Cash Injection
As Universities Get
Billions in Grants,
Some See Abuses

NEW YORK -- Kyriakie Sarafoglou had only worked at Cornell University's medical school here for a few months when she says she suspected something was amiss. Cornell had received a five-year, $23 million grant from the National Institutes of Health for a center conducting studies of children's diseases. But several research projects Cornell had said it would carry out existed only on paper. The money for the children's center was being used to treat many adults, and the center enrolled people as study subjects who didn't have the diseases being studied.

After digging deeper, Dr. Sarafoglou, a 43-year-old native of Greece, concluded that Cornell was defrauding American taxpayers. Cornell, she believed, was taking grant money for studies and using it to support standard care for patients at New York-Presbyterian Hospital, a Cornell affiliate on Manhattan's Upper East Side.

"When you see all this research money being wasted, what do you do?" asks Dr. Sarafoglou.

She pushed her complaints up the university ladder, but she says she was brushed aside. In the fall of 2003, she filed a sealed 35-page civil lawsuit against Cornell and 11 of its senior faculty and provided a copy to the U.S. attorney in Manhattan. Prosecutors intervened, charging Cornell with making a variety of fraudulent claims to the U.S. government. In June, Cornell's Weill Medical College agreed to pay $4.4 million to settle the government's charges, without admitting wrongdoing.

In a statement, Cornell says the case didn't involve any misuse of data or other violations of scientific integrity. The school's lead outside counsel, Stephen Immelt, says the NIH's grant gave Cornell broad discretion in how to spend the money. He declined to address specific allegations.

The Cornell case exposes what some scientists call a dirty little secret of university medical research: the misuse of taxpayers' funds. The NIH last year funneled $20 billion to campus researchers, an amount that has doubled since the late 1990s. Now, a string of multimillion-dollar settlements by leading universities is showing how vulnerable the system has become to abuse.

Since the beginning of 2003, Northwestern University, Harvard University, Johns Hopkins University and the University of Alabama at Birmingham have agreed to civil settlements. In each case, the government alleged that the universities pledged to do one thing with their NIH money and then spent it on something else. This spring, the Mayo Clinic, Rochester, Minn., agreed to pay $6.5 million to settle charges it diverted money from one grant to other grants running short of funds. The institutions agreed to upgrade their accounting practices, but admitted no wrongdoing. All the cases except Harvard's began with whistleblowers; Harvard itself first alerted authorities to potential problems.

In a recent survey of 3,300 research scientists, researchers at Minnesota-based HealthPartners Research Foundation and the University of Minnesota found that more than 50% of established grant-getting scientists used grant money designated for one project on another project -- often for undisclosed research that might lead to future grants.

Until now, the government has essentially relied on the honor system to police its grants. The auditors who examine universities' books are hired by the universities themselves. However, the inspector general's office at the Department of Health and Human Services says it has started a pilot program in which its auditors are visiting universities to examine their books.

Punishment is rare. The NIH can put an institution on "exceptional status," with tighter monitoring of grant funds, but hasn't done so in the recent cases. The NIH says only 12 institutions are on the penalty list currently, and only one of those is among the 100 biggest recipients of NIH grants. It wouldn't provide specific names.

"If people are going to cheat, they are going to cheat," says Norka Ruiz Bravo, an NIH deputy director. She calls the recent cases "isolated" and says the NIH prefers to work quietly with schools to solve problems so research can keep moving forward.

Back to Greece

Dr. Sarafoglou, a pediatric endocrinologist, grew up in Greece. The daughter of a leather-store owner in a working-class town outside Athens, she received her medical degree in 1984 and bought English-language medical texts to become fluent. She landed a series of advanced-study positions in the U.S., including a fellowship at Cornell in the early 1990s.

Homesick for Greece, she moved back in 1994 for two years. But she says she was appalled when some doctors in Greece stopped referring patients to her because she failed to pay the doctors rebates. In 1996, she returned to the U.S. "I wanted an academic setting where I didn't have to worry about kickbacks," Dr. Sarafoglou says.

After a stint at New York University, she was hired at Cornell in 2001 by her old boss, Maria New, the head of pediatrics and a Cornell faculty member since 1958. Dr. Sarafoglou became an assistant professor at Cornell's medical school and an assistant attending physician at New York-Presbyterian Hospital, a typical arrangement for young faculty at an academic medical center.

At Cornell, Dr. Sarafoglou also took on the role of "research subject advocate," an NIH-funded position designed to ensure patient safety during research. In that role, Dr. Sarafoglou got unusually broad exposure to the research projects of her colleagues in pediatrics.

It didn't take long for Dr. Sarafoglou to detect what she considered blatant misuse of the $23 million NIH grant. The grant provided funds for nurses to care for children involved in studies at the Children's Clinical Research Center at Cornell. But she saw those nurses "floating out" to treat regular patients at the hospital's pediatric floor and nursery. Also, Dr. Sarafoglou later alleged in her lawsuit, Cornell's grant applications for 2001-2003 listed phantom nurses who were supposedly employed by the center but in fact had left Cornell before 2001.

As she dug deeper, Dr. Sarafoglou says she uncovered evidence of phantom research projects as well. In explaining how it would use the taxpayers' money, Cornell had told the NIH it wanted to do an extensive study of children who contracted AIDS congenitally. It said it expected the children in the study would together require 80 days in the hospital and 600 outpatient visits. But Dr. Sarafoglou found that in one fiscal year, the project didn't record a single hospital day or outpatient visit.

Similarly, Cornell projected to the NIH that a study of pediatric Hodgkin's disease would require 100 hospital days in fiscal 2002. In reality it recorded zero.

Dr. Sarafoglou says she discovered that while faculty members were supposed to share the NIH funds for a broad range of studies at the children's research center, a handful of faculty including Dr. New were accounting for most of the NIH spending. What's more, some patients were being billed to the NIH tab even though they weren't taking part in clinical studies, Dr. Sarafoglou alleges.

In the spring of 2002, Dr. Sarafoglou started taking her complaints to her superiors. "I went to the program director, Dr. New, and said, 'Does NIH know we use this facility to see private patients?' " Dr. Sarafoglou said in an interview.

She also brought her complaints to two internal review boards within Cornell's medical school, but says she got no reply. However, she overheard one conversation that prompted her to conclude that Dr. New wanted to remove her as the research subject advocate.

Soon after, Dr. Sarafoglou alleged in her suit, Cornell began to retaliate against her by excluding her from meetings, soliciting complaints about her and recommending that she receive an "administrative referral." The referral, Dr. Sarafoglou said in court papers, means a mandatory psychiatric exam. Dr. Sarafoglou says she stayed home sick to avoid having to take the exam.

Dr. New, who has since left Cornell to become professor of pediatrics at Mount Sinai School of Medicine in New York, didn't respond to inquiries, but her lawyer denied that she retaliated against Dr. Sarafoglou.

The lawyer, Kenneth Schacter of Bingham McCutchen LLP in New York, said Dr. New's spending of the NIH money was proper and she didn't have any policy of allotting the federal grant money to support treatment of her regular patients. "The implication [in Dr. Sarafoglou's lawsuit] is that there was massive enrollment of ineligible patients in those protocols and that is flatly wrong," Mr. Schacter said. He said Dr. New sometimes tracked patients for 10 years or longer, including some adults who had first joined research studies as children.

Mr. Immelt, Cornell's outside counsel, declined to discuss details of the case but said disputes over NIH grants often involve accounting issues. Many patients enrolled in NIH-funded studies are also receiving other care, and it may be difficult to separate which spending comes from which pie. "The challenge is to create a system that catches an extra X-ray or a second blood sample and accounts for that correctly," said Mr. Immelt, a Baltimore-based partner at Hogan & Hartson LLP.

He said Cornell accounted accurately for its research activity and the NIH reduced payments somewhat to Cornell during the later years of the five-year grant.

Internal Complaint

In September 2002, Dr. Sarafoglou filed a detailed internal complaint to Dr. New's replacement as head of pediatrics at New York-Presbyterian, who held several face-to-face meetings with her and ordered a university investigation.

A medical-school professor, Adam Asch, led the internal investigation, which included interviews with 16 people. He concluded in a 12-page report that nobody at Cornell had engaged in scientific misconduct and that there had been no "financial impropriety" at the Children's Clinical Research Center.

"There is no evidence that this budget was exorbitantly inflated," said the report, authored by Prof. Asch. It called an "error" some of Dr. Sarafoglou's numbers on hospital-bed usage, without specifically challenging her AIDS and Hodgkin's disease study numbers. It acknowledged a few cases in which patients ineligible for NIH-funded studies were improperly listed as enrolled in the studies but called these cases misunderstandings by the faculty.

Dr. Asch's report praised Dr. New's leadership of the clinical research center, noting that it had produced many scholarly publications and that Dr. New had received two NIH awards for excellence. In contrast, the report said Dr. Sarafoglou had adopted a "confrontational and accusatory posture" toward her colleagues, and said that the research advocate role was never envisioned as a "policeman."

Socially Ostracized

By early 2003, Dr. Sarafoglou says, her day-to-day life was becoming miserable, as she was socially ostracized and relocated to space in a different department on a different floor. She decided to escalate her complaints, writing to various NIH offices and to the office of the inspector general at the Department of Health and Human Services in Washington.

After being brushed off by some government officials, she says, one sympathetic NIH official offered some advice "off the record."

"Do you know what a 'qui tam' is?" said the NIH official, referring to the federal whistle-blower statute, according to Dr. Sarafoglou. A qui tam lawsuit is brought by an individual on behalf of the government, alleging fraudulent activity involving government funds. The government has an option to join the case. Documents are initially filed under seal pending the outcome of the case.

The official directed her to some Internet sites that would give her guidance, and in September 2003, Dr. Sarafoglou filed a qui tam civil lawsuit in U.S. District Court in New York against Cornell, New York-Presbyterian Hospital, and faculty members, including the dean of the medical school.

To represent her, Dr. Sarafoglou hired Milberg Weiss Bershad & Schulman LLP, a New York law firm. The sealed lawsuit was also filed with the U.S. attorney's office in Manhattan. Elaine Kusel, a Milberg Weiss partner and Dr. Sarafoglou's lawyer, says she hoped from the start that the U.S. attorney, with its greater subpoena power, would join the case.

In October, two agents of the Federal Bureau of Investigation showed up at Cornell's medical school in Manhattan and delivered subpoenas to Cornell officials, as four armed U.S. marshals waited for them in a car outside.

The federal prosecutors, based in part on computer records obtained from Cornell, concluded that they had a strong case to bring against Cornell. Prosecutors alleged in court documents that Cornell had "falsely projected" use of the clinical research center in its routine applications each year to keep the five-year grant going. They charged, too, that the medical school had "massaged" its reports of research activity to conceal the fact that Dr. New and another faculty member controlled most of the grant's money, in violation of a rule that limited any department to 33% of the total.

"The NIH would not have made its award if it had known that certain [faculty] investigators and the pediatric endocrinology division dominated the use" of the facility in violation of the 33% rule, the U.S. attorney's complaint said.

Mr. Schacter, Dr. New's lawyer, said the 33% level is a "guideline" and Dr. New didn't block anyone from using the clinical research center's resources.

The prosecutors corroborated Dr. Sarafoglou's allegations about phantom nurses. They also said Cornell enrolled adults in programs designed for kids. Based on an analysis of the medical college's computer records, the U.S. attorney's office concluded that Dr. New allocated NIH money for the treatment of 394 patients who were at least 23 years old. A sample of patients treated using NIH money showed 62.5% of them were adults, the U.S attorney said.

Finally, prosecutors alleged that Cornell "fraudulently double-billed the government" in 37 cases by charging Medicaid for patient treatments while allotting NIH funds for the same treatments.

In mid-June of this year, prosecutors reached the $4.4 million settlement in which Cornell denied any wrongdoing. Since this was a qui tam suit, Dr. Sarafoglou received a portion of the proceeds -- $877,000 -- for her role. Dr. Sarafoglou agreed to share part of any proceeds with her attorneys, who declined to be specific about the terms.

Dr. Sarafoglou said it was difficult to find another position, but she eventually landed an assistant professorship at the University of Minnesota Medical School, which in the early 1990s had its own scandal involving the misuse of NIH grant money. It paid the U.S. $32 million, the largest such settlement to date.

Dr. Sarafoglou is still pursuing her lawsuit against Cornell on claims of grant abuse that the government didn't examine, her lawyer says. Dr. Sarafoglou is also pressing her claims that the medical school retaliated against her by ostracism, by recommending that she get a psychiatric exam, and by not renewing her tenure-track appointment at Cornell when it expired in mid-2004. The university says it will contest the allegations.

Write to Bernard Wysocki Jr. at bernie.wysocki@wsj.com¹