dr. ZERHOUNI. Senator, I am in total agreement with you. I think 

you are identifying what I personally believe—— 

Senator SPECTER. No, do not be in full agreement with me. Answer the question. 

Dr. ZERHOUNI. No, but I agree. 

Senator SPECTER. Answer the question. What is the consequence 

of not making a financial disclosure? 

Dr. ZERHOUNI. The consequence of not making a financial disclosure is a violation of the rules. There is no doubt that we need full 

transparency and that is why I am going forward—— 

Senator SPECTER. Do you know the matter that I am referring 

to? 

Dr. ZERHOUNI. I think I do. 

Senator SPECTER. What happened to this individual who did not 

make the appropriate disclosure? 

Dr. ZERHOUNI. This is the matter that is being reviewed fully at 

this time, Senator. 

Senator SPECTER. Well, what needs to be reviewed if you have 

an open and shut case that there was not a disclosure made as required by law? Are you not in a position, knowing that, to impose 

a sanction if one is appropriate? 

Dr. ZERHOUNI. The matter is under review. 

Senator SPECTER. My time is up, but yours is not, Dr. Zerhouni. 

Dr. ZERHOUNI. This matter is under review and if there is action 

to be taken, I will. I think we need to have appropriate due diligence and appropriate steps to be taken. They are being taken. 

But again, I agree with the statement that you made that we 

need full transparency in these relationships and full review. It is 

complex in many cases, and this is why I have empaneled this 

panel to help us find out what is exactly the procedure that we 

need to follow that would serve us best. 
10 

Senator SPECTER. My time has expired, so I am not going to ask 

you why there needs to be full review on a matter so conclusive. 

But I would ask you to submit promptly a written answer to the 

subcommittee. 

Dr. ZERHOUNI. I will, sir. 

Senator SPECTER. Senator Harkin. 

Senator HARKIN. Thank you very much, Mr. Chairman. 

I will not get into specifics of the case that Senator Specter 

brought up. I think he has made it quite clear. 

I am more concerned again about this idea of transparency. I 

guess for some reason, I think it has come as somewhat a surprise 

to a lot of people—and correct me if I am wrong on this—that the 

kinds of financial arrangements that some scientists at NIH have 

with outside private entities are included in a report that goes to 

you or included in a filing that they make at NIH, but that is not 

subject to the Freedom of Information Act. Is that correct? 

Dr. ZERHOUNI. That is correct for a certain category of employee. 

According to our Office of Government Ethics rules, those within 

certain pay bands file differently and those are disclosed internally 

and to the supervisors. They are not made publicly available. And 

the Office of Government Ethics representative is here to answer 

those questions. 

Senator HARKIN. Were those made publicly available prior to 

1995? 

Dr. ZERHOUNI. No. Prior to 1995, this pay system was not used. 

So prior to 1995, we had a different set of rules. The rules changed 

in 1995. 

Senator HARKIN. I guess I am asking was there transparency 

prior to 1995 on what financial arrangements scientists at NIH 

might have had with outside entities? 

Dr. ZERHOUNI. Prior to 1995, the rules limited greatly the ability 

to interact. 

Senator SPECTER. Excuse me for one moment on an interruption. 

Senator HARKIN. Yes. 

Senator SPECTER. I have to go to the Judiciary Committee for a 

few moments. So would you continue with Dr. Zerhouni and I will 

return as soon as I can. 

Senator HARKIN. Do you want me to call the next panel up? 

Senator SPECTER. I would like you to talk to him, if you can, if 

you have sufficient questions for Dr. Zerhouni. I should be back in 

just a few minutes. 

Senator HARKIN. Okay, fine. All right. Thanks. 

I was trying to figure out prior to 1995 a scientist who had an 

arrangement with an outside private entity, was that subject to 

transparency? When I say transparent, like Freedom of Information. Was that changed in 1995? If so, how was that changed? 

Dr. ZERHOUNI. What was changed in 1995 was the ability to have 

interactions with the private sector. The pay system was changed 

later. There is no connection between the change in the pay system. The pay system was changed to be able to recruit and retain 

scientists. 

Senator HARKIN. I remember it well. Dr. Varmus was here at the 

time. 
11 

Dr. ZERHOUNI. Right. It was independent. There is no connection 

between the two. 

Senator HARKIN. I understand that. Ellen just told me. Okay. 

Prior to 1995, the change in the pay system. I am under the understanding that NIH scientists had to make public disclosure of all 

of their financial arrangements with outside entities. 

Dr. ZERHOUNI. That is correct. 

Senator HARKIN. After 1995, now I understand it is like 94 or 95 

percent of them do not have to do that. 

Dr. ZERHOUNI. That is correct. With the change in the pay system, unrelated to the conflict of interest issue, the rules obligate 

disclosure internally of all relationships, but not because of the 

type of Federal documents they are filing. Those are not available 

through the FOIA. 

Senator SPECTER. Well, how do you feel, Dr. Zerhouni? I thought 

I heard your testimony and you talked about transparency. I wrote 

it down here. How do you feel about that? 

Dr. ZERHOUNI. I feel that transparency is absolutely critical. It 

is needed, necessary. I think it needs to be done appropriately. Remember, 94 percent do not file. Only less than 3 percent of our scientists are involved in any one of these relationships. So we need 

to make sure that we establish rules that are specific to NIH and 

human subject research. The Federal Government rules at large, 

which are the ones that we have to follow, in my opinion are not 

sufficient and they need to be reviewed and improved. 

Senator HARKIN. Well, I commend you for appointing this blue 

ribbon commission. I do not know who all the members are going 

to be, but you have got the commission. What time frame do they 

have? What time frame are you trying to give them? 

Dr. ZERHOUNI. I have asked them to do this in 90 days, sir. 

Senator HARKIN. Are there any other steps being taken? 

Dr. ZERHOUNI. Yes. I have established an NIH advisory ethics 

committee. I have asked the Office of Government Ethics to give 

us a temporary waiver so that disclosures of all relationships for 

individuals at NIH with fiduciary responsibilities like directors, 

deputy directors, so that that can be disclosed. 

I would like to also remind everyone that directors, no matter of 

their pay system, have always publicly disclosed their relationships. There were three institute directors that were involved in 

any of those. As of this moment, no director at NIH has any outside biotech or PhRMA relationship. Those have been stopped. 

Senator HARKIN. Is it possible that private companies benefit 

simply from being able to tell shareholders and board members 

that they have got an NIH director or scientist as a consultant? In 

other words, could NIH scientists be hired or compensated by a private company just to give sort of a sense that the company has the 

approval of NIH type of thing? I mean, this is a big stamp of approval when you have a director or a assistant director of one of 

the NIH institutes consulting with a company. 

Dr. ZERHOUNI. As I alluded to in my testimony, I think the industry landscape has changed and biotechnology companies are involved in raising investment funds. And that issue is going to be 

a core issue that I am asking the panel to review because I do be-
12 

lieve that there may be that perception, and that is something we 

need to tackle. 

Senator HARKIN. Do you have any idea how many NIH scientists 

have received stock as compensation for consulting work? 

Dr. ZERHOUNI. Not the exact number, but I can tell you the total 

number of current NIH scientists is about 200 scientists who are 

consulting in one way or another. 

Senator HARKIN. But we have no idea how many are compensated just monetarily or how many are compensated with stock 

or stock options. 

Dr. ZERHOUNI. We have that information. I do not have it offhand, but I certainly will provide it to you. But it is around 200 

scientists, 300 agreements. A very small number of them—I cannot 

tell. Maybe my staff will bring me the answer before the end of the 

hearing. But the stock option or stock ownership is limited to 

maybe 10 or 20. I do not know the number, but it is a small number. 

Senator HARKIN. Do you believe that stock ownership in companies with NIH-funded research presents an ongoing conflict of interest that should be looked at differently in a code of ethics, differently from direct compensation? 

Dr. ZERHOUNI. Again, I do not want to prejudge what the panel 

will say, but in my own experience as a dean at a medical school, 

we believed very strongly that stock ownership should be treated 

very differently and does present problems different than simple 

compensation. 

Senator HARKIN. Yes. I think that also is a problem because compensation is one thing, but having stock in a company and you are 

hoping that stock goes up, in other words, goes through the roof, 

that is quite another thing. And I think that raises some real serious questions. 

I have just one other question about the practice of recusals in 

which scientists recuse themselves from making decisions that involve companies that they have private dealings with. Again, certainly we do not want them making decisions that would cause a 

conflict of interest, but when they recuse themselves too often from 

decisions that they ought to be making internally at NIH, if they 

were not involved with these companies, then I am concerned that 

they might not be doing their main job, their NIH job. So again, 

if they are working for a company and they adhere to ethics and 

say, okay, I am going to recuse myself from this decision making 

process, are we, the public, not being a little short-changed from 

having their expertise applied at the institutes? 

Dr. ZERHOUNI. I see your point and I agree that this is a point 

that needs to be looked into. However, as I looked into it, there are 

details here that we need to make sure we understand. If it is a 

scientist that has authority, a director, a deputy director, a scientific director, it is one issue. If it is a scientist who has no authority—and remember, scientists at NIH do not have authority 

over granting decisions—then it is a different matter. So I believe 

that there should be a differentiation between those who have authority and those who do not. 

For example, if you have a scientist who is asked to—he is, let 

us say, a human genome expert, knows about genomics and genet-
13 

ics—consult with a company that is trying to develop a vaccine 

against mad cow disease, completely unrelated, would that be allowed or not allowed? Is there any decision that that scientist 

would make? If the answer is yes, there are decisions that scientists could make that will affect that relationship, that should 

not be allowed. But if the scientist is in no position to make that 

decision, we do want to translate that knowledge to fields other 

than the direct research of the scientist. It is our job. I think Congress wants us to do that. 

That is where the tension is. What is the balance between what 

we need to do in the public’s interest to give our information, to 

get the best scientists to do that, while not tainting the decisional 

process? 

So again, it is an issue that I think needs to be resolved, but I 

believe that perhaps instead of having a complete one-size-fits-all 

rule, I think the rules should be different for those who have authority from those who do not. 

Senator HARKIN. Well, as I look more into this and having been 

on this committee now for 18 years I guess, it is a tough problem 

because you cannot just say here is NIH and then here is the private sector and all the other companies that are translating basic 

research into lifesaving drugs and therapies and interventions. 

There is kind of—I do not want to use the word—a gray area sort 

of in there where what NIH is doing has to be translated in the 

private sector. 

I have said before there is a reason why NIH is called the National Institutes of Health. It is not the National Institute of Basic 

Research. It is the National Institutes of Health. It is the make 

people healthier. It is to find interventions. It is for applying, making sure that whatever basic research is done is applied in the 

field. So there is not this strict wall that you do basic research and 

then that is the end of it. I think we expect more of NIH than that. 

We expect NIH to be actively involved in translational research 

and getting the basic research done, but also how does this apply 

itself to the public in terms of healthier lives. That has always kind 

of been the genius of our system. You have the NIH. You do the 

basic research that the private sector really cannot afford to do because this is basic research. It is asking fundamental basic questions. But built upon that, the findings of that then are translated 

into further applied research. 

Now, where that ends and where the private sector takes up is 

kind of a funny area there. You cannot just draw a hard and fast 

line. I say that publicly. You cannot draw a hard and fast line. 

So I have long felt that NIH scientists and researchers need to 

have some sort of crossover, cross-fertilization with that private 

sector. They need to know what is happening out there and the private sector needs to know what is happening there. There needs to 

be that kind of a consultative process, for example. But in that consultative process, the people at NIH really need to have absolutely 

clean hands. 

I would not mind at all—I am just speaking personally and having viewed this for 18 years now—NIH researchers going to whatever XYZ corporation or company talking about what is being done 

at NIH, some of the new research, some of the new findings, hav-
14 

ing them ask questions about where we are headed in this area. 

I think that is all perfectly fine. But what I get concerned about 

is when that same NIH scientist then is compensated by a company, by one company to the exclusion of other companies and 

other entities out there. Then that skews the research towards one 

entity, not to a number of them. Perhaps maybe that one entity 

that is getting that benefit of that scientist’s knowledge in that consultative process, maybe that is not the best way for that research 

to be translated. Maybe another company has a better way but 

they are not getting the benefit of that. 

So I guess I am approaching this and saying, well, I want to 

have scientists be involved in that, but they cannot be compensated 

by a company. They just cannot be because it skews it. 

Now, if a scientist at NIH at some point in his or her life wants 

to leave NIH and go to the private sector, that happens all the 

time. That happens with Members of the Senate and staff. So I understand that. While they are in Government service, whether they 

are here in the legislative end or the administrative end, they just 

should not be getting compensated from other companies like that. 

Like I said, if they want to leave NIH and go to a private company 

and take their expertise, that is life but not while they are working 

at NIH. So that is just my thoughts on that, and I just wonder if 

you have any response. 

Dr. ZERHOUNI. I think you are addressing the core issue, and 

NIH has thought about this for years. We should remember we 

have very, very elaborate systems to prevent one company from 

benefitting from another when there is a collaboration. We have a 

process called CRADA, collaborative research and development 

agreement. This is an open process. It is independent of the scientist who is collaborating actually. Scientists cannot receive compensation when they are collaborating with a research entity or a 

company outside. The CRADA is competitive. It is a bid process so 

that we, in fact, select what is the better company to develop, let’s 

say, a vaccine or any other measures. Those have no compensation 

attached to them. A collaboration between the scientist and his or 

her work with any outside entity, a private company or a university, that is not allowed. 

The only things that are at issue—NIH does not allow compensation for scientific collaborations or cooperative research and development agreements to the scientist involved. Those are the rules 

as they exist today. 

However, consulting that is considered an outside activity unrelated to the scientist’s activity at NIH as reviewed by our current 

system could be allowed, as in the case of someone giving genomic 

information to an unrelated field of science that is unrelated to 

what they do. 

So in addressing the point you are making, I think we need to 

make sure that those rules are well understood, that they accomplish the goal you are seeking, which I think is the same goal. We 

want to make sure that there is no such gray zone. 

So any collaboration, any cooperative research and development 

agreement, no scientist gets any compensation for that. That is illegal at NIH today. However, a consultation that is unrelated to 

their research which is qualified as an outside activity, not on Gov-
15 

ernment time, and not using any Government resource or information, that is the point at issue here. 

Senator HARKIN. But, Dr. Zerhouni, I understand about the cooperative research agreements that are made. I am getting to the 

point of a highly placed scientist at NIH intimately involved with 

the development of a certain therapy or drug or whatever that then 

consults with a company. Even though there may be a cooperative 

agreement somewhere else, on the side they are going out on their 

own time, I am told, and consulting with a company on that very 

issue. On that very issue. So there is a financial arrangement that 

could be circuitous, you know, background. 

I see Ruth shaking her head no, but I will ask you later about 

that. But I am concerned about that because of a couple of cases 

that have come up. 

Now, it is not where a scientist at, let’s say, Infectious Diseases 

is consulting on heart, lung, and blood or on something else. They 

are consulting on what their area of expertise is. Is that not so? 

Dr. ZERHOUNI. The situation you describe about a collaborative 

research agreement and then the scientist taking a consulting relationship, that is not allowed. That is illegal. If that happens, that 

would be addressed. 

Senator HARKIN. Let me figure this one out. 

Dr. ZERHOUNI. All right. 

Senator SPECTER. Dr. Zerhouni, there is one other specific case 

which I would like to get your view on, and that is the situation 

where an individual at NIH received in excess of $1 million in fees 

over more than a decade and stock options for hundreds of thousands of dollars. And the company formally collaborates on research with his laboratory. With that general description, are you 

familiar with the situation that I am referring to? 

Dr. ZERHOUNI. I am and we are reviewing this case in particular. 

I am told that the numbers that were reported in the press are 

somewhat overstated because of the ranges in which the reports 

are made. That is number one. 

Number two, I am very concerned that if, indeed, there was that 

relationship, that would be a violation of our current rules. However, our review to date does not show that this was the case, that 

the individual performed research for those consulting entities. 

Senator SPECTER. We would like to get into the specifics of that. 

With the extra time on this round, may I come back to the point 

of the failure to have the financial disclosure filed? How long ago 

was that called to your attention? 

Dr. ZERHOUNI. Basically this was called to my attention this 

summer when the issue of lecture awards came up through Congressman Greenwood’s committee for one of our directors. 

Senator SPECTER. Have you taken any action in response to the 

clear-cut violation of not making the financial disclosure report? 

Dr. ZERHOUNI. Well, that is the issue that is at issue here because there is no violation of whether or not these reports are disclosed to the public. All scientists at NIH disclose internally, but 

if they are under a certain pay system, they are not obligated or 

the Federal Government rules do not allow us to make those 

records public. The Acting Director of the Office of Government 
16 

Ethics is here and can comment at great length on that issue in 

particular. 

But our intent again is to have full transparency, and one of the 

issues I am asking the blue ribbon panel to look at is to what extent disclosure should be made without undue stress on the system. Again, although the report says 94 percent of our scientists 

do not disclose, we should remember 3 percent of our scientists are 

involved in any one relationship of this kind. So we have to be cognizant of the fact that to me what is important is transparency, 

and we need to be able to do it. The rules do not allow us to do 

it, not that NIH does not want to do it. 

Senator SPECTER. We have been joined by the distinguished 

chairman of the full committee, Senator Stevens. 

STATEMENT OF SENATOR TED STEVENS

Senator STEVENS. Thank you very much, Mr. Chairman. My 

voice is not exactly what it should be, but I am pleased to be here 

today with Dr. Zerhouni. I think NIH is in very capable hands 

under your leadership. 

This committee has more than doubled the amount of money that 

is available to NIH for basic research in the last decade, and I 

think that the issues involving collaboration between NIH scientists and biotech and pharmaceutical industries are very important issues to all of us. We have been working to get some of the 

best researchers in the world working at NIH on basic and applied 

research. Without encouraging them to work together with biotech 

companies and the pharmaceutical industry, the fruits of their research might not reach the taxpayers who really are basically funding this research. 

I am disturbed that some would characterize the very existence 

of contractual relationships between NIH researchers and biotech 

companies as somehow or other unethical. As I understand it, these 

researchers at NIH had sought and received clearance from their 

superiors and had followed the agency’s procedure in entering into 

these relationships. Now, if that policy of how that clearance is 

achieved is something that is being criticized, then I would hope 

that you would review that, and I commend you for your efforts to 

make this area more transparent. 

I also believe we have to encourage collaboration rather than 

putting some sort of a taint on it as these researchers do enter into 

such agreements. Since the mid-1980’s, it has been the policy of our 

Government to encourage technology transfer from the laboratory 

to private companies. This allows the results of medical research 

to be developed into new treatments and therapies to benefit all 

Americans at the earliest possible time. We have made this enormous investment that I have mentioned in medical research at 

NIH, and I think we must continue to press forward. With this 

baby boomer generation coming at us, we must be able to apply the 

fruits of this research as quickly as possible. I do not think there 

would be any disagreement with this. Without collaboration between NIH and its scientists and the biotech community, that 

would not be possible. 
17 

PREPARED STATEMENT

Having been subject lately to a little criticism concerning my own 

situation, I am a little sensitive to this, as a matter of fact. I am 

sensitive to the fact that I do not think the newspaper industry has 

transparency. I do not think they disclose their collaboration or 

their contracts. We could not mandate that because of the First 

Amendment. I do not know if you know that, Dr. Zerhouni. But I 

think voluntarily we ought to see some information forthcoming 

from the newspaper industry to tell us who in their groups are getting paid by those who they are reporting about. Some way or 

other, there should be more balance in this society of ours, and people should investigate and determine if the system is working before they taint those who are working under the system. 

Thank you very much, Mr. Chairman. 

[The statement follows:] 

PREPARED STATEMENT OF SENATOR TED STEVENS

Thank you, Mr. Chairman. I’m pleased to welcome Dr. Zerhouni before our panel 

today. I believe NIH is in excellent hands under your capable leadership. 

The issue of collaboration between NIH scientists and the biotech and pharmaceutical industries is an important one. We have some of the best researchers in 

the world working at NIH on basic and applied research. But without encouraging 

them to work together with biotech companies, the fruits of their research will not 

reach the taxpayers who are funding the research. 

I am disturbed that some would characterize the very existence of contractual relationships between NIH researchers and biotech companies as somehow tainted 

and unethical. As I understand these allegations, the researchers at NIH had 

sought and received clearance from their superiors and had followed agency procedure in entering into these relationships. 

I commend Dr. Zerhouni for his efforts to make these relationships more transparent, but I also believe we need to encourage this kind of collaboration rather 

than putting eminent researchers ‘‘on trial.’’ 

Since at least the mid-1980’s it has been the policy of our government to encourage ‘‘technology transfer’’ from the laboratory to private companies. This allows the 

results of medical research to be developed into new treatments and therapies to 

benefit all Americans at the earliest possible time. 

We have made an enormous investment in medical research and in NIH—and we 

must continue to expand that investment. But without the collaboration between 

NIH, its scientists and the biotech community, we will not be able to translate that 

investment into treatments for diseases. 

I look forward to hearing your testimony and to your continued leadership at 

NIH. 

Senator SPECTER. Thank you, Mr. Chairman, Senator Stevens. 

Dr. Zerhouni, at the request of Congressman Tauzin and Congressman Greenwood and myself we have asked for the compilation 

of the total number of consulting arrangements and have been advised that there are more than 1,500. Short-term arrangements at 

579, long-term arrangements of 365, total number of employees of 

527, total number of long-term arrangements on another category 

at 936. And it is obvious that this poses a very, very substantial 

problem. To deal with them on an individual basis is going to be 

enormously complicated to investigate each one of these matters 

and make some determination. 

Do you have any plan as to what you are going to do immediately to deal with this issue as you work through the analysis of 

each one of these arrangements? 

Dr. ZERHOUNI. The numbers you mentioned, Senator, are the cumulative numbers over 5 years. The active agreements currently at 
18 

NIH are about 365. Of those, some are long-term, some are shortterm, 1-day consultations. 

So what I did is I established a review process in my office 

through a central committee that will review every relationship 

and all relationships that involve any individual with any authority 

at NIH, directors, deputy directors, scientific directors, anyone who 

has authority over a decision, and second, every relationship with 

industry will be reviewed. 

Senator SPECTER. Are you taking any action to suspend these arrangements while the investigation goes on? 

Dr. ZERHOUNI. Basically we have suspended any approval until 

this system is in place. 

Senator SPECTER. Are you saying that you are suspending these 

arrangements while the investigation goes on? 

Dr. ZERHOUNI. I have to follow the rules and regulations. I can 

change the process. I cannot change the rules and regulations that 

govern NIH now. The review process is to change the regulation. 

My process is to review and evaluate every single relationship as 

they exist today for every scientist, about 200 scientists. 

Senator SPECTER. Are you saying that the current rules and regulations preclude you from suspending these arrangements until 

the rules and regulations are modified? 

Dr. ZERHOUNI. The rules and regulations as they exist—and I 

would like to have the Acting Director of the Office of Government 

Ethics report on that, but my understanding is I cannot change the 

rules without new regulations being promulgated. 

Senator SPECTER. How long would you expect it to take to promulgate new rules and regulations? 

Dr. ZERHOUNI. I am told by the Office of Government Ethics they 

will collaborate with us as diligently as they can, including if we 

need some help from Congress. I want the review to be done within 

90 days and the implementation of the changes be done as soon as 

possible after that. 

Senator SPECTER. Are you setting a 90-day time limit? 

Dr. ZERHOUNI. I am setting a 90-day time limit for the outside 

independent review panel to review our policies, procedures, rules, 

regulations and make firm recommendations. 

Senator SPECTER. Well, apparently you are not in the position to 

say now because I have asked you and you have not responded precisely to the question as to how long it will take to change the rules 

and regulations. Would you provide the subcommittee with a time 

line as to how long all of this is going to take so we have some idea 

as to what is going to be happening in the interim? 

Dr. ZERHOUNI. I will do so, Senator, but again, that is not necessarily all under my control, as you well know. It has other entities—— 

Senator SPECTER. Well, would you specify what is not under your 

control so that the subcommittee can make an evaluation of that? 

Dr. ZERHOUNI. I will do so. 

Senator SPECTER. Okay. Thank you very much, Dr. Zerhouni. 

Dr. ZERHOUNI. Thank you, Senator. 

Senator SPECTER. Now I would like to call the second panel: Ms. 

Marilyn Glynn, Mr. Edgar Swindell, and Dr. Ruth Kirschstein. 
19 

Our first witness on this panel is Dr. Ruth Kirschstein who currently serves as Special Advisor to the Director. Previously Dr. 

Kirschstein had been acting Director of NIH for more than 2 years 

between January 2000 and May 2002, and prior to that post, Dr. 

Kirschstein served as agency ethics official from 1993 to 2003. She 

has a long-term record of outstanding service to NIH going back to 

1956 as a medical officer in clinical pathology, a bachelor’s degree 

magna cum laude from Long Island University and an M.D. from 

the Tulane University School of Medicine. 

Dr. Kirschstein, you have appeared before this subcommittee 

many, many times. We welcome you back. The floor is yours. In accordance with our practice, the statements will be limited to 5 minutes. 

Dr. KIRSCHSTEIN. Thank you, Mr. Chairman. As you said, I am 

currently the Senior Advisor to the Director of NIH, and I am going 

to have to get some water, if you will pardon me for a minute. 

Senator SPECTER. May I again invite people who are standing in 

the rear of the room to come up and take the chairs which are behind the bench here, either the staff chairs or the Senators’ chairs. 

You are welcome to sit down. If you come up, you will allow more 

people. Whoever is the custodian of the door, would you tell people 

outside who are waiting that they can come up and take chairs 

that others are reticent to take? 

Dr. Kirschstein, you will be glad to know we have not started the 

clock yet. 

Dr. KIRSCHSTEIN. Thank you, sir. I am appearing today before 

the committee to describe the role of the NIH Deputy Ethics Counselor as part of the duties of the Deputy Director of NIH. I had anticipated that Ms. Glynn and Mr. Swindell would precede me so 

that they would have described some of the process. However, I 

should—— 

Senator SPECTER. Would you prefer that they go first? 

Dr. KIRSCHSTEIN. Well, it would perhaps make the process more 

transparent to you, but it is fine with me if you would like me to 

go ahead. 

Senator SPECTER. Well, if it would be more orderly to proceed the 

other way. They were listed ahead of you on the schedule. 

Dr. KIRSCHSTEIN. That is why I made that assumption, sir. 

Senator SPECTER. I immediately saw you number 3 and for me 

you are number 1. 

Dr. KIRSCHSTEIN. Thank you, sir. 

STATEMENT OF MARILYN L. GLYNN, ACTING DIRECTOR, OFFICE OF 

GOVERNMENT ETHICS 

Senator SPECTER. Which was the reason I made you number 1. 

That is the chairman’s prerogative, but if it would be more orderly 

to proceed, we will go to Ms. Marilyn Glynn first, Acting Director 

of the U.S. Office of Government Ethics. She serves in the Office 

of General Counsel, a position she has held since 1977. Undergraduate from Emmanuel College in Boston, a law degree from the 

Washington College of Law, the American University in Washington, D.C. Thank you for joining us, Ms. Glynn, and we look forward to your testimony. 
20 

Ms. GLYNN. Good morning. I will try to move up to number 1 

now in your estimation. 

As you said, I am the Acting Director of the Office of Government 

Ethics (OGE). Thanks for the opportunity to appear today to discuss the ethics program in the executive branch and at NIH as 

well. I respectfully request that my written statement go in the 

record, which is rather lengthy. 

Senator SPECTER. Without objection, it will be made a part of the 

record. 

Ms. GLYNN. OGE is the executive agency responsible for directing policies relating to the prevention of conflict of interest on the 

part of executive branch employees. As the supervising ethics office 

for the executive branch, OGE has issued and provides guidance on 

standards of conduct for executive branch employees, rules relating 

to financial disclosure and the criminal conflict of interest laws. 

While developing and publishing rules is an important part of 

OGE’s role, it is in a sense only the starting point. With an emphasis on education and prevention, OGE works with agencies to implement these rules by assisting agencies in carrying out their responsibilities. The head of each agency has the primary responsibility for the ethics program at his agency and appoints a designated agency ethics official, or DAEO as we call it, to manage the 

ethics program. OGE works with DAEO’s through one-on-one consultation, education, and outreach and periodic program reviews. 

A little history is in order to explain the evolution of the ethics 

rules being looked at today. In 1989, then President Bush created 

a commission to evaluate the existing ethics program in Government. Based on the commission’s recommendations, President Bush 

directed my office to develop and issue a single comprehensive set 

of standards of conduct and directed agency heads to develop supplemental rules where necessary to meet unique needs. One of the 

President’s goals—and this is something you touched on earlier, 

sir—was to balance the need for exacting rules that ensure that 

employees will act with the utmost integrity against the need to 

avoid rules that are so restrictive that able people will be discouraged from entering public service. Striking this balance was an important factor in developing the standards of ethical conduct and 

it continues to inform my office’s interpretation of the ethics rules 

and laws. 

In 1993, when the new standards became effective, agency-specific regulations were largely supplanted. Agencies were expected 

to bring inconsistent policies into compliance with the new standards or to issue supplemental regulations with OGE’s concurrence. 

As I stated earlier, OGE monitors agency ethics programs 

through periodic program reviews. In large agencies, OGE may 

look at specific components rather than the entire agency. These 

reviews generally focus on program elements rather than the individual cases of misconduct. 

In 1995, OGE conducted a program review at NIH looking at 

three institutes. In general, we found that NIH had a good ethics 

program. As part of this review, which was the first one at NIH 

after the new standards came into effect, OGE found that certain 

NIH policies relating to outside employment were inconsistent with 

the new standards. As such, we recommended that these policies 
21 

be revised to be consistent with the new rules. We also noted that 

HHS could consider proposing supplemental rules that imposed 

more stringent rules on employees of NIH if necessary. HHS did 

issue a supplemental regulation in 1996 that included prohibitions 

on certain types of outside activities and employment for HHS employees generally, as well as some provisions relating to specific 

HHS components, but they did not propose any special rules for 

NIH employees. 

In the year 2000, my office conducted another program review, 

this time looking at three different institutes. Overall, we found the 

programs at these institutes to be sound. 

We have now initiated a 2004 review of the NIH ethics program. 

This review is being performed at the Office of the Director of the 

NCI, the National Institute of Allergy and Infectious Diseases and 

the Clinical Center. Though this review had long been planned for 

2004, in light of recent news reports concerning the ethics program 

at NIH, we moved the start date up and tailored the focus to current concerns. 

I have discussed specific rules regarding outside activities and 

employment and the public financial disclosure system in some detail in my written testimony, so I will not repeat that here. 

PREPARED STATEMENT

In closing, I want to say that I want to work with you as well, 

with NIH and with HHS to address the problems that have been 

identified and to ensure that the public has the highest confidence 

in the important work going on at NIH. 

[The statement follows:] 

PREPARED STATEMENT OF HON. MARILYN L. GLYNN

Mr. Chairman, Senator Harkin, and members of the subcommittee: Thank you for 

the opportunity to appear today to discuss the policies and procedures in place to 

avoid conflicts of interest in the executive branch generally and at the National Institutes of Health (NIH) in particular. Mr. Chairman, you requested that the Office 

of Government Ethics (OGE) ‘‘provide an overview of how ethics rules and regulations are determined and implemented throughout the executive branch and the role 

of the Office of Government Ethics.’’ In addition, you requested that OGE ‘‘summarize the results of any ethics audits that the Office of Government Ethics has conducted at the NIH within the last 10 years’’ and provide documents relating to these 

audits. 

THE EXECUTIVE BRANCH ETHICS PROGRAM AND OGE’S ROLE

Established by the Ethics in Government Act of 1978, OGE is the executive 

branch agency responsible for directing policies relating to the prevention of conflicts of interest on the part of Federal executive branch officers and employees. As 

the supervising ethics office, OGE develops rules relating to ethics and conflicts of 

interests, establishes the framework for the public and confidential financial disclosure systems, develops training and education programs for use by executive branch 

ethics officials and employees, and supports and reviews individual agency ethics 

programs to ensure they are functioning properly. 

While OGE provides direction and overall leadership to the executive branch ethics program, the head of each agency has primary responsibility for the ethics program at his agency. Each agency head appoints a Designated Agency Ethics Official 

(DAEO) to manage the ethics program and act as a liaison to OGE. The DAEO and 

his staff ensure that the required ethics program elements are accomplished. Basic 

elements and responsibilities of an agency ethics program include effective collection 

and review of financial disclosure reports; ethics training that meets the requirements of OGE’s training regulations; an employee counseling program; and prompt 

and effective action for violations of the ethics rules. Additionally, an agency that 
22 

wishes to supplement the Standards of Ethical Conduct to meet its particular needs 

may submit a proposed supplement to OGE for concurrence and joint issuance. 

Through its role to provide direction and leadership to executive branch agencies 

and departments, OGE supports high ethical standards for employees and strengthens the public’s confidence that the Government’s business is conducted with impartiality and integrity. 

As the supervising ethics office of the executive branch, OGE has developed and 

issued various executive branch-wide regulations in Title 5 of the Code of Federal 

Regulations, including the Standards of Ethical Conduct for Employees of the Executive Branch (Part 2635), rules that implement the financial reporting requirements 

in the Ethics in Government Act (Part 2634), and rules that implement criminal 

conflict of interest laws (Parts 2635, 2637, 2640, and 2641). Pursuant to the Ethics 

in Government Act and Executive Order 12674 (as modified by E.O. 12731), these 

regulations are issued after consultation with the Attorney General and the Office 

of Personnel Management. 

While developing and publishing rules are important and central elements of 

OGE’s role in providing direction and leadership to the executive branch ethics program, it is, in a sense, only the starting point. With an emphasis on education and 

prevention, OGE works with agencies to implement these rules by assisting agencies 

in carrying out their responsibilities through training of ethics officials, sponsoring 

regular national and regional conferences, and communicating with agencies 

through memoranda to agency ethics officials (‘‘DAEOgrams’’) and an electronic list 

service. Additionally, to ensure consistency in the interpretation of its rules, OGE 

issues redacted versions of important advisory opinions it issues each year. 

To ensure that DAEOs receive accurate and timely consultation on ethics issues, 

OGE also provides one-on-one consultation to agencies through its attorneys and a 

desk officer system in which each agency is assigned an individual ethics specialist 

as a primary OGE contact. OGE attorneys and desk officers assist agencies on a 

wide range of ethics issues, including responding to questions regarding application 

of specific rules in the Standards of Ethical Conduct, providing assistance in analyzing conflict of interest questions, and responding to questions relating to implementation of the financial disclosure systems. 

In addition to these outreach activities with agencies, OGE is responsible for monitoring and evaluating the executive branch ethics program. This function is accomplished through periodic program reviews of the ethics programs at each agency. 

The purpose of the review is to ensure that agencies have developed effective ethics 

systems and procedures, in compliance with OGE regulations, to prevent conflicts 

of interest and other violations of ethics laws and regulations. Individual misconduct 

by employees is investigated by the Office of Inspector General responsible for each 

agency. I will discuss our review process in greater depth later in my testimony. 

POLICIES AND PROCEDURES FOR AVOIDING CONFLICTS OF INTEREST

1. New Standards of Ethical Conduct Issued in 1993 

The current Standards of Ethical Conduct, at 5 C.F.R. Part 2635, became effective 

in 1993. Prior to that, ethics rules were located in numerous sources and implemented in a decentralized, sometimes inconsistent, manner largely by individual 

agencies. In 1989, President George H.W. Bush created the President’s Commission 

on Federal Ethics Law Reform to evaluate the existing ethics program and make 

recommendations for improvement. One of the Commission’s central recommendations was that OGE consolidate all executive branch standards of conduct regulations into a single, uniform set of rules. The Commission found that ‘‘the sheer bulk 

of ethics statutes and rules, inconsistent rules, and varying interpretations have 

contributed greatly to making compliance difficult. To the extent that rules and interpretations can be standardized, the rules can be more easily understood and compliance will be facilitated.’’ President’s Commission on Federal Ethics Law Reform, 

To Serve with Honor, p. 93 (March 1989). In addition to a standardized set of rules, 

the Commission recognized that some agencies would need to have supplemental 

regulations specifically tailored to their needs. For example, owning stock in a particular company or industry could pose a problem at one agency but not others. 

Shortly after the Commission issued its report in 1989, President Bush announced 

a comprehensive ethics reform proposal and an executive order that directed OGE 

to promulgate ‘‘regulations that establish a single, comprehensive, and clear set of 

executive-branch standards of conduct that shall be objective, reasonable, and enforceable.’’ Section 201(a) of Executive Order 12674 of April 12, 1989 (as modified 

by E.O. 12731). In addition, agency heads were directed to ‘‘[s]upplement, as necessary and appropriate the comprehensive executive branch-wide regulations of the 

Office of Government Ethics, with regulations of special applicability to the par-
23 

ticular functions and activities of that agency.’’ Section 301(a) of E.O. 12674. One 

of the premises of this package was the recognition of the need to balance the competing interests of having exacting rules that ensure employees will act with the utmost integrity with the need to avoid rules that are so restrictive that able members 

of the public will be discouraged from entering public service. Striking this balance 

properly was an important factor in the development of the Standards of Ethical 

Conduct, and it continues to influence OGE’s interpretation of the ethics rules and 

laws. Indeed, this is a continuous process, and OGE currently has a project focused 

on considering how to modernize and update the Standards with respect to outside 

activities, among other issues. 

At the time the Standards became effective, agency specific regulations were 

largely supplanted. To the extent that agency policy was inconsistent with the new 

rule, agencies were expected to bring those policies into compliance with the executive branch-wide Standards or issue supplemental regulations, with the concurrence 

of OGE, when a determination was made that doing so was necessary and appropriate in view of that agency’s programs and operations. To allow time to issue supplemental regulations, however, agency regulations that had prohibited specific financial interests or specific types of outside employment or that required prior approval for outside activities were allowed to remain in effect, through a series of 

grandfather provisions, for several years or until the agency had issued a supplement as a replacement. To date over 35 agencies, including the Department of 

Health and Human Services (HHS), have issued supplemental regulations. 

As discussed more fully later in this testimony, through a program review conducted at HHS in 1995—the first program review at that agency after the new 

Standards became effective in 1993—OGE determined that written guidance NIH 

provided to employees about criteria for permissible outside activities and employment was inconsistent with provisions in the new Standards. As such, OGE recommended that these policies be revised to be consistent with the new rules and 

noted that HHS could consider proposing supplemental regulations that addressed, 

should they determine it was necessary, more stringent criteria for employees at 

NIH. 

HHS did issue a supplemental regulation in 1996 that included prohibitions on 

certain types of outside activities and employment applicable to all HHS employees, 

including those employed at NIH. Specifically, HHS employees may not provide 

compensated professional or consultative services related to the preparation of any 

grant application, contract proposals, program report, or other document intended 

for submission to HHS. Additionally, HHS employees may not participate in compensated outside activities with respect to particular activities funded by HHS. This 

supplemental regulation also contains prohibitions on outside activities and employment applicable to employees of the Food and Drug Administration and the Office 

of the Chief Counsel, and to the outside practice of law by attorneys in the Office 

of the General Counsel. HHS did not propose any special standards for NIH employees in its supplemental regulation. 

2. Handling Conflicts of Interest Arising From Outside Activities (Including Employment) 

One of the major areas that can give rise to conflicts of interest questions is employees’ outside activities. Two basic issues must be addressed when an employee 

proposes to engage in an outside activity: whether the employee may participate in 

the outside activity and, if permissible, what rules apply to such participation. 

a. Conflicting Outside Activities and Judging Appearance Problems 

The Standards prohibit an employee from engaging in an outside activity that 

conflicts with his official duties. An outside activity will conflict with an employee’s 

official duties if it is prohibited by statute or an agency supplemental regulation, 

or if the disqualification required to avoid a conflict of interest is so central or critical to the performance of the employee’s official duties that his ability to perform 

his job is materially impaired. This provision recognizes that even if an outside activity is not prohibited under this standard, it may nonetheless violate other principles or standards and therefore be prohibited. See 5 C.F.R. § 2625.802. For example, even if a proposed outside activity does not conflict with an employee’s duties, 

it may be prohibited if it creates the appearance that the employee is using public 

office for private gain. 

When an employee wishes to participate in an outside activity for which a disqualification from certain matters is required to avoid a conflict of interest, a determination that the resulting conflict will materially impair that employee’s ability to 

do his job requires a judgment call based on a variety of facts, including the nature 

of the employee’s duties, the needs of the office, and the ability to reassign projects 
24 

in the office. However, whether or not a disqualification is required, an agency 

should consider whether the employee’s participation in the outside activity is prohibited by any other provision in the Standards, including if participating in the activity would create the appearance that he is using public office for private gain. 

The Standards provide that whether ‘‘particular circumstances create an appearance that the law or these standards have been violated shall be determined from 

the perspective of a reasonable person with knowledge of the relevant facts.’’ 5 

C.F.R. § 2635.101(b)(14). Agencies are undoubtedly in the best position to determine 

if an outside activity is permissible under these Standards generally, and with respect to appearances in particular. Some things that an agency should consider in 

making a decision about whether participation in an outside activity will create the 

appearance that an employee is using public office for private gain are the level of 

the employee’s position and the nature of his duties; the subject of the outside work 

and its relation to agency programs and operations; the identity of the outside employer and its relationship to the agency, including whether it receives grants or 

contracts; and the timing of the offer of employment. 

The Standards do not contemplate direct consultation on ethics issues between 

OGE and employees of other agencies. Rather, the regulations provide that employees and their supervisors should seek advice from their agency ethics officials and 

that those ethics officials may consult with OGE as necessary. The reason for this 

is clear: agencies are in a better position to know or develop the facts necessary to 

understand how the issue implicates agency programs. This is particularly true with 

respect to questions regarding appearances, and OGE will generally defer to agency 

determinations on these questions. 

OGE’s role in this process is to provide consultation, upon request, to agency ethics officials regarding application of the Standards and applicable laws. Such assistance may be provided through informal consultations over the phone, in meetings, 

or through the advisory opinion process. When necessary, OGE consults with the 

U.S. Department of Justice when an agency presents an issue of first impression 

with respect to one of the criminal conflict of interest statutes. While the final judgment on appearances rests with the agency, OGE has an important role in ensuring 

that agencies understand the rules and are applying them consistently across the 

executive branch. OGE may also provide agencies with input on these issues 

through its periodic program reviews. 

b. When an Outside Activity Is Approved 

The Standards of Ethical Conduct provide that an employee who is engaged in 

an outside activity must comply with all applicable provisions set forth in the rules, 

including rules that prohibit use of position or Government resources, information, 

and time in connection with outside activities and that relate to providing representational services on behalf of others before the Government. Particularly relevant 

in the context of the present inquiry are the rules that require employees not to participate in certain Government matters when their own interests, or the interests 

of others, are affected by such matters. 

Non-participation may be required in connection with an outside activity under 

one of two ethics provisions. Under 18 U.S.C. § 208, a criminal conflict of interest 

statute, an employee is prohibited from participating personally and substantially 

in any particular matter that would have a direct and predictable effect upon an 

employee’s own financial interest or upon the financial interests of her or her nonGovernment employer, among others. Adherence to the statute is accomplished by 

not participating in the particular matter. Under 5 C.F.R. § 502 of the Standards 

of Ethical Conduct, an employee is also required to recuse himself when he determines that his impartiality would reasonably be questioned if he were to participate 

in a particular matter involving specific parties where persons with whom he has 

certain personal or business relationships are involved. 

The obligation to recuse when necessary and to ensure that a disqualification is 

observed, always remains the personal responsibility of the individual employee subject to the disqualification. An employee should notify his supervisor when he becomes aware of the need to disqualify himself from certain matters because of a potential conflict of interest. Once notified, the employee’s supervisor also has a responsibility to facilitate the disqualification by ensuring that the employee is not assigned to work on matters from which he is disqualified. Agency ethics officials obviously have an important role through direct counseling to, and education of, employees to ensure that they understand when a recusal is required and how to effectively 

implement a required recusal. OGE’s role is to ensure that agency ethics officials 

understand the rules and ensure that they are applied consistently across the executive branch. 
25 

It is worth noting that agencies do have discretion with respect to whether a disqualification will be approved as an appropriate remedy for a potential conflict of 

interest. In other words, the Standards permit a supervisor to disapprove a request 

for approval of an outside activity if the required disqualification is unworkable because other employees in the office cannot readily be assigned to work on the matter 

from which the requesting employee would be disqualified if he were permitted to 

pursue the proposed outside employment. See 5 C.F.R. § 2635.403(b). 

3. Financial Disclosure 

The financial disclosure systems implemented by OGE for the executive branch 

are one of the ways that potential conflicts of interest may be identified and handled. The Ethics in Government Act requires senior officials in the executive, legislative and judicial branches to file public reports of their finances as well as other 

interests outside the Government. The theory of public financial disclosure is rooted 

in post-Watergate concepts of ‘‘Government in the Sunshine,’’ which aims to promote 

public confidence in the integrity of Government officials. Congress also sought ‘‘to 

strike a careful balance between the rights of individual officials and employees to 

their privacy and the right of the American people to know that their public officials 

are free from conflicts of interest.’’ H. Rep. No. 800, 95th Cong., 1st Sess. 18 (1977). 

OGE has no authority to alter the statutory requirements. OGE’s regulation and the 

public financial disclosure report (SF 278) format reflect the law’s mandates and its 

dual purpose: avoiding conflicts of interest through analysis of disclosures and ensuring public confidence in Government through disclosure as an end in itself. 

The statute specifies which officials in the executive branch file a SF 278. Employees in statutorily-specified positions must file the SF 278; neither the employees nor 

their agencies have the discretion to determine that they may be exempted from 

this requirement. Among the positions specified as subject to this filing requirement 

are the President, Vice President, certain commissioned White House appointees, 

senior postal service employees, Presidential nominees requiring Senate confirmation, other political appointees, and members of the Senior Executive Service. Congress specified that a senior employee paid under an alternative pay systems must 

file when his position’s rate of basic pay is equivalent to or greater than 120 percent 

of the minimum rate of basic pay for GS–15. 

Additionally, the Director of OGE was granted the authority to designate additional positions for filing SF 278s if OGE determines that those positions are equivalent to others that normally require filing, generally referred to as an ‘‘equal classification’’ determination. OGE gives careful consideration to requests that a position 

be subject to the public financial disclosure requirements based on an ‘‘equal classification’’ argument, paying special attention to Congress’ concern that the right balance be struck between the employee’s right to privacy and the public’s right to 

know public officials are free of conflicts of interest. 

A variety of factors are considered in making equal classification determinations, 

but it is important to keep in mind that the amount of compensation paid to an employee is not the crucial factor in determining whether an employee is in a position 

covered by the public reporting requirements. The law contemplates that the quality 

and level of responsibility must be considered. While the amount of pay may, in 

many cases, be commensurate with responsibility, in recent years Congress has developed pay plans that provide relatively high levels of compensation to recruit and 

retain employees who are highly skilled and qualified in their fields, such as doctors. 

Concerns have been raised about the positions at NIH for which public disclosure 

is not required. Specifically, a recent news report asserts that, based on a 1998 OGE 

opinion, officials at NIH are ‘‘allowing’’ senior employees to avoid public financial 

disclosure requirements. The article suggests that NIH as an agency, and its employees individually, have improperly exercised discretion in this area. This is simply not true. Indeed, as noted above, neither NIH nor its employees have discretion 

in this area. 

I would like to take this opportunity to explain how certain determinations were 

made with respect to positions covered by the public financial disclosure system at 

HHS generally, including NIH. In late 1997, the DAEO at HHS requested OGE’s 

opinion on what was meant by the term ‘‘rate of basic pay’’ when determining, 

among other things, whether employees under a particular pay system are required 

to file public financial disclosure reports. At that time, the Secretary of HHS had 

been empowered to appoint a number of employees in the ‘‘Senior Biomedical Research Service’’ under a new pay system in which pay was determined by the Secretary in an amount not less than the minimum rate payable for a GS–15 and not 

more than the rate of pay for level I of the Executive Schedule. Under this system 

there were no steps or grades within the range; it was one broad ‘‘pay band.’’ 
26 

Under the statutory requirements for filing, employees in ‘‘pay band’’ systems 

would be subject to the public financial disclosure reporting requirement only if 

their ‘‘rate of basic pay’’ was equal to or greater than 120 percent of the rate of basic 

pay for a GS–15. In an opinion issued in early 1998, OGE determined that, based 

on previous opinions interpreting both the statutory language and legislative history 

of the Ethics in Government Act, the term ‘‘rate of basic pay’’ means the lowest step 

authorized for a position’s pay grade. For ‘‘pay band’’ systems in which the minimum allowable pay is less than 120 percent of the basic rate of pay for a GS–15, 

and where there are no intermediate steps or grades, this means that no employee 

compensated under that ‘‘pay band’’ system is required to file a public financial disclosure report, regardless of the actual amount they are compensated. As a practical 

matter this mean that some employees at NIH who had been required to file a public financial disclosure report because they had previously been in the Senior Executive Service were no longer required to do so. HHS has recently requested that OGE 

consider whether a number of positions at NIH meet the criteria for filing a public 

financial disclosure report under an equal classification analysis. 

OGE PROGRAM REVIEWS AT NIH

As I stated earlier, OGE conducts systemic reviews of all executive branch department and agency ethics programs to determine whether agencies have developed effective ethics systems and procedures, in compliance with OGE’s regulations, to prevent conflicts of interests. OGE currently conducts reviews of 35 agencies annually, 

with major agencies being reviewed approximately every 5 to 6 years. Agencies are 

selected for review based on the length of time since their last review, OGE staff 

concerns about an agency’s program, and news media reports of ethical concerns. 

These reviews generally focus on several ethics program elements, including the 

structure and staffing of the ethics program, the financial disclosure systems, the 

ethics education and training program, the advice and counseling services, the outside activity approval process, ethics systems for advisory committees, acceptance of 

travel payments from non-Federal sources under 31 U.S.C. § 1353, ethics staff relations with the Office of Inspector General, and ethics issues unique to that agency. 

In large agencies or departments, OGE may look at how the ethics program is managed in its individual components rather than the entire agency. The reviews do not 

typically look at individual employee cases of conflict. On occasion concerns about 

an individual employee will arise in the course of a review, and OGE will consider 

the facts giving rise to the concern and make appropriate recommendations. 

Once a program review report is issued, the agency is required to report, within 

60 days, on any actions it will take to address issues raised in the report. OGE conducts a six-month followup to check on the agency’s progress in addressing these 

issues. In rare cases, where we find programs that are extremely deficient, we will 

send a Notice of Deficiency to the agency requiring them to correct certain matters, 

usually within a specified period of time. 

Since 1990, OGE has performed three program reviews at NIH and has a fourth 

review underway. In 1991, we conducted a review focusing on the National Cancer 

Institute (NCI), the National Heart, Lung and Blood Institute (NHLBI), and the National Institute of Allergy and Infectious Diseases (NIAID). This review focused in 

part on the NIH outside activity approval process as it related to scientists and doctors. Our recommendations focused on the need to improve the criteria and process 

for approving outside activities, particularly in the area of teaching, speaking, and 

writing. Our main concerns were that some activities appeared to be approved without adequate documentation. We also observed that a large proportion of outside activity requests were being considered and approved after the activity had already 

taken place. It is important to note that the 1991 program review was conducted 

prior to the issuance of the new executive branch-wide Standards of Ethical Conduct. 

Following the 1991 review we met with the Director of NIH and the HHS DAEO 

to discuss our concerns. We recommended that HHS assist NIH in establishing an 

Office of Ethics on site at NIH and that clear policies, consistent with OGE regulations, concerning outside activities be developed. We also again recommended that 

HHS correct its department-wide standards of conduct regulations to reflect the correct standards for outside speaking and writing activities. Following the 1991 review, HHS established a satellite ethics office at NIH and issued interim guidance 

to NIH on the correct standards for approving teaching, speaking and writing activities. 

In 1995, OGE conducted a program review at NIH looking at NCI, NHLBI, and 

NIAID. While OGE will normally review different components in a large agency like 

NIH, it was felt that a follow-up at these three institutes was appropriate given the 
27 

results of the previous review. We were pleased to find that NIH had put much time 

and effort into developing its guidance on outside activities, and in implementing 

a much improved system for approving outside activities. 

As noted previously, the new executive branch-wide Standards of Ethical Conduct 

became effective prior to the 1995 review. After the Standards went into effect some 

NIH policy guidance on outside activities—though consistent with our 1991 recommendations—was superseded. Following the 1995 review, NIH did rescind its 

guidance on outside activities, and HHS issued supplemental regulations, though, 

as previously noted, HHS did not propose any special standards for NIH employees 

in its supplemental regulation. 

In 2000, OGE conducted a program review at NIH of the National Institute of Arthritis and Musculoskeletal and Skin Diseases (NIAMSD), the National Institute of 

Child Health and Human Development (NICHHD), and the National Institute of Diabetes and Digestive and Kidney Disorders (NIDDKD). Recommendations included 

ensuring that proper determinations are made before issuing statutory conflict of interest waivers to special Government employees on Federal advisory committees, 

and recommendations to NIDDKD in particular regarding the procedure for approval to engage in outside activities. The latter recommendation arose primarily 

from the fact that a new ethics official at NIDDKD could not locate the approvals 

granted before he took the position. Through our normal follow-up procedures, we 

concluded that NIH took actions to implement these recommendations. 

OGE has initiated a 2004 review of the NIH ethics program. This review will be 

performed at the Office of the Director, NCI, NIAID, and the Clinical Center, and 

it will focus on the structure and staffing of NIH’s ethics program, the public financial disclosure system, the criteria and process for approving outside activities, the 

criteria and process for approving the acceptance of awards, and other basic ethics 

systems. 

CONCLUSION

In closing, I would like to emphasize that OGE stands ready to work with you, 

the Committee, HHS, and NIH to ensure that the public has the highest confidence 

in the important work of all the components at NIH. 

I would be happy to answer any questions you may have. 

STATEMENT OF EDGAR M. SWINDELL, ASSOCIATE GENERAL COUNSEL, ETHICS DIVISION, OFFICE OF THE GENERAL COUNSEL, DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Senator SPECTER. Thank you, Ms. Glynn. 

We now turn to Mr. Edgar Swindell, Chief Ethics Officer for the 

Department of Health and Human Services. He has held that position since 1997. He also serves as Associate General Counsel in 

charge of the Ethics Division of the Office of the General Counsel. 

Prior to joining HHS in 1983, he was in the private practice of law. 

Both his degrees, a bachelor’s and law degree, come from the University of Tennessee. 

Thank you for joining us, Mr. Swindell, and we look forward to 

your testimony. 

Mr. SWINDELL. Thank you, Mr. Chairman. As you have indicated, 

I am the Associate General Counsel for Ethics at the Department 

of Health and Human Services and my principal role there is to advise the Secretary and the General Counsel on ethics and political 

activity issues within the Office of the Secretary. 

Concurrently I serve at the designated agency ethics official, or 

DAEO, for the Department. In this capacity, I am the point of contact with the Office of Government Ethics and I exercise general 

superintendence over a decentralized departmental ethics program 

through the appointment of deputy ethics counselors. These are 

DEC’s and they operate in the Food and Drug Administration, the 

Centers for Disease Control and Prevention, the National Institutes 

of Health, and other operating divisions of the Department. 
28 

The DEC’s administer an ethics program within their respective 

components and are responsible for establishing a system for reviewing public and confidential financial disclosure forms, considering outside activity requests, providing ethics advice to the individual employees, initiating ethics education and training programs, and ensuring that violations of the conflict statutes or the 

conduct standards are reported to investigatory authorities and, 

where appropriate, disciplinary action is taken. My office has similar responsibilities within the Office of the Secretary and staff lawyers within my Ethics Division are available to provide guidance to 

the DEC’s. 

The DEC’s are senior officials within each component and they 

have staff who assist them in carrying out the ethics functions, either as collateral duties or as members of an ethics program office. 

Within the NIH, a DEC in the Office of the Director coordinates 

the ethics program for that operating division. The NIH DEC also 

serves as the ethics official for senior NIH staff, and in addition, 

DEC’s in each institute and center administer the ethics programs 

for their respective employees. 

The committee has asked that I briefly recount the process and 

applicable law that governs the approval of outside activities, and 

it is rather complicated, so I will try to be brief about it. 

HHS employees are required by our supplemental ethics regulation to get prior approval for professional or consultative activities, 

teaching, speaking, and writing, and board service. They submit an 

HHS Form 520 that solicits detailed information about the proposed activity and each operating division may specify various levels of review which may start with the supervisor and end with the 

DEC. 

Approval requires an assessment of whether the proposed outside 

activity violates any statute or regulation, including the OGE 

standards for ethical conduct of employees of the executive branch 

or the HHS supplemental ethics regulation. Included in those OGE 

standards is the requirement that the proposed activity cannot create an actual or apparent conflict that would result in recusals that 

would materially impair an employee’s ability to do his job. 

In evaluating conflicts, the reviewer must address two provisions 

that form the core of Federal ethics law. A criminal statute, 18 

U.S.C., section 208, deals with an actual conflict due to the employee’s own or imputed financial interest in the resolution of a Government matter. And a regulatory provision in the OGE standards 

principally addresses disqualifications called for when an appearance of a conflict arises from a covered relationship. 

Under section 208 of the criminal code, to avoid a conflict of interest that results, for example, from stock ownership or outside 

employment, a Federal employee must not participate personally 

and substantially in a particular matter that, to his knowledge, directly and predictably affects his own financial interest or that of 

his outside employer. 

To prevent an appearance of a conflict that results from serving 

in a role short of employment, for example, as an advisor, consultant, or other type of independent contractor compensated with fees 

and expenses, a different rule applies. Under section 502 of the regulations, if a reasonable person with knowledge of the relevant 
29 

facts would question the Federal employee’s impartiality, he must 

recuse, but only from particular matters involving specific parties. 

These are things like grants, contracts, audits, lawsuits, clinical 

trials, new drug applications that involve the very company to 

which he is providing consulting services as a party or representative of a party. 

It is key to point out that both sections are disqualification provisions in that they do not prohibit the acquisition of an asset or relationship. Rather, they bar actual participation in a potentially 

conflicting matter, either personally or through the direct and active supervision of the participation of a subordinate. However, neither section is triggered by the mere knowledge of or official responsibility for a particular matter. In short, if an employee can 

recuse appropriately and still be able to do his job, then an outside 

activity shall be approved under the regulations, provided there are 

no other statutory or regulatory impediments. And there are quite 

a few that have to be reviewed. 

PREPARED STATEMENT

I must finish my statement here. What I would like to add, just 

to let you know, is that the FDA within our Department does have 

a regulation that prohibits certain outside activities and the ownership of certain types of stock. This perhaps might serve as a model 

for NIH. However, of course, FDA is a regulatory agency and NIH 

has a different function, but my office is committed to providing 

legal assistance to Dr. Zerhouni’s body that will be reviewing these 

policy issues and to the NIH as it deals with these matters. If supplemental regulations prove the best option, my office is available 

to assist them in promptly drafting regulations for submission to 

OGE. 

[The statement follows:] 

PREPARED STATEMENT OF EDGAR M. SWINDELL

Mr. Chairman, Senator Harkin, and members of the subcommittee: I am Ed 

Swindell, Associate General Counsel for Ethics at the Department of Health of 

Human Services (HHS). My principal role is to advise the Secretary and the General 

Counsel on ethics and political activity issues within the Office of the Secretary. 

Concurrently, I serve as the Designated Agency Ethics Official (DAEO) for the Department. In this capacity, I am the point of contact for liaison with the Office of 

Government Ethics (OGE) and exercise general superintendence over a decentralized Departmental ethics program through the appointment of Deputy Ethics Counselors (DECs) chosen by each operating division, such as the Food and Drug Administration (FDA), the Centers for Disease Control and Prevention (CDC), and the National Institutes of Health (NIH). 

The DECs administer an ethics program within their respective components and 

are responsible for establishing a system for reviewing public and confidential financial disclosure forms, considering outside activity requests, providing ethics advice 

to individual employees, initiating ethics education and training programs, and ensuring that violations of the conflicts statutes or the conduct standards are reported 

to investigatory authorities and where appropriate, disciplinary action is taken. My 

office has similar responsibilities within the Office of the Secretary, and staff lawyers within the Ethics Division are available to provide guidance to the DECs. The 

DECs are senior officials within each component, and they have staff who assist 

them in carrying out the ethics functions, either as collateral duties or as members 

of an ethics program office. Within the NIH, a DEC in the Office of the Director 

coordinates the ethics program for that operating division. The NIH DEC also 

serves as the ethics official for senior NIH staff. In addition, DECs in each NIH Institute and Center administer the ethics program for their respective employees. 
30 

The committee has asked that I briefly recount the process and applicable law 

that govern the approval of outside activities. HHS employees are required by an 

agency supplemental regulation to seek prior approval for professional or consultative activities, teaching, speaking, or writing, and board service. They submit an 

HHS Form 520 that solicits detailed information about the proposed activity, and 

each operating division may specify various levels of review, which may start with 

the supervisor and end with the DEC. 

Approval requires an assessment of whether the proposed outside activity violates 

any statute or regulation, including the OGE Standards of Ethical Conduct for Employees of the Executive Branch or the HHS supplemental ethics regulation. Included in the OGE Standards is the requirement that the proposed activity cannot 

create an actual or apparent conflict that would result in recusals that would materially impair an employee’s ability to do his job. 

In evaluating conflicts, the reviewer must address two provisions that form the 

core of Federal ethics law. A criminal statute, 18 U.S.C. § 208, deals with an ‘‘actual 

conflict’’ due to the employee’s own or imputed financial interest in the resolution 

of a government matter. A regulatory provision in the OGE Standards, 5 C.F.R. 

§ 2635.502, principally addresses disqualifications called for when an ‘‘appearance of 

a conflict’’ arises from a ‘‘covered relationship.’’ 

Under section 208 of the criminal code, to avoid a conflict of interest that results, 

for example, from stock ownership or outside employment, a federal employee must 

not participate personally and substantially in a particular matter that, to his 

knowledge, directly and predictably affects his own financial interest or that of his 

outside employer. To prevent an ‘‘appearance of a conflict’’ that results from serving 

in a role short of employment, for example, as an advisor, consultant, or other type 

of independent contractor compensated with fees and expenses, a different rule applies. Under section 502 of the regulations, if a reasonable person with knowledge 

of the relevant facts would question the federal employee’s impartiality, he must 

recuse, but only from ‘‘particular matters involving specific parties,’’ such as grants, 

contracts, audits, lawsuits, clinical trials, or new drug applications, that involve the 

company to which he is providing consulting services as a party or representative 

of a party. 

Both sections are disqualification provisions in that they do not prohibit the acquisition of an asset or relationship, rather they bar actual ‘‘participation’’ in a potentially conflicting matter, either personally or through the direct and active supervision of the participation of a subordinate. However, neither section is triggered by 

mere knowledge of, or official responsibility for, a particular matter. In short, if an 

employee can recuse appropriately and still be able to do his job, then an outside 

activity shall be approved, provided there are no other statutory or regulatory impediments. 

In addition, a number of statutes and regulations do preclude certain outside activities. For example, if an employee sought approval to be a lobbyist, the anti-representation statutes, 18 U.S.C. §§ 203 and 205, would be implicated. If the activity 

were clearly one that should be done as an official duty, then approval would be 

denied, under 18 U.S.C. § 209, as an improper salary supplementation. If the circumstances would create an appearance that the employee has used his official position to obtain an outside compensated business opportunity or would create the further appearance of using his public office for the private gain of the outside company, then under the principles in the OGE Standards, 5 C.F.R. § 2635.101(b), and 

the rules governing misuse of position, 5 C.F.R. § 2635.702, the outside activity may 

be denied. An example would be where an employee was recently instrumental in 

formulating industry standards and would again be so involved. If an affected company offers a consulting contract to the employee to render advice to the company 

about how it can restructure its operations to comply with the very industry standards that the employee has just drafted, the consulting arrangement should not be 

approved even though the employee lacks any current assignments affecting the industry, and even though the outside consulting can be finished before he again 

works on such matters. 

Another regulation, 5 C.F.R. § 2635.807, precludes compensation, subject to certain exceptions, if an employee wants to teach a course, deliver a speech, or write 

a book that relates to his official duties. (Consulting, technically, is not covered by 

this section, but the analysis does provide guidance in evaluating many outside activities.) The ‘‘relatedness’’ test evaluates, among other factors, the subject matter 

of the activity. For career employees, compensation is precluded if the teaching, 

speaking, or writing deals in significant part with any current assignment (or one 

completed within the last year) or any ongoing policy, program, or operation of the 

agency. However, the provision has an important exception. A career employee may 

receive compensation for ‘‘teaching, speaking, or writing on a subject within the em-
31 

ployee’s discipline or inherent area of expertise based on his educational background 

or experience even though the [activity] deals generally with a subject within the 

agency’s areas of responsibility.’’ 

As noted earlier, outside activities must also comply with applicable provisions 

governing the avoidance of actions creating an appearance of violating the ethical 

standards, including the prohibition against use of official position for an employee’s 

private gain or for the private gain of any person with whom the employee has employment or business relations or is otherwise affiliated in a nongovernmental capacity. 

As can readily be seen, supervisors, ethics program officers, and the DECs, in particular, have difficult assessments to make when reviewing outside activity requests. 

Even when the activities are approved, individual employees remain personally responsible for abiding by their recusal obligations and avoiding violations of any 

other applicable provisions. These responsibilities are exacerbated by mergers, acquisitions, joint ventures, partnerships, and even name changes, within industry 

that, on any given day, may make it difficult to know whether one has a conflict 

to avoid. 

One HHS component, the Food and Drug Administration (FDA), has dealt with 

these difficult issues by regulation for over two decades. When the OGE Standards 

became effective in 1993, FDA had prohibited holdings and outside activity regulations that were ‘‘grandfathered’’ for a certain period. The OGE Standards allow 

agencies to promulgate, with OGE concurrence, supplemental ethics regulations 

deemed ‘‘necessary and appropriate’’ to address issues unique to an agency’s programs and operations. FDA requested that the Department seek to preserve FDA’s 

pre-existing rules. Accordingly, the HHS supplemental ethics regulation issued in 

1996 prohibits FDA employees from holding financial interests in significantly regulated companies, subject to limited exceptions for lower level employees. In addition, 

FDA employees whose positions require them to file public or confidential financial 

disclosure forms are barred, subject to certain exceptions, from engaging in employment or consulting with a significantly regulated company or ‘‘any self-employed 

business activity for which the sale or promotion of FDA-regulated products is expected to constitute 10 percent or more of annual gross sales or revenues.’’ 

FDA, of course, is a regulatory agency that, according to some estimates, directly 

affects 25 percent of the American economy. FDA’s supplemental prohibitions may 

or may not provide the best model for non-regulatory agencies. NIH clearly interacts 

with universities and medical research organizations, as well as the health, biotechnology, and pharmaceutical industries, but primarily through intramural research and clinical trials and extramural funding of similar pursuits. Individual assessment of an employee’s proposed outside activity under the extant, albeit recondite, standards may remain the appropriate course. NIH Director Elias Zerhouni 

will be forming a Blue Ribbon Panel to consider these policy options. My office is 

committed to providing legal assistance to that body and to NIH as it deals with 

these difficult issues. If supplemental regulations prove the best option, we will 

work with NIH in drafting regulations for Departmental approval and submission 

to OGE. Our collective goal is to ensure public confidence in agency programs and 

operations through whatever means will best accomplish that objective. 

Thank you for the opportunity to speak with you today. I would be pleased to answer any questions that you may have. 

STATEMENT OF RUTH KIRSCHSTEIN, M.D., SENIOR ADVISOR TO THE 

DIRECTOR, NATIONAL INSTITUTES OF HEALTH, DEPARTMENT 

OF HEALTH AND HUMAN SERVICES 

Senator SPECTER. Thank you very much, Mr. Swindell. 

We now turn to Dr. Kirschstein. With that preliminary definition 

as to some of the rules and regulations and legal procedures, the 

floor is yours, Dr. Kirschstein. 

Dr. KIRSCHSTEIN. Yes, sir. Thank you for allowing them to go 

first. I think you understand now why I suggested that. 

I do explain in my written statement also the evolution of the 

programs at NIH since the inception of these rules in 1978. At that 

time, I was the Director of the National Institute of General Medical Sciences and immediately became the Deputy Ethics Counselor 

of that institute. So I have been doing this kind of activity for 

many, many years. 
32 

There has been an evolution. Over the years, during the times 

of the audits, NIH has taken the statements and the reports very 

seriously and has amended and changed its manual issuance on 

the conductance of outside activities accordingly after each of the 

three audits. There have been four, but we have not changed anything after the fourth. 

I do want to tell you about the duties of a deputy ethics counselor. They are to provide assurances that the activities of, in the 

case of the deputy ethics counselor for NIH, in the case of the institute and center directors, as well as the senior staff in the Office 

of the Director, that these were performed properly both in regard 

to their official duties that involve outside organizations, as well as 

and even more importantly any outside activity such as lecturing, 

editing, and consulting, and no activities can be undertaken without the approval of the Deputy Ethics Counselor. In addition, the 

Deputy Ethics Counselor does the final review and certification of 

the financial disclosure reports filed by these employees. It is also 

the responsibility of the Deputy Ethics Counselor to assure that 

each official receives the appropriate annual ethics training. 

In regard to activities related to outside organizations, the procedure has been as follows, that the official’s request for outside activity was first reviewed by the Office of Human Resources Management and in consultation with the DHHS Special Counsel for 

Ethics to ensure that all the documents met the applicable executive branch standards of conduct and the regulations and applicable standards of the NIH and DHHS. The Deputy Ethics Counselor 

then performs the final review. 

In general, I approved activities that were recommended, but if 

necessary, I discussed the activity with the individual involved and 

on occasion did not give my approval. However, based on the consultation, the majority were approved. 

When I became Deputy Ethics Counselor of NIH in 1993, outside 

work by high-level officials was significantly limited and consulting 

with outside activities was prohibited by the most senior people. 

However, the decision by Dr. Varmus, based on the 1995 audit, 

to change the context of everything that was done because it allowed high-level officials, defined as NIH deputy directors, associate directors, institute and center directors, deputy directors, to 

perform exactly the same type of outside activities as all other NIH 

employees and provided that any outside activity requests submitted should be reviewed for any conflict of interest based on the 

employee’s job rather than the position of the individual. Monetary 

limits were no longer allowed, nor was the time spent prohibited. 

Now, the Deputy Ethics Counselor has another important task 

which goes with being the senior official, and that is to have an indepth knowledge of the duties of these high-level officials so that 

one can make a determination whether, by the need for a recusal 

or disqualification because of the person’s relationship with an outside entity, the individual involved can still perform his duties. And 

if the time imposed and the recusals are of such significance that 

the person cannot perform his duties, it is the Deputy Ethics Counselor’s duty to prevent those activities and not approve them. 
33 

PREPARED STATEMENT

Mr. Chairman, I believe that the NIH ethics program has followed the principles set forth by the executive branch Office of 

Government Ethics as they have evolved over the past 25 years, 

but I also believe that like all activities, there is a need for greater 

oversight of the entire NIH program. In that, like many activities, 

there is room for improvement. I completely and strongly endorse 

the proposals made by Dr. Zerhouni, and I would be pleased to answer any questions. 

[The statement follows:] 

PREPARED STATEMENT OF DR. RUTH KIRSCHSTEIN

Mr. Chairman, members of the Committee, I am Ruth Kirschstein. I am currently 

the Senior Advisor to the Director of the National Institutes of Health (NIH). Today, 

I am appearing before this committee to describe the role of the NIH Deputy Ethics 

Counselor, as part of the duties of the Deputy Director of NIH. I will also discuss 

the evolution of the ethics program at NIH. 

HISTORY

In 1978, the Ethics in Government Act established the U.S. Office of Government 

Ethics (OGE) as part of the Office of Personnel Management. Each department or 

agency of the Executive Branch of the Government was given the responsibility for 

its own ethics program. The Department (at that time) of Health, Education and 

Welfare, in turn, delegated much of the responsibility for ethics program activities 

to its agency heads. In turn, the Director of NIH delegated the individual responsibility for ethics activities to the heads of the various institutes, centers and divisions. 

And so, in 1978, as Director of the National Institute of General Medical Sciences 

(NIGMS), one of my responsibilities was to serve as the Deputy Ethics Counselor 

of that Institute. In the early days of the new ethics laws, the Deputy Ethics Counselors of the Institutes worked closely with the ethics officials of the Department 

and the OGE to establish the applicable rules and regulations. We also received considerable training about the new law and its implementations. 

For fifteen years, from 1978 until 1993, as Director of NIGMS, I personally reviewed all the financial disclosure forms that were filed by Institute staff. I ensured 

that annual ethics training was given to all such employees and participated, with 

the other Deputy Ethics Counselors (the Directors of the other Institutes and Centers) and with Department officials, in the evolution of the ethics activities both at 

NIH and in the executive branch generally. 

OFFICE OF GOVERNMENT ETHICS (OGE) AUDITS

Over the years, the ethics program at NIH has evolved, based on the experiences 

of NIH and the Department staff in its operation, and more recently, on periodic 

audit reports by the Office of Government Ethics. This evolution resulted in a number of revisions and reissuances of the NIH Policy Manual Chapter 2300–735–4, 

which sets out NIH policies on activities involving outside entities. Since 1987, there 

have been four OGE Audit Reports submitted and each has had a different perspective. Three have resulted in a careful revision of the NIH Policy Manual Issuance 

Chapter cited above. 

1991 Audit 

The 1991 Audit Report recommended that NIH establish an Office of Ethics. In 

response, the Office of the Special Counsel for Ethics, within the Office of General 

Counsel, Department of Health and Human Services (HHS), established a satellite 

office on the campus of NIH. This individual reported to the Ethics Division but 

worked very closely with NIH ethics staff. 

ROLE OF THE NIH DEPUTY ETHICS COUNSELOR

In 1993, when I was appointed the Deputy Director of NIH by Harold Varmus, 

then NIH Director, both he and the HHS Designated Agency Ethics Official at that 

time appointed me as Deputy Ethics Counselor for NIH. 

As I said previously, responsibilities for the ethics programs for the various Institutes and Centers were, and still are, delegated to those organizations. The NIH 
34 

Deputy Director/Deputy Ethics Counselor provided assurance that the activities of 

the Institute and Center Directors as well as the senior staff in the Office of the 

Director were performed properly, both in regard to their official duties that involved outside organizations, as well as, and even more importantly, any other outside activities such as lecturing, editing and consulting. No activities could be undertaken by these senior level officials without the approval of the Deputy Ethics 

Counselor. In addition, the final review and certification of the financial disclosure 

reports filed by these employees was performed and certified by the Deputy Ethics 

Counselor. The procedure that was followed regarding outside activities is outlined 

in the NIH Policy Manual Chapter as follows: 

—The employee (in this case, the IC Director or senior staff member) submitted 

a request of approval for either an official duty or on outside activity to the Office of Human Resources Management (OHRM). For an outside activity a special form (520) is submitted. Each form was reviewed by OHRM and forwarded 

to the HHS Office of Special Counsel for Ethics for consultation as needed. (It 

became standard practice to forward all requests relating to Institute and Center Directors to this office.) 

—The HHS Office of Special Counsel for Ethics reviewed the paperwork and additional information provided to ensure that all required information was supplied, and, at times, alerted the Deputy Ethics Counselor to potential issues related to the request. If this review presented no problems, the material was sent 

back through the OHRM Office to the NIH Deputy Ethics Counselor for final 

review and recommendation. 

In general, I approved activities that were recommended, but, if necessary, I discussed the activity with the individual involved. Based on legal advice provided and 

knowledge of the surrounding facts and underlying science, the majority of such requests were approved. In 1993, outside work by high-level NIH officials was significantly limited, and consulting with outside entities that had been, or were likely to 

be, recipients of NIH grants or contracts was prohibited. Besides formal requests, 

the Deputy Ethics Counselor discussed many requests informally with officials and 

provided advice, which often led to decisions not to make formal requests. 

In addition, the Deputy Ethics Counselor had to ensure that each employee received annual training in ethics and, when required, disqualified (recused) him/herself from issues in which there is a conflict of interest. 

Recusals 

A Deputy Ethics Counselor also must assess the information provided in the financial disclosure form or in the Request for Approval of Outside Activity (form 520) 

as to the application of the conflict of interest statutes and regulations and must 

attempt to resolve actual or potential conflicts or the appearance of a loss of impartiality. In regard to a proposed outside activity, a determination must be made as 

to whether it conflicts with official duties and whether the recusals that would 

ensue in the Federal workplace as a result of the particular outside activity would 

require the employee’s disqualification from matters so central or critical to the performance of his or her official duties that the employee’s ability to perform the duties of the Federal position would be materially impaired. If conflicts are of such 

magnitude that official duties would be impaired, the outside activity must be denied. 

If a disqualification can resolve the conflict, then a written memorial of the promise to recuse is prepared and signed by the employee and the Deputy Ethics Counselor and sent to the official at the next highest level, who can act instead of the 

employee. All other employees in the official chain of command must be informed 

of the fact that, as long as the agreement or need to recuse pertains, the official 

must disqualify him/herself from any actions covered by the promise. 

1995 Audit 

The June 1995 report of the audit review of the NIH ethics program was transmitted to the then HHS Designated Agency Ethics Official and the NIH. The report 

stated that, ‘‘[t]he ethics program demonstrates a commitment to ensuring that violations of ethics statutes and regulations do not occur. OGE’s recommendations are 

made with a view toward further refining an already estimable program.’’ 

In terms of financial disclosure systems, the report further stated: 

‘‘NIH has effectively implemented practices and procedures to ensure that financial disclosure reports are filed and reviewed according to applicable statutes and 

regulations. NIH’s accomplishment of administering sound financial disclosure systems demonstrates its commitment to ensuring that violations of ethics statutes and 

regulations do not occur.’’ 
35 

Regarding approval of outside activities, the report stated: 

‘‘NIH has documented its internal guidance on the policies and procedures governing outside activities in the NIH Policy Manual Chapter 2300–735–4, ‘Outside 

Work, Financial Interest and Related Activities’ (the Manual). The Manual, which 

was reissued on August 30, 1993, reflects changes implemented by the new executive branch standards, NIH Policy, and recommendations made in OGE’s 1991 ethics program review report. 

‘‘It is evident that much skill, time, and effort were devoted to developing the 

Manual. While the Manual accomplishes its purpose to explain the executive branch 

standards (and HHS’ preserved standards), we identified several restrictions and 

limitations that are broader in scope than provided by the executive branch standards, including those sections on prohibited source criteria for outside activities, outside activity compensation and service limitations, and outside activities performed 

by high-level officials. If NIH wished to continue these prohibitions and limitations, 

HHS should consider including them in the agency’s proposed supplemental regulation and obtaining concurrence from OGE. (emphasis added). 

‘‘(1) NIH’s prohibited source criteria for outside activities are broader in scope 

than the executive branch standards in two aspects. First, NIH’s criteria for 

outside activities by intramural employees (scientists who perform research inhouse at NIH) and extramural employees (scientists who administer grants and 

contracts with outside sources who perform research outside of NIH) generally 

states that intramural employees are prohibited from engaging in outside activities with outside entities that do business with the employees laboratory/ 

branch; and extramural employees are prohibited from engaging in outside activities the employee’s ICD. 

‘‘(2) NIH provides two outside activity compensation and service limitations, 

which are more restrictive than the executive branch standards. First, the Manual provides that total compensation from any one outside organization is limited to $25,000 per year, with some exceptions. It also states that total service 

time for all compensated activities is limited to 500 hours per year. However, 

there is no dollar limit on the amount of outside employment income from all 

sources, except for certain Presidential appointees. There is also no limitation of 

service time for compensated outside activities, per se. Therefore, if HHS wished 

to restrict outside activity and service time, the limitations would also require 

inclusion in HHS’ supplemental regulations. (emphasis added). 

‘‘Second, the Manual states that employees may not consult as an outside activity with companies in which they (or their spouses or dependent children) 

own stock and may not accept stock or stock options as compensation. The executive branch standards also do not contain this restriction. 

‘‘(3) The Manual is also broader in scope than the executive branch standards 

regarding outside activities performed by high-level officials. The Manual states 

that because of their national prominence and professional achievement, the 

NIH Director and certain other high-level officials are limited to performing 

only certain outside activities such as editing and writing. However, absent a 

specific regulation that is being violated, we do not recommend that NIH subjectively restrict certain outside activities.’’ 

1995 NIH POLICY

Based on the OGE 1995 Audit Report, NIH management undertook to consider 

and analyze the pros and cons of seeking supplemental regulations versus implementing the government-wide Standards of Ethical Conduct in light of the nature 

of the work done at the NIH. On November 3, 1995, Dr. Varmus notified the Directors and OD Staff that: 

—High-Level Officials—defined as NIH Deputy Directors and Associate Directors, 

and ICD Directors and Deputy Directors—may perform the same type of outside 

activities as all other NIH employees, but any outside activity request submitted by any employee should be reviewed for any conflict based on the employee’s actual job duties and not on the position of the employee. 

—Intramural employees may now engage in activities for any outside organization 

except those with whom they have direct official business dealings as government employees. 

—Extramural employees may engage in activities with outside organizations provided they do not manage a portfolio that includes grants or contracts from one 

or more of these outside organizations. 

—Employees may accept stock as payment for approved outside activities. 

—There is no longer a dollar limit on the amount of income that can be received 

from activities performed for one or more outside activities. 
36 

—Employees may no longer be limited in the amount of time they devote to activities performed for outside organizations. If it is determined that the amount of 

work for outside entities will impinge on the performance of NIH duties, the request should be denied. 

As of the issuance of that memorandum for all outside activities, the sequential 

procedures for approving outside activity requests were as follows: 

1. The outside activity request must be approved by the supervisor. 

2. Analysis of the proposed activity must be performed by the NIH OHRM. 

3. As necessary, consultation was sought with the lawyers in the Office of Special 

Counsel for Ethics of the OGC. 

4. Based on the information provided by 1–3 above, I, as the Deputy Ethics Counselor, in turn, reviewed the activity and in general, would approve. However, on occasion, there was a need for further discussion and an activity would be disapproved, even though no issues warranting disapproval were raised by the previous 

reviewers. 

5. A recusal, if needed, was prepared and provided to the appropriate official so 

that a required action could be referred to the next subordinate level of authority. 

(Recusals for activities with which the official has a ‘‘covered relationship’’ (i.e., is 

a Director, Officer, consultant or employee or spouse of an employee of the outside 

organization) last for a year beyond the end of the relationship.) 

Mr. Chairman, I believe that the NIH Ethics Program has followed the principles 

set forth by the Executive Branch Office of Government Ethics as they have evolved 

over the past 25 years. I also believe that there is need for greater oversight of the 

entire program and, like many activities, room for improvement. I completely and 

strongly endorse the proposals made by Dr. Elias Zerhouni, the NIH Director. I 

would be pleased to answer any questions that you may have. 

Senator SPECTER. Thank you very much, Dr. Kirschstein. 

Ms. Glynn, is there present authority or could there be a suspension of consulting arrangements at this time until there is inquiry 

into all of the specific matters to see if there is a conflict of interest? 

Ms. GLYNN. It might be difficult to do that in many cases. Presumably these arrangements—— 

Senator SPECTER. I am not talking about many cases. I am talking about a blanket suspension of consulting arrangements until 

there can be an inquiry as to all the pending matters to see if there 

is an actual conflict of interest. 

Ms. GLYNN. The permission to engage in those outside activities 

was done under the standards in effect right now. Presumably if 

the standards were applied correctly, the NIH found that there was 

no actual or apparent conflict of interest in performing those activities. I would be loathe to say that there could be a blanket suspension based on—— 

Senator SPECTER. There could be? 

Ms. GLYNN. I would be loathe to say there could be a blanket 

suspension. 

Senator SPECTER. As a matter of law, there could not be a blanket suspension. 

Ms. GLYNN. Yes, sir, as a matter of reading the regulation and 

applying it correctly. If they are correctly applying the regulation 

as it is written now, it would be rather counter-intuitive to withdraw that approval now. However, I think they could look at individual cases and say maybe we should have looked at this factor 

or that factor and not given approval in the first place. 

Senator SPECTER. Obviously, there can be an inquiry into each 

individual case to see, on the facts of that individual case, whether 

there is a violation of the rules and regulations. But on the surface 

on the cases which we have looked at, I would say it is more than 
37 

questionable as prima facie conflict, but if they have to be examined one by one, so be it. 

Mr. Swindell, do you think there ought to be any change in the 

statute? 

Mr. SWINDELL. Well, actually what we could do is do it by regulation as they do at FDA. They could—— 

Senator SPECTER. So you are saying there need not be a change 

in the statute? That was my question. 

Mr. SWINDELL. The statute itself? 

Senator SPECTER. That is my question. 

Mr. SWINDELL. There would be no need to deal with the statute 

because the agency would have the power to submit to the Office 

of Government Ethics a regulation that is more focused on the 

problems at NIH, depending upon—— 

Senator SPECTER. The agency would have the authority to do so? 

Mr. SWINDELL. Yes. It would have the authority to submit a regulation to the Office of Government Ethics and then the Office of 

Government Ethics has to concur before it can be put into effect. 

So the FDA has one of these types of regulations. In FDA, for 

example, employees are not permitted to hold stock in significantly 

regulated organizations. 

Senator SPECTER. How long would it take to have a change in 

regulation? 

Mr. SWINDELL. Well, it is the usual issue with time of drafting. 

We do have a model from FDA, obviously, which would indicate 

that we could proceed more quickly. 

Senator SPECTER. How long would it take? 

Mr. SWINDELL. Well, I would think that Dr. Zerhouni would want 

us to wait to hear the results from the blue ribbon panel as to what 

the recommendations would be about—— 

Senator SPECTER. Suppose this subcommittee did not want you 

to wait. How long would it take you to draft a regulation? 

Mr. SWINDELL. We would move as expeditiously as we could and 

put it through the process. Of course, some things—— 

Senator SPECTER. Well, it is apparent I am not going to get an 

answer. So will you think about it and submit an answer in writing 

please? 

Mr. SWINDELL. Yes, sir. I will be happy to do that. 

Senator SPECTER. Ms. Glynn, in 1996 NIH requested that all 

members of the Senior Biomedical Research Service be required to 

file the public financial disclosure form. At the time the Office of 

Government Ethics ruled that NIH could not require those employees to fill out the public financial disclosure form. This was because 

the bottom of the pay scale fell below a certain threshold. However, 

the top of that pay scale is $200,000. Is there any reason why a 

governmental employee making as much as the Vice President 

should not be required to fill out a public financial disclosure form? 

Ms. GLYNN. Yes, there is, and that reason is that the basis for 

filing the public financial disclosure form is not how much you 

make but rather the level of the responsibility that you have in 

Government. Public financial disclosure is really for people who 

have broad responsibilities. 

But there are people in that pay band that do have those broad 

responsibilities and it is possible that those folks should be re-
38 

quired to file. HHS can and actually has submitted to us already 

a request for—— 

Senator SPECTER. How do you define those broad responsibilities? Congress appropriates $28 billion to NIH. It seems to me that the 

NIH employees have those broad responsibilities. 

Ms. GLYNN. The statute, which is the Ethics in Government Act, 

that requires public financial disclosure for high-level people actually specifies certain positions like the President, the Vice President, and so on. Members of the Senior Executive Service are another example of people who have to file. 

Senator SPECTER. The statute makes those determinations? 

Ms. GLYNN. Yes, sir. 

Senator SPECTER. So you think we might need a statutory 

change? 

Ms. GLYNN. No, I do not think we do because I think if NIH 

would like to specify which positions are essentially equivalent, for 

example, to the SES positions, those people can be ordered, in effect, to file after a determination by my office that it is an appropriate place to draw the line for those folks. 

Senator SPECTER. Where you have a record of NIH employees 

owning stock and taking consulting fees and doing research which 

directly relates to the specific company and not filing financial disclosures, why should those employees, who are paid more than 

Members of the Senate, not be required to make a public disclosure 

as Senators are? 

Ms. GLYNN. Well, first, I cannot say for that fact that my office 

has any information that folks at NIH are receiving fees for consulting on work that is directly related to the work that they 

do—— 

Senator SPECTER. If you accept the facts as I have stated them, 

would people in that category not be fairly asked to file public financial disclosure forms? 

Ms. GLYNN. I really think they have to be treated as two separate issues. One is the issue of whether they should be permitted 

to do that consulting work to begin with. The second issue is public 

financial disclosure. 

Remember, folks that do not file publicly are required to file confidential financial disclosure forms. So that information should be 

disclosed to the agency so that they can determine some potential 

conflict of interest. 

Really, once again, it is the level of responsibility of the position 

that dictates whether you file a public financial disclosure form. 

Senator SPECTER. Well, the agencies do not appear to be moving 

with much dispatch on it. 

Mr. Swindell, in 1998 you requested a ruling regarding the Senior Biomedical Research Service. The Office of Government Ethics 

ruled that they could not be required to file public financial disclosure forms. Was there any attempt made to appeal that decision? 

Mr. SWINDELL. I am not sure what appeal process there would 

be. The Office of Government Ethics is the interpreter of those regulations. 

Senator SPECTER. Is there no appeal process from what the Office of Government Ethics rules? 

Mr. SWINDELL. I am not aware of any, Senator. 
39 

Senator SPECTER. Ms. Glynn, on January 12 of this year, Mr. 

Swindell wrote to you requesting that NIH institute directors, deputy directors, and scientific and clinical directors be classified so 

that they would have to file public financial disclosure forms. 

Would not at minimum those individuals fit into the category of 

the kind of responsibilities which would warrant public disclosures? 

Ms. GLYNN. I am assuming the answer to that is yes, sir. We are 

seeking additional information from NIH specifying exactly what 

positions are being asked for. At OGE, we are not as familiar with 

the terminology used in Mr. Swindell’s letter as perhaps your committee is. But yes, I think the answer is yes. I think at a minimum 

those people would fall within the criteria. 

Senator SPECTER. Mr. Swindell, would you take a look at the positions generally and make a determination from your point of view 

as to whether that is adequate or how far down you could go in 

meeting the standards which Ms. Glynn identifies? 

The Congress really does not want to get into this, if we do not 

have to, to micro-manage what you are doing, but I think that 

there are really major problems here. The first line is to have 

transparency with a public disclosure so that people can see what 

is going on. 

You have got an enormous job taking up several hundred cases 

of individual investigations, and this subcommittee is prepared to 

do it if you do not and we are prepared to get into the changes of 

law if you do not come up with something which is adequate. 

Dr. Kirschstein, after the Office of Government Ethics issued its 

audit report in 1995 and found that the NIH outside activities compensation guidelines were ‘‘broader in scope’’ than provided by the 

executive branch standards, what role, if any, did you play in setting new NIH policies regarding consulting arrangements? 

Dr. KIRSCHSTEIN. Mr. Chairman, at the time there were two deputy ethics counselors in the Office of the Director. One was the Director of the Office of Human Resources Management and the 

other one was I. The report went to the Director of the Office of 

Human Resources Management who worked with Dr. Varmus and 

presented to him some options and some decision points as to 

whether or not the NIH could ask for some supplemental regulations or enforce what the Office of Government Ethics requested. 

And Dr. Varmus made the decision to go forward. I was not involved in that decision. 

Senator SPECTER. Have you completed your answer, Dr. 

Kirschstein? 

Dr. KIRSCHSTEIN. Yes. 

Senator SPECTER. Thank you. 

Well, thank you very much. There are many, many more questions. We may submit more inquiries in writing. We have another 

panel and we are about to have a vote on the cloture on the omnibus appropriations bill at noon. So that will conclude panel two. 

Thank you all very much. 

We now call panel three: Dr. Stephen Katz, Dr. John Gallin. 
40 

STATEMENT OF STEPHEN KATZ, M.D., Ph.D., DIRECTOR, NATIONAL INSTITUTE OF ARTHRITIS AND MUSCULOSKELETAL AND SKIN DISEASES, NATIONAL INSTITUTES OF HEALTH, DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

Senator SPECTER. Dr. Katz was appointed Director of the NIH 

Arthritis and Musculoskeletal and Skin Diseases in 1995. He 

joined NIH in 1974 as a senior investigator at the Dermatology 

Branch. A bachelor’s degree from the University of Maryland, M.D. 

from Tulane University Medical School, and Ph.D. in immunology 

from the University of London in England. Dr. Katz, we welcome 

you here and look forward to your testimony. 

Dr. KATZ. Thank you very much, Mr. Chairman. As you said, I 

am the Director of the National Institute of Arthritis and Musculoskeletal and Skin Diseases and a senior investigator in the Dermatology Branch of the National Cancer Institute. I am a dermatologist, an immunologist, and a research scientist. 

I have devoted almost 32 years, my entire medical and scientific 

career, to public service and believe that I have done so in a manner that reflects the highest integrity. 

The issue of the relationship of the NIH and its senior—indeed, 

all of its scientists to private industry is important for public reflection and discussion. I share Dr. Zerhouni’s view that the NIH must 

uphold the highest standards for scientific excellence and ethical 

practices. 

I have prepared a written statement that addresses specifically 

and in detail the allegations and insinuations that were contained 

in the LA Times story and request that it go into the record. 

I want to emphasize that I have always conducted myself in full 

compliance with NIH’s rules and regulations, that I have always 

sought and received official Government permission to undertake 

these consultations, that I properly and in writing recused myself 

from contacts with the companies with which I consulted, that as 

an NIH employee, I made no decisions affecting any company for 

which I consulted, that I fully and publicly reported all income 

earned from outside consulting, and that Government-supported research was not influenced as a consequence of my consulting agreements. 

It is in this context that the allegations presented in the LA 

Times article must be considered. These allegations of misconduct 

on my part are misleading, grossly inaccurate, and filled with false 

innuendo. The manner in which the story misrepresented my actions deliberately led the reader to an entirely false impression 

about my conduct. Indeed, the Associated Press, as well as other 

news media, were misled by the manner in which the article described my actions. They issued apologies, corrections, and/or letters in response to my identifying the misleading nature of the LA 

Times story. 

With respect to my consultation with Schering AG’s Center of 

Dermatology in Berlin, Germany, the LA Times story identified a 

gap in the NIH recusal process. Although I had recused myself 

from all matters relating the Schering AG, NIH had no mechanism 

in place to identify subsidiaries or affiliated entities to the companies from which NIH staff had recused themselves. 
41 

Then, when a drug supplied by Berlex, a U.S. subsidiary of Schering AG, was used in the lupus study, no one at NIH, including 

myself, linked U.S.-based Berlex to its German parent, Schering 

AG, for purposes of applying the recusal process. As a consequence, 

the usual procedures which prevented anything identified as a matter related to Schering AG from reaching me failed to operate with 

respect to issues related to Berlex. 

As I said earlier, I have discussed the three instances in which 

I had contact with this lupus trial in my written testimony. 

PREPARED STATEMENT

Notwithstanding this gap in the recusal system and despite the 

sensational and wholly inaccurate impression the LA Times sought 

to create, I did not make any substantive decisions which affected 

the Berlex company or the lupus trial conducted under its sponsorship. 

I do appreciate the opportunity to appear before this committee 

to set the record straight, and I am happy to answer any of your 

questions. 

[The statement follows:] 

PREPARED STATEMENT OF DR. STEPHEN I. KATZ

Mr. Chairman, Senator Harkin, and Members of the Committee: I am Stephen 

I. Katz, M.D., Ph.D., Director of the National Institute of Arthritis and Musculoskeletal and Skin Diseases (NIAMS) and Senior Investigator in the Dermatology 

Branch of the National Cancer Institute (NCI). I am a dermatologist, an immunologist and a research scientist. My research has been focused on basic and clinical 

studies related to the skin and the immune system. 

I have devoted my entire medical and scientific career to public service and have 

done so, I believe, in a manner that reflects the highest integrity, first in the U.S. 

Army and, for almost the last 30 years, at the NIH. For 24 of these years, I was 

Chief of the Dermatology Branch of NCI and for six of these years, I served as both 

Dermatology Branch Chief and Director, NIAMS. During 12 of these years (1983– 

1995), I also served as the Marion Sulzberger Professor and Acting Chair of Dermatology at the Uniformed Services University of the Health Sciences. 

During my nearly 32 years of public service, I have focused my research efforts 

on enhancing our understanding of how skin functions as an immunologic and inflammatory organ system and how it becomes a target for autoimmune diseases. I 

have trained more than 60 research dermatologists, almost half of whom now serve 

as Deans of medical schools or Professors and Chairs of Dermatology Departments 

in leading centers in the United States, Europe, and Asia. I have received many 

awards and honors from both governmental and non-governmental organizations, 

including the President’s Distinguished Executive Award of the Senior Executive 

Service. 

In my role as a physician, scientist and leader at the NIH, I have had numerous 

interactions with scientists in the private and public sectors, including those in industry, and have always abided by governmental rules regarding such contacts. I 

have consulted with industry at various times beginning in 1986, when such interactions between government and industry were encouraged by then President 

Reagan to promote technology transfer from government to the private sector. 

When I became Director of the NIAMS in 1995, I conferred with NIH ethics officials and, on their advice, stopped all of my consulting activities. In late 1995, I was 

informed that a new policy had been adopted by the NIH, initiated by then Director 

Harold Varmus, which again permitted such consulting arrangements. Thereafter, 

I began to accept consulting relationships on a limited basis. However, recently, in 

response to Dr. Zerhouni’s outside activity approvals memo of November 20, 2003, 

and in keeping with the spirit in which it was written, I elected to terminate my 

one remaining outside consulting agreement. 

These consultations utilized my global knowledge as both a dermatologist and a 

basic scientist and, as required, were conducted outside of my government work 

schedule. The consultations dealt with a broad range of subjects, but were most 

often focused on my critiquing the activities that the company was undertaking to 
42 

address a given clinical or basic science issue and suggesting new or varied approaches. In no instance did I ever discuss, with any company for which I was consulting, any research that it might be conducting with the NIH or any application 

it had submitted to the NIH for funding. Although I had many opportunities for consulting, I undertook such consultations only if the issues were of intellectual interest 

to me, I felt that I could contribute scientifically and the agreements would not create unavoidable conflicts of interest that might interfere with my duties at NIH. 

These consultations provided me with an in-depth knowledge of how industry functions knowledge that has helped me in carrying out my responsibilities at the NIH 

and especially as NIAMS Director. 

I wish to emphasize that I have always conducted myself in full compliance with 

NIH’s rules and regulations; that I have always sought and received official government permission to undertake these consultations; that I properly and, in writing, 

recused myself from contacts with the companies with which I consulted; that, as 

an NIH employee, I made no decisions affecting any company for which I consulted; 

that I fully and publicly reported all income earned from outside consulting; and 

that government-supported research was not influenced as a consequence of my consulting agreements. 

It is in this context that the allegations presented in the LA Times December 7, 

2003, article must be considered. These allegations of misconduct on my part are 

misleading, grossly inaccurate, and filled with false innuendo. The manner in which 

the story misrepresented my actions deliberately led the reader to an entirely false 

impression about my conduct. Buried within the innuendos are the facts—that I always conducted myself in accordance with government regulations; that I recused 

myself where appropriate; that I made no decisions regarding the companies for 

which I consulted; and that I reported all outside income. However, the carefully 

crafted story paints a very different and entirely inaccurate picture. 

Within days of the article’s publication, Slate Magazine took the LA Times to task 

for ‘‘choosing to furtively prod the reader’’ to conclusions about my conduct that 

were not justified by the facts. Even as sophisticated a reader as The Associated 

Press was misled by the way the article described my actions and was required to 

issue a formal correction of its story on the article. In addition, other newspapers, 

such as the Charleston, W. Va. Gazette and the Pittsburgh Post Gazette, picked up 

the LA Times story, were also misled by the way it was written, and they issued 

apologies, corrections or letters in response to my identifying the misleading nature 

of the LA Times story. 

The LA Times story raised questions about my relationship with two companies, 

Advanced Tissue Sciences and Schering AG. 

On the matter relating to Advanced Tissue Sciences, I had recused myself and 

made no decisions regarding their application or grant. In keeping with NIH policies, the recusal was sent to the Deputy Director for Extramural Research at NIH, 

who had responsibility for making decisions regarding this company. 

With respect to my consultation with Schering AG, the LA Times story identified 

a gap in the NIH recusal process. Although I had recused myself from all matters 

relating to ‘‘Schering AG,’’ NIH had no mechanism in place to identify subsidiaries 

or affiliated entities to the companies from which NIH staff had recused themselves. 

Then, when Berlex, a U.S. subsidiary of Schering AG, undertook to help support a 

lupus study, no one at NIH linked U.S.-based Berlex to its German parent company 

Schering AG for purposes of applying the recusal policies. As a consequence, the 

usual procedures which prevented anything identified as a matter related to Schering AG from reaching my desk, failed to operate with respect to issues related to 

Berlex. 

Notwithstanding this gap in the system, and despite the sensational and wholly 

innacurate impression the LA Times sought to create, I did not make any substantive decisions which affected Berlex or the lupus trial conducted with its drug. 

Because of the misleading emphasis given by the LA Times to my three contacts 

with the lupus trial, I will review these in detail for the record: 

1. I signed a form letter acknowledging a gift to the NIAMS from Berlex: As Director, I routinely sign such thank you notes drafted by others. This gift was negotiated by another NIAMS employee without my knowledge or involvement, and followed the usual administrative clearance procedures through the NIH technology 

transfer experts. Significantly, at the time I signed the letter, neither I nor any NIH 

staff handling my recusal were aware that the thank you note was addressed to a 

subsidiary of a company for which I was consulting. I was consulting for Schering 

AG’s Center of Dermatology in Berlin, Germany—the subsidiary company had a different name (Berlex) and, at that time, did not have anything to do with dermatology or products related to the skin. In fact, I did not become aware that it was 
43 

a Schering AG subsidiary that had supplied one of the drugs used in the lupus trial 

until the LA Times made inquiries to me about these issues. 

2. With regard to the lupus nephritis trial, I had no role in conceiving, initiating 

or overseeing the trial. I made no decisions about how the results were to be reported or what the NIH’s response should be to the patient’s death. When the patient died, as Director, I was notified by the NIAMS Clinical Director, Dr. Jack 

Klippel, who told me that actions were being taken to determine the cause(s) of 

death. Standard NIAMS procedure following an adverse event required the Clinical 

Director, not the Institute Director, to make all necessary decisions and take any 

actions required subsequent to the event. As the most knowledgeable person about 

the trial, Dr. Klippel was the appropriate person to take action. Of importance for 

our purposes here, is the fact that at that time, neither he nor I discussed or focused 

upon who had manufactured the drug utilized in the trial, let alone whether it was 

provided by a subsidiary of a company for which I was consulting. Consistent with 

NIH procedures, no decisions were made by me during that conversation. The author of the LA Times article knew this and that is why he included only that ‘‘Steve 

Katz was notified almost immediately,’’ without expanding on what he (the author) 

learned in his conversation with Dr. Klippel. In fact, and also known to the LA 

Times, studies using the drug in question for lupus nephritis had been undertaken 

at the NIH, and by the NIAMS in particular, long before I ever became Director 

of the NIAMS. 

3. In April 2000, Dr. Peter Lipsky (the NIAMS Scientific Director) told me that 

there was going to be a newspaper report on the death of the patient in the lupus 

nephritis trial, and that in his opinion, possible litigation might follow. We thereupon met with Dr. Ruth Kirschstein, then Acting Director of NIH, who told us to 

refer all calls to the Office of General Counsel. At that meeting, none of us discussed 

the company that had manufactured the drug in question, and certainly not that 

it bore any relationship to a company for which I was consulting. Most importantly, 

no decisions were made by either Dr. Lipsky or myself at that meeting. 

Thus, notwithstanding that the recusal process failed to exclude me from three 

contacts with a matter related to Berlex, most important to this hearing, is that no 

substantive decisions related to this lupus trial were made by me, despite the misleading insinuations contained in the LA Times story. 

In sum, in my three brief contacts with this trial, I was unaware that it bore any 

relationship to a company with which I was consulting. I had no role in the conception or initiation of the lupus nephritis study, was not advised that it was ongoing, 

and had no role in overseeing its conduct or in how the results were reported or 

in what the NIH’s response should be to the patient’s death. All decisions were 

made in accordance with established procedures by people other than me. 

Of note, in preparing my response to the LA Times article, I learned that Dr. Michael Gottesman, NIH Deputy Director for Intramural Research, was informed by 

the NIH Office of Human Subjects Research that the death of the patient in the 

lupus trial was properly reported to regulatory authorities by the NIAMS and 

promptly reported to the Food and Drug Administration and to the National Institute of Allergy and Infectious Diseases (NIAID) Institutional Review Board, the review group that was overseeing this study. Decisions regarding the notification of 

other patients in the study and whether the study should be continued or not were 

solely those of the principal investigators and the NIAID Institutional Review 

Board. In addition, the DHHS Office for Human Research Protections (OHRP), on 

February 27, 2002, reported that, upon examination of this study, it found no evidence that the investigators and the NIAID Institutional Review Board failed to ensure the safety of the research subjects, as required by DHHS regulations. 

I share Dr. Zerhouni’s view that the NIH must uphold the highest standards for 

scientific excellence and ethical practices, and believe that my career in government 

service has been exemplary in this regard. 

While the issue of the relationship of the NIH and its senior scientists to private 

industry is an important topic for public reflection and discussion and while this is 

a legitimate and appropriate issue for debate in the media, I believe that it is entirely improper and unfair of the LA Times to have maligned my character and misrepresented my actions in focusing attention on this topic. 

I am pleased to have had the opportunity to appear before the Committee to publicly set this record straight and will be happy to answer any questions you may 

have. 
44 

STATEMENT OF JOHN GALLIN, M.D., DIRECTOR, CLINICAL CENTER, 

NATIONAL INSTITUTES OF HEALTH, DEPARTMENT OF HEALTH 

AND HUMAN SERVICES 

Senator SPECTER. Thank you very much, Dr. Katz. 

We now turn to Dr. John Gallin, Clinical Center Director, and 

NIH Associate Director for Clinical Research in 1994. Prior to his 

appointment, he served as Director of the Division of Intramural 

Research at the National Institute of Allergy and Infectious Disease. A graduate of Amherst College, M.D. from Cornell University 

Medical School. 

I am advised that we have present with us today Dr. Ronald Germain and Dr. Jeffrey Schlom. While they were not originally listed 

as witnesses, if they care to speak, they will be welcome to do so 

at the conclusion of Dr. Gallin’s testimony. Since there had not 

been any prior notice, there is no requirement that they speak, but 

if they want an opportunity to testify, the subcommittee would be 

glad to hear them. 

Dr. Gallin, thank you for joining us, and we look forward to your 

testimony. 

Dr. GALLIN. Thank you, Mr. Chairman. 

As you said, I am a physician and it has been my privilege to 

be an employee at the NIH for now over 31 years, and as you said, 

I am currently the Director of the Clinical Center. 

I have submitted my full statement for the record, if that is okay 

with you. 

Senator SPECTER. That will be made a part of the record in full. 

Dr. GALLIN. Thank you. I would like to briefly summarize it. 

As Director of the Clinical Center, my job is to ensure that the 

Clinical Center provides a safe environment for patients volunteering to serve in our clinical research studies. My personal research has focused on children and adults with inherited abnormalities of the white blood cells. Our work has included developing 

new therapies for our patients. One therapeutic approach of our 

laboratory is gene therapy, to put a normal gene in our patients’ 

cells and correct the defect. 

The December 7, 2003 LA Times article by David Willman included a side bar about me. Unfortunately, a key aspect of this side 

bar showed a fundamental misunderstanding of the relevant facts. 

In his article, Mr. Willman claims a conflict of interest existed between my laboratory activities related to a gene therapy study and 

a company called Cell Genesys. Mr. Willman ignored important 

historical and chronological information that I provided to him on 

two occasions. Let me briefly review the historical facts. 

In October 1994, we initiated a contract with a company called 

Somatix to develop a viral vector to carry a normal gene into our 

patients’ cells. The vector was made and the last patient received 

the treatment in December 1995. The patients were then followed 

for a year. 

A manuscript describing our findings was completed in June 

1997 and submitted for publication on July 1997, ending our relationship with Somatix. 

In June 1997, 18 months after we administered gene therapy to 

our last patient and after our manuscript was ready for submission 

for publication, Somatix was bought by Cell Genesys. Cell Genesys’ 
45 

leadership insisted that we recognize their company in our manuscript even though the research project was completed before they 

acquired Somatix. Because we were informed that we were obligated legally to honor their request, Cell Genesys was recognized 

in the front of the paper. In protest, however, we added a footnote 

at the end of the paper which stated that the industrial collaborator in the project was Somatix Therapy Corporation. 

The committee should know that these facts were shared with 

Mr. Willman before he wrote his December 2003 research article. 

In September 1997, I was asked to join the scientific advisory 

board of a new company, Abgenix, a spinoff of Cell Genesys. I 

should emphasize again that Somatix and Cell Genesys were not 

affiliated at any time during our gene therapy study. Therefore, 

there was no conflict between my consulting work for Abgenix and 

my laboratory’s clinical research study done with Somatix. 

My consulting for Abgenix was the first and only time during my 

31 years at NIH that I agreed to serve on a scientific advisory 

board for a company. Importantly, all my activities were approved 

by the senior NIH leadership as compatible with NIH policy. 

PREPARED STATEMENT

To conclude, Mr. Chairman, I am proud of my service at NIH. 

I am proud of the progress we are making at the Clinical Center. 

The December 2003 LA Times article strongly implied that my consulting relationship with Abgenix was a conflict with Cell Genesys 

because of my laboratory’s relationship with a third company 

Somatix. As I have explained above, I want the committee to know 

that Somatix was acquired by Cell Genesys well after my laboratory completed studies using the Somatix viral vector. There was 

simply no connection between my membership on the scientific advisory board of Abgenix and the gene therapy study. 

Thank you for the opportunity to testify today and to clarify the 

facts. 

[The statement follows:] 

PREPARED STATEMENT OF DR. JOHN I. GALLIN

Mr. Chairman and Members of the Committee: I am Dr. John I. Gallin. I am a 

physician and it has been my privilege to be employed by the National Institutes 

of Health for over 31 years. Thank you for inviting me here today to discuss important issues related to NIH. 

During my career at NIH I have served 8 years as Scientific Director of the National Institute of Allergy and Infectious Diseases (NIAID) and ten years as Chief 

of the Laboratory of Host Defenses of NIAID. 

In 1994, I was invited by the then Director of NIH to be Director of the Warren 

G. Magnuson Clinical Center. As Director of the NIH Clinical Center my job is to 

assure that the NIH Clinical Center provides a safe environment for patients volunteering for our research studies and that the necessary resources are available for 

the NIH institutes to carry out their intramural clinical research programs. Let me 

emphasize, I have no responsibility for the awarding or oversight of grants to the 

extramural community, including industry. 

My research has focused on children with inherited abnormalities of the white 

blood cells called phagocytes. In addition to my administrative and research activities, I continue to care for children and adults with these rare diseases. Our work 

has ranged from the description of newly discovered diseases to defining their genetic basis and recently to developing new therapies. One therapeutic approach of 

our laboratory is gene therapy that attempts to correct the inherited defects in the 

patients’ white blood cells. 
46 

On December 7, 2003 the Los Angeles Times published an article ‘‘Stealth Merger: 

Drug Companies and Government Medical Research’’ by David Willman that included a sidebar about me. Unfortunately, a key aspect of this sidebar showed a 

fundamental misunderstanding of the relevant facts. In his article Mr. Willman 

claims a conflict of interest existed between my laboratory activities related to a 

gene therapy study and a company called Cell Genesys. Mr. Willman ignored important historical and chronological information that I provided to him on two occasions. 

A brief review of the historical facts follows. 

In October 1994, my Deputy Laboratory Chief established a cooperative research 

and development agreement with a company called Somatix Therapy Corporation. 

This new biotechnology company specialized in designing viral vectors; we needed 

a viral vector to carry a normal gene into the adult stem cells of our patients. Specifically, the cooperative research and development agreement with Somatix Therapy Corporation was required to implement a protocol designed to correct the defect 

in children with a rare and devastating disease called Chronic Granulomatous Disease of Childhood. In early 1995, a vector prepared by Somatix Therapy Corporation 

was ready to give to patients and in spring 1995 the first patient with Chronic 

Granulomatous Disease was given gene therapy. In December 1995, the last patient 

in our study received gene therapy. The patients were followed for over a year to 

evaluate the response to the gene therapy. 

In February 1997, my laboratory Deputy drafted the manuscript describing the 

findings. I was the last author of that paper. Like all NIH manuscripts, the draft 

paper went through intense internal review at NIH and was completed in June 

1997. The manuscript was submitted for publication in the Proceedings of the National Academy of Sciences, USA early July 1997. In June 1997, eighteen months 

after we administered gene therapy to our last patient and after our manuscript 

was ready for submission for publication, Somatix Therapy Corporation was purchased by Cell Genesys. Following the purchase of Somatix Therapy Corporation, 

Cell Genesys leadership insisted that we recognize their company in our manuscript 

even though the research project was completed before Cell Genesys had acquired 

Somatix Therapy Corporation. Because we were informed that we were obligated legally to honor their request, Cell Genesys was recognized in the front of the paper. 

In protest, however, we added a footnote at the end of the paper, which stated the 

industrial collaborator in the project was Somatix Therapy Corporation. Again, the 

Committee should know that these facts were shared with Mr. Willman before he 

wrote his December 2003 article. 

In September 1997, because of my general expertise in immunology and inflammation, I was asked to join the Scientific Advisory Board of a new company called 

Abgenix Inc., a spin off of Cell Gensys. At the time I was asked to consult for 

Abgenix Inc. I was not aware that there was some degree of ownership by Cell 

Genesys. But, I should note again that Somatix Therapy Corporation and Cell 

Genesys were not affiliated at any time during our gene therapy study. Therefore, 

there was no conflict between my consulting work for Abgenix Inc. and the clinical 

research study that my laboratory did with Somatix Therapy Corporation. 

This was the first and only time during my career at NIH that I agreed to serve 

on a Scientific Advisory Board for a company. I agreed to serve on the Abgenix Inc. 

Scientific Advisory Board for several reasons: I thought Abgenix Inc. had an exciting 

vision; I was very impressed by the outstanding quality of the other scientists from 

the extramural community invited to serve on the Board; and, I thought serving on 

the Board would broaden my perspective in my area of scientific expertise and enrich and enhance my service to the NIH. Participating on the Abgenix Inc. Scientific 

Advisory Board did not represent a conflict of interest and I believed that it was 

consistent with other outside activities I participated in during my career at NIH. 

These other activities have included serving on the Scientific Advisory Board of the 

Rockefeller Brothers/Culpepper Foundation to select young medical scientist investigator awardees, volunteer service on the Medical Center Operating Board of the 

University of Virginia Hospital, serving as a co-editor of three editions of a text book 

Inflammation,or editing the text Principles and Practice of Clinical Research. Importantly, all my outside activities, including serving on the Scientific Advisory Board 

for Abgenix Inc., were reviewed by senior NIH leadership and approved as compatible with NIH Policy. 

To conclude Mr. Chairman, I am proud of my service at NIH. I am proud of the 

progress we are making at the Clinical Center. The Los Angeles Times article, 

strongly implied that my consulting relationship with Abgenix Inc. was a conflict 

with Cell Genesys because of my laboratory’s relationship with Somatix Therapy 

Corporation. As I have explained above, I want the Committee to know that 

Somatix Therapy Corporation was acquired by Cell Genesys well after my labora-
47 

tory completed studies using the Somatix Therapy Corporation’s viral vector. There 

was simply no connection between my membership on the Scientific Advisory Board 

of Abgenix Inc. and the gene therapy study. 

Thank you for the opportunity to testify today about this important topic. I would 

be pleased to answer your questions. 

Senator SPECTER. Thank you very much, Dr. Gallin. 

We have asked Dr. Germain and Dr. Schlom if they would care 

to testify and both have responded in the affirmative. Would you 

gentlemen come forward? 

STATEMENT OF JEFFREY SCHLOM, M.D., CHIEF OF THE LABORATORY 

OF TUMOR, IMMUNOLOGY, AND BIOLOGY, CENTER FOR CANCER 

RESEARCH, NATIONAL CANCER INSTITUTE, NATIONAL INSTITUTES OF HEALTH, DEPARTMENT OF HEALTH AND HUMAN 

SERVICES 

Senator SPECTER. We will start with Dr. Schlom. Thank you for 

joining us. Staff had contacted both of you gentlemen yesterday 

asking for statements, and we had them. It seemed to me appropriate, since you were here, to give you an opportunity to speak, 

if you wish to do so. There are two other doctors who were not 

available when staff made efforts to contact, so of course, they cannot be included. 

But we will turn now to you, Dr. Jeffrey Schlom, Chief of the 

Laboratory of Tumor, Immunology, and Biology at the Center for 

Cancer Research at the National Cancer Institute. 

Dr. Schlom. 

Dr. SCHLOM. Thank you. I just found out at 5 o’clock last night 

that I would be asked to be here, and I had not prepared any statement. I prepared something last night and early this morning at 

6 a.m. 

Senator SPECTER. When we saw exactly what was happening, it 

seemed to me appropriate to give you an opportunity. Again, I repeat, we are not asking you to. We are just making it a matter for 

your discretion. 

Dr. SCHLOM. Fine. 

I did prepare a detailed response to the allegations in the LA 

Times, which I had given to the NIH and NCI ethics officers. I do 

not know whether this has been forwarded to the committee. I 

have many copies here. 

Senator SPECTER. We would be glad to make those a part of the 

record, if you request it. 

Dr. SCHLOM. Yes. 

I would just like to say that the allegations were misleading, 

grossly inaccurate, and there were many, many false innuendoes in 

the LA Times article. I have addressed each of these in this document which I can give you for the record. 

[The information follows:] 

RESPONSE TO THE INFORMATION IN THE L.A. TIMES ARTICLE CONCERNING J. SCHLOM

This is in response to allegations of ‘‘potential conflict of interest’’ made against 

me by Mr. Willman of the L.A. Times in his sidebar article of December 7, 2003. 

I provide below details of the inaccuracies in the article, as well as corroborating 

information from individuals involved in this matter which substantiates that I was 

wrongfully accused of a real, or even perceived, conflict of interest involving the use 

of the drug Taxol. 

1. I was a consultant for Cytoclonal from June 1992 to March 2002. I filed all the 

appropriate NIH Outside Activity forms and subsequent disclosure information as 
48 

a then member of the SES and now a Title 42 employee. The approved HHS 520 

Form stated, ‘‘Cytoclonal Pharmaceuticals Inc. is interested in becoming involved in 

the area of biotechnology and the use of monoclonal antibodies for the diagnosis and 

therapy of a range of human cancers. Dr. Schlom is being asked for advice and to 

evaluate their present and proposed programs in these areas.’’ That is exactly what 

I did. 

2. There were never any discussions concerning the drug Taxol, or the recombinant microbial form that I believe they were trying to develop at Cytoclonal. Personnel at Cytoclonal knew that that was not my expertise and it never once came 

up in all the years of my consulting for Cytoclonal. 

3. In his e-mail to me of November 27, 2003, Mr. Willman states, ‘‘As a member 

of the SAB, you were privy to Cytoclonal’s research and development program.’’ He 

obviously drew his incorrect conclusions before I had a chance to respond. I immediately responded to Mr. Willman that I never attended a meeting of the Scientific 

Advisory Board and had absolutely nothing to do with their drug development program. He chose to ignore that in his article. 

4. My only involvement with Cytoclonal was to give advice on immunotherapy reagents such as monoclonal antibodies, spending on average one-half day every 2 

years working from my home on annual leave. Thus my contact with Cytoclonal was 

minimal. 

5. The above items 2, 3, and 4 can be corroborated by Dr. Arthur Bollon, who was 

CEO of Cytoclonal for virtually the entire time I was a consultant. His e-mail address is arthurb@flash.net <mailto:arthurb@flash.net> and his telephone number is 

469–585–7613. In a phone conversation with Dr. Bollon after the appearance of the 

L.A. Times article, he informed me that I was never under a confidentiality agreement concerning their recombinant ‘‘Taxol’’ development program, and therefore 

could not have had any conversations regarding it. This is corroborated by Dr. 

Bollon in an accompanying e-mail of December 15, 2003. 

6. I never had stock in Cytoclonal, so the failure or success of any drug developed 

by the company would not have been of benefit to me. 

The following involves the clinical trials side of the story. 

7. My lab at NCI, NIH and I have had a long-standing and fruitful collaboration 

with one of the premier oncologists and Cancer Center Directors in the United 

States—Dr. Albert LoBuglio, Director of the University of Alabama at Birmingham 

Comprehensive Cancer Center. We have published 19 papers together from 1991 to 

2003 involving monoclonal antibodies developed in my lab and experimental and 

clinical studies conducted at the University of Alabama at Birmingham Comprehensive Cancer Center. As a research immunologist, my input in these studies involved 

the development of the antibodies. The clinical research designs and conduct of the 

trials were done by Dr. LoBuglio and his colleagues at the University of Alabama 

at Birmingham Comprehensive Cancer Center. 

8. Taxol is an FDA-approved drug that is widely used throughout the world as 

a therapeutic for many different kinds of cancers. I had nothing to do with the clinical design of the studies whose results were published in the two papers cited by 

Mr. Willman in his L.A. Times article. These two studies used two different forms 

of a radiolabeled monoclonal antibody developed in my laboratory and various combinations of Paclitaxel/Carboplatin and Interferon [Clin. Cancer Res. 8:2806–2811, 

2002] and Interferon/Taxol [Cancer Biother. Radiopharm. 16:305315, 2001]. In his 

L.A. Times article, Mr. Willman stated, ‘‘Schlom helped lead two NIH funded studies in which Taxol played a crucial role.’’ This is another inaccuracy. I was not the 

Principal Investigator on either of these studies and I was neither the first author 

nor the last author on the publications involving either of these studies. I informed 

Mr. Willman that my role was minimal, as stated above, yet Mr. Willman chose to 

ignore it and indeed reported on it inaccurately. Dr. LoBuglio can be contacted to 

corroborate the above; his e-mail address is al.lobuglio@ccc.uab.edu 

<mailto:al.lobuglio@ccc.uab.edu> and his telephone number is 205–934–5077. Also 

see the accompanying e-mail of December 15, 2003, from Dr. LoBuglio. 

9. Mr. Willman, in his L.A. Times article, neglected to mention the clinical benefit 

to patients reported in the papers cited. I wish I could take credit for this, but it 

goes to Dr. LoBuglio and his colleagues at the University of Alabama at Birmingham Comprehensive Cancer Center. Mr. Willman also chose to ignore the fact 

that I am an intramural NCI scientist, and I am not involved in any extramural 

policy decisions. 

10. In the opening sentence of his article, Mr. Willman states, ‘‘Jeffrey Schlom has 

built a busy outside career as a consultant.’’ The inference here is that I am spending a lot of time as a consultant. This is also inaccurate. My consulting for all companies usually totals no more than 2 to 4 days per year, during which I take annual 

leave. I always have many days and sometimes weeks of unused annual leave at 
49 

the end of the year. I work 10–12 hours per day and at home evenings and weekends on my NIH duties. Any inference that I am not an extremely dedicated NIH 

employee is thus also unfounded. 

11. Another point for consideration: The ‘‘Taxol’’ agent that was being developed 

by Cytoclonal was in some sort of microbial vector (I am still not clear what they 

were actually doing). However, if this agent was ever to be a drug, it would have 

to be analyzed as a different form of ‘‘Taxol’’ in terms of toxicity, pharmacology, and 

clinical activity. That drug would then actually be a competitor with ‘‘Taxol’’ as it 

is now known. Thus, the drug that would be developed by Cytoclonal would actually 

be a competitor with the drug(s) used in the University of Alabama at Birmingham 

Comprehensive Cancer Center study. How Mr. Willman conjured an even perceived 

conflict of interest here thus defies logic, unless there is a predefined agenda. 

12. Finally, I welcome a complete review of this matter and a report of its conclusions. I will be happy to meet with any NIH official regarding this matter at any 

time. I feel it is extremely important to clarify the inaccuracies and innuendos in 

the Willman article, which is all over the Internet. Where do I go to get my reputation back? 

JEFFREY SCHLOM, PH.D. 

December 15, 2003. 

From: Arthur Bollon [abollon@hemobiotech.com] 

Sent: Monday, December 15, 2003 3:54 P.M. 

To: Schlom, Jeffrey (NIH/NCI) 

Subject: Bollon 

JEFFREY SCHLOM: I received your e-mail concerning the LA times article. To clarify, I can confirm without any question that your consultation with Cytoclonal was 

for advice on immunology and monoclonal antibodies since we had several 

monoclonal antibodies under development for diagnosis and/or treatment of cancer. 

You were not involved in the Taxol program of the company which was focused on 

an improved way to make it and was not related to your expertise. Furthermore we 

had a confidential relationship with a phrmaceutical company for this program and 

you were not included. You did not receive options for your services and you consulted by phone conversations or individual meetings. You did not participate in 

group advisor meetings. 

ARTHUR P. BOLLON, PH.D., 

Former President & CEO, Cytoclonal Pharmaceutics, Inc. 

From: Lobuglio, Albert 

Sent: Monday, December 15, 2003 5:11 PM 

To: Schlom, Jeffrey (NIH/NCI) 

Subject: Jeffrey Schlom/UAB Collaborations 

TO WHOM IT MAY CONCERN: The Targeted Immunotherapy Program, which I direct at the University of Alabama at Birmingham Comprehensive Cancer Center, 

has had a longstanding collaboration with Dr. Jeffrey Schlom of the National Cancer 

Institute. This collaboration has involved studies relevant to the use of monoclonal 

antibodies as therapeutic agents in patients with cancer. Dr. Schlom has originated 

a variety of antibodies that we have been able to take into phase I and phase II 

clinical trials. 

Regarding the recent LA Times article regarding potential conflict of interest, the 

clinical trials referred to involve phase I/II trials in patients with ovarian cancer at 

our Cancer Center. These trials, as well as preceding clinical protocols, have involved the therapy of patients with recurrent ovarian cancer using the 

intraperitoneal administration of radiolabeled CC49 monoclonal antibody. This antibody was derived by Dr. Schlom’s laboratory at the National Cancer Institute, and 

he has played a pivotal role in our development of this antibody through his knowledge of the pre-clinical and molecular studies carried out in his laboratory. Because 

of his interaction with us regarding this antibody, we have routinely included him 

as a co-investigator on our clinical protocols, as well as co-author on manuscripts 

utilizing the reagent. 

As indicated in the LA Times article, our most recent two protocols utilized a single administration of Taxol in addition to the radiolabeled antibody to take advantage of its well known radiation sensitizing effects. The decision to embark on this 

additional component of the therapeutic regimen was derived from discussions with-
50 

in our own research group and did not involve Dr. Schlom. Dr. Schlom did not provide any leadership regarding these two funded studies and had no role in our internal discussions regarding the choice of a radio-sensitizing drug. His inclusion as a 

co-author reflected his long-term participation in our CC49 studies. 

I have no insight or knowledge of Dr. Schlom being a consultant to Cytoclonal 

Pharmaceutics Inc or the same company under other names and have never heard 

any discussion from Dr. Schlom regarding either the company or its products. I do 

not believe that there is any credibility to the proposition that Dr. Schlom influenced our clinical trials to use Taxol for the purpose of enhancing any company’s 

business plan or commercial development. My longstanding interaction with Dr. 

Schlom has reflected a highly professional and ethical approach to laboratory and 

clinical research. 

ALBERT F. LOBUGLIO, M.D., 

Director, Comprehensive Cancer Center. 

STATEMENT OF RONALD N. GERMAIN, M.D., CHIEF, IMMUNOLOGY 

LABORATORY, INSTITUTE OF ALLERGY AND INFECTIOUS DISEASES, NATIONAL INSTITUTES OF HEALTH, DEPARTMENT OF 

HEALTH AND HUMAN SERVICES 

Senator SPECTER. Dr. Germain, Chief of Immunology Laboratory 

at the NIH Institute of Allergy and Infectious Diseases. Dr. Germain, we would be pleased to hear from you, but again, it is a matter of your choice as to whether you would like to say some things 

about the allegations. 

Dr. GERMAIN. Thank you for the opportunity, Mr. Chairman. I 

will not take much of the committee’s time. I concur with all of my 

colleagues about the level of inaccuracies and innuendoes, and I 

will provide a written document for the committee and for the 

record. 

But since you also specifically mentioned earlier a particular 

matter having to do with my case, I think I do want to address 

that very briefly here. 

The LA Times article indicated that I accepted funds for the research of my laboratory at NIH from companies with whom I had 

a consulting and paid arrangement. That is absolutely false. Those 

monies went to other independent tenured investigators in the 

larger department in which I work. I had no connection to the receipt of those funds, and they had nothing to do with my NIH activities. 

[The statement follows:] 

PREPARED STATEMENT OF DR. RONALD N. GERMAIN

In response to the opportunity afforded me by the Chairman of the Committee 

on Appropriations, Subcommittee on Labor, Health and Human Services, Education, 

and Related Agencies, I am submitting this document for the record in connection 

with the Committee’s questions arising from the December 7, 2003 article in the LA 

Times regarding consulting activities by NIH employees. 

For the past 21 years I have been a scientist at the National Institute of Allergy 

and Infectious Diseases (NIAID), leading a research team investigating the basic 

functioning of the immune system at the cellular and biochemical levels. During this 

time I was appointed Chief of the Lymphocyte Biology Section within the Laboratory of Immunology (LI) of the NIAID and in 1994, also took on the role of Deputy 

Chief of the LI. During my time at NIH, I have received the NIH Directors Award 

(1986), the PHS Superior Service Award (1989), the DHHS Distinguished Service 

Award (1994), and the Meritorious Rank Award, Senior Executive Service (2000). 

These were received in recognition of both the substantial fundamental research accomplishments of my laboratory and the larger institutional contributions I have 

made in support of the NIH and DHHS mission. 

In addition to the direct contribution to biomedical knowledge arising from the research program I lead at NIH, other mechanisms permit me to use my scientific insight to help improve human health. As I wrote in response to the initial reporter 
51 

inquiry leading to the LA Times article at issue here, outside consulting 

‘‘. . . allows me to use my overall/general scientific expertise [not the specific findings of my lab at NIH] to further biomedical progress in ways that I cannot do within my own laboratory. I conduct only basic research using mouse model systems, 

which is what my training and experience best equips me to do . . . my general 

insight into immunology and related biomedical sciences can be used to help develop 

new drugs and treatments for Americans through the work of private biotechnology 

companies for whose R and D programs I provide advice. It [also] allows me to gain 

insight into the practical issues involved in clinical research and drug development, 

matters that I would know nothing about if my only frame of reference were my 

NIH laboratory... This perspective is different from that of either purely basic 

investigators or of clinical investigators—the former lack the first-hand knowledge 

of how development proceeds that I acquire when I consult and the latter have a 

vested interest in the process that I do not, allowing me a more objective position 

during discussions.’’ 

Based on this rationale, I have engaged in outside consulting activities with drug 

companies and biotechnology firms as permitted by existing NIH and Federal rules 

and regulations, providing review of and guidance for translational research programs that seek to create new treatments for human disease, in a manner that will 

not tarnish the well-deserved reputation of NIH. 

It is in this context that the article published in the LA Times on December 7, 

2003 is especially disturbing. The section of the article dealing with my conduct in 

inaccurate, misleading, and makes charges or contains implications that are completely false. The author was well aware of the true circumstances related to the 

issues raised in the article, but either ignored these facts or presented them in a 

manner that leads the reader to draw highly erroneous conclusions. Beyond the information available to the author from public records, I also provided detailed answers to his questions that pointed out how NIH and other applicable regulations 

had been followed in all my activities, and I also volunteered to vet the draft article 

for accuracy, an offer that was declined. The result was a set of allegations of improper behavior that were not based on the true facts of the relevant matters and 

a report containing a number of substantial inaccuracies about my income from 

these activities. 

The most serious of the allegations state that I have ‘‘. . . taken fees from a company collaborating formally on research with his laboratory. In 2001, Genetics Institute and Germain’s lab entered a formal collaboration called a cooperative research 

and development agreement, or CRADA, to study the effect that genes have on the 

immune system.’’ It also states that ‘‘Alexion collaborated with Germain’s lab from 

1993 to 1997 under a CRADA. Germain became a paid consultant to Alexion in 

1998, about a year after his lab finished collaborating with the company.’’ These 

charges that I received both support for research conducted at NIH and personal 

consulting fees from the same outside entity are false and specifically crafted to be 

misleading. In both of these cases, the indicated research agreements (CRADAs) 

were with other scientists who headed independent research programs within the 

Laboratory of Immunology at the NIAID. The article similarly disguises the reality 

that other cited ‘‘relationships’’ between my Institute (NIAID) and various companies for which I consulted involved either independent investigators in different departments or the award of extramural funding, which is completely separate from 

the activities of intramural researchers such as me. 

The article also leaves the impression that I recently chose to remove my consulting activities from public view. In fact, the change in my financial reporting 

automatically accompanied a shift in my employment position between Government 

pay systems, and I learned of this change only after the reassignment. The implication that I took direct action to hide my finances from public scrutiny is thus a clear 

misrepresentation, as I made the change without consideration of whether or not 

public reporting of my finances continued. I have never objected to, nor do I now 

object to the appropriate public disclosure of my outside activities or associated income. 

Finally, while it is correct that I have earned a substantial amount in aggregate 

over many years through consulting (always done in accord with NIH regulations 

and with what I believe are benefits for U.S. public health), the numbers cited in 

the article for this income are inaccurate and inflated. In the interest of full financial disclosure (which the article quite wrongly implies NIH and its scientists seek 

to avoid), I was instructed by the NIAID Deputy Ethics Officer to report not just 

the previous calendar year’s income, but all income earned up the time of filing, 

typically late May of the subsequent year. The latter amount was of course included 

again on the following year’s form as part of the preceding calendar year’s income. 

Because this contemporaneous reporting is not strictly required by the instructions 
52 

accompanying the 278 disclosure form, and because the author of the article failed 

to accept my offer to check the accuracy of the article, the putative cash compensation reported in the story is based on counting a substantial fraction of my income 

twice for the 11 years examined. The result is the inflation of the correct amount 

by hundreds of thousands of dollars. These same errors affect the specific claims 

made in the article about income in any given year or in aggregate from a particular 

company. Furthermore, the amount suggested as the value of stock options is also 

inaccurate, apparently arising from the assumption that all such options were fully 

vested and sold at the market peak for each stock. This is far from the truth, and 

in this case, the actual amount realized to date from the exercise of such options 

is only about one-fourth of the figure cited. By these two routes the article exaggerated my total realized outside compensation by nearly $1 million, a serious matter 

when the headline for my section of the article is intended to get the reader’s attention specifically because of the dollar amount involved. 

It is one thing to legitimately raise concerns about possible conflicts of interest 

in the outside activities of some NIH employees, sharing as I do with Dr. Zerhouni 

the view that the conduct of all NIH employees much be of the highest standard 

and visible for public scrutiny. It is another to use sensationalism at the expense 

of truth. I have worked hard for over 30 years to help medical science gain a deeper 

understanding of the immune system, earning during this time what I believe is a 

well-justified reputation for scientific as well as personal honesty and integrity. It 

is difficult to understand how a newspaper like the LA Times did not feel compelled 

to better vet the factual elements in its stories and prevent the unjustified tarnishing of something as valuable as a reputation. A similar concern also extends to 

the unwarranted general disparagement of NIH and its employees that such misleading reporting engenders. I note that my attempts to get the LA Times to correct 

the inaccuracies in its reporting were rebuffed. 

I thank the Chairman and the Committee for the opportunity to comment on this 

important matter and to correct the substantial misinformation contained in the 

newspaper article about my conduct as a Federal employee at the NIH. 

Senator SPECTER. Thank you, Dr. Germain. 

Dr. Gallin, where there is an arrangement for consultation with 

a company and there are payments made for being a consultant 

and the interests of the company touch on research which a doctor 

does at NIH and the doctor, further, is a shareholder, which I believe you were of Cell Genesys, how do you structure the arrangement to avoid either a conflict of interest or the appearance of a 

conflict of interest on those facts? 

Dr. GALLIN. Let me try to respond to that. 

Senator SPECTER. I am going to ask the same question for each 

of you gentlemen. 

Dr. GALLIN. In my case I did not think there was a conflict of 

interest because, as my written statement shows, my serving as a 

consultant to Abgenix was unrelated to Cell Genesys. I never had 

a relationship with Cell Genesys. The Somatix project on gene therapy occurred before Cell Genesys bought Somatix. 

Senator SPECTER. Did any of the research which you had done 

touch on work which the company was interested in? 

Dr. GALLIN. Not to my knowledge. Only in the broad sense of my 

expertise in immunology and inflammation, not in my individual 

laboratory’s activities. 

Senator SPECTER. So there was nothing you did for NIH which 

was of value to the company for which you were paid as a consultant? 

Dr. GALLIN. Not to my knowledge. 

Senator SPECTER. Dr. Katz, in a context of being a consultant 

where NIH pays a doctor, a research specialist, how can you avoid 

the issue of conflict or at least the issue of appearance of conflict? 

Dr. KATZ. So my commitment, in terms of consulting, has always 

been to provide advice. I have never done any research, never been 
53 

engaged in research with any of the companies that I have consulted for, and that advice is based on my global knowledge of dermatology and basic science. 

Now, it is incumbent upon each of us not to provide companies 

any knowledge that is of a privileged nature. So that knowledge 

has to be gleaned from the public domain, and basically whatever 

is in the public domain is permissible to use as an assessment of 

what a company is doing or as a critique of what their laboratory 

programs are or of an assessment of whether something may relate 

to a clinical problem or not. So it was the global knowledge and advice that I provided to these companies. That you could say is quite 

different than my specific job, particularly my job in the NCI laboratory dealing with specific research endeavors that dealt with a 

cell called the Langerhans’ cell and how it interacts with the immune system. 

Senator SPECTER. Dr. Germain, here again, since you did not 

have a notice in advance, I am not pressing you to respond, but 

giving you an opportunity to respond if you choose to do so. What 

is your view of how you avoid a conflict or at least the appearance 

of conflict from the—or how do you put the wall between your fiduciary duties at NIH and what you may be asked by a company for 

whom you are a paid consultant? 

Dr. GERMAIN. To reiterate what Dr. Katz just said, NIH has 

made it very clear to all its employees that we are forbidden from 

transmitting any private information coming from our own laboratory work to any of these companies, and all companies with whom 

I have any relationships are made very well aware of that not only 

in writing, but directly by me repeatedly. And it is very clear that 

those are not topics for conversation. 

My interactions with them are very similar to Dr. Katz. I provide 

general advice often in areas that are very unrelated to the specific 

work of my very basic science laboratory. I do not conduct any clinical research. I do not do any drug research. My work has to do 

with cell biology and biochemistry in mice and not in humans, but 

I do help these companies with advice about moving the basic findings that exist in immunology into the clinic in exactly the ways 

that Dr. Zerhouni has pointed out, as a benefit to U.S. public 

health. 

Senator SPECTER. We will give an opportunity to others who 

were identified publicly to submit statements and be included in 

this record. 

Now, Dr. Germain, how do you view this issue of conflict and appearance of conflict? Dr. Schlom? Here again, your response is 

purely up to you. 

Dr. SCHLOM. Well, my wife told me before I came here not to say 

anything I did not have to. 

I just feel compelled to say the following things. 

Senator SPECTER. In that event, Dr. Schlom, I withdraw the 

question. 

Dr. SCHLOM. Are you serious? 

Senator SPECTER. Was your wife serious? 

Dr. SCHLOM. Yes, she was. 

Senator SPECTER. Then so am I. 

Dr. SCHLOM. Okay. 
54 

Senator SPECTER. Go ahead, Dr. Schlom. 

Dr. SCHLOM. I think it is really important to emphasize that the 

consulting that I have done—and by the way, I have never held 

stock in any company. It’s just been a fee for services—has really 

taken only two forms, and it is to evaluate the scientific program 

of a given company or to evaluate a given technology that they are 

interested in. So I just give them advice on these issues. 

This does not interfere in any way or overlap in any way with 

my official duties at the NIH, and I do not disclose to the organization any work or data that is conducted in my laboratory until it 

has been public for 1 year because that is the regulation. And the 

industrial organization has no proprietary interest in any of the 

work that I have ever done, and my laboratory has never ever 

worked on any agents developed by any organization that I have 

consulted with. I have been very, very careful in being very diligent 

in following these regulations. 

Again, I probably should not say this, but I will say it anyway. 

Perhaps we should not believe everything we read in the newspapers. 

Senator SPECTER. Dr. Gallin, do you think it would be appropriate to ask a man in your position to file a public financial disclosure statement? 

Dr. GALLIN. Absolutely. 

Senator SPECTER. Dr. Katz, would you think it appropriate for a 

person in your position to have a public disclosure of a financial 

statement? 

Dr. KATZ. I have always disclosed publicly my income from all 

sources, including when my children were dependents, I have always disclosed their incomes as well. 

Senator SPECTER. Do you think, Dr. Katz, it would be appropriate to ask researchers in the NIH who are paid consultants or 

hold stock in companies to have public financial disclosure statements? 

Dr. KATZ. Sir, I believe in openness and transparency. I could not 

agree more with Dr. Zerhouni. Of course, one does not want to anticipate what the blue ribbon panel would come up with, but if you 

are asking for my personal opinion, I think that if one makes outside income, it should be transparent, and if you do not want to 

make it transparent, you should not do it in the first place. 

Senator SPECTER. Dr. Germain, do you think it would be appropriate to ask researchers at NIH who are consultants who own 

stock in pharmaceutical companies to make public financial disclosure statements? 

Dr. GERMAIN. I would just reiterate what Dr. Katz and Dr. Gallin 

have already said. All of us, to my knowledge, have always done 

that. I always have until very recently when the regulations 

changed, and I would be perfectly happy to do it again. I think that 

is true across the board. 

Senator SPECTER. Dr. Schlom. 

Dr. SCHLOM. The same. 

Senator SPECTER. Dr. Gallin, do you think there would be a significant loss of researchers at NIH if there was a blanket prohibition against consulting fees or owning stock in a pharmaceutical 

company? 
55 

Dr. GALLIN. That is a very difficult question to answer. In my 

opinion, it would not be a favorable decision. But I believe that 

there should be some parity between the investigators who work at 

the NIH and investigators who work under NIH grants and the 

universities. I think the blue ribbon committee will have to think 

long and hard about that. 

Could I just make a response to your previous question? 

Senator SPECTER. Sure. 

Dr. GALLIN. In your case reports, you were referring to me I believe about an example of a failure to disclose for 2 years on a 

stock, and I just would like, if it is okay, to tell you about that. 

Senator SPECTER. Well, I did not so identify, but if you would 

care to comment, you are welcome to do so. 

Dr. GALLIN. Thank you. 

This referred to my wife’s ownership of the Cell Genesys stock, 

and as I told Mr. Willman, the failure to disclose it—and as you 

pointed out—was in error. I just want to point out that the stock 

was purchased for my wife through a separate management account that was managed by a financial advisor who bought and 

sold stocks in her name. I did not realize back in 1999 that this 

stock was in her portfolio. When it became clear to me that it was 

in the portfolio, I disclosed it. That was in 2001. And it was an 

error and I totally apologize for it, but that’s the facts. 

Senator SPECTER. Thank you, Dr. Gallin, for that clarification. 

Dr. Germain, do you think it appropriate to have somebody in 

your position or everybody at NIH—the issue which I want your 

opinion on is not that one now, but whether if there was a requirement for a prohibition against consulting fees or owning stock, 

would that cause NIH to lose their research scientists in a significant way? 

Dr. GERMAIN. I do not think it is possible for me to predict how 

many people would leave, but I will comment on the fact that I 

think psychologically it will make many NIH scientists feel, in the 

way that Dr. Gallin has pointed out, second class citizens to some 

of their academic colleagues. And also more importantly, I believe 

it will deprive many NIH employees of the ability to participate in 

a productive way in furthering health care development in the 

ways that Dr. Zerhouni has outlined previously. 

Senator SPECTER. Dr. Schlom, what is your view on that? 

Dr. SCHLOM. I agree with what Dr. Germain said. I also think 

it would inhibit recruitment of new scientists because they have 

the ability to work at universities, obtain Government grants, and 

do consulting, and I think they would look at this as one more reason not to come to the NIH. I think these rules need transparency, 

need strengthening, et cetera, but I think it would be a mistake for 

a complete prohibition. 

Senator SPECTER. Well, I think the hearing has been very productive. I believe that there has been a concurrence on the basic 

point about financial disclosures, which would be much broader 

than are currently required. 

Dr. Katz, do you want to make another comment? 

Dr. KATZ. Well, I did not know whether it was significant that 

you skipped over me in terms of providing an opinion about what 
56 

would happen at NIH if we were not allowed to consult in terms 

of scientists. 

Senator SPECTER. I just wanted to see how anxious you were to 

weigh in on that. 

Dr. KATZ. I think it is really important to understand—— 

Senator SPECTER. It is not easy to run all these hearings without 

a scorecard, and we do not work on a text. 

Dr. KATZ. Betty Lou and I had some eye contact. 

Senator SPECTER. I noticed that. 

So every now and then we give you a break by not asking a question, but since you do not want a break, go ahead. 

Dr. KATZ. So I just wanted to weigh in on that issue because it 

does get to the crux of what passion that many of the NIH scientists have, whether they are M.D.’s or whether they are Ph.D.’s. 

There are many Ph.D. scientists who have a passion to see what 

they are doing come to fruition for the betterment of humankind, 

and one of the ways that that actually happens is through some of 

these consultant agreements. 

To draw a barrier, a Chinese wall, between Government and industry would, in my view, not be a good thing even forgetting about 

the consultant fees, but thinking about the importance of that 

translation and all of the brain power we have at NIH to provide 

some impetus for moving clinical medicine along in the translation 

of basic science into the betterment of humankind. 

Senator SPECTER. Well, I am very much interested in your views 

on that as an evaluation which we are going to have to go into 

greater depth on as to the public policy advantages of having that 

kind of collaboration and interaction, also the factor of losing scientists. We will have to structure a system which maintains the 

wall of separation, fiduciary responsibility for the compensation. 

But as I had started to say, I think the hearing has been very 

useful in covering the consensus on public disclosure without any 

complex definitions by the Office of Government Ethics, which I 

think has had too constrained a view. 

Now we have the job of making individual inquiries, and we are 

a society which believes in individual rights and every individual 

has to be protected with a unique inquiry as to what has gone on. 

That is going to be a painstaking process. 

But NIH has a very high level of respect in the United States 

and in the world, and we have shown you our high regard for you 

by financing, which is different for you than any other governmental agency. You have gotten more money because you are on 

the cutting edge of discoveries in Alzheimer’s and Parkinson’s and 

heart disease and cancer and all the other serious maladies. But 

these allegations will give fuel to people who want to cut back on 

your funding. So all of these questions have to be answered, and 

the subcommittee will be pursuing the matter further. 

We are glad to hear what Dr. Zerhouni has said, and I am 

pleased to see that Dr. Zerhouni, unlike some lead professionals, 

has stayed through the hearing to be able to digest what we have 

worked on. But we will work hard to see to it that whatever conflicts exist or appearances exist we rectify to maintain public confidence in NIH so you can continue to do your outstanding work. 

Thank you all very much. 
57 

ADDITIONAL PREPARED STATEMENTS

We have received the statements of Senator Mary L. Landrieu 

and Dr. Harold Varmus, president, Memorial Sloan-Kettering Cancer Center. They will be made part of the record at this time. 

[The statements follow:] 

PREPARED STATEMENT OF SENATOR MARY L. LANDRIEU

Mr. Chairman, I would like to take this opportunity to thank you for holding this 

important hearing. I have been proud to support this Committee’s goal of doubling 

the NIH budget over the last five years because, like you, I recognize the great need 

for continued innovation in medical treatment that the NIH’s scientific research facilitates. However, some questionable practices have come to Congress’ attention 

that must be addressed to ensure the continued success of the NIH and its programs. It is important that we do all that we can as a Committee to ensure that 

individuals’ own interests do not taint the NIH research and that it is founded solely on the soundest, most accurate science. 

I appreciate Dr. Zerhouni’s cooperation with this Committee and the House Committee on Energy and Commerce throughout this investigation and commend his ongoing efforts to address unethical behaviors in the NIH. By taking steps to make 

NIH scientists’ outside work more transparent, Dr. Zerhouni has begun to take the 

first steps in addressing this important issue. The Ethics Advisory Committee that 

Dr. Zerhouni has initiated at the NIH is a strong step towards implementing a system of peer review that will promote more accountability among NIH scientists. I 

support greater oversight both internally and by Congress to create a process that 

will not allow the integrity of the NIH clinical research to be compromised, while 

avoiding over-regulation that will impose unintended costs and limit the ability of 

scientists to perform innovative research. 

It is important to note that clinical research is not the only source of NIH funding 

that is apparently open for compromise based on outside influence or financial considerations. The competitive grant process has also been found to be at risk. The 

former Director of the National Cancer Institute is alleged to have participated in 

the decision to award funding to a grantee while he was being considered for employment by an institution affiliated with this grantee. Clearly, something must be 

done to be sure that the outcomes of these competitive grant processes are based 

solely on the competitiveness of the grants themselves. 

Sadly enough, the opportunity for favoritism in the competitive grant process is 

not limited to the NIH. Although the details of the competitive grant process differ 

between federal agencies and between grants within one agency, my experience has 

shown me that as the competition for federal funding becomes tighter, the awarding 

of federal grants is becoming less competitive and more open to outside influences. 

The competitive grant process is intended to award funding to states and organizations that meet defined criteria, sometimes defined by legislation and sometimes 

defined by the federal agency awarding the grant. This process was developed to be 

a fair and consistent way to provide federal funding to states and organizations. If 

we allow these competitions to be left open to inappropriate influences, we are 

thereby discrediting the very purposes and people for which these funding streams 

exist. As we are requesting greater transparency of the NIH practices, we should 

also consider the need for greater transparency in the competitive grants process of 

all federal agencies to ensure that this process is fair. 

I have personally witnessed some of the breakdowns in the competitive grants 

process when assisting some of my constituents in their pursuit for federal assistance. As you all know, most grant proposals are scored based on certain criteria 

through a peer review process. Yet as the competition for funding in certain areas 

increases, many grant proposals receive a perfect score of 100 and do not receive 

funding. Often this is because there are more meritorious, well planned proposals 

than there is funding. In speaking with staff of some of the federal agencies, I have 

found that the criteria for choosing between proposals that receive a peer review 

score of 100 are often undefined, leaving room for the discretion and bias of a few 

individuals to decide the final award. 

Our greatest attention must be given to whether the process employed by all of 

our federal agencies currently is allowing money to get to those that demonstrate 

the greatest need or the greatest promise. This hearing is an important step in that 

direction. It is my hope that we will conduct future hearings on exploring the factors 

that influence grant awards at NIH and other federal agencies. I look forward to 

the testimony of our distinguished panelists. Thank you. 
58 

PREPARED STATEMENT OF DR. HAROLD VARMUS, PRESIDENT, MEMORIAL SLOAN- KETTERING CANCER CENTER

Mr. Chairman and Subcommittee Members: I am grateful for the opportunity to 

offer my views about the relationships between not-for-profit and for-profit research 

organizations in the conduct of contemporary biomedical research and about the 

conflicts of interest those relationships can present for individuals and institutions, 

especially at the National Institutes of Health (NIH). 

I have encountered these issues from different perspectives in three phases of my 

career—as a faculty member at the University of California, San Francisco from the 

early 1970’s to the early 1990’s, during the birth and growth of the biotechnology 

industry; as Director of the National Institutes of Health, from November 1993 to 

December 1999; and now as the President of Memorial Sloan-Kettering Cancer Center in New York City. Over the past thirty years, the interactions between scientists 

in the non-profit sector (academic and governmental institutions) and for-profit organizations (mainly pharmaceutical and biotechnology companies) have become increasingly numerous and complex, influenced by at least three factors: (i) expanding 

opportunities to transform biological discoveries into practical benefits (such as devices, diagnostic tools, drugs, vaccines, and other health care products); (ii) the prospects of financial returns to industry (through product development) and to nonprofit institutions and individuals (through patenting and licensing of intellectual 

property in exchange for royalties, consulting with industry for honoraria, and equity holding by not-for-profit scientists or their institutions); and (iii) Federal legislation, passed in the 1980’s, that encourages academic and government laboratories 

to pursue commercialization of their research findings through the private sector, 

with the goals of advancing public health and transferring knowledge more effectively to the U.S. business community. 

There are many positive aspects to interactions between the industrial and the 

non-profit research sectors. The exchanges can provide important practical perspectives to scientists engaged in basic research, they can bring supplemental funding 

to academic and government institutions through sponsored research agreements 

and from royalties paid on licensed technologies, and they can help assure the public that the expertise and scientific knowledge that scientists in the not-for-profit 

sector possess is being transformed effectively into products that can prevent and 

treat disease. 

We have also come to recognize that these relationships are not without risks. 

Some of these risks arise from conflicts of interests—situations in which the objective pursuit of new knowledge by individuals or institutions in the not-for-profit sector may be influenced by financial interests in a commercial entity. Such conflicts 

are especially worrisome when they involve the conduct of clinical research, since 

they have the potential to influence decisions that affect the health of human subjects. 

In the most widely discussed instance of a conflict of interest—the circumstances 

surrounding the death of Jesse Gelsinger, a young man participating in a clinical 

trial at the University of Pennsylvania—it was reported that the investigator responsible for the clinical trial, as well as the institution in which the research was 

conducted, held equity in a company that stood to benefit from the treatment being 

tested. This raised questions about whether the investigators involved or the institution itself could be completely unbiased in running and interpreting the study. It 

also raised questions about the safety of people participating in the trial. Under 

such circumstances, even the appearance of a conflict of interest can have a detrimental effect on public confidence in the conduct of research. 

As a result of what has been learned from this case and a few others, many leading academic institutions that conduct medical research now regularly review and 

revise the rules and mechanisms that guide the behavior of their investigators and 

those who represent the institutions. Extensive recent deliberations about the management of conflicts of interest affecting research on human subjects can be found 

in an article appearing in The New England Journal of Medicine (Volume 347, 

pages 1371–1375) and committee reports distributed by the American Association 

of Medical Colleges (http://www.aamc.org/members/coitf/start.htm). 

Although most of the attention given to conflicts of interest has been focused on 

academic institutions, where funding from the for-profit sector is becoming an increasingly large fraction of research support, such conflicts are also an important 

issue at Federal agencies, such as the NIH, that conduct extensive laboratory and 

clinical research programs, nearly exclusively with Federal funds. 

Government scientists, like their counterparts in academia, possess scientific expertise that is valuable to the commercial sector, and agencies like the NIH often 

hold intellectual property that can be turned into benefits for the public. Over the 
59 

past twenty years, Congress and the Executive Branch have recognized the importance of closer interactions between government scientists and their colleagues in 

industry. In fact, legislation such as the Federal Technology Transfer Act specifically encourages agencies like the NIH to protect and license intellectual property 

so that it can be turned into benefits for the public, much as the Bayh-Dole Act has 

guided academic institutions that receive Federal funding. (A few examples of the 

many technologies licensed from the NIH as a result of these actions include HIV 

test kits marketed by several companies; Videx or ddI, a drug marketed by BristolMyers Squibb for the treatment of HIV/AIDS; and Fludara, manufactured by Berlex 

as a treatment for chronic lymphocytic leukemia.) The law allows government scientists to pursue some of the opportunities available in the academic community, 

including rights to receive royalty payments, albeit capped, for intellectual property 

patented and licensed by the Federal agency, to work in collaboration with industrial partners that provide research support under Collaborative Research and Development Agreements, and to serve as consultants to industry and receive honoraria for that service. These measures are especially important because the intellectual vigor of government science agencies like the NIH requires an environment 

that can attract and retain excellent scientists, and such people are likely to demand a stimulating atmosphere that encourages innovation and exchange of information with colleagues around the world, including those employed in the commercial sector. 

Many of the concerns about conflicts of interest in the academic sector, especially 

with regard to research with human subjects, also apply to government agencies, 

such as the NIH, that conduct both laboratory and clinical research. For that reason, in conjunction with the Office of Government Ethics and the Department of 

HHS, the NIH has rules governing the ethical conduct of research, and ethics officers are charged to oversee the adherence of NIH personnel to those rules. 

Unlike many other government agencies (such as the FDA), the NIH is not a regulatory agency; nevertheless, it has characteristics that differentiate it from academic institutions. For example, the Institutes and Centers of the NIH make grants 

and contracts to thousands of institutions across the country, including some private 

companies; leading scientists and scientific administrators are often involved in the 

formulation of public health policies and the development of research programs; the 

directors of NIH Institutes and Centers bear the responsibility for distribution of appropriated funds for intramural and extramural research programs; and the salaries 

and most of the research support for NIH employees comes directly from the Federal budget. For these reasons, it is appropriate to expect an especially high level 

of integrity and openness in any dealings between NIH personnel and the private 

sector. 

Concerns that such standards may not be universally applied at the NIH were 

raised recently by articles in the Los Angeles Times, alleging that consultation fees 

paid to some senior NIH scientists may have interfered with objectivity in making 

decisions about particular clinical studies. The article did not provide direct evidence that there was any wrongdoing, that rules were purposely broken, or that 

harm was done to any patient or volunteer in a clinical study as a consequence of 

conflicts of interest. Nevertheless, it did raise some important questions, particularly about how industry-NIH interactions are approved and monitored and about 

whether financial arrangements between NIH scientists and the private sector, albeit within regulatory guidelines, should be more open to public scrutiny. 

The NIH Director, Elias Zerhouni, has initiated a sensible response to these allegations by convening a panel of members of his Advisory Committee, augmented by 

other outside experts, to review the existing NIH system for oversight of outside relationships and to make recommendations for improvements. He has also started a 

review of all outside activities of NIH investigators since January 1999 to ensure 

that appropriate procedures were followed in the approval of these activities. In academia, where there is more extensive experience with the commercial sector, a few 

unfortunate cases of real or apparent conflicts of interest have resulted in communal 

study of the issues and generated improved policies, including a commitment to 

periodic re-evaluation of the rules and procedures for oversight and management of 

such conflicts The NIH and other government science agencies should be able to 

take advantage of that experience. 

Without prejudging the outcome of Dr. Zerhouni’s timely review of outside activities and conflicts of interest at the NIH, I would like to recommend that special attention be given to three topics: 

(i) Consider the use of multi-disciplinary committees to review selected cases of possible conflicts of interest.—In the past few years, many academic institutions have 

established committees composed of faculty members, administrators, public representatives, lawyers, and other individual experienced in ethical decision-making 
60 

to review the outside activities of professional staff members whose disclosure statements reveal potential for conflicts. This mechanism removes the responsibility for 

making very difficult decisions from the shoulders of a single administrative officer, 

such as an ethics officer, and transfers it to a group with a varied set of experiences, 

views, and loyalties. Although the number of cases requiring referral usually constitutes a very small proportion of the academic staff, the problems are often complex, and the group evaluation process helps to make fair decisions and to guide the 

evolution of institutional policy. 

(ii) Consider exempting some senior staff from the opportunity to perform outside 

activities with for-profit entities.—Under current regulations, virtually all senior 

managers at the NIH save the two Presidential appointees (the NIH Director and 

the Director of the National Cancer Institute), may obtain approval to receive compensation for work with a variety of outside entities, including biotechnology and 

pharmaceutical companies. These individuals are not regulatory officials and may 

even be considered of relatively low rank in the Federal system, one or a few grades 

below the least prominent Presidential appointees (such as Deputy Assistant Secretaries of Departments). Nevertheless, they may have important roles in formulating 

health policy, developing scientific programs, and awarding Federal grants—ctivities 

that can present significant conflicts of interest, even when they do not directly affect an institution or business concern with which the individuals have a financial 

relationship. 

Sometimes an effort is made to avoid such conflicts by use of a recusal. (A recusal 

is essentially a pledge from the individual that he or she will not be informed about 

or make decisions about government matters involving a potential conflict of interest, such as a program involving a company with which he or she has financial ties.) 

But recusals may not be fully honored or implemented and are difficult to monitor. 

For these reasons, the forthcoming review of NIH policies should include an assessment of whether directors of NIH Institutes and Centers and perhaps a few 

other high-ranking officials, such as those responsible for development of extramural 

research programs, should be excluded de facto from certain outside activities. 

(iii) Consider changes to existing rules to guarantee public access to information 

about outside activities of all NIH scientific staff.—Under current government rules, 

many senior staff at the NIH are directed to file financial disclosure reports (known 

as OGE–450 forms) that are reviewed only by selected administrative staff and released, upon request, only to Chairs of congressional committees, but not available 

to the public through the Freedom of Information Act. It is difficult to understand 

the basis on which the reporting requirements for these individuals are distinguished from others—not just from NIH Institute Directors but also from many in 

comparable positions with similar or even lower salaries. The review of current policies and regulations and their implementation at the NIH should evaluate the options for normalizing access to financial disclosure forms, so that the public can be 

confident that relationships that might create conflicts for government scientists are 

not hidden from public view. 

To restate my views in summary: I believe that interactions between the not-forprofit and for-profit scientific sectors are important for achieving the maximum 

health benefits from research performed by government scientists, as well as by academic scientists using government funds. Such interactions have the potential to 

create conflicts of interest that can distort scientific judgment, or give the appearance of doing so, and thereby undermine public trust in science. Effective, if still 

imperfect, methods for oversight and management of real and perceived conflicts 

have been developed over the past decade or two. The NIH has responded to recent 

criticisms of its management of outside activities by initiating a thorough review. 

That review should consider, among other things, the advantages of supplementing 

the activities of NIH ethics officers with conflict of interest committees, exempting 

some senior staff from certain outside activities, and insuring public access to the 

financial disclosure forms of all scientific staff. 

I want to thank the Subcommittee for the opportunity to express these views. 
61 

CONCLUSION OF HEARING

Senator SPECTER. Thank you all very much for being here. That 

concludes our hearing. 

[Whereupon, at 11:32 a.m., Thursday, January 22, the hearing 

was concluded, and the subcommittee was recessed, to reconvene 

subject to the call of the Chair.] 

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