Gary M. Fingerhut, DAB CR6022 (2022)

DECISION

Petitioner, Gary M. Fingerhut, was the executive director of a division of the Cleveland Clinic, called Innovations, that developed and marketed medical products.  In that capacity, he conspired with others to defraud the Cleveland Clinic by, among other schemes, setting up a shell company that provided no goods or services but into which the conspirators diverted approximately $2.7 million.  Eventually, he and his co‑conspirators were caught.  Petitioner was indicted and pleaded guilty to felony counts of conspiracy to commit wire fraud and honest services wire fraud and making false statements.  The court sentenced him to 30 months (two and a half years) in prison.

Based on his conviction, the Inspector General (IG) has excluded Petitioner for 20 years from participating in Medicare, Medicaid, and all federal health care programs, as provided for in section 1128(a)(3) of the Social Security Act (Act). 

Petitioner appeals, challenging both the exclusion itself and its duration.

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For the reasons discussed below, I find that the IG properly excluded Petitioner and that the 20-year exclusion falls within a reasonable range. 

Background

In a letter dated June 30, 2021, the IG notified Petitioner that he was excluded from participating in Medicare, Medicaid, and all federal healthcare programs for a minimum period of 20 years because he had been convicted of a “criminal offense related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service, or with respect to any act or omission in a healthcare program (other than Medicare or a state health care program) operated by, or financed, in whole or in part, by any federal, state, or local government agency.”  The letter explained that section 1128(a)(3) of the Act authorizes the exclusion.  IG Ex. 5.  

Petitioner timely requested review. 

The IG has submitted a written brief (IG Br.) and five exhibits (IG Exs. 1-5).  In the absence of any objections, I admit into evidence IG Exs. 1-5. 

Petitioner has filed his own brief (P. Br.) with an attachment (P. Attach.) and an affidavit (P. Aff.).  Neither are marked as exhibits.  The attachment consists of Petitioner’s legal arguments; it is not evidence and thus is not admitted, although I have considered the arguments presented. 

The IG objects to my admitting Petitioner’s affidavit, arguing that it constitutes an impermissible collateral attack on Petitioner’s underlying criminal conviction and is irrelevant.  I must exclude evidence that is irrelevant and immaterial.  42 C.F.R. § 1005.17(c).  I agree that many of Petitioner’s assertions are belied by his guilty plea (discussed below), which makes some of his assertions not credible.  However, not everything to which he swears is necessarily inconsistent with his conviction.  I therefore admit the affidavit. 

The parties agree that this case may be decided based on the written record.  IG Br. at 9; P. Br. at 3. 

Discussion

1.  Petitioner must be excluded from program participation for a minimum of five years because he was convicted, under federal law, of felony fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial

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misconduct in connection with the delivery of a healthcare item or service.  Act § 1128(a)(3).1

Under section 1128(a)(3) of the Act, the Secretary must exclude an individual who has been convicted under federal or state law of felony fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a healthcare item or service.  42 C.F.R. § 1001.101(c)(1).

The scheme.  The Cleveland Clinic Foundation is a not-for-profit corporation that operates a hospital system and related entities.  One of its departments, Innovations, assisted Clinic personnel with inventing and marketing medical products.  This assistance included helping to form and fund new companies.  IG Ex. 1 at 1, 2 (Information ¶¶ 2, 3).  In 2013, Petitioner Fingerhut became the executive director of Innovations.  Id. at 2 (¶ 4). 

Cleveland Clinic physicians had conceptualized “visual medical charting,” and Innovations formed a subsidiary company, Interactive Visual Health Records (Interactive Visual), to turn that concept into a functioning, marketable product.  The Cleveland Clinic owned and funded Interactive Visual.  Id. at 2 (¶ 5).

As the executive director of Innovations, Petitioner Fingerhut was involved in hiring personnel for Interactive Visual.  An individual identified as W.R. was hired as Interactive Visual’s Chief Technology Officer.  In that capacity, W.R. oversaw product development.  He was also responsible for obtaining bids from outside contractors and reporting relevant information about those bids to the selection committee.  Id. at 2 (¶ 6). 

Both Petitioner Fingerhut and W.R. were obligated to act in the best interests of the Cleveland Clinic.  They were required to disclose any possible conflicts of interest in their dealings with third-party contracts.  Id. at 3 (¶ 8).  They were explicitly prohibited from receiving any financial benefit from or having any financial interest (personal or familial) in any third-party entity with which the Cleveland Clinic did business, unless approved by the Cleveland Clinic.  Id. at 2 (¶ 7). 

As part of their scheme to defraud the Cleveland Clinic, W.R. and others incorporated a shell company, “ISTAR,” which performed no services and provided no goods.  Although he and Petitioner concealed the fact, W.R. was ISTAR’s true owner and financial beneficiary.  By inserting ISTAR into transactions where the Clinic purchased services – thereby increasing the Clinic’s costs for the transactions – the conspirators diverted approximately $2.7 million

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from the Clinic.  In return for Petitioner’s not disclosing the fraudulent scheme, W.R. paid him a “referral” or “commission” fee.  Id. at 4-6 (¶¶ 12-19, 24).  W.R. also set up bank accounts for the scheme’s profits, which were transferred to W.R., Petitioner Fingerhut, and others.  Id. at 5 (¶ 21). 

The fraudulent scheme continued for more than three years – from about March 2012 through June 15, 2015.  Id. at 5-6 (¶ 23). 

The investigation.  In September 2014, the FBI began investigating Petitioner and others in connection with ISTAR’s contracting activities with the Cleveland Clinic.  Id. at 11 (¶ 51). 

In an effort to “obstruct, influence, and impede” the FBI and Grand Jury investigations into his scheme, Petitioner Fingerhut made false and fraudulent statements, orally and in writing.  Specifically:

• In a June 22, 2015 interview, he told a special agent of the FBI that he was not aware that W.R. had business dealings outside the clinic and that he was not aware of any connection between W.R. and ISTAR. 
• He also claimed that he had “borrowed” money from W.R. – a $100,000 home loan several years earlier; then $100,000 to $200,000; then later, at least $350,000 for personal expenses.  He said that he had signed a note and intended to pay back the loan with interest.  In fact, that money (approximately $469,000) represented the kickback fees Petitioner was paid for permitting the contract between ISTAR and Interactive Visual, which allowed ISTAR to obtain inflated payments from the Cleveland Clinic.
• With W.R., Petitioner created a false loan document to cover up the true purpose of W.R.’s payments to Petitioner. 

Id. at 11, 12 (¶¶ 52, 54-55). 

The conviction.  Petitioner was charged with one felony count of conspiracy to commit wire fraud and honest services wire fraud, in violation of 18 U.S.C. §§ 1343, 1346, and 1349, and one count of felony false statement and false document, in violation of 18 U.S.C. § 1001(a)(2) and (3).  IG Ex. 1. 

Petitioner Fingerhut pleaded guilty to both charges.  On December 27, 2018, the Federal District Court for the Northern District of Ohio accepted his plea and convicted him on both counts.  IG Ex. 2 at 1.  The Court sentenced him to 30 months in prison, followed by three years of supervised release.  Id. at 2-3.  The

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Court also ordered him to pay $2,784,847 in restitution to the Cleveland Clinic.  Id. at 5-7.

Thus, Petitioner was plainly convicted under federal law of felony fraud, as well as breach of his fiduciary responsibility and financial misconduct. 

Relationship to the delivery of a healthcare item or service.  Petitioner argues, however, that his crimes were not committed in connection with the delivery of a healthcare item or service.  He points out that he did not admit to and was not convicted of health care fraud, 18 U.S.C. § 1347, and that Interactive Visual did not claim reimbursement from Medicare, Medicaid, any federal agency, or private insurer.  P. Aff. ¶¶ 3, 6, 7; P. Attach. at 1 (¶¶ 1-3). 

The statute’s reach is much broader than Petitioner’s argument suggests.  As the Departmental Appeals Board has long noted, the plain language of section 1128(a)(3) does not require that the individual be convicted of healthcare fraud; nor does it require government funding for the items or services related to the crime.  Ellen L. Morand, DAB No. 2436 at 9 (2012); Charice D. Curtis, DAB No. 2430 at 4-5 (2011).  The statute does not require that the crimes involve the actual delivery of healthcare items or services.  W. Scott Harkonen, M.D., DAB No. 2485 at 10-12 (2012) (holding that the executive of a pharmaceutical company was subject to exclusion based on his issuing a press release falsely touting the benefits of a company drug); Charice D. Curtis,DAB No. 2430 at 5; citing Kenneth M. Behr, DAB No. 1997 at 8 (2005); Erik D. DeSimone, R.Ph., DAB No. 1932 (2004).  

Indeed, the Board has sustained exclusions under section 1128(a)(3) where an employee steals money from a company that provides healthcare items or services, reasoning that 1) the employee was able to commit the offense because of her position with the healthcare-related company; and 2) at least some of the amount stolen consisted of revenue from the sale of healthcare items or services.  Ellen L. Morand, DAB No. 2436 at 10; Charice D. Curtis, DAB No. 2430 at 6.

Under the Board’s reasoning, Petitioner’s crimes fall squarely within the ambit of section 1128(a)(3).  He was able to steal from the Cleveland Clinic because he occupied a position of trust with the healthcare provider; and I can reasonably infer that the money he stole included revenue derived from the Clinic’s providing healthcare items and services. 

Petitioner, however, seems to deny (albeit obliquely) that the funds he stole came from the Cleveland Clinic.  He claims that Interactive Visual’s funding did not come from the Cleveland Clinic’s “operating revenues,” but from unidentified “investors” and from royalties the Clinic collected from licensing prior innovations.  P. Aff. (¶ 4); P. Attach. at 1 (¶ 4).  How the Cleveland Clinic chose to finance its

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development of medical products through Interactive Visual is irrelevant.  Petitioner’s felony conviction establishes that the Clinic owned and funded the company and that Petitioner stole the Clinic’s money.  IG Ex. 1 at 2 (¶ 5); IG Ex. 2 at 5 (ordering Petitioner to pay restitution to the Cleveland Clinic).  These determinations are sufficient to establish the necessary relationship between Petitioner’s crimes and the delivery of healthcare items or services.

Moreover, Petitioner’s crimes were even more directly related to fraud in connection with the delivery of healthcare items.  In a bit of sophistry that cannot go unchallenged, Petitioner asserts that Interactive Visual “was in the business of developing software, which is completely unrelated to the delivery of any healthcare service.”  P. Attach. at 1 (¶ 4).  He does not mention healthcare items, and I cannot tell whether the omission is inadvertent.  In fact, Interactive Visual was supposed to be delivering, for the Cleveland Clinic, a healthcare item – a functioning, marketable product for “visual medical charting,” based on concepts that were developed by physicians at the Cleveland Clinic.  IG Ex. 1 at 2 (¶ 5).  The money Petitioner and his cohorts diverted for their own use was supposed to be used to develop that healthcare product.  Petitioner does not escape culpability by claiming that the company for which he was responsible never actually developed the item, largely because of his own malfeasance.

Because the Cleveland Clinic paid Petitioner and others to develop healthcare items (Id. at 2 (¶¶ 3-4)), his crimes are directly related to the delivery of healthcare items, within the meaning of section 1128(a)(3). 

2.  Based on the aggravating factors and no mitigating factor, the 20-year exclusion falls within a reasonable range.

An exclusion brought under section 1128(a)(3) must be for a minimum period of five years.  Act § 1128(c)(3)(B); 42 C.F.R. § 1001.102(a).  I now consider whether the length of the exclusion, beyond five years, falls within a reasonable range.  See Edwin L. Fuentes, DAB No. 2988 at 8-9 (2020); Hussein Awada, M.D., DAB No. 2788 at 5-6 (2017).  

Among the factors that may serve as a basis for lengthening the period of exclusion are the three that the IG relies on in this case:  1) the acts resulting in the conviction, or similar acts, caused a government program or another entity financial losses of $50,000 or more; 2) the acts that resulted in the conviction, or similar acts, were committed over a period of one year or more; and 3) the sentence imposed by the court included incarceration.  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.

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“[S]imply meeting the threshold for an aggravating factor is a clear indication of untrustworthiness.”  Hussein Awada, M.D., DAB No. 2788 at 10.

Although he generally disagrees with the IG’s identification of the aggravating factors in this case and claims that mitigating factors support reducing the length of the exclusion, Petitioner offers no evidence or argument challenging the IG’s determinations of aggravating and mitigating factors.  P. Br. at 2, 3; see P. Attach.  As the following discussion shows, the IG correctly identified the aggravating factors and correctly determined that there are no mitigating factors. 

Clinic financial loss (42 C.F.R. § 1001.102(b)(1)).  In pleading guilty, Petitioner conceded that, through his scheme, he and his cohorts successfully diverted approximately $2.7 million from the Cleveland Clinic.  IG Ex. 1 at 6 (¶ 24).  Consistent with his admission, the sentencing court ordered him to pay $2,784,847 in restitution to the Cleveland Clinic, roughly 56 times the $50,000 threshold for aggravation.  IG Ex. 2 at 6.  Restitution has long been considered a reasonable measure of losses.  Hussein Awada, M.D., DAB No. 2788 at 7; Juan de Leon, Jr., DAB No. 2533 at 5 (2013); Craig Richard Wilder, DAB No. 2416 at 9 (2011).  The Board has characterized amounts substantially greater than the statutory standard as an “exceptionally aggravating factor” that is entitled to significant weight.  Shaun Thaxter, DAB No. 3053 at 31-32 (2021); Robert Kolbusz, M.D., DAB No. 2759 at 6-7 (2017); Jeremy Robinson, DAB No. 1905 (2004); Donald A. Burstein, Ph.D., DAB No. 1865 (2003).  I agree.  The significant financial losses here justify a period of exclusion considerably longer than the five‑year minimum.

Duration of criminal conduct (42 C.F.R. § 1001.102(b)(2)).  We consider the length of Petitioner’s participation in the criminal scheme in order to distinguish the individual whose lapse in integrity is short-lived from those who display a lack of integrity over a longer period of time.  “[P]articipation in, or even knowing but silent acquiescence in, a continuing fraudulent scheme that could be expected to cause repeated misrepresentations and repeated harm over a period of time evidences a continuing lack of integrity.”  Donald A. Burstein, Ph.D., DAB No. 1865 at 8. 

Petitioner engaged in his criminal activities for more than three years – from March 2012 through June 15, 2015.  IG Ex. 1 at 5-6 (¶ 23).  This is obviously well over the one-year threshold for aggravation and justifies a period of exclusion that is much longer than the minimum.  

Incarceration (42 C.F.R. § 1001.102(b)(5)).  The court sentenced Petitioner to a substantial period of incarceration – 30 months (two and a half years).  IG Ex. 2 at 2-3.  While any period of incarceration justifies increasing the period of exclusion, the Board has repeatedly held that longer periods of incarceration are

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relevant in determining whether a period of exclusion is reasonable.  Eugene Goldman, M.D., DAB No. 2635 at 6 (2015).  Generally, the longer the jail time, the longer the exclusion, because a lengthy sentence evidences a more serious offense.  See Jeremy Robinson, DAB No. 1905 at 6 (characterizing a nine-month incarceration as “relatively substantial.”).  Jason Hollady, M.D., DAB No. 1855 at 12 (2002); Stacy Ann Battle, D.D.S., DAB No. 1843 (2002) (finding that four months in a halfway house, followed by four months home confinement justifies lengthening the period of exclusion); Brenda Mills, M.D., DAB CR1461 (2006), aff’d DAB No. 2061 (2007) (finding that six months home confinement justifies increasing the length of exclusion). 

No mitigating factors.  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 $5,000; 2) the record in the criminal proceedings 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 Board has ruled that 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).

No mitigating factors offset the significant aggravating factors present in this case.  Petitioner was convicted of felonies.  No evidence suggests that he had a mental, physical, or emotional condition that reduced his culpability.  He did not cooperate with federal officials; in fact, he attempted to “obstruct” and “impede” their investigation.  IG Ex. 1 at 12 (¶ 55).  

Based on the three aggravating factors and the absence of any mitigating factor, I must determine whether the exclusion period imposed by the IG falls within a reasonable range.  So long as that period falls within a reasonable range, my role is not to second-guess the IG’s judgment.  Jeremy Robinson, DAB No. 1905 at 5 (ALJ review must reflect the deference accorded to the IG by the Secretary). 

A “‘reasonable range’ refers to a range of exclusion periods that is more limited than the full range authorized by the statute [i.e. from a minimum of five years to a maximum of permanent] and that is tied to the circumstances of the individual case.”  Joseph M. Rukse, Jr. R.Ph., DAB No. 1851 at 11 (2002), citing Gary Alan Katz, R.Ph., DAB No. 1842 at 8 n.4 (2002).  The goal here is to protect federal health care programs and beneficiaries from potential harm.  Joann Fletcher Cash, DAB No. 1725 (2000).

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The underlying facts here more than justify a 20-year exclusion.  Petitioner violated his fiduciary responsibility to the Cleveland Clinic and participated in an elaborate scheme to divert Clinic funds – which were supposed to be used to develop new healthcare items and services – into his own pockets.  His illegal activity lasted more than three years and cost the Clinic more than $2.7 million.  The court sentenced him to substantial prison time.  He has shown a continuing lack of integrity and poses a threat to health care programs.  I therefore conclude that the 20-year exclusion falls within a reasonable range.  

Conclusion

The IG properly excluded Petitioner from participating in Medicare, Medicaid, and other federal health care programs.  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 7, citing 57 Fed. Reg. 3298, 3321 (1992). 

I find that the 20-year exclusion falls within a reasonable range.  

1. My findings of fact/conclusions of law are set forth, in italics and bold, in the discussion captions of this decision.
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