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ARCHIVED - NIH Regulatory Burden
III. Financial Conflict of Interest - Workgroup Report


The Federal government, through the Public Health Service (PHS) and the National Science Foundation (NSF), has promulgated regulations and policies requiring that recipients of PHS and NSF funding identify and manage potential financial conflicts of interest when funds from those two Agencies are involved. The stated purpose of these requirements is to ensure a reasonable expectation that the design, conduct or reporting of research will be unbiased by any conflicting financial interest of the investigator. The PHS regulation flows from enacted legislation, while the NSF published a policy document substantially similar to the PHS regulations. The NSF policy has no legislative history.

In order to identify the research community's view of opportunities for streamlining, a workgroup of research institution officials was convened. The workgroup was diverse, containing research administrators, research investigators, and faculty members chairing Conflict of Interest committees; these members also represented both private and public institutions. This diversity is necessary in order to capture the perspective of both those performing the research and those that are charged with developing, implementing and overseeing Conflict of Interest programs at the institutional level. In addition, State procurement and Conflict of Interest laws also govern public institutions, often being more restrictive than the Federal statute, which adds another level of complication that must be considered in examining current Federal requirements. A listing of the individuals serving on this workgroup is included in Appendix 2.

The specific task assigned to the workgroup was to identify opportunities for streamlining the Federal Conflict of Interest system of regulation, and to propose solutions for the issues that were identified. While the request came from the Appropriations Subcommittee that oversees the activities of the NIH, it was not possible to assess the regulatory burden imposed on the research community without considering the impact of the policies of the NSF because of the considerable overlap. Therefore, the workgroup considered specific aspects of this larger set of programs that could be made more efficient and to propose solutions for the issues that were identified.

Current Requirements

Section 493A of the Public Health Service Act requires that the Secretary define by regulation the circumstances that constitute the existence of a financial conflict of interest. Institutions and individuals receiving research assistance through the Secretary must abide by the regulations that establish standards for managing, reducing, or eliminating the existence of the financial conflict. Projects to which this requirement apply are defined as projects of clinical research whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment that is receiving funding assistance through the Secretary. The legislation further requires that the entity applying for funds provide an assurance that it has established a process to identify financial conflicts, that it will report any interests to the Secretary, and that it will report how they are being managed or eliminated. If it is determined that an entity failed to comply with the requirement to disclose a financial conflict of interest, its existence is required to be disclosed at each public discussion of the results of the project, and other appropriate action may also be taken by the Secretary.

The PHS regulations are contained in 42 CFR Part 50 and 45 CFR Part 94. These regulations detail the following definitions:

  • Investigator is the principal investigator and any other person responsible for the design, conduct, or reporting of research funded by PHS. It also includes the investigator's spouse and dependent children.
  • Research includes any research activity for which research funding is available from PHS through a grant, contract, or cooperative agreement.
  • Significant Financial Interest is anything of monetary value except:

    • Salaries, royalties and remuneration from the applicant institution;
    • Any ownership interest in the institution, if the institution is an applicant under the SBIR program;
    • Income from seminars, lectures, teaching engagements, and service on advisory committees or review panels;
    • An equity interest that when aggregated for the investigator, spouse and dependent children does not exceed $10,000 and does not represent more than 5% ownership interest in a single entity; or
    • Salary, royalties, or other payments when aggregated for the investigator, spouse and dependent children that do not exceed $10,000 over the next 12 months.

Each institution must:

  • Maintain a written, enforced policy on conflict of interest complying with the regulations and inform investigators of the policy. The policy also applies to subgrantees, collaborators, and contractors if PHS funds are used.
  • Designate an institutional official who will review financial disclosure statements.
  • Require that each investigator submit to the institutional official, by the time the application is submitted for funding, a listing of significant financial interests that would reasonably be affected by the research.
  • Provide guidelines to designated officials to identify conflicts and take necessary action to manage, reduce or eliminate those conflicts.
  • Maintain records for 3 years after the date of the submission of the final report of expenditures.
  • Establish adequate enforcement mechanisms and provide for appropriate sanctions.
  • Certify in each application for funding that such policies exist and that prior to any expenditure of funds, the institution will report the existence of a conflict and assure that it is being managed, reduced or eliminated.

Other provisions include that:

  • The regulations define a conflict of interest as existing when the designated official reasonably concludes that it exists and determines the actions that should be taken to manage, reduce or eliminate it.
  • If an investigator fails to comply with the policies, the institution must report it immediately to the funding component and inform the component of the action that has been taken. If this failure occurs with a project whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment, the institution must require that it be disclosed in each public presentation of the results of the research.

NSF has no authorizing legislation and its policies were developed in close conjunction with the PHS. The following differences exist:

  • PHS, by virtue of its legislation, requires that a letter be sent to the awarding component for each conflict of interest that it is managing, whereas NSF has no such requirement.
  • PHS regulations require that records be retained for 3 years after the last financial statement has been submitted, while NSF requires them to be retained for 3 years after the termination of the award.
  • PHS regulations, consistent with Department of Health and Human Services (DHHS) grants regulations, require that if the institution carries out PHS-funded research through subgrantees, contractors or collaborators, that the institution take reasonable steps to assure that the investigators in those entities comply with the PHS Conflict of Interest regulations. NSF has no such requirement.
  • NSF exempts entities with less than 50 employees from the regulation; PHS has no exemption.
  • NSF permits the research to proceed, in spite of disclosed conflicts, if the review determines that restrictions would be ineffective and that the benefits of proceeding outweigh the consequences of any negative impact; PHS has no such provision.

Identification of Intent of Conflict of Interest Protections

In order to put potential issues and solutions into the appropriate context, members identified the intended level of protections, i.e., the objectives that must be achieved if a Conflict of Interest program at a research institution is to be considered effective. It is the workgroup's view that the protections intended by the Federal regulations and the implementation of a policy at the research institution are as follows:

  • Assure that merit, intellectual importance, and a policy of unrestricted communication govern decisions concerning the nature and direction of research, and the publication of research results.

  • Assure that the particular research proposed is appropriate for the research environment and that there is an acceptable congruence of interest between institution and the sponsor.

  • Assure that the management of the disclosure process protects the faculty and the institution while facilitating the commercialization of research results for the public good.

  • Assure the appropriate use and disclosure of intellectual property.

  • Assure the appropriate use of the resources of the research institution in the conduct of research.

  • Assure that the scholarly interests of the students govern the nature of decisions involving students, or the direction given to them.

  • Assure the maintenance of the public trust through disclosure and the management of potential conflicts of interest.

The group concluded that a credible policy had to achieve these protections. Any changes to reduce regulatory burden must not diminish the ability of the institution to achieve these objectives nor should any proposed changes convey a diminished intent in this regard.

Identification of Issues of Concern

Following the development of the objectives that a credible Conflict of Interest program must achieve, the members identified those issues that were of concern. This list included issues related to the legislation, the regulations, the interpretation of the regulations and policies, and practices at the research institution that resulted from the interpretation or over-interpretation of the regulations. It should be noted that the purpose of the workgroup was not necessarily to come to consensus. While there was general agreement on the issues and the proposed solutions, there was not necessarily unanimity on each.

  • The equity thresholds of $10,000 or 5% ownership interest are often too low. Both the PHS regulation and NSF policy currently state that an investigator must disclose any financial interest that might reasonably be affected by the research funded by PHS/NSF, exempting equity interests that are less than $10,000 or a 5% ownership interest in a firm. Concern was expressed that the low threshold triggers the reporting of an excessive number of disclosures where there is no conflict that need be managed.

  • There should be a dialogue between institutions and regulators on several key terms. Individual members were concerned that many key terms, some of which are in the current regulations, are vague and the potential exists for mis- or over-interpretation. Specifically identified were the terms "acceptable management of a conflict", "unacceptable financial relationship" and the term "reasonably appears to affected by" in identifying conflicts for disclosure. With regard to the latter term it was felt that the operational definition should be limited and made workable by a clear statement of its scope. While reluctant to press for a more precise definition codified in the regulations, a mechanism to share experiences and insights was thought to be valuable.

  • The regulations must provide flexibility to allow local management. Because the institutions governed are so diverse, and the issues so complex, the group concluded that a major management objective was the need to maintain flexibility and allow local management. The term "conflict of interest", or many of the terms noted in the paragraph above, cannot be rigidly defined so as to be applicable in all situations, nor should it be presumed that faculty ties between universities and industries are necessarily conflicts of interest. Such collaborations are, in fact, desirable and policies must be flexible to both allow legitimate pursuit of these ties and to assure that the specific and unique aspects of collaborations are consistent with the values of the institution. Furthermore, conflict of interest does not lend itself to generic regulation or legislation, because it risks the likelihood of stifling legitimate research while missing the real cases that cannot be imagined in advance. Because the issues are so complicated, some thought it might be useful to identify a cohort of those who have reported conflict-of-interest who can act as advisors to institutions experiencing conflict-of-interest for the first time.

  • The disclosure system must recognize the changing nature of research and society's expectations. Members noted that the Federal government has promulgated two policies - the implementation of the Bayh-Dole Act and the Conflict of Interest regulations - but has not formally acknowledged the need to manage conflict of interest regulations in the context of the objective to pursue commercialization of research results for the public good. By requiring institutions to share with the inventor any income on the invention, the Bayh-Dole Act aims to provide an incentive for inventors to disclose promising technologies and discoveries. It also directs non-profit entities to use the financial benefits of technology transfer to support further scientific research and education. The Conflict of Interest requirements seek to assure that the conduct of research and the publication of research results are not compromised by financial interest of the investigator. The result is the need to manage these processes so that a balance is struck between the integrity of the science and the objective of commercializing products for the public good.

  • There are differences between the PHS and NSF requirements that should be made consistent. While acknowledging that significant effort was made to narrow the differences between the PHS and NSF requirements, some still exist, either through legislation or regulation. Specific differences are identified above under "Current Requirements."

  • In some cases, the PHS regulation and the NSF policy superimposed a requirement on a system that was satisfactory. Some workgroup members observed that their institution had policies in effect prior to the issuance of the PHS/NSF requirements. In those cases, the Federal process was different than those in place and resulted in an unnecessary burden. It was observed by a member whose institution had a system in place prior to the implementation of the Federal requirements that most conflict of interest issues are the result of technology transfer to start-up companies but these were already being satisfactorily reviewed. This experience was not uniform, however, as some other members observed that their institutions had no policy in place until the Federal requirements were promulgated and others stated that their existing policies were substantially altered as a result of the issuance of Federal requirements. Regardless, some members observed that the imposition of these requirements was not based on any demonstrated need but on the basis of anecdotal or hearsay evidence.

  • Differences may exist between State and Federal requirements. Because States have their own procurement and conflict of interest policies, public institutions must deal with the requirements of both Federal and State laws, which are invariably different.

Proposed Solutions to Reduce Regulatory Burden

As noted above, in developing solutions, the group emphasized, at the outset, that these solutions must not compromise the items identified earlier as the intended levels of protection. Much of the discussion centered on identifying the management strategy best suited to assuring the integrity of research and promoting commercialization in an environment that was exceedingly complex. This complexity exists on many levels, many of which were noted above.

  • A policy must accommodate the fact that the institutions conducting the research are quite diverse - any management strategy must acknowledge that each has its own culture, values and management structure. In addition, it must consider that State schools may also be governed by a set of State laws that may be different than Federal regulations.

  • A policy must acknowledge that the nature of potential conflicts is complex and continually changing. The workgroup members noted that potential financial arrangements are exceedingly complex, change over time, and are almost impossible to predict in advance. A wide degree of discretion is required to thoughtfully manage complex individual arrangements. Furthermore, there must be flexibility to allow individual institutions to minimize unnecessary effort or paperwork and tailor their programs to address issues or instances that represent major concern.

  • A policy must recognize that potential conflicts exist beyond the financial arrangements inherent in the research itself. Any policy must accommodate the need for the research institution to carefully monitor the use of its resources and to assure that the nature of the research is consistent with its own values.

  • A policy must be flexible enough to accommodate the twin objectives of maintaining the integrity of research and commercializing the results of the research for the public good.

  • A policy must recognize that in an environment this complex, management and responsibility must lie with the research institutions themselves.

The members acknowledged that the Federal Conflict of Interest requirements were more flexible than most other regulatory research requirements, recognizing local authority to establish institutional policy and implement responsible management practices without burdensome Agency oversight and reporting requirements. As such, it can be favorably compared with most Federal regulations governing the conduct of research. At the same time, the members observed that their experience with the disclosure process indicates that there are only a small number of potential cases of financial conflict of interest that must be managed. It is exceedingly small when compared with the numbers of disclosures requested, and far smaller than the 23% estimated by PHS and NSF when the requirements were published.

Recommendations from the members are as follows:

  1. Make the regulations no more prescriptive that the PHS legislation. The current PHS regulation goes considerably beyond that required by the legislation. For example, the current regulation applies to "…each institution that applies for PHS grants or cooperative agreements for research and …to each investigator participating in such research…" Only Small Business Innovation Research (SBIR) Phase 1 projects are excluded by regulation. However, the current legislation applies specifically to "…a project of clinical research whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment and for which the entity is receiving assistance from the Secretary." Should the Federal government wish to be assured that the institution has a program in place for the remaining research program, it could be handled by a simple assurance.

  2. For those projects for which the legislation applies, change the equity interest threshold of $10,000 or a 5% ownership interest. The members' preferred option is to allow research institutions to tailor the threshold to its own circumstances. This is also consistent with the recommendations to make the regulations no more prescriptive than the legislation. Should this not be considered acceptable, the threshold, at a minimum, should be adjusted periodically to account for inflation.

  3. NIH should issue a policy statement affirming that Conflict of Interest protections and the Bayh-Dole Act complement one another. Subsequently, NIH and the research community should join together to help the public understand the relationship between the management of conflict of interest and the commercialization of research outcomes.

  4. Attempt to achieve consistency between the requirements of the two agencies. Several inconsistencies between the PHS and NSF requirements were noted; there may be others. As noted above, the workgroup recognized that a considerable effort was undertaken to reconcile the two sets of requirements. However, in revising the regulations consistent with Recommendation No. 1, it is recommended that another assessment be made to further reduce the number of inconsistent provisions.

  5. The research community should sponsor workshops on best management strategies through the NIH conference grant mechanism. The members recognize the critical importance of disseminating information on best practices to increase the effectiveness of these programs throughout the research community. In addition, there is great value in exchanging information on specific issues arising in this area, particularly in light of the complexities that have been described above.
Members are confident that with these changes, the objective of the NIH initiative would be achieved with respect to Conflict of Interest requirements - the existing regulatory procedures would be made more efficient without reducing the intended levels of protections.

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