Woburn Drug Screening Lab Defendants Arraigned for Medicaid Fraud Kickback Scheme
Calloway Laboratories, Inc. ("Calloway"), two of its principals, and two employees of a sober house were arraigned yesterday in Middlesex Superior Court in connection with a wide-ranging investigation by Attorney General Coakley's Medicaid Fraud Division. The Commonwealth alleges that MassHealth paid in excess of $10.6 million for urine drug screen business obtained by Calloway as a result of these illegal kickbacks.
Chief Executive Officer Arthur Levitan and Chief Operating Officer Patrick Cavanaugh were both charged with engaging in a pervasive kickback scheme involving two straw companies which funneled kickbacks to sober houses, as well as paid middlemen and a medical office to illegally obtain urine drug screening business paid by MassHealth, the Commonwealth's Medicaid program.
Clerk Magistrate Michael Sullivan released Arthur Levitan and Patrick Cavanaugh on personal recognizance. Under the terms of their release, Levitan and Cavanaugh must also surrender their passports and are not permitted to leave the state while the case is pending. They are also required to report weekly to probation under the terms of their release.
The defendants were arraigned and charged as follows:
Calloway Laboratories, Inc.
Medicaid False Claims (3 counts)
Medicaid Kickbacks (16 counts)
Larceny over $250 (2 counts)
Arthur Levitan, 38, of Weston
Medicaid Kickbacks (12 counts)
Patrick Cavanaugh, 46, of Gloucester
Medicaid Kickbacks (5 counts)
Corruption of a Witness (1 count)
William Maragioglio, 41, of Malden
Medicaid Kickbacks (2 counts)
Kelli Ann Cavanaugh, 41, of Lynn
Medicaid Kickbacks (1 count)
William Maragioglio and Kelli Ann Cavanaugh were released on personal recognizance. Both defendants were ordered to report to probation once a week and are not permitted to leave the state while the case is pending.
Authorities allege that between 2005 and 2007, Calloway set up two corporations, JAC Resources, Inc. ("JAC") and MJK & Associates, LLC ("MJK"), and a bank account for the purpose of carrying out a Medicaid Fraud kickback scheme. Calloway, Levitan and Cavanaugh allegedly made a series of inappropriate kickbacks through JAC, MJK and the bank account in order to induce sober houses to order urine drug screens from Calloway. Payments for those tests were then made to Calloway by MassHealth, a state program that provides health insurance for the economically disadvantaged.
Calloway made inappropriate payments to Maragioglio, owner and manager of New England Transitions, and to Cavanaugh, the sister of Patrick Cavanaugh and a former manager of New England Transitions, a group of sober houses, in return for ordering, arranging for or recommending that urine drug screens for the residents of the sober houses be performed by Calloway.
It is alleged that payments to third parties to induce the ordering of drug screens from Calloway continued into 2010. Upon learning that a woman had been subpoenaed by the Attorney General's Office to testify before a grand jury, it is alleged that Cavanaugh offered her a highly compensated sales position with Calloway.
Authorities further allege that Calloway paid an office manager and the salaries of office staff of a Brighton medical office to induce the ordering of drug screens from Calloway.
In addition to the schemes outlined above, it is alleged that Calloway was falsifying laboratory records and submitting claims to MassHealth for urine drug screens that were not ordered by an authorized prescriber for a medically necessary purpose, a requirement of the MassHealth program.
A Middlesex Grand Jury returned indictments on July 1 against the defendants. The defendants were arraigned yesterday in Middlesex Superior Court.
Assistant Attorney General Toby Unger, of Attorney General Coakley's Medicaid Fraud Division, is the prosecutor assigned to this case. The case was investigated by investigators Joseph Shea; Denise Long; Lisa Bailey; Donna Mitchell and Assistant Investigators Erica Schlain and Bridget Horan. Both the Massachusetts Medicaid Program and the Department of Public Health assisted in this investigation.