Peter N. Stoll III, DAB CR6695 (2025)

DECISION

The Inspector General (IG) of the United States Department of Health and Human Services excluded Peter N. Stoll, III (Petitioner) from participation in Medicare, Medicaid, and all other federal health care programs for seven years pursuant to section 1128(a)(3) of the Social Security Act (Act) (42 U.S.C. § 1320a-7(a)(3)).  For the reasons discussed below, I find that the IG has a basis to exclude Petitioner from program participation and the seven-year exclusionary period must be imposed.  The IG’s exclusion determination is affirmed.

I. Background and Procedural History

By letter dated July 31, 2024, the IG notified Petitioner that he was being excluded from participating in Medicare, Medicaid, and all Federal health care programs pursuant to section 1128(a)(3) of the Act for a minimum of seven years, effective 20 days from the date of the letter.  IG Exhibit (Ex.) 1.  Petitioner was excluded due to a felony conviction in the United States District Court, Eastern District of Pennsylvania (District Court), of a

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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 health care program.  IG Ex. 1.  The IG identified two aggravating factors that resulted in Petitioner’s exclusion being longer than the 5-year mandatory minimum period.

The Civil Remedies Division (CRD) received Petitioner’s timely request for a hearing on August 23, 2024.  On August 29, 2024, the CRD issued my Standing Pre-Hearing Order (Standing Order) and a letter, at my direction, acknowledging receipt of Petitioner’s hearing request and notifying the parties that a telephone prehearing conference was scheduled for October 8, 2024.

At the prehearing conference, Petitioner’s father, Peter N. Stoll, Jr. appeared and represented that Petitioner, his son, was still incarcerated.  However, because the request for hearing was not signed by Petitioner nor his attorney, as required by the regulations, I informed the parties that I could not proceed with the prehearing conference.  On October 9, 2024, an Order Following Prehearing Conference and Setting Briefing Schedule (October 9, 2024 Order) was issued.  The prehearing conference was rescheduled for December 12, 2024 to allow Petitioner the opportunity to attend.

Both Petitioner and an attorney representing the IG appeared at the prehearing conference.  Petitioner indicated that he wanted to proceed with the case.  Both parties agreed that an oral hearing was not necessary to decide this matter.  The parties agreed to a briefing schedule.

On January 28, 2025, the IG filed a brief (IG Br.) along with four exhibits (IG Exs. 1-4).  Due to a delay, the second Order Following Prehearing Conference and Setting Briefing Schedule was issued on March 12, 2025 (March 12, 2025 Order).  Petitioner filed a brief (P. Br.) on March 31, 2025.  The IG filed a reply brief (IG Reply Br.) on April 8, 2025.

II. Admission of Exhibits and Decision on the Written Record

Absent objection, IG Exs. 1-4 are admitted into the record.

Neither party offered witnesses to testify, and in their respective briefs, both parties indicated that an evidentiary hearing is unnecessary in this case.  IG Br. at 13; P. Br. at 3.  Therefore, an oral hearing is not necessary, and this matter will be decided on the written record.  Prehearing Conference Order ¶ 7.

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III. Issues

1) Whether the IG had a basis to exclude Petitioner from participation in Medicaid, Medicare, and other federal health care programs under section 1128(a)(3) of the Act; and

2) Whether a seven-year exclusion is reasonable.

IV. Jurisdiction

Jurisdiction is proper under 42 C.F.R. §§ 1001.2007(a)(1)-(2), 1005.2(a); see also 42 U.S.C. § 1320a-7(f)(1).

V. Legal Authorities

The Act requires the Secretary of Health and Human Services (Secretary) to exclude certain individuals from participation in any federal health care programs, as defined in Section 1128B(f) of the Act.  Act § 1128(a).  The Secretary has delegated this exclusion authority to the IG.  42 C.F.R. § 1001.101.

Section 1128(a)(3) mandates the exclusion of any individual 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 health care program other than Medicare or Medicaid, operated by, or financed in whole or in part by any federal, state, or local agency.  42 C.F.R. § 1001.201(c).  The Act requires a minimum exclusion period of five years when the exclusion is mandated under section 1320a-7(a).  42 U.S.C. § 1320a-7(c)(3)(B).

The IG has the burden of proving the basis for the exclusion and the existence of any aggravating factors.  42 C.F.R. §§ 1005.15(b)(2), 1001.102(b).  Petitioner bears the burden of proof and the burden of persuasion on any affirmative defenses or mitigating factors.  42 C.F.R. §§ 1005.15(b)(1), 1001.102(c).  The standard of proof is a preponderance of the evidence, and there may be no collateral attack of the conviction that provides the basis of the exclusion.  42 C.F.R. §§ 1001.2007(c)-(d), 1005.15(d).

An excluded individual may request a hearing before an ALJ, but only on the issues of whether the IG had a basis for the exclusion and whether an exclusion longer than the required minimum period is unreasonable in light of any applicable aggravating and mitigating factors.  42 C.F.R. §§ 1001.2007(a), 1005.2(a).

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VI. Findings of Fact

1. Company A was located in Pennsylvania and participated in the manufacturing, packaging, marketing, sale, and interstate distribution of medical devices.  IG Ex. 2.
2. Company B was a global medical technology company with its headquarters in Melsungen, Germany.  IG Ex. 2.  Company A was a wholly owned subsidiary and division of Company B.  Id.
3. From about July 2015 through about August 2017, Petitioner was employed with Company A as a Regulatory Affairs Specialist.  IG Ex. 2 at 2.  In his role, Petitioner was responsible for transmitting and administering the 510(K) submissions to the United States Food and Drug Administration (FDA) to obtain 510(K) clearances for the company’s medical devices.  IG Ex. 2 at 4.
4. Company A manufactured, marketed, packaged, sold, and distributed the ELAN-4 Electro Drill (Elan-4) and the SterilContainer JS Series (SterilContainer) to customers throughout the United States.  IG Ex. 2 at 1-2.
5. The Elan-4 was used to cut, saw, and drill bones during surgical procedures.  IG Ex. 2 at 1.  The SterilContainer was intended to enclose another medical device to be sterilized, allowing and maintaining sterilization of the enclosed device, until it was used in medical and surgical procedures.  IG Ex. 2 at 2.
6. Both the Elan-4 and the SterilContainer were considered medical devices because they were intended for use in the cure, mitigation, treatment, or prevention of disease.  IG Ex. 2 at 3.  Because they were considered medical devices, Company A was required to either obtain premarket approval or 510(K) clearance from the FDA prior to introducing the devices into interstate commerce.  IG Ex. 2 at 3.  Petitioner was instructed by his superiors to obtain approval or a clearance for the ELAN-4 and SterilContainer devices.
7. Petitioner did not submit the necessary documents to obtain the 510(K) clearances or the premarket approvals.  However, Petitioner informed representatives at Companies A and B that he made the requisite submissions.  Petitioner went so far as to create a document mimicking the official letterhead of the FDA, stating that the Elan-4 received a 510(K) clearance.  The fraudulent letter was emailed to employees at Companies A and B.  IG Ex. 2 at 4-5.
8. As a result of Petitioner’s actions, Company A sold the Elan-4, an adulterated and misbranded item, into interstate commerce, from March 2017 through June 2017.  IG Ex. 2 at 6.

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9. Similarly, Petitioner sent an email to employees of Companies A and B claiming that the SterilContainer was cleared for marketing by the FDA.  Again, Petitioner drafted a counterfeit letter falsely stating that the FDA acknowledged and received the 510(K) submission.  Based on Petitioner’s fraudulent representations, Company A believed that they had received a 510(K) clearance from the FDA.  As a result, Company A marketed, sold, and distributed adulterated and misbranded SterilContainer devices into interstate commerce.  IG Ex. 2 at 6.
10. On July 14, 2023, Petitioner entered into a Guilty Plea Agreement where he agreed to plead guilty to a felony for introducing an adulterated and misbranded medical device into interstate commerce with the intent to defraud and mislead.  IG Ex. 3 at 1.
11. The United States District Court for the Eastern District of Pennsylvania (District Court) accepted Petitioner’s guilty plea and adjudicated him guilty on January 25, 2024.  Petitioner was sentenced to 12 months of incarceration and one year of supervised release upon release from imprisonment.  IG Ex. 4.  The District Court ordered Petitioner to pay $122,835.72 in restitution.  Id. at 6.

VII. Analysis and Conclusions of Law

1. Petitioner was convicted of a criminal offense because the District Court accepted his guilty plea, adjudicated him guilty, and issued a judgment of conviction.

To prevail, the IG must prove, by a preponderance of the evidence, that Petitioner was convicted under federal or State law, of a criminal offense that occurred after August 21, 1996, consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct that was committed in connection with the delivery of a health care item or service.  42 U.S.C. § 1320a-7(a)(3); 42 C.F.R. § 1001.101(c)(1).

The regulations provide that an individual is “convicted” of a criminal offense when a plea of guilty or nolo contendere is accepted by a court.  42 U.S.C. § 1320a-7(i).  Petitioner concedes that he was convicted of a felony offense.  P. Br. at 1.  In addition, the District Court accepted Petitioner’s guilty plea and imposed judgment on January 25, 2024.  IG Ex. 4.  Accordingly, Petitioner has been “convicted” of a felony offense as defined by the regulations.

2. Petitioner was convicted of a felony that was related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

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Section 1128(a)(3) of the Act requires the exclusion of individuals convicted of felony convictions related to “fraud, theft, embezzlement, breach of fiduciary responsibility or other financial misconduct.”  42 U.S.C. § 1320a-7(a)(3).

In the plea agreement, Petitioner admitted that his actions caused “the introduction into interstate commerce of a medical device that was adulterated and misbranded with the intent to defraud and mislead . . . .”  IG Ex. 3 at 1.  The evidence shows that Petitioner, who was in charge of obtaining the proper approvals and waivers for two medical devices, failed to get the approval of the FDA and mislead his superiors into believing that the devices were approved by FDA officials, by forging an FDA official’s signature and letterhead, which ultimately caused the introduction or delivery of misbranded devices into interstate commerce.  IG Ex. 3 at 1.  The evidence submitted by the IG proves that Petitioner’s felony conviction was related to fraud.

3. Petitioner’s felony offense was in connection with the delivery of a healthcare item or service.

To determine whether an offense is related to the delivery of a health care item or service, one must look to whether there is a “common sense connection” between the offense of which a petitioner was convicted and the delivery of a health care item or service.  Erik D. DeSimone, R.Ph., DAB No. 1932 (2004); see also Quayum v. U.S. Dep’t of Health & Human Servs., 34 F. Supp. 2d 141, 143 (E.D.N.Y. 1998); Friedman v. Sebelius, 686 F.3d 813, 820 (D.C. Cir. 2012) (describing the phrase “related to” in another part of section 1320a-7 as “deliberately expansive words,” “the ordinary meaning of [which] is a broad one,” and one that is not subject to “crabbed and formalistic interpretation”) (internal quotation marks omitted).  Here, both the Elan-4 and the SterilContainer, two medical devices, were introduced into interstate commerce without the proper approvals based on Petitioner’s fraudulent actions.  As a result, Petitioner was convicted of a felony under the Food, Drug, and Cosmetic Act, 21 U.S.C. §§ 331(a) and 333(a)(2).  IG Ex. 3 at 1.  Therefore, there is a commonsense connection between Petitioner’s felony conviction and the delivery of medical devices, which are undoubtedly healthcare items within the meaning of the Act.

While Petitioner does not dispute his conviction, he argues that his conviction was not in connection with the delivery of a healthcare item or service.  P. Br. at 2, 4.  Petitioner argues that the services that he provided were not related to any Federal or state healthcare programs.  P. Br. at 4.  However, the IG is required to prove that the offense was committed in connection with the delivery of a health care item or service or with respect to any act or omission in a health care program, not both.  Here, the IG has proven that Petitioner’s offense was committed in connection with the delivery of a health care item or service.

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4. The IG has established two aggravating factors which together justify exclusion beyond the five-year minimum.

Exclusions imposed under section 1128(a)(3) carry a five-year mandatory minimum exclusion period.  Act § 1128(c)(3)(B) (42 U.S.C. § 1320a-7(c)(3)(B)); 42 C.F.R. § 1001.102(a).  The IG may extend the five-year exclusion period based on the application of the aggravating factors listed in 42 C.F.R. § 1001.102(b).  If any of the aggravating factors set forth in 42 C.F.R. § 1001.102(b) justifies an exclusion longer than five years, mitigating factors listed at 42 C.F.R. § 1001.102(c) may be considered as a basis for reducing the period of exclusion to no less than five years.  The IG bears the burden of persuasion with respect to aggravating factors, while Petitioner bears the burden of persuasion with respect to mitigating factors.  42 C.F.R. § 1005.15(b), (c).

In this case, the IG identified two aggravating factors to support a 7-year exclusion:  1) Petitioner’s acts resulted in a financial loss of $50,000 or more; and 2) Petitioner was sentenced to a term of incarceration.  42 C.F.R. § 1001.102(b)(1), (5).  Petitioner does not disagree with the IG’s identification of aggravating factors in this case.  P. Br. at 2.

1. The acts resulting in the conviction, or similar acts, caused, or were intended to cause, a financial loss to a government agency or program or to one or more other entities of $50,000 or more.

An aggravating factor exists if “acts resulting in the conviction . . . caused, or were intended to cause, a financial loss to a government agency or program or to one or more entities of $50,000 or more.”  42 C.F.R. § 1001.102(b)(1).  It is undisputed that the District Court ordered Petitioner to pay $122,835.72 in restitution.  IG Ex. 4 at 6.  Therefore, the IG acted within its authority in applying the amount of financial loss, in the form of restitution, as an aggravating factor.

2. An aggravating factor exists if incarceration is imposed by the court as part of an individual’s sentence.  42 C.F.R. § 1001.102(b)(5).

Under 42 C.F.R. § 1001.2, incarceration includes, “any type of confinement with or without supervised release, including, but not limited to, community confinement, house arrest and in home detention.”  The District Court sentenced Petitioner to 12 months of incarceration, followed by one year of supervised release.  IG Ex. 4.  This substantial period of incarceration reflects the seriousness of Petitioner’s offense, justifying a longer period of exclusion.  See, e.g., Gracia L. Maynard, M.D., DAB No. 2767 at 8 (2017) (petitioner’s sentence is “an unmistakable reflection of the . . . Court’s assessment of Petitioner’s untrustworthiness.”); see also Raymond Lamont Shoemaker, DAB No. 2560 at 8 (2014) (internal quotation marks omitted); Juan De Leon, Jr., DAB No. 2533 at 6 (2013) (noting that “a substantial period of incarceration would, on its own, justify the I.G. in increasing an exclusion significantly in excess” of the mandatory minimum and

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noting that the Board “once characterized a nine month incarceration, which included a period of work release, as relatively substantial”); Jason Hollady, M.D., DAB No. 1855 at 12 (2002) (the Board characterizing a nine-month incarceration as “relatively substantial”).  Therefore, the IG has acted within its authority in using Petitioner’s incarceration as an aggravating factor.

3. The parties have not identified any mitigating factors.

Petitioner has the burden of proving, by a preponderance of the evidence, the existence of any mitigating factors.  42 C.F.R. § 1005.15(b)(1).  Though Petitioner notes that a mitigating factor exists to support reducing the length of his exclusion, he has not provided any additional information for consideration.  P. Br. at 3.  Nor has the IG identified any mitigating factors.  Therefore, the record supports the IG’s finding of two aggravating factors and provides no evidence of mitigating factors.

5. Based on the two aggravating factors and no mitigating factors, I find that the 7-year exclusion imposed by the IG is not unreasonable.

In determining whether the length of exclusion is unreasonable, I must determine whether the length of the exclusion falls into a “reasonable range” based on the evidence in the record.  The IG has broad discretion in determining the length of an exclusion, based on the IG’s “vast experience” in implementing exclusions.  Craig Richard Wilder, DAB No. 2416 at 8 (2011) (citing 57 Fed. Reg. 3298, 3321 (Jan. 29, 1992)).  The regulations provide that the IG’s proposed exclusion must be upheld as long as the length of exclusion is not unreasonable.  42 C.F.R. § 1001.2007(a)(1)(ii).  It is important to note that it is the quality of the aggravating (or mitigating) factors that is most important when considering the length of exclusion and not the sheer number of aggravating factors that are present in each case.

Here, the severity of the crime, as well as the weight of the two aggravating factors support an increase in length of Petitioner’s exclusion beyond the five-year minimum.  Therefore, I find that the 7-year exclusion imposed by the IG is not unreasonable.

VIII. Conclusion

The IG has proven, by a preponderance of the evidence, that Petitioner was:  1) convicted of a criminal offense; 2) related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; 3) in connection with the delivery of a healthcare item or service.  The IG has also proven the existence of two aggravating

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factors.  Therefore, Petitioner shall be excluded from participating in Medicare, Medicaid, and other federal health care programs for a 7-year period.  The 7-year exclusion imposed by the IG is AFFIRMED.