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[Senate Hearing 108-710]
[From the U.S. Government Publishing Office]

                                                        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

                    U.S. GOVERNMENT PRINTING OFFICE
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                               __________
                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
SAM BROWNBACK, Kansas                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            TOM HARKIN, Iowa
JUDD GREGG, New Hampshire            ERNEST F. HOLLINGS, South Carolina
LARRY CRAIG, Idaho                   DANIEL K. INOUYE, Hawaii
KAY BAILEY HUTCHISON, Texas          HARRY REID, Nevada
TED STEVENS, Alaska                  HERB KOHL, Wisconsin
MIKE DeWINE, Ohio                    PATTY MURRAY, Washington
RICHARD C. SHELBY, Alabama           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

                            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

 
  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 financial 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.

                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.

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, independent 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 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.
    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.
    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 NIH-funded 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 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.
    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.
    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 believe 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 
genetics--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, having 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 Government 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 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.

                           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 NIH are about 365. Of those, some are long-term, 
some are short-term, 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.
    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.
    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 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 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 particular 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 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 non-
Government 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.
    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.''
    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 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.
    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 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.
    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 employee'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.
    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 in-depth 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.

                           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 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.''

    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 in-house 
        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.
  --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 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 required 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.
    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.

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.
    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 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 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.

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' 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.
    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 laboratory 
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 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 [email protected] 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 [email protected] 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 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 [[email protected]]
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 
within 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 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 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 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.
    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?
    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 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.

                     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.

                                 ______
                                 
  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 non-profit 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 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 Bristol-Myers 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 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-for-profit 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.

                         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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