Old troubles haunt new year

Joel Sawyer

and Andrew Tellijohn

The federal government made sure the holiday season was anything but jolly for University officials.
On Dec. 19 the U.S. Department of Justice sued the University for fraud over its handling of the now-defunct ALG drug program and related research grant mismanagement between 1968 and 1993.
The suit, which was filed in conjunction with a whistleblower from the University’s Microbiology Department, could cost the University as much as $100 million.
“I was blown away and almost fell off my chair and got sick to my stomach,” said University Regent H. Bryan Neel, when he heard about the lawsuit.
The government’s main complaint is that the University profited from widespread, illegal sales of the unlicensed transplant rejection drug ALG, which was developed by the Surgery Department under the leadership of Dr. John Najarian in the 1970s and 80s.
The government alleges that the University received nearly $80 million in illegal sales of the drug and made an estimated $35 million in profits. Sales of ALG were illegal because the University never received government approval to sell the drug.
The lawsuit also claims that the University received $19.6 million in federal research funds for the ALG program, obtained in part through false claims filed with the National Institutes of Health.
Government officials are seeking reimbursement for the illegal sales, fraudulent grant claims and other alleged University violations.
U.S. Food and Drug Administration officials ordered the University to stop manufacturing and selling the drug in 1992. The ALG program was discontinued in 1994.
Before the drug ban, the University distributed ALG to 280 transplant centers around the world. Though the drug was often effective at preventing the rejection of transplanted organs, it also was criticized for allegedly causing adverse reactions and some patient deaths.
University officials were stunned by the government’s decision to file the suit, since negotiations for a monetary settlement and resolution involving the lifting of research sanctions imposed by the NIH had been making progress.
“The actions the government has taken and the demands it is imposing on us are simply outrageous and out of line,” said Frank Cerra, provost of the University’s Academic Health Center.
Mistakes were made
The University has long admitted that problems existed in its ALG program and that some grants were mismanaged.
University officials point out that many of the illegalities the school is being sued for were initially discovered by internal University investigations and reported to the federal government.
The University also admits to owing some money for certain grants that were mismanaged, but say that a figure of $100 million is absurd and outrageous.
University President Nils Hasselmo called for investigations of the ALG program and grant mismanagement in 1992 after U.S Food and Drug Administration officials raised concerns over possible illegal sales of the drug.
Reports detailing the Surgery Department’s mismanagement were released in 1993 and 1995, and the University took corrective measures to change their grant management system.
“We found this problem, we investigated this problem, took corrective action on this problem, and we’re becoming a model for modern grants management,” Cerra said.
“And what’s happened? We’re being punished by another public agency,” Cerra added. “That’s wrong, and it’s cause for righteous anger.”
Despite the corrective measures taken by the University, the NIH imposed research sanctions against the University when it deemed the institution an “exceptional organization” in August 1995.
“This is not a positive image,” Cerra said. “It’s a black eye.”
The NIH’s designation strips the University of its ability to quickly allocate grant money and initiate research projects.
The result, Cerra said, is more “time, paperwork and more bureaucracy” for University researchers.
The sanctions do not affect the amount of research money the University receives, but the actions do delay research, said Mark Brenner, vice president of research and dean of the graduate school. Last year the University received more than $300 million in sponsored research.
“These delays are totally unreasonable and go way beyond what they told us they would be,” he said.
Brenner added that the delays for some research projects were as long as 150 days. These delays put University investigators at a serious competitive disadvantage, he said.
Even though grant mismanagement was only found in the Surgery Department, the NIH sanctions were imposed University-wide.
“It was our feeling immediately at that time that (the sanctions) were improper” said University General Counsel, Mark Rotenberg.
The sanctions were unfair because they failed to take into consideration the corrective measures taken by the University, he added, and they applied to a “broad field of researchers who had nothing whatsoever to do with the misconduct that we disclosed to the government.”
Negotiations
Despite the University’s anger over what they perceived to be an unjust action, they agreed not to sue the NIH at the time, Rotenberg said, because federal officials assured them the “exceptional organization” status would be temporary.
University officials negotiated throughout the last year with the NIH to have the sanctions removed, and also held talks with the Justice Department to resolve how much money the University owed the government for misconduct the school admitted they were liable.
But negotiations slowed in the last few months as the two issues became intertwined.
“We were told (the two issues) were completely unlinked,” Rotenberg said. “It became apparent that they were holding up lifting the research sanctions in order to extract more money from the University,” he added.
“We truly believe we’re being held hostage,” said Brenner.
Discussions with the government reached an impasse Dec. 12 when the Justice Department warned the University it would sue the school sometime before Dec. 20.
The University’s response
On Dec. 13, The University launched a preemptive legal strike by filing a suit against the government, before federal officials filed their suit against the University.
The University’s suit, filed in Minneapolis federal court, asks the court to void sanctions placed upon the school by the NIH, to restore the University’s authority over federal research grants and to declare the government’s claims unconstitutional and based on unsound legal theories.
“We don’t feel that it is appropriate for a public university to pay fines for the misconduct of a handful of people. They are the ones who should pay the fines and sanctions,” Rotenberg said.
Rotenberg was referring to Surgery Department officials, particularly Najarian, who was acquitted in federal court last year of charges ranging from fraud to double-billing the University travel expenses.
Hasselmo said that less than a year ago the Justice Department seemed to agree with Rotenberg’s assessment.
“(It’s) amazing,” he said, that the “same Justice Department that is now seeking exorbitant sums from the University called the University of Minnesota a victim of fraud” during the 1996 criminal suit against Najarian.
Talks renewed
The University’s lawsuit renewed negotiations, which continued until another deadlock occurred Dec. 18. The next day, the government filed its lawsuit against the University.
During those talks, the Board of Regents gave University lawyers the power to work within certain financial parameters to reach a monetary settlement with government negotiators.
But talks stalled, even though a financial agreement with the Justice Department had nearly been reached, according to a Star Tribune report. Had the agreement gone through, the University would have paid the government about $13 million in cash and $12 million in other penalties, the report said.
“We were getting close on a number of issues,” Rotenberg said. “Money was one of them.”
But Rotenberg could not confirm the rumored settlement amount, and other University officials denied the figure.
“We’ve never said that,” Brenner said, “We’ve never given a dollar figure.”
Brenner said discussions broke off because no agreement could be reached to resolve the sanction issue.
“We did not have resolution on the process by which we would have expanded authorities returned and the designation removed,” he said.
“We need to have a concrete agreement on the timetable and standards for getting our research privileges back so that we can take our place among the major research universities on an equal footing,” Brenner said.
Unless the University can come to an agreement on all points of contention, Rotenberg said, “we have an agreement on no points.”
The whistleblower
After talks again broke off, the federal government decided to file suit against the University in conjunction with James Zissler, a University professor of Microbiology.
His name was withheld for several days after the suit was filed due to a law that allows whistleblowers protection from persecution.
Zissler, a 27-year employee of the University, stands to collect on 25 percent of whatever the government gains from the suit, a figure that could exceed $25 million.
The secrecy behind the case was a point of contention for Rotenberg, who has questioned Zissler’s motives and his qualifications for filing such a case.
“It makes no sense,” he said. “It’s simply not true to say that this fellow is a whistleblower when the government already knew more than he was whistling about.”
Rotenberg contends that Zissler’s allegations were based on information that was public knowledge.
Zissler, Rotenberg said, is “piggybacking on reports that were available in the newspaper.”
Zissler filed similar cases against the University in 1992 and 1994. Both were dismissed before going to trial.
Zissler’s attorney, Gary Weissman, in a 1992 Minnesota Daily article, called Zissler “a true ethicist who has been motivated all along to get the University to stand by its own rhetoric.”
Zissler could not be reached for comment.
What’s next?
“We intend to spend what it takes to fight this because it’s a matter of principle,” Hasselmo said. “It’s a matter of the future of the research establishment of the University of Minnesota.”
Despite the strong words, both parties still hope to avert a court fight which could cost millions and take years to resolve.
“It’s a new year and we look forward to a resolution,” said Assistant U.S. Attorney Robert Small.
“I don’t want to see it go to court and neither do the regents or the president,” Rotenberg said. “We want this thing to settle and I hope it does settle.”
Negotiations are expected to begin again some time this week between officials from both sides.
If the University loses the case or agrees upon a large settlement University officials said they will not ask the state for a bailout.
“We don’t expect the state to take tax dollars away from other needs to be involved in this,” said Regents Chair Tom Reagan.
Gov. Arne Carlson, in a Dec. 16 letter to Sen. Paul Wellstone said he was “deeply concerned” that the federal lawsuit could cost Minnesota taxpayers millions of dollars in damages.
“The taxpayers of Minnesota have a substantial investment in the University and through that investment they will, directly or indirectly, fund a significant portion of (a possible settlement),” Carlson wrote.
If a settlement is reached, the funds would come from University reserves rather than outside sources, Hasselmo said.