For Immediate Release - October 22, 2012

Woburn Drug Screening Lab Defendants Plead Guilty to Medicaid Kickback Scheme

Three Calloway Lab Defendants Sentenced to Four Years of Probation; Prohibited From Involvement in Public Health Care Programs

WOBURN — Three defendants have pleaded guilty to their involvement in an extensive Medicaid kickback scheme using "straw companies" and overcharging the state's Medicaid program for urine drug screens, Attorney General Martha Coakley announced today.

Arthur Levitan, 40, of Osterville, Patrick Cavanaugh, 49, of Gloucester, and William Maragioglio, 43, of Everett, pleaded guilty in Middlesex Superior Court on Friday to charges of engaging in a kickback scheme involving two straw companies that funneled monetary incentives to several sober houses and a medical office to illegally obtain urine drug screening business paid for by the Massachusetts Medicaid program (MassHealth). 

“This pervasive kickback scheme cost the Medicaid program and taxpayers millions of dollars,” AG Coakley said. “With this resolution, these individuals will be barred from working in the public health sector again. The corresponding settlement also returned $20 million back taxpayers, one of the largest Medicaid restitution amounts in the Commonwealth’s history.”

After the pleas were entered, Superior Court Judge Kathe Tuttman sentenced each of the defendants to four years of probation. As a condition of probation, the defendants cannot be involved in any Massachusetts healthcare program, other than as a patient, cannot bill or receive payments from Medicaid or Medicare for anything, other than as a person receiving healthcare benefits, and are prohibited from working in or with any provider who receives payments from Medicaid or Medicare, or any contractor or subcontractor to such provider.

On July 2, 2010, Calloway Laboratories, Inc., a Woburn-based drug testing company, along with former Chief Executive Officer Arthur Levitan, former Chief Operating Officer Patrick Cavanaugh, and two former employees of a sober house –William Maragioglio and Kelli Ann Cavanaugh – were indicted on 42 counts by a Middlesex Grand Jury. The defendants were arraigned on July 29, 2010 and released on personal recognizance.

In March 2012, Calloway Laboratories paid $20 million in restitution to resolve allegations of the scheme that cost MassHealth millions of dollars. The Commonwealth alleged that MassHealth paid in excess of $10.6 million for urine drug screen business obtained by Calloway as a result of these illegal kickbacks.

Between 2005 and 2007, Calloway employees set up two corporations, JAC Resources, Inc. (JAC) and MJK & Associates, LLC (MJK), and a bank account for the purpose of carrying out the scheme. Calloway, Levitan and Patrick Cavanaugh 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.

Calloway made inappropriate payments to Maragioglio, former owner and manager of New England Transitions, and to Kelli Ann 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.

Under the conditions of probation, Levitan also must certify that he has divested from any ownership interest in Calloway.  

Assistant Attorney General Toby Unger, of Attorney General Coakley’s Medicaid Fraud Division, and Deputy Chief of the Medicaid Fraud Division Steven Hoffman, prosecuted this case. The case was investigated by investigators Joseph Shea; Denise Long; Lisa Bailey; Donna Mitchell; and Erica Schlain. Both the Massachusetts Medicaid Program and the Department of Public Health assisted in this investigation.

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