University officials announced a $32 million settlement with the Department of Justice on Tuesday at the U.S. District Courthouse in St. Paul, resolving the long-standing ALG scandal.
Never before has the University paid so much to settle a case, said Mark Rotenberg, the University’s general counsel.
The federal government filed suit against the University in 1996 for mishandling National Institutes of Health grants and profiting illegally from selling the transplant drug anti-lymphocyte globulin, which was never licensed by the U.S. Food and Drug Administration.
“Settling the case was tough work,” Rotenberg said. “We are pleased that it is over.”
In settling the case, the University closed the final chapter on what was to be an avalanche of litigation following the discovery of the University’s Medical School wrongdoing in 1989.
“We are very happy to have resolved (the case),” said Marie-Therese Connolly, U.S. attorney for the Justice Department. “All parties can go back to their jobs now.”
The mood in St. Paul bordered on jovial in the cold, dim ambience of the cavernous courtroom when, just after 10 a.m., Judge Richard Kyle declared that the trial would begin, unless the lawyers had anything to announce.
Connolly stood, smiling, and pronounced that the sides had reached an agreement and the case would be dismissed.
“I want to express to both parties my appreciation with how this case has proceeded and was resolved,” Kyle said. “It’s a chapter in the University’s history that presented a lot of problems.”
According to the settlement, the University must pay the federal government $20 million within three days of the settlement.
At a press conference Tuesday afternoon, University President Mark Yudof said that when the University sold the former University Hospital and Clinic to Fairview Health Systems in 1996, $20 million of the profit was set aside specifically for this case.
Rotenberg said the money has already been wired to the government.
Another $8 million must be paid within 30 days of receiving a $40 million Social Security tax refund from the government.
Yet another $4 million will be paid over a period of three years from offsets of National Institutes of Health grant awards given to the University.
“Over the next three years as new grants are given to the University, the awarded money will be subtracted,” said Campbell Gardett, spokesman for the National Institutes of Health.
He said grants will continue to be issued, but for example, if the University receives a $1 million grant, they would actually receive less than that amount and have to make up the difference on their own.
Where the University will draw from in order to account for those lost funds is yet to be determined, although the Board of Regents will appropriate the money in their budget requests.
“Believe me, nobody is happy having to pay these amounts,” said Regent William Peterson in his opening statement at the press conference. “But given the time involved in a trial and the inevitable appeals, and the importance of our ongoing relationship with the NIH, (we) felt strongly that the settlement is in the best interest of the University.”
Settlement talks between the University and the Justice Department continued for nearly a year before coming to an impasse on Dec. 12, 1996; the federal government decided to sue the University seven days later.
As another part of the complex settlement, the University agreed to drop a case that is pending in the U.S. Court of Appeals asking that the “exceptional” label, which makes getting NIH grants more tedious, be taken off the Medical School.
The millionaire whistleblower
James Zissler, a 27-year professor of microbiology in the Medical School, claimed to have blown the whistle on the scandal that effectively told the federal government about the University’s misdeeds. According to the settlement, he is entitled to $1.5 million under the False Claims Act as a result.
But the settlement has not yet laid out all of the money Zissler is entitled to. Phillip Benson, Zissler’s attorney, said the University is also responsible for paying Zissler’s attorney fees, a figure Benson said he was not at liberty to discuss.
“Mr. Zissler is very relieved, and feels vindicated,” Benson said. “His pride has been restored.”
Currently, Benson said, Zissler is on disability leave at his cabin northern Minnesota.
“I anticipate that he will continue his career at the University,” Benson said.
According to the federal whistleblower statute, Zissler was entitled to 15 percent to 25 percent of what the government collected in the case.
But because the case didn’t revolve entirely around the False Claims Act, Zissler won’t receive 15 percent to 25 percent of the $32 million.
“The major part was the fraud case, not the False Claims Act,” said Chris Watney, spokesperson for the Justice Department. “He did not provide information on all aspects of the case.”
Rotenberg said the decision about how much Zissler would receive was up to the U.S. attorneys.
The $1.5 million Zissler receives will come from the money the government collected from the settlement. University officials will review Zissler’s attorney fees; if the amount is acceptable, the University will pay it, Rotenberg said.
But Rotenberg said he will bring the issue before the court if he is not happy with the amount. Zissler’s employment status in the medical school was not at issue in this case, Rotenberg added.
And Zissler boosted the amount of the settlement himself when an appeals court ruled in September that he could rejoin the suit under the False Claims Act. This decision doubled or tripled what the federal government could win.
“It raised the stakes in this case,” Rotenberg said. “It certainly wasn’t favorable.”
He could not say if the negotiated amount before the decision was more or less than the final amount.
Zissler said in a 1992 suit that he was harassed by supervisors and other members of the medical school ethics committee for bringing to light conflicts in research and the drug industry. The suit was eventually dismissed.

The troubled doctor
Dr. John Najarian joined the University in 1967 and started the ALG program the same year. He said he helped the University’s lawyers with the suit.
“I’m happy that it is over,” he said. “It was much more money than expected.” He added that the settlement will not change anything in the medical department.
But he said the settlement was not an admission of guilt.
“As far as ALG was concerned, all the charges were false,” he said. “They were not selling it illegally, never were.”
Rotenberg didn’t want to “rehash” the past history of the drug. However, he said the Medical School was guilty of some mishaps.
“Obviously, the University wouldn’t be paying this settlement if there wasn’t some past wrong-doing by the Medical School,” he said.

The questionable years
Najarian was thrust to international fame for developing ALG. He became head of the Department of Surgery and chairman of the Medical School.
The University continued to sell the drug to other hospitals and schools despite the Food and Drug Administration’s declaration of the drug as under investigation and therefore unlicensed.
The onslaught of lawsuits, criminal indictments and internal shake-ups began in 1989 when an initial University Department of Audits began investigating the ALG program. The FDA also looked at the program and found numerous violations of its regulations, including garnering more than $80 million in sales from ALG between 1969 and 1992.
Mismanagement of federal grants from the NIH was also uncovered, prompting the group to slap the medical school with the “exceptional” status.
Najarian and others who climbed with the success of the drug came tumbling down as accusations of criminal behavior flew.
Dr. Richard Condie ran the ALG program from 1971 until 1992. University officials fired him after an audit concluded that he had illegally profited from selling hemoglobin, a by-product of ALG. The audit said he made $62,102 from the sales.
In 1995, Condie pleaded guilty to three counts of embezzlement, fraud and tax evasion. As part of his plea agreement, Condie consented to testify against Najarian.
So Najarian faced his own fate in the form of 22 counts of the same charges, but a five-week trial produced an acquittal for the revered doctor in February 1996.
“I want to be responsible for training students and residents,” Najarian said after his trial. “The field is advancing, and I want to be part of it for a long time.”
But not as the head of surgery. Najarian’s reputation would never be the same. Forced to resign as head of the surgery department, he is still a professor in the medical school.
The biggest case was yet to come, which the Justice Department finally settled with the University on Tuesday.