"When she's president, there's no process you could set up that would eliminate conflict of interest -- so we actually have to reduce the size of the foundation and what it does," Shalala, who was secretary of Health and Human Services under President Bill Clinton, said in an interview with CNN's Alisyn Camerota on "New Day."
"What we have to do when she's president is we have to actually eliminate any aspect of conflict of interest -- so all the international programs are spun off," she said.
"There's no evidence that policy was impacted by anyone requesting an appointment. So let me dispute any indication that Mrs. Clinton's behavior on policy was changed in any way," Shalala said. "The most important thing is, this is a magnificent foundation that has reinvented philanthropy."
She said its work on issues like AIDS medication has to continue, noting that those programs will be transitioned to other charities -- "but not under the Clinton Foundation umbrella."
Shalala's comments come as the Clinton Foundation is targeted by Republican nominee Donald Trump and his GOP allies in the presidential race.
Trump has cast the foundation as a "pay-for-play" enterprise -- allowing top donors to receive special access to Hillary Clinton during her four-year term as secretary of state under President Barack Obama.
He's also linked the foundation to Clinton's use of a private email server while secretary of state.
"She put her emails on a secret server to cover up her pay for play scandals in the State Department," Trump said in a speech in Pittsburgh last week. "Nothing threatens the integrity of our democracy more than when government officials put their public office up for sale."
Bill Clinton told PBS' Charlie Rose in an interview this week that he'd also remove himself from the board of directors of the Clinton Foundation, an operational charity that runs health care and climate change programs worldwide.
He's also said if Hillary Clinton is elected, the foundation will cease accepting donations from foreign countries and from corporations -- accepting only contributions from American individuals and charitable organizations.
In his interview with Rose, the former president insisted Trump's "pay-for-play" accusations are inaccurate.
"All this stuff has been dragged out, and not one example -- not even one -- of something wrong has been cited," Bill Clinton said.
Still, emails released as part of a conservative organization's lawsuit over Clinton's private email server show State Department aide Huma Abedin and then-top Clinton Foundation official Doug Band discussed getting representatives of foundation donors seats to an official lunch with Chinese President Hu Jintao.
"I don't care who asked for what. It never happened. It just did not happen," Shalala said.
Pressed on whether it was appropriate to even ask, she said: "No one should cross any line. Requesting a courtesy meeting, when I was secretary of HHS, for instance, by a Republican senator, was not unusual."
A State Department spokeswoman said in August that the department found nothing inappropriate about the emails.
"The State Department does not believe it is inappropriate for the administration to consider individuals suggested by outside organizations when deciding who to invite to an official function," State Department Director of Press Relations Elizabeth Trudeau said in a statement.
Bill Clinton's final foundation fundraiser will be a birthday bash Friday night at the Rainbow Room in New York. But Shalala said that party's guest list won't open doors to any new criticisms of the foundation.
"For that party, I looked at the list and other than two people, all of them are people who have been annual donors to the foundation and are long-time friends of the president," Shalala said. "The two people are my guests, who I paid for: farmers in North Dakota -- my twin sister and her husband."
In an effort to stave off concerns about similar problems through his Trump Organization, Trump has said he'll sever all ties to his personal business if he's elected president.