SUBJECT:

Michael Stavitski,

Petitioner,

The Inspector General.

DECISION

In this case, the parties agree that Petitioner, Michael Stavitski, was convicted of a felony related to fraud in connection with the delivery of prescription drugs under the New Jersey Medicaid program. He is therefore subject to exclusion from participation in federal health care programs under sections 1128(a)(1) and 1128(a)(3) of the Social Security Act (Act). The sole issue in dispute is the length of his exclusion. The I.G. initially proposed a 25-year exclusion, but has reduced the period to 20 years. For the reasons set forth below, I find that the imposition of a 20-year exclusion is reasonable.

I. Background

Prior Exclusion. Petitioner, Michael Stavitski, was a licensed pharmacist who owned and operated his own pharmacies in the State of New Jersey. On September 28, 2001, he pled guilty, in United States District Court for the District of New Jersey, to one count of conspiracy to defraud the United States by purchasing drug samples. The court entered judgment on April 2, 2002. I.G. Exs. 8, 9. According to the judgment, his offense spanned several years, from 1995 through 1999. I.G. Ex. 8, at 1. Based on this conviction, the I.G. excluded Petitioner from participation in Medicare, Medicaid, and all federal health care programs for five years, which is the statutory minimum period of exclusion. His exclusion was effective October 20, 2002. I.G. Ex. 10. Petitioner apparently did not appeal that exclusion.

Current Exclusion. On December 17, 2002, Petitioner was charged in New Jersey Superior Court with four counts of health care fraud, one count of Medicaid fraud, and one count of misconduct by a corporate official. I.G. Ex. 3. He pled guilty on November 10, 2003, to one count of health care fraud. I.G. Ex. 2. Specifically, he admitted that he filed false claims with the New Jersey Medicaid program, and with various private health insurers, claiming to have provided prescriptions to Medicaid beneficiaries and privately insured individuals, when he had not. I.G. Ex. 3, at 1-2. He was sentenced to seven years incarceration, a one-year suspension of his pharmacy license, and seven years suspension of his Medicaid license. I.G. Ex. 2, at 1.

By letter dated March 31, 2006, the I.G. notified Petitioner that, based on the December 2002 state court conviction, he was being excluded from participation in Medicare, Medicaid, and all federal health care programs for a period of 25 years. I.G. Ex. 1, at 1-2. The letter explained that section 1128(a)(1) authorizes such exclusion for criminal convictions related to the delivery of an item or service under the Medicare and Medicaid programs. Section 1128(a)(3) authorizes exclusion for felony convictions related to fraud in connection with the delivery of a health care item or service. The I.G. acknowledged that Petitioner had previously been excluded for five years, and advised Petitioner that, although the 25-year exclusion was "in addition" to the earlier action, it would "run concurrently with it." ⁽¹⁾

Petitioner thereafter requested a hearing, and the case was assigned to me. I held a prehearing conference on July 19, 2006, at which Petitioner conceded that he had been convicted of a felony related to Medicaid fraud, and was therefore subject to exclusion. The parties agreed that no factual issues were in dispute, and that the case could be resolved based on written submissions, without the need for an in-person hearing. Order and Schedule for Filing Briefs and Documentary Evidence (July 19, 2006). Both parties have submitted written arguments, and the I.G. has filed twelve exhibits (I.G. Exs. 1-12).

Petitioner has filed twelve exhibits (P. Exs. 1-12). ⁽²⁾ In the absence of objection, I receive into evidence I.G. Exs.1-12, and P. Exs. 1-12. The I.G. also submitted a reply brief. Based on Petitioner's submissions, which establish a mitigating factor, the I.G. reduced the period of exclusion from 25 to 20 years. I.G. Reply; I.G. Ex. 12.

II. Issue

The sole issue before me is whether the length of the exclusion (20 years) is reasonable. 42 C.F.R. � 1001.2007.

III. Discussion

Section 1128(a)(1) requires that the Secretary of Health and Human Services (Secretary) exclude an individual who has been convicted under federal or state law of a criminal offense relating to the delivery of an item or service under Medicare or a state health care program. ⁽³⁾ Section 1128(a)(3) directs the Secretary to exclude an individual convicted of a felony "relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct" in connection with the delivery of a health care item or service. See also 42 C.F.R. � 1001.101.

Ordinarily, individuals excluded under either section 1128(a)(1) or section 1128(a)(3) must be excluded for a period of not less than five years. Act, section 1128(c)(3)(B). However, individuals who have previously been convicted of an offense that could result in exclusion must be excluded for at least ten years. Act, section 1128(c)(3)(G). Here, because of Petitioner's April 2002 conviction, he is subject to this provision and must be excluded for at least ten years.

The Secretary has delegated to the I.G. the authority to impose exclusions. 42 C.F.R. � 1001.101. So long as the period of exclusion is within a reasonable range, based on demonstrated criteria, I have no authority to change it. Joann Fletcher Cash, DAB No. 1725, at 17 (2000), citing 57 Fed. Reg. 3298, 3321 (1992).

A. The 20-year exclusion falls within a reasonable range. 42 C.F.R. � 1001.102(b)(2). ⁽⁴⁾

1. Aggravating factors justify lengthening the period of exclusion beyond the ten-year mandatory minimum.

Federal regulations set forth criteria for determining the length of exclusions imposed pursuant to section 1128 of the Act. 42 C.F.R. � 1001.102. Evidence that does not pertain to one of the aggravating or mitigating factors listed in the regulation may not be used to decide whether an exclusion of a particular length is reasonable.

The following factors may serve as bases for lengthening the period of exclusion: (1) the acts resulting in the conviction, or similar acts, resulted in a financial loss to Medicare and the state health care programs of $5,000 or more; (2) the acts that resulted in the conviction, or similar acts, were committed over a period of one year or more; (3) the sentence imposed by the court included incarceration; and 4) the convicted individual or entity has been the subject of any other adverse action by any federal, state or local government agency or board, if the adverse action is based on the same set of circumstances that serves as the basis for imposition of the exclusion. 42 C.F.R. � 1001.102(b). The presence of an aggravating factor or factors not offset by any mitigating factor or factors justifies lengthening the mandatory period of exclusion.

Here, the I.G. cites three factors as bases for extending the period of Petitioner's exclusion beyond the mandatory ten-year minimum: (1) Petitioner's actions resulted in a program financial loss in excess of $5,000; (2) the sentence imposed by the court included incarceration; and (3) Petitioner was the subject of other adverse actions by a state agency and by a state board. ⁽⁵⁾

Program Financial Loss. The I.G. correctly determined that Petitioner's actions resulted in a program financial loss well in excess of $5,000. Based on the plea agreement and sentence, the I.G. argues that the actions underlying Petitioner's conviction resulted in more than a $1,000,000 loss to the Medicaid program. Those documents establish that, as part of his sentence, Petitioner agreed to release to the State of New Jersey his claims to $1,095,852 held by other entities. ⁽⁶⁾ I.G. Exs. 4, 11. The New Jersey Medicaid Agency received $1,037,194.25 of these funds. I.G. Ex. 4, at 4. Petitioner does not dispute these amounts, but, inexplicably, denies any "finding or agreement that it was money to which the State of New Jersey was entitled by virtue of the Petitioner's conduct." P. Br. at 2. This assertion is simply incorrect. Petitioner admitted submitting false claims to the New Jersey Medicaid program, and, as a result, the sentencing court ordered him to pay more than a million dollars to the State of New Jersey. The state was therefore entitled to more than one million dollars directly because of the conduct leading to Petitioner's conviction.

Petitioner also challenges the presumption that the $1,037,194.25 paid to the New Jersey Medicaid program necessarily represents program losses, noting that, under state law, the amount "could" include interest, substantial fines, and penalties. P. Br. at 2. Although the judgment itself does not specify whether this sum represents restitution or fines, the record is not completely silent on the issue. Petitioner himself acknowledged that his release of funds would "compensate the victim of his conduct for the damage or injury that [it] sustained." P. Ex. 1, at 20. See also I.G. Ex. 2, at 2 ("[D]efendant compensated or will compensate the victim of his conduct for the damage or injury that he sustained.") Any ambiguity as to the meaning of this "compensation" language is resolved by an April 19, 2004 letter from the Deputy Attorney General prosecuting the case. The Deputy Attorney General wrote that, despite Petitioner's cooperation in the investigation and prosecution of others, the State of New Jersey would "argue for a severe [s]tate prison term to second degree charges for the theft of more than one million dollars. No level of cooperation can change that." (Emphasis added) P. Ex. 9, at 2. In the absence of any countervailing evidence, I find this sufficient to establish the amount of program loss.

Moreover, even applying Petitioner's formula, which assumes maximum fines and treble damages, Petitioner concedes that at least $10,000 of the amount paid represents actual program losses. See P. Br. at 2. This is twice the amount necessary to justify increasing the period of exclusion beyond the minimum ten years.

Incarceration. As a result of his conviction, the state court sentenced Petitioner to seven years incarceration. Petitioner points out, however, that the sentencing judge also recommended his admission into the state's "Intensive Supervision Program" (ISP), which offers "deserving defendants" early release from incarceration followed by intense supervision. P. Br. at 3. ⁽⁷⁾ Petitioner was apparently released into the ISP after serving about a year of his sentence. However, Petitioner's release from confinement sooner than expected does not eliminate his incarceration as an aggravating factor. See, Jason Hollady, M.D., DAB No. 1855, at 9-10 (2002) (where the Board found irrelevant to the issue of whether his sentence included incarceration, the fact that, a few days after the beginning of his sentence, the petitioner was put on a work release program).

Other adverse actions. Based on Petitioner's November 10, 2003 guilty plea, the New Jersey Board of Pharmacy suspended Petitioner's license to practice pharmacy and his permit to operate a pharmacy in New Jersey. I.G. Ex. 7. Based on his December 2002 indictment (which led to his guilty plea in this matter), the Division of Medical Assistance and Health Services, which is the New Jersey Medicaid Agency, proposed suspending Petitioner from participation in the state Medicaid program. I.G. Ex. 6. He did not challenge the action, and was therefore suspended. The I.G. may consider these state adverse actions another aggravating factor.

2. One mitigating factor - Petitioner's cooperation with law enforcement - justifies an offset in the length of the exclusion.

The regulations consider mitigating just three factors: (1) a petitioner was convicted of three or fewer misdemeanor offenses and the resulting financial loss to the program was less than $1,500; (2) the record demonstrates that a petitioner had a mental, physical, or emotional condition that reduced his culpability; and (3) a petitioner's cooperation with federal or state officials resulted in others being convicted or excluded, or additional cases being investigated, or a civil money penalty being imposed. 42 C.F.R. � 1001.102(c). Characterizing the mitigating factor as "in the nature of an affirmative defense," the Departmental Appeals Board has ruled that a petitioner has the burden of proving any mitigating factor by a preponderance of the evidence. Barry D. Garfinkel, M.D., DAB No. 1572, at 8 (1996).

Here, the parties agree that Petitioner's cooperation with authorities is a mitigating factor. As a condition of his guilty plea, Petitioner agreed to cooperate with ongoing investigations conducted by the New Jersey Medicaid Fraud Control Unit, and, according to state prosecutors, he fulfilled the terms of his cooperation agreement. He met numerous times with state investigators, and provided information that led to the opening of fourteen kickback investigations. Petitioner provided testimony and information about the kickback arrangements he had with the owners of assisted living facilities. As of October 2006, the state agency had recovered more than $47,000 in restitution and $7,500 in fines. P. Exs. 11, 12. ⁽⁸⁾

Based on this information, which the I.G. had not previously considered, he reduced Petitioner's exclusion period from 25 to 20 years. I consider this reasonable.

In a more novel argument, Petitioner claims that his original kickback arrangements with nursing home and assisted living facility operators were not lucrative for him. He claims to have expended large sums paying off the facility operators, but he did not recoup his investment because the Medicaid program denied reimbursement for the vast majority of those facilities' residents' prescriptions. The facility operators' subsequent refusal to "restructure" their arrangements, "placed enormous financial and legal pressures on Petitioner," leading him to submit the false claims. While acknowledging the illegality of his conduct, Petitioner characterizes as "significantly mitigating" these circumstances surrounding his submission of false claims. P. Br. at 5-6. I consider this argument nonsense. That he was unable to profit from an illegal venture (for which he was not prosecuted) is absolutely not a mitigating factor.

IV. Conclusion

I conclude that the I.G. was authorized, under sections 1128(a)(1) and 1128(a)(3), to exclude Petitioner from participation in Medicare, Medicaid, and all other federal health care programs. Petitioner has twice been convicted of Medicaid-related crimes, so he must be excluded for a minimum of ten years. The evidence establishes that he has knowingly engaged in a variety of illegal activities involving his pharmacies. He has stolen an enormous sum of money from the Medicaid program. He was sentenced to significant jail time, and, was appropriately disciplined by both the state pharmacy board and the state Medicaid agency. All of this justifies a significant period of exclusion. His level of cooperation with law enforcement was also significant, and must be factored in as mitigation, but based on all of these factors, I find that he presents a significant risk to program integrity, and the 20-year exclusion falls within a reasonable range.

Carolyn Cozad Hughes

Administrative Law Judge

1. Notwithstanding this assertion that the two exclusions would run concurrently, the effective date of the current exclusion is April 20, 2006, three and a half years into the period of the first exclusion. Petitioner protests this effective date, but it is well-settled that I have no authority to change the effective date of an exclusion. Tanya A. Chuoke, R.N., DAB No. 1721 (2000); Samuel W. Chang, M.D., DAB No. 1198 (1990); Susan Malady, R.N., DAB CR835 (2001), aff'd on other grounds, DAB No. 1816 (2002); Larry B. Shuster, R.Ph., DAB CR872 (2002); Kathleen E. Talbot, DAB CR772 (2001).

2. Petitioner labeled his exhibits A-L. To conform to Civil Remedies Division procedures, we have numbered them P. Exs. 1-12.

3. The term "state health care program" includes a state's Medicaid program. Section 1128(h)(1) of the Act; 42 U.S.C. � 1320a-7(h)(1).

4. I make findings of fact and conclusions of law to support my decision in this case. I set forth each finding, in italics, as a separate hearing.

5. Although the indictment charges that Petitioner's illegal actions were committed from January 1998 through February 2002, more than the one-year period considered aggravating, the plea agreement itself indicates that the count was amended to reflect an eight-month violation, from January until August, 2001. I. G. Ex. 2, at 3. Hence, the I.G. has not cited duration as an aggravating factor.

6. These included money held in escrow by Eckerd Drugs, which was purchasing the assets of Petitioner's business, money held by the Medicaid program for claims submitted and approved, and money seized by the State Division of Criminal Justice. I.G. Ex. 4, at 1.

7. Petitioner also points out, correctly, that prosecutors did not oppose his application to ISP following sentencing. Apparently, as part of his plea agreement, the state agreed not to oppose ISP so long as Petitioner cooperated in the investigation and prosecution of others. P. Ex. 9.

8. Because he cooperated, Petitioner himself apparently avoided prosecution for the kickback scheme. However, these could be considered "similar acts resulting in financial loss" to the Medicaid program, and the $47,000 could be considered additional evidence of how much Petitioner's illegal conduct cost the program.