Are more specific Agency-wide rules regarding stock holdings needed to provide clearer guidance to employees? Can lists of prohibited stock holdings be developed for individual programs? Can the Agency regulations better define what constitutes an apparent conflict of interest? What additional steps can be taken to heighten employee awareness of their obligations regarding personal financial interest? It is expected that the Committee will meet several more times before presenting me with their initial recommendations. I shall, of course, keep you and your staff informed when final recommendations are developed. Sincerely yours, BARBARA BLUM, Deputy Administrator. HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Hon. DOUGLAS COSTLE, Administrator, Environmental Protection Agency, DEAR MR. COSTLE: As you know, this Subcommittee recently held hearings on conflict-of-interest regulations during which several "case studies" of employees at your agency were mentioned as potential conflict situations. In our continuing oversight of this issue, we would appreciate it if you would inform us at this point of any changes in the status or financial holdings of these employees. In addition, you should notify us in the future of any similar changes as a result of your review of their cases. This will allow us to report those changes which may occur prior to our issuance of our report on these hearings, which we anticipate in several months. Because of our desire to avoid the mention of specific names, you should simply notify us by using the letter designations of our Staff Report. We would appreciate your prompt response to this request. Sincerely, JOHN E. Moss, Chairman, Subcommittee on Oversight and Investigations. Hon. JOHN E. Moss, U.S. ENVIRONMENTAL PROTECTION AGENCY, Chairman, Subcommittee on Oversight and Investigations, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: Your letter of July 22, 1977, asked that we inform you of any changes in the status or financial holdings of the five EPA employees whose holdings were discussed in your subcommittee's staff study of May 20, 1977, as giving rise to possible conflict of interest situations. The following case study designations conform to the letter designations of Attachment V of the staff study: Case Study A Since the employee left the Agency in February, the question of his stock holdings is no longer current. It should be noted that the former employee did not report specific holdings until mid-November of 1976. At that time the Agency Counselor was aware that it was likely the employee would soon leave the Agency and decided not to pursue the matter unless it became clear that the employee would continue with the Agency. Case Study B This employee has requested a waiver pursuant to 18 U.S.C. 208(b). Since the employee's holdings in each company are quite small and his EPA duties concern individual applications rather than standards for the entire industry, it would seem that his interest in a particular company's application would not be "... so substantial as to be deemed likely to affect the integrity of the services which the Government may expect. . . ." Nonetheless, an appearance issue exists and a waiver will not be granted unless the Deputy Counselor, after consulting with the Agency Counselor, is satisfied that it would be appropriate. Since most of the stocks in question are those of oil companies, the extent to which the business of these companies concerns pesticide products is pertinent to the determination regarding appearance. We have made no decision on this matter as yet, but we expect to complete action by the end of this month. Case Study C On June 16, 1977, the employee's work assignments were rearranged so that he would not participate in regulatory actions involving the Occidental Petroleum Company. The employee has disposed of his Shell Oil Company stock. Case Study D The employee has been advised not to participate in reviews of AEP activities. His duties do not appear to concern the activities of Gulf Oil and Columbia Natural Gas, since they are not engaged in nuclear power plant operation, and we have determined that there is no impropriety in his holding these stocks. Case Study E This employee is involved (through several levels of supervisory review) in developing general environmental standards that do not apply directly to any particular facility but guide the Nuclear Regulatory Commission in prescribing speicfic limits for each licensed facility. Because this employee's work is so remote from any potential direct regulatory impact on a VEPCO facility, it was thought that there was no actual or apparent conflict of interest in his ownership of VEPCO. The Deputy Administrator's Committee on Conflict of Interest is completely reviewing our approach to actual and apparent conflicts in the context of informal rule-making, however, and may conclude that situations such as this call for divestiture or necessitate consideration of either specific or general waivers. We will keep you informed of subsequent developments, particularly with regard to Case Studies B and E. Sincerely yours, DOUGLAS M. COSTLE. [Whereupon, at 3:50 p.m., the hearing was adjourned to reconvene at 10 a.m., tomorrow, May 24, 1977.] CONFLICT OF INTEREST IN REGULATORY AGENCIES TUESDAY, MAY 24, 1977 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C. The subcommittee met. at 10 a.m., pursuant to notice, in room 2322, Rayburn House Office Building, Hon. John E. Moss, chairman, presiding. Mr. Moss. The committee will be in order. This is the second day of hearings on conflict of interest problems in regulatory agencies. In testimony yesterday, the Federal Communications Commission confirmed what this subcommittee's staff study has found: the FCC systematically evades prohibitions in the law against stock ownership in regulated companies by Commissioners and employees. We also heard evidence that the Environmental Protection Agency has compounded weak conflict of interest standards with feeble enforcement. The result in both agencies is that conflicts such as those outlined in ten case studies presented by the staff are allowed to go unchecked. Today we will hear from the Commissioner of the Food and Drug Administration, who will describe FDA's efforts to regulate conflicts of interest among its 900 special Government employees who serve on FDA's advisory committees and elsewhere in FDA on a temporary basis. We will also hear from the president of Common Cause on the need for effective programs to avoid conflicts of interest. We plan to return at a later date to question the Civil Service Commission on their role in preventing conflicts of interest in the regulatory agencies. The staff study presented yesterday to the subcommittee found that the FDA has brought on or reappointed 80 experts and consultants in the past 15 months, knowing full well that these experts have interests some of them substantial-in firms regulated by FDA. Rather than screening out such individuals, FDA secures from them a promise not to participate whenever their FDA work involves a company or product in which they have an interest and also discloses their interest to the public. The subcommittee staff reported, however, that FDA simply does not prevent its special Government employees from participating in matters in which they have a financial interest. This is particularly true in the case of advisory panel members dealing with drugs or medical devices on a generic basis. If the FDA plans to continue placing heavy reliance upon its advisory panels in reaching important decisions, then it must insure, at a minimum, that these panels are free from bias and conflicts of interest. We view this as absolutely essential. Failing this, it seems appropriate to consider abolishing these panels and committees. The time to take action on these problems has long since passed. We urge the regulatory agencies to use their existing powers to prevent their programs from being undercut by conflict problems. If they do not, Congress will have no choice but to take such legislative action; and, in fact, such a legislative approach may be essential in any event. At this time we are pleased to welcome the Honorable Donald Kennedy, M.D., the Commissioner of Food and Drugs as our first witness. He is accompanied by Mr. Gerald F. Meyer and Mr. Richard A. Merrill. Will you all be sworn. Do you solemnly swear that the testimony you are about to give this subcommittee shall be the truth, the whole truth, and nothing but the truth, so help you God? Dr. KENNEDY. I do. Mr. MEYER. I do. Mr. MERRILL. I do. TESTIMONY OF DONALD KENNEDY, M.D., COMMISSIONER, FOOD Dr. KENNEDY. Mr. Chairman, we have prepared for the subcommittee a statement accounting to you in the matters which you have asked us to appear before you. It is fairly long. Unless you prefer me to do so, I will not read it. I would like to make a few remarks and then invite questions from you and your colleagues. Mr. Moss. Would you like to have your full statement inserted in the record and then proceed to summarize? Dr. KENNEDY. Yes, Mr. Chairman. Mr. Moss. Without objection, it will be inserted [see p. 89]. Dr. KENNEDY. Mr. Chairman, I have recently experienced a conversion myself from one of the special Government employees that is the subject of today's inquiry to the head of a regulatory agency responsible to you for the objectivity of that agency's regulatory decisionmaking. I think that that conversion gives me perhaps some special insight into the two problems that I see in the whole conflict of interest mat ter. The first and primary one, of course, that is of special concern to us is the objectivity of our procedures. The second, which concerns me greatly as well, is a concern for the scientific quality of the decision making that we make. Sometimes it also seems to me as though these two aims may be at odds. We are a highly technical regulatory agency, as you know. We often make decisions on matters that have a rather narrow scientific base. As a consequence, it requires us to draw on a national pool that is very limited in size of persons with the kind of technical expertise and distinction that we need. That is the reason why we have 900 consultants. These largely come from the kind of academic institution that I was in 6 weeks ago. They frequently have support from research grants. Some of these are from the Government. Sometimes they are from industries that FDA regulates. We use such special consultants in a variety of roles, but most especially on the advisory committees that you mention and most especially in the areas of medical devices and drugs where many of these advisory committees have statutory mandates. Always, our need is to inform our regulatory decisions with the very best scientific underpinning that we can get so that those decisions will enjoy public confidence. At the same time, Mr. Chairman, we recognize the very real and important need to make sure that those decisions are reached objectively and without bias. For that reason-as our statement details-FDA has begun to put in place, in January of 1976, a set of procedures that emphasize the availability of information about financial interests on the part of special consultants to the public. I think those procedures are outlined in our statement and that you and the subcommittee staff are familiar with them; so, I will not detail them now. I am terribly concerned, Mr. Chairman, about the way in which these procedures operate. I look on today's appearance as a chance to improve my own knowledge as well as to share with you my views about both kinds of obligations. I think at this point it would perhaps be best if I terminated this very brief introduction and made myself ready to respond to questions. [Mr. Kennedy's preferred statement follows:] STATEMENT OF DONALD KENNEDY, M.D., COMMISSIONER, FOOD AND DRUG ADMINISTRATION, PUBLIC HEALTH SERVICE, DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE Mr. Chairman; I appreciate the opportunity to appear here today to discuss the Food and Drug Administration's (FDA) system for avoiding financial conflicts of interest among our Special Government Employees (SGE's). During the past several years, we have developed and implemented extensive procedures to avoid conflict of interest by SGE's. A recent report by the Health, Education, and Welfare Secretary's Review Panel on New Drug Regulation suggested a number of changes in these regulations, but also describes them as: "a significant document representing a conscientious effort by FDA to address this complex issue. . . . It also reflects the Agency's recognition of the need for a balanced policy that both safeguards against conflict situations and preserves FDA's ability to attract and retain qualified experts." Although our procedures do not resolve all conflict-of-interest problems in every situation, they have proven useful for the vast majority of situations during two years of development. In this testimony, I would like to discuss (1) our problems and experience in developing these regulations, (2) the specific requirement of FDA's regulations, and (3) some remaining problems and issues. |