NOTICE OF PROPOSED RULEMAKING - OBJECTIVITY IN RESEARCH

NIH GUIDE, Volume 23, Number 25, July 1, 1994



P.T. 34



Keywords:

  Grants Administration/Policy+ 



Public Health Service



The following is a reprint of the Notice of Proposed Rulemaking,

which was published in the Federal Register of June 28, 1994.



SUMMARY:  The Public Health Service (PHS) proposes to issue rules

requiring Institutions that apply for research funding from the PHS

to assume responsibility for ensuring that the financial interests of

the employees of the Institution do not compromise the objectivity

with which such research is designed, conducted, or reported.



Under the proposed rules, investigators are required to disclose to

an official(s) designated by the Institution a listing of Significant

Financial Interests.  The institutional official(s) will review these

disclosures in accordance with an administrative process to be

established by each institution.  Following this review, the

institutional official(s) will determine the acceptability of the

reported financial interests and act to protect PHS-funded research

from any bias that is reasonably expected to arise from those

interests.



DATES:  To ensure consideration, comments must be received at the

address below on or before August 29, 1994.



ADDRESS:  Please address comments to:  Dr. George J. Galasso,

Associate Director for Extramural Affairs, National Institutes of

Health, Shannon Building, Room 152, 9000 Rockville Pike, Bethesda,

Maryland, 20892.  The PHS encourages persons with disabilities to use

auxiliary devices and services to submit comments.



FOR FURTHER INFORMATION CONTACT:  Dr. George J. Galasso, Associate

Director for Extramural Affairs, National Institutes of Health at the

address above. The telephone number is (301)-496-5356 (this is not a

toll-free number).



SUPPLEMENTARY INFORMATION



Technology Transfer and Conflict of Interest.



Effective interaction between PHS-funded Institutions conducting

research and industry is essential to ensure the rapid application of

scientific discoveries to the health needs of the Nation and to

maintain the international competitiveness of domestic industry.

Nonetheless, prudent stewardship of public funds includes protecting

Federally funded research from being compromised by the conflicting

financial interests of any Investigator responsible for the design,

conduct, or reporting of PHS-funded research.



Numerous statutes and programs demonstrate the Federal interest in

the promotion of interactions among Government, academia and

industry.  For example, the Stevenson-Wydler Technology Innovation

Act of 1980 (Public Law (P.L.) 96-480) encourages technology

transfer, particularly through industrial-academic collaborations.

The Patent and Trademark Act Amendments of 1980 (P.L. 96-517) allow

universities and other funding recipients to apply for patents

developed with Federal funding, and expressly promote collaboration

between commercial concerns and nonprofit organizations.  The

Economic Recovery Tax Act of 1981 (P.L. 97-34) is aimed at fostering

research and development by small companies and associated university

partners.  The Federal Technology Transfer Act of 1986 (P.L. 99-502),

which amended P.L. 96-480, and Executive Order 12592 provide similar

patent and licensing authority to Federal laboratories, and encourage

them to participate in cooperative research and development

agreements with the private sector and nonprofit organizations,

including universities.



These legal authorities facilitate the movement of intellectual

capital between the Federal Government, academic institutions, and

the private sector.  This kind of cross-fertilization is critical to

the development of the U.S. biotechnology industry.  However, these

and other inducements for collaboration, as well as the rapid growth

of the biotechnology industry, have created a climate in which the

stewardship of public funding for biomedical and behavioral research

is increasingly complex and challenging.



The value of the results of PHS-funded research to the health and the

economy of the Nation must not be compromised by any financial

interest that will, or may be reasonably expected to, bias the

design, conduct or reporting of the research.  The proposed

regulations seek to maintain a reasonable balance between these

competing interests, give applicants for PHS research funding

responsibility and discretion to identify and manage financial

interests that may bias the research, and minimize reporting and

other burdens on the applicants.



Background



The proposed regulations are the result of a lengthy process of

consideration.  Throughout that process, the PHS has carefully

considered and changed its approach in response to public comments.



On June 27 and 28, 1989, the National Institutes of Health (NIH) and

the Alcohol, Drug Abuse, and Mental Health Administration (ADAMHA)

sponsored an open meeting to discuss issues related to financial

conflict of interest.  At that meeting there was general agreement

that an Institution that receives research funds from a PHS Awarding

Component should develop policies to identify and manage any

financial conflict of interest in the funded research.



On September 15, 1989, the NIH and ADAMHA published a Request for

Comment on Proposed Guidelines for Policies on Conflict of Interest

in the NIH Guide for Grants and Contracts (Volume 18, Number 32).

Seven hundred fifty-one responses were received from individuals

associated with medical schools, other academic and research

institutions, biotechnology companies, local governments, and non-

profit organizations; venture capitalists; attorneys; biomedical

journal editors; Federal employees and contractors at Government

facilities; and others.  In general, those submitting comments were

concerned that the proposed guidelines imposed undue burdens on

funded institutions and would impede mutually beneficial research

collaboration between universities and industry.  In response to

these comments, the Secretary determined that regulations should be

developed that would address those concerns.



A public meeting was held at NIH on November 30, 1990, to discuss

further the regulation of financial conflict of interest by the PHS.

The 18 written comments received at that time reflected views similar

to those received earlier.



Many respondents to earlier proposals stated that the primary

responsibility for setting guidelines and maintaining compliance

should rest with each awardee Institution.  The present proposed

rule, like PHS policy in other areas involving protection of the

public interest (such as the protection of human subjects in research

and the investigation of alleged scientific misconduct), sets

standards for performance and assigns the primary responsibility for

procedural development and compliance to the Institution.



Many of those commenting on prior proposals agreed with the

importance of disclosure, but thought that the requirement to

disclose all financial interests, as set forth in the previously

proposed guidelines, should be reduced in scope to prevent needless

invasion of privacy and creation of paperwork burdens.  The proposed

regulations achieve this end by limiting the disclosures that must be

made to "Significant Financial Interests," any interest of monetary

value exceeding a defined threshold of value ($5,000) or percentage

of ownership (five percent or more) that would reasonably appear to

be directly and significantly affected by the research funded by PHS

or proposed for funding.  PHS specifically requests public comment on

whether the minimum threshold for disclosure is appropriate to ensure

that PHS-funded research projects are not biased by conflicting

financial interests of those responsible for the design, conduct, or

reporting of the research.



There was a wide range of opinion among those commenting on previous

proposals regarding which types of financial interest should be

permissible.  In these proposed rules a Significant Financial

Interest (defined in 50.603) of the type specified in 50.605(a) must

be managed as provided in 50.605(b) and the existence and management,

reduction, or elimination of that financial interest must be

certified in the application.  The PHS may at any time request

submission of, or review on site, all records pertinent to the

certification.  This procedure gives Institutions broad discretion in

determining how to manage Significant Financial Interests that

reasonably appear to directly and significantly affect the design,

conduct, or reporting of the research while providing for appropriate

PHS oversight.  PHS may undertake periodic reviews of the records in

order to assess the reliability of institutional and investigator

certifications, and to determine whether institutional safeguards do,

in fact, protect the integrity of PHS-funded research.  In

undertaking any such review HHS will coordinate, to the extent

feasible, with the National Science Foundation (NSF) to ensure that

institutions are not unnecessarily subjected to multi-agency reviews.



Managing potential conflicts carefully; avoiding unnecessary burden

and useless paperwork; and preserving appropriate incentives for

productive research represent challenges individually and

collectively.  Even after we issue a final rule some unforeseen

problems will certainly emerge.  Therefore, approximately one year

after the final rule is issued we plan to initiate an evaluation, to

include a conference and other mechanisms to consult with

investigators and institutions.  Based on that evaluation, we would

revise these rules if and as appropriate.



Basis and Purpose.  A more detailed discussion of the proposed

regulations and their basis and purpose follows.



I. Applicability.

a. Types of Research.  The proposed regulations implement section

493A of the PHS Act, added by Public Law 103-43, which mandates the

issuance of regulations defining, and setting standards for, the

management of financial interests that will, or may be reasonably

expected to, bias a clinical research project whose purpose is to

evaluate the safety or effectiveness of a drug, medical device, or

treatment.  In addition, the proposed regulations implement section

924 of the PHS Act, as amended by Public Law 102-410, which requires

the Administrator of the Agency for Health Care Policy and Research

(AHCPR) to issue regulations defining the financial interests that

will, or may be reasonably expected to, create a bias in the health

care services research projects funded by the AHCPR.  The proposed

regulations are not limited to the implementation of these statutory

authorities, however.  Pursuant to the Secretary's authority to issue

regulations governing those who seek or receive PHS funding, they

apply broadly to all research funded by the PHS, whether under the

authority of the PHS Act or other statutes, except Phase I projects

under the Small Business Innovation Research (SBIR) Program.  Very

limited amounts of funding are provided under Phase I of the SBIR

Program to plan and determine the feasibility of the research project

for further funding under Phase II.  Because potentially biasing

financial interests will be assessed at the time of the Phase II

application, it would be burdensome and unproductive to require such

a review for Phase I applications.  With this exception, it is

believed that financial interests can create a bias in all types of

research, although the likelihood of such a bias may diminish if the

outcome of the research would have little effect on the commercial

potential of any product, device, or other property in which the

Investigator may have a financial interest.  However, this

distinction can not be so clearly drawn that the need to protect the

integrity of all PHS-funded research uniformly is alleviated.



b. Individual vs. Institutional Financial Interests.  The proposed

regulations provide for the disclosure and consideration of the

financial interests of individuals involved in the design, conduct,

and reporting of the research.  Section 493A of the PHS Act, added by

Public Law 103-43, refers to financial interests of entities (e.g.,

institutions), as well as individuals, in clinical research projects.

We are considering the following alternatives with respect to the

coverage of institutions that apply for clinical research funding

under the PHS Act:



(1)  Exempting Institutional Financial Interests that Would Not Bias

the Project.  Under the statute, adoption of this alternative would

be based on a determination that the exempted institutional financial

interests would not be reasonably expected to bias the design,

conduct, or reporting of PHS-funded research. This conclusion might

be based on a finding that the limited size of the interest would

preclude any biasing effect, or a finding that the institutional

financial interest would have only an indirect and unpredictable

effect on the project, in the absence of a personal financial

interest on the part of those responsible for the design, conduct or

reporting of the research.  There would, of course, have to be a

reasonable factual basis for such findings.



(2) Requiring Institutional Applicants to Certify Whether They Have

Significant Financial Interests.  Adoption of this alternative would

involve establishing a procedure for institutions similar to the

procedure in the proposed regulation for individuals.  This option

would be based on the same rationale as the preceding option, i.e.

that there is no need to regulate institutional financial interests

that aren't reasonably expected to bias the conduct of the research.

Significant Financial Interest might be defined for institutions as

limited only to direct financial interests (such as a patent

application on, or a financial arrangement with a company regarding,

the product of the research).



(3)  Requiring Full Disclosure to the PHS of the Financial Interests

of Institutions.  This alternative would impose a reporting burden

upon the institutions, but would ensure a complete PHS review of any

potential conflict of interest prior to a funding decision.



(4)  Other Alternatives.  We will also consider combinations of these

three alternatives and other alternatives that may be suggested in

the public comments.  We will choose an alternative based on the

requirements of the statute, and, to the extent consistent with the

statute, based upon our weighing of the burdens on the institutions,

the potential that institutional financial interests will bias PHS-

funded research, and the potential adverse effect of the alternative

upon technology transfer.



c. Types of Interests.  The proposed regulations require disclosure

of "significant financial interests" of the Investigator that would

reasonably appear to be directly and significantly affected by the

research funded by PHS or proposed for funding or of the investigator

in an entity whose financial interest would reasonably appear to be

directly and significantly affected by the PHS research.  The

following are examples of the types of significant financial

interests that would fall within the categories in 50.605:  ownership

of stock, stock options, or any equity, debt, security, capital

holding, salary or other remuneration, or financial consideration, or

thing of value for services as an employee, consultant, officer, or

board member in (1) any business enterprise, including the applicant

for PHS funds (except SBIR applicants are not included), that owns or

has applied for the patent, manufacturing or marketing rights to a

drug, vaccine, device, procedure or any other product involved in or

that will predictably result from the research described in the

application or (2) a business enterprise that is known by the

investigator to own or have applied for such rights in any product

that can reasonably be expected to compete with the product or

procedure that will predictably result from the research described in

the application.  We request comments on a range of disclosures that

would on the one hand, include interests that may threaten

objectivity; and, on the other exclude those interests that cannot

reasonably be regulated or that are so obvious as not to warrant

regulation.  We also request comments on whether specific examples of

biasing significant financial interests, such as those set forth

above, should be included in the regulations.



In particular, we request comments on whether interests in a business

enterprise that is known by the investigator to have an interest in a

product that competes with the product involved in the application

should fall within the categories of significant financial interests

described in 50.605. There may not be any  reasonable way for an

investigator either to identify all competing products or to

determine what companies own them.  For example, for most medical

devices there may be dozens of competing products, many made by

subsidiaries of "Fortune 500" conglomerates.  How would an

investigator determine just what products were "competing"?  Should

we be concerned if an investigator owns $5,000 of stock in a company

in which only a small fraction of revenues and profits derive from

the competing product?  We request comments on whether, and how best,

to cover interests in competing products.



We also request comments on whether an employee's stock or other non-

salary financial interests in the applicant institution should be

covered.  This is of particular relevance when the grant or contract

is with a for-profit enterprise.  Specifically, should we be

concerned, and how could we expect the company to "manage" against

conflict, when the company's employees obviously stand to benefit if

the product is a commercial success?  The proposed rule includes an

exemption for an ownership interest in the institution if it is an

Small Business Innovation Research (SBIR) applicant.  Can we justify

exempting SBIR awards and not all other awards to both large and

small profit-making enterprises?  Should we exempt from disclosure

any equity or ownership interest in the applicant institution? Should

we exempt disclosure of interests other than bonuses or other

compensation tied to the outcome of the research?



II.  Burdens Upon Applicants.  The proposed regulation is intended to

minimize reporting and other burdens upon applicants to the maximum

extent feasible.  Certain types or amounts of financial interests

that cannot be reasonably expected to bias the research are excluded

from the requirements for disclosure by investigators.  Such

interests are also excluded from the certification of whether these

are Significant Financial Interests that must accompany each

application.  Even when there is a Significant Financial Interest of

the type specified in the proposed rule, the institutions are given

broad discretion in managing the conflict; details of the interest

need not be reported to the PHS awarding component.  It is the

responsibility of that component to determine whether to review the

institutional records relating to the disclosure and management of

that interest.



The Department will also seek to reduce burdens upon applicants by

being available to provide advice and assistance as applicants

establish the policies and procedures required by this subpart.  The

PHS Awarding Components will be available to respond to general

inquiries regarding compliance with this subpart.



Another way of reducing burdens upon applicants is to exempt certain

types of applicants from the requirements or to impose different,

less burdensome requirements on them.  The proposed 50.602 provides

that the regulations do not apply to SBIR Phase I applications and

that where the applicant for a research grant is an individual,

determinations of the procedures to be followed to ensure the

objectivity of the research will be made on a case-by-case basis.

The National Science Foundation (NSF) exempts from its Investigator

Financial Disclosure Policy that is being published in this issue of

the Federal Register grantees employing fifty persons or less.

Comment on whether HHS should adopt a similar exclusion is requested.

Our experiences with conflict of interest situations indicate that

investigators working for small entities may be just as subject to

conflicts of interest as investigators working at large institutions.

The interests of appropriate coverage and of reducing burdens might

both be served by determining the procedures to be followed by small

entities on a case-by-case basis as is proposed for individuals.



III.  Uniform Federal Policy.  We have been working closely with the

National Science Foundation (NSF) to ensure that this Notice of

Proposed Rulemaking and the policy published by NSF in this issue of

the Federal Register will be consistent, and will impose the same

obligations on funding recipients.  In addition, HHS has been working

with the Office of Science and Technology Policy, the Office

Management and Budget, NSF, and other interested agencies to develop

and propose a common Federal policy on investigator conflicts of

interest.  It is expected that this policy, when completed, will

ensure consistent treatment of investigator conflicts issues by all

Federal funding agencies.



However, the statutes described above have necessitated some

inconsistencies between these proposed regulations and the policy

being published by the NSF.  Unlike the NSF policy, there is no

provision permitting institutions to waive the management, reduction,

or elimination of an actual or potential conflicting interest when

such action would be either ineffective or inequitable, and the

potential negative impacts that might arise from the conflicting

interest are outweighed by interests of scientific progress,

technology transfer, or the public health and welfare.  Because

section 493A of the Public Health Service Act requires institutions

conducting PHS-funded clinical research projects to manage or

eliminate financial interests that would potentially bias the

project, we do not believe HHS has the discretion to permit

institutions to waive this requirement.  Similarly, section 493A

necessitates the requirements for institutional notification of the

PHS Awarding Component in 50.604(a)(7)(ii) and (8).  In addition, the

statute specifically requires the announcement, with each public

presentation of the research, of a conflicting financial interest

that was not managed, reduced, or eliminated, as set forth in

50.606(d).  This requirement is limited to PHS-funded clinical

research projects, but the requirements of institutional notification

to the PHS have not been so limited, because we believe that such

notification serves a useful purpose for all PHS-funded research, and

that disparate reporting requirements for different types of research

would cause confusion and create burdens for the institutions.



The Department notes that "management of a financial interest that

could potentially bias a project" may include recognition by the

institution that a potential conflict exists, and monitoring progress

of the research to insure that the financial interest does not bias

the project.  The Department specifically requests comment on whether

this interpretation maximizes consistency between this NPRM and the

NSF's final policy, in the light of the statutory distinctions

discussed above. The Department seeks comment on whether this

expansion of the statutory requirement is appropriate in the context

of PHS-funded research and the need to minimize burden on

institutions.



IV.  Relationship to other laws.  Many Institutions funded by the PHS

Awarding Components are State Institutions whose employees are

subject to State laws designed to prevent financial conflict of

interest.  The proposed rules would not supplant these requirements

and are intended to be applied in addition to other applicable

Federal and State restrictions related to potential financial

conflicts of interest, including Federal statutes and regulations

that prohibit trading in securities with knowledge of privileged or

non-public information.



V.  Enforcement.  The proposed regulations provide for enforcement

remedies both against researchers that fail to comply with

institutional policies issued under the regulation and Institutions

that fail to comply with the regulation.  The proposed rules

specifically state that the requirements constitute a condition of

award and as such could be enforced through the suspension or

termination of a grant or cooperative agreement.  A Termination for

Convenience or a Stop Work Order could be issued in accordance with

the FAR if a contractor fails to enforce the Special Standards.  Each

contractor would be required to meet the specified responsibility

requirements prior to award of a contract.  PHS awarding components

will work diligently with applicants to resolve compliance problems

informally, to avoid the need for formal enforcement action.



E.O. 12866/Regulatory Flexibility Act Analysis.  Executive Order

12866 requires us to prepare an analysis for any rule that meets one

of the E.O. 12866 criteria for a significant regulatory action, that

is, that may --



Have an annual effect on the economy of $100 million or more or

adversely affect in a material way the economy, a sector of the

economy, productivity, competition, jobs, the environment, public

health or safety, or State, local, or tribal governments, and

communities;



Create a serious inconsistency or otherwise interfere with an action

taken or planned by another agency;



Materially alter the budgetary impact of grants, user fees, or loan

programs or the rights and obligations of recipients thereof; or



Raise novel legal or policy issues arising out of legal mandates, the

President's priorities, or the principles set forth in E.O. 12866.



In addition, we prepare a regulatory flexibility analysis, in

accordance with the Regulatory Flexibility Act, if the rule is

expected to have a significant impact on a substantial number of

small entities.



For reasons outlined below, we do not believe this rule is

economically significant nor do we believe that it will have a

significant impact on a substantial number of small entities.  In

addition, this rule is not inconsistent with the actions of any other

agency.  However, we recognize that there are potential

inconsistencies depending on what other agencies may later propose.

Several agencies are now considering issuing policies on what

circumstances are likely to lead to bias in research that is funded

or relied upon by the Federal Government.



Any rule in this area has the potential to inhibit socially

beneficial research, and to hamper the technological progress so

essential to the American economy and to the advance of science.  We

are further mindful of the importance of the requirements in

Executive Order 12866 that any new regulatory system be based on a

showing that there is a significant problem requiring regulation,

that regulatory priorities be based on the degree and nature of

risks, and that regulations be designed to be cost-effective.

Moreover, the Regulatory Flexibility Act requires us to minimize

adverse effects not only on small businesses and individual

entrepreneurs, but also on almost all non-profit entities including

universities.



In the hearings that preceded enactment of the requirement in the NIH

Revitalization Act, known cases were described in which scientists

have stood to make large sums of money contingent on the positive

outcome of research on a particular product, where this fact was not

known to those reviewing the research, and where bias did occur.



We have drafted this rule to address these instances of abuse, while

minimizing unnecessary burden to researchers.  We did not consider

any option that would routinely require all researchers to list all

of their significant assets (unrelated to the research project), that

would encourage searches for hypothetical or speculative conflicts,

that would require divestiture of ownership of a product undergoing

research, or that would discourage in any way funding grants or

contracts to scientists to develop products with significant profit

potential.  We have not inhibited research in any way, other than

requiring that it be managed to assure that potential bias is

minimized.  Such management methods are common in the sciences and

impose no undue burden.



We request comment on whether there are any provisions of the

proposed rule that might inadvertently hamper socially desirable

research.  For example, we have proposed allowing institutions to

require that researcher employees divest themselves of stock in

companies owning products undergoing research.  Conversely, if there

are other types of situations in which a financial conflict of

interest has a substantial risk of biasing research results, we will

consider expanding the scope of the rule.  We ask that commenters

provide evidence as to magnitude and frequency of any claimed adverse

effects or loopholes.



We do not believe that the annual costs of implementing this rule

will reach as much as $1,000 an institution in staff time, or as much

as $1 million a year across all institutions.  Most of the cost will

arise from the several seconds or minutes spent certifying the

absence of significant financial interests for individual awards.

Spread across thousands of grantee and contractor institutions, these

costs are infinitesimal.  Therefore, we have determined that this

rule would not create an "unfunded mandate" imposed on state-owned

institutions and would not trigger the requirements of Executive

Order 12875, on "Enhancing the Intergovernmental Partnership."



For these same reasons, we certify that this rule will not have a

significant economic impact on a substantial number of small

entities, and that a Regulatory Flexibility Analysis is not required.



2. Paperwork Reduction Act



The proposed rules contain information collection requirements that

are subject to review by the Office of Management and Budget (OMB)

under the Paperwork Reduction Act of 1980.  Appropriate instructions

for making certifications to the PHS Awarding Components will be

issued as an addendum to the instructions for applications for PHS

research funding.  It is contemplated that the certification will be

provided by checking a box on the application.  The title,

description, and respondent description applicable to the information

collection are shown below with an estimate of the annual reporting

and record-keeping burden.  Included in the estimate is the time for

reviewing instructions, searching existing data sources, gathering

and maintaining the data needed, and completing and reviewing the

collection of information.



Title:  Responsibility of Applicants for Promoting Objectivity in

Research for which Public Health Service (PHS) Funding is Sought



Description:  The regulations would require each applicant/offeror

Institution to establish procedures to avoid the inappropriate

financial interest of an Investigator involved in the design, conduct

or reporting of the research for which PHS funding is sought.



Description of Respondents:  Public and private non-profit

institutions, small businesses, and other for-profit organizations.



ESTIMATED ANNUAL REPORT AND RECORD KEEPING BURDEN



42CFR          45CFR94         #     Hrs        Hrs      Hrs      tot

                            Rspdnts  p/rsp     42CFR    45CFR

Reporting:



50.604(a)(8)  (d)(1)(viii)    20      10.0       160      40      200

50.604(b)     (d)(2)         100      10.0       850     150    1,000

50.606(a)     (f)(1)          20      10.0       160      40      200



SUB-TOTAL:                                                      1,400



Record keeping:



50.604(a)(5)  (d)(1)(v)    2,000     100.0   180,000  20,000  200,000



SUB-TOTAL:                                                    200,000



Disclosure:



50.604(a)(1)  (d)(1)(i)    2,000      10.0    18,000   2,000   20,000

50.604 (a)(3) (d)(1)(iii)  50,000      1.0    45,000   5,000   50,000



SUB-TOTAL                                                      70,000



TOTAL BURDEN                                                  271,400



In accordance with the requirements of the Paperwork Reduction Act of

1980, the Department of Health and Human Services will submit the

information collection requirements cited above to OMB for review and

approval.  Organizations and individuals desiring to submit comments

on the information collection requirements and the estimated burden

should direct such comments to the information address cited above

and to:  NIH/PHS Desk Officer, Office of Information and Regulatory

Affairs, OMB, New Executive Office Building, Room 3208, 725 17th St.,

N.W., Washington, DC 20503.



Catalogue of Federal Domestic Assistance



The proposed rules affect all research, research and development, and

research and development support funded by of the Public Health

Service.  Questions about the proposed rules should be directed to

the Information Contact provided above.



List of Subjects

42 CFR Part 50, Subpart F - Grant programs--health; Conflict of

interest; Medical research; Behavioral, biological, biochemical,

psychological and psychiatric research



45 CFR Part 94 - Government procurement.



Dated:  June 16, 1994



Philip R. Lee, M.D.

Assistant Secretary for Health



Donna E. Shalala

Secretary



Accordingly, it is proposed to amend 42 CFR part 50 by adding a new

Subpart F, and to amend 45 CFR by adding a new Part 94, as set forth

below:



1.  Subpart F is added to 42 CFR Part 50 to read as follows:



Subpart F--Responsibility of Applicants for Promoting Objectivity in

Research for which PHS Funding is Sought



50.601  Purpose.

50.602  Applicability.

50.603  Definitions.

50.604  Institutional responsibility regarding Significant Financial

Interests of Investigators.

50.605  Management of Significant Financial interests.

50.606  Remedies.

50.607  Other HHS regulations that apply.



Authority:  42 U.S.C. 216, 289b-1, 299c-3.



50.601  Purpose.



This subpart promotes objectivity in research by requiring that each

Institution that applies for PHS grants or cooperative agreements for

research ensure there is no reasonable expectation that the design,

conduct, and reporting of the research to be funded pursuant to the

application will be biased by any Significant Financial Interest of

an Investigator responsible for the design, conduct, or reporting of

the research.



50.602  Applicability.



This subpart is applicable to each Institution that applies for PHS

grants or cooperative agreements for research and, through the

implementation of this subpart by each Institution, to each

Investigator participating in research covered by this subpart;

provided, that this subpart does not apply to SBIR Program Phase I

applications.  In those few cases where an individual, rather than an

institution, is an applicant for PHS grants or cooperative agreements

for research, PHS Awarding Components will make case-by-case

determinations on the steps to be taken to ensure that the design,

conduct, and reporting of the research will not be biased by any

Significant Financial Interest of the individual.



50.603  Definitions.



As used in this subpart:



"HHS" means the United States Department of Health and Human

Services, and any components of the Department to which the authority

involved may be delegated.



"Institution" means any domestic or foreign, public or private,

entity or organization (excluding a Federal agency).



"Investigator" means the principal investigator and any other person

at the Institution who is responsible for the design, conduct, or

reporting of research funded by PHS, or proposed for such funding.

For the purposes of the requirements of this subpart relating to

financial interests, "Investigator" includes the Investigator's

spouse and dependent children.



"PHS" means the Public Health Service, an operating division of the

U.S. Department of Health and Human Services, and any components of

the PHS to which the authority involved may be delegated.



"PHS Awarding Component" means the organizational unit of the PHS

that funds the research that is subject to this subpart.



"Public Health Service Act" or "PHS Act" means the statute codified

at 42 U.S.C. 201 et seq.



"Research" means a systematic investigation designed to develop or

contribute to generalizable knowledge relating broadly to public

health, including behavioral and social-sciences research.  The term

encompasses basic and applied research and product development.  As

used in this subpart, the term includes any such activity for which

research funding is available from a PHS Awarding Component through a

grant or cooperative agreement whether authorized under the PHS Act

or other statutory authority.



"Significant Financial Interest" means anything of monetary value,

including but not limited to, salary or other payments for services

(e.g.,consulting fees or honoraria); equity interests (e.g.,stocks,

stock options or other ownership interests); and intellectual

property rights (e.g., patents, copyrights and royalties from such

rights).  The term does not include:

(1) salary, royalties, or other remuneration from the institution; or

any ownership interests in the institution, if the institution is an

applicant under the SBIR Program;

(2) income from seminars, lectures, or teaching engagements sponsored

by public or nonprofit entities;

(3) income from service on advisory committees or review panels for

public or nonprofit entities; or

(4) financial interests in business enterprises or entities if the

value of such interests do not exceed $5,000 per annum if salary,

fees or other continuing payments or represent more than a five

percent ownership interest for any one enterprise or entity when

aggregated for the investigator and the investigator's spouse and

dependent children.



"Small Business Innovation Research (SBIR) Program" means the

extramural research program for small business that is established by

the Awarding Components of the Public Health Service and certain

other Federal agencies under Public Law 97-219, the Small Business

Innovation Development Act, as amended.  For purposes of this

subpart, the term SBIR Program includes the Small Business Technology

Transfer (SBTT) Program, which was established by Public Law 102-564.



50.604  Institutional responsibility regarding Significant Financial

Interests of Investigators.



(a) Each Institution must:

(1) Inform each Investigator of the Institution's policy for

identifying and managing Significant Financial Interests, the

Investigator's reporting responsibilities, and of this subpart.



(2) Designate an institutional official(s) to solicit and review

financial disclosure statements from each Investigator who is

planning to participate in PHS-funded research.



(3) Ensure that Investigators have provided to the designated

official(s) a listing of Significant Financial Interests that ensures

disclosure of all Significant Financial Interests of the type

described in 50.605(a) prior to the time an application is submitted

to PHS.  All financial disclosures must be updated during the

pendency of the award, either on an annual basis, or as new

reportable Significant Financial Interests are obtained.



(4) Provide guidelines consistent with this subpart for the

designated official(s) to identify Significant Financial Interests of

the type described in 50.605(a) and take such actions as necessary to

ensure that any such financial interest will be managed, reduced, or

eliminated.



(5) Maintain records, identifiable to each award, of all financial

disclosures and all actions taken by the Institution with respect to

each Significant Financial Interest of the type described in 50.605

for at least three years beyond the termination or completion of the

award, or until resolution of any action by the HHS involving the

records, whichever is longer.



(6) Establish procedures for resolving any alleged violation of the

financial conflict of interest policy of the Institution and

establish appropriate enforcement action for failure to comply.



(7) Certify, in each application for the funding to which this

subpart applies, that;



(i) there is in effect at that Institution a written and enforced

administrative process to identify and manage, reduce or eliminate

Significant Financial Interests of the type described in 50.605(a)

with respect to all research projects for which funding is sought

from the PHS,



(ii) the Institution either has, or has not found a Significant

Financial Interest of the type described in 50.606 and, where such

interest is found, certify that actions will be taken prior to the

award of funding to manage, reduce or eliminate that interest in

accordance with this subpart; and that the Institution will notify

the PHS Awarding Component of such action prior to issuance of the

Notice of Grant Award.



(iii) the Institution agrees to make information available, upon

request, to the HHS regarding all Significant Financial Interests

identified by the Institution of the type described in 50.605 and how

those interests have been managed, reduced, or eliminated to protect

the research from bias;



(iv) the Institution will otherwise comply with this subpart.



(8) (i) Notify the PHS Awarding Component of the identification and

management, reduction or elimination of any Significant Financial

Interest of the type described in 50.605 that originates or becomes

known to the institution after the grant or cooperative agreement has

been awarded, within sixty days of its becoming aware of that

interest.



(ii)  The HHS may at any time request submission of, or review on

site, all records pertinent to these certifications.  To the extent

permitted by law, all records of financial interests will be

maintained confidentially.



(iii) An investigator may participate in a PHS-funded research

project that is being simultaneously supported by an organization

that has a commercial interest in the finding of the research

project.  However, the research support must be provided through the

PHS awardee Institution.  Any direct compensation or payment to the

Investigator under that support is considered a financial interest

under this subpart.



50.605  Management of Significant Financial interests.



(a)(1) Institutions applying for PHS funding for research shall

ensure that the following types of Significant Financial Interests

attributable to an Investigator are managed, reduced, or eliminated,

in accordance with paragraph (b) of this section, prior to award of

the grant:



(i) any Significant Financial Interest of the Investigator that would

reasonably appear to be directly and significantly affected by the

research funded by PHS, or proposed for funding; and



(ii) any Significant Financial Interest of the Investigator in an

entity whose financial interest would reasonably appear to be

directly and significantly affected by the research funded by PHS, or

proposed for funding.



(2) In addition to the types of Significant Financial Interests

described in this paragraph that must be managed, an Institution may

require the management of other financial interests as the

Institution deems appropriate.



(b) The designated official(s) must review all financial disclosures,

determine whether Significant Financial interests could affect the

design, conduct, or reporting of the research activities funded by

PHS, or proposed for such funding, and determine what conditions or

restrictions, if any, should be imposed by the institution to manage

such interests.

Examples of conditions or restrictions that might be imposed to

manage actual or potential conflicts of interest include: (1) public

disclosure of significant financial interests;

(2) monitoring of research by independent reviewers;

(3) modification of the research plan;

(4) disqualification from participation in all or a portion of the

research funded by the PHS;

(5) divestiture of significant financial interests; or

(6) severance of relationships that create actual or potential

conflicts.



50.606  Remedies.



(a) Each Institution that applies for research funding from the PHS

must include in its policy for the identification and management of

Significant Financial Interest procedures for enforcement action

against employees who do not comply with the Institution's policy.

If the failure of an employee to comply with the policy of the

Institution has biased the design, conduct, or reporting of the PHS-

funded research, the Institution must promptly notify the PHS

Awarding Component of the corrective action taken.  The PHS Awarding

Component will consider the situation and, as necessary, take

appropriate action, or refer the matter to the Institution for

further action, which may include directions to the Institution on

how to maintain appropriate objectivity in the funded project.



(b) The HHS may inquire into the Institutional procedures and actions

regarding financial interests in PHS-funded research, including the

disposition of a particular financial interest.  Such inquiry may be

initiated based on information obtained by the HHS under this

subpart, from an award-related document (application, progress

report, publication of results), or any other source.  Based on a

specific inquiry, the HHS may decide that a particular Significant

Financial Interest of the type described in 50.606 will bias the

objectivity of the PHS-funded research to such an extent that further

corrective action is needed or that the Institution has not managed a

Significant Financial Interest described in 50.606 in accordance with

this subpart.  The PHS may determine that suspension of funding is

necessary until the matter is resolved.



(c) In any case in which the Department determines that a PHS-funded

project of clinical research whose purpose is to evaluate the safety

or effectiveness of a drug, medical device, or treatment has been

designed, conducted, or reported by an Investigator with a

Significant Financial Interest that was not disclosed or managed as

required by this subpart, the Institution must require disclosure of

the financial interest in each public presentation of the results of

the research.



50.607  Other HHS regulations that apply.



Several other regulations and policies apply to this subpart.  They

include, but are not necessarily limited to:

42 CFR Part 50, Subpart D---Public Health Service grant appeals

procedure

45 CFR Part 16---Procedures of the Departmental Grant Appeals Board

45 CFR Part 74---Administration of grants

45 CFR Part 76---Government-wide debarment and suspension (non-

procurement)

45 CFR Part 92---Uniform Administrative Requirements for Grants and

Cooperative Agreements to State and Local Governments



2.  A new Part 94 is added to 45 CFR to read as follows:

45 CFR Part 94--Responsible Prospective Contractors



94.1  Purpose.

94.2  Applicability

94.3  Definitions

94.4  Institutional Assurance and Responsibility regarding

Significant Financial Interests of Investigators

94.5  Management of Significant Financial Interests

94.6  Remedies



Authority:  42 U.S.C. 216, 289b-1, 299c-3.



94.1 Purpose.



This part promotes objectivity in research by establishing special

standards for each Institution to ensure that the design, conduct,

and reporting of research to be performed are not compromised by any

Significant Financial Interest of an Investigator responsible for the

design, conduct, or reporting of the research.



94.2 Applicability.



This section is applicable to each Institution that seeks PHS funding

for research and, through the implementation of this section, to each

Investigator who participates in such research; provided that this

section does not apply to SBIR Program Phase I applications.



94.3  Definitions.



As used in this part:



"Contractor" means an entity that provides property or services for

the direct benefit or use of the Federal Government.



"HHS" means the United States Department of Health and Human

Services, and any components of the Department to which the authority

involved may be delegated.



"Institution" means any public or private entity or organization

(excluding a Federal agency) (1) that submits a proposal for a

research contract whether in response to a solicitation from the PHS

or otherwise, or (2) that assumes the legal obligation to carry out

the research required under the contract.



"Investigator" means the principal investigator and any other person

at the Institution who is responsible for the design, conduct, or

reporting of a research project funded by PHS, or proposed for such

funding.  For the purposes of the requirements of this section

relating to financial interests, "Investigator" includes the

Investigator's spouse and dependent children.



"PHS" means the Public Health Service, an operating division of the

U.S. Department of Health and Human Services, and any components of

the PHS to which the authority involved may be delegated.



"Public Health Service Act" or "PHS Act" mean the statute codified at

42 U.S.C. 201 et seq.



"PHS Awarding Component" means an organizational unit of the PHS that

funds research that is subject to this part.



"Research" means a systematic investigation designed to develop or

contribute to generalizable knowledge relating broadly to public

health, including behavioral and social-sciences research.  The term

encompasses basic and applied research and product development.  As

used in this part, the term includes any such activity for which

funding is available from a PHS Awarding Component, whether

authorized under the PHS Act or other statutory authority.



"Significant Financial Interest" means anything of monetary value,

including but not limited to, salary or other payments for services

(e.g., consulting fees or honoraria); equity interests (e.g., stocks,

stock options or other ownership interests); and intellectual

property rights (e.g., patents, copyrights and royalties from such

rights).  The term does not include:

(1) salary, royalties, or other remuneration from the institution; or

any ownership interests in the institution, if the institution is an

applicant under the SBIR program;

(2) income from seminars, lectures, or teaching engagements sponsored

by pubic or nonprofit entities;

(3) income from service on advisory committees or review panels for

public or nonprofit entities; or

(4) financial interests in business enterprises or entities if the

value of such interests do not exceed $5,000 or represent more than a

five percent ownership interest for any one enterprise or entity when

aggregated for the investigator and the investigator's spouse and

dependent children.



"Small Business Innovation Research (SBIR) Program" means the

extramural research program for small business that is established by

the awarding components of the Public Health Service and certain

other Federal agencies under Public Law 97-219, the Small Business

Innovation Development Act, as amended.  For purposes of this part,

the term SBIR Program includes the Small Business Technology Transfer

(SBTT) Program, which was established by Public Law 102-564.



94.4  Institutional Assurance and Responsibility regarding

Significant Financial Interests of Investigators.



(a) Each Institution must:

(1) Inform each Investigator of the Institution's policy for

identifying and managing Significant Financial Interests, the

Investigator's reporting responsibilities, and of this part.



(2) Designate an institutional official(s) to solicit and review

financial disclosure statements from each Investigator who is

planning to participate in PHS-funded research.



(3) Ensure that Investigators have provided to the designated

official(s) a listing of Significant Financial Interests that ensures

disclosure of all Significant Financial Interests of the type

described in paragraph (e) (1) of this part, prior to the time an

application is submitted to PHS.  All financial disclosures must be

updated during the pendency of the award, either on an annual basis,

or as new reportable Significant Financial Interests are obtained.



(4) Provide guidelines consistent with this subpart for the

designated official(s) to identify Significant Financial Interests of

the type described in paragraph (e) (1) of this part and take such

actions as necessary to ensure that any such financial interest will

be managed, reduced, or eliminated.



(5) Maintain records identifiable to each award of all financial

disclosures and all actions taken by the Institution with respect to

each Significant Financial Interest of the type described in

94.5 for at least three years beyond the termination or completion of

the contract, or until resolution of any action by the HHS involving

the records, whichever is longer.



(6) Establish procedures for resolving any alleged violation of the

financial conflict of interest policy of the Institution and

establish appropriate enforcement actions for failure to comply.



(7) Certify, in each contract proposal, that:



(i) there is in effect at that Institution a written and enforced

administrative process to identify and manage, reduce or eliminate

Significant Financial Interests of the type described in paragraph

(e)(1) of this part with respect to all research projects for which

funding is sought from the PHS,



(ii) the Institution either has, or has not found a Significant

Financial Interest of the type described in paragraph (e)(1) of this

part and, where such interest is found, certify that actions have

been taken to manage, reduce or eliminate that interest in accordance

with this part.



(iii) the Institution agrees to make information available, upon

request, to the HHS regarding all Significant Financial Interests

identified by the Institution of the type described in

paragraph(e)(1) of this part and how those interests have been

managed, reduced, or eliminated to protect the research from bias;



(iv) the Institution will otherwise comply with this part.



(8) (i) Notify the PHS Awarding Component of the identification and

management, reduction or elimination of any Significant Financial

Interest, of the type described in Sec. 94.5(a) of this Part that did

not exist or was not known at the time of the proposal, within sixty

days of its becoming aware of that Interest.



(ii) HHS may at any time request submission of, or review on site,

all records pertinent to these certifications.  To the extent

permitted by law, the PHS will maintain all records of financial

interests confidentially.



(iii) An investigator may participate in a PHS-funded research

project that is being simultaneously supported by an organization

that has a commercial interest in the outcome of the project.

However, the research support must be provided through the PHS

awardee Institution.  Any direct compensation or payment to the

Investigator under that support is considered a financial interest

under this part.



94.5  Management of Significant Financial Interests.



(a) Institutions seeking PHS funding for research shall ensure that

the following types of Significant Financial Interests attributable

to an Investigator are managed, reduced, or eliminated, in accordance

with paragraph (b) of this section, prior to award of the contract:



(i) any Significant Financial Interest of the Investigator that would

reasonably appear to be directly and significantly affected by the

research funded by PHS, or proposed for funding; and



(ii) any Significant Financial Interest of the Investigator in an

entity whose financial interest would reasonably appear to be

directly and significantly affected by the research funded by PHS, or

proposed for funding.



(b) In addition to the types of Significant Financial Interests

described in this paragraph that must be managed, an Institution may

require the management of other financial interests as the

Institution deems appropriate.



(c) The designated official(s) must review all financial disclosures,

determine whether Significant Financial Interests could affect the

design, conduct, or reporting of the research activities funded by

PHS, or proposed for such funding, and determine what conditions or

restrictions, if any, should be imposed by the institution to manage

such interests.  Examples of conditions or restrictions that might be

imposed to manage actual or potential conflicts of interest include:

(1) public disclosure of significant financial interests;

(2) monitoring of the research by independent reviewers;

(3) modification of the research plan;

(4) disqualification from participation in all or a portion of the

research funded by the PHS;

(5) divestiture of significant financial interests, or;

(6) severance of relationships that create actual or potential

conflicts.



94.6  Remedies



(a) Each Institution that submits a research contract proposal must

include in its policy for the identification and management of

Significant Financial Interest procedures for enforcement action

against employees who do not comply with the Institution's policy.

If the failure of an employee to comply with the policy of the

Institution has biased the design, conduct, or reporting of the PHS-

funded research, the Institution must promptly notify the PHS

Awarding Component of the corrective action taken.  The PHS Awarding

Component will consider the situation and, as necessary, take

appropriate action or refer the matter to the Institution for further

action, which may include directions to the Institution on how to

maintain appropriate objectivity in the funded project.



(b) The HHS may inquire into the Institutional procedures and actions

regarding financial interests in PHS-funded research, including the

disposition of a particular financial interest.  Such inquiry may be

initiated based on information obtained by the HHS under this part,

from a procurement-related document (proposal, progress report,

publication of results) or any other source.  Based on a specific

inquiry, the HHS may decide that a particular Significant Financial

Interest of the type described in section 4 of this part is so

sensitive that the issuance  of a Stop Work Order by the Contracting

Officer may be necessary until the matter is resolved.



(c) In any case in which the Department determines that a PHS-funded

project of clinical research whose purpose is to evaluate the safety

or effectiveness of a drug, medical device, or treatment has been

designed, conducted, or reported by an Investigator with a

Significant Financial Interest that was not disclosed or managed as

required by this subpart, the Institution must require disclosure of

the financial interest in each public presentation of the results of

the research.



.


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