[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]




    NIH ETHICS CONCERNS: CONSULTING ARRANGEMENTS AND OUTSIDE AWARDS

=======================================================================

                                HEARINGS

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               ----------                              

                    MAY 12, MAY 18 and JUNE 22, 2004

                               ----------                              

                           Serial No. 108-88

                               ----------                              

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


    NIH ETHICS CONCERNS: CONSULTING ARRANGEMENTS AND OUTSIDE AWARDS

=======================================================================

                                HEARINGS

                               before the

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                    MAY 12, MAY 18 and JUNE 22, 2004

                               __________

                           Serial No. 108-88

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                    U.S. GOVERNMENT PRINTING OFFICE
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                               __________

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
RALPH M. HALL, Texas                   Ranking Member
MICHAEL BILIRAKIS, Florida           HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
CHRISTOPHER COX, California          SHERROD BROWN, Ohio
NATHAN DEAL, Georgia                 BART GORDON, Tennessee
RICHARD BURR, North Carolina         PETER DEUTSCH, Florida
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
CHARLIE NORWOOD, Georgia             ANNA G. ESHOO, California
BARBARA CUBIN, Wyoming               BART STUPAK, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
HEATHER WILSON, New Mexico           ALBERT R. WYNN, Maryland
JOHN B. SHADEGG, Arizona             GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING,       KAREN McCARTHY, Missouri
Mississippi, Vice Chairman           TED STRICKLAND, Ohio
VITO FOSSELLA, New York              DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
MIKE FERGUSON, New Jersey            CHARLES A. GONZALEZ, Texas
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho
JOHN SULLIVAN, Oklahoma

                      Bud Albright, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

              Subcommittee on Oversight and Investigations

               JAMES C. GREENWOOD, Pennsylvania, Chairman

MICHAEL BILIRAKIS, Florida           PETER DEUTSCH, Florida
CLIFF STEARNS, Florida                 Ranking Member
RICHARD BURR, North Carolina         DIANA DeGETTE, Colorado
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
  Vice Chairman                      HENRY A. WAXMAN, California
MIKE FERGUSON, New Jersey            EDWARD J. MARKEY, Massachusetts
MIKE ROGERS, Michigan                JOHN D. DINGELL, Michigan,
JOE BARTON, Texas,                     (Ex Officio)
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Hearings held:
    May 12, 2004.................................................     1
    May 18, 2004.................................................   261
    June 22, 2004................................................   487
Testimony of:
    Alberts, Bruce, President, National Academy of Science.......    26
    Augustine, Normal, Co-Chair, Blue Ribbon Panel on Conflict of 
      Interest Policies..........................................    25
    Azar, Alex, II, General Counsel, U.S. Department of Health 
      and Human Services.........................................   505
    Barker, Anna D., Deputy Director, Advanced Technologies and 
      Strategic Partnerships; Maureen O. Wilson, Assistant 
      Director; and J. Carl Barrett, Director, Center for Cancer 
      Research, National Cancer Institute........................   570
    Glynn, Marilyn L., Acting Director, U.S. Office of Government 
      Ethics.....................................................   273
    Heller, Jonathan C., Vice President, Information and Project 
      Planning, Predicant Biosciences............................   545
    Kington, Raynard S., Deputy Director, National Institutes of 
      Health.....................................................   290
    Levine, Peter J., President and Chief Executive Officer, 
      Correlogic Systems, Inc....................................   538
    Liotta, Lance A., Chief, Laboratory of Pathology; accompanied 
      by J. Carl Barrett, Director, Center for Cancer Research; 
      Anna D. Barker, Deputy Director, Advanced Technologies and 
      Strategic Partnerships, National Cancer Institute..........   341
    Maskell, Jack, American Law Division, Congressional Research 
      Service....................................................   291
    Petricoin, Emanuel, Lead Microbiologist, Center for Biologics 
      Evaluation and Research, Food and Drug Administration......   346
    Swindell, Edgar M., Associate General Counsel, Ethics 
      Division, Department of Health and Human Services..........   281
    Varmus, Harold, former Director, NIH, President and Chief 
      Executive Officer, Memorial Sloan-Kettering Cancer Center..   304
    Zerhouni, Hon. Elias, Director, National Institutes of Health
        May 12, 2004.............................................    16
        June 22, 2004............................................   497
Additional material submitted for the record:
    Food and Drug Administration, prepared statement of..........   376

                                 (iii)

  

 
    NIH ETHICS CONCERNS: CONSULTING ARRANGEMENTS AND OUTSIDE AWARDS

                              ----------                              


                        WEDNESDAY, MAY 12, 2004

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322, Rayburn House Office Building, Hon. James C. 
Greenwood (chairman) presiding.
    Members present: Representatives Greenwood, Bilirakis, 
Walden, Ferguson, Barton (ex officio), Deutsch, DeGette, and 
Allen.
    Staff present: Mark Paoletta, majority counsel; Alan 
Slobodin, majority counsel; Ann Washington, majority counsel; 
Casey Hemard, majority counsel; Billy Harvard, legislative 
clerk; David Nelson, minority investigator; and Jessica 
McNiece, minority research assistant.
    Mr. Greenwood. Good morning, everyone. This hearing of the 
Oversight and Investigations Subcommittee will come to order. I 
apologize for being a few minutes late. The Chair recognizes 
himself for an opening statement and, welcome to our guests. 
Thank you for being with us.
    For years in America and American political history there 
was quote ``honest graft'' described by William Safire as 
``money made a result of political power without doing anything 
illegal, no longer considered permissible.''
    Later as described by Safire the practice ``honest graft'' 
became known as the revolving door. Government officials when 
they retire take jobs with private industry. In an article 
appearing on December 7, 2003 in the Los Angeles Times 
detailing the decade long practice of high level scientists at 
the National Institutes of Health receiving hundreds of 
thousands of dollars in fees to consult for private drug or 
biotechnology companies revealed yet a new form of honest 
graft, what I call the swivel chair. Now the government 
official does not have to retire, he can take outside 
consulting jobs with the drug industry as a scientific expert 
yet still have the privilege of being on the inside of the NIH, 
the crown jewel of the American biomedical research enterprise.
    This swivel chair at NIH is still defended, to some extent, 
in the name of retention, recruitment and moral, to some extent 
as an entitlement of the scientific class. The controversial 
nature of this swivel chair policy at NIH is perceived when one 
considers its analogy in the context of Congress. I do not 
believe the American people would tolerate for one moment the 
notion that Members of Congress could be allowed outside income 
to consult for private entities doing business before the 
Congress. In fact, the Congress eliminated the practice of 
members receiving outside income such as cash gifts for 
speeches. It took the straightforward approach of raising our 
salaries and eliminating outside income that raised conflict of 
interest issues.
    Today this subcommittee examines the issue of outside 
income for NIH scientists posing conflict of interest concerns 
such as consulting for drug companies or cash gift awards to 
NIH senior managers from grantee institutions receiving or 
seeking substantial funds from that official's institute. As we 
pursue the facts over the nature and extent of these outside 
income practices one question is worth wondering: If this kind 
of reform was good enough for the Congress, why is it not good 
enough for the National Institutes of Health?
    As I have noted before as the chairman of the subcommittee, 
the scandal is often finding out what not what is illegal, but 
what is legal. Consider NIH's policies on cash awards and 
outside consulting. Under current policies an NIH Institute 
director is permitted to accept a cash gift from a grantee or 
cooperative agreement holder with his institute provide it is 
presented as a ``bona fide award'' and meets the minimal 
criteria for such an award. If a grantee wants to reward or 
influence an NIH official, it can do so if the cash is called 
an award as long as there is adequate financial backing for 
such endeavors.
    If a university seeking NIH funds wants to attract reward 
or influence an NIH official whose salary is paid by taxpayers 
to give a speech by paying cash to that official for his 
speech, that is otherwise part of his taxpayer supported 
official duties. He can do so without running afoul of criminal 
felony statutes and noncriminal ethics regulations by calling 
the event a lecture award.
    For outside consulting by NIH scientists with drug or 
biotechnology companies under current policies established by 
then NIH Director Harold Varmus in 1995, there is no limit on 
the amount of compensation or the number of hours. On December 
7, 2003 the Los Angeles Times revealed that high level NIH 
scientists, including some institute and center directors, 
received hundreds of thousands of dollars in compensation for 
consulting with drug and biotechnology companies. The next day, 
this committee began its own detailed investigation of these 
outside consulting arrangements only to discover that high 
level NIH scientists making higher salaries than that of the 
Vice President of the United States were not even required to 
file public financial disclosure reports.
    Equally astonishing, this committee learned that prior to 
our investigation NIH employees were not required to provide 
the amounts of compensation they were receiving through their 
drug company consulting, not required to provide it to the 
public.
    Even though the NIH has complied in providing a substantial 
amount of information in documents in response to the 
committee's request, as a result of these nondisclosure 
policies and slow rolling by HHS lawyers, to this day we still 
lack complete information on the amounts of compensations 
received by individual NIH scientists in many consulting 
arrangements over the last 5 years. We have been told that NIH 
only has the authority to request NIH employees to voluntarily 
produce information on past consulting agreements, and many 
have reportedly not responded.
    If NIH scientists are too embarrassed to have these details 
publicly known, then that reluctance to divulge this 
information is a message in itself about the propriety of these 
arrangements. Thus, because of the HHS and NIH inability to 
respond, I am announcing today that the committee will be 
sending request letters to drug companies to get the amount 
data for individual NIH scientists consulting arrangements.
    The controversy over outside consulting with drug companies 
is further underscored when one considers what has happened in 
the last few years to make working at the NIH more attractive, 
exciting and important. Many scientific personnel at NIH have 
boosted their salaries well beyond the caps in the Federal 
Civil Service System by converting themselves into consultant 
employees through the widespread use of what are called special 
compensation authorities under Title 42 of the Public Health 
Service Act. Not only can annual salaries be boosted by an 
extra $50,000 or $60,000, but under an arcane Office of 
Government Ethics legal ruling, highly paid Title 42 personnel 
are exempt from filing public financial disclosure reports, 
although recently some have been required to be public filers.
    Through Federal technology transfer policies, NIH can now 
pay royalty income to NIH inventors for technologies they have 
discovered that have been commercialized. Congress has 
completed the doubling of NIH's budget, vastly enlarging the 
universe of unique and intellectually enlivened research 
opportunities at NIH.
    Finally, in the post September 11th world, the NIH occupies 
a key leading role in assisting our bioterrorism defense 
efforts. But to proponents of outside consulting, 
notwithstanding all these developments, moral at the NIH will 
be damaged if the freedom to be put on a drug company's payroll 
is not preserved, even though we are told very few NIH 
employees engage in outside consulting.
    The committee begins its consideration of these NIH ethics 
concerns by receiving testimony about the report of the NIH 
Blue Ribbon panel on conflict of interest policies released 
last week after 66 days of work. This panel was appointed by 
the Director of the NIH shortly after the December 2003 Los 
Angeles Times Article and the beginning of the committee's 
investigation on outside consulting. The co-chairs of the panel 
were Dr. Bruce Alberts and Normal Augustine, who will be 
testifying before us today.
    The Blue Ribbon panel assessed the current status of 
conflict of interest policies with particular attention to 
outside consulting and made recommendations for improving. The 
panel states its recommended improvements are ``needed to 
assure the continue deserved public confidence in the work of 
NIH.''
    We welcome our very distinguished witnesses from the NIH 
Blue Ribbon panel. And thank you for your public service and 
the quick response you delivered to the NIH Director.
    By definition and by your description the panel's work was 
limited by a relatively short timeframe and by limiting 
yourselves to not investigating specific allegations or 
reviewing individual cases under investigation. The panel's 
work was a useful step, but it is only the first step as the 
NIH, the Congress and the American public and interested 
stakeholders sort out the facts and the issues.
    In general, the panel recommended that high level employees 
at the NIH should not engage in consulting activities with 
pharmaceutical or biotechnology companies, but that some NIH 
employees should be allowed to consult, but be limited to an 
amount equal to 50 percent of the employee's annual salary with 
no one source accounting for more than 25 percent of annual 
salary.
    The panel also called for relaxing restrictions on earnings 
from outside teaching, writing and speaking engagements.
    I look forward to discussing this report with the co-
chairs, since I have many questions and I am troubled by some 
of aspects of the report.
    For example, the report maintains that very few NIH 
employees engage in consulting agreements with drug or 
biotechnology companies. It also found ``an extremely complex 
set of rules governing conflicts of interest at NIH. These 
rules are widely misunderstood by some of the very people to 
whom they are intended to apply, thereby creating uncertainty 
as to allowable behavior and adversely affecting moral.''
    If so few NIH employees engage in outside consulting, why 
allow it in any form replacing one confusing set of rules with 
another? Why not a blanket prohibition on the swivel chair?
    While some of the rules may be confusing, it needs to be 
acknowledged that some rules are clear. The committee has 
investing NIH ethics concerns for over a year, along with 
several other NIH oversight activities. Unlike the Blue Ribbon 
panel, we have been looking case specific practices. It is 
clear from the cases we have reviewed that some NIH scientists 
are either very close to the line or have crossed the line.
    We are serious about upholding the highest ethical 
standards at the NIH, and NIH scientists should not even be 
close to the line. Yet this has been the persistent problem at 
NIH for years, not because of confusion but because of a 
deliberate permissive attitude reflected in some NIH employee 
comments received by the Blue Ribbon panel.
    In a June 1987 letter to HHS David Martin, the Director of 
the Office of Government Ethics wrote of the ethics program at 
NIH ``My greatest concern, however, relates to the area of 
outside activities such that there occasionally appears to be a 
blurring of the distinction between what should be properly 
authorized as official business and outside activities.''
    In a November 22, 1991 letter to HHS Secretary Lewis 
Sullivan the Director of the Office of Government Ethics Steve 
Potts wrote ``I am concerned, however, about the persistent 
weakness in the NIH outside activity approval system as it 
relates to scientists and doctors and NIH.''
    And in December 22, 1991 letter to NIH Director Bernadine 
Healy Mr. Potts wrote ``We believe also that the permissive 
attitude of NIH toward outside activities has led to certain 
activities being approved without adequate documentation to 
support such decisions. Less than 1 percent of over 4,000 
requests for approval of outside activities were denied. 
Moreover,'' he said, ``approximately 40 percent of the 553 
requests we received were approved after the activity had 
already taken place.''
    In it's 1991 audit OGE reviewers wrote: ``The permissive 
attitude at NIH toward outside activities and its fear that 
further restrictions of outside activities may hinder 
recruitment and retention of scientific personnel has also 
played a major role in the problems and issues we identified.''
    One NIH official stated that if OGE is saying that NIH 
employees who are on the cutting edge of biomedical research 
are like other Federal employees and should be denied the right 
to talk about their expertise even though the subject matter is 
related to agency responsibilities and programs, then NIH does 
not agree. The official contended that NIH is unique and should 
be exempt from this restriction.
    From its February 1992 report on employee conduct 
standards, the General Accounting Office found that NIH was one 
of five out of 11 agencies audited that because of overly 
permissive policies approved outside activities such as 
speaking and consulting that it appeared to be violated the 
standard of conduct prohibiting the use of public office for 
private gain. Keep in mind, these permissive practices took 
place under rules on outside consulting that are in some 
respects more restrictive than what the Blue Ribbon panel is 
recommending. In November 1995 NIH Director Howard Varmus 
loosened these consulting restrictions to ``strengthen our 
ability to recruit.''
    The Blue Ribbon panel report seems to handle the conflict 
of interest issues gently and seems almost blithely to accept 
the retention and recruitment arguments for maintaining some 
form of outside consulting and compensated scientific 
activities by NIH scientists. But as I constantly hear on 
oversight issues from the NIH and the FDA, do not give me 
anecdotes, give me data. Are there facts or information that 
back up these arguments about NIH's ability or inability to 
retain or recruit? What are the turnover rates of the Title 42 
personnel? What have the turnover rates been over the year for 
NIH scientists? Was NIH less of a research institutions before 
the November 1995 lifting of consulting restrictions? What have 
been the benefits to society from the consulting? What new 
drugs were developed?
    Some questions are unanswerable, but are certainly with 
considering. What new drugs were not developed because the NIH 
scientists were devoting more energy about the drug company 
research and not the NIH research?
    As Josephine Johnson of the Hastings Center noted in the 
March 12, 2004 issue of Science ``If a scientist's desirably as 
a consultant stems from her NIH post, can be sure that the 
advice and time she sells to industry does not already belong 
to NIH? Nevertheless, given the sometimes six figure sums 
involved, concerns should persist about whether salaried 
individuals can give their primary job the effort and attention 
it deserves while also understanding considerable consulting 
work given similar consulting arrangements in many of the 
Nation's public and private universities the real question of 
the moment is should we abandon the idea of impartial 
disinterested science or should NIH be the last stronghold of 
this ideal?''
    I am disappointed by the Blue Ribbon panel's lack of 
substantive analyses of the issue of bona fide awards. While 
the panel acknowledges that scientists who receive these awards 
are frequently required to prepare a lecture as an acceptance 
speech, it left unexplained the conflict of interest issues 
arising from the fact that these speeches are required in order 
to get the cash by a private entity possibly with substantial 
interests before NIH and are official duty activities of NIH 
scientists. I believe this matter of what constitutes a bona 
fide award and the serious conflict of interest issues raised 
by receipt of cash awards from prohibited sources warranted 
further consideration and thought by the panel.
    In addition, if these awards are so important in raising 
the visibility of NIH scientists and recognizing the value of 
NIH research, why does NIH not collect and publish information 
listing these awards to promote itself and its importance?
    We are all eager to hear from the Director of NIH, Dr. 
Elias Zerhouni. Since the committee has been engaged on these 
issues over the last year, I have had the pleasure of working 
with him. I believe Dr. Zerhouni has been a man of good 
intentions throughout and I hold him in the highest esteem. He 
has been earnestly attempting to respond to the committee's 
concerns and to help us to reach a conclusion of this 
investigation, if for no other reason than to lift the cloud of 
uncertainty felt by some NIH employees about this probe. When 
he has been adequately advised by the department, he has taken 
decisive steps to address the problems, but more needs to be 
done.
    In my discussions with Dr. Zerhouni, I had hoped to 
complete our investigative work on NIH ethics concerns by the 
hearings to be held today and on May 18th. Unfortunately, the 
delays and obstinacy principally at the HHS Office of General 
Counsel in getting amount data on the individual consulting 
arrangements will extend this investigation beyond May 18th as 
we are now forced to pursue this data from the drug companies. 
As I have learned from experience, the truth will ultimately 
come out.
    This hearing will be Dr. Zerhouni's first public response 
to the Blue Ribbon panel report and recommendations.
    Dr. Zerhouni, I look forward to your testimony and working 
with you on mutual issues of concern, including the improvement 
of NIH's ethics program worthy of a great scientific agency 
with talented and valued employees.
    And I now recognize the ranking member, the gentleman from 
Florida, Mr. Deutsch for an opening statement.
    Mr. Deutsch. Thank you, Mr. Chairman. With unanimous 
consent put in Mr. Dingell's statement and Mr. Waxman's 
statement into the record.
    Mr. Greenwood. Without objection.
    [The prepared statements of Hon. Henry A. Waxman and Hon. 
John D. Dingell follow:]

    Prepared Statement of Hon. Henry A. Waxman, a Representative in 
                 Congress from the State of California

    Last December, the Los Angeles Times revealed that a handful of 
high-ranking NIH scientists had accepted hundreds of thousands of 
dollars in consulting fees from pharmaceutical companies. The story, 
and this subcommittee's subsequent investigation, caused NIH to 
reexamine many of its conflict of interest policies, and rightfully so. 
NIH is respected around the world for its scientific leadership and the 
high quality of its research. Probably the world's greatest biomedical 
research establishment, NIH's reputation for scientific integrity and 
independence is unmatched. It is therefore particularly disturbing that 
NIH scientists should give even the appearance of being influenced by 
the pharmaceutical industry in their decisions.
    I have no doubt that most NIH scientists are carrying out their 
jobs according to the highest ethical standards. But some of what this 
subcommittee's investigation has exposed is very troubling. Dozens of 
NIH scientists have accepted very substantial sums of money from drug 
companies with few checks on whether those relationships posed 
conflicts of interest. All public servants must be sensitive to the 
reality and even the appearance of such conflicts, and an institution 
of NIH's scientific standing must be especially vigilant. America and 
the world must feel confident that NIH's research results are not 
biased by drug company influence. Because if we allow NIH's credibility 
to be compromised, we have all lost.
    I commend Dr. Zerhouni for the steps he has taken to change the 
ethical rules that guide NIH. And I recognize that the ``Blue Ribbon 
Panel'' has made a good faith effort to minimize potential conflicts of 
interest. But more needs to be done. I am particularly concerned that 
some potential conflicts of interest will still go undisclosed. Full 
disclosure is essential for ensuring public confidence in the work of 
NIH.
    I've asked the GAO to analyze the work of the Blue Ribbon panel, 
and I hope that GAO will be able to provide a roadmap to enhance the 
Panel's recommendations.
    Many argue that if we don't allow NIH scientists to accept large 
payments from the drug industry, we will lose them to higher paying 
jobs in industry or academia. I am not ready to accept this conclusion. 
One heartening finding of the subcommittee's investigation is that the 
vast majority of NIH scientists are willing to do their jobs without 
receiving supplemental income from drug companies. Of the thousands of 
scientists employed by NIH, only a small percentage were found to be 
receiving money from drug companies. Apparently, the rest of NIH's 
scientists have found sufficient compensation in their government 
salaries and the opportunity to work at the world's leading biomedical 
research facility.
    We are justifiably proud of NIH's long tradition of scientific 
achievement. We've always been able to trust the science that comes out 
of NIH. This is a legacy we need to defend and protect. Americans need 
to know that when NIH reaches a conclusion, that conclusion is based on 
hard evidence and the scientific method. We need to act now to impose 
appropriate conflict of interest standards so that America and the 
global scientific community can continue trusting in NIH.

                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    Mr. Chairman, you are to be congratulated on this investigation 
into conflicts of interest at the National Institutes of Health (NIH). 
NIH is a national treasure, the flagship for scientific research into 
the causes and cures for diseases that have ravaged mankind through the 
ages and others that have arisen with devastating effect in more recent 
times. It has been so successful in fulfilling its missions that 
Congress, on a bipartisan basis, has increased its budget four-fold 
over the past two decades. Along with the increased funds have come 
increased tasks.
    In general, we have been very careful not to earmark funds for 
research into specific diseases, trusting the NIH scientists to pursue 
the most promising research as they see fit. We have also passed 
legislation to permit private/public partnerships in the hopes of 
making promising cures available to the American people in an 
expeditious manner. This makes sense.
    Unfortunately, certain scientists have been trusted to determine 
when their personal financial involvement with drug and biotech 
companies poses a conflict of interest with their responsibilities to 
the public. And those scientists have not been subject to rigorous 
review or full disclosure. Now we see that at least three 
Administrations have not only tolerated, but encouraged, the acceptance 
of monies, in some cases extraordinarily large sums, by NIH scientists 
from private companies with substantial interests in the decisions at 
NIH. The secret purchase of information and influence must stop.
    Mr. Chairman, another activity that must stop is the lack of 
cooperation with this important inquiry. I agree with you that this 
investigation has been slow-rolled and stonewalled from its onset a 
year ago. We have yet to receive all the requested documents and 
interviews. It is my understanding that the Department of Health and 
Human Services has refused to supply at least one witness you requested 
for the hearing next week.
    Moreover, the Department has broken with past practice in order to 
monitor, if not hinder, the inquiry. As you are aware, this 
Subcommittee has had a longstanding agreement with the Department that 
it could provide personal counsel to individual employees during staff 
interviews on particularly sensitive investigations, provided that no 
information from those interviews would be revealed outside the 
interview room. That agreement spans three Administrations and control 
of the Committee by both parties. Two weeks ago we discovered that the 
attorneys accompanying all department employees to these interviews 
were reporting back the contents of those interviews, and had informed 
the employees that they were in the interviews not to represent the 
individuals but for the purpose of reporting the content of the 
interviews back to the Department. This came as a surprise to both 
majority and minority staff and undermines the credibility of our work. 
I offer you the full support of the minority in whatever steps, 
including formal process, you may take to acquire the necessary 
cooperation from the Department.
    This investigation is important--both to protect the integrity of 
the scientific work at NIH, and to protect the credibility of the work 
of this Subcommittee. Mr. Chairman, you have my thanks and my support 
as we continue the bipartisan work on this matter.

    Mr. Deutsch. Thank you.
    Thank you, Mr. Chairman, for holding this very important 
hearing into conflicts of interest at the National Institutes 
of Health. NIH is truly a critical agency that enjoyed 
bipartisan support for its work fighting diseases and cripple 
and kill millions of Americans. Yet it appears that the 
leadership of NIH may have fallen victim to a disease itself, 
and that is creed.
    It is important to differentiate between the current and 
former leadership of NIH that have encouraged the option of 
corruption, the HHS lawyers that have facilitated the payoffs 
from drug and biotech companies and the thousands of the 
dedicated scientists that do such brilliant work solely for the 
benefit of their employers, the American people.
    While the full extent of the corruption is unknown largely 
because of the stonewalling of the Department of HHS, there 
appears to be only 114 employees out of 17,526 that currently 
admit to providing consulting services to drug and biotech 
companies.
    Today we hear from a so called Blue Ribbon panel appointed 
by the Director of NIH Dr. Elias Zerhouni, as well as Dr. 
Zerhouni himself.
    The panel represented by its co-chair today, made 18 
recommendations to reform the ethics program at NIH. They 
issued these recommendations in a 68 page report released last 
week.
    To say that the report constitutes nothing more than an 
apology for the status quo does it a disservice. It is a report 
from a panel that blatantly refused to consider the most 
important facts. The panel apparently felt compelled to base 
its recommendation on their misplaced need to excuse the 
inexcusable.
    I cite the executive summary, and I am quoting, ``The panel 
did not investigate specific allegations or review individual 
cases.'' Nor, apparently, did it do much else except hear 
testimony from 32 witnesses over 4 days of public hearing, some 
28 of which had a direct financial interest in maintaining the 
status quo. Three others are lawyers that developed or defended 
the rules that perpetuated the corruption. And finally, the 
former head of NIH that removed virtually all obstacles to 
acceptance of gratuities at NIH.
    It would appear that the panel had at least some 
substantial amount of help in drafting this report from HHS 
General Counsel. Mr. Chairman, that office has facilitated 
destruction of much of the legal basis for ethical standards in 
NIH and it has been largely responsible for the attempt to 
cover up the extent of the corruption at NIH from this 
subcommittee. Nonetheless, the panel members are responsible 
for this public report, and Dr. Zerhouni is the official who 
will be responsible for cleaning up the corrupt practices at 
the agency.
    Again citing from the report section 5 recommendations page 
60, ``The panel believes that with careful oversight and 
monitoring the potential conflicts of interests can be 
effectively avoided.'' This is clearly not the case.
    I am anxious to hear from the panel representative just how 
NIH is supposed to effectively monitor and oversee the for 
profit activities of its thousands of employees. I suggest that 
the report really proposes is the existing quality control 
system that might accurately be described as a system of 
careful twisting of the rules and an overlooking of the 
consequences.
    I submit for the record a summary of what the panel should 
have had but did not consider, specifically: A spreadsheet 
prepared by NIH of the employees with current consulting 
contracts with drug and biotech companies; a series of 
PowerPoint slides prepared by the subcommittee staff off the 
information contained in that spreadsheet, and; a series of 
articles by David Williams from the L.A. Times that explores 
some of the stories in detail.
    Dr. Zerhouni, I have two recommendations for you. If you 
are indeed serious about restoring the pristine reputation of 
NIH research, suspend every ethics official in the NIH that has 
approved a consulting agreement between a drug or biotech 
company and an NIH employee until real investigations, perhaps 
from the Office of Inspector General, confirmed that they made 
a vigorous effort to determine the extent of any potential 
conflict. Staff review of the documents in our possession today 
suggests that these ethics officer, by in large, saw their role 
as facilitating the consulting arrangements rather than 
protecting the government from conflicts of potential conflict. 
The NIH's own spreadsheet suggests that their facilitation was 
a success.
    Finally, I would urge you in the strongest possible terms 
to end the practice today of NIH researchers taking anything of 
value from a drug a biotech company. The conflict is not 
defendable short of NIH having supervised each review and every 
task undertaken, every work product produced, every piece or 
advice provided the drug company and comparing them against 
current and former tasks that need to be taken by the Federal 
Government. Even then it is hard to imagine how the American 
taxpayer could possibly be assured that the employee on the 
payroll of a drug or biotech company is always acting in their 
best interest.
    Mr. Chairman, again, I want to thank you for holding this 
hearing. I look forward to the witnesses.
    I yield back any remainder of time.
    Mr. Greenwood. The Chair thanks the gentleman and notes the 
presence of the chairman of the full committee, Mr. Barton. And 
we are pleased to have him here, and he recognized for his 
opening statement.
    Chairman Barton. Thank you, Mr. Chairman.
    I want to commend you for holding this hearing.
    I am going to ask unanimous consent that my formal 
statement be put into the record.
    Mr. Greenwood. Without objection it will.
    Chairman Barton. I am just going to speak extemporaneously.
    The NIH is an important asset to our Nation. As such, we 
doubled its budget over the last 5 years to I think a little 
over $28 billion. There is not a member of this subcommittee or 
the full committee, or I would even possibly like the House and 
the Senate, that does not want the NIH to be absolutely totally 
successful.
    I have the privilege to have a private meeting with Mr. 
Zerhouni, and everything that I know about you personally and 
the information that we exchanged indicates to me that you 
really want to do nothing but enhance the reputation of the 
agency that you head.
    Having said that, NIH has not been reauthorized in over 10 
years. There are some very controversial issues that your 
agency deals with, and the Congress has been reluctant to wade 
into the fray and engage in the policy debates that need to be 
debated if we are going to reauthorize the Institute.
    It is my intention in this Congress to reauthorize the NIH, 
and I have been working on a bipartisan basis with Ranking 
Member Dingell, and I think we are going to be able to do that. 
We want NIH to succeed. But we are also concerned that as our 
staffs have worked on the policy side and as the oversight 
investigation staffs have worked together on this side, the 
administrative side, we have found NIH to be less than 
cooperative, and that's going to change.
    Now, you can go back to your agency and you can tell your 
directors and all that the administrative officials that they 
can cooperate, you know, cooperatively or we will make them 
cooperate coercively, you know. We are going to get the 
information that this staff has asked for and we are going to 
share it on a bipartisan basis, and then we are going to see 
what recommendations, if any, need to be made.
    I am very concerned about the fact that there are large 
honorariums and consulting fees being paid without any internal 
or external requirements for disclosure. There was a time in 
the Congress where a Member of Congress could accept an 
honorarium, I think we were capped at $2,000 per speech and I 
think $30,000 or $35,000 per year. And those all had to be 
reported. They could be used for personal use, but they had to 
be reported and they had to be capped.
    Apparently within your agency there are little, if any, 
controls on that and at least anecdotally there are stories of 
at least one individual getting a half million dollars. I do 
not know if that is true or not. But if that is true, at a 
minimum it needs to be reported and disclosed, and it might 
need to be banned.
    Now the Blue Ribbon panel that Dr. Augustine chaired, I 
believe, held seven hearings over a 2 or 3 month period and 
made some recommendations that apparently have not been agreed 
with. Now, that could be wrong and you may bring that out in 
testimony. But we have to have transparency. We have to have 
accountability. And we simply must have the faith of the 
American people that the research grants that are given at NIH 
are given because of the merit, not because somebody got a big 
honorarium or speaking fee.
    So, this is not a hearing that is being convened for a 
witch hunt. Again, we want the NIH to succeed, but we do want 
to put into place the proper checks and balances to make sure 
that the full faith and trust of the American people can be 
placed in the agency.
    With that, Mr. Chairman, I would yield back.
    [The prepared statement of Hon. Joe Barton follows:]

 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Thank you, Chairman Greenwood for holding this important hearing. 
The ethics concerns and the lack of public accountability associated 
with much of the outside consulting fees and cash awards received by 
NIH scientists is yet another reason the NIH needs to be reauthorized 
by this Committee.
    It has been over a decade since the NIH has been reauthorized. 
Since that time, the restrictions on outside consulting have been 
lifted entirely. Rules on public disclosure have been weakened to the 
point that the Los Angeles Times reported that 94% of NIH's highest 
paid employees were not required to publicly disclose their consulting 
incomes. These highly paid employees included some scientists who were 
paid more than the Vice President of the United States. At the same 
time restrictions were lifted and public disclosure was minimized, the 
NIH did not even require the employees to tell the agency the amounts 
proposed or actually received in order to get the outside consulting 
approved.
    I am well acquainted from my years as Chairman of this Subcommittee 
with the attitude often found at the NIH: the rules don't apply to us. 
Now I sense we are hearing a variation on this theme: If the rules do 
apply to us, they shouldn't. Such permissive attitudes and practices 
can no longer be tolerated. One can only wonder: if NIH can be so 
permissive about the most basic ethical rules in the Federal 
government, what does this say about NIH's ability to manage taxpayer 
dollars and, most importantly, ensure that taxpayer-supported research 
gets translated into cures?
    The NIH is the premier medical research institution with nearly a 
$28 billion appropriation. There must be greater transparency of NIH 
activities to hold this agency accountable for the taxpayer investments 
made. It is an enormous agency requiring much constructive oversight 
and the strong support of this Committee.
    Continued public confidence in the work of the NIH must be assured, 
especially at a time when public-private partnerships should be 
strengthened. Technology transfer activities of the NIH have helped 
speed research from the bench to the bedside. These efforts have been 
successful without the need to place NIH scientists on industry 
payrolls.
    The productive collaborations in clinical research of the Federal 
government, academia, and industry have recognized the distinct roles 
that each of these entities is best suited for. These roles should not 
be blurred.
    Chairman Greenwood is to be congratulated for his leadership. In 
this hearing and others to come, I expect this Subcommittee to reveal 
the full nature of the problem of the NIH ethics program. This effort 
should be considered part of the broader work of this Committee to 
modernize and improve the authority of the NIH.
    I especially want to welcome Dr. Elias Zerhouni, the Director of 
the NIH, and I thank all the witnesses for appearing before the 
Subcommittee. I look forward to your testimony.

    Mr. Greenwood. The Chairman thanks the gentleman and 
recognizes for an opening statement the gentle woman from 
Colorado, Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman.
    And in the interest of time, I would ask unanimous consent 
to put my entire opening statement in the record.
    Mr. Greenwood. Without objection it will be put in the 
record.
    Ms. DeGette. I just would like to mention one thing that 
really struck me when I was reading the background materials 
for today's hearing and also a number of the newspaper articles 
and other materials about this issue. The Chairman and I had 
been working for some time on legislation around human subject 
protection, as you know, Dr. Zerhouni. And what struck me was 
in previous years some of the NIH researchers who were on the 
NIH payroll also had financial interests in drugs that were 
being provided to people who were in these studies. And this 
was not disclosed to the individuals in those studies and, in 
fact, a couple of people died as a result of some of the drugs 
they were given in the studies.
    The reason I bring this up is because I have always 
assumed, and I think Mr. Greenwood has too, that when we are 
talking about human subject protection and our legislation, we 
are sort of talking about some of these renegade researchers. 
And what struck me was these are NIH researchers. These are 
researchers, the very top tier researchers in our Nation, and 
yet they were conducting human subject research without full 
disclosure to the patients.
    I understand since those studies, which were in recent 
years, the NIH has subsequently instituted a rule that 
prohibits such conflicts. But that has only been in recent 
years. And it just strikes me, Mr. Chairman, that a little part 
of us, a little footnote to this whole investigation is the 
issue of human subject protection because if this can happen at 
our flagship institution in this country, think about what is 
going on everyplace else.
    And with that, Mr. Chairman, I will yield back the balance 
of my time.
    [The prepared statement of Hon. Diana DeGette follows:]

Prepared Statement of Hon. Diana DeGette, a Representative in Congress 
                       from the State of Colorado

    I want to thank the Chairman for holding this hearing today. 
Conflicts of interest issues are so important, particularly in the 
realm of health and science because of the vast research potential that 
can help mankind and the direct impact on individuals. I am very glad 
to be here today to try to get at the bottom of what I think is a real 
scandal.
    This issue is of particular interest to me and in fact I have 
legislation, that I have worked on in cooperation with our esteemed 
Chairman, that aims to put key protections in place for human research 
subjects. In working on this bill, one of the things that has become 
clear is that addressing conflicts of interest issues are crucial; not 
only is it important to inform patients whenever conflicts of interest 
exist that could directly affect them, but we need to work towards 
eliminating such conflicts especially in clinical trials.
    I commend Dr. Zerhouni for recognizing that problems exist at the 
NIH and for convening the Blue Ribbon Panel (BRP) to look into the 
situation. I think this was an important first step. However, I will be 
honest and let you know right from the start that I think very serious 
shortcomings exist within this report and it doesn't give me much 
confidence that the changes I think need to happen will be made.
    Just this morning there was a Los Angeles Times article alleging 
that although the Blue Ribbon Panel found permissive practices at the 
NIH, they were not detailed in its final report. I don't understand why 
the BRP did not consider it important to, at the very least, outline a 
few examples of the problem. I will be very interested in our witness's 
explanations as to why they made this choice and how they think they 
can solve a problem, if the depths of the problem are not illuminated.
    This is just one of the reasons that I believe the proposed changes 
in the BRP report are seriously flawed. Let me cut to the chase about 
why else the recommendations aren't going to help. Mr. Chairman, unless 
there is a blanket restriction on outside compensation serious 
conflicts of interests will continue to exist.
    For example, currently honoraria, as such, is not allowed. This ban 
is essentially meaningless because NIH employees are allowed to receive 
thousands of dollars in consulting fees, awards that come with 
significant monetary prizes, etc. So if the BRP recommendations are 
followed and certain restrictions on consulting fees are instituted for 
certain employees, but there is no change to regulations regarding 
receipt of bona fide cash awards, then surely we will see a shift to 
more and larger cash awards being given to NIH employees from outside 
companies. The money influx won't change; it will just shift around so 
that it fits the new rules.
    One of the things that struck me in reading the report is the 
notion that many employees, including senior level scientists are 
increasingly demoralized by the scrutiny and criticism the NIH has 
received recently in regards to this issue. This is really too bad 
because these staff members are simply doing what the rules allow them 
to do. However, I think that there is an implication in the report that 
somehow it is the media and Congressional condemnation that is the 
problem, rather than the issue itself. It is not the fault of the 
scientists that they are under a ``cloud of suspicion'' as it is 
characterized in the report, it is the unethical system that has 
created this situation.
    The good news is there is a very easy solution. Clean up the system 
entirely and the ``cloud'' and all the investigations and news stories 
all disappear. It seems crystal clear to me. Remove big money from the 
equation entirely and the integrity of that great institution that is 
the National Institute of Health is restored.
    Mr. Chairman as you may be aware two Members of this Committee, Mr. 
Brown and Mr. Waxman wrote ten drug companies in March asking about 
payments to NIH employees. Only two provided responsive answers, 
Schering Plough and Abbott Labs.
    I ask that both responses be added to the record because they 
contain several instances of payments that are apparently current but 
that NIH did not include on its spreadsheets. This may be because the 
employees did not report the income as required or it may be because 
the information collection apparatus at NIH failed to include those 
consulting payments in response to your request.
    In either case it is disturbing that an Agency that makes the 
sanctity of data collection an article of faith seems does not seem to 
be up to supplying data requested to Congress. Apparently, this 
Committee should seek information directly from firms in the 
pharmaceutical and biotech industries since the government agency 
cannot provide a complete record.
    Thank you again for holding this hearing and I look forward to 
hearing the testimony of our witnesses.

    Mr. Greenwood. The Chair thanks the gentlelady, and 
recognizes the gentleman from Oregon, Mr. Walden, for an 
opening statement.
    Mr. Walden. Thank you very much, Mr. Chairman.
    I have a prepared statement I would like to insert in the 
record.
    And I just want to say, like my other colleagues, I think 
we are all very supportive of the NIH and the great work that 
is done by your extraordinary scientists to bring us cures to 
disease and illness and new research for drugs and other 
techniques to improve the lives of Americans. And just as NIH 
is on the cutting edge of research, I think what we are saying 
is you need to be on the cutting edge of ethics, too. And the 
problems that have come up are serious and they are ones that 
need to be addressed. And I know that you have inherited these 
as you have come on board only recently, and a lot of changes 
occurred upwards of 10 years ago. But they are now out there 
and we are going to look at them closely, and we should. 
Because the research needs to be above question both at NIH and 
every other institution in America, as well as in journals 
where they publish medical research, too. We need to know that 
the information being provided, the research that is being done 
is above question when it comes to the ethics. And I know you 
agree on that. So look forward to working with you on this.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Greg Walden follows:]

 Prepared Statement of Hon. Greg Walden, a Representative in Congress 
                        from the State of Oregon

    Chairman Greenwood, thank you for holding this hearing.
    I am an enthusiastic advocate for the National Institutes of 
Health. NIH research yields miraculous breakthroughs that save lives 
and dramatically improve the quality of life for those with once-
untreatable diseases and medical conditions.
    I am proud that Congress kept its commitment to doubling the NIH 
budget. I supported this ambitious endeavor every step of the way.
    One thing that we have been abruptly reminded of by recent news 
accounts is that the questionable actions of a few can tarnish the 
good, honest work being done by others. Additionally, even the 
appearance of impropriety and conflict-of-interest can have a 
devastating affect. Congress and the American taxpayer have invested in 
NIH, and in a way, we place our hopes and wishes in the hands of NIH 
researchers. These hopes for a cure and wishes for loved ones to 
recover from illnesses are more valuable than any cash award or stock 
option that NIH researchers and staff might receive from extramural 
consulting agreements.
    I applaud NIH Director Zerhouni's initiative in forming a Blue 
Ribbon Panel on Conflict of Interest Policies. Now that the Blue Ribbon 
Panel's report has been released the hard work begins. Do the Panel's 
recommendations go far enough? Will the recommendations truly avert 
conflicts of interest--both real and perceived? If the answers to these 
questions are not ``yes,'' then work remains to be done. The report's 
recommendations are a good start. I am interested to hear how these 
recommendations will be put into practice. Finally, I challenge NIH to 
press forward and continue to find ways to strengthen these policies, 
so that the hard-earned and well-deserved image of NIH is not 
tarnished.

    Mr. Greenwood. The Chair thanks the gentleman, and 
recognizes the chairman of the Health Subcommittee, the 
gentleman from Florida, Mr. Bilirakis for an opening statement.
    Mr. Bilirakis. Thank you. And thank you very much, Mr. 
Chairman. And, again, my gratitude, too, for you holding this 
hearing and for all the investigations you all have conducted.
    Drs. Zerhouni, Alberts and Augustine, we thank you of 
course for taking time to be here and for all the work you have 
done leading up to this hearing.
    I had not intended to make an opening statement. I had 
intended to come in here and just sort of listen to you all 
before jumping to any conclusions. And I would like to think 
that I have not jumped to any conclusions.
    We hold these hearings to learn, and we certainly should 
not be prejudging before we listen to you and have an 
opportunity to ask you questions. But I would say that you have 
got to know that we are besieged by our constituents and by 
disease, many many disease-specific groups.
    I have chaired the Health Subcommittee for quite a few 
years. I do not think I knew that there were so many diseases 
out there. It is just amazing. I sometimes feel, I do not know, 
like maybe an undertaker or whatever it is and particularly so 
when the constituents will come in or, as I said before, 
representatives of disease-specific groups with a child who is 
ill with a certain disease. And so many comes in, ALS, and 
whatnot. And what do they ask for? They beg for an increase in 
research funding at the NIH.
    And I have to tell that we formulated a sort of a policy 
here sometime ago, going back to when the other party was in 
charge, where you know we did not think that this ivory tower 
of the Congress should make decisions on how much money should 
go to research for a specific disease. We do not know. We 
figured, you know, they might be on the cusp of a real 
breakthrough in a particular disease and we are we to basically 
say. And Dr. Zerhouni have discussed this. And who are to 
basically say that you have got to shift dollars from this to 
this, or whatever the case may be.
    And yet these same people that are already heartbroken 
after they have sat down and talked to me and other people on 
this committee and in this Congress, and they pick up the 
newspaper and they read some of these things that are taking 
place.
    Now, you know, is it truly a conflict of interest in terms 
of does it play a part in the decisionmaking in terms of where 
the dollars go for research, which specific disease and which 
specific research? I do not know. But I am here to tell you, 
and I know you are intelligent enough to realize this, that 
perception and image is really sometimes a hell of a lot more 
significant than fact. So how much these families feel when 
they pick up these newspaper articles and read about this stuff 
and whatnot.
    So this is critical. And as Chairman Barton said, you know, 
we double funded. We made a promise back in the mid-'90's, and 
I guess there are quite a few promises that we do not fulfill; 
I think we intend to but we do not. But that is one that 
fulfilled. And yet I just do not think that the people at NIH 
are doing their share in terms of fulfilling promises to the 
sick people of our country regarding their disease and whatnot.
    I have often been very concerned and curious, and curious 
underlined, as to how NIH allocates the funding and whatnot and 
what criteria they use. And I am not sure that we have ever 
really gotten a handle on specifically how what criteria you 
use. But some of these things that are taking place, the 
consulting fees and the speaking fees and whatnot, playing a 
part in all that, well whether they are or not, I don't know. 
But it sure as heck is a perception out there, reasonably so, 
that that is taking place.
    So I hope that you do a good job here this morning trying 
to explain to us, maybe answer all of these concerns that we 
have. But not only for ourselves, but also for the sick people 
out there in America who depend on you so very much. Thank you.
    Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman for his 
insights.
    Prior to introducing our panel, the Chair would ask 
unanimous consent that this binder be incorporated into the 
record. It includes several pieces of correspondence from the 
Department of Health and Human Services, a series of articles 
from the Los Angeles Times and the Blue Ribbon report is 
incorporated in here, as are spreadsheets supplied to this 
subcommittee from the NIH concerning outside consulting 
agreements. And without objection, that will be incorporated 
into the record.
    [The information referred to appears at the end of the 
hearing.]
    Mr. Greenwood. And now I have the privilege to introduce 
our panel. Thank you for your patience and listening to our 
opening statements.
    And the first of our witnesses is the Honorable Elias 
Zerhouni. Dr. Zerhouni is the Director of National Institutes 
of Health. And let me say again and for the record, I think you 
are the best thing that ever happened to the NIH. I think the 
skills that you have brought toward reorganizing the NIH, to 
making its mission clear, the administration of the NIH, your 
vision are exemplary and I think your commitment to ethics is 
second to none.
    And I regret that--I know that you would have liked to have 
been spending a lot more time working on the mission of NIH 
than responding to our requests, and I am sorry for that. We 
have important work to do. We are going to get it done. And I 
am very optimistic when this process is over, we all will be 
better off for it and so will the NIH, and so will all of the 
patients, that Mr. Bilirakis has just referred to.
    We also have with us Dr. Bruce Alberts who is President of 
the National Academy of Science. And we welcome you. We thank 
you for your service in heading up this Blue Ribbon Commission.
    And we also have Dr. Normal Augustine, Ph.D, Co-Chair of 
the Blue Ribbon Panel on Conflict of Interest Policies for the 
NIH.
    Welcome to all of you.
    It is the practice of this committee to take its testimony 
under oath, and so I need to ask if any of you have any 
objections to giving your testimony under oath? I see no 
objections.
    I need to advise you that pursuant to the Rules of the 
House, you are entitled to be represented by counsel. Any of 
you request to be represented by counsel? I would think not. 
Okay.
    In that instance would you rise and raise your right hands, 
please.
    [Witnesses sworn.]
    Mr. Greenwood. Okay. You are under oath.
    And Dr. Zerhouni, the floor is yours for your opening 
statement.

    TESTIMONY OF HON. ELIAS A. ZERHOUNI, DIRECTOR, NATIONAL 
   INSTITUTES OF HEALTH; BRUCE ALBERTS, PRESIDENT, NATIONAL 
ACADEMY OF SCIENCE; AND NORMAN AUGUSTINE, CO-CHAIR, BLUE RIBBON 
             PANEL ON CONFLICT OF INTEREST POLICIES

    Mr. Zerhouni. Thank you very much, Mr. Chairman and members 
of the subcommittee, ranking member.
    I am pleased to have this opportunity to be here and 
testify about our agency's ethics program. And before I do, I 
would like to really tell you that my intent and the intent of 
the agency is to work in parallel with you and your concerns 
and address them fully. I do not think the American people can 
afford to have an agency like NIH with any taint, shadow, or 
cloud over its head. So you have my commitment, and I think you 
have the commitment of all of NIH to do it as quickly, as 
effectively as we can within the constraints that you well know 
are always around a complex agency like the NIH.
    So having said that, I believe that NIH has had great 
success in improving public health thanks to the resources you 
mentioned provided by the Congress and the President and the 
talent of our scientists. But without the trust of the American 
public, there is no progress that will be possible, and we need 
to address that.
    This trust must be sustained. This committee, the 
subcommittee has raised questions about the NIH ethics process. 
Your questions must be answered because our public health 
mission is too important to have it undermined by any real or 
perceived conflicts of interests.
    I want to personally thank you, Mr. Chairman and members of 
the subcommittee, for helping me in identifying what you 
perceive as weaknesses in NIH's ethics policies and systems. 
The Chairman has supported our efforts to review and reform 
ethics rules and procedures of the agency. Mr. Chairman, I also 
appreciate very much your leadership, your fairness and the 
constructive guidance that you have provided me and NIH 
throughout this process. We are looking forward to continuing 
to work with the subcommittee in a process that I agree cannot 
be finite because this situation evolves, in that the 
relationship of science, industry, development of new 
treatments, and new cures is one that is constantly changing 
and we need to be able to be adaptive to that reality.
    First, let me tell you how we internally within the 
authority of the agency, started to address these issues before 
the media reports. In July of 2003 as we started looking 
because of your inquiry into awards. We then immediately 
realized, I realized and I made the observation that the 
consistency of our rules across the complex agency were not 
what they should be. And when I learned of that and evaluated 
that, we immediately moved to develop a trans-NIH ethics 
advisory committee that would report directly to me in my own 
office to review the activities of all high level officials and 
of all relationships related to industry, biotech, or any 
relationship that could be construed as influencing a granting 
decision or a resource allocation decision. That was step one.
    Let me give you an example. Because of this panel, we were 
able then to instruct that all existing consulting 
relationships with pharmaceutical or biotech firms be stopped 
and resubmitted to this trans-NIH ethics advisory committee to 
address this issue of blur that some of you have mentioned and 
resubmit it to the advisory committee for review and reapproval 
before they could proceed.
    Working through the Department of Health and Human 
Services, we looked at the issue of disclosure. Chairman Barton 
raised the issue of a $500,000 award, I am not clear about what 
that is. I suspect this is a prize that was given to one of our 
directors, and I believe that was disclosed publicly. But when 
you looked at the disclosure levels, you realized that because 
of Office of Government Ethics rules related to the payment 
mechanism that we used, that through this mechanism you could 
have internal disclosure--and let me make sure everybody 
understands.
    We always have internal disclosure of these activities as 
they occurred. But external disclosure would not occur.
    So we immediately asked the HHS and the Office of 
Government Ethics to close this inadvertent loophole in ethics 
regulation that does not require public disclosure of financial 
statements of some of NIH's most senior and highest salaried 
personnel. OGE approved our request and extended a number of 
public filers at NIH. As a result, all senior scientific 
personnel within the jurisdiction of the NIH Director are now 
required to file. That includes directors of institutes and all 
their deputies and anyone in charge of a granting program.
    This week we submitted a second request to the Office of 
Government Ethics. Following the Blue Ribbon panel reports, I 
felt that it was time to move and extend because we heard the 
recommendation. We are now asking that all policymakers and 
those who marshal any resource in the public interest be 
required to file public financial disclosure reports. Our 
request to the Office of Government Ethics relates to 500 new 
additional positions that we would like to have disclosed.
    As a result of your inquiries, we learned that the majority 
of NIH scientists who consult for pharmaceutical or 
biotechnology companies are not required under current rules to 
disclose the specific amounts and type of compensation. They 
have to disclose the relationship. But because of the rules 
that we are under, which are not NIH rules, these are 
government-wide rules, we could not request, supposedly, that 
amount. We have changed that in the context of current 
agreements. I asked that this rule be changed, and we were able 
to have employees submit these compensation amounts for all 
current and future consulting arrangements. And I think we 
submitted all of that information to your committee, 
subcommittee, Mr. Chairman, in March.
    The issue of not being able to provide you all of the 
information that you needed, frankly, goes beyond my own 
authority to do. And it relates to the balance between the 
Privacy Act and the regulations that we can effect. And I think 
your staff has been well informed of that, and you have my 
commitment that whatever I can do within the rules and 
regulations and the advice that I receive, I will do. And this 
is my promise to you.
    Finally, I created a Blue Ribbon panel because I realized, 
as you did, that in fact these issues were not just of marginal 
changes or misinterpretation. I believe personally, given my 
previous experience, that when you see a situation like this it 
is not just an accident. A system is designed to produce the 
results that you observe. So I believe right away that what we 
needed to do was do a system review. And I asked that the Blue 
Ribbon panel be formed to review existing laws, regulations, 
policies and procedures under which NIH operates. And I asked 
the committee to leave no stone unturned. I put no limits on 
their ability to obtain data, obtain information except that I 
felt that it was very important, and as I expressed to you Mr. 
Chairman, it was very important in this situation to state 
correctly what the problem is and continue in the work of the 
investigative process of all of the other things that have 
happened, that I do not think we can have the period of time 
while we deliberate glaring deficiencies will remain 
uncorrected.
    So that was my goal here, and I think we have made some 
progress. And I agree with you that we have to look at 
balancing issues that come from that. I told the Blue Ribbon 
panel that the principles that we, NIH, myself wanted to apply, 
and we have been public on that.
    No. 1 is transparency. No. 2 is full disclosure, and there 
is a difference between the two. Full disclosure internally is 
not fully transparent. Transparency to me relates to the 
interaction with the public. Full disclosure means do you have 
the exact content of the relationship well understood by the 
third component, which is an independent peer review mechanism 
that understands the science, not just ethics officers who may 
be well versed in the law of ethics but not well versed in the 
details of how science gets done.
    And fourth, a monitoring process that will allow us to make 
sure that we are not going to deviate in the future from those 
principles.
    I also have to tell you as NIH Director that although it 
would be easier, quicker, more satisfying to basically create a 
blanket prohibition, the reality of science is such that you do 
need to have interactions between scientists and their 
colleagues both within academia and within industry. It is also 
a public interest, a policy interest of the United States to 
have translation of these findings be effective. And we have 
heard that through the many admonishments that Congress has 
asked our agency to follow. And yet, at the same time, we 
cannot forget that the primary interest is the public trust.
    So we have three interests; public trust first, making sure 
the translation is effective. But to make that translation 
effective, you do need the best people that you can recruit. 
Those three things are very hard to balance, and I want to 
testify to the fact that we should keep the dialog open. And I 
am more than happy to provide the data and the information that 
would enlighten all of us together into what is the best policy 
framework that we need to develop.
    I have reviewed the panel's recommendations. I find them to 
be constructive and it's a good approach to improve the NIH 
ethics program. I think that we need to implement the 
recommendations of the Blue Ribbon panel which improve the 
trajectory of where we want to be, and do it as diligently as 
we can either within my authority and if it's not within my own 
authority, I will work with the department, and the Office of 
Government Ethics to implement these recommendations as we go 
forward; modified, obviously, by the process that we're 
undergoing with you, Mr. Chairman.
    In sum, I think these actions have strengthened NIH, the 
actions we have taken have strengthened NIH's process not to 
the point of perfection. But let me state here just as in a 
concluding portion of my testimony, what I think is essentially 
different about what is being proposed.
    One, policy interest No. 1 is public trust. How can we 
ensure public trust? Well, make sure that no individual who is 
responsible for program funding decisions and recommendations 
or professional management of grants or review of grants--we 
have a very balanced process at NIH with multiple levels of 
checks and balances. It's very hard for me to see how someone 
alone can have a granting capability. However, that being said, 
I think that the recommendation of the Blue Ribbon panel that 
excludes any and all officials that have those responsibilities 
from any consulting with not just pharmaceutical and biotech 
companies, but also paid consulting from academia, is a good 
recommendation. I think we should implement it and it will 
preserve, give me, Director of NIH the assurance that there is 
a layer of government scientists which is completely immune to 
any potential interference. So that I think is a step that we 
need to do. This is pretty different than whatever happened 
before and whatever happens in universities or any other 
institution. This is an innovative step and I think it's a good 
step. And I think we need to take that.
    I will reaffirm the prohibition against NIH scientists 
conducting research involving human subjects having financial 
relationships with any organization whose interest could be 
effected by their research. We have always used that rule. I am 
not sure that transgressions occurred. We should look at that. 
Nonetheless, the principle should be implemented as we speak 
today and we should be reaffirming this principle making sure 
it sticks.
    I will propose that employees engage in compensated outside 
activities be prohibited from compensation in the form of stock 
or other forms of equity ownership. This is a major departure 
from prior policy. This is a recommendation of the Blue Ribbon 
panel that does not apply just to employees with 
responsibilities, but it will apply to every employee of NIH. 
This is, I think, a major move and I think we should give 
credit where credit is due, and that is the Blue Ribbon panel 
giving us a clear recommendation in that regard.
    I will set in place policies and procedures which give full 
consideration of the appropriateness of recusals. I personally 
believe that recusals should be used only in the most limited 
circumstances when the employee has an unavoidable conflict, 
like for example a spouse working for an organization. But 
recusals that relate to the authority of the employee should be 
limited to the most extreme exceptions. There may be some, but 
we have to be very careful.
    Principle two is increase transparency. In this case, 
working with HHS and OGE, as I told you, we have increased the 
public disclosure requirements. I will aggressively seek 
additional authorities to require more employees to disclose 
their outside activities where appropriate, including 
disclosure of relevant outside relationships and financial 
holdings in connection with research, publications, speeches, 
inventions, clinical research. The Blue Ribbon panel has 
considered this issue.
    And let me just state the principle, I think, that we, NIH 
Director and my own directors, have stated publicly in a 
testimony in the Senate when asked whether there is any reason 
why you would not want to disclose an existing outside 
relationship. My answer to this is there should be no reason. 
If you cannot disclose that relationship, then you should not 
have that relationship. That is a clear principle I want to be 
on the record to tell you that this is what I believe in, this 
is what my scientists believe in. It is the rules and 
regulations, complex as they are as pointed out by the Blue 
Ribbon panel, that prevented this clarity from occurring.
    Let me tell you, I am committed to make sure that whatever 
we need to do we will do, so that in the context of 
relationships with industry, biotech, any conflicting 
relationship; and that we find ways of making sure that that 
relationship is publicly disclosed.
    I understand the Privacy Act issues. I understand that 
people in their outside time on their own time have the right 
to privacy. But when it comes to activities that are so closely 
related to their government function, I think we should exclude 
that from the general government ethics rules under which all 
agencies of the government are working. So we will look forward 
to find creative ways of making sure that that principle of 
full transparency be implemented, however, we need to get 
there. It may take us some time. We can do what we can do 
today, but frankly this is a principle that I want to be clear 
about: increasing the transparency.
    There is no doubt also that the rules do prevent, as they 
stand today, fair, good, honest scientific interchange in the 
form of writing and teaching and reviewing and conferencing 
with colleagues. This is something that the Blue Ribbon has 
looked at. For activities under very limited dollar amounts and 
other activities, I think as Director of NIH, as a scientific 
manager, we have to be very careful to not put that in the same 
category as drug company business relationships. That's the 
bread and butter of scientific interactions. I hear your 
comments, I understand your concerns but I plead with you to be 
open minded about the academic activities of our scientists. 
They are important to science.
    And last, we will establish effective monitoring and 
oversight mechanisms. We want to have a central data base that 
will record all of those activities. One of the issues we found 
is the disconnect sometimes between the very complex forms. And 
I have to tell you, the Blue Ribbon panel got an education in 
the law of ethics about this. If you knew the number of forms 
and requirements; 520's, 278s, 450s and all of those things, 
you can see how the employees really become confused. We need 
to clarify and simplify it and have it in one place so that the 
recusal, if it ever exists for that individual, is in the same 
place as the disclosure from that scientist. We want to commit 
to build probably a paragon, an example, of how you can manage 
ethics with a transparent fashion by having this central data 
base and full disclosure.
    So I just wanted to convey to you that we want to work with 
you. I cannot afford, nor can our scientists afford, any sense 
that we are transparent and not willing to reform as deeply as 
we need to reform so that this taint that you are worried 
about, concerned about disappears.
    With that, Mr. Chairman, I'm ready to answer any of your 
questions.
    [The prepared statement of Hon. Elias A. Zerhouni follows:]

Prepared Statement of Elias A. Zerhouni, Director, National Institutes 
        of Health, U.S. Department of Health and Human Services

    NIH's mission is to generate new knowledge to improve health. The 
outcomes of NIH research affect the lives of every American and 
increasingly people around the world. Medical research leads to new 
diagnostics, treatments and prevention strategies--and these medical 
interventions must be founded on the veracity of the data and on the 
unimpeachable integrity of the individuals who conduct the research and 
oversee the research enterprise.
    Recently Congress has questioned the relationships of some NIH 
employees with outside organizations. Our public health mission is too 
important to have it undermined by any real or perceived conflicts of 
interest. And to this point, I am aggressively developing and 
implementing new conflict of interest policies, revamping review of 
activities with outside organizations and working to increase 
transparency by expanding the number of employees who file internal and 
public financial disclosure reports.
    I want to personally thank Chairman Greenwood and Members of the 
Subcommittee for helping me to identify potential weaknesses in NIH's 
ethics policies and systems and for supporting my efforts to review and 
reform ethics rules and procedures at the Agency. I appreciate both 
your leadership and the constructive guidance you provided on this very 
important issue.

New and Ongoing Changes to NIH's Management of Conflict of Interest:
    I want to describe actions I have taken in response to concerns 
about NIH's management of conflict of interest.
    I began reviewing ethics rules, policies and practices last July, 
when this Subcommittee raised questions about NIH employees receiving 
lecture awards. I believe NIH scientists must remain eligible to 
receive recognition for their work in the form of legitimate awards. 
However, NIH scientists should not be accepting awards that are merely 
a ruse to provide compensation, and we will develop a system to 
increase uniformity and track the determinations of NIH's senior ethics 
officials as to whether an award can be accepted by NIH employees.
    On November 20, 2003, I wrote to all senior managers at NIH 
advising them 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 (emphasis added).
    In the same memorandum, I announced the creation of the new NIH 
Ethics Advisory Committee (NEAC) in the Office of the Director to 
provide independent peer review of activities involving outside 
organizations. The NEAC, which conducted its first meeting on January 
20, advises the NIH Deputy Ethics Counselor (DEC) on conflicts of 
interest and helps to ensure that activities involving acceptance of 
compensation from outside sources receive uniform oversight at the NIH. 
NEAC reviews applications for proposed activities with outside 
organizations that stand the greatest chance of posing risks to NIH's 
objectivity, or appearances thereof, including, where an award is 
valued at $2,500 or more; where total income from an activity with an 
outside organization exceeds $10,000 or is unknown; where outside 
compensation is in the form of equity; where the activity involves a 
drug or biotech company; or where the activity involves senior NIH 
leaders (e.g., scientific and clinical directors).
    Co-chaired by the NIH Deputy Ethics Counselor (DEC) and Deputy 
Director for Intramural Research, the NEAC consists of ten rotating 
members and two ex-officio ethics advisors, all of whom are full-time 
federal employees. The rotating members are nominated by IC Directors 
and appointed by the Co-chairs. Membership represents the categories of 
employees submitting proposals to the NEAC, including IC Directors and 
Deputy Directors, Scientific Directors, Clinical Directors, Extramural 
Directors, OD Senior staff, and others.
    During the centralized NIH review, committee members review each 
proposed activity to help assess whether it creates an actual or 
apparent a conflict of interest. The committee reviews the proposals 
based on criteria set forth in the Standards of Ethical Conduct for 
Employees of the Executive Branch promulgated by the U.S. Office of 
Government Ethics (OGE) and the supplemental Department of Health and 
Human Services (HHS) regulations.
    To ensure oversight of activities that had already been approved 
prior to the creation of NEAC, we also instructed that all existing 
consulting relationships with pharmaceutical or biotechnology firms be 
stopped and resubmitted to NEAC for its review and input, before they 
could be reapproved, if appropriate, by the NIH DEC.
    The Inspector General of the Department of Health and Human 
Services and the General Accounting Office also initiated their own, 
separate reviews of ethics processes at NIH. In addition, OGE 
accelerated its regularly scheduled review of the NIH ethics program. 
We welcome these inquiries and are cooperating with the various 
reviewers.
    On January 12, 2004, at my request, Dr. Raynard Kington, the Deputy 
Director of NIH, was appointed to be the new Deputy Ethics Counselor 
for the Agency. Commensurate with his appointment, the role of the NIH 
DEC has been expanded beyond the staff of my office and the Institute 
and Center Directors to include Institute and Center Deputy Directors, 
Scientific Directors, Clinical Directors and Extramural Program 
Directors.
    Regarding the important issue of public disclosure, working through 
the Department of Health and Human Services, I asked that the Office of 
Government Ethics grant approvals to require increased public 
disclosure of financial statements of some of NIH's most senior and 
highest-salaried personnel. OGE approved the request on February 6, and 
as a result, all senior scientific personnel within the jurisdiction of 
the NIH DEC are now required to file public financial disclosure 
statements. Although many of these individuals were already filing 
public financial disclosure forms, they will now be required to do so. 
Recently, a second request was submitted to OGE to require additional 
high-level personnel at NIH to file public financial disclosure 
reports.
    In addition, because the majority of NIH employees who file 
financial disclosure forms are required to use the OGE-450 financial 
disclosure form, which does not request the amounts of compensation 
paid by outside organizations, and because the approval process focuses 
on the nature of the activity and the identity of the outside 
organization rather than the compensation paid, the amounts paid to NIH 
employees in connection with their activities with outside 
organizations has in many cases not been collected or reported either 
internally or externally. I requested that the Department ask OGE to 
revisit this approach and, as a result, NIH employees are now required 
to submit these compensation amounts for all current and future 
consulting arrangements in their request for approval of activities 
with outside organizations. Furthermore, to the extent that additional 
NIH employees will be required to file public financial disclosure 
forms, these amounts will be collected and reported on such forms.
    As part of our internal policy review, we are also asking employees 
to disclose compensation amounts for expired activities with outside 
organizations. I personally believe we should know those amounts, and 
so I requested that the Department work with OGE to find a way, 
consistent with the Privacy Act, which places limits on collection of 
identifiable information by the federal government, to ask for these 
amounts. The Department was successful in doing so, and so we have been 
able to ask employees for these dollar amounts. We have carefully 
considered, including internal discussions with legal counsel and 
others, to what extent we can and should order that employees must 
provide this information instead of voluntarily requesting it. After 
such consideration, it is our understanding that asking for this 
information on a voluntary basis is the most appropriate and prudent 
way to proceed. We have also been cooperative in providing this 
information we have collected for our internal policy review to the 
Subcommittee where it has asked for the information.
The Blue Ribbon Panel:
    Finally, I created the Blue Ribbon Panel on Conflict of Interest 
Policies to review existing laws, regulations, policies, and procedures 
under which NIH operates regarding real and apparent financial 
conflicts of interest where compensation is received by employees. I 
also charged the Panel with reviewing public financial disclosure rules 
and procedures. The panel began its review on March 1 and made its 
recommendations to the standing Advisory Committee to the NIH Director 
May 6. The recommendations were adopted by the Advisory Committee and 
submitted to me on the same day.
    The Blue Ribbon Panel operated with extraordinary speed. Norm 
Augustine and Bruce Alberts, the panel's co-chairs, as well as all the 
panel members, served with distinction and performed a great public 
service. They deserve gratitude and respect, and I thank them for their 
extraordinary efforts. Dr. Alberts and Mr. Augustine are here to 
testify and answer your questions.
    In reviewing the Panel's report, I was impressed with the degree to 
which they looked closely at both NIH policies and its procedures. The 
Panel also explored regulations of other Agencies and the rules, 
regulations, and laws set in place by the HHS, the Office of Government 
Ethics (OGD), and the Congress. And in making recommendations, they did 
as I asked--they did not limit themselves to what was in my authority 
to change--rather I asked them to make any and all recommendations that 
would improve NIH's management of conflict of interest. I told them 
that where I did not have the authority to implement change, I would 
seek the help of HHS and OGE.
    I have reviewed all of the Panel's recommendations and plan to move 
ahead as appropriate.
    In sum, these actions have already significantly strengthened NIH's 
internal oversight of ethics matters and continue to do so in the 
future.
Next steps: Principles and Policies
    After nine months of review and listening to the concerns of the 
public, and after examining the recommendations of the Blue Ribbon 
Panel, I want to unveil my plans for further improving NIH's ethics 
program. My plans are based on four main principles:

1) Enhance public trust in NIH by preventing conflicts of interest 
        through the restriction of financial relationships employees 
        may have with outside organizations;
2) Increase levels of transparency in the NIH ethics program by 
        requiring much more internal as well as public disclosure of 
        the details of financial relationships employees have with 
        outside organizations, including consulting arrangements and 
        awards;
3) Balance NIH's ability to recruit and retain the best scientific 
        expertise while expediting the translation of research 
        advances;
4) Establish effective monitoring and oversight of employee activities.
    I will seek to implement actions in response to these principles, 
as appropriate, through administrative actions, and supplemental 
regulations.
Principle One: Enhance Public Trust
 I will seek to prohibit NIH senior management and NIH extramural 
        employees who are responsible for program funding decisions and 
        recommendations, and professional staff managing grants and 
        contracts and publication review from consulting with 
        pharmaceutical or biotechnology companies or from paid 
        consulting for academia, except in the case of the clinical 
        practice of medicine.
 I will reaffirm the prohibition against NIH scientists participating 
        in research involving human subjects where the scientist has a 
        personal or imputed financial interest in an organization whose 
        interests would be directly and predictably affected by his 
        research, except in those exceptional cases where the interest 
        is not so substantial as to be deemed likely to affect the 
        integrity of the employee's services to the Government or is 
        otherwise subject to regulatory exemptions.
 I will propose that employees engaged in compensated activities with 
        outside organizations be, in future, prohibited from 
        compensation in the form of stock or other forms of equity 
        ownership in the companies for whom they are working.
 I will set into place polices and procedures to fully consider the 
        extent to which the recusals necessitated by an approved 
        activities with outside organizations have an effect on the 
        ability of senior scientific managers and decision makers to 
        conduct their government work. NIH will clarify the use of 
        recusals that are required because of financial relationships 
        with outside organizations. We will require a uniform policy 
        for informing relevant personnel of who is recused and 
        establish a new process for monitoring recusals.
Principle Two: Increase Transparency
 NIH, working with HHS and OGE, has already increased the number of 
        senior managers who must publicly disclose their compensated 
        activities with outside organizations and the amounts received. 
        These are interim steps. I will aggressively seek additional 
        authorities to require more employees to disclose their 
        activities with outside organizations, where appropriate, 
        including disclosure of relevant relationships and financial 
        holdings in connection with research publications, speeches, 
        inventions, and clinical research. As I have said previously, 
        public disclosure and transparency will be the cornerstone of 
        the NIH ethics program.
 I will ask NIH employees to voluntarily disclose all relevant 
        relationships with outside organizations and financial holdings 
        in their work products, such as publications, speeches, and 
        invention disclosures. And I will seek changes to regulations 
        to make such disclosures a requirement.
Principle Three: Recruit and Retain Best Scientific Expertise While 
        Expediting Translation of Research Advances
 I will propose that regulations allow NIH scientists to receive 
        compensation for teaching, speaking or writing about their 
        research, but only if the information is shared in a public 
        forum and has already appeared in published literature.
 NIH will continue to allow certain types of consulting arrangements, 
        teaching and lecturing opportunities, receipt of bona fide 
        awards, and collaborations with the private sector, but only 
        under clear, rigorous rules meant to eliminate real and 
        appearances of conflict of interest. Consulting, collaborating 
        and teaching must continue in order to expedite the translation 
        of research advances, but only under clear guidelines.
Principle Four: Establish Effective Monitoring and Oversight Mechanisms
 I will seek to limit the amount of time spent on consulting and the 
        amount of compensation received annually. The limits proposed 
        by the Blue Ribbon Panel will be considered as the draft 
        regulation is developed.
 NIH will improve its ability to manage and track approved activities 
        with outside organizations by increasing the accountability of 
        managers, creating a centralized data base, centralizing review 
        of senior managers and scientists, conducting random audits of 
        files pertaining to activities with outside organizations, and 
        continuing the rigorous peer review conducted by the NEAC.
 NIH will develop and implement a new, more understandable method of 
        training employees on ethics rules, and we will establish a web 
        site that displays rules in plain language, updates employees 
        on regulatory trends and changes and discusses--anonymously--
        ongoing cases as examples of best practices or unacceptable 
        practices.
    Much of the discussion about ethics policies and procedures at NIH 
has been unnecessarily negative. NIH employees have great integrity. In 
retrospect, the policies and rules could have been even stricter, their 
implementation could have been more efficient and oversight could have 
been more rigorous. But for better or worse, this was the system NIH 
employees had to negotiate.
    As we move forward, all of us, the NIH leadership, HHS, OGE, and 
the Congress, will have to strike a careful balance between maintaining 
public trust in NIH and allowing appropriate interactions between NIH 
scientists, industry, academia and all elements of the research 
community.
    Collaborations with the non-governmental research community are 
vital, not only for understanding and advancing science, but for 
translating our knowledge into actual medical practice and treatment. 
We should be more transparent, more vigilant about oversight, and we 
need to tighten the rules. But it would be a mistake to ban all 
compensated activities with outside organizations. Such an action would 
be bad for science, unfair to the employees, and ultimately hinder our 
efforts to improve the nation's health.

    Mr. Greenwood. Thank you very much, Dr. Zerhouni.
    Dr. Alberts, you are recognized for an opening statement. 
And Dr. Augustine, you are going to speak for the Commission.

                  TESTIMONY OF NORMAN AUGUSTINE

    Mr. Augustine. Yes, please. We will share our remarks. I'll 
begin.
    Mr. Chairman and members of the committee, we welcome the 
opportunity to share with you our findings in our review of 
conflict of interest policies at the NIH.
    We are very well aware of the support that this committee 
has given to NIH over the years, and also the expectations you 
have for the NIH and I might add that we, as private citizens 
are sharing those expectations.
    Dr. Alberts and I today appear on behalf of the entire 
members of our panel, a list of which is attached in the 
submittal. And we do appreciate your including our formal 
statement for the record. Dr. Alberts and I will briefly 
summarize it in a more informal fashion this morning with the 
committee's permission.
    Our panel, as you know, was established at the request of 
Dr. Zerhouni. We were asked to complete our work in 90 days 
because of the urgency that the NIH assigned to this particular 
issue.
    As has been mentioned, we were asked to focus on policy 
issues, not on specific cases. And the reason for that was that 
there are least three other investigations underway by official 
government agencies into specific matters.
    During our efforts we had over 30 witnesses appear before 
us from a variety of perspectives. We established a website at 
NIH which we received responses from over 300 employees of NIH 
with respect to a series of questions we had asked of them. We 
spoke one-on-one generally, often by telephone with the 
director of all 27 institutes and centers of NIH and we put the 
notice in the Federal Register that we would welcome input from 
the public.
    NIH, as has been pointed out several times this morning, is 
indeed a great national asset, a treasure. Its impact on 
health, not only in America but throughout the world, has 
clearly been profound. The more we learned about NIH the more 
apparent it became to us that NIH's principal asset, far above 
anything else, were the scientists and the clinicians that 
worked for the institutes and the centers.
    The easiest thing in the world for us to have done would 
have been simply to have put an outright ban on all consulting, 
to insist that everybody's related personal activities, 
emphasize related, be placed on the web. But we were also 
mindful of the fact that there were at least two ways that we 
could damage NIH even though our efforts would be well meaning.
    The first of those would be that if we were to recommend 
policies with regard to conflicts of interest that were too 
liberal, too easy and the NIH were to continue to suffer from 
publicity of apparent conflict of interest violations, that 
this could be very damaging to the support for the NIH by the 
public, damaging to its science and damaging to those who put 
their faith in the NIH. On the other hand, we also realized 
that if we placed recommended rules that were so restrictive 
and some analytical to common accepted practices in the 
scientific community, we truly believed that it would be very 
hard to hire the world class scientists, many of whom have 
decades of education, to serve the NIH's role.
    Similarly, we encountered the fact that NIH researches, as 
all other citizens, have certain rights to privacy in their 
private life. By the same token, those of us who depend upon 
NIH researchers, the public, have every right to be aware of 
what activities there are in their private lives that might 
impact their impartiality of carrying out their 
responsibilities as public servants.
    Further, we were well aware that it's inappropriate for a 
private organization to benefit from government sponsored work 
in a discriminatory fashion. At the same time, we realized that 
it's almost through the activities of commercial firms that the 
basic research conducted at NIH is able to impact the health of 
America's citizenry.
    Considering these factors, we arrived at three principal 
findings, which I will just generalize and Dr. Zerhouni has 
really touched on them very thoroughly.
    The first is that we recommend that the NIH conflict of 
interest policies be substantially tightened, they be made more 
restrictive particularly for the senior leadership at NIH.
    Second, we believe that more disclosure by more people both 
public and private is very much needed.
    And third, we believe that in cases where there are not 
conflicts of interest, that steps should be taken to give 
scientists the latitude to participate in the accepted cultural 
approaches practiced by the scientific community at large.
    Well, that is a brief introduction. Let me ask Dr. Alberts 
to use our remaining 5 minutes to summarize some of the 
specific instructions.
    Mr. Greenwood. Dr. Alberts, you are recognized.

                   TESTIMONY OF BRUCE ALBERTS

    Mr. Alberts. Thank you, Mr. Chairman.
    There are 18 recommendations in our report, and you have 
them and I have no time to really go over them in detail here. 
Let me just point out a few essential recommendations that I 
want to pay special attention to in view of the comments 
already made.
    Recommendation one at the top deals with the senior 
leadership issue and would prohibit any paid consulting for a 
set of senior employees and those having responsibility for 
program decisions. And Dr. Zerhouni has already spoken 
eloquently about accepting those recommendations, and I don't 
think I need to say anything more about them, except that this 
is a change in policy from a 1995 policy that was implemented 
at the NIH.
    The issue of whether we should abandon any kind of contact 
with industry by the majority of the 5,000 scientists who work 
at the NIH who are just pure researchers and have nothing to do 
with any resource decisions or allocations or recommendations 
is one that you've addressed here and one that we took very 
seriously. We came down the side, as Mr. Augustine said, of 
allowing those interactions where they are appropriate after an 
appropriate screening and specifically said these people should 
be able to consult for either industry or academia where there 
is no conflict and wherever it makes sense after the decision 
is made centrally at the NIH. Why?
    Well, let me say, I have 30 years in the universities at a 
research scientist before I came to Washington 10 years ago. I 
was at the UCSF, which is the place where all this biotech 
stuff started. And at the beginning, I was very much against 
any academic involvement with industry. And personally, I had 
never had any. But I have talked to many, many scientists 
including the young scientists at NIH who are coming there to 
do public service and have no actually plans or actually 
activities yet with industry. But the fact is that this is very 
much a two way street. People who do this often tell me that 
they gain more from knowing about what industry is doing and 
enlarging their thinking by seeing what these people are doing 
in new kinds of ways. They are often ahead of academia. I'm 
talking about colleagues at UCSF now. That in fact these kinds 
of interactions changed the ambitions and often the 
effectiveness of the research that people are doing both in 
universities and by analogy at the NIH. And so that's the basic 
reason why I personally came down on the side of allowing it 
where appropriate.
    However, we are very concerned about what we call conflict 
of commitment. We talk about this as a shower test. What are 
you thinking about when you're in the shower? Are you thinking 
about your NIH job or are you thinking about something else? 
And so we wanted to make sure that it's the NIH job that you're 
thinking about, and we therefore have recommendation three 
which puts real limitations on both how much compensation you 
could receive and how many hours you can spend and, I think 
very importantly, whether you could take equities. Equities, we 
feel, creates a different kind of sense of involvement than 
money received. You would become, in a sense, an owner and you 
tend to get a lot of attention, may get a lot of attention from 
an employer that we don't want. We don't want them to be 
primarily concerned with their outside activities.
    Now these recommendations, obviously, represent 
restrictions from current policy. We also have recommendation 
five, which is designed to promote more interactions between 
NIH scientists and their colleagues elsewhere; we move in the 
direction of more leniency. This involves a change recommended 
in OGE regulations allowing them to behave like other 
scientists and receive small honoris where they go to speak 
about their work and be able to speak about their work in a 
public forum and provided it's been published already in the 
literature freely.
    We found these restrictions had come from--the regulations 
are very confusing. In fact, I was very surprised by them. And 
I think it hampers the ability of scientists to, again, 
interact with the scientific community, do the best they can to 
disseminate what they're doing and also get information back 
from their colleagues. Because science is very much a highly 
cooperative interactive activity.
    Then we go on to recommendation ten which deals with 
ensuring a complete internal disclosure of financial interests 
and other potential conflicts of interests. This has to do with 
form 450. I learned all these facts. I am hoping I can erase 
all this information that I have learned.
    Form 450. We want more form 450 filers. That may be 
limited. If not, we want NIH to get it some other way so they 
know every possible conflict of interest and can regulate it 
more efficiency.
    The other issue which of course we're very concerned, for 
Dr. Zerhouni and for the panel, is transparency. Transparency 
we would mean public availability of information. Disclosure we 
use NIH's accessibility to the information.
    And we supported the idea that this Title 240, it is sort 
of bizarre, regulation that prevents NIH from getting 
information from people publicly who they want to have 
information for should be changed somehow, either by OGE 
regulation or by law if necessary. And the NIH, as Dr. Zerhouni 
said, has now requested some 500 people be put under that 
regulation and we'll see what happens. We would certainly 
support that.
    We also would produce transparency in a different way by 
requiring an employee in recommendation 13 to publicly disclose 
all relevant outside relationship and financial holdings in 
their work products; that is their publications, speeches and 
invention disclosures. So it is another form of public 
disclosure.
    Finally, we looked at the comparative salary scales of 
academia and NIH for scientists. And we found that at the lower 
levels, the scientists are well compensated. They are fairly 
compensated. The problem comes at the higher levels of the 
leadership where, for whatever reason, the marketplace is at 
much higher salary levels for many of the people you would like 
to have as senior leaders than NIH can actually pay. And so 
because leadership is so crucial, it is crucial to have the 
right leaders in the organization, we have recommendation 18 
that the NIH Director working with Congress should ensure that 
the agency has authority under Title 42 or some other hiring 
mechanism to recruit senior scientific staff in a highly 
competitive market and asking the HHS to also to review and if 
appropriate, raise the current annual salary caption of 
$200,000 for the most senior Title 42 employees at NIH. We are 
concerned that the present ceiling is limiting the agency's 
ability to retain and recruit the very best leadership. And, 
again, I cannot emphasize the leadership issue.
    Let me just go through this transparency issue, because 
personally I would be very much in favor of having all the 
information that you want posted on our public website. In 
fact, our panel was leaning strongly in that direction when we 
encountered the Privacy laws. That was at our last meeting. 
And, in fact, we have learned that this would, or what we 
believe is that some government wide legislation would be 
needed to change the Privacy law in order to do what the panel 
was heading for in our recommendations. And so we concluded in 
the end that the strong governmental policy protecting personal 
information against disclosure would be a formidable challenge 
to overcome and thought there was no use in recommendations 
that are meaningless and instead we have constructed several 
recommendations to the end of making more effective both the 
internal disclosure, as I said, and public disclosure through 
the public disclosure at speaking and work products stage that 
I mentioned, and finally by requested an agency wide public 
report that annually summarizes the amount and the nature of 
the outside activity of NIH employees, which is recommendation 
four which I didn't have a chance to mention.
    Thank you very much.
    [The prepared statement of Norman Augustine and Bruce 
Alberts follows:]

   Prepared Statement of Dr. Bruce Alberts and Mr. Norman Augustine, 
  Representing the National Institutes of Health Blue Ribbon Panel on 
                     Conflict of Interest Policies

    Mr. Chairman and Members of the Committee, thank you for this 
opportunity to share with you the findings of our Panel which evaluated 
Conflict of Interest Policies affecting the National Institutes of 
Health (NIH). We are, of course, well aware of the support given by 
this committee to the NIH over the years and of the high expectations 
you, and indeed the American people, hold for NIH.
    We appear today on behalf of the members of the Panel, a complete 
list of whom is attached to this testimony. Our Panel was established 
at the request of Dr. Elias Zerhouni, Director of NIH, and was 
requested to complete its work within 90 days because of the urgency of 
the matter at hand. Administratively, we were formed as a Working Group 
of the Advisory Committee to the Director of the National Institutes of 
Health. We should note that our assignment was forward-looking; that 
is, we were concerned with policy rather than with specific cases that 
occurred in the past. As you are aware, there are a number of on-going 
investigations of prior matters being conducted by entities within the 
government. Other than providing our basic charter, which was to review 
existing conflict of interest policies and to propose new policies 
where appropriate, no constraints were placed by NIH on the content of 
our work.
    In carrying out the Panel's responsibilities we met a total of five 
days and held one telephone conference. We heard testimony from over 30 
individuals, including members of the public, and established an 
internal web site which received over 300 responses from NIH employees. 
In addition, we interviewed the Directors of all 27 NIH Centers and 
Institutes. Notices of meetings were placed in the Federal Register.
    The National Institutes of Health represents a national and global 
treasure. Its principal asset is the truly remarkable scientists and 
practitioners who choose to serve as its employees. In many ways the 
future health of our nation depends on a robust and productive NIH. But 
if care is not taken, the ability of NIH to continue to serve the 
public's health could be severely damaged in either of two ways by 
issues affecting conflict of interests. On the one hand, if the science 
NIH conducts or its funding decisions are, or even appear to be, biased 
or corrupted, the public, the broader scientific community, and the 
government's funding officials could lose faith in the institution's 
credibility. On the other hand, if a unique set of rules were to be 
enacted that is so inconsistent with the established practices of the 
scientific community, it could drive talented individuals away from NIH 
as an employer and at the same time discourage the dissemination of 
knowledge.
    Developing sound policies for managing and preventing conflicts of 
interest requires the balancing of several sometimes competing values 
and considerations. First, government employees, like all citizens, are 
entitled to a life of their own with reasonable privacy--but at the 
same time, the public has a right to complete assurance that outside 
activities will not inappropriately influence an employee's judgment or 
commitment to public service. Second, although sound arguments can be 
made for the enactment of consistent and uniform conflict of interest 
rules across the federal government, each agency, including NIH, has 
unique circumstances and needs. Third, it is clear that a government 
employee should not receive personal financial gain for outside 
activities by exploiting knowledge gained through his or her government 
position, yet much of the accumulated knowledge and value of a 
scientist might well have resulted from efforts made and 
accomplishments achieved outside of government service. The Panel has 
sought diligently to balance these sometimes conflicting considerations 
as it developed its recommendations.
    In its deliberations the Panel found an extremely complex set of 
rules governing conflicts of interest at NIH and, in fact, across the 
federal government. In the context of NIH, with its unique mission to 
conduct and support biomedical and health-related research on its own 
campus, across the country, and internationally, these rules are widely 
misunderstood by some of the very people to whom they are intended to 
apply. This has created uncertainty about allowable behavior and has 
engendered fear that inadvertent transgressions could occur--
significantly damaging morale.
    The Panel found that most of NIH's policies and procedures for 
managing conflicts of interest are reasonable and appropriate and it 
believes that the agency has been responsive to direction provided to 
it in this area by the Department of Health and Human Services (HHS), 
the Office of Government Ethics (OGE), and Congress. However, 
significant improvements can be made, including imposing greater 
restrictions on some types of activities, relaxing some restrictions 
that are inappropriate and counterproductive, enhancing disclosure and 
transparency, and improving the overall management of these issues at 
NIH through better training, education, and resource management.
    We believe the existing conflict of interest policies affecting NIH 
do not sufficiently discriminate among groups of employees who have 
widely differing responsibilities and therefore widely differing 
susceptibility to conflicts of interest. In particular, we conclude 
that the policies affecting senior officials of NIH should, as a matter 
of policy, be tightened--that is, made more restrictive. It is our view 
that greater internal and, in some circumstances, public, disclosure 
can be beneficial in assuring the continued quality of the NIH's work 
and the confidence the public can place in that work. In particular, 
some senior NIH staff members, absent case-by-case approval authority, 
are, under present interpretation of the relevant laws, not expected to 
file public disclosure forms.
    On the other hand, we found that many well-intentioned constraints 
that have been placed on researchers at NIH who perform purely 
scientific work have been counterproductive. As but one example, NIH 
scientists are generally prohibited from indicating their affiliation 
with NIH when giving lectures, even when those lectures are accompanied 
by appropriate disclaimers.
    At present, only a relatively small number of NIH employees are 
engaged in consulting arrangements with industry. In contrast, a 
substantial number of NIH employees are involved in outside activities 
with professional societies and with academic and research 
institutions--primarily in the forms of teaching, speaking, or writing 
(including editing). In addition, NIH scientists who are recognized for 
outstanding scientific achievements, leadership, or public service are 
sometimes the recipients of awards, which may be accompanied by a cash 
prize. The Panel believes these are important--even essential--
activities for NIH scientists, since they are part of the tradition of 
science and provide evidence of the value and significance of the NIH 
research community to the larger scientific community. For example, 
speaking at academic institutions or other similar public fora is a 
critical part of being a productive and contributing scientist. It 
provides an important avenue for the exchange of scientific ideas, and 
both the speakers and the audiences benefit.
    What did the Panel not accomplish that we sought initially to do? 
During our initial meetings, and in the first full draft of the report 
that was used to frame our Panel discussions at our April 5-6 meeting, 
we seriously considered proposing that selective information from the 
Form 520 be posted on a publicly accessible portion of the NIH website. 
(Form 520 must be submitted to obtain permission for any outside 
activity). More specifically, we discussed the possibility of 
requiring, as part of the permission process, the public posting of 
both the nature of each paid outside activity, as well as the exact 
amount of the compensation received each year. The Panel was thinking 
that such compete transparency could serve as a ``disinfectant'' to 
remove suspicions that might otherwise persist concerning the internal 
NIH disclosure and permission system.
    In the course of these deliberations, we encountered the federal 
Privacy Act and other relevant federal statutes and regulations. We 
asked the lawyer on our Panel, Dorothy Robinson, to consider these 
matters further and to discuss them with NIH legal counsel. She 
reported that the federal Privacy Act presents a serious barrier to 
virtually any agency-mandated public disclosure of the sort we were 
considering, other than the public disclosure mandated for those senior 
level employees designated as Form 278 filers--including those so 
designated through equivalency rulings by the Office of Government 
Ethics. (See also Letter from Marilyn L. Glynn, Acting Director of OGE, 
to Bruce Alberts and Norman Augustine, April 19, 2004, attached).
    The Panel considered the possibility that the Privacy Act might be 
amended to allow for this type of disclosure, but concluded that the 
strong governmental policy protecting personal information against 
disclosure would be a formidable challenge to overcome. Instead, as you 
will hear, the Panel constructed recommendations aimed at augmenting 
and making more effective internal disclosure within NIH. We want NIH 
to have all of the information and abilities it needs to make thorough 
and effective conflict of interest reviews. We have also recommended 
enhanced public disclosures in connection with all speaking and 
publications by NIH personnel, as well as an agency-wide public report 
that annually summarizes the amount and nature of the outside activity 
by NIH employees.
    Our recommendations are as follows:
    Recommendation 1: NIH senior management and NIH extramural 
employees who are responsible for program funding decisions and 
recommendations, and professional staff managing grants and contracts 
and application review should not engage in consulting activities with 
pharmaceutical or biotechnology companies or in paid consulting for 
academia. The Panel considers speaking for compensation at an industry 
site as equivalent to consulting for industry. In addition, the Panel 
does not include in this prohibition time spent in clinical practice by 
health care practitioners, if approved as an outside activity free of 
conflicts.
    Recommendation 2: The Panel reaffirms current federal law that 
intramural scientists conducting research with human subjects--for 
example, investigators and research team members involved in patient 
selection, the informed consent process, and clinical management of a 
trial--should not be allowed to have any financial interest in or 
relationship with any company whose interests could be affected by 
their research or clinical trial, except with an appropriate waiver or 
authorization.
    Recommendation 3: In addition to existing requirements for engaging 
in outside activities, the following additional requirements should be 
in place for employees directly involved in the administration or 
conduct of NIH research programs and who are not subject to the 
restrictions posed in Recommendations 1 and 2:
a. The total amount earned annually from compensated consulting with 
        industry or academia should not exceed an amount equal to 50 
        percent of the employee's annual salary, and no one source 
        should account for an amount in excess of 25 percent of annual 
        salary.
b. Employees eligible to engage in compensated outside professional 
        activities should not:
    i. receive compensation in the form of stock options or other forms 
            of equities for their services
    ii. spend more than 400 hours per year on these activities (writing 
            excepted).
c. An exclusion to the above limits should exist for NIH employees who 
        are health care practitioners. For these employees, there 
        should be a more flexible time limitation and the capitation 
        for compensated outside medical care and patient services 
        should be 100 percent of base pay, with the one-source 
        limitation removed.
    Recommendation 4: To improve NIH's ability to manage and track 
approved outside activities:

a. all requests for outside activities (Form 520) should be updated on 
        an annual basis (with such updates indicating only those 
        changes that have occurred)
b. supervisors should be held accountable for the evaluation and 
        approval of outside activity requests, and this supervisory 
        function should be a component of a supervisor's performance 
        evaluation
c. NIH should publish an annual institute-wide statistical report on 
        the number and types of outside activities approved for its 
        employees.
    Recommendation 5: NIH should seek a change to OGE regulations so as 
to allow NIH scientists to receive compensation for teaching, speaking, 
or writing about their research, only if the information is to be 
shared in a public forum and it has appeared in the published 
literature.
    Recommendation 6: NIH intramural scientists should continue to be 
allowed to engage in compensated speaking, teaching, and writing for 
professional societies and for academic and research institutions as an 
outside activity as long as all ethics review and approval requirements 
are met.
    Recommendation 7: NIH should seek a change to OGE regulations to 
permit employees to be identified by their title or position (and 
institutional affiliation) when engaged in teaching, speaking, or 
writing as an approved outside activity. Disclaimers should be provided 
that the activity is not being conducted in the employee's official 
capacity as an NIH employee and that the views expressed do not 
necessarily represent the views of NIH.
    Recommendation 8: There should be no restrictions on royalties 
received on works written, edited, or published or on income received 
from patents licensed by any NIH employee who conducted the work as an 
approved outside activity.
    Recommendation 9: The current OGE rules regarding receipt of bona 
fide cash awards for meritorious public service or achievement and 
NIH's interpretations of the rules are reasonable and should apply to 
all employees. There should be no limit on the amount of money received 
from a bona fide award. These awards are considered gifts under current 
law and are not considered outside activities because the employee 
accepts the award in his or her official capacity.
    Recommendation 10: To increase NIH's ability to manage conflicts of 
interest, it should either move immediately to increase the number of 
employees required to annually file a confidential disclosure form 450 
or find some other means to achieve comparable levels of internal 
disclosure.
    Recommendation 11: NIH should ask OGE to make a regulatory change 
or seek statutory modifications to provide NIH with greater discretion 
in determining whether certain Title 42 employees should file public 
financial disclosure form 278. This would promote the public interest 
by increasing transparency and thereby enhance trust in government. In 
the meantime, NIH should seek additional equivalency rulings from OGE 
to increase the number of public filers to include all the senior 
employees as specified in Recommendation 1.
    Recommendation 12: NIH supervisors should be provided with enhanced 
training on the criteria to be used for their annual review of 
financial disclosures so as to become more effective in managing and 
avoiding employee conflicts of interest.
    Recommendation 13: To preserve public confidence in NIH, the agency 
should put in place a policy that requires employees to disclose all 
relevant outside relationships and financial holdings in their work 
products, such as publications, speeches, and invention disclosures. In 
addition, where relevant, such disclosures should be made to potential 
research subjects as part of the informed consent process.
    Recommendation 14: NIH employees should be required to submit 
recusals in writing to immediate supervisors when a potential conflict 
of interest emerges. The supervisor should then be required to inform 
those who should be aware of the employee's need to be recused from the 
official duties for which there is a conflict. As is currently the 
case, when an employee must be recused from official duties, those 
duties can be reassigned only to someone at an organizational level 
above the employee. As such, recused employees or their supervisors 
will need to inform both superiors and affected subordinates of the 
recusal.
    Recommendation 15: The NIH Ethics Office should prepare a user-
friendly document and website that displays ethics rules in simple 
language and emphasizes examples of outside activities and financial 
interests that are permissible as well as those that are not. Employees 
seeking approval of outside activities should, as part of their 
submission of form 520 and its supplements, indicate in writing that 
they have reviewed these summary materials and have discussed any 
questions they have with their relevant ethics official and/or 
supervisor.
    Recommendation 16: The NIH Ethics Advisory Committee should issue a 
report of its findings, in the form of anonymous case studies and 
generalizable principles, on a regular basis to provide the NIH 
community with a clear common body of knowledge by which to understand 
and interpret ethics rules.
    Recommendation 17: NIH management should assure that sufficient 
resources are provided for the administrative and management functions 
of its ethics activities to guarantee that the expanded program 
proposed in this report can be implemented.
    Recommendation 18: While the Panel has not addressed the 
application of Title 42 to the hiring and compensation of senior 
scientific staff, it is clear that some such hiring and compensation 
authority needs to be applicable to this group of employees if NIH is 
to remain competitive in the market for talent. In addition, the NIH 
Director should ask HHS to review and, if appropriate, raise the 
current annual salary capitation of $200,000 for the most senior Title 
42 employees at NIH. The Panel is concerned that the present ceiling is 
limiting the agency's ability to recruit and retain the nation's best 
scientists as the leaders of NIH.
    Mr. Chairman, since our report is not unduly long and contains 
substantiation for these recommendation, we would like, with the 
committee's permission, to have it considered for inclusion in the 
record as an attachment to this statement.
    Among the more significant changes these recommendations, if 
implemented, would impose are:

 Senior NIH officials would not be permitted to engage in paid 
        consulting with biotechnology or pharmaceutical companies or 
        academic institutions.
 In instances where paid consulting is permitted (i.e., no conflicts 
        of interest exist), such activity would be subject to a 400 
        hour annual limitation and a compensation cap of 50 percent of 
        the individual's annual base salary, with no more than 25 
        percent being derived from any one source.
 The number of individuals filing disclosures, both public and 
        private, would be increased, and all work products would bear a 
        disclosure statement indicating related financial interests or 
        activities of the researcher(s).
 Compensation for outside work in the form of equity would be 
        (prospectively) prohibited.
 Scientists, where no conflicts exist, would be encouraged, not 
        discouraged, in participating in outside activities which are 
        innate to the workings of the scientific community at large. 
        Thus, scientists would be permitted to receive outside 
        compensation for speaking or writing about their work without 
        having to wait one year after that work has been completed and 
        published.
 The salary ceiling for employees hired under Title 42 authority would 
        be increased to an extent which would assure that the NIH is 
        competitive in the marketplace for world-class scientists and 
        managers of science.
    In arriving at its findings and recommendations, the panel noted 
that for virtually every policy it could conceive it could also 
identify extraordinary circumstances under which the application of 
that policy would be counterproductive to the accomplishment of the NIH 
mission. For this reason, it is important that, within the constraint 
of applicable laws, the NIH Director be granted the authority to make 
carefully considered exceptions when deemed appropriate.
    In conclusion, the Panel believes that the recommendations 
presented in our report can correct many of the concerns that have in 
the past been expressed about conflict of interest practices at NIH. We 
urge that the recommendations be adopted as quickly as possible. This 
is needed to assure the continued, deserved public confidence in the 
extraordinary work of NIH, to enhance the continued quality of the 
scientific staff at NIH, and to rectify what the Panel perceives to be 
a growing morale problem among an excellent NIH staff.
    Thank you, and we would be pleased to answer your questions.

         NIH Blue Ribbon Panel on Conflict of Interest Policies
     a working group of the advisory committee to the director, nih
                                 roster
Bruce Alberts, Ph.D. (Co-Chair), President, National Academy of 
        Sciences, Washington, DC
Norman R. Augustine (Co-Chair), Chairman, Executive Committee, Lockheed 
        Martin Corporation, Bethesda, Maryland
Christine Cassel, M.D., President, American Board of Internal Medicine, 
        Philadelphia, Pennsylvania
Thomas H. Murray, Ph.D., President, The Hastings Center, Garrison, New 
        York
Phillip Pizzo, M.D., Dean, School of Medicine, Stanford University, 
        Stanford, California
The Honorable Stephen D. Potts, Chairman, ERC Fellows Program, Ethics 
        Resource Center, Washington, D.C.
Dorothy Robinson, Esq., Vice President and General Counsel, Yale 
        University, New Haven, Connecticut
Lawrence Sadwin, President, Lifestyle Security, L.L.C., Warren, Rhode 
        Island
James Siedow, Ph.D., Vice Provost for Research and Professor of 
        Biology, Duke University, Durham, North Carolina
Reed V. Tuckerson, M.D., Senior Vice President, Consumer Health & 
        Medical Care Advancement, UnitedHealth Group, Minnetonka, 
        Minnesota

    Mr. Greenwood. We thank you, both Dr. Augustine, Dr. 
Alberts.
    And the Chair would recognize for questioning the chairman 
of the full committee, the gentleman from Texas Mr. Barton.
    Chairman Barton. Thank you, Mr. Chairman. I appreciate the 
courtesy. I have got a hearing downstairs, too, on a 
telecommunications issue. So I appreciate be able to go out of 
turn.
    Dr. Zerhouni, I am told that in the last 5 years there have 
been about 1500 agreements covering over 500 of NIH employees 
that cover some sort of outside consulting or compensation 
agreement with someone who has business with the NIH. Does that 
number seem approximately correct to you?
    Mr. Zerhouni. I agree with your 1500 and 500 employee over 
5 years. All outside activities that we were able to record. I 
am not sure that all of them had relationships with people that 
had business with the agency.
    Chairman Barton. Okay.
    Mr. Zerhouni. I am not sure of that.
    Chairman Barton. Some sort of an agreement, maybe not a 
business relationship?
    Mr. Zerhouni. Right. It may be all kinds of agreements, and 
we have reported that in detail to the committee.
    Chairman Barton. Okay. With some sort of a drug company or 
a biotech company?
    Mr. Zerhouni. Some of them would have relationship with 
drug companies, but not necessarily that the drug company had 
business with NIH.
    Chairman Barton. Okay.
    Mr. Zerhouni. If the company has official business with 
that scientist, our current rules prohibit outside activities 
in that context.
    Chairman Barton. Okay.
    Mr. Zerhouni. Okay.
    Chairman Barton. Well, just as an example, this is a 
director who is no longer with the agency. I will not list the 
gentleman's name. But while he was a director of NIH, just as 
an example, this particular individual, director of the 
institute, he served on the board of directors of a private 
company, a biotech company and held one-half of the stock 
equity in that company. So I would think that was some sort of 
relationship. Now that gentleman is no longer with us. No 
longer with the NIH I should say. He is still alive and 
healthy.
    On December 8 the committee staff sent a request to NIH 
that asked for details on all these agreements covering 5 
years. And a funny thing happened. Apparently a lot of those 
agreements that were in effect were terminated on the date of 
the letter. We don't know the exact number, but it could be as 
many as half of the agreements just coincidentally all of a 
sudden were terminated. Does that strike you as a little bit 
odd?
    Mr. Zerhouni. Well, first of all, I think the relationship 
that you pointed out first with the Director, I think should be 
off limits. I said that the very first time. I consider stock 
ownership, fiduciary duties in an outside entity when you have 
a responsibility, that should be off limits. And I think the 
rules address that.
    The second about the numbers. At the time of the December 8 
subcommittee request we recorded about 228 agreements at that 
time--no, 228 scientists involved in about 300 agreements. Now 
do not hold me to the numbers. Then I requested, I said if you 
want to continue you have to put a hold on all your agreements 
and come to the newly formed--the one that I formed in 
November--the NIH Ethics Advisory Committee. In that process, 
two of the directors that had been reported in the L.A. Times 
out of the 27 directors we have, the two that were involved, 
terminated their agreements. And as we requested, the review--
the uncertainty I think and perhaps what you are, I think, 
alluding to that perhaps some scientists were not so happy or 
were not so comfortable with this being reviewed by an 
independent panel. It says two things.
    One, the system failed and two, the new system is sending a 
message that if you want something at NIH, you are going to 
come to an independent panel that is not related to your 
institute or your ethic's advisor, it is in the Director's 
office and you had better be sure about what you are doing 
before you come forward.
    So you can look at it two ways, Mr. Chairman.
    Chairman Barton. Is it also true that when you talked 
earlier in your oral testimony that there is some things that 
you do not have the authority to require that, that there is 
some Privacy rules that apparently apply to the entire 
government that overrule your ability to get information, but 
when you request legal opinion from the Office of General 
Counsel at HHS--I do not want to put words in your mouth. But 
did the Office of General Counsel encourage you to find a way 
to encourage your agency to cooperate with this committee or 
did the Office of General Counsel at HHH encourage you to find 
a way to not cooperate? Put that in your own words.
    Mr. Zerhouni. Right.
    Let me just says this, that my instructions to my staff and 
my interactions with the Office of General Counsel, reflected a 
desire to find every possible way to cooperate. And if there 
is, and you mentioned the cooperation----
    Chairman Barton. I want to make sure.
    Mr. Zerhouni. Right.
    Chairman Barton. You said the Office of General Counsel 
told you to find every way to cooperate?
    Mr. Zerhouni. No, I said that.
    Chairman Barton. Oh, you said that.
    Mr. Zerhouni. I said that. I said please----
    Chairman Barton. I did not ask what you said. I want to 
know what their attitude was when you asked them for----
    Mr. Zerhouni. The first event was that NIH could not change 
its rule without new regulations. That was the advice we 
received. That is why we created this NIH advisory committee.
    After the December 7 media reports, we did a full analyses 
of exactly what happened in 1995. The Office of Government 
Ethics at the time had set some rules.
    When we were asked to provide the information you needed, 
Chairman Greenwood called me because we did not have the 
compensation amounts. So I immediately said, well, frankly we 
need to have them. I do not have----
    Chairman Barton. But apparently those are not required 
under current regulation----
    Mr. Zerhouni. They are not required under government----
    Chairman Barton. [continuing] and so we have no clue what 
some of these people are being compensated for.
    Mr. Zerhouni. But, Mr. Chairman, I would like to point out 
this is not an NIH specific issue. This is Government Ethics 
1993. And I think you will have the acting director of OGE and 
you will ask. I can assure you, this was not an option of NIH. 
In 1998 we requested that that disclosure be made so that we 
could have more disclosure.
    Chairman Barton. Well, let me ask, has it to your personal 
knowledge at anytime has NIH been able and actually request and 
receive compensation figures from individuals who have outside 
arrangements that result in financial enumeration or stock 
enumeration? Have you ever asked for and been able to receive 
that? Not you, but I mean NIH?
    Mr. Zerhouni. To my knowledge between 1995 and now, I do 
not think so. I do not know before 1995, Mr. Chairman. I will 
check and let you know.
    Chairman Barton. Could you find that out?
    Mr. Zerhouni. I will find that out for you.
    Chairman Barton. Okay. Well, my time is getting close to 
expiring.
    If you were to make a recommendation to the Office of 
General Counsel at HHS to testify before this subcommittee 
voluntarily, what would you recommend?
    Mr. Zerhouni. That they should.
    Chairman Barton. Are you aware that we asked them and that 
particular individual said no.
    Mr. Zerhouni. No, I am not. I am not aware of that.
    Chairman Barton. Do you think that shows an attitude of 
cooperating or noncooperating with this committee?
    Mr. Zerhouni. I cannot comment, Mr. Chairman, on what they 
decide. I was not aware of that.
    Chairman Barton. Because it is no, does that indicate 
cooperation? You came.
    Mr. Zerhouni. And I will come again.
    Chairman Barton. Yes. I would say you are cooperating.
    Mr. Zerhouni. I will cooperate to the greatest extent I 
can, and I think we should all do that.
    Chairman Barton. All right.
    I could go, Mr. Chairman, but I am going to excuse myself 
to go downstairs. But I want this panel to understand this is 
the first hearing and NIH, to some extent, is the first agency. 
But this will not the last hearing and this will not be the 
last agency. We are going to have accountability.
    This committee is going to reestablish the oversight 
responsibility that former Chairman John Dingell was noted for, 
and we are going to do it on a bipartisan basis. And I would 
encourage you to encourage the people in your agency that if we 
ask for information, they can do it voluntarily or 
involuntarily, but they will do it. We are going to get to get 
to the bottom of this.
    And with that, I would yield back to the distinguished 
subcommittee chairman.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes for 10 minutes for purposes of inquiry, the 
gentleman from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman.
    Dr. Zerhouni and the other panelists, I have been thinking 
about something for a few days, which is of course the Blue 
Ribbon panel recommendations. And the whole idea, the premise 
you all seem to be coming from now is that we really should not 
eliminate this outside income and payment, so instead what we 
should try to do is have transparency. And I frankly, I will be 
honest like the Chairman, have some questions about that 
fundamental premise.
    Dr. Zerhouni, you said that a blanket prohibition might not 
be the most satisfying thing to do because scientists need to 
interact with others and outside groups in order to do their 
work. Would that be a fair summary of your statement, Doctor?
    Mr. Zerhouni. I said a blanket prohibition would be the 
easiest.
    Ms. DeGette. Right.
    Mr. Zerhouni. And most superficially satisfying. But I 
think if you look into it more, remember NIH has two functions. 
One is to do the research in its own laboratories and then 
granting.
    Ms. DeGette. But the button line is you feel that these 
scientists need to interact----
    Mr. Zerhouni. Right.
    Ms. DeGette. [continuing] with outside groups and industry 
to do their research, right?
    Mr. Zerhouni. To enhance their ability to understand 
research and translate that research into real tangible 
benefits.
    Ms. DeGette. Okay. Right. Why do they have to be paid large 
amounts of money to have that interaction.
    Mr. Zerhouni. Okay.
    Ms. DeGette. I mean, the money is not central to the 
interaction, right?
    Mr. Alberts. We looks into this. If you want to consult 
with industry, we were talking about that very seriously on the 
panel, you have to sign a confidentiality agreement with 
industry that you will not disclose their private information. 
If you are government employment doing it as an official duty, 
you are not allowed to sign any such agreement.
    So one of the things we explored could this contact with 
industry occur purely as unpaid official duty activity.
    Ms. DeGette. Right.
    Mr. Alberts. What we concluded was it wouldn't happen.
    Ms. DeGette. Why? Why.
    Mr. Alberts. Because industry would refuse it.
    Ms. DeGette. You mean industry just wants to force these 
people to take money for cooperating like this?
    Mr. Alberts. Well, you can only do----
    Ms. DeGette. You have the top research scientist in the 
country at NIH cooperating with private companies. And I would 
assume there is also a mutual confidentiality agreement that 
they will not disclose governmental proprietary information as 
well.
    Mr. Alberts. Of course. That's true, yes. That is right. We 
were told that industry will not----
    Ms. DeGette. Who told you that, Doctor?
    Mr. Alberts. Various witnesses. I cannot remember their 
names.
    Ms. DeGette. Would you supplement responses?
    Mr. Alberts. Legal people.
    Basically that if you are going to be on a scientific 
advisory board, for example, for a biotech company they will 
not have you do that as your official duty activity unpaid 
because you cannot--it is illegal for you to sign any 
confidentiality agreement that you will not reveal trade 
secrets that you learn in this relationship. So----
    Ms. DeGette. Okay. Doctor, could you supplement your 
answers with the names of the individuals who told you that it 
was illegal to----
    Mr. Alberts. We will submit that afterwards, yes. I cannot 
remember.
    Ms. DeGette. Thank you.
    Dr. Zerhouni, did you want to clarify that?
    Mr. Zerhouni. Basically when industry works with a 
government employee under official duty activity, essentially 
anything that is done within that work product, the employee 
cannot receive any compensation. The product of that 
interaction is owned in part by the government. So what 
industry wants is to have a scientist on his or own time, 
because you know, the rules are such that if you are doing this 
on your own time, the current government ethics rules say that 
this is your own work product. And that is why I think industry 
prefers to work with scientists on their own private----
    Ms. DeGette. I completely understand that.
    Mr. Zerhouni. Right.
    Ms. DeGette. That does not go to the issue of why they have 
to be paid large amounts of money to do that, sir.
    Mr. Zerhouni. The large amounts of money, I think we can 
give you the data since we have it. We have the current data--
--
    Ms. DeGette. I have some data right here that I am going to 
talk about in a minute.
    Mr. Zerhouni. Okay.
    Ms. DeGette. And I have some slides. But before we put 
those up, I would like to ask Dr. Augustine something. Because 
you something about it is hard to hire top tier scientists at 
the NIH without this compensation. Is that really what we are 
talking about. I mean, is that the unspoken message in this 
room that really the money we are paying these scientists, as 
the Chairman said, some of them--many of them are paid more 
than the Vice President of the United States. One of them made 
$290,000 on the government payroll last year. Is what we are 
really saying is we do not think we can hire these scientists 
unless we allow them to get private contracts for substantially 
more money? Is that really what we are saying, sir?
    Mr. Augustine. Well, you start out exactly where we were. 
With regard to compensation, the higher level scientists are 
clearly underpaid compared with their marketplace.
    Ms. DeGette. Right. But you know something? I am clearly 
underpaid compared to lawyers of my level of experience in the 
private market. I mean, people go into these jobs for public 
interest, not for the salary, I would assume. Is that not an 
assumption you thought of, too?
    Mr. Augustine. I was going to finish. I would respectfully 
submit that these people are within their marketplace, the 
academic community, they are significantly underpaid. We also 
found that that probably is not the principal driver in this 
issue. The principal driver we found was their desire to be 
treated as other members of the academic community who are 
permitted to do consulting, who are permitted to interact with 
industry and have this two way exchange.
    The difficulty, if I could take a moment, as I understand 
it is that if they do this as an official duty--let me back up. 
If they do consulting with a firm, the firm obviously wants a 
confidentiality statement. You are not allowed to sign that if 
you are on official duty. Furthermore, if you are on official 
duty, you are not allowed to give preference to a single 
company. It would be unfair.
    Ms. DeGette. Right. I understand those are the rules. And I 
am sorry to be rushing. I only have 10 minutes to question.
    And I understand all of those concerns. But one thing we 
have found, and I know we are going to have more 
investigations, is that some of the payments that are being 
made by these private companies when the researchers are on 
their own time, aside from their NIH research, are 
disproportionate to the amount that people, say, at the 
University of Colorado Health Sciences Center are being paid, 
because they are the NIH and they do control big grants. In 
other words, you know, the payments they are getting may not be 
in not direct correlation to the actual work you are doing. Do 
you share that concern, Doctor?
    Mr. Augustine. We do.
    Ms. DeGette. I would think so.
    Mr. Augustine. The reason we put on the limit on as to the 
amount they could receive was exactly that consideration. But 
it should also be noted that these people that are allowed to 
consult under our recommendation are not involved in making 
grants. They have nothing to do with grant making.
    Ms. DeGette. Well, I understand that. But that may not be 
what some of the private companies are thinking.
    Here is why I am concerned. If we can show slide No. 1, we 
have some slides here to talk about the extent--now these are 
individuals. And I think these are in your notebooks, too. Are 
they in the notebooks? No, they are not in the notebooks. We 
will hand you a copy of it.
    These are agreements that have been authorized under NIH 
procedures. I think some of these may be unauthorized under the 
new procedures Dr. Zerhouni is talking about and the Blue 
Ribbon panel, however those rules have not yet been enacted. So 
these financial agreements could happen right now.
    The first one is Michael Brownstein who is the Chief of 
NIMH Genetic Lab. He has received almost $2 million from four 
biotech firms. In each case, he is either a member of the board 
or the scientific advisory board or both.
    Here is my question: How can the public be assured that 
nothing he knows from his work at NIH, nothing he learns about 
the projects of competitors of these firms from his work at NIH 
or any subject involving his work at NIH will not be brought up 
at these meetings? Anybody have any idea? How do we know 
because he is making all this money from four biotech firms 
that there is not going to be any kind of crossover? Doctor----
    Mr. Augustine. Well, you raised the concern we had, namely 
that we place a limit on what they can take and we ruled out 
stock.
    Ms. DeGette. But, Doctor, you have recommended a limit. 
That limit has not been enacted.
    Mr. Augustine. Well, we recommended it about a week ago.
    Ms. DeGette. Right. Okay. Yes, last week.
    Mr. Augustine. Hopefully, it will be.
    Ms. DeGette. With this hearing coming up this week.
    Well, let me ask you a question Dr. Zerhouni. What do you 
think Michael Brownstein is thinking about in the shower? 
Seriously, that is what you all said the standard is.
    Mr. Zerhouni. Well, I think that, and again I said that 
publicly before the Blue Ribbon panel, I say it again. I think 
people have stock, stock ownership, board positions in private 
entities, I do not think that should happen for senior 
officials. Even, I mean for anybody. I mean we are prohibiting 
that for everybody.
    Ms. DeGette. Is that part of the rules you are enacting?
    Mr. Zerhouni. Yes.
    Ms. DeGette. And when do you intend to enact those rules?
    Mr. Zerhouni. ASAP. As soon as I can.
    Ms. DeGette. Okay. Let us take a look at slide No. 2. This 
is about consulting arrangements between NIH employees and drug 
and biotech firms. This is Dr. Germain, who is the Deputy Chief 
of Lymphoma Bio Section of the NIAID. Now, he is receiving 
$430,000 roughly, a little more, plus stock of an unspecified 
value from seven different companies. Even if there is no 
actual conflict, and it sure looks like there might be to me 
because apparently all he stated on his ethics forms is he is a 
consultant to these firms, how do we know that he has time to 
do his work and manage his section?
    Mr. Alberts. Okay. That is the----
    Mr. Zerhouni. First of all, I think that Dr. Germain was 
the object of the media reports, so we looked very carefully at 
that.
    Fundamentally what we have looked at is this conflict of 
commitment, how much time do you really spend on these things 
within your own time as a scientist. It turns out that if you 
look carefully at Dr. Germain these are long--I mean this total 
for example that you are reporting is for over 10 years. So 
that what you really need to look at is not just the ethics 
consideration, and this is why we think we need independent 
peer review for every one of these agreements and this is what 
the new system is doing.
    Ms. DeGette. Okay. Just one last question. And first of all 
it is over 4 years, not 10 years at least in this slide. But 
second, and this is my question, the Blue Ribbon panel 
recommendation is $100,000 compensation and no more than 400 
hours per year. That adds up to an 8-hour day every week of the 
year. I want to ask all of you, do you think that is reasonable 
for our research scientist at a place like NIH who are well 
compensated compared to other people who are in the public 
service, do you think one work day, or I guess Saturday, every 
week would be a reasonable amount of time for these people to 
be spending on outside activities?
    Mr. Alberts. That is basically the academic standard. Most 
universities allow that kind of effort.
    Ms. DeGette. So your answer is yes?
    Mr. Alberts. That is the limit. And I was at Princeton for 
10 years, we were allowed this. But not on Princeton time, but 
we were allowed to spend as much as 1 day a week on outside 
activities.
    Ms. DeGette. But Dr. Augustine, when you were over at 
Lockheed Martin--you were at Lockheed Martin, right?
    Mr. Augustine. I retired.
    Ms. DeGette. Did they let the people their researchers take 
1 day a week for outside activities?
    Mr. Augustine. We would not.
    Ms. DeGette. Thank you.
    Mr. Greenwood. I just want to follow up on that. I just 
want to understand something before I get into my inquires 
here.
    One day a week for outside activities, does that leave 4 
days a week for the NIH?
    Mr. Augustine. Extra days.
    Mr. Zerhouni. Extra days. On their own time.
    Mr. Greenwood. That seems that they have 5 days a week that 
they are giving to us, of course.
    Mr. Zerhouni. Yes.
    Mr. Greenwood. And how do they account for that?
    Mr. Alberts. It depends. In universities they have to 
account in different ways depending on the university.
    Mr. Greenwood. Did you recommend that there be an 
accounting process so that when I take that day, I----
    Mr. Zerhouni. Right. And that is what I refer to in my 
fourth opening statement about the need for monitoring and 
oversight. In other words, the system as it stands today, Mr. 
Chairman, I could not tell you that I know for sure Dr. X is 
spending so many hours doing whatever they do. But I know for a 
fact that you can manage that if you have a data base that's 
managed centrally where you have the requisite review not of 
what the scientist says, but of the original documents that say 
you should work 1 day a week at this place or that place so you 
can accumulate them in one place.
    Universities have done that. I came from a university that 
implemented such a system. And I think you can do it if you 
really centralize it.
    Mr. Greenwood. I have questions. I mean, there are a lot of 
questions that that raises. When I talk about the swivel chair, 
I am talking about somebody sitting at a desk and saying okay, 
Doctor, you have a call from XYZ company. He takes the call or 
he cannot take the call and he calls later on an NIH phone and 
spends 2 hours. Is that a system to account for all of that?
    Mr. Zerhouni. Mr. Chairman, I would sleep so much better if 
I just gave you what you want, what you are expressing, which 
is total separation firewall between the Federal agency and the 
private sector.
    Mr. Greenwood. I think there needs to be.
    Mr. Zerhouni. You know, and that would be much easier to 
do, much easier to--but having been myself a scientist at 
managing a university--Lockheed Martin is not a university. And 
I think we need to really look at that carefully and make a 
decision. But, frankly, I would be where you are if I had my 
full drothers, make my life easier.
    Mr. Greenwood. All right. Let me pose another question to 
you. Today's Los Angeles Times reports that internal documents 
show that the Blue Ribbon panel was concerned about how little 
is known about the extent of financial ties between drug 
companies and NIH personnel. According to minutes of a closed 
door meeting early in April of that Blue Ribbon panel, the 
panel was ``was surprised to learn that many people do not 
disclose at all. The panel thinks there needs to be an internal 
review that picks up significant financial interests.''
    The question is, I guess I should address this to Drs. 
Alberts and Augustine, do these minutes reflect the fact that 
many NIH employees are not disclosing their outside consulting 
even to their institutes to get approval?
    Mr. Augustine. Yes, and I will begin if you look.
    We were concerned. There are two basic mechanisms for 
disclosure at NIH that you are aware of that really apply to 
the government as a whole. One has private disclosure within 
the agency, the other is more public disclosure.
    With regard to the former, which is the form 450, only 
people who are specifically prescribed to submit that form have 
to submit it. There is not a blanket group that has to submit. 
And so we were concerned that there are a large number of 
people that do not submit at all, and they comply with the 
rules as they are written today.
    With regard to the latter form, the 278, the public 
disclosure form you have already heard this problem with the 
artifact of the interpretation of the legislation denies the 
NIH leadership the ability to compel people to file. And that 
we recommended be changed or at least the interim steps be 
taken of the type that Dr. Zerhouni has already taken to cause 
more people to have to file public disclosures.
    The bottom line is that they are basically complying with 
the rules as they are written, but they need much more latitude 
to have more people disclose both publicly and privately.
    Mr. Greenwood. And we are disclosing: (a) the fact that 
they have a private consulting arrangement or; (b) the income 
derived therefrom?
    Mr. Alberts. I think this needs some clarification. There 
is yet another form, 520. So the outside activities require 
review process in the form of filing the form 520 for any new 
outside activity, and every employee as far as I know has gone 
through that process. So outside activities are covered.
    What we were talking about in our panel was well suppose a 
researcher inherited $10 million worth of Merck stock and held 
it and was doing something that might effect his or her 
activities, bias them by that holding. Well, there was no way 
unless that person was filing a form 450 for the NIH to know 
about that holding. And so what this recommendation that I 
talked about, recommendation ten, focused exactly on this 
issue. We think the NIH must know the financial holdings that 
might be relevant as well as the outside activities.
    They do know about the outside activities because of form 
520. 450 deals with the financial interests, and we are not 
sure that OGE will actually allow enough 450 filers. So we 
recommend if they do not, then find some other way to get the 
information.
    Mr. Greenwood. Well, OGE ultimately is going to follow the 
laws and the committee is going to help the rest.
    Mr. Alberts. Yes, of course. We encourage that.
    Mr. Greenwood. But let me understand one other issue here. 
There are two ways to gather information of this kind. One is 
to say if you are engaged in this activity or if you own these 
stocks, then you need to submit a form.
    Mr. Alberts. Yes.
    Mr. Greenwood. The other one is to say everybody needs to 
submit a firm. And you either affirmatively declare these 
things----
    Mr. Alberts. Yes.
    Mr. Greenwood. [continuing] or you declare that you have no 
such entanglements.
    Mr. Alberts. The latter would be our recommendation.
    Mr. Greenwood. And the latter is your recommendation?
    Mr. Alberts. Yes.
    Mr. Greenwood. Okay. All right.
    What is the factual basis for your statement that there are 
``approximately 120 of NIH's employees currently involved in 
consulting agreements?'' How reliable is that statement?
    Mr. Alberts. It was mentioned, we had an extensive 
interaction with NIH staff to get information. And as you can 
see from the report, we started from zero knowing about any of 
these things except for a few people. Steven Potts who is the 
former Director of OGE understood these things, but most of us 
for the first time ever encountered all this complex set of 
forms and regulations.
    And so in preparing our report, we relied on request for 
information back and forth to NIH staff to give us the 
information. That was one of the specific requests we made, and 
that was the number we got back from----
    Mr. Greenwood. So that was 120 employees affirmatively 
said, yes, I am doing that?
    Mr. Alberts. That was for the NIH data base. We did not 
contact the employees directly, we asked the NIH what they 
knew.
    Mr. Greenwood. And when you say 120 employees have these 
arrangements, that is a minute in time?
    Mr. Alberts. That is a minute in time.
    Mr. Greenwood. Right. So it could be that the next day, 40 
more start consulting agreements. What is your sense of over 
the course of a year how many employees at NIH are involved in 
these consulting arrangements.
    Mr. Augustine. Mr. Chairman, we were told that there were 
118 employees in March of 2004; that's the moment in time, 
involving 196 different activities. We were told that that 
number is probably suppressed because of the attention that has 
been given to the issue at this time. It could be higher or 
lower.
    We do not have a projection for the future, but it was 
higher in the past.
    Mr. Greenwood. Well, did you consider asking for 
information as to the state of affairs 6 months previously or a 
year previously so that you would nullify this suppressing 
effect?
    Mr. Augustine. I do not have the specific data with me. I 
would be glad to provide it for the record, if possible.
    Mr. Greenwood. After reviewing the spreadsheet of 
consulting agreements data and the accompanying documentation, 
the committee staff found at least 90 instances where a 
consulting agreement appears on an employee's financial 
disclosure form, yet did not appear on the spreadsheet which 
was supposed to contain a comprehensive list of all agreements. 
Does the Blue Ribbon panel have any reason to believe that not 
all consulting agreements have been and are being disclosed to 
the agency? How can you be ceratin that all employees are 
making full disclosure?
    Mr. Augustine. I believe that the answer to that is that 
you have to depend upon the employees to comply with the rules. 
And I think one failing probably has been that the rules have 
not been adequately explained and understood by the employees. 
In addition, it is probably appropriate to conduct spot checks 
to be sure that the compliance is there.
    Mr. Greenwood. In my first question I referred to today's 
L.A. Times story and there was a quote that was taken from 
minutes according to the L.A. Times. And that was the quote 
that I read that says that the panel was ``was surprised to 
learn that many people do not disclose at all'' etcetera.
    The NIH provided the committee the minutes of the panel's 
closed sessions and the staff did not find any such quotes in 
the minutes. Are there draft meeting minutes that the NIH has 
not provided to the committee?
    Mr. Zerhouni. I can check into that.
    Mr. Greenwood. Either we did not get that or the L.A. Times 
made it up.
    Mr. Zerhouni. I do not know, but I can shed some light to 
that. After the article I asked Dr. Kington our Deputy where 
did that come from. And emails were the source of that, not 
minutes to my knowledge.
    Mr. Greenwood. So when the L.A. Times says that these were 
from minutes of a closed door meeting in April, you are saying 
that that is not the case. That they were from----
    Mr. Zerhouni. Mr. Chairman, give me some time to look into 
that. Because this happened this morning. I really cannot--but 
I will follow up with you and tell you what our best guess is 
where that information is from.
    Mr. Greenwood. In the same L.A. Times article today it is 
reported that the Deputy Director Raynard Kington wrote in an 
email that he feared the panel members did not understand 
``that there is not a bright line'' between those involved with 
intramural research and those involved with outside extramural 
research. Kington also wrote ``I think, and I think many 
outside people would agree, that our IM, intramural scientists, 
should not consult with universities and other institutions 
that are funded by us,'' Kington added.
    Dr. Zerhouni, do you agree with Dr. Kington?
    Mr. Zerhouni. I asked Dr. Kington to see if he had the 
email, and again I have the email here. I would be happy to 
give it to you.
    If you look at the discussion that went back and forth, you 
will see that the context of the quote and the context of the 
email are a little different. That Dr. Gottesman was talking 
about teaching writing and academic activities. Dr. Kington was 
talking about having influence over granting mechanism. And you 
can see through the email the conversation.
    I think it is healthy to have good debate about these 
issues, but I think that is the source, and I would be happy to 
give you the copy of the email I have, Mr. Chairman.
    Mr. Greenwood. Yes, we will ask you to submit that email 
for the record.
    My time has expired. And the gentleman from Maine, Mr. 
Allen is recognized is for 10 minutes.
    Mr. Allen. I thank you. Thank you all for being here.
    And, Mr. Chairman, I thank you very much for holding this 
particular hearing.
    I did not hear all that you said at the beginning, so I 
want to make sure I am understanding where you are recommending 
we go. I take Dr. Zerhouni's point about an academic 
institution and the need for in academic institutions, most of 
the academics I know are doing something else on the side as 
well. But clearly this is an area of great concern because of 
the reputation of NIH, because of the function as an 
independent body doing research and yet in the private sector 
today it is pretty clear that the pharmaceutical and biotech 
industries are large, and certainly at least the pharmaceutical 
industry is very profitable and has these networks of 
relationships are being formed. And I think as Members of 
Congress we really have to be concerned about the issues that 
you are all dealing with today.
    But it sounds to me, correct me if I am wrong, there are 
different ways to go at this problem of whether or not there is 
a conflict of interest. And it sounds to me from what I picked 
up that one way is to have a review of the content of the 
agreement so we know what the agreement itself is.
    A second way would be to put some sort of cap on the amount 
of money that can be earned by any NIH employee.
    A third way is the amount of time that the employee could 
spend, and we have already discussed that.
    And a fourth way, which I do not think has been mentioned 
yet, is to really look at the nature of the outside entity, 
whatever corporate entity it is, whatever subsidiary 
relationships that it may have.
    So let me ask you about a few of those. The time spent, Dr. 
Zerhouni, I think you said the 400 hours a year is what is 
traditional in the academic world. Do you have any idea whether 
for NIH employees who are doing consulting today that 400 hours 
is what they do, I mean 400 hours a year is sort of typical of 
what many employees are doing so far or is it more or less? 
And, you know, are we really reining them in or not when it 
come to the hours they actually would do one form of consulting 
or another?
    Mr. Zerhouni. I do not have this information right in front 
of me, but my experience with that is that 90 percent probably 
spend 20-30 hours, 1 or 2 interactions. And then a small 
percentage may be at the 400 hours or more.
    So typically the percentage of individuals who have 
discoveries or real advances in science that would be of 
greater interest is very small in a university as well as a 
Federal agency.
    Mr. Allen. So a 400 hour a year restriction for NIH 
employees would be the kind of restriction that would only 
effect a few people today is what you are saying?
    Mr. Zerhouni. My sense would be that based on my experience 
people who have the opportunity to provide 400 hours are those 
who would typically have made a breakthrough discovery, know 
something that no one else knows, something like that. Well, 
you know that in a research institution it is not going to be 
100 percent of the people, but more like 10 percent or 15 
percent of the people. But that is my guess, and I can 
certainly look it up for you.
    Mr. Allen. When it comes to the review of the content of 
the agreement, I am a little bit curious about is that going to 
be done by independent panel or the NIH Ethics Advisory 
Committee, is that going to be involved in doing a sort of peer 
review of agreements?
    Mr. Zerhouni. That is the idea. It should be done 
independently by individuals who are not in the reporting 
relationship to the person who is requesting this and are 
directly reporting to the director of the agency, so that you 
do not have a conflict there.
    Mr. Allen. Do you expect the committee to meet on a regular 
basis? And if so, will it make its judgments as a committee and 
not as individuals? I mean, how----
    Mr. Zerhouni. The committee will meet on a regular basis. 
It is managed by the Deputy Director of NIH, Dr. Kington, and 
will make its recommendation on a regular basis as well as 
keeping a case history of every single case that comes to their 
attention so that we can over time identify patterns if we need 
to.
    Mr. Allen. Okay. I would like if we have time to put up 
some slides. Slide A dealing with Pfizer. You have that?
    This is one slide that basically looks at some of the more 
prominent drug and biotech companies that are currently paying 
NIH employees. I wanted first to note that really only Abbott 
Labs and Schering Plough cooperated with Mr. Waxman and Mr. 
Brown. But we got information on the other firms.
    This one dealt with Pfizer.
    Just looking at this, you cannot see that, but Mr. Brewer 
the chief the molecular disease branch, Dr. Brewer, is 
receiving $19,000 a year in 2001, $16,500 in 2002, $20,000 in 
2003 and $18,000 a year fee for the future.
    I mean, my understanding, correct me if I am wrong, is that 
the recommendation in the report is that people would be--I 
mean employees would be limited to earning no more than 50 
percent of their current income per year outside. Is that a 
restriction that is going to have a material bearing on many of 
the people who are currently NIH employees or is it a 
restriction that will effect only a tiny fraction of the 
current consultants?
    Anyway who would like to.
    Mr. Augustine. Mr. Allen, if I might respond. I think there 
is a fifth criterion on your list of four. I think the four 
were very good.
    The fifth one we felt has to do with responsibility of the 
individual at NIH. And so we would differ between a person in a 
leadership role, a person who is performing human subject work, 
a person who is overseeing an allocation of grants to the 
outside, and finally what I would call the bench scientist 
working entirely in the laboratory.
    And so I think the restrictions, the more important 
restriction rather than the dollar amount is that we would 
simply preclude those first few groups from having any outside 
consulting and it would only be the latter group that we would 
permit under our recommendation to have consulting. And only 
then when it did not pose a conflict of interest with ongoing 
work.
    Mr. Allen. I see. So the higher up the chain you go, the 
less you can do by way of outside consulting?
    Mr. Augustine. And at the upper levels the answer is one.
    Mr. Allen. None.
    Mr. Alberts. There is also the 25 percent from any one 
source restriction that we are recommending.
    Mr. Allen. Okay. Okay. But your position is that you think 
the 50 percent of income for those to whom it applies is a 
restriction that should deal with part of this particular 
problem, anyway?
    Mr. Augustine. I think we would characterize it much as Dr. 
Zerhouni did. I think it will not effect the average person. 
But the person who is trying to do something extreme, I think 
we have stopped them.
    Mr. Allen. Okay. Thank you.
    Let me just check one more slide here. Slide B for Wyeth, 
do you have that? Just calling your attention to a couple of 
the people.
    I mean, there you have--no, these are not broken out quite 
the same way. But Melissa Kitner Triolo, almost $120,000 over 3 
years. And Germain, the past is spread out, but the future 
$25,000 a year.
    I mean, those are numbers that you are comfortable with for 
people in their positions? Excuse me 1 second.
    I do not know where they are in the chain.
    Mr. Alberts. I do not either, so I cannot answer that 
question.
    Mr. Allen. Dr. Zerhouni, do you know where they are in the 
chain?
    Mr. Zerhouni. Yes. I mean, Dr. Germain is a laboratory 
chief. He's a chief of the biotech. So he is an intramural 
scientist.
    Mr. Allen. Yes.
    Mr. Zerhouni. Am I comfortable with them making $25,000 a 
year or half of their salary? The answer is yes, as long as it 
is completely reviewed, completely disclosed and that we 
understand the content of the relationship.
    Dr. Germain is a world class immunologist who invented, 
discovered many of the fundamentals of immune system response. 
He is basically in the Nobel Prize equivalent category. Many 
people want to talk to him about his knowledge of immunology.
    It is going to be the case that if you look at this, many 
of them are 2500 or 10 or 15; there is a relationship between 
the amount of activity and the importance of the research of 
that person, typically.
    Mr. Allen. Okay.
    Mr. Zerhouni. So that is where we need to cap. That is 
where we have to have clear rules of only so much.
    Mr. Allen. Thank you very much.
    I yield back.
    Mr. Greenwood. The Chair would announce that we face a 
series of four votes now. Dr. Zerhouni, I know that you need to 
be back at NIH to meet with the President. What time do you 
need to leave here, sir?
    Mr. Zerhouni. Right now.
    Mr. Greenwood. About now?
    Mr. Zerhouni. About now, Mr. Chairman.
    Mr. Greenwood. Pardon me?
    Mr. Zerhouni. About now, Mr. Chairman.
    Mr. Greenwood. About now. Okay.
    In that case, what we will do is we will recess for these 
votes. We will return in about a half an hour. Drs. Alberts and 
Augustine, I assume you can remain with us?
    Mr. Augustine. Yes.
    Mr. Greenwood. You will have time to grab some lunch. We 
will be back here as soon as the series of votes are over, 
which should be 30 minutes or so.
    And then, Dr. Zerhouni, we are probably going to ask you to 
come back at another time and drill you all over again.
    Mr. Zerhouni. Absolutely. I am sorry about the event today.
    Mr. Greenwood. So the committee will stand in recess until 
the series of votes is completed.
    [Brief recess.]
    Mr. Greenwood. Mr. Bilirakis for 10 minutes.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    Let me ask you gentlemen since the Director is not here, 
you heard him make his statement where he talked about 
reviewing and he had certain steps to try to address this 
problem, this situation and whatnot. I guess my question has to 
go with does he have the authority to do what is needed to be 
done, whatever he may decide? Does he have the authority?
    Mr. Augustine. Mr. Bilirakis, I think our answer to that 
would be that he does not have the total authority he needs. 
Part of it relates to his ability to compel additional people 
to file form 450, the private disclosure form. In addition, the 
interpretation of Title 42 is such that it makes it very 
difficult for him to compel people to file form 278, the public 
disclosure form. In each case there probably is a way around 
it, but in each case that way is cumbersome. And in the case of 
the form 278, he can file exceptions by positions, but it is a 
major undertaking. And every time you reorganize NIH, you would 
have to refile.
    Mr. Bilirakis. And apparently his lawyers advised him that 
he did not have the authority necessary, as I understand it.
    Mr. Augustine. Our sense has been very much that Dr. 
Zerhouni has tried mightily to comply with the rules as he 
understands them and the constraints that are placed on him, 
including the Privacy Act.
    Mr. Bilirakis. Well, he has told us the same thing about 
the allocation of research dollars to what disease and that 
sort of thing that he does not--I mean my impression is at 
least that he does not have the authority to do anything about 
that. So here he is a director and he is being held responsible 
for these particular acts that we are talking about and, you 
know, some of the other areas, apparently the allocation of the 
dollars and whatnot.
    But let me ask you then, should he have that authority?
    Mr. Augustine. The two specific authorities that I 
mentioned we believe he should have. And we tried to stand back 
and understand the context of the problem. And the issue, I 
think, begins with some years ago when there were 
dissimilarities throughout the government in conflict of 
interest rules. And there was a feeling that that was unfair to 
the employees and there should be more standardization. And as 
a result of that standardization, we do not reflect properly 
the uniqueness of the NIH. And I think the rules that are there 
or the intention was probably good, but they just do not apply 
very well to NIH's situation.
    Mr. Bilirakis. So, yes. And the staff just reminded me, 
certainly your people have spent an awful lot of time on your 
study and your recommendations and whatnot. So are we saying 
then that he does not have the authority to put all those into 
effect?
    Mr. Augustine. I think that some of the recommendations he 
would have to get relief from OGE and from HHS. Many of them he 
could put into place, and some he could put in temporary 
circumventions, if you will.
    Mr. Alberts. Could I also refer you to the letter that we 
submitted with our testimony that was addressed to Norman and I 
from Marilyn Glynn, who is the Acting Director of the Office of 
Government Ethics that deals directly with the transparency 
question and it would imply that he doesn't have some authority 
he needs.
    Mr. Bilirakis. Well, all right. You heard the Chairman say 
earlier that we want to certainly make every effort to 
reauthorize NIH. We have not done that in a long time. It 
hasn't, at least from a financial standpoint, adversely 
affected the working of NIH. Maybe in other areas it has, but 
the point of the matter is that it has continued to function 
and function relatively well. But we would like to think that 
we will reauthorize this year. It is a tough year. It is a 
tough year to reauthorize or legislate or anything. But 
hopefully we can work that out.
    So, I guess it is an opportunity I think to do a lot of 
things in reauthorization, and that Dr. Zerhouni previously in 
the hearing testified that he needed some congressional 
authority to be able to put his road map into effect. Somehow 
we are talking about in the other areas of authority here. So 
that being the case, we need your help. And you may have 
covered it in your recommendations, I do not know, but I do not 
think your recommendations have really gone into well the 
director has the authority for this, does not have authority 
for that.
    So we plead with you on behalf of the committee, I am sure 
the chairman would agree, that inputs from you in that regard 
would be very, very helpful. And, again, this year is fleeting 
with elections and that sort of thing, so sooner rather than 
later, obviously, in that regard. So there is an opportunity 
too, for you all to basically say hey, Congress this is what is 
needed.
    I said this, sort of tried to say it I guess in my opening 
statement, we do not want to do anything here to hurt the 
research effort. This entire hearing and some of these problems 
and whatnot, or potential problems, the perception as we have 
already indicated is awfully important. And so, you know, keep 
that in mind, too.
    I had a hearing yesterday that looked like it was kind of a 
clear cut hearing, and boy we found out that we conceivably 
could be doing an awful lot of harm without realizing it as a 
result of digging into things and listening to some of the 
testimony. So I think the same thing is true to here.
    And I hesitate to do this, but I guess I am--I am trying to 
figure out in my mind in the NIH, in this booklet--well, there 
are spreadsheets but they are not numbered, and that is the 
problem. They are not numbered. But toward the end we have the 
list of ongoing consulting arrangements for IC employees. I 
guess it would probably be page 4 if it were numbered.
    Mr. Augustine. I do not believe we have a copy.
    Mr. Bilirakis. All right. Let me just go over this with you 
and see if you can respond without having it before you.
    There is a William Paul. It is funny, but I have a good 
friend back home by that name, William Paul. And his brother is 
a staff member of mine. But it is not why I picked on this.
    But he is the laboratory chief. That is his position title. 
outside organization Suntory Pharmaceuticals Research Lab LLC, 
and then also Novartis Pharmaceutical AG Science Board. The 
former or biotech is Formac Pharmaceutical. The nature of 
activity, member. What does that mean, member? He is a member 
of those companies?
    Mr. Alberts. It means he is a member of the scientific 
advisory board of a corporation.
    Mr. Bilirakis. A corporation?
    Mr. Alberts. Yes. Yes. Novartis is a big pharmaceutical 
company and they obviously have a special board to advise them 
on science. And he--I do not know often they meet, but several 
times a year, at least.
    Mr. Bilirakis. Right. And that is against his being a 
consultant, right? Because a consultant also is on there but 
not in this particular case.
    Mr. Alberts. Yes. Norman could probably explain it better 
than I can.
    Mr. Augustine. Well, I think if he was paid to serve on a 
advisory board, we would group that basically as being a 
consultant, in our view.
    Mr. Bilirakis. Yes. Okay. Well, and really I want to make 
it public, no reflection on Mr. Paul. I mean a person, I hate 
to say innocent until proven guilty but this is not a criminal 
thing. But my point in the manner is that he has conducted 
himself in the way he should have ethically conducted himself 
unless proven to the contrary.
    Mr. Augustine. Yes.
    Mr. Bilirakis. And so I don't insinuate anything.
    What I am trying to understand here. He is a member or 
consultant with these two companies. His fee in one case from 
5/1/00 to present was $280,000. His fee in the other case with 
Novartis 2/1/01 to present fee is $100,000. And his travel 
here. And then it says future fee, in the first case $350,000, 
travel $8,000. And future fee in the Novartis case $120,000 
over 5 years, travel expenses $40,000.
    And, again, I am not saying there is anything wrong here. 
We Members of Congress are accused all the time by people that 
are well, you know, I have to live on $15,000 a year and you 
guys are making X amount of government money and you are 
overpaid. And we hear that all the time. And we are accused of 
getting campaign contributions, political action committee 
money or whatever the case may be. And in 22 years there I can 
think of one case when I had a Member of Congress said to me 
that he had looked when someone was making an appointment, he 
looked at the rooster to see if that person or that 
association--it would not have been an individual--would have 
contributed. So I understand. We are not here throwing stones.
    But can you tell me if you can, not whether this money is 
more than it should be, but what role could this person play? I 
mean he is a member, a consultant to these organizations. 
Pharmaceutical, he is also the laboratory chief. What could go 
wrong in terms of conflict, in terms of things that we are all 
concerned about?
    Mr. Alberts. I can answer that. First of all, I do know 
William Paul. He is a distinguished immunologist and a member 
of the National Academy of Science.
    Mr. Bilirakis. I am sure he is and I hope everybody will 
take it the right way.
    Mr. Alberts. He is a senior member of the National Academy 
of Sciences and internationally known leader in the field of 
immunology.
    According to the rules that allow him to do this, he cannot 
use any specific knowledge from his research at NIH in advising 
the corporation or whoever he is advising about science. He can 
only use his general knowledge of immunology. That is an 
important point. He is not allowed to take any of his official 
duty information and get compensated for it. And that, 
obviously, was cleared by the NIH review----
    Mr. Bilirakis. Yes, but how could----
    Mr. Alberts. So now what is he doing?
    Mr. Bilirakis. Yes, what is he doing? Who knows what kind 
of knowledge is----
    Mr. Alberts. Okay. so these companies are obviously trying 
to produce drugs that will either prevent auto-immune diseases 
or deal with bacterial and virus infections. And if you are 
doing that, this is actually my field of cell biology, it is 
very important to know and deeply understand how the immune 
system works. So I am quite sure he is there because he has a 
deep understanding, a broad understanding of all of the very 
complex molecular interactions that make the immune system 
work, and he brings that to the corporation in ways that they 
cannot otherwise get. Because their employees, presumably, are 
not as distinguished and do not know all the things that he 
knows. So that would be the general nature of what he would be 
doing there.
    He would hear from them what they are trying to develop and 
say well here is what I know from my field of immunology that 
would enable you to do it better or here is why it will not 
work. And so they go through different projects one at a time 
with the scientific advisory board and get scientific advice on 
what the best direction for them to go.
    Mr. Bilirakis. All right. But if he were not the person 
that you say he is and that I would assume he is, and wanted to 
misuse his position with the NIH on behalf of these companies 
who are compensating him pretty darn royalty, I would say, 
could he do so and basically who would find out about it, 
etcetera?
    Mr. Alberts. I suppose anybody could be dishonest. I do not 
think there is any way of monitoring that from the NIH side 
exactly what he says inside that room. You would have to rely 
on his integrity.
    You should ask the same question to Dr. Zerhouni when he is 
here.
    Mr. Bilirakis. Yes, I would have to. Of course, he is not 
here.
    Well, how much authority--could Dr. Zerhouni say, hey, no, 
you cannot do this?
    Mr. Alberts. Well, the NIH has all the authority to prevent 
any outside activity and it has the responsibility of 
preventing any outside activity that poses a possible conflict 
of interest. And that is why before anybody could do any of 
these outside activities, they must file a form 520. And every 
time they have any new activity, they must file that form. And 
we are recommending that even if nothing has changed, they must 
file it at least annually. that is the new recommendation.
    Mr. Bilirakis. Yes.
    Mr. Alberts. So they have the full authority to prevent him 
from doing that. They have to say yes before he could do that.
    Mr. Bilirakis. I guess my time is up, trying to interpret 
that clock up there. But would it be better that should we not 
be paying these people maybe more and not basically allowing 
things like this to take place? Because of the perception out 
there as far as Members of Congress are concerned, we have had 
to cut out honorariums and just so many of these things, gift 
laws, gift ban laws and things of that nature. There have been 
some changes to the campaign finance whatnot because of the 
concerns of perception and image.
    Mr. Alberts. Well, there is a perception problem. We are 
very worried about that. I do not actually know William Paul's 
responsibility at the NIH. If he has any responsibility for 
making funding decisions, then the answer is no according to 
us. If he has no such responsibilities, is purely a scientist, 
then we are recommending that he should be allowed to continue 
with the limitations. I mean, we have limitations. And I mean, 
he may be exceeding the limitations on income and hours; I do 
not know anything about that. But this would be generally 
allowed if it had no conflict in other standards; no stock 
options, no equities, not more than 25 percent of his income 
from one source, you know all those things.
    Mr. Bilirakis. In a number of these it does say stock. That 
means they have got stock options.
    Mr. Augustine. Yes. About one-fourth hold some kind of 
equity.
    Mr. Bilirakis. Well, on that I say wow very loudly.
    Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman, and he 
recognizes the gentlelady from Colorado for 10 minutes.
    Ms. DeGette. Thank you, Mr. Chairman.
    You had better watch out whenever Mr. Bilirakis says 
``wow'' very loudly.
    I want to go back to this example of Dr. Paul, not to pick 
on him because it is really just an example of what I think are 
some of the ethical issues folks are facing.
    He sits on the scientific advisory board of Novartis and 
other organizations. And I think what you testified, Dr. 
Alberts, is that he as part of his NIH duties, he can share his 
generalized scientific knowledge but not specific proprietary 
knowledge that he might have as a result of his activities at 
NIH, correct?
    Mr. Alberts. Right.
    Ms. DeGette. You need to say words.
    Mr. Alberts. Pardon?
    Ms. DeGette. You need to speak for the record. Say yes or 
no.
    Mr. Alberts. That is, if you are sharing knowledge as part 
of your job that you have developed in your laboratory----
    Ms. DeGette. Right. Yes or--I mean is that an accurate 
summary of your statement that I did?
    Mr. Alberts. That is right. That is accurate.
    Ms. DeGette. Okay. The concern I have is this: I do not 
have such a concern about someone like Dr. Paul being 
dishonest. My concern is, first of all, he is an expert in his 
field. How is he going to know as he is sitting there giving 
this information whether or not it is proprietary information 
of the NIH or not? I mean, if it is in his field of information 
and he is asked to reply on something, is that not a very, very 
fuzzy line?
    Mr. Alberts. Well, I would be in exactly the same position. 
I am not in exactly that field. But I could imagine myself in 
the same position.
    Ms. DeGette. Right.
    Mr. Alberts. And I could clearly distinguish what I had 
done in my own laboratory from general knowledge----
    Ms. DeGette. But what about knowledge that you had received 
from things you had done in your laboratory that then entered 
into your knowledge?
    Mr. Alberts. It is very hard to explain. But I could 
separate that personally.
    Ms. DeGette. Okay. But let me ask you a further question 
from that then. Let us say that Dr. Paul or someone else is 
sitting on one of these advisory boards, and let us say that 
Novartis or some other organization comes to them with an 
issue, a study they are going to do, and Dr. Paul has 
specialized knowledge of his work at NIH that would effect what 
Novartis was planning to do with that study, and maybe in a way 
that is detrimental to patients. Who is Dr. Paul's fiduciary 
and ethical responsibility to at that point? Is it to Novartis 
to give them the information he knows that might affect a 
patient study or is it to NIH?
    Mr. Alberts. It is to NIH. And this is why we----
    Ms. DeGette. Well, the what happens if Novartis goes 
forward with a study that might be detrimental----
    Mr. Alberts. Oh, I am sorry, I missed you. Detrimental, I 
see. I am sorry. You are saying prevent something bad from 
happening.
    Ms. DeGette. Right. Well, let us say that they're doing 
some kind of a human----
    Mr. Alberts. Well, if I was in that position and I was 
being very careful, I would say I think you need to talk 
somebody, I would recommend somebody else to talk to who knew 
the same thing.
    Ms. DeGette. But what if he is the one that knows it 
because he is the one that did the study at NIH? That is the 
problem with----
    Mr. Alberts. He would give somebody who actually knows it. 
Nobody in science who----
    Ms. DeGette. You can see why we are concerned about some of 
these ethical concepts.
    Mr. Alberts. Right.
    Ms. DeGette. I mean if you look at the L.A. Times series 
that we saw, why you have so many blurring of lines, correct?
    Mr. Alberts. Yes. But I am just saying that if I was in 
that position, I could like make my way out of that without 
preventing----
    Ms. DeGette. Do you have a 100 percent view that everyone 
else can figure that----
    Mr. Alberts. Of course not.
    Ms. DeGette. Of course not. Okay.
    Now, I want to talk about some more parts of the panel 
recommendations. I am not meaning to pick on you all. I think 
we are just really concerned this be clarified.
    In recommendation four of the Blue Ribbon panel the report 
states: ``A research clearly should not consult with a company 
that has applied for or received a research contract from the 
employee's own laboratory or branch.'' My question is should a 
researcher consult with a company that is a subsidiary of the 
company has applied for or received a research contract form 
the employee's own laboratory or branch?
    Mr. Augustine. I would view the subsidiary as being the 
parent company itself in that regard.
    Ms. DeGette. Okay. Should a researcher consult with a 
company that is partnered with a company that has applied for 
or received a research contract from the employee's own 
laboratory or branch?
    Mr. Augustine. If it is partnered on the specific issue at 
hand, the answer would be no. If it was a partner in the other 
area, the answer might be yes.
    Ms. DeGette. Why the distinction between a subsidiary and a 
different company that is partnered with it?
    Mr. Augustine. Well, a subsidiary would be owned by the 
company, whereas a partnership would be for a specific purpose. 
And you might have partnerships for different purposes and one 
purpose may have nothing to do with what this employee does.
    Ms. DeGette. Okay. That makes sense.
    Should a researcher consult with a company that has a 
direct financial interest in a company that has applied for or 
received a research contract from the employee's own laboratory 
or branch?
    Mr. Augustine. If I understand that question correctly, I 
think the answer would be no unless it was a de minimis issue.
    Ms. DeGette. Well, how would you know that?
    Mr. Alberts. I am not clear about the question.
    Ms. DeGette. But the question is let us say company A has a 
direct financial interest in company B but they are not a 
subsidiary, but they have got a big investment. And the 
employee has a contract with company B. Can they also have one 
with company A?
    Mr. Augustine. My answer would still be no the way you 
described it.
    Ms. DeGette. Okay. Now do ethics officers generally conduct 
background checks to identify subsidiary partner and/or shared 
interest companies?
    Mr. Augustine. I do not know the answer to that.
    Mr. Alberts. I do not know the answer either. But we heard 
that NIH wanted to make a extensive data base that would 
provide that information.
    Ms. DeGette. Right. Because here is the problem----
    Mr. Alberts. We heard people say that.
    Ms. DeGette. You do not know that, and it is hard to know. 
It would be hard for an ethics officer to find that out. But 
here is why it is important. You know from all of the publicity 
Dr. Katz, who were talking about, was consulting with AG 
Schering when his institute had dealings with Burlac which is a 
U.S. subsidiary of Schering, right?
    Mr. Augustine. Well, without addressing the specific case, 
which we did not do, clearly it is up to the individual who is 
doing the consulting to know who owns your company and who has 
interest in it.
    Ms. DeGette. Right. And in this case, Dr. Katz disclaimed 
knowledge that his institute was a subsidiary. So you can see 
how this would be a problem. And I guess my view would be what 
are we going to do about that?
    Mr. Alberts. I think that is a good question for Dr. 
Zerhouni.
    Dr. Katz would not be allowed to do any consulting in the 
new regulations that Dr. Zerhouni is supporting, because he is 
too high a level. But----
    Ms. DeGette. Well, okay.
    Mr. Alberts. But we were----
    Ms. DeGette. But let us take it somebody else. I mean, 
under your proposed regulations someone is going to have to 
figure out all of these relationships out.
    Mr. Augustine. Well, it is really up to the individual who 
wants to do the consulting to know----
    Ms. DeGette. But how are they going to know? Because, see, 
Dr. Augustine, you see what I am saying. Is like I am asking 
you, okay, can someone have these relationships and it is yes/
no, yes/no. But that is not in the recommendation. And who is 
going to educate these researchers about what they have to do?
    Mr. Augustine. Yes. I would draw the parallel to the SEC 
rules where you are expected to know who you are investing in. 
And there are enforcement procedures to run tests to make sure 
that you are being honest.
    Ms. DeGette. But these rules are not similar to the SEC 
rules in the sense we are talking about institutional 
researchers. I do not think you can draw those parallel at all, 
because a lot of the relationships they have people probably 
would not be able to have in the financial services industry 
without full disclosure.
    Mr. Augustine. I think the employer would go to the 
prospective firm that wanted to hire them as a consultant and 
say give me a list of the firms that you own or have financial 
interest in.
    Ms. DeGette. Okay. Maybe you could make that in your 
recommendations or maybe Dr. Zerhouni can put it in his 
rulemaking.
    Mr. Alberts. Yes. We did not get to that detail. We said 
the NIH should take care of this problem.
    Ms. DeGette. Well, it is a thorny problem and believe me, I 
will bring it up with him.
    Let me just ask about one more of your recommendations. 
Recommendation two suggests that the NIH intramural scientists 
should not be allowed to have any financial interests in or 
relationship with any company whose interest could be effected 
by their research or clinical trial ``except in special 
circumstances.''
    What types of special circumstances does this exception 
refer to?
    Mr. Augustine. Well, you picked a terrific example of the 
sort thing you struggled with. It seemed that for every policy 
we could prescribe, we ourselves could think of exceptions.
    Ms. DeGette. Right.
    Mr. Augustine. This is a great example. The example of the 
case where a medical researcher has developed a new technique 
that only that researcher has practiced or new instrument that 
only that researcher has learned to us, and to deny them 
participation in the trial would increase the risk of the 
trial. And so in our view there would be an exception in a case 
like that, but the exception would stipulate that there were 
special steps to be taken where others would monitor the work 
of this individual and further the patient would be informed.
    Ms. DeGette. Right. But the issue really is not the 
participation, it is the payment for the participation, right?
    Mr. Alberts. There is no payment here. These are people 
doing official duty work.
    Mr. Augustine. Yes.
    Ms. DeGette. Well this is called financial interest. Your 
recommendation two is financial.
    Mr. Alberts. I mean there is no payment. They are doing 
clinical trials at the NIH.
    Ms. DeGette. Right.
    Mr. Alberts. They must not have any outside financial 
interest that could effect them. And so if this is the inventor 
of the technique, they may have the patent for the technique.
    Ms. DeGette. Right.
    Mr. Alberts. There is no way you can get around that.
    And we strongly support----
    Ms. DeGette. But who is going to decide--my question was--
--
    Mr. Alberts. The director of the NIH has to decide.
    Ms. DeGette. Dr. Zerhouni is going to decide----
    Mr. Alberts. Well, eventually he has to.
    Ms. DeGette. Well, what do you mean ``eventually''?
    Mr. Alberts. Well, it goes to this special panel that he 
set up, NIH Ethics Advisory Committee. There is a new 
committee, a central committee which he spoke about. If they 
had any trouble, they would obviously bounce it to him.
    Ms. DeGette. What do you mean if they had any trouble?
    Mr. Alberts. The ultimate decisionmaking has to be him. If 
they thought it was ambiguous. You would have to ask them how 
they would actually do it, but let me just make the one point.
    The American Association of Medical Colleges put out a 
major report, I think about a year ago, which was a surprise to 
all--recommendations on exactly this issue, human subject 
research, which was a very thorough well done report.
    Ms. DeGette. Yes, I am aware of it. I work a lot in human 
subject research.
    Mr. Alberts. William Danforth was the Chair, I believe.
    At any rate, the panel in our report strongly supports that 
report and its recommendations, and for the NIH as well. And 
they have a specific set of procedures to be gone through in 
exactly this case, this kind of case with an oversight panel. 
And we would support exactly those recommendations. And we 
could submit those recommendations to the record, if you like?
    Ms. DeGette. I would love it.
    Mr. Alberts. Okay.
    Ms. DeGette. And, Mr. Chairman, let me just say, I am more 
confused now than when we started the day and I am really glad 
we are having a whole series of hearings on this. Because I 
think it is critically important to the research of this 
country, and I have a lot more questions.
    Thank you.
    Mr. Greenwood. The Chair thanks the gentlelady. And without 
objections, the slides presented by the gentlelady will be 
entered as part of the record.
    [The information referred to follows:]

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    Mr. Greenwood. And the Chair recognizes himself for 
purposes of inquiry.
    It seems to me, gentlemen, that I have identified two 
reasons why we need to be permitting NIH employees to have 
extra income, whether that income is pursuant to Title 42, 
whether that extra income is derived from consulting, whether 
it is from speaking fees and so forth. And one of them is 
retain and recruit good people, and the other is to advance the 
science because you do not necessarily want the NIH science to 
be insular, and there is a two way education streaks that 
occurs between the scientists and private sectorsphere, which 
is good for both. Good for America. Good for the patients that 
benefit from the cures that come from all of that shared 
knowledge.
    So let us look at recruitment and retention. The question 
is, does the NIH or the Blue Ribbon panel have any actual 
evidence that NIH scientists have left because of consulting 
fees being cut? Was such data requested by the panel? Was such 
data requested by the NIH? What I am trying to get it is sort 
of an undischarged assumption that if you do not provide these 
extra enumeration, that somehow we will lose quality people. 
How do we discharge that assumption? What is the evidence of 
that?
    Mr. Augustine. Well, we did not gather statistical data. I 
am not sure what is available. One reason we did not, is there 
are so many other factors that bear on people leaving and not 
leaving.
    We did in our conversations that I mentioned that we had 
with each of the center and institute directors ask if they 
have encountered situations where they had trouble recruiting a 
senior scientist or retaining a senior scientist due to salary 
issues and also due to conflict of interest issues. And with 
regard to the former, there were a number that had indicated 
they had had such circumstances. So our evidence is anecdotal, 
but fairly convincing.
    Mr. Greenwood. Well, it would be fairly human nature to say 
hey boss if you do not pay me more I am out of here. But that 
may be the truth.
    Mr. Alberts. Let me just say a word about, we talked to 
some young scientists in closed session. We were worried they 
would not speak completely frankly in open session. We also 
talked to some in open session, so we tried both ways.
    And the young scientists who came were basically focused on 
doing public service and they were--I could tell that these 
were really outstanding people you want at the NIH.
    And one of the things--none of them were doing any outside 
consulting. But we asked them specifically whether they thought 
it was important that they sometime in the future have this 
opportunity, and they said that it was important to them. They 
did not want to be treated as second class citizens compared to 
all their colleagues. And so from that I would take it that it 
would have an affect on their long range career plans if they 
thought they could never engage in the kind of activities that 
other colleagues----
    Mr. Greenwood. Because of the money or because of the 
opportunity, experience?
    Mr. Alberts. I do not think it is really the money, 
actually.
    Mr. Greenwood. Well, that is an interesting point. Because 
I am sure that there are--I would guess that there are lots of 
employees at the NIH who are receiving excess compensation 
because of Title 42 who in fact would not leave if it were not 
for that.
    Mr. Alberts. I do not know. I do not know.
    Mr. Greenwood. Right. But how is that determination made. 
In other words, if I am at NIH and I see all my friends are on 
Title 42 and they are making an extra $50,000 a year more than 
I am, I want that. So I, how did you get that? Well, I filled 
out this Title 42 form and then it got signed off by my 
director. In your study of this, is there any actual criteria 
used to determine who is deserving of the extra cash and 
whether it is necessary to give that to them to be retained?
    Mr. Alberts. We were looking forward at policies. We did 
not have the opportunity. I must emphasize, 66 days, we all 
have full time jobs. It was a killer already. And we did not 
have time to look into----
    Mr. Greenwood. You did not look into that. I mean, it is an 
important point because that goes to Mr. Bilirakis' question of 
resources that the taxpayers put into NIH, is it going to cure 
diseases or is it going to pay salaries that are in excess of 
what is necessary in order to keep those folks there.
    Obviously, 42 does not allow the most menial tasks, because 
the assumption is you can get the menial tasks done without 
paying the extra salary, but I have not encountered any actual 
criteria that anyone uses to decide whether someone should or 
should not qualify.
    Do you know what the turnover rates for scientists is at 
NIH?
    Mr. Alberts. I'm sorry, what rates?
    Mr. Greenwood. The question is what are the turnover rates 
for NIH scientists? Do we know anything about that? Do we know 
what they were 10 years ago? Do we know what they are now?
    Mr. Alberts. I do not know.
    Mr. Greenwood. Do we know whether if Title 42 has in fact 
made a difference? I mean, has anybody ever looked to see 
whether the turnover rate is lower after Title 42 was put in 
place to provide these extra salaries?
    Mr. Alberts. There is one thing I can say. I do not know 
the turnover rates, but as a scientist I could say something 
about the quality of the work being done at the NIH. And the 
quality of the scientists that are there since I came to 
Washington, there has been a major change. I came to Washington 
in 1993. It corresponds with Title 42. I cannot say it was the 
cause. But I was once offered a job at the NIH a long time ago 
and I did not want to go there. So I know what it was like then 
and I know what it is like now. And I think the quality of the 
science has vastly improved.
    Mr. Greenwood. Why did you not want to go?
    Mr. Alberts. Pardon?
    Mr. Greenwood. Why did you not want to go?
    Mr. Alberts. I was at the University of California, San 
Francisco, and I preferred to stay there.
    Mr. Greenwood. It was not a financial decision?
    Mr. Alberts. No. No.
    Mr. Greenwood. On page 4 of your report it says ``employees 
in a position to influence the financial interests of an 
outside entity such as current or possible future recipient of 
an NIH grant or contract should neither receive financial 
benefits from the organization nor have a significant financial 
interest in it.'' And Ms. DeGette was inquiring about this kind 
of thing.
    Does the term ``financial benefits'' as used in this 
statement include financial benefits associated with an award?
    Mr. Augustine. That is a good question. If the 
organization--let me back up a little bit.
    That is a very detailed question in a specific case here. 
But applying our general rule if the award were to be made by 
an organization that was seeking a contract with that 
employee's work group, we would view that as being 
inappropriate. And I think----
    Mr. Greenwood. But let us be specific about that. Does that 
mean they have to have a current pending application in for 
that budget year, or could it be that their potential 
contenders down the road? I mean, suppose I decided that my 
university wants to start getting into the NIH game and we have 
not been in it much, or we opened up a new center for a 
particular kind of disease and we say who is the center 
director there, let us pay him $25,000 to come on out. And then 
maybe a year or 2 hence, we will make application.
    Mr. Augustine. I think the current rules on that say that 
if there is a likelihood of a future application, you cannot 
take a position with that firm or you cannot consult for it.
    Second, if unforeseen they do turn in an application for a 
grant, you then have to disqualify yourself with regarding the 
terms of the award of that grant.
    Mr. Alberts. My understanding, I guess Dr. Zerhouni should 
be here to answer that. You cannot form a new award and give it 
to an NIH employee. It has to be an award that has been around 
for a while and have a drawn track record.
    Mr. Greenwood. All awards start somewhere.
    Mr. Alberts. Yes, yes. But my position if I was director, I 
would not allow a new award to be given to an NIH employee.
    Mr. Greenwood. Although that has happened?
    Mr. Alberts. I do not know anything about it.
    Mr. Greenwood. Yes. We have got plenty of evidence to that 
affect.
    Also on page 4 your report states ``In addition, NIH 
scientists who are recognized for outstanding scientific 
achievements, leadership or public service are sometimes the 
recipients of awards which may be accompanied by a cash prize. 
The panel believes these are important, even essential 
activities for NIH scientists, because they are part of the 
tradition of science and provide evidence of the value and 
significance of the NIH research community to the larger 
scientific community.''
    If awards are an important part of the tradition of 
sciences, raises the visibility of NIH and NIH scientists, why 
hasn't the NIH posted a listing of the scientists who have 
received awards, the names of the awards and the citation of 
the award what the scientists is being honored for? Why did the 
Blue Ribbon panel not recommend that NIH post such award 
listings?
    Mr. Augustine. It is a terrific idea, and I wish we had 
thought of it.
    Mr. Greenwood. Okay.
    Mr. Alberts. I did not know they did not do it.
    But, you know, I mean in general at my university, 
University of California San Francisco they advertise every 
award as much as they can. So I would assume that the NIH does 
that as well, but we did not receive any information about 
that.
    Mr. Greenwood. You now, if Boeing decided to give awards to 
the defense Pentagon employees, and that became the tradition, 
I mean I am sure that health care is not the only place where 
scientists are really smart and want to do good things. I mean, 
DuPont could give awards to EPA employees. What is the 
difference?
    Mr. Augustine. I think there are distinctions. I have 
struggled with your questions in the past.
    One distinction is that the NIH has as part of its mission 
to spread the knowledge that develops outside, whereas Boeing--
--
    Mr. Greenwood. But you do not have to get paid for that.
    Mr. Augustine. I am sorry?
    Mr. Greenwood. But you do not have to get paid for that.
    Mr. Augustine. But that is a separate issue can come back 
to.
    Mr. Greenwood. Yes. But I am talking about awards.
    Mr. Augustine. Okay. I again think there are two 
distinctions. One is that Boeing has no desire to build a 
particular--to spread its information; NIH does. Second, Boeing 
pays a competitive salary and the NIH at the senior levels does 
not.
    Mr. Greenwood. I guess what I am trying to get at is if I 
am an employee of the Environmental Protection Agency, just 
like somebody at NIH wants to save the world from some dread 
disease, somebody over at EPA wants to save the world from some 
dread toxin. Same thing in terms of both altruistic, okay. And 
yet we seem to have one whole set of rules and traditions that 
the people who are saving the world through medicine, that they 
are so special that you have to treat them differently and give 
them prizes and awards and consulting fees. But some smock who 
is over at the EPA who is just trying to save the world from 
pollution, maybe he is trying to save the world from 
catastrophic global climate change, shut up do your job and 
take your Federal salary.
    Mr. Augustine. The question we addressed was why not just 
rule that you cannot accept awards given by companies, firms. 
And we are told that there are a number of awards that are very 
prestigious, long established that scientists in this field 
would like to have. There are not in the aerospace field, and I 
do not know about the EPA.
    Mr. Alberts. General Motors Cancer Fund is one such prize.
    Mr. Greenwood. In recommendation one the Blue Ribbon panel 
proposes that in addition to NIH senior management, NIH 
extramural employees who are responsible for program funding 
decisions and recommendations should not engage in outside 
consulting. Is the rationale for this recommendation that these 
extramural program administrators are high level officials who 
are responsible for making funding decisions on grants, 
contracts and cooperative agreements?
    Mr. Augustine. Really it wa the latter. It was not 
necessarily that they were high level, it was just that anybody 
who has responsibility for grants or contracts we felt should 
not be prevented to consult.
    Mr. Alberts. We specifically took some case studies and 
discussed them. The initial review of grants is done by a panel 
of outside people, maybe 12 people from outside. It's called a 
study section. And it has an NIH extramural employee who is 
staffing that evaluation, initial evaluation of event. And we 
said specifically, the panel agreed, that it should extend to 
that level. That is not a very high level, but it is a very 
important level because it is where the first judgments are 
made about scientific quality, even though the staff member is 
just managing a group of outside scientists. The thought there 
was a possibility of perceived conflict. And so we took some 
case studies. We were not able to go through every position, 
but it does reach pretty low in that part of the NIH.
    Mr. Greenwood. Okay. In recommendation 11 you state that 
the NIH should seek additional equivalency rulings from OGE to 
increase the number of public filers to include the senior 
employees specified in recommendation one.
    On January 12, 2004 the HHS associate general counsel for 
ethics requested the Office of Government of Ethics to 
determine if the following positions be required to file public 
disclosure reports: Institute, center directors, IC deputy 
director, IC scientific directors and IC clinical directors. 
The Office of Government Ethics granted this request the 
following month.
    Does the Blue Ribbon panel consider NIH extramural 
employees covered by HHS request and OGE determination?
    Mr. Augustine. Did we consider them?
    Mr. Greenwood. The question does the Blue Ribbon panel 
consider NIH extramural employees to be covered by the HHS 
request and OGE determinations.
    Mr. Alberts. The senior employees.
    Mr. Greenwood. Pardon me?
    Mr. Alberts. Certainly the senior employees.
    I understand from Dr. Zerhouni's testimony they just asked 
for 500 more positions, and I assume that's mostly what those 
are. I do not know what they are. But Dr. Zerhouni can answer.
    Mr. Greenwood. Since NIH extramural program administrators 
have high level responsibilities, why aren't they covered in 
the January 2004 HHS request to OGE to cover senior Title 42 
officials under public disclosure requirements?
    Mr. Augustine. My understanding is that that was a first 
step, but that he has got additional ones he is going to ask 
for exceptions on.
    Mr. Greenwood. Okay. All right.
    I have got four more questions that I am trying to get in 
here. What did the Blue Ribbon panel mean in recommendation 18 
that ``the NIH director working with Congress should ensure 
that the agency has authority under Title 42?''
    Mr. Augustine. It was our view that some mechanism was 
needed to pay senior scientists beyond what's allowed exclusive 
of Title 42. We are also aware of the issue that has gone back 
and forth between the committee and the HHS as to the 
applicability of Title 42 at all.
    We did not enter into that. Most of us are not lawyers. We 
do not know which side has the merit. The one thing we know is 
that there needs to some mechanism, whether it is Title 42 or 
some other mechanism, to be sure that these people can be paid 
adequately.
    Mr. Greenwood. Title 42 authority used by the NIH to 
compensate NIH institute directors and other senior officials 
at annual salaries of up to $225,000 is section 209(f). This 
section provides that under certain circumstances special 
consultants may be employed ``to assist and advise in the 
operations of the Public Health Service'' without regard to 
Civil Service laws. Do you believe that the statutory provision 
was intended to authorize the compensation of NIH officials 
already occupying continuing full time positions in order to 
evade the pay caps under the Federal Civil Service pay scale?
    Mr. Augustine. I think neither of us are lawyers and would 
not be qualified to opine.
    Mr. Greenwood. Without being lawyers, the question is 
having looked at this issue, we are seeing what appears to be a 
gap between the intent of the law, which is to bring in special 
people to assist and advise in the operations of the Public 
Health Service, and that is a very different model than 
somebody who has been working there for years, going to 
continue to work there for years and that is their job as 
opposed to somebody we have to bring in a special consultant 
and that person is going to need more money to give us his or 
her time.
    Mr. Augustine. I could certainly understand that point of 
view could be defended. I could understand the point. But we 
really did not examine it at any depth.
    Mr. Greenwood. Okay.
    Last question. Does the Blue Ribbon panel have concerns 
that NIH did not work with the Congress previously on 
clarifying Title 42 authority?
    Mr. Augustine. In 1985 you mean or currently?
    Mr. Greenwood. Heretofore. Recent.
    Mr. Augustine. The hiring authority of Title 42 or the pay 
of Title 42?
    Mr. Greenwood. Both, I think.
    Mr. Augustine. I guess with regard to hiring authority, we 
really did not involve ourselves with that.
    With regard to compensation, our view was that the Director 
of NIH would work with whoever it takes to try to seek relief 
for the more senior employees.
    Mr. Greenwood. Okay. Thank you. You have been very generous 
with your time, not only today but for the 10 weeks that you 
spent doing this work. And the committee and the country owes 
you a debt of gratitude. Thank you for your time.
    Mr. Alberts. Thank you.
    [Whereupon, the subcommittee at 2:08 p.m. was adjourned.]

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    NIH ETHICS CONCERNS: CONSULTING ARRANGEMENTS AND OUTSIDE AWARDS

                              ----------                              


                         TUESDAY, MAY 18, 2004

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2322 Rayburn House Office Building, Hon. James C. 
Greenwood (chairman) presiding.
    Members present: Representatives Greenwood, Stearns, 
Walden, Ferguson, Barton (ex officio), DeGette, and Waxman.
    Staff present: Alan Slobodin, majority counsel; Bud 
Albright, staff director; Ann Washington, majority counsel; 
Casey Hemard, majority counsel; William Carty, legislative 
clerk; William Harvard, legislative clerk; David Nelson, 
minority investigator and economist; and Jessica McNeice, 
minority staff assistant.
    Mr. Greenwood. A quorum being present, this hearing of the 
Oversight and Investigations Subcommittee will come to order. 
The Chair recognizes himself for purposes of making an opening 
statement. Good morning to everyone.
    In this hearing the subcommittee turns from last week's 
focus on the lofty aims of the NIH Blue Ribbon Panel on 
Conflict of Interest Policies to the ignoble case specific 
realities of how ethics issues have been handled at the NIH. We 
will look mostly at what led to the weaknesses in the NIH 
ethics program and what can be learned from this examination to 
increase the chances for success and improving NIH's ethics 
program. This examination will highlight two cases illustrating 
conflicts of interest, concerns rising from consulting 
agreements and election reports.
    Consider the case of Correlogic Systems, a small bioscience 
company in Bethesda, Maryland, developing diagnostic disease 
tests. Although a small company, Correlogic attracted the 
partnership of the Food and Drug Administration, the National 
Cancer Institute, to develop a test by Correlogic based on an 
innovative way that attempts to detect diseases by looking at 
patterns of proteins in the blood as opposed to single 
biomarkers, the conventional method used by researchers.
    Correlogic's test takes a single drop of blood from a 
patient and scans for patterns of protein fragments through a 
mass spectrometer. The test was able to detect ovarian cancer 
in 50 of 50 patients who participated in the study, 100 
percent, including patients with earliest stage cancers. 
Ovarian cancer is the fifth leading cause of cancer deaths of 
U.S. women but the survival rate is near 95 percent when 
ovarian cancer is detected in stage one.
    The data produced in this study was a joint effort of 
Correlogic, the FDA, and the NCI through the FDI, NCI clinical 
proteomics program. Correlogic's partners were Dr. Emanuel 
Petricoin of the FDA and Dr. Lance Liotta of the NCI.
    In light of these encouraging results in April 2002 the 
joint effort of Correlogic and the FDA and NCI was converted 
into a cooperative research and development agreement called a 
CRDA involving the NCI, the FDA, and Correlogic. A CRDA is an 
agreement that allows the Government to collaborate with 
outside organizations on research and development. Dr. Liotta 
and Dr. Petricoin became the co-principal investigators of 
CRDA. This was a research created to allow Dr. Liotta and Dr. 
Petricoin to test Correlogic's software.
    One of the purposes of this joint collaboration was to 
develop technology and develop a strategy that would lead to 
the prompt commercialization of protein pattern recognition 
tests first for ovarian cancer patients. Now, at this point, 
this could have been a great public health story.
    A public/private partnership saving the lives of ovarian 
cancer patients by expediting development of these diagnostic 
tests. Unfortunately, this story took a different path. 
Sometime in the spring of 2002 NCI decided to unilaterally 
sponsor clinical trials on the ovarian cancer test instead of 
executing a clinical research CRDA with Correlotic.
    Since the time that NCI has wanted to unilaterally pursue 
clinical trials, Correlogic and NCI have been engaged in 
negotiations for about 2 years now over whether to pursue the 
clinical trial CRDA.
    In the fall of 2002 a company called Biospect recruited Dr. 
Liotta and Dr. Petricoin to consult for them. Biospect is a 
competitor of Correlogic. Its mission statement, ``Development 
technology for identifying and assaying protein biomarker 
pattern,'' is virtually identical to Correlogic's.
    At this time Dr. Richard Clausner, former Director of NCI, 
was a board member of Biospect. Dr. Carol Dahl, former Chief of 
the Office of Technology and Industrial Relations at NCI, 
served as Vice President for Strategic Partnerships. In 
addition to hiring Liotta and Petricoin, the two co-principal 
investigators on the Correlogic CRDA and co-inventors of 
Correlogic's test, Biospect also hired the technology transfer 
officer from NCI and the person with whom Correlogic had to 
negotiate its CRDA.
    FDA scientists like Dr. Petricoin are subject to stricter 
ethics regulations than NIH scientists because the FDA is a 
regulatory agency and would be prohibited from consulting with 
biotechnology companies. Nonetheless, Dr. Petricoin's request 
to consult with Biospect was approved in October 2002. Dr. 
Liotta's request was approved in December 2002. His consulting 
agreement covered the areas of diagnostic devices, serum 
handling, and microfluidics but not areas involving data 
pattern analysis.
    Sometime in 2003 Correlogic learned that Liotta and 
Petricoin were consulting for Biospect. In July 2003 a 
representative for Correlogic raised concerns that Dr. Anna 
Barker, the Deputy Director of NCI, about Dr. Liotta's 
consulting arrangement with Biospect. As a result of this 
complaint, the NCI re-reviewed Dr. Liotta's consulting 
arrangement and reapproved it.
    NCI recognized that Biospect and Correlogic did business in 
the same area, but Dr. Carol Barret, Liotta's supervisor, 
determined that the consulting was limited to areas that did 
not overlap with Liotta's official duties.
    In the days before this hearing Dr. Petricoin and Dr. 
Liotta have ceased their consulting arrangements with Biospect 
but the damage has been done to a promising partnership. Dr. 
Zerhouni has stated that all public/private partnerships such 
as cooperative research and development agreements must be 
transparent but the Correlogic case proves that such 
transparency can be a fiction.
    The NIH and the FDA allowed Government scientists who are 
co-inventors and creative partners with Correlogic to secretly 
provide consulting services without the knowledge or consent of 
Correlogic to Correlogic's competitor which had already hired 
the NCI tech transfer specialist from the CRDA. What happened 
to the public trust?
    Every day private companies negotiate provisions in 
business contracts to protect themselves from employees or 
consultants who might later try to work for a competitor. 
Indeed, there was such a provision in the Biospect consulting 
agreement with Dr. Liotta. Yet, in a case like Correlogic a 
private company entering into a CRDA with NIH cannot protect 
itself. It risks its Government partners taking the insight, 
knowledge, and prestige gained from the CRDA to consult with 
the competition and all under the cover of an ethics approval.
    Even under the so-called limited consulting agreement with 
Biospect, Dr. Liotta was permitted to advise Biospect on what 
seemed to be commercialization strategies, the very heart at 
what CRDA was all about. There are a few situations more 
destructive of public/private partnerships than this one. What 
company will want to enter a CRDA with NIH if this is the way 
conflict of interest issues are managed? This isn't 
transparency. This is an outrage.
    In addition to the Correlogic case, the subcommittee will 
look at the strange story of how NIH officials got to live 
under a permissive policy for receiving cash gift awards from 
entities doing business with their institutes. In 1996 Dr. 
Richard Clausner, who was the Director of the NCI, was notified 
by the University of Pittsburgh that he had been awarded the 
Dixon Prize of Medicine associated with a $30,000 cash gift.
    However, ethics officials at the NIH advised him that he 
could not accept the prize. There were three reasons for this 
advice. (1) an ongoing lawsuit by famous cancer researcher Dr. 
Bernard Fisher against the University of Pittsburgh, the NCI, 
and other co-defendants; (2) an ongoing contract dispute 
between Pittsburgh and NCI; and (3) the University of 
Pittsburgh status as a major entity doing business with the 
NCI, receiving and seeking substantial funding for grants, 
contracts, and agreements.
    In giving this advice, one of the NIH ethics officials 
conferred with an attorney at the Office of Government Ethics 
who supported the advice and indicated that Dr. Clausner still 
could not accept the award even if he disqualified himself from 
all matters involving Pittsburgh.
    On August 27, 1997, Dr. Fisher and the defendants announced 
a settlement of the lawsuit which involved a $2.7 million 
payment from Pittsburgh to Fisher. However, most of this $2.7 
million actually came from other defendants, not Pittsburgh. 
One of those defendants was the NCI and available evidence 
indicates that Dr. Clausner orally approved a $300,000 payment 
from the Government as a contribution to the settlement.
    At about the same time, the Dixon Prize Awards Committee 
made up of faculty members of the University of Pittsburgh, 
decided to recommend Dr. Clausner again for the award. This 
time the cash gift was increased from $30,000 to $40,000. 
Although the rules for the prize state that the award should be 
given to the individual who made the most progress in medicine 
for the year in question, Dr. Clausner was honored for 
achievements that occurred prior to becoming NCI director in 
1995.
    Giving the prize to Dr. Clausner in 1997 was like giving 
the Academy Award to a well-liked actor who just didn't happen 
to make any movies that year. Within days after the settlement, 
Harriet Robb, the HHS General Counsel and Presidential 
appointee, asked Edward Swindell, the Acting Director of the 
Ethics Division, to see if there was a way Dr. Clausner, 
Presidential appointee, could receive the prize from Pittsburgh 
now that the litigation was settled.
    Notwithstanding the past guidance from OGE and the concerns 
raised by the NCI ethics advisor, Mr. Swindell wrote the legal 
opinion that interpreted the ethics regulations to allow an NIH 
official to receive a cash gift award from a grantee as long as 
there wasn't a pending matter in the official's in-box at the 
time the award was tendered. This interpretation has bound HHS 
and NIH to this day preventing Dr. Zerhouni from taking 
immediate steps to place restrictions on awards.
    I am pleased that the Office of Government Ethics 
recognizes in its testimony for this hearing that the HHS 
interpretation was overly permissive. Although the University 
of Pittsburgh insist that Dr. Clausner was selected on his 
merits, serious appearance questions are raised because of the 
timing and the circumstances of the award.
    In addition, it is amazing that the highest ranking ethics 
official at HHS ignored these appearance questions, disregarded 
OGE's advice, and may have provided a permissible but incorrect 
interpretation of ethics regulations to please political 
appointees.
    We invited both Dr. Clausner and Dr. Michael Lotts of the 
University of Pittsburgh who chaired the awards committee at 
the time to testify at this hearing. Both indicated that they 
would be unable to testify. We also invited the NCI's ethics 
advisor Dr. Maureen Wilson to testify but she had a long-
standing personal commitment that prevented her from appearing 
today. We may have her as a witness at a future hearing.
    The subcommittee will hear from two panels of witnesses 
today. The first panel includes representatives from OGE, HHS, 
NIH, an ethnics specialist, Congressional Research Service, and 
Dr. Harold Varmus, the former director of the NIH. The second 
panel features witnesses from the NCI, the FDA to discuss the 
Correlogic case study.
    Through this hearing it is my hope we will learn about the 
problems of day-to-day implementation of NIH ethics issues and 
in so doing understand what must be done to assure that the 
good intentions of Dr. Zerhouni are actually carried out.
    The Chair welcomes these witnesses and looks forward to 
their testimony and recognizes the gentlelady from Colorado for 
an opening statement.
    Ms. DeGette. Mr. Chairman, I would ask unanimous consent 
that Mr. Waxman be recognized out of order. He has an 
obligation on the Senate side.
    Mr. Greenwood. Without objection, Mr. Waxman is recognized 
for an opening statement.
    Mr. Waxman. Thank you very much.
    Mr. Greenwood. Try to keep it as brief as mine was.
    Mr. Waxman. If I did, Mr. Chairman, I would forget about my 
obligation on the Senate side completely. I thank both of you 
for allowing me to make this statement. Last week the 
subcommittee held its first hearing on revelations that dozens 
of NIH scientists had accepted large consulting fees from drug 
companies. Not only were NIH officials accepting money from 
companies where interest might have been in conflict, but many 
of these arrangements were being kept secret from the public.
    NIH has a long and proud tradition of scientific 
independence and integrity. Because NIH is the source of some 
of our Nation's most important biomedical research, it is 
essential that America and the world continue to feel confident 
that NIH's grant decisions and research results are not biased 
in any way.
    Today we will hear from the Government agencies and others 
directly responsible for enforcing department and Government-
wide conflict of interest rules. I am deeply troubled that 
these groups in whom we have placed responsibility for ensuring 
the highest ethical conduct from public servants are the very 
people who sanctioned the loose ethical rules that resulted in 
the questionable financial relationships we have uncovered.
    This subcommittee's investigation has revealed a series of 
actions by the Office of Government Ethics and by HHS ethics 
advisors that seem designed not to protect against conflicts of 
interest but to ease the way for such conflicts. It was the 
Office of Government Ethics which advised Dr. Varmus in 1995 
that NIH was free to life existing caps on the amounts that NIH 
scientists could receive from drug companies. As a result of 
that advice, there is no limit on the amount of money NIH 
scientists can accept from drug companies.
    It was the Office of Government Ethics that drafted the 
legal opinion concluding that scientists hired under Title 42, 
including those in senior positions, could not be required to 
publicly disclose their financial dealings with drug companies. 
It was HHS ethics advisors who signed off on the huge 
consulting fees paid to high-ranking NIH officials that 
triggered this investigation in the first place.
    These decisions are the opposite of what people have the 
right to expect from our Government ethics officials. 
Unfortunately these decisions appear to be part of the dubious 
pattern of covering up conflicts of interest rather than trying 
to avoid them. This is a pattern also reflected in HHS' highly 
questionable decision to permit Tom Scully, the head of CMS, to 
continue to negotiate the Medicare drug benefit legislation 
while at the same time looking for a new job with the very 
interest most affected by that legislation.
    I want to close on a positive note. Last week I expressed 
in my statement in the record a particular concern that under 
the Blue Ribbon Panel's proposal some NIH scientists would 
still have no obligation to disclose financial relationships 
with drug companies. NIH testified that despite the agency's 
own desire for a full disclosure, it had been advised by 
Federal ethics officials that full disclosure could not be 
required.
    This week I have learned that Dr. Zerhouni has decided to 
seek new rules to require public disclosure of potential 
conflicts of interest for all NIH employees. I applaud Dr. 
Zerhouni for his insistence on full disclosure. Only with full 
disclosure can we continue to ensure public confidence in the 
work of NIH. I hope that we hear from today's witnesses that 
they will not throw up any barriers to Dr. Zerhouni's very 
appropriate decision. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman and ask 
unanimous consent to enter into the record a letter dated May 
17 to Ms. Dara Corrigan, Esq., Acting Principal Deputy 
Inspector General at the Department of Health and Human 
Services. This is a bipartisan letter signed by Chairman 
Barton, ranking member Dingell and myself and the ranking 
member of this subcommittee Mr. Deutsch asking for a review of 
the Petricoin case mentioned in my opening statement. Without 
objection it will be entered into the record.
    The Chair recognizes and welcomes the chairman of the full 
committee for his opening statement, Mr. Barton.
    Chairman Barton. Thank you, Mr. Chairman. This is a very 
important hearing. I am glad to be a part of it and I 
appreciate you holding it.
    As I said last week, this committee will get the 
information that it needs to do its oversight. Last week 
because of the failure of the HHS Department and NIH to produce 
certain information that this committee had requested on 
consulting agreements we had to announce that we would seek it 
from the drug companies.
    I am pleased to learn that immediately after our hearing 
last week the NIH director suddenly discovered the ability to 
get that information. This committee is now getting the 
information and we will continue to do so. Let us hope that HHS 
and NIH have learned that it is absolutely pointless not to 
provide information and force this committee to force them to 
cooperate, as I said last week, coercively.
    This hearing today will show that the committee is doing 
more than getting information. We are starting to achieve 
positive changes in NIH ethics policy both for consulting and 
for awards. For example, because of the committee's 
investigation HHS has ordered all of its agencies, including 
the NIH, to collect an amount of information as part of the 
approval process for outside activities.
    Because of this committee's investigation, the Office of 
Government ethics is now providing additional guidance on the 
issue of awards. Finally, the committee has already played a 
role in spurring efforts by HHS and the Office of Government 
Ethics to expand the number of NIH employees that will be 
covered by public financial disclosure requirements. Much more 
needs to be done, quite frankly, but the committee has played 
an important role in getting the process moving.
    We are also exposing abuses and questionable practices. 
This subcommittee will examine a remarkable case today in which 
the NIH and FDA scientists who were collaborating with a 
private company on a joint invention under a public/private 
partnership which we call a CRDA were secretly consulting with 
their private partners competitor.
    Incredibly the FDA scientist who worked at the FDA Center 
for Biologics was allowed to consult with this competitor which 
was about technology company. Such consultations are prohibited 
under the stricter supplemental regulations that apply to the 
FDA but did not apply to NIH. As a result of these secret 
deals, progress appears to have slowed on a public/private 
partnership that could lead to prompt commercialization of a 
lifesaving ovarian cancer diagnostic test. Public trust has 
been damaged.
    In another astonishing case that we will go into today, a 
permissive HHS policy allowed an NIH director to collect cash 
gift awards for major grantees under very questionable 
circumstances. In 1997 Richard Clausner, who was then the NCI 
director, appeared to be personally involved in approving a 
$300,000 payment from the Government to settle a lawsuit filed 
against both U.S. Government and the grantee with great 
financial benefit to the grantee.
    The grantee almost at the same time offered Dr. Clausner a 
$40,000 cash prize. Yet, the official for overseeing the HHS 
ethics program did not even address the appearance issue and 
disregarded advice from the Office of Government Ethics. 
Instead, this official wrote a legal interpretation that would 
allow Dr. Clausner to accept the prize.
    It will be a hallmark of my chairmanship, at least I hope 
it will be, that we are going to hold agencies responsible for 
their actions and produce better results in Government ethics 
and better services and better policies for the American 
people. That is the purpose of oversight. We will continue to 
look at NIH. We will also focus our efforts on the FDA.
    I want to congratulate Chairman Greenwood for his work on 
this investigation. I want to thank the ranking members on the 
minority side for their participation and the staffs on both 
sides. We are doing this on a bipartisan basis and we are 
beginning to see results. I look forward to having a productive 
hearing today, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Greenwood. Thank you, Mr. Chairman. The Chair 
recognizes the gentlelady from Colorado, Ms. DeGette, for an 
opening statement.
    Ms. DeGette. Thank you, Mr. Chairman. Before I make my 
opening statement, I would ask unanimous consent that Mr. 
Dingell's opening statement and the rest of the opening 
statements of the committee be made part of the record.
    Mr. Greenwood. Without objection.
    Ms. DeGette. Thank you for holding this hearing, Mr. 
Chairman. I found the hearing last week to be very illuminating 
and I think this issue is so important and has such 
ramifications for the integrity of medical research and public 
health. I am glad that you are having a series of indepth 
hearings on this issue.
    I want to begin by reiterating the statement that I 
strongly expressed at the last hearing which is I have grave 
concerns about the Blue Ribbon Panel recommendations. I 
believe, Mr. Chairman, that we need to consider not only full 
disclosure and limits on outside compensation, but also even a 
blanket restriction on outside compensation because of the 
serious conflicts of interest and the appearance of conflicts 
of interest.
    At least week's hearing we heard the same argument being 
made over and over by the witnesses. That view is that allowing 
lucrative contracting agreements between NIH scientists and 
outside companies in addition to allowing the acceptance of 
awards that come with a hefty amount of cash attached to them, 
to name two examples, are key to recruiting and retaining 
quality scientists and researchers.
    Now, a fact that everybody knows but no one really talked 
about too much is that the current rules did not always exist. 
The caps on outside compensation were lifted in the mid-1990's, 
something I think Dr. Varmus will talk to us about.
    Up to that point there were monetary restrictions on what 
these Federal employees could receive from outside groups, for 
example, and there was certainly more public disclosure in this 
regard. I think what we really need is more information about 
the situation at NIH before the restrictions were done away 
with. Did the NIH have serious problems with recruiting and 
retaining high-level talent? Was the NIH a lower quality 
institute before 1995 due to this problem? If so, was the 
problem because of the outside compensation?
    If that is the case, I would like to get some factual 
evidence to support this because it has been repeatedly given 
as the reason that this is so important to the integrity of the 
NIH. We also need to see if limitations on outside compensation 
and awards, as well as disclosure, will go far enough to 
prevent the kinds of conflicts that the Chairman himself 
highlighted in his opening statement.
    One of the things that has been reported on, and was also 
include in the Blue Ribbon Panel Report, is that many employees 
including senior level scientists at the NIH are increasing 
demoralized by the scrutiny and criticism that this issue has 
cost lately.
    In addition, it has been alleged that the confusing nature 
of the current roles is also confusing and dispiriting to 
staff. I think this is really too bad because these staff 
members are simply trying to wade through the rules and do what 
the rules allow them to do. However, I think that there is an 
implication in the report that somehow it is the media and 
congressional examination that is the problem rather than the 
issue itself.
    It is not the fault of the scientists that they are under a 
cloud of suspicion as it is characterized in the report but it 
is the system that has created this situation. There has also 
been a lot of talk about perceptions of conflicts of interest 
and how it has been a morale problem at the NIH. The fact of 
the matter is there are serious conflicts of interest issues. 
We heard this last week. We are going to hear it again today. 
Those conflicts of interest must be scrutinized for everyone's 
sake including, and perhaps most importantly, the NIH 
scientists that they apply to.
    The resolution of this problem, which means completely 
cleaning up what is currently happening, is to preserve the 
reputation of the NIH and the integrity of everybody who works 
there.
    Now, there is one solution that from our perspective would 
be really simple. If we completely banned outside compensation 
there would be a bright line and the confusion would disappear. 
In the absence of persuasive evidence that this policy would 
seriously hamper the science, I believe we should seriously 
consider this option.
    I also want to say one thing that won't help the situation 
is if we keep layering onto the current system and revamp it in 
a way that causes even more confusion, especially for the 
scientist, and making changes that will surely allow for future 
transgressions will not help either.
    For example, if as proposed by the Blue Ribbon Panel 
certain restrictions on consulting fees are instituted for 
certain employees but there is no change as to regulations 
regarding receipt of bona fide cash awards, then surely what we 
will see, and we see this with campaign finance reform all the 
time, is a shift to more and larger cash awards in other places 
like for prizes. The money influx won't change. It will just 
shift around and it will be very confusing for all involved.
    I think what we need to do is try to get a grip on this and 
we need to challenge all of our assumptions including the 
assumptions that we simply can't get good people without these 
large amounts of outside compensation. I think that is the nub 
of the issue and I really look forward to hearing all of our 
witness' view on this.
    Again, Mr. Chairman, thank you for holding this hearing and 
I look forward to hearing the testimony.
    Mr. Greenwood. Thank the gentlelady. I recognize the 
gentleman from New Jersey, Mr. Ferguson.
    Mr. Ferguson. Thank you, Mr. Chairman. Thank you for 
holding this hearing and for your diligence in pursuing this 
investigation of possible conflicts of interest at NIH.
    NIH provides our country and the world with world-class 
research done by the best scientists and doctors our country 
and the world has to offer. Although it is important that NIH 
attract and retain the best and the brightest in the fields of 
medical research, we must be assured that the professionals at 
NIH are conducting themselves according to the highest 
standards.
    Last week we heard from Dr. Zerhouni and the members of the 
Blue Ribbon Panel about the recommendations to establish 
policies against conflicts of interest. I look forward to 
hearing from today's witnesses concerning two examples where 
the line may have been crossed and the best interest of 
medicine may have been compromised. This committee and Congress 
must do all that it can to ensure that NIH maintain a spotless 
reputation free from any question as to the mission and goals 
of the professionals at NIH.
    Just before I close, I just had a group of advocates for 
ALS research in my office. They are fanning out across Capitol 
Hill today and making a very persuasive argument for increased 
NIH funding for ALS research. Clearly it is something that 
needs to be done and we in the Congress want to advocate for 
that.
    But whether it is the hearings we had some months ago 
about, frankly, scientifically dubious grants that are awarded 
sometimes by NIH, frankly, sometimes morally objectionable 
grants that are sometimes made by NIH, or whether it is a 
conflict of interest issues that we are dealing with now, it is 
extremely important that NIH maintain its stellar reputation 
and its spotless reputation for doing research and for 
conducting itself with the highest standards possible.
    People's lives depend on it. The lives of our children, our 
grandchildren, and their grandchildren depend on the research 
that you do. The only way you are going to be able to continue 
to do that important research is to keep folks like us out of 
your hair. We can only stay out of your hair if we know for 
certain that you are doing your job in a way that we don't need 
to be getting involved in your business.
    That is one of the reasons I feel so strongly about these 
hearings and one of the reasons I appreciate the Chairman and 
the ranking member of the full committee and the subcommittee 
for encouraging this investigation.
    We are big fans, I anyway am, and I know we all are fans of 
NIH and the research and the important work that NIH does. That 
is why it is so important for NIH to maintain its reputation 
for integrity. Thank you, Mr. Chairman. I yield back.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes the gentleman from Florida, Mr. Stearns, for an 
opening statement.
    Mr. Stearns. Good morning and thank you, Mr. Chairman. 
Obviously this is a very important hearing and I appreciate 
your calling it. I think last week we sort of looked at this 
from a helicopter and I guess we could say we are looking at it 
this morning perhaps on the ground. We are trying to understand 
some of the details about this.
    We talk about the field of science being one inherently 
cooperative and collaborative. Scientists and physicians and 
researchers need to share and study alongside one another. I 
think we all understand that. Of course, we saw in the 1980's 
and 1990's and that we were losing good researchers to the 
private sector. For the Federal Government obviously to compete 
for these scientists we provided some financial incentive so 
Congress took the step to try and create some competition and 
allow us to keep these scientists.
    Perhaps, as we see today, Mr. Chairman, the pendulum has 
swung too far. We hear different exploits about arrangements 
between NIH and high-level researchers and industry. I am 
concerned about perhaps some of the smaller universities or the 
mid-level universities not getting an opportunity to 
participate in NIH grants because they can't get their foot in 
the door because of the ties of maybe these prestigious 
universities or scientists are not directing or not allowing 
some of these mid-level or small colleges to get involved with 
some of the grants.
    All this calls into question what can we do here in 
Congress. Can we allow this continuing incentive for scientists 
to remain in place? At the same time, obviously, like my 
colleague from New Jersey, we have supported increased funding 
for NIH and we think it is important in the long run to get 
this ground breaking detection on ovarian cancer. I think all 
of us are a little disturbed about this and that is why I think 
this hearing will get to the bottom of it and will bring out 
some good examples of things it will show us that we probably 
need some action. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman.
    [Additional statements submitted for the record follow:]
   Prepared Statement of Hon. Michael Bilirakis, a Representative in 
                   Congress from the State of Florida
    Thank you, Mr. Chairman. I appreciate all the work that you and 
your staff have done to examine these two specific cases of 
consultation fees and outside awards before us today. Last week's 
hearing focused on what the NIH is doing to create greater oversight of 
this important matter, and I think that we can all agree that Dr. 
Zerhouni's creation of the Blue Ribbon Panel is a step in the right 
direction. However, I don't know that it is enough. While I am not 
interested in laying blame today, I am glad to having the opportunity 
to discuss these two specific cases, and find out how severe this 
problem was.
    I appreciate both panels of witnesses taking the time to come here 
today, even though I'm sure you all will be asked some difficult 
questions. I'd like to extend a special thanks to Dr. Harold Varmus, 
former Director of NIH, for his testimony today. Dr. Varmus has 
testified before my subcommittee several times, and I am anxious to 
hear his thoughts.
    The ethical concerns being raised today in this hearing are 
worrisome to me. However, during this discussion, I also believe it is 
critical we remember that the NIH is the world's leader in conducting 
important research that will unlock critical information and lead to 
discoveries beneficial to patients suffering from many diseases. We 
don't want to hinder those efforts. But because of the tradition of 
excellence, the NIH is also held up to a certain standard. That 
standard should not be tainted by the thought that the research 
conducted at NIH is influenced by private companies giving money to 
institute directors.
    My Subcommittee on Health has held four hearings during the 108th 
Congress to highlight research activities at the NIH and educate 
Members and others about the work that the NIH is doing so we can 
better assess how to help NIH better meet its stated mission. One of 
the reasons my Subcommittee has held these hearings is that, while NIH 
does exemplary research, their transparency and accountability in the 
approval process of investigator-driven grants at the NIH could be 
improved. Many times it is difficult for Members of Congress to get a 
quick answer about research activities, let alone the general public.
    The lack of transparency of the NIH processes could be one of the 
reasons that we are holding this hearing today. If there were more 
transparency with respect to these consulting fees and awards, such as 
making the information public, then maybe there wouldn't be the need 
for a high level of concern.
    As I said last week, the fact that some NIH officials have received 
cash, stock, and stock options from consulting arrangements with drug 
or biotechnology companies really gives me pause. While I understand 
that there is importance in allowing scientists the opportunity to 
pursue their independent work, I have concerns with tying the financial 
success of an individual to a particular company's stock. If outside 
consultation fees and award grants in any way affect the grant approval 
process and the budget priority setting at NIH, then that taints the 
entire NIH process, including the research.
    I am glad that we have this forum today to speak to officials from 
NIH, and hear the comments of other agencies, such as the Food and Drug 
Administration (FDA) and Ethics offices. I am curious to hear how the 
NIH has managed possible conflicts of interest, and the degree that 
they have been effective.
    Thank you, Mr. Chairman. I yield back the balance of my time.

                                 ______
                                 
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan

    Mr. Chairman, again let me commend you for conducting this 
investigation and holding this hearing, as well as the one last week, 
into conflicts of interest at the National Institutes of Health (NIH). 
The scientists at the NIH campus, and the grantees that use NIH funds 
for their biomedical research, are critical to this Nation's fight 
against disease. These hearings are being held because several NIH 
researchers have decided to supplement their taxpayer-funded salary 
with monies provided by drug and biotech companies, firms whose vital 
interests are tied to the research performed at the NIH.
    Today we will hear from Dr. Harold Varmus, a Nobel laureate and a 
former Director of NIH. He was the responsible official in 1995 when 
all effective administrative controls were lifted from the consulting 
practices of NIH employees and public disclosure was virtually removed 
as well. Dr. Varmus has much to account for, as does the current NIH 
leadership and the Department of Health and Human Services (HHS) 
lawyers who have systematically undermined the application of any 
meaningful ethical standards to the consulting arrangements of NIH 
employees.
    As a direct result of this investigation and one conducted by the 
Los Angeles Times, some changes have been made or have been agreed to 
by the current Director. This is a good thing, but not nearly enough. 
Last week, Dr. Zerhouni and the co-chairs of the so-called Blue Ribbon 
Panel testified that, except for the highest level employees and those 
administering grants, all other NIH researchers would be free to 
continue to serve two masters provided that they received the approval 
of something called the NIH Ethics Advisory Council (the NEAC). This 
Council was supposed to apply the most rigorous standards to its review 
of outside consulting arrangements.
    All NIH employees with current outside arrangements with drug or 
biotech firms were supposed to suspend those arrangements in February 
and reapply to the NEAC. While over half the NIH employees engaged in 
these apparent conflicts chose not to reapply, about 120 did. Several 
NIH researchers have been approved by NEAC to receive payments from 
companies that had agreed to pay them hundreds of thousands of dollars 
(one researcher had received almost $2 million from biotech firms in 
recent years). This is not acceptable.
    Finally, I cannot help but note an even worse case of an ethical 
violation approved by the Department. One of the witnesses scheduled to 
appear today is an employee not of the NIH, but the Food and Drug 
Administration (FDA). He signed a contract to receive thousands of 
dollars from a biotech company whose products could be regulated by his 
employer, the Center for Biologic Evaluation and Research. This appears 
to be in direct conflict with the Supplemental Regulations for FDA that 
forbid receipt of monies by any employee from any regulated entity.
    Ethics officials at FDA and/or HHS apparently approved this 
``outside employment.'' FDA has told the Subcommittee staff that any 
approval was an error without precedent elsewhere in that Agency. I 
certainly hope that is the case but intend to join with you, Mr. 
Chairman, in asking for an expedited review of all outside employment 
by FDA employees as well as the HHS and FDA review of the consulting 
arrangement that we will discuss today.
    Thank you again for holding this hearing, and for the bipartisan 
manner in which this entire inquiry has been handled.

    Mr. Greenwood. The Chair thanks the witnesses for your 
patience for half an hour of opening statements, 15 minutes of 
which was mine, I think. We welcome each and every one of you. 
Let me introduce our first panel.
    Ms. Marilyn L. Glynn is the Acting Director of the U.S. 
Office of Government Ethics. Welcome and thanks for being with 
us this morning.
    Mr. Edgar M. Swindell, Associate General Counsel, Ethics 
Division, Department of Health and Human Services. Good 
morning, sir.
    Dr. Raynard S. Kington, Deputy Director of the National 
Institutes of Health. Good morning, sir. Thank you for joining 
us.
    Mr. Jack Maskell is with the American Law Division of the 
Congressional Research Service. Thank you for your service.
    And, finally, Dr. Harold Varmus, M.D., Former Director of 
the National Institutes of Health and is currently the 
President and Chief Executive Officer of the Memorial Sloan-
Kettering Cancer Center in New York. Good morning, sir. Welcome 
to all of you.
    It is the custom and practice of this committee to take 
testimony under oath so I would begin by asking if any of you 
object to giving your testimony under oath. Seeing no 
objection, it is then my responsibility to inform you that you 
are entitled to be represented by counsel if you wish. Do any 
of you choose to be represented by counsel this morning? Okay. 
In that case, if you would rise and raise your right hands, I 
will give you the oath.
    [Witnesses sworn.]
    Mr. Greenwood. You are under oath. Ms. Glynn, we will begin 
with you and you are recognized for 5 minutes for your opening 
statement.

TESTIMONY OF MARILYN L. GLYNN, ACTING DIRECTOR, U.S. OFFICE OF 
    GOVERNMENT ETHICS; EDGAR M. SWINDELL, ASSOCIATE GENERAL 
   COUNSEL, ETHICS DIVISION, DEPARTMENT OF HEALTH AND HUMAN 
    SERVICES; RAYNARD S. KINGTON, DEPUTY DIRECTOR, NATIONAL 
  INSTITUTES OF HEALTH; JACK MASKELL, AMERICAN LAW DIVISION, 
CONGRESSIONAL RESEARCH SERVICE; HAROLD VARMUS, FORMER DIRECTOR, 
  NIH, PRESIDENT AND CHIEF EXECUTIVE OFFICER, MEMORIAL SLOAN-
                    KETTERING CANCER CENTER

    Ms. Glynn. Thank you for the opportunity to appear today to 
discuss executive branch ethics rules relating to consulting 
activities and awards. Mr. Chairman, you asked that I 
particularly address these issues, consulting and awards, as 
they pertain to the situation at NIH.
    By way of brief background, let me explain that my office, 
the Office of Government Ethics, or OGE as it is called, is the 
executive branch agency responsible for directing policies 
relating to the prevention of conflicts of interest on the part 
of executive branch employees.
    Of particular relevance to the issue before the 
subcommittee today are OGE's standards of conduct regulations. 
Pursuant to an Executive Order issued by the first President 
Bush, these standards of conduct are intended to be a uniform 
set of ethics rules for the entire executive branch. However, 
agencies may add special provisions to address any agency 
specific needs. My office must approve these so-called 
supplemental agency regulations.
    First I would like to say a few things about the awards 
issue. The OGE standards of conduct contain a provision 
authorizing employees to accept certain bona fide awards for 
meritorious public service or public achievement. This awards 
rule is an exception to the usual prohibition of acceptance of 
gifts from prohibited sources or gifts given because of your 
official position.
    There are two key questions about this rule that have a 
bearing on the issues you are examining today. First, what are 
the permissible sources of these awards, particularly where the 
award recipient is the head of an agency or the head of an 
office or a large component in an agency. And, second, how do 
you distinguish between real awards and mere speaker's fees.
    In my written statement I have set out in some detail how 
OGE would analyze both of these questions and I would be happy 
to answer any questions you might have about those tests we set 
out.
    The second issue you asked me to speak about concerns rules 
governing outside activities such as consulting for 
compensation. The rules are designed to be reasonably flexible 
and they reflect a balance between the rights of employees to 
have a life outside of work with the need for the Government to 
demand the highest ethical standards from its employees.
    Generally speaking, the rules permit compensated consulting 
unless the activity would require recusal from matters center 
or critical to the employee's position, or if the activity 
would violate a particular statute or regulation such as the 
OGE rules prohibiting the use of public office for private 
gain.
    There are essentially two approaches that an agency can 
take to implement this rule. First, an agency can review 
outside activities of each individual employee on a case-by-
case basis in light of the general standards found in the OGE 
rules. Or an agency can seek approval from OGE to issue a so-
called supplemental regulation restricting certain specific 
outside activities for all employees at that agency or certain 
groups of employees.
    Since 1995 NIH has followed the case-by-case approach. 
However, though, recent accounts in the media and elsewhere 
about NIH consulting activities raise concerns about the nature 
and extent of consulting arrangements that have been approved 
under the case-by-case approach. I think it becomes clear that 
either the system for reviewing the proposed activities on this 
case-by-case approach should be strengthened by NIH or NIH 
should develop specific supplemental regulations tailored to 
the circumstances of NIH.
    We have received the report of the Blue Ribbon Panel on 
conflicts of interest policies and note that it recommends the 
adoption of some additional restrictions. OGE is ready to help 
NIH and its parent, HHS, implement whatever restrictions they 
think would be necessary to ensure public confidence in the 
important work of NIH.
    My written statement provides further details concerning 
these rules relating to outside activities and I would be happy 
to answer any questions you may have.
    [The prepared statement of Marilyn L. Glynn follows:]

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

    Mr. Chairman and members of the subcommittee: Thank you for the 
opportunity to appear today to discuss Executive Branch ethics rules 
pertaining to consulting activities and awards from outside sources. 
Mr. Chairman, you asked in particular that I address issues that have 
arisen at the National Institutes of Health with respect to employees' 
consulting activities and outside awards. I will discuss these subjects 
and provide OGE's views on the general legal questions. Before 
discussing these specific topics, I want to provide the Subcommittee 
with background information about OGE and its role in the Executive 
Branch ethics program.

           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. 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.
    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), regulations interpreting the provisions of sections 
207, 208, and 209 may be promulgated only with the concurrence of the 
Attorney General, while regulations establishing a single set of 
executive branch standards of conduct and a system of nonpublic 
financial disclosure are promulgated in consultation with the Attorney 
General and the Office of Personnel Management.''
    Many of the rules bearing on the issues of concern to the 
Subcommittee today are found in OGE's Standards of Ethical Conduct. OGE 
issued these rules originally in 1992, pursuant to the order of the 
first President Bush to ``establish a single, comprehensive and clear 
set of executive-branch standards of conduct that shall be objective, 
reasonable, and enforceable.'' E.O. 12674,  201(a). In keeping with 
the President's goal of promoting uniformity in the application of 
ethics requirements across the executive branch, the OGE standards were 
to supercede any agency-specific standards, unless an agency sought and 
obtained approval from OGE to issue supplemental regulations ``of 
special applicability to the particular functions and activities of 
that agency.'' Id. at  301(a).
    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. With respect to the issues of concern 
to the Subcommittee today, I would note that the duties of agency 
officials also include the approval of certain kinds of outside awards 
and the review and approval of certain outside activities.
    OGE provides training and guidance to agency ethics officials in 
numerous ways. Among other things, OGE: publishes advisory opinions and 
issues memoranda to ethics officials; conducts periodic national and 
regional training courses; communicates regularly with ethics officials 
through an electronic list service; provides consultative services to 
agency officials through the OGE desk officer system and through 
telephonic and written advice from OGE legal staff.
    OGE also monitors and evaluates the executive branch ethics program 
through periodic reviews of the ethics programs at each agency. The 
purpose of these reviews 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. Typically, the focus of these reviews is 
on agency systems, rather than instances of misconduct by individual 
employees. Individual misconduct by employees is investigated by the 
Office of Inspector General responsible for each agency.

                                 AWARDS

    OGE understands that the Committee has two primary questions about 
the receipt of outside awards by employees. The first question pertains 
to the permissible sources of such awards, and the second question 
pertains to the distinction between an award and an honorarium for 
giving a lecture. In order to address these questions, it is first 
necessary to set out the purpose and requirements of OGE's awards rule.
    The awards rule, 5 C.F.R.  2635.204(d), is actually an exception 
to certain statutory and regulatory gift prohibitions. See 5 U.S.C.  
7353; 5 C.F.R. part 2635, subpart B. Generally, employees are 
prohibited from receiving gifts from certain prohibited sources and 
gifts given because of an employee's official position. Prohibited 
sources include any person who: (1) is seeking official action by the 
employee's agency; (2) does business or seeks to do business with the 
employee's agency; (3) conducts activities regulated by the employee's 
agency; (4) has interests that may be substantially affected by 
performance or nonperformance of the employee's official duties; or (5) 
is an organization a majority of whose members are such persons. 5 
C.F.R.  2635.203(d).
    The awards rule provides an exception to these gift prohibitions 
where the gift is a ``a bona fide award or incident to a bona fide 
award that is given for meritorious public service or achievement.'' An 
important limitation on the exception is that the donor must not be a 
particular type of ``prohibited source,'' i.e., a person who has 
interests that may be substantially affected by the employee's duties 
(or an association or organization in which the majority of members 
have such interests). Moreover, if the gift has an aggregate value in 
excess of $200 or is in the nature of cash or an investment interest, 
an agency ethics official must make a prior written determination that 
the award is part of an ``established program of recognition'' that 
meets additional criteria specified in the rule.
1. The source limitation
    One question that has been raised is whether the head of an office, 
such as the Director of one of the Institutes at NIH, may receive an 
award from an entity that has grants, contracts or other business with 
the same office. In other words, is someone doing business with a 
particular office always going to be a person who has interests that 
may be substantially affected by the duties of the head of that office, 
even if the head of the office has delegated the relevant functions to 
subordinates and does not currently have any personal involvement in 
matters affecting that source?
    OGE has not issued written guidance on this question. One possible 
reading of the regulation might be that the head of an office ``may'' 
have duties that could affect any person doing business with that 
office. The theory would be that the head of the office has authority 
over every matter pending in his office and therefore has the power, 
whether exercised or not in any given instance, to intervene in any 
such matter. Regardless of any delegations or other attenuating 
circumstances, the office head always ``may'' still perform the duties 
that would affect the source.
    While this may be a reasonable interpretation, OGE declines to 
adopt such a broad reading. For one thing, we think it important that 
the source limitation uses terms such as ``performance'' and 
``duties,'' which suggests that some actual involvement by the employee 
must at least be reasonably foreseeable. Other ethics provisions 
expressly cover matters that are merely under an employee's ``official 
responsibility,'' and we could have used such language in the awards 
rule, but did not. See, e.g., 5 C.F.R.  2637.202(b)(2)(all matters 
pending in agency are under official responsibility of agency head). 
Moreover, since the awards rule intentionally carves out only a 
particularly problematic subset of prohibited sources, it would be 
somewhat peculiar to say that the agency head and other senior 
management essentially may never receive an award from anyone involved 
with the agency; again, we have drafted other rules that expressly 
apply special provisions to agency heads and other senior officials, 
but that was not the course chosen in the awards rule. See, e.g., 5 
C.F.R.  2635.102(b)(conduct of agency head); 
2635.807(a)(2)(i)(E)(3)(activities of high level political appointees).
    Perhaps most important, we think the broad interpretation would 
lead to unreasonable results. Under this interpretation, virtually 
every person doing business with an office would be an impermissible 
award source for the office head, regardless of the size of the office 
or the nature or importance of the business. For example, a relatively 
autonomous component of a very large agency might make a significant 
number of modest grants to various associations, universities, and 
other nonprofits to fund meetings or other informational events on a 
wide range of noncontroversial topics, with such grants being handled 
routinely by employees several levels below the agency head and without 
any foreseeable intervention by higher level officials. Under these 
circumstances, we do not believe it would make sense to say that an 
association whose sole connection to the agency is one of these lower 
level grants would be an impermissible source for an otherwise 
legitimate award to the agency head. The broad interpretation of the 
source limitation could produce even more extreme results. For example, 
a component of an agency may procure paper products from a supplier; 
even though the head of the agency may have the legal authority to 
participate in this purchase, there is very little likelihood that the 
agency head would become involved in such matters, and it would seem 
unreasonable to say that the paper supplier would be an impermissible 
source for an award.
    At the same time, however, we do not believe it is necessary or 
desirable to limit the reach of the source restriction to those 
situations where the donor currently has matters before the head of an 
office personally. Nor do we think the restriction can be avoided 
merely because the head of an office usually or normally leaves such 
matters to subordinates. In our view, the word ``may'' in the source 
limitation does not mean that it must be ``more likely than not'' that 
the office head will intervene in a matter substantially affecting the 
source. If there is at least a reasonable prospect that the office head 
may become involved in a matter, we do not believe that a donor who 
could be substantially affected by such involvement should be allowed 
to grant an award, possibly with the hope of building good will with 
the office head in the event that his intervention may be needed or 
desired.
    The approach we would follow, therefore, is one of reasonableness: 
is it reasonable to assume that the office head may become involved in 
a matter substantially affecting the interests of the donor, or is the 
chance of such intervention simply a remote and speculative 
possibility? To assist agency ethics officials in making such 
determinations, we have identified several factors they should 
consider, in light of the totality of the circumstances:

 How have such matters been handled historically by the office? For 
        example, is there precedent for the office head becoming 
        involved in matters of this type and/or matters involving this 
        particular donor in the past?
 Are matters of this type typically handled at a level far below the 
        office head, or are they handled at an intermediate level 
        somewhat closer to the agency head?
 How large is the office for which the employee is responsible?
 Is there a multitude of similar matters pending somewhere in the 
        office at any given time, such that the matter affecting the 
        donor may be less likely to have any particular prominence?
 How important or sensitive is the matter? For example, does the 
        matter involve a significant dollar amount or is there any 
        particular controversy or novelty? On the other hand, is the 
        matter relatively routine and one that does not call for the 
        exercise of significant discretion?
 Is the office head typically apprised of such pending matters and any 
        attendant issues, for example, through status reports that 
        identify the affected source?
 Can it be said that the donor is a regular ``constituent'' or 
        ``stakeholder'' with respect to the programs and operations of 
        the office? For example, does the particular donor have a 
        number of matters pending in the office or does the donor 
        regularly seek business or official action from the office?
    The foregoing list of factors is not intended to be exhaustive, and 
ethics officials should consider any information indicating that it is 
more or less foreseeable that an office head would be in a position to 
exercise duties substantially affecting a particular donor.
    Finally, OGE wants to emphasize that the awards exception is 
subject to the same general limits as all the other gift exceptions in 
the OGE standards of ethical conduct. Among those limitations is the 
caveat that employees may not ``[a]ccept gifts from the same or 
different sources on a basis so frequent that a reasonable person would 
be led to believe the employee is using his public office for private 
gain.'' 5 C.F.R.  2635.202(c)(3). Although it is not feasible to 
specify a bright line test for frequency of awards, we do think that 
ethics officials should be cautious where high level employees have a 
history of accepting awards of significant monetary value, as such 
circumstances can increase the risk that an official may appear to be 
using public office for private gain.
2. Awards vs. compensation for services
    A second issue pertains to the relationship between the awards 
exception and other ethical limitations concerning the receipt of 
earned income and compensation. In particular, questions have been 
raised about whether certain ``lectureships'' or ``lecture awards'' are 
permissible awards, or more appropriately should be treated as outside 
earned income or compensation for speaking. In certain instances, there 
have been concerns that impermissible outside earned income or 
compensation for speaking related to the employee's official duties may 
have been misidentified as permissible awards. OGE shares these 
concerns and recognizes that agency officials must exercise judgment to 
distinguish true awards from what are essentially speaking fees.
    Quite apart from the rules pertaining to awards and other gifts, 
there are ethical restrictions that focus on the receipt of earned 
income or compensation in certain situations. Certain Presidential 
appointees are prohibited from receiving ``any earned income for any 
outside employment or activity performed during'' their Presidential 
appointment. Executive Order 12731,  102. Similarly, a provision in 
the Ethics in Government Act limits the annual amount of outside earned 
income that certain high level political appointees, such as noncareer 
members of the Senior Executive Service, may receive to 15 percent of 
the annual rate of basic pay for level II of the Executive Schedule. 
For these purposes, earned income generally means ``compensation for 
services.'' 5 C.F.R.  2636.303(b). This includes compensation for an 
employee's services as a speaker, such as ``honoraria.'' Id. Earned 
income does not, however, include items that may be accepted from a 
prohibited source under the gift rules in the Standards of Ethical 
Conduct.  2636.303(b)(1).
    There is another restriction that focuses specifically on 
compensation for speaking. Under 5 C.F.R.  2635.807(a), all 
employees--not just Presidential appointees or other noncareer 
personnel--are prohibited from accepting compensation for speaking that 
is related to their official duties. Like the restrictions on earned 
income discussed above, section 2635.807(a) covers payments for an 
individual's activities or services, specifically ``any form of 
consideration, remuneration or income . . . given for or in connection 
with the employee's teaching, speaking or writing activities.''  
2635.807(a)(2)(iii). Similar to the definition of earned income, the 
definition of ``compensation'' in section 2635.807(a)(2)(iii)(A) does 
not include ``items that could be accepted from a prohibited source 
under Subpart B'' of the Standards of Ethical Conduct.
    It should be apparent from this discussion that the rules governing 
awards and the rules governing compensation or earned income serve 
different purposes and have different requirements. On the one hand, a 
bona fide award for meritorious public service or achievement is a 
gift, which may be received notwithstanding the gift prohibitions, 
under certain circumstances. Payments for speaking activities, on the 
other hand, are not considered gifts but compensation for a service or 
activity, and the permissibility of such compensation is judged by 
different standards than those governing the receipt of gifts. The 
exclusion of certain gifts governed by Subpart B of the Standards of 
Ethical Conduct from the definitions of earned income and compensation 
underscores the distinct treatment of gifts and compensation or earned 
income.
    Nevertheless, OGE recognizes that it may not always be immediately 
apparent to employees and agency officials whether a particular offer 
from an outside source should be viewed as a gift subject to the awards 
exception or as compensation for a speaking activity. This is 
especially true where an employee is offered something of value in 
connection with a ``lectureship'' or ``lecture award'' sponsored by an 
outside organization. In some instances, it may not be clear whether 
the real intent of the payment is to honor the employee for meritorious 
public service or achievement, or to compensate the employee for 
providing a speech on a subject of interest to the sponsor or the 
intended audience.
    The question is further complicated by the fact that even clearly 
bona fide awards programs sometimes involve the recipient giving a 
substantive speech, i.e., not merely a brief ``thank you'' or 
acceptance remarks. For example, recipients of the Nobel Prize for 
Medicine--which is cited specifically in the OGE rule as an example of 
a bona fide award--deliver a ``Nobel Lecture'' which can be of 
significant duration and scientific content. E.g., www.nobel.se/
medicine/laureates/2002/horvitz-lecture.html (one of three co-
recipients in 2002 delivered 51 minute lecture, complete with data and 
graphs). Plainly, the delivery of a speech by an award winner is not, 
in and of itself, enough to convert an award into earned income or 
compensation for speaking, for purposes of the ethical restrictions 
discussed above.
    By the same token, invitations to engage in speaking activities 
often are motivated by the speaker's past accomplishments. The fact 
that the sponsor of a lectureship extends an offer of compensation 
based on the prospective speaker's curriculum vitae does not, in and of 
itself, mean that the lectureship is an award as opposed to a 
compensated speaking engagement. Even if the lectureship itself carries 
a certain prestige within a particular profession or discipline, the 
primary intent of the sponsor still may be to obtain the services of a 
well-qualified speaker for an event.
    OGE has not had occasion to issue written guidance on this 
question, but we believe that the appropriate approach to such 
questions is to determine whether the primary purpose of the 
arrangement is to honor the employee for meritorious public service or 
achievement, or to compensate the employee for services as a speaker. 
In a somewhat analogous area of federal income taxation, we note that 
authorities have focused on whether an award is ``intended primarily to 
provide gratuitous honorific recognition of achievement'' or instead is 
``primarily compensatory in nature.'' Rogallo v. United States, 475 
F.2d 1, 2, 5 (4th Cir. 1973); see generally Kogan, The Taxation of 
Prizes and Awards: Tax Policy Winners and Losers, 63 Wash. L. Rev. 257 
(1988)(historic concern for awards as disguised compensation). Given 
the range of award and lecture programs, this analysis inevitably 
involves a case-by-case consideration of any factors bearing on the 
purpose or intent of the particular program.
    OGE has identified several factors that can be relevant to such 
determinations. The list that follows is by no means intended to be 
exhaustive. Moreover, in many cases, no one factor will be 
determinative, and agencies will have to discern the primary purpose of 
the program from the totality of the circumstances.
     How has the sponsor historically characterized the program? It 
would be relevant, for example, if the sponsor's written materials 
traditionally have referred to the program as ``an award'' or, 
alternatively, as a ``lecture series.''
     How is the event promoted by the sponsor? For example, extensive 
publicity by the sponsor advertising the speech as the draw for 
attendance at an event could indicate that the speaker was invited 
primarily to attract an audience for a lecture. Of particular concern 
would be publicity by the sponsor in which the event is portrayed as an 
opportunity for the audience to receive specialized information or 
unique insights from the speaker.
     Is it the policy of the sponsor to make the delivery of a speech 
a condition of receiving the award? If the award winner has the 
discretion to accept the full award but decline to make a speech, then 
the arrangement almost certainly would be an award rather than a 
compensated speaking activity. As noted above, however, the fact that 
an award winner may be expected to make a speech does not necessarily 
mean that the award is primarily intended as compensation for speaking.
     What is the nature of the expected speech? If the speech consists 
of little more than brief acceptance remarks, the award can hardly be 
characterized as compensation for speaking. It also may be relevant 
whether the anticipated speech would convey new or previously 
unpublished information, or focus in significant part on new or ongoing 
work of the speaker; this could suggest an intent to compensate the 
recipient for the content of the speech rather than to honor the 
recipient for past work. On the other hand, a speech merely reviewing 
the past work for which the speaker is being honored could well be 
consistent with a purpose to honor the recipient gratuitously for past 
achievement.

                         CONSULTING ACTIVITIES

    One of the major areas that can give rise to conflict of interest 
questions is 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 at all, and, if so, 
what limitations apply to such participation.
a. Conflicting Outside Activities and Appearance Problems
    OGE's Standards of Ethical Conduct for Employees of the Executive 
Branch prohibit an employee from engaging in an outside activity that 
conflicts with his official duties. 5 C.F.R.  2625.802. 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.
    There are two substantive provisions that may require 
disqualification or recusal. A criminal statute, 18 U.S.C.  208, 
prohibits employees from participating in certain matters affecting 
their personal and imputed financial interests. An OGE regulation, 5 
C.F.R.  2635.502, provides for employees and agency officials to 
consider recusal from matters involving persons with whom the employee 
has certain business and personal relationships. When an employee 
wishes to participate in an outside activity that will require recusal 
under either of these provisions, agency officials must exercise 
informed judgment to determine whether the scope of any recusal will 
materially impair that employee's ability to do his job. Such 
management determinations take into account a variety of factors, 
including the nature of the employee's duties, the needs of the office, 
and the ability to reassign projects in the office.
    Even if an outside activity is not prohibited under this standard, 
it may nonetheless violate other principles or standards and therefore 
be prohibited. One important standard is that employees may not use 
their public office for their own private gain or the private gain of 
others with whom they have certain relationships. 5 C.F.R.  2635.702. 
Certain outside activities may be prohibited under this standard, 
whether or not the activity would require the employee to recuse from 
matters that are central or critical to the position. For example, even 
if the head of an office reasonably can recuse from a matter affecting 
an entity with which he has a consulting arrangement, there still could 
be an appearance that the entity is benefiting from the employee's 
official position: depending on the circumstances, one might reasonably 
question, for instance, whether subordinates involved in the matter 
would feel subtle pressure to favor the entity with which their 
supervisor has a substantial business relationship. Moreover, some 
outside consulting relationships may involve a subject matter that is 
so closely related to an employee's official work that the overlap 
would give rise to an appearance that the employee took advantage of 
his official position to obtain the outside consulting opportunity or 
that the employee is providing insights obtained on the job only to 
those willing to pay.
    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.
    Although the standards mentioned so far generally require a case-
by-case consideration of the proposed outside activity, the OGE 
Standards also permit agencies to promulgate blanket prohibitions on 
certain outside activities. These prohibitions, called supplemental 
agency regulations, must be approved by OGE, pursuant an Executive 
Order requiring OGE concurrence in any departures from or additions to 
the uniform standards of conduct applicable to the entire executive 
branch. The Department of Health and Human Services, in fact, has 
promulgated certain supplemental prohibitions on outside activities. 5 
C.F.R. part 5501.
    We note that a 1995 OGE review of the NIH ethics program discovered 
that NIH had a series of restrictions on outside consulting that were 
not promulgated in accordance with the procedures prescribed in the 
Executive Order. OGE directed that NIH either remove these restrictions 
or propose them for inclusion in the HHS supplemental regulation. At 
that time, NIH chose to remove the restrictions and did not propose any 
additional outside activity restrictions in the HHS supplemental 
regulation. As we understand it, NIH decided to rely on case-by-case 
evaluations, under the general standards applicable to all executive 
branch employees.
    Subsequently, questions have arisen concerning the current NIH 
system and the need for more specific restrictions on certain kinds of 
outside activities. In this connection, we understand that NIH now is 
considering recommendations from the Blue Ribbon Panel on Conflict of 
Interest Policies, which panel is a Working Group of the Advisory 
Committee to the Director, which was appointed by the Director of NIH. 
The Panel report makes numerous recommendations, including proposals 
for supplemental regulations governing certain outside activities, such 
as consulting. OGE has received a copy of this report and is in the 
process of reviewing it. If the Department of Health and Human Services 
decides to request amendments to its supplemental regulation, in 
response to any recommendations of the Panel, OGE stands ready to 
assist the Department and act expeditiously on any request.
b. Limitations When an Outside Activity Is Undertaken
    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 ethics rules and statutes. This includes 
rules that prohibit the misuse of official title, authority, resources, 
information, and time in connection with outside activities. There are 
also important restrictions on representing others before the 
Government and serving as an expert witness in matters affecting the 
Government. Additionally, certain noncareer employees are subject to 
limitations on outside earned income, compensated service on boards of 
directors, and involvement with entities providing professional 
services of a fiduciary nature.
    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 certain others, 
are affected by such matters. As mentioned above, disqualification or 
recusal from certain matters may be required under 18 U.S.C.  208 or 5 
C.F.R.  2635.502. 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 it is determined that 
the outside activity is permissible, the employee's supervisor 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 and 
supervisors to ensure that they understand when a recusal is required 
and how to effectively implement a required recusal.

                       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 typically has conducted reviews of approximately 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.
    Since 1990, OGE has completed three program reviews at NIH. These 
prior reviews focused on, among other issues, NIH practices and 
policies pertaining to teaching, speaking, writing and other outside 
activities. OGE has initiated a 2004 review of the NIH ethics program. 
This review is being performed at the Office of the Director, NCI, 
NIAID, and the Clinical Center. The focus of the current review is on 
the structure and staffing of NIH's ethics program, the public and 
confidential financial disclosure systems, the criteria and process for 
approving outside activities, and the criteria and process for 
approving the acceptance of awards. The review is ongoing.
                               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.

    Mr. Greenwood. Thank you very much, Ms. Glynn.
    Mr. Swindell.

                 TESTIMONY OF EDGAR M. SWINDELL

    Mr. Swindell. Mr. Chairman and members of the subcommittee, 
thank you for inviting me to speak with you today. I also have 
a prepared statement that I will submit for the record.
    I am the Assistant General Counsel for Ethics at the 
Department of Health and Human Services and as such my 
principal role is to provide legal advice to the Secretary and 
the General Counsel on Government ethics and related issues. In 
addition, I serve as the designated agency ethics official for 
HHS under the Secretary's direct appointment.
    Today I was the primary point of contact with the Office of 
Government Ethics and we have a program within HHS that is 
decentralized. There are deputy ethics counselors that run 
ethics programs within the Department.
    Based upon these qualifications I am here today to speak to 
the committee. I would first like to emphasize to the committee 
that the goal of ensuring public confidence and the integrity 
of NIH is one that the Department shares very much with the 
committee and a goal which we can work together to accomplish.
    As NIH moves forward with the help of the Department to 
address areas of concern, the Department values the committee's 
informed views. Secretary Thompson has a goal of making HHS the 
leading cabinet agency on ethics matters.
    However, I understand that concerns have been raised by the 
committee about a perceived lack of the responsiveness on the 
part of the Department or on the part of the Office of General 
Counsel within the Department with particular attention to 
information requested by the committee regarding outside 
consulting arrangements involving NIH employees.
    I would like to assure you that the Department is fully 
committed to cooperating with the committee. In response to the 
NIH's request to ask employees for information regarding 
outside compensation. The Department through OGC has worked 
extensively to identify and resolve legal issues that are 
relevant to pertaining this information.
    When the committee first asked NIH to obtain amounts of 
compensation for outside activities, these amounts were 
unavailable for those individuals who file a confidential OGE 
450 financial disclosure form or who do not file any financial 
disclosure form at all. This is because OGE has historically 
viewed the form as serving a conflicts of interest purpose 
rather than a disclosure purpose. The conflicts analysis for 
reviewing potential outside activities has historically focused 
Government-wide on the type and source of compensation rather 
than the amount.
    HHS strove to help NIH find a way to collect the 
information and was successful in doing so. This information is 
critically important and so I have taken steps consistent with 
the privacy act to obtain this data in the future for all 
outside activity requests.
    HHS advised NIH about the privacy act and its requirement 
that collection and maintenance of identifiable information be 
for purposes authorized by statutes, regulations, or executive 
order. Although the interest of Congress alone would not be a 
sufficient legal basis to collect and maintain the information, 
an agency interest pursuant to statutes, regulations, or 
executive order would be an appropriate basis. Accordingly, the 
Department sought to identify such a legal basis.
    On January 27, 2004, I issued a directive informing the 
DECs, the ethics counselors, that in the context of any agency 
evaluation, of any previously approved ongoing outside activity 
for continued compliance with existing law, and in order to 
request prior approval for any new outside activity employees 
would be required to provide both retrospective, if applicable, 
and prospective compensation information. Such amounts were to 
be noted on the HHS 520 and this allowed NIH to collect 
compensation amounts for all ongoing outside activities.
    I would note that the form we have been using is from 1982 
and we have canvassed other departments and agencies and found 
out that of the other cabinet departments about nine of them 
don't even have such forms that we have. Then five of them have 
forms and they don't ask for this type of amount of information 
either. We are going to be working to make sure that our form 
is the best possible form for dealing with outside activities 
that we have.
    HHS explained to the committee staff the potential 
difficulties in collecting information pertaining to completed 
and closed outside activities. Referencing these discussions in 
its February 25 letter to the Department, the committee said, 
``The Department is attempting in good faith to assist the 
committee.''
    In addition, HHS continued to work to develop an 
interpretation of the Ethics in Government Act that would 
support the collection of information for completed outside 
activities. In so doing, we discussed the legitimate and 
important need for NIH to collect the information NIH and OGC 
felt was important for the agency to collect.
    As a result, OGE agreed with us that the Ethics in 
Government Act and its implementing regulations providing the 
DAEO, and therefore the Agency, with authority to evaluate the 
agency's supplemental ethics regulations to determine their 
continued adequacy and effectiveness in relation to current 
agency responsibilities. This determination supported the 
collection of information regarding completed and closed 
activities with pharmaceutical and biotechnology companies.
    As a result of these efforts, Dr. Zerhouni was able to 
write to the committee on March 12, 2004, that ``We consider 
this collection [of information] authorized by the Ethics in 
Government Act of 1978 and Executive orders mentioned above.'' 
It is my understanding that NIH decided to manage litigation 
risk from NIH employees who might not wish to comply with a 
required collection of information by first attempting to 
collect the information on a voluntary basis.
    However, I understand that Dr. Zerhouni is now going to 
instruct all NIH employees who had consulting arrangements 
since January 1, 1999 to report the compensation amounts 
received pursuant to the consulting as a requirement and 
condition of their employment subject to discipline.
    The Department has also worked with NIH and the committee 
to facilitate an appropriate and timely response to other 
aspects of the committee's investigation. The issue of 
appropriate ethical oversight is critically important to the 
Secretary. In fact, under the Secretary's and the General 
Counsel's leadership the ethics division that I head has 
undertaken a series of efforts to enhance its functions but 
particularly to institute systematic oversight of components 
ethics programs, review of financial disclosure forms, and 
training to employees.
    Our staff has been small. We have a large agency. It has 
operated decent programs. We have had little ability to be able 
to know what is going on absent situations that come up like 
this or the OGE reviews that occur every 4 to 6 years. We are 
going to do what we can to make sure that we have internally 
the knowledge to know what is going on.
    Our staffing will more than double from 11 in my office to 
25. This, to my knowledge, will make us the largest single 
legal office devoted exclusively to Government ethics outside 
of OGE. The steps we are undertaking will enhance the 
Department's operations and work on behalf of the public. 
Therefore, the Department will continue to cooperate with the 
committee as it addresses these important issues. In this 
manner working together our two branches of Government can 
achieve our collective goal of ensuring public confidence in 
agency programs and operations through whatever means that will 
best accomplish that objective.
    I will be pleased to answer any questions you have.
    [The prepared statement of Edgar M. Swindell follows:]

Prepared Statement of Edgar M. Swindell, Associate General Counsel for 
 Ethics, Office of the General Counsel, U.S. Department of Health and 
                             Human Services

    Mr. Chairman, Mr. Deutsch, and members of the subcommittee: Thank 
you for inviting me to speak with you today to discuss the ethics 
issues relating to the National Institutes of Health (NIH).
    The goal of ensuring public confidence in the integrity of NIH is 
one that the Department very much shares with the Committee B and a 
goal which we can best accomplish together. The Committee's oversight 
in this area has been edifying and helpful in identifying areas of 
concern. As NIH moves forward, with the help of the Department, to 
address those concerns, the Department values the Committee's informed 
views and welcomes the Committee's suggestions regarding steps that can 
be taken to ensure that the tremendous trust that the Congress and the 
public place in NIH is as unquestioned as the vast contributions NIH 
has made towards advancing the nation's health and the promise it holds 
to continue doing so. To this end, we believe the recommendations of 
the Blue Ribbon Panel provide an important perspective and serve as a 
helpful starting point.
    As Associate General Counsel for Ethics, my principal role is to 
advise the Secretary and the General Counsel on government ethics, 
restrictions on political activity by federal government employees, and 
related issues. Concurrently, under an appointment directly from the 
Secretary, I serve as the Designated Agency Ethics Official (DAEO) for 
the Department. The DAEO is the point of contact with the Director of 
the Office of Government Ethics (OGE). That office sets ethics policy 
for the entire executive branch under an Executive Order issued by the 
first President Bush replacing a system of individual agency regulation 
of employee conduct.
    I understand that concerns have been raised by the Committee about 
the role of the Office of General Counsel, within the Department, in 
responding to the Committee's oversight, with particular attention to 
information requested by the Committee regarding payments, expenses, 
and stock options paid to NIH employees for consulting arrangements 
since January 1, 1999. NIH proposed asking employees for information 
regarding compensation for outside activities. Accordingly, the 
Department, working through OGC, has worked extensively with NIH and 
the Committee's staff, as well as other federal agencies, to identify 
and resolve legal issues relevant to obtaining this information.
    When the Committee first asked NIH to obtain amounts of 
compensation for outside activities, these amounts were unavailable for 
those individuals who file the confidential OGE 450 financial 
disclosure form or who do not file any financial disclosure form. This 
is because OGE has historically viewed the form as serving a conflicts 
of interest purpose rather than a disclosure purpose. And the conflicts 
analysis for reviewing potential outside activities has historically 
focused, governmentwide, on the type and source of compensation rather 
than the amount. For the same reason, the HHS 520 form, used for review 
of potential outside activities, did not, until my January 27, 2004 
memorandum, request the amount of compensation. Historically, OGE has 
advised that it did not view the dollar amount as normally relevant to 
the outside activity conflicts analysis.
    HHS strove to help NIH find a way to collect the information and 
was successful in doing so. This information is critically important 
and so we have taken steps, consistent with the Privacy Act, to obtain 
this data in the future for all outside activity requests.
    HHS advised NIH about the Privacy Act, and its requirement that 
collection and maintenance of identifiable information be for purposes 
authorized by statutes, regulations, or Executive Order, and that such 
authority must be cited in the Privacy Act statement accompanying the 
request for information. Although the interest of Congress alone would 
not be a sufficient legal basis to collect and maintain the 
information, an agency interest pursuant to statutes, regulations, or 
Executive Order, would be an appropriate basis. At first, we hoped that 
the Ethics in Government Act, administered by OGE, could serve such a 
basis. The difficulty was that OGE did not historically believe that 
amounts of compensation were normally relevant to conflicts analyses.
    OGC worked with OGE to devise an interpretation of the authorities 
provided in the Ethics in Government Act that would support the 
collection of compensation amount information for ongoing activities as 
well as activities being reviewed for compliance with the relevant 
rules. At that time, OGE did not believe that the authorities in the 
Ethics in Government Act could support the collection of compensation 
amount for completed and closed outside activities.
    On January 27, 2004, I issued a directive informing Deputy Ethics 
Counselors [DECs] that in the context of any agency evaluation of any 
previously approved, ongoing outside activity for continued compliance 
with existing law and in order to request prior approval for any new 
outside activity, employees would be required to provide both 
retrospective (if applicable) and prospective compensation information. 
Such amounts were to be noted on the HHS 520. This allowed NIH to 
collect compensation amounts for all ongoing outside activities.
    HHS explained to Committee staff the potential difficulties in 
collecting information pertaining to completed and closed outside 
activities. Referencing these discussions in its February 25, 2004 
letter to the Department, the Committee said ``the Department is 
attempting in good faith to assist the Committee.''
    In addition, HHS continued to work to develop an interpretation of 
the Ethics in Government Act that would support the collection of 
information for completed outside activities. In so doing, we discussed 
the legitimate and important need for NIH to collect the information 
NIH and OGC felt was important for the agency to collect. As a result, 
OGE agreed that, in this case, the Ethics in Government Act and its 
implementing regulations providing the DAEO with authority to evaluate 
the agency's supplemental standards to determine their continued 
adequacy and effectiveness in relation to current agency 
responsibilities, supported the collection of information regarding 
completed and closed activities with pharmaceutical and biotechnology 
companies. OGC further applied the same reasoning to all for-profit 
entities.
    As a result of these efforts, Dr. Zerhouni was able to write to the 
Committee on March 12, 2004, that ``We consider this collection [of 
information] authorized by the Ethics in Government Act of 1978 and 
Executive orders mentioned above.'' It is my understanding that NIH 
decided to manage litigation risk from NIH employees who might not wish 
to comply with a required collection of information by first attempting 
to collect the information on a voluntary basis.
    However, because of inadequate response, I believe that Dr. 
Zerhouni is now going to instruct all NIH employees who had consulting 
arrangements since January 1, 1999 that are now closed to report the 
compensation amounts received pursuant to the consulting as a 
requirement and condition of their employment.
    Background. HHS has a workforce of more than 60,000 individuals, of 
which approximately 1,000 file public financial disclosure reports and 
25,000 file confidential financial disclosure reports and receive 
annual ethics training. These 60,000 employees safeguard the nation's 
health and provide essential human services through myriad programs, 
policies, and initiatives that affect countless stakeholders and a 
large part of the American economy. Whether in allocating grant funds, 
awarding contracts, entering into public-private partnerships, 
approving lifesaving drugs, protecting patient privacy, or reducing 
health care costs, our employees must address the concerns of the many 
while avoiding the appearance or fact of undue influence by the few. To 
assist those who bear that responsibility, the Ethics Division advises 
on how to ensure these duties are carried out impartially and 
unimpeachably. This is largely accomplished through legal advice to 
agency decision-makers and ethics officials, guidance to employees, 
education of the workforce, development of guidance documents, and, 
when necessary, liaison with OGE.
    In HHS, as in most large Cabinet Departments, the DAEO oversees and 
coordinates a decentralized Departmental ethics program. As DAEO, I 
appoint 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 NIH. Each of these DECs, 
along with agency heads and management in each component, are 
responsible for running ethics programs tailored to the needs of 
extensive, geographically dispersed workforces composed of many 
professionally trained employees with varied responsibilities that 
range from insuring the health care needs of the elderly and 
disadvantaged to ensuring the safety and efficacy of drugs and medical 
devices.
    The DECs are senior management 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. 
NIH in particular has such an office under its DEC. As managers closest 
to day to day operations, they are equipped and responsible for 
identifying and evaluating the relevant ethics issues in their 
component. Additionally, the DECs and their staff possess the 
scientific and technical expertise necessary to identify and resolve 
ethics issues in situations involving science, medicine, and other 
complex fields. Within their respective operating divisions, the DECs 
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, seeing that 
disciplinary action is taken. Individual employees are, of course, 
ultimately responsible for their own actions.
    In addition, the Ethics Division has responsibilities similar to 
those of a DEC but for the Office of the Secretary and with respect to 
political appointees. Staff lawyers within the Ethics Division provide 
legal advice to the DECs to assist them in their role in making ethics 
decisions. Furthermore, we conduct training such as an all day DEC 
workshop each year to keep DECs current on ethics law, and 
approximately thirty ethics officials from across the Department attend 
the annual OGE conference and its various break-out sessions or classes 
conducted on a wide variety of ethics topics. OGE's periodic program 
reviews or audits provide us with a sense of how well the Department's 
components meet their ethics responsibilities. In these reviews, OGE 
has recognized that the Ethics Division provides sound guidance and 
instruction and that a clear ``road map'' is in place.
    Ethics Initiative. Based upon a process begun by the General 
Counsel in December, the Ethics Division has undertaken a series of 
efforts to intensify our ability to scrutinize and oversee the 
Department's ethics activities. We are dedicating additional resources 
to enhance the Ethics Division. As part of this initiative, the 
Department will institute systematic oversight of the ethics programs 
within the various operating divisions of the Department through 
regularized compliance auditing and program review, as well as 
dramatically strengthen our ability to provide guidance to these 
programs and their officials. The initiative will increase component 
accountability for ethics program implementation, augment financial 
disclosure review and training development, and enhance the 
capabilities of the Ethics Division and the authority of the DAEO. Our 
staffing will more than double from 11 to 25. To my knowledge, this 
will make us the largest single legal office devoted exclusively to 
government ethics, outside of OGE. We will create two units within the 
Ethics Division: the Advice and Financial Disclosure Branch and the 
Education and Program Review Branch. These branches will be staffed by 
a mix of attorneys, paralegals, computer/training developers, legal 
resource analysts, auditors, and support staff.
    The steps we are undertaking will enhance the Department's 
operations and work on behalf of the public. Specifically, this 
initiative will strengthen the Department's identification and 
prevention of employee actions that would or would appear to be 
motivated by private, pecuniary, or associational interests, rather 
than an impartial assessment of the public interest.
    Historical Context. To provide further background to the Committee 
in connection with its review of these issues, following is an 
understanding of how we came to where we are on the issues of financial 
disclosure, outside consulting arrangements, and awards at NIH.
    a. Financial Disclosure. The degree to which the public may have 
access to the personal financial information of employees at NIH is 
governed by federal law and OGE regulations. The Ethics in Government 
Act and implementing regulations in 5 C.F.R. part 2634 provide for two 
types of financial reporting: (1) public disclosure of detailed 
information about assets, income, liabilities, and outside affiliations 
on a report form called the SF 278; and (2) a less intrusive, 
confidential version known as the OGE 450. On the SF 278, filers must 
disclose income amounts and asset values within broad categories, by 
checking, for example, a block indicating a figure between $1,001 and 
$15,000, and so on. The OGE 450 does not ask for any disclosure of 
amounts, only the identity of holdings and income sources, in other 
words, the information necessary at a minimum to assess conflicts.
    By statute, the public SF 278 filing requirement is reserved 
exclusively for highly paid, senior employees, such as Senate confirmed 
Presidential appointees, non-career and career members of the Senior 
Executive Service, Schedule C political appointees in the General 
Schedule, uniformed service officers in the Public Health Service 
Commissioned Corps at pay grade O-7 or above, Administrative Law 
Judges, and employees in other pay systems if the lowest rate of basic 
pay for that pay plan exceeds $104,927 per year. The confidential OGE 
450 basically is filed by career employees in the General Schedule, 
generally at grade levels 12 or above, and by special Government 
employees who do not serve beyond 60 days. Under current law, increased 
public disclosure can occur only through a process of demonstrating to 
OGE that the duties of a particular position B that would not 
ordinarily be required to file publicly under the existing rules B is 
nevertheless equivalent to the positions that do file. This process is 
required because many of the alternative pay systems at NIH do not have 
minimum rates of basic pay that exceed the threshold.
    In 1997, the Ethics Division wrote to the Director of OGE asking 
for an interpretation of the law to require employees hired under the 
authority of Title 42, Section 237, establishing the Senior Biomedical 
Research Service (SBRS), to file SF 278s if the actual annual salary 
received by the employee was equal to or above 120% of the rate of 
basic pay for GS-15, Step 1. The letter urged that these employees be 
required to file public financial disclosure forms and argued that not 
doing so would be ``inconsistent with what would seem to be the 
prevailing rule in the post-employment context [and] appears contrary 
to the purpose of the public financial disclosure requirement. 
Conceivably an . . . employee with a salary equivalent to an Assistant 
Secretary would not be required to file a Public Financial Disclosure 
Report . . . [A]ll SBRS employees with such salary above 120% of the 
GS-15, step 1, level should be automatically required to file a Public 
Financial Disclosure Report.''
    On February 11, 1998, the Director of the OGE declined that request 
and responded that for purposes of the public financial disclosure 
requirement, the term ``rate of basic pay'' was defined as ``the lowest 
level of pay authorized for a position's pay grade.'' Director Potts 
opined that the definition of ``rate of basic pay'' for SBRS employees 
is the lowest step or entry level pay authorized for a particular pay 
grade or range. Thus, since the entry level minimum pay authorized for 
SBRS positions is set by statute as the minimum rate payable for GS-15, 
and since that will always be less than the Ethics in Government Act SF 
278 threshold of 120% of GS-15, Step 1, the SBRS employees would not be 
required by the Ethics in Government Act to file public financial 
disclosure reports. Like the SBRS employees hired under the authority 
of Section 237, the employees hired under the authority of section 
209(f) (who do not have any fixed rate of basic pay) have a ``rate of 
basic pay'' that is less than the statutory SF 278 threshold.
    Although, for the reasons stated above, ``Title 42'' employees are 
not statutorily defined as SF 278 public financial disclosure report 
filers, it is our understanding that all of the NIH Institute and 
Center Directors who were appointed under section 209(f) continued to 
file public financial disclosure form SF 278s even during the time they 
were not required to do so. To ensure that this continues to be the 
case, as well as to increase transparency with respect to the next 
level of senior employees identified by NIH, we have been successful in 
securing an OGE equivalency determination for 93 positions that 
requires, as of February 6, 2004, the Directors, Deputy Directors, 
Scientific Directors, and Clinical Directors within each NIH Institute 
and Center to file publicly available SF 278s. This determination was 
in response to our letter of January 12, 2004. Following our request 
that NIH identify other positions with equivalent authority and 
responsibilities that meet the statutory test, we recently forwarded to 
OGE a list of another 506 positions for this special classification.
    b. Outside Consulting and Financial Interests. HHS employees 
currently are required by an agency supplemental regulation to seek 
prior approval only 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.
    The HHS Form 520, which was designed in 1982 and has since remained 
virtually unchanged. It does not require the applicant to specify the 
amount of compensation to be received in connection with the outside 
activity. Until recently, it was not understood that this information 
would be relevant to the outside activity approval process because the 
requisite legal analysis focuses on the identity of the payor and the 
nature of the outside activity. This information is critically 
important and so I have taken steps, as DAEO, consistent with the 
Privacy Act, to obtain this data in the future for all outside activity 
requests.
    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[6 CFR 
2635.502].
    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, under 5 C.F.R.  5501.106(d)(4), prior approval to 
engage in an outside activity ``shall be granted,'' 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. Another 
regulation prohibits the use of public office for private gain 5 CFR 
2635.702.
    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.) 
For career employees, compensation is precluded if, among other things, 
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 contains an important explanatory note. 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.''
    Finally, there are also special ethical restrictions that focus on 
the receipt of earned income by political appointees. Under Executive 
Order 12,731, issued by the first President Bush and modifying 
Executive Order 12,674, certain Presidential appointees may not receive 
``any earned income for any outside employment or activity performed 
during'' their Presidential appointment. Similarly, the Ethics in 
Government Act limits the annual amount of outside earned income, 
including honoraria, that highlevel political appointees such as 
noncareer members of the Senior Executive Service may receive. This 
year, that limit is $23,715.
    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 non-
governmental 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. For example, at NIH, review of the 
requests often necessitates an ability to analyze the relationship 
between technically complex official scientific duties and similarly 
complex outside activities, both of which might be in the same general 
field of expertise. 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.
    As outlined in the Blue Ribbon Panel report, prior to 1995, NIH had 
stringent internal policies that barred certain outside activities, 
limited the amount of outside compensation, capped the number of hours 
that could be spent in outside work, and precluded the receipt of stock 
or stock options as compensation. However, during a program review 
conducted in 1995, OGE notified NIH that its requirements went beyond 
the 1993 executive-branch wide Standards of Ethical Conduct. By 
Executive Order, OGE was required to ensure uniformity within the 
executive branch with respect to the core ethics requirements. OGE did 
not permit agencies unilaterally to impose ethics requirements or 
policies that were more restrictive than the OGE Standards, absent the 
submission to OGE for its approval a supplemental regulation with 
adequate justification. The then NIH Director did not pursue that 
option, and the internal policies at NIH were changed to conform to the 
case-by-case evaluation process prescribed in the OGE regulations.
    Therefore, whether NIH employees can hold ``drug or biotech'' 
stocks or consult with companies in these industries is governed by the 
application of OGE regulations. Currently, conflicting stock holdings 
are subject to a de minimis exception that allows employees to work on 
specific party matters as long as the value of the affected stock does 
not exceed $15,000 and on a general matter if the value of any one 
affected holding does not exceed $25,000, subject to a $50,000 cap when 
cumulating all affected interests. Also, NIH employees can consult with 
various companies involved in scientific research, if the legal 
requirements are satisfied.
    c. Awards. Another important issue is whether NIH employees should 
be allowed to receive bona fide awards from outside entities with 
interests affected by NIH programs and operations. Depending upon the 
resolution of these questions, it is conceivable that the NIH Director 
might be barred from receiving the Nobel Prize in Physiology or 
Medicine because, as we understand, the awarding entity on behalf of 
the Nobel Committee is the Karolinska Institute, which collaborates in 
research matters with NIH.
    Bona fide awards for meritorious public service or achievement are 
conceptualized as gifts. Gifts to executive branch employees are 
governed by 5 U.S.C.  7353, which bars the solicitation or acceptance 
of anything of value from persons or entities defined as prohibited 
sources, subject to such reasonable exceptions as the supervising 
ethics office for the executive branch, by regulation, deems 
appropriate. OGE implemented this statute in the Standards of Ethical 
Conduct for Employees of the Executive Branch at 5 C.F.R. Part 2635, 
Subpart B. These rules expressly permit employees to accept bona fide 
awards and cash incident thereto from most prohibited sources, e.g., 
contractors, grantees, regulated entities, applicants for governmental 
action, etc., including organizations a majority of whose members are 
of the enumerated type, provided that the award is determined by agency 
ethics officials to be part of an established program of recognition, 
as defined in regulatory criteria. Specifically, under 5 C.F.R.  
2635.204(d)(1), the reviewer must ascertain whether the award is made 
as part of an established program of recognition for meritorious public 
service or achievement:

(1) Under which awards have been made on a regular basis or which is 
        funded, wholly or in part, to ensure its continuation on a 
        regular basis; and
(2) Under which selection of award recipients is made pursuant to 
        written standards.
    This exception to the prohibited gifts rule is unavailable, 
however, if the awarding entity is a special type of prohibited source, 
i.e., a person or entity who ``has interests that may be substantially 
affected by the performance or nonperformance of the [award 
recipient's] official duties.''
    As OGE notes in their testimony today, ``one possible reading'' of 
this phrase could be to bar an agency official from receiving an award 
from any entity that has matters pending under that individual's 
official responsibility, i.e., from any entity or person doing business 
with the recipient's office, or it could specify a ``situational'' 
approach predicated on the interpretive assumption that the use of 
terms such as ``performance'' and ``duties'' suggests that some actual 
involvement by the official must at least be reasonably foreseeable. 
Included with the Committee's initial inquiry on this subject was an 
opinion of the Congressional Research Service that suggests the former 
interpretation. When NIH asked for help in preparing a response to the 
Committee's inquiry and the Congressional Research Service analysis, I 
drafted a White Paper describing the existing policy and its 
derivation.
    That paper pointed out that, because the above-quoted phrase 
appears in OGE's regulation, the phrase's meaning is ultimately a 
matter for OGE deliberation, that OGE has not formally opined on it, 
and that OGE may well choose a different approach than that of the 
Department. Furthermore, the paper observed an alternative to OGE 
clarification: that AFederal departments and agencies were authorized 
to issue, jointly with OGE approval, supplemental ethics regulations to 
establish prior approval procedures for outside activities, to impose 
prohibited financial holdings requirements, and to address ethics 
issues unique to the programs and operations of the respective 
agencies.@
    Today, the Acting Director of OGE provides in her statement the 
first definitive written guidance on the subject. OGE's analysis 
articulated in her testimony today does not adopt a bright line. 
Moreover, some of the factors relied upon by HHS are factors she has 
articulated. We are required to implement the OGE interpretation, of 
course, absent a change in law, OGE regulation, or, one other important 
possibility. As mentioned in the White Paper provided to NIH and, in 
turn, to the Committee last July, agencies are ``authorized to issue, 
jointly with OGE approval, supplemental ethics regulations to . . . 
address ethics issues unique to the programs and operations of the 
respective agencies.'' Therefore, if NIH policymakers decided to go so 
far as to outright prohibit the receipt by all or certain NIH officials 
or employees of all or some awards from outside entities with which NIH 
interacts, a request for such a provision could be included in a 
supplemental regulation submitted for OGE approval.
    In addressing the issue of awards, it is necessary to guard against 
monetary awards and prizes that may appear to be little more than a 
payment for delivering a speech. As noted earlier, federal employees 
cannot receive compensation for speaking that relates to their official 
duties within the meaning of a very detailed regulation, 5 C.F.R.  
2635.807. Moreover, a criminal statute, 18 U.S.C.  209, bars federal 
employees from receiving a supplementation of salary for performing 
their official duties, and another, 18 U.S.C.  201, proscribes illegal 
gratuities tied to an official act. But a bona fide award for 
meritorious public service or achievement and any money that is 
associated with the honor are considered gifts, rather than 
compensation. As you can readily see, there is a continuum between the 
permitted activity on the one hand B accepting a prestigious award with 
the prize money and then delivering the speech that is routinely 
expected of the honoree at the award presentation B and the prohibited 
activity on the other B accepting money to deliver a speech in the 
guise of receiving an award.
    Unfortunately, the ethics rules do not provide us much guidance in 
distinguishing between the two scenarios. Fortunately, the Acting 
Director of OGE in her written statement submitted today has endeavored 
to tackle these issues and has even sent us in the direction of tax law 
for help in determining whether an award is ``intended primarily to 
provide gratuitous honorific recognition of achievement'' or is instead 
``primarily compensatory in nature.'' I am grateful to Director Glynn 
and her staff for providing this valuable assistance.
    It must be considered that even though particular conduct may be 
permitted under the applicable statutes and regulations, and even where 
employees sincerely believe there is no appearance of impropriety in 
the conduct, there may be instances where employees should exercise 
common sense and prudence to abstain from the conduct. However, ethics 
officials are not empowered to compel that abstention.
    In conclusion, the Blue Ribbon Panel's recommendations are 
certainly a helpful starting point. But we remain open-minded and 
interested to hear from NIH regarding its evaluation of the 
recommendations. As the Department moves forward with respect to the 
recommendations and requests from NIH, we will carefully consider what 
steps should be taken. At the same time, HHS, and, in particular, the 
expanded Ethics Division [of the Office of General Counsel], will 
continue accelerating and implementing our plans to independently audit 
ethics programs in the Department's components, ensure extensive 
education and training, increase transparency in the form of thorough 
and accurate disclosure, and provide advice and ethics counsel to the 
nation's premier professionals in the ever-changing field of biomedical 
research.
    We would also very much welcome hearing from the Committee about 
what changes it believes are required to strengthen the ethics rules, 
policies, and procedures at NIH. HHS will continue to cooperate with 
the Committee as the Committee addresses these important issues. In 
this manner, working together, our two branches of government can 
achieve our collective goal of ensuring public confidence in agency 
programs and operations through whatever means will best accomplish 
that objective. The objective is especially meaningful and important 
because so too is the mission of NIH to generate knowledge which will 
advance our ability to care for human ailments and improve the lives of 
all Americans.
    Thank you for the opportunity to speak with you today. I would be 
pleased to answer any questions that you may have.

    Mr. Greenwood. Thank you, Mr. Swindell.
    Dr. Kington, good morning.

                 TESTIMONY OF RAYNARD S. KINGTON

    Mr. Kington. Good morning. Mr. Chairman, members of the 
subcommittee, I am the Deputy Director of the National 
Institutes of Health. I am also the Deputy Ethics Counselor at 
NIH as well as co-chair of the NIH Ethics Advisory Committee.
    The Director of NIH appointed me as the DEC, Deputy Ethics 
Counselor, on January 12, 2004. At the time of my appointment 
the Director expanded the role of the DEC's jurisdiction over 
the immediate senior staff and institute and center directors 
to include institute and center deputy directors, scientific 
directors, clinical directors, extramural program directors.
    In regard to this group of the most senior managers at NIH, 
I am directly responsible for reviewing and approving 
applications to permit various outside activities pursuant to 
the ethic regulations. As Dr. Zerhouni testified before this 
subcommittee last week, he created the NIH Ethics Advisory 
Committee, or NEAC, in the Office of the Director to provide 
independent peer review of activities involving outside 
organizations.
    The NEAC, which conducted its first meeting on January 20 
of this year advises the NIH Deputy Ethics Counselor on 
conflicts of interest and helps to ensure the activities 
involving acceptance of compensation from outside sources 
receive uniform oversight at the NIH.
    NEAC reviewed applications for proposed activities with 
outside organizations that stand the greatest chance of posing 
risks to NIH's objectivity or appearances thereof including 
where an award is valued at $2,500 or more, where total income 
from an activity from an outside organization exceeds $10,000 
or is unknown, where outside compensation is in the form of 
equity, or when the activity involves a drug or biotech company 
or where the activity involves any senior NIH leadership such 
as scientific or clinical directors.
    The committee is co-chaired by myself and the Deputy 
Director for Intramural Research, Dr. Michael Gottesman. It 
consist of 10 rotating members and two ex officio ethics 
advisors all of whom are full-time Federal employees. The 
rotating members are nominated by the institute and center 
directors and appointed by myself and Dr. Gottesman.
    Membership represents the categories of employees 
submitting proposals to the NEAC including two IC directors, 
deputy directors, scientific directors, clinical directors, 
extramural directors, and other OD, Office of the Director, 
senior staff. During the centralized NIH review committee 
members review each proposed activity to assess whether it 
creates an actual or an apparent conflict of interest. The 
committee reviews the proposals based on criteria set forth and 
the standards of ethical conduct for employees of the executive 
branch promulgated by the U.S. Office of Government Ethics and 
the Department of Health and Human Services Regulations.
    To ensure oversight activities that had already been 
approved prior to the creation of NEAC. We also instructed that 
all existing consulting relationships with pharmaceutical or 
biotechnology firms be stopped and resubmitted to the NEAC for 
its review and input before they could be reapproved and, if 
appropriate, continued by the NIH ethics counselor.
    I am pleased to answer any additional questions you might 
have about the current NIH ethnic program. Thank you.
    Mr. Greenwood. Thank you, Dr. Kington.
    Mr. Maskell.

                    TESTIMONY OF JACK MASKELL

    Mr. Maskell. Mr. Chairman and members of the subcommittee, 
thank you for the invitation to present testimony in this 
matter today. I am a legislative attorney with the American Law 
Division in CRS and have worked there on legal and legislative 
issues concerning ethics and Government for about 30 years.
    I began working with the subcommittee staff a year ago 
concerning the legal issues of large cash awards or prizes 
being given by private laboratories or clinics for the 
directors of the Institutes of NIH. In the course of that work 
the scenario that developed was as follows:
    An agency of the Federal Government makes grants for 
research or clinical studies to a private facility totaling 
millions of dollars a year. That private facility then gives a 
substantial cash award or prize of several thousand dollars to 
the Director of the very Federal agency making those grants.
    One does not need to have an intricately detailed knowledge 
of Federal law and regulations on ethics to see the obvious 
appearance problems and potentials for more serious 
consequences in that scenario. Beyond any mere appearance 
problem, however, this scenario raised specific questions of 
violations of Federal ethics regulations, and the statutes 
underlying them.
    I prepared a fairly detailed analysis of some of the legal 
and ethics issues involved for the subcommittee, and with the 
subcommittee's permission, I have appended that analysis to my 
statement today.
    Simply put, it appears that an agency head, with 
administrative and operational authority over all aspects of 
that agency's functions and programs, should not under Federal 
law and regulation be accepting cash gifts, awards or prizes 
from a private grantee of his own agency, that is, a private 
source that is dependant upon and so interested in the official 
duties, responsibilities and powers of that administrator.
    The regulatory exception to the general gift ban for bona 
fide awards or prizes for meritorious service applies only when 
the donor of the award is a sufficiently independent source. 
The standard is that the donor may not ``have interest that may 
be substantially affected by the performance or nonperformance 
of the employee's official duties.'' The example specifically 
given in the Office of Government Ethics regulations of a 
permissible award is an NIH official receiving the Nobel Prize. 
The Department of Justice, analyzing the awards issue under a 
related criminal statute, explained that acceptable bona fide 
awards must come from donors who are ``detached from and 
disinterested in the performance of the public official's 
duties.''
    I believe it would strain credibility to argue that a 
grantee regularly receiving millions of dollars in grants from 
a Federal agency is ``detached from'' or ``disinterested in'' 
or ``independent of'' the duties, powers, and responsibilities 
of the Director of that agency.
    Even when the agency head or other supervisory personnel 
are not directly participating in the award of a grant, or 
actually participating in certifying the private entity as a 
``comprehensive'' treatment facility, the actual authority over 
those subordinate employees making the decisions, promotion, 
pay and work assignments and other things, the inherent 
influence of supervisors and agency heads over such subordinate 
employees, and the natural inclination of employees to want to 
please their superiors, all counsel against such agency heads 
and management personnel receiving cash awards from these 
private grantees under the regulation.
    While there certainly may be some leeway in the 
interpretation of the language of the regulation, the Supreme 
Court, in a unanimous decision authored by Justice Scalia in 
1999, has given some guidance by explaining fairly clearly that 
a private entity has interests that ``may be substantially 
affected by the performance of'' an official's public duties 
when that official ``has the capacity to exercise governmental 
power or influence in the donor's favor,'' regardless of 
whether there is any specific, particular matter on the desk of 
the official relating to that private entity.
    In fact, if there is a particular matter pending before the 
official relating to the private entity at the time of the cash 
payments, questions of both the application of criminal laws as 
well as ethics violations could be implicated.
    That Supreme Court decision, known as the Sun-Diamond case, 
related to criminal charges concerning the then Secretary of 
Agriculture for accepting gifts of travel and entertainment 
from private entities regulated by his Department. The 
indictment charged the parties ecretary with the giving of 
``illegal gratuities'' under the Federal bribery statute. There 
were no allegations that the Secretary ever did any official 
act for the donors, or that any specifically identified 
official matter was pending before the Secretary involving 
those donors.
    The Independent Counsel argued before the Court that the 
mere position of the Secretary, and the authority and power of 
the Secretary to affect the interests of the donor were enough 
to invoke the felony ``illegal gratuities'' prohibition upon 
making or accepting gifts or payments from them.
    The Supreme Court, however, disagreed with the Independent 
Counsel, and Justice Scalia, writing for a unanimous Court 
explained in dicta that there is a multi-layered web of ethics 
laws and regulations in place for Federal officials, and that 
while such so-called ``status gifts'' are not necessarily 
``illegal gratuities'' (because they can not be tied to any 
specific, identified official act), they do violate the 
language of the express regulation that we are discussing 
today, that is, they are gifts from a donor who has interests 
that may be substantially affected by the public duties of the 
official because the public official ``is in the position to 
act favorably to the giver's interest,'' that is, the official 
has the ``capacity to exercise governmental power or influence 
in the donor's favor.''
    It is obvious that a Director of a Federal agency has the 
official capacity, position and authority to exercise 
governmental power or influence which may affect the fortunes 
and interests of a grantee of that agency. Merely because a 
Director might have ``delegated'' certain grant functions to 
subordinates does not relieve or divest the officer of his 
official authority and responsibility. This is how the levels 
of responsibility and accountability are constructed in the 
Federal service.
    If we are to err on the side of caution, the overall public 
interest would seem to dictate broadly prohibiting those 
ultimately responsible for grant decisions from personally 
benefiting from cash prizes, awards, or other such gifts given 
by grateful recipients of those Federal grants.
    Thank you and I am willing to answer questions that you may 
have.
    [The prepared statement of Jack Maskell follows:]

Prepared Statement of Jack Maskell, Legislative Attorney, Congressional 
                            Research Service

    Mr. Chairman and Members of the Subcommittee: Thank you for the 
invitation to speak to you today on the matter of ``awards'' from 
private sources. My name is Jack Maskell, and I am a legislative 
attorney with the American law Division of the Congressional Research 
Service. I began working with the subcommittee staff a little more than 
a year ago concerning the legal issues of private cash ``awards'' or 
``prizes'' being given to the directors of the Institutes of the 
National Institutes of Health from private laboratories or clinics. In 
the course of that work, the scenario that developed was as follows:
        An agency of the Federal Government makes grants for research 
        or clinical studies to a private laboratory/ clinic in the sum 
        of tens of millions of dollars a year. That private laboratory/
        clinic then gives a cash ``award'' or ``prize'' of several 
        thousand dollars to the Director of the very federal agency 
        making those grants.
    One does not need to have an intricately detailed knowledge of 
federal law and regulations on ethics to see the obvious ``appearance'' 
problems and potentials for more serious consequences in that scenario. 
In fact, preventing appearances of impropriety and increasing 
confidence in the public's perception of the fairness of the 
administration of federal programs is one of the principal purposes 
behind federal ethics regulations and laws. Crandon v. United States, 
494 U.S. 152, 164-165 (1990); H.R. Rpt. No. 748, 87th Cong., 1st Sess. 
4-6 (1961); 5 C.F.R. 2635.101(a).
    Upon further research and analysis it became clear that even beyond 
any mere ``appearance'' problem, however, this scenario raised specific 
questions of violations of federal ethics regulations, and the statutes 
underlying them. I prepared a fairly detailed analysis of some of the 
legal and ethics issues involved for the subcommittee, and with the 
subcommittee's permission, I have appended that analysis to my 
statement today.
    Simply put, it appears that an agency head, with administrative and 
operational authority over all aspects of that agency's functions and 
programs, should not under federal law and regulation be accepting cash 
gifts, ``awards'' or ``prizes'' from a private grantee of his own 
agency, that is, a private source that is dependant upon and so 
interested in the official duties, responsibilities and powers of that 
administrator. This is particularly the case with certain private 
clinics and laboratories which have a continuing ``certification,'' as 
well as a substantial and continuing grant, relationship with the 
agency.
    As a brief background, federal law now prohibits the receipt of 
``gifts'' by federal officials from ``interested parties,'' or what are 
also called ``prohibited sources.'' In the executive branch there are 
two general categories of interested parties. The first are those that 
are prohibited sources agency-wide, that is, for everyone in the 
agency, and includes those private entities seeking official action 
from, doing business with, or that are regulated by one's agency. 5 
U.S.C.  7353(a)(1); 5 C.F.R.  2635.203(1)-(3). The second category 
are those that are prohibited sources for a particular officer or 
employee in question, that is, a restriction which is personal to the 
particular official--and that includes those ``whose interests may be 
substantially affected by the performance or nonperformance of the 
individual's official duties.'' 5 U.S.C. '7353(a)(2); 5 C.F.R.  
2635.203(4).
    While most gifts may not be accepted from either category of 
interested parties (agency-wide or personal), there is a specific 
exception in executive branch regulations for the receipt of a bona 
fide award or prize for meritorious public service, when the donor of 
the award is a sufficiently independent source. Specifically, the 
awards exception allows an official to accept a bona fide award under 
certain circumstances from someone who is not in that second, 
``personal'' category of interested parties, that is, an entity which 
does not have ``interests that may be substantially affected by the 
performance or nonperformance of the employee's official duties.'' 5 
C.F.R. 2635.204(d)(1). The example specifically given in the Office of 
Government Ethics regulations, is an NIH official receiving the Nobel 
Prize. 5 C.F.R. 2635.204(d), note. The Department of Justice, analyzing 
the ``awards'' issue under a related criminal statute, explained that 
acceptable bona fide awards must come from donors who are ``detached 
from and disinterested in the performance of the public official's 
duties.'' 8 Op. O.L.C. 143, 144 (1984).
    It would strain credibility to argue that a grantee regularly 
receiving millions of dollars in grants from a federal agency is 
``detached from'' or ``disinterested in'' or ``independent of'' the 
duties, powers, and responsibilities of the Director of that agency. 
Even when the agency head or other supervisory personnel are not 
directly participating in the award of a grant, or actually 
participating in certifying the private entity as a ``comprehensive'' 
treatment facility, the actual authority over those subordinate 
employees making the decisions, the inherent influence of supervisors 
and agency heads over such subordinate employees, and the natural 
inclination of employees to want to please their superiors, all counsel 
against such agency heads and management personnel receiving cash 
awards from these private grantees under the regulation.
    While there certainly may be some leeway in the interpretation of 
the language of the regulation, the Supreme Court, in a unanimous 
decision authored by Justice Scalia in 1999, has given some guidance by 
explaining fairly clearly that a private entity has interests that 
``may be substantially affected by the performance of'' an official's 
public duties when that official ``has the capacity to exercise 
governmental power or influence in the donor's favor,'' regardless of 
whether there is any specific, particular matter on the desk of the 
official relating to that private entity. United States v. Sun-Diamond 
Growers of California, 526 U.S. 398, 405-511 (1999). In fact, if there 
is a particular matter pending before the official relating to the 
private entity at the time of the cash payments, questions of both the 
application of criminal laws as well as ethics violations could be 
implicated.
    That Supreme Court decision, known as the Sun-Diamond case, 
involved a 31-count criminal indictment against the then Secretary of 
Agriculture for accepting gifts of travel and entertainment from 
private entities regulated by his Department. The indictment charged 
the Secretary with the acceptance of ``illegal gratuities'' under the 
federal bribery statute. There were no allegations that the Secretary 
ever did any official act for the donors, or that any specifically 
identified official matter was pending before the Secretary involving 
those donors. The Independent Counsel argued before the Court that the 
mere position of the Secretary, and the authority and power of the 
Secretary to affect the interests of the donor were enough to invoke 
the felony ``illegal gratuities'' prohibition upon accepting gifts or 
payments from them. The Supreme Court, however, disagreed with the 
Independent Counsel, and Justice Scalia, writing for a unanimous Court 
explained in dicta that there is a multi-layered web of ethics laws and 
regulations in place for federal officials, and that while such so-
called ``status gifts'' are not necessarily ``illegal gratuities'' 
(because they can not be tied to any specific, identified official 
act), they do violate the language of the express regulation that we 
are discussing today, that is, they are gifts from a donor who has 
interests that may be substantially affected by the public duties of 
the official because the public official ``is in the position to act 
favorably to the giver's interest,'' that is, the official has the 
``capacity to exercise governmental power or influence in the donor's 
favor . . .'' Sun-Diamond, supra at 408, 411.
    It is obvious that a Director of a federal agency has the official 
capacity, position and authority to exercise governmental power or 
influence which may affect the fortunes and interests of a grantee of 
that agency. Merely because a Director might have ``delegated'' certain 
grant functions to subordinates does not relieve or divest the officer 
of his official authority and responsibility. As noted by the United 
States Court of Appeals, the head of an agency who delegated authority 
to a subordinate official Adid not, however, divest . . . himself of 
the power to exercise his authority or relieve him of his 
responsibility for action taken pursuant to the delegation.'' Skokomish 
Indian Tribe v. G.S.A., 587 F.2d 428, 432 (9th Cir. 1978), see NLRB v. 
Duval Jewelry Co., 357 U.S. 1, 7-8 (1958). As stated simply by 
Professor Bayless Manning, one of the drafters of the model federal 
conflict of interest laws in the 1960's: ``[T]he head of a department 
or agency would have `under his official responsibility' all matters in 
the department or agency.'' Manning, Federal Conflict of Interest Law, 
at 207-208 (Harvard University Press 1964). That is how the system of 
responsibility and accountability is constructed in the federal 
service. Because of the actual authority over subordinate employees and 
their promotions and pay, the inherent influence of supervisors and 
agency heads over such subordinate employees, and the natural 
inclination to please one's superiors, it would appear that the reasons 
behind the ethics rule do not necessitate the actual or the reasonably 
foreseeable active participation in a specific matter by such 
supervisory personnel for them to fall outside of the narrow ``awards'' 
exception.
    Financial disclosure. The framework of the public financial 
disclosure issues is that certain personnel in the Institutes earning 
up to $200,000 a year in federal salary are seen as exempt from the 
statutory requirements for public financial disclosure. This has 
apparently come about by virtue of the Institute's authority under 42 
U.S.C.  209(f) and (g) to hire ``special consultants'' and experts 
without regard to civil service rules. The pay established by the 
agency for such positions ranges from $38,000 to $200,000. Under this 
authority the Institutes have reportedly hired high-level 
administrative personnel, including apparently directors, but since the 
``pay range'' under this authority begins at $38,000, below the 
statutory threshold for disclosure, the agency has exempted those hired 
under this authority from public financial disclosure. Report of the 
National Institutes of Health Blue Ribbon Panel on Conflicts of 
Interest Policies, Draft of May 5, 2004 at 20, 29-31.
    The exemption from filing for those in a ``pay range,'' when the 
lowest amount in the range is below the statutory threshold, is not 
necessarily required by the language of the federal law, but is rather 
an interpretation of the law by the Office of Government Ethics. The 
federal law merely says in relevant part that public disclosure is 
required from:
        each officer or employee in the executive branch . . . who 
        occupies a position . . ., in the case of positions not under 
        the General Schedule, for which the rate of basic pay is equal 
        to or greater than 120 percent of the minimum rate of basic pay 
        payable for GS-15 of the General Schedule . . . 5 U.S.C. 
        appendix,  101(f)(3).
    The law itself does not specifically say anything about pay bands, 
or the lowest level in any given pay range. The Office of Government 
Ethics has determined, however, that the statutory language and intent 
of the law means that the ``basic pay'' for a ``position'' is the 
lowest possible pay, that is, the so-called entry level or beginning 
pay, for any particular pay range, rather than the pay actually 
received by a particular incumbent in that position.
    It should be mentioned here that in the legislative branch we do 
not follow OGE's particular interpretation of the law (with respect to 
similar language) applying to legislative branch employees, and that 
when an employee in the legislative branch reaches the actual annual 
rate of pay that is comparable to the statutory threshold (120% of a 
GS-15), then that employee must file a public disclosure, regardless of 
any minimum pay possible for that ``pay band'' or ``pay range.''
    The Office of Government Ethics has explained that the intent of 
the disclosure law was to cover a ``position'' rather than a particular 
employee, and that the coverage of the disclosure law ``is determined 
by the employee's level of responsibility'' and that the lowest level 
of pay possible defines that responsibility (OGE Letter to DAEO's, No. 
98 x 2). In most cases, this is perfectly logical and effective, 
particularly where there may be a number of ``positions'' in an 
occupational series, and several corresponding pay bands to which an 
employee may be progressively promoted or appointed. The pay ranges may 
then be fairly correlative to responsibility and, of course, ``level of 
pay'' is a more easily determined and definable standard than is 
``level of responsibility.'' However, where there is merely an 
authority to hire and no positions and pay statutorily defined, or 
merely a maximum rate of pay, then the lowest permissible pay rate may 
not fairly describe the responsibility of those in the upper echelons 
of pay and authority. In some cases a rigid application of the ``lowest 
possible pay'' interpretation does not conform to the actual facts on 
the ground. Under their title 42 authority, for example, it has been 
explained that the Institutes hire managers, supervisors and even 
directors. Clearly, their positions and levels of responsibilities are 
significantly different from and greater than ``consultants'' and 
advisors at the lower end of that possible pay range.
    Policy makers must, of course, balance the interest of full 
disclosure for public officials with the privacy interests of federal 
employees and officials, and the possible ``nuisance'' factors of 
public disclosure and its effect on recruitment and retention of 
qualified personnel. However, these policy decisions should not be 
confused with any constitutional ``rights to privacy'' of public 
employees with regard to financial matters. The federal courts 
examining the issue of privacy rights have determined that an implied 
right to privacy exists under several possible provisions of the 
Constitution when there is involved ``intimate'' family and personal 
relationships and decisions, such as the decision concerning 
procreation and child-rearing. Whalen v. Roe, 429 U.S. 589 (1977). The 
courts have not, as of yet, expressly extended any constitutional right 
to privacy, however, to a public official's financial matters or 
interests, noting that ``[f]inancial privacy is not within the autonomy 
branch of the right to privacy,'' that is, it is not within the Asphere 
of family life constitutionally protected by the right of privacy.'' 
Duplantier v. United States, 606 F.2d 654, 669 (5th Cir. 1979), cert. 
denied 449 U.S. 1076 (1981) [upholding the federal Ethics in Government 
Act public disclosures for federal judges], citing Plante v. Gonzalez, 
575 F.2d 1119, 1132 (5th Cir. 1978), cert. denied 439 U.S. 1129 (1979).
                                 ______
                                 
Memorandum December 4, 2003

TO: House Committee on Energy and Commerce, Attention: Alan Slobodin

FROM: American Law Division

SUBJECT: Cash ``Awards'' and ``Prizes'' to Agency Heads from Grantees 
        of the Agency
    This memorandum is prepared in response to the Committee's request, 
as discussed with counsel Alan Slobodin. The American Law Division 
previously provided a legal analysis to your Committee, dated May 20, 
2003, discussing federal law and interpretation concerning the receipt 
of cash gifts, including ``awards,'' by an agency head from a grantee 
of that official's agency. In response to the Committee's subsequent 
inquiry to that agency, the Committee received an unsigned memorandum 
(or ``white paper'') from the Department of Health and Human Services, 
dated July 11, 2003, which attempted to justify the receipt of cash 
awards by the head of an agency in the Department, the National Cancer 
Institute of the National Institutes of Health, based on a particular 
exemption to the executive branch gifts regulation. The Committee has 
asked for a legal analysis of the HHS response.
    The Department memorandum would construe the gifts restriction, and 
the narrow exemption in it for bona fide ``awards'' to federal 
officials from disinterested sources, in such a permissive manner as to 
condone the personal enrichment of the Director of an agency directly 
from a source receiving significant grant funding from his agency. The 
reasoning employed by the Department obscures and overlooks the obvious 
and serious ethical implications in this scenario. On its face, 
allowing the top administrator and final decision maker of an agency to 
receive cash ``awards'' or ``prizes'' from those private entities 
concerning whom the agency must make determinations involving millions 
of dollars in grant funds implicates the precise conflicts of interest 
and ethical issues that are addressed in various criminal laws, 
statutes on gifts, and standards of conduct regulations. As developed 
below, under the common understanding of the language used in the gift 
regulations and exemptions, and under relevant administrative rulings 
and examples, as well as legal interpretations by the Supreme Court,--a 
private grantee of the Federal Government clearly ``has interests that 
may be substantially affected'' by the official powers and duties of 
the Director of the grantor federal agency, and as such, may not be the 
source of substantial gifts of cash, even in the form of ``awards,'' 
given to that particular Government official.1
---------------------------------------------------------------------------
    \1\ 5 U.S.C.  7353(a)(2); 5 C.F.R. 2635.202, 2635.203(d), 
2635.204(d); 8 Op. O.L.C. 143, 144 (1984); Office of Government Ethics 
[OGE] Advisory Opinions Nos. 83 x 11 (July 26, 1983), and 92 x 7 
(February 26, 1992); see United States v. Sun-Diamond Growers of 
California, 526 U.S. 398, 405-411 (1999).
---------------------------------------------------------------------------
    Background. The limitations and restrictions on gifts, and the 
prohibitions on private salary supplementation of federal employees 
are, as noted by the Office of Government Ethics, ``aimed at preventing 
the Government employee from becoming beholden to anyone in the private 
sector who might affect the independence or judgment of that 
employee.'' 2 There is, of course, a grave concern that 
official decisions may actually be influenced, even subtly influenced, 
when a private recipient of federal largess ``awards'' the responsible 
federal official with cash in appreciation of his public 
duties.3 Such conduct not only provides a potential 
lucrative reward for those past decisions favorable to the grantee, but 
also provides an opportunity for a potentially generous ``incentive'' 
for future official conduct favorable to the grantee by that official 
and other agency officials who are possible future recipients of such 
``awards.'' In addition to actual influence over official decision-
making, however, there is an extended concern that permitting such 
conduct diminishes the confidence of the public in the independent, 
impartial and even-handed administration of federal 
programs.4 The Supreme Court has noted the important 
interest of the Government in adopting rules to avoid even ``potential 
conflicts of interest in the performance of governmental service'' to 
``maintain[ ] the public's confidence in the integrity of the federal 
service.'' 5
---------------------------------------------------------------------------
    \2\ Office of Government Ethics, Opinion 81 X 31, October 2, 1981, 
in Informal Advisory Letters and Formal Opinions, 1979-1988, at 210; 
Paul H. Douglas, Ethics in Government, at 45-49 (Harvard University 
Press 1952); Roswell B. Perkins, ``The New Federal Conflict of Interest 
Law,'' 76 Harvard Law Review 1113, 1137 (1963), discussing 18 U.S.C.  
209.
    \3\ Id.; the late Senator Paul Douglas, explained in his treatise 
Ethics in Government, supra at 44, that often ``the corruption of 
public officials by private interests takes a more subtle form'' than 
outright bribes, through indirect financial support which may ``put the 
public official under such a feeling of personal obligation that the 
latter gradually loses his sense of mission to the public . . .'' 
Douglas noted that sometimes subtle ``shifting loyalties'' from the 
community to narrow private interests may lead an official to make 
decisions favorable to ``his private benefactors and patrons'' while 
all the time ``the official will claim--and may indeed believe--that 
there is no causal relationship between the favors he received and the 
decisions which he makes.''
    \4\ ``The proper operation of a democratic government requires that 
officials be independent and impartial; . . . and that the public have 
confidence in the integrity of its government.'' H. R. Rpt. No. 748, 
87th Congress, 1st Session, 4-6, House Judiciary Committee (1961). The 
Office of Government Ethics has recognized the imperative to ``ensure 
that every citizen can have complete confidence in the integrity of the 
Federal Government . . . '' 5 C.F.R. 2635.101(a).
    \5\ Crandon v. United States, 494 U.S. 152, 164-165 (1990).
---------------------------------------------------------------------------
    To address the ethical issues inherent in the receipt of things of 
value by federal officials from private sources when there exists any 
``nexus'' between the interests of the donor entity and the official 
duties and responsibilities of the recipient federal official, there 
has developed in the Federal Government a multi-layered structure of 
criminal laws, general statutes, and standards of conduct regulations 
which seek to regulate these situations. The criminal laws include the 
federal bribery statute which provides criminal penalties for any 
federal official who receives something of value ``in return for'' 
being influenced in the performance of an official act; the ``illegal 
gratuities'' clause of the same bribery statute which prohibits the 
receipt of things of value that are connected to official duties in 
particular ways,--received ``for or because of'' a particular official 
act performed or to be performed by the officer or employee; and a 
criminal conflict of interest provision which prohibits federal 
employees in the executive branch from working on or being involved 
``personally and substantially'' in any official particular matter in 
which they have a personal or imputed financial interest.6 
In addition to these provisions of criminal law, it should be noted 
that a specific criminal provision of federal law also prohibits the 
receipt of money or things of value intended as private 
``compensation,'' or as a salary supplementation, for one's official 
duties performed for the United States Government.7 Under 
this latter provision, 18 U.S.C.  209, there has been developed and 
recognized by the Department of Justice an exemption from the criminal 
law for bona fide awards to federal officials for their public service 
from sources ``detached from'' and ``disinterested in'' the area of 
responsibilities of the recipient federal official.8
---------------------------------------------------------------------------
    \6\ 18 U.S.C.  201(c)(1)(B); 18 U.S.C.  201(b)(2);18 U.S.C.  
208.
    \7\ 18 U.S.C.  209.
    \8\  8 Op. O.L.C. 143, 144 (1984).
---------------------------------------------------------------------------
    Statute and General Regulations on Gifts. In addition to the 
provisions of federal criminal law noted above, there are non-criminal 
statutes of general applicability, as well as administrative 
regulations governing the acceptance of gifts and other ``self-
enriching'' activities of federal officials.9 The principal 
statutory provision in federal law regarding gifts from private sources 
was adopted as part of the Ethics Reform Act of 1989,10 
codifying for the most part somewhat similar ethical rules and 
limitations on the receipt of gifts by federal employees which had been 
in effect for the executive branch since 1965 by way of Executive Order 
and agency regulations.11
---------------------------------------------------------------------------
    \9\ As noted by the Supreme Court there is now ``an intricate web 
of regulations . . . governing the acceptance of gifts and other self-
enriching actions by public officials.'' United States v. Sun-Diamond 
Growers of California, 526 U.S. 398, 409 (1999).
    \10\ P.L. 101-194, Sec. 303, November 30, 1989, 103 Stat. 1746.
    \11\ See Executive Order No. 11222, Section 201, May 8, 1965 (now 
superseded by E.O. 12674, April 12, 1989), and former regulations, 30 
F.R. 12529, October 1, 1965, 5 C.F.R.  735.202.
---------------------------------------------------------------------------
    The current law on gifts from outside sources, codified at 5 U.S.C. 
 7353, prohibits the receipt of ``anything of value'' by a federal 
official from what have come to be known as ``prohibited sources.'' In 
the current gifts law, the ``prohibited sources'' are expressly set out 
in two separate categories of persons or entities, to include those 
persons:
          (1) seeking official action from, doing business with, or (in 
        the case of executive branch officers and employees) conducting 
        activities regulated by, the individual's employing entity; [5 
        U.S.C.  7353(a)(1)] or
          (2) whose interests may be substantially affected by the 
        performance or nonperformance of the individual's official 
        duties. [5 U.S.C.  7353(a)(2)]
    Under the gifts statute, the supervisory ethics offices for 
particular employees and officials may issue regulations detailing the 
gift limitations and providing reasonable exceptions to the general 
prohibitions.12 The Office of Government Ethics has issued 
gift regulations under this statutory provision for the executive 
branch of Government, setting out numerous restrictions and exemptions 
to the general prohibition. Under the regulations, the Office of 
Government Ethics sets out the categories of what constitutes a 
``prohibited source'' from whom things of value may not be received as 
follows at 5 C.F.R.  2635.203:
---------------------------------------------------------------------------
    \12\ 5 U.S.C.  7353(b).
---------------------------------------------------------------------------
  (d) Prohibited source means any person who:
    (1) Is seeking official action by the employee's agency;
    (2) Does business or seeks to do business with the employee's 
            agency;
    (3) Conducts activities regulated by the employee's agency;
    (4) Has interests that may be substantially affected by performance 
            or nonperformance of the employee's official duties; or
    (5) Is an organization a majority of whose members are described in 
            paragraphs (d)(1) through (4) of this section.13
---------------------------------------------------------------------------
    \13\ 5 C.F.R.  2635.203(d).
---------------------------------------------------------------------------
    Regulatory Exemption for Certain Bona Fide Awards. Based on the 
guidance and principles developed in the Department of Justice's 
exemption for bona fide awards under 18 U.S.C.  209, the Office of 
Government Ethics promulgated an exception from the gifts prohibitions 
for certain ``bona fide awards'' for meritorious public service given 
by certain entities to federal officials when the recipient federal 
officials are not in positions to affect the interests of the donor of 
the award or prize. The current regulatory exemption provides as 
follows, at 5 C.F.R.  2635.204:
          (d) Awards and honorary degrees. (1) An employee may accept 
        gifts, other than cash or an investment interest, with an 
        aggregate market value of $200 or less if such gifts are a bona 
        fide award that is given for meritorious public service or 
        achievement by a person who does not have interests that may be 
        substantially affected by the performance or nonperformance of 
        the employee's official duties or by an association or other 
        organization the majority of whose members do not have such 
        interests. Gifts with an aggregate market value in excess of 
        $200 and awards of cash or investment interests offered by such 
        persons as awards or incidents of awards that are given for 
        these purposes may be accepted upon a written determination by 
        an agency ethics official that the award is made as part of an 
        established program of recognition:
          (i) Under which awards have been made on a regular basis or 
        which is funded, wholly or in part, to ensure its continuation 
        on a regular basis; and
          (ii) Under which selection of award recipients is made 
        pursuant to written standards.
    The examples given by the Office of Government Ethics and the 
rulings by that agency, as well as the Department of Justice 
interpretations under  209, have demonstrated that a bona fide award, 
to fit the exemption, must (among other qualifications for a cash 
award) come from a person, group, or entity that is to a certain degree 
``independent'' of the recipient public official, in the sense that the 
public official is not in a position to act favorably to the giver's 
interests. The Department of Justice has expressly stated that the 
exemption from the criminal statute at 18 U.S.C.  209 that it has 
recognized for bona fide awards to federal officials from outside 
sources, must come from donors who are ``detached from and 
disinterested in the performance of the public official's duties.'' 
14
---------------------------------------------------------------------------
    \14\ 8 Op. O.L.C. 143, 144 (1984).
---------------------------------------------------------------------------
    The example expressly provided in the published regulations of the 
Office of Government Ethics uses the Nobel Prize to illustrate the type 
of ``award'' from independent sources that may be received by a federal 
official:
        Example 1: Based on a determination by an agency ethics 
        official that the prize meets the criteria set forth in  
        2635.204(d)(1), an employee of the National Institutes of 
        Health may accept the Nobel Prize for Medicine, including the 
        cash award which accompanies the prize, even though the prize 
        was conferred on the basis of laboratory work performed at 
        NIH.15
---------------------------------------------------------------------------
    \15\ 5 C.F.R.  2635.204(d), note.
---------------------------------------------------------------------------
Similarly, an advisory ruling from the Office of Government Ethics 
provided another example of when the receipt of a bona fide award by a 
particular official would not raise ethics and conflict of interest 
concerns, that is, again, when the recipient/awardee is not in a 
position to exercise official duties or responsibilities that may 
substantially affect the interests of the donor:
        A nonprofit organization presents its annual award consisting 
        of $5,000 and a medallion for ``Greatest Public Service 
        Performed by an Elected or Appointed Official'' to an employee 
        of the Bureau of Prisons. The organization applied long-
        standing written criteria in judging all of the candidates. The 
        organization has no relationship with the Bureau of Prisons. 
        Because it is a bona fide award for public service, it is not 
        intended to compensate the employee for his services to the 
        Bureau of Prisons and would not violate section 
        209.16
---------------------------------------------------------------------------
    \16\ OGE, Memorandum, DO-02-016, ``18 U.S.C.  209 Guidelines,'' 
July 1, 2002, see OGE Advisory Letter 83 x 10. Emphasis added.
---------------------------------------------------------------------------
Where there existed apparent or potential conflicts of interest for 
employees of an agency with respect to the donor entity, however, 
because those employees worked in a subject ``area'' of interest to the 
donor, the Office of Government Ethics, in applying an earlier version 
of the exemption, found that the requisite independence or 
disinterestedness of the donor was not present, and that the awards 
could not be accepted.17
---------------------------------------------------------------------------
    \17\ OGE Opinion 83 x 11, July 26, 1983.
---------------------------------------------------------------------------
    The Office of Government Ethics has not published an interpretation 
specifically addressing the issue of the head of an agency receiving 
cash ``awards'' from a grantee of that agency. There is, however, no 
ruling from the Office of Government Ethics which interprets this 
narrow exception from the general gifts prohibition for bona fide 
``awards'' in such a manner as to allow the personal enrichment of a 
federal official, such as an agency Director, from any entity, such as 
a grantee of the Director's agency, which is so vitally concerned with 
and connected to the area of official responsibilities and powers of 
the intended recipient. Under the general principles of the 
administrative and regulatory exemptions, a grantee of an agency can 
hardly be said to be ``detached from'' or ``disinterested in'' the 
official duties and responsibilities of the Director of the grantor 
federal agency. As explained below, such conduct not only raises 
general ethics and conflict of interest concerns and appearances, it 
appears to specifically violate the express prohibition on gifts from 
interested parties.
    Meaning of Phrase ``Interests That May Be Substantially Affected'' 
by the Officer's Duties. The regulatory exception for bona fide awards 
thus does not allow, for obvious ethics and conflict of interest 
reasons, a public official to receive an award from an entity which is 
in the ``fourth category'' of regulatory ``prohibited sources,'' that 
is, from an entity that ``has interests that may be substantially 
affected'' by the performance or nonperformance of that official's 
public duties. The Memorandum from the Department of Health and Human 
Services admits its confusion and lack of understanding of the plain 
language of this category of ``prohibited sources'' in the OGE 
regulations.18 The Department ``white paper'' speculates 
that this fourth category in the regulations could not mean 
``grantees'' of the agency because, it argues, such entities are 
already covered by the regulations in another category of prohibited 
sources, that is, those doing business with the agency. Such an 
interpretation, the Department ``white paper'' argues, would create a 
meaningless ``tautology'' that an employee could ``accept an award from 
a ``prohibited source'' provided that it is not a `prohibited source,' 
'' 19 and the Department eventually concludes that the 
provision does not limit an award to the agency's director merely 
because the donor is a grantee of that agency.
---------------------------------------------------------------------------
    \18\ ``Analysis of Ethics and Related Issues Concerning the Receipt 
of Lecture Awards by National Institutes of Health Employees,'' 2-3, 
July 11, 2003.
    \19\ Id. at 3.
---------------------------------------------------------------------------
    The Department's expressed confusion concerning the categories of 
``prohibited sources'' may be substantially clarified, in the first 
instance, by looking at the explanations of the Office of Government 
Ethics in its advisory opinions and rulings. OGE has explained that the 
first three categories of ``prohibited sources'' in its regulations 
(which correspond to the first category of prohibited sources in the 
statute, 5 U.S.C.  7353(a)(1)) are intended as ``agency-wide'' 
prohibited sources of gifts.20 That is, that such entities 
in the first three categories are ``prohibited sources'' from whom 
gifts may not be received by everyone employed in the particular 
agency, regardless of the employee's duties, responsibilities or 
functions. The ``fourth category'' of prohibited sources in the OGE 
regulations (which corresponds to the second, separate category in the 
statute, 5 U.S.C.  7353(a)(2)), however, is not merely a repetitious 
statement of, or another, agency-wide limitation, but rather is 
intended to be a restriction which is personal for the particular 
public official in question, and is dependant upon the incumbent's 
official authority, powers and duties.
---------------------------------------------------------------------------
    \20\ OGE Opinion 94 x 5, February 7, 1994.
---------------------------------------------------------------------------
    Thus, an entity such as a research laboratory and treatment 
facility which receives grants from a federal agency and has a 
continuing relationship with that agency,21 would be a 
``prohibited source'' of ``gifts'' generally for every officer and 
employee in the agency under one of the first three regulatory 
categories of prohibited sources (those seeking action from, doing 
business with, or regulated by the agency). However, that laboratory 
would also be a ``prohibited source'' under the fourth category of the 
regulations, and thus a ``prohibited source'' even of ``awards,'' only 
if the particular officer in question were in a position to exercise 
governmental authority which could substantially affect the interests 
of that grantee.22 Clearly, a laboratory/facility which is a 
``grantee'' of a particular agency may be a ``prohibited source'' for 
general ``gifts'' for every officer and employee of the agency (merely 
because of the laboratory's status as an agency ``grantee'') and, at 
the same time, may also be a ``prohibited source'' for the Director of 
that agency for an ``award,'' because the Director's general 
supervisory, administrative and operating authority relative to all of 
his agency's decisions may, obviously, have a substantial effect on the 
interests of the laboratory/facility. It is thus the ``status'' of the 
position that the intended recipient holds, and the incumbent's ability 
or capacity to exercise governmental authority affecting the donor 
entity, that is the relevant measure of the application of the fourth 
``prohibited source'' category.
---------------------------------------------------------------------------
    \21\ In the facts provided by the Committee, one grantee facility 
which gave the agency Director a several thousand dollar ``lecture 
award,'' the Arizona Cancer Center of the University of Arizona, 
advertizes itself as a ``National Cancer Institute-Designated 
Comprehensive Cancer Center'' (http://www.azcc.arizona.edu). In the 
relevant time period, in Fiscal Year 1999, for example, the University 
of Arizona received grants from the National Cancer Institute in the 
amount of $22,193,000, and contracts in the amount of $237,000; and in 
Fiscal Year 2000 received grants from NCI in the amount of $25,249,000 
and contracts in the amount of $486,000. Fact Book, National Cancer 
Institute, 1999, at E-12; Fact Book, National Cancer Institute, 2000, 
at E-11.
    \22\ Employees in the agency who are in jobs that do not involve 
the making, evaluation, approval, or oversight of grants to that 
laboratory/facility, nor supervising those who have such 
responsibilities, would still be prohibited from receiving ``gifts'' 
from that facility (merely because of its status as a grantee of the 
agency), but would not be prohibited from receiving a bona fide award 
from that laboratory/facility because their particular responsibilities 
do not affect its interests.
---------------------------------------------------------------------------
    In further clarification of the phrase used in the regulatory 
exemption, the Supreme Court of the United States clearly explained 
that for a particular public official, this ``fourth category'' of 
``prohibited sources'' in the Office of Government Ethics regulations, 
from whom things of value may not be received because the donor has 
``interests that may be substantially affected'' by the duties of the 
official, relates to those situations where the public official ``is in 
a position to act favorably to the giver's interests,'' that is, where 
the public official has the ``capacity to exercise governmental power 
or influence in the donor's favor,'' regardless of whether there is a 
particular, identifiable matter immediately before the 
official.23 The clause in the ethics regulation thus clearly 
is directed at the powers and responsibilities of the office of the 
incumbent recipient, rather than the immediacy of any particular matter 
and, in the case of a grantee of a federal agency, would obviously be 
applicable to the Director of the agency who has final statutory, 
administrative and operational authority over the agency decision-
making vitally affecting the interests of the donor entity.
---------------------------------------------------------------------------
    \23\ United States v. Sun-Diamond Growers of California, 526 U.S. 
398, 405-411 (1999).
---------------------------------------------------------------------------
    In United States v. Sun-Diamond, the Supreme Court analyzed a 
prosecution of a federal official, the Secretary of Agriculture, under 
the ``illegal gratuities'' clause of the bribery statute for his 
receipt of various gifts from business entities which could be affected 
by the exercise of the Secretary's official duties because they had 
businesses that were regulated by the Department. It should be noted 
that for a number of years, in several federal circuits, so-called 
``status gifts'' were successfully prosecuted as ``illegal 
gratuities.'' 24 Status gifts were things of value received 
by an official which were given because of that employee's official 
position in the Government, that is, given to an officer or employee 
who ``was in a position to benefit'' the private donor entity. The 
United States Government in Sun-Diamond argued unsuccessfully for that 
specific interpretation in the case of the Secretary of Agriculture:
---------------------------------------------------------------------------
    \24\ United States v. Niederberger, 580 F.2d 63, 69 (3rd Cir. 
1978), cert. denied, 439 U.S. 980 (1978)(golfing trips for I.R.S. 
officer paid for by Gulf Oil Corp. when officer was merely ``in a 
position to use his authority in a manner which could affect the gift-
giver''); United States v. Allessio, 528 F.2d 1079, 1082 (9th Cir. 
1976), cert. denied, 426 U.S. 94 (1976)(gift to prison administrator).
---------------------------------------------------------------------------
        The Independent Counsel asserts that ``section 201(c)(1)(A) 
        reaches any effort to buy favor or generalized goodwill from an 
        official who either has been, is, or may at some unknown, 
        specified later time, be in a position to act favorably to the 
        giver's interests.'' Brief for United States 22 [Court's 
        emphasis]. The Solicitor General contends that  201(c)(1)(A) 
        requires only a showing that a ``gift was motivated, at least 
        in part, by the recipient's capacity to exercise governmental 
        power or influence in the donor's favor'' without necessarily 
        showing that it was connected to a particular official act. 
        Brief for United States Dept. of Justice as Amicus Curiae 17 
        [Court's emphasis].25
---------------------------------------------------------------------------
    \25\ 526 U.S. at 405-406.
---------------------------------------------------------------------------
    The Supreme Court, however, found that for a violation of the 
``illegal gratuities'' provision, there must be some particular, 
identifiable ``official act'' to which the gift is 
connected.26 The Supreme Court noted in Sun-Diamond that so-
called ``status gifts,'' that is, gifts to a federal official which 
were prohibited ``by reason of the recipient's mere tenure in office'' 
because they were in a position to act favorably on the donor's 
behalf,27 were not necessarily ``illegal gratuities,'' but 
rather would come within, be regulated by, and would violate the OGE 
regulations on gifts. Specifically, the unanimous court found such 
gifts, that is, things of value given to a public official who has the 
capacity to act favorably on the donor's behalf at some time, to be 
gifts which would violate the regulations expressly prohibiting the 
receipt of gifts from anyone who ``has interests that may be 
substantially affected by performance or nonperformance of the 
employee's official duties:''
---------------------------------------------------------------------------
    \26\ 526 U.S. at 406.
    \27\ 526 U.S. at 408.
---------------------------------------------------------------------------
        [I]t is interesting to consider the provisions of 5 C.F.R.  
        2635.202 (1999), issued by the Office of Government Ethics . . 
        . The first subsection of that provision, entitled `General 
        prohibitions,' makes unlawful approximately (if not precisely) 
        what the Government asserts [the statute] makes unlawful: 
        acceptance of a gift ``[f]rom a prohibited source'' (defined to 
        include any person who ``[h]as interests that may be 
        substantially affected by performance or nonperformance of the 
        employee's official duties . . .'' 28
---------------------------------------------------------------------------
    \28\ 526 U.S. at 411, citing to the gifts regulations at 5 C.F.R.  
2635.203(d)(4).
---------------------------------------------------------------------------
    The Supreme Court in Sun-Diamond thus explicitly explained that the 
prohibition in the executive branch regulation on accepting gifts from 
one who ``has interests that may be substantially affected by the 
performance or nonperformance of the employee's official duties,'' is a 
prohibition on receiving things of value from private sources by a 
federal official who is merely ``in a position to act favorably to the 
giver's interests,'' that is, that the recipient public official has 
the ``capacity to exercise governmental power or influence in the 
donor's favor.'' 29 There need not be any identifiable, 
particular governmental matter currently before, or ``on the desk of,'' 
the official to violate this provision of ethics regulation under the 
Supreme Court explanation. In fact, if there is a particular, 
identifiable matter involving the donor-entity immediately before the 
Government official who is at the same time receiving significant cash 
``awards'' or other gifts from that entity, there may very well be more 
than merely an ``ethics'' violation of the gift regulation, but rather 
potential felony violations of federal criminal law.30
---------------------------------------------------------------------------
    \29\ 526 U.S. at 405, 411.
    \30\ The timing of the offer and receipt of things of value, in 
relation to a particular official matter actually pending before a 
recipient Government official is a relevant circumstantial 
consideration in determining the requisite ``intent'' needed for an 
``illegal gratuity,'' that is, the intent to be rewarded or compensated 
for a particular official act. United States v. Biaggi, 853 F.2d 89, 
99-100 (2nd Cir. 1988), cert. denied 489 U.S. 1052 (1989), evidence of 
required intent to reward may be inferred from the size of gift, and 
``the nature and sequences of events''; United States v. Jennings, 160 
F.3d 1006, 1014, 1017-1018 (4th Cir. 1998), (referring to federal 
bribery law at 18 U.S.C.  201 and similar language at 18 U.S.C.  666, 
regarding bribery and gratuities in federally funded programs): 
``Direct evidence of intent is not necessary,'' but may be inferred 
from circumstances including timing and sequences of gifts and acts. 
Note also 18 U.S.C.  209, where donor's interest in immediate official 
matter, although clearly not necessary for a violation, may arguably 
provide further evidence of ``intent to compensate'' and ``appearance 
of a conflict of interest . . . sufficient to violate  209.'' United 
States v. Moore, 765 F.Supp. 1251, 1254 (E.D.Va. 1991). The law at  
209 has been described as a conflict of interest statute ``in the 
strictest sense,'' that is, an ``employee does not have to do anything 
improper in his office to violate the statute,'' but rather his special 
status as a government employee ``makes an unexceptionable act 
wrongful--wrongful because of the potential dangers in serving two 
paymasters.'' Association of the Bar of the City of New York, Special 
Committee on the Federal Conflict of Interest Laws, Conflict of 
Interest and Federal Service, at 55-56 (Harvard University Press 1960). 
There may also be other considerations of felony violations when a 
public official actually participates ``personally and substantially'' 
in a particular agency matter in which the official has his own 
personal, financial interest. 18 U.S.C.  208.
---------------------------------------------------------------------------
    Authority of Agency Director. As a general matter, it is obvious 
and beyond reasoned argument that a Director of a federal agency has 
the official capacity and authority to exercise governmental power or 
influence which could have a favorable or unfavorable impact on the 
interests of a grantee of that agency, particularly an entity with a 
continuous grantee and certification relationship with that federal 
agency. In fact, under federal law, the Director of the agency in 
question, the National Cancer Institute, has express administrative 
control and statutory authority over all of the relevant functions of 
the Institute,31 and thus oversees the grant functions, 
administration and oversight of grantee programs.32
---------------------------------------------------------------------------
    \31\ 42 U.S.C. 285a-1, 285a-2.
    \32\ According to the NCI web-site (http://www3.cancer.gov/mab/
hnc1.htm), the Office of the Director ``(1) Serves as the focal point 
for the National Cancer Program; (2) develops a National Cancer Plan 
and monitors implementation of the plan; (3) directs and coordinates 
the Institute's programs and activities; and (4) develops and provides 
policy guidance and staff direction to the Institute's programs in 
areas such as program coordination, program planning, clinical care and 
administrative management.''
---------------------------------------------------------------------------
    One may not convincingly argue, under either general or conflict-
of-interest-specific legal principles, that an agency grantee has no 
interests which may be substantially affected by the official 
authority, duties and responsibilities of that agency's Director merely 
because the Director has ``delegated'' certain functions regarding 
grants to subordinate officials. A delegation of authority by a federal 
official is not a divestiture of official authority or 
responsibility.33 As noted by the United States Court of 
Appeals, the head of an agency who delegated authority to a subordinate 
official ``did not, however, divest . . . himself of the power to 
exercise his authority or relieve him of his responsibility for action 
taken pursuant to the delegation.'' 34 In fact, the Supreme 
Court has found that an official may not administratively divest 
himself of statutory authority.35
---------------------------------------------------------------------------
    \33\ Skokomish Indian Tribe v. General Services Administration, 587 
F.2d 428, 432 (9th Cir. 1978).
    \34\ Skokomish Indian Tribe, supra at 432. For conflict of interest 
purposes it may be noted that the act, decision and discretion of 
delegating certain authority or not delegating authority, to whom such 
authority is delegated, and the nature--reviewability, timing, extent--
of such delegation may involve, in themselves, the exercises of 
official duties that may substantially affect a grantee.
    \35\ NLRB v. Duval Jewelry Company, 357 U.S. 1, 7-8 (1958); Equal 
Employment Opportunity Commission v. Exchange Security Bank, 529 F.2d 
1214, 1218-19 (5th Cir. 1976).
---------------------------------------------------------------------------
    A superior thus clearly has ``official responsibility'' for, as 
well as ``official authority'' over, the actions of those subordinate 
officials in the chain of authority and command in his federal 
agency.36 The assignment, review, oversight, and supervision 
of official actions of subordinate employees, as well as the express 
authority retained by that official to direct the overall functions and 
programs of the agency, are all among the official responsibilities and 
duties of a federal officer such as an agency Director. In explaining 
the conflict of interest principles in the concept of the ``official 
responsibilities'' of a federal officer, Professor Manning expressly 
noted that: ``[T]he head of a department or agency would have ``under 
his official responsibility'' all matters in the department or 
agency.'' 37
---------------------------------------------------------------------------
    \36\ See, for example, definition of ``official responsibility'' 
for purposes of certain criminal conflict of interest laws as including 
``direct administrative or operating authority, whether intermediate or 
final, and either exercisable alone or with others, and either 
personally or through subordinates, to approve, disapprove, or 
otherwise direct Government action.'' 18 U.S.C.  202(b). Emphasis 
added.
    \37\ Bayless Manning, Federal Conflict of Interest Law, at 207-208 
(Harvard University Press 1964).
---------------------------------------------------------------------------
    It should be emphasized that there is not a requirement under the 
gifts prohibition/``award'' restriction that the recipient official 
must actually participate ``personally and substantially'' in any 
current governmental matter affecting the donor/grantee for the 
prohibition on awards to apply, as there is under several criminal 
conflict of interest laws.38 As noted, the restrictions on 
awards from interested parties is concerned, for obvious ethical and 
conflict of interest reasons, with the power to exercise governmental 
authority in the donor's favor, that is, it is concerned with the 
status of the recipient official vis-a-vis the donor, and not with 
whether such authority is actually exercised in a particular, 
identifiable matter. Like many conflict of interest rules, this 
regulation does not require actual corruption, loss by the Government, 
or wrongful official acts, but rather is preventative and prophylactic 
in nature, and thus is, as the Supreme Court noted concerning another 
conflict of interest law, ``directed not only at dishonor, but also at 
conduct that tempts dishonor.'' 39 Under the relevant legal 
and administrative interpretations of, and the plain meaning of the 
language employed in the gifts/``award'' limitations, therefore, an 
entity such as a cancer research and treatment facility which has a 
continuing grant and certification relationship with a federal agency 
such as the National Cancer Institute, clearly has interests that may 
be substantially affected by the actual, statutory operational, 
administrative and supervisory duties, responsibilities and authorities 
of the Director of that agency, and may thus not be a source of cash 
``awards'' to that Director.
---------------------------------------------------------------------------
    \38\ While not requiring ``personal and substantial'' participation 
in a particular governmental matter affecting the donor to incur the 
prohibition on ``awards,'' even that much stricter criminal standard of 
responsibility and duties would not, as discussed by Roswell Perkins, 
``create a loophole for the lazy executive in the chain of command who 
may not have bothered to dig into the substance'' of a particular 
matter. Roswell Perkins, ``The New Federal Conflict of Interest Law,'' 
76 Harvard Law Review 1113, 1128 (1963).
    \39\ United States v. Mississippi Valley Generating Co., 364 U.S. 
520, 549 (1960). The language of the regulatory limitation prohibiting 
an ``award'' when the donor entity has interests that ``may be'' 
influenced by the official duties of the recipient indicates a focus on 
potential performance or influence. The Supreme Court noted in another 
ethics context, that the Government ``appropriately enacts prophylactic 
rules that are intended to prevent even the appearance of wrongdoing . 
. .'' Crandon v. United States, 494 U.S. 152, 164 (1990).
---------------------------------------------------------------------------
                           SUMMARY/CONCLUSION

1. A federal official in the executive branch may not, under federal 
        ethics regulations, receive a cash ``award'' or ``prize,'' even 
        a ``bona fide award,'' from a donor which has interests that 
        may be substantially affected by the performance or 
        nonperformance of the official's governmental 
        duties.40
---------------------------------------------------------------------------
    \40\ 5 U.S.C.  7353(a)(2); 5 C.F.R.  2635.202, 2635.203(d), 
2635.204(d).
---------------------------------------------------------------------------
2. An entity is not a ``disinterested'' nor ``detached'' source, and 
        specifically has interests that ``may be'' substantially 
        affected by the performance or nonperformance of the official 
        duties of a federal officer when that officer is ``in a 
        position to act favorably to the giver's interests,'' that is, 
        when he has the ``capacity to exercise governmental power or 
        influence in the donor's favor.'' 41
---------------------------------------------------------------------------
    \41\ United States v. Sun-Diamond Growers of California, 526 U.S. 
398, 405-411 (1999); 8 Op. O.L.C. 143, 144 (1984); OGE Advisory 
Opinions Nos. 83 x 11 (July 26, 1983), and 92 x 7 (February 26, 1992). 
There need not be a particular identifiable matter before or ``on the 
desk of'' the official for the regulation to apply, and if there is 
such an official matter immediately before the officer while he is 
receiving things of value, gifts and cash from that entity, then other, 
more serious criminal violations may be implicated.
---------------------------------------------------------------------------
3. The Director of a federal agency has the official authority, 
        responsibility and duty to direct, oversee, manage and 
        supervise the agency decisions regarding the making of grants 
        and the continued certification of certain grantee entities, 
        may not divest himself of such authority and responsibility by 
        way of delegation, and thus, obviously, has significant federal 
        authority, power, capacity and official responsibilities that 
        may substantially affect the interests of such a grantee of 
        that agency.42
---------------------------------------------------------------------------
    \42\ 42 U.S.C. 285a-1, 285a-2. NLRB v. Duval Jewelry Company, 357 
U.S. 1, 7-8 (1958); Skokomish Indian Tribe v. General Services 
Administration, 587 F.2d 428 (9th Cir. 1978). An official need not have 
``personal and substantial'' participation in a particular matter for 
the regulation to apply (Compare to 18 U.S.C.  208).
---------------------------------------------------------------------------
4. The federal gift restrictions, therefore, prohibit the Director of a 
        federal agency such as the National Cancer Institute from 
        personally enriching himself by accepting large cash ``awards'' 
        or ``prizes'' from grantees of his own agency.

    Mr. Greenwood. We thank you very much, Mr. Maskell.
    Dr. Varmus.

                   TESTIMONY OF HAROLD VARMUS

    Mr. Varmus. Thank you, Mr. Greenwood. Thank you and your 
colleagues for holding this hearing and giving me an 
opportunity to speak. I agree with you that if there are 
concerns about ethics practices of the NIH that the vit 
unshanum on those practices will be useful to maintain the 
integrity and utility of the NIH.
    I have been asked to speak about some historical matters so 
I will be addressing some of the questions Ms. DeGette raised 
in her opening statement and not the specific cases that you 
mentioned in your opening comments, Mr. Chairman.
    What I would like to do is give you a brief historical 
review of the situation, comment a bit on the evolution of 
views about management of conflict of interest and ethics 
matters, and comment on the current status of issues at the 
NIH.
    My current opinions are based on three phases of my career. 
First, as a faculty member at the university of California 
during the 1970's and 1980's; second, as Director of the NIH 
from 1993 to 1999; and, finally, in my current capacity as the 
head of an academic health center in New York.
    Some brief history. During the 1970's and 1980's biomedical 
research was profoundly transformed by the birth of the 
biotechnology industry. This enterprise, as you know, has 
generated some remarkable products, hepatitis B vaccines, human 
insulin, hormones that we use to protect patients undergoing 
chemotherapy, major advances the public welcomes.
    The growth of this industry was also remarkable because it 
depended heavily on an unusually intimate relationship between 
industry and the nonprofit sector, especially scientists and 
academic institutions. These scientists are largely supported 
by Federal funds. They are often in State universities, receive 
public salaries. They are nearly always beneficiaries of 
Federal research grants.
    They were not simply the authors of information that was 
used by the biotech industry. They were also intimately 
involved in the development of that industry as founders, 
consultants, board members, collaborators, and the source of 
newly trained employees.
    Now, in that period there was no uniformity of practice 
with respect to how academic institutions managed the many 
potential conflicts and outside activities conducted by their 
employees. Government scientists, especially those working as 
bench scientists in the intramural program of the NIH were 
subject to much more severe limitations.
    Despite the fact that they are neither regulators of non-
Government research nor responsible as bench scientists in the 
intramural program for awarding grants and contracts in 
distinction to scientists of the NIH who work in the extramural 
program that awards grants and contracts.
    In fact, you could argue that Government scientists in the 
intramural program have position descriptions very similar to 
those of academic scientists at universities and health 
centers.
    Now, when I came to the NIH as director in the fall of 
1993, it was quite clear from a number of sources that the 
intramural research program was held in relatively low esteem 
by outside scientists and morale was low. That is well 
documented by a long article that appeared in Science Magazine 
in August 1993 and other pieces of evidence that included the 
inability to recruit scientists from the outside. Nearly all 
recruits were people who had been trained within the NIH, and 
it was also apparent from the well-documented loss of many of 
the most prominent scientists at the NIH to academic or 
industrial sectors.
    This was not simply due, in my view, to the restrictions on 
outside activity interactions but that certainly was a 
component, both the limitations on industrial interactions and 
restrictions on other outside activities including bans and 
honoraria and so forth. One of the things that I did when I 
came to the NIH was to try to restore the NIH, especially the 
intramural program, to its former high regard.
    We brought together a distinguished group, our own Blue 
Ribbon Panel, to look at issues of management, evaluation 
procedures, facilities.
    Then in 1995 when we were advised by the Office of 
Government Ethics that NIH had dramatically improved its 
oversight of outside activities which had been critically 
reviewed several years earlier, and that we were advised that 
NIH had come into compliance with less restrictive policies 
employed by other Federal agencies, I lifted the restrictions 
as another step toward making the NIH intramural program more 
welcoming to outside scientists.
    Included in that lifting of restrictions was the explicit 
directive that all outside activities would be carefully 
reviewed by ethics officers to ensure they did not interfere 
with the conduct of official duties.
    Later I also sought permission from the Department to 
expand the use of alternative pay scales, again as part of a 
multi-factored approach to improving the intramural research 
programs assigned to equality.
    I believe that in the aggregate those steps have been 
successful. The intramural program does have the very high 
regard in these scientific communities that it had 20 years 
ago. It competes effectively with academic institutions for 
outstanding job candidates at the junior level. Many of its 
current leaders have been brought to the NIH in the last decade 
in the extramural community.
    It is difficult to know how much to ascribe that to changes 
in compensation, policies governing outside activities, to new 
buildings, to the altered reputation itself, or to improved 
management practices. But to give you one example, the vaccine 
research center, a brand new entity on the campus, has 
successfully recruited 10 new outstanding staff to conduct 
research in the pursuit of an AIDS vaccine and the director of 
the vaccine research center advises me that if he did not have 
the salary capabilities conferred by Title 42 and the ability 
to offer the possibility of outside activities, that he would 
have had a very difficult time in making those recruitments.
    There have been many changes in the approach that the 
extramural community has made; that is, the academic community 
has made to issues of outside activities over the last 4\1/2\ 
years since I left the NIH. A number of important cases and 
meetings have brought to the attention of this community the 
need for clear definitions of what conflicts of interest are 
when they pertain to individuals and institutions.
    More attention has been given to conflicts of commitment; 
that is, situations in which excessive reimbursement or unusual 
amounts of time given to an outside activity may deflect 
attention to the prime interest of an academic scientist. We 
are paying more attention to appearance of conflict of 
interest. Complicated cases are now reviewed by conflict of 
interest committees composed of scientists, administrators, 
lawyers, and many informed lay persons.
    I have testified, of course, to Dr. Zerhouni's Blue Ribbon 
Panel. I agree largely with the recommendations the Blue Ribbon 
Panel has made. I have emphasized the continued importance of 
allowing participation in outside activities including 
consulting for industry to maintain the vibrancy of the 
intramural research program to ensure that the talents of its 
members are fully utilized for the benefit of society, and to 
provide the tools necessary for effective recruitment and 
retention of outstanding scientists.
    I have also argued in contrast to the policies we have put 
in place in the mid-1990's that rules of engagement now need to 
be more explicit, more restrictive. We have learned something 
over the last several years. Some reasonable limits in the 
number of hours devoted to and the amount of compensation 
received from an outside activity.
    I have suggested that senior personnel such as institute 
and center directors who are responsible for the award of 
grants in the development of programs be barred from certain 
activities. I have applauded Dr. Zerhouni's creation of his 
trans-NIH committee, the so-called DEAC. I commend him for 
trying to enlarge the group of intramural scientists who must 
provide full general disclosure. I believe in disclosure.
    Final actions by the Director of NIH on these and other 
matters addressed in the panel's report should take into 
consideration your deliberations here, public comments on the 
report, the views of NIH employees and others. I appreciate the 
efforts you are making, Mr. Chairman, to study these complex 
issues and I will be pleased to respond to any questions you 
might have. Thank you for indulging me with my slightly 
overlong presentation.
    [The prepared statement of Harold Varmus follows:]

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

    Mr. Chairman and Members of the Committee: Thank you for an 
opportunity to speak with you about rules governing the outside 
activities of scientists employed by the National Institutes of Health 
(NIH) and about my views of the recommendations recently made to the 
NIH Director by the panel he established to review practices related to 
conflicts of interest. I welcome the public discussion of these topics, 
because the NIH is of such importance to the future of biomedical 
research and health care, and the conduct and management of its 
research program are therefore matters of general concern.
    My current opinions about the complex issues being addressed at 
your hearing today are based on my experiences in three phases of my 
career--first, as a faculty member at the University of California, San 
Francisco, Medical School from 1971 to 1993; second, as the Director of 
the NIH, from 1993 to the end of 1999; and, third, as the current head 
of the Memorial Sloan-Kettering Cancer Center (MSKCC) in New York City. 
Each of these phases offered lessons that are pertinent to our 
important discussion here today.

Phase 1: Birth of the biotechnology industry
    It helps to begin with some history. During the 1970's and 1980's, 
biomedical research was transformed by advances in molecular biology 
and genetics that led to the development of recombinant DNA technology. 
Once the government and the scientific community reached agreement 
about reasonable means to monitor the safety of these new methods, an 
industry based on them--the biotechnology industry--was born and grew 
rapidly, especially in the Bay Area, where I was working. Soon this new 
enterprise generated and began to manufacture some of its now numerous 
products--such as human insulin, hepatitis B virus vaccine, and 
hormones that protect the bone marrow after cancer chemotherapy--major 
advances in health care that help to justify to the public the major 
investment that our country has made in basic biomedical sciences.
    The growth of the biotechnology industry was also remarkable 
because it depended heavily on an unusually intimate relationship 
between the industry and the non-profit sector, especially scientists 
in academic institutions. These academic scientists, largely supported 
by public funds (often salaried by state universities and nearly always 
beneficiaries of Federal research grants), were not only the authors of 
the published knowledge on which the biotechnology industry was built; 
they were also the founders, the consultants, the board members, the 
collaborators, and the sources of newly trained employees for the 
companies. Different academic institutions displayed a wide range of 
attitudes towards these activities, without consensus on the nature or 
seriousness of any potential conflicts and often without clear 
guidelines for preventing or governing them.
    One indisputable feature of this change was the enhanced fertility 
and frequency of relationships between the academic and industrial 
sectors. In contrast, government scientists, such as those working in 
the intramural program (IRP) of the National Institutes of Health, were 
more likely to be subject to limitations to their participation in 
these productive and interesting interactions, despite the fact that 
they were neither regulators of non-government research nor responsible 
for awarding grants and contracts. In fact, in most ways, the 
government scientists in the IRP could be viewed as having position 
descriptions very similar to those of academic scientists at 
universities, health centers, and research institutes: to perform not-
for-profit research, largely with public funds, with the intention that 
the findings will be useful for the control of disease. (The major 
differences between IRP and academic scientists are related to funding 
mechanisms, review procedures, and the speed of the IRP's response to 
new health threats.)

Phase 2: Strengthening the NIH IRP
    The governmental restrictions, however, on industrial interactions 
and other ``outside activities'' (such as bans on honoraria for 
speaking, editing, and writing), combined with less generous salary 
scales and many concerns about the management of research activities in 
the Federal agency, contributed to the relatively low esteem in which 
the IRP was held by outside scientists and to the low morale in the 
program when I arrived at the NIH as Director in the fall of 1993. 
Worrisome consequences of these attitudes included ineffective 
recruiting of new staff from the external scientific community (it was 
reported that 70% of recently recruited staff had been trained in NIH 
laboratories) and the recent loss of some of NIH's most prominent 
scientists to the academic or industrial sectors. (Some of these issues 
are discussed in a lengthy news article that appeared in Science 
magazine in August, 1993; J.Cohen, ``Is NIH's Crown Jewel Losing 
Luster,'' Science 261: 1120, 1993.)
    As a proud product of the NIH intramural training program in the 
late 1960's, when it was considered to be in an extraordinarily 
productive phase, I was intent on trying to return the IRP to its 
earlier stature in my new position. To achieve this, my colleagues and 
I energetically and successfully followed the recommendations made by a 
panel of distinguished investigators that we convened to address 
concerns about management, evaluation procedures, and facilities in the 
IRP (Report of the External Advisory Committee of the Director's 
Advisory Committee and Implementation Plan and Progress Report, 
November 17, 1994). I sought permission from the DHHS, again 
successfully, to expand the use of alternative pay scales, including 
the Senior Biomedical Research Series, and alternative hiring 
authorities, such as Titles 38 and 42. When advised by the Office of 
Government Ethics in 1995 that NIH had dramatically improved its 
oversight of outside activities, following a critical appraisal in 
1991, and should come into compliance with the less restrictive 
policies employed at other Federal agencies, I lifted the restrictions 
as another step towards making the NIH IRP more welcoming to 
outstanding scientists, with the explicit understanding that all 
outside activities would be carefully reviewed by ethics officers to 
insure that they did not interfere with the conduct of official duties.
    In my estimation--and, I believe, in the estimation of most of the 
scientific community--the IRP has largely regained its stature and its 
productivity. It competes effectively with academic institutions for 
outstanding job candidates at the junior level, and many of its current 
leaders have been brought to the NIH campus in the past decade from the 
extramural community. It is difficult, of course, to know how much to 
attribute the improved status of the IRP to changes in compensation, 
policies governing outside activities, new buildings, altered 
reputation, or improved management practices. But, to offer one 
example, the Director of the new Vaccine Research Center (VRC) has told 
me that he would have been unable to recruit most of the seven junior 
and three senior scientists he has hired at the VRC since his arrival 
in 1999 if he did not have Title 42 authorities to offer salaries 
competitive with those provided at outside institutions; furthermore, 
while his new staff members fully understand the need for careful 
review of their outside activities for conflicts of interest and 
commitment, they would have been discouraged from coming to the NIH if 
it were considered unethical to use their general knowledge to advance 
the practical use of new information by consulting for industry.

Phase 3: Growing sophistication of approaches to outside activities
    During the nearly four and a half years since I left the NIH for 
MSKCC, I have closely observed and participated in the evolution of 
attitudes at academic health centers towards outside activities, 
particularly those that involve the for-profit, industrial sector. In 
view of the dangers posed by conflicts of interest in clinical 
research, many academic health centers--acting alone and through their 
associations--have re-examined their rules for the conduct of clinical 
research. They have also sought clear definitions of conflicts of 
interest that affect individual investigators or entire institutions, 
and they have applied them to the conduct of basic laboratory research 
as well as clinical research. As a by-product of these deliberations, 
more attention is now also given to the conflicts of commitment that 
result from the devotion of relatively extensive time to, or the 
receipt of relatively generous reimbursement from, an outside activity. 
Furthermore, academic institutions increasingly appreciate the 
importance of even the appearance of conflicts of interest or 
commitment, since a perceived potential for conflict can undermine 
public confidence in medical research.
    Importantly, the accumulated experience with a wide variety of 
outside activities undertaken by employees at many non-profit research 
institutions indicates that complicated cases are generally uncommon, 
but difficult to judge by a simple rule book. For this reason, many 
academic centers, including our own at MSKCC, have established conflict 
of interest committees, composed of scientists, administrators, 
lawyers, and informed laypersons, to review unusual and complex 
situations on a case-by-case basis and make recommendations to 
institutional leaders for the management of those cases.

Advice to the Blue Ribbon Panel
    These more sophisticated approaches to management of outside 
activities in academia should also be applied to the NIH IRP, as I 
maintained when I testified before the Blue Ribbon Panel that Elias 
Zerhouni, Director of the NIH, recently assembled to advise him about 
conflict of interest policies. More specifically, I emphasized the 
continued importance of outside activities, including consulting for 
industry, to maintain the vibrancy of the IRP, to ensure that the 
talents of its members are fully utilized for the benefit of society, 
and to provide the tools necessary for effective recruitment and 
retention of outstanding scientists. I also argued that rules of 
engagement need to be more explicit and frequently revisited--and 
revised if necessary--while remaining consistent with the cardinal 
principle of non-interference with the performance of official duties. 
I applauded Dr. Zerhouni's creation of a trans-NIH conflict of interest 
committee and his already successful efforts to enlarge the group of 
IRP scientists required to provide full public disclosure, not just 
internal disclosure, of their compensated outside activities. I also 
argued that some reasonable limits should be placed on the number of 
hours devoted to and/or the amount of compensation received from an 
outside activity. Finally I recommended that senior NIH personnel, such 
as Institute and Center Directors, who are responsible for the award of 
grants or the development of extramural programs and who are unable to 
recuse themselves in favor of an appropriate superior should not be 
permitted to engage in outside activities involving potential or actual 
beneficiaries. (I also proposed some of these policy changes in written 
testimony submitted to the Labor-HHS Subcommittee of the Senate 
Appropriations Committee on January 15, 2004.)
    In general, I agree with the Blue Ribbon Panel's recommendations, 
as presented to your Committee last week by Bruce Alberts and Norman 
Augustine, with a few qualifications. I believe that exclusion of 
senior Institute and Center personnel from consulting for industry or 
academia should be based on function (namely, formulation or funding of 
extramural programs as opposed to direction of intramural research), 
rather than seniority or title. I also believe that exemptions should 
be permitted from the ban on reimbursement with equities if reviewed 
favorably by the trans-NIH conflict of interest committee. Final 
actions by the NIH Director on these and other matters addressed in the 
Panel's report should take into consideration public comments on the 
report, the views of NIH employees and grantees, and the opinions 
formed by this Committee and the Congress as a consequence of these 
hearings.
    I appreciate the efforts you and your colleagues are making, Mr. 
Chairman, to study these complex issues by holding this series of 
hearings. Your actions and views can have important consequences for 
one of the world's most esteemed research organizations.
    I would now be pleased to respond to any questions you might have.

    Mr. Greenwood. That is quite all right. Thank you, Dr. 
Varmus.
    The Chair would recognize the Chair of the full committee, 
Mr. Barton, for purposes of inquiry for 10 minutes.
    Chairman Barton. Thank you, Mr. Chairman. I may not have 10 
minutes of questions but I do have a few. I want to start with 
Ms. Glynn. On page 4 of your testimony you say, and I am 
quoting from it, ``It would be somewhat peculiar to say that 
the agency had and other senior management essentially may 
never receive an award from anyone involved with the agency.'' 
Well, I am not sure I think that is so peculiar so why would it 
be peculiar if we just had a blanket categorization that you 
couldn't receive a cash award?
    Ms. Glynn. I think you have to remember that the rule we 
are talking about, the one promulgated by my office, is an 
executive branch-wide rule so it would have similar 
applicability at DOD, for example, and NIH. We are very 
concerned when we promulgate these rules that we don't go 
overboard while trying to address the issues that are present 
at one particular agency.
    For example, at DOD you would have to assume that virtually 
every company in the country would be a prohibited source for 
Secretary Rumfeld to receive an award from because virtually 
every major corporation in the country----
    Chairman Barton. I may be misinterpreting your testimony 
but I am talking about cash awards. I am not talking about 
getting a plaque for good guy of the year.
    Ms. Glynn. That is right, sir.
    Chairman Barton. Where there is a cash stipend that goes 
with it.
    Ms. Glynn. Yes, sir. I understand that. That is the reason 
we came up with this test that affords at least a small modicum 
of flexibility. Frankly, I would say, for example, in the DOD 
example I just gave there is no way that Secretary Rumfeld 
would ever be approved to accept an award from Northrup Grumman 
or Lockheed Martin. But by contrast, Coca Cola or Disney does 
do business with DOD and they might conclude that any matters 
involving Coca Cola or Disney is far removed from any of the 
work that he would do.
    Chairman Barton. I am checking with the House Ethics 
Committee and the Congressional Research but I am not aware 
that a Member of Congress while he or she is in Congress can 
receive any kind of a cash award. It is just not done and there 
are 435 of us so there are 434 watchdogs. At least whatever the 
other party is, you know they are going to watch us like a hawk 
and we watch them.
    Ms. Glynn. Sure. The President in an executive order has 
issued an outside earned income ban for all Presidential 
appointees. But one exception to that ban is our regulation 
that allows these bona fide awards. Once again, I think the 
head of NIH, if he were eligible to receive a Nobel prize would 
probably not want to have to turn that prize down even though 
it involves a cash award.
    Chairman Barton. Well, not just in NIH and FDA but 
Government-wide how many Federal employees each year either 
receive or are offered cash awards? Are we talking about 
hundreds, thousands, tens of thousands?
    Ms. Glynn. We have no data on that, but I'll be honest, 
with my informal discussions with agency ethics officials in 
preparation for this hearing, awards at other agencies are 
infrequent.
    Chairman Barton. Infrequent?
    Ms. Glynn. Yes, sir.
    Chairman Barton. Could you ask your staff to compile 
whatever inquiries you have--is it a requirement that if one is 
offered a cash reward, they have to touch base with your 
department?
    Ms. Glynn. No, it is not a requirement but we certainly 
could do a sort of informal survey of major agencies.
    Chairman Barton. Should it be a requirement? Should we 
require by statute that any Federal employee that is offered a 
cash award has to have it cleared by your office or some 
office?
    Ms. Glynn. I hate to invite that little bit of extra work. 
Maybe perhaps for a certain level of employee; I am not sure 
that I would want every GS-9 who gets offered a cash award to 
have to clear it through our office.
    Chairman Barton. So under current statute someone--there is 
no requirement that any person offered a cash award touch base 
with your group?
    Ms. Glynn. No, sir.
    Chairman Barton. So it is all voluntary?
    Ms. Glynn. They have an ethics official. Remember the 
ethics program is a decentralized program so there is a 
designated ethics official at every agency. That person would 
normally be involved in the approval of such awards.
    Chairman Barton. But do they----
    Ms. Glynn. They are not required to consult with us, 
though.
    Chairman Barton. So yours is purely----
    Ms. Glynn. Anecdotal evidence.
    Chairman Barton. [continuing] a service that is available 
if they want to use it.
    Ms. Glynn. Yes.
    Chairman Barton. It is not mandatory.
    Ms. Glynn. Yes, sir.
    Chairman Barton. Okay. Now, Mr. Swindell, you are the 
person, I believe, that on Dr. Clausner's request to receive 
the award from the University of Pittsburgh, you are the one 
that said that was okay. Is that right or wrong?
    Mr. Swindell. Yes, sir. I am the one that signed that 
approval and it is not a decision that I look back on with 
fondness or pride.
    Chairman Barton. Okay.
    Mr. Swindell. I think the situation was one where I relied 
too uncritically on the direction and information provided to 
me by General Counsel Rabb at that time. In that regard, let me 
provide some background of how we had to operate back in that 
prior administration.
    We and other attorneys in the Office of General Counsel at 
that time had been specifically instructed to provide advice 
and evaluate issues based on whether any reasonable argument 
could be made that a particular course of action was legally 
supportable. The view was that the decisionmakers, the 
political appointees and other senior officials were to be 
responsible and accountable themselves for the choices that 
they made. To say no to anything the lawyers would have to 
demonstrate that was the only real possible answer.
    Chairman Barton. Now, wait a minute. That is the political 
guidance that came to you or that is your----
    Mr. Swindell. I will read to you, Mr. Chairman, a copy of a 
note to a file that I wrote 10 years ago in 1994. I was a staff 
attorney in the Ethics Division at that time. I provided the 
committee a copy of the note. If you will permit me to quote 
from it because I think it is pretty interesting.
    Chairman Barton. These are your words?
    Mr. Swindell. These are my words written to a note to the 
file in 1994.
    Chairman Barton. Okay.
    Mr. Swindell. This is 3 years before the Clausner award. It 
said, My supervisor indicated to me that the General Counsel 
instructed him to confine ethics advice to purely legal 
answers. We are no longer to provide observations about the 
wisdom of particular actions or policy or how things may appear 
on the front page of the Washington Post or possible political 
ramifications of options.
    These matters are for policymakers. The General Counsel 
does not desire career objective view as a check on official 
actions. We are to decide only if there is a legal objection, 
i.e., whether the action or option is legally supportable under 
the law and regulations.
    My supervisor, in turn, instructed me to carry out the 
General Counsel's wishes. He said that he had written a note to 
the file to document this instruction and advised me to do the 
same. There may arise situations where when we comply with 
these instructions and are prevented from providing full 
counsel----
    Chairman Barton. I have the gist of it. So what you are 
basically saying is as long as at some point in the past you 
have written a note to the file to cover your bottom, it is 
okay. Whatever the guys on top tell you to do, you are going to 
find a way to do.
    Mr. Swindell. Well, essentially----
    Chairman Barton. Tell us your title at HHS right now.
    Mr. Swindell. It is Associate General Counsel.
    Chairman Barton. For what?
    Mr. Swindell. For ethics.
    Chairman Barton. For ethics?
    Mr. Swindell. That is right. I can assure you that we do 
not operate under this type of advice under the current 
administration.
    Chairman Barton. And what was your title in 1994?
    Mr. Swindell. I was a staff attorney in the ethics 
division.
    Chairman Barton. For ethics.
    Mr. Swindell. Yes, sir.
    Chairman Barton. Okay.
    Mr. Swindell. The problem is----
    Chairman Barton. So, as I understand that note, though, the 
direction is even though you are in the ethics division, you 
are not supposed to use any ethics. You are supposed to use 
your legal training to render the decision that the political 
higher ups ask you to render.
    Mr. Swindell. It is a fair criticism to render the precise 
answer and allow the individual to take the risk of the 
appearance.
    Chairman Barton. Okay. Does an associate general counsel or 
an assistant general counsel in HHS and ethics, is it ever 
ethical to just resign or to say, ``I can't do that,'' and give 
you what my real opinion is?
    Mr. Swindell. Well, there was a restrain on us. I checked 
my bar rules to make sure. The bar rules require lawyers to 
provide counsel on ethics, political, social, and so forth. 
They also say the client waive those.
    Chairman Barton. Do you view the job of the Ethics Division 
as a watchdog for the integrity of the American people or as a 
lapdog for whoever the superiors happen to be at the time? That 
is a serious question.
    Mr. Swindell. It is a very serious question. Unfortunately, 
I do not view it the bad way. I view it as we want to do the 
right thing. I have devoted a dozen years of my career to 
working on ethics. I was very concerned about the restraints on 
us. I kept being reassured that the officials would be 
responsible for the risk of their assessment of what people 
think about them.
    Chairman Barton. My time has expired. I want to ask a 
question of Dr. Varmus very quickly.
    You were an NIH director in the mid-1990's and my briefing 
book says you are the one that made the decision to life the 
restrictions on consulting at NIH. Is that true?
    Mr. Varmus. Yes. Of course, in consultation with other 
people.
    Chairman Barton. But it was your ultimate decision. In 
hindsight do you think the decision you made then, if you had 
to make it today knowing what you know now, would you make the 
same decision?
    Mr. Varmus. As I have indicated, I think we have learned a 
lot about the problems of managing this kind of--these outside 
activities and the difficulties of appearance of conflicts and 
I would do it somewhat differently as I have indicated in my 
testimony.
    Chairman Barton. Okay. Thank you, Mr. Chairman.
    Mr. Greenwood. If the gentleman will yield, I want to 
clarify one thing. I know he has no time to yield but, Mr. 
Swindell, you said you received those directions from your 
superior. Would you identify your superior?
    Mr. Swindell. My superior at that time, his name was Jack 
Kress.
    Mr. Greenwood. Jack Kress with a C or a K?
    Mr. Swindell. K-R-E-S-S.
    Mr. Greenwood. And did Mr. Kress indicate to you what 
motivated him to render that advice to you, whether he had been 
chastised from someone in a superior position to him or what 
the genesis of that was?
    Mr. Swindell. It was my understanding that this came after 
a performance review that he had. In fact, about 6 months----
    Mr. Greenwood. And who would have been reviewing his 
performance?
    Mr. Swindell. The General Counsel Harriet Rabb. In fact, 
about 6 months later my supervisor shared with me a criticism 
he had received from the General Counsel about a memorandum 
that I had drafted for the supervisor's signature that stated 
that certain conduct would not be prudent. She said that this 
was our old problem of giving opinions about appearances rather 
than just stating legal conclusions backed by law.
    Mr. Greenwood. Did you ever have a sense of what motivated 
Ms. Rabb to do that, whether someone in a superior position to 
her had----
    Mr. Swindell. I don't know.
    Mr. Greenwood. Okay. The gentlelady from Colorado is 
recognized for 10 minutes.
    Ms. DeGette. Thank you, Mr. Chairman. Mr. Swindell, you had 
mentioned with the Chairman's example that that waiver was 
given under the previous administration but the waiver that was 
given to Tom Scully was given under this administration. 
Correct?
    Mr. Swindell. Are you talking about a conflict of interest?
    Ms. DeGette. Yes, sir.
    Mr. Swindell. Yes, the Scully waiver.
    Ms. DeGette. Right. That was the one on May 12, 2003. 
Right?
    Mr. Swindell. I am not sure.
    Ms. DeGette. Okay. Now, in that situation basically you 
recommended that HHS Secretary Thompson issue a waiver to Tom 
Scully who was the head of CMS--we all know him--so that he 
could negotiate employment with persons having matters before 
Mr. Scully which included lobbyist and law firms with drug 
companies and health care companies as their clients. Is that 
right?
    Mr. Swindell. Yes, I prepared the document that the 
Secretary signed.
    Ms. DeGette. Now, Mr. Scully told you in his memo, and I am 
quoting, ``These entities are likely to have substantial 
interest in matters pending before the Department and Mr. 
Scully has responsibility for such particular matters that may 
affect the financial interest of the firms with which he may 
seek employment.'' Is that correct?
    Mr. Swindell. I will be able to explain in a moment the 
process.
    Ms. DeGette. Okay. I understood but that is what he said to 
you in his memo. Right?
    Mr. Swindell. I am not sure there was a memo to me.
    Ms. DeGette. Okay. Actually, this is your memo.
    Mr. Swindell. This is my memo to the Secretary.
    Ms. DeGette. Right. So did you write those words?
    Mr. Swindell. If they are in the document I wrote those 
words.
    Ms. DeGette. Okay. Now----
    Mr. Swindell. Actually, a staff attorney prepared it.
    Ms. DeGette. The HHS regulations on post-employment 
restrictions state that current employees who have begun 
seeking or negotiating for non-Federal employment must recuse 
themselves from participating in any official matter that 
involves the perspective employer including a legislative 
initiative or policy initiative that affects the perspective 
employer as a member of a defined class. Is that right?
    Mr. Swindell. If it is in the document, that is right.
    Ms. DeGette. Now, have you ever given the kind of waiver 
you gave to Mr. Scully to a Senate confirmed official while he 
was the agency lead on a major piece of legislation?
    Mr. Swindell. I don't know about the specifics about 
legislation but there have been many waivers like that granted 
in the past including one approved by President Clinton with 
regard to Donna Shalala when she was head of HHS and talking to 
universities. Of course, universities----
    Ms. DeGette. Well, but at this time this was right in the 
middle of Mr. Scully's negotiations with Congress on the 
Medicare bill, right?
    Mr. Swindell. As it turns out----
    Ms. DeGette. May 2003.
    Mr. Swindell. I think afterwards that was the case.
    Ms. DeGette. Right.
    Mr. Swindell. By the time he came to me I was not aware of 
what all he was involved in.
    Ms. DeGette. He didn't tell you he was involved in those? 
Didn't your memo exactly say that he had substantial interest 
pending before----
    Mr. Swindell. That is a presumption that would be the case, 
that there would be industries----
    Ms. DeGette. Now, did anybody tell you to give Mr. Scully 
this waiver? You said before your boss told you. That was your 
decision?
    Mr. Swindell. No. The manner in which we deal with 
conflicts of interest when someone leaves the Government, I 
will be happy to explain the process and why it is important.
    Ms. DeGette. Okay. Briefly, please.
    Mr. Swindell. Section 208 of the criminal statute and some 
regulations require employees to recuse from matters once they 
start talking about employment.
    Ms. DeGette. Right. Did Mr. Scully recuse himself from 
negotiating the Medicare bill?
    Mr. Swindell. I don't know whether he recused from 
negotiating the Medicare bill. The key point is there are some 
narrow distinctions in the law itself that talk about two types 
of matters, the particular matters of general applicability and 
particular matters involving specific parties.
    The ethics concerns for the particular matters of general 
applicability are less than they are for a particular matter 
involving specific parties. The idea is if you are someone like 
the head of an agency and you are talking with someone in the 
agency that you regulate, then you are going to be recused from 
doing your job totally. It means that you----
    Ms. DeGette. Well, not really. Only if you are looking for 
another job and there is a major bill pending before Congress 
that affects lots and lots of people to whom you are applying 
for a new job. Right?
    Mr. Swindell. If the same situation was with Donna Schlala, 
the idea is that the agency head, if they start talking with 
someone when they are trying to leave the agency, they will 
have recusal obligations that are very, very extensive and 
basically can't do their job.
    Ms. DeGette. Okay. Well, I understand but when Donna 
Shalala--I really do understand but here is the thing. Did you 
then as part of your waiver to Mr. Scully say, ``Now, don't 
negotiate specific pieces of legislation with Congress in which 
these folks may have a financial interest.''
    Mr. Swindell. No, because a piece of legislation is a 
particular matter of general applicability which is what the 
waiver covered.
    Ms. DeGette. So how many times have you given those types 
of waivers to senior government officials like the one to Mr. 
Scully?
    Mr. Swindell. Well, first of all, they are issued by 
management, not me. These are signed by the Secretary or 
Assistant Secretary.
    Ms. DeGette. Okay. So it was the Secretary.
    Mr. Swindell. The Secretary approved it.
    Ms. DeGette. Okay. But it was your recommendation?
    Mr. Swindell. Sure.
    Ms. DeGette. Okay. I am sorry. Maybe we will have another 
round and we can explore this further.
    Mr. Swindell. I would be happy to provide the Congress with 
a statement explaining the law.
    Ms. DeGette. That would be super. That would be great.
    Now, Dr. Kington, I actually got all the different statute 
books that had the different ethical rules in it. It seems to 
me there are lots of ethical rules, Ethics in Government Act, 
Privacy Act, Freedom of Information Act, the internal NIH 
rules. Is this causing some confusion and angst among your 
researchers as to what they can and can't do right now?
    Mr. Kington. Fortunately, we have a large staff of 
attorneys mostly who advise us on compliance with the law. 
There are multiple laws involved and it is challenging to get 
the precise answer.
    Ms. DeGette. Right. I am sure the attorneys love that. I 
used to be an attorney. My question is about the researchers. 
Are they feeling confused about----
    Mr. Kington. Certainly now when we are in this period of 
transition, yes. We try to give them as much direction as we 
possibly can given what we know about the law.
    Ms. DeGette. Okay. Dr. Varmus, when you assumed the 
directorship of the NIH, did you find that the institutes were 
populated with second-rate scientists?
    Mr. Varmus. There were some, yes. There were many reasons 
to believe the review processes had not been stringent enough. 
NIH had not been able to recruit the best people to come into 
these staff positions. There was much reason to believe based 
on both conversations and reportage that the NIH intramural 
program did not have the--was not held in the esteem which it 
was held 10 to 20 years earlier.
    Ms. DeGette. And do you think that was mainly or solely 
because of the issue of outside compensation?
    Mr. Varmus. As I have indicated in my testimony and in my 
statement, Ms. DeGette, only partly. There are many other 
reasons having to do with management and review processes. It 
is a complex situation and we tried to deal with matters across 
the board.
    Ms. DeGette. And, you know, you probably wouldn't be 
surprised to hear last week in our hearing some of the 
testimony was that the younger scientists, the people doing a 
lot of the basic research at NIH right now, and since you came 
in in the mid 1990's, morale is pretty good now. Also 
interestingly, most of these researchers aren't receiving this 
outside compensation. Would that surprise you?
    Mr. Varmus. That doesn't surprise me, no. I think the issue 
is not simply whether you are active in that process but 
whether the intramural program scientists who don't have 
responsibilities for regulation, for making grants, whether 
they have the opportunities that their equals on the outside 
have. I think it is a simple matter----
    Ms. DeGette. And it is not so much for them about 
compensation as about research opportunities. Wouldn't that be 
fair to say?
    Mr. Varmus. Well, it is a mixture. What kind of atmosphere 
obtains the intramural program. Do people feel like they are 
second-class citizens. Do they not have the opportunity even if 
they don't use it to undertake consultations to carry out 
outside activities.
    Remember that not all of the outside activities are 
concerned with industrial relations. In many cases this is just 
a matter of honoraria for talks and special publications. When 
I came to the NIH the whole intramural program was called the 
honorarium ban in which matters of writing special kinds of 
review articles or giving lectures could not be compensated as 
they were for people on the outside. It created an atmosphere--
--
    Ms. DeGette. You know, I have got to say this happens to 
Members of Congress all the time. I get invited to speak to 
groups and they might invite somebody from private industry or 
something to speak and give them a cash award. When I go, I get 
a really nice placque. We all have rooms full of them. But for 
me it is the honor of going and speaking to the group. I know 
that someone else from a university or somewhere else might be 
allowed to take a cash award. Truly, most of these folks it is 
about the prestige of the event.
    Mr. Varmus. As a former Presidential appointee, I feel your 
pain about not getting awards.
    Ms. DeGette. It is actually not painful for me.
    Mr. Varmus. We have to also recognize that an intramural 
scientist is very different from a legislator or very different 
from someone who runs an agency. It creates an atmosphere that 
people don't find attractive when they are making choices of 
jobs when they can go to a place where the world seems open to 
them where very similar kinds of work are being done at a 
university laboratory, for example, as opposed to going to the 
NIH. The NIH is just----
    Ms. DeGette. I just have one more question because under 
this Blue Ribbon Panel recommendation, the senior appointees at 
the NIH would not be able to accept these kinds of awards as I 
understand it. It would just be the more junior researchers who 
aren't getting them right now. My question is why not make a 
more bright line rule and at least set some pretty clear 
standards so people wouldn't be confused about it.
    Mr. Varmus. Because I think we have to distinguish not 
between juniors and seniors. We have to distinguish between 
those who have certain kinds of functions. Every opportunity 
has a risk and I don't deny that there are risks. That is why 
we have the NIHEAC and why we have rules. I, too, now would 
argue that it is useful to have some guidelines that will 
prevent conflicts of commitment and outright conflicts of 
interest. I don't think it is appropriate to ban all these 
activities because they do have utility. It is not difficult to 
imagine someone saying, ``Gee, it seems a shame to have all 
these talented people at the NIH who are unable to provide any 
advice.''
    Ms. DeGette. Let us be clear and then I am finished. I 
appreciate the Chairman's indulgence. No one is suggesting that 
we ban all these outside activities. What we are talking about 
is what we do about compensation. We can explore that further. 
Thank you.
    Mr. Greenwood. If the gentlelady would yield, certainly a 
CRDA is a perfectly acceptable manner by which the scientists 
at NIH get to work collaboratively with private sector 
scientists to produce excellent results for the public for 
which there is no compensation.
    Mr. Varmus. I agree.
    Mr. Greenwood. I have not come to the point where I am 
prepared to say there should be no outside compensation but I 
think it is important to note that even if we did, that would 
certainly not be an impediment to the NIH scientists working 
collaboratively in the private sector for the good of mankind.
    Ms. DeGette. And reclaiming the time that I don't have, I 
concur with the Chairman which is I am not to the point where I 
think we should ban it but I think there are so many issues 
here and they are very complex that I think it should be a real 
consideration.
    Mr. Varmus. And they are concerned. Even those of us who 
are outside of Government now in the academic sector feel this 
very acutely. We have all been revising our rules, changing the 
way in which we monitor our investigators to avoid the same 
kinds of conflicts you are worried about because, indeed, many 
of our people are supported, almost all of them are supported 
with public money they receive from the NIH and many of them at 
public institutions like State universities have other kinds of 
public monies. These are major concerns.
    Mr. Greenwood. The Chair thanks the gentlelady. The Chair 
would note--first, the Chair would ask unanimous consent that 
the document binder be incorporated into the record. Without 
objection it is.
    The Chair would note that there is a series of votes in 
process right now so we are going to have to recess probably 
until 12:30. We apologize to the witnesses for keeping you that 
much longer but it will take us that long to get through the 
series of votes and get back here. The committee is in recess 
until 12:30.
    [Whereupon, at 11:37 a.m. the subcommittee recessed to 
reconvene at 12:37 p.m.]
    Mr. Greenwood. A quorum being present, the hearing will 
reconvene, and the Chair recognizes himself for 10 minutes for 
purposes of questions. And I am going to begin with you, Mr. 
Swindell.
    Your testimony on page 4 states that HHS employees must 
address the concerns of the many while avoiding the appearance 
or fact of undue influence by the few. Is that correct?
    Mr. Swindell. I don't have a copy.
    Mr. Greenwood. And you agree that HHS employees attempt to 
accomplish avoiding appearance of undue influence in part 
through legal advice provided by your division, or, if they are 
political appointees, from you as the HHS designated agency 
ethics official. Is that correct?
    Mr. Swindell. Yes, I am.
    Mr. Greenwood. Okay. Well, I didn't ask you if that is who 
you were. I said, ``And you agree that HHS employees attempt to 
accomplish avoiding the appearance of undue influence in part 
through legal advice provided by your division, or, if they are 
political appointees, from you as the HHS designated agency 
ethics official.''
    Mr. Swindell. The HHS Ethics Division--its principal 
clientele are the political appointees. The DECs who run the 
programs within the Department do the ethics in those 
components, and as needed, and they consult the Ethics 
Division.
    Mr. Greenwood. Okay. So, for example, in 1996 when Dr. 
Clausner was offered a $30,000 award from the University of 
Pittsburgh, he sought advice on whether to accept this award. 
Is that correct?
    Mr. Swindell. He came to the General Counsel to seek advice 
about that.
    Mr. Greenwood. Okay. In 1996, the first time out.
    Mr. Swindell. The first time out.
    Mr. Greenwood. When the answer was no.
    Mr. Swindell. Okay. I was not the head of the office then, 
but you are right, I do recall. That is right.
    Mr. Greenwood. Okay. And the advice he was given was that 
he could not accept the award, is that right?
    Mr. Swindell. That is correct.
    Mr. Greenwood. Okay. If you go to Tab 10, that binder right 
in front of you there, you will see a memo by the Ethics 
Advisor at the National Cancer Institute, Dr. Maureen Wilson, 
advising Dr. Clausner to decline the award because the 
University of Pittsburgh was a prohibited source. Can you 
identify that?
    Mr. Swindell. Yes.
    Mr. Greenwood. Okay. Am I characterizing that document 
correctly?
    Mr. Swindell. Correct.
    Mr. Greenwood. It is a memo by Wilson advising Clausner to 
decline the award, because the University of Pittsburgh was a 
prohibited source. Okay.
    Do you know who Michele Russell Einhorn is?
    Mr. Swindell. She was an attorney in the Ethics Division at 
that time.
    Mr. Greenwood. Okay. If you go to Tab 12, you will see Ms. 
Russell-Einhorn sent you an e-mail on October 7, 1996, that 
included another e-mail. Do you see that?
    Mr. Swindell. Yes.
    Mr. Greenwood. In the message she sent to you and others 
she writes about a phone call with the Office of Government 
Ethics and the OGE which said Dr. Clausner could not accept the 
award for three reasons: an ongoing lawsuit involving 
Pittsburgh and the National Cancer Institute, a contract 
dispute between Pittsburgh and the National Cancer Institute, 
and the fact that Pittsburgh is a grantee contractor in a 
cooperative group trial participant funded by the NCI. Do you 
see that? Okay.
    Mr. Swindell. Yes.
    Mr. Greenwood. So you were aware that Ms. Russell-Einhorn 
had consulted the Office of Government Ethics and was told that 
Dr. Clausner could not accept the award from the University of 
Pittsburgh. Is that right?
    Mr. Swindell. I was an addressee among all of the staff 
members. I was not focusing on NIH issues at that time, but I 
obviously know about this.
    Mr. Greenwood. I didn't ask you if you were the only one 
who knew about it. I was asking you if you knew about it.
    Mr. Swindell. I would have received the message. I don't 
know if I would have focused on it at the time.
    Mr. Greenwood. Would you have read it?
    Mr. Swindell. I would assume I would have read it.
    Mr. Greenwood. Okay. In 1997, you were aware about OGE's 
past advice when the University of Pittsburgh offered the award 
again to Dr. Clausner but this time with a $40,000 cash gift. 
Is that right?
    Mr. Swindell. Yes, I looked--asked the staff to look and to 
see what had happened.
    Mr. Greenwood. Okay. Did you confer with the Office of 
Government Ethics regarding the 1997 Pittsburgh award?
    Mr. Swindell. That is something I have tried to think 
whether we did or not. I have a visual impression in my mind 
that a staff member was talking to me about some aspect of the 
opinion, about the reasonably foreseeable language, but no one 
can indicate that we made any--no record that we talked with 
them.
    Mr. Greenwood. What would be the routine, standard 
operating procedure?
    Mr. Swindell. It varies, depending upon what the issue is, 
if there is confusion. Obviously, when I looked at this, I 
thought we were going in the right direction with the concept 
about what we call a bad prohibited source, something that is--
there is really something going on precisely at the time, the 
timing--and, yes, it talks about being a grantee, but I am 
afraid I didn't really pick up on that.
    Mr. Greenwood. I mean, isn't that a huge red flag?
    Mr. Swindell. If that had been the answer----
    Mr. Greenwood. Isn't the fact that Pittsburgh--the 
University of Pittsburgh was a grantee, isn't that a gigantic 
red flag?
    Mr. Swindell. Of course it is. But it is an exception to 
the gift rules for getting gifts from grantees, to get a bona 
fide award.
    Mr. Greenwood. Right.
    Mr. Swindell. So the concept exists that one could get a 
bona fide award from a prohibited source. This is the crux of 
the issue that the General Counsel and the Acting Director of 
OGE has now given us guidance as to what--how we analyze this.
    You know, trying to think back 7 years and what was in my 
mind with the General Counsel asking--there were about six 
lawyers working on this issue, asking questions, trying to find 
out about what the University of--the Dixon Prize was, its 
connection to the University of Pittsburgh.
    If the answer had been the mere fact that it was a grantee, 
that would have been the end of it from--OGE could have said, 
``It is a grantee; that is the end of it.'' So in grappling----
    Mr. Greenwood. Why was that difficult to find out?
    Mr. Swindell. It is not difficult to find out. As I said, I 
am not sure whether we called or not. I just don't have any 
records that we did.
    Mr. Greenwood. Were you aware that Dr. Wilson sent a memo 
dated October 1, 1997, to Dr. Clausner raising concerns about 
the Pittsburgh award? If you look at Tab 22, it might refresh 
your memory.
    Mr. Swindell. I assume she is giving the results of 
whatever we have been finding out about the University of 
Pittsburgh.
    Mr. Greenwood. Did you talk with her regarding your 
recommendations in the memo?
    Mr. Swindell. I don't recall.
    Mr. Greenwood. Did you agree with her recommendations?
    Mr. Swindell. I guess the recommendation is that Dr. 
Clausner would have to assure that he didn't have matters 
pending in front of him that were consistent with the opinion. 
So to the extent that that is the case, I would agree with it, 
but----
    Mr. Greenwood. So you would agree with her?
    Mr. Swindell. Mr. Chairman, as I explained earlier, the 
whole result of this opinion was very technical, trying to see. 
The General Counsel was obviously interested. We were under an 
obligation to take a look at this, and if there was no legal 
way to stop this award, then it was not our duty to stop it. 
The individual was supposed to take the heat for this kind of 
decision and the appearance of this kind of decision.
    Mr. Greenwood. Wait a minute. Wait a minute. You are not 
allowed to take money from prohibited sources, correct?
    Mr. Swindell. You are not allowed to receive a gift from a 
prohibited source.
    Mr. Greenwood. Right. Okay. And a source becomes prohibited 
de facto if the source is a recipient of the entity headed by 
the guy who is going to take the money, right?
    Mr. Swindell. It is a----
    Mr. Greenwood. What is the hard part?
    Mr. Swindell. Well, I will defer to the Office of 
Government Ethics to explain better than I can. But there is an 
exception to this idea that you can't get gifts from prohibited 
sources. It focuses on whether the entity is a--whether the 
offeror of the award is an entity that has interest that can be 
substantially affected by the performance or non-performance of 
the----
    Mr. Greenwood. All right. Where is the cloudy part in that?
    Mr. Swindell. Well, it doesn't say agency head. If the idea 
is you are going to--if that means the same thing as grantee, 
then it is a circuitous argument. You can't have--they can't be 
the same. It can't be just a grantee, because you have got an 
exception to a rule for grantees. So it had to mean something 
different.
    Mr. Greenwood. Let me ask Mr. Maskell. Do you think there 
is anything cloudy about this? Maybe I am missing something. It 
looks like a no-brainer to me.
    Mr. Maskell. I understand I am preaching to the choir here, 
but no, I--the problem is you have two sets of prohibited 
sources. The first three you have are agency-wide prohibited 
sources. That is someone who does business with, is regulated 
by, or seeking action from the agency--everybody--that includes 
grantees and contractors.
    But the other prohibited source, the fourth prohibited 
source, is personal to the individual. That is why it is not 
duplicative, and that is why it is not circuitous. The fourth 
one is personal, and it says if that source can be--has 
interest that can be affected by the performance and non-
performance of that individual's official duties, then they 
cannot accept even an award from them. I thought it sounds 
pretty clear to me that----
    Mr. Greenwood. I will bet it is crystal clear to you.
    Mr. Maskell. [continuing] an agency head has that 
authority.
    Mr. Greenwood. And if you were told don't--if it was your 
job, if you had Mr. Swindell's job at the time, and you were 
told--I know this is hypothetical----
    Mr. Maskell. I know.
    Mr. Greenwood. [continuing] but if you were told, ``You 
can't say no''--even if they put this incredible restraint on 
you, which is, ``You can't say no, if there is any legal 
reason--there has to--using the letter of the law is the only 
guidance here.'' Would you still find any difficulty in the 
letter of the law prohibiting this?
    Mr. Maskell. I can't speak to the political pressures that 
Mr. Swindell felt at that time. But that is----
    Mr. Greenwood. I am not asking you to. I am just saying, is 
there any question----
    Mr. Maskell. That is probably another reason to have a 
bright line. I personally would have cited that rule, and I 
would have cited 18 U.S.C. Section 209 and said you are not 
allowed to----
    Mr. Greenwood. Mr. Swindell, do you think there was any 
political pressure involved here?
    Mr. Swindell. There was pressure, obviously, to provide the 
advice that--according to the instructions. Obviously, the 
person who renders that advice, to tell us how to give advice, 
obviously was a political appointee. But I don't think politics 
entered into it.
    I think what we have----
    Mr. Greenwood. You don't think Clausner was trying to get 
friends of his to give him a green light on this?
    Mr. Swindell. That is certainly possible, but I don't have 
any facts to know that. I think----
    Mr. Greenwood. Dr. Wilson wrote--let me interrupt you. She 
wrote, ``Given that the litigation was only recently settled, 
the major issue to be overcome is the appearance that the NCI 
agreed to cooperate with Pittsburgh to settle the litigation, 
including the monetary payments, as well as other tangibles and 
intangibles, and that this award is being made as a result of 
that agreement.'' Did you see that memo?
    Mr. Swindell. Yes, and that is what--that is the point, is 
that he is going to have to assess those appearance situations 
personally and assume those risks. I think it is very good that 
Jake Wilson wrote that.
    Mr. Greenwood. Well, let me just finish here. Just a 
second. Whether you read this memo or not, do you agree with 
the NCI Ethics Advisor that there is an appearance issue to be 
overcome? That you got, right?
    Mr. Swindell. I got that.
    Mr. Greenwood. And you had it then. You knew that there was 
an appearance issue.
    Mr. Swindell. Yes. I was very--a number of us were 
concerned about the looks of that. Sure.
    Mr. Greenwood. Okay. As the designated agency ethics 
official for the Department of Health and Human Services, did 
you advise Dr. Clausner about the appearance of undo influence 
or conflict of interest in his accepting a $40,000 cash gift 
from a grantee institution involved in a lawsuit with the 
National Cancer Institute that had recently been settled?
    Mr. Swindell. I didn't personally give him advice other 
than what was in the opinion.
    Mr. Greenwood. Do you know whether anyone said to him, 
``This looks like hell, but we are not going to''----
    Mr. Swindell. The communications with Clausner were from 
the General Counsel. I don't know what she would have said.
    Mr. Greenwood. Did you address the appearance issue in your 
memorandum to Dr. Clausner?
    Mr. Swindell. I think it stresses in there--it is very 
careful. It stresses in there about the fact that he is going 
to have to make his determination in accordance with the 
limitations and what the meaning of it was.
    Mr. Greenwood. Wait a minute. Did you address, did you say, 
did you indicate anything about the appearance problem?
    Mr. Swindell. I don't recall what is in the memo precisely.
    Mr. Greenwood. Go to Tab 23 and look at your memo there.
    Mr. Swindell. Okay.
    Mr. Greenwood. My question is: in your memo to Clausner, 
did you say--did you address the appearance issue, or did you 
just address the strictly legalistic--give a strictly 
legalistic response, pursuant to what you had been instructed 
to do----
    Mr. Swindell. Right.
    Mr. Greenwood. [continuing] by your superior, a la per the 
note in the file?
    Mr. Swindell. You are correct. It doesn't look like that I 
really stressed that issue with him.
    Mr. Greenwood. You weren't supposed to, right? You had just 
been told--you had been told----
    Mr. Swindell. That is right. I mean, I wanted to make sure 
that he attested to things. I remember that was one important 
thing to me, that he--that we apprised him what the law was 
that we understood, and that he was supposed to attest to the 
facts, that he didn't have anything, you know, within the 
meaning of the rule in front of him, because I wanted to make 
sure that he was understanding that.
    Mr. Greenwood. But basically you said technically--
technically, the Emperor has clothes on, but the fact that you 
appeared to everybody else to have no clothes on, you didn't 
bother to incorporate that into your memo.
    Mr. Swindell. Well, certainly, as I said, this is--I was in 
a difficult situation back then. I was new. I was an acting 
person only there for just, you know, a few months when this 
occurred. I agree this could have been done a lot better.
    Mr. Greenwood. Okay. The gentlelady from Colorado is 
recognized.
    Ms. DeGette. Well, I just wanted to--are you yielding to 
me?
    Mr. Greenwood. No, it is your turn.
    Ms. DeGette. Oh, great. But following up on the chairman's 
questions, Mr. Swindell, you have said several times that in a 
situation like Dr. Clausner's situation it is a personal 
determination. And, in fact, in your memo, after going through 
all of the standards, on page 5 of your memo you do say you 
will need to apply this interpretive guidance to your own 
situation. But here is----
    Mr. Greenwood. I am sorry. I made an error.
    Ms. DeGette. Go ahead.
    Mr. Greenwood. Mr. Stearns has not had a first round.
    Ms. DeGette. Okay.
    Mr. Greenwood. So----
    Ms. DeGette. Can I just follow up on your question just 
with this--on your questioning, Mr. Chairman?
    Mr. Greenwood. In think in fairness----
    Ms. DeGette. Okay.
    Mr. Greenwood. [continuing] do that on your time. We will 
give Mr. Stearns his shot now. We will give you as much time as 
you would like.
    The gentleman from Florida is recognized.
    Mr. Stearns. Thank you, Mr. Chairman. Are we have 5 minutes 
or----
    Mr. Greenwood. Ten minutes.
    Mr. Stearns. Ten minutes. Okay, good. I have three 
questions.
    Let me just start--I have a subcommittee that deals with 
oversight on financial accounting standards, and we are having 
a debate on whether stock options should be expensed. And I 
guess last week's advisory--Blue Ribbon Panel of the Advisory 
Committee to the Director examined the conflict of interest 
that NIH employees eligible to engage in compensation outside 
of professional activities, should they receive compensation in 
the form of stock options or other equities for their service.
    And so, Dr. Kington and Ms. Glynn, these are questions for 
you. And I will start with you, Ms. Glynn. It seems to me that 
offering these stock options to these individuals creates some 
problems. The Financial Accounting Standards Board would like 
to expense all of these, so that the people who invest in these 
companies know what stock options are being provided.
    And lo and behold, these have all been kept pretty silent. 
And so I guess my question is--the current compensation 
involving stock options, is that ethical? Is it protecting the 
stockholders, the taxpayers, the patients? I guess everybody 
involved.
    And then for you, Dr. Kington.
    Ms. Glynn. I think the major problem in permitting 
acceptance of either stock or stock options as a form of 
compensation is that it creates a kind of continuing financial 
interest in the company, so that even after your consulting 
work is completed you continue to have a conflict of interest 
with anything affecting that company, because, in effect, you 
are sort of an owner of the company.
    So from that perspective, what that means is that once your 
consulting concludes you must continue to be recused from 
matters involving the company. What we have is, then, a 
potential for not only recusal during the consulting period but 
a continuing recusal once the consulting is finished, and that 
is problematic.
    I have heard--and, you know, from OGE's perspective we are 
certainly not experts on this, but I have heard that one of the 
problems in barring stock options or stock as compensation is 
that it tends to favor payers that are from bigger established 
organizations that can afford to pay scientists cash versus the 
smaller startup types that don't have any cash to pay, and this 
is all they can afford.
    Now, understand, I am not taking any position on that, 
because it sort of begs the question of whether the consulting 
was proper to begin with, whether it is paid in cash or stock 
or stock options.
    Mr. Stearns. Dr. Kington?
    Mr. Kington. Well, NIH fully recognizes the problem with 
payment to employees who consult with stock options, and we 
were very receptive to the Blue Ribbon Panel's recommendation 
that that not be allowed.
    Mr. Stearns. Yes. Because, you know, these people that have 
the stock option then will try to promote the company. And the 
ways they can do it are varied and multiple, and you can't--no 
one knows about it.
    Mr. Varmus. Can I comment just briefly on that, Mr. 
Stearns?
    Mr. Stearns. Sure.
    Mr. Varmus. First of all, NIH employees are allowed to own 
stock.
    Mr. Stearns. Oh, no, no. Yes, they can own stock in a----
    Mr. Varmus. So if you buy stock, you become interested in--
--
    Mr. Stearns. Well, we are talking about stock options that 
are given to you.
    Mr. Varmus. I understand. I understand. But I think that 
the holding of stock--I am just commenting on Ms. Glynn's 
remark--you know, that doesn't necessarily create a conflict of 
interest. It just means you have an interest in----
    Mr. Stearns. But this is your own money that you make after 
the bottom line, after you pay taxes, you invest. This is 
compensation that is part of the----
    Mr. Varmus. It is an alternative means of compensation, and 
I think----
    Mr. Stearns. Do you disagree with these two people?
    Mr. Varmus. I do a little bit, in the sense that I think 
one of the reasons that the NIHEAC was established, the NIH 
Ethics Advisory Committee, is to look at issues of that kind, 
because there are instances in which companies simply don't 
have much capital to spend on consultants, and----
    Mr. Stearns. Well, if these people are--why should they be 
working for the NIH when they get--they are consulting for this 
company and they are getting stock options?
    Mr. Varmus. Well, if we do entertain the idea of 
consultation, and we think that is potentially valuable in both 
directions, it seems to me that the----
    Mr. Stearns. Well, let me give you a hypothetical.
    Mr. Varmus. Yes.
    Mr. Stearns. You are working for NIH, and you are under 
retainer with a company to advise them--Company X. And they 
have ground-breaking technology, and they offer you stock 
options. And they are paying you, and you are getting paid by 
NIH, and you are sharing the information from them with the 
NIH. Should you get stock options from them without making it 
public that you are getting these stock options? Is that what 
you are saying, it should be----
    Mr. Varmus. No, I am not.
    Mr. Stearns. [continuing] private?
    Mr. Varmus. No, I am all for disclosure----
    Mr. Stearns. I think we are talking about----
    Mr. Varmus. [continuing] and I am all for discussing each 
of these instances on a one-by-one basis. I think there could 
be conditions under which reasonable people would say that the 
fraction of the total stock being held by the employee is 
extremely small, that the----
    Mr. Stearns. It depends upon what the stock does, whether 
it is small or not, and it depends upon the stock option.
    Mr. Varmus. Well, as a fraction of the total company stock 
issue, that--I think that----
    Mr. Stearns. I mean, if they gave them $100,000, eventually 
it could be worth $4 million. That would be quite an incentive 
for this person.
    Mr. Varmus. Well----
    Mr. Stearns. How does he keep his conflict of interest 
separate?
    Mr. Varmus. Well, the conflict of interest, of course, 
would arise if there were some situation in which the conflict 
arose. The assumption is that----
    Mr. Stearns. So you disagree with the Blue Ribbon Panel of 
the Advisory Committee to the Director on this.
    Mr. Varmus. I think that being cautious about stock is very 
appropriate, and I am just arguing for what I think we have all 
been arguing for in a sense, that in some cases the nature of 
the compensation should be a matter for, in a sense, case 
adjudication. And that the reason we have at all our 
institutions committees to look at these is to try to be sure 
that we don't write a blanket rule that obviates the 
possibility of----
    Mr. Stearns. So you think if the company gives a flat fee 
that is the same as stock options.
    Mr. Varmus. No, I am not saying that.
    Mr. Stearns. I mean, wouldn't a flat fee be more ethical 
than getting a stock option, which is based upon the 
performance of the company?
    Mr. Varmus. All of these--as we learn from these 
experiences, they are all different. And I--you know, I take 
your point, and I think the stock options are more problematic. 
But I would opt in my ideal world for a more flexible policy, 
that is all.
    Mr. Stearns. Have you taken stock options in a situation 
like I just described?
    Mr. Varmus. Not at the NIH, of course, but I did as a----
    Mr. Stearns. When you were working for NIH, did you get----
    Mr. Varmus. No, no. No, absolutely not.
    Mr. Stearns. Okay.
    Mr. Varmus. I, as a Presidential appointee, gave up 
everything that could remotely be considered----
    Mr. Stearns. That is my point. As a Congressman, I----
    Mr. Varmus. But I was in charge of the NIH.
    Mr. Stearns. I mean, I don't get stock options, and there 
is no one in this room that gets stock options. And if you are 
working for NIH, you are advocating they should get stock 
options with a company they are consulting instead of--that is 
what you are advocating.
    Mr. Varmus. What I am arguing is that people at NIH have 
different functions. The Director of NIH----
    Mr. Stearns. Well, they are Government employees, though.
    Mr. Varmus. Yes, but some--but Government employees who 
work in the intramural program as----
    Mr. Stearns. Well, why should we make an exception for NIH 
if we don't make it for the Congressmen and Senators and 
Presidents?
    Mr. Varmus. I think the functions are very different. This 
is obviously a complicated issue, but it is one that I think is 
important to bring up, that----
    Mr. Stearns. Well, I think you can get into conflict of 
interest, and I think the Blue Ribbon Panel and the Advisory 
Committee to the Director made that clear.
    Let me move on. I just have so much time. I have to stop 
you.
    Mr. Varmus. They didn't say conflict of interest. They said 
conflict of the commitment.
    Mr. Stearns. Let me say I--the question I have now--on 
February 10, the NIH Office of Management Assessment forwarded 
a final advisory report from the HHS Office of Inspector 
General for review of a conflict of interest allegation 
concerning a Board of Scientific Counselors ad hoc reviewer.
    NIH Deputy Director Michael Gutzman and NCI Director Andrew 
von Eschenbach were among the recipients of this report. In 
this report, the IG recommended that the National Cancer 
Institute modify its process for selecting ad hoc reviewers to 
allow a principal investigator to object in writing directly to 
the Board of Scientific Counselors' Executive Secretary if he 
or she believes the selected BSC ad hoc reviewer has a conflict 
of interest.
    I guess the question is: has this recommendation been 
implemented? Anybody?
    Mr. Kington. This is the first I have heard of that 
recommendation.
    Mr. Stearns. Okay. Another question is, based upon this 
report, we know that NIH intramural researchers know in 
advance. I think the staff has advised--probably advisable, Dr. 
Kington, that you should follow up in writing on this, since 
this was provided in writing with the recommendation. And I 
guess we in the Oversight Subcommittee see--think not only 
should you know about it, but it should be implemented.
    So I guess the fact that you, one, don't know about it, is 
a concern of ours. And then, two, give you a chance to answer, 
come up to speed, and then see if you can implement it.
    Mr. Kington. We would be happy to respond.
    Mr. Stearns. Okay. And last, Mr. Chairman, if you bear--
forbearance here, based on this report we know that NIH 
intramural researchers know in advance who is on the list of ad 
hoc reviewers and who can object if they think a proposed 
reviewer has a conflict of interest.
    This is like the preemptory challenges in courts where each 
side gets a chance to strike against a potential juror they 
don't like. Given that intramural researchers have this right, 
why shouldn't a private partner negotiating a CRADA with 
intramural researchers know if those researchers are consulting 
for the competition?
    Let me repeat that--with intramural researchers know if 
those researchers are consulting for the competition. Shouldn't 
a private partner in the CRADA have the right to know and the 
right to object to a perceived conflict of interest? Dr. 
Kington? It is a little hard to understand the question. It is 
sort of laid out as--sometimes we lay these questions out to 
get them on the record, and that is the way this question is, 
so----
    Mr. Kington. I will refrain from commenting.
    Mr. Stearns. Well, no, we are asking you to comment. You 
are forced to comment here.
    Mr. Kington. Clearly, any time there is a situation in 
which the Government has entered into a CRADA with another 
private company, we have decided that is the best way that we 
can achieve some scientific goal. And, obviously, we should be 
very concerned if there is a possibility of an appearance of 
conflict with an employee who might be involved with a 
competitor. So, yes, there should be some--that is of concern.
    Mr. Stearns. I guess it is just public information that the 
intramural researcher knows this information, whereas a private 
partner in CRADA does not. And I guess we are saying that 
shouldn't this private partner have this right, too, so we have 
transparency here? Does that make sense?
    Mr. Kington. On the face of it, yes. I mean, we absolutely 
want our partners to have faith that we are reasonable 
partners, that we are actually committed to working with them. 
So, yes, we would be concerned about appearance of--we should 
be concerned about appearance of conflict of interest.
    Mr. Stearns. And so that this private partner should be 
told, should have the right to know, and the opportunity to 
object if there is perceived conflict of interest?
    Mr. Kington. I am not sure if that necessarily has to be--
and I want to make that comment as a policy. There is no 
question that we should do whatever is necessary to remove the 
possibility of a serious conflict or appearance of conflict of 
interest, and we are committed to that, however we could 
achieve that.
    Mr. Stearns. Yes. Well, I honestly feel you are--you want 
to do that. So if you don't mind, you might tackle this 
question, too----
    Mr. Kington. I would be happy to.
    Mr. Stearns. [continuing] in your reply, and we can look at 
it.
    I thank the chairman.
    Mr. Greenwood. Now the gentlelady from Colorado is 
recognized.
    Ms. DeGette. Thank you, Mr. Chairman.
    Okay. Mr. Swindell, if you will recall, we were having this 
discussion about who--how we decide what standards to apply. In 
your memo, you had said to Dr. Clausner, ``You will need to 
apply this interpretive guidance to your own situation.''
    And I think you said in response to the chairman's 
questions that his interpretive guidance would be sort of how 
would it look to the public or would it pass the smell test? 
Would that be accurate?
    Mr. Swindell. That is essentially what the General Counsel 
said. The smell test or The Washington Post test was something 
that we don't advise about.
    Ms. DeGette. Now, at this time, Dr. Clausner was the 
Director of the National Cancer Institute, right?
    Mr. Swindell. That is correct.
    Ms. DeGette. But, you know, so one would hope he might have 
a press liaison to help him figure that out. But how is 
everyone else going to figure that out? It seems to be a very, 
very nebulous standard.
    Mr. Swindell. That is a very good point, and that is the 
problem with it.
    Ms. DeGette. Right.
    Mr. Swindell. And that is why we are not going to operate 
under that and haven't operated under that kind of analysis 
about these questions.
    Ms. DeGette. But even under the new guidelines there seems 
to be a lot of personal discretion as to whether there are 
conflicts that I am not sure any ethics board could address.
    Mr. Swindell. It is difficult. I mean, the idea is is that 
the statutes and the regulations to some extent are intended to 
codify what an appearance is. And we have tried to, in our 
advice-giving now, since the very beginning of this 
administration when I spoke with Governor Thompson's people 
when they came in and actually discussed how we would give 
advice in the problems we had, that what we will do is we will 
counsel what we believe the law means, what the regulations 
mean, and the regulations themselves in part--some aspects of 
what an appearance is, but that we will try to also give advice 
about what we will call perception or optics.
    Ms. DeGette. But which is a moving target, isn't that fair 
to say?
    Mr. Swindell. It is.
    Ms. DeGette. Yes. Now, Dr. Varmus and others have talked 
about how employees at NIH, while public employees, are 
different than, say, Congressional employees. And I should add 
for the record it is not just Members of Congress, it is our 
staffs, it is all of the employees of the U.S. Government.
    I wanted to ask you, Ms. Glynn, because I got to thinking, 
what are the ethical standards with respect to outside 
compensation and award, say, for the EPA employees? Because we 
have employees over there who are doing scientific 
environmental research.
    Ms. Glynn. Right. Can I address something else before I 
answer that question?
    Ms. DeGette. If we have time at the end, you can address 
that.
    Ms. Glynn. Okay. I mentioned in my oral statement, there is 
one broad, bright line rule for the entire executive branch, 
and that is in the rule published by my office. And as far as 
outside employment or activities is concerned, that rule is 
that the outside activity can't be such a conflict with your 
job that it would require recusal essentially from most 
important aspects of your job.
    But a second part of that rule is that the outside activity 
can't be prohibited by a statute or any other regulation, and 
another regulation is that it can't be an appearance of a 
conflict of interest. It can't be use of public office for 
private gain----
    Ms. DeGette. So do researchers over at the EPA get outside 
income? Do you know?
    Ms. Glynn. And, remember, each agency is allowed to 
implement, supplement----
    Ms. DeGette. Right.
    Ms. Glynn. [continuing] more difficult, you know, more 
stringent.
    Ms. DeGette. Yes, I understand.
    Ms. Glynn. Okay. EPA, for example, does--for certain 
categories of employees--does have more stringent rules. It is 
not exactly across the board, but it does have more stringent 
rules.
    My impression is that this is not a problem--this 
compensation issue is not a problem at most science agencies, 
however.
    Ms. DeGette. Okay. What about the NSF or the CDC? Do you 
know if they have supplemental rules?
    Ms. Glynn. Mr. Swindell can speak better than I can about 
CDC, but NSF definitely has supplemental rules as well.
    Ms. DeGette. And do they allow their researchers to take 
this type of outside compensation?
    Ms. Glynn. There is no broad prohibition on it. There are 
some prohibitions, but not an across-the-board prohibition. 
However, once again, based on my conversations--informal--with 
ethics officials at these agencies it is not that common to 
permit employees to receive compensation there.
    Ms. DeGette. Okay. Mr. Chairman, I think it would be very 
helpful--maybe Mr. Maskell or someone could supplement the 
record by giving us the standards at all of the Government 
agencies about what kinds of outside compensation are allowed 
for the employees.
    Ms. Glynn. Sure. I mean, you can actually find them in the 
Code of Federal Regulations----
    Ms. DeGette. Yes, we have got that.
    Ms. Glynn. [continuing] you have back here. But they are 
all listed there.
    Ms. DeGette. That would be helpful.
    Mr. Varmus. It is important, Ms. DeGette, to note who is--
--
    Ms. DeGette. Yes, sir.
    Mr. Varmus. [continuing] what functions are being performed 
by the agency. So the NSF, for example, makes grants but 
doesn't have the equivalent of an intramural research program. 
There are no scientists doing scientific work in the National 
Science Foundation. They are developing grant programs and 
administering grants.
    Ms. DeGette. That is a really good point. Thank you, Dr. 
Varmus. But, you know, and that kind of leads into my next 
level of questioning, which is the researchers at NIH are 
primarily doing basic research. Is that right?
    Mr. Varmus. It depends what you mean by ``basic.'' There 
are many who are doing clinical research, if you are 
contrasting laboratory and research with patients. But it is--I 
think we have to define the term ``basic research.''
    Ms. DeGette. Well, okay, let me put it in a different way.
    Mr. Varmus. They are not doing applied research.
    Ms. DeGette. Most of the private companies don't have a big 
investment in basic research.
    Mr. Varmus. Actually, many of them do now. That is a major 
change that actually came about during the growth of the 
biotechnology industry, and many fundamental findings have been 
made in the biotech industry. And now large pharmaceutical 
houses have acquired those companies, have engaged themselves 
in basic research. The continuum is much more complex than it 
was 30 years ago.
    Ms. DeGette. You know, it is interesting because I was 
talking to, actually, some of the pharmaceutical 
representatives who said that the bulk of the basic research is 
still being done at NIH, and that----
    Mr. Varmus. Or with NIH dollars, because that----
    Ms. DeGette. Or with NIH dollars, and that----
    Mr. Varmus. [continuing] over 80 percent of our money--of 
NIH's money goes to universities and academic health centers 
and colleges.
    Ms. DeGette. Right. So I guess my question is, for some of 
the scientists coming in, especially the newer scientists who 
are the ones that theoretically these new ethical rules would 
apply to, I am not sure I buy the fact that these people would 
not be--these top flight folks would be attracted to NIH if 
their outside compensation were greatly constrained or even 
eliminated, because many of them are doing basic kinds of 
research and not the advanced kinds of research. Would you 
disagree with that?
    Mr. Varmus. Well, the choice that most are making is 
whether to go to the NIH intramural program to do research or 
to do essentially very, very similar work under somewhat 
different terms. And I don't mean simply financial terms, but 
in terms of review and response to a different kind of system 
of organizing research at universities, academic health 
centers, colleges, universities. That is the usual choice.
    Ms. DeGette. With NIH dollars in many cases at those 
academic centers.
    Mr. Varmus. And salaries being set independently and 
different sets of rules. So it is a different environment, and 
it has seemed I think--and especially in the 1980's--more 
favorable to most to work in the extramural community as 
opposed to the NIH.
    Ms. DeGette. Now, when you were--I assume you participated 
in trying to recruit folks to come to NIH when you----
    Mr. Varmus. Absolutely.
    Ms. DeGette. [continuing] were there. And did these folks 
tell you that their decision of where to go was in part--I 
mean, how important was the outside compensation?
    Mr. Varmus. Very important, especially for the people I was 
recruiting, because I was recruiting people at the upper end of 
the spectrum.
    Ms. DeGette. Right. Who now, of course, won't be entitled 
to that, many of them.
    Mr. Varmus. Pardon me?
    Ms. DeGette. Now many of those folks won't be entitled to 
that compensation. So do you----
    Mr. Varmus. Well, but the----
    Ms. DeGette. [continuing] think now we are going to----
    Mr. Varmus. Ms. DeGette, we have two issues on the table 
with respect to compensation. One is the outside activities, 
and we are all agreeing that for certain high-level people 
those should be prohibited or restricted.
    Ms. DeGette. Right.
    Mr. Varmus. But there are also salary issues, which we are 
not discussing today, that are very important with respect to 
using pay scales such as those that are allowable under Title 
42 that make compensation more competitive with the kinds of 
salaries that we have talked about.
    Ms. DeGette. You know, I used to sit on a college board, 
and we used to have these big debates vis-a-vis the economics 
department and say, ``Well, you know, these people could go to 
private industry, and maybe we should pay the economics 
professors, you know, $200,000 a year, and we should pay the 
classics professors $20,000 a year.''
    And those were really tough discussions that we had, and I 
think those discussions are endemic throughout the academic 
world, and particularly difficult when you are talking about 
biotechnology and all kinds of cutting edge research.
    But, you know, the problem I think we have is that, No. 1, 
I don't think we can make the assumption that people are simply 
going to the NIH because of outside compensation. And, No. 2, I 
think we have continuing tough, tough issues about conflicts of 
interest which only get murkier, not clearer, the more levels 
of ethics rules that we try to place, especially because of the 
nature of research.
    And this is really, I think, what we are struggling with 
now. And I don't know the solution, but I just don't 
fundamentally agree with the premise that this outside--if we 
really constrain this outside compensation, so long as we 
continue to allow collaboration, that that is going to severely 
affect the quality of research scientists at NIH. That is just 
my view.
    Mr. Greenwood. The Chair thanks the gentlelady.
    The gentleman Mr. Walden is recognized for 10 minutes.
    Mr. Walden. Thank you, Mr. Chairman.
    Mr. Swindell, you were Acting Director of HHS Ethics 
Division at the time Dr. Clausner requested to receive the 
Dixon Prize in 1997, weren't you?
    Mr. Swindell. That is correct.
    Mr. Walden. Okay. And as I recall, in your testimony you 
said there was sort of an edict from up above about not giving 
anything more than just a description of the law, correct? I 
mean, that----
    Mr. Swindell. That is correct.
    Mr. Walden. [continuing] may not be the lawyerly--that is 
correct?
    Mr. Swindell. That is correct.
    Mr. Walden. Was there a reason to believe that if you 
didn't follow the instructions, to ignore appearance issues, 
that that might affect you getting a permanent appointment? Was 
it that kind of a feeling in the----
    Mr. Swindell. No. At the time, there was actual concern 
within the whole Ethics Division that it would be dissolved and 
moved into another division. I had no desire to have to give 
any advice to the General Counsel for the purpose of personal 
advancement.
    The Ethics Division at the time, they were going to merge 
it into what was called the Business and Administrative Law 
Division.
    Mr. Walden. Why would they want to do that? What was the 
talk?
    Mr. Swindell. Well, there were difficulties I think with my 
supervisor about how we gave ethics advice, which, of course, 
precipitated this direction of how we were supposed to get----
    Mr. Walden. And who was your supervisor then?
    Mr. Swindell. Jack Kress.
    Mr. Walden. And who did Jack Kress work for?
    Mr. Swindell. Harriet Rabb.
    Mr. Walden. And was this coming from both Mr. Kress and Ms. 
Rabb?
    Mr. Swindell. I read into the record earlier today, 
Congressman, that--I wrote a note to the file that indicated 
that my supervisor had told me that the General Counsel 
directed us to provide precise legal issues, that we weren't 
supposed to give advice about the appearances of things.
    Mr. Walden. I mean, I just find that amazing. You know, 
when I get counsel, I want to know all of the potential 
ramifications, so I know----
    Mr. Swindell. As I mentioned earlier----
    Mr. Walden. With ethics, it is about appearance as much as 
legality in public service.
    Mr. Swindell. Obligation, yes. And it was a difficult 
circumstance to be in.
    Mr. Walden. Was Harriet Rabb the one who contacted you 
about the Pittsburgh award regarding Dr. Clausner?
    Mr. Swindell. Yes.
    Mr. Walden. And she was, what, the General Counsel?
    Mr. Swindell. She was the General Counsel.
    Mr. Walden. Is it standard operating procedure for the HHS 
General Counsel to get involved in award receipt requests of 
this nature?
    Mr. Swindell. I would not normally think so.
    Mr. Walden. Did it happen any other time with her?
    Mr. Swindell. No, not that I can recall.
    Mr. Walden. Do you recall any other HHS General Counsel 
ever getting involved in other requests of this nature?
    Mr. Swindell. No, I don't recall another one.
    Mr. Walden. What made this one so special, do you think, 
that it rose to the level of----
    Mr. Swindell. I do not know why this was so special, but it 
was obviously--she wanted an answer. It was very difficult to--
she was somewhat inscrutable, because she also seemed to 
understand that this was unseemly. But nevertheless--so I don't 
know what her directions were.
    Mr. Walden. What makes you say that she seemed to 
understand it was unseemly?
    Mr. Swindell. She would frown about the fact, you know, he 
is trying to make a big deal about getting some money. You 
know, I just think----
    Mr. Walden. Mr. Clausner.
    Mr. Swindell. Yes.
    Mr. Walden. Dr. Clausner.
    Mr. Swindell. Dr. Clausner.
    Mr. Walden. Do you recall Harriet Rabb contacting you on 
behalf of any other official for this kind of award? Or was 
this just a very unique situation?
    Mr. Swindell. I thought it was very unique, yes.
    Mr. Walden. Did you or anyone else ever inquire as to why 
she was involved in this?
    Mr. Swindell. Why she was in this? No, did not.
    Mr. Walden. Just one of those things that came down from 
above, and you read the law and gave your interpretation?
    Mr. Swindell. We had lawyers and a couple of divisions 
looking at it--the Public Health Division, Ethics Division--and 
trying to evaluate the nature of the award, because there were 
some issues about whether it was coming from a foundation or 
whether it was coming from a university, and so forth.
    Mr. Walden. Were they under the same constraints that you 
were in terms of not being able to offer opinion outside of 
just the strict statutory reading?
    Mr. Swindell. That was generally the way the lawyers were 
supposed to operate in the Office of General Counsel was we--I 
assumed they felt that lawyers were making policy--you know, 
making decisions that were left to decisionmakers.
    Mr. Walden. And was the theory that if you put something in 
writing that showed there might be evidence--or it might have 
the appearance, let us say, of conflict, that, therefore, that 
would be taken into account.
    Mr. Swindell. I think that would be a problem if we did. As 
I said, we had an earlier circumstance where I had drafted a 
memorandum where I said some conduct would not be prudent, 
trying to get into the appearance of it. And my supervisor was 
told it--I had drafted it for my supervisor's signature.
    And he had come back from his performance appraisal saying 
that was the same old situation of us giving advice about 
appearances. And, you know, he was rebuked for that, and told 
me as well. So there was clear understanding how we were 
supposed to----
    Mr. Walden. And that was Jack Kress?
    Mr. Swindell. Yes.
    Mr. Walden. Okay. So he was rebuked, and I assume by that 
he was rebuked by Harriet?
    Mr. Swindell. Harriet Rabb.
    Mr. Walden. Harriet Rabb. Do you think this went all the 
way up to the secretarial level?
    Mr. Swindell. I can't speak to that.
    Mr. Walden. Did you also approve Secretary Shalala's 
appearance in that famous milk mustache ad?
    Mr. Swindell. That was done not only with my looking at the 
issue but the Public Health Division lawyers--the idea being 
that the Government ethics rules don't govern the conduct of an 
agency acting as an agency.
    Mr. Walden. Yes.
    Mr. Swindell. And that, therefore, this had been vetted 
through the agency, it was part of a joint initiative with the 
National Cancer Institute dealing with child and immunization 
diseases, and so forth. And so it came up through that vetting. 
The determination was that there was legal authority under the 
Public Health Service Act, so the Associate General Counsel for 
Public Health Service was also involved.
    It had come up earlier in the administration--and I 
concurred with my boss at the time, Jack Kress--that we didn't 
think that it was legal for her to do it at that time.
    Mr. Walden. Why?
    Mr. Swindell. As I recall, the milk mustache text of the ad 
had some language in it that talked about health care reform at 
the time, and it almost was the point of lobbying with respect 
to pending legislation. So we had that concern.
    Obviously, the appearance concerns that she would have to 
take, and she was advised about, that obviously people could 
criticize her.
    Mr. Walden. So it was somewhat controversial in the Ethics 
Division?
    Mr. Swindell. Controversial in the Ethics Division and the 
ethics community and the press. But bare minimum legality, the 
Public Health Division--the Public Health Service Act, you 
know, says--it says a lot of language in there about the 
Secretary having authority to encourage health promotion 
activities, you know, and it was thought that this would be a 
method of reaching teenagers. It was popular to make them drink 
milk, and, therefore, you know, have strong bones.
    Mr. Walden. Builds bodies in seven ways.
    Mr. Swindell. Yes.
    Mr. Walden. Or whatever it is. Is it true that you framed 
the milk mustache ad and hung it on your office on your wall?
    Mr. Swindell. It was everywhere, and it was there to remind 
me that that was the kind of advice that I was supposed to 
provide. Every day we would sit up there and see the 
Secretary's milk mustache.
    Mr. Walden. Now, what do you mean by that, that it was the 
kind of advice you were----
    Mr. Swindell. Well, it is a precise--it is another example 
of a legal determination and allowing the policymaker to take, 
you know, whatever responsibility for----
    Mr. Walden. And they take the heat.
    Mr. Swindell. [continuing] adverse perception.
    Mr. Walden. Okay. Is that ad and picture still on your 
wall?
    Mr. Swindell. Of course not.
    Mr. Walden. When did it come down?
    Mr. Swindell. The very first day of the new administration.
    Mr. Walden. All right. Okay. I think that is all the 
questions I have at this point, Mr. Chairman. Thank you.
    Mr. Greenwood. Milk grows strong bones, but something else 
has to draw--create strong backbones. There wasn't a lot of 
that going on.
    Dr. Varmus, how did you get authorization--actually, is 
it--yes, it is my turn, isn't it?
    Ms. DeGette. I guess.
    Mr. Greenwood. Yes, okay. I get a second round.
    How did you get authorization to convert NIH directors from 
full-time continuous positions into Title 42 special 
consultants?
    Mr. Varmus. I don't remember all of the details, Mr. 
Chairman, but there was definitely consultation with the 
Department to interpret the existing rules. I know that there 
was a fairly severe time limit on Title 42 classification, and 
we couldn't work this very well on a 1-year basis, and we were 
given the authority from the Department to make appointments, 
non-tenured appointments for 5 years under Title 42.
    So this was the result of discussions that I and the Office 
of Human Resource Management had with the Department.
    Mr. Greenwood. Did that include the Office of General 
Counsel?
    Mr. Varmus. Yes.
    Mr. Greenwood. Were you advised----
    Mr. Varmus. And presumably with the Office of Personnel 
Management at the Department. I don't remember exactly what 
conversations occurred, but we were able to make a few 
appointments in that category I believe as early as 1997, late 
1997 or 1998.
    And then I--one of my last acts before leaving was to write 
a letter to Kevin Therm, who was then the Deputy Secretary, 
asking for permission to extend the use of Title 42 for 
incoming people who we thought might be more easily recruited 
with the higher pay scale that we could pay under Title 42.
    And there was a legal interpretation of whether people 
under Title 42 would be--could act as opposed to just being 
consultants, and I believe the language says ``assist and 
consult'' or ``assist and advise,'' and that was viewed as 
reason to allow----
    Mr. Greenwood. Didn't that feel like a circumnavigation of 
the intent of the law to you?
    Mr. Varmus. Not to me. I thought that--and we were looking 
for flexibility to adapt to circumstances that were making it 
very difficult to----
    Mr. Greenwood. But didn't that exist--doesn't Title 42 
exist, and wasn't its origin the notion that sometimes you need 
to bring in specialists for a limited period of time to 
consult? And that is why Congress created that opportunity, and 
that was--it was never Congress' intent to say, ``Well, the new 
guys come in under Title 42.'' I mean, I----
    Mr. Varmus. Well, it wasn't my idea that it would be all of 
the new guys either. So we were trying to find--it seemed to me 
that the language was consistent with an interpretation that 
would say we were bringing in people to do high-level positions 
who would not be tenured, would come in perhaps for a few 
years, and would serve as experts. Obviously, I didn't make 
this decision single-handedly.
    Mr. Greenwood. Well, what you were advised as to the 
position of the HHS General Counsel for widespread use of Title 
42 conversion?
    Mr. Varmus. That it was a legal application of the 
provision.
    Mr. Greenwood. Who advised you of that?
    Mr. Varmus. I can't remember all of the people involved, 
but certainly the General Counsel herself, and Kevin Therm as I 
recall. I don't remember specifically, and I don't want to----
    Mr. Greenwood. Okay.
    Mr. Varmus. [continuing] since I am under oath. But I know 
the----
    Mr. Greenwood. Do you have any idea how many people in NIH 
are under Title 42 now?
    Mr. Varmus. I am told it is a lot--it is many more than 
were on Title 42 when I left. I don't know the exact number.
    Mr. Greenwood. Do you know order of magnitude?
    Mr. Varmus. It is probably in the range of several hundred 
or a thousand.
    Mr. Greenwood. Would you be surprised if I told you it was 
more like minimally 1,400? Or, actually, 4,000?
    Mr. Varmus. I am somewhat surprised, but until I heard the 
circumstances I wouldn't react to it.
    Mr. Greenwood. You wouldn't be shocked to know that the 
policy that you enacted on your way out has enabled 4,000 
people to----
    Mr. Varmus. Well, I didn't enact the policy, Mr. Chairman. 
I asked for permission to enlarge----
    Mr. Greenwood. That is what I mean. That is what I mean. I 
am not--we don't need to parse words here. I am just--it was 
your idea, correct?
    Mr. Varmus. I supported it, yes.
    Mr. Greenwood. It wasn't your idea?
    Mr. Varmus. Well, I didn't know a lot about Title 42 to 
begin with. But I began to learn about it, and it looked like a 
reasonable mechanism for us to use in specific circumstances to 
recruit people who were being paid very high salaries in 
academia and----
    Mr. Greenwood. I understand that. But the text of the law 
says special circumstances. Okay? And when I tell you that 
there are 4,000--we think there are 4,000 people at NIH who are 
now salaried, paid under special--for special--special 
consultants, does that seem to you--does that not strike you as 
something run amok?
    Mr. Varmus. I would say it is a number that surprises me. I 
wouldn't have thought it would be that large.
    Mr. Greenwood. Okay. When you became the NIH Director in 
1993, were you aware that NIH was collecting information on 
compensation amounts for outside consulting arrangements?
    Mr. Varmus. I am not sure I understand the nature of the--
--
    Mr. Greenwood. When you became Director in 1993, were you 
aware that the NIH was collecting information on compensation 
amounts for outside consulting arrangements, that they were 
routinely gathering that information?
    Mr. Varmus. There was a limit on the amount that could be 
acquired, so I assume that--I don't know what you mean by the 
term ``collection.'' That is what I am interested in. I assume 
it was being monitored because there was a restriction, 
especially on money from consultation from single source.
    Mr. Greenwood. Okay. In May 1991, the scientists published 
a story entitled ``NIH Struggling to Regulate Employees' 
Outside Income.'' The article states that at the time NIH had 
begun to collect followup information from scientists about 
what they were paid for outside activities.
    The information was to be used as part of a review of the 
NIH salary structure to compare incomes of NIH scientists with 
their counterparts in the private sector. Dr. Philip Chen, then 
Associate Director for Intramural Affairs to NIH, stated, ``We 
may use that information as an argument in favor of the need to 
modify the salary structure to become more competitive with the 
outside world.'' NIH has been unable to provide the committee 
the amounts NIH employees receive from past outside activities. 
In fact, NIH was not collecting this information until 
recently, but NIH did collect this information in the past as 
the article discusses. NIH was using the information to 
determine whether salaries needed to be adjusted.
    At the time, outside consulting was allowed to help make 
employee income competitive with the outside, although it was 
capped at $25,000. Isn't it true that the consulting was viewed 
as compensation for the employee?
    Mr. Varmus. Yes, but not Government compensation. But yes, 
part of the compensation package.
    Mr. Greenwood. And wasn't the collection of this 
information discontinued when the cap was lifted?
    Mr. Varmus. As far as I know, it was.
    Mr. Greenwood. And isn't it true that NIH came up with 
another way to compensate employees in order to make their 
salaries competitive with the private sector Title 42? In other 
words, in the good old days, in the old days, they collected 
information to see how much people were making from consulting 
agreement, so they could show that, in fact, how needy they 
must be to have to go out and collect these outside--arrange 
this outside consulting. And then that information was then 
used to support the notion that we needed to use Title 42 to 
increase the compensation.
    Mr. Varmus. My sense was from the discussions that I had 
that the Title 42 pay scale was advocated in part--in greater 
part by comparison of NIH salaries with salaries that people 
were receiving in academic institutions from which we were 
trying to recruit them.
    Mr. Greenwood. Well, where I am trying to go with this is 
the NIH gathered information about outside activity in order to 
bolster the argument that the scientists at NIH--the intramural 
scientists--were underpaid, and it did that and justified the 
Title 42 application.
    And then the question is, so that being the case, why 
continue--why is it a good policy to continue with the outside 
consulting agreements when we have already attempted to solve 
the problem through Title 42?
    Mr. Varmus. Well, I see where you are going, Mr. Chairman. 
But to the best of my recollection, most of the arguments that 
we made were not based on compensation, because, in fact, a 
moderately small amount--number of NIH employees were engaged 
in consulting. What troubled me more was the difficulty of 
recruiting to the NIH people who were making amounts that were 
considerably in excess of what we could offer in the 
conventional GS or SES pay scales.
    Mr. Greenwood. Now, when you were Director, did you employ 
retention bonuses?
    Mr. Varmus. Occasionally.
    Mr. Greenwood. Could you describe a retention bonus and how 
that system works?
    Mr. Varmus. It was quite a rare phenomenon, but it usually 
would occur when someone was being offered a job on the outside 
and had a written demonstration that a job was honestly 
offered, not simply an idle comment. We would then apply for a 
retention bonus to help retain that person, and these were 
usually fairly modest sums.
    Mr. Greenwood. Give me an example.
    Mr. Varmus. Oh, it might be--I am conscious of being under 
oath. I can't remember the numbers exactly, but in the range of 
$25 to $50,000.
    Mr. Greenwood. Okay. And you say it was rarely used? Could 
you give us an order of magnitude of the number of times that 
you think it was used while you were Director?
    Mr. Varmus. Well, used in situations where I would be 
making the appeal for the retention bonus, I don't believe it 
would be more than 10 to 20 times perhaps, maybe less than 
that.
    Mr. Greenwood. Were you the only person at the NIH that 
could approve a retention bonus?
    Mr. Varmus. No. I would have to consult with my former 
colleagues to know whether--there were some pay scales in which 
a retention bonus could be given by an Institute Director. 
During our time at the NIH, some personnel responsibilities--
some personnel authorities were delegated to Institute 
directors.
    I mean, it is possible in some pay scales and categories 
that a retention bonus could be developed for an employee of an 
institute, and I would not have been involved.
    Mr. Greenwood. You said that you were surprised to hear 
that as many as 4,000 NIH personnel could be under Title 42 
now. Can you justify that? Do you think--could you make the 
argument today that but for Title 42 that anything like 4,000 
employees at NIH would go walking away because they are 
underpaid?
    Mr. Varmus. Well, I would have to look--I would have to 
hear more about how and why it was done, and whether the pay 
ranges are actually different from what people would have been 
assigned if they were in the regular GS series. I don't know 
the full particulars. I have been away for----
    Mr. Greenwood. Why else would they be under Title 42 if it 
weren't for salary----
    Mr. Varmus. I don't know, Mr. Chairman. I know I would--
having heard the number, I will be interested to find out. But 
I honestly can't tell you I have heard the----
    Mr. Greenwood. And you said that you had set up the policy 
so that new hires could come in under Section 42. Did you--was 
it your idea that people would be able to convert their status 
to Title 42?
    Mr. Varmus. That was a possibility, sure.
    Mr. Greenwood. Pardon me?
    Mr. Varmus. That would be a possibility, if someone were 
being promoted, for example, or doing exemplary work or being 
lured away as a retention mechanism. It would seem to me to be 
a possible use of the Title 42.
    Mr. Greenwood. If I told you 21 out of 27 Institute 
directors converted to Title 42, would that seem like a 
reasonable occurrence to you?
    Mr. Varmus. I am less surprised by that than I am by the 
number itself, because Title 42 is particularly useful in the 
higher ranges of the institution.
    Mr. Greenwood. Okay. Final question for you, Mr. Swindell. 
When did you--you were acting in your position for 3 years. Is 
that correct?
    Mr. Swindell. Yes, sir.
    Mr. Greenwood. Did you find that extraordinary, to be in an 
acting mode for all of that time? I mean, didn't you feel 
like--did you frequently say at yearly reviews, ``When am I 
going to be permanent instead of under this Sword of 
Damocles?''
    Mr. Swindell. Yes, I certainly felt that it was unusual.
    Mr. Greenwood. Did anybody ever give you an explanation as 
to why you were held in limbo land all that time?
    Mr. Swindell. No, they never did. And, of course, if I 
brought up our future, it is likely the future could have been 
that we just were put into another division. So I----
    Mr. Greenwood. Did you ever feel that your acting status 
was a way to make you cooperate?
    Mr. Swindell. Well, a fair criticism from somebody looking 
at it from that----
    Mr. Greenwood. I am not--I am asking you if you ever felt 
that way.
    Mr. Swindell. Felt?
    Mr. Greenwood. Did you ever say to yourself, ``I know why I 
am only Acting. That is to make me behave''?
    Mr. Swindell. Well, I don't think I felt that directly, no. 
I mean, I think I tried to do the best I could.
    Mr. Greenwood. Did you ever think, ``If I don't give my 
superiors what they want, I won't get to be made--a permanent 
position''?
    Mr. Swindell. Did I ever feel if I don't give what they 
want--I just tried to be a professional, to follow the 
instructions that were given me.
    Mr. Greenwood. Okay. All right. Thank you, lady and 
gentlemen of the panel. Appreciate your contribution today, and 
you are excused.
    The Chair would call our second panel consisting of Dr. 
Lance A. Liotta, M.D. and Ph.D., Chief of the Laboratory of 
Pathology at the National Cancer Institute, Dr. J. Carl 
Barrett, Ph.D., Director, Center for Cancer Research at the 
National Cancer Institute; Dr. Anna D. Barker, Ph.D., Deputy 
Director, Advanced Technologies and Strategic Partnerships at 
the National Cancer Institute; and Dr. Emanuel Petricoin, Lead 
Microbiologist, Center for Biologics Evaluation and Research, 
at the Food and Drug Administration.
    Welcome. You may have--I don't know whether you were here 
at the beginning of this hearing, but as I told the first panel 
of witnesses, that pursuant to the custom of this committee we 
take our testimony under oath. And so I would request if any of 
the four of you object to giving your testimony under oath. 
Okay. I see no objection.
    I also should advise you that. pursuant to the rules of the 
House and of this committee, that you are entitled to be 
represented by an attorney. Do any of you choose to be 
represented by an attorney? Dr. Liotta, you are represented by 
an attorney. Would you identify your attorney, or would you 
have your attorney identify himself into the microphone, 
please?
    Mr. Morton. Mr. Chairman, Charles Morton on behalf of Dr. 
Liotta.
    Mr. Greenwood. And Dr. Petricoin, your attorney--would your 
attorney please identify himself?
    Mr. Schatzow. Michael Schatzow, S-C-H-A-T-Z-O-W, on behalf 
of Dr. Petricoin.
    Mr. Greenwood. Thank you.
    And I assume Dr. Barrett and Dr. Barker are not represented 
by counsel? Okay.
    Well, in that case, would you rise and raise your right 
hand?
    [Witnesses sworn.]
    Mr. Greenwood. Okay. You are under oath, and I believe, Dr. 
Liotta, you have an opening statement?
    Dr. Liotta. Yes.
    Mr. Greenwood. And you are recognized for 5 minutes to give 
that opening statement. Welcome.

 TESTIMONY OF LANCE A. LIOTTA, CHIEF, LABORATORY OF PATHOLOGY; 
  ACCOMPANIED BY J. CARL BARRETT, DIRECTOR, CENTER FOR CANCER 
      RESEARCH; ANNA D. BARKER, DEPUTY DIRECTOR, ADVANCED 
   TECHNOLOGIES AND STRATEGIC PARTNERSHIPS, NATIONAL CANCER 
 INSTITUTE; AND EMANUEL PETRICOIN, LEAD MICROBIOLOGIST, CENTER 
     FOR BIOLOGICS EVALUATION AND RESEARCH, FOOD AND DRUG 
                         ADMINISTRATION

    Mr. Liotta. Thank you, Mr. Chairman, and members of the 
committee, for the opportunity to appear before you today to 
discuss my role as a scientist at the NIH and my various 
collaborative efforts. I am humbled to contribute to the NCI 
goal to create scientific knowledge and rapidly translate this 
knowledge to reduce suffering due to cancer.
    I grew up loving science. My father was a science high 
school teacher. Both of my parents encouraged my 
inquisitiveness and creativity. I received my Ph.D. and M.D. 
from Case Western Reserve University in 1976, and then came to 
the Cancer Institute immediately as a resident in pathology. I 
then became Chief of the Laboratory of Pathology.
    And over my 28-year career at NCI the research supported by 
the Cancer Institute in my lab has generated more than 500 
scholarly publications, 300 in the last 10 years. This 
productivity is only a reflection of the wonderful colleagues 
and collaborators working in the special environment of the NIH 
and the NCI, as well as the vision and support of the 
leadership.
    My research accomplishments span a wide range of scientific 
and clinical disciplines all aimed at fighting cancer. Cancer 
metastases is the major cause of suffering and death. 
Scientists in my laboratory discovered a series of novel genes 
and proteins which regulate cancer invasion and metastasis. 
These discoveries are now moving forward in clinical studies 
and clinical trials.
    My NCI laboratory also invented new technology called 
laster capture microdissection, which has enabled investigators 
for the first time to pluck out molecules directly from cancer 
cells in a human biopsy specimen. This was developed through 
research created with Arcturus and is now in use in more than 
1,000 labs worldwide and has generated many thousands of 
publications.
    We created a unique joint agency initiative with NCI and 
the FDA called the clinical proteomics program. The goal was to 
translate discoveries about proteins, the functional machinery 
of the cell, into direct patient benefit as fast as possible. 
Under the CPP, the clinical proteomics program, we developed a 
new way to study cancer biopsies, which could map the deranged 
protein circuitry of the cancer patient's tumor--individual 
tumor.
    The promise of this approach is improved therapeutic 
efficacy with lower toxicity using a panel of drug treatment 
individualized for that patient's tumor, and this technology 
has already been translated to research in ongoing clinical 
trials.
    The great hope is that improved detection of early stage 
cancer will produce more cancer cures. We set out to develop a 
new approach to discover markers for cancer. In 1998, under our 
clinical proteomics program, we proposed that there existed in 
blood thousands of previously unknown markers that might 
reflect what was shed into the blood from early stage cancer.
    We generated data in our lab from an instrument called a 
mass spectrometer, and generated large amounts of data that we 
needed to analyze with a pattern recognition algorithm. We 
tried many pattern recognition algorithms, and then published 
early results that showed that our hypothesis might be true.
    We then tried Correlogic Systems software, and it looked 
promising. This resulted in a publication in Lancet and 
subsequently a CRADA with Correlogic. I want to point out that 
that CRADA had a limited work scope to use Correlogic software, 
and we were free to use other software before, during, and 
after.
    We then moved on to discover, in collaboration with our 
colleagues at NCI Frederick proteomics facility, thousands of 
new markers and identified them, never before known in the 
blood. And because the U.S. Government is steward of this list 
of new markers, it is not in the CRADA--of any CRADA we have--
we believe this can have broad public health benefit, which 
will stimulate the large diagnostic industry.
    This committee is investigating outside activities by NIH 
scientists. Because I have had outside activities during the 
course of my career, let me address this issue. I take my job 
as a dedicated public servant very seriously. I believe that I 
have upheld and maintained the highest ethical standards in all 
of my official capacities.
    I have consulted with the appropriate personnel and 
endeavored to follow the regulations within NIH guidance and 
obtained guidance at all times when it was needed with respect 
to such regulations. I would never knowingly engage in a 
conflict of interest and would immediately cease such activity 
if there were a change in the circumstance that led me to 
believe that an approved activity had become one which had a 
potential conflict.
    My only recent paid outside activity has been an approved 
consulting agreement with Biospect. And I want to assure you, 
Mr. Chairman, that I never consulted with Biospect about my 
CRADAs, never consulted with them about my Government work, and 
this was explicitly excluded in my consulting agreement, along 
with my--the other exclusions in my ethics package.
    My work on this consultation was placed on hold during the 
NIHEAC rereview of outside activities concurrent with the Blue 
Ribbon Panel. Last week I learned new information relative to 
this activity that Biospect requested raw data which we make 
publicly available to anyone. Because this new information 
might create even the slightest potential perception of a 
conflict, I immediately withdrew this activity. That is because 
my Government mission is sacred to me.
    In conclusion, I am honored to serve as a scientist in the 
intramural program of the NCI. I have cherished the opportunity 
to participate in the creative intellectual environment that I 
feel is unparalleled in the world.
    [The prepared statement of Lance A. Liotta follows:]
   Prepared Statement of Lance A. Liotta, Chief of the Laboratory of 
Pathology and Chief of the Section of Tumor Invasion and Metastases in 
     the Center for Cancer Research, National Cancer Institute, NIH
    Thank you Chairman Greenwood and Members of the Committee for the 
opportunity to appear before you today to discuss my role as a 
scientist at the NIH and my various collaborative efforts.
    I grew up loving science. My father was a science high school 
teacher. Both of my parents encouraged my inquisitiveness and 
creativity. I began inventing things at an early age. By college I was 
spending my summers working and inventing solutions for the Dupont 
Corporation at its Experimental Station in Wilmington, Delaware. I have 
always had a passion to be an inventor, and today I have over 80 
patents and patents pending, which list me as an inventor.
    My interest in medical diagnostics and pathology began during my 
undergraduate years (1965-1969). At that time I began doing research 
that led to patents for diagnostic test technology for infectious 
disease, as well as, general blood and body fluid testing 
methodologies. While in medical school, I was employed part time as a 
medical laboratory technician for the medical student health clinic. I 
was responsible for blood, culture and urine analysis, including the 
report generation. This training allowed me to gain exposure and 
expertise within the broad field of diagnostic testing methodology, and 
pathology diagnostic service labs.
    I received my Ph.D. in Biomedical Engineering from Case Western 
Reserve University (``CWRU'') in 1974. Two years later, I graduated 
from CWRU's M.D./Ph.D. program with my M.D. My Ph.D. work focused on 
mathematical modeling and experimental analysis of cancer invasion and 
metastasis. Cancer metastasis is the very definition of malignancy and 
causes this disease to be lethal. My Ph.D. allowed me to gain broad 
expertise in instrumentation, computer algorithms, mathematical 
modeling, and experimental animal models of cancer and analysis of 
clinical pathologic material. The results of my research convinced me 
that a major medical need was an improved understanding of when and why 
cancer becomes malignant. Because I was enrolled in the M.D./Ph.D. 
program, my Ph.D. research was supervised by both the Pathology 
Department of the Medical School and the Biomedical Engineering 
Department.
    In parallel with my Ph.D. studies, I worked to achieve an M.D. with 
an eye toward a career as a research pathologist. For this reason, I 
took special clinical rotations in diagnostic monitoring and diagnostic 
pathology laboratory services. When I considered the next stage of my 
career, the NIH intramural program offered a superb environment that 
would support my creative freedom to pursue research contributions that 
could benefit public health.
    Within 7 years of joining the NCI, as a pathology resident, I 
became Chief of the Laboratory of Pathology and Chief of the Section of 
Tumor Invasion and Metastasis, now part of the Center for Cancer 
Research. In these capacities I have three types of intramural duties: 
clinical service, training of research and clinical fellows, and cancer 
research. I am very proud of the outstanding clinical service provided 
by my laboratory staff to the NIH. We are responsible for all anatomic 
pathology service for the entire NIH. Our Lab hosts a world-class 
residency program. Here we recruit and train research-oriented 
pathologists who become academic leaders. My research contributions, 
supported by the NCI program, have generated more than 500 scholarly 
publications. This productivity is only a reflection of the wonderful 
colleagues and collaborators working in the special environment of the 
NIH, as well as the vision and support of the NCI and NIH leadership.
    I am proud to have further served the NIH as the Deputy Director 
for Intramural Research under NIH Director, Dr. Bernadine Healy. I 
played a major role in setting up the Intramural Human Genome Program. 
This job gave me a great appreciation of the significant ways in which 
the NIH environment has continued to attract top-notch minds.
    My research accomplishments to date span a wide range of scientific 
and clinical disciplines, including:
    Cancer Metastasis--My work along with my collaborators is 
recognized as a groundbreaking effort to investigate the process of 
tumor invasion and metastasis at a molecular level. In the mid 1970s, 
we proposed and experimentally demonstrated the linkage between 
angiogenesis onset and tumor invasion and metastatic dissemination. We 
proposed the concept of metastasis suppressor genes. Consequently, 
scientists in my Laboratory of Pathology discovered a series of novel 
genes and proteins, which regulate cancer invasion and metastasis, 
thereby providing new strategies for cancer diagnosis and treatment. As 
a demonstration of the originality of these discoveries, all are 
covered by U.S. government-owned patents, both issued and filed.
    New Technology for Micro Analysis of Tissue--My laboratory has 
invented technology in the fields of pathology diagnosis, 
microdissection and proteomics. Our group invented Laser Capture 
Microdissection (LCM), which was developed through a research CRADA 
(Cooperative Research and Development Agreement) with Arcturus, Inc. 
and, thereby, rapidly commercialized. This technology is now in use in 
more than 1000 labs worldwide. The technology has enabled investigators 
for the first time to make broad discoveries in genomics, functional 
genetics, and is now extending into personalized medicine. This 
partnership is a prime example of what the NIH CRADA mechanism is 
designed to do: turn bench research into practical applications.
    Clinical Proteomics Program--We created the first joint agency 
initiative between the NCI and the FDA in 1998 to develop new 
technology for the discovery of proteins important for cancer diagnosis 
and therapy, using actual human tissue and body fluids. Dr. Emanuel 
Petricoin of the FDA and I serve as co-directors. This initiative is 
now called the NCI/FDA Clinical Proteomics Program (CPP).
    Individualized Cancer Therapy--Under the CPP, we proposed that LCM, 
combined with a new type of protein array, also developed in the CPP, 
constituted a new paradigm for patient-tailored medicine. The promise 
of this approach is improved therapeutic efficacy with lower toxicity, 
using a panel of drug treatments, individualized for the patient's 
tumor. This technology has already been translated to use in patients. 
It is being applied to patient tissue biopsies, conducted before, 
during and after experimental therapy, as part of ongoing NCI Clinical 
Center Trials.
    Diagnostic Tools for Detection of Early-Stage Cancer--Another major 
initiative has been in the field of early detection of cancer. In 1997, 
based on our initial studies, we hypothesized that a large number of 
previously undiscovered and unknown protein markers were generated in 
the tissue and spilled into the blood, as a record of the disease state 
or the physiologic state. This hypothesis predicted that cancer 
developing in the tissue contained or shed proteins, which could be 
used as a test for early diagnosis. Our challenge was not knowing the 
identities of these molecules.
    Proteomic Pattern Diagnostics--In 1998, in order to explore the 
potential existence of this new list of diagnostic markers, we applied 
mass spectrometry for fingerprinting analysis of tissue and blood. This 
was a well-established technology, but had not yet been applied to 
microdissected tissue. Even though we did not know the identity (name, 
sequence) of the molecules underlying the pattern fingerprints we 
recognized that this data supported our hypothesis that a large 
treasure-trove of previously unknown diagnostic markers existed. In our 
early studies, we analyzed our mass spectral data using visual graphing 
and the pattern recognition software that was commercially available. 
As we reported publicly at the American Association of Cancer Research 
in 1999, our results indicated the existence of a rich source of 
unknown markers in cancer tissue. We also reported on the first 
evidence of mass spectral fingerprinting diagnosis of cancer. Prior to 
this public disclosure, the U.S. government filed patents on this 
concept.
    Our next step, during the fall of 1998 and spring of 1999, was to 
look in great depth at human serum samples from cancer and non-cancer 
patients, using a variety of analytical methods. We realized, based on 
our previous findings and expertise, that a large number of pattern 
recognition approaches existed for spectral analysis, including 
applications to mass spectrometry. Subsequently, under a government 
material transfer agreement, Correlogic Systems software was employed 
to analyze our mass spectral data. The result was a publication in the 
LANCET, describing the potential research feasibility of using mass 
spectral fingerprints in serum for early stage ovarian cancer 
detection. Based on this reduction to practice, a patent jointly owned 
by the U.S. Government and Correlogic was filed. I am named as an 
inventor on this application. This promising research collaboration was 
extended to explore additional research applications under a research 
CRADA. This CRADA did not include the identity of the molecules 
themselves, nor did it constrain the U.S. government from its ongoing 
evaluation and use of other pattern recognition methods. Instead, the 
CRADA was aimed at evaluating the use of Correlogic's software for 
additional research topics.
    The impact of this work from 1998 to 2002 is best exemplified by 
the fact that at the latest meeting of the American Association of 
Cancer Research, hundreds of scientists reported on exploring this 
field of proteomics pattern recognition, using a variety of methods.
An Abundance of New Diagnostic Marker Candidates
    Our lab's consistent goal has been three-fold. 1) identification of 
the proteins predicted to exist by our original hypothesis, 2) 
continuous posting of our raw mass spectral data in the public domain, 
as a public service and with unfettered, full access (i.e., others have 
analyzed our raw data with their own pattern recognition methods and 
have published excellent results); and, 3) translation of these 
discoveries to patient benefit with the highest degree of scientific 
rigor, as rapidly as possible.
    To that end, under the CPP, we have recently invented next-
generation technology (patent applications solely owned by the 
Government and advertised in the Federal Register), which allows us to 
amplify and identify the new molecules we proposed to exist. Through 
the use of this government technology, and in collaboration with 
colleagues in the NCI-Fredrick proteomics facility, we have now 
identified thousands of specific proteins with diagnostic potential, 
which were previously unknown to exist in the blood. Because the U.S. 
government is the steward of this information, we believe that it can 
have broad public health benefits and will stimulate the large 
diagnostic industry of the U.S.
    I have been the recipient of over 30 awards for achievement in 
cancer research and translational medicine. In addition, I have 
received numerous PHS Commissioned Corps awards, including the NIH 
Director's award, the Merit Award, the Distinguished Service Medal, the 
Meritorious Service Medal, the Surgeon General's Medallion, and the 
Surgeon General's Exemplary Service medal. Mr. Chairman, with the 
committee's permission, I would like to include my C.V., which provides 
further details concerning my publications, patents, and related career 
information.
    According to published information, this committee is investigating 
outside activities by NIH scientists. Because I have had outside 
activities during the course of my career, let me address this issue. I 
take my job as a dedicated public servant very seriously. I believe 
that I have upheld and maintained the highest ethical standards in all 
of my official capacity over the years as Chief of the Laboratory of 
Pathology, Chief of the Section of Tumor Invasion and Metastasis, and 
former Deputy Director for Intramural Research. At all times, I have 
endeavored to follow the regulations governing outside activities. I 
have consulted with the appropriate personnel within the NIH when 
guidance was needed with respect to such regulations. I would never 
knowingly engage in any conflict of interest and would immediately 
cease such activity if there were a change in circumstance that would 
lead me to believe that an approved outside activity had become one 
which involved a conflict.
    The research CRADA with Correlogic was signed in April 2002. At 
that time, Correlogic was a software company with an established 
proprietary pattern recognition software using a genetic algorithm with 
a lead cluster analysis. The purpose of the CRADA was to study the 
application of Correlogic's specific algorithm to analyze spectral data 
that had been generated and would be generated by the NCI/FDA Clinical 
Proteomics laboratory (``the Lab'') from blood samples run on the 
commercially available SELDI-TOF mass spectrometer that the Lab had 
purchased in 1998. The CRADA's goal was to find unique discriminating 
patterns of unknown entities revealed by Correlogic's proprietary 
algorithm applied to raw mass spectral data the Lab had generated, and 
would generate. I began an NCI approved consulting with Biospect in 
December, 2002. My understanding was that Correlogic was a software 
company, in contrast with Biospect, that I understood to be a 
scientific instrument company. When I began consulting with Biospect, I 
understood Biospect was in the early stages of developing a new 
instrument and scientific technology which employed its proprietary 
chemistry to separate and identify molecules. I understood Biospect 
desired to explore the use of blood and body fluids from animal and 
human sources with the goal of discovering molecules for biological and 
medical applications.
    In view of new information obtained within the last week, I ended 
my outside activity with Biospect. This activity had been approved 
repeatedly by my supervisor and the NCI Deputy Ethics Counselor. During 
this past week I specifically learned that Biospect requested certain 
information from the NIH. For me, this caused concern. As a result, I 
terminated my relationship with Biospect effective immediately.
    When I first came to the Cancer Institute at the NIH in 1976 to 
join the pathology residency program, I was fresh out of medical 
school. I so loved the climate of intellectual freedom there, that I 
decided to stay. Here it is 28 years later. I am very proud to be a 
part of the NIH and the NCI. I am humbled in my hope that any of my 
contributions may have added to the international renown of those 
institutions. I have always been thrilled to work with colleagues who 
are so very dedicated to save lives and reduce suffering through the 
advancement of scientific knowledge.
    In closing, Mr. Chairman, I wish to express my gratitude to the 
CCR, NCI, NIH and PHS for giving me the opportunity to serve the public 
benefit within a special creative environment that respects its 
scientists as individuals. Here at the NIH a critical mass of 
scientists from multiple agencies can work together to further 
scientific knowledge and employ this knowledge for the common goal of 
saving lives.

    Mr. Greenwood. Thank you, Dr. Liotta.
    Dr. Petricoin, do you have an opening statement, sir? Okay. 
You are recognized for 5 minutes.

                 TESTIMONY OF EMANUEL PETRICOIN

    Mr. Petricoin. Thank you, Mr. Chairman. Mr. Chairman, I am 
pleased to be here today, so that I may provide answers to the 
best of my ability to any questions that you may have and to 
share with you any relevant insights.
    My name is Dr. Emanuel F. Petricoin, and I am a senior 
investigator in the Office of Cell, Tissue, and Gene Therapies 
in the Center for Biologics Evaluation and Research at the U.S. 
Food and Drug Administration.
    I have been a U.S. Government employee since 1993, and I 
have been honored to spend the entirety of my post-graduate 
career in the Public Health Service. I understand from the news 
coverage and your letter of invitation that you are 
investigating NIH ethics concerns, consulting arrangements, and 
outside awards.
    I appreciate the seriousness with which you are taking this 
investigation. I hope that I can provide information that will 
help you. I believe that my outside activities, all of which 
were submitted, reviewed, and approved, according to the 
procedures in place, were performed to the highest ethical 
standards.
    I believe I followed, to the best of my ability, not only 
instructions but also the intent of the ethics guidelines. On 
May 7, 2004, I was informed that Biospect, with whom I had an 
approved outside activity, had been recently and now considered 
based on a rereview to be a significantly regulated entity. As 
a result of this new classification, this approval had been 
revoked.
    Upon notification of that decision, I immediately and 
without hesitation, ended this outside activity. I want to note 
that my approved outside activity with Biospect was listed on 
all of my filed OGE 450 forms, the executive branch 
confidential financial disclosure report. And even that as of 
the last review cycle, in the winter of this year, this 
activity was found not to be in question.
    Mr. Chairman, I heard your opening statements, and I wanted 
to assure you that at no time did I directly consult with 
Biospect about the work and our research created with 
Correlogic, or provide them with any secret or non-public 
information. Moreover, I believe that my consulting agreement 
prohibited that very specific activity conducted with 
Correlogic under our research CRADA.
    Mr. Chairman, ever since I can remember, I have wanted to 
be a scientist. My family always jokes with me about how they 
never recall me wanting to do anything else. From the time I 
won my first science fair ribbon in the fourth grade until 
today, I have never envisioned myself doing anything else.
    I am also Washington, D.C. local. I remember as a child 
driving by the NIH and naval hospital and staring in disbelief 
at the size of the buildings and that everyone inside were all 
scientists. I stand before you today as an individual who I 
believe has been trying to make a difference in the public 
health, especially in light of my father's death from a sudden 
heart attack when I was 21 and my mother's current battle with 
breast cancer.
    My time spent in high school and college working first as a 
patient transporter, then in a microbiology and clinical 
laboratory, solidified my decision to work in an area of 
science that could directly affect people's lives. I could not 
wait to go to college. I drove headlong into the microbiology 
major, receiving my Ph.D.--my degree in 3 years and my Ph.D. in 
5 years.
    My Ph.D. research focused on the analysis of genes, 
proteins, and surface molecules for gonorrhea vaccine 
development. I was immediately drawn to a project that did not 
seem esoteric but might allow me to contribute to work that 
could actually lead to a vaccine some day.
    During my thesis work, I gained expertise in immunology, 
cell biology, biochemistry, protein chemistry, protein 
separation and fractionation methodologies, and was introduced 
into mass spectrometry analysis. During my part-time employment 
at the Southern Maryland Hospital, I gained valuable expertise 
in tissue and body fluid collection methods, and in clinical 
sampling, handling, and storage methods.
    Moreover, I became adept and fully trained using a variety 
of robotic and microfluidic technologies. This combined 
experience and research in diagnostic practice was the basis of 
my choice to seek a post-graduate career in translational 
medicine on my continuing journey for bench to bedside 
applications.
    From 1990 to 1993, I was a National Research Council fellow 
in a post-doctoral position in the Division of Cytokine Biology 
at FDA. I was very interested in a career with cancer-based 
applications, and because of my Ph.D. training realized that 
new classes of molecules and proteins were being developed 
which may really have an impact some day.
    As icing on the cake, I was able to work in an FDA facility 
at the NIH, the Nation's premier research institute and my 
childhood fantasy. From my post-graduate work I gained valuable 
expertise in signal transduction biology, protein interaction 
technologies, protein phosphorylation, and cytokine biology.
    As I entered the twilight of my post-doctoral training, I 
was intent on being a research scientist working for direct 
patient benefit. My time spent as a post-doctoral student at an 
FDA facility reviewed a different, but equally important, 
aspect of the translation and delivery of medical benefit to 
the bedside that I had not recognized before. And I was 
impressed by the FDA scientists I interacted with.
    I successfully competed for a publicly advertised, tenured 
track, U.S. Government position in 1993 and was tenured in the 
Center for Biologics Evaluation and Research in 1998. And I am 
proud that my entire post-graduate career has been spent as a 
U.S. Government scientist working at the Food and Drug 
Administration.
    In 1997, as a result of a series of highly cited 
publications from the laboratory of Dr. Lance Liotta, I decided 
to work with him on a joint interagency agreement and entered 
into an agreement where we were focusing on translation of 
research at the bench to bedside practices.
    I finally realized my dream job--working at the FDA and 
learning about the process of delivering safe and effect 
medicine to the public. Let me explore and expand my scientific 
talents which link back to the times of my laboratory 
experience at a hospital as a college freshman.
    Mr. Chairman, I certainly receive many outside activity 
requests every year. Almost all of these are dismissed 
immediately, because they are invitations which directly relate 
to my official duties as an FDA employee and my ongoing U.S. 
Government scientific research.
    I consider only those requests that invite me to 
participate not because of my U.S. Government position and FDA 
expertise, but because of my general scientific expertise built 
up over the years. In those instances where I choose to pursue 
the opportunity, I always submit an HHS 520 form, Request for 
Outside Activity.
    This approval form--request form is then approved or 
declined after due diligence under currently established 
procedures. I would never knowingly pursue any activity which I 
felt would run counter to this process. And I certainly would 
never knowingly pursue or continue any outside activity which I 
felt was in conflict with a career spent as a scientist in the 
pursuit of public and patient benefit.
    In closing, Mr. Chairman, I wish to express my gratitude to 
CBER, the FDA, and the Public Health Service, for providing me 
a working environment and research funding support for a body 
of work which I believe is highly successful and is one that I 
am extremely proud of.
    I will answer, as best I can, any questions you and the 
panel have for me.
    [The prepared statement of Emanuel Petricoin follows:]

Prepared Statement of Emanuel F. Petricoin, Senior Investigator, Office 
of Cell Tissue and Gene Therapies, Center for Biologics Evaluation and 
                                Research

    Mr. Chairman, I am pleased to be here today so that I may provide 
answers, to the best of my ability, to any questions that you may have 
and share with you any relevant insights. My name is Dr. Emanuel F. 
Petricoin III, and I am a Senior Investigator, in the Office of Cell, 
Tissue and Gene Therapies in the Center for Biologics Evaluation and 
Research, within the US Food and Drug Administration. I have been a US 
Government employee since 1993, and have been honored to spend the 
entirety of my post-graduate career in the Public Health Service.
    I understand from the news coverage and your letter of invitation 
that you are investigating NIH ethics concerns, consulting arrangements 
and outside awards. I appreciate the seriousness with which you are 
taking this investigation. I hope that I can provide information that 
will help you. I believe that my outside activities, all of which were 
submitted, reviewed and approved according to the procedures in place, 
were performed to the highest ethical standards. I believe I followed, 
to the best of my ability, not only the instructions but also the 
intent of the ethics guidelines. On May 7th, 2004, I was informed that 
Biospect, with whom I had an approved outside activity, had been 
recently and now considered, based on a re-review, to be a 
significantly regulated entity. As a result of this new classification, 
this approval had been revoked. Upon notification of that decision, I 
immediately and without hesitation ended this outside activity. I want 
to note that my approved activity with Biospect was listed on all of my 
filed OGE 450 forms (Executive Branch Confidential Financial Disclosure 
Report), and that even as of the last review cycle, this activity was 
found not to be in question.

                     BACKGROUND REGARDING MY CAREER

    Ever since I can remember, I have wanted to be a scientist. My 
family always jokes with me about how they can never recall me wanting 
to do anything else. From the time I won my first science fair ribbon 
in the 4th grade until today, I have never envisioned myself doing 
anything else. Mr. Chairman, I am a Washington DC local. I remember as 
a child, driving by the NIH and the Naval Hospital and staring in 
disbelief at the size of the buildings where everyone inside were all 
scientists!! I stand before you today as an individual who I believe, 
has been trying to make a difference in the public health, especially 
in light of my father's death from a sudden heart attack when I was 21 
and my mother's battle with breast cancer. My time spent in high school 
and college working first as a patient transporter, then in a 
microbiology and clinical laboratory, solidified my decision to work in 
an area of science that could directly affect people's lives.
    I could not wait to go to college. While many of my friends and 
dorm mates waited until their sophomore years to declare a major, at 
the University of Maryland I charged headlong into the Microbiology 
major, received my degree in 3 years, and received my PhD in 
Microbiology in five years in 1990. My PhD research focused on the 
analysis of genes, proteins and surface molecules for gonorrhea vaccine 
development. I was immediately drawn to a project that didn't seem 
esoteric, but might allow me to contribute to work that could actually 
lead to a vaccine some day. During my thesis work, I gained expertise 
in pathogenic microbiology and infectious disease analysis, immunology 
and cell biology, biochemistry and protein chemistry, protein 
separation and fractionation methodologies, and mass spectrometry 
analysis of molecules within complex biological and bacterial samples. 
I successfully identified and characterized the first gene for a 
gonorrhea surface molecule that later became considered for a potential 
vaccine target. We employed a variety of protein analytical techniques, 
and were one of the first scientific groups to successfully employ mass 
spectrometry to analyze the sugars attached to lipids on the surface of 
disease-causing bacteria. Moreover, as a consequence of my PhD studies, 
I became facile in the handling of clinical specimens and body fluids 
as well as diagnostic testing methods for bacterial characterization. 
During my part-time employment at Southern Maryland Hospital, I gained 
valuable expertise in tissue and body fluid collection methods, 
clinical sample handling and storage methods, and clinical diagnostic 
technology. Moreover, I became adept and fully trained using a variety 
of robotic and microfluidic technologies. This combined experience in 
research and diagnostic practice was the basis of my choice to seek a 
post-graduate career in translational medicine--on my continuing 
journey for bench-to-bedside applications.

                          POST-DOCTORAL CAREER

    From 1990 until 1993 I was a National Research Council Fellow in a 
post-doctoral position in the Division of Cytokine Biology, CBER/FDA. I 
was very interested in cancer-based applications, and because of my PhD 
training, realized that new classes of molecules and proteins were 
being developed which may really have an impact someday. However, the 
scientific community lacked knowledge about the way these proteins 
communicated with cells and what really caused cells to grow, die and 
spread uncontrollably. I was drawn to a laboratory which was focused on 
trying to understand how a widely known protein, interferon, actually 
worked and caused cancer to die or quelled viral infections. As icing 
on the cake--I was able to work at an FDA facility that was at the 
NIH--the Nation's premier research institute and my childhood fantasy. 
During my post-graduate work, I gained valuable expertise in signal 
transduction biology, protein-protein interaction methodologies, 
protein phosphorylation, and cytokine biology. For the first time, our 
laboratory identified and characterized members of a signaling pathway 
that later became the well known ``JAK-STAT'' pathway. This pathway is 
now thought to regulate and be involved in viral disease, inflammation, 
and cancer. Additionally, during my post-doctoral fellowship, I was 
able to extend my graduate expertise using mass spectrometry and 
protein separation methods by employing new proteomic technologies. 
Using these tools, I identified and sequenced a new protein, produced 
by many different cancer cell lines. This protein was experimentally 
demonstrated to interfere with interferon activity.

                            JOINING FDA/CBER

    As I entered the twilight of my post-doctoral training, I was 
intent on being a research scientist working directly for patient 
benefit. My postgraduate work on the NIH campus made me realize that 
the unique environment provided by a vibrant scientific community all 
striving for translational medical benefit was the place I wanted to 
stay. My time as a post-doctoral student in an FDA facility revealed a 
different but equally important aspect to the translation and delivery 
of medical benefit to the bedside that I had not recognized before. I 
was intrigued and impressed by the FDA scientists I interacted with. I 
was intrigued by their unique combination of bench-side research 
talents as well their understanding of what it took to get a biologic 
approved for clinical benefit. I decided that I could blossom in such a 
role and was ecstatic that in 1993, I successfully competed for a 
publicly advertised tenure-track US Government position. I was tenured 
in the Center for Biologics Evaluation and Research in 1998, and am 
proud that my entire post-graduate career has been spent as a US 
Government scientist working at the US Food and Drug Administration.

                   FDA/NCI COLLABORATION ESTABLISHED

    In 1997, as a result of a series of highly cited scientific 
publications from the laboratory of Dr. Lance A. Liotta of the NCI, I 
contacted Dr. Liotta to discuss potential collaborative opportunities 
to use proteomic analysis of laser capture microdissected human 
cancers. This discussion resulted in the first joint Interagency 
Agreement (IAG) between the FDA and the NCI. The focus of this IAG was 
to work jointly together to develop and test new proteomic technology 
for clinical and translational applications. I had finally realized my 
dream job. Working at the FDA and learning about the process of 
delivering safe and effective medicine to the public let me explore and 
expand my scientific talents which linked back to my times as a college 
freshman working in a hospital lab.
    Based on our combined research and clinical expertise, we embarked 
on a variety of research projects that employed a variety of emerging 
proteomic technologies for discovery of diagnostic biomarkers and 
therapeutic targets. The overarching goal was to develop and evaluate 
methods for personalized medicine and early detection of cancer as a 
means to provide translational public health impact with a high degree 
of scientific rigor and an eye towards rapid patient benefit. This goal 
has been a consistent cornerstone of our joint collaboration. During 
the past 6 years, our program has successfully developed a number of 
new exciting proteomic technologies, with over 90 publications to our 
credit. These publications are the direct result of a talent pool of 
highly creative scientists both within the program itself as well as 
our fantastic set of scientific collaborators outside the program. We 
have entered into several documented US Government Material Transfer 
Agreements (MTA) and US Government Cooperative Research and Development 
Agreements (CRADA) that have proved highly successful. Within each of 
these agreements and arrangements we sought a clear path to 
facilitating and translating our work to public benefit without 
constraining our ability to maintain the necessary independent and 
creative freedom that has served us so successfully. In addition to the 
need to maintain creative freedom to operate, we are driven by a 
transparent process of proteomic data dissemination into the public 
domain. We are proud that as US Government scientists, we were the 
first group to offer all of our mass spectral data in the public 
domain, and continue to provide all of our data to the entire 
scientific community as a public service. This public dissemination of 
data and transparency has been commended by the National Cancer 
Advisory Board. We are also proud that while we were the first group to 
demonstrate the use of mass spectrometry based protein fingerprinting 
for cancer applications in the spring of 1999, recently hundreds of 
scientists at the latest meeting of the American Association of Cancer 
Research (April 2004) are reporting independent success using a variety 
of different approaches. Our raw data has been downloaded over 500 
times in the past two years, and scientists, from around the world, 
including a 2002 National Medal of Science Winner, named by President 
Bush as one of the nation's leading scientists, have published 
extremely exciting results using our raw data as the basis of their own 
pattern recognition methods and tools.
    Our ongoing work continues to accelerate. We have recently invented 
new technology that is wholly owned by the Government and has been 
advertised in the Federal Register. This has allowed us to identify 
thousands of new biomarker molecules that may be useful for cancer and 
disease diagnosis. We believe that this new diagnostic information 
archive, never before known to exist in the blood, may contain 
important information for the detection of many diseases--not just 
cancer. We hope that this information can translate into broad public 
health benefit.
    I certainly receive many outside activity requests every year. 
Almost all of these I dismiss immediately because they are invitations, 
which directly relate to my official duties as an FDA employee and my 
ongoing US Government scientific research. I consider only those 
requests that invite me to participate not because of my US Government 
position, but because of my general scientific expertise which 
encompasses my lifetime as a scientist, and whose activities are 
directly unrelated to my government job. In those instances where I 
chose to pursue the opportunity I always submit an HHS 520 form for 
approval. This approval form is approved or declined after due 
diligence under current established procedures. I would never knowingly 
pursue any activity which I felt would run counter to this process, and 
I certainly would never knowingly pursue or continue any outside 
activity which I felt was in conflict with a career spent as a 
scientist in the pursuit of public and patient benefit.
    In closing, Mr. Chairman, I wish to express my gratitude to CBER, 
the FDA and PHS for providing for me a working environment and research 
funding support for a body of work which I believe is highly successful 
and is one that I am extremely proud of. I will answer, as best I can, 
any questions you may have for me.

    Mr. Greenwood. Thank you. Am I pronouncing--is it 
Petricoin?
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Okay. I am advised that neither Dr. Barrett 
nor Dr. Barker have opening statements. Is that correct? You do 
not have opening statements. Okay. But you are prepared to 
answer our questions. Very good. Thank you.
    All right. And before I begin, because one could not miss 
the passion in both of your statements, Dr. Liotta and Dr. 
Petricoin. There is no one who is questioning that you are a 
splendid scientist. There is no one questioning that you have 
chosen careers that are highly valuable to mankind.
    It is an unusual phenomena for Federal employees to work--
at the same time they are Federal employees to work in the 
private sector as well. And it obviously raises a host of 
ethical issues. And what this hearing is about, and what this 
committee is about, is trying to sort our way through these 
ethical issues.
    We know things have gone wrong at the NIH ethically. We 
know that there are well-document instances of that. We are 
trying to understand the underlying rules, policies, culture, 
that has--that leads to this, and that is why you find 
yourselves in front of us today. I am sure you would rather be 
almost anywhere else, but I am going to proceed with questions 
and hope you will understand the spirit in which they are 
given.
    Let me start with you, Mr. Petricoin. Some of these 
questions are elementary, but I am--just follow with me here. 
Dr. Petricoin, do you accept a Government check?
    Mr. Petricoin. I accept a Government check, sir, is that 
what you----
    Mr. Greenwood. Yes.
    Mr. Petricoin. Yes.
    Mr. Greenwood. When do you get paid? You need to pull the 
microphone, make sure it is on and close to your mouth. Okay. 
When do you get paid? Every 2 weeks?
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Okay. And you put that check in a bank 
account and you spend the money.
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Okay. And when you joined the FDA, you were 
briefed on ethics, is that correct?
    Mr. Petricoin. Yes. There was ethics training that I 
attended.
    Mr. Greenwood. Very good. You have received annual 
training?
    Mr. Petricoin. Yes.
    Mr. Greenwood. Okay. You have received ethics counseling?
    Mr. Petricoin. Ethics counseling, sir? The annual ethics 
training.
    Mr. Greenwood. Have you ever spoken to Vincent Tolino in 
the Ethics Office?
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Okay. Was that for counseling from Mr. 
Tolino?
    Mr. Petricoin. Yes, sir. There was times when Mr. Tolino 
would advise me.
    Mr. Greenwood. Right. So I am just trying to distinguish 
that between routine--that and routine training. Are you with 
me? Okay, sir.
    You knew the restrictions included--and you knew that there 
were restrictions on certain outside activities, correct?
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Okay. And you knew that restrictions include 
no outside consulting with significantly regulated entities 
like Biotechnology companies, is that correct?
    Mr. Petricoin. Yes, sir. I realized there were restrictions 
on these significantly regulated entities.
    Mr. Greenwood. Is Biospect a biotechnology company?
    Mr. Petricoin. When Biospect approached me in 2002, it was 
my understanding that they were an instrument company that was 
developing technology for protein separation, fractionation, 
and identification. I looked at the FDA yellow book, which 
lists the significantly regulated entities. They were not 
listed.
    And according to what was on the Ethics homepage, the next 
step was to see if greater than a certain percentage--I think--
I believe to the best of my recollection it is 10 percent--of 
their gross revenues were regulated by the FDA. Since this was 
apparently a new company, a startup company, the focus of their 
efforts was, in fact, to find out applications for this tool.
    Mr. Greenwood. Did you decide it was not a biotechnology 
company?
    Mr. Petricoin. Yes, sir, based on the fact that the next 
determination was on my looking at the FDA website.
    Mr. Greenwood. Was there any question in your mind that it 
was a technology company?
    Mr. Petricoin. Yes. I think it was a technology company.
    Mr. Greenwood. Why do you think it called itself 
biotechnology--Biospect?
    Mr. Petricoin. Well, the determination of a significantly 
regulated entity, when there isn't a revenue stream, is that to 
the best of my understanding that all of its activities are 
solely regulated by the FDA. And in terms of what my 
understanding of Biospect was, that did not appear to be the 
case. There is many areas that are--of science and technology 
that the FDA does not regulate.
    Mr. Greenwood. So you thought it could--I just want to--did 
you think it was a biotechnology company?
    Mr. Petricoin. Not necessarily. I think that----
    Mr. Greenwood. I mean, not--I am not asking you based on 
the yellow book. I am saying, you look at this company, you see 
what it does, what its mission is, and you know it is a 
technology company. You know it uses mass spectroscopy. And it 
is working with biological materials, is it not?
    Mr. Petricoin. Yes.
    Mr. Greenwood. So, I mean, wouldn't it seem on the surface 
to be a biotechnology company, if ever there was one?
    Mr. Petricoin. Well, not necessarily, because as I looked 
at those companies that were also on the list of approved 
entities, there were many entities which did technology that 
directly related to biotechnology, for example.
    Mr. Greenwood. Okay. All right.
    Mr. Petricoin. And so I submitted the approval to those 
that could make the decision better than I. I am a scientist, 
not a lawyer, so I----
    Mr. Greenwood. That is fine. Okay. So if you would turn to 
Tab 27 in that notebook in front of you. That is what you just 
referenced. That is your request for approval of an outside 
activity, which you submitted to the FDA. And you provided 
information on the form about Biospect and the agreement you 
were engaging in with them.
    Okay. Where did you get the information that you needed 
about the company to fill that form out?
    Mr. Petricoin. This was based on an invitation letter and 
discussions with one of the principals that contacted me to see 
if I would be interested in consulting.
    Mr. Greenwood. Okay. And what was your understanding of 
what you were being hired to do?
    Mr. Petricoin. Basically, the understanding that I was 
operating under, and I operated under during the entire time, 
would be to survey the public domain for applications of their 
technology, including selling the machine itself all the way 
to, you know, environmental monitoring to discovering new 
molecules associated with disease.
    Mr. Greenwood. Okay. And did you use the same contract as 
Dr. Liotta with Biospect?
    Mr. Petricoin. Yes. Of course changing the name, things----
    Mr. Greenwood. Changing the name, of course. Would you 
please look at Exhibit A from Dr. Liotta's contract, which is 
at Tab 32 of the binder on the table. The second paragraph 
reads, ``Consulting services will relate to general 
professional knowledge in medical diagnostic technology, 
clinical sample acquisition, preparation, fractionation, 
separation, storage, and stability, regulatory filings, and 
regulatory inspections related to clinical pathology 
laboratories, e.g. CAP, CLIA, GMP inspections, and 510(k) or 
PMA filings for new diagnostic tests.''
    Dr. Petricoin, are any of these things things that are 
regulated by the FDA?
    Mr. Petricoin. Yes, sir. But I would like to point out that 
my consulting agreement, which I can provide to the committee, 
dramatically differs from those statements.
    Mr. Greenwood. But that is what the company does. The 
company does those things. I mean, this isn't--I am not asking 
you whether you were doing things for the company that are 
themselves regulated. Obviously, the FDA doesn't regulate the 
looking up--reviewing material in the public domain, but the 
FDA regulates many of the things that the company does.
    Mr. Petricoin. The appearance of what Dr. Liotta would 
provide them as a consult does not necessarily to me reflect 
that they had solely wanted to do FDA regulatory mission-
related work.
    Mr. Greenwood. Okay.
    Mr. Petricoin. I think at the time they were exploring 
every option.
    Mr. Greenwood. But isn't it quite abundantly clear that 
they were interested in getting a medical device approved by 
the FDA?
    Mr. Petricoin. I think they were exploring every option, 
sir.
    Mr. Greenwood. They couldn't use the device, the device 
couldn't be used if it were not approved by the FDA, could it?
    Mr. Petricoin. Actually, that's not to my knowledge true, 
sir. I think that there are things like home brew testing, 
which the FDA does not have regulatory authority.
    Mr. Greenwood. Home what?
    Mr. Petricoin. A home brew type testing.
    Mr. Greenwood. Beer?
    Mr. Petricoin. Oh, excuse me. It's a, the home brew is the 
reference to a diagnostic testing that certain laboratories can 
perform if it's housed in one location. At this definition, I 
am not an expert.
    Mr. Greenwood. Okay, but you don't need a 510(k) for that, 
correct?
    Mr. Petricoin. Yes, a 510(k) is an FDA. But CLIA
    Mr. Greenwood. Was there any, I'm trying to get at, was it 
not abundantly clear that this company was interested in 
getting FDA approval for its equipment?
    Mr. Petricoin. It was not abundantly clear to me. My 
understanding was they were looking at every aspect of science 
and technology. And science and technology being such a huge 
field, and the regulations that I saw in place on the FDA 
website, where
    Mr. Greenwood. Wasn't the wonderful promise, or isn't the 
wonderful promise of this technique, this device, that it is 
going to be able to allow for us to have very advanced 
diagnoses of potential cancer victims? Isn't that what it's all 
about?
    I mean isn't that what they're, isn't that the grandeur of 
their idea?
    Mr. Petricoin. Not to my understanding.
    Mr. Greenwood. Okay.
    Mr. Petricoin. That they had really no specific application 
that they were looking at. They had developed the technology 
and platform and they were looking at avenues to use them. 
That's what my consultation was, was to look into the public 
domain at where any application, where technology such as this 
could possible by used.
    Mr. Greenwood. Why do you think they wanted you?
    Mr. Petricoin. I assume because of my expertise and my 
reputation.
    Mr. Greenwood. In general, but not, not because of your 
expertise in the way FDA works?
    Mr. Petricoin. Absolutely not.
    Mr. Greenwood. Okay.
    Mr. Petricoin. At no time did they ever ask me, nor did I 
give any advice on FDA.
    Mr. Greenwood. I understand that. Did your consulting 
agreement with Biospect include this language? I think you said 
it is different. Your consulting agreement with Biospect did 
not include the language that I just had you look at in Title 
32, Tab 32, rather?
    Mr. Petricoin. That's right. And I would be happy to 
provide the committee with my consulting
    Mr. Greenwood. Okay, we would appreciate that. Is 
Correlogic working on pattern-recognition based technology?
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Okay. And we--oh, I'm sorry. Is Biospect 
working on pattern-recognition technology? Pattern-recognition 
based technology, is Biospect working on that?
    Mr. Petricoin. The first time that I heard that Biospect 
was working with pattern analysis, was when my Center Director, 
Jesse Goodman, brought me into his office.
    Mr. Greenwood. Who did?
    Mr. Petricoin. Dr. Jesse Goodman, the Center Director for 
Center for Biologics Evaluation and Research.
    Mr. Greenwood. Right.
    Mr. Petricoin. He brought me into his office and informed 
me that, upon a recent re-review, the FDA had determined that 
Biospect had become a significantly regulated entity, and he 
used the terms pattern analysis that they had found. And that 
was the first that I had heard reference to that.
    Mr. Greenwood. Do you know who Peter Levine is?
    Mr. Petricoin. Yes, sir.
    Mr. Greenwood. Who is he?
    Mr. Petricoin. I believe his title is the CEO of Correlogic 
Systems.
    Mr. Greenwood. Do you ever recall having a conversation 
with him about his unhappiness with regard to your arrangement 
with Biospect?
    Mr. Petricoin. The recollection that I have of that 
conversation was that Mr. Levine was unhappy with the fact that 
there seemed to be a lot of former NCI employees in the 
company.
    Mr. Greenwood. But he didn't--was he aware that you were--
had this arrangement with Biospect?
    Mr. Petricoin. I believe so, sir.
    Mr. Greenwood. How would he have known that? Did you tell 
him?
    Mr. Petricoin. I
    Mr. Greenwood. Did you ever tell
    Mr. Petricoin. No. Mr. Levine had that information because 
on one of the instances in which Dr. Liotta and I went up to an 
office facility, a temporary facility where we share joint 
secretarial services, they were both actually shared by 
Biospect and Correlogic.
    Maybe even in some ways highlighting how little we--there 
was no concern on our part. And so we went up there and Mr. 
Levine saw us and asked what we were doing up there, we weren't 
having a CRADA meeting? And we told him that we were up here at 
a
    Mr. Greenwood. Why wouldn't you have volunteered that 
information to him prior to that time?
    Mr. Petricoin. I didn't see any need to. There was no 
overlap in my mind. Correlogic, in my mind, sir, was a software 
company that was using algorithms to look for hidden patterns 
in mass spec data. And those would be fingerprints that could 
be used for diagnosis. Biospect, my understanding was, it was 
an instrument company.
    It was building a platform of protein separation. It was 
entirely different. And thus, in my mind, there was really no 
reason to talk to Mr. Levine.
    Mr. Greenwood. When you were first made aware of these 
concerns that Mr. Levine had, did you consider terminating your 
consulting agreement with Biospect?
    Mr. Petricoin. I know because I thought his concerns really 
relayed to the number of former NCI employees that were
    Mr. Greenwood. So he never expressed to you that he was 
unhappy that you were working with Biospect?
    Mr. Petricoin. I think he was unhappy that we, that, you 
know, Dr. Liotta and I had an outside activity that were 
perhaps taking away our time. I, my recollection of the 
conversation was that he expressed some question about why 
there were so many former NCI employees in the company.
    Mr. Greenwood. Why do you think he had that concern?
    Mr. Petricoin. I guess he felt that this, you know, was 
nepotism going on here? I don't know. He just said that didn't 
smell right to him. And I said I didn't know that that was 
illegal.
    Mr. Greenwood. Dr. Barker, Correlogic made a complaint to 
NCI, did it not? Could you characterize that?
    Ms. Barker. Yes, in July 2003, actually Dr. Von Eschenbach 
informed me that Dr. Ren Archer, who was a consultant of 
Correlogic's, actually I think represents them in their, some 
of their marketing activities.
    He's with Hill and Knowlton had complained to him that he 
felt as though there might be some issues surrounding Dr. 
Liotta's consultancy with a competing company, with which the 
NCI had a CRADA. And he represented that company, which was 
Correlogic. So I spoke with Dr. Archer and he shared that 
concern with me, and I assured him that we would examine Dr. 
Liotta's consultancy agreement and I would actually get back to 
him on that.
    And that's the only time it's ever been raised. It hasn't 
been raised in meetings, but it was raised in that 
conversation.
    Mr. Greenwood. Dr. Barrett, what was the issue that you 
were looking at, at the time?
    Mr. Barrett. Which time are you referring to, Mr. Chairman?
    Mr. Greenwood. The reference that Dr. Barker just made.
    Mr. Barrett. Oh, okay. So, I had, we had originally 
approved the outside activity in 2002. And when Dr. Barker was 
contacted by the representative from Correlogic, I then re-
reviewed the material that was available, and called Dr. Liotta 
in.
    At that point I, the question on the table, as I understood 
it, was whether or not there was any conflict between the 
outside activity and the ongoing CRADA that we had with 
Correlogic.
    And so I called Petricoin in, as well, to discuss how this 
might impact, if at all, the CRADA.
    Mr. Greenwood. There wasn't a question of were they or were 
they not NCI officials and how many NCI officials, you were 
interested in the question of whether there is a conflict of 
interest?
    Mr. Barrett. Right. I was unaware of the NCI former 
employees being members of
    Mr. Greenwood. My time has expired. Now, the gentlelady 
from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman. And Dr. Liotta and 
Dr. Petricoin, I want to add to the Chairman's sentiments. I 
think both of you are dedicated public servants and researchers 
and we do have to go into this.
    But I do not question your dedication to research or 
ethics. Although I think these case studies are good examples 
of some of the concerns we have, Dr. Liotta, starting with you, 
and also I want to ask you some of these same questions, Dr. 
Petricoin.
    In your written statement, and you alluded to this in your 
oral presentation. You said that when you first came to the 
Cancer Institute at the NIH, you were fresh out of medical 
school and you really loved the climate and intellectual 
freedom. Is that a correct paraphrase?
    Mr. Liotta. Yes.
    Ms. DeGette. Do you still love that climate of intellectual 
freedom there?
    Mr. Liotta. Absolutely.
    Ms. DeGette. I would assume that's one of the best things 
about being at the NIH is being able
    Mr. Liotta. I love
    Ms. DeGette. Is your microphone on, sir?
    Mr. Liotta. Yes, that's why I stay at the NIH, because of 
that intellectual and creative freedom.
    Ms. DeGette. Right. Would it be fair to say that you don't 
stay at the NIH because of your ability to do outside 
consulting or get speaking fees?
    Mr. Liotta. I stay at the NIH because I'm dedicated to the 
mission, particularly of the Cancer Institute.
    Ms. DeGette. And, Dr. Petricoin, I was also struck both by 
your oral testimony and your written testimony. And I actually 
have a 14 year old daughter who is like this.
    Who is so excited by the concept of researching and being a 
scientist. And you said in your written statement you remember 
as a child, driving by the NIH and Naval Hospital, and staring 
in disbelief at the size of the buildings where everyone inside 
were all scientists, right?
    And so I'm going to ask you the same question. What you 
really love to do is the science, right? Now, I'm sorry, you 
need to say words for the record.
    Mr. Petricoin. Yes.
    Ms. DeGette. Now, so I have the same question, is you do 
this because of the science, is that what makes you stay at the 
FDA or is it because of the outside contracts and speaking fees 
you're able to attain?
    Mr. Petricoin. No, ma'am, I stay at the NIH and the FDA 
because of the intellectual freedom and the creative science 
and the ability to hopefully make a public health difference.
    Ms. DeGette. And that's why you went there a little over 10 
years ago, right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. Now, Dr. Liotta, you testified that you ended 
your outside activity with Biospect last week, when you learned 
that Biospect had requested certain information from the NIH. 
What was that information?
    Mr. Liotta. That was information that was publicly 
available to everyone who asked for it, as part of our effort 
to disseminate the raw data from our studies to anyone who 
requests it.
    Our goal is to develop new diagnostic technology to fight 
cancer, so we want as many people to be working on that as 
possible.
    Ms. DeGette. Right.
    Mr. Liotta. So we provide that data freely.
    Ms. DeGette. But somehow you thought, because they were 
requesting that data, that then created a conflict of interest 
for you?
    Mr. Liotta. Because I found out, unbeknownst to me, that 
they had requested that data, then I could not be completely, 
absolutely sure that they weren't going to studying something 
that might overlap in my, with my government work.
    Even though my consulting agreement, specifically by name, 
excluded
    Ms. DeGette. But because there was then a
    Mr. Liotta. Because of that potential. And I discussed it 
with my, with Dr. Barrett and Dr. Wilson, and I voluntarily 
withdrew that outside activity because I didn't want to have 
even the slightest possibility.
    Ms. DeGette. Thank you. How did you find out about that 
request?
    Mr. Liotta. Mr. Pugash, from the NCI, told me.
    Ms. DeGette. And, and just last week?
    Mr. Liotta. That's correct.
    Ms. DeGette. And how, did he say how he learned about it?
    Mr. Liotta. He said that in preparation for this hearing, 
the Technology Transfer Branch had been trying to study 
everything that they could, that was relevant. And this, a 
document came up that reflected a request by Biospect that came 
in.
    This was part of a turnkey system that I had no 
decisionmaking role in, and it just went from one office to the 
next.
    Ms. DeGette. Did he tell you if they found anything else 
that affected ongoing agreements between NIH Scientists and 
outside companies, as a result of the request for this hearing?
    Mr. Liotta. No, not that I recall.
    Ms. DeGette. Okay. Well, at least we're doing some good, 
Mr. Chairman, I guess. I, now have you ever learned information 
in the midst of a consulting agreement that caused you to 
withdraw from the agreement, or was this the first time?
    Mr. Liotta. This was the first time.
    Ms. DeGette. Okay. And this agreement, the original 
agreement was approved by ethics officials?
    Mr. Liotta. That's right. The original agreement was 
approved, and in fact developed in concert with ethics.
    Ms. DeGette. Okay, so they actually helped you develop the 
agreement?
    Mr. Liotta. That's right. They added language to it, they 
reviewed it and worked together with me to develop this 
agreement.
    Ms. DeGette. Okay, now, Dr. Petricoin, you work at the FDA. 
So your ethics requirements are a little different. I think 
that's important to put out at this hearing. Is that correct?
    Mr. Petricoin. Yes, ma'am. It is a significantly regulated 
entity.
    Ms. DeGette. Significantly tighter restrictions, right? And 
that's because your agency is actually approving these drugs, 
right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. Now you have received honoraria and/or 
expenses to speak to a number of groups, including Pfizer, 3M, 
other private companies who clients include pharmaceutical and 
biotech firms, correct?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. About how many over the last ten or so years?
    Mr. Petricoin. I believe I have about 20 outside activity 
requests in my file.
    Ms. DeGette. About 20 outside activity--are these, now how 
many for honoraria for speaking?
    Mr. Petricoin. I believe I have only a few for, that have 
given me honoraria for speaking.
    Ms. DeGette. Okay.
    Mr. Petricoin. I have many that, or I have a number for 
travel reimbursement.
    Ms. DeGette. Oh, so you actually went and spoke at some 
places but didn't receive honoraria, right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. Now when you get invited to speak at 
something, do you go because of the honor and prestige of 
speaking, or because you might receive an honorarium?
    Mr. Petricoin. It depends on the nature of the invitation. 
For me it's always the ability to learn when I go and give a 
talk.
    Ms. DeGette. Okay.
    Mr. Petricoin. I hope to learn something. And so if they 
invite me because of my general scientific expertise, it's not 
related to my FDA expertise or my FDA job, I can, under ethics, 
submit a request for approval for both an honoraria and a 
travel expense.
    And I put that request forward and the FDA Ethics Office, 
and whatever process
    Ms. DeGette. Right, but the reason you go is to learn, as 
you've just said, not because you're going to get paid, right?
    Mr. Petricoin. That's right. My first level decision isn't 
how I can get more money?
    Ms. DeGette. Right. Well, I'm asking you, I'm not asking 
you this to be insulting in any way, because that would be 
exactly the way I'd be if I were you. Some people are saying 
that there won't be these collaborations between NIH or FDA 
Scientists without money involvement.
    I don't buy that premise. I don't know if you do. Do you 
buy that premise?
    Mr. Petricoin. I do not think that anyone should be making 
a decision about how they advance their professional career, 
especially as a Scientist, where the first determinate is am I 
going to be making more money.
    I believe personally that it should be about learning.
    Ms. DeGette. And you're sort of early in your career at the 
FDA. Dr. Liotta, you're sort of mid-career, I'd say. What's 
your view on that?
    Mr. Liotta. I'm at the NIH, and I stay there because of the 
medical mission and goal of taking science to the public 
benefit.
    Ms. DeGette. And not because of the ability to get outside 
consulting fees or honoraria, correct? Would that be fair?
    Mr. Liotta. That is not my primary reason, no.
    Ms. DeGette. Okay. Now, Dr. Petricoin, every time you spoke 
at one of these--now you wouldn't be allowed to speak, and 
maybe I'm wrong. You wouldn't be allowed to speak at these 
outside conferences if it did, if it did have a conflict with 
your FDA job, right?
    Mr. Petricoin. I was
    Ms. DeGette. I mean that wouldn't be, you wouldn't even put 
it in, right? What you're saying is you're invited to speak at 
these because of your scientific experience outside the FDA, 
right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. And every time one of these speaking 
engagements does get approved by--or every time you have one, 
it's approved by your superiors, right?
    Mr. Petricoin. Every outside activity that I've ever put 
in, has gone into the process of approval.
    Ms. DeGette. And that would be Amy Rosenburg or Phil 
Naguchi, correct?
    Mr. Petricoin. Yes, those are the two first-line approving 
officers, because the triage that is supposed to take place, is 
that you first discuss your outside activity with your 
immediate supervisor.
    They were my immediate supervisors at that time. Hopefully, 
they would best know what I was doing in the government.
    Ms. DeGette. And they did approve these outside 
engagements?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. Now I want to talk to you about an activity 
that was approved in February of this year. I realize you 
didn't actually end up going, but I think it's a good case 
study.
    This is an EGFR Seminar sponsored by Imclone Systems, one 
of our very favorite groups in this subcommittee, and Bristol 
Meyer Squibb, both who have received a good deal of publicity 
because of, of course, their submissions to your agency for 
approval of the drug Herbatax.
    Now, were you aware that Herbatax has come before CBER for 
approval?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. And it's likely to come there again. It's been 
there several times for approval of other indications, because 
it's only been approved for one indication, right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. Now were you aware of that when you accepted 
the invitation to pay for you to participate in the seminar at 
the Trump International Beach Resort in Florida?
    Mr. Petricoin. I was unaware, when I first accepted, that 
this was a pharmaceutical sponsored and paid for event. When I 
learned that I just simply said I'm not going.
    Ms. DeGette. Well, with all due respect, I've got the 
program here, and it says on the top, Imclone Systems, 
Incorporated and Bristol Meyer Squibb Company, 2004 EGFR 
Summit. So, did you not have that?
    Mr. Petricoin. To the best of my recollection, I had an e-
mail from Dr. Jose Baselga, who was a Scientist at Vanderbilt 
University, asking me if I would like to come and talk.
    And I said that, you know, it depends on the nature of the 
talk, I could give the talk. And he said to me I'll forward you 
and agenda descirbing the nature of the talk that I was to give 
to him. I understood that I could do this as an outside 
activity from Dr. Baselga.
    Ms. DeGette. Oh, okay.
    Mr. Petricoin. And when he forwarded me the agenda, I 
attached on this
    Ms. DeGette. Right. But see, here's why we're all a little 
confused up here. Because you submitted, and she just handed 
you a copy of the Request for Approval of Outside Activity. Did 
you fill that out?
    Mr. Petricoin. I did, based on the
    Ms. DeGette. Based on the stuff from the guy from 
Vanderbilt, right? And it was approved here by your 
supervisors, right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. But if you take a look at Number 16, it says 
additional information attached, yes, and then it says agenda, 
and here's the agenda, right?
    Mr. Petricoin. I understand your concern, ma'am. I didn't 
go because when I looked at it, when I looked at the agenda, 
the detail of the agenda, I said whoa, wait a minute.
    Ms. DeGette. Well, well, well, well, wait a minute. You put 
in for the approval and attached the agenda.
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. So did you later decide that it would be a 
problem to go?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. After it was approved?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. Oh, okay. Now, but the other thing I find 
interesting is you say you later saw an ethical problem because 
it was pharmaceutically sponsored, right?
    Mr. Petricoin. Yes, when I
    Ms. DeGette. But your supervisors had that information 
right in front of them when they approved it, didn't they? 
Because they had the agenda attached.
    Mr. Petricoin. It appears so, ma'am.
    Ms. DeGette. Now, right, he just said he did. So now, okay, 
here's the other thing. Another FDA official actually did 
attend in your place, right?
    Mr. Petricoin. No, ma'am. A Scientist from our laboratory 
attended on the U.S. Government
    Ms. DeGette. Right, and they were not paid an honorarium or 
expenses, right?
    Mr. Petricoin. No, ma'am.
    Ms. DeGette. So that's a different, that's even another 
interesting point from this whole, this whole transaction is, 
someone else went to speak and they obviously didn't do it 
because there was payment involved, they did it to present the 
scientific issues, right?
    Mr. Petricoin. Yes, ma'am.
    Ms. DeGette. And aside from the ethical issues that it was 
sponsored by pharmaceutical companies, let's say it hadn't. 
Let's say it had been sponsored by Vanderbilt University and 
you had been asked to speak. Would you have also been willing 
to go and speak if there were no honorarium involved in this?
    Mr. Petricoin. Would I have been willing to go and speak if 
there were no honorariums?
    Ms. DeGette. If the ethical objections weren't there?
    Mr. Petricoin. Yes, I would have gone to learn.
    Ms. DeGette. Okay. I have no further questions. Thank you, 
Mr. Chairman.
    Mr. Greenwood. I don't want to belabor that, but just tell 
me if I have this wrong. You said, Dr. Petricoin, that when you 
saw, it was when you saw the agenda, that's when you realized I 
can't do this?
    Mr. Petricoin. That's right. I said I can't do this because 
this has all
    Mr. Greenwood. Did you see the agenda before or after you 
attached it to your application for approval?
    Mr. Petricoin. Well, I obviously had the agenda, I attached 
it to my approval. I don't think I looked at the agenda, to be 
honest with you, sir, because I
    Mr. Greenwood. You understand why that would make us wince?
    Mr. Petricoin. Yes. So I believe, to the best of my 
recollection, that I filled out the outside activity, stapled 
the agenda on it
    Mr. Greenwood. Maybe you were focused on the sunny isle 
beach Florida part of the thing and not what it says up here. 
Where it says, at the very top line, Imclone Systems 
Incorporated and Bristol Meyer Squibb Company.
    Mr. Petricoin. To me, sir, that would indicate, in my mind, 
that I didn't look at it at all when I attached it, because 
that would have been the first thing I would have seen.
    To the best of my recollection, no excuse about being busy, 
we're all busy. I probably just stapled it on and
    Mr. Greenwood. I'm going to buy that, because it's hard to 
believe 
    Mr. Petricoin. That it would be there in black and white. 
And when I saw that, I basically said, you know, there's no 
doubt it says Imclone Systems Incorporated, so it makes it 
pretty obvious.
    Mr. Greenwood. All right. Let me address some questions to 
Dr. Barrett and Dr. Barker. There's an LA Times story out 
today, I don't know if you've seen it.
    It says FDA Chief launches internal inquiry of payments. 
And there's a paragraph that says the Director of the NIH, Dr. 
Elias A. Zerhouni, said to a spokesman late Monday that he 
would not stand behind one of the arrangements involving Chief 
of the National Cancer Institutes Pathology Laboratory.
    The matter demonstrates the need for systemic review. So 
this is referring--pardon me? I'm sorry, systemic reform. And 
by that I am relating to Bio--consulting agreement between the 
Laboratory Chief, Dr. Lance A. Liotta, and Biospect, Inc., of 
South San Francisco ended Friday.
    So, if this story is to be believed, Dr. Zerhouni, after 
being briefed on this subject, said he wouldn't have approved, 
or he disapproves of the relationship between Dr. Liotta and 
Biospect, Inc.
    Were either of you present at the briefing with Dr. 
Zerhouni that led to this statement?
    Ms. Barker. I was not. Dr. Kington, I assume is still here, 
he might want to comment. But I was not, nor was Dr. Barrett, I 
don't believe.
    Mr. Barrett. No, I was not. Dr. Kington came to a meeting 
we had at the NCI on Friday, I suppose, and he called me 
yesterday to say that this was, they were asked for a quote, 
basically.
    Mr. Greenwood. And was it explained to you, was it made 
clear to you why Dr. Zerhouni said that he wouldn't stand 
behind this arrangement?
    Ms. Barrett. It was not abundantly clear. I think he 
certainly had some concerns and I think there were some 
caveats, in my recollection, from my conversation with Dr. 
Kington about, you know, if all the circumstances were as 
portrayed, that Dr. Zerhouni would make that decision and I 
think that would be
    Mr. Greenwood. Do you concur in that decision? Do you both 
concur in Dr. Zerhouni's conclusion, retrospectively?
    Ms. Barker. I concur.
    Mr. Greenwood. Okay.
    Mr. Barrett. Yes.
    Mr. Greenwood. Now do you think that this was, these 
arrangements were approved, and now are disapproved because 
simply because of new information that had surfaced? Or is it 
because of new policy that's come into play?
    Ms. Barker. Let me just reflect a minute on the way we came 
to re-approve this. In responding to your first question, after 
this issue was raised, and Dr. Barrett and Dr. Wilson re-
reviewed this at my request. And I think you probably have that 
re-review.
    And based on the information available and what you've 
heard in terms of the lack of any evidence of overlap, they re-
approved and reported back to me that they were re-approving 
this.
    And I think that, in answer to you question, I think new 
information in view of what I've heard in the last, as little 
as a week, actually, that the Biospect scope is certainly 
expanded, I think, relative to what Dr. Liotta was led to 
believe the scope of that company was.
    Mr. Greenwood. In what way?
    Ms. Barker. I think the issue of pattern recognition that 
you brought up was never part of what Dr. Barrett actually 
reviewed when he re-approved this.
    Mr. Greenwood. You did not know that at the time of the re-
approval, Dr. Barrett?
    Mr. Barrett. At the time of the original approval, and the 
time of the re-review of that, there were basically three areas 
that I was focusing on.
    One was whether or not there was overlap with the official 
duties of Dr. Liotta, with this outside activity. And
    Mr. Greenwood. And were there?
    Mr. Barrett. There were not. In fact, the consulting 
agreement had very explicit, exclusionary language to assure 
that to be the case. And when originally is was approved, that 
was added to the language to assure that.
    And when I re-met with Dr. Liotta, he re-affirmed that that 
was true. The second issue was whether it, there was any non-
public information being revealed, and there was not.
    And there was not for two reasons, I'm sure. One is because 
I trust Dr. Liotta's judgment, but also we've made a very 
conscious effort to put this information out to the public 
domain as part of our mission to really speed this research up.
    So, in fact, there was very little non-public information 
that could have been released. And the third issue was whether 
or not this influenced his performance or official duties.
    And in particular, this related to the CRADA. And it was my 
discussions with Dr. Petricoin and Dr. Liotta that reassured me 
that, in fact, we were doing everything we possibly could to 
facilitate the development of the clinical trial to confirm and 
extend the original findings of Dr. Liotta and Petricoin.
    The issue of the competition, the direct competition 
between the two companies, was one that was less clear in the 
past than it is currently. So it is really that appearance of 
potential conflict based upon that information that I think has 
led us to be more cautionary.
    So it's a combination of Dr. Zerhouni's memorandum that, in 
fact, we should do everything in our power to assure there's no 
appearance of conflict of interest, as well as our standard 
procedures where we
    Mr. Greenwood. Let me ask Dr. Liotta and Petricoin, did 
either of you ever tell the folks at Correlogic about your 
outside activity with Biospect?
    Mr. Petricoin. I could answer.
    Mr. Greenwood. And I think you said no, that we, and the 
way they found out was they found you using a common secretary 
pool, right?
    Mr. Petricoin. That's correct, sir.
    Mr. Greenwood. And Dr. Liotta, you never told the folks at 
Correlogic about your work with Biospect?
    Mr. Liotta. No, I did not.
    Mr. Greenwood. Okay. Now it would seem to me, that since 
you're working with these two companies, and they're doing 
similar things, that it would be a natural for you to say, oh, 
by the way, yesterday I was up talking to these guys I'm 
working for at Biospect, and an interesting point came up.
    I mean it would seem to me that, in the course of these 
activities, that it would be hard to avoid mentioning to the 
folks at Correlogic, your work with Biospect, wouldn't it?
    Mr. Liotta. No, I didn't
    Mr. Greenwood. Help me understand that.
    Mr. Liotta. I didn't see any need to, because
    Mr. Greenwood. No, no, no, no, no, I'm not asking you if 
there was a need to. I'm saying it would hard to avoid if you 
weren't under restraint. If you had no reason to not mention to 
the folks at Correlogic that you were working for Biospect. It 
would seem a natural thing to come up in conversations.
    You're doing--no?
    Mr. Liotta. No, I felt that they were completely different 
from what I know about, what I knew at the time that Biospect 
was doing. And even today, I have no information that directly 
shows me that Biospect is working in the same area covered by 
the scope of the Correlogic CRADA.
    At the time my understanding of Biospect, was that it was 
an instrument company.
    Mr. Greenwood. Let me ask you this. Did the folks at 
Biospect know you were doing the CRADA with Correlogic?
    Mr. Liotta. I don't know, I did not discuss that with them?
    Mr. Greenwood. Same with you, Dr. Petricoin?
    Mr. Petricoin. Yes, my recollection is I had no discussion 
with either of them about each other at all.
    Mr. Greenwood. And you, and that wasn't because you were 
refraining from talking to the two companies about one another, 
that was just because it never came up? There was never any
    Mr. Petricoin. Exactly. I mean, from my side, sir, there 
was never, there was never any overlap and the need to even 
discuss the science. Correlogic, the software company, had 
developed a specific algorithm.
    Many algorithms were out there. In fact, we were using 
other algorithms in our U.S. public job. The CRADA with 
Correlogic gave us the freedom to use any algorithm.
    In fact, President Bush's National Science Winner, used an 
algorithm that he developed and published a great paper using 
our public data.
    So Correlogic's algorithm was specific to them. I saw no 
overlap whatsoever between an instrument company that was 
basically building a platform to identify molecules. It just 
didn't occur to me, sir.
    Mr. Greenwood. And how many papers did you publish with 
Correlogic?
    Mr. Petricoin. We have six, I believe sir. And one that's 
coming out next month. A very high impact journal on our 
continuing work for ovarian cancer.
    Mr. Greenwood. And those are cooperative pieces between the 
two of you? When you six, those are all co-authored by Dr. 
Liotta and Petricoin?
    Mr. Petricoin. I believe so, sir. I could get you that 
exact number, if you would like it.
    Mr. Greenwood. And did you write papers with the other 
company, with Biospect?
    Mr. Liotta. No.
    Mr. Petricoin. No.
    Mr. Liotta. Never say any written material at all from 
Biospect concerning the, you know, experiments or their data.
    Mr. Greenwood. It's true that your reputations in this area 
were a result of your work with Correlogic, is that fair to 
say?
    Mr. Liotta. I don't believe so.
    Mr. Greenwood. No?
    Mr. Liotta. Our reputations in this work, with regard to, 
if you're referring to mass spectrometry analyzed by pattern 
recognition evidence, we began studying that in `97 and `98, 
and presented it at the American Association of Cancer 
Research.
    We used many commercial, several commercial methods of 
analyzing this data. And then after we had already presented it 
publicly, we, for the first time, we then entered into a 
material transfer agreement with Correlogic.
    And then ultimately a CRADA. And that scope of that CRADA 
was limited to the use only of their type of software. We 
remained free to use any other type of software as we had done 
in the past during the CRADA, and continued to do.
    Mr. Greenwood. Okay.
    Mr. Liotta. That CRADA was specifically about their 
software. And all the data, before, during and after, has been 
generated by our Lab.
    Mr. Greenwood. When the Biospect folks contacted you, did 
they tell you why they had selected the two of you? What 
brought the two of you to their attention?
    Mr. Petricoin. I believe they contacted us separately, and 
I would hope that it was because of my scientific reputation 
and expertise.
    Mr. Greenwood. And how would the folks at Biospect have 
known about that?
    Mr. Petricoin. I would assume looking in the public domain 
or talking to people. You know, talking to, you know, due 
diligence was probably talking to other scientists. I don't 
know, sir, they didn't tell me.
    Mr. Greenwood. Do you have an opinion as to why Biospect 
would have hired Dr. Strum from NCI?
    Mr. Petricoin. I don't.
    Mr. Greenwood. She was a technical transfer officer, right?
    Mr. Petricoin. I, being at the FDA I don't want to--I'm 
under oath
    Mr. Greenwood. Dr. Liotta, do you know?
    Mr. Liotta. Yes, that's right. And ethics, when I reviewed 
this with my ethics officer and discussed the outside activity, 
it was clearly known and factored into the review that, 
particularly the re-review that former Cancer Institute 
employees were members of that company.
    And, in fact, the person who invited me was a former NCI 
employee. And that was, that letter and that request and the 
name of the individuals on the original request for the outside 
activity and it was reviewed and ended up in the approval 
packet.
    Mr. Greenwood. Okay. Do you think it was a coincidence that 
they hired these three people?
    Mr. Liotta. I can't speak for their motivations
    Mr. Greenwood. You're a smart guy. I mean, you're a smart 
man. What do you think motivated them to choose these three 
employees for their company? To choose you?
    Mr. Liotta. I really can't speculate on why they would
    Mr. Greenwood. They chose you, they chose Petricoin, they 
chose Strum. All involved in Correlogic. They chose the three 
of you when you were all involved in Correlogic. Did you 
question why that would be?
    Mr. Liotta. I never questioned why that would be, because 
in my mind Correlogic and Biospect were completely different 
companies with completely different missions. And it didn't 
even seem like it would even be relative.
    Mr. Greenwood. Okay, well let me just wrap up this way, 
before I yield to the gentlelady from Colorado. Oh, Mr. Walden, 
I'll yield to him in a moment.
    We're trying to set public policy here. And I'd just like 
to know, from all four you, and I just ask you to each go down 
and briefly answer this question before I go to Mr. Walden.
    And that is, what do you think the policy should be with 
regard to the situation in which you have employees working on 
a CRADA, as part of their regular function, their regular 
activities, and at the same time working for, doing outside 
activity with a private company, and the CRADA company not 
knowing about the work with the potential competitor, with this 
other company?
    Do you think, as a matter of public policy, that they 
should have the right to know, while you're in their shop 
working with them, on company time, on taxpayer time, that 
you're out moonlighting, if you will, with another company?
    Don't you think, do you think that they should have the 
right to know that? Is it good public policy for them to know 
it? Or is it good public policy for them to be kept in the 
dark?
    Mr. Liotta. Are you addressing the question to me?
    Mr. Greenwood. Yes, I'm addressing it to each of you down 
the line.
    Mr. Liotta. I don't think I can comment on public policy 
that's a higher level than myself. I think that each case 
should be considered on an individual basis and the ethics 
office, when they review
    Mr. Greenwood. Didn't you testify before the Blue Ribbon 
Panel on this subject? Did you not testify
    Mr. Liotta. I testified before the Blue Ribbon Panel.
    Mr. Greenwood. On policy? I mean did you suggest any policy 
to the Blue Ribbon Panel?
    Mr. Liotta. I don't recollect exactly what I said to the 
Blue Ribbon Panel. I don't know whether it could be interpreted 
as policy or not.
    Mr. Greenwood. Or recommendations for practice?
    Mr. Liotta. I gave them my opinion, but I don't know.
    Mr. Greenwood. Okay, well that's all I'm asking for, is 
your opinion now. I'm not asking you to set policy, I'm just 
asking for your opinion. Tell us what you think about this 
whole matter that we've been investigating all afternoon?
    Do you have any regrets about it? Do you think everything 
went perfectly well and we're making a big stink out of 
nothing?
    Mr. Liotta. In some way I think it shows that the way the 
ethics system works, it produces a very good result. Because 
even when I did, presented the application for the outside 
activity to begin with, normal course of action is for the 
ethics office to review whether I have an CRADAs that might 
relate to the outside activity.
    So there's a checkpoint there, and a series of checkpoints. 
And then the way even this was handled recently, I think is the 
way the process should work, if new information comes up.
    And then another checkpoint that was put in right in the 
beginning was the extra special delimiters in the consulting 
agreement, because we could not predict where a company would 
go in the future.
    And so what I'd be concerned about, is that a CRADA partner 
who also can't predict where some other company would go into, 
would just turn down everything because, and that would 
potentially, you know, cause a lot of new complications in how 
outside activities are reviewed.
    So I, my opinion is that the way the system works in terms 
of factoring that into the individual situation, is one good 
way to do it.
    Mr. Greenwood. Dr. Petricoin, your thoughts?
    Mr. Petricoin. Well I certainly think we need more advice 
that sheds more light than heat. And I think that's what we're 
trying to do. I do think I'm concerned about the idea of a 
CRADA partner knowing what perhaps their NIH comrades are doing 
on the outside, only to the extent that they would claim that 
the field of science and technology is their domain, and 
therefore, in essence, if you drew it to the most absurd, there 
would only be one CRADA, the very first one.
    Because, by nature, there might not even be other CRADAs 
that you could do, if you drew it. I just think that we have to 
be careful, and I think we were trying to be. You know, trying
    Mr. Greenwood. Let me--you think that it would be harmful 
if the CRADA participants knew about the outside activity of 
their NIH CRADA partners?
    Mr. Petricoin. No, sir, I don't think it would be harmful. 
I think that we should try to instill ideas that basically will 
allow more illumination, more transparency.
    Mr. Greenwood. Okay, all right, I misunderstood you. Dr. 
Barrett.
    Mr. Barrett. The purpose of the NIH and the National Cancer 
Institute is obviously to do everything in our possible power 
to move forth the science and to reduce the burden of cancer.
    The groundbreaking work of Dr. Petricoin and Dr. Liotta 
which, and I think it is clearly their work that has been the 
driver for these new discoveries, represents a very important 
work.
    And we want to do everything in our power to assure full, 
expedient development of that work. I think the answer to your 
question directly is, is should their be a policy? I think 
absolutely there needs to be a policy.
    There needs to be some definition of conflicts of interest. 
It's very difficult in these relationships to really understand 
how two entities might be competitive, competitors of each 
other or not.
    I think we try to do due diligence in this particular 
circumstance and try to define very clearly the scope of the 
consulting activities, yet we seem to have this appearance of 
conflict, and I think that's unfortunate and takes away from 
really the mission of what we're trying to do.
    So I would be very supportive of some clear guidelines any 
policy.
    Mr. Greenwood. Dr. Barker, do you have anything to add?
    Ms. Barker. I can't add much. I would, just a couple of 
things. The Cancer Institute is particularly interested in 
CRADAs. The biotechnology industry is really sort of a deliver 
vehicle for the cancer world right now. And so to improve on 
the CRADA process should be our goal.
    And I was struck with the amount of review that went into 
this ethics review. So it's, I think there is no fault here 
relative to our intent to really look at this very, very 
carefully.
    I think that review worked pretty well. The issue, though, 
that you've raised is a really complex one.
    Mr. Greenwood. Didn't the review occur because there was a 
complaint, though?
    Ms. Barker. Yes.
    Mr. Greenwood. I mean it wasn't normal activity?
    Ms. Barker. It was no normal activity, that's correct. But 
the issue you raised, which is going to bare, I think, some 
real consideration in terms of how we might change policy, is 
going to be critically important.
    Because as, I think Dr. Liotta said, you can't really 
determine, I mean having been in the biotechnology industry at 
some phase in my life, you never quite know where a company 
might go from where they start.
    So I think transparency, having our investigators 
completely reveal who they are working for, who they might be 
consulting with or what relationships they might have, and let 
the companies make their decisions then on that basis.
    But I think we've got to be a little careful. This is a 
very complex question and
    Mr. Greenwood. What's the downside of sharing the 
information?
    Ms. Barker. I think there is no downside to sharing the 
information, if in fact we have, we can actually continue the 
same success rate with our CRADAs. I think the thing we want to 
be careful of is that we don't actually make it more 
bureaucratic or more difficult to do a CRADA.
    And right now our investigators do disclose actually. You 
know, if they have a, they can't have a consulting arrangement 
if they have a CRADA with the same company. They can't do that.
    So we're saying now, is not only that, but you can't also 
be consulting for a company that might be a competitor of a 
company you're going to do a CRADA with.
    So making that value judgment is going to be an interesting 
challenge for us as we make policy around this. But I think 
you're right, absolutely disclose it, and then basically let 
the policy drive the way the CRADAs are going to be developed.
    Mr. Greenwood. I thank you all. I apologize to my 
colleagues for my flagrant abuse of the clock.
    Mr. Walden. But it is your clock.
    Mr. Greenwood. Mr. Walden.
    Mr. Walden. Thank you, Mr. Chairman. Dr. Barker, I want to 
follow up with you on that point. When did you make the 
decision regarding this issue involving competitor agreements 
not being allowed?
    Ms. Barker. To my knowledge, that decision has not been 
made. I think this is the first issue that's come forward of 
this nature. There may be others that I'm not aware of, but 
this is the first one, at least, that we've seen in the Cancer 
Institute.
    And we examined it very carefully. Dr. Von Eschenbach asked 
me to do due diligence on it, we did that. Dr. Barrett re-
reviewed it, Dr. Wilson re-reviewed it. And based on the 
evidence that was there, this still basically qualified in 
terms of our ethical requirements. So, it's the first one like 
this that's come forward.
    Mr. Walden. Let me make sure I understand what you said. So 
you said this still qualifies under your ethics requirements. 
Does that mean they could still be working for both companies? 
Or doing the CRADA and working for Biospect?
    Ms. Barker. I think that's what it says, under the current 
rules, yes.
    Mr. Walden. Are you comfortable with that?
    Ms. Barker. I'm not comfortable with that. But, you know, 
we've said that, I think both Dr. Barrett and myself have said 
that, given what we know now, and going back and doing this 
over again, you probably would have disapproved this 
consultancy.
    Mr. Walden. Do you have, or the people who should have, do 
you have the information you need to evaluate other such 
agreements and conflicts? I mean is the mechanism there to 
acquire that information?
    Is that information publicly disclosed adequately so that 
whoever needs to do the review can get access and make that 
decision?
    Ms. Barker. I honestly don't know the answer to that 
question.
    Mr. Walden. Does anyone on the panel know the answer to 
that? Dr. Barrett?
    Mr. Barrett. I think it's, we've made a very strong attempt 
at the NCI, and I would gather that we actually probably do 
better than the average Institute does in that context. But, 
yet, I think the answer is, it's still not adequate. And we've 
been actually talking about how to approve access to data bases 
and, for example, the disclosure of the confidentiality 
disclosure agreement that Dr. Liotta mentioned, you know, was 
not available to us until just recently.
    So I think there are very specific things that can be done 
to improve the process and we're trying to do that.
    Mr. Walden. Thank you. Dr. Liotta, first of all I want to 
commend both of you for the research that you're doing. My own 
mother died of ovarian cancer. I know it's a very, very, it's a 
very terrible form or cancer, and so I commend you for that.
    And I don't want you to go away from here thinking that we 
don't appreciate the research that you're doing. We're trying 
to, public policy people trying to make sure that research, 
wherever it's done, is done in a way where we don't have, even 
by accident, conflicts.
    Because I think the integrity of the process is really 
important. If you turn to Tab 28, and I think we'll put this up 
on the screen, I believe.
    You'll find your request for approval, the Biospect 
Consulting Agreement. And the thing that strikes me is on the 
form, which I understand is an HHS Form 520, there's a question 
that says do your official duties relate in anyway to the 
proposed activity? You responded no.
    Related to professional confidence, but not an official 
responsibility for the use of government funds. That was your 
response. And however, on Dr. Petricoin's HHS Form 520 for 
Biospect, when asked whether his official duties relate in 
anyway to the proposed activity, he marked yes, and elaborated, 
and I quote. Invited because of my scientific expertise. I'm 
just curious if you can account for the differences in 
responses to the same question, and I'd ask that of each of 
you.
    Mr. Petricoin. Well, I can certainly respond from my end, 
in that I probably shouldn't have marked yes. In some ways I 
was doing it to even the fullest disclosure because in my mind 
I am, the accumulation of my scientific expertise.
    Mr. Walden. Sure.
    Mr. Petricoin. And so I simply yes out of the instinct that 
I can't separate my brains. I'm a Scientist that just continues 
to learn.
    Mr. Walden. Only Steve Martin can do that.
    Mr. Petricoin. Right. So I think in retrospect, I should 
have marked no, and put I was invited for my general
    Mr. Walden. But I think you hit upon an issue. And that is 
you have this collection of knowledge and scientific ability. 
You can't park part of it somewhere out of reach, right?
    I mean that's why you checked yes. And doesn't that kind 
of, do you see how we get to where we're at in terms of is 
there a conflict between the CRADA and Biospect.
    I mean how could you, when you're doing whatever you're 
doing with Biospect, sort of park everything you know that may 
be associated with the CRADA, from playing over here. Now, 
maybe you can. I don't know how.
    Mr. Petricoin. Well, I think the challenge is when 
companies change their business focus without you being 
involved in that.
    Mr. Walden. Sure.
    Mr. Petricoin. My background isn't a business developer, 
I'm just a Scientist. And so I wasn't asked to participate in 
Biospect to determine, you know, their business development.
    And so that can change without me even knowing it, and in 
fact, it obviously did. And I think that
    Mr. Walden. So you could get dragged into a conflict 
outside of your control and outside of the original 
decisionmaking process in the 520.
    Mr. Petricoin. Certainly a company has every right to do 
what it wants to do, and my consultancy was so different from 
what I was doing with Correlogic, that there was never, there 
was the ability to partition that.
    And in fact I never was at a point in any time where I 
thought that that was at issue.
    Mr. Walden. Dr. Liotta, do you want to comment briefly on 
this point?
    Mr. Liotta. I don't know about the, you know, the check 
boxes relating to Dr. Petricoin, but I would say that his 
explanation sounds reasonable to me concerning the fact that he 
might view a request for consulting having some, his total body 
knowledge about
    Mr. Walden. But you checked no on the same box. I guess 
that's the point. And so you felt nothing you're doing related.
    Mr. Liotta. Yes, I had general medical expertise in, and in 
field of Pathology and I have a PhD in Biomedical Engineering. 
And I have even patents in medical testing.
    Personal patents way back before I came to NIH. And so I do 
have professional knowledge about some of the topics that might 
be relevant.
    Mr. Walden. I guess that's what I'm having trouble 
understanding. Why do you think they even have Question 9 on 
the form then? Because it looks to me like, and again you guys 
are doing this research, but the two companies had a lot in 
common.
    Let's go to Tabs 30 and 31, if you want to look in the 
book, where you'll see information from the two companies 
websites. And I know, didn't one of you have something to do 
with website information or something, working with the 
company?
    Mr. Liotta. We were not involved in Biospect's website but 
at the time of the original request for the outside activity, 
the information about Biospect was surveyed and studied by the 
Ethics Office, as well as any information that I had.
    Mr. Walden. Right, but
    Mr. Liotta. They did an independent review of the two 
companies if they were looking at the issue about the CRADA, I 
don't know whether they were. But they
    Mr. Walden. So the Ethics Office looked at both companies 
and said given
    Mr. Liotta. I don't know whether they looked at both 
companies. I know they must have looked at Biospect to see what 
Biospect did, because they do their own review and re-review.
    Mr. Walden. Well, okay. Do you see where maybe we get some 
questions coming here. Let me read you Correlogic's mission 
statement. It says, and I quote.
    Correlogic's mission is to advance the early identification 
of various cancers and other disease and to accelerate the new 
drug discovery process by applying its proprietary software to 
the development of proteomic and other biomarkers.
    Then you turn to Biospect's website, and it states, and I 
quote. Biospect is an emerging life sciences company founded in 
2002, that is developing technology for identifying and 
assaying protein biomarker patterns. What's the difference 
between the two?
    Mr. Liotta. I think there still could be, with knowing even 
that, that there still could be very big differences. Because 
from what I know about Correlogic, Correlogic is a software 
company.
    And they're applying their specific type of pattern 
recognition algorithm, at least within the CRADA, to data that 
we generate.
    Mr. Walden. And then what's Biospect do?
    Mr. Liotta. And Biospect, to the best of my knowledge, then 
and now, is they were an instrument company and they were 
developing a new, proprietary platform for chemistry 
separation.
    So an instrument company, software company. They seem 
completely different to me.
    Mr. Walden. So you don't see any, they're in completely 
different, other than the fact they are both working on this 
sort of detection, one from an instrument side, one from a 
logarithm side, there's no conflict?
    Mr. Liotta. One is a software that you use to analyze data 
that's already produced, in this case, by commercially 
available instruments. The other is a new instrument under 
development and measuring proteins is something 30 different 
kinds of instruments in a clinical lab do. When you do 
measurements in any clinical lab, it's proteins that you're 
measuring.
    Mr. Walden. All right.
    Mr. Liotta. So, you know, whatever the instrument was that 
Biospect was working on, which they did not reveal to me. I did 
not see any schematics, no data, experimental results from any 
of their instruments.
    So the instrument itself is what they apparently were 
working on, and they asked my opinion about what they could use 
it to test for, in a generic sense.
    And that was my role with Biospect. So I couldn't see how 
that had anything to do with software to analyze patterns.
    Mr. Walden. I see.
    Mr. Liotta. And particularly certain specific kinds of 
software, which is really what the Correlogic system is.
    Mr. Walden. All right, Dr. Petricoin, how about your role, 
Biospect versus Correlogic?
    Mr. Petricoin. Sure, my role with Biospect was basically to 
survey the field of science and biology in a way, looking for 
potential applications of their machine, their tool, their 
discovery tool.
    And try to point them in directions where I thought, you 
know, they could apply that.
    Mr. Walden. Why then, Dr. Barker, maybe I can go to you. 
Why then, if that's the case, do you, did you say earlier that 
you thought there is a conflict here between the two? What am I 
missing?
    Ms. Barker. I don't, I said in light of what we see now, 
that Biospect has put up on their website, then I think it's 
very, very difficult considering that this work is focuses 
around using Correlogic software for pattern recognition and 
they are actually using that word on their website.
    Biospect was using those two words on their website. I 
think it would make it extremely difficult to prove this, which 
now looks like overlapping scopes.
    Mr. Walden. And, in deed, you backed off the Bio--you with 
drew the Biospect agreement?
    Mr. Liotta. That's correct, that's true.
    Mr. Walden. And that involved both of you?
    Mr. Petricoin. Yes, sir.
    Mr. Walden. All right. And when did that occur?
    Mr. Liotta. I withdrew it, it was on hold based on the 
NIHEAC re-review, and then I learned this new information, 
discussed it with my boss and withdrew voluntarily this outside 
activity.
    Mr. Walden. When was that?
    Mr. Liotta. Last week.
    Mr. Walden. The end of last week, or beginning?
    Mr. Liotta. Around the 12th?
    Mr. Walden. May 12? Have you done any consulting with 
Biospect since February? Either of you?
    Mr. Petricoin. Since February, I believe so.
    Mr. Walden. How recently do you, and on what terms?
    Mr. Petricoin. The best of my recollection in March, sir.
    Mr. Walden. Dr. Liotta?
    Mr. Liotta. I believe that I had no new assignments in the 
past 2 months that I dealt with, because I was on hold. But I 
do recall that I sent one e-mail to Biospect in that timeframe.
    Mr. Walden. Okay. When did you start consulting with 
Biospect?
    Mr. Liotta. I think it was December, it was approved 
December, 2003, I think. Or 2002, I started a couple of months 
later, I actually got the first assignment.
    Mr. Walden. Dr. Petricoin?
    Mr. Petricoin. Excuse me, sir?
    Mr. Walden. When did you start consulting with Biospect?
    Mr. Petricoin. Approximately the same time. I think my 
agreement began December 1, 2002, and I believe my first 
assignment was in the beginning of 2003.
    Mr. Walden. Beginning of 2003, first assignment?
    Mr. Petricoin. Yes.
    Mr. Walden. Dr. Liotta, there's some information here under 
Tab 33, that lists money earned to date as $49,375 in 
consulting fees. Proposed annual rate $39,000 or $3,250 a 
month. Are those accurate numbers?
    Mr. Liotta. Yes, those are accurate numbers.
    Mr. Walden. Okay. And this is, what period of time does 
this cover?
    Mr. Liotta. I think that was just a summation of what it 
would be per year at the rate of whatever the current
    Mr. Walden. I see. But that's the annual, $39,000?
    Mr. Liotta. It's $3,120 a month.
    Mr. Walden. Well, we had $3,250.
    Mr. Liotta. I mean $3,100.
    Mr. Walden. The document shows $3,250 a month.
    Mr. Liotta. $3,250, okay.
    Mr. Walden. But what about this $49,375 consulting fees, 
when was that earned? Do you see where I'm looking on this 
sheet?
    Mr. Liotta. Yes. I don't know how that was calculated, but 
it might reflect the fact that in the beginning of the 
consulting, I was receiving $5,000, and then it switched----
    Mr. Walden. A month?
    Mr. Liotta. A month, $5,000 a month. And then it switched 
and it was reduced, and that was reported in my renewal 
application of this outside activity.
    Mr. Walden. Okay. I think that ends the questions I have, 
thank you, gentlemen.
    Mr. Greenwood. Just a final question for Dr. Liotta and 
Petricoin. Your agreement with the company was 1 day a month, 
is that correct for both of you?
    Mr. Petricoin. Yes, sir, initially. I'll answer for myself. 
It was 2 days per month, and that was reduced to 1 day per 
month.
    Mr. Greenwood. And Dr. Liotta?
    Mr. Liotta. Yes.
    Mr. Greenwood. Same thing?
    Mr. Liotta. Similar.
    Mr. Greenwood. And how do you do that? Just, how do you do 
that? Literally 1 day of the month you, instead of going to NIH 
or the FDA, you drive to Biospect and sit in their building all 
day? How does that work?
    Mr. Liotta. In my case, I did all the work for Biospect at 
home, on my computer, and surveyed publicly available 
information to analyze questions that they had.
    And then I synthesized those, that publicly available 
information, into short reports, which then was presented to 
Biospect, maybe once every 2 or 3 months.
    Mr. Greenwood. Okay, and Dr. Petricoin, how did you manage 
it?
    Mr. Petricoin. Pretty much the same way. My job, as I 
stated, was to kind of survey the public domain for 
opportunity. And I would do that at home on my computer. And I 
would synthesize the information and most often
    Mr. Greenwood. So what do you do, you call the office and 
you say to somebody at FDA or NIH, I'm not going to be in today 
I'm working for Biospect? How does that work?
    Mr. Petricoin. No, most of my work was done on the weekends 
or when I got home from work. So it wasn't like I would take a 
whole day off or compartmentalize time.
    Mr. Greenwood. So you didn't take any, neither one of you 
took time off of your regular work week for this?
    Mr. Petricoin. Not, so to give you the full story, there 
was about three or four times, to my recollection, that we 
actually went up to Biospect's office.
    Mr. Greenwood. Where was that?
    Mr. Petricoin. On Democracy Boulevard. This was the shared 
office space.
    Mr. Greenwood. Right. Is that like an incubator or 
something?
    Mr. Petricoin. Yeah, it's where they have like shared 
secretarial, I guess support for these companies that are 
either offsite or--and we met with them and that was usually 
during the day or during the end of the day, and I would take 
annual leave.
    Mr. Greenwood. You would take annual leave to do it?
    Mr. Petricoin. Yes, yes, sir.
    Mr. Greenwood. Dr. Liotta?
    Mr. Liotta. To the best of my recollection
    Mr. Greenwood. Pretty much the same thing? And when you're 
at your regular jobs, do you have issues of them calling you at 
work or, I mean does that happen?
    Mr. Petricoin. The amount of time spent consulting from my 
end, was really to look into the public domain. It was really a 
relationship of me spending a lot of time kind of synthesizing 
information at home, looking around, nesting that down and then 
giving it to them, and them doing with it what they want.
    There was, most of the time when we talked with them, it 
was by, they set up a tele-conference. We'd call in from our 
cell phones, and that could be even on the drive home. And it 
might just be sharing what we found.
    Mr. Greenwood. So you didn't find, neither one of you found 
a so-called conflict of commitment that occurred in conflict 
with your job?
    Mr. Liotta. If there was even a hint of that I, because in 
addition to my research duties I have a lot of administrative 
duties. If there was a hint of that I wouldn't have done the 
activity at all.
    Mr. Greenwood. Thank you. We thank all four--did you want 
to say something Dr. Barker?
    Ms. Barker. I want to add a comment actually on the 
Biospect mission statement that was up there, it's not there 
now. But Dr. Barrett when he re-reviewed and approved Dr. 
Liotta's consultancy had a different mission statement for 
Biospect which we have here, which is really almost unrelated 
to the one you have up there.
    I mean this one, that one up there speaks to diagnostic
    Mr. Greenwood. Why don't you tell us what it says?
    Ms. Barker. I'm sorry?
    Mr. Greenwood. You can read that to us.
    Ms. Barker. It says basically that Biospect will become the 
world leader in identifying and assaying highly informative 
patterns that reflect in different shape biological states with 
minimally invasive procedures, to improve clinical management 
of patient health and the drug development process.
    There's no mention in here of diagnostics. And if you read 
this, everything we're doing in genomics and proteomics today 
is moving toward patterns of one sort of the other.
    So this was really portrayed at that point as very much a 
therapeutics support kind of activity. So the mission statement 
for that company really, I think, changed significantly between 
when Dr. Barrett review and re-approved this consultancy and 
what we saw here today.
    Mr. Greenwood. And did the folks at Correlogic buy that 
argument?
    Ms. Barker. I haven't asked them that question.
    Mr. Greenwood. All right. Thank all of you. I hope you 
didn't feel that the thumbscrews were tightened too much. I 
appreciate your assistance in our difficult task, and this 
committee is adjourned.
    [Whereupon, the foregoing matter was concluded at 3:16 
p.m.]
    [Additional material submitted for the record follows:]

 Prepared Statement of the Food and Drug Administration, Department of 
                       Health and Human Services

                              INTRODUCTION

    Mr. Chairman and members of the Committee, like its sister agencies 
in the United States Department of Health and Human Services (HHS or 
the Department), the Food and Drug Administration (FDA or Agency) is a 
public health agency. But FDA is unique in the Department because it is 
primarily a regulatory agency.
    As a result, for more than three decades FDA has had an aggressive 
disclosure and review process designed to ensure that its employees do 
not have any conflict of interest involving companies and entities that 
FDA ``significantly regulates.'' To maintain the public trust in its 
public health work, FDA has placed reasonable restrictions on the 
financial and employment ties between FDA employees and the entities it 
regulates.
    At this time, the Agency is confident that the specific matter 
described in this statement is isolated. FDA fully anticipates that, 
when completed, the review of outside activity requests that we have 
commenced will determine that the Agency's professional scientists and 
administrators uniformly comply with the Agency's stringent ethics 
requirements and that they conduct their regulatory work in fair, 
unbiased and impartial manner.

                      FDA'S HIGH ETHICAL STANDARDS

    As a regulatory agency, FDA has a compelling need to monitor and 
impose reasonable restrictions on the financial and employment ties of 
our employees. FDA meets this standard through strict regulations 
governing financial interests and outside activities for all employees 
of the Agency. Applicable laws and regulations include the Standards of 
Ethical Conduct for employees of the Executive Branch (Title 5, Code of 
Federal Regulations (CFR), section 2635), Title 18, United States Code 
(USC) section 202-209, and the Department's supplemental standards of 
conduct (5 CFR  5501).
    HHS's Supplemental Regulations contain FDA-specific provisions that 
establish prohibited financial interest rules for employees required to 
file a public disclosure report (using form SF 278) or a confidential 
financial disclosure report (using form OGE 450), and rules for seeking 
approval of outside activities. The prohibited interest regulations 
have been in effect since the early 1970's and supersede the Office of 
Government Ethics' (OGE) general rules on financial holdings. Under 
these FDA-specific regulations, employees who are required to file a 
public or a confidential financial disclosure form are prohibited from 
holding a financial interest in any organization that is significantly 
regulated by FDA. This prohibition extends to the employee's spouse and 
minor child(ren), since their financial interests are imputed to the 
employee under 18 USC 208. These employees also are generally 
prohibited from employment with a ``significantly regulated'' 
organization.
    FDA has established an Ethics Program to help ensure that the 
decisions employees make in their official capacity are not tainted by 
a conflict of interest or an appearance of a conflict of interest. 
FDA's Ethics Program is an integral part of the Agency's overall 
operations. The program is fully staffed and dedicated to providing 
advice and assistance to FDA employees on ethics related laws and 
regulations. The Ethics and Integrity Staff are subject matter experts 
on the laws and regulations that form the framework of the FDA Ethics 
Program.

                           OUTSIDE ACTIVITIES

    As a consequence of our strict Supplemental Regulations, employees 
who are required to file a public or confidential financial disclosure 
report are prohibited from having employment with ``FDA significantly 
regulated organizations.'' In addition, public and confidential filers 
may not participate in consulting activities with any significantly 
regulated firm. There is a very narrow exception to this broad 
prohibition, which is limited to the practice of medicine, pharmacy, 
dentistry, etc. The purpose of this exception is to allow employees to 
maintain their professional skills and licenses.
    FDA employees are required to seek advanced approval for all 
outside employment and certain outside activities with the following 
exceptions: participation in activities of a political, religious, 
social, fraternal, or recreational organization (unless the position 
held requires the provision of professional services or is performed 
for compensation other than the reimbursement of expenses). Outside 
activities that require approval include, but are not limited to, self-
employment activities, office holding in professional societies, 
teaching, writing and speaking activities, consultant or contracting 
work.

                             BIOSPECT, INC.

    Dr. Emanuel F. Petricoin is a confidential filer in FDA's Center 
for Biologics Evaluation and Research (CBER or the Center). His duties 
at FDA do not include reviewing pending applications for approval of 
new medical products.
    In September 2002, Dr. Petricoin requested approval of an outside 
activity to provide consulting services to Biospect, Inc. The request 
was reviewed and approved in October 2002 by the Director, Division of 
Management Services, CBER. At that time CBER reviewed available 
information on the company to determine whether FDA regulated 
Biospect's activities, and we concluded that they were not FDA-
regulated.
    During a recent review of outside activity requests, CBER 
questioned the approval of this outside activity. The Center inquired 
about the current status of the company's business and whether an 
outside activity with this company is appropriate and approvable. 
Further review of Biospect, Inc. identifies the company as an emerging 
life science company that develops and identifies protein biomarker 
patterns. FDA consulted with HHS and subsequently determined that 
Biospect, Inc. participates in activities that are significantly 
regulated by FDA, and therefore outside activities with this company 
are prohibited for public and confidential filers.
    On Friday, May 7, 2004, Dr. Jesse Goodman, Director of CBER met 
with Dr. Petricoin and advised that because Biospect, Inc. is now 
considered significantly regulated by FDA,
    Dr. Petricoin must immediately cease all activity with respect to 
Biospect, Inc. Upon being informed of this, Dr. Petricoin immediately 
and voluntarily agreed to end all activity with Biospect, Inc. 
Accordingly, approval for this specific outside activity has been 
withdrawn and this outside activity has ended.

                           FDA ETHICS REVIEW

    Since 1970, review of FDA employees' requests to participate in 
outside activities has occurred within the FDA centers, at levels below 
that of the Center Director. This was based on the premise that 
individual FDA organizations are more knowledgeable about the official 
duty activities of their employees and therefore are better able to 
identify outside activities that may present conflict of interest 
concerns. Within CBER, the approving authority was delegated to the 
Director, Division of Management Services.
    FDA now believes that this delegation should be at a higher level. 
Consequently, on May 6, 2004, the Acting Commissioner issued an interim 
policy regarding the approval of outside activities. Under this policy, 
FDA Center Directors must review and, if an activity is allowed, 
approve all outside activity requests for employees within their 
centers. The Commissioner of Food and Drugs will be the approving 
official for employees in the Office of the Commissioner, and the 
Associate Commissioner for Regulatory Affairs will approve all requests 
for the employees of the Office of Regulatory Affairs.
    In addition, in light of recent questions about possible conflicts 
of interest involving HHS agencies, the Acting Commissioner of Food and 
Drugs has directed a comprehensive review of all current outside 
activity requests for all FDA employees. Each request is being reviewed 
for compliance with applicable laws and regulations by Jeffrey M. 
Weber, Associate Commissioner for Management, Dr. Norris Alderson, 
Associate Commissioner for Science, and the FDA's Office of Management 
Programs, Ethic and Integrity Staff. Once that review has been 
completed, FDA will issue a final policy on the review and approval of 
outside activities.

                               CONCLUSION

    FDA's commitment to the highest ethical standards in its dealings 
with regulated entities remains constant. FDA is confident that the 
current review of FDA employees' outside activities will show that the 
nation is well served by the dedication of FDA's expert scientists and 
physicians and their demonstrated ability to conduct the public 
business fairly and impartially. At FDA, we are committed to the 
maintaining the highest ethical standards to assure that the decisions 
employees make in their official capacity are not tainted by a conflict 
of interest or an appearance of a conflict of interest.

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    NIH ETHICS CONCERNS: CONSULTING ARRANGEMENTS AND OUTSIDE AWARDS

                              ----------                              


                         TUESDAY, JUNE 22, 2004

                  House of Representatives,
                  Committee on Energy and Commerce,
              Subcommittee on Oversight and Investigations,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, James C. Greenwood 
(chairman) presiding.
    Members present: Representatives Greenwood, Bilirakis, 
Stearns, Walden, Rogers, Barton (ex officio), DeGette, 
Schakowsky, Waxman, and Dingell (ex officio).
    Staff present: Alan Slobodin, majority counsel; Mark 
Paoletta, majority counsel; Ann Washington, majority counsel; 
Casey Hemard, majority counsel; William Harvard, legislative 
clerk; David Nelson, minority investigator and economist; and 
Jessica McNiece, minority staff assistant.
    Mr. Greenwood. The subcommittee will come to order.
    The Chair welcomes our first panel and recognizes himself 
for the purposes of making an opening statement.
    Good morning. This is the third hearing the subcommittee 
has convened about NIH ethics concerns. Two earlier hearings 
were held last month, in particular the subcommittee has 
focused on consulting arrangements and outside awards because 
of the legitimate important and well recognized public interest 
in controlling conflicts of interests.
    As the United States Supreme Court noted in its 1990 
opinion in Kramden v. United States restrictions ``designed to 
prohibit and to avoid potential conflicts of interest in the 
performance of governmental services are supported by the 
legitimate interests in maintaining the public's confidence in 
the integrity of the Federal Service.''
    Without appropriate controls on conflicts of interest, the 
Office of Government Ethics has stated ``The public's 
confidence may be seriously compromised where circumstances 
suggest public servants are using their positions for private 
gain.''
    As Dr. Elias Zerhouni, Director of the NIH has said, the 
NIH's ``public health mission is too important to have it 
undermined by any real or perceived conflicts of interest.''
    Our previous two hearings established widespread agreement 
that the NIH ethics program needs strengthening. At the first 
hearing on May 12 the NIH Blue Ribbon Panel on Conflict of 
Interest Policies presented it report and recommendations. Dr. 
Elias Zerhouni testified about actions taken in response to 
concerns about NIH's management of conflict of interest.
    At the second hearing on May 18 the subcommittee 
highlighted two cases illustrating conflicts of interest 
concern arising from consulting agreement and lecture awards. 
The example of a consulting agreement we examined to highlight 
the issue is the case of Dr. Lance Liotta of the National 
Cancer Institute, Dr. Manuel Petricoin of the FDA and their 
arrangement with Biospect, a south San Francisco life sciences 
company.
    The subcommittee was concerned that Dr. Liotta and Dr. 
Petricoin, the leaders for the U.S. Government in a cooperative 
research and development agreement known as CRADA with 
Correlogic Systems, Inc. of Bethesda, Maryland were allowed to 
work as paid consultants for Biospect, a company in the same 
filed as Correlogic.
    The example we used of an outside award focused on the 
circumstances surrounding the decision to allow Dr. Richard 
Lausner, then the Director of the National Cancer Institute, to 
receive the 1997 Dixon Prize in Medicine from the University of 
Pittsburgh. We learned that the hearing that the concerns of 
the NCI ethics officer were disregarded and HHS ethics 
attorneys were pressured to allow Dr. Klausner to accept the 
prize and a check for $40,000.
    The award was also of concern because it was offered at a 
time when the University of Pittsburgh was both a recipient of 
NCI funding as well as a party to a recently settled lawsuit in 
which both the NCI and the university were codefendants where 
Dr. Klausner had approved the use of $300,000 funding NCI as a 
portion of the payment in that settlement.
    At today's hearing, the subcommittee will hear testimony 
and present information that will provide more insight and 
greater detail about the NIH ethics concerns on consulting 
arrangements and outside awards.
    In addition, the subcommittee will hear testimony and 
examine new actions and restrictions proposed by Dr. Zerhouni 
aimed at strengthening the NIH ethics program.
    With respect to consulting arrangements, the subcommittee 
has been compiling information provided both by the NIH and a 
number of drug companies about the financial details of deals 
that occurred over the last 5 years. The task has proven to be 
enormous. It took several months for the NIH and HHS to find a 
way to provide these financial details in the first place. 
Without a preexisting data base, NIH in responding to the 
committee's request has had to rely on each of its 27 
institutes and centers to provide information on the 
agreements. This has also led to problems of accuracy and 
reliability.
    More significantly, information received from the drug 
companies has revealed a significant number of troubling 
discrepancies. So far the committee staff has identified about 
100 situations in which the drug company reported a consulting 
agreement, but the NIH did not include the agreement in the 
data given to the committee. This is essentially disturbing 
given that the committee sent request letters to only 20 of the 
companies that had the most agreements out of hundreds of 
companies on the NIH lists. One hundred is a significant number 
from such a subsample of 274.
    Consider this example. Pfizer provided information showing 
that Dr. Trey Sunderland of the National Institute of Mental 
Health had been paid over $517,000 in fees honoraria and 
expense reimbursement in connections with consulting activities 
for the period 1999 to the present. So far, however, NIH has 
reported to the committee that there are no outside activity 
request forms covering Dr. Sunderland's activities, nor are 
these financial details accounted for in his financial 
disclosure reports.
    Pfizer has also reported that Dr. Sunderland's associate, 
Karen Putman of the NIMH was paid $64,000 in consulting fees 
and reimbursement from 2001 to 2004. Some of these fees were 
for assisting Pfizer in its program to study biomarkers of 
neurological disease. Once again, NIH has no outside activity 
request documents accounting for this activity. In fact, NIH 
has confirmed that Dr. Sunderland instructed Dr. Putnam not to 
clear these activities.
    These so called outside activities appear related to their 
government work. Dr. Sunderland and Dr. Putnam in their 
capacities at NIMH published a major study in 2003 on the value 
of potential markers for identifying people with Alzheimer's 
Disease.
    These discrepancies between information provided by the 
drug companies and the NIH and this example raise the specter 
of a substantial number of outside drug company and 
biotechnology consulting agreements involving NIH scientists, 
which were not even reported or submitted for clearance at NIH. 
Because of the grave concerns this presents, the subcommittee 
will further investigate these agreements that were not 
reported to the NIH. As a result, the subcommittee is not yet 
in a position to release the listing of the NIH consulting 
agreements today.
    The concern that there is a substantial number of outside 
deals that are conducted in total secrecy even from the NIH is 
not implausible. For example, the committee has recently 
learned that Dr. Alan Moshell, Skin Diseases Branch Chief and 
Program Director of the National Institute of Arthritis and 
Musculoskeletal and Skin Diseases, was retained as an expert 
witness reportedly at a rate of $600 per hour in a number of 
private product liability lawsuits involving the drug, 
Accutane, which is used to treat severe acne. HHS and NIH have 
reported to the committee that Dr. Moshell did not file outside 
activity request forms for these activities, even though HHS 
and NIH acknowledge that Dr. Moshell should have disclosed 
these activities to NIH and should have filed an outside 
activity request separately for each expert-witness activity to 
obtain approval. In 1985, Dr. Moshell filed an outside activity 
request and obtained approval to conduct clinical practice as a 
dermatologist. This request form did not specifically cover 
service as an expert witness, but Dr. Moshell has indicated 
that he did not believe that a specific request form was needed 
for that purpose.
    In addition to these new concerns on outside activities, 
the subcommittee has also learned of additional information 
about the case study involving Dr. Liotta, Dr. Petricoin, and 
their outside agreement with Biospect while working on the 
Correlogic CRADA. We will hear about this new information 
later. But let me provide one example of our concerns.
    At the May 18 hearing, Dr. Liotta testified under oath that 
his work at Biospect had been ``placed on hold'' since February 
2004 pursuant to Dr. Zerhouni's directive that all existing 
consulting relationships with pharmaceutical or biotechnology 
firms be stopped and resubmitted to the newly created NIH 
Ethics Advisory Committee known as (NEAC) for review and input, 
before such activities could be reapproved, if appropriate.
    Further, Dr. Liotta confirmed his activities with Biospect 
were on hold in response to the following e-mail from the NIH 
Ethics Director, Holli Beckerman Jaffe, dated May 5, 2004: 
``Please also confirm with him that while he has not received 
any payments since February (in other words, he was last paid 
in February), he has not consulted with Biospect since 
February; the arrangement has been put on hold until he 
receives approval from Dr. Kington. I know I'm beating a dead 
horse, but I want to be very clear on the facts. It's in the 
best interest that we have all the facts and no uncertainty.''
    The subcommittee has now recently received records from 
Predicant Biosciences, the new name for Biospect. These records 
show that Dr. Liotta received and cashed checks from Biospect 
dated March 1, April 1, and May 1, 2004. These transactions all 
occurred during the period that Dr. Liotta claimed that the 
Biospect agreement was ``on hold.''
    Although the subcommittee will not be releasing the 
consulting agreements listings at this time, we will be 
releasing information pertinent to consulting arrangements and 
outside awards. That information includes statistical 
information about: The activities of the NEAC, use of Title 42 
authority, and the list of the 77 scientists who appeared on 
the NIH consulting agreement list who are also principal 
investigators on CRADAs.
    I ask unanimous consent to put the binder of hearing 
documents, including this information, into the record. Without 
objection, it will be included in the record.
    On the issue of lecture awards, the subcommittee is 
releasing the list of awards that NIH provided to the committee 
and identified as responsive to our request for information on 
``lecture awards.'' In addition to the lecture awards list, the 
subcommittee has identified additional issues in connection 
with award approvals for Dr. Klausner. For example, Dr. 
Klausner as the Director of the National Cancer Institute is a 
Presidential appointee and must have his award requests 
approved by the HHS Designated Agency Ethics Official. His 
award requests cannot be approved by an official at the NIH. 
The committee has identified two instances in 1997 in which the 
Deputy Director of NIH, not the HHS Ethics Official, approved 
Dr. Klausner's awards.
    In another case, an award to Dr. Klausner from the 
University of Arizona was approved by an HHS ethics attorney 
who did not have a written delegation of approving authority 
for awards of Presidential appointees. In that same case, the 
first-class travel for Dr. Klausner was improperly approved as 
part of the award-approval process because a first-class travel 
approval request must go through a separate approval procedure. 
This mistaken approval reportedly occurred because the HHS 
travel manual did not track all of the applicable requirements 
contained within the GSA regulations with regard to acceptance 
of first-class travel from a non-Federal source.
    These additional issues deepen our concerns about what has 
happened in the NIH ethics program. However, Dr. Zerhouni 
appears before this subcommittee to present a comprehensive set 
of proposed additional restrictions, in addition to other 
recent actions, to improve the NIH ethics program. I note that 
some of the problems, such as deliberate misconduct, cannot be 
easily addressed by any kind of ethics proposals, no matter how 
strong the restrictions. That said, this set of proposals has 
some positive features to commend it. In the area of outside 
awards, based on my understanding of the proposals, the 
combination of the pre-screened list of awards, the additional 
guidance from the Office of Government Ethics, the NEAC review, 
and the prohibition of any cash to an official responsible for 
a funding decision with the entity offering the award, should 
address the concerns.
    In the area of management process changes, I understand NIH 
will create an electronic data base for tracking ethics matters 
and HHS will have increased resources to conduct random audits.
    These are constructive and substantial changes. In the area 
of drug-company consulting, Dr. Zerhouni is not proposing a 
total ban. However, Dr. Zerhouni is offering a number of 
substantial restrictions that will curb some of the kinds of 
cases that are of the greatest concern. Those restrictions 
include a prohibition on outside consulting for senior 
leadership positions, expanding public disclosure requirements 
to cover an additional 600 NIH employees, NEAC review, and 
limits on income and time. I am withholding judgment on this 
part of the package; my position will be based in part on what 
I learn at today's hearing. However, I have already reached the 
conclusion that whatever final action is taken on outside 
consulting, it should take place in the context of legislative 
changes regarding the use of Title 42 authority.
    The widespread use of so-called ``special'' compensation 
authorities intended for consultants in Title 42 to boost the 
pay of continuing, full-time NIH employees looks highly 
questionable on policy, if not legal, grounds. The data 
provided by HHS shows nearly $5 million in retention bonuses 
were paid to 444 Title 42 employees for the period of July 1, 
1999 to May 1, 2004. The use of retention bonuses along with 
the questionable use of Title 42 is part of the gaming that has 
occurred with the salaries of NIH scientists. Recent data shows 
almost one-third of new NIH employees were hired under Title 42 
authority in 2003. The gaming must end. I am prepared to 
support a straightforward approach to providing good salaries 
to NIH scientists, worthy of the crown jewel of the U.S. 
Government.
    Dr. Zerhouni, I know you are ready to work with me. Your 
proposals and your testimony will receive a respectful hearing 
from me. You have shown yourself as a serious and constructive 
partner with the subcommittee in addressing these ethics 
issues.
    I welcome Dr. Zerhouni and the other witnesses to today's 
hearing. I note on the second panel we will hear from Peter 
Levine, the President of Correlogic Systems, and Dr. Jonathan 
Heller, the Vice President for Information and Project Planning 
at Predicant Biosciences, the new name for Biospect.
    I note that Mr. Levine, although he is cooperating with the 
committee, is appearing pursuant to a subpoena.
    Finally, I welcome the witnesses from the National Cancer 
Institute who will appear on the third panel.
    I look forward to the testimony and to making a stronger 
and better NIH.
    The Chair yields to the gentlelady from Colorado for her 
opening statement.
    Ms. DeGette. Thank you, Mr. Chairman.
    This is the Oversight and Investigation Committee's third 
hearing on conflicts of interest and the National Institutes of 
Health. The significance of this issue cannot be understated, 
and I expect that today's hearing will provide us with a fuller 
understanding of the problems.
    The first hearing gave this committee the opportunity to 
hear from members of the Blue Ribbon Panel and Dr. Zerhouni. At 
that time, I expressed concerns with the scope of the Blue 
Ribbon Panel's recommendations. I am pleased that Dr. Zerhouni 
is back again with us today to talk about the subcommittee and 
to talk about some expansions of some of those issues we talked 
about at that first hearing.
    After reviewing some of the proposed expansions to the NIH 
ethics rules which are being contemplated, I am pleased that 
NIH leadership takes these issues seriously and is endeavoring 
to restore ethical integrity, but I remain concerned about the 
challenges that the absence of what I think is a bright line 
task for receipt of outside industry compensation provides. At 
the same time we must maintain the integrity of the NIH as our 
Nation's premier research institution and to that end, we need 
to continue to have the ability to attract the very best and 
brightest at all levels of the NIH.
    Today we're going to have the opportunity to look at these 
additional steps which are being proposed by the NIH regarding 
conflicts of interest and to learn about one or more of the 
cases that we talked about in our last hearing. As I said at 
the previous hearings, these conflicts of interest deserve 
scrutiny and they must be resolved. The ethos of the 
organization much change, and I know Dr. Zerhouni and his 
senior management team agree. These new recommendations are a 
necessary step, but there must be a comprehensive effort toward 
implementation and elimination of inconsistent standards which 
now exist across the 23 institutes.
    I am confident that the scientists at NIH can adequately 
address the committee's concern and put a better system into 
place. But the question remains how do we accomplish this? NIH 
may still need to strengthen some of the recommendations even 
further to achieve this, and I look forward to hearing from our 
witnesses about that.
    I would also add that this subcommittee has a long history 
of examining these issues and does not take it's investigative 
role lightly. The subcommittee's ability to interview witnesses 
and uncover issues is part of its very core mission. I am glad 
that Mr. Azar is here today to talk about some of these 
interviews of government witnesses and HHS and what transpired.
    We have been that conflicts of interest at the NIH are 
relatively rare, but even rare cases must be prevented 
especially when they are as spectacular as we have heard n our 
previous two hearings. The public's trust in this remarkable 
institution is at stake. These scientists who are entrusted 
with taxpayer dollars must answer to their institution and the 
public and protect its integrity. The scientists also should 
remember their work is the hope for many Americans who are ill 
or who are taking care of a family member with an illness. 
Their scientific work for some Americans is the difference 
between life and death. A conflict of interest or even the 
appearance of a conflict of interest could have devastating 
effects.
    NIH's mission is to uncover new knowledge that will lead to 
better health for everyone. But when there are conflicts of 
interest, how can we make sure this mission is being carried 
out?
    I am still concerned about NIH's ability to acquire 
information and data on hours spent on outside activities and 
also compensation received from outside activities. This is a 
very delicate issue and disclosure is the key. Centralization 
of ethics review and creation of an electronic data base are 
going to be very important. However, as they say the devil is 
in the details and we need to find out how exactly outside 
activities will be monitored. That is why I go back to the fact 
that in the absence of a bright line test it will be very 
difficult to eliminate some of the abuses we have seen in the 
past.
    As the committee has discovered and as we will discuss 
today, there is an astounding amount of activity that has not 
been under scrutiny or even disclosed. This is an unacceptable 
situation. I know that Dr. Zerhouni and his team agree with me, 
and I look forward to working with them on this issue.
    And thank the Chair for continuing this series of hearings. 
And yield back.
    Mr. Greenwood. The Chair thanks the gentlelady and 
recognizes the chairman of the full committee, the gentlemen 
Mr. Barton for his opening statement.
    Chairman Barton. Thank you, Mr. Greenwood. And we 
appreciate your leadership on this important hearing.
    I stated at the last oversight hearing on these NIH issues 
that the hallmark of my chairmanship will be to hold agencies 
responsibilities and to produce results in better government 
and better services and policies for the American people. I am 
proud to report that because of your work and Ms. DeGette's 
work this is happening with regard to our investigation at NIH.
    The committee continues to uncover more and more troubling 
information about what has happened in the NIH ethics program. 
For example, it appears that there may be a substantial number 
of NIH scientists who engaged in outside activities such as 
drug company consulting in stealth, that is without any notice 
at all or any approval by the NIH. If these suspicions are 
confirmed, these unapproved compensated activities would 
represent a very serious breach of NIH policy, Federal ethic 
regulation and possibly in some cases even criminal laws.
    In addition, we are continuing to examine cases. One of the 
cases which we reviewed at our last hearing dealing with 
conflicts of interest arising out of consulting agreements your 
subcommittee has heard and will testimony today about a 
remarkable case in which the NIH and FDA scientists who were 
collaborating with a private company on a joint invention under 
a public/private partnership called a CRADA at the same time 
were secretly consulting with their own private partner's 
competitor. As a result of those secret deals progress may have 
been slowed on the public/private partnership that could have 
led to prompt commercialization of a lifesaving ovarian cancer 
diagnostic test.
    I also understand that the subcommittee may be presented 
with information today that raises serious questions about the 
accuracy of some testimony that has been received at the last 
hearing.
    Having said all of that, this subcommittee is getting the 
facts. Through oversight we are identifying the issues that 
provide a roadmap for solutions. The problems that we are 
continuing to uncover at the NIH are further justification for 
why this committee needs to reauthorize the NIH for the first 
time in over a decade. The committee needs to lead the way in 
restoring NIH's luster as the crown jewel for research of the 
Federal Government. As Chairman Greenwood has noted, during 
this investigation we have uncovered issues of concern and are 
continuing to uncover still more. It is unpleasant to face the 
harsh truth about the results of the apparently lax ethic 
culture at the NIH and the poor judgment and perhaps even 
misconduct of some individuals at that illustrious institution. 
Having said that, it is a process that we must go through to 
ensure that NIH will continue to be the world's premier medical 
research medical institution. NIH's work is too important to 
allow it to be hindered by questions about the integrity of its 
scientists, and therefore the scientific process.
    Our oversight is not just about identifying problems. We 
want to stimulate solutions. In this regard I am very pleased 
to read that both HHS and NIH seem to be getting the message 
about our concerns over the NIH's ethics program. And Dr. 
Zerhouni's testimony, which I have read, indicates that he is 
serious about improving the ethics at the agency in which he is 
director of. He is making his agency responsible to the 
Congress and to the American people. He has a plan, and I think 
it is a good plan, and I think this committee should give it 
serious consideration. Because of the enormity of the taxpayer 
investment in NIH and the enormity of the responsibility 
entrusted to NIH, it is critical that we, when I say ``we'' I 
mean the Congress and the NIH administration, work together to 
make sure that NIH remains the standard for medical research in 
the world. I am pleased to say that it looks like we are making 
progress in this regard.
    While we need to work with Dr. Zerhouni to establish 
solutions, we must do all that we can do to stop things like 
from ever happening again. And just as NIH has enormous 
responsibility to the American people, this committee has the 
responsibility to conduct the kind of oversight that brings 
these problems to light and then helps find solutions to 
prevent them from happening again.
    I want to commend Ranking Member DeGette for her excellent 
work and her staff's work, and Mr. Dingell for the full 
committee staff work on this effort. We are doing oversight in 
the proud tradition of the Energy and Commerce Committee, and I 
think the end result is going to be good for the American 
people.
    I also want to compliment Dr. Zerhouni. Your testimony 
about proposed solutions is excellent. To the extent that we 
need to back you up with legislative language in that statute, 
we are very willing to do that once we finalize what needs to 
be done.
    With that, Mr. Chairman, I would yield back.
    Mr. Greenwood. The Chair thanks the gentleman.
    And he recognizes the ranking member of the full committee, 
the gentleman from Michigan, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, good morning.
    Thank you for recognition, and let me commend you for 
opening this inquiry, for holding this hearing and for 
insisting that Mr. Azar testify despite the opposition of the 
Department of Health and Human Services.
    The ethics concerns at the NIH, National Institutes of 
Health and the Food and Drug Administration, FDA, merit the 
full attention of this subcommittee, as do efforts to hinder, 
obstruct, delay or otherwise impede the work of this 
subcommittee.
    We are still learning how far and wide the problem of 
outside payments goes. When NIH initially refused to compel its 
employees to disclose the extent of consulting dollars received 
from drugs and biotech companies, you and Chairman Barton 
surveyed 20 drug companies for their payments to NIH employees. 
The companies responded regarding some 264 contracts with 
scientists employed at NIH. When comparing these contracts with 
the information ultimately submitted to us by the NIH, the 
staff discovered that some 100 of the 264 consulting contracts 
were not reported to NIH. What else is out there?
    We, as well as NIH and FDA, have a duty to ensure that this 
probe does not harm research or regulatory approvals. But 
ignoring the problems at FDA and NIH is not an option. The 
research community, the health care industry and the American 
people simply cannot tolerate a system where the state of our 
technology is sold to the highest bidder. We cannot tolerate a 
system where the development of lifesaving drugs and biologics 
may be delayed while the auction is being conducted. Nor can we 
tolerate hinderance and obstruction by the Department of Health 
and Human Services. Officials in charge of legislative affairs 
and some misguided government lawyers have tried to stifle the 
investigation in which we are now engaged. They have sought to 
stonewall our requests for documents and interviews and 
otherwise have sought to prevent the Congress and the American 
people from discovering very serious problems.
    This subcommittee over the years has seen to it that the 
truth is produced with the cooperation of those who were being 
investigated or without their cooperation. And there are many 
who have had reason to repent in a very real way the failure to 
cooperate with this committee. I hope that those who will 
appear this morning and others who will be inquired of by the 
subcommittee will keep this thought in mind.
    Moreover, I would note that we find that the curious 
reluctance of the Inspector General here to do more than desk 
audits is unacceptable. The American people have the right to 
know what is going over at the Department. I support all 
efforts to enforce that right, and I will do everything I can 
to see to it that there is no obstruction of the business of 
this committee.
    I thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes the Oregon, Mr. Walden for his opening statement.
    Mr Walden. Thank you, Mr. Chairman. I am going to waive my 
opening statement.
    Mr. Greenwood. The gentlelady from Chicago, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Chairman Greenwood and Ranking 
Member DeGette for convening today's hearing, the third in a 
series of oversight opportunities to review concerns about 
ethics at the National Institutes of Health and the consulting 
arrangements and outside awards of NIH personnel.
    This issue is so critical because it goes to the integrity 
of science and the safety and efficacy of medical technology 
upon which the American public and medical community rely. 
Consumers and their caretakers in the medical field, rely on 
sound science for guidance on the most appropriate types of 
care. Consumers need to know that the science upon which their 
doctors rely is based on legitimate evaluations and not tainted 
by side deals. I think most American consumers would assume 
that cash, stock, stock options and other types of pay for 
outside consulting arrangements that NIH personnel have with 
drug companies and others in industry, would be against the 
rules. I know I was surprised to hear that some senior 
officials at NIH received cash gifts as part of the awards 
given to them by some of the same companies that receive 
funding from NIH. In some cases, it appears that these deals 
could amount to more than the regular salaries of some NIH 
personnel. It is hard for me to accept any argument that NIH's 
medical scientists or senior personnel need to enter into such 
agreements. These agreements are not just a question of a 
little moonlighting, they are day-lighting too, with the very 
prescription drug and medical device companies whose science 
NIH is supposed to objectively evaluate.
    Why can't NIH commit to finding scientists who will do 
their jobs for the salary they agree to receive without doing 
lucrative side deals outside of the office?
    Even the appearance of such behavior is damaging and NIH 
and other agencies must take action to ensure the proper 
safeguards are in place to prevent such activities. So, today, 
I am looking forward to hearing the response to concerns raised 
by this subcommittee. I hope the response will include 
immediate and concrete steps to remove even the appearance of 
questionable ethics at NIH. Anything short will be 
unacceptable. Thank you.
    Mr. Greenwood. The Chair thanks the gentlelady.
    And recognizes the chairman of the Health Subcommittee, the 
gentleman from Florida, Mr. Bilirakis for an opening statement.
    Mr. Bilirakis. Thank you very much, Mr. Chairman.
    The past two hearings you have held on this issue have been 
extremely informative, to say the least. And I am sure we all 
appreciate the opportunity to have another chance to discuss 
these concerns with officials from the NIH.
    Dr. Zerhouni, thank you so much for coming here today. You 
have always been extremely generous with your time and 
unbelievably helpful in all of your efforts, and ours I might 
add. I commend your efforts to improve conflicts of interest 
management at NIH by creating the Blue Ribbon Panel that 
created guidelines for revamping the review of consulting 
arrangements and outside awards, and expanding the number of 
NIH employees who file internal and public financial disclosure 
reports. Once again you have taken the initiative to ensure 
that NIH is operating to the best of its ability.
    I have gotten to know Dr. Zerhouni fairly well recently 
because just in this Congress alone, my Subcommittee on Health 
has held five hearings to highlight research activities at the 
NIH and to educate members and others about the work that the 
NIH is doing so that we can better assess how to help them to 
better met their stated mission.
    Now that our hearings have concluded, Chairman Barton and I 
are committed to passing bipartisan legislation to reauthorize 
the NIH. It is something we have high hopes of being able to 
do.
    One thing that we would like to accomplish with this 
reauthorization package is to strengthen the role of the 
Director of the NIH. And I look forward to hearing from Dr. 
Zerhouni about how we could be helpful to him in implementing 
the recommendation to the Blue Ribbon Panel.
    And, Dr. Zerhouni, if I do not get around to asking you 
that specific question, I would ask now that you might submit 
in writing to us what we can do in the law to strengthen your 
role.
    As I said before, if there are more transparency with 
respect to these consulting fees and awards, such as making the 
information more public, then maybe there would not be the need 
for a high level of concern.
    I along with you, Mr. Chairman, would like to thank and 
welcome the other witnesses here today, and look forward to 
hearing particularly this panel's testimony.
    Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman.
    And recognizes the gentleman, Mr. Rogers for an statement, 
who passes.
    That being said, we welcome Dr. Zerhouni and Mr. Azar. 
Thank you for being here.
    As you know from previous experience, it's the custom of 
this committee to take testimony under oath. And do either of 
you object to taking testimony under oath? Do either of you 
wish to be represented by counsel?
    [Witnesses sworn.]
    Mr. Greenwood. Before I recognize you for your opening 
statement, Dr. Zerhouni, let me say what I have said in public 
as many times as I can. I know that this is not a lot of fun 
for you and the NIH to go through this very public process of 
oversight, but I consider you to be as ethical a person as I 
know. I consider you to be a partner with me and with this 
committee in our efforts to tighten up the ethics, and I am not 
proud of our relationship, and look forward to your testimony, 
and you are recognized to give it.

TESTIMONY OF HON. ELIAS ZERHOUNI, DIRECTOR, NATIONAL INSTITUTE 
OF HEALTH; AND ALEX AZAR, II, GENERAL COUNSEL, U.S. DEPARTMENT 
                  OF HEALTH AND HUMAN SERVICES

    Mr. Zerhouni. Thank you, Mr. Chairman, for your kind words, 
and you have my commitment to continue to be partners in this 
issue. I want to thank the members of the subcommittee.
    I am here to testify about my proposal to overhaul the 
ethics system and its process, its management and its controls. 
We have worked very closely with my colleague, Mr. Azar in the 
Office of General Counsel to come up with what we believe could 
be a proposal that will not only strengthen, but completely 
overhaul, completely transform the way we manage ethics at our 
Federal agency.
    The events and arrangements that have been the subject of 
the subcommittee's oversight was, as you know, rooted in the 
significant loosing of NIH ethics rules and policies that 
occurred in 1995. These changes were the results of converging 
interests at the time. NIH's desire to strengthen the research 
enterprise to the use of ``innovative'' recruitment and 
retention policies. And the second was a governmentwide change 
in ethics policies.
    In retrospect I believe that the new rules were not 
sufficient to guard against the perception of conflict of 
interest or reality of conflict of interest.
    Further, I have reached the regrettable conclusion that 
some NIH employees have violated these lenient rules in that 
the agency's ethics system did not adequately guard against 
these violations, both in the content of the rules, in the 
process to manage the rules and in the controls that should 
have been independent and formal.
    So I am completely committed, and you have my pledge, that 
any employees who violated the rules will be subject to 
appropriate panels. I am looking forward to work as diligently 
as we can with the committee. I know Mr. Azar is also committed 
to do the same. We intend to cooperate. We want to cooperate. 
If there is any perception that we did not, we want to correct 
that. And you have my word and my colleagues at the Department 
who do believe in the same thing.
    It is clear that our public health mission is too 
important, really, to have any shadow of a doubt that what NIH 
does is in the public's interest first and foremost. And it is 
really regrettable to me and painful to me that the actions of 
a few may have tainted the good work of thousands of scientists 
who have not participated in any of these actions and who work 
daily at NIH to solve the mysteries of disease and advanced 
treatments and cures for these diseases. So I think it is 
important that we move diligently, I believe, to completely 
change the system of ethics at NIH.
    I will summarize, and you have my testimony in writing, but 
I would like to summarize the salient points, not to take too 
much of your time, of what is it that we are proposing and the 
core principles that we are trying to follow.
    No. 1, in terms of industry consulting. I think it is 
absolutely important to build a firewall between the employees 
at NIH who have any authority whatsoever in grant making or 
contract making from any consulting with industry. That means 
that the entire senior leadership, including directors, reports 
to directors, deputy directors, scientific directors, clinical 
directors and all staff involved in making decisions for 
contract and grants in the extramural components of NIH be 
prohibited, period. And this is a total damp.
    We also want to protect the agency from any further 
perception of conflict of interest, and we are going to do this 
by restricting very strongly the activities of scientists who 
have no authority over the extramural activities or granting 
activities within NIH.
    I would like to point out that NIH is both a Federal agency 
that distributes grants, but also a very advanced research 
laboratory with scientists who we recruit to do things for the 
government of public health interests. It is important to look 
at that in a different light, and I know that it would be so 
much easier to just ban outright the activities. And, as you 
know, I have made the point that perhaps we should look at 
that, and I would like you to keep an open mind about why we 
believe it should be done that way.
    However, that being said, I think strict restrictions 
should be put in place. No. 1, I do not believe that stock or 
stock options should be used as payments for any outside 
activity for anyone at NIH. And I intend to prohibit any of 
such relationships.
    Stock and stock payments create an inextinguishable 
conflict, and I do not wish to have that.
    Second, I will prohibit the holding of stock in individual 
biotechnology and pharmaceutical companies for all employees 
that file a public or confidential public disclosure report of 
any kind and establish and establish for all employees a $5,000 
de minimis in terms of individual stock ownership of theirs 
with their direct family for nonfilers. And we will insist that 
divestiture occur.
    I think this will create a scrubbed environment, I believe, 
for ethics at NIH so that we will no longer have any of these 
issues.
    In addition, because I am concerned about conflict of 
commitment, who is the employee working for the Government or 
some other entity, I will go further than what the Blue Ribbon 
Panel proposed. I will limit annual compensation from all 
outside activities with industry to 25 percent of the 
employee's base salary, and no more than half of such income to 
come from any one source. And limit the time spent engaged in 
all activities with industry to 400 hours annually.
    This is a set of rules which will not create a incentive 
because the compensation for outside activity will then be 
equal to the rate of compensation for official activities.
    We will also publicly disclose all outside activity with 
industry. We will have a data base, we will find ways to make 
sure that the following principle is followed: If you cannot 
disclose it publicly, it will not be allowed. Period, end.
    We will prohibit membership, and this is a recommendation 
that I am making, a proposal I am making which was not part of 
the Blue Ribbon Panel. Mr. colleague Mr. Azar helped me 
tremendously in defining those relationships. Any membership on 
corporate boards will be prohibited for all employees. I 
believe that membership in boards is a conflict of commitment 
and fiduciary responsibility. I want my employees to be 
responsible to NIH, period. However, we will allow limited 
service on scientific advisory boards for ad hoc participation, 
and again, not for any of the senior employees. Only the ones 
that are in the laboratories. Because there is value there and 
we need to make sure that it is reviewed centrally, but it be 
allowed.
    In addition, in terms of rewards I think this is an issue 
that you have raised, and I have to say that I reviewed all the 
cases that came to my attention, worked with you. And I believe 
that there are awards that are very legitimate. There are 
awards that relate to the meritorious accomplishments of a 
scientist, sometimes before they came to NIH. I think it would 
be unwise for us to prevent the recruitment of a director who 
may be a potential recipient of a Nobel Prize or a Laska Award, 
or many other prices that have a long established life, that 
have a process that is independent on any granting institution 
in the sense of having a foundation and a clear process, an 
open process of nomination, an open process of awarding the 
award. But to do so, we are proposing something pretty novel. 
We're going to scrub, essentially, every award out there. We're 
going to create a list, we're going to submit that list and the 
criteria of that list to our independent advisory committee to 
the Director of NIH, which is law, in statute. And we're going 
to ask them is the Nobel Prize okay. Is the Laska Award okay? 
Is this prize okay? Does it fit the characteristics. And then 
we'll create a public registered list, if you will, of 
acceptable awards for NIH scientists.
    Now, further, if the award is received by an NIH employee, 
it will still be reviewed by a central committee, central 
advisory ethics committee for the following issues.
    If the official offered the award is responsible for a 
funding decision with the entity offering the award, either 
directly the person, the employee, or through a subordinate--
this is really an extension of rules that I think is very 
drastic and very important to understand. And I think we owe it 
to Mr. Azar who made the recommendation, that the receipt of 
the award may be prohibited and indefinitely the receipt of the 
cash component of the award will be prohibited.
    In determining whether an award creates a real or apparent 
conflict of interest, the new act will consider how the 
employee can effect the interests of the entity so that we do 
not end up with just formal analysis, but a wider analysis not 
just directly related to the entity that offers the award, 
either directly or through the actions of a subordinate.
    Pre-screened award lists will be maintained by the NIH 
ethic office publicly posted, updated regularly and the name of 
any NIH employee who is a recipient of an award would also be 
posted publicly.
    I think it is important also to impose restrictions not 
just on relationships with industry, because as I have looked 
at potential for both real and perceived conflict of interest, 
I find also that consulting with nonprofits, grantee 
institutions can be a concern. So I am going to propose that we 
prohibit this for all employees.
    You may ask, as Congresswoman DeGette asked me, why are you 
more strict for nonprofit grantee universities than you are for 
industry? Well, the difference is that grantee institutions 
come and ask for public money. Industry pays for the outside 
activities of the scientist. And in every case where we need to 
have science advice given to our grantees, we will do so after 
determination by supervisory review under an official duty 
scheme rather than an outside activity scheme which will 
prevent personal rewards of any kind in that kind of a 
relationship.
    Consulting with nonprofits, nongrantee institutions is 
another issue. There we do not have the potential of conflict 
of interest in terms of disbursement of funds. In this case we 
will prohibit it, nonetheless, for senior leadership, people 
who have grant making or contract making authority, and we will 
determine by supervisory review whether there's any overlap 
between official duty and that activity.
    So even though you may be director of institute X, if you 
are to serve on a nonprofit disease related group, we will 
prohibit that for senior leadership but we will allow it for 
nonsenior, nonauthority type leaders.
    Clinical practice, we do need to maintain the clinical 
skills of our doctors at NIH, and the clinical center is 
hyperspecialized and there is not enough for them to maintain 
the general scales, and we would like to continue to allow that 
within limits of commitment. Because it doesn't present a 
conflict of interest, but also limits of the marketbasket that 
we will see around the metropolitan area. If you are a 
radiologist, you will be allowed to make more than a 
radiologist in academic practice in this marketplace.
    The reason I want to do this is to avoid what I call the 
perverse incentive. If an outside activity is rewarded at a 
higher rate, you have the perverse incentive to favor that 
outside activity. I want to eliminate that.
    Seven, academic pursuits. Pure academic pursuit. Working a 
general textbook, editing a journal, writing an article, a peer 
review article, doing continuing medical education, teaching a 
course at the university level; those are the core of the 
activities of our scientists. I really do not wish to restrict 
those activities. I think it would be unwise to do so.
    Public financial disclosure reports, we have already 
extended our request to OGE from 93 positions to 508 position 
that will be publicly filed. We are asking also the 
recommendation of counsel for NIH authority to determine 278 
filing status for its employees so that we can adapt quickly to 
the changes.
    In addition, step nine, we will also review all of our 
employees with or without authority involved in human subject 
research. I believe personally that this is a different set of 
consideration even more important than conflict of interest 
with companies because it involves human lives, it involves 
advice that we will give to the American public. So all of 
those employees will file reports if involved in clinical 
research. And we will determine who that is and we will propose 
that list.
    Finally, I think that no set of rules will be successful 
unless you build around them a process, a management process 
with strong controls. Here is what I propose to do.
    I have already established a centralized committee, the 
NEAC committee, and it is doing an outstanding job. But in 
addition to that, we will centralize the oversight of every NIH 
ethics activity in the Office of the Director. There will be 
ethics officers in the institutes, obviously, to help 
everybody, but the oversight will be centralized so that there 
is no conflict of reporting relationship between the person who 
is making the decision for the director or for somebody in that 
institute.
    We will ethics functions in the supervisory performance 
plan. We will add a central director of ethics who will be--all 
of the director of ethics will have performance plans and he 
deputy director will be in charge of that.
    We will initiate random audits, and we are working with our 
general counsel to implement that.
    In addition to this, I think something that I think is 
needed as a tool to in fact provide the response to the 
concerns that you have, Congresswoman DeGette, and that is a 
full electronic data base that will be cross related between 
every step of the activities and every step of the ethics 
process in one place. So I can respond to your inquires in 2 
weeks rather than 4 months, Mr. Chairman.
    And we will extend formal training programs. And you have 
my commitment that one of the components of a good control 
ethics program is also disciplinary actions. I believe that we 
have been lax in making sure that if there is clear violations 
of existing rules, that we should really send a message. I 
intend to send that message and I will be very forceful in that 
regard.
    In closing, I hope that you will take my commitment to you 
as a very sincere honest commitment that I will do everything 
in my power to make sure that NIH resumes it brilliant destiny 
as one of the most trusted agency in the Federal Government. 
And you have my commitment that I will work very closely my 
colleagues here to collaborate with you.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Elias Zerhouni follows:]

Prepared Statement of Elias A. Zerhouni, Director, National Institutes 
        of Health, U.S. Department of Health and Human Services

    Mr. Chairman and Members of the Subcommittee, I am Elias A. 
Zerhouni, Director of the National Institutes of Health (NIH) at the 
U.S. Department of Health and Human Services (HHS). I am here to 
testify about my proposal to strengthen the ethics system at NIH by 
changing our rules, practices, and procedures.
    I have reached the conclusion that drastic changes are needed as 
the result of an intensive review by NIH of our ethics program, which 
included internal fact-finding as well as the external review of a Blue 
Ribbon panel. This review was prompted in part in response to the 
inquiry of this Subcommittee and the bipartisan concerns of Chairman 
Greenwood, Ranking Member Deutsch, Congresswoman Degette, and the full 
Committee Chairman, Mr. Barton, as well as the Committee's Ranking 
Member, Mr. Dingell, and other members of the panel.
    The events and arrangements that have been the subject of the 
Subcommittee's oversight and NIH's reviews were rooted in a significant 
alteration of NIH's ethics rules and policies that occurred in 1995. 
These changes were the result of converging interests. The first was 
NIH's desire to strengthen the research enterprise through the use of 
innovative recruitment and retention policies. The second was a 
government-wide standardization of ethics policies, which resulted in a 
decision by NIH to change its ethics rules to conform to the new 
policies.
    As we move forward, I regret that the reputation of NIH has been 
challenged over ethics concerns and that the conduct of individual 
scientists who have devoted their lives to battling disease and easing 
the suffering of millions of patients has been questioned. I believe 
the NIH and its employees were operating within rules that allowed or 
did not specifically address many of the arrangements that the 
Subcommittee has questioned, including lecture awards and consulting 
with industry. In retrospect, there was not a sufficient safeguard 
against the perception of conflict of interest.
    As I have testified previously, our public health mission is too 
important to have it undermined by any real or perceived conflicts of 
interest. It is imperative that Congress and the American people trust 
that the decisions made by our scientists are motivated solely by 
public health priorities and scientific opportunities, not personal 
financial concerns.
    The first step in maintaining such trust was the creation of the 
NIH Ethics Advisory Committee (NEAC). The NEAC, an internal NIH 
committee, is providing a centralized, consistent, and rigorous review 
of all consulting arrangements with pharmaceutical and biotechnology 
companies, awards valued in excess of $2500, and all requests from 
senior NIH officials. Composed of Institute and Center Directors and 
scientific leaders, and with the participation of ethics officials, the 
Committee provides unprecedented review by peer scientists of 
applications for outside activities and awards. NEAC looks carefully at 
each request under its jurisdiction so that, for instance, NIH 
employees are not consulting on matters that are related to their 
official duties or pose other potential concerns. Only those requests 
for approval that have passed muster at the Institute level, by both 
the employee's supervisor and the Institute's Deputy Ethics Counselor 
(DEC), are forwarded to the NEAC for review. Upon NEAC review, it is 
only those arrangements that do not pose conflict of interest concerns 
that are recommended for approval and forwarded to the NIH Deputy 
Ethics Counselor. As a result of the unprecedented review by peer 
scientists now applied to the ethics program, the culture at NIH is 
already changing.
    On May 12, I testified before this subcommittee about four 
principles for change in the NIH ethics program:

1) Enhance public trust in NIH by preventing conflicts of interest 
        through the restriction of financial relationships that 
        employees may have with outside organizations;
2) Increase levels of transparency in the NIH ethics program by 
        requiring much more internal as well as public disclosure of 
        the details of financial relationships that employees have with 
        outside organizations, including consulting arrangements and 
        awards;
3) Balance NIH's ability to recruit and retain the best scientific 
        expertise while expediting the translation of research 
        advances;
4) Establish effective monitoring and oversight of employee activities.
    Today I am announcing that NIH, working with the HHS Office of the 
Secretary, will seek a major reform of the Agency's ethics program by 
requesting restrictive rules and by seeking to increase the public 
availability of information related to outside activities with 
industry. As you know, this process cannot happen overnight. We are 
aggressively working with the Office of the Secretary and OGE to make 
sure that we have in place a set of rules that ensures the appropriate 
ethical oversight while continuing to encourage scientific creativity. 
The following framework lays out our attempts to implement the 
principles described above.

Principle One: Enhance Public Trust
 Prohibited Holdings: We are working to prohibit the holding of stock 
        in individual biotechnology and pharmaceutical companies as is 
        done at the Food and Drug Administration. There, all employees 
        that file either a public or confidential financial disclosure 
        report are prohibited from holding stocks in significantly 
        regulated entities. Non-filers are permitted to hold only up to 
        $5000 of such stock, which is $10,000 below the current federal 
        rules for de minimis financial interests.
 Awards: We are actively pursuing a two-step process. First, any NIH 
        employee should be prohibited from accepting any award unless 
        the award has been pre-screened. Such a process would include 
        an independent advisory committee that includes non-government 
        individuals and the NIH DEC, and a determination by the DEC 
        that the award meets the regulatory definition of bona fide. 
        Second, even if the award has been determined to be bona fide, 
        specific awards to employees still should be reviewed on a case 
        by case basis by the NEAC, and approved by the NIH DEC to 
        ensure that the acceptance of the award does not create a real 
        or apparent conflict of interest for the employee in relation 
        to official duties. As an additional restriction, NIH will seek 
        to prohibit any official--including Institute and Center 
        Directors--who are responsible, either directly or indirectly 
        through subordinates, for a funding decision affecting the 
        entity offering the award, from receiving the cash component of 
        an award. It is my intention that this restriction will not 
        preclude the acceptance of cash in the case of certain 
        exceptional bona fide awards, such as the Nobel Prize. The list 
        of pre-screened bona fide awards would be posted publicly, as 
        will the NIH recipients of such awards.
 Outside Activities with Industry: While we continue to encourage 
        consultation with industry as part of official duties, I intend 
        to prohibit senior NIH employees, as well as all employees 
        involved in extramural funding decisions or Cooperative 
        Research and Development Agreements, from consulting with 
        industry for compensation or any other form of remuneration. 
        Other employees would be permitted to consult only if the 
        arrangement has been reviewed by the NEAC and approved by the 
        NIH DEC, and certain restrictions are in place. These are: 1) 
        payment may not include stock or stock options; 2) annual 
        compensation from all outside activities with industry must be 
        limited, and no more than half of that limit may come from any 
        one source; and 3) a cap on the number of hours annually that 
        an employee can spend on all outside activities with industry.
 Participation on Industry Boards: I seek to prohibit all NIH 
        employees from membership on corporate boards of the 
        pharmaceutical and biotechnology industries. In addition, 
        employees should be allowed to participate in industry 
        scientific advisory boards as ad-hoc participants only if such 
        participation has been reviewed by NEAC, and approved by the 
        NIH DEC.
 Consulting (includes speaking) with Grantee Institutions: While we 
        continue to encourage consultation with grantee institutions as 
        part of official duties, I will seek to prohibit all NIH 
        employees from consulting with NIH grantee institutions for 
        compensation or any other form of personal remuneration.
 Consulting (includes speaking) with Non-profits that are not Grantee 
        Institutions: I seek to prohibit NIH senior leadership from 
        consulting with these entities.
 Clinical Practice: NIH seeks to limit employee annual compensation 
        for clinical practice.

Principle Two: Increase Transparency
 NIH, working with HHS and OGE, has already increased the number of 
        senior managers who must publicly disclose their compensated 
        activities with outside organizations and the amounts received. 
        This has been increased by 93 positions. We are hopeful that 
        OGE will grant HHS' recent request to extend public financial 
        disclosure to an additional 508 positions.
 I will seek authority from OGE for NIH to determine which of its 
        employees must submit public financial disclosures.
 We are working towards requiring that outside activities with 
        industry be publicly disclosed. This will include disclosure to 
        CRADA partners.
 NIH employees will continue to be required to disclose the amount of 
        compensation earned from outside activities.
 I will review the duties and responsibilities of employees who 
        currently do not file any financial disclosure reports, 
        specifically those involved in human subjects work, to increase 
        the number of employees who file such reports to avoid any 
        involvement in a real or apparent conflict of interest.

Principle Three: Recruit and Retain Best Scientific Expertise While 
        Expediting Translation of Research Advances
 I will encourage NIH scientists to continue teaching, speaking or 
        writing about their research as part of their official duties.
    In order to encourage scientific interactions involving the 
exchange of knowledge and the exercise of intellectual leadership by 
NIH scientists, NIH will continue to allow certain types of outside 
activities--including teaching and lecturing opportunities and 
collaborations with the private sector--but only under clear, rigorous 
rules meant to eliminate conflicts of interest.
Principle Four: Establish Effective Monitoring and Oversight Mechanisms
 I will continue to require that supervisors fulfill their 
        responsibilities in both reviewing proposed outside activities 
        and, if NEAC ultimately approves the outside activity, in 
        monitoring the effect that the activity might have on the 
        employee's official duties. Before any proposed outside 
        activity is forwarded to the NEAC for review, supervisors will 
        be asked to determine whether the activity can and should be 
        undertaken as part of the employee's official duties, and if 
        not, whether the proposed outside activity will cause a 
        conflict, either of interest or of commitment. In addition, 
        supervisors will be expected to monitor employees' compliance 
        to ensure compliance with the limitation on hours.
 NIH will improve its ability to manage and track approved activities 
        with outside organizations by increasing the accountability of 
        managers, creating a centralized system, centralizing review of 
        senior managers and scientists, conducting random audits of 
        files pertaining to activities with outside organizations, and 
        continuing the rigorous review by peers conducted by the NEAC.
 NIH will develop and implement a new, more understandable method of 
        training employees on ethics rules, and we will establish a web 
        site that displays rules in plain language, updates employees 
        on regulatory trends and changes and discusses--anonymously--
        ongoing cases as examples of best practices or unacceptable 
        practices.
    We are severely restricting the ability of NIH employees to consult 
with industry. However, as I have previously testified, the easiest way 
to approach this matter would be to ban all consulting with industry. I 
do not want to discourage the kind of intellectual excitement and 
curiosity that leads our scientists to want to work with industry. I 
want to provide an environment for them in which they have the same 
kind of professional and intellectual opportunities as their 
counterparts in academia. I want the intramural program to continue to 
attract the best and the brightest. With these principles in mind, I am 
working to strike a careful balance--whereby those individuals in key 
decision-making positions will be prevented completely from consulting, 
while stringent limits will apply to other employees.
    Mr. Chairman, Members of the Subcommittee, in summation, I have 
described the three core elements of reforming the ethics process at 
NIH. Number one, we are applying review of applications for outside 
activities by peer scientists. Number two, we are requiring full 
disclosure and transparency in the program. And number three, NIH is 
working to reduce, restrict, or eliminate the types of activities about 
which this Subcommittee has raised concerns.
    Thank you for this opportunity to speak before the Subcommittee on 
these matters once again. I would be happy to answer any questions you 
may have.

    Mr. Greenwood. The Chair thanks the gentleman. And would 
wax poetic enough to say that if the NIH is indeed the crown 
jewel of research, I think those recommendations will certainly 
make it sparkle more than it has in the past.
    Dr. Azar, you are recognized for your opening statement.
    Did I call you Dr. Azar? Mr. Azar.

                   TESTIMONY OF ALEX AZAR, II

    Mr. Azar. Thank you, Mr. Chairman. And thank you for 
inviting me to speak with you today.
    As General Counsel for the U.S. Department of Health and 
Human Services my office is responsible for providing 
representation and legal advice to HHS on a wide range of 
issues. By providing such legal services to the Secretary of 
HHS and the organization's various agencies and divisions, the 
Office of the General Counsel supports the development and 
implementation of the Department's programs.
    OGC has over 400 attorneys and a comprehensive support 
staff located across the United States. Our office has a 
diverse and challenging portfolio, with legal issues about 
technical rules for agency programs on topics as disparate as 
health financing and welfare, as well as a broad range of 
general legal issues facing every Federal agency such as 
administrative law, personnel and employment law, information 
law, and, of course, ethics.
    OGC's main role in the area of ethics is through the Ethics 
Division's provision of legal advice regarding applicable laws 
and regulations to the ethics officials who run the agency's 
ethics program. In HHS, the ethics program is overseen by a 
Designated Agency Ethics Official, a DAEO, appointed by the 
Secretary and who, in our case, also heads OGC's Ethics 
Division. The DAEO oversees and coordinates a decentralized 
Departmental ethics program. The DAEO also appoints Deputy 
Ethics Counselors, DECs, who are senior management officials 
chosen by each operating division. Each of these DECs, along 
with agency heads and management are responsible for running 
ethics programs tailored to the needs of extensive, 
geographically dispersed workforces composed of many 
professionally trained employees with varied responsibilities. 
As managers closest to day-to-day operations, these DECs are 
equipped and responsible for identifying and evaluating the 
relevant ethics issues in their respective components. 
Additionally, the DECs and their staffs possess the scientific 
and technical expertise necessary to identify and resolve 
ethics issues in situations involving science, medicine, and 
other complex fields.
    Within their respective operating divisions, the DECs are 
responsible 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, seeing that disciplinary action is taken. 
Individual employees are, of course, ultimately responsible for 
their own actions.
    As an attorney who has devoted over half of my professional 
career to serving the Federal Government and who attaches great 
importance to public service, my objective in leading OGC has 
been to ensure the best possible legal advice to assist in the 
accomplishment of HHS' critical missions. I view the role of 
OGC not as making policy, but rather as providing those who do 
set policy with the best possible legal advice. This means that 
the function of my office is to work to identify the 
Department's policy objectives and then to identify the range 
of permissible legal options to accomplish those policy 
objectives and advise on the legal and other risks associated 
with those options. Of course, legal advice is often 
accompanied by advice regarding considerations such as 
appearances, judgment, and other factors that may be relevant 
to the agency's situation. Where there is no established 
Government-wide interpretation of a law, it is the Department, 
then, which decides which interpretation of law to adopt and 
what course of action to take. In so doing, the Department can 
appropriately balance the considerations, among many others, 
relevant to accomplishing the agency's objectives.
    I strongly believe that such advice, including advice about 
appearances, is particularly important in the area of 
Government ethics; where the law may be arcane and complex, but 
where other non-legal factors invariably play a large role.
    Consistent with the President's statement that, ``Everyone 
who enters into public service for the United States has a duty 
to the American people to maintain the highest standards of 
integrity in Government,'' I have initiated and led a 
successful effort to obtain and dedicate additional resources 
to enhance the Ethics Division in OGC. This initiative, which 
is already underway, will enhance the ability of the DAEO to 
scrutinize and oversee the Department's ethics activities. In 
addition, it will dramatically strengthen the ability of the 
DAEO to oversee these programs and their officials.
    As part of this initiative, the Department will institute 
systematic oversight of the ethics programs within the various 
operating divisions of the Department through regularized 
compliance auditing and program review. The initiative will 
increase component accountability for ethics program 
implementation, augment financial disclosure review and 
training development, and enhance the capabilities of the 
Ethics Division and the authority of the DAEO. To my knowledge, 
this will make HHS OGC's Ethics Division the largest single 
legal office devoted exclusively to Government ethics outside 
of the Office of Government Ethics.
    These efforts will help ensure that the DAEO is in the best 
position to oversee HHS' and NIH's ethics program in the 
future. The Department is also committed to helping the 
committee understand the past implementation of and compliance 
with the current ethics rules at NIH. In this regard, we have 
worked hard to solve a number of legal issues relevant to the 
committee's work and to support NIH's efforts to identify and 
rectify areas of concern. The goal of ensuring public 
confidence in the integrity of NIH is one that the Department 
shares with the committee and a goal we can best accomplish 
together.
    The proposal outlined by Dr. Zerhouni today is an important 
fruit of that collaborative effort. The proposal was largely 
born out of the work Dr. Zerhouni has led to find ways to build 
on the recommendations of the Blue Ribbon Panel. The Department 
was pleased to see that NIH proposed to take strong steps to 
provide additional review of awards and prohibit outside 
activities with grantees of NIH by the leadership of NIH as 
well as employees involved in the grants process. And the 
Department worked with Dr. Zerhouni to strengthen the proposal 
even further. The result has been a collaborative effort to 
address the issues raised by the committee, including a 
proposed prohibition on holding of stock in individual 
biotechnology and pharmaceutical companies like that in place 
at the Food and Drug Administration. There are also proposed 
prohibitions on outside activities by senior NIH leadership 
with industry and extensive limitations for all other 
employees. As a lawyer, my predisposition is for bright line 
rules, such as complete prohibitions, which are easy to 
administer and interpret. However, the proposal balances this 
consideration with the needs identified by Dr. Zerhouni to 
ensure that NIH can recruit and retain the Nation's most 
talented scientists and allow them to contribute to the march 
of human scientific progress outside the confines of the 
workplace.
    In conclusion, Mr. Chairman, the Department shares the 
committee's commitment to maintaining the highest ethical 
standards at NIH and thereby ensuring that the vitality and 
promise of NIH is not undermined by any lack of public 
confidence in the motivations of its employees and their 
conduct. OGC remains committed to helping NIH understand 
applicable laws, further identify legal options, and give legal 
advice relevant to NIH's ethics program. And the Department 
remains committed to cooperating with this committee in its 
important work.
    Thank you for the opportunity to speak with you today. And 
I would be pleased to answer your questions.
    [The prepared statement of Alex Azar follows:]

 Prepared Statement of Alex Azar, General Counsel, U.S. Department of 
                       Health and Human Services

    Thank you for inviting me to speak with you today to discuss ethics 
issues at the National Institutes of Health (NIH) relating to 
consulting arrangements and outside awards.
    As General Counsel for the U.S. Department of Health and Human 
Services (HHS) my office is responsible for providing representation 
and legal advice to HHS on a wide range of health and human services 
issues. By providing such legal services to the Secretary of HHS and 
the organization's various agencies and divisions, the Office of the 
General Counsel (OGC) supports the development and implementation of 
the Department's programs. OGC has over 400 attorneys and a 
comprehensive support staff located in many locations across the United 
States. Our office has a diverse and challenging portfolio, with legal 
issues about technical rules for agency programs on topics as disparate 
as health financing and welfare, as well as a broad range of general 
legal issues facing every federal agency such as administrative law, 
personnel and employment law, information law, and, of course, ethics.
    OGC's main role in the area of ethics has been the Ethics 
Division's provision of legal advice regarding applicable laws and 
regulations to the ethics officials who run the agency's ethics 
program. In HHS, as in most large Cabinet Departments, the ethics 
program is overseen by a Designated Agency Ethics Official (DAEO) 
appointed by the Secretary and who, in our case, also heads OGC's 
Ethics Division. The DAEO oversees and coordinates a decentralized 
Departmental ethics program. The DAEO also appoints Deputy Ethics 
Counselors (DECs), who are senior management officials chosen by each 
operating division. Each of these DECs, along with agency heads and 
management in each component, are responsible for running ethics 
programs tailored to the needs of extensive, geographically dispersed 
workforces composed of many professionally trained employees with 
varied responsibilities. As managers closest to day-to-day operations, 
these DECs are equipped and responsible for identifying and evaluating 
the relevant ethics issues in their respective components. 
Additionally, the DECs and their staffs possess the scientific and 
technical expertise necessary to identify and resolve ethics issues in 
situations involving science, medicine, and other complex fields. 
Within their respective operating divisions, the DECs 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, seeing that 
disciplinary action is taken. Individual employees are, of course, 
ultimately responsible for their own actions.
    As an attorney who has devoted over half of my professional career 
to serving the federal government and who attaches great importance to 
public service, my objective in leading OGC has been to ensure the best 
possible legal advice to assist in the accomplishment of HHS' critical 
missions. I view the role of OGC not as making policy, but rather as 
providing those who do set policy with the best possible legal advice. 
This means that the function of my office is to work to identify the 
Department's policy objectives and then to identify the range of 
permissible legal options to accomplish those policy objectives and 
advise on the legal and other risks associated with those options. Of 
course, legal advice is often accompanied by advice regarding 
considerations such as appearances, judgment, and other factors that 
may be relevant to the agency's situation. Where there is no 
established Government-wide interpretation of a law, it is the 
Department, then, which decides which interpretation of law to adopt 
and what course of action to take. In so doing, the Department can 
appropriately balance the considerations identified by their lawyers 
among many others relevant to accomplishing the agency's objectives.
    I strongly believe that such advice, including advice about 
appearances, is particularly important in the area of government 
ethics--where the law may be arcane and complex, but where other non-
legal factors invariably play a large role. Consistent with the 
President's statement that, ``Everyone who enters into public service 
for the United States has a duty to the American people to maintain the 
highest standards of integrity in Government,'' I have initiated and 
led a successful effort to obtain and dedicate additional resources to 
enhance the Ethics Division in OGC. This initiative, which is already 
being implemented this year, will enhance the ability of the DAEO to 
scrutinize and oversee the Department's ethics activities. In addition, 
it will dramatically strengthen the ability of the DAEO to oversee 
these programs and their officials.
    As part of this initiative, the Department will institute 
systematic oversight of the ethics programs within the various 
operating divisions of the Department through regularized compliance 
auditing and program review. The initiative will increase component 
accountability for ethics program implementation, augment financial 
disclosure review and training development, and enhance the 
capabilities of the Ethics Division and the authority of the DAEO. To 
my knowledge, this will make HHS OGC's Ethics Division the largest 
single legal office devoted exclusively to government ethics outside of 
the Office of Government Ethics.
    These efforts will help ensure that the DAEO is in the best 
position to oversee HHS' and NIH's ethics program in the future. The 
Department is also committed to helping the Committee understand the 
past implementation of and compliance with the current ethics rules at 
NIH. In this regard, we have worked hard to solve a number of legal 
issues relevant to the Committee's work, as well as to support NIH's 
efforts to identify and rectify areas of concern. The Committee's 
oversight in this area has also been helpful in identifying areas of 
concern. We hope these steps have aided the Committee's work and helped 
provide insight into the relevant processes and issues. The goal of 
ensuring public confidence in the integrity of NIH is one that the 
Department shares with the Committee and a goal we can best accomplish 
together. As NIH moves forward, with the help of the Department and my 
office, to address those concerns, the Department continues to value 
the Committee's informed views and welcome the Committee's suggestions 
regarding steps that may be taken to ensure that the tremendous trust 
that the Congress and the public place in NIH is as unquestioned as the 
vast contributions NIH has made towards advancing the nation's health 
and the promise it holds to continue doing so.
    The proposal outlined by Dr. Zerhouni today to strengthen the 
ethics rules at NIH is an important fruit of that collaborative effort. 
The proposal was largely born out of the work Dr. Zerhouni has led to 
find ways to build on the recommendations of the Blue Ribbon Panel, 
which were a helpful starting point. The Department was pleased to see 
that NIH proposed to take strong steps to provide additional review of 
awards and prohibit outside activities with grantees of NIH by the 
leadership of NIH as well as employees involved in the grants process. 
And the Department worked with Dr. Zerhouni to strengthen the proposal 
even further. The result has been a collaborative effort to address the 
issues raised by the Committee, including a proposed prohibition on 
holding of stock in individual biotechnology and pharmaceutical 
companies like that in place at the Food and Drug Administration 
(whereby such holdings are prohibited for all employees that file 
financial disclosure reports, and there is a $5,000 limit on such 
holdings by other employees. There are also proposed prohibitions on 
outside activities by senior NIH leadership with industry and extensive 
limitations for all other employees. As a lawyer, my predisposition is 
for bright line rules, e.g., complete prohibitions, which are easy to 
administer and interpret. This Committee's oversight work has also 
demonstrated the difficulty in applying complicated rules to real world 
scenarios. However, the proposal balances this consideration with the 
needs identified by Dr. Zerhouni to ensure NIH can recruit and retain 
the nation's most talented scientists and allow them to contribute to 
the march of human scientific progress outside the confines of the 
workplace.
    In conclusion, the Department shares the Committee's commitment to 
maintaining the highest ethical standards at NIH and thereby ensuring 
that the vitality and promise of NIH is not undermined by any lack of 
public confidence in the motivations of its employees and their 
conduct. OGC remains committed to help NIH understand applicable laws, 
further identify legal options, and give legal advice relevant to NIH's 
ethics program. And OGC remains committed to cooperating with this 
Committee in its important work.
    Thank you for the opportunity to speak with you today. I would be 
pleased to answer your questions.

    Mr. Greenwood. Thank you very much, sir, for your 
testimony.
    The Chair recognizes himself for 5 minutes.
    And let me just again editorially comment that it is 
probably the case that the NIH has the most complicated set of 
circumstances around which to build an ethical system because 
of the outside activity and because of some of the recruiting 
issues. But it is my sense that with what you have proposed and 
a couple of things that we may need to do legislative, I think 
the NIH will end up with the tightest ethical standards 
anywhere in the Federal Government.
    Let me just be very clear, Dr. Zerhouni, with regard to 
outside activity and disclosure. Is it your proposal that all, 
every single approved outside activity would be disclosed or is 
there----
    Mr. Zerhouni. This is my intent. Obviously, we are going to 
have to work with the current laws as to what can or cannot be 
done and how it can be done. But that is my intent.
    Mr. Greenwood. Mr. Azar, what impediments might there be to 
full disclosure, public disclosure and to the extent that 
there, what might we need to do legislative to overcome them?
    Mr. Azar. Mr. Chairman, we believe that it is possible for 
us to get to work to get the--it is called the 520 form on 
which outside activities are required and approved, to get 
those made public. Put them up on the Internet if the NIH 
wishes to put them as part of the data base.
    What the agency will have to do to do that, and we have 
provided them with advice this, will be to either get the 
Office of Government Ethics to modify their system of records 
under the Privacy Act in which the form 520's kept or something 
we could ourselves, create our own system of records in which 
the ethics forms, the 520's would be kept, and have listed as 
one of the disclosures when you create that system of records 
that it would be disclosed automatically on the Internet once 
filed.
    So these are things that we will work very collaboratively 
with NIH to help them achieve their goal, but it is definitely 
something that can be done.
    Mr. Greenwood. My counsel advises me that the Office of 
Government Ethics thinks that there may be some impediments to 
that disclosure. And so I ask you to work with us to the extent 
that there are any basis for legal challenge to that 
disclosure, we would want to clarify that in the 
reauthorization statute so that we can have this full 
disclosure.
    Dr. Zerhouni, given all of the restrictions and controls, 
let us be clear. Tell us what kind of outside consulting 
arrangement do you envision as being permissible under this 
system.
    Mr. Zerhouni. Obviously, outside consulting, outside work 
for editorial matters, writing a textbook, getting a contract 
from a publishing. I am assuming that is not the point of the 
discussion.
    In terms of relationship with industry, for an employee who 
is not in the senior leadership, so let us say for example you 
were an expert on West Nile virus or the genetics of a 
particular process. And that, in fact, it turns out that the 
same technique and the same field of science that you are in is 
important because there is, for example, a potential to develop 
an alternative treatment for another disease. You may be asked 
to consult for that. It is not part of your official duty; that 
is where we will define that. And one of the issues----
    Mr. Greenwood. Well, clearly, if it is within the scope of 
your official duties, you will not be compensated for that?
    Mr. Zerhouni. That is not allowed. No, you cannot be 
compensated. And the determination now is not going to be done 
by an ethics officer alone. It is going to be done by the NEAC, 
which has scientists on its board who understand and can get 
advice on that field of science.
    A good example would be a plant genetics company that wants 
to get advice from a human genome researcher. There is no 
overlap there. Would we prevent that advice from being given? 
No. If some other company says well I want to know about human 
genomics in a field that relates to what, that would be 
prohibited.
    Mr. Greenwood. And we have discussed this before, but I 
think it is also important to us and for the public confidence, 
that there be very clear rules about allocation of time so that 
if someone is literally moonlighting, they are working in the 
evening after their normal duties, they are working on the 
weekends, if they are using their vacation time, you know that 
is fine. But we do need to be clear that we are not paying 
people to be sitting at their desks at the NIH and doing work 
for which they are being paid by an outside private entity.
    Mr. Zerhouni. I take your point. We are establishing a 
system that will have, again, recording centrally of the 
activities. Four hundred hours is about 6 hours a week; people 
can do this 1 hour a day. So it is not very large. It is much 
less than universities will do. But I think it is important to 
allow that and limit on dollars will also restrict that. But we 
will try to put systems--and I agree with the devil is in the 
details comment that you made, Congresswoman DeGette. We will 
have to work that through, but we intend to monitor that.
    Mr. Greenwood. Thank you, Dr. Zerhouni.
    The gentlelady from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman.
    Mr. Azar, I wanted to ask you a couple of questions. One 
concern, I mean OGC has, I think you said in your testimony, 
over 400 attorneys but they are not all doing ethics. They are 
doing all the legal work of HHS, right?
    Mr. Azar. Yes, ma'am.
    Ms. DeGette. How many of them are concentrating on ethics?
    Mr. Azar. We have eleven individuals currently in the 
ethics division. The number of attorneys in that, I believe it 
is approximately six, maybe seven attorneys.
    Ms. DeGette. So six or seven of the 400 attorneys are doing 
ethics.
    Mr. Azar. Yes.
    Ms. DeGette. Now, where are they based? Are they based 
throughout the agency or are they based in one office?
    Mr. Azar. The head of that office, the Designated Agency 
Ethics Officer and Associate General Counsel for Ethics is 
located in the Humphrey Building on the same floor that I am 
on, right above the Secretary's floor as well as several of the 
attorneys. But two of the slots are located physically out at 
NIH to assist NIH directly. And then another----
    Ms. DeGette. And there, I would assume, they are located in 
Dr. Zerhouni's office in the administration office?
    Mr. Azar. They are in Building 31, which is where most of 
the administrative staff are. Dr. Zerhouni is in Building 1, 
but they are with I think most of the center directors in 
Building 31. And they are also with--we have a branch of 
lawyers that assist the NIH regularly on other substantive 
matters, and they are now colocated with them. So there can be 
some extra support.
    I do not mean to say that the only lawyers who ever touch 
an ethics issue are the people in the ethics division.
    Ms. DeGette. Sure.
    Mr. Azar. For instance, the regional chief counsels will 
assist the regional administrators on ethics issues. And all 
lawyers should be versed somewhat in the ethnic provision----
    Ms. DeGette. Well, one thing I have been concerned about, 
and I shared this with Dr. Zerhouni, is when you have 27 
institutes and you have ethics personnel dispersed through 
those institutes, part of the problem they have had, they have 
had no consistency with administering ethical rules. Is that 
correct, Dr. Zerhouni?
    Mr. Zerhouni. You are correct.
    Ms. DeGette. And one of the goals I think of these new 
proposed rules which is important is to get it all centralized 
into one office so there is one set of standards being applied 
and also so that the individuals approving or deciding on 
different requests are not immediately there with the 
individuals. Correct, Dr. Zerhouni?
    Mr. Zerhouni. That is correct.
    Ms. DeGette. Now, do you agree with that, Mr. Azar, in 
terms of trying to reform the rules here?
    Mr. Azar. That is why I think Dr. Zerhouni's efforts to 
create the NIH Ethics Advisory Committee, a centralized process 
is very good. It also provides a peer review background of 
support for the DEC for the entire NIH and helps to centralize 
those decisions. And so we can also provide our legal advice, 
which we provide them with support as they make those 
decisions, we can provide that centrally as well as to the DECs 
at each institute. But I think the more things are handled 
centrally, I think that is a very important point.
    Ms. DeGette. Okay. I want to ask you, I want to turn a 
little bit to a different issue. That is the issue of who 
exactly do these HHS lawyers who show up at our committee 
investigations represent? Now, if you take a look at tab 25 in 
the notebook you will find a letter dated April 16, 2002 from 
yourself to Chairman Tauzin and Greenwood. Do you recognize 
that letter?
    Mr. Azar. Yes, Congresswoman.
    Ms. DeGette. Now, on page two there is a paragraph at the 
top. And that paragraph says in part ``department attorneys who 
accompany an employee at FDA to an investigative interview will 
not inform any department officials about the substance of the 
interview.`` The first sentence of that is ``It is important to 
stress that department attorneys represent employees in their 
personal capacity.'' Correct?
    Mr. Azar. That is what the letter agreed. Yes.
    Ms. DeGette. Yes. And that has actually been the 
longstanding policy of the department, correct? When you send 
attorneys over to represent an individual, they are there 
representing the individual?
    Mr. Azar. Actually, if I could clarify that. There was an 
agreement in 1995 between the prior Administration regarding 
dealings with FDA, and it is unclear in the text of it whether 
they are operating under official capacity or personal, but 
what information would be shared. This was a unique----
    Ms. DeGette. Okay. Yes, I understand. However, your letter 
to Chairman Tauzin was dated April 16, 2002. And I have got to 
say as a former lawyer myself, this is pretty clear what it 
says, right?
    Mr. Azar. Well, I was trying to clarify that this is not 
how the department operates generally. This was and is a 
special accommodation that was done with this committee at the 
committee's request during the Imclone investigation to do that 
matter.
    Ms. DeGette. Can you tell me where in this letter it says 
that this policy was only in effect for the Imclone 
investigation?
    Mr. Azar. It refers to the fact, I believe that if I could 
look through this, explaining the role of attorneys from the 
Office of General Counsel with respect to interviews of FDA 
employees in the Erbitux, the Imclone matter.
    Ms. DeGette. No. It does not say in the Imclone matter.
    Mr. Azar. I am sorry?
    Ms. DeGette. I mean it talks about the Imclone matter.
    Mr. Azar. It says the Erbitux matter.
    Ms. DeGette. That is what was going on then, but it does 
not say that this is policy was limited to the Imclone matter.
    Plus, why would you have a policy that when lawyers come 
over with witnesses that only with respect to one investigation 
the policy is this way, but in every other investigation 
including ethics at the NIH, that the policy is different?
    Mr. Azar. The department generally when we provide counsel, 
provides them as official counsel to assist not only the 
witness, often at their request, to assist them in preparing to 
deal with the committees, to assist them so that they feel more 
comfortable in working with the committee and so that they can 
be better prepared in assisting the committee.
    The committee in the Imclone matter, this was the first 
dealing that we had with the committee on this type of matter. 
The committee had asked that we clarify their role as personal 
counsel. We were happy to do that in that instance.
    If I could explain, Congresswoman. We subsequently learned 
that I had basically gotten bad advice in terms of what the 
role of the attorneys could be. That only the Justice 
Department apparently can authorize the representation of 
employees in their personal capacity creating a personal 
attorney/client relationship.
    Ms. DeGette. Okay. Can I just ask one question, because my 
time is up? Did you ever inform committee staff that you had 
gotten that clarification from the Justice Department?
    Mr. Azar. We believed, and I want to start by apologizing 
to you and to the members of the committee.
    Ms. DeGette. That would be a good start.
    Mr. Azar. I want to apologize. We thought in the context of 
the FDA in June 2003, in the context of interviews the next 
after Imclone, the next interviews, interactions we had with 
the committee was regarding an FDA importation proceeding where 
John Taylor of his staff were being interviewed. And we had 
instructed the line attorneys who were coming over when the 
committee asked, you know when they were scheduled to 
interview, we had instructed them to make clear to the staff 
that they were serving as official counsel, not as personal 
counsel. Obviously----
    Ms. DeGette. Well, why did you not write a letter like you 
wrote in 2002?
    Mr. Azar. Obviously, I--obviously I apologize that we--that 
we were not clear enough. We thought for lawyers when we say we 
are representing in the official capacity not personal 
capacity, that--that says it all for us. But----
    Ms. DeGette. But you do not have any idea whether they said 
that or not?
    Mr. Azar. It is my understanding that the lawyer did say it 
at the interview with Mr. Taylor. But I do want--I do not want 
to try to explain this away. As soon as in the NIH interview 
context, as soon--I think it was in the context of Dr. Katz', 
scheduling of his interview, as soon as we learned that the 
committee was operating under the impression of this Imclone 
arrangement, we raised it and said we were not operating under 
that assumption, and the department sat down with the committee 
to work out an agreement. We now have an agreement to serve as 
official counsel but with a restriction on the sharing of 
information.
    And, again, Congresswoman, I am very sorry if we were not 
clear enough in communicating. I had intended that that be 
clear. I am sorry that we did not do it clearly enough. And I 
just hope you will accept my apology. Certainly it was not from 
any bad intent. We just--we always want to try to keep our role 
as counsel clear with the committee. And I hope that we will be 
able to work on a going forward basis in a productive way under 
the agreement.
    But that really was our intent. And I am very sorry for 
any----
    Mr. Greenwood. The time of the gentlelady has expired.
    The Chair recognized the chairman of the full committee, 
Mr. Barton.
    Chairman Barton. Thank you, Mr. Chairman.
    Dr. Zerhouni, I want to again compliment you on the 
recommendations that you have presented to this subcommittee. I 
want to ask a question about the National Institutes of Health 
Ethics Advisory Committee. How long has that been established?
    Mr. Zerhouni. We established this committee November 2003.
    Chairman Barton. November 2003? So it is not yet a year 
old?
    Mr. Zerhouni. No, it is not yet a year old.
    Chairman Barton. And the formal membership are your 
institute directors? Are you a member of that committee?
    Mr. Zerhouni. My deputy director, who is the--I have 
designated as the agency ethics, the DEC for the agency is a 
member. My director for intramural science, Dr. Michael 
Gottesman is a member.
    We have a selection. Not just institute directors. There 
are scientists also on the grounds and ethics officers of the 
NIH. We recruited Mrs. Holli Beckerman Jaffe who now works in 
ethics in my office to oversee that.
    I do not sit personally on the meeting.
    Chairman Barton. Okay. What is the total membership of the 
formal board?
    Mr. Zerhouni. I don't have that exact number.
    Chairman Barton. Thirty people? Forty people?
    Mr. Zerhouni. No, it is about--no, it is small. Ten people.
    Chairman Barton. Ten people? Do they have a permanent 
staff?
    Mr. Zerhouni. Do they have a permanent--well, as I said, 
the ethics division of my office, the Office of the Director, 
is basically staffing that committee, Ms. Holli Beckerman Jaffe 
was recruited.
    Chairman Barton. But that is at your--they have no formal 
staff of their own? The staff they have are staff that has been 
deleted from your office?
    Mr. Zerhouni. That is correct.
    Chairman Barton. Okay. The recommendation that you 
presented to this subcommittee I think are excellent. What has 
been the response within the NIH of these recommendation? Are 
people resistive or are they supportive, or do they feel like 
they have had their hand caught in the cookie jar. I mean, what 
is the general reaction?
    Mr. Zerhouni. I would say mixed. I talked to the directors 
yesterday. I had a special meeting of the institute directors 
to go over what I was recommending. I would say that in the 
issues that relate to clerical practice, for example, they 
really want that to continue and I do not think there is an 
issue.
    They were very strongly in favor of continuing pure 
academic activities. I think the restrictions, they are concern 
about the restrictions having two impacts; one is moral in the 
troops. And uncertainty of how we solve this issue is also 
impacting them and their ability to recruit, and my own ability 
to recruit. But most importantly, their concern that over time 
it would harm recruiting because----
    Chairman Barton. Did any of them show any concern about 
maintaining and restoring the public trust?
    Mr. Zerhouni. Oh, yes. I should have started with that. 
Absolutely, positively. I have polled every single one of them 
and they told me the following: Do whatever you need to do to 
absolutely remove this cloud from NIH. We will give you our 
support.
    So I have the total support of all the NIH directors. Goal 
No. 1 is to reestablish that public trust.
    Chairman Barton. What, if any, legislative action do you 
need on these recommendations?
    Mr. Zerhouni. This is something that we are evaluating, 
obviously, as we speak. There are things that I think we can 
implement. There are things that could be handled with 
supplemental regulations. I am not clear at this point. This is 
still, obviously, a proposal that needs to be worked out. And 
if there are changes, we will let you know, Mr. Chairman.
    Chairman Barton. Okay. Well, we want to work with you on 
that.
    I want to read from your prepared testimony on your bullet 
that is headed ``Outside activities with industry.'' And I 
quote, ``I intend to prohibit senior NIH employees as well as 
all employees involved in extramural funding decisions or 
cooperative research and development agreements from consulting 
with industry for compensation or any other form of 
enumeration.''
    What has been the response to that recommendation, which I 
think is one of your key recommendations?
    Mr. Zerhouni. Full support.
    Chairman Barton. Full support. So there is no reluctance on 
that?
    Mr. Zerhouni. No.
    Chairman Barton. What about the next one, participation on 
industry boards, ``I seek to prohibit all NIH employees from 
membership on corporate boards of the pharmaceutical and 
biotechnology industries.''
    Mr. Zerhouni. Full support.
    Chairman Barton. Full support of that one, too.
    Okay. My time is about to expire. I want to ask a general 
question about our next panel. We have a situation where CRADA 
was established with a company called Correlogic. And at some 
point in time the NIH scientists who were working on that CRADA 
became secretly involved or secret employees of a competitive 
company called Biospect. Do you have any general comments on 
whether that is a concept that should be supported or 
prohibited?
    Mr. Zerhouni. This actually was the tipping point for me. 
When that happened, that came up to light, I said we need the 
complete scrubbing, complete reform. That is not appropriate.
    Chairman Barton. But in your opinion that should not be a 
general practice that somebody that is working with one company 
secretly goes to work for another company? You would agree with 
us if we wanted to prohibit that by--I do not know that we need 
to do it by statute, but the fact that that should not be 
allowed is something that you agree with?
    Mr. Zerhouni. I agree with that.
    Chairman Barton. Okay.
    Mr. Chairman, my time has expired and I yield back.
    Mr. Greenwood. The Chair is always prepared to be lenient 
with the clock with the chairman, but the Chair thanks the 
gentleman for yielding back and recognizes the gentlelady from 
Chicago.
    Ms. Schakowsky. Thank you. This is the first of the three 
hearings that I have attended, so I hope we are not going over 
some of the same ground. I want to talk about the basic policy 
questions here. It seems to me we are trying to protect the 
public interest over the private interest concerns of some 
employees of NIH. Why would it be in the public interest to 
ever allow any Government employee to sign a contract that 
would prohibit that employee from informing the government of 
exactly what has been asked of him or her, and what he or she 
may have done in fact for a profit-seeking entity that hires 
them?
    It is my understanding that scientific advisory boards 
require confidentiality as do most if not all employment 
contracts of any kind in the biotech or drug development 
private sector field. How can that in the public interest?
    Mr. Zerhouni. Well, first of all, in terms of board 
membership, we are prohibiting that. I agree that there is an 
issue there.
    In terms of the public's interest, I think it is very 
important that there is a public interest that is balanced by 
three different aspects. One, obviously, is the elimination of 
conflict or the appearance of conflict, which is what we are 
trying to do.
    Second, it is translation of knowledge is encouraged by 
Congress. There is a mandate for us to accelerate the 
translation of whatever discoveries into real benefit.
    Third, I think there is a public interest in having the 
ability to recruit an retain the best possible scientists for 
Government service. And this is the balancing that I have, you 
know, have had to do by prohibiting completely activities or 
interactions with industry for those who have authority, that 
accomplishes that goal. However, it does not recognize the dual 
nature of NIH.
    NIH is also a scientific laboratory. And we are recruiting 
individuals of the highest competence who we are asking to do 
work for the public's interest. So those individuals, you know 
I have to compete in the marketplace of ideas and in positions 
with 200 other universities. So unlike other Government 
employees whose job in the Government is specific to 
Government, like myself for example. There is not another NIH 
in the private sector that I could be director of. So for me it 
is absolutely clear. I am making the choice to serve the 
Government. There is no equivalent job.
    If I am a scientist with no authority in a pure laboratory 
who comes to NIH because we want to work on West Nile virus, 
for example, that scientist has knowledge which is really very 
precious. To prohibit that scientist from having interaction 
will basically go counter to the public interest----
    Ms. Schakowsky. I am getting at the confidentiality issue.
    Mr. Zerhouni. Okay. Now, in terms of the confidentiality, I 
agree with you, and this is what I mean by process change.
    In the past what we did is basically there was a self-
declared statement that said well, I am consulting with company 
X. What the NEAC is going to do is review the source documents 
and pass judgment on the source documents rather than any other 
document.
    Now, in terms of confidentiality of scientists who have no 
authority and so on, sometimes it relates to intellectual 
property issues and protection of intellectual property is a 
legitimate concern of both the government and the private 
industry. So that is the realm where I think you can see the 
logic of having confidentiality. But board membership----
    Ms. Schakowsky. I guess we have a lot of battles about 
that. But if you have someone whose mandate is to advance 
scientific discovery and who is also working for a company 
where some of that discovery may be defined as proprietary, 
then it seems to me that you have a conflict that is not 
resolved in the public interest, but rather in the private 
interest.
    Mr. Zerhouni. Well, in terms of fiduciary responsibilities 
if you were a board member or we had an employee relationship 
with that company, I would agree with you. We are banning that. 
There is no more of these relationships. However, when you talk 
about the public's interest, let me give you an example.
    Rare disease, no interest from major pharmaceutical 
companies. Some small company is trying to do that. Is it in 
our best interest to help that company even though the 
intellectual property needs to be protected for that company?
    It is the same logic that we have in the CRADA relationship 
that was an official one, and we disagree that in that context 
you should allow somebody to then work for the competitor. We 
just had this discussion with Chairman Barton. It is the same 
thing in this case. There are legitimate reasons to help 
translate technology, and I do not want to ban them.
    Ms. Schakowsky. My time is up. But let me just say that it 
seems to me whatever we put in place, and I think I would be 
inclined to even go further than your recommendations, what 
obvious is that oversight--our oversight capacity--has to 
really be improved. Because what you are telling us that even 
the current rules which we and you have found to be very lax 
have not been enforced. And, since we are in such sensitive 
areas, my concern would also be that, in the implementation of 
any changes you make, the public interest is clearly preserved.
    Mr. Zerhouni. Appreciate it.
    Mr. Greenwood. The time of the gentlelady has expired.
    The gentleman from Oregon, Mr. Walden for 5 minutes.
    Mr. Walden. Thank you very much, Mr. Chairman.
    Dr. Zerhouni, I want to commend you for your efforts to try 
and clean up the mess that you inherited that dates back some 9 
years. And I know the work must be difficult trying to balance, 
making sure we maintain the best research minds in the world, 
working at NIH and not lose them all out to the private sector 
and yet deal with these conflicts.
    The Los Angeles Times, I think it was back it was back in 
December, featured six case studies. I am assuming you are 
familiar with that article. How would each of those cases fared 
under your proposed restrictions that you have outlined today?
    Mr. Zerhouni. Well, clearly if I recall, three of the cases 
were two directors of clinical centers. That would be 
completely out.
    There was a scientific director. That would be completely 
out.
    There were two others that would be just scientists in the 
laboratories. They would be limited to 25 percent at 400 hours 
so it would have drastically limited the amount that would have 
been done.
    Mr. Walden. Right.
    Mr. Zerhouni. And we would have reviewed not just their 
statement of what the work was, but the specific scientific 
content through the NEAC.
    So I think that that is pretty much; two of the six would 
have been reviewed, three or four of the six would have been 
prohibited.
    Mr Walden. All right. Prohibited.
    I want to get back to this issue of the 400 hours as well. 
Because it seemed to me from one of the prior hearings that I 
sat through that those hours are outside of the sort of 
standard 40 hour work week, correct?
    Mr. Zerhouni. That is correct.
    Mr. Walden. So when we're talking about somebody can earn--
--
    Mr. Zerhouni. Weekend time, vacation time, personal.
    Mr. Walden. But it does not eat into the 40 hour work week 
or whatever their work week is at NIH?
    Mr. Zerhouni. No, it does ont.
    Mr. Walden. Okay. Perfect.
    And then after reviewing the data produced to the committee 
by the various drug companies, the staff discovered some 
consulting agreements between Pfizer and a Dr. Pearson Trey 
Sunderland to the tone of $517,000 paid to Dr. Sunderland over 
a period of 5\1/2\ years in six contracts. NIH apparently did 
not provide the committee with any paperwork on these 
agreements and the agreements were not itemized on the 520 
disclosure forms for Dr. Sunderland.
    We have assurances from Pfizer that its reporting of the 
agreement is correct as far as Pfizer's internal records are 
concerned. When staff questioned the agency about these 
agreements, they were not able to provide us with a reasonable 
explanation. Have you been made aware of this problem and what, 
if any, specific knowledge do you have of the situation?
    Mr. Zerhouni. Right. I was made aware of that problem 
Friday, I believe, just before--Friday past. And since then my 
staff has worked, you know, to look up the records and find out 
exactly what the essence of the issue is. But from the 
preliminary report that I have I think there is grave concern 
here that neither the public disclosure forms, because that 
individual is subject to disclosure requirements or the 
procedures that should have been in place even by that time 
were followed. This is our preliminary evaluation. We will 
continue to make sure that what I am saying here is documented.
    Mr. Walden. Now if that indeed is the case, would your 
recommended changes in the ethics standards----
    Mr. Zerhouni. Okay.
    Mr. Walden [continuing]. Would they have caught this? Or, I 
mean, it sounds like this person if indeed what the preliminary 
investigation shows is correct, we have got laws in place.
    Mr. Zerhouni. Right.
    Mr. Walden. So somebody is still slipping through the net. 
How do we do prevent that?
    Mr. Zerhouni. Excellent question. That is the relevant 
question, I think, Mr. Walden.
    No. 1, the fact that we will have a centralized data base 
of all the activities is very important.
    No. 2, the fact that we want to make public disclosure of 
every activity. We will allow any third party player out there 
to know who is doing what. So competition between----
    Mr. Walden. But what triggers data into the data base? Is 
that the filing of the 520?
    Mr. Zerhouni. That is right.
    Mr. Walden. But if the person does not file a 520, how do 
we get at that?
    Mr. Zerhouni. Right. Okay. So the random audit system that 
we envision is going to be the sort of try to catch back. 
Because, obviously, you cannot legislate morality.
    Mr. Walden. Right.
    Mr. Zerhouni. And that is hard. But through the random 
audits we can Google--that is the word now in the English 
language--every scientific activity out there and match it 
against ours. So any name of any NIH employee would appear in 
the Google activity that we would then look and cross-correlate 
with our data base. That is our intent.
    Mr. Walden. So, okay, with the data base, but again, you 
see, you'd be looking for a negative then, because if the 
person didn't file a 520, the data wouldn't be in the data 
base.
    Mr. Zerhouni. Right.
    Mr. Walden. But your name would show up.
    Mr. Zerhouni. Right.
    Mr. Walden. Have you tried that just in this case, for 
example?
    Mr. Zerhouni. No. It happened Friday. I haven't had the 
time to look at that.
    Mr. Walden. It would be interesting, because in essence, if 
they didn't file a 520, they're not in a data base that doesn't 
exist anyway right now.
    Mr. Zerhouni. But again, the important component of that 
too is through good controls and implementation of disciplinary 
rules. I think you will send a message to the community that 
there is a new era in ethics, new day.
    Mr. Walden. Well, clearly a half a million dollars over 
5\1/2\ years is a pretty big problem, so I'm glad that you're 
on it.
    Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes the gentleman from California, Mr. Waxman, for 5 
minutes.
    Mr. Waxman. Thank you very much, Mr. Chairman, Dr. 
Zerhouni, Mr. Azar. I'm pleased to see you.
    I think it's an important function of the Congress to 
oversee how the Government is operating and whether the 
President has been a Democrat or a Republican, one of the most 
effective ways for Congress to learn about how the Government 
is operating is by talking to Government employees who are 
actually implementing the policies.
    I'm not alone in this view. Throughout the last century, 
Congress has repeatedly passed laws protecting its right to 
receive truthful information from Federal employees and the 
Supreme Court has repeatedly endorsed that right. Yet, in my 
decades in the Congress, I don't think I've ever seen an 
Administration that has so consistently attempted to deter 
Government employees from providing truthful information to 
Congress.
    We've already heard about the Administration's decision to 
send Agency attorneys to these interviews and I gather that 
seemed to be some kind of misunderstanding, but I would think 
that employees must feel somewhat reluctant to talk when they 
are off on their own. That's been the subject of a lot of 
discussion today.
    I want to ask about a series of other actions by this 
Administration whose purpose appears to be to prevent HHS 
employees from speaking candidly to Congress and particularly 
to Democratic Members of Congress.
    I've recently learned of an FDA memo informing employees 
that they should refuse to speak to Congressional staff if 
called and that if forced, should not speak unless an employee 
from the Administration's Legislative Office could sit in and 
monitor the conversation.
    Mr. Azar, do you acknowledge, would you acknowledge whether 
the Administration has adopted a policy barring Government 
employees from speaking to Members of Congress or the staff 
unless the Administration can hear everything that is said?
    Mr. Azar. Congressman Waxman, other than having read 
something in the press about that, I'm not terribly familiar 
with that particular instance that you've mentioned, but I 
would tell you that as far as I understand, if an individual 
wishes to speak to Congress in that kind of an interview 
oversight setting, we would not, in working with this 
committee, for instance, with official counsel, force ourselves 
on them. We view it as a service to the employee. If the 
employee wishes to speak to Congress without us being present, 
I certainly, it would not be my view that we should inject 
ourselves.
    And so if you would permit, I'd like to look into that 
situation at the FDA and get back do you on the----
    Mr. Waxman. It's my understanding that whenever an employee 
of the Department of Health and Human Services wants to talk to 
a Member of Congress or staff, that someone has to be brought 
in from the Department.
    Mr. Azar. We generally, I know that the legislative 
individuals generally try to be available to assist and 
coordinate to make sure balls don't get dropped to provide 
assistance to the employees, but I can't imagine that if an 
employee wished to speak to Congress about matters like that 
without Departmental people present, that we would have any 
objection to that or want to get in the way of that, Mr. 
Waxman.
    Mr. Waxman. I appreciate that and I assume the reverse is 
also true of a Member of Congress wants to talk any employee. 
That employee would feel that he or she would feel that they're 
able to talk to us without someone from the Department being 
present?
    Mr. Azar. If that was their desire, yes.
    Mr. Waxman. Earlier this year, it was widely reported that 
the Bush Administration ordered the Chief Medicare Actuary not 
to respond to requests from Democratic members about the 
projected costs of the Medicare Drug Benefit and projected 
costs of the bill was absolutely central to the debate about 
whether the bill was good or bad policy. And yet, the 
Administration insisted and I think is still insisting that 
Members of Congress were not entitled to this information. Are 
you familiar with that situation?
    Mr. Azar. I am, yes.
    Mr. Waxman. In addition, I want to point out that from the 
beginning of this Administration, I've written to HHS on a 
number of occasions seeking information about HHS policies. In 
past Administrations, whether Democratic or Republican, letters 
have always received a response. They may not have been the 
response I was looking for, but we always got a response.
    In this Administration, however, it appears that a new 
policy of ignoring congressional inquiries has been instituted. 
Over 15 of the letters I've sent to HHS since the start of the 
Bush Administration have received no response whatsoever, 
complete silence. And when my staff has asked for briefings, 
many of the requests have never been responded to.
    Over 9 months ago, my staff asked for a briefing on the use 
of Nonoxynol-9 in condoms. A briefing was scheduled and 
canceled, scheduled and canceled and then postponed 
indefinitely. No information has been provided. And when 
briefings have been provided, long time career Government 
employees who have met with our staff have been unwilling to 
speak freely with their political bosses listening in. Indeed, 
they're hardly willing to say anything of substance. It was 
obviously they were seriously intimidated by Administration's 
information gatekeepers.
    Do you think it's appropriate for the executive branch to 
refuse to answer letters from Members of Congress or requests 
for briefings?
    Mr. Azar. I can tell you that the Secretary has made it a 
priority since he's been in office to try to be responsive to 
correspondence from Congress. I'd be happy to look into your 
articles of correspondence that haven't been responded to. 
Obviously, we get--the Department does get a very large volume 
of questions and correspondence from Congress and that has to 
be handled. But I'll be happy to check into that to see what 
the status is of responses to you.
    Mr. Waxman. I appreciate that. And the other thing I want 
to raise with you is that I've heard that specifically an 
employee was told at FDA, or all the employees were told at FDA 
that in 2001 by senior officials that career FDA employees were 
not to be permitted to speak to congressional staffers and they 
specified which ones and if they did, they'd be fired.
    Do you think that would be proper? I don't know if you're 
familiar with that incident. But do you think that would be 
proper?
    Mr. Azar. Again, I am not familiar with that and I'd want 
to know all of the facts and circumstances around that, but as 
I've said, as a general matter, I don't think the Department 
tries to get in the way of individuals who would like to speak 
with Members of Congress about issues.
    Mr. Waxman. I'm going to send you more information about 
that incident.
    Mr. Azar. Thank you.
    Mr. Waxman. In conclusion, I just want to point out that 
one of the letters that has remained unanswered was a letter to 
you, January 20, 2004, asking for information about ethics 
waivers issued to HHS employees related to negotiations for 
prospective employment, particularly with regard to Tom Scully.
    Is there any reason you haven't answered that letter?
    Mr. Azar. My understand is that letter was, as all 
congressional correspondence, was referred over to the 
Department where that's handled and I had thought that that had 
been responded to. I will check on that. I'm sorry if you've 
not gotten a complete response. I thought you had gotten your 
response on that.
    Mr. Greenwood. The time of the gentleman has expired. The 
gentleman, Mr. Bilirakis, is recognized for 5 minutes.
    Mr. Bilirakis. Thank you, Mr. Chairman. Getting back to the 
subject matter of this hearing, Mr. Azar, are you the chief 
ethics office for the Department of Health and Human Services?
    Mr. Azar. Actually, the way the Government ethics system is 
operated, the Secretary directly appoints an official to serve 
as the designated agency ethics officer and that individual is 
a direct report to the Secretary. And that is a gentleman named 
Ed Swindell who testified at the last hearing before this 
committee. And he serves as the point of contact, the liaison, 
with the Office of Government Ethics and also works with an 
overseas, a very decentralized ethics process----
    Mr. Bilirakis. You're chief counsel?
    Mr. Azar. Exactly, sir.
    Mr. Bilirakis. So he works in a----
    Mr. Azar. Yes. In his role as Associate General Counsel, 
providing the legal advice. He does report to me.
    Mr. Bilirakis. He reports to you.
    Mr. Azar. He does report tome.
    Mr. Bilirakis. Let me ask the question. Prior to this 
business having been really brought out in the open by the 
newspapers, by this committee, etcetera, was your office aware 
of it and if you were aware of it, did you try--I guess what 
I'm getting at is is your function or at least the function of 
the ethics portion of your office, just to put out fires when 
fires arise or is the function to sort of try to keep fires 
from taking place? I think you understand what I mean.
    Mr. Azar. Yes, I do understand that. It certainly would be 
our goal to not just be putting out fires, but to be proactive, 
if we could. In this instance, no, I had not been aware of 
these issues before the important work of this committee. We've 
tried to be very responsive in working with Dr. Zerhouni and 
NIH and the rest of the Department in dealing with----
    Mr. Bilirakis. Yes, but if we have an Ethics Department 
there, or office or whatever you would have called it, I mean 
what else do they do other than take a look at whether there 
might be breaches of ethics taking place within the Department?
    Mr. Azar. A large amount of the work is reviewing the 
financial disclosure forms that come in and certifying those, 
as well as providing the day to day ethics advice. But your 
concern, I think, is very valid, sir. And as a result, we are 
implementing a program that will more than double the size of 
the ethics office and will for the first time in--as far as I 
understand it, within the executive branch, will for the first 
time have an oversight function internal to the Department so 
that the designated agency ethics officer will have the 
capacity to conduct his own audits and oversight of the 
performance of the ethics officials throughout the Department.
    As I understand it, this would be unique. Currently, there 
are periodic edits, periodic audits that happen from the Office 
of Government Ethics, which is an independent Executive agency. 
So I think your point is well taken and we are working to try 
to make that more of our capacity, sir.
    Mr. Bilirakis. Well, let me ask you. You've been a public 
servant for quite a few years. You didn't indicate here how 
many, but still quite a few.
    How much of this takes place, if you know, Dr. Zerhouni, 
Mr. Azar, let's say in the Veterans Administration? They do a 
lot of research, do a lot of--many of their people do the same 
sort of thing where they receive stock options and monies, what 
not, from some of the people that they work with. We have 
universities out there, some public, some private that do a lot 
of research. How much of this takes place? If you could sort of 
short answer as you can.
    Mr. Zerhouni. Right. At NIH, as we've said over the years 
it involved about 3 to 4 percent, 5 percent of the employees. I 
really can't comment on how much of it takes place in another 
Federal agency. Really, I don't know. One thing I can say that 
as a Federal agency director, the one thing that hurts you is 
what you don't know. So I think we need to put in place 
mechanisms as Mr. Azar is suggesting of proactive management.
    Mr. Bilirakis. That's the whole point. We haven't. So are--
if it is taking place to any degree to speak of in the VA and 
some of these other, maybe these other Departments and in some 
of the universities and what not, are they at least aware of 
what's taking place here, the hearings and hopefully--do you 
know, Mr. Azar?
    Mr. Azar. Certainly since Friday, I believe, that when this 
committee has asked for information from other Departments, I 
think that they're certainly aware of it and from press 
coverage, but like Dr. Zerhouni, I'm not familiar with whether 
the same types of opportunities for outside consulting 
activities and awards present themselves to people outside of 
the NIH at other agencies. I don't know. NIH tends to be rather 
a unique entity as the crown jewel of biomedical research and 
being run really like a research university. I don't know that 
there are any other comparable entities in the Government that 
would be so attractive and also where there's been a fairly 
long-standing congressional and administration policy of 
encouraging interaction with the private sector to 
commercialize interventions.
    Mr. Bilirakis. Let me ask this just very quickly. 
Stability, continuity, all very important. I've always kind of 
felt that many of the problems we have up here is that there is 
a lack of that because everything seems to be tied into 
politics and there are changes in Administrations, changes in 
the Congress and leadership of the Congress, etcetera, 
etcetera.
    Dr. Zerhouni, you've given us approximately 10 steps which 
sound terrific. God forbid there's a change in Administrations 
as a result of November and there would be people here who 
would disagree with that, God forbid, but in any case, the fact 
is that that sort of thing does take place, even if we're 
talking about the end of the 8-year term, 8-year period of 
time.
    Then what happens? With all your good will and your good 
intentions and everything of that nature, do they conceivably 
go down the drain because they're no longer the cause of the 
new person----
    Mr. Zerhouni. That's why I work very hard to find proposals 
that would be embedded, structural, that will be embedded in 
supplemental regulations, if we need to. And we're working 
very----
    Mr. Bilirakis. How about embedded in the law?
    Mr. Zerhouni. And in addition to that, I think there is a 
potential for, depending on what we find, for your help to be 
very significant here, and for the questions that you've asked. 
I mean is there enough authority? Do we have enough process, do 
we have enough controls?
    Mr. Bilirakis. Yes.
    Mr. Zerhouni. I think that's what we need to do and we're 
committed to----
    Mr. Bilirakis. We've committed to you and we're trying to 
do something with NIH, but we need to also get commitments from 
you that you're going to help us do it correctly to help you do 
your job better.
    Mr. Zerhouni. Yes.
    Mr. Bilirakis. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman. The 
gentleman from Florida, Mr. Stearns, is recognized for 5 
minutes.
    Mr. Stearns. Good morning, and thank you, Mr. Chairman.
    Dr. Zerhouni, I have some slides here in front of me and I 
think they're from the second hearing in which they talk about 
money received by various scientists at NIH. For example, I 
have one here on H. Brian Brewer. He's Chief of Molecular 
Disease Branch. Does this ring a bell at all? If not, I can 
just have my staff----
    Mr. Zerhouni. Not really.
    Mr. Stearns. Not really. Can I have someone from our staff 
take this down to him and he and I can just go through it?
    The purpose of you and I just going over this is to 
reiterate again, I think, the whole question does the NIH have 
any actual evidence that the NIH scientists have left because 
of consulting fees being cut. Before I did that, I just wanted 
to take you to slide 8 which is Brian Brewer. And this was 
composed, comprised by taking information that we could from 
pharmaceutical companies and I guess--and other agencies.
    But as you can see, Mr. Brewer, I assume he's a doctor, 
received almost $200,000 plus stock between his travel and his 
fees at Pfizer, Lipid Sciences and all, Eli Lilly and all these 
companies. You can see that.
    Now if you don't mind, I'd like you to go over to one which 
is a little bit more prodigious in that slide 1, Michael 
Brownstein. He's Chief of the Lab of Genetics. This shows that 
he has stock valued at almost $2 million, that he obtained, 
plus over $27,000 in fees. And when you go through this, take 
slide 2, now. We have Ronald Germain. Dr. Germain received 
$430,000 in reimbursable expenses or consulting fees, plus 
stock options.
    Now it seems to me that you have Government employees that 
are working at NIH. They have a pretty significant title, yet 
they're going out into industry and they're getting not only 
reimbursed for consulting fees, they're getting reimbursed for 
travel fees and then they get all these stock options.
    Now I mean you can just flip through these different 
slides. Don't you think this is pretty egregious and totally 
unnecessary? Obviously, your statement is we're going to reform 
it, but when you look at that, isn't that rather appalling to 
see all of that?
    Mr. Zerhouni. Yes, and I think we need to really look at 
what you're referring to and for example, there's no doubt that 
in the case of slide 8, for example, Brian Brewer, with the new 
rules that we're implementing, there will be no service on 
advisory boards. None of that will be----
    Mr. Stearns. I think that's what you can help us through. 
When you look at these slides, tell us under your proposal how 
this would be prevented?
    Mr. Zerhouni. Right, that's exactly what I'm trying to do 
here.
    I think there would be a major difference. For example, the 
consulting would not reach that sum in any 1 year, that a 
person can only do 25 percent, if that person is eligible to do 
that. Under certain ranks, they wouldn't be.
    Mr. Stearns. Mr. Brewer, as Chief of Molecular Disease 
Branch be able to do it under your proposal?
    Mr. Zerhouni. Yes, he would. He's not someone who does----
    Mr. Stearns. He'd still be able to get almost $200,000 plus 
stock?
    Mr. Zerhouni. No, he will not be able to do that. For 
example, Lipid Sciences, Astr Zeneca will be out of the new 
system. He cannot do that.
    Mr. Stearns. Okay.
    Mr. Zerhouni. With the new system. He cannot receive any 
stock in the new system. And then, when you look at his 
compensation, that compensation will probably be cut in half if 
the work that he's doing is justified and reviewed 
independently as seen as being independent of what he does 
otherwise.
    Mr. Stearns. What about in the idea of stock? What are you 
proposing?
    Mr. Zerhouni. Total ban.
    Mr. Stearns. Total ban on stock.
    Mr. Zerhouni. Total ban, for everybody.
    Mr. Stearns. Okay.
    Mr. Zerhouni. And limit on any--I mean, we're totally 
banning any compensation in stock or stock options. That's No. 
1. And No. 2, we are scrubbing every employee from owning any 
individual pharmaceutical buying that stock that has anything 
to do with science or potential for consulting and limiting 
every other employee to $5,000. Remember, when we put a 
prohibition it applies to members of the family too.
    So all employees who do not do science, we want to limit 
that to $5,000 for one stock. But employees who do science, no 
stock.
    Mr. Stearns. Do you think your proposal should have been 
done some time ago to prevent this?
    Mr. Zerhouni. For the benefit of hindsight, yes.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman and notifies 
the members and their witnesses we are going to do another 
round of questioning here.
    The Chair recognizes himself.
    Dr. Zerhouni, I note that NIH was notified in February 2004 
about information indicating that Dr. Moshell, the Skin Disease 
Branch Chief, was testifying as a compensated expert witness in 
Accutane cases. It's my understanding that he scheduled to be 
deposed in a case no later than July 15, 2004. NIH acknowledges 
Dr. Moshell did not notify NIH about these activities and that 
he should have notified NIH about them. The only action taken 
has been to counsel Dr. Moshell, as I understand it.
    Is counseling considered a disciplinary action and is that 
a sufficient management response in this case?
    Mr. Zerhouni. Yes, in the strategy of managing issues like 
that, counseling is part of disciplinary, proactive 
disciplinary counseling, if you will. Because I think in this 
particular case, what I understand is that the gentleman was 
allowed to do clinical practice years ago. And in the meantime 
then, as you know, many clinical practitioners will also 
testify on cases and decide to be an expert witness, not 
realizing perhaps or not knowing perhaps that we have a 
prohibition against being an expert witness for anything where 
the Government may have either an interest or an involvement. 
He was then counseled by our ethics people, I understand.
    Mr. Greenwood. Is it your intention to allow Dr. Moshell to 
testify without prior approval in the future?
    Mr. Zerhouni. No.
    Mr. Greenwood. So he'll have to for each and every 
opportunity, request that he has to testify.
    Mr. Zerhouni. Expert witness is an activity that requires 
disclosure and approval.
    Mr. Greenwood. Okay. Let me on the same subject, let me go 
to you, Mr. Azar.
    It's been noticed that Dr. Alan Moshell, who we've just 
discussed, the Skin Disease Branch Chief and Program Director, 
has been--you heard me talk about the fact that he's been an 
expert witness and it has been alleged that Dr. Moshell has 
testified that specifically that FDA approved labeling for 
Accutane is legally inadequate.
    Are you concerned that Dr. Moshil's involvement conflicts 
with the public legal position of FDA?
    Mr. Azar. Again, I just learned about this recently and I 
don't know all of the facts, but if they are as you've 
described them, I am very concerned about that and he first 
off, he should have sought approval of an outside activity, but 
also to serve as an expert witness in a proceeding in which the 
Federal Government is a party or in which it has a direct and 
substantial interest which I would think the legality of the 
FDA's approved label would be such a case the DAEO, the 
designated agency ethics officer for the entire department has 
to authorize that and would consult with both FDA and with NIH 
as to what the Government's interest. But as described, I'm 
very concerned about the situation.
    Mr. Greenwood. And help me understand the ethical issues 
involved here because I'm not personally clear on this because 
on the one hand there are, as I understand it, rules and 
policies that would prohibit that kind of testimony. Someone 
looking at it from the outside would say that sounds like 
you're muzzling a Federal employee who might have some 
important information that would expose something going wrong 
in the Government.
    So walk me through the ethical implications of this.
    Mr. Azar. I think the basis for the rule and the reason for 
concern is the concern of undivided loyalty to your employer, 
the Federal Government here, that the Government, United 
States, not FDA, but the United States has a position as to the 
legality of its label and to have its own agents testifying to 
the contrary, I think is very destructive to that position.
    And also, there's always the risk that the individual's 
title, their position within the Government is used against the 
Government, the fact that they are a senior individual at NIH 
is used to essentially lend extra credence to their testimony.
    Mr. Greenwood. Which makes them more valuable to a 
Plaintiff's attorney who would be inclined to pay them 
handsomely for that testimony.
    Mr. Azar. Exactly.
    Mr. Greenwood. So obviously, in circumstances where that 
FDA employee might be subpoenaed by the Plaintiff's attorney, 
that--he's permitted, he or she would be permitted to testify 
under those circumstances, but just not as a voluntary paid 
expert witness. Is that right?
    Mr. Azar. And actually, in private litigation, if an 
official of the Department is subpoenaed in private litigation, 
the Department actually is under--they're called the 2-E 
regulations. The Department decides whether it's in the 
interest of the Government to offer the individual to testify, 
even if it's a subpoena in a third party private piece of 
litigation. So it should always be subject to what's in the 
Government's best interest.
    Mr. Greenwood. Dr. Zerhouni, have you been briefed about 
the situation involving Pearson Trey Sunderland and Karen 
Putnam I mentioned in my opening statement?
    Mr. Zerhouni. Yes, last Friday I was made aware of that 
situation.
    Mr. Greenwood. And I note that Mr. Walden already inquired 
about that. My time has expired. The gentlelady from Colorado.
    Ms. DeGette. Thank you, Mr. Chairman. At the conclusion of 
my questioning, Mr. Azar, I believe you had said that there is 
now an agreement as to the rule of HHS counsel when they come 
to oversight and investigation hearings. Was that what you had 
said?
    Mr. Azar. Yes ma'am. That's my understanding, that there 
had been a letter from the Assistant Secretary from Legislation 
to the chairman of the committee.
    Ms. DeGette. Right, that's in Tab 1 of your notebook from 
Jennifer Young.
    Now I read that letter. Is Ms. Young an attorney?
    Mr. Azar. I don't believe so.
    Ms. DeGette. Well, first of all, would it surprise you to 
know that--and staff can correct me. It's my understanding we 
got this letter, but that certainly Democratic staff has not 
agreed to this procedure outlined in this letter. Did you know 
that?
    Mr. Azar. I did not know that.
    Ms. DeGette. And I'm told that Republican staff has not 
agreed to that procedure either. He confirms that.
    Mr. Azar. I'm sorry, then I had a misunderstanding. I had a 
misimpression of that. I thought there was.
    Ms. DeGette. Right, and this is sometimes the problem--this 
is why we're a little worried about the execution of the whole 
ethics procedure in general, because communication is a 
problem.
    And one question I have, again, as someone who used to 
practice, you know, when the attorney--when an employee, an HHS 
employee is asked to come in and meet with the committee, and 
they say that they want a lawyer to accompany them, whose 
interest does the lawyer represent?
    Mr. Azar. Whenever--outside of the original Inclone 
proceeding, whenever our lawyers have met with the individual 
witnesses to assist them, they should have always and I believe 
they have, they should have always made clear to the 
individual, we are official counsel. We are representing the 
Department. We are not your personal attorney.
    Ms. DeGette. And if you desire personal counsel, then it is 
your responsibility to go out and retain that counsel. Did they 
advise them of that?
    Mr. Azar. I do not know for a fact whether that has been 
said, but that is the case, yes.
    Ms. DeGette. Well, as someone who has represented a lot of 
witnesses, I know people, especially people who are concerned, 
get very confused about a lawyer shows up and it's a 
congressional investigation and it's under oath. People get 
very confused about who's representing them. So I might suggest 
to you as part of the overall departmental reforms that you 
develop some written guidelines to be given to potential 
witnesses, explaining the duties and roles of the HHS attorneys 
and also explaining that the person is entitled to outside 
counsel of their own.
    My concern is if you have a witness who has information 
that they want to share with the committee, Republican or 
Democratic staff, that maybe not in the best interest of HHS or 
whatever, then there's a huge conflict and it's for that 
lawyer. You're nodding. I'm sure you agree.
    Mr. Azar. I think that's a very helpful suggestion. I can 
tell you when I was in practice, that if I were ever 
representing a corporation and speaking with an individual 
witness, I always did make clear I represent the company. I'm 
not your lawyer. You can hire a private lawyer. I just can't 
say for a fact that that----
    Ms. DeGette. I did that too and I always tried to do it in 
writing to the witness.
    Mr. Azar. I think that's a good point.
    Ms. DeGette. My other request of you would be if you would 
please sit down personally with Republican and Democratic staff 
of this committee and iron out some written procedures so that 
we can know when witnesses come in accompanied by an attorney 
who they're representing.
    Mr. Azar. I would be very happy to do that.
    Ms. DeGette. Thank you very much. I have just one more 
question for you, Dr. Zerhouni, now that we're trying to think 
of how to iron out these bugs.
    I was thinking about Dr. Katz who came in and testified. 
You might be familiar with his case. He was the fellow. He was 
doing some consulting with a company and the company had a 
subsidiary that had business pending, a grand application 
pending in front of the NIH and he did not know that this--that 
there was any connection when he later found out, I believe, 
after he was subpoenaed by this committee or came in to talk to 
this committee, he immediately severed the relationship.
    So my question is in all of the ethics oversight that 
you're trying to do with the centralized electronics, how are 
we going to be able to--because as you know, corporate America 
and the pharmaceutical industry, in particular, and biotech, 
are very--the corporate relationships are very complex. How are 
we going to be able to catch those kinds of very real complex?
    Mr. Zerhouni. Well, first of all, we just prevent them. So 
in the rules that I'm proposing, Dr. Katz being a Director of 
an Institute will be completely prohibited, period.
    Ms. DeGette. But let's say it's someone who would be 
eligible and who honestly himself or herself may not have known 
about that. Because Dr. Katz did not.
    Mr. Azar. Again, I'm prohibiting every employee that has 
any authority in grant funding, contract making, from any 
activity of that sort.
    Again, this would not happen under the new rules. There's 
no way for an individual in the line of command and their 
subordinates to be able to influence----
    Ms. DeGette. And I guess your testimony is then since 
you're prohibiting those individuals, it wouldn't matter for 
someone else not in that category if there was----
    Mr. Zerhouni. Right. Again, it's the dual nature of NIH. 
It's a Federal agency role and it's sort of a scientific 
university type activity which has no real power over 
allocating grants. But we'll go further than that. We are 
saying that our scientists will not consult with potential 
grantee institutions so that anybody who would then come and 
say I want a grant will not be able, as a university, for 
example.
    So we're trying to build as much fire walls as we can.
    Ms. DeGette. I understand.
    Mr. Azar. Congresswoman, I think, and please correct me if 
I'm wrong, Dr. Zerhouni, I think in the instance if the 
individual has the grant making function under them, even if 
they weren't involved, if there's any connection to the grant 
making process, they would also be precluded.
    Ms. DeGette. And my time has expired. I'm focusing not on 
the individual. I'm focusing on the corporate relationship of 
the--in particular, the private company that they're trying to 
get a grant. But I understand what you're saying, Dr. Zerhouni.
    Mr. Greenwood. The gentleman from Florida, Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. I said in one of 
the prior two hearings, maybe in both, I don't remember, that 
we've always got to be careful that we do no harm. And whereas 
these things that have taken place in the past and we should be 
thinking more in terms of today and the future and trying to 
keep some of those bad things or at least perceptively bad 
things, put it that way, straighten that out, clear it up. I 
think it's important that we look to the future.
    NIH is so highly thought of in the world. Let's face it. 
It's world class. In fact, you and I were in Italy not a few 
months ago where they're setting up their own form of the NIH. 
So we don't want to do anything to hurt their effort. And maybe 
we are doing something to hurt their effort and I hope not.
    But let me just put that question to you, Dr. Zerhouni. Are 
we doing something here that might be hurting NIH's effort in 
terms of their image, their reputation, in terms of 
recruitment, in terms of the research in general? Maybe you 
could take a full period of time to respond to that.
    Mr. Zerhouni. That's the most difficult question I have to 
face because again, I have to do a balancing of the analysis 
and it is the appropriate question to ask because many times I 
get asked what is the evidence that you have that by having 
stronger rules we may not be able to recruit or retain.
    My position is what is the evidence that we have that we 
will do no harm? Because I think at the end of the day we need 
to protect that. And I'm trying to find the balance between the 
two. A total ban, as I've said, would be detrimental to the 
scientific staff who is really unrelated----
    Mr. Bilirakis. Detrimental? Disastrous may be even a 
stronger adjective?
    Mr. Zerhouni. I can't say that because again I don't have 
data either way, but I can say for sure that we will have 
people who will leave the agency and I think it will be a 
factor in recruiting that wasn't as much of a factor to attract 
someone from the outside who may have had activities. That 
person may have to sever them all.
    And I think it relates to what the chairman said. I think 
we need to balance compensation and the possibility of 
compensation. The field of opportunities for our scientists 
should not be so restricted so that it will make it much easier 
to just walk across the street and go to a university. We have 
200 competitors out there. So I'm concerned about it. But I 
think these rules strike a right balance and I wouldn't 
definitely say that they would be harmful. They have the 
potential to, in some areas, to prevent us from recruiting and 
retaining the best, but I don't believe that at this point, I 
can't say for sure what the impact would be.
    Mr. Bilirakis. I'm raising the question, but I know that 
the chairman, both chairmen, Mr. Greenwood and Mr. Barton, are 
as concerned as I am, as I think all of us are in this regard.
    What is the morale picture at NIH?
    Mr. Zerhouni. I would say the morale has been lowered.
    Mr. Bilirakis. Lower as the result of some of the things 
that we're doing?
    Mr. Zerhouni. In part. Yes. I think there are other 
factors, obviously. I mean there are budgetary constraints. 
There are changes that we're bringing to the administration of 
NIH. Obviously, all of those things play a role, but I think 
this has damaged the morale, especially of the over 95 percent 
of the scientists who have really given their lives to NIH.
    Mr. Bilirakis. Yes.
    Mr. Zerhouni. It pains them to see NIH painted in such a 
negative light, when in fact, they've done all their best to 
serve NIH and the country without any of this kind of slide 
material that were shown here. That affects morale because 
really the core value of NIH is to really serve the public and 
do it right and all of the people I know there are really 
pained by this and would like to get clarification and let's 
move on.
    I think my point is performing autopsies on what was is 
important, we need to do that. But more importantly here is to 
make sure the patient is cured and moves forward.
    Mr. Bilirakis. Thank you, Doctor, and I know the chairman 
well enough to know that he is just as concerned about those 
things as I am and again, with your help,k we are going to 
clear this up in the interest of continuing the best research 
in the world.
    Thank you and thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman. Mr. Stearns 
for 5 minutes.
    Mr. Stearns. Thank you, Mr. Chairman. Just following up 
what my colleague from Florida was talking about. NIH is the 
premiere medical research organization in the world and it will 
be after it's over and I think it will be better because of 
this and I think bringing some transparency here and also 
bringing to light some of the problems will make it even 
better. So I applaud you for what you're doing this morning in 
this your proposal. I guess in looking at the activities 
reviewed by NEAC, they looked at 317 and recommended approval 
of 234 of these arrangements.
    My question is how many arrangements were there last year 
for the whole year? In other words, prior to the Act, prior to 
NEAC, the NIH Ethics Commission, how many total arrangements 
were there?
    Can you put your speaker on? I can't hear you.
    Mr. Zerhouni. I'm just going to estimate.
    Mr. Stearns. Oh sure, I'd just like, as much as possible, 
just a complete accuracy of how many arrangements there were.
    Mr. Zerhouni. Yes, I'm trying to--all right, I'm going to 
give you the numbers I have.
    Mr. Stearns. Okay, thank you.
    Mr. Zerhouni. Basically, we had about 365 agreements 
probably involving about the same number or more, less 
employees. That's because over 5 years, we've had about 1500. 
So it's about 300, 350 a year.
    Mr. Stearns. So about 300 a year, approximately.
    Mr. Zerhouni. A little more.
    Mr. Stearns. How over how many years did we have this 
arrangement?
    Mr. Zerhouni. Since 1995.
    Mr. Stearns. Okay, so we're talking about 5, 9, almost 10 
years. So we're looking at perhaps maybe 3,000 arrangements, 
separate arrangements or are we talking about 5,000 or 10,000?
    Mr. Zerhouni. About 3,000.
    Mr. Stearns. About 3,000.
    Mr. Zerhouni. Of those we know, but now we're finding there 
are some we don't know about.
    Mr. Stearns. And would you, could you make an estimate on 
the ones you don't know about, how big that is? Is it 10 
percent or 20 percent?
    Mr. Zerhouni. No, really, I can't. I mean this is the 
information that the chairman was referring to. I don't have 
that information. I don't know that, but it's a small amount, 
obviously, relative to the total.
    Mr. Stearns. Okay, well, let's just use your figures and 
say there were 3,000 arrangements since 1995.
    Mr. Zerhouni. Right.
    Mr. Stearns. Now I don't think all of them fit this 
presentation, what is in the slides here, where people are 
making almost $2 million in stock or they're making large sums 
and reimbursement. Slide 5, Gary Nable made $314,000 in 
expenses and travel and things like that.
    I guess my question is, Mr. Azar, do you have an Inspector 
General on your staff?
    Mr. Azar. No sir, the Inspector General is independent and 
reports directly to the Secretary.
    Mr. Stearns. Do you have anybody on staff that could be an 
investigator?
    Mr. Azar. We really don't have any kind of investigative 
capacity. With this enhanced ethics function, we'll have some 
auditors and the ability to do that.
    Mr. Stearns. That's my question. Once this is in place, do 
you have any way to investigate what's happening?
    Mr. Azar. The way the ethics program would work is we will 
have this enhanced ethics division function for oversight and 
auditing.
    Mr. Stearns. Okay.
    Mr. Azar. Each deputy ethics counselor in this 
decentralized ethics program should also--is also responsible 
for oversight of the functions and the conduct of the program 
within their operations.
    Mr. Stearns. So the NIH will have a set of investigators 
too?
    Mr. Azar. Well, the NIHAC, the NIH Advisory Committee, as 
well as the NIH Office----
    Mr. Stearns. So the Commission will have its members and 
they'll have a step group, a subgroup that they can go through 
for investigation Because we can put in place all these things 
and the Commission can recommend, but the question will be what 
happens in the future if there's no one checking it?
    Mr. Zerhouni. This is a very good question and Item 10 of 
the grid that I testified to, we actually mentioned the fact 
that we're going to initiate random audits as part and parcel 
of the process of control of the ethics program.
    Mr. Azar. But I think also, the Inspector General's office 
could also be used also to come in and do audits and 
evaluations of the program, once we get these changes in place.
    Mr. Zerhouni. My experience with that, Mr. Stearns, is that 
our audits are a very good way of identifying vulnerabilities 
and then referring them, obviously, to the Department and then 
to the Inspector General.
    Mr. Stearns. Yes.
    Mr. Zerhouni. That's a mechanism we need to have.
    Mr. Stearns. Mr. Chairman, we've been through these 
oversights on the corporate problems and we found that we need 
accountability was the biggest problem. And we talked about the 
CEOs of the corporation ultimately signing their accounting 
reports and somehow, Dr. Zerhouni, I would expect you to also 
interface and not just leave it to these folks, but you should 
have some fiduciary responsibility to put your name on some 
report that this has all been corroborated and submit 
accounting because you ultimately have responsibility.
    Mr. Zerhouni. I agree with you and that's why in the 
management process changes list that I propose, we said that we 
will add the ethics function to supervisors' performance plans 
across the NIH, add the DEC's function to the DEC's performance 
plan and by extension, it goes to my performance plan.
    Mr. Stearns. Okay.
    Mr. Zerhouni. Formally and officially as part of the human 
resource management system that we currently have, which does 
not include ethics oversight as a line responsibility of the 
people in authority.
    Mr. Stearns. And Mr. Chairman, if I can just have a little 
bit of the indulgence. Another question is the people that are 
appointed to the NIH Ethics Commission, the screening and these 
individuals I guess, you know, the non-Government appointees to 
this Advisory Committee, what type of individuals would be the 
non-Government appointees to the Advisory Committee?
    Mr. Zerhouni. In statute, every institute in the NIH has an 
advisory council composed of public members, 12 scientists and 
6 non-scientists. That's the general pool. Those are named by 
the Secretary of Health and Human Services through nominations 
received by the Secretary that we also can propose and that is 
basically the source of the appointments on these committees. 
There's a rotation pattern, every 4 years, there's a change 
over. And these members are essentially members of the public.
    Mr. Stearns. Who would make the appointments to the 
independent advisory committee? Who are going to make these 
appointments?
    Mr. Zerhouni. These appointments are already made. This is 
a board in statute, already existing, that is already in place 
to oversee NIH from the public standpoint.
    Mr. Stearns. Okay, thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman and 
recognizes himself for 5 minutes.
    Dr. Zerhouni, if you turn to Tab 22 in the binder, you'll 
find some statistics on activities reviewed by the NIH Ethics 
Advisory Committee. And it states that of 317 activities and 
awards received, reviewed by NEAC, NEAC recommended approval of 
234.
    The question is how does this rate of approval compare to 
the rate of activity, approval prior to implementation of the 
new procedures?
    Mr. Zerhouni. well, if you look at the totality, 300, 350 
this is about, on the activities, probably about two thirds 
maybe.
    Mr. Greenwood. A little more than that. And your question 
is--what I'm trying to get at is do you know anything about the 
current NEAC, your creation is approving a little more than 2 
out of 3.
    Mr. Zerhouni. Right.
    Mr. Greenwood. Do you know how that compares to previous 
rates of approval of----
    Mr. Zerhouni. I think it's definitely lower because what 
I'm getting as reports from the members of NEAC is that every 
time they're looking at a case to say wait a minute, these are 
activities that were there before under current rules, so 
remember the 317 are not new ones. They're the ones that were 
there. Of those 317, some have been terminated. You see what 
I'm saying?
    Mr. Greenwood. Right.
    Mr. Zerhouni. In other words, the pool was the same pool 
that was before NEAC, being reviewed by NEAC. And of those, 
we've cutoff from 317 to 235.
    Mr. Greenwood. And apparently I'm advised that prior to 
that, if you're now turning down a quarter or a third, it used 
to be that only that 1 percent were rejected. So it's an 
indication to me that the NEAC is for real and is making some 
tough decisions.
    Mr. Zerhouni. That's my understanding, Mr. Chairman.
    Mr. Greenwood. I do note though that in the NEAC, the NEAC 
sent to the committee two instances where NEAC recommended 
disapproval of two outside activities, but the NIH designated 
ethics counselor approved them anyway.
    Do you know how that happens?
    Mr. Zerhouni. Not specifically on the cases that you're 
referring to. I'm not sure what they are, but I will follow up 
with you, sir.
    Mr. Greenwood. We'll do that. According to the data 
provided by NIH to the committee, the average--this is not 
referring to that tab any more, Dr. Zerhouni----
    Mr. Zerhouni. Right.
    Mr. Greenwood. The average turnover rate among scientific 
staff for the 1994 to 2003 period, about 10 years, that is in 
Tab 26 if you want to look at that.
    The average turnover rate among scientific staff for those 
10 years was 9.24 percent, but the average turnover rate among 
Title 42 employees for 2000 to 2003 was only 2.4 percent. One 
could draw the inference from the turnover rate that the higher 
salaries of Title 42 has lowered turnover rates. Would you 
agree that's what we're seeing there?
    Mr. Zerhouni. That is correct.
    Mr. Greenwood. If that's correct, then why is it important 
to still permit consulting when the higher salaries are 
already, seem to be addressing and resolving the turnover 
issue?
    Mr. Zerhouni. Caps, No. 1. There have been caps since 1999, 
a figure that doesn't really look at cost of living and as 
years go by, you will see again a decreased competitive for NIH 
to recruit these individuals.
    Mr. Greenwood. Suppose we lifted that cap and gave you the 
authority to exceed that cap where necessary. Would you still 
feel that the paid outside consulting arrangements, agreements 
were necessary?
    Mr. Zerhouni. I would definitely look at that with favor, 
if I could establish a market based compensation system where 
really I'm not at a disadvantage. Right now, I'm in a real 
disadvantage in recruiting top scientific staff at NIH. I can 
tell you two anecdotes, that it is not that easy. When I was 
Vice Dean of Research and Executive Dean of a private medical 
school, I had more means and more flexibility in recruiting 
scientists or chairs of department with much lower 
responsibility levels than those that I'm recruiting right now 
at NIH. So it is, actually, a structural problem and I think 
there is a balance between compensation and opportunity for 
compensation.
    Mr. Greenwood. And it's a tradeoff for the taxpayer as well 
because on the one hand the taxpayer will be adding extra 
compensation which would diminish your budget, which would take 
money from your budget as opposed to the private sector paying 
for that activity.
    Mr. Zerhouni. That is correct.
    Mr. Greenwood. Paying for the ability, the enhanced ability 
to retain that----
    Mr. Zerhouni. That is correct. And you want to sort of 
strike a balance. We don't want to end up in the situation 
where we pay people high rates and their activity on Government 
time is to basically advise industry for free, because then 
you're creating a subsidy really.
    Mr. Greenwood. Final question for me and I promise this, 
sometimes when we talk about what the difference is between the 
20 percent of the NIH funds that stay intramurally and the 80 
percent that go out to the universities, etcetera, we talk 
about the reason because theoretically, you could have a 
construct where it all went out in grants. NIH could just be a 
grant making entity and not do much research. And part of it is 
that the NIH does intramural research that no one else is 
supporting.
    So it sort of raises the question in my mind, if that's the 
case, what's the competition? In other words, if you're hiring 
people to do research that no one else is supporting, is there 
really that much competition or is it a question that if they 
weren't doing that they would be doing something else that 
someone is supporting?
    Mr. Zerhouni. That's a good question, but it's not, the 
operating definition is not what no one else will do. I mean 
we're not doing just that. About a third of what we do is 
really public health, relevant, things that--safety of the 
blood supply, vaccine development, things that really cannot be 
done really by the private sector we need to do and we need to 
accumulate the science of that. Like HIV/AIDS is a good example 
where a lot of the fundamental discoveries had to be made at 
high speed within an institution where I can control the 
program. You can't control the program of 200 universities. So 
that's important.
    Second, you also want as a Government, scientists who would 
work in the same areas that other universities work in, because 
you want to have your own experts that are not tied to having 
the need for grants, telling you what the real scientific truth 
is. So in truth, we maintain a cadre of scientists who are 
independently funded at the intramural program to make sure 
that we have an understanding of the science that people are 
asking us to fund. So that's the other part of it. And that's 
the part that I think you need to make sure you don't destroy.
    Mr. Greenwood. The gentlelady from Colorado, do you wish to 
further inquire?
    Ms. DeGette. I just have, Mr. Chairman, I just have a 
question and a comment.
    My question is to Dr. Zerhouni, have you thought about what 
you would do about post-NIH employment, transfer of knowledge 
and issues like that?
    Mr. Zerhouni. You mean cooling off periods?
    Ms. DeGette. Yes.
    Mr. Zerhouni. Yes, we have and obviously, I couldn't go 
into all the details here, but we are looking certainly at 
these issues of cooling off.
    Ms. DeGette. Because it would seem to me that would be an 
important component of any enhanced ethics program that you 
would adopt, would you agree?
    Mr. Zerhouni. Right, I agree. And this is definitely part 
of--I thought it was a detail, but it is part of our 
consideration.
    Ms. DeGette. It's a detail we care about.
    Mr. Zerhouni. I know.
    Ms. DeGette. That actually leads beautifully into my 
comment which is that I have lots more questions here about how 
is the stock option issue going to work and what are we going 
to do about this and that. I mean it seems to me going back to 
my opening statement the details. I know you're trying to work 
those out. I would hope that you and your staff would continue 
working with this committee and our staff as you develop those 
details and Mr. Chairman, I would hope you would leave the 
option open for yet an additional hearing once those details 
are worked out. Because I think we all agree you're really on 
the right road here. We just need to see how it's all going to 
be executed and make sure that the same kinds of excesses that 
we saw in the past aren't happening now. And I thank you again 
for your attendance.
    Mr. Zerhouni. I really agree with you.
    Mr. Greenwood. Dr. Zerhouni, I lied about no more 
questions. Just one last one.
    You've referenced going to supplemental rulemaking. Do you 
have a timeframe on when you expect to be able to do that and 
then based on how long that takes, when these new rules would 
take effect?
    Mr. Zerhouni. We're working on, I'll let Mr. Azar comment 
on that. We're working very diligently to sort of create all of 
the rules that we need. Some may not need rules. There may be 
some areas where can act right away. At this time, we're really 
doing it within the quickest amount of time possible.
    Now beyond that, there are elements that are beyond my 
control or even Mr. Azar's control. Perhaps Mr. Azar can 
comment.
    Mr. Azar. It's my understanding that in the past with 
supplemental ethics regulations at the Department that they 
have, once they have been concurred in by the Office of 
Government Ethics, that they can go direct to final, rather 
than notice and comment rulemaking.
    That would be my goal and I would advocate for that. 
Whether the Office of Management and Budget, others who 
obviously play a role in the decisionmaking on regulations will 
permit that in this case because of impacts on private parties, 
I don't know, but that's been a past practice and the way I 
would hope to go so that we could go quickly once we could 
secure OGE and any other affected agencies. It would obviously 
go through interdepartmental clearance, the Justice Department, 
others might have views given the relations. But my office will 
certainly work fully with Dr. Zerhouni's office to provide any 
assistance getting the regulations drafted and working to 
advocate and get them through as soon as possible and also 
working with the committee as we work on the details there.
    Mr. Greenwood. Thank you, both. Again, I compliment you on 
your stellar work. It meets my approval across the board. There 
are a couple of details to work out, but I'm very pleased and I 
want you to know that and I want everyone at the NIH to know 
that as well.
    Thank you, again and you are excused.
    Mr. Azar. Thank you.
    Mr. Zerhouni. Thank you, Mr. Chairman.
    Mr. Greenwood. And we will now call forward the second 
panel. Mr. Peter Levine, President and Chief Executive Office 
of Correlogic Systems, Inc. an Dr. Jonathan Heller, Vice 
President, Information and Project Planning, Predicant 
Biosciences.
    Gentlemen, we welcome you. Thank you for being here. You 
may have heard me say to the previous panel that it is the 
custom of this committee to take testimony under oath and I 
need to ask if either of you object to giving your testimony 
under oath?
    Okay, seeing no objection, I also need to inform you that 
pursuant to the rules of this committee and of the House, you 
are entitled to be represented by counsel. Do either of you 
wish to be represented by counsel?
    You need to put your microphone one and speak directly into 
it and identify your counsel, plese.
    Mr. Heller. Counsel for Biosciences is Lenny Burr.
    Mr. Greenwood. And the gentleman directly behind you, thank 
you.
    All right, now you stand and raise your right hands, 
please?
    Do you swear that the testimony you're about to give is the 
truth, the whole truth and nothing but the truth?
    [Witnesses sworn.]
    Okay, you are both under oath.
    Mr. Levine, do you have an opening statement? You are 
recognized for 5 minutes to offer it.

  TESTIMONY OF PETER J. LEVINE, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER OF CORRELOGIC SYSTEMS, INC.; AND JONATHAN C. HELLER, 
  VICE PRESIDENT, INFORMATION AND PROJECT PLANNING, PREDICANT 
                          BIOSCIENCES

    Mr. Levine. I don't want to take up the subcommittee's time 
this morning with a lengthy reading of my written testimony. I 
would ask, however, that it be entered into the record.
    Mr. Greenwood. It will be entered into the record. You may 
summarize it as you care to.
    Mr. Levine. Okay. In brief, Correlogic is a clinical 
proteomics company. We're based in Bethesda, Maryland and we 
specialize in the development of technologies and tools and 
processes that can assist in the early detection of various 
cancers.
    The focus of Correlogics' energies over the last several 
years has been the development of complete diagnostic system. I 
think later in our testimony that will be a very important 
issue, based in part, on pattern recognition technology for the 
early detection of cancer. Our technologies and processes have 
a wide range of applications and can be used in the creation of 
disease diagnostic models and biomarker discovery and new drug 
discovery processes. And we are also a clinical laboratory 
regulated under the Clinical Laboratory Improvements Act of 
1988 and currently working with the Nation's two premiere 
clinical diagnostic laboratories, Quest Diagnostics and 
Laboratory Corporation of America.
    If I had my druthers, this morning, I'd be testifying only 
about the accomplishments of Correlogic and the results of our 
most recent research. I believe we're on the brink of some 
fantastic breakthroughs that will translate the research 
progress that we've made into the ability to provide more 
accurate and earlier detection of cancer and other diseases.
    And we would not be at this critical and exciting juncture 
without the considerable talent and resources of the National 
Institutes of Health and National Cancer Center, the Food and 
Drug Administration and the other components of the Public 
Health Service.
    So I hope that my comments will not be taken as a broad 
criticism of the life saving mission of these agencies or any 
kind of justification for lessening or reducing the Nation's 
financial commitment to the agencies.
    I also ask that my testimony not be misconstrued as a 
critique of the vast majority of men and women in these 
agencies that have dedicated their professional lives and work 
extremely hard to bring us the kind of medical science and kind 
of medical improvements that we've all seen over the last many 
years and because of their work thousands, hundreds of 
thousands of our citizens have had their lives saved and they 
give the hope to all of us for bright future.
    But as this subcommittee has already heard, all is not well 
at NIH. And the experience of Correlogic, these past 2 years, 
has revealed what I believe are some very serious flaws in the 
manner in which the agency implements its licensing, its CRADA 
and it's conflict of interest policies and procedures.
    By way of very brief background, Correlogic entered into a 
research CRADA and a licensing agreement with the National 
Cancer Institute and the Food and Drug Administration and the 
Public Health Service to develop a diagnostic testing system 
for ovarian, prostate, breast and other cancers. These 
agreements which we paid and continue to pay significant 
royalties were designed to facilitate the development and 
commercialization of a diagnostic testing system for the 
benefit of patients.
    It's important to note that we have met all of our 
obligations and entered into contractual relationships with 
other well-established industry players that have been approved 
by the Public Health Service to satisfy the Government's 
requirements under our licensing agreements. Unfortunately, 
since our work first became known to the public in 2002, what 
started as a cooperative and constructive research and business 
relationship has clearly deteriorated. And knowing now under 
the light that has been shed by this subcommittee and with the 
full perspective of hindsight, I can now really see what has 
been going on for the last 2 years.
    As the balance of my written testimony describes in more 
detail, we've been caught in a morass of conflicting interests 
and unilaterally changed agreements and a failure of the Agency 
to abide by the letter, much less the spirit of critical 
research and licensing agreements.
    While preparing for my testimony today, I genuinely 
struggle to find a starting place to address the focus on 
subcommittee's interest. Reflecting back on the last 2 years 
and all that's happened, it's the concept of good faith that 
keeps reoccurring to me. The agencies of the Government must 
act in good faith.
    As the subcommittee continues its work, I would ask that 
each and every issue under review be evaluated from this 
perspective. And that is, were these actions, were these 
decisions made in good faith or facts and legal interpretations 
made to support outcomes that were inconsistent with the spirit 
and the clear intention of preexisting agreements and 
relationships? To me, that is really the heart of the issue 
here.
    And Mr. Chairman, last, let me just comment that I appear 
today with great reluctance. I, of course, support 
wholeheartedly the efforts of the subcommittee, but I'm 
concerned about the impact of my testimony on my company's 
ability to continue to do business with the Public Health 
Service. We have already experienced what I believe are some 
indications that our cooperation may wind up being rather 
detrimental to Correlogic moving forward and we do intend to 
continue doing research with the PHS. So I only hope that when 
the dust has settled and the attention shifts elsewhere that 
Correlogic is not penalized, in essence, a second time for its 
cooperation with the committee.
    I'd be very pleased to answer your questions.
    [The prepared statement of Peter J. Levine follows:]

 Prepared Statement of Peter J. Levine, President, Correlogic Systems, 
                                  Inc.

    Mr. Chairman and Members of the Subcommittee: My name is Peter J. 
Levine. I am President of Correlogic Systems, Inc., a clinical 
proteomics company based in Bethesda, Maryland, that specializes in the 
development of tools and processes that can assist with the early 
detection of various cancers and other diseases. The focus of 
Correlogic's energies has been the development of a complete diagnostic 
system based in part on the use of pattern recognition for the early 
detection of cancer. Our technologies have a wide range of applications 
that can be used in the creation of disease diagnostic systems, 
biomarker discovery, and new drug discovery processes. We are also a 
clinical laboratory regulated under the Clinical Laboratory Improvement 
Amendments of 1988 and are currently working with the nation's two 
premier diagnostic laboratories, Laboratory Corporation of America and 
Quest Diagnostics, to provide an ovarian cancer testing service.
    I wish I were testifying today just about the accomplishments of 
Correlogic and the results of our most recent research, because I 
believe we are at the brink of translating significant research 
progress into the ability to provide more accurate and earlier 
detection of certain diseases, such as stage one ovarian cancer, when 
the cancer is organ confined and most curable. Quite frankly, we would 
not be at this critical and exciting juncture without the considerable 
talent and resources of the National Institutes of Health, the National 
Cancer Institute, the Food and Drug Administration, and the Public 
Health Service. I hope my comments today will not be taken as a broad 
criticism of the life-saving mission of these agencies or as 
justification for lessening our financial commitment to them. I also 
ask that my testimony not be misconstrued as a critique of the vast 
majority of men and women who work there. They have dedicated their 
professional lives, often at great personal sacrifice, to the 
advancement of medical science and the health of our nation. Because of 
their work, hundreds of thousands of lives have been saved, and these 
agencies give hope to a brighter future for millions of others.
    I have been asked to testify about our company's experience 
collaborating with these agencies, including the benefits and dangers 
for private companies that enter into contractual relationships with 
federal health agencies and with federal employees who are permitted to 
be both public servants and private entrepreneurs. Simply put, our 
experience has reflected both the promise and pitfalls of ``being in 
business'' with the National Cancer Institute and the Food and Drug 
Administration. It is my hope, Mr. Chairman, that your inquiry into 
weaknesses in the National Institutes of Health's ethics policies in 
general, and what has happened to Correlogic in particular, will lead 
to a quick resolution of these problems, and our attention can be 
returned to what should be our collective objective--fighting cancer 
and saving lives.
Origin of Our Relationship with FDA and NCI
    Correlogic's relationship with FDA and NCI began in June of 1999 
when I had brunch with Dr. Emanuel F. Petricoin, a senior research 
investigator at the FDA. Our wives had been close personal friends for 
many years, and Dr. Petricoin and I had met through them. During the 
meal, as was our custom, we caught up on professional events in our 
then very different worlds. He described to me the challenges he and 
his colleagues were facing in their search for protein biomarkers for 
cancer, particularly the difficulty in finding a biomarker in the 
massive amounts of data that could be produced by the latest generation 
of protein separation technologies. They were literally searching the 
proverbial haystack not for a needle but a single protein that might be 
indicative of the presence of a disease.
    I had significant experience in the use of computer-generated data 
analysis and suggested using pattern discovery technology to search for 
patterns of proteins rather than individual proteins for use as a 
diagnostic. I explained to Dr. Petricoin that I had been working with 
Dr. Ben Hitt (now the Chief Scientific Officer of Correlogic) on other 
applications of pattern discovery technology in non-medical fields. I 
suggested that if this type of technology could be developed and 
applied to cancer research, it might be able to detect patterns of 
proteins that were indicative of a disease state rather than individual 
protein biomarkers. Rather than looking for the needle in the haystack 
of data, we would look at the configuration of the haystack. Using my 
napkin as chalkboard, I sketched out the idea.
    Following the brunch, I talked through the idea with Dr. Hitt. He 
refined the concept and developed a powerful algorithm to test the 
theory that so-called ``hidden patterns'' of proteins, also known as 
proteomic patterns, could be analyzed to detect the early stages of a 
disease. Through 1999 and into the spring of 2000, Dr. Petricoin, Dr. 
Hitt and I tested the ``hidden patterns'' theory and in the spring of 
2000, we used the basic pattern recognition algorithm that Dr. Hitt had 
invented. Specifically, we applied the pattern recognition technology, 
and hidden patterns concept to the blood from prostate cancer patients. 
We were able to accurately perform a diagnostic assessment based on 
protein patterns in the blood. At this time we were collaborating 
informally with Dr. Petricoin.
    Encouraged, we immediately began work on applying our approach to 
ovarian cancer and outlining its application to other diseases. Dr. 
Hitt and I, along with another associate, Marc Giattini, founded 
Correlogic Systems in May 2000 to further develop this technology. Dr. 
Petricoin filed a Public Health Service Employee Invention Report, 
naming himself, Dr. Hitt, and me as co-inventors. Among other things, 
he cited our June 1999 brunch as the date on which the invention was 
conceived.

Formalization of Our Relationship with NCI and FDA
    Things progressed rapidly after the formation of our company. 
Correlogic entered into a Material Transfer Agreement with the FDA to 
facilitate the continuation of research. The company filed a 
provisional patent application on the core algorithm invented by Dr. 
Hitt. After a period of time, Dr. Hitt, Mr. Giattini, and I were able 
to supplement our personal funding of the company with additional 
monies from private investors. Correlogic filed several additional 
provisional patent applications on our hidden patterns testing process, 
naming Dr. Hitt, myself and Dr. Petricoin as co-inventors. We began 
negotiations with the Public Health Service on an exclusive license 
agreement for our testing process, as claimed in these latter patent 
applications.
    By July 2001, we finalized our patent filings. Correlogic bore all 
the expenses of these filings, as it continues to do today. By the time 
the non-provisional patent was filed, Dr. Petricoin had brought in his 
colleague and mentor, Dr. Lance Liotta, who was the Director of the 
Laboratory of Pathology at the National Cancer Institute. Along with 
the original three of us, Dr. Liotta was added as a co-inventor on the 
non-provisional filing of our ``hidden patterns'' patent application.
    In February 2002, the peer-reviewed medical journal, The Lancet, 
published the results of the study the four of us (and others) had 
authored, which demonstrated that our testing process could detect 
ovarian cancer, including stage one ovarian cancer, from a single drop 
of blood. The actual computational analysis for the Lancet study was 
performed by Dr. Hitt alone, based upon raw laboratory data provided by 
Dr. Petricoin and Dr. Liotta. Because of the significance of our 
findings, the report was filed on the journal's website a week in 
advance of publication. The publication generated overwhelming interest 
in the media as well as the scientific community, due to the novel 
nature of our process, the compelling results and, from the patient's 
perspective, the simplicity of a blood test.
    Congress was interested as well. A few months later the House of 
Representatives passed a resolution, introduced by Rep. Steve Israel 
and Rep. Rosa DeLauro, and co-sponsored by 147 members of the House, 
encouraging the government to support proteomic pattern research for 
ovarian cancer.
    In April 2002, we entered into a Cooperative Research and 
Development Agreement (CRADA) with the NCI and the FDA to ``utilize 
Correlogic's proprietary software technology to continue their joint 
research to identify patterns of protein expression indicative of 
specific disease states.'' We also signed an exclusive, worldwide 
licensing agreement with the Public Health Service to move our protein 
pattern testing process, the intellectual property rights of which were 
jointly held by Correlogic and the government, from the research labs 
into the hands of health care providers as soon as possible. The 
agreement contained explicit milestones and deadlines for the 
commercialization of our testing process.
    In October 2002, the Journal of the National Cancer Institute 
published a study we performed with our federal partners on the use of 
our technology in the early detection of prostate cancer. In accordance 
with the clear purpose of and the deadlines included in the exclusive 
PHS license agreement to Correlogic, we entered into agreements with 
Quest Diagnostics and LabCorp, the nation's two premier clinical 
diagnostic labs, to make our potentially lifesaving ovarian cancer test 
available to women across North America. We also expanded our staff and 
retained experts in clinical and laboratory diagnostics.
    I was thrilled. We were taking an idea that I had first sketched on 
a napkin and turning it into, in the words of the National Institute of 
Health's Office of Technology Transfer, ``a high-throughput diagnostic 
apparatus that will apparently be capable of detecting ovarian cancer 
in its earliest stages.'' We had obtained funding and assembled all of 
the corporate resources and expertise that we needed to advance the 
science and technology. Once the ovarian cancer testing device had been 
developed, we could do the same for other cancers and other diseases.
    In April 2003, NCI announced in a press release, and later in a 
presentation at the American Association of Cancer Researchers annual 
meeting, that our testing process had enabled NCI, FDA, and Correlogic 
scientists to improve upon the initial results published in The Lancet 
for the detection of ovarian cancer. Later that year, Correlogic 
entered into an agreement with Advion Biosciences to use one of their 
technologies as a component of our ovarian cancer detection test.
    This year, we began the process of finalizing the validation of 
OvaCheck TM, our ovarian cancer test service. We are 
continuing our work with the National Cancer Institutes' Laboratory of 
Tumor Immunology and Biology and Walter Reed Army Hospital and the 
Windber Institute on the application of our diagnostic testing system 
to the development of a breast cancer test.
    All of these developments are based significantly on our initial 
work with the government, and our exclusive licensing agreement. Our 
success has hinged in no small part on our ability to combine our 
expertise with that of key government scientists. We seemed to be a 
good example of the promise of government-private sector cooperative 
programs under the Federal Technology Transfer Act of 1986. In fact, I 
was invited by the National Cancer Institute to participate in a panel 
discussion on how a small company could work with the government to 
address a critical public health problem.

Awareness of Potential Conflicts of Interest and Related Issues
    On the outside, things could not have appeared better, but 
internally as we would discover, there were real problems. Only now, 
under the light shed by this Subcommittee, and with the full 
perspective of hindsight can we understand some of the obstacles that 
we had come to view as an inherent part of the public-private 
partnership.
    Back in 2002, a few months after the Lancet study, I was told that 
despite our exclusive licensing agreement and ongoing negotiations to 
expand our CRADA to include clinical testing for ovarian cancer, the 
National Cancer Institute had decided to ``sponsor'' an independent 
clinical trial on the hidden patterns technology, the very technology 
that was the essence of the patents we had jointly filed with Dr. 
Petricoin and Dr. Liotta. I was told that the Lancet study had pushed 
our testing technology to the forefront and that NCI wanted to move 
forward as quickly as possible in order to get our test into the hands 
of doctors and patients. We certainly agreed with the overall objective 
and, for that reason, had entered into our original collaboration with 
NCI consistent with the goals of the Federal Technology Transfer Act of 
1986. However, rather than continuing along the path with Correlogic, 
NCI had unilaterally decided to give a contract to Science Applications 
International Corporation (SAIC), with which it has a long-standing 
contractual relationship, to set up a new laboratory to carry out these 
clinical trials, and Dr. Gordon Whiteley was hired to head this 
project, beginning with the development of a business plan. I was told 
not to worry, that Correlogic's existing contractual agreements ensured 
that we would be an integral part of these trials and that our brand 
new license agreement would protect our IP and commercialization 
rights.
    Obviously, I was concerned at what was presented to me as a fait 
accompli. The Institute's decision impacted not only on our ability to 
meet required deadlines in our exclusive government licensing 
agreement, but also on the terms and conditions associated with our 
negotiations with two national clinical labs, LabCorp and Quest 
Diagnostics, as contemplated by the licensing agreement. When I raised 
these concerns with both Dr. Liotta and Dr. Petricoin, I was told not 
to be ``paranoid,'' and that NCI's unilateral decision was really in 
Correlogic's best interests. Frankly, I also was concerned--and remain 
concerned to this date--about the particular components that NCI had 
unilaterally chosen for the detection system and also about which 
entity would take the lead and responsibility for seeking regulatory 
approval following successful completion of the clinical trial.
    To resolve the myriad problems associated with NCI's decision, on 
August 15, 2002, I met with representatives from the Offices of 
Technology Transfer (and Development) for NCI, FDA and NIH. Leading the 
negotiations for the government was Dr. Liotta. Also participating was 
Dr. Svetlana Shtrom, who had been responsible for negotiating our 
original CRADA. We reached an agreement on how to proceed with joint 
clinical trials and our ongoing research CRADA, which was memorialized 
in a letter dated September 12, 2003, sent to me by Karen Maurey, then 
Deputy Director of the NCI's Office of Technology Transfer. In late 
August, NIH affirmed in writing that our work under this new agreement 
would be accepted as compliance with the government's deadlines in our 
original licensing agreement. We began drafting documents to implement 
the agreement.
    Relying upon these agreements by the government, we pushed forward. 
NIH approved our entering a contractual relationship with LabCorp and 
Quest Diagnostics to commercialize our testing technology and turn it 
into a diagnostic device. We continued our research and preparation for 
the clinical trials, sharing our work product and future 
commercialization plans with FDA, NCI, and NCI's contractor, Science 
Applications International Corporation. In fact, Drs. Petricoin and 
Liotta began participating in our conference calls with our commercial 
clinical lab partners, LabCorp and Quest Diagnostics.
    2002 came to an end and there was still no progress, even though 
supposedly we were simply turning the government's September letter 
into the necessary CRADA amendments and new clinical trial CRADA. I was 
troubled, given NCI's persistent pattern of not communicating or 
explaining its intentions with regard to my company, that despite 
countless drafts and revisions, we were unable to finalize the 
necessary amendments to our research CRADA and to a new, clinical trial 
CRADA. What should have taken a couple of weeks at the longest was now 
stretching out over months. Every time we got close, NCI's positions 
would change, and the agency's requirements and expectations would be 
amended. Correlogic agreed to virtually everything NCI proposed but 
there was always something else. The goal posts kept shifting, but I 
couldn't find out what was really going on. And every step along the 
negotiation path required the approval of Drs. Liotta and Petricoin.
    On April 18, 2003, my fears were realized. Kevin Brand, a 
straightforward and competent employee in NCI's Office of Technology 
Transfer, called me and said, ``I've got some bad news.'' He proceeded 
to tell me that NCI had decided to ``go it alone'' on the clinical 
trial.
    Not only was NCI reversing the position it had agreed to the 
previous year, it was placing Correlogic in an untenable position with 
regard to our contracts with our commercial clinical lab partners and 
our ability to satisfy the government's own contractual deadlines. When 
I contacted Dr. Petricoin, he told me I was overreacting, that the 
September letter made clear the rights Correlogic had to seek 
regulatory agency approval following the clinical trials. I wrote a 
detailed email to NCI's Technology Transfer Office, copying Dr. Liotta 
and Dr. Petricoin, explaining my shock at this new development.
    A few days later, Kevin Brand sent me an email proposing that 
rather than entering into the clinical trial CRADA, which we had been 
negotiating for nearly a year, NCI would agree to only a memorandum of 
understanding (MOU) that would be appended to our research CRADA. The 
MOU expressed some general and specific provisions and would have 
provided Correlogic with limited ability to participate in designing 
the clinical trial, developing the underlying analytical systems and 
seeking approval for a marketable diagnostic product.
    Once again, just like the summer of 2002, we had no real choice but 
to acquiesce to NCI's evolving position. The NCI had reversed itself, 
and we could either accept their latest offer or terminate our 
relationship with the government. I kept asking myself, what was really 
going on? None of this made sense. Why was this so complicated? Why 
were there so many delays? After all, Correlogic had complied with 
every requirement of the prior agreements.
    Despite all of the negotiations, two key points were still 
unresolved. Who would make the critical decision regarding the 
selection of the components of the diagnostic system that would be the 
core of our testing service? And, how were we supposed to reconcile, on 
the one hand, NCI's apparent interests in developing their own testing 
service through the work being done by their contractor, Science 
Applications International Corporation, with, on the other hand, the 
contemplated collaborative clinical trial reflecting benchmarks 
associated with the patent rights granted to Correlogic under our 
licensing agreement?
    In late June and early July of 2003, I first learned of one 
possible explanation for the confusion and delay. Unbeknownst to me or 
anyone at Correlogic, Dr. Liotta and Dr. Petricoin had been working as 
consultants for Biospect, a direct competitor of my company. And, as I 
learned only much later, through the Subcommittee's May 18 hearing, 
they had already been doing so for seven months. Also affiliated with 
Biospect was Dr. Rick Klausner, whom Dr. Liotta and Dr. Petricoin had 
briefed about the Correlogic-NCI-FDA relationship when he was the 
director of the National Cancer Institute. Joining these three at 
Biospect was Dr. Svetlana Shtrom, the NCI technology transfer 
specialist who had worked on our original CRADA.
    I had also learned that prior to being hired to set up NCI's 
clinical lab to conduct the hidden pattern tests, Dr. Gordon Whiteley 
had been an employee of a business run by Dr. Lance Liotta, a company 
called Immunomatrix.
    So, while our negotiations over finalizing our clinical trial CRADA 
were slowly going nowhere, Dr. Liotta and Dr. Petricoin had become 
consultants to our competitor, Biospect, and Dr. Shtrom had become an 
employee. During our endless discussions with Dr. Liotta and Dr. 
Petricoin about Correlogic's research and plans for clinical trials, I 
now realized, I would have had no way of knowing, for example, whether 
I had been talking to Dr. Liotta, the NCI employee, or Dr. Liotta, the 
Biospect consultant, or Dr. Liotta, an owner of Immunomatrix, or Dr. 
Liotta, the employer or former employer of Dr. Whiteley. And, these are 
just the relationships that I know about.
    I first learned about Biospect in May of 2003 in a conversation, 
followed by an email, with a biotech industry executive, who described 
the company as ``your new competition,'' rather than from my government 
research partners. Since Dr. Petricoin, Dr. Liotta and I routinely 
discussed our collective ``competition,'' I forwarded that email about 
Biospect to both Dr. Liotta and Dr. Petricoin, but they never 
responded. And they certainly didn't bother telling me they had been 
working for the company since December 2002. Included in the email I 
forwarded to Drs. Liotta and Petricoin were excerpts from Biospect's 
website. The website language was so close to our own, that even to a 
casual reader, it would suggest that this was a company engaged in very 
much the same activities as Correlogic.
    A few weeks later, I began hearing more from industry contacts 
about Biospect being a competitor, but now I was hearing that Drs. 
Petricoin and Liotta were affiliated with Biospect. In early July of 
2003, I reached Dr. Petricoin by phone and raised the issue directly. I 
told Dr. Petricoin that I was appalled, and that people in the industry 
were talking about a conflict of interest. Dr. Petricoin promised to 
share my concerns with his ethics officer.
    By this time--having watched NCI drag out our negotiations for 
nearly a year for no apparent reason, unilaterally tossing aside 
existing contractual agreements, and tolerating what appeared on its 
face to be a serious conflict of interest--I felt I had no choice but 
to ask one of our advisors to raise the conflicts issue with Dr. 
Barker. We were already in the process of attempting to meet with her 
to discuss all of the other NIH-Correlogic issues.
    I raised my concerns about what was happening to my company with 
Dr. Barker and other Public Health Service officials in a meeting in 
September 2003. While I recognized that Dr. Liotta and Dr. Petricoin 
would probably not appreciate what I was doing, I believed strongly 
that my company was entitled to an objective assessment and oversight 
by NCI officials who were in a better position to act in an impartial 
manner. The meeting was relatively short, but was courteous and offered 
a promise of appropriate guidance from senior NCI management. I 
expressed concerns about actions that appeared to be undermining our 
exclusive license agreement and Dr. Barker indicated she would take all 
my concerns under advisement. The issue of potential conflicts of 
interest per se was not discussed as it appeared that NCI had taken the 
matter under review.
    In October 2003, I received a packet from the National Cancer 
Institute, proposing, effectively, that we simply abandon all critical 
rights in our research CRADA that had been negotiated over the 
preceding year, eliminate all of the terms contained in the September 
2002 letter of agreement, and enter into a very narrowly defined 
clinical trial CRADA. We were expected to agree to language that 
directly contravened specific provisions in prior written agreements 
with the government, including, specifically, our exclusive license 
agreement. Notably, it also once again left Correlogic out of the loop 
with regard to determining the components of the diagnostic testing 
system.

The Recent Subcommittee Hearings
    All of us at Correlogic were disappointed, and surprised, at the 
testimony given to this subcommittee by Dr. Liotta and Dr. Petricoin. 
Their arguments for why no conflict of interest ever existed depend on 
minimizing Correlogic through three themes. First, they claim that 
Correlogic was ``just'' a ``software'' company, attempting to draw a 
distinction between the scope of Correlogic's business activities and 
those of Biospect. In fact, the National Cancer Institute's own 
documents rebut this assertion. For example, the National Institutes of 
Health's Office of Technology Transfer described what we were seeking 
to create as a ``diagnostic apparatus.'' In various correspondence 
between NCI, Correlogic, Dr. Petricoin, and Dr. Liotta, the term most 
commonly used to describe the system we were building was ``a device.'' 
There were many, many meetings devoted to detailed discussions of 
Correlogic's focus on the development of a diagnostic testing system. 
In fact, the issue of the selection and assembly of all of the 
components of a diagnostic testing system was, and is, at the very 
heart of the two year-long clinical trial CRADA negotiations. This is 
also the kind of information that companies consider to be among their 
most closely-held proprietary matters.
    Second, they seem to imply that the hidden patterns technology we 
helped pioneer for the early detection of cancer was something related 
to what they had been working on for years. While it is true that Dr. 
Petricoin and Dr. Liotta had been working on trying to diagnose cancer 
for years, our approach to cancer diagnostics was something new. In 
fact, their own actions undermine their argument. If their assertion 
were true, why did Dr. Petricoin file a Public Health Service Employee 
Invention Report which clearly states that something novel had been 
invented? Why did Drs. Petricoin and Liotta work with us on filing 
patents in our collective names? Why did they continue to publish with 
us results trumpeting our novel approach?
    Third, they diminish Correlogic's role in the development of the 
technology on the basis that we lack all the resources and laboratories 
available to the government or large companies. No one at my company is 
suffering under any delusions in this regard. However, we had an idea 
that may radically change the way physicians test for cancers and 
dramatically improve a patient's chance for early detection and 
treatment. Using our unique abilities, our staff and advisors, as well 
as the specific talents of government specialists and the capabilities 
of well-established industry players, such as Quest Diagnostics, 
LabCorp, Charles River Proteomics and Advion Biosciences, we are on the 
brink of bringing a new testing device to market. We are hoping to 
follow in the footsteps of the many innovative small companies that 
have made a substantial contribution to the public health. Facilitating 
this journey is the very purpose behind the Federal Technology Transfer 
Act--allowing different entities in the public and private sector to 
pool their abilities in order to advance medical science.
    Mr. Chairman, I hope my testimony today will shed some light on the 
need for reform of the consulting and outside activities approval 
process at the Public Health Service. As the experience of Correlogic 
demonstrates, the government's current ethics, licensing and CRADA 
processes allow for an inappropriate muddle of intellectual property, 
licensing, and commercialization rights of government agencies, private 
individuals, corporations, and public employees acting as private 
sector entrepreneurs.
    It is impossible in such a Kafkaesque morass to have any hope of 
impartiality or basic protection of contractual rights such as patent 
license agreements and CRADA. It is simply wrong for a single federal 
employee, whose salary is paid by taxpayers, to sit in judgment, or 
influence the outcome of contracts affecting legal rights and 
obligations when he or she may have private, pecuniary interests. It is 
also wrong for one component of an agency to undermine contractual 
rights granted by the parent agency. It isn't tolerated anywhere else 
in government. It should not be permitted at the National Cancer 
Institute.
    Mr. Chairman, I believe the experience of Correlogic is the 
exception not the rule. I remain convinced that the vast majority of 
employees at FDA, NCI and NIH are upstanding and dedicated public 
servants who would never put themselves into the kind of ethical 
quagmire we have experienced. Moreover, I believe, more than ever, that 
every American has a vested interest in the success of the kind of 
cooperative relationships that led to our original contract with the 
Public Health Service, and I hope that whatever changes the agencies 
and the Subcommittee feel are warranted do not undermine this critical 
activity.
    I hope the larger ethical issues can be addressed quickly, just as 
I hope the specific problems facing Correlogic can be resolved 
expeditiously. I hope, despite my appearance today, that Correlogic 
will be allowed to finish the work called for in the various agreements 
we have signed with the NIH and National Cancer Institute and the Food 
and Drug Administration. I hope that the NIH will honor its license 
agreements. And, I hope that Correlogic will not be victimized a second 
time by being shunned by the NIH when we seek future research 
collaborations.
    All we ask for is a level playing field, where a contract signed on 
one day cannot be discarded the next, at the whim of public employees 
who may have their own private, business agendas. The small private 
investors who have funded Correlogic, and hundreds of other small 
biotech companies deserve better. The men and women in our public 
health service deserve better. And, most importantly, the millions of 
Americans whose lives could be saved by the earlier and more accurate 
detection of cancer deserve better.
    I would be happy to answer any questions you may have.

    Mr. Greenwood. Thank you, Mr. Levine, and let me assure 
you, sir, that even a hint of any kind of retribution or 
negative response for your cooperation with this committee will 
absolutely not be tolerated by this committee.
    Mr. Levine. I appreciate that very much.
    Mr. Greenwood. And we would expect for you to inform us of 
any such untoward actions occur, because we will be all over 
it.
    Mr. Levine. Thank you, sir.
    Mr. Greenwood. Dr. Heller.

                 TESTIMONY OF JONATHAN C. HELLER

    Mr. Heller. Good afternoon, Chairman Greenwood and members 
of the committee. My name is Jonathan Heller and I am Vice 
President for Information and Project Planning at Predicant 
Biosciences, formerly known as Biospect.
    Thank you for the opportunity to appear before you today to 
discuss past consulting arrangements between my company and Dr. 
Lance Liotta and Chip Petricoin. With your permission, before I 
address these consulting relationships, I would like to take a 
few moments to tell you about myself and the company where I am 
extremely proud to work.
    In 1989, I received my Bachelor's Degree with Honors in 
applied mathematics from Harvard University. After college, I 
joined the Peace Corps as a volunteer and spent 2 years in 
Papua New Guinea, teaching science and math. My passion for 
science and math ultimately led me to graduate school at the 
University of California, Berkeley, where I earned a PhD in 
Biophysics in 1997. The focus of my graduate work was on 
biophysical investigations of Prion proteins, which are 
responsible for Mad Cow disease.
    In 2002, I was offered a wonderful opportunity with a 
small, South San Francisco startup company called Biospect. We 
recently changed our name to Predicant Biosciences.
    I was one of the first scientists to join Predicant, which 
has now grown to thirty-five employees. Our goal is and has 
been to revolutionize patient care by developing a platform 
that will reliably detect and diagnose the severity of a 
disease by analyzing protein patterns in blood.
    We are still approximately 18 to 24 months away from having 
a diagnostic service ready for sale on the market. As I testify 
today, my colleagues in California are hard at work on the 
company's integrated system. In very simple terms, our system 
works in the following way: A drop of blood from a patient is 
fed into our instrument; the instrument prepares the blood 
sample for analysis; proteins in the blood are separated into 
smaller groups; the grouped proteins are then sprayed into a 
mass spectrometer, a detection instrument; and finally, the 
data is analyzed to find patterns that suggest the presence of 
a disease. Many of our competitors focus on one, perhaps two of 
these steps. We believe that our comprehensive approach sets us 
apart, which is why we often refer to our system as a complete, 
``blood to answer'' solution.
    I manage the informatics department at Predicant. I work 
with a team of eight scientists and mathematicians on the last 
step of our integrated system, the data analysis step. We 
develop statistical tools for signal processing and for finding 
patterns in the data. These software tools help us cull 
meaningful information out of very large and often ``noisy'' 
data sets.
    We are hopeful that our ``blood to answer'' solution will 
become an important milestone in the field of predictive 
medicine. We at Predicant are very hard at work to make that 
happen. Earlier detection, more accurate diagnoses, and better 
information on the acuteness of a disease will optimize 
treatment selection and have a dramatic impact on patient care, 
on outcomes, and on health care costs.
    We understand that the committee recently has held several 
hearings on the important topic of ethics at the National 
Institutes of Health. Our company applauds the committee for 
its attention to this issue.
    At the hearing on May 18, the committee considered a ``case 
study'' involving the consulting relationships between our 
company and Drs. Liotta and Petricoin. While Predicant was 
unaware that the company would be a topic for discussion at 
that hearing, we are grateful for this opportunity to 
participate in this very important dialog and to provide our 
perspective on the issues raised by the committee.
    Drs. Liotta and Petricoin began consulting on a part-time 
basis for our company in December 2002. As this committee has 
previously heard, they are among the most prominent scientists 
in the field of clinical proteomics. Predicant engaged Drs. 
Liotta and Petricoin because they are thought-leaders in the 
field, and we believed that they could assist us in conceiving 
of and evaluating potential applications for our system and 
technology. In other words, we hoped that they could help us 
identify which diseases to target first.
    At the time that we engaged Drs. Liotta and Petricoin, our 
company was aware that there are important ethical restrictions 
that limit the type of outside activities that can be engaged 
in by government scientists. As a result, we sought to ensure 
that we followed all the applicable NIH and FDA guidelines and 
processes and were open and transparent in our dealings with 
those agencies. The consulting agreements were reviewed and 
formally approved by ethics officials at both the NIH and the 
FDA.
    Because Drs. Liotta and Petricoin are government 
scientists, our consulting agreements with them deliberately 
carved out large areas as off-limits for consultations or 
discussions of any kind. For instance, Drs. Liotta and 
Petricoin could not tell us about their official government 
research if their findings had not been made public. This 
includes any research performed under a CRADA.
    One of the concerns raised by the committee was that Drs. 
Liotta and Petricoin were consulting for Predicant at the same 
time they were engaged in Government work with a software 
development company called Correlogic. At the time that we 
entered into consulting agreements, we asked them to identify 
all of their outside activities, and we became aware of their 
CRADA. In addition, the fact of the collaboration between 
Correlogic and the Government was well known. As a result of 
the Correlogic agreement, the sharing of any public/non-public 
CRADA-related information was specifically excluded from the 
scope of our consulting agreements. Consistent with the 
agreements, Predicant never sought from Drs. Liotta and 
Petricoin, and they never shared with Predicant, any non-public 
information regarding their CRADA with Correlogic. In fact, 
they never shared any non-public information of any kind with 
Predicant.
    Another important point to be made here is that, while our 
company and Correlogic both employ clinical proteomics to 
detect disease, I think it is fair to say that our two 
companies are pursuing different methods--both in terms of the 
software and technology to achieve this goal. It is our 
understanding, based on public information, that Correlogic's 
software technology uses self-organizing maps in combination 
with genetic algorithms to identify and analyze proteins in the 
blood. Predicant, on the other hand, has focused on other 
methods, which we hope will prove more effective. In addition, 
as noted, Predicant's goal is to develop a comprehensive 
``blood to answer'' approach to disease detection, which we 
believe is not directly comparable to Correlogic's technology.
    In closing, I would like to emphasize on behalf of all of 
my colleagues at Predicant that we will continue to follow our 
internal ethical standards and all applicable government 
requirements as we strive to create new tools to aid in the 
detection of cancer and other diseases. We believe that we 
followed the rules and acted appropriately in our relationship 
with Drs. Liotta and Petricoin.
    Thank you for the opportunity to appear before you today 
and to participate in the important work of the committee. I 
would be pleased to answer any of your questions.
    [The prepared statement of Jonathan C. Heller follows:]

 Prepared Statement of Jonathan C. Heller, Vice President, Information 
           and Project Planning, Predicant Biosciences, Inc.

    Good afternoon, Chairman Greenwood, Representative Deutsch, and 
Members of the Committee. My name is Jonathan Heller, and I am Vice 
President for Information and Project Planning at Predicant 
Biosciences, formerly known as Biospect, Inc. Thank you for the 
opportunity to appear before you today to discuss past consulting 
arrangements between my company and Dr. Lance Liotta of the National 
Cancer Institute (``NCI'') and Dr. Emanuel ``Chip'' Petricoin of the 
Food and Drug Administration (``FDA''). With your permission, before I 
address those consulting relationships, I would like to take a few 
moments to tell you about myself and the company where I am extremely 
proud to work.
    In 1989, I received my Bachelor's Degree with Honors in applied 
mathematics from Harvard. After college, I joined the Peace Corps as a 
volunteer and spent two years in Papua New Guinea, teaching science and 
math. My passion for science and math ultimately led me to graduate 
school at the University of California, Berkeley, where I earned a PhD 
in Biophysics in 1997. The focus of my graduate work was on biophysical 
investigations of Prion proteins, which are related to Mad Cow disease.
    In 2002, I was offered a wonderful opportunity with a small, South 
San Francisco startup company called Biospect. After a lengthy 
deliberative process, our company recently changed its name to 
Predicant Biosciences because of trademark issues associated with the 
name ``Biospect,'' and because we believe the name ``Predicant'' more 
closely reflects our mission of identifying and predicting disease.
    I was one of the first scientists to join Predicant, which has now 
grown to thirty-five employees. Our goal is and has been to 
revolutionize patient care by developing a platform that will reliably 
detect or diagnose the severity of a disease by analyzing protein 
patterns in blood. Predicant is just two-years old and still in the 
development phase. To date, we have been concentrating on developing 
our technology; refining our business strategy and operational plans; 
developing scientific and clinical collaborations; and, most 
importantly, building a team of dedicated and talented scientists.
    We are still approximately 18 to 24 months away from having a 
diagnostic service ready for sale on the market. As I testify today, my 
colleagues in California are hard at work on the company's integrated 
system. In very simple terms, our system works in the following way: A 
drop of blood from a patient is fed into our instrument; the instrument 
prepares the blood sample for analysis; proteins in the blood are 
separated into smaller groups; the grouped proteins are sprayed into a 
mass spectrometer, a detection instrument; and finally, the protein 
patterns are analyzed to differentiate between patterns that suggest 
the presence of a disease and patterns that do not. Many of our 
competitors focus on one, perhaps two of these steps. We believe that 
our comprehensive approach sets us apart, which is why we often refer 
to our system as a complete, ``blood to answer'' solution.
    I manage the informatics department at Predicant. I work with a 
team of eight scientists and mathematicians on the last step of our 
integrated system--the analysis step. We develop statistical tools for 
signal processing and for finding patterns in the data. These software 
tools help us cull meaningful information out of large and often 
``noisy'' data sets.
    We are hopeful that our ``blood to answer'' solution will become an 
important milestone in the field of predictive medicine. Many dedicated 
scientists at Predicant are working very hard to make that happen. 
Earlier detection, more accurate diagnoses, and better information on 
the acuteness of a disease will optimize treatment selection and have a 
dramatic impact on patient care, outcome, and healthcare cost.
    We understand that the Committee recently has held several hearings 
on the important topic of ethics at the National Institutes of Health 
(``NIH''). Our company applauds the Committee for its attention to this 
issue.
    At the hearing on May 18, the Committee considered a ``case study'' 
involving the consulting relationships between our company and Drs. 
Liotta and Petricoin. While Predicant was unaware that the company 
would be a topic for discussion at the May 18 hearing, we are grateful 
for this opportunity to participate in this very important dialogue and 
to provide our perspective on the issues raised by the Committee.
    Drs. Liotta and Petricoin began consulting on a part-time basis for 
our company in December 2002. As this Committee has heard previously, 
Drs. Liotta and Petricoin are among the most prominent scientists in 
the field of clinical proteomics, our company's area of focus. 
Predicant engaged Drs. Liotta and Petricoin because they are thought-
leaders in the field, and we believed that they could assist us in 
conceiving of and evaluating potential applications for our system and 
technology. In other words, we hoped Drs. Liotta and Petricoin would 
use their knowledge and experience in the field to assist us in a 
variety of ways, including by helping us identify which diseases to 
target first.
    At the time that we engaged Drs. Liotta and Petricoin, our company 
was aware that there are important ethical restrictions that limit the 
type of outside activities that can be engaged in by government 
scientists. As a result, we sought to ensure that we followed all the 
applicable NIH and FDA guidelines and processes and were open and 
transparent in our dealings with those agencies. The consulting 
agreements between Predicant and Drs. Liotta and Petricoin were 
reviewed and formally approved by ethics officials at both the NCI and 
the FDA. In addition, it is our understanding that NCI officials in 
fact helped draft the agreement between Dr. Liotta and Predicant.
    Because Drs. Liotta and Petricoin are government scientists, our 
consulting agreements with them deliberately carved out large areas as 
off-limits for consultations or discussions of any kind. For instance, 
Drs. Liotta and Petricoin could not tell us about their official 
government research if their findings had not been made public. This 
included any research performed under a Cooperative Research and 
Development Agreement, or ``CRADA.''
    One of the concerns raised by Committee Members at the May 18 
hearing was that Drs. Liotta and Petricoin were consulting for 
Predicant at the same time they were engaged in government work with a 
software development company called Correlogic. At the time that we 
entered into consulting agreements with Drs. Liotta and Petricoin, we 
asked them to identify all of their outside activities, and we became 
aware of their CRADA with Correlogic as a result. In addition, the fact 
of the collaboration between Correlogic and the government and its 
general subject matter were well known in our field. As a result of the 
Correlogic agreement, the sharing of any non-public CRADA-related 
information was specifically excluded from the scope of the consulting 
agreements between our company and Drs. Liotta and Petricoin. 
Consistent with the agreements, Predicant never sought from Drs. Liotta 
and Petricoin, and Drs. Liotta and Petricoin never shared with 
Predicant, any non-public information regarding their CRADA with 
Correlogic. In fact, Drs. Liotta and Petricoin never shared any non-
public information of any kind with Predicant. We were always of the 
view that they took care to ensure that their work for us did not 
breach any ethical or other requirements.
    Another important point to be made here is that, while our company 
and Correlogic both employ clinical proteomics to detect disease, I 
think it is fair to say that our two companies are pursuing different 
methods--both in terms of software and technology--to achieve this 
goal. It is our understanding--based on public information--that 
Correlogic's software technology uses self-organizing maps in 
combination with genetic algorithms to identify and analyze proteins in 
the blood. Predicant, on the other hand, has focused on other methods, 
which we hope will prove more effective. In addition, as noted, 
Predicant's goal is to develop a comprehensive ``blood to answer'' 
approach to disease detection, which we believe is not directly 
comparable to Correlogic's technology. As a result, even if it had not 
been prohibited by our consulting agreement, Predicant would not have 
sought confidential information pertaining to Correlogic's CRADA 
because such information would have been of no value to our company.
    In closing, I would like to emphasize on behalf of all of my 
colleagues at Predicant that we will continue to follow our internal 
ethical standards and all applicable government requirements as we 
strive to create new tools to aid in the detection of cancer and other 
diseases. We believe that we followed the rules and acted appropriately 
in our relationship with Drs. Liotta and Petricoin.
    Thank you for the opportunity to appear before you today to 
participate in the important work of the Committee. I would be pleased 
to answer any of your questions.

    Mr. Greenwood. Thank you, Dr. Heller. I'm going to ask--the 
Chair recognizes himself and Ms. DeGette and I have agreed that 
I'll question for both of us, so we're going to go through a 
fairly tight script here.
    So if the staff could please play clips two and three, we 
will hear Dr. Petricoin's testimony from last week about 
discussions he had regarding this with you, Mr. Levine.
    [Tape is played.]
    Mr. Greenwood. Mr. Levine, in your discussions with Dr. 
Petricoin was your frustration, as he recalls, simply over the 
fact that Biospect employed so many former NCI employees?
    Mr. Levine. Not at all, Mr. Chairman. My conversation with 
Dr. Petricoin which, in fact, did not occur at the time that 
Dr. Petricoin suggested that it did, was a----
    Mr. Greenwood. When did it occur?
    Mr. Levine. The actual oral conversation occurred or 
telephone conversation, I should say, occurred on or about July 
8 or July 9, 2003. And it was explicit at that time that we 
viewed Biospect as a competitor. And what's interesting though 
is when I look back because of these hearings, it's very clear 
that in May 2003, I had sent an e-mail to Drs. Petricoin and 
Liotta which included the website of Biospect. It had been sent 
to me by an outside industry executive who said this is your 
new competition, Peter. And I forwarded that e-mail to Drs. 
Petricoin and Liotta as sort of an FYI because we were always 
talking about the competition out there, in essence.
    So I made it very clear----
    Mr. Greenwood. Mr. Levine, would you turn to Tab 28 in the 
binder there. I think that is the e-mail to which you are 
referring. I'm going to ask you to read it. Go to Tab 28 and 
then go to the second page and I think you'll find the e-mail 
to which you just referred.
    Would you read that?
    Mr. Levine. The incoming e-mail is directed to me from an 
outside industry executive. It says, ``Peter, nice talking with 
you today. Here's some information on your new competition. 
I'll be in touch. Vince.'' And attached to the bottom of the e-
mail is the website, I assume the website at that time of 
Biospect which describes the company. Actually, I think Dr. 
Heller's description just now was extremely accurate. And 
that's exactly as we perceived Biospect to be which was again 
exactly what Correlogic is doing.
    I then forwarded this same e-mail with all the background 
material on Biospect to Drs. Liotta and Petricoin on Thursday, 
May 22. And the subject line was ``FYI, Info on Biospect, FYI 
Rick Klausner, Lance and Chip, Peter.''
    So I brought this to their attention. I had no idea that 
they were consulting for Biospect. Frankly, I had never heard 
of Biospect before, but again this was brought to my attention 
by an outside industry executive.
    In the 4 or 5 weeks that followed this e-mail, I was 
informed by a number of other biotech industry officials that 
they heard that Petricoin and Liotta were consulting for 
Biospect or had some affiliation actually. And I became worried 
about that. And it was brought to my attention very 
specifically in late June, actually, I think it was over the 
July 4 weekend and I went to the website for the first time 
myself and all the pieces came together. I realized that 
Biospect was located on the same floor in our building in 
Bethesda and that I had indeed seen Drs. Petricoin and Liotta 
there which always struck me as being rather odd from time to 
time. And all the pieces began to come together.
    So at that point I called Dr. Petricoin who I considered to 
be a friend and I confronted him about it, very directly, and 
my concern getting back to your question, Mr. Chairman, my 
concern was not that there were all these former NCI folks, the 
concern was very specifically that Biospect was a competitor 
and that they were consulting with a competitor.
    Mr. Greenwood. Did your discovery of the consulting 
arrangement between Biospect and Drs. Liotta and Petricoin have 
an impact on your working relationship within the CRADA?
    Mr. Levine. Oh, it most certainly did. I immediately 
instructed all the scientists at Correlogic to be very careful 
about the information that we shared with them. And for 
example, this is at a time where we were beginning our work on 
electrospray technology and again, I don't know much about the 
details at Biospect, but it certainly seems to be very much 
related and this was an area that we were pursuing 
aggressively, again, all part of the process of putting 
together a turnkey system that goes basically from the 
patient's vein to a diagnostic determination. So we cautioned, 
I cautioned everybody at Correlogic to be very careful about 
what was said until the issue was resolved.
    Mr. Greenwood. I'm going to ask the staff to play Clip 5 
now.
    [Tape played.]
    Mr. Greenwood. First, let me ask you, Dr. Heller, do you 
consider yourself just a medical device company?
    Mr. Heller. I don't know exactly what a medical device 
company is, Mr. Chairman. I would say that we're trying to 
provide a complete solution. It contains an instrument. It 
contains software. It contains an application and we plan on 
delivering that entire system to the market for diagnosis.
    Mr. Greenwood. Sounds like what Mr. Levine is trying to do.
    Mr. Heller. It does sound like what he has said he is 
trying to do. That is not our understanding of what he was 
trying to do.
    Mr. Greenwood. Let me go to you, Mr. Levine. Do you agree 
with Dr. Liotta's assertion that you just heard, that what 
Correlogic is doing ``seems completely different'' from what 
Biospect is doing?
    Mr. Levine. No, I was actually amazed at that comment 
because at that time, and going back actually as early as April 
2002, it's very clear from the license agreement that we have 
with the Public Health Service and from what has now been a 2-
year negotiation, that the very central issue was the creation 
of a turnkey system. That was the content of probably a good 
two-thirds of our CRADA meetings. It was the content, in fact, 
it was the sticking point of our negotiations with the Public 
Health Service and particularly with NCI was the selection of 
components for a turnkey system.
    Mr. Greenwood. And is there any question in your mind that 
Dr. Liotta understood that?
    Mr. Levine. Dr. Liotta was intimately involved in all those 
negotiations. And indeed, one of the other issues that went on 
in this same time period was that, of course, the Public Health 
Service approved our contract with Lab Corp. of America and 
Quest Diagnostics and again, these are companies that with 
Correlogic, were attempting to deliver a turnkey ovarian cancer 
testing service. So again, the idea that we were only a 
software company is--it's very clear as early as April 2002, 
that was not the case.
    Mr. Greenwood. Do you believe that other parties at NIH 
understood that you were not just a software company as Dr. 
Liotta suggested?
    Mr. Levine. Well, I don't know where in the hierarchy of 
NIH the information was going. I know certainly that Drs. 
Liotta and Petricoin were our principal contacts at NIH, at FDA 
and NCI. So I don't know what they were telling their 
superiors, but clearly, a large number of people that ranged 
frankly from Dr. Shtrom of Biospect to people in the Office of 
Technology Transfer of NIH to the people or to the officials in 
the Office of Technology Transfer at NCI, all of whom were 
intimately aware of this. It's in documents.
    Mr. Greenwood. Speaking of documents, in Tab 28 again, 
would you point out some of the NIH e-mails that show what they 
understood?
    Mr. Levine. There are a series of e-mails here and for 
example, this is one on July 3, 2003 between Kevin Brandt and 
myself, cc'd to Dr. Liotta and Dr. Petricoin.
    Mr. Greenwood. Explain who Kevin Brandt is.
    Mr. Levine. I'm sorry. He's with NCI's Office of Technology 
Transfer. And again, this e-mail is describing the development 
of what at this point was a Memorandum of Understanding and the 
focus of this e-mail and I believe several others in this same 
group is the--for example, choosing of components. And again, 
the issue of choosing of components is far beyond software. It 
was one of the things that we were focusing on which mass spec. 
you use, this protein separation or ionization system do you 
use? Frankly, all the components Dr. Heller just described. 
That's exactly what Correlogic was doing.
    Our business model, however, was a little bit different, 
apparently, than Biospect's. We were doing this through 
collaborations with Lab Corp. and Quest, with Avion 
Biosciences, with Charles River Proteomics. We were doing this 
by way of license agreement and contract. But clearly, every 
one of these e-mails and all of these negotiations were all 
centered on that point of developing a turnkey system.
    Mr. Greenwood. Do you believe that it would be clear to 
someone comparing Correlogic to Biospect that the two companies 
are competitors?
    Mr. Levine. Clearly, and in fact, again the way in which I 
was alerted to, was that other industry executives, including 
some senior executives at a very large in vitro diagnostic 
company that if I mentioned the name everybody would know, they 
were the ones who were bringing it to my attention.
    Mr. Greenwood. Were you aware, prior to these hearings, 
that in August 2002, Drs. Petricoin and Liotta were in 
discussions with a company called Signet Labs about becoming 
members of their new scientific advisory board?
    Mr. Levine. Prior to these hearings, no.
    Mr. Greenwood. Would you go to Tab 33 and read the June 28, 
2002 e-mail from Jeff Livingstone to Dr. Petricoin and Dr. 
Petricoin's response.
    Mr. Levine. It says ``thank you very much for your kind 
reply. We are aware of Dr. Liotta's excellent work in 
proteomics and LCN and has worked with Ben Hitt at Correlogic. 
I agree he'd be an excellent person to contact in this regard. 
At present, Signet is a privately owned small business. The 
core business if profitable. However, the capital necessary for 
commercialization or new technology will require outside 
financing. Our plans are to use outside investment to double 
our size and research activities. And we will be starting our 
road show next month to raise approximately $15 million for 
successful commercialization of our technology. We expect this 
to be done through a combination of corporate and venture 
investments and some of our corporate partners, Zymarc, 
Corning, Life Science, etcetera, have expressed interest in 
contributing. In order to preserve capital, we are intending to 
offer equity compensations to those who serve as members of the 
SAB. Obviously, once we close on our first round of financing, 
this will convert to cash or cash plus equity basis, depending 
upon the interest of that particular SAB member.'' Dr. 
Petricoin's response dated Friday, June 28 says ``Hi Jeff, I'd 
be interested in learning more about this. I'd like to 
recommend my colleague, Dr. Lance Liotta at the NCI for 
consideration for the SAB. I can provide you with his contact 
info if you wish. I highly recommend him. We would have to 
receive outside activity okay from ethics. Can you tell me what 
kind of compensation the SAB members receive for their time. 
Best. Emanuel.''
    Mr. Greenwood. Now read the second paragraph in the e-mail 
from Jeff Livingstone to Drs. Petricoin and Liotta and then the 
reply e-mail from Emanuel Petricoin dated August 1, 2002. Tab 
32.
    Mr. Levine. The e-mail from Dr. Petricoin to Mr. 
Livingstone says ``Hi Jeff, both Lance and I are interested in 
talking with you about this. Perhaps a conference call this 
afternoon would be helpful to us so that we can understand 
better what you envision our roles to be, a bit more about your 
Magellan technology and how to get ethics clearance. Note that 
both Lance and I work with Correlogic as a CRADA partner within 
our Government jobs. Best, Emanuel.''
    And then there's another e-mail here also from Jeff 
Livingstone to Dr. Liotta. ``Dr. Liotta, you may be aware of 
any correspondence with Dr. Petricoin. I've invited him to be a 
member of a new Scientific Advisory Board we're putting 
together. He, in turn, suggested we send an invitation to you. 
As we're very aware of your excellent work in pathology and 
proteomics and of course, your background is an ideal fit for a 
new technology we'll be launching at the DDT meeting this 
coming Sunday. My only concern here is there may be a conflict 
of interest between the companies you're working with at 
present, e.g., Correlogic and any companies you may intend to 
start. As a professional courtesy, I do not wish to put you in 
such a situation. We meant no slight. I trust you understand. 
However, if this is not the case and you are interested, then 
please let me know. We'd be honored to have expertise and 
perspective available for the development of our Magellan 
platform. Plese note, I've sent a binder to Dr. Petricoin 
containing an overview of our company and technology, along 
with his invitation to the SAB. Please feel free to review it 
if you wish. I note you be participation''--that's the way it's 
written--``in the DDT meetings. See below. I intend to be at 
this meeting on Sunday and all day Monday. I'd be happy to meet 
with you in person if you have the time. If you're interested 
in visiting Signet while you're here, please let me know. I'd 
like to extend this invitation to Dr. Petricoin as well, if 
he'll be here for the meeting. Thank you for consideration.''
    Mr. Greenwood. Let me ask you this question. What role did 
Svetlana Shtrom play in the CRADA?
    Mr. Levine. Dr. Shtrom was the NCI technology transfer 
specialist that I dealt with continuously really from the 
summer of 2000 through the fall of 2002, both through the 
development of the original CRADA and then the attempted 
amendments that began in the summer of 2002 and she was also 
involved indirectly, I will add though, with the negotiations 
with NIH's Office of Technology Transfer about the license that 
we had, the exclusive license for the hidden patterns 
technology. The reason being is that there was an overlap, if 
you will, between the CRADA and the license agreement. Indeed, 
that's one of the issues really here that makes this so 
complicated. It's again that we are both co-inventors, along 
with Petricoin and Liotta and we are the exclusive licensee of 
the Government's interest in that invention and at the same 
time operating under a CRADA.
    So there was a lot of exchange of e-mails, conversations, 
between the Technology Transfer Office of NIH that we 
negotiated with for the exclusive license and NCI's Tech. 
Transfer Office that was responsible for the CRADA.
    Mr. Greenwood. And when did you learn that Svetlana Shtrom 
was involved with Biospect?
    Mr. Levine. At the same time, essentially, that I learned 
that Dr. Petricoin and Dr. Liotta were involved. I was aware 
that she was on the floor of our building, but never made the 
association.
    Mr. Greenwood. In your testimony, you mention that you're 
on the brink of bringing a new testing device that can improve 
chances for early detection and treatment of cancer to market. 
Has the process of negotiating with NIH in any way slowed the 
process of getting your product to the American people who need 
it?
    Mr. Levine. That's difficult to answer, Mr. Chairman, but 
certainly the amount of time, energy and effort that a little 
company like Correlogic has spent--a 2-year negotiation and of 
course, the--as we began to describe the CRADA relationship 
after July as the un-CRADA, certainly we could have made much 
more progress had there been a genuine collaboration and 
cooperation with our Government partners.
    Mr. Greenwood. Okay, Dr. Richard Klausner is listed on 
Biospect Predicant's website as a founder and director of the 
company. Do you know whether or not Dr. Klausner was aware of 
the work being done on Correlogic's CRADA with NCI?
    Mr. Levine. Long before any of these issues became aware, 
became apparent to me, in casual conversations with both Drs. 
Liotta and Petricoin, they mentioned to me the great interest 
that Dr. Klausner had in this and indeed, I think when you look 
back at all that went on, there was a tremendous amount of 
publicity in February 2002 concerning the Lancet publication on 
our ovarian cancer work with Dr. Liotta and Dr. Petricoin. So I 
think the Agency as--I think everyone at the highest levels of 
the Agency was very much aware of this work, but again, I was 
told specifically that both Petricoin and Liotta had been 
brought in to talk with Dr. Klausner.
    Mr. Greenwood. And do you know if those discussions 
occurred before or after his departure from NCI?
    Mr. Levine. No, I believe they occurred before.
    Mr. Greenwood. When you learned that Dr, Klausner was 
involved with Biospect, were you alarmed that the person with 
whom the two principal investigators on your CRADA had 
discussed your work, was involved with a competitor?
    Mr. Levine. Well, all that raised troubling questions and 
again, the e-mail that I sent to Drs. Liotta and Petricoin on 
May 22 was part of that issue. And again, because we routinely 
over the preceding 2 years had sent e-mails and constantly 
talked between ourselves about what other institutions were 
doing, other academics, other private sector companies, knowing 
that there were other folks out there who were sort of racing 
to fill the same space.
    So yes, it was very troubling and in general, the idea that 
the former director of NCI and actually there were at least 
three people that I know from NCI, two rather high positions, 
plus Dr. Shtrom who had worked with us directly, were all now 
members or were working with Biospect. Certainly, it seemed to 
be stacking the deck.
    Mr. Greenwood. Okay. I will turn to you, Dr. Heller.
    When did Biospect hire Dr. Liotta and Dr. Petricoin?
    Mr. Heller. I believe their consulting agreement started in 
December of 2002.
    Mr. Greenwood. And how long did the consulting relationship 
last?
    Mr. Heller. Up until last month as far as I know.
    Mr. Greenwood. Last month?
    Mr. Heller. Last couple of months, yes.
    Mr. Greenwood. And do you know when Dr. Liotta stopped 
receiving payments?
    Mr. Heller. I don't have an exact date, but it was some 
time in 2004.
    Mr. Greenwood. And did these two doctors work pretty 
consistently through that time period?
    Mr. Heller. They spent initially about 2 days a month and 
then subsequently about 1 day a month working with us.
    Mr. Greenwood. So Biospect was still compensation Dr. 
Liotta for work into May, is that correct?
    Mr. Heller. I believe his last paycheck was May 1.
    Mr. Greenwood. Look at Tab 41, I think it might help you.
    Mr. Heller. So yes, according to this, Dr. Liotta got paid 
on May 1, 2004.
    Mr. Greenwood. Okay, the staff would put up a slide and if 
you would turn your attention to the screen, Dr. Heller.
    Is this the canceled check indicative of the last time 
Biospect compensated Dr. Liotta?
    Mr. Heller. That looks like it is.
    Mr. Greenwood. Okay. So he was still doing work for the 
company during March, April and May. Is that correct?
    Mr. Heller. I do not recall whether we actually had 
conversations during that time period, but I would say most 
likely we did, yes.
    Mr. Greenwood. Is it likely you would have compensated him 
for doing nothing?
    Mr. Heller. As the agreement stood, we compensated them on 
the first of every month regardless. They did not have to turn 
in time sheets or anything like that. We did a direct deposit 
essentially.
    Mr. Greenwood. You don't know whether he was still doing 
work during those 3 months?
    Mr. Heller. In the last couple of months, I was no longer 
on the phone calls with Drs. Petricoin and Liotta. I would have 
to guess that they were still doing work in February.
    Mr. Greenwood. You said that you were not on the phone 
calls. That presumes that you know that there were phone calls?
    Mr. Heller. I assume there were phone calls.
    Mr. Greenwood. You assume, based on what do you make that 
assumption?
    Mr. Heller. One of my colleagues was responsible for 
working with them and setting up such phone calls and he was 
fairly diligent about that.
    Mr. Greenwood. Okay. The Chair will yield 10 minutes to the 
gentleman from Florida, Mr. Stearns.
    Mr. Stearns. Thank you, Mr. Chairman. If the staff would 
please play clip one. Plese listen to a statement of Dr. 
Petricoin made at our last hearing.
    [Audio file played.]
    Mr. Stearns. I guess the question would be for Dr. Heller.
    Based on Biospect's relationship with Dr. Petricoin, do you 
believe it is likely that this encounter with Dr. Goodman was 
the first time Dr. Petricoin understood that Biospect did data 
analysis?
    Mr. Heller. With all due respect, I cannot really say what 
Dr. Petricoin and Dr. Liotta remember about what we told them. 
I have the utmost respect for Drs. Liotta and Petricoin and 
therefore it's actually hard for me to understand the clip that 
we just heard.
    I believe that we had past discussions with them, starting 
at the beginning of their consulting relationship with us which 
made them aware that the company was doing pattern recognition, 
pattern analysis and subsequent to that we signed a 
confidentiality agreement with the NCI to acquire new data that 
was publicly available, but not yet published from Drs. Liotta 
and Petricoin and I believe they were aware that we had signed 
that consulting agreement and downloaded their data.
    Mr. Stearns. Can I summarize by saying you don't think that 
is believable what you just heard?
    Mr. Heller. I can't state under oath again that what they 
were thinking when they answered that, but it's not my 
knowledge.
    Mr. Stearns. Let me ask you yes or no, what you heard, do 
you think that is believable?
    Mr. Heller. Not to my knowledge.
    Mr. Stearns. Okay, so basically you're saying you don't 
think it's believable.
    Did Dr. Liotta or Dr. Petricoin offer any advice to 
Biospect on how to set up the labs?
    Mr. Heller. I assume by that you mean our reference labs?
    Mr. Stearns. Yes, the reference labs?
    Mr. Heller. I think we, in general, discussed different 
routes of bringing a product to market and that included, 
covered the area of setting up a clinical reference lab, yes.
    Mr. Stearns. Did they advise you on certification 
standards? CLIA certification standards?
    Mr. Heller. One of the main things that the two of them did 
is they pointed us to public information because we were a 
small company. We didn't have a lot of resources. We didn't 
know exactly where to look. I believe that one of the things 
they pointed us to was a list of CLIA reference lab standards, 
yes.
    Mr. Stearns. Which Federal agency regulates CLIA standards?
    Mr. Heller. I believe it's CMS.
    Mr. Stearns. So Dr. Liotta gave Biospect advice on how to 
implement a CMS standard?
    Mr. Heller. I wouldn't say that he gave us advice. I would 
say that he pointed us in the direction of a document that told 
us essentially what we would have to do to meet that standard.
    Mr. Stearns. So he advised on how to make the reference lab 
CLIA compliant?
    Mr. Heller. Again, he pointed us to documents that 
described how we would do that. I wouldn't say that he actually 
advised us how to do that.
    Mr. Stearns. Mr. Levine, has Correlogic attended any 
clinical proteomics conferences?
    Mr. Levine. Yes, we do, sir.
    Mr. Stearns. And were they with Drs. Liotta and Petricoin, 
did they make presentations at these?
    Mr. Levine. Over the last 3 years, there have been a large 
number of conferences. We have not attended most of those. I 
believe there have been at least two or three where either I 
have been a speaker along with Dr. Petricoin or Correlogic's 
Chief Scientific Officer, Dr. Hitt may have been a speaker 
along with Dr. Petricoin.
    Mr. Stearns. And when they discussed the work they had done 
for Correlogic, did they acknowledge the company's contribution 
to the work?
    Mr. Levine. In a minimal way. And in fact, over the last 
2\1/2\ years, there was a series of e-mails that I've not 
provided yet to the committee, but I'd be happy to do so where 
we actually complain about that, that basically our 
contribution is being minimized.
    Mr. Stearns. So the principal investigators, you were 
collaborating with on this CRADA, weren't giving the company 
any credit for their work?
    Mr. Levine. I wouldn't say no credit. I'd say really de 
minimis credit and particularly relative to the Lancet 
publication in which the actual analysis, I mean the actual--
the meat of the Lancet, the real discovery is what Dr. Hitt did 
in the computational analysis.
    Mr. Stearns. But as you mentioned, you are named with Dr. 
Petricoin and Dr. Liotta in filing patents in a publication. Is 
that correct?
    Mr. Levine. That's correct.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Greenwood. The chairman recognizes Mr. Bilirakis for 
questions for 10 minutes.
    Mr. Bilirakis. Well, Mr. Chairman, I listened to some of 
their testimony while I was out in the anteroom. I'm not going 
to be specific here as Mr. Stearns and others maybe were, but--
and I know in your written statements you basically refer to 
your experience at NIH and what not. Mr. Levine, you quite--
you're pretty strong, I would say quite frankly, would not be 
at this critical and exciting juncture in talking about the 
accomplishments of your company without the considerable talent 
and resources of the NIH and NCI, etcetera.
    You're both health care people. You're in it, obviously, to 
make a profit, but you're in it also because I think you care 
and you want to help people.
    And I know you're involved in the research area and you 
work with NIH and some of these other groups. I'm just going to 
ask you to maybe complement, if you would, supplement, 
complement your written testimony, anything more--you sat 
through the--how much time did we take with the prior panel. 
You sat through all that.
    Let's start with Mr. Levine, is it Levine?
    Mr. Levine. Levine.
    Mr. Bilirakis. With what I get with my last name, you 
shouldn't be----
    Mr. Levine. I respond either way, I got used to it too.
    Mr. Bilirakis. Mr. Levine, why don't you just go ahead and 
supplement your statement. You heard--your written statement 
was written prior to coming in and sitting in during the last 
panel. And just tell us how do you feel, I mean, how do you 
feel about what has happened? How do you feel about what we are 
doing here in terms of research? Are we helping research or are 
we hurting research, etcetera? Go ahead.
    And then Dr. Heller, I would ask you the same thing.
    Mr. Levine. I think, in general, that the subcommittee's 
work is critical and I think it will create a very significant 
improvement. We constantly hear about the job generation, for 
example, from the small business sector, well, actually both 
Biospect and Correlogic are small companies and if the 
Government wants to really realize the great potential of these 
public/private partnerships, you've got be able to assure that 
when small companies enter into relationships with the 
Government that they don't get crushed. And so I think the 
theme that I take away from all of this is that everyone in 
America has to abide by their agreements. Everyone has got to 
play fair, but particularly the Government, particularly the 
Government. My God, if a Government agency can just sort of 
arbitrarily decide to ignore an agreement that's signed on 1 
day because other people in the agency think it's not correct 
or because something looks more attractive elsewhere, the whole 
system falls apart. So I'm actually very encouraged by what Dr. 
Zerhouni said.
    Mr. Bilirakis. Excuse me, a minute, sir. I wanted to ask 
the questions. Dr. Zerhouni has left. Are there any NIH people 
in the audience? Are there any NIH folks here? Are you all 
taking notes? Okay.
    I would hope that some of the things that you're hearing 
from these two witnesses will go to Dr. Zerhouni and Mr. Azar.
    Okay, go ahead, sir.
    Mr. Levine. So I'm very encouraged by what I heard this 
morning. The other suggestion I would make though, I realize 
that the focus of these subcommittee hearings are principally 
on conflict of interest and the consulting arrangements, but I 
think that all this ties into the broader issue that when you 
have an agency as large as NIH, and you have this very 
complicated interaction of licensing agreements, intellectual 
property, contracts, CRADAs, essentially you have the potential 
and I think Correlogic is caught up in the middle of this, the 
potential for an incredibly complicated situation where rights 
are being granted and then whittled away or it's confusing as 
to which rights were granted. So I'm not sure that I can offer 
a solution this morning, but I think certainly someone has got 
to be able to be in a position to step back and say and what 
are all the conflicting or potentially conflicting and 
overlapping relationships between this agency, this employee of 
this agency, this private sector company, and this is 
particularly true, particularly true in the area of biotech.
    I have no problem whatsoever with Biospect, what Dr. Heller 
has said. We are both working toward the same end point and 
it's a great end point for the public, in general. But if it 
leaves too small biotech companies kind of wondering who 
they're talking to and what information they should be sharing 
and not be sharing, that can't be good for the public. So 
that's the lesson that I would take away from all of this.
    Mr. Bilirakis. Based on your experience with NIH, would you 
look forward to working with them or any other part of the 
Federal Government again regarding the good work that you're 
doing?
    Mr. Levine. That is a difficult question, Congressman. We 
do intend to continue working with the Public Health Service. 
And, again, in my opening comment, that is one of the concerns 
I have is that there are no whistleblower statutes for 
companies, especially small companies. But, no, we would.
    I mean, overwhelmingly, all of the scientists and the 
executives that I have dealt with in the Public Health Service 
are outstanding, so I don't think that this is a systemic 
problem. I think there was a profound lack of common sense 
applied to all of this. I mean, when you step back from all of 
the lawyers and figuring out where the semi-colons are placed, 
I mean, basically, you know, none of this would pass the smell 
test. It just didn't make sense. So, you know, but I don't 
think that is the rule.
    Mr. Bilirakis. I know the chairman basically laid out his 
admonishment regarding any negative suffering that you might 
have as a result of testifying here before you--right at the 
beginning of your testimony. So hopefully--I know he was pretty 
strong and stern when he made those comments, and I know he 
means it.
    Okay. Dr. Heller?
    Mr. Heller. I do. I also encourage the committee's work. I 
think you are doing very good work, and I was encouraged by Dr. 
Zerhouni's plans. I think we come from a different perspective. 
We feel like we followed all of the ethical rules and 
procedures, and really up until this morning we were under the 
impression that Drs. Liotta and Petricoin had as well. We do 
not feel like we had any surreptitious or secret dealings with 
them in any way.
    I think it is up to the committee and to Dr. Zerhouni to 
find the right balance between what government scientists 
should be allowed to do in terms of consulting and cooperative 
research agreements, and what not. I don't feel like I am in 
the proper place. I am not an ethicist in any way.
    I will say that I believe that allowing government 
scientists to consult encourages new developments in the field, 
and, in fact, I believe that Drs. Liotta and Petricoin's work 
has really led to the blossoming of a new industry. And I think 
that was--that is to be encouraged in many ways.
    Mr. Bilirakis. Are you optimistic hearing Dr. Zerhouni's 10 
steps as he explained them to us? Are you optimistic that those 
would work?
    Mr. Heller. I am. I think the transparency is the main 
issue within NIH.
    Mr. Bilirakis. Yes. Do you agree, Mr. Levine?
    Mr. Levine. I would like to make one more comment on Dr. 
Heller's comment, which I agree with generally. But the last 
part of your comment, Dr. Heller, that consulting is a way to 
somehow spread the--you know, get the technology out, I really 
reject that idea completely. The Congress has set up very, very 
clear mechanisms for the technologies that are developed by 
government to be transferred to the private sector, through a 
CRADA, through licensing agreements, and, of course, both of 
those are mechanisms that Correlogic has availed itself of.
    And, third, through the peer review and the publications 
and the public speaking that government scientists do. So the 
idea somehow that private consulting by a government scientist, 
where those funds go into the pocket of the scientist, and the 
information goes directly to the private sector company, I 
think that is just not--that is not a methodology for 
technologic transfer. There are three very, very good methods 
for technology transfer, and that is not one of them.
    Mr. Bilirakis. Well, Dr. Heller, a response to that? I 
mean, that is a little bit of a hornet's nest there. Go ahead.
    Mr. Heller. I mean, I guess, again, I am not an expert in 
this, but I guess I would disagree. I believe that consulting 
is a valid way to get information that government scientists 
have out to industry. And I guess I feel also that there are a 
huge number of applications for these kinds of technologies.
    Although in some senses Correlogic and Predicant may be 
competitors, in other senses there are hundreds of applications 
that we might want to go after. You know, specifically, from 
the literature I know ovarian cancer is at the top of 
Correlogic's list of diseases that it is trying to address. 
That is not on our list. And so I see no fundamental conflict. 
I feel like government employees can look at the----
    Mr. Bilirakis. So do you think that consulting is a pretty 
significant part of adequate research?
    Mr. Heller. I believe it is a way for government scientists 
to make their expertise available to biotech.
    Mr. Bilirakis. Well, it is kind of a fundamental point I 
guess.
    All right. Thank you very much, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentleman.
    The Chair recognizes the chairman of the full committee, 
Mr. Barton.
    Chairman Barton. Thank you, and I appreciate this panel 
still being here. I had to go do something else, and I am glad 
they are still here.
    Dr. Heller, let me ask you a hypothetical. Let us assume 
that I move to Colorado, and I move to Congresswoman DeGette's 
district. And I know she is a crackerjack campaigner, and I 
find out who her consultant is that is helping her on her 
campaign, and I decide to run for Congress against her.
    And I go to her consultant, and I say, ``Now, I am going to 
pay you a lot more, and I want you to continue to work with 
Congresswoman DeGette, but don't tell her that you are working 
for me. Just every now and then I am going to have a board 
meeting, and I want you to come give me information about the 
campaign.'' Would you consider that ethical or not?
    Mr. Heller. I would not consider that ethical, but I do not 
believe that that is the case in front of us today.
    Chairman Barton. All right. Now, you said you don't 
consider that to be ethical. Now, my understanding is that the 
former head of NCI, Dr. Klausner, at one time was a member of 
the board of your predecessor company, and maybe still is a 
member of the board of your--the company as it is currently 
configured. Is that correct?
    Mr. Heller. He is.
    Chairman Barton. Okay. Now, Mr. Levine, sitting right next 
to you, several years ago according to his testimony had this 
idea, and he sketched it out on a napkin at a restaurant, about 
the way to find a predictive test for ovarian cancer. And he 
got some folks at NIH to collaborate with him and checking it 
out, and, lo and behold, it appeared to have viability.
    And so they created what was called a CRADA, and he had 
several of the NIH researchers working with him on it, I think 
a Dr. Liotta and a Dr. Petricoin. And things were moving along 
swimmingly, and then, lo and behold, unbeknownst to him, they 
got retained to work for your company. And my guess is that Dr. 
Klausner recommended them.
    I don't know that, but since he was the head of NCI and he 
had access to this information, it would--it is speculation on 
my part, but it would seem to be logical that if he knew what 
was going on that he could have pointed these individuals out 
to your company. Is that how it happened, or did you all just 
pull names out of a hat and it happened to be these two 
scientists that were working on the CRADA with Mr. Levine's 
company?
    Mr. Heller. Let me explain a number of things. First of 
all, I want to address the point that the agreements between 
Biospect, now Predicant, and Drs. Liotta and Petricoin, were at 
no time secret. We never kept that from public information. We 
divulged that to people we were working with. It is not my----
    Chairman Barton. So Mr. Levine next to you is just an idiot 
and didn't know?
    Mr. Heller. We never talked to Correlogic or any employees 
there.
    Chairman Barton. You honestly think that it is fair game to 
hire people that are working for a company that, if not doing 
exact research, something in a similar vein. In fact, 
apparently they are the ones--this gentleman to your right is 
the gentleman who had the idea, and it is okay to go in and 
retain them and just assume that it is Mr. Levine's job to know 
that they were retained and hire a private investigator to go 
out and search them out?
    Mr. Heller. So let me address, again, a couple of issues 
here. One, although Mr. Levine and his--the people he works 
with did talk to Drs. Petricoin and Liotta, I would call it 
farfetched to--with all due respect, to say that they invented 
pattern recognition as it comes--you know, with respect to 
biological data. This is something that was going on in very 
closely related fields.
    The second thing I would like to say----
    Chairman Barton. I assume that you read his testimony about 
the dinner conversation that he had and sketching the idea on 
the napkin. You dispute that? That didn't----
    Mr. Heller. No, I completely believe that it occurred. But 
there were very closely related fields where people were doing 
very similar pattern recognition.
    Chairman Barton. Okay.
    Mr. Heller. Not in proteomics but in gene expression 
analysis, a very closely related field.
    Second of all, I don't think that it is fair to say that we 
were doing exactly the same thing, or we are doing exactly the 
same thing as Correlogic. Mr. Levine pointed out that we are 
approaching the same problem from different ways, and I think 
there is a fundamental difference.
    Chairman Barton. Nothing wrong with that. We are not 
disputing that there is----
    Mr. Heller. No, but let me explain. I think we are trying 
to develop a complete technology solution. We are not just 
trying to buy parts off the shelf and fit them together, and I 
think that because of that we are--we think of ourselves as a 
very integrated company.
    Chairman Barton. Well, but----
    Mr. Heller. We do not think of ourselves as only producing 
software. And to our knowledge, that was Correlogic's only----
    Chairman Barton. Well, let me--Mr. Levine, do you consider 
yourself the software company only?
    Mr. Levine. No, I don't, sir. And the analogy there really 
I think falls flat. I mean, there is virtually no company, at 
least in the technology world, that manufactures or produces or 
designs every single component of a complicated piece of 
equipment. I mean, if you look at a Dell computer, you will 
find the hard drives are made by one company in Taiwan, and the 
motherboards are made by somebody else in Texas.
    Chairman Barton. Well, we will give Dr. Heller the benefit 
of the doubt that his company is looking at this area in a 
little bit different way, and maybe a little more comprehensive 
way.
    Mr. Levine. Right.
    Chairman Barton. I won't dispute that. But I want to go 
back to how these two scientists at NIH that were under the 
CRADA agreement with Mr. Levine got picked to work for your 
company. Did Dr. Klausner have anything to do with identifying 
them as prospective candidates to work for your company?
    Mr. Heller. They were invited to be consultants for our 
company by our Acting CEO, Jim Tannenbaum.
    Chairman Barton. And how did he find out about it?
    Mr. Heller. He did work with Dr. Klausner. Dr. Klausner----
    Chairman Barton. So Dr. Klausner indicated to your Acting 
CEO that these were two individuals that were doing research on 
a similar idea and they might be worth talking to.
    Mr. Heller. I believe that would be the case, but let me 
also point out that there are a very limited number of people 
in the world who are doing this kind of research. You know, we 
are talking 20.
    Chairman Barton. When these two scientists were contacted 
by your company, was it a legal requirement that they notify 
Mr. Levine's company? Or was it just their own code of honor 
that they should indicate that they have been contacted?
    Mr. Heller. We had very carefully worded agreements. NIH 
participated in editing those agreements. All of the agreements 
that we have in place were NIH and FDA cleared. I do not know 
what NIH and FDA rules are with regard to disclosure. We 
specifically asked the consultants what other agreements they 
had, and we were informed----
    Chairman Barton. While they were in the CRADA with Mr. 
Levine's company, they were retained by your company. Were they 
compensated by both companies at the same time?
    Mr. Heller. I do not know whether----
    Chairman Barton. Were they compensated by your company?
    Mr. Heller. They were compensated by my company.
    Chairman Barton. All right. Mr. Levine, were they 
compensated by your company?
    Mr. Levine. No, that is absolutely prohibited. The CRADA--
we made a contribution in terms of our----
    Chairman Barton. So we have a situation with the 
government-sponsored research, the CRADA. The taxpayer is 
paying for their time. But with Dr. Heller's company, the 
investors are paying for their time, and so they have a 
potential conflict there that they are actually serving two 
masters, one of which is the public and one of which is 
private.
    Now, I don't know what the compensation package was with 
Dr. Heller's company. I will assume it was on the up and up. 
But if it had incentives in it, the incentives would certainly 
be for them to give their best shot to Dr. Heller's company, 
because they get more money that way.
    Mr. Levine. There were no incentives in it. It was strictly 
a fee per month.
    Chairman Barton. Okay. Now, I want to read you a statement, 
Dr. Heller, and you tell me what you think about this. This is 
from Mr. Levine's testimony. This is on page 10, and I quote, 
``So while our negotiations over finalizing our clinical trial 
CRADA were slowly going nowhere, Dr. Liotta and Dr. Petricoin 
had become consultants to our competitor, Biospect, and Dr. 
Shtrom had become an employee. During our endless discussions 
with Dr. Liotta and Dr. Petricoin about Correlogic's research 
and plans for clinical trials, I now realize I would have had 
no way of knowing, for example, whether I had been talking to 
Dr. Liotta, the NCI employee, or Dr. Liotta, the Biospect 
consultant, or Dr. Liotta, an owner of Immunomatrix, or Dr. 
Liotta, the employer or former employer of Dr. Whitley. And 
these are just the relationships that I know about.''
    Do you have any sympathy for Mr. Levine's plight there 
that, you know, he didn't know which hat his CRADA coordinator 
was wearing at the time?
    Mr. Heller. Let me address the fact that Svetlana Shtrom 
did and continues to work for Predicant. The first time I was 
aware that she actually was involved in establishing this CRADA 
was about 2 weeks ago. So we have internally had very high 
ethical standards. We have not discussed Correlogic or the 
CRADA internally at all, and I think that that is an important 
issue.
    Chairman Barton. Well, my time is about out, so I want to 
conclude with just an observation. In the political arena, if I 
am campaigning against Mr. Greenwood or Ms. DeGette, you know, 
I kind of know what the rules are. You know, everything is 
going to be in the public, and any funds that are raised have 
to be reported, and groups that support us have to report the 
contributions, and, you know, we fire salvos back and forth. 
But we kind of know what the rules are.
    But what you are having us believe, that in this research 
situation funded by NIH, that it was okay for you to go in and 
retain or somehow develop some sort of a contractual 
relationship with the people that were helping your competitor, 
and you didn't have to tell anybody about it. And it was okay 
as long as you got some scientific agreement that got approved 
and got filed where nobody could read about it, and I think 
that is just flat wrong.
    I think if the taxpayers are going to enter into a 
cooperative agreement, a CRADA, with any company, that anybody 
who represents the government, if they want to have a 
relationship with somebody else in the same line, that has to 
be transparently reported upfront, proactively, not, you know, 
if you smoke them out and he hires a private investigator, or 
just happens to find out through the grapevine, and, you know, 
I respect your academic background, and I respect the research 
that your company is doing, but I absolutely have no respect 
for the way you have gone in and retained the services of some 
of the individuals that at least ostensibly on paper were 
supposed to be working with Mr. Levine's company.
    I just think that is irresponsible. And if we need to pass 
legislation to prevent it, or if we can reinforce what Dr. 
Zerhouni has said in doing it administratively, I am going to 
encourage this committee to do that.
    Mr. Heller. May I comment on that?
    Chairman Barton. Certainly.
    Mr. Heller. I agree with your conclusion that better 
transparency is a good thing, and I believe that Dr. Zerhouni's 
recommendations will address that. I completely agree with you.
    I just want to point out, we did follow all of the NIH and 
all of the FDA guidelines. The FDA knew, the NIH knew, exactly 
what we were doing. We at no time tried to keep their 
relationship secret in any way, and, in fact, that is probably 
how Peter Levine found out about this. We weren't trying to 
hide this in any way. I feel like that is a false accusation.
    And so I agree that better transparency would be a very 
good thing. We feel like we followed the law, and if the laws 
need to change, which I believe that you are suggesting they 
do--and Dr. Zerhouni is suggesting they do--I believe that is a 
good thing as well.
    Chairman Barton. Mr. Chairman, I would ask unanimous 
consent for 2 minutes, just to----
    Mr. Greenwood. Without objection.
    Chairman Barton. Mr. Levine, I don't want to comment on 
what Dr. Heller just said, I want to give you a chance to 
comment on what he just said. Do you think that there was full 
disclosure of the relationship between Drs. Petricoin and 
Liotta and Biospect/Predicant and your company that you could 
have known without----
    Mr. Levine. There certainly was not, although I will say I 
am sympathetic, actually, to Dr. Heller's comment. The 
responsibility is not on Biospect to be, you know, contacting 
Correlogic. The responsibility was on the part of Drs. Liotta 
and Petricoin and NCI and FDA to make sure the situation 
couldn't arise. So we were not informed at all.
    In fact, there were numerous occasions where the 
opportunity to inform us was very apparent--for example, when I 
sent them an e-mail with the Biospect information in May 2003. 
So, again, I think the issue here really is it is the role of 
the Public Health Service scientists, it is the role of the 
ethics officers within those agencies--and, again, just to 
stress a point, it is not just the CRADA relationship. It is 
the interrelationship between research that we did with NCI and 
FDA under the CRADA and the overarching license agreement that 
we have with the Public Health Service.
    And just one other comment. Dr. Heller mentioned in answer 
to your description of my brunch discussion with Dr. Petricoin 
many years ago, whether or not the issue of pattern recognition 
has been used in other fields, of course it has been.
    But the central issue here, though, is that the FDA and the 
NCI and the Public Health Service and Correlogic have all filed 
patents on these various inventions. And, of course, the 
central part of the licensing agreement with Correlogic was to 
develop a turnkey system, and that is exactly the same business 
goal that Biospect has.
    And, again, I have no problem with what Biospect is doing. 
I mean, they--you know, if you can get some expertise, go ahead 
and do it. The problem lies with the agencies.
    Chairman Barton. So you think that if it is not Biospect's 
obligation, then the scientists in question should either 
recuse themselves, ask to be released from their obligation to 
your company, or, at a minimum, report it in an open and 
transparent fashion.
    Mr. Levine. That is absolutely correct. In fact, I think 
the issue of transparency, which several individuals today have 
already commented on, I think that is really, really key. And, 
again, because I think it is not--it doesn't take a group of 
lawyers to figure this out.
    It is really just--it is sort of a--you know, it is sort of 
a common sense look at the website of both Biospect at the 
time, and at the time from my perspective that is May 2003, 
perhaps earlier. And what Correlogic was doing, it didn't take 
an ethics officer or a scientist or a lawyer to figure out that 
these two companies had exactly the same goals and were working 
on very, very similar technologies.
    Chairman Barton. Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair asks unanimous consent to--the 
Chair yields himself 5 minutes, and then will just be brief and 
then yield to Mr. Bilirakis.
    Let me just understand something about your testimony, Dr. 
Heller. There are a couple ways to look at this issue. One is 
that not to worry because what you are doing is so different 
than from what Mr. Levine's company is doing that even if 
Liotta and Petricoin told you everything there was to know 
about what they were doing, it wouldn't have helped you anyway, 
because you are doing different things.
    The other way to do it is to say, actually, that they 
didn't you anything anyway, and so there was--confidentiality 
was kept. I mean, which is it here? I mean, do you want us to 
believe that if you knew everything that Dr. Levine was doing 
it wouldn't help you to develop your product?
    Mr. Heller. I actually think that it is sort of both of 
what you are saying. We knew nothing from--other than what was 
in the public literature about what Correlogic was doing. It 
was never shared by Drs. Liotta or Petricoin or anyone else 
with us.
    At the same time, we know specifically from the literature 
that they are working on these very specific software 
algorithms that are not the focus of what we are working on. We 
are working on completely different pattern recognitions and--
--
    Mr. Greenwood. So if Dr. Levine wrote everything that he 
was doing with his product in a notebook, and you happened to 
stumble upon it, you wouldn't even be interested in looking 
through it? You wouldn't learn anything from reading what Dr. 
Levine is up to?
    Mr. Heller. I think we would gain some information about 
what he was doing. I don't know that it would be incredibly 
helpful to our company in any way.
    Mr. Greenwood. Okay. Do you concur with that, Dr. Levine?
    Mr. Levine. No, I don't. And thank you for the doctor, but 
it is only----
    Mr. Greenwood. Right, Mr. Levine.
    Mr. Levine. Unless a J.D., you know, confers doctor status 
on me.
    The problem I have, Dr. Heller, with what you just said is 
that--and, you know, in general with this issue--is that when 
someone learns something, whether it is a scientist or just, 
you know, a citizen, when you learn something, you know, a 
month or 2 after you learn it, are you going to remember where 
you learned it? So whether or not--I mean, you are not in a 
position, and Biospect wasn't in the position, to know whether 
or not----
    Mr. Greenwood. You need to address your questions to the 
committee.
    Mr. Levine. I am sorry----
    Mr. Greenwood. That is okay.
    Mr. Levine. --Mr. Chairman. The problem is that when we 
would say something to a scientist at NIH, if a month later 
they are digesting that and then it comes back out in a 
conversation with somebody else, are they going to remember 
that they learned that or that particular piece of information, 
maybe not an earth-shattering, you know, not a patent pending 
kind of information, but the direction that the company was 
going in or some particular manipulation of data.
    So the issue really is: how do you filter out, and how do 
you know that what is in your own mind, and you then provide 
that advice to somebody else, is really coming from your own 
understanding, or is it coming from something that you learned 
a week earlier? So that is one concern.
    The second issue is that Dr. Heller mentioned, well, they 
are using different algorithms. But, again, what we have 
published, you know, publicly is one thing. But, of course, the 
fact that the work is ongoing with other bioinformatics--and, 
again, the central issue, as I mentioned earlier, is that we 
were developing and working on processes that began with the 
collection of blood and how it was handled, stored, prepared, 
through what kind of robotic machines would handle it, to mass 
spectrometry, all the way through to the end result. So it 
wasn't just the software issue.
    Mr. Greenwood. Which is why the standard in ethics is not 
conflict of interest. It is the appearance of conflict of 
interest. And by casting that kind of a net, we avoid all of 
this--all of these nuances.
    The Chair yields to the gentleman from Florida, Mr. 
Bilirakis.
    Mr. Bilirakis. All of this hitchhiking on all of these 
conversations, Mr. Chairman--well, Dr. Heller, I raised the 
question about the significance of consulting to the field of 
research. And you and Mr. Levine completely disagreed in terms 
of the significance of it and the need for it. I guess maybe 
that is the best way to put it is the need for it.
    Now, you said there is a need for it. Can you take a couple 
of minutes and tell me how? I mean, do you want to pick an 
illustration and tell us how that illustration supports your 
point of view? I think it is really, as the chairman just said, 
a fundamental policy question. And as long as--you know, maybe 
bad things have not taken place. But God knows it certainly 
contributes to the perception of an awful lot of bad things 
having taken place.
    So can you do that for us in a couple of minutes?
    Mr. Heller. Sure. Again----
    Mr. Bilirakis. And I thank the chairman for the time.
    Go ahead, sir.
    Mr. Heller. Again, this is not an area of my experience, 
but let me follow on a theme that Dr. Zerhouni mentioned in his 
testimony. He said, ``Well, what happens if there is an NIH 
scientist who is studying West Nile Virus with technology that 
is obviously applicable to some other disease?'' And I think 
that is a great example of what can happen.
    You know, in this case, the technology is not just limited 
to diagnosis of ovarian cancer and the diseases that Drs. 
Petricoin and Liotta and Correlogic are working on. There are a 
huge number of diseases out there, and to gain the expertise 
from people who have developed it for one particular 
application in other applications would be of great value to 
the scientific industry.
    Mr. Bilirakis. But isn't there, Mr.--am I pronouncing your 
name correctly when I say Levine?
    Mr. Levine. No, Laveen is the name.
    Mr. Bilirakis. Laveen. Dr. Heller has been using Laveen all 
along.
    But anyhow, Mr. Levine, aren't there other ways that this 
important significant information, these breakthroughs and what 
not, are available out there for the general public and for 
these other industries and what not?
    Mr. Levine. Yes.
    Mr. Bilirakis. Other than through the consulting method?
    Mr. Levine. Yes, absolutely. There are three methods. There 
is the CRADA method, which Correlogic is involved in, which, 
again, that is very public and it goes through a review process 
within the government. There is a licensing procedure where if 
Public Health Service scientists invent a technology which has 
the potential to be commercialized, it is posted in the Federal 
Register, and private sector companies can compete for that 
technology.
    And third, of course, is that most government scientists 
are obsessed with putting out peer reviewed publications, which 
are then available to anyone who buys the magazine or attends a 
conference. So I think there are very clear methodologies which 
are transparent, which are fair to the public at large. And if 
there is any, you know, income that comes back from those 
activities, and particularly the licensing--whether it is 
direct licensing or licensing under the CRADA--those funds come 
back into the Federal treasury, back to the taxpayer, not into 
the pockets of the individual scientist.
    Mr. Heller. May I comment on that?
    Mr. Bilirakis. Yes, Dr. Heller.
    Mr. Heller. I agree. I think that the three methods that 
Mr. Levine----
    Mr. Bilirakis. But you don't think they are adequate?
    Mr. Heller. I think it doesn't account for one thing. The 
scientists at the NIH and the FDA are very busy people. I 
couldn't guess how many e-mails that they get per day. How does 
a company like us, like Predicant, attract the attention? How 
do we get their time, and how do we get their information?
    The public meetings are one forum for doing that, but, you 
know, in general people come to these meetings for a very short 
period of time. They fly out. It is hard to attract people's 
attention. I think by being able to get focused--the focused 
attention through a consulting agreement, I think that is the 
best way. But I agree that it should be transparent.
    Mr. Bilirakis. Yes. So you feel the only way you can get 
the attention is by paying them, giving them stock options.
    Mr. Heller. I mean, I think there are multiple ways but 
different people respond in different ways. And we--I don't 
think that stock options are necessarily the right thing, and 
we specifically did not give any stock in this case.
    Mr. Bilirakis. Well, sir, I don't know what took place 
here. I don't think this committee is saying that you all did 
anything wrong or anything of that nature, because we don't 
know. I mean, that is not our job here. But I do think that the 
perception--and I am sure you don't blame Mr. Levin--Laveen, 
Levine, Levin----
    I am sure you don't blame Mr. Levine for thinking that, 
because, boy, what a perception there is there.
    Mr. Heller. No, I do not. Absolutely not.
    Mr. Bilirakis. So that is why we----
    Mr. Heller. But I believe the transparency would solve the 
issue. I think if he was made aware initially that the 
consulting agreement was being put in place, I think that would 
take care of this issue.
    Mr. Bilirakis. Well, thanks, Mr. Chairman.
    Mr. Greenwood. The gentlelady Ms. DeGette wants to comment.
    Ms. DeGette. Thank you, Mr. Chairman.
    I just wanted to comment. I joined in the chairman's 
questioning, so I didn't ask this round. But listening to the 
two of you gentlemen speak today, first of all I really want to 
thank you for coming, both of you. I know it was an imposition, 
and it was incredibly illuminating, some of the most 
illuminating testimony we have had during these series of three 
hearings.
    What it showed to me is, first of all, the concerns that 
private industry has in trying to get folks' attention over at 
HHS, and also to try to get some of the research, which is what 
leads, in our view, to some of these conflicts of interest that 
we are seeing and which really need to be ended.
    And the second thing--and really related--is the completely 
different motives in needing this information and research that 
private industry has from HHS and from the government agencies 
themselves. So, therefore, it is really clear to me we cannot 
and should not expect private industry to conduct the kind of 
policing operations that ethics counsel and others should be 
conducting.
    And the final lesson that your testimony taught me is it 
is--and I have been saying this all along like--I have just 
been harping on it, which is it is very difficult, and it is a 
huge challenge for the HHS ethics team and for Dr. Zerhouni to 
put together some ethics guidelines that will actually prevent 
these kinds of conflicts from happening. So all I would say is 
I think this has been very illuminating. I thank you for your 
help and hope you will continue to work with us as we do this.
    And to the HHS folks, good luck. I think it is really going 
to be hard to put ethics guidelines in place that are going to 
prevent these kinds of conflicts.
    Thank you, Mr. Chairman.
    Mr. Greenwood. The Chair thanks the gentlelady and thanks 
our witnesses.
    Dr. Heller, you are excused. Mr. Levine, we are going to 
ask you to take a seat but remain with the speakers. We may 
want to come back to you as we question the third and final 
panel.
    And I now call them forward. Dr. Anna D. Barker, Ph.D., 
Deputy Director, Advanced Technologies and Strategic 
Partnerships at the National Cancer Institute; Dr. Maureen O. 
Wilson, Ph.D., Assistant Director of the National Cancer 
Institute; and Dr. J. Carl Barrett, Ph.D., Director, Center for 
Cancer Research at the National Cancer Institute.
    Good afternoon. We welcome all of you here. As you probably 
know, it is the custom of this committee to take questions 
under oath. The first question I have for you is: do any of you 
object to giving your testimony under oath? Seeing no such 
objections, I would then advise you that you are entitled to be 
represented by counsel. Do any of you wish to be represented by 
counsel?
    Ms. Barker. No.
    Mr. Greenwood. Okay. In that case, I would ask you to stand 
and raise your right hands, please.
    [Witnesses sworn.]
    Okay. You are all under oath.

    TESTIMONY OF ANNA D. BARKER, DEPUTY DIRECTOR, ADVANCED 
  TECHNOLOGIES AND STRATEGIC PARTNERSHIPS; MAUREEN O. WILSON, 
 ASSISTANT DIRECTOR; AND J. CARL BARRETT, DIRECTOR, CENTER FOR 
           CANCER RESEARCH, NATIONAL CANCER INSTITUTE

    Mr. Greenwood. And, Dr. Barker, do you have any opening 
statement or any comments you wish to make preliminary to 
questioning?
    Ms. Barker. We do not have an opening statement. We are 
here to answer your questions.
    Mr. Greenwood. That is true of you, Dr. Wilson, and you, 
Dr. Barrett?
    Mr. Barrett. That's correct.
    Okay. In that case, we will--okay. Let me address you 
first, Dr. Wilson, and ask you this. And I am going to ask the 
staff to pull up the slide for Dr. Wilson's questioning.
    While they are doing that, I will describe it. It is an e-
mail dialog between you--there it is. You may have to turn 
around in order to see that. It is an e-mail dialog between 
you, Dr. Wilson, and Dr. Liotta and Holli Beckerman Jaffe. Ms. 
Beckerman Jaffe writes, ``Please also confirm with him that 
while he has not received any payment since February''--in 
other words, he was last paid in February--``he has not 
consulted with Biospect since February. The arrangement has 
been put on hold until he receives approval on from Dr. 
Kington. I know I am beating a dead horse, but I want to be 
very clear on the facts.''
    Dr. Liotta then responds, ``I confirm this on hold.''
    Do you understand his response to mean that Ms. Beckerman 
Jaffe asked that he had not received any payment since February 
and had not consulted with Biospect since February? Was that 
your understanding?
    Ms. Wilson. That was my understanding.
    Mr. Greenwood. Okay. And why would it have been a problem 
if he had been consulting for the company beyond February?
    Ms. Wilson. At the time of the new NEAC rules, all 
activities with Biotech, as well as others that were covered by 
the NEAC responsibilities were to be resubmitted for approval, 
and all new activities that were covered under their 
jurisdiction also were supposed to be submitted for approval. 
And our regs say you cannot proceed with an activity without 
obtaining prior approval.
    Mr. Greenwood. And let me ask you this. Do you believe it 
was consistent with that policy to be able to receive 
compensation, either if there was no further activity?
    Ms. Wilson. It would probably depend on the subject of the 
agreement. Payment for prior services would be, in my mind, 
acceptable. But, again, that would be subject to the agreement.
    Mr. Greenwood. But if there was a monthly payment to be 
made, would you--is it your understanding of the policy that 
the employees should not receive payments for ongoing services?
    Ms. Wilson. The intent was to cease accepting payment until 
rereview had gone forward.
    Mr. Greenwood. Okay. I am going to ask the staff to play 
clip 6, in which we will hear Dr.--go ahead.
    [Tape played.]
    Those voices were Dr. Petricoin first and then Dr. Liotta. 
Was that clear to you----
    Ms. Wilson. Yes.
    Mr. Greenwood. [continuing] which was speaking when? Okay.
    Based on his testimony, do you understand Dr. Liotta to be 
confirming what he stated in this e-mail, that he stopped 
working for Biospect in February?
    Ms. Wilson. He indicated that it was on hold . He said he 
had one e-mail conversation with them. I do not know what the 
subject of the e-mail is, so I wouldn't know whether to call it 
employment or not.
    Mr. Greenwood. What do you interpret ``on hold'' to mean?
    Ms. Wilson. ``On hold'' would be----
    Mr. Greenwood. I am going to ask you to speak a little bit 
more directly into your microphone. Thank you.
    Ms. Wilson. ``On hold'' would be performance of no 
services.
    Mr. Greenwood. Performance of no services. And, again, 
receipt of no payments for----
    Ms. Wilson. Yes.
    Mr. Greenwood. [continuing] services. Okay.
    I am going to ask the staff to show the slides. This is a 
series of canceled checks indicating that Dr. Liotta was 
continuing to be compensated for his work through May. Dr. 
Wilson, doesn't that conflict with what he told you and Ms. 
Beckerman Jaffe in the e-mail?
    Ms. Wilson. Yes, it does.
    Mr. Greenwood. Okay. Doesn't this suggest that he did not 
terminate his agreement with the company as he was required to 
do by new NIH policies at the time?
    Ms. Wilson. The requirement was that the activities be put 
on hold until they could be rereviewed, not necessarily that 
they be terminated. The NEAC was to determine whether they 
would be terminated or not.
    Mr. Greenwood. Okay. Didn't terminate his agreement. 
Certainly did not--it certainly indicates that he did not 
terminate his agreement. But what you're saying was the 
termination of an agreement per se was not the policy, it was 
to suspend services and payment----
    Ms. Wilson. Yes.
    Mr. Greenwood. [continuing] during that time. And why did 
you ask him in that e-mail--or why did the Ethics Directors, 
excuse me, ask that--he inquired as to whether he had received 
any payments and wanted to confirm that he had not received any 
payments since February?
    Ms. Wilson. To assure that, in fact, he was abiding by what 
NIH had put in place.
    Mr. Greenwood. Okay. The former director of NCI, Richard 
Klausner, is a member of Biospect's Board of Directors. Dr. 
Carol Dahl, former Chief of the Office of Technology and 
Industrial Relations at NCI, was Vice President of Strategic 
Partnerships. Svetlana Shtrom, who was the Technology Transfer 
Officer from NCI with whom Correlogic had to negotiate its 
CRADA was hired by Biospect. And the two co-principal 
investigators on the CRADA--Drs. Liotta and Petricoin--were 
hired by Biospect.
    And if you will look at Tabs 27 and 37 in the binder before 
you there, you will see information from the websites of 
Correlogic and Biospect. Do you see them? Tab 27, and then 37. 
I want you to compare them.
    To me, they look remarkably similar. For example, 
Correlogic's site states, ``Correlogic's mission is to advance 
the early identification of various cancers and other diseases 
and to accelerate the new drug discovery process by applying 
its proprietary software to the development of proteomic and 
other biomarkers.''
    Turning, then, to Biospect's website, it states, ``Biospect 
is an emerging life science company founded in 2002 that is 
developing technology for identifying and assaying protein 
biomarker patterns.''
    Given the fact that all of these parties have a 
relationship with a company that bears a near-same statement of 
aims to its own, and is clearly a competitor, isn't it 
reasonable for Correlogic to be concerned that something is 
amiss?
    Ms. Wilson. It is reasonable, yes.
    Mr. Greenwood. Okay. Let me turn to Dr. Barrett. As you 
know, Dr. Richard Klausner, the former Director of the NCI, is 
on the Board of Directors of Biospect. Do you know Dr. 
Klausner? You need to turn your microphone on and make sure it 
is up close.
    Mr. Barrett. I do know him, yes.
    Mr. Greenwood. Okay. And did you advocate having Dr. 
Klausner designated as special volunteer in your lab at NCI?
    Mr. Barrett. Yes.
    Mr. Greenwood. Okay. If you would turn to Tab 16, you will 
see documentation that you submitted in September 2001 to get 
Dr. Klausner the special volunteer designation. Do you see 
that?
    Mr. Barrett. Excuse me. That was 16?
    Mr. Greenwood. Tab 16, yes.
    Mr. Barrett. Yes, I see that.
    Mr. Greenwood. Okay. Can I assume that you have had a 
professional relationship with Dr. Klausner that prompted you 
to do this?
    Mr. Barrett. Yes. Dr. Klausner had resigned as the Director 
of the National Cancer Institute to take a position, and as 
other outside people was allowed to be a special volunteer at 
the NIH. And so he was doing--continuing to do research at the 
NIH. He had one post-doctoral fellow who was continuing to do 
this research, and this agreement allowed him to continue to be 
a special volunteer, not paid, but actually continue that 
research.
    Mr. Greenwood. And did he get that designation?
    Mr. Barrett. Yes, he did.
    Mr. Greenwood. And does he still have the designation?
    Mr. Barrett. No, he does not.
    Mr. Greenwood. Okay. When did it end?
    Mr. Barrett. I do not know. It was not renewed, so it 
certainly expired after 1 year. But I don't know if----
    Mr. Greenwood. Are you still in communication with Dr. 
Klausner?
    Mr. Barrett. I have not been in communication with him 
since probably June 2002 would be my recollection.
    Mr. Greenwood. Were you doing Dr. Klausner a favor when you 
supported him in his request to be a volunteer?
    Mr. Barrett. I think Dr. Klausner is a noted scientist, a 
member of the National Academy of Sciences, and was doing 
research that had begun when he was at the NIH. And this 
appointment allowed him to complete that research, which I 
think was in the benefit of the NCI and the NIH.
    Mr. Greenwood. Okay. My time has expired. It appears that 
there is a series of votes. I am going to recognize the 
gentlelady from Colorado for 10 minutes, and at the end of her 
questioning we will recess for probably----
    Ms. DeGette. Ten minutes or 5 minutes?
    Mr. Greenwood. Five minutes. I am sorry.
    Ms. DeGette. Okay.
    Mr. Greenwood. And then we will recess for----
    Ms. DeGette. Thank you very much, Mr. Chairman.
    Mr. Greenwood. [continuing] 45 minutes.
    Ms. DeGette. Dr. Barrett, I wanted to talk a little bit 
about some confusion from the May 18 hearing. Our written 
transcripts reflect that what you said is, when you were 
reviewing Dr. Liotta's request to consult for Biospect, you 
were unaware of the plethora of former NCI employees working at 
Biospect. Is that correct?
    Mr. Barrett. That is correct.
    Ms. DeGette. But during the hearing, Dr. Liotta said, 
``When I reviewed this with my ethics officer and discussed the 
outside activity, it was clearly known and factored into the 
review that particularly the review, that former Cancer 
Institute employees were members of that company.''
    Were you, as you testified, unaware of all of the former 
NCI employees or officials working at Biospect?
    Mr. Barrett. I was told that there was some relationship 
with Dr. Klausner. It is still not clear to me exactly what 
that relationship was, if he was a member----
    Ms. DeGette. When were you told that?
    Mr. Barrett. I was told that--I guess I was told that when 
it was--back in August when we were rereviewing this. But that 
was----
    Ms. DeGette. Okay. So when you say on May 18 that you were 
unaware of former NCI employees, that was incorrect?
    Mr. Barrett. No, I said I didn't--there was a long list of 
individuals, and the only ones I knew about were Dr. Klausner 
and Dr. Dahl.
    Ms. DeGette. Okay. But your testimony on the 18th--I am 
sorry I am not tracking. Your testimony on the 18th was, ``I 
was unaware of the NCI former employees being members.'' So 
where is the--what is the discrepancy there?
    Mr. Barrett. Maybe I didn't appreciate the question. My 
understanding was there was some relationship with Dr. 
Klausner, but that was not clear to me. And I also knew that 
Dr. Dahl was a member of that company, but I was unaware of the 
other individual.
    Ms. DeGette. Okay. But that is not what our record reflects 
that you said on the 18th. You didn't specify that you knew 
about several, Dr. Klausner in particular, but not of others. 
So is what you are saying now correct?
    Mr. Barrett. What I am saying now is correct, yes.
    Ms. DeGette. All right. Now, Dr. Barker, and also you, Dr. 
Barrett, after hearing Peter Levine testify earlier today about 
how Correlogic and Biospect are, in fact, competing companies, 
do you now question your decision to allow Dr. Liotta to be 
involved in a consulting relationship with Biospect at the same 
time he was involved in the CRADA with Correlogic?
    Ms. Barker. I said yes to that last time, and I would 
actually reaffirm that. I think if the information that one has 
today was available when this rereview was done, that it would 
not have been approved.
    Ms. DeGette. Let me ask you what additional tools--and, Dr. 
Barrett, do you agree with that?
    Mr. Barrett. Yes, I do.
    Ms. DeGette. What additional tools would you need to have 
to be able to make an informed decision? Because it is pretty 
clear to me you didn't have all of the evidence at the time you 
were approving both of these relationships. Dr. Barker?
    Ms. Barker. Yes. When I was asked--actually, a colleague of 
Peter Levine's asked that this be reviewed, raising just this 
issue in August 2003. And so when I did ask that question, I 
obviously asked the question of Dr. Wilson, the Ethics Officer, 
and she in turn asked Dr. Barrett to rereview those. And the 
system that was in place basically up until I believe the 
announcements today is very, very much dependent on 
investigators actually giving you information about their 
consulting arrangements.
    And I was new to NCI. I came in actually to look at some of 
these issues for Dr. von Eschenbach in the technology area, 
especially the development area. And having been in the 
biotechnology industry myself, I did understand some of the 
questions that were being asked, and so I think that--I think 
Dr. Wilson and Dr. Barrett reviewed it with all of the 
information that was available to them then.
    Ms. DeGette. Well, I am not--yes, I am not disagreeing with 
that. What I am asking you is--and what you are saying is the 
previous system was dependent on the researchers themselves 
giving you information.
    Ms. Barker. Right.
    Ms. DeGette. And probably if Mr. Levine had not contacted 
you all, you may have never known about this terrible conflict, 
right?
    Ms. Barker. Correct.
    Ms. DeGette. So what is it about the reforms being 
announced today that you think will stop these kinds of 
conflicts in the future?
    Ms. Barker. Well, one of the things that we are doing at 
the NCI is to create a data base much like the one for--that 
Dr. Zerhouni announced today. We have been working on that.
    And I think the issue here with CRADAs is complex, and we 
can--you know, you may have more questions about that. But I 
think we need to understand clearly the consulting arrangements 
of individuals that are going to enter into CRADAs, and they 
have to be--I think it has to--the understanding has to be 
pretty complete, and we really have not had the tools to do 
that in my opinion.
    Ms. DeGette. Now, how would that--let me ask this question 
and then I will yield to the chairman. How would that system 
prevent this kind of conflict from happening?
    Ms. Barker. I should probably let Dr. Wilson answer that 
question, since she would review that request and act on it. 
But I am assuming that she would have a great deal more 
specific information that----
    Ms. DeGette. Yes. Let us let Dr. Wilson answer.
    Ms. Wilson. The one piece that is probably lacking in our 
system right now has been a complete recognition of all of the 
CRADA technology-type transfer arrangements.
    Ms. DeGette. If you can speak more closely to the mike.
    Ms. Wilson. Sorry. What is missing in our system has been a 
direct connection with the technology--all of the technology 
transfer agreements and with a full knowledge of these pieces. 
We do, in our office, look actually at CRADAs, one form of 
technology transfer. So in approving the outside activity, we 
would have looked at the Correlogic CRADA. We would have known 
about that. But we would not have known of any additional----
    Ms. DeGette. And would you know about that now?
    Ms. Wilson. We are putting in place a system that will 
actually let us in real time get that information.
    Ms. DeGette. I will yield to the chairman.
    Chairman Barton. Well, I am going to have my own time when 
we come back. But it just--I want to ask Dr. Barker what 
information you have today that you didn't have back on August 
20 when you ruled that Dr. Liotta's duties were appropriate? 
What do you know today you didn't know then?
    Ms. Barker. Well, I think the--as this process has unwound, 
actually, we have learned a great deal more about the 
Correlogic's competitor, Biospect, that was actually capsuled 
here today. And I think just the simplicity of looking at the 
change in the website, which has changed over time--when Dr. 
Wilson reviewed this request, even back in August of last year, 
or the fall of last year, the website was still quite different 
from the website that we are viewing now. And so----
    Chairman Barton. Well, how was it different?
    Ms. Barker. It basically did speak to the fact that the 
focus of the company at that time was really around 
instrumentation, and some of the issues that Dr. Liotta has 
reflected in his request. I think only in the--in very recent 
months has the website reflected this issue of pattern 
recognition being a major focus of the company. It was news 
to--I think it was news to Dr. Wilson and the----
    Chairman Barton. Is Congresswoman DeGette coming back? 
Because I don't want to take all of her time if she is--I mean, 
I want to----
    Mr. Greenwood. Help yourself, Mr. Chairman.
    Chairman Barton. Okay. Well, Mr. Levine is out there in the 
audience vigorously shaking his head that his website has 
changed. I don't know what the protocol is to----
    Mr. Greenwood. Mr. Levine is still under oath and is----
    Ms. Barker. Not his website, the Biospect website.
    Mr. Greenwood. Mr. Levine, would you like to come to the 
table, pull up a chair, and----
    Chairman Barton. And as soon as Congresswoman DeGette gets 
back, I will----
    Mr. Greenwood. No, she has gone for the votes. She is not 
coming back----
    Chairman Barton. Okay.
    Mr. Greenwood. [continuing] until after the votes.
    Chairman Barton. Have you heard----
    Mr. Greenwood. And I would advise the chairman that we have 
5 minutes and 39 seconds left on this vote.
    Chairman Barton. Mr. Levine, Dr. Barker had said that she 
didn't know now--she knows more now than she knew then when she 
approved this, and that one thing that has changed is 
Biospect's website. What is your response to that?
    Mr. Levine. Well, I can't comment on what any of the NIH 
officials knew when. But certainly on May 22, 2003, the website 
was very clear, and we have all looked at that earlier. So 
nothing changed. In May 2003, the comparison and the similarity 
between what we were doing and what Biospect was doing was very 
clear at that time. So I am not sure what change the witnesses 
are referring to.
    Chairman Barton. Well, my--and, again, when I get back I 
will have my own time. But my comment to Dr. Barker and to Dr. 
Wilson and to Dr. Barrett, reading the August 20, 2003, 
memorandum from Dr. Wilson to Dr. Barker that Dr. Liotta's 
activities were appropriate or acceptable or approved is based 
on the fact, it appears to me, that he didn't have a 
proprietary interest in the CRADA. And while he was being paid 
by Biospect, he didn't have an ownership interest, so as long 
as he was being paid in a consulting fashion it was okay.
    Now, am I misreading that? But it doesn't really relate to 
the subject. I mean, it is just--it was kind of a technical 
ruling that, you know, Biospect was hiring him as a consultant, 
and so he could pretty well consult on whatever he wanted, and 
it was okay.
    Ms. Wilson. It would not be true even before that he could 
consult on whatever he wanted. There were restrictions on what 
a Federal employee----
    Chairman Barton. That is not what the memo says.
    Ms. Wilson. It is a technical analysis. Is the activity 
legal? Did it meet with regulations? And technically it did.
    Chairman Barton. Well, I am--we have to go vote, but we 
are--I assume we are going to retain these--this panel, so we 
can come back and get into this in more detail.
    Mr. Greenwood. That is correct.
    The committee will now recess until 3.
    [Brief recess.]
    Mr. Greenwood. The committee will come to order, and the 
Chair recognizes the chairman of the full committee for 10 
minutes for inquiry.
    Chairman Barton. Thank you, Mr. Chairman, and I appreciate 
the panel staying.
    I am trying to get a handle on what constitutes a conflict 
of interest at the time the individuals who were working on the 
CRADA were also asked to go to work on the Biospect company 
payroll as consultants. And I am looking at this August 20, 
2003, memorandum, which is from Dr. Wilson to Dr. Barker, and 
the subject is Conflict of Interest Review, Lance Liotta, M.D.
    It is Tab 7, if you all have that information.
    On page 1 of the memo, it starts--it says--it has the 
sentence that, ``Ethical conduct for employees of the executive 
branch requires that approval be granted,'' so it is a positive 
directive that approval be granted in response to a request for 
outside employment under the following conditions: that the 
request is submitted prior to the beginning, and unless it is 
determined that the outside employment involves conduct that is 
prohibited by statute or Federal regulation.
    So if an individual wants to go to work outside the 
government, they have to submit it, require it to the beginning 
of the activity, and then if you--unless it is determined that 
the employment would involve conduct that is prohibited by 
statute, then you have to say yes.
    On the next page it says that, ``The nature of the 
consultive services requested''--this is Dr. Liotta's request 
to be a consultant for Biospect--``are limited in requests 
deemed to be advisory and unrelated to any HHS matters. These 
consultive services do not violate the regulation.''
    Now, my first question is: how was it determined that what 
Dr. Liotta was doing for Correlogic was unrelated to any HHS 
matter? Because he was doing the same thing, or at least 
similar work. So who determined that it was unrelated? Did you 
just take Dr. Liotta's word at that?
    Ms. Barker. We did actually go through the established 
process. Maybe Dr. Wilson should let you sort of hear that 
review quickly, and then we can talk about the specifics of 
this case.
    Ms. Wilson. In conducting the review, we look at the scope 
of Dr. Liotta's duties. We look at his personal financial 
interest, we look at his CRADAs, we look at the grant and 
contract activity insofar as we are able to determine it, all 
of the technology transfer activities insofar as we are able to 
identify them. And we also look at the science.
    We look for the purposes of the science--as you know, 
science is changing on a daily basis. It is very complex now, 
and so our office does rely on experts who know the field much 
better than anyone in my office does to give us a review of 
whether what is proposed by the scientist is within the scope 
of the employee's duties or outside.
    Chairman Barton. But you know when he is asking this--I 
mean, he says, ``I am part of a CRADA with Correlogic, and this 
is what Correlogic is trying to do. They are trying to find a 
predictive test for ovarian cancer based on some sort of an 
analysis of blood.'' I mean, you know that, right?
    Ms. Wilson. Yes.
    Chairman Barton. Now he wants to go to work for Biospect, 
and according to their web page they are doing the same thing. 
And yet in this memo it says it is--what he is requesting to do 
for Biospect is unrelated to any HHS matter. That just begs 
credulity that that would be a statement.
    Ms. Wilson. This memo relates to the rereview. The original 
approval we did not have access to the website. Biospect's 
website in 2002 was not available to us. So we relied on the 
description of the company, on the description that was 
provided and the documents provided from the company as to what 
he was going to do.
    We asked Dr. Barrett to assist us with the science of the 
matter. And given that it was limited by the provisions that 
were put into the contract, it was determined that those things 
were matters of general applicability.
    Chairman Barton. Well, now, so what you are telling me, if 
I interpret this colloquially, Babe Ruth was a great pitcher 
for the Boston Red Sox. He turned out to be a great hitter for 
the New York Yankees. And according to this ruling, he could 
continue to do both. He could play right field for the Yankees 
and hit home runs. And when he wasn't playing for the Yankees, 
he could go up to Boston and pitch for the Red Sox.
    Ms. Wilson. By the same instance, would we have stopped him 
from coaching his children's little league----
    Chairman Barton. Well, I think if you would have told the 
owner of the Yankees that he still wanted to go pitch for the 
Red Sox, you know, both ownerships would have had a problem 
with that.
    Ms. Wilson. I do not disagree with that.
    Chairman Barton. All right. Mr. Barrett, what is your take 
on this? Dr. Barrett?
    Mr. Barrett. Thank you. We reviewed this carefully, but I 
must--as we admitted last time I think, knowing what we know 
today, we would not have made the same decisions.
    Chairman Barton. But what do you know today that you didn't 
know then?
    Mr. Barrett. Let me explain that to you, Congressman. So at 
the time, what we knew was that the Biospect company was a new 
company that had a very general description of their 
activities. It was not clear that they were involved in the 
pattern recognition business. What was also known was that the 
CRADA with Correlogic, the Correlogic's contribution, was in 
terms of doing the computational analysis, the algorithm, to 
actually do the analysis of the patterns and the proteins.
    So what we did to make sure, so it did not appear that 
there was any overlap, but we put very clear exclusionary 
language within the consulting agreement to try to make it very 
clear that if there was any overlap that that would be 
excluded, and that Biospect in fact knew that.
    Clearly, it should have been the case that Correlogic--Mr. 
Levine--should have also been aware of this. We admitted that 
last time, and I think that certainly is one of the changes 
that needs to be----
    Chairman Barton. Well, Dr. Heller, when he was before us in 
the previous panel, basically said that you can't blame his 
company because they complied with all of the rules. And you 
are the people that are applying the rules, and you are saying 
you didn't know.
    I mean, the Biospect website shows this capability will be 
targeted to improve the diagnosis and clinical patient health 
and enable new approaches to drug development. The Biospect 
system will be the foundation for the discovery and detection 
of patterns of proteins, protein fragments, that reflect and 
differentiate various states of health and disease.
    And the Correlogic mission statement--and I am not going to 
read the whole thing--they want to create turnkey diagnostic 
systems that will revolutionize the disease, testing, and 
screening market. They will also provide pattern discovery 
solutions to biotech and pharmaceutical companies for the use 
in genomics, if I am saying that correctly, molecular biology, 
protein sequencing, and in new drug identification and toxicity 
evaluation.
    Now, that is not word for word. But I am not a biological 
scientist, but it sure looks to me like they are doing the same 
thing.
    Mr. Barrett. Yes, sir. Based upon those two descriptors, I 
would agree fully with you. The----
    Chairman Barton. Well, they didn't look at that. I mean----
    Mr. Barrett. I don't know when that was available. If it 
was available and we did not look at it, that was certainly----
    Chairman Barton. I mean, isn't the truth is that--and this 
is speculation on my part--but it appears to me that prior to 
this subcommittee getting involved in this, after 1995 the 
environment at NIH was to either encourage these sort of 
arrangements or to give it only the most perfunctory and 
technical analysis. And this particular arrangement just took 
it a little bit too far.
    But, I mean, I don't see that any effort was really made to 
check what was going on. You all basically took Dr. Liotta at 
his word, or whatever he put into writing, and gave a very 
technical analysis of it, and based on that said it is okay. 
Now, how far off the mark am I on that?
    Mr. Barrett. I think you have a lot of merit in what you 
say. I think what we did do was to look, obviously, at the 
scope of the CRADA. And the scope of the CRADA is much more 
narrow than the scope of the overall mission of the company. 
And so within the scope of the CRADA there was very clear 
language in the consulting agreement that that was excluded.
    Chairman Barton. Now, as a layman, do you feel that it 
would be appropriate at any time for somebody in your--the 
three of your positions, the government positions that are 
reviewing this, to let the first company know that Dr. Liotta 
had acquired this ability to be a consultant for what appears 
to be a competitor? Should the law require or internal 
regulations require that before that approval is granted, even 
if it looks okay on paper, the original company ought to be 
notified?
    Mr. Barrett. We fully agree with Dr. Zerhouni's conclusion 
that these things should be transparent and should be----
    Chairman Barton. Well, you agree with it today, but you 
didn't at the time. Did anybody bring that up? Did anybody sit 
around the table or by e-mail say, ``You know, we ought to let 
those saps at Correlogic know that the two principal people 
they are working with at NIH are about to have a consulting 
arrangement with what appears to be a competitive company''? 
Did anybody even think about that?
    Ms. Barker. In the concept of the Privacy Act, which we 
believe this outside activity to be covered by, we would not 
have made that personal income relationship known to the 
public. And from this perspective----
    Chairman Barton. Well, I am not saying make it known to the 
public, but, for gosh sake, why can't you make it known to the 
company that started the process first? I am not saying put an 
ad in The Wall Street Journal. But why couldn't you have 
notified confidentially Mr. Levine's company? That is not 
protected by the Privacy Act.
    Ms. Barker. We would have--we would have checked with legal 
counsel to determine whether they were in the chain of command, 
and whether they were covered by the Privacy Act or not, 
whether we had the ability to. Absent that, we would not have 
made it known.
    Chairman Barton. Well, my time has expired, and I apologize 
for that. But at some point in the process, if you folks are 
the people responsible for ruling on ethics applications, you 
need to step back and look at the broader picture. I don't see 
any attempt in the documentation to really look at what we 
would consider to be right and wrong.
    And, you know, Dr. Zerhouni, to his credit has come around 
to the view that we need to change the system. And apparently 
you folks also agree that the system needs to be changed, which 
is to your credit. But in the interim, Correlogic has had two 
of the people that it thought were assigned by the government 
to work with their company have behind the scenes been working 
with another company, at least along a similar track.
    And my analogy to Babe Ruth is kind of corny, but it is 
very real. You know, there is no way the New York Yankees would 
have let Babe Ruth go back and pitch for the Red Sox. There is 
absolutely no way, but yet by the approval of this application 
that is essentially in the research sphere what was allowed to 
happen.
    With that, Mr. Chairman, I would yield back.
    Mr. Greenwood. The Chair thanks the chairman and recognizes 
the gentleman from Florida, Mr. Stearns, for 10 minutes.
    Mr. Stearns. Thank you, Mr. Chairman.
    Let me just continue along what the distinguished chairman 
of the Energy and Commerce Committee started to talk a little 
bit about this--what appears to be two scientists involved with 
a company, and sort of--Biospect and sort of working for NIH at 
the same time, not--Mr. Levine not aware of that, and then he 
finally became aware of it.
    Mr. Levine, I went through your testimony here, and I 
thought I would go through and ask for some further 
clarification of your statements. On page 7 of it you say when 
you raised concerns to Dr. Petricoin and Dr. Liotta, you said 
they told you--``I was told not to be paranoid.'' And that 
NCI's unilateral decision was really in Correlogic's best 
interest.
    And, frankly, I was also concerned, and remain concerned to 
this day, about the particular components that NCI had 
unilaterally chosen for the detection system, and also about 
which entity would take the lead in responsibility for seeking 
regulatory approval following successful completion of the 
clinical trial.
    When they said to you not to be paranoid, what did that 
mean to you?
    Mr. Levine. Well, Congressman, two issues here. The first 
is that the reference I was making there was not to the 
conflict of interest, which I didn't know about at the time. 
The reference there was really to NCI's decision to proceed 
with the clinical trial and to essentially take over this area 
that had otherwise just been granted to Correlogic in April 
2002.
    So the reference really was to the activities of NCI going 
forward toward the clinical trial and all of those issues, 
although throughout my conversations over the last 3 years with 
Drs. Petricoin and Liotta they would continuously tell me that 
I was paranoid. Every time I questioned an activity or a 
decision coming out of NCI, they thought I was rather paranoid. 
And I think in hindsight I wasn't paranoid enough.
    Mr. Stearns. Well, and then you go on--``a few weeks later 
I began hearing more from industry contacts about Biospect 
being a competitor.''
    Mr. Levine. Yes.
    Mr. Stearns. ``By now I was hearing that Drs. Petricoin and 
Liotta were affiliated with Biospect. In early July 2003, I 
reached Dr. Petricoin by phone and raised the issue directly to 
him.'' Tell us what you said to him.
    Mr. Levine. In that call--and I was friends with Dr. 
Petricoin, so I was able to be pretty blunt with him, I said 
that it had come to my attention through industry contacts that 
he and Dr. Liotta were consulting with Biospect, and I was 
shocked. I was appalled.
    Mr. Stearns. What was his response when you said to him, 
``I have heard through the industry grapevine that I am now--
you are advising me--you are telling me not to be paranoid, yet 
I am finding you are part of my main competition.'' What was 
their response? And were you talking to both of them or to----
    Mr. Levine. The conversation was only with Dr. Petricoin.
    Mr. Stearns. Okay. And what was his response?
    Mr. Levine. His response was first and foremost that this 
was to approve the outside activity. And I, again, expressed 
genuine shock at that. I asked him how that could be so because 
the two companies were so clearly competitors, and I reiterated 
to him at the time the way in which I found out, which was 
through other people in the biotech industry, so that others 
perceived it as a conflict of interest, others outside of 
government, others outside of Correlogic.
    And I then made the point to him--and this is very, very 
clear, since I actually wrote an e-mail shortly after my 
conversation with him--I made the point that, as I said earlier 
in the testimony, that the information that he was picking up 
and Dr. Liotta picking up from their collaboration with 
Correlogic, where that information began and where their own 
understanding ended, it would be very hard to tell.
    So that if they were then consulting with a competitor, the 
fact that they might think that they are not revealing 
confidential information I thought became a very difficult line 
to determine.
    Mr. Stearns. Well, then you say later on, ``I raised my 
concerns about what was happening to my company with Dr. 
Barker.'' And let me ask Dr. Barker: were you aware of this, 
too?
    Ms. Barker. Let me explain a little bit about how I became 
involved.
    Mr. Stearns. Okay.
    Ms. Barker. I joined the NCI in January or December 
actually--or January 2003, and I actually came to the NCI to 
join Dr. von Eschenbach to sort of work on these kinds of 
issues. So----
    Mr. Stearns. I need you to be brief, just because----
    Ms. Barker. Okay. Not long after I arrived, I received a 
call that said--from a colleague of Dr. Levine's saying that he 
was engaged in a CRADA with us, and he felt as though there was 
a potential conflict of interest for the investigators. So that 
is when I asked that Dr. Wilson and Dr. Barrett rereview the 
case and readvise us on whether or not there was a conflict of 
interest, so we could proceed to negotiate this.
    Mr. Stearns. Was there a conflict of interest detected?
    Ms. Barker. You know, we have just heard from Dr. Wilson 
and Dr. Barrett that using the guidelines they had at that 
time----
    Mr. Stearns. Right, okay.
    Ms. Barker. [continuing] they concluded that there was not 
a conflict of interest.
    Mr. Stearns. Okay.
    Ms. Barker. I think we have all agreed in retrospect that 
there was.
    Mr. Stearns. Okay. That is all I wanted to hear.
    NCI and Correlogic have been in negotiations on the 
clinical trials for CRADA for a long time. Is it customary to 
take that long, Dr. Barker?
    Ms. Barker. In a word, no.
    Mr. Stearns. Okay.
    Ms. Barker. We have 100-plus CRADAs. This is the only one 
actually that has taken this amount of time to negotiate. But I 
will honestly say in sorting this out, it is a very complex 
CRADA. And by that, it involves some laboratory discoveries 
that are quite profound, a clinical trial, a licensed----
    Mr. Stearns. Let me put it this way. How close are we to 
fruition on these negotiations? Are they 1 week away, a year 
away, a month? Where are we right now?
    Ms. Barker. They depend actually on--a confounding factor 
in this has been that we started out with a technology that was 
developed in collaboration on the CRADA. Dr. Levine's company 
has actually pursued another line of investigation. He would 
like to add that to the CRADA, and I think the only thing that 
is missing here is to see the data from that technology so we 
can proceed to make a decision about this CRADA in terms of 
doing----
    Mr. Stearns. Let me see if Dr. Levine understands this 
negotiation the same way you do. Dr. Levine?
    Mr. Levine. I have to respectfully disagree. The 
negotiations----
    Mr. Stearns. I mean, have you started something else here 
and it is making----
    Mr. Levine. Well, it is not something else. It was work 
that we were developing----
    Mr. Stearns. It was part of the initial negotiations.
    Mr. Levine. Exactly, part of the initial CRADA. Also, let 
me just add, Congressman, that there has been constant 
reference to how narrow the original CRADA was. Well, that was 
one of the issues beginning as early as August 2002 that we are 
attempting to change, because I can show you we have a year's 
worth of CRADA notes here taken by the NCI's contractor that 
have--perhaps 25 or 30 percent of these meetings were about 
software. The bulk of it was about sample preparation, mass 
spectrometers, turnkey systems.
    So what was happening was that the research--the joint 
research under the CRADA was in fact going exactly down the 
road that I described earlier, which is the development of a 
turnkey system. So the goal of the negotiations was to both 
convert the research CRADA and eventually the clinical trial 
CRADA to match what was actually going on.
    So in terms of where we are today, no, we----
    Mr. Stearns. Okay. So we have a little disagreement, Dr. 
Barker, in your--you have heard him, I have heard you. Dr. 
Barrett or Dr. Wilson, is there anything you would like to 
contribute here? We have this negotiation we all agree is going 
on much too long. You indicate that it is going to perhaps go 
on, Dr. Barker, longer because of some changes that have taken 
place, and Dr. Levine says no. Just, Dr. Wilson or Dr. Barrett, 
anything you folks want to add here?
    Mr. Barrett. Let me----
    Mr. Stearns. If you can be brief, because I have got a 
summary----
    Mr. Barrett. Right. I know it is--actually, there are 
several issues that do need to be put on the table----
    Mr. Stearns. Okay.
    Mr. Barrett. [continuing] which won't be brief. But let me 
make one point. That is, the ability to execute a CRADA is not 
something that Dr. Barker or I or the NCI has.
    Mr. Stearns. No, I understand that.
    Mr. Barrett. It goes through the NIH.
    Mr. Stearns. Just your interpretation.
    Mr. Barrett. Part of the discussion has been, what would be 
appropriate to put into a CRADA that would be satisfactory to 
all parties, most importantly the NIH? And that is part of the 
complexity of this.
    The comment that Dr. Levine made--Mr. Levine made about us 
taking over an area given to Correlogic I take great exception 
to, because I think this is, in fact--we are continuing to do 
the research that the NCI is supposed to do and which we are 
paid to do by the public, and that is to try to understand how 
to improve clinical trials for ovarian and other cancer 
patients.
    We have started a clinical trial. There is no delay in that 
trial. That is going along. That will collect the samples that 
will be used by a variety of sources for doing this analysis. 
We have welcomed Dr. Levine to participate in that activity and 
offered him unlimited access to these samples, but not 
necessarily through the CRADA.
    The CRADA requires, again, a contribution of both parties, 
so there are other mechanisms. He mentioned earlier that he was 
also collaborating with another laboratory at NCI through a 
material transfer agreement, which is a very legitimate way of 
doing this transfer.
    So there is lots of ways to move this forward, but the 
important thing is it is moving forward, even while these 
negotiations are underway.
    Mr. Stearns. I guess, Dr. Barker, can you assure us that 
NCI will treat Correlogic fairly in the future as they seek to 
work with the agency on research?
    Ms. Barker. Absolutely. I have made--I have gone to great 
lengths to ensure that that is the case. And just to clarify 
the point on--I have seen all the pieces of this now, and it 
took some time to sort this out, actually. But I think the 
point I was raising before is we do have--we have reached the 
point of having an agreement on I think--and I think NCI and 
Correlogic agree on the basics of the agreement.
    I think the one question NCI has raised is: could we see 
some data for the other proposed technology? And we are 
awaiting that.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Greenwood. Mr. Levine, you looked like you were about 
to say something.
    Mr. Levine. Yes. The problem with the observations made 
just now are that we reached agreement with NCI in August 2002, 
and that agreement was reduced to writing on September 12 by 
NCI's technology transfer office. And we have now spent the 
last 2 years watching every part of that agreement be 
unravelled.
    So now to say, ``Well, if we show them data, we can come 
and be part of this trial'' is--I mean, frankly, it is 
sophistry. I mean, we had an agreement 2 years ago to move 
forward together, and NCI basically has negotiated us to death. 
It is very difficult when you are a small company to be 
negotiating with all of NIH at one time.
    Mr. Greenwood. Thank you.
    The gentlelady from Colorado is recognized for 10 minutes.
    Ms. DeGette. Thank you, Mr. Chairman.
    Dr. Barker, when Mr. Levine was just giving his response, I 
saw on your face you disagreed with that. You know, what can be 
done here to move this along?
    Ms. Barker. First of all, I think Dr. Levine's comment is a 
point well taken. When I say this was difficult to sort out, 
there were a lot of things on the table that had been worked 
out over time. And I think because of the speed of the 
technology, the movement of the technology, issues that arose 
due to the tests that Correlogic was proceeding with, the 
desire of NCI to proceed along a different line of technology, 
when I started looking at this we really had to start over. I 
mean, it was--no one sort of within the NCI I think was where 
they were a year earlier, and so--and the technology had moved 
along.
    So I think that the agreement we have on the table now is I 
think appropriate, and I think it would allow Correlogic to 
be--to really get a 510K, and be probably first to get a 510K, 
and they hold a license for this technology. So I think if we 
can agree on this one single point in terms of using two 
technologies versus one, I think we could close this fairly 
quickly.
    Ms. DeGette. Okay. And, Mr. Levine, does that--do you think 
it could be closed fairly quickly, too, given Dr. Barker's 
statements?
    Mr. Levine. I will certainly give it my all, and hopefully 
it will be less than 2 years.
    Ms. DeGette. And, Dr. Barker, I think I know the answer to 
this, but I just want to get it on the record. There are some--
is there any indication that Correlogic will suffer because of 
its complaint to this committee or the proceedings that we have 
going on with respect to these issues or the clinical follow-on 
to the agreement we have?
    Ms. Barker. I speak on behalf of myself, Dr. von 
Eschenbach, all the folks at this table, and the National 
Cancer Institute in saying that we are most interested in this 
relationship, and we are very interested in CRADAs. We are 
desperate in Cancer to get these technologies into patients, 
so, trust me, we are absolutely--if this is a relationship that 
can and should be closed and pursued, it will be done.
    Ms. DeGette. And there will be no retaliation against----
    Ms. Barker. Absolutely not. There will be--no. I think, 
actually--I think this is an interesting and I think very 
revealing case study, and I think that Dr. Zerhouni has taken 
it to heart and changed some things that needed to be changed 
from this case study.
    It is--you know, there are some unfortunate things here, 
but I think we have learned some things in the system that has 
been in place. And I think it is actually directing us to a new 
system, and the NCI has--had already begun to initiate some of 
these changes.
    Ms. DeGette. So you are happy for the information they have 
brought forward.
    Ms. Barker. I think it has been very informative, and I 
think it is also going to help us in the future as we negotiate 
our CRADAs and put them in place to be very clear on conflict 
of interest. And I--that has not been a simple issue before.
    Ms. DeGette. Dr. Wilson, I just wanted to follow up on the 
discussion we were having in my previous line of questioning 
when I yielded to the chairman. I think you had testified, and 
several of the others had testified, that these new systems 
that are being put into place--in particular, the computer 
systems--should function to raise a red flag to help us avoid 
conflicts of interest like this in the future.
    And I guess I would like it if you would describe for me 
with a little more precision how it is these types of conflicts 
of interest will come up, and how your office is going to 
identify them in the future.
    Ms. Wilson. With regard to the data that we can collect on 
our own employees, it will allow us to link together everything 
that we know that they are doing. Certainly, we have much 
better descriptions of what their official duties are, their 
current projects, contracts, grants, anything that the might be 
involved in. With regard to CRADAs, we have the same 
information, or will very shortly, accessible in real time, 
including more documents than we have had before, including 
such things as confidential disclosure agreements, which were 
not accessible to us before.
    Ms. DeGette. Who were they accessible to before?
    Ms. Wilson. They were on record in technology transfer 
offices. And we received copies of CRADA listings, but not of 
those other documents. And so it indicates a dealing that we 
have with the company as part of our official duty activities. 
Being able to link those together will, in fact, alert us to a 
number of relationships that we wouldn't have been aware of 
before. It will give us better description.
    With regard to what Dr. Zerhouni said this morning about 
Googling various companies, clearly, what we can obtain from 
the web is subject to what is available on the web, and that--
--
    Ms. DeGette. Right.
    Ms. Wilson. [continuing] will continue to be a limitation. 
For small startup companies----
    Ms. DeGette. So let me stop you. Is it your intention, 
then, anytime someone comes forward with a proposal for outside 
contracts that you are going to Google all of the proposed--I 
mean, how is that going to work mechanically? I am still 
grappling with how this new proposed ethical system is going to 
work.
    Ms. Wilson. With regard to outside activities, what we 
actually do now when an activity is proposed, as I said, we 
review all of the data bases about the employee and their 
activities, and the Institute's involvement with whatever the 
proposed outside partner is. Again, they are limited by the 
systems that we have in place, which are being improved. We do 
also search the web for anything that we can find related to 
the companies.
    Ms. DeGette. And then, is there some--but, I mean, if you 
had done that in this case, the information would have--I mean, 
would you have known from the web that there was a conflict 
between these two companies?
    Ms. Wilson. There is one piece of information that was 
available to us in August 2003 that we had not known about 
before. There was a confidentiality disclosure agreement 
executed between Biospect and the NCI for access to the data, 
which is now public, that has been generated as part of the 
CRADA.
    That certainly would have immediately signaled an interest 
of the company in pursuing the same direction, perhaps exactly, 
that the Correlogic CRADA was going down.
    Ms. DeGette. Okay. So that--you would have caught that 
based on the provision of getting the confidentiality 
agreements. You wouldn't have caught that by surfing the web.
    Ms. Wilson. No. We would have caught that within our own 
system.
    Ms. DeGette. Okay. All right. I don't think I have any 
further questions, and I yield back.
    Mr. Greenwood. The Chair thanks the gentlelady and 
recognizes himself for 10 minutes for questioning.
    I am going to ask you, Dr. Wilson, to go to Tab 28. And if 
you go to the second page, you'll see an e-mail from Peter 
Levine. Do you see that?
    Ms. Wilson. Yes.
    Mr. Greenwood. Now, actually, the e-mail in question here 
is the address below that where it says Vince Simmon, sent 
Wednesday, May 21, to Peter Levine, subject Info on Biospect. 
Do you see that?
    Ms. Wilson. Yes.
    Mr. Greenwood. Okay. And the date is May 21, 2003. I think 
earlier in your response to questions you said that the 
information that you would have needed to demonstrate that 
Biospect was really involved and engaged in the same kind of 
activities as Correlogic wasn't available in 2003, didn't you?
    Ms. Wilson. As a group, we indicated that the website was 
not available. The website was available, and in our 2003 
analysis my office did look at that website.
    Mr. Greenwood. Oh, did not look at it.
    Ms. Wilson. We did look at it.
    Mr. Greenwood. Right.
    Ms. Wilson. It was attached to our documents.
    Mr. Greenwood. Okay.
    Ms. Wilson. Which I believe were submitted to your 
committee. It appears to have been an oversight, and may very 
well have been my office's fault that it was not provided to 
Dr. Barrett. So he may very well have been unaware of the----
    Mr. Greenwood. Because clearly the--what he says, ``Peter, 
it was nice talking with you today. Here is some info on your 
new competition. I will be back in touch. Vince.'' And then it 
goes on from the website there--a description of the--a 
complete description of Biospect, which talks--describes 
exactly what it does, which, of course, is very much what 
Correlogic was doing. You don't disagree with that in 
retrospect?
    Ms. Wilson. I don't disagree with it in retrospect. I would 
have asked for--being that I would have done a technical 
analysis, I would have asked for further information about the 
nature of biological fluids analysis, and so forth, and are 
they truly related? Are they that close?
    Mr. Greenwood. And wouldn't you have referred that to--that 
question to Dr. Barrett, since it is a scientific question?
    Ms. Wilson. Yes.
    Mr. Greenwood. Okay. I think here is what is troubling us. 
Mr. Levine comes in and says, ``Holy God, I am upset. I am 
working with these guys on my CRADA, and I find out that they 
have never told me they are working for Biospect. I view 
Biospect as a competitor, and this I find appalling.'' Okay?
    So you have the information, but the guy at Correlogic, he 
thinks--he thinks that his company's secrets are at risk. Okay? 
And one would assume that if there was no risk, no potential 
risk because they were in very different fields of endeavor, 
Mr. Levine wouldn't come in so upset and asking for a rereview, 
right? So you have got some--I mean, you have got a pretty good 
red flag going in the person of Mr. Levine. Okay? So then you 
rereview.
    And the thing that worries us, that causes us to spend so 
much time on this issue, is out there at Biospect you have got 
on the Board the old boss of the NCI, the big man, the big 
dude, Klausner. Right? Knows all you guys, you worked with him 
and for him and all of that, and you have got Dahl out there, 
and you have got Shtrom out there.
    And the concern is we think--we worry that in the face of 
the obvious concern of Mr. Levine you scanned over the horizon 
to look at Biospect to see if this is a problem, and there is 
the old gang out there making money at Biospect. And that we 
worry that that would have clouded your judgment.
    Did you have any discussions with any of those three 
people--Dr. Klausner, Dr. Shtrom, Dr. Dahl? Did you have 
conversations with any of them during the time that you were 
rereviewing this agreement?
    Ms. Wilson. To my knowledge, no. I know I didn't--I have 
not talked to Dr. Dahl I believe since she left. I could be 
wrong. I would have to check notes to see if we had anything. I 
have not talked to Dr. Shtrom. I have had a few conversations 
with Dr. Klausner on various situations, but not on this.
    Mr. Greenwood. Not with regard to this, okay.
    Ms. Wilson. No.
    Mr. Greenwood. And does that apply to you as well, Dr. 
Barrett?
    Mr. Barrett. Absolutely, yes. I mean, absolutely not.
    Mr. Greenwood. Okay. You haven't had any conversations 
with----
    Mr. Barrett. No conversations.
    Mr. Greenwood. I mean, in retrospect, do you think that 
your judgment may have been clouded by the fact that former 
friends and associates----
    Mr. Barrett. It did not enter into my decision at all. I 
was told that Dr. Klausner had, you know--what I was told, as I 
understood, was he was part of the venture capital group that 
had funded this, and he was not directly involved in the 
management of this company. I actually overlooked the fact that 
Carol Dahl was the signature on one of the letters that we had, 
so I actually did not even make the connection until much later 
when it was brought to the attention of this committee.
    I reviewed the statement of work and the consulting 
agreement. I used my knowledge of the CRADA that we had with 
Correlogic, and those did not seem to overlap, and that was the 
sole basis for the decision.
    Mr. Greenwood. If you would turn to page--to Tab 34, you 
will see e-mails sent from Carol Dahl to Petricoin, and then 
below that is--actually, I always forget these things go in 
reverse order--an 8:06 a.m. message from Dr. Petricoin to Carol 
Dahl. Do you see that, Dr. Wilson and Dr. Barrett?
    Mr. Barrett. Yes.
    Ms. Wilson. Yes.
    Mr. Greenwood. If you look at the address that Dr. 
Petricoin's e-mail emanated from, it is FDA--it is 
seiber.fda.gov, which clearly indicates he is using his 
government computer to be sending e-mails with regard to his 
outside paid consultancy. Would you come to that conclusion?
    Ms. Wilson. Yes, he is using it to confirm what appears to 
be a scheduling arrangement.
    Mr. Greenwood. All right. And he is also sending it--if you 
look, it went to Dr. Liotta at mail.nih.gov.
    Ms. Wilson. Yes.
    Mr. Greenwood. That is not necessarily grand larceny, but, 
I mean, it does violate the rules, does it not? My 
understanding from previous conversations with others at NIH 
and at the FDA indicates that these private consultancies are 
not supposed to involve the use of government computers, 
telephones, equipment, etcetera. Is that correct?
    Ms. Wilson. The conduct of personal business should not be 
done using government equipment.
    Mr. Greenwood. Right. And certainly not on government time 
either.
    Ms. Wilson. Yes.
    Mr. Greenwood. Okay. Turn to Tab 11 now, please. If you 
would look at--would you identify that document, Dr. Wilson?
    Ms. Wilson. That is a cover sheet that is generated by our 
computer recording the Biospect activity with the comments that 
my office added in submission to the NEAC committee.
    Mr. Greenwood. Okay. And money earned to date, it says 
$49,375 consulting fees, proposed annual rate of $39,000, or 
$3,250 per month. Where would that information have--how would 
that have been inputted into the system so that that would 
appear on this computer-generated form?
    Ms. Wilson. There is--what you cannot see is a blank field 
next to--you can see a field that says ``fee.'' Next to it 
would have, in fact, been the dollar amount. And our system is 
limited right now. It was intended to reflect an annual rate, 
and if we begin to put in cumulative rates we are going to have 
to make some changes in the system. So it is done manually at 
the moment.
    Mr. Greenwood. Okay. So that $49,375, was that--did 
somebody enter that, or was that--did the computer do math--do 
multiplication----
    Ms. Wilson. We received that information from Dr. Liotta 
himself, because we weren't collecting the data on that at the 
time.
    Mr. Greenwood. I understand. So Dr. Liotta provided that 
information.
    Ms. Wilson. Yes.
    Mr. Greenwood. Okay. Now, go to Tab 41, please. Okay. If 
you look at--can you identify that document? Well, I will 
identify it. This document I don't think you have seen. But 
this is a document provided to the committee by Predicant 
Biosciences, formerly Biospect, and it is a vendor quick 
report, January 1, 2002, through June 5, 2004.
    And the numbers on that--this is for Dr.--it is what they 
paid--what they report that they paid to Dr. Lance Liotta. And 
you will notice that the rate started out at $5,000 per month 
and then was reduced to $3,125, and that adds up to, the staff 
tells me, $70,000. And so does that--would that indicate a 
discrepancy between the $49,000-plus figure that we just were 
discussing and this $70,000 figure that the company indicated 
that it paid Dr. Liotta?
    Ms. Wilson. There is clearly a discrepancy. I believe 
what--the dollar amount Dr. Liotta furnished us may have been 
what he had on his W-2 equivalent form. I would have to check 
what he----
    Mr. Greenwood. Do they submit the W-2 form?
    Ms. Wilson. No, they are not required to.
    Mr. Greenwood. They are not required to. Okay. But you 
can't explain how this discrepancy would have occurred?
    Ms. Wilson. The number we used is what he provided to us.
    Mr. Greenwood. Okay. We understand that Dr. Liotta and Dr. 
Petricoin were involved in helping Predicant Biosciences set up 
a CLIA lab, which is regulated by the Department of Health and 
Human Services. Is there an ethical conflict there where they 
are being paid to provide guidance in an endeavor that would be 
regulated by the Department?
    Ms. Wilson. The issue I would have looked at, and I may not 
be looking at all of the issues, would have been whether they 
were engaged in a matter that would become the subject of a 
submission of documentation or discussions with HHS. The mere 
establishment of a lab according to known processes or 
standards would not, in my mind, fall under that, but I would 
have verified----
    Mr. Greenwood. So it would be the preparation of documents 
themselves that would then be reviewed that would cross an 
ethical line.
    Ms. Wilson. Communications become the subject of dealings.
    Mr. Greenwood. Okay. How about if they--where is the line 
between actually doing the paperwork where you are sitting and 
inputting the data onto the--into the computer to print out the 
report or actually writing a document versus advising a client 
to pay--a client who is paying you how to do that or advising a 
client how to--a strategy for getting a new device approved 
through the FDA? Is there a--is that a gray area, or is there a 
fine line there?
    Ms. Wilson. I would have to say it is a gray area in my 
mind. I would defer it to better legal counsel. I am not a 
lawyer.
    Mr. Greenwood. Okay. Finally, Dr. Barker, you heard Dr. 
Levine in the very beginning of his testimony express concern 
and worry that the NIH and/or the FDA would act in a 
prejudicial form because of his role in making the committee 
aware of his concerns about this. How can you assure Dr. Levine 
and this committee that that will certainly not be the case, at 
least as it concerns the NIH?
    Ms. Barker. Well, I think we will proceed in good faith. 
And I think there have been some missteps here, but I think 
most of the things that have been done on this negotiation have 
been done in good faith. Doing it over, we probably would do it 
differently I think, at least the first--up to the point I 
think Dr. Levine described to you.
    I think since then we have been--you know, we have been 
moving along at a reasonable rate, not rapidly enough I think, 
but I think in the future some of these new processes that we 
have already started to put in place will assure anyone 
actually entering into these relationships that not only will 
you be able to proceed I think more quickly and more 
efficaciously, I think you are also going to proceed without 
the kinds of issues that Mr. Levine has raised.
    I mean, I think this new system of actually looking at 
everything an individual is doing, especially those folks who 
are entering into CRADAs, is going to be critical. And as I 
said before, I think one thing this case has pointed up is that 
we do have to very carefully consider that.
    In terms of, you know, fair treatment from the NIH, FDA, 
and I can certainly only speak for the NCI, we will certainly 
make very effort to ensure that Mr. Levine and anyone else who 
comes to deal with us, in terms of these very important 
relationships, will get fair and equitable treatment.
    Mr. Greenwood. You are not critical of Dr. Levine for his 
testimony today, are you?
    Ms. Barker. Not at all, actually. As I say, as I sat there, 
I think both Dr. Barrett and Dr. Wilson and all of us, we 
learned a lot today. And I think it is learning that will help 
us in the future. And the biotechnology industry is actually 
very, very important to the National Cancer Institute. So many 
of our products are smaller markets; that is very attractive to 
this industry. And so we have--and, actually, cancer is the 
major focus of most of the biotechnology companies that are 
being formed today.
    So we are going to endeavor to do everything we can to 
build the very best relationship with this industry we can. 
There are about 1,500 biotech companies in the country today, 
and we see that as being an absolutely exploding area for the 
future. So it behooves the NCI and the NIH to actually work, as 
Dr. Zerhouni said this morning, to really make these 
relationships effective areas of translation of technology for 
the American public.
    Mr. Greenwood. I think on that very positive note the 
committee will thank you very much for spending the day with us 
and for your testimony. It has been a big help.
    Mr. Levine, we thank you particularly.
    And the committee is adjourned.
    [Whereupon, at 3:57 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]

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