A well-established genetic fact is that inbreeding, by limiting diversity of traits, brings inferiority in a species gene pool and could lead to a calamitous disappearance of the organism.  An analogous scenario can happen to any good organization that could ultimately lead to its decline.  However, this fact seems to have long been forgotten by the scientists-administrators at the NIH (National Institutes of Health).  The current set up of NIH is the result of academic inbreeding (favoritism and nepotism) that is being inadvertently followed.
NIH is highly hierarchical, not at all conducive to generating new ideas and for conducting science in an open atmosphere.  Being a federal government organization, NIH works as a typical bureaucratic entity that defeats the basic mission of NIH, the Science.  For better pace of science and health advancement, for better return on research funding, and for the benefit of human health, NIH should function more as an academic institution keeping all doors open for fresh ideas to flow in and be tested.
A simple survey of NIH would reveal that most of the science conducted at the intramural NIH (https://report.nih.gov/biennialreport0809/PDF/Ch1_Extramural.pdf) is hierarchical; and almost all research groups in a Laboratory are primarily centered on one major investigator.  (At NIH, a Laboratory is like a Department at an academic institution). Historically, the scientists who started their career at NIH as postdoctoral research fellows became laboratory chiefs, and the postdoctoral fellows hired by them became “independent” investigators in their Laboratory.  A young investigator could find it difficult to pursue his own original ideas in conducting his/her research when one is still under the supervisory umbrella of the mentor?  In contrast, US Universities in general hire talented faculty from other institutions rather than hiring their own alumni.  Similarly, NIH for better scientific ideas and productivity should hire scientists essentially on merit basis and allow young investigators to be independent.
Majority of the post-doctoral research scientists come to NIH for training from abroad and most of them remain as scientists at NIH at the end their training.  These visiting foreign scientists come with a lot of talent and drive to push the frontiers of science.  It is beneficial in every respect to have them absorbed in the USA.  However they should be encouraged to go to the academic world so that the entire USA gains from their talent.  For that reason, rather than absorbing them at NIH and increasing the inbreeding their tenure at NIH should be limited for 5-7 years.
Several NIH Laboratory Chiefs are more than 70 years old.  In an academic setting this will be a rare phenomenon and that too with great justification. This is not to say that senior NIH scientists (past 70 years of age) should be retired.  Instead, NIH should give these scientists their own independent operation but not allowed to be in charge of a laboratory for perpetuity.  Universities usually have senior aging professors as emeriti.  However, no such system exists at NIH!  Apparently, the system is so much entrenched that no NIH director or any institute director has done anything to change it.
As alluded before, currently recruiting of intramural scientists at NIH is primarily via internal promotions of the postdoctoral research fellows without much announcement to the outside science community.  This is a typical scenario of inbreeding.  Moreover, announcement for vacancies is mainly through the official Federal Government web site (http://www.usajobs.gov) that is at best cumbersome to intimidating to an outsider looking for a job at NIH.  For a scientist, writing KSA (Knowledge, Skills and Abilities) and to justify why one is qualified for a particular job is undesirable and many decide to stay away from applying to these announcements.   The KSA write-up is not appropriate for a scientist whose qualifications are primarily established by his/her publications and research accomplishments.  KSA requirement in itself is a system that puts selection of a scientist in non-scientific bureaucratic hands and leads to manipulation.  However, when it comes to hiring of scientists at NIH, universities are more transparent than NIH.  Why not solicit applicants as openly as any academic organization would do? For science to prosper, make rapid and new developments, talent must be sought wherever available.
A Laboratory Chief’s budget in general supports almost all intramural research expenses of the Laboratory, such as the supplies, equipment, and personnel.  When funds are left at the end of the year that often happens, the Chief parcels out funds to other investigators in his group.  It is likely that the investigators may not need that extra money but have to spend for unnecessary items lest the funds be returned and may not get money next year.  Needless to say the NIH funding for senior scientists is cozy when it comes to getting additional personnel, equipment, and laboratory supply funds and very wasteful.  Whereas the investigators in non-federal institutions have to struggle to get any funds to pursue their research, NIH investigators are mostly immune from these issues.
Clearly, the most lucrative aspect of working at NIH is not to struggle for funds to carry out research and to generate funds for your own salary.  While the scientists outside of NIH have to adjust their research enterprise and salaries based on the variability and vagaries of grant support, intramural scientists at NIH invariably enjoy continuous and inflation adjusted support of the federal government funds and salaries.
It is known that intramural scientists and their research programs are reviewed and approved by an outside peer panel.  However, these panels suggest only minor changes or tweaking of the ongoing research programs, lest they may antagonize their purse-controlling colleagues at NIH.  If NIH wants to evaluate its science and scientists as fairly as the outside scientists, why not let a regular Study Section review them.  Let a Study Section provide the merit scores to the NIH applicants and the resources should be available according to the ranking.  No doubt, NIH scientists will be up in arms if such an evaluation is required.
Curiously, the type of science done at NIH is not much different than what is being done at outside universities and research institutions.  Since the intramural scientists are receiving stable continuous funding, why not ask them to take up more challenging and innovative projects that their counterparts in the extramural community cannot afford to undertake.
To further proliferate inbreeding, an intramural scientist who has difficulty in continuing in his/her position or research could find an easy cop-out to an extramural NIH position.  Often the NIH extramural positions just like the intramural positions are not widely advertised to the outside world, or have a very short turn around time, or advertised such that an outside scientist feels he/she may not qualify.  Moreover, often mentors of intramural laboratory help put their candidates in the extramural positions.  In essence, the deserving scientists from the outside community are blocked out in this procedure.  Hiring and promotion of extramural scientists happen based more on personal likings and favors of the upper echelons without regards to scientific accomplishments, recognition, and/or work ethics.  Often the selection is made even before the position is advertised.  Internally scientists may know as to who is likely to get the position and therefore other qualified persons may not apply at all.  If an undeserving candidate is selected for a position of power, what kind of leadership, morale, and respect the person will bring to the organization!
Bureaucracy has an insidious way of expanding.  Rarely federal government employees are laid off.  The dictum at federal government is that there are no surplus employees in the government.  Once the probationary period is over, it is very difficult to fire a government employee.  At extramural NIH, it is not exception to notice that many employees do not have sufficient work to fill their working hours.  Some of them could be bored but would not like to quit the plum job for obvious reasons.  Apparently, once one is employed in the federal government sector, it becomes an entitlement.  On the other hand, having more people in an organization and having a bigger payroll, makes the boss (higher echelons) politically more powerful and visible.  Thus there is always a desire for big bosses to have a bigger budget for their organization whether it is efficiently used or not.  Moreover, whenever the Congress puts in more money in science no oversight is required as to how the funds are utilized.  In the USA, solution for anything and everything lies in pouring more money not in its efficient use (Camacho, 2001).
Here is a typical scenario as to how nepotism works at NIH.  A junior scientist gets hired through some connections at one of the extramural positions at lower GS level (11-13) or an equivalent contract position, often from an intramural position.  But within 4-6 years the person is promoted to GS level 14-15 without any external or internal review (interview).  Often to promote these individuals the bosses ask these individuals to take some advanced training or put them in an “acting” authority position that would be normally not available to an outsider competitors.  In an academic setting it would be like promoting an assistant professor to professor without going through tenure and promotion committee and without looking for an outstanding candidate outside.  Why similar reviews do not exist for promotions in the NIH extramural jobs?  It is because the person comes with connections and the top bosses like to have their own persons follow their orders.  Networking is supposed to be great for enhancing one’s career.  However, if this ends up becoming a closed self-serving group, it is nothing different than inbreeding.
On the other hand, opportunities for training, advancement or further learning is allowed only by the approval of the supervisor meaning thereby that if the supervisor is not supporting or displeased with a scientist further progress of that scientist cannot happen.
A correspondence in Nature of May 10, 2001, claimed, based on the number of publications and citations, that academic inbreeding negatively affects productivity in Europe.  Several years ago (September 06, 1984) in a “Letter to Editor” in Nature I criticized Indian academic system for inbreeding that was and is still plaguing the academic activities at Indian universities.  Unfortunately, a similar scenario is developing at the NIH.  Will someone at NIH or Federal Government dare to correct the course?
The overwhelming evidence suggests that academic inbreeding is harmful to the development of academic career of individuals, detriment to progress of science and to any organization (Armbruster, 2008, Horta, 2013). However, there are several countries in the world (Japan, Germany, China, Mexico, etc.) where academic inbreeding is a norm rather than exception, but there the trend is reversing now.  In contrast the trend at NIH in the USA is going more toward inbreeding.  We hope our bureaucrats and politicians take notice of this trend and institute policies to reverse it.
In sum, inbreeding and nepotism at NIH bring mediocrity, inefficiency, and incompetency to health research.
Glossary:
NIH has 27 institutes and centers.  Almost each NIH institute has two components: extramural and intramural.  Extramural is the one that caters to scientists at Universities and other organizations by providing funding and research oversight, whereas intramural serves research scientists based at the NIH campus. Extramural and intramural components are supposed to be independent of each other.  However, an institute director governs both the entities.
References:
Manuel Soler -- How inbreeding affects productivity in Europe, Nature 411, 132 (10 May 2001), See associated Correspondence: Fernández-Juricic et al. , Nature 420, 16 (November 2002)
Juan Pedro M. Camacho – Investment is the best cure for inbreeding, Nature 413, 107 (13 September 2001)
Kailash C. Gupta -- Suggested remedies, Nature 311, 8 (6 September 1984)
Kailash C. Gupta -- Bureaucracy at NIH Fritters Away Research Funds, Winnower,  (26 January 2016)
Hugo Horta -- Understanding the pros and cons of academic inbreeding, University World News, (October 2013) Issue No: 291
Chris Armbruster -- The Rise of the Post-Doc as Principal Investigator? How PhDs May Advance Their Career and Knowledge Claims in the New Europe of Knowledge. Policy Futures in Education, 6 No. 4, (2008).