NIH lawsuit moves from talks to courts

Jim Martyka

Joel Sawyer

Less than a week after winning a court case that saved it close to $18 million, the University finds itself ready to begin another court battle, one which could cost the school up to $100 million.
After months of talks deteriorated, University and government lawyers met Thursday in U.S. District Court in St. Paul to begin preliminary motions in a lawsuit stemming from the school’s handling of it’s now-defunct ALG drug program.
“This has gone from talks to full, big-time litigation,” said University General Counsel Mark Rotenberg.
In December, U.S. Department of Justice officials, in conjunction with a University whistle-blower, sued the school for illegally selling the transplant rejection drug ALG and mismanaging research grants.
The government contends that the University received nearly $80 million in illegal sales of the unlicensed drug between 1968 and 1993, and made an estimated $35 million in profit.
The lawsuit also claims that the University improperly received $19.6 million in federal research funds for the ALG program by filing false claims with the National Institutes of Health.
Government officials are seeking reimbursement for the illegal sales, fraudulent grant claims and other alleged University violations. Reimbursement for those violations could cost the University up to $100 million.
University officials countersued the government in December, asking the court to both declare the government’s claims unconstitutional and void research sanctions that were imposed in 1995 for the school’s handling of the ALG program and grant mismanagement.
Those suits have now been combined. At Thursday’s meeting, both sides moved for summary judgment in front of U.S. District Court Judge Richard Kyle regarding the suits. Both sides requested that portions of the opposing lawsuits be removed from consideration.
University officials argued that the government was not entitled to the $100 million because the University helped uncover the mishandling of the ALG program.
“We’re part of the solution, not the problem,” Rotenberg said.
University officials discovered and reported problems with the ALG program and grants mismanagement in 1993 and 1995 and have since taken measures to correct those problems.
“We found this problem, took corrective action on this problem and we’re becoming a model for modern grants management,” said Frank Cerra, provost of the University’s Academic Health Center last December.
Despite those corrective measures, the NIH imposed research sanctions against the University, deeming the institution an “exceptional organization,” in 1995.
The designation strips University researchers of the ability to quickly allocate grant money to initiate research projects. University officials say the sanctions, which still exist, are unfair because they apply University-wide, not just to the program where problems occurred.
The Justice Department argues that since the University profited from sales of the ALG drug, it is responsible for paying back illegally obtained funds.
Sales of ALG, which was developed by the University’s surgery department under the leadership of Dr. John Najarian in the 1970s and 80s, were illegal because the school never received government approval to sell the drug.
Last year, in a trial also presided over by Kyle, Najarian was acquitted last year of fraud charges related to the ALG program and double-billing the University for travel expenses.
The U.S. Food and Drug Administration ordered the University to stop manufacturing and selling the drug in 1992, and the school discontinued the ALG program in 1994.
Although the drug was often effective at preventing the rejection of transplanted organs, it was also criticized for allegedly causing adverse reactions and several patient deaths.
University officials initially refrained from suing the government over the sanctions in 1995 and entered into negotiations with NIH and Justice Department officials until lawsuits were filed in December.
When it became clear that an agreement would not be reached between NIH officials, the justice department and the University, school officials decided to sue the government.
After both sides filed their suits, they agreed to continue negotiations. Talks broke down in February when the two sides could not agree on a timetable for the lifting of sanctions and a financial settlement.
University lawyers said in court Thursday that the government’s $100 million request would have a devastating impact on the University.
“It’s not appropriate to impose sanctions against a state university for the errors of specific individuals because here it will punish everybody,” Rotenberg said. “It will affect tuition, tax dollars and a number of other things.”
However, government officials say the University should be treated like any other organization that mishandles money.
Kyle will now review the motions and issue his judgments to the two sides. Court clerk Deb Siebrecht said the judgments could take several weeks depending upon the motions’ complexity.
Rotenberg said this is the start of what could be an extensive courtroom battle.