Answer. The Agency's policy in this regard is set forth under item 7.d. of our Staff Manual Guide 3118.2 which states: "The Agency would prefer that special Government employees (SGE) not alter investments in firms defined in Section 5c during their period of service. However, in the event that investments in such firms do change, the SGE should notify the Agency immediately so that any restrictions on his participation can be modified accordingly. Individuals should not make substantial investments that might require termination of their service or public disclosure of the interest without prior consultation with the Agency." The Staff Manual Guide is supplied to all SGE's. In addition, the SGE is advised on the bottom of the Confidential Statement of Employment and Financial Interests (Form FD-2637) to immediately report any activity or financial acquisition in excess of $1,000 which affects any statements thereon. (A copy of this form is included in the enclosed staff manual guide.)

In the event that an SGE did acquire a large financial interest in a firm under review by their particular advisory committee that situation would be subject to the same requirements as an interest acquired before appointment, i.e., disqualification and public disclosure, if required.

Question 6. The Subcommittee staff study noted that six applications for appointment or reappointment for advisory committee members were rejected because of conflicting financial interests from January 1, 1976 through February 18, 1977 by the Director of Policy Management. How many applicants were appointed or reappointed during the same period? How many were rejected at stages prior to action by the Director of Policy Management? Please indicate the numbers rejected at each stage and distinguish appointments from reappointments.

Answer. A review of the Standard Form 50's maintained by the Division of Personnel Management for the period January 1, 1976 to February 18, 1977 reveals there were 499 special Government employee (SGE) reappointments and 374 SGE new appointments for a total of 873 SGE personnel actions.

The appointment process for SGE's begins with the Executive Secretary for the advisory committee or panel which has a vacancy. This vacancy is announced to the general public through a Federal Register announcement, to professional societies through individual letters or copies of the Federal Register announcement, and to the other committee members and Agency personnel. The purpose of these announcements is to solicit and/or identify candidates for the vacant position. Our experience has shown that in most situations from 5 to 30 candidates are referred or identified per vacancy. The vast majority of these however cannot be utilized for a variety of reasons, i.e., being industry employees, lack of general qualifications for position, lack of experience, unavailability of individual, financial conflict of interest, etc. Only when candidates meet all other requirements and qualifications are they reviewed for financial conflict of interest. It has not been the practice of the Executive Secretaries to document their rejection of a candidate. Therefore, our review of the number of candidates rejected for conflict of interest is based upon the recollections of specific cases from each advisory committee's Executive Secretary. Through this process it was determined that 34 candidates for new appointments and 12 for reappointments were rejected for financial conflict of interest for a total of 46.

In addition to the potential candidates identified by the Executive Secretaries of our advisory committees as having conflicting financial interest, there have been other occasions where individual consultant positions were difficult to fill because of the conflict of interest regulations. The most notable example of this was brought out on pages 31 through 33 of the testimony and involves the Bureau of Veterinary Medicine's inability to obtain consultants for mastitis preparations who have not been engaged in research or grant activities for the regulated industry.

Hon. DONALD KENNEDY,

HOUSE OF REPRESENTATIVES, COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE, Washington, D.C., July 22, 1977.

Commissioner, Food and Drug Administration,
Rockville, Md.

DEAR DR. KENNEDY: 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,

DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE,

FOOD AND DRUG ADMINISTRATION,
Rockville, Md., August 24, 1977.

Chairman, Subcommittee on Oversight and Investigations, Committee on Interstate and Foreign Commerce, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: This responds to your letter of July 22, 1977, requesting information on any change in status or financial holdings of the employees mentioned in the "case studies" of your Subcommittee's staff report.

Providing you with only the status and financial holdings of these employees may not be sufficient, and could even be misleading. I say this in light of the discussions btween ourselves and our staffs concerning the participation of special Government employees in the development of guidelines, policies, or classification of a category of products which do not favor any one particular product over another. As you may recall, we do not consider such issues to be "particular matters" as defined by the statutes (18 U.S.C. 203, 205, 207, 208). We believe that the use of university scientists to develop such guidelines, policies, and product classifications, even if they have also conducted research on one or more of the particular products to be covered (three of the four employees cited are in this category), does not constitute a violation of law, and is not improper. Further, to exclude such experts from deliberation on these broader issues would be to exclude them from consulting in the very area in which they are most qualified. I appreciate the concern that such a distinction may become less clear if there are only a very few products in a particular category, but this is not ordinarily the case.

Under our current guidelines, we are finding it necessary to screen from 5 to 30 consultants for each appointment we approve. This screening includes our conflict-of-interest review and our attempt to balance the availability of consultants in certain disciplines against the benefit of having these people participate in the decisionmaking process. Additionally, in some cases consultants who were appointed and have served under one set of guidelines now are required to meet more explicit guidelines midstream in their service to us.

To resolve these kinds of problems and to assure the continuity of activities in progress, we have instituted a policy of public disclosure whenever the financial holdings or scientific research funding of a special Government employee exceed the dollar thresholds established by the new FDA guidelines or present some other possible public concern. Combining this with our policy of open meetings, available minutes and verbatim transcripts achieve, I believe, a reasonable balance between possible public concern about appearances of conflict of interest and the need to have the benefit of outside expertise. I emphasize that we will not knowingly allow a situation to exist where a statutory violation might occur. We will, as we have done on several occasions, continue to exclude from participation anyone who has been involved in any particular matter which would present a conflict of interest.

As I mentioned in my earlier testimony before your Subcommittee, since January 1976, we have been implementing operating procedures that emphasize the availability of information about financial interests of our special Government employees. In addition, we have been listing on our form, HEW 410, all disqualifications imposed on a special Government employee, and we provide this information both to the employee and to the panel executive secretary in

order that the special Government employee not become involved in those particular matters. However, as acknowledged, our procedures were not adequate in certain of the case studies described during the hearing. Accordingly, I have reviewed this situation, and I have requested that it become standard procedure for both the panel's agenda and the panel members' disqualifications to be read into the transcript at the beginning of each panel session. In this way, public disclosure will be made of any member's disqualification, and everyone present will be able to assist us in monitoring our guidelines.

I have summarized, as enclosures, the current status of the four special Government employees identified by your Subcommittee in their "case studies." Also, in response to your request, we will notify you "in the future of any similar changes . . ." affecting these personnel.

Sincerely yours,

Enclosures.

DONALD KENNEDY, Commissioner of Food and Drugs.

CASE A

The employee in this case is still serving on the Cardiovascular Device Classification Panel and has had no changes occur with respect to the financial interests he holds in the New Dimensions in Medicine Company. The exclusions established for him remain in effect.

At the present time that panel is engaged in the classification of categories of products in terms of whether they shall be subject to general controls, formal standards, or individual product preclearance. The employee is disqualified from participating in any specific action concerned with any product manufactured by the New Dimensions in Medicine Company, or any competitor on which such action would have a direct and predictable effect. We will continue to monitor this employee's financial holdings and employment relationships during the period of his employment. At this time, the Agency plans to continue using him for the duration of a three year appointment as a member of the Cardiovascular Device Classification Panel.

CASE B

The employee in this case continues to serve on the OTC Panel on Dentifrices and Dental Care Agents. That panel is preparing a monograph to be published and promulgated in the Federal Register concerning requests for evidence of safety and effectiveness and the labeling of all dentifrices and dental care agents. While the employee's work on Warner-Lambert's study of BenisoneGel (a product of Warner-Lambert's Texas Pharmacal Company) terminated in July 1976, his exclusions for the Med-Therm Corporation, Warner-Lambert's Parke-Davis Division and Chilcott Division remain in effect. The monograph is 50 percent complete at present. The panel has a target date of December 1978 for completion of its work. This employee has been with the panel since 1973. It is anticipated that he will remain on the panel until it concludes its work.

CASE C

The employee in this case is a member of the OTC Panel on Internal Analgesics and submitted a new financial disclosure statement in March 1977. He maintains the same financial interests and exclusions for A. H. Robins, Wyeth Laboratories, and Bristol-Myers as in previous years. In addition, he is working as principal investigator under a $2,500 grant from Hoffman-LaRoche to the Regents of the University of California and is serving as an officer in the Medical Electronics Development Corporation. The employee has been excluded from any involvement with these firms and these facts have been added to his public disclosure memorandum.

The employee has been on the OTC Panel on Internal Analgesics since 1972. The panel published its proposed report in the Federal Register on July 8, 1977, and the remaining responsibilities of this employee are to assist with the analysis of comments received and the preparation of a final report.

CASE D

The employee in this case began a four year assignment in 1974 as a member of the, Auti-infective Agents Advisory Committee. He has not reported any change of financial interest since submitting his 1976 form and he continues to be excluded from matters pertaining to Bristol-Myers, Eli Lilly, and BurroughsWellcome.

On June 3, 1975, this special government employee participated in a meeting of the Anti-infective Agents Advisory Committee. During a presentation made by Eli Lilly in an open session before the Committee, the employee asked questions concerning the toxicity of a particular product. Later the same day in an executive session, the employee also entered into a discussion on a motion concerning the labeling of an Eli Lilly product.

At the time of these occurrences, the Executive Secretary was utilizing information contained on a form FD 2637 signed by the employee on March 28, 1975. This form, written in blue pen, failed to contain a reference to his Eli Lilly work. The same day, March 28, 1975, the employee had also executed another form FD 2637, in black ink, which was mistaken for a xerox copy, except that it was in fact an original and did contain a disclosure of his Eli Lilly work. Through error, this latter form was overlooked by the Agency, was not used in processing his appointment and did not find its way to the Executive Secretary of the Committee. Therefore, proper exclusion was not exercised and he inadvertently was allowed to participate in the discussion of Eli Lilly products.

To avoid similar situations, all Executive Secretaries of each of our panels/ committees are being required to take affirmative action to announce into the transcript all exclusions at the beginning of each meeting.

The employee in this instance has also been made aware of this incident and the potential it has for creating at least the appearance of a conflict of interest. Mr. Moss. The next witness is David Cohen, president of Common Cause.

Mr. COHEN. Mr. Chairman, I am accompanied by Kathy Schroeher, a staff member of our issue development staff.

Mr. Moss. Please 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?

Mr. COHEN. I do.

Ms. SCHROEHER. I do.

TESTIMONY OF DAVID COHEN, PRESIDENT, COMMON CAUSE, ACCOMPANIED BY KATHY SCHROEHER, MEMBER, ISSUE DEVELOPMENT STAFF

Mr. COHEN. Mr. Chairman, my name is David Cohen. I serve as the president of Common Cause. With me is Miss Kathy Schroeher, who is a staff member of our issue development staff.

What I would like to do, Mr. Chairman, if I may, is submit my prepared statement for the record and summarize it.

First, I want to say that I think the work of this subcommittee on its various oversight activities, including the latest report, is another example of the validation of the necessity of oversight. How laws and rules are implemented is as important as their enactment. I think it helps provide a tremendously important record in the formualtion of public policy. We start with the supposition that, while a lot of existing rules have not been applied well, one of the reasons they have not been applied well is that they have some very basic defects.

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The fact of the matter is that, in Republican as well as Democratic administrations at the executive branch level, conflict-ofinterest policy has not been taken seriously. There has been a permissive attitude that often results in a variety of self-fulfilling myths and prophesies, and nothing ever gets done to correct it.

I think the evidence that you have provided in your various studies lay the base for moving forward on what I hope is effective legislation.

I would like to talk briefly about divestiture, blind trust, exemptions, the administration's bill, and probably concentrate the bulk of my remarks on the questions of what constitutes a good enforcement policy.

We think, on the whole question of divestiture, that there is no question that industry specific situations, such as the FDA, the ICC, the FCC, and the FPC, there ought to be divestiture. Without a doubt, we ought to be able to move forward in that area.

We think there are other questions raised where the situation is not so clearly industry specific. The weaker the enforcement system, the more precise the ground rules have to be. I am sure this will come out in some of our discussion on this.

On the question of blind trust, we think a case must be made by those who advocate it as to why we ought to have blind trust. Such a case has not yet been made. We specifically disagree with the provision in the administration's bill, H.R. 6954, which calls for a blind trust. As a matter of fact, while I know there are limits to this committee's jurisdiction, the one aspect of the President's policy that has disturbed us has been the sanctioning of blind trust in the ground rules for the new appointees.

Some of the Cabinet Officers, including the Secretary of HEW, who, of course, has responsibility over FDA, has made use of that blind trust. We would hope that blind trusts would not be permitted. They, in fact, cannot be blind. If there is a case for them, we have not heard it. We are open to listening to it, but the case has not yet been made.

There are some questions that constantly arise under 18 U.S.C. 208(b) for the provision of authority for the exemption of financial interests deemed too remote or too inconsequential to affect the integrity of employee services.

We think there is enough evidence to show that the de minimis ceilings that have existed in certain departments really do not work out well. Whether one is a member of the Federal Maritime Commission, for example, and you have a small holding in maritime interests or your stock holdings are only at $1,000 instead of at $5,000, which is the way de minimis rules usually work, you still have a conflict.

We think that the studies by the GAO certainly cut in favor of getting rid of the de minimis rule. The steps taken by DOT in response to a recent GAO report in which DOT eliminated its $5,000 de minimis rule was a proper step. We would hope other department would follow.

I commented on the administration bill as it applies to blind trust. I would only add several other points about the administration bill.