LSU management did not follow its own practices, choosing instead to create a private nonprofit to commercialize potentially lucrative software the university had developed.
The ad hoc method led to cancelled contracts, no profits and a pandora’s box of problems, including conflicts of interest plus potential violations of both the Ethics Code and the state Constitution, according to a report released Monday by the Louisiana Legislative Auditor.
Louisiana Legislative Auditor Report on LSU and LaHIT
No criminal activity was found, said Barrett Hunter, assistant director of financial audit services. But the ham-handed handling cost the flagship nearly half million dollars in legal fees and who knows how much in possible revenues, the audit indicates.
The odyssey began back in 2009 when LSU-developed software called CLincial InQuiry, or CLIQ, for use at Charity Hospital in New Orleans. The application provides access for physicians, via an internet web portal, to individual patients’ information, history, laboratory results, allergies, medications and other data.
LSU leadership sought to commercialize the software and sell CLIQ to a wider market. Usually the Offices of Technology Management finds potential licensees and drafts the agreements.
But this was during a time when state government and legislators swept additional funds from public universities or at the very least would subtract from the state’s annual appropriation whatever money campuses earned on their own.
LSU administrators came up with the idea of creating a private nonprofit to handle the licensing and marketing of CLIQ. Louisiana Health Information Technology Foundation, better known as LaHIT, was incorporated in September 2014.
The LaHIT board was chaired by Dr. Frank Opelka, LSU’s Executive Vice President for Health Care and Medical Education Redesign; and included Bobby Yarborough, a member of the LSU Board of Supervisors; Beverly Moore Haydel, daughter of LSU Supervisor James Moore; and Tim Barfield, who was secretary of the Department of Revenue from 2012 to 2016, under Gov. Bobby Jindal. They later resigned and were replaced, according to LSU.
The auditor’s office said putting members on the board of a private affiliate is standard practice and wasn’t an issue. “They’re working for the same mission,” Hunter said.
Opelka told auditors that privatizing would circumvent the state’s budget process. He said, “If all proceeds were distributed to LSU, then LSU may have simply had its budget cut with no gain to LSU, and that proceeds that stayed at LaHIT would not be subject to budget cuts and, therefore, could be used for programs that benefited LSU,” according to the audit.
So, instead of using the internal Offices of Technology Management, LSU hired the Baton Rouge firm of from Taylor, Porter, Brooks & Phillips L.L.P. to assist with the licensing process with the private nonprofit, LaHIT.
Taylor Porter was paid about $410,000 for legal services necessary to license the CLIQ software. Paying that bill, which was for work on behalf of a private corporation, may violate Article VII, Section 14 of the Louisiana Constitution, the report states.
LaHIT cut a deal in February 2016 in which HarmonIQ, a for-profit company incorporated in December 2014, would pay 5% of the net sales proceeds, plus the nonprofit would receive a 40% equity stake in the private corporation. The big money would have come from receiving part of HarmonIQ’s profits, particularly if the company was sold to a bigger conglomerate as many startup ventures are.
The deal was signed but the final license agreement didn’t include the equity stake in HarmonIQ, nobody knew why.
By March 2017, LSU terminated its agreement with LaHIT and started working directly with HarmonIQ. But the deal with HarmonIQ also fell apart in October 2018.
“It is unfortunate that the actions of one individual (Opelka) operating at various times outside of the boundaries of his position led to a situation where LSU was placed at potential risk for conflicts of interest and other potential liabilities,” LSU President F. King Alexander wrote in an April 24 letter to Legislative Auditor Daryl Purpera.
Alexander, who had requested the investigation, agreed with the audit's findings and promised to make 10 policy changes that would ensure LSU retained control over its intellectual property in the future. The LSU Board already is at work revising policies.
LSU management also failed to bring three LSU agreements related to the licensing of the CLIQ software before the LSU Board for formal approval. As a result, the LSU Board was not able to review and approve.
Further, according to the audit, arrangements adopted by LSU to license the CLIQ software created potential conflicts of interest involving an LSU official and employees.
Also, chief executive officer of the LSU Health Care Services Division Dr. Wayne Wilbright oversaw the team of LSU programmers that developed the CLIQ and therefore was likely owed royalties. He also signed a contract as head of LSU Health Care Services, which may have been an ethics violation as he was entitled to royalties based on the success of that commercialization effort.
Wilbright wrote that he wasn’t a programmer and was unsure if was unsure he’d receive royalties.