U.S. alleged Mayo misused $63 million

05/28/2005

Maura Lerner,
Star Tribune
May 28, 2005

Federal officials estimated that the Mayo Clinic improperly used $63 million in research money, nearly 10 times the amount Mayo agreed to pay in a settlement announced Thursday.

Mayo, which has denied any wrongdoing, paid the government $6.5 million under an agreement that ended a three-year investigation into its accounting practices.

But the Justice Department, in letters to Mayo in March, said it had documented a widespread pattern of abuse of federal research funds dating to 1992.

Investigators calculated that it had cost the federal government $63 million in unauthorized expenses, according to a March 18 letter to Mayo from Keith Dobbins, a Justice Department lawyer.

The government based its estimate on a review of 100 randomly selected grants.

Dobbins also wrote that Mayo had known since 1998 that it was breaking federal rules by shifting extra funds from one project to another but didn’t prohibit the practice until this year. It allegedly used the money to cover unrelated salaries and other expenses, instead of returning unspent funds to the federal government as required.

In one case described in the correspondence, Mayo charged to a federal grant the cost of purchasing animals used for research. However, this cost was billed to a research project that didn’t use animals, the letter said.

“Mayo’s goal was to obtain funds it was not entitled to by concealing the true nature of the cost transfers,” wrote Dobbins. Most of the research money came from the National Institutes of Health, the leading supporter of medical research.

The correspondence doesn’t explain why the Justice Department eventually settled for a small fraction of the amount its lawyers believed Mayo improperly charged to federal grants.

Mayo, however, says that the entire dispute was about flawed bookkeeping, not misspent money.

Mayo disagrees

“We disagree with basically everything they have brought forward,” said Chris Gade, a Mayo Clinic spokesman. “We firmly believe that we did nothing unlawful and unethical.”

In March, Mayo lawyer John Lundquist wrote to the Justice Department, saying that while Mayo made a few bookkeeping errors, there was no evidence of abuse.

The $6.5 million settlement was purely a business decision, and not an admission of guilt, said Gade, the Mayo spokesman. “We chose the out-of-court settlement because we did not feel it was in our best interests economically to go through a long, protracted legal process.”

Two months ago, the two sides were still far apart in settlement talks: The Justice Department was seeking $30 million, while Mayo offered $700,000.

“At the end of the day we compromised,” said Lundquist, Mayo’s attorney.

Robyn Millenacker, an assistant U.S. Attorney who worked on the case, declined to comment on the amount of the settlement.

“Anytime you negotiate a settlement, you always have to consider the length and the expense of the investigation and trial,” she said. “All that goes into the mix when you make a decision about whether you’re going to settle and for how much.”

Initially, the settlement didn’t sit well with Christine Long, a former Mayo accounting department employee who triggered the investigation. Long filed a whistle-blower lawsuit against Mayo, and stood to get a share of any money recovered by the government.

In April, her lawyer, Phil Benson, protested that the settlement amount paled against the estimated damages of $63 million. “We are concerned that the proposed settlement amount may not be fair, adequate and reasonable,” he wrote Mayo’s attorneys on April 26.

Since then, however, his client agreed to the settlement, which will pay her $1.3 million. “Under the circumstances, we agreed that it was fair and reasonable,” said Benson.