Speaking at a congressional panel on Tuesday, the NIH's director Elias Zerhouni said the discovery of at least 100 deals that had not been properly reported was a "tipping point" regarding reform at NIH.
He added that, in hindsight, he should have acted sooner to crack down on the deals that have created potential conflicts of interest.
The hearing was the third in a series triggered by reports that several high-level NIH scientists and officials had received more than $2.5 million (€2 million) in consulting fees and stock options from pharmaceutical and biotech companies over the past 10 years. The subcommittee has also examined consulting deals at the Food and Drug Administration (FDA).
Zerhouni told the House Energy and Commerce Subcommittee: "I have reached the regrettable conclusion that some NIH employees may have violated these [existing] rules and that the agency's ethics system does not adequately guard against these violations."
The NIH is the US's premier agency for medical research, spending $27.9 billion (€23 billion) this year. It spends most of its budget on universities and other research sites. Funding projects ranging from understanding processes inside a cell to investigating unknown benefits or complications from decades-old drugs such as those used in hormone therapy.
Zerhouni warned: "Any employees who violated the rules will be subject to the appropriate penalties. "
The procedures, which Zerhouni stressed would not be made overnight, focused on reforms regarding the NIH's senior officials.
Directors, deputy directors, scientific directors and clinical-research directors of all of NIH's 27 research institutes and centres would be subject to a "total ban" on paid consulting with pharmaceutical or biotechnology companies. These employees would also be banned from taking consulting or speaking fees from nonprofit institutions.
Other employees, including laboratory chiefs, would be allowed to continue accepting industry consulting fees. They would however, be barred from taking fees totalling more than a quarter of their base salary.
The employees would be limited to no more than 400 hours a year of outside income-generating activity - equivalent to roughly one hour per workday.
While more than 5,000 NIH employees would be prohibited from holding any stock in a drug company, all NIH employees would be prohibited from receiving company stock or stock options as compensation from industry.
All NIH employees would be banned from serving on the boards of directors of companies in the drug industry as well as accepting any form of remuneration from universities or other entities that receive research-grant funding from NIH.
Finally, employees at NIH would not be allowed to accept any award unless it were first "pre-screened" for legitimacy by agency ethics officials.
In December 2003, the US house of representatives requested that Zerhouni provide details of all drug company payments to NIH employees.
After extensive consultations with government lawyers and citing restrictions of the federal Privacy Act, NIH officials provided Congress with a more detailed account of industry payments to employees between 1999 and 2003.
An additional inquiry into 20 large drug companies resulted in the discovery of roughly 100 industry consulting deals that had not been properly vetted or reported to NIH.