Center Clinical Laboratory, CR No. 358 (1995)

$05:Civil Money Penalty

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division


In the Case of:

Center Clinical Laboratory,

Petitioner,

- v. -

Health Care Financing Administration.

DATE: February 15, 1995
Docket No. C-93-096
Decision No. CR358


DECISION

This action was brought by Center Clinical Laboratory (Petitioner)
to contest the findings made and actions taken by the Health Care
Financing Administration (HCFA) to enforce the Clinical Laboratory
Improvement Amendments of 1988 (CLIA).

The administrative actions at issue ensued from a survey conducted
by HCFA's agent under CLIA, the New Jersey Department of Health
(State agency), during February and March of 1993. HCFA Exhibits
(Ex.) 1, 1a, 1b, 127, 128. HCFA agreed with the State agency that
Petitioner failed to meet various conditions of coverage necessary
for CLIA certification. HCFA Ex. 127. Between May 27 and June 1,
1993, HCFA imposed various sanctions on what HCFA called a
"fast-track" pursuant to its determination that Petitioner posed
"immediate jeopardy" to patient health and safety. 1/ HCFA
Posthearing Brief (Br.) at 8. After deciding to suspend
Petitioner's CLIA certificate while imposing an "alternative
sanction" 2/ and directing Petitioner to submit its list of clients
for notice of the sanctions, HCFA then revoked Petitioner's CLIA
certificate either on June 1 or June 25 of 1993. 3/ HCFA Br. at 2;
HCFA Ex. 127, 128. Petitioner timely filed a request for hearing.

During a prehearing conference with the parties, I established one
of the issues in this case as "[w]hether the sanctions imposed by
HCFA against the laboratory are sanctions authorized by the Act."
Order and Notice of Hearing dated October 20, 1993. With respect
to the burden of proof in this case, I stated that HCFA "shall have
the burden of coming forward with evidence that the sanctions it
imposed are authorized." Id. Neither party objected. During
hearing, 4/ HCFA specifically noted the foregoing issue in
questioning a HCFA official. E.g., Tr. 24.

For the reasons that follow, I have decided in favor of Petitioner
on the issue of whether the sanctions HCFA imposed were authorized
by law. I have not decided the other issues raised by the parties,
i.e., whether deficiencies existed as alleged by HCFA and whether
such deficiencies warrant sanctions for reasons I discuss below,
which include Petitioner's closure since May of 1993. The
authority issue is dispositive for deciding which party is entitled
to the relief sought. My finding that HCFA imposed sanctions that
were unauthorized entitles Petitioner to the relief it seeks:
restoration of its CLIA certificate. See Petitioner's Posthearing
Brief (P. Br.) at 19.


ISSUES AND CONCLUSIONS

All issues resolved in this decision relate to HCFA's authority to
impose the following sanctions against Petitioner under the facts
of this case:

A. suspending Petitioner's CLIA certificate effective June 1,
1993 (HCFA Ex. 127);

B. imposing the "alternative sanction" of directing
Petitioner to provide an "acceptable plan of correction .... prior
to June 1st," or have its CLIA certificate revoked (HCFA Ex. 127);

C. requiring Petitioner to submit a list of its clients
within 10 days of May 27, 1993, to enable HCFA to send out notices
of the sanctions imposed against Petitioner (HCFA Ex. 127);

D. "suspending [Petitioner's] approval to receive Medicare
payment for services ....." effective June 1, 1993 (HCFA Ex. 127);

E. revoking Petitioner's CLIA certificate effective either on
June 1 or June 25, 1993 (HCFA Br. at 1; HCFA Ex. 128);

F. continuing in effect the "suspension" of Petitioner's
approval to receive Medicare payment for services (HCFA Ex. 128).

With respect to HCFA's authority to impose the foregoing sanctions
in this case, I have concluded that:


1. HCFA's decision of May 27, 1993 to suspend Petitioner's
CLIA certificate effective June 1, 1993, was premature and not in
accordance with HCFA's obligations under 42 C.F.R. 493.1812.

2. HCFA's decision to impose an alternative sanction of
directing Petitioner to submit an "acceptable plan of correction .
. . prior to June 1st" was improper, and the "alternative sanction"
imposed by HCFA was not authorized under the regulations.

3. HCFA's "suspending [Petitioner's] approval to receive
Medicare payment for services ...." was an invalidly imposed
principal sanction, and HCFA has not imposed a directed portion of
a plan of correction within the meaning of the regulations.

4. HCFA's actions of June 1, 1993, purporting to revoke
Petitioner's CLIA certificate and cancel Petitioner's approval to
receive Medicare payment also exceeded its authority under the
regulations.

5. HCFA's actions and omissions in this case do not represent
harmless error.

6. It is not necessary or feasible for me to decide at this
time whether Petitioner had condition level deficiencies in
February through March of 1993.


ANALYSIS OF LAW AND FACTS

I. HCFA's actions on May 27, 1993 exceeded those authorized by the
Secretary's regulations.

I will begin my analysis of HCFA's authority to impose the
particular sanctions at issue by focusing on the following portions
of HCFA's letter dated May 27, 1993:

You are out of compliance with these conditions as evidenced
by the State survey February 18 - March 10, 1993, and subsequent
State analysis of your records. The State has recommended to our
office that these deficiencies, which result from the pervasive
occurrence of management sanctioned fictitious patient test results
and fabricated control data, has created a situation of immediate
jeopardy to patient health and safety.


Accordingly, we have determined that it is necessary to apply
the principal sanction of suspension of your CLIA registration
certificate effective June 1, 1993. In addition, we are also
suspending your laboratory's approval to receive Medicare payment
for services concurrently with the CLIA suspension. You should .
. . provide a list of the names and addresses of all physicians,
providers, suppliers, and other clients who have used some or all
of the services of the laboratory during the past year, within ten
days of this notice.

You should be aware that 42 C.F.R. 493.1832 provides that your
clients should be notified of this action. In addition, as an
alternative sanction under this regulation, you are directed to
provide an acceptable plan of correction to the cited deficiencies
prior to June 1st. Should you fail to provide an acceptable plan
of correction your CLIA certification will be finally revoked.
[A]ny implementation will be subject to State onsite monitoring.

HCFA Ex. 127.

HCFA's letter purports to notify Petitioner that HCFA has
determined that Petitioner's deficiencies pose immediate jeopardy
to patients. As a result of this determination, HCFA states that
it is imposing four sanctions: (1) suspending Petitioner's CLIA
certificate; (2) suspending Petitioner's approval to receive
Medicare payments; (3) directing Petitioner to provide a list of
its clients within ten days; and (4) directing Petitioner to
provide an acceptable plan of correction prior to June 1st. For
the reasons discussed below, I conclude that each of these
sanctions, at least as applied by HCFA in this case, was
unauthorized. As a preliminary matter, I will explain the rights
and obligations that the regulations impose on HCFA when it makes
a determination of immediate jeopardy.


A. The regulations specify the remedies HCFA may impose on
laboratories it determines pose immediate jeopardy.

I do not have jurisdiction to review the merits of HCFA's
determination that a laboratory's deficiencies pose immediate
jeopardy. 42 C.F.R. 493.1844(c)(6). However, I have the
authority to review HCFA's imposition of sanctions after it
determines immediate jeopardy. See 42 C.F.R. 493.1844(b)(1),
(3).

Subpart R of 42 C.F.R. Part 493 sets forth the policies and
procedures that HCFA is to follow to enforce the requirements
applicable to laboratories under CLIA and under section 1846 of the
Act. 42 C.F.R. 493.1800(b)(1). The Secretary has explained by
regulation that the enforcement mechanisms set forth in subpart R
are intended to protect those served by laboratories, to safeguard
the general public against health and safety hazards, as well as
"[t]o motivate laboratories to comply with CLIA requirements ...."
42 C.F.R. 493.1804(a). Therefore, I will analyze the regulatory
requirements and HCFA's actions in light of the remedial purpose of
protecting public health and safety.

As HCFA was aware, the provisions of 42 C.F.R. 493.1812 are
applicable to cases where HCFA determines that a laboratory's
condition level deficiencies pose immediate jeopardy. See, e.g.,
HCFA Ex. 128; HCFA Br. at 2. This regulation provides HCFA with
two principal avenues by which to take action against a laboratory
whose condition level deficiencies pose immediate jeopardy: one in
an administrative forum and the other in federal court. 42 C.F.R.
493.1812, 1844.

When HCFA chooses the administrative forum to protect the public's
health and safety, HCFA assumes the following rights and
obligations, pursuant to its immediate jeopardy determination:

(a) HCFA requires the laboratory to take immediate action to
remove the jeopardy and may impose one or more alternative
sanctions to help bring the laboratory into compliance.

(b) If the findings of a revisit survey indicate that a
laboratory has not eliminated the jeopardy, HCFA suspends or limits
the laboratory's CLIA certificate no earlier than 5 days after the
date of notice of suspension or limitation. HCFA may later revoke
the certificate.

42 C.F.R. 493.1812(a), (b). As defined by the Secretary's
regulation and noted in HCFA's May 27, 1993 letter, the suspension
or limitation of a CLIA certificate constitutes a "principal
sanction." 42 C.F.R. 493.1806(b). 5/

In addition, HCFA may bring suit in federal court to enjoin or
restrain the continuation of activities which, in HCFA's view, pose
substantial hazards to the public health. 42 C.F.R.
493.1806(d), .1812(c). 6/

In this case, HCFA did not bring any action in federal court
against Petitioner, its managers, or its employees after finding
immediate jeopardy. Therefore, based on HCFA's contention that it
proceeded under 42 C.F.R. 493.1812, I have compared HCFA's
administrative actions to those required by subparts (a) and (b) of
the regulation.

The plain language of subsections (a) and (b) of 42 C.F.R.
493.1812 establishes a sequence of steps which HCFA must pursue in
the administrative enforcement process. Specifically, the
regulation requires HCFA to give a laboratory reasonable assistance
and an opportunity to eliminate the problems which led to HCFA's
finding of immediate jeopardy before HCFA formulates a decision on
whether to suspend the laboratory's CLIA certificate. This
sequence of steps advances the Secretary's interest in public
health and safety. HCFA may not immediately suspend a CLIA
certificate upon finding immediate jeopardy. If the immediate
jeopardy is sufficiently significant to warrant discontinuing the
laboratory's activities forthwith, the proper course for HCFA to
take is to file suit and seek an injunction or restraining order in
court. 42 C.F.R. 493.1812(c).

Even after HCFA has taken the requisite steps that would permit it
to suspend the laboratory's CLIA certificate, this principal
sanction may be put into effect "no earlier than 5 days after the
date of notice of suspension or limitation." 42 C.F.R.
493.1812(b). However, there is no prohibition against putting these
sanctions into effect after a longer period.


B. HCFA's decision of May 27, 1993 to suspend Petitioner's
CLIA certificate effective June 1, 1993 was premature and not in
accord with HCFA's obligations.

1. HCFA provided Petitioner with no meaningful
opportunity to remedy the immediate jeopardy alleged by HCFA.

In this case, I find as a threshold matter that HCFA lacked the
authority to suspend Petitioner's CLIA certificate on May 27, 1993.
I have noted that one of the purposes of the regulations is to
motivate laboratories to comply with CLIA requirements, so that the
public may receive safe and reliable laboratory services. However,
Petitioner's suspension, as implemented by HCFA, failed to serve
this remedial purpose. This is so because HCFA failed to give
Petitioner any meaningful opportunity to remove the alleged
jeopardy.

When HCFA determines that a laboratory's deficiencies pose
immediate jeopardy, HCFA may not suspend the laboratory's CLIA
license until after HCFA has required the laboratory to take
immediate action to remove the jeopardy and then found, pursuant to
a revisit survey, that the laboratory has not eliminated the
jeopardy. 42 C.F.R. 493.1812(a), (b). I do not read HCFA's
letter dated May 27, 1993 as meeting HCFA's obligation to direct
Petitioner to take those specific actions that would immediately
remove the jeopardy. 42 C.F.R. 493.1812(a). HCFA's letter
proceeded from summarizing the State agency's recommended findings
of immediate jeopardy to HCFA's announcing: "Accordingly, we have
determined that it is necessary to apply the principal sanction of
suspension . . . ." HCFA Ex. 127. 7/ HCFA's letter then informed
Petitioner that suspension had been imposed and would take effect
on June 1, 1993. HCFA Ex. 127. The contents of the letter are
insufficient to meet the remedial purposes of 42 C.F.R.
493.1812.

HCFA has introduced an undated letter from the State agency to
Petitioner, which may or may not have been sent in May of 1993.
HCFA Ex. 1b; see Tr. 18. HCFA has not argued that this letter
satisfies the requirements of 42 C.F.R. 493.1812(a). However,
had such an argument been made, I would reject it.

This undated letter indicates that a "Statement of Deficiencies
(HCFA 2567)" (HCFA Ex. 1 at 1 - 6) prepared by the State agency
surveyors also was sent to Petitioner as an enclosure and that the
State had made a determination of imminent jeopardy due to
fictitious, unsubstantiated, or unreliable patient test results.
HCFA Ex. 1b. However, even assuming that the undated letter was
sent prior to May 27, 1993 and that HCFA's agent may require
Petitioner to take those immediate actions necessary for the
removal of imminent jeopardy, 8/ the State agency's letter did not
tell Petitioner the actions that must be taken by Petitioner to
remove the jeopardy. The undated letter merely told Petitioner
that, if Petitioner disputed the correctness of the cited
deficiencies, Petitioner could forward a "credible allegation of
compliance" to HCFA. HCFA Ex. 1b.

The information sent by the State agency and HCFA to Petitioner
concerning the immediate jeopardy determination does not obviate
the need for HCFA to require Petitioner to remove the jeopardy
alleged by HCFA. See 42 C.F.R. 493.1812(a). HCFA sent
Petitioner its letter dated May 27, 1993, and the State agency
indicated that it was sending Petitioner the "Statement of
Deficiencies (HCFA 2567)" and the "Survey Report" under separate
covers. 9/ However, the information contained in both the "Survey
Report" and "Statement of Deficiencies" is at variance with the
conclusions summarized by HCFA in its May 27, 1993 explaining its
finding of immediate jeopardy.

The findings of the February/March 1993 survey are contained in the
"Statement of Deficiencies (HCFA 2567)" and "Survey Report"
forwarded to Petitioner by the State agency. In these documents,
the State agency noted its conclusion that fictitious urine
microscopic results were being reported routinely. HCFA Ex. 1 at
3, 7. However, with respect to whether such activities were known
to Petitioner's management, the State surveyors had stated merely:
"the director must either have been aware of how those results were
obtained . . . or he must have been unaware of how the laboratory
was being operated." HCFA Ex. 1 at 3 (emphasis added). With
respect to the alleged fabrication of control data, the State
agency's survey report informed HCFA: "[E]ither the laboratory's
recorded control results were not genuine analytical values or, if
they were real values, then the test system was consistently
out-of-control." HCFA Ex. 1 at 26 (emphasis added). In its
undated letter to Petitioner concerning its recommendations to
HCFA, the State agency did not allege any "management sanctioned"
improprieties; nor did the State agency allege any fabricated
control data as a basis for its immediate jeopardy determination.
HCFA Ex. 1b.

In the State's May 25, 1993 letter to notify Petitioner of the
State's findings and the imposition of sanctions under State law,
the State asserted management involvement in "deceptive practices."
HCFA Ex. 114. 10/ The letter summarized the State of New Jersey's
dealings with Petitioner. HCFA Ex. 114. The State noted that the
alteration of control data had been observed during the surveys of
1990 and 1991, and that the State had assessed civil monetary
penalties against Petitioner for these infractions in 1991. HCFA
Ex. 114.

However, HCFA stated to Petitioner in its May 27, 1993 letter that
it (HCFA) was using evidence from "the State survey February 18 -
March 10, 1993," and that:

The State has recommended to our office that these
deficiencies, which result from the pervasive occurrence of
management sanctioned fictitious patient test results and
fabricated control data, has created a situation of immediate
jeopardy . . . . Accordingly, . . . it is necessary to apply the
principal sanction of suspension . . . .

HCFA Ex. 127. HCFA did not purport to have used the results of any
earlier survey conducted by the State or for HCFA. Nor did HCFA
purport to have taken into consideration the State's prior
imposition of sanctions under State law during 1991.

Without doubt, HCFA may draw its own conclusions or adopt opinions
that the State agency made known to HCFA but did not share with
Petitioner. See HCFA Ex. 1a at 2. 11/ However, the information
made available to Petitioner on or about May 27, 1993 does not
adequately inform Petitioner of the remedial actions that must be
taken by Petitioner to remove the jeopardy perceived by HCFA. I
trace the cause of HCFA's conduct in this action to the State
agency's recommendation that "HCFA take appropriate action to
remove that jeopardy," (HCFA Ex. 1a at 2)(emphasis added), by
immediately precluding Petitioner's operation and by revoking
Petitioner's CLIA certificate (HCFA Ex. 1b). HCFA appears to have
accepted and followed the literal terms of those recommendations.
Such recommendations were inconsistent with the requirements of the
Secretary's regulations, which obligate HCFA to give Petitioner
appropriate notice of the necessary remedial actions and entitle
Petitioner to a reasonable opportunity to remove the jeopardy
before HCFA proceeds to close down Petitioner's operation as a
means for removing the jeopardy. See, e.g., 42 C.F.R.
493.1804(a)(3), 1812(a).

I am aware that the State agency believed Petitioner's managers
were flouting federal law, as well as the laws of at least two
States. For example, the State agency told HCFA in its transmittal
report that Petitioner's managers had "irrevocably betrayed the
public trust and
. . . demonstrated that they are contemptuous of all laboratory
laws and regulations," and "much of [Petitioner's] testing was
performed in violation of New York State's laboratory laws." HCFA
Ex. 1a at 2. Without doubt, the State agency was entitled to
convey those opinions to HCFA in May of 1993, and HCFA could
reasonably choose to believe the opinions of its agent when, as
HCFA acknowledged at hearing, HCFA had had no direct dealings with
Petitioner. E.g., Tr. 34 - 35, 38 - 39. 12/ However, given the
surveyors' comments in the "Survey Report" and "Statement of
Deficiencies" that were transmitted to both HCFA and Petitioner
(e.g., Tr. 14, 17 - 18, 32, 38 - 39), HCFA should have been aware
of the possibility that Petitioner's management may not have known
how the deficiencies found in 1993 had occurred or their full
extent. Therefore, Petitioner's management may have needed HCFA's
assistance to eliminate quickly any resultant jeopardy perceived by
HCFA. If HCFA had followed the requirements of 42 C.F.R.
493.1812 on May

27, 1993, its actions would have accommodated those possibilities
and fulfilled the remedial purposes of the law.

I have considered the possibility of construing HCFA's imposition
of an "alternative sanction" as HCFA's requirement that Petitioner
take very immediate actions ("prior to June 1st") to remove the
jeopardy. However, the nature of the "alternative sanction" in
this case (i.e., for Petitioner to submit a plan of correction
acceptable to HCFA) is so vague and subjective that it defeats the
mandate of the regulation that HCFA require immediate action by
Petitioner to remove the jeopardy. In addition to having placed
Petitioner under an unreasonably short timetable (as discussed
below), HCFA's letter did not specify those elements that must be
contained in a plan that HCFA would find acceptable. HCFA Ex. 127.
As also discussed below, the meaning HCFA has since given to its
requirement for an "acceptable plan" is not persuasive, not
consistent with other facts in this case, and could not have been
anticipated by Petitioner.

In addition, even reading HCFA's May 27, 1993 letter as requiring
immediate action by Petitioner to remove imminent jeopardy, the
letter goes on to announce HCFA's decision, as of that date, to
suspend Petitioner's CLIA certificate effective June 1, 1993, an
action which was improper under the regulations. See, e.g., Tr.
39. Contrary to the requirements of 42 C.F.R. 493.1812, HCFA
made its decision to suspend the CLIA certificate before the
expiration of the "alternative sanction" and without having made
provisions for conducting any revisit survey that may have been
warranted, if HCFA had given Petitioner a reasonable opportunity to
remedy the alleged jeopardy. 13/

The unique facts in this case especially necessitated HCFA's
issuing clear directives to Petitioner on how HCFA expected
Petitioner to eliminate the jeopardy that allegedly existed at or
about the time of its May 27, 1993 sanction notice. In addition to
those discrepancies already discussed above, I note also that the
State of New Jersey had imposed various State sanctions against
Petitioner pursuant to State law on May 25, 1993. The State
summarily suspended Petitioner's license to operate as of May 25,
1993, it ordered Petitioner to cease and desist from all laboratory
operations "effective immediately," and it assessed a fine of
$100,000 against Petitioner. HCFA Ex. 114. There is no evidence
that Petitioner had a license from another state. Petitioner has
been closed since the end of May 1993. E.g., Tr. 935.

The regulations do not permit me to review the merits of HCFA's May
27, 1993 determination of immediate jeopardy. 42 C.F.R.
493.1844(c)(6). However, the actions taken by the State of New
Jersey on May 25, 1993, together with Petitioner's closure a few
days thereafter, are intervening events that should have changed
the conditions that had previously constituted immediate jeopardy.
For example, the effect of the State's cease and desist order or
Petitioner's closure should have eliminated the occurrence of those
fabricated test results which, prior to May 25, 1993, had allegedly
posed immediate jeopardy.

If HCFA concluded otherwise, I cannot disturb that conclusion.
However, it behooves HCFA to explain the nature of the immediate
jeopardy it perceived after the State of New Jersey had suspended
Petitioner's license and placed it under a cease and desist order,
and Petitioner had closed its operations. It behooves HCFA also to
explain by what means it expected Petitioner to eliminate any
immediate jeopardy perceived by HCFA when Petitioner was unable to
operate as a laboratory in New Jersey, was not operating as a
laboratory in New Jersey, and did not appear to have a license to
operate as a laboratory elsewhere. Since the regulation
contemplates the possibility of a revisit survey for HCFA to verify
the elimination of the jeopardy (assuming that HCFA had truly
discerned some immediate jeopardy that remained to be eliminated
after May 25, 1993 and gave Petitioner the opportunity to remedy
it), HCFA also should have explained how it could have resurveyed
a laboratory to ascertain compliance when that laboratory could not
operate and had closed. See 42 C.F.R. 493.1812(b). No such
explanation was made in HCFA's notice letters to Petitioner or in
the proceedings before me. Under the Secretary's regulations, a
determination of immediate jeopardy does not serve as an excuse for
revoking a laboratory's CLIA certificate, as indicated by HCFA's
actions in this case.

2. HCFA failed to adhere to the time requirements
specified in the Secretary's regulation, and Petitioner's history
does not excuse HCFA's omissions.

HCFA has failed also to comply with the regulatory requirement that
HCFA "suspends ... the laboratory's CLIA certificate no earlier
than 5 days after the date of notice of suspension . . . ." 42
C.F.R. 493.1812(b) (emphasis added). The regulation does not
state that HCFA may place the sanction into effect on the fifth day
after the date of notice. I read the words as meaning that the
sanction may go into effect only when five full days have elapsed
after the date of notice. Here, there are only four full days
between the date of HCFA's notice letter (May 27, 1993) and the
effective date of suspension (June 1, 1993).

HCFA argues that the five day limitation of 42 C.F.R.
493.1810(c)(2)(i) authorized HCFA to take swift action. HCFA Br. at
43. However, I note that 42 C.F.R. 493.1810 is titled
"[i]mposition and lifting of alternative sanctions." This
regulation does not pertain to the imposition of principal
sanctions such as the suspension of Petitioner's CLIA certificate.
The swiftness of HCFA's actions cannot be contrary to the
Secretary's regulation that is applicable to the course of action
HCFA has chosen (e.g., imposing the principal administrative
sanction of suspension, as opposed to seeking a temporary
restraining order in court).

HCFA contends that Petitioner had "a history back in 1990 and 1991
of deficiencies" relating to fictitious reporting of data. Tr. 8.
According to HCFA, Petitioner had several years of notice and
warnings to stop reporting fictitious test results and fabricating
control data. HCFA Br. at 49. HCFA claims also to have given
Petitioner "three opportunities" (i.e., three surveys) before HCFA
decided that Petitioner was no longer trustworthy. Tr. 8.
However, I find that Petitioner's history does not justify HCFA's
imposing sanctions prematurely.

The regulation HCFA applied against Petitioner was 42 C.F.R.
493.1812 (e.g., HCFA Br. at 2), which did not take effect until
February 28, 1992. 57 Fed. Reg. 7237 (1992). Even if the
regulation could be applied retrospectively to sanction Petitioner
for the results of the 1990 and 1991 surveys, the evidence does not
establish that any notice of immediate jeopardy was issued to
Petitioner pursuant to the 1990 or 1991 surveys. Nor does the
evidence establish that HCFA had required the laboratory to take
immediate action to remove any immediate jeopardy that may have
resulted from the 1990 or 1991 deficiencies. 14/

In addition, HCFA's letter dated May 27, 1993 referred only to the
February/March 1993 survey and the conclusions based on that
survey. HCFA Ex. 127. HCFA did not claim to have reviewed any
Statement of Deficiencies or Survey Report for the 1990 or 1991
surveys when it decided to impose sanctions on May 27, 1993.
HCFA's official testified that, in order to make the decisions
reflected in its letter of May 27, 1993, HCFA had reviewed four
documents it received from the State agency: the transmittal form
and attachment (HCFA Ex. 1a), the Statement of Deficiencies (HCFA
Ex. 1 at 1 to 6), the surveyors' narrative report (HCFA Ex. 1 at 7
to 34), and an undated letter advising Petitioner of the State
agency's recommendations to HCFA (HCFA Ex. 1b). Tr. 14 - 18. HCFA
did not conduct an independent survey of Petitioner at any time,
but a professional component of HCFA did evaluate the contents of
the above-mentioned four documents. Tr. 34 - 35, 38 - 39.

Therefore, even though the survey conducted in 1993 was the third
survey of Petitioner and might even be termed a "resurvey" due to
requirements of the CLIA laws and the State agency's allocation of
its resources, 15/ the 1993 survey was not done in the context of
42 C.F.R. 493.1812(b). In May of 1993, HCFA was not attempting
to sanction Petitioner for the outcome of the 1990 and 1991
surveys. The Petitioner's history does not make valid HCFA's
decision to summarily suspend Petitioner's CLIA certificate on May
27, 1993. For this reason, and for the reasons discussed above,
HCFA's imposition of the principal sanction of suspension of
Petitioner's CLIA certificate was unauthorized and premature.


C. HCFA's decision to impose the alternative sanction of
directing Petitioner to submit an "acceptable plan of correction .
. . prior to June 1st" was improper, and the "alternative sanction"
imposed by HCFA was unauthorized.

1. HCFA lacked authority to impose any alternative
sanction in the manner it did on May 27, 1993.

An alternative sanction may be imposed in lieu of, or in addition
to, a principal sanction. 42 C.F.R. 493.1806(c). In this case,
HCFA imposed what it styled an "alternative sanction" in addition
to those principal sanctions it imposed. HCFA Ex. 127. 16/

However, just as HCFA's imposition of the principal sanction of
suspension was unauthorized, HCFA's attempt to impose alternative
sanctions was similarly flawed. Even though HCFA may use an
alternative sanction to bring about compliance in the case of
immediate jeopardy, HCFA may not impose any alternative sanction
immediately upon finding imminent jeopardy. See 42 C.F.R.
493.1810, 1812. Before deciding to impose any alternative
sanction, HCFA has an obligation to notify the laboratory of HCFA's
proposal to impose it, permit the laboratory an opportunity to
respond, and acknowledge the receipt of any response provided by
the laboratory. 42 C.F.R. 493.1810(a) - (c); see also, 42
C.F.R. 493.1832(b)(1)(i).

As applicable to this case, 42 C.F.R. 493.1810 ([i]mposition and
lifting of alternative sanctions) required HCFA to issue two
distinct types of notices to Petitioner. Subsection (a) required
HCFA to issue a "notice of noncompliance and of proposed
[alternative] sanction"; subsection (c) required HCFA to issue a
"notice of imposition of [alternative] sanction." 17/ There are
non-duplicative requirements specified in each of these subsections
for the timing and contents of these two different types of
notices; both must be sent out even if immediate jeopardy is
involved.

To the extent that the notice requirements for imposing an
alternative sanction may seem cumbersome in the context of an
immediate jeopardy situation, I note that HCFA is not required to
impose an alternative sanction to redress immediate jeopardy. 42
C.F.R. 493.1812. HCFA must require the laboratory to take
immediate action to remove the jeopardy; however, HCFA may impose
an alternative sanction to help bring the laboratory into
compliance. 42 C.F.R. 493.1812(a). Therefore, if HCFA wishes
to use an alternative sanction in an immediate jeopardy case, it
also must adhere to the process and purposes specified in the
regulations applicable to alternative sanctions.

In a notice of noncompliance and of proposed alternative sanction,
HCFA or its agent must state the rationale for the proposed
alternative sanction and inform the laboratory that it has at least
10 days to respond to the notice. 42 C.F.R. 493.1810(a), (b).
Even when HCFA finds immediate jeopardy and wishes to impose an
alternative sanction, there exists no regulatory authority for HCFA
to dispense with notifying a laboratory of HCFA's finding of
noncompliance and of the proposed sanction, as such notice is
required by 42 C.F.R. 493.1810(a). Nor is there any regulation
authorizing HCFA to shorten or eliminate this minimum 10-day notice
and response period for any reason when HCFA sends out its notice
of noncompliance and of proposed sanction.

Assuming that HCFA has complied with the regulatory requirements
for issuing a notice of noncompliance and of proposed alternative
sanction, HCFA (not its agent) may then send out a notice of
imposition of alternative sanction, which must contain, inter alia,
written acknowledgement of any evidence or information the
laboratory may have sent, along with the authority and rationale
for the imposed sanction. 42 C.F.R. 493.1810(c). It is the
notice of the imposition of an alternative sanction (not the notice
of noncompliance and of proposed alternative sanction) that HCFA
must provide "at least 5 days before the effective date of the
sanction" if HCFA finds immediate jeopardy. 42 C.F.R.
493.1810(c)(2)(i). In the absence of immediate jeopardy, HCFA
would be obligated to provide its notice of imposition of sanction
at least 15 days before the effective date of the alternative
sanction. 42 C.F.R. 493.1810(c)(2)(ii).

In this case, HCFA failed to send out a notice of noncompliance and
of proposed alternative sanction. HCFA also did not provide
Petitioner with a minimum of 10 days to respond to such a notice.
Instead, HCFA notified Petitioner of the noncompliance in the same
May 27, 1993 letter that imposed an "alternative sanction." Even
in imposing an "alternative sanction" in its May 27, 1993 letter,
HCFA failed to give Petitioner notice "at least 5 days before the
effective date of sanction," June 1, 1993. 42 C.F.R.
493.1810(c)(2)(i) (emphasis added); HCFA Ex. 127. The words used
in the regulation cannot be read as authorizing HCFA to impose an
"alternative sanction" that takes effect on the day of the notice
letter and lasts less than five days thereafter. HCFA Ex. 127 (see
reference to "prior to June 1st").

Also, the State agency's undated letter to Petitioner does not
satisfy the notice requirements of 42 C.F.R. 493.1810. See HCFA
Ex. 1b. First, HCFA's agent may give notice of the noncompliance
and any alternative sanction it proposes against a laboratory; but
HCFA itself must give written notice of HCFA's decision to impose
an alternative sanction. 42 C.F.R. 493.1810(a), (c).
Therefore, the State's undated letter cannot be construed as a
written notice of HCFA's decision to impose the "alternative
sanction" at issue.

Next, with respect to the issue of whether the State's undated
letter may constitute a valid notice of noncompliance and of
proposed alternative sanction, there are several problems which
preclude the letter from meeting the requirements of 42 C.F.R.
493.1810(a). As already noted, notice of noncompliance and of
proposed alternative sanction must precede the notice of imposition
of alternative sanction. There is no proof in this case that the
undated letter was sent out or received in advance of HCFA's May
27, 1993 decision to impose an alternative sanction that same day.
See, e.g., Tr. 18.

Also, the State's undated letter does not inform Petitioner that
the State agency, as HCFA's agent, is proposing to impose any
alternative sanctions against Petitioner. Instead, the undated
letter summarily asserts that the State agency has recommended that
HCFA take "[i]mmediate action to preclude continued operation of
the laboratory" and revoke Petitioner's CLIA certificate. HCFA Ex.
1b. Neither revocation nor the preclusion of continued operation
is an alternative sanction, and neither is a sanction that can help
bring Petitioner into compliance with the CLIA requirements. See
42 C.F.R. 493.1806(c), 1807(b), and 1812(a). The undated
letter also contains no projected effective date or duration of any
proposed sanction, as required by 42 C.F.R. 493.1810(a)(4). The
undated letter from the State to Petitioner was not a notice of
noncompliance and of proposed alternative sanction within the
meaning of 42 C.F.R. 493.1810(a).

This undated letter does not notify Petitioner that Petitioner has
a minimum of 10 days to respond under 42 C.F.R. 493.1810(a)(6).
More importantly, even if the undated letter had been sent to
Petitioner at the earliest possible date and contained something
that could be considered a proposal to impose an alternative
sanction, this undated letter would not have provided Petitioner
with the required 10 days to respond. Because the State agency did
not send its survey findings and recommendations to HCFA prior to
May 21, 1993 (HCFA Ex. 1a; Tr. 14, 18), the State's undated letter
to Petitioner referencing those findings and recommendations to
HCFA also could not have been sent before May 21, 1993. By May 27,
1993, HCFA had already made its decision to impose the "alternative
sanction." HCFA Ex. 127. Therefore, even if the facts were
construed in the best light possible for HCFA, Petitioner was still
deprived of the 10 days to respond to any finding of noncompliance
or proposed alternative sanction that may have been contained in
the State's undated letter. 42 C.F.R. 493.1810(a)(6), (b).

For all of the foregoing reasons, I conclude that on May 27, 1993,
HCFA was without authority to put into effect what it styled an
"alternative sanction."

2. The time limit imposed by HCFA in its "alternative
sanction" was not intended to help bring Petitioner into
compliance.

Deferring my discussion of the legitimacy of HCFA's "alternative
sanction" in this case, I will discuss at this juncture the
function served by HCFA's requiring Petitioner to submit an
"acceptable plan of correction" prior to June 1, 1993.

The regulations permit HCFA to impose an alternative sanction "to
help bring the laboratory into compliance." 42 C.F.R.
493.1812(a). An alternative sanction continues until the earlier
of either the laboratory's correcting all condition level
deficiencies, or the effective date of HCFA's suspension,
limitation, or revocation of the laboratory's CLIA certificate. 42
C.F.R. 493.1810(d). The duration of an alternative sanction is
subject to adjustment by HCFA, because it is dependent on the
effective date of any suspension or other principal sanction HCFA
imposes.

The chronology of events in this case does not permit the inference
that HCFA was using its "alternative sanction" to achieve the goal
specified by 42 C.F.R. 493.1812(a). I note by way of example
that the "alternative sanction" imposed by HCFA on May 27, 1993
referenced a deadline of "prior to June 1st" while the suspension
HCFA had already decided to impose was scheduled to take effect
immediately after the deadline, on June 1st. In addition to the
previously discussed problems with the State's undated letter and
enclosure to Petitioner, there was also no evidence showing how or
when the letter dated May 27, 1993 from HCFA's regional office in
New York City was delivered to Petitioner's address in New Jersey,
or whether it was delivered in sufficient time for Petitioner to
have provided HCFA with anything prior to June 1, 1993. This is
especially problematic when three of the four days permitted by the
terms of HCFA's letter had been taken up by an intervening Saturday
(May 29), Sunday (May 30), and legal holiday (Memorial Day, May
31). See HCFA Br. at 46.

Even if HCFA's May 27, 1993 letter had been hand-delivered to
Petitioner's address on the same day, the "alternative sanction"
imposed by HCFA was only in effect for less than five days. See 42
C.F.R. 493.1810(d)(2). By providing Petitioner with less than
five days to receive and act on HCFA's requirements under the
"alternative sanction," HCFA was not using the "alternative
sanction" to help Petitioner achieve compliance as required by 42
C.F.R. 493.1812(a). The totality of facts discussed herein
leaves little doubt that HCFA knew Petitioner would have no
realistic chance to provide HCFA with an "acceptable plan of
correction" prior to June 1, 1993. HCFA was using the "alternative
sanction" to "preclude [Petitioner's] continued operation," as
recommended by the State. HCFA Ex. 1b.

I find disingenuous HCFA's arguments that "[t]he enforcement
regulations allow five days to correct immediate jeopardy
situations without regard to holidays or weekends," (HCFA Br. at
46), and "[t]he regulations prescribe that, when immediate jeopardy
exists, HCFA may require the laboratory to take immediate action to
remove the jeopardy within five days from HCFA's notice." HCFA Br.
at 43 (emphasis original). First, HCFA's letter did not even
provide Petitioner with the five days HCFA now asserts the
regulations prescribe. (May 27 to "prior to June 1" does not equal
five days.) Also, it makes no sense for HCFA to think that
Petitioner could have remedied any immediate jeopardy during those
days when HCFA's notice letter was in transit and before Petitioner
learned of HCFA's determinations or requirements. The State agency
surveyors did not conduct what is commonly called an "exit
conference" with Petitioner at the close of the February/March,
1993 survey; nor had they otherwise informally explained their
conclusions to Petitioner. HCFA Br. at 48. 18/ In addition, no
regulation specifies that immediate jeopardy must be eliminated by
a laboratory within five days of the day a notice letter is dated.
Nor do the regulations specify any deadline that must be imposed by
HCFA when it requires immediate remedial action.

The regulation identified by HCFA to justify its actions requires
a minimum of five full days between the date of the notice of
imposed sanction and the effective date of the sanction. See HCFA
Br. at 43 (citing 42 C.F.R. 493.1810(c)(2)). This regulation
does not authorize HCFA to require the submission of an "acceptable
plan" in less than five days in this case. None of the Secretary's
regulations means that, whenever HCFA sends out a notice
identifying the sanctions that HCFA has decided to impose due to
its determination of immediate jeopardy, HCFA then acquires the
authority to set a deadline of less than five days for a laboratory
to remove the immediate jeopardy. HCFA has the authority to set a
deadline for a laboratory to eliminate immediate jeopardy and to
bring itself into compliance. E.g., 42 C.F.R. 493.1812(a).
However, the deadline set by HCFA must be consistent with the
remedial purposes of the law and appropriate to the circumstances
of each case.

I have already noted that, on May 25, 1993, the State of New Jersey
had summarily suspended Petitioner's license and ordered Petitioner
to cease and desist from all laboratory operations immediately, and
Petitioner closed at the end of May 1993. HCFA has not identified
any federal interest that was being served or protected by HCFA's
imposing the "alternative sanction" at issue on May 27, 1993 and
setting a deadline of "prior to June 1," after the State had
already imposed its own sanctions against Petitioner. Therefore,
even though HCFA has the discretion to set deadlines to bring about
compliance and eliminate immediate jeopardy, HCFA has failed to
exercise its discretion properly in this case.

3. HCFA has not provided a satisfactory explanation of
what plan, if submitted prior to June 1, 1993, would have
constituted an "acceptable plan of correction."

HCFA's May 27, 1993 letter stated that, under the "alternative
sanction" imposed by HCFA, Petitioner should submit an "acceptable
plan of correction" prior to June 1st for the State's review, and
any implementation of that plan would be subject to onsite
monitoring by the State agency. HCFA Ex. 127. Given the State of
New Jersey's summary suspension of Petitioner's license on May 25,
1993 and Petitioner's obligation to comply immediately with the
State's cease and desist order of the same date (HCFA Ex. 114), I
am unable to imagine the nature of any plan of correction that
Petitioner could have formulated and implemented, with onsite
monitoring by the State agency, on or after May 27, 1993. HCFA has
never satisfactorily defined an "acceptable plan of correction," as
that term was used in its May 27, 1993 letter.

The regulations do not use the term "acceptable plan of correction"
in the context of actions required when condition level
deficiencies exist at a laboratory, as HCFA alleged was the case
here. Instead, according to the Secretary's regulation:

If a laboratory has deficiencies, that are not at the
condition level, the following rules apply:

(a) Initial action. The laboratory must submit a plan
of correction that is acceptable to HCFA in content and time
frames.

42 C.F.R. 493.1816 (emphasis added). Thus, HCFA's reference to
an "acceptable plan of correction" in its May 27, 1993 letter is at
least inconsistent with its assertions that Petitioner's
deficiencies were at the condition level and caused immediate
jeopardy.

HCFA attempted to establish at hearing that an "acceptable plan of
correction" is the equivalent of, or must include, "a credible
allegation of compliance." HCFA's May 27, 1993 letter stated that
Petitioner should submit an "acceptable plan of correction" for
review by the State. HCFA Ex. 127. However, the official
testifying for HCFA at hearing, Dudley Lamming, stated that
"acceptable" meant acceptable to Annemarie Schmidt, his supervisor
at HCFA and the person who signed the notice letters on HCFA's
behalf. Tr. 39 - 40. Even though Mr. Lamming did not claim to
have made any of the decisions at issue on HCFA's behalf (See Tr.
39 - 40), I must consider his explanations of what might have been
construed as an "acceptable plan" by HCFA because HCFA did not call
Ms. Schmidt to testify.

Mr. Lamming merged the concept of "a credible allegation of
compliance" with the "acceptable plan of correction" required by
HCFA's May 27, 1993 letter. He said, for example, that HCFA gave
Petitioner time to "come in with a credible plan of compliance"
(Tr. 39) and that Petitioner's alternative to a hearing was to
provide HCFA with "an acceptable credible allegation of compliance"
(Tr. 44). A "credible allegation of compliance," as explained by
Mr. Lamming and as defined by regulation, must be made by a
representative of a laboratory that has a history of maintaining a
commitment to compliance and of taking corrective action when
required. Tr. 19; 42 C.F.R. 493.2. Also, according to Mr.
Lamming, none of Petitioner's responses were credible and
acceptable to HCFA because none contained any admission of the
deficiencies found by HCFA. See Tr. 22 - 23, 32, 46 - 47. He
especially noted that even Petitioner's last letter to HCFA's
Regional Office (i.e., Petitioner's request for hearing dated June
15, 1993) could not be considered an acceptable or credible plan of
correction because it lacked an admission of the deficiencies. 19/
Tr. 22 - 23, 47.

HCFA's efforts to equate "acceptable plan of correction" with an
admission of deficiencies and a "credible allegation of compliance"
further underscore that HCFA knew or should have known that it was
imposing conditions with which Petitioner could not meaningfully
comply. First of all, Petitioner had received instructions from
the State agency which conflicted with HCFA's position that a
credible allegation of compliance must contain an admission of the
alleged deficiencies. The State agency's undated letter to
Petitioner indicates that "a credible allegation of compliance"
should be used to challenge the alleged deficiencies:

If you believe that the cited deficiencies are not
substantially correct, it is your responsibility to contact the
federal regional office (RO) with a credible allegation of
compliance. The RO will advise you of the sanctions to be imposed
and/or the enforcement actions to be taken. At that time you will
also be notified of your appeal rights.

HCFA Ex. 1b (emphasis added).

Moreover, the State agency believed that Petitioner had a poor and
deteriorated compliance record, and Mr. Lamming stated the same
conclusions in his testimony for HCFA. E.g., Tr. 23, 47; HCFA Ex.
110 and 114. If an "acceptable plan of correction" were "a
credible allegation of compliance" or must contain "a credible
allegation of compliance," then the opinions of HCFA and the State
agency that Petitioner's compliance record was poor and
deteriorated would have automatically precluded their accepting any
plan submitted by Petitioner between May 27 and 31, 1993. See 42
C.F.R. 493.2. In addition, the regulations provide that "a
credible allegation of compliance" must be "realistic in terms of
its being possible to accomplish the required corrective action
between the date of the exit conference and the date of the
allegation." 42 C.F.R. 493.2. As noted above, there was no
exit interview conducted after the February/ March 1993 survey, and
at all times since May 25, 1993, Petitioner has been unable to
operate due to the sanctions imposed under New Jersey law. Under
the facts of this case, no plan formulated by Petitioner after
receipt of HCFA's May 27, 1993 letter could have satisfied the
"realistic" and "possible" elements of a "credible allegation of
compliance." There was no legitimate reason for HCFA to require
Petitioner to submit a plan of correction that HCFA would have to
reject if HCFA were incorporating the requirements of "a credible
allegation of compliance," as it alleged.

Even more importantly, under the regulations, a "credible
allegation of compliance" serves to lift an alternative sanction
already imposed. 42 C.F.R. 493.1810(e)(2). Thus, by
definition, a "credible allegation of compliance" or its equivalent
cannot itself be an "alternative sanction." Therefore, I reject
HCFA's ex post facto definition of its "alternative sanction" for
this reason as well.

I also find unpersuasive HCFA's use of Petitioner's hearing request
as evidence that Petitioner has remained unwilling to provide an
"acceptable plan of correction." Petitioner filed the hearing
request after the expiration of HCFA's unreasonably short deadline
for submitting a plan of correction and after all sanctions had
been imposed by HCFA. HCFA's own letters instructed Petitioner
that its request for hearing should specify challenges to HCFA's
findings. See HCFA Ex. 127, 128. Therefore, the absence of any
plenary admissions of wrongdoing in Petitioner's July 15, 1993
request for hearing does not indicate that Petitioner was unwilling
to prepare a plan acceptable to HCFA, if HCFA had provided
reasonable advance notice and clearer directives concerning the
contents of the plan it wanted from Petitioner. In addition, Mr.
Lamming was questioned during hearing about Petitioner's more
recent offer to do whatever the State agency wanted it to do and to
have as many inspections made as the State agency wished; yet, Mr.
Lamming's response was that HCFA's knowledge of such offers would
not have necessarily made any difference in deciding that
Petitioner never submitted an "acceptable" plan. Tr. 31 - 32; see
also P. Ex. 24.


D. HCFA has not imposed an "alternative sanction" authorized
by law.

Even though HCFA did not admit to having made any errors in this
case, I have considered the HCFA may have meant to offer
Petitioner the opportunity to submit an "acceptable plan of
correction . . . prior to June 1st" as an alternative to a
sanction, but it mistyped the foregoing phrase as an "alternative
sanction" in its May 27, 1993 letter. However, HCFA cited 42
C.F.R. 493.1832 in the sentence immediately preceding its
statement,

In addition, as an alternative sanction under this regulation,
you are directed to provide an acceptable plan of correction to the
cited deficiencies prior to June 1st.

HCFA Ex. 127. The regulation cited by HCFA in its May 27, 1993
letter deals with imposing a directed plan of correction and a
directed portion of a plan of correction, which are alternative
sanctions. Because HCFA has indicated its awareness of alternative
sanctions in citing 42 C.F.R. 493.1832, I do not find that HCFA
had mistyped "an alternative to sanction" as "an alternative
sanction." I conclude that HCFA meant to require the submission of
an "acceptable plan of correction . . . prior to June 1st" as an
"alternative sanction."

Even though I am without power to modify HCFA's choice of
alternative sanctions, I have authority to decide whether a
sanction imposed by HCFA was in fact an "alternative sanction" that
HCFA had the discretion to impose. 42 C.F.R. 493.1844(b)(3),
(c)(4). Moreover, as discussed elsewhere in this decision, whether
providing an "acceptable plan of correction . . . . prior to June
1st" is an authorized alternative sanction has ramifications for
the legitimacy of other sanctions also imposed by HCFA. The facts
before me establish that HCFA's "alternative sanction" was not
authorized by law.

"Alternative sanction" is synonymous with the term "intermediate
sanction" as used in section 1846 of the Social Security Act. 42
C.F.R. 493.2. Section 1864 defines an intermediate sanction as
a sanction that does not exceed one year and may be used by the
Secretary in lieu of canceling immediately the clinical
laboratory's approval to receive Medicare payments. Section
1846(a). The Act directed the Secretary to develop and implement
a range of intermediate sanctions. Section 1846(b)(1).
Accordingly, the regulations promulgated by the Secretary define
"alternative sanctions" to include:

(1) a directed plan of correction as set forth at 42 C.F.R.
493.1832, and

(2) state on-site monitoring as set forth at 42 C.F.R.
493.1863.

42 C.F.R. 493.1806(c). 20/ HCFA's actions in this case do not
fall within the definition of either of these alternative
sanctions.

Even though HCFA's "alternative sanction" in this case directs
Petitioner to take an action within a specific time frame, I
conclude that HCFA's requirement is not a directed plan of
correction. See 42 C.F.R. 493.1832. To impose a directed plan
of correction, HCFA must:

(i) [give] the laboratory prior notice of the sanction and
opportunity to respond in accordance with 42 C.F.R. 493.1810;

(ii) [direct] the laboratory to take specific corrective
action within specific time frames in order to achieve compliance.

42 C.F.R. 493.1832(b)(1). These requirements were not satisfied
by HCFA in this case. HCFA gave no notice of the sanction and no
opportunity for Petitioner to respond in accordance with 42 C.F.R.
493.1810. Placing the onus on Petitioner to submit a plan of
correction prior to June 1, 1993 that would be acceptable to HCFA
does not satisfy the requirement, under 42 C.F.R.
493.1832(b)(1)(ii), that HCFA direct the laboratory to take
specific corrective action.

If HCFA had intended to impose a directed plan of correction under
42 C.F.R. 493.1832, HCFA failed also to apply the following
relevant provisions of the regulation pertaining to a directed plan
of correction:

(c) Duration of directed plan of correction If HCFA imposes
a directed plan of correction, and on revisit it is found that the
laboratory has not corrected the deficiencies within 12 months from
the last day of inspection, the following rules apply:

(1) HCFA cancels the laboratory's approval for
Medicare payment of its services, and notifies the laboratory of
HCFA's intent to suspend, limit, or revoke the laboratory's CLIA
certificate.

(2) The directed plan of correction continues in
effect until the day suspension, limitation, or revocation of the
laboratory's CLIA certificate [becomes effective].

42 C.F.R. 493.1832(c). With respect to the duration or
termination of any directed plan of correction, 42 C.F.R.
493.1934(c) is consistent with 42 C.F.R. 493.1812 in also not
permitting HCFA to decide on suspending Petitioner's CLIA
certificate on the same day that HCFA imposes a directed plan of
correction.

HCFA's official, Mr. Lamming, testified that it was unacceptable to
require the State agency or HCFA to tell Petitioner what to do as
a plan of correction. See Tr. 31 - 32. This testimony reinforces
my conclusion that HCFA's "alternative sanction" in this case was
not intended to place Petitioner under a directed plan of
correction. However, even if such had been HCFA's intent, HCFA's
failure to follow the requisite regulatory steps shows that the
"alternative sanction" HCFA imposed against Petitioner was
unauthorized as a directed plan of correction.

Similarly, HCFA's reference, in its letter of May 27, 1993, to
subjecting implementation of any "acceptable plan" to onsite
monitoring by the State agency does not satisfy the regulatory
definition of the alternative sanction of State onsite monitoring.
See HCFA Ex. 127. As an alternative sanction, onsite monitoring
must be required by HCFA on an intermittent or continuous basis,
and the costs are to be paid by the laboratory, based upon a
formula contained in the regulations. 42 C.F.R. 493.1836(a).
HCFA's imposition of its "alternative sanction" does not refer to
any of the foregoing, even assuming there was some laboratory
activity to be monitored in this case after the State of New Jersey
suspended Petitioner's license and ordered it to cease all
laboratory operations on May 25, 1993. See HCFA Ex. 114.

In addition, if it intended to impose onsite monitoring as an
authorized alternative sanction, HCFA was required to notify
Petitioner of the proposal to impose the onsite monitoring
sanction, permit Petitioner at least 10 days to respond, and then
notify Petitioner of the decision to impose this alternative
sanction at least five days before the effective date of the
sanction where immediate jeopardy is found. 42 C.F.R.
493.1836(b) (incorporating the requirements of 42 C.F.R.
493.1810). HCFA did not follow any of these procedures.
Therefore, I conclude that HCFA's reference to the onsite
monitoring of an "acceptable plan" also does not constitute an
authorized alternative sanction.


E. HCFA's "suspending [Petitioner's] approval to receive
Medicare payment for services
. . . ." was an invalidly imposed principal sanction, and
HCFA has not imposed a directed portion of a plan of correction
within the meaning of the regulations.

The contents of HCFA's May 27, 1993 letter raise the question of
whether, in directing Petitioner to provide a list of its clients
within 10 days, HCFA intended to impose a directed portion of a
plan of correction in conjunction with an alternative sanction of
suspending all or part of Medicare payments to Petitioner. If HCFA
intended to do so, I conclude that any such sanctions were
invalidly imposed.

The regulation states that, when HCFA does not impose a directed
plan of correction (and no directed plan of correction was imposed
here), HCFA must at least impose a directed portion of a plan of
correction when it imposes one of the remaining alternative
sanctions of State onsite monitoring, civil monetary penalty, or
suspension of Medicare payments. 42 C.F.R. 493.1832(a). When
it imposes a directed portion of a plan of correction, HCFA directs
a laboratory to do the following:

to submit to HCFA, the State survey agency, or other HCFA
agent, within 10 calendar days after the notice of the alternative
sanction, a list of names and addresses of all physicians,
providers, suppliers, and other clients who have used some or all
of the services of the laboratory . . . within any . . . timeframe
specified by HCFA.

42 C.F.R. 493.1832(b)(2)(i). 21/ The purpose for imposing the
directed portion of a plan of correction is to enable HCFA to
notify the laboratory's clients of the laboratory's noncompliance,
together with the nature, effective date, and status of the
alternative sanctions imposed against the laboratory. 42 C.F.R.
493.1832(b)(2)(ii).

Since the purpose of the directed portion of a plan of correction
is to enable HCFA to give notice of the alternative sanction that
was imposed against the laboratory, it would make no sense to
construe the directed portion of a plan of correction as an
alternative sanction in and of itself. See 42 C.F.R.
493.1832(b)(2). A directed portion of a plan of correction has no
purpose or use unless HCFA has imposed one of the three enumerated
alternative sanctions. See 42 C.F.R. 493.1832. In addition,
the directed portion of a plan of correction is also not within the
definition of a principal sanction. See 42 C.F.R.
493.1806(b), .1807(a).

Neither may HCFA impose a directed portion of a plan of correction
for a principal sanction. That is, HCFA is not entitled to require
the submission of a client list when suspending, limiting, or
revoking a CLIA certificate, or, in the case of a laboratory
participating in Medicare, canceling the laboratory's approval to
receive Medicare payment for services. See 42 C.F.R.
493.1806(b), 1807(a), 1832(b)(3). However, if HCFA is imposing a
principal sanction following an alternative sanction, and HCFA has
already obtained a list of laboratory clients in conjunction with
the use of an alternative sanction described above, then HCFA may
use that list to give notice of the imposition of a principal
sanction as well. 42 C.F.R. 493.1832(b)(3). 22/

In this case, no alternative sanction of civil monetary penalty has
been imposed by HCFA, and I have already found that HCFA has not
imposed an alternative sanction of State onsite monitoring.
However, HCFA's May 27, 1993 letter mentions three matters in
succession:
1) suspending Petitioner's approval to receive Medicare payment for
services concurrently with the CLIA suspension; 2) directing
Petitioner to provide a list of clients within 10 days of the May
27, 1993 notice letter; and 3) the provision in 42 C.F.R.
493.1832 referencing notice to Petitioner's clients. HCFA Ex. 127.
HCFA's reference to these three matters raises the question of
whether HCFA was properly imposing a directed portion of a plan of
correction in conjunction with having imposed the alternative
sanction of suspending Petitioner's Medicare payments, as
authorized by 42 C.F.R. 493.1832(a).

HCFA's May 27, 1993 reference to "suspending" Petitioner's
"approval to receive Medicare payment for services concurrently
with the CLIA suspension" is ambiguous, because HCFA has mixed
words from the regulation describing a principal sanction with
those describing an alternative sanction. For example,
"suspension" of Medicare payment comes from the provision
explaining an alternative sanction; while "approval to receive
Medicare payment" and "concurrently with the CLIA suspension" are,
respectively, words and concepts taken from the provision
explaining a principal sanction. 42 C.F.R. 493.1807(a),
1807(b), 1808(a).

HCFA's subsequent letter, dated June 1, 1993, resolves the
ambiguity by representing that HCFA had suspended Petitioner's
approval to receive Medicare payment under the authority of 42
C.F.R. 483.1808. HCFA Ex. 128. The regulation cited by HCFA
specifies in relevant part that, when HCFA suspends or revokes any
CLIA certificate, HCFA concurrently cancels the laboratory's
approval to receive Medicare payment for its services. 42 C.F.R.
483.1808(a). Cancellation of Petitioner's approval to receive
Medicare payment is a principal sanction. 42 C.F.R.
493.1807(a). HCFA is not authorized to require a client list from
Petitioner because HCFA has imposed a principal sanction. 42
C.F.R. 493.1832(b)(3).

Since HCFA has authority to impose a directed portion of a plan of
correction only in conjunction with an alternative sanction of
civil monetary penalty, State onsite monitoring, or suspension of
Medicare payments (42 C.F.R. 493.1832(a)), HCFA's requirement
for a client list from Petitioner was not an authorized directed
portion of a plan of correction. I therefore conclude that HCFA's
requirement that Petitioner provide a client list has no legal
force under the facts of this case.

On the remaining question of whether HCFA's cancellation of
Petitioner's approval to receive Medicare payment was authorized,
I begin by noting that the legitimacy of this principal sanction is
dependent upon the validity of HCFA's suspension of Petitioner's
CLIA certificate. 42 C.F.R. 493.1808. I have already
discussed, in part I.B. of this decision, the reasons why HCFA's
suspension of Petitioner's CLIA certificate was improper and
invalid. Therefore, HCFA's resultant cancellation of Petitioner's
approval to receive Medicare payment concurrent with the suspension
of the CLIA certificate is also invalid and not authorized by 42
C.F.R. 493.1808.


II. HCFA's actions of June 1, 1993, purporting to revoke
Petitioner's CLIA certificate and cancel Petitioner's approval to
receive Medicare payment also exceeded its authority under the
regulations.

I will next focus on HCFA's letter dated June 1, 1993, in which it
announced the following actions:

As of close of business June 1st, the State agency has advised
us that it has not received an acceptable plan of correction from
your laboratory. Therefore under the provisions of 42 C.F.R.
493.1812, we are proceeding with the revocation of your CLIA
certification. The effective date of the revocation will be June
25, 1993. Medicare payment suspension remains in effect in
accordance with the provision of 42 C.F.R. 493.1808.

HCFA Ex. 128. I conclude that HCFA was without authority to revoke
Petitioner's CLIA certificate or "suspend" Medicare payments to
Petitioner, as it purported to do on June 1.

In its letter, HCFA cited 42 C.F.R. 493.1812 as authority for
its decision to revoke Petitioner's CLIA certificate. However,
HCFA implemented its revocation decision in a manner not permitted
by that regulation. Even assuming that HCFA had imposed a valid
alternative sanction in this case pursuant to 42 C.F.R.
493.1812(a), the expiration date of the alternative sanction cannot
immediately result in a decision by HCFA to revoke Petitioner's
CLIA certificate as indicated in HCFA's June 1, 1993 letter. 23/
The regulation cited by HCFA plainly states that, if the jeopardy
still persists after HCFA has satisfied its obligations (i.e.,
directed immediate action to remove the jeopardy, imposed an
alternative sanction to help bring about compliance, conducted a
revisit, and found that the jeopardy has not been eliminated), HCFA
must first consider suspending or limiting the CLIA certificate
before it may "later" revoke the certificate. 42 C.F.R.
493.1812(a), (b). As discussed above, HCFA altered the process and
prematurely decided on May 27, 1993 to suspend Petitioner's CLIA
certificate effective June 1, 1993. On June 1, 1993, HCFA further
abrogated the regulatory process and procedures by using the
expiration of its "alternative sanction" as reason for imposing the
revocation sanction against Petitioner.

In addition, contrary to regulation, HCFA made the revocation
effective prior to an administrative law judge decision in this
case. The regulation provides that, if HCFA has not determined
immediate jeopardy and the laboratory appeals, no principal
sanction (i.e., no suspension, limitation, or revocation of a
laboratory's CLIA certificate) may go into effect prior to the
administrative law judge's issuance of a hearing decision upholding
the suspension or limitation. 42 C.F.R. 493.1840(d),
.1844(d)(2). Where HCFA has found immediate jeopardy and the
laboratory appeals, only the suspension and limitation of a CLIA
certificate may go into effect during the pendency of an appeal.
24/ 42 C.F.R. 493.1844(d)(2)(ii). There exists no exception to
the rule that, if a hearing request has been filed, HCFA may not
revoke a CLIA certificate until after an administrative law judge
upholds the revocation in a decision issued pursuant to hearing.
42 C.F.R. 493.1840(e), .1844(d)(2). 25/ If the continuation
of any activity by the laboratory during the administrative appeal
process constitutes a significant risk to public health, HCFA may
file suit in federal court to restrain or enjoin such activity. 42
C.F.R. 493.1812(c).

In this case, HCFA informed Petitioner, by letter dated June 1,
1993, that revocation of its CLIA certificate would become
effective on June 25, 1993. HCFA Ex. 128. 26/ HCFA did not
acknowledge any exception to having the revocation go into effect
on the date designated by HCFA. See, e.g., Tr. 43 - 44. HCFA
continues to argue in these proceedings that the revocation of
Petitioner's CLIA certificate was placed on a "fast-track" that
involved the use of procedures applicable to immediate jeopardy
cases and that the revocation imposed may be stopped only through
verification of Petitioner's compliance. E.g., HCFA Br. at 2, 8,
43. In fact, the revocation should not have gone into effect in
this case.

For the foregoing reasons, I find that the decision made by HCFA on
June 1, 1993 to revoke Petitioner's CLIA certificate was not
authorized by 42 C.F.R. 493.1812(b). I further find that HCFA
was not authorized to make the revocation of Petitioner's CLIA
certificate effective before I have issued my decision on
Petitioner's appeal. Because the revocation action was
unauthorized, HCFA also was without authority on June 1, 1993 to
maintain in effect the prior cancellation of Petitioner's approval
to receive Medicare payment. 27/


III. HCFA's actions and omissions in this case were not harmless
errors.

I have considered the possibility that HCFA's actions and omissions
in this case may have amounted to harmless error. I considered
this possibility because HCFA sought to demonstrate through the use
of the State agency surveyors' testimony that Petitioner's owner,
the owner's father and brother, Petitioner's manager, and
Petitioner's director were dishonest people who operated a facility
that was long overdue for a shutdown. I have concluded that HCFA's
errors in this case are too numerous, egregious, and prejudicial to
be construed as harmless.

As the Secretary's agent under CLIA, HCFA's responsibility is to
implement the Secretary's regulations. As earlier discussed, the
regulations applicable to this case confer rights on laboratories
operating under CLIA, and they limit the discretion HCFA may
exercise in situations like this one, where HCFA received very
strong urging from the State agency to terminate the operation of
a laboratory without further ado. The deadlines and procedures set
forth in the Secretary's regulations serve to protect the rights of
the public at large as well as those of the laboratories operating
under CLIA. The effects of those regulations would be rendered
meaningless if HCFA were at liberty to deviate from the timetables
and processes specified in those regulations whenever it thought
its deviation harmless in the context of bringing about a result
allegedly deserved by a laboratory.

There is no presumption in the Secretary's regulations that a
laboratory should be shut down if it has condition level
deficiencies, is alleged to have a poor compliance history, or
poses immediate jeopardy. The Secretary's regulations make very
clear that every laboratory, regardless of its offenses under CLIA,
must be given an opportunity by HCFA to remedy its own
deficiencies, including those deficiencies which resulted in HCFA's
finding of immediate jeopardy. Such an opportunity cannot be
provided by HCFA in a context devoid of fairness and
reasonableness, as occurred here. For HCFA to close a laboratory,
whether through the use of suspension or revocation of the
laboratory's CLIA certificate, is to be a remedy of last resort --
not first resort -- under the Secretary's regulations. Yet, every
action HCFA took from May 27, 1993 onward was directed at ensuring
that Petitioner would close without affording it any meaningful
opportunity to remedy the problems and retain its CLIA certificate.


I am not persuaded by HCFA's suggestion that Petitioner would have
failed to remedy the jeopardy or failed to come into compliance
with CLIA even if HCFA had fulfilled its obligations to Petitioner.
The evidence before me indicates, for example, that, if HCFA had
imposed a directed plan of correction as provided by the
Secretary's regulations and for the purpose of helping to bring
Petitioner into compliance, Petitioner's managers would likely have
followed it. Moreover, at all times relevant to this case, HCFA
had the opportunity to sanction Petitioner at the appropriate time,
if circumstances warranted, and with use of the appropriate
process.

I noted earlier, as a corollary matter, that the State of New
Jersey summarily suspended Petitioner's license on May 25, 1993 and
ordered Petitioner to cease and desist from all laboratory
operations immediately. Such evidence fails also to indicate a
need for HCFA to shortcut the rights and remedies specified by the
Secretary's regulations after it asserted the existence of
immediate jeopardy on May 27, 1993. In short, there was no legal
or logical justification for HCFA to have preempted the timetables
or procedures specified by the regulations applicable to this case.


Finally, the instant administrative hearing is at the end stage of
the enforcement process, and I am unable to take the procedural
steps that HCFA should have taken before the case reached me. The
Secretary has vested in HCFA the discretion to initiate enforcement
proceedings within the parameters created by her regulations. As
discussed earlier, the Secretary's regulations require HCFA to
determine, for example, whether deficiencies pose immediate
jeopardy, what remedial actions are needed, when the resurvey is to
be conducted, which sanctions (if any) should be proposed, and what
effect is to be given to any responses Petitioner may provide to
the proposed sanctions. E.g., 42 C.F.R. 493.1810, .1812.
HCFA is the only entity that has the authority to implement the
remedies that were previously available, including directing the
State agency to resurvey Petitioner to ascertain the elimination of
immediate jeopardy, formulating a directed plan of correction, or
requiring continuous or intermittent monitoring of a plan of
correction by the State survey agency. E.g., 42 C.F.R.
493.1832, .1836.

For the foregoing reasons, the enforcement process cannot be begun
anew by an administrative law judge at the hearing stage of the
case. Consistent with my duties as an adjudicator, I have
determined that HCFA acted improperly in its dealings with
Petitioner. HCFA's failure to exercise its discretion within the
bounds of the regulations at the beginning stage of the enforcement
process harmed Petitioner's rights and the rights of the public to
proper implementation of the Secretary's regulations.

IV. It is not necessary or feasible for me to decide at this time
whether Petitioner had condition level deficiencies in February
through March of 1993.

I will not adjudicate the issue of whether HCFA, in analyzing
information provided to it by the State agency, correctly found
condition level deficiencies based on the survey conducted during
February and March of 1993. There is no need to do so given what
has taken place since May of 1993. Whether or not condition level
deficiencies existed in February and March of 1993, Petitioner has
been closed since May of 1993. E.g., Tr. 935. As a practical
matter, HCFA's concern for the general public welfare and the
existence of jeopardy to patients should have been alleviated by
Petitioner's closure.

In addition, Petitioner has consistently indicated its willingness
to follow directives issued by HCFA or the State agency to overcome
the deficiencies alleged by HCFA. E.g., Tr. 31 - 32; P. Ex. 24.
Now that Petitioner has heard several days of testimony explaining
the few pages of summaries that were provided to it during the
enforcement process, Petitioner should have a better understanding
of what HCFA meant and wanted. Petitioner should take them into
consideration if it ever operates again under CLIA. As noted
above, HCFA has the option of seeking an injunction or restraining
order in court if Petitioner's activities ever pose a significant
hazard to public health.

In addition, even if I were to adjudicate the issue of whether
Petitioner's deficiencies in early 1993 warranted the imposition of
sanctions and I found in HCFA's favor, HCFA remains the Secretary's
delegate for enforcing compliance through the imposition of
sanctions. For the reasons previously discussed, it would be
improper for me to step outside my role of a neutral adjudicator to
take on the duties of an enforcement official. Therefore, my
adjudicating the allegations of deficiencies cannot result in my
providing the relief sought by HCFA: revoking Petitioner's CLIA
certificate. See HCFA Br. at 53.

If Petitioner resumes operation once again, HCFA or the State
agency may survey it to ascertain whether deficiencies exist and
what actions are warranted. If HCFA makes determinations adverse
to Petitioner at that time, Petitioner then will have the
opportunity to come before an administrative law judge to litigate
the merits of any alleged deficiencies. HCFA will have the
opportunity to prove the continuation of any pattern or practice at
that time as well. Until Petitioner resumes operation and HCFA
determines Petitioner's resumed operation to be out of compliance
with CLIA requirements, my resources and the resources of the
parties can be better utilized elsewhere.


CONCLUSION AND ORDER

Because the sanctions imposed by HCFA were not authorized by the
regulations, I set them aside and order that Petitioner's CLIA
certificate and approval to receive Medicare payment for services
be restored to the same status they had prior to May 27, 1993.


If HCFA believes that, despite Petitioner's closure since May of
1993, HCFA needs to make determinations on new issues (such as if
or which sanctions should be imposed forthwith in lieu of those I
have vacated), HCFA may file a remand motion for my consideration
pursuant to 42 C.F.R. 498.56(d).


Mimi Hwang Leahy
Administrative Law Judge

1. "Immediate jeopardy" is defined by 42 C.F.R. 493.2, as
follows:

a situation in which immediate corrective action is necessary
because the laboratory's noncompliance with one or more condition
level requirements has already caused, is causing, or is likely to
cause, at any time, serious injury or harm, or death, to
individuals served by the laboratory or to the health or safety of
the general public. This term is synonymous with imminent and
serious risk to human health and significant hazard to the public
health.

Condition level deficiency means "noncompliance with one or more
condition level requirements." 42 C.F.R. 493.2.

2. As I will explain below, all laboratories are subject to
three alternative sanctions authorized by the regulations: 1) a
"directed plan of correction;" 2) "state onsite monitoring," or 3)
a "civil money penalty." 42 C.F.R. 493.1806(c). Laboratories
that participate in Medicare are subject to an additional
alternative sanction, suspension of their Medicare payments. 42
C.F.R. 493.1807(b).

3. HCFA states in its posthearing brief that the effective date
of the revocation was June 1, 1993. HCFA Br. at 1. HCFA's letter
of June 1, 1993 indicated an effective date of June 25, 1993. HCFA
Ex. 128.

4. The transcript of hearing (Tr.) incorrectly designates
Leslie A. Weyn as an attorney who appeared on behalf of the
Department of Health and Human Services. Tr. 2. Ms. Weyn is a
staff attorney with the Departmental Appeals Board of HHS. She was
present at the hearing as an assistant to me and did not have any
representational role in this case.

5. For all laboratories, the revocation of a CLIA certificate
is the other principal sanction the Secretary's regulations
authorize HCFA to take. 42 C.F.R. 493.1806(b). For
laboratories that participate in Medicare, canceling their approval
to receive Medicare payment is an additional principal sanction
authorized by the Secretary's regulations. 42 C.F.R.
493.1807(a).

6. Criminal sanctions are available as well, whether or not
there is immediate jeopardy. An individual who is convicted of
intentionally violating any CLIA requirement may be imprisoned or
fined. 42 C.F.R. 493.1800(a)(3)(i), 1806(e).


7. HCFA itself described its May 27, 1993 letter as having
"specified the non-compliant regulations and the conclusion that
fictitious patient test results and fabricated control data created
a situation of immediate jeopardy to the patient health and
safety." HCFA Ex. 128.

8. It is HCFA that must require the laboratory to take
immediate action to remove the jeopardy and may impose alternative
sanctions to help bring about compliance. 42 C.F.R.
493.1812(a). Unlike other parts of the regulations, section
493.1812 does not state that either HCFA or HCFA's agents may take
action. Compare 42 C.F.R. 493.1812(a) with 42 C.F.R.
493.1810(a). HCFA's agents are separately defined in the
regulations. See 42 C.F.R. 493.2.

9. The State's undated letter does not mention that it was
enclosing a copy of the more detailed "Survey Report" also prepared
by the State surveyors (HCFA Ex. 1 at 7 to 34). See HCFA Ex. 1b.
However, the State sent a copy of the "Survey Report" with another
letter to Petitioner dated May 25, 1993. HCFA Ex. 114.

The State's undated letter concerns the State's involvement with
HCFA and the CLIA sanctions. The State's May 25, 1993 letter
concerns only the State's findings and its imposition of sanctions
under State law.

10. In this case, the New Jersey Department of Health had a
dual role. It acted as HCFA's agent under CLIA, and it took
actions on behalf of the State of New Jersey to enforce and
implement State laws. I have been referring to the New Jersey
Department of Health as the "State agency" when it acted as HCFA's
agent. I refer to it as "the State" or "the State of New Jersey"
when I discuss actions it took on behalf of the State government to
enforce the State's rights.

11. The evidence does not show that the State agency shared
with Petitioner the State agency's transmittal memo to HCFA (HCFA
Ex. 1a). Moreover, HCFA's conclusions of May 27, 1993 are also not
fully consistent with the transmittal report.

12. At hearing, I had the opportunity to evaluate the demeanor
of Petitioner's witnesses and to consider whether there was a basis
for the State agency's opinion of Petitioner's management. I was
not persuaded that Petitioner or its managers were contemptuous of
laws and regulations, or that they had irrevocably betrayed the
public trust. Nor was I persuaded that the New Jersey Department
of Health, had the expertise or authority to determine whether
Petitioner was performing tests in violation of New York State's
laboratory laws. See HCFA Ex. 1a at 2. In fact, there was no
evidence that Petitioner was operating in New York or obliged to
follow New York's laboratory laws, even assuming that HCFA or the
State of New York had authorized the New Jersey Department of
Health to evaluate whether New Jersey laboratories are in
compliance with New York laws.

13. HCFA contends that it would have conducted a revisit survey
immediately if it had received an acceptable plan of correction.
HCFA Br. at 45. As discussed below, the evidence does not support
the existence of any intent on HCFA's part (as of May 27, 1993,
when it issued its sanction notice) to obtain an "acceptable plan"
from Petitioner or to conduct a resurvey.

14. On September 24, 1990, the State surveyed Petitioner to
ascertain whether State and federal requirements were being met.
HCFA Ex. 107. The State notified Petitioner that recurrence of the
deficiencies found during the September 1990 survey (i.e.,
unsubstantiated or altered test results) would lead to adverse
State licensure action, the imposition of financial penalties, and
a determination that the laboratory was not in compliance with the
Condition of Participation for providers of Medicare laboratory
services. HCFA Ex. 107.

In January 1991, the State resurveyed Petitioner and concluded that
Petitioner was altering control and patient test values. HCFA Ex.
110. Based on this survey, by notice dated February 21, 1991, the
State sought to impose only State sanctions against Petitioner.
HCFA Ex. 110. At an informal hearing before the State, the State
and Petitioner reached an agreement; Petitioner waived its right to
a formal hearing and agreed to pay, in installments, the $8,000
penalty assessed under State law. HCFA Ex. 110 - 13. Pursuant to
the January 1991 survey, the State did not recommend that HCFA
impose sanctions, and HCFA took no action against Petitioner.

HCFA sent no notice to Petitioner referencing the results of these
two surveys.

15. According to testimony at the hearing, the CLIA laws
require that laboratories be inspected at least once every two
years. Tr. 53. Several months prior to February of 1993, HCFA
sent out a letter to state agencies asking that priority be given
to surveying various types of laboratories, including those that
had been found out of compliance with conditions of participation
in CLIA. Tr. 14. Gerda Duffy, the surveyor in charge of the team
that surveyed Petitioner during February and March of 1993,
testified to the shortage of staff (three people in addition to
herself) to conduct CLIA inspections of the approximately 100
laboratories in New Jersey. Tr. 49, 53. As a result of the
shortage of staff, she and her department use the priority
instructions issued by HCFA. Tr. 54 - 55. Ms. Duffy claimed to
have known of Petitioner's compliance history when the New Jersey
Department of Health decided to survey Petitioner in the winter of
1993. Tr. 55.

16. I discuss, in subpart D, below, my reasons for having
concluded that HCFA did not mean to say an "alternative to a
sanction" when it used the term "alternative sanction" in its
letter of May 27, 1993.

17. Since the regulation is titled "[i]mposition and lifting of
alternative sanction," I construe its subparts as dealing only with
alternative sanctions.

18. HCFA argues that the regulations do not require an "exit
conference," that the lead surveyor had made herself available to
answer questions from Petitioner's Director before the State sent
its Statement of Deficiencies to Petitioner, and that Petitioner
had received several years of notice and warning (i.e., since the
1990 survey) to stop creating fictitious results and data. HCFA
Br. at 48 - 49. HCFA's arguments still raise the question of the
reasonableness of HCFA's actions. For example, it does not seem
reasonable to set a deadline of less than five days for an
"acceptable plan" if HCFA were aware that the State agency had
chosen not to conduct an "exit conference" for the 1993 conference
and Petitioner's Director had chosen not to discuss the
deficiencies prior to Petitioner's receiving written notice of
them. Nor does it seem reasonable for HCFA to expect Petitioner to
know (for purposes of submitting an "acceptable plan" prior to June
1st) how immediate jeopardy was created in 1993 by the same alleged
deficiencies that apparently had not created immediate jeopardy in
1990 or 1991.

19. I conclude that HCFA introduced Mr. Lamming's testimony
analyzing Petitioner's subsequently filed request for hearing as a
possible "plan of correction" because HCFA is aware of the problems
associated with writing Petitioner a letter on May 27, 1993 to
require a response "prior to June 1st." Mr. Lamming's testimony
concerning the hearing request was elicited by HCFA without even an
allegation that the responsible decision-maker, Annemarie Schmidt,
had undertaken the analysis described by Mr. Lamming.

20. HCFA's requirement for the submission of an "acceptable
plan of correction" prior to June 1, 1993, bears no resemblance to
the other alternative sanctions authorized by law (i.e. civil
monetary penalties and the suspension of Medicare payments).

21. By definition, a directed portion of a plan of correction
involves only the submission and use of a list of the sanctioned
laboratory's clients. 42 C.F.R. 493.1832(b)(2). Therefore, the
"acceptable plan of correction" required by HCFA cannot be
considered a directed portion of a plan of correction.

22. The regulation at 42 C.F.R. 493.1844(g) is in accord.
It states in relevant part:

If HCFA suspends, limits, or revokes a laboratory's CLIA
certificate or cancels the approval to receive Medicare payment for
its services, HCFA . . . may give notice to physicians, providers,
suppliers, and other laboratory clients, according to the
procedures set forth at 493.1832.

23. The regulation at 42 C.F.R. 493.1840(a)(7) authorizes
the suspension, limitation, or revocation of a CLIA certification
when the laboratory's owner, operator, or employee(s) fails to
comply with an alternative sanction imposed under Subpart R.
However, HCFA did not claim to have relied on this subsection. In
addition, as I have already discussed, what HCFA called an
"alternative sanction" is not cognizable under Subpart R. The
basic requirements of 42 C.F.R. 493.1812 are not obviated when
HCFA ties the failure to comply with an alternative sanction to
immediate jeopardy. See 42 C.F.R. 1840(d). In a later portion
of this decision, I will discuss also the absence of any regulation
permitting HCFA to revoke a CLIA certificate prior to an
administrative law judge's decision upholding the revocation.


24. If an administrative law judge's decision upholds a
suspension imposed because of immediate jeopardy, that suspension
becomes a revocation. 42 C.F.R. 493.1844(d)(4)(ii).

25. The regulation titled "[e]ffective date of adverse action"
is also in accord. It states, in relevant part:

When the laboratory's deficiencies pose immediate jeopardy,
the effective date of the adverse action is at least 5 days after
the date of [HCFA's] notice.

42 C.F.R. 493.1844(h)(1)(emphasis added). Any revocation that
takes place pursuant to an administrative law judge's decision
would satisfy the requirement that the revocation take place at
least five days after the day HCFA issued its notice letter.

26. When sending out its sanction notice pursuant to a finding
of immediate jeopardy, HCFA may specify an effective date for
revoking a laboratory's CLIA certificate that is at least five days
after HCFA's notice. 42 C.F.R. 493.1844(h)(1). If HCFA
determines that there exists no immediate jeopardy, HCFA may
specify in its sanction notice an effective date for the revocation
that is at least 15 days after HCFA's notice. 42 C.F.R.
493.1844(h)(2).

Here, HCFA's June 1, 1993 letter indicates that it chose a
revocation date of June 25, 1993, which suggests the possibility
that HCFA no longer perceived any immediate jeopardy as of June 1,
1993. See 42 C.F.R. 493.1844(h)(2) and my previous discussions
of the sanctions imposed by the State of New Jersey on May 25,
1993. HCFA later stated in its post-hearing brief that it revoked
Petitioner's CLIA certificate on June 1, 1993, which is not in
compliance with any regulation.

27. HCFA used the term "medicare payment suspension." HCFA Ex.
128. However, because it cited 42 C.F.R. 493.1808 as authority,
I find that HCFA was canceling Petitioner's approval to receive
Medicare payment concurrent with HCFA's revocation of Petitioner's
CLIA certificate.