SUBJECT:

Sentinel Medical Laboratories, Inc.,

Petitioner,

Health Care Financing Administration

For the reasons stated below, I sustain the determination of the Health Care Financing Administration (HCFA) to apply the collateral sanction prohibiting Dr. Sol Teitelbaum (Petitioner), the former director of Sentinel Medical Laboratories, Inc (SMLI), from owning or operating another laboratory for two years in accordance with 42 U.S.C. § 263a(I)(3) and 42 C.F.R. § 493.1840(a)(8).

I. Background

A. Applicable law and regulations

The Clinical Laboratory Improvement Amendments of 1988 (CLIA), 42 U.S.C. § 263a, were enacted by Congress to ensure that the results of tests performed in clinical laboratories, including those tests performed in physicians' office laboratories, are reliable and accurate. See H.R. Rep. No. 899, 100th Cong. 2d Sess. 8 (1988), reprinted in 1988 U.S.C.C.A.N., 3828, 3829. The statute provides as follows:

[n]o person may solicit or accept materials derived from the human body for laboratory⁽¹⁾ examination or other procedure unless there is in effect for the laboratory a certificate issued by the Secretary under this section applicable to the category of examinations or procedures which includes such examination or procedure.

42 U.S.C. § 263a(b).

CLIA was intended by Congress to establish one set of standards which would govern all suppliers of laboratory services, including those which supply laboratory services to Medicare beneficiaries. See 1988 U.S.C.C.A.N., at 3829, 3843.

The statute directed the Secretary of the United States Department of Health and Human Services (Secretary) to issue regulations to implement various provisions set out in CLIA, including standards to assure consistent performance of valid and reliable laboratory examinations by laboratories issued a certificate under the Act. 42 U.S.C. § 263a(f)(1). The Secretary's regulations implementing CLIA are found in 42 C.F.R. Part 493.

The regulations authorize HCFA or its designee to conduct validation inspections of any accredited or CLIA-exempt laboratory, in order to determine whether the laboratory is in compliance with CLIA requirements. 42 C.F.R. § 493.1780(a). The regulations confer broad enforcement authority on HCFA, in order to assure that laboratories comply with CLIA. 42 C.F.R. § 493.1800. Where HCFA determines that a laboratory is not complying with one or more CLIA conditions of participation, HCFA may impose principal sanctions against that laboratory which include suspension and/or revocation of the laboratory's CLIA certificate. 42 C.F.R. § 493.1806(a), (b). Additionally, HCFA may cancel a laboratory's approval to receive Medicare payments for its services, where the laboratory is found not to be complying with one or more CLIA conditions of participation. 42 C.F.R. § 493.1807.

Finally, under 42 U.S.C. § 263a(I)(3) and 42 C.F.R. § 493.1840(a)(8), no person who has owned or operated a laboratory which has had its CLIA certificate revoked may, within two years of the revocation own or operate (including serve as laboratory director - see 42 C.F.R. § 493.2) a laboratory.

The burden of proof in this case is governed by the decision of an appellate panel of the Departmental Appeals Board in Hillman Rehabilitation Center, DAB No. 1611 (1997). Under Hillman, HCFA bears the burden of coming forward with evidence sufficient to establish a prima facie case that: 1) SMLI failed to comply with participation requirements; and 2) the collateral sanction against Petitioner is warranted and lawful under the statute and regulations. Petitioner has the burden of proving, by a preponderance of the evidence, that: 1) SMLI complied substantially with participation requirements; and 2) the collateral sanction against him is unwarranted and unlawful under the statute and regulations. In determining whether HCFA has met its burden of establishing a prima facie case, I may consider rebuttal evidence offered by Petitioner that HCFA's evidence is neither credible or relevant to the issue of Petitioner's compliance with the CLIA requirements or that the weight of the evidence establishes that the regulatory deficiencies alleged by HCFA did not occur. Hillman Rehabilitation Center, DAB CR500, at 3-8 (1997). If I conclude that the preponderance of the evidence establishes that such circumstances exist, then I will find that HCFA has not met its burden of establishing a prima facie case (but rather its case is based on unsubstantiated allegations) and Petitioner will not be obligated to prove that it was substantially complying with the CLIA requirements.⁽²⁾

B. Procedural History

A complaint survey of SMLI was conducted in August 1997. Tr. 67. The survey was conducted by two laboratory field examiners from the State of California, Department of Health Services, Laboratory Field Services (LFS), who were acting as agents for HCFA, for the purpose of determining SMLI's compliance with the CLIA requirements in 42 C.F.R. Part 493. Tr. 60-61, 64. SMLI had the capability to perform tests in several sub-specialties, such as hematology, chemistry, endocrinology and urology. Tr. 65. A request for documentation was made of SMLI so that a determination could be made as to its compliance with the applicable CLIA regulations. Although the examiners made repeated attempts over several months to acquire the needed documentation from SMLI, none was forthcoming. Tr. 68. Consequently, the survey was terminated on December 4, 1997. Tr. 67. The data collected at that time supported the conclusion that SMLI had failed to comply with seven conditions set forth in the CLIA regulations.

By a 24-page letter dated December 26, 1997, addressed to Petitioner, the survey team leader, Tommy Barr, gave SMLI an additional opportunity to submit the requested documents. HCFA Ex. 31. Petitioner was informed in this letter that failure to supply the requested information by December 29, 1997, would result in an action to suspend or revoke SMLI's CLIA certificate and to cancel its approval to receive Medicare and Medicaid Payments. Id. Based on the absence of any response to this letter, the examiners set forth the deficiencies developed from their survey of SMLI in a Form HCFA-2567 (Statement of Deficiencies/HCFA Form 2567). HCFA Ex. 1. By letter dated January 21, 1998, LFS informed Petitioner that, based on the seriousness of the identified deficiencies, which were determined to pose immediate jeopardy to the health and safety of patients of SMLI, it was forwarding the matter to the HCFA regional office with a recommendation that principal sanctions, including suspension and/or revocation of SMLI's CLIA certificate be imposed. P. Ex. 8. In a letter dated February 3, 1998, to Petitioner, in his capacity as the laboratory director of SMLI, HCFA informed Petitioner that SMLI was out of compliance with the following seven conditions: Successful participation (proficiency testing) (42 C.F.R. § 493.803); Patient test management (42 C.F.R. § 493.1101); General quality control (42 C.F.R. § 493.1201(a) and (b)); Laboratory director, moderate complexity testing (42 C.F.R. § 493.1403); Testing personnel, moderate complexity testing (42 C.F.R. § 493.1421); Quality assurance (42 C.F.R. § 493.1701); and Inspection of laboratories requesting or issued a certificate of compliance (42 C.F.R. § 493.1777(a)). HCFA Ex. 2. In this letter, HCFA further advised Petitioner that it was taking the following actions against SMLI: revocation of its CLIA certificate (42 C.F.R. §§ 493.1806(a)-(b), 493.1840(a)(3)-(5) and 493.1840(e)); suspension of its CLIA certificate (42 C.F.R. §§ 493.1806(b) and 493.1840(d)(2)(I)-(iii)); cancellation of its approval to receive Medicare payments (42 C.F.R. §§ 493.1807(a), 493.1808(a) and 493.1842(a)); imposition of a civil money penalty (42 C.F.R. §§ 493.1806(c)(3), 493.1834, 493.1810(d) and 493.1812(a));⁽³⁾ and a directed plan of correction requiring it to immediately cease all testing until compliance could be verified and to provide to HCFA within 10 days a list of the names and addresses of all providers and clients who were involved with it after January 4, 1996 (42 C.F.R. §§ 493.1832(b) and 493.1844(g)(1)). Id. Petitioner was also notified that if SMLI's certificate was revoked, he would not be permitted to own or operate (including being a laboratory director, see 42 C.F.R. § 493.2) a laboratory for a two-year period from the date of revocation of SMLI's certificate. Id. Petitioner was afforded 10 days to give reasons why the sanctions should not be imposed. Id.

In a letter dated February 7, 1998, to LFS, Petitioner advised that SMLI voluntarily ceased operations on December 29, 1998.⁽⁴⁾ Petitioner also made written submissions dated February 9, 10, and 13, 1998, responding to HCFA's notice dated February 3rd.⁽⁵⁾ Upon review of such submissions, HCFA, by letter dated February 24, 1998, indicated that there was no evidence of corrective action to remove the immediate jeopardy and correct the condition level deficiencies found in the survey of SMLI.⁽⁶⁾ HCFA Ex. 4. HCFA decided to impose the sanctions outlined in the February 3rd letter, including revocation of SMLI's CLIA certificate, effective April 14, 1998, and the collateral sanction imposed against Petitioner. Id.

SMLI, through its owner, Nida Madamba, and Petitioner filed separate requests for hearing.⁽⁷⁾ Prior to the hearing, SMLI and Nida Madamba withdrew their request for hearing and their appeal was dismissed. As a consequence, revocation of SMLI's CLIA certificate was effectuated on November 30, 1998. Despite this, Petitioner pursues his appeal of the collateral two-year sanction against him owning or operating a clinical laboratory. HCFA has argued that a laboratory director has no separate standing from that of the laboratory to oppose HCFA sanctions imposed against the laboratory, including revocation of its CLIA certificate and the collateral sanction directed against the laboratory owner(s) and director. If I agreed with HCFA's position, then Petitioner would have no standing and his request for hearing would be dismissed. Such an outcome would deprive Petitioner of his due process rights -- his right to present evidence and make legal arguments why the collateral sanction should not be imposed against him. I concluded, in similar circumstances to the instant case, that the laboratory director has standing to request a hearing independent of the laboratory. See Eugene R. Pocock, M.D., DAB CR527 (1998) at 5. In light of my ruling in Pocock, HCFA did not formally renew its objection by written motion but did so at the hearing. I reiterated my prior ruling and overruled the objection. Tr. 17-18.

A hearing was held in this matter from November 30 through December 3, 1998, in Los Angeles, California. At the hearing, I received and admitted into evidence HCFA's exhibits (HCFA Exs.) 1 through 37 (HCFA Exs. 1-37) and Petitioner's exhibits (P. Exs.) 1, 2, 4-6, 8-12, and 14-17. P. Exs. 3 and 7 were rejected; P. Ex. 13 was withdrawn. The parties have filed posthearing briefs and response briefs. In addition to posthearing briefs on the merits, the parties also submitted briefs on the issue of when HCFA would be entitled to enforce the two-year ban against Petitioner, in the event my decision were adverse to him. See Letter to parties dated April 22, 1999. The parties also submitted briefs addressing whether there was a need to reopen the record to receive additional evidence. See Letter to parties dated June 24, 1999. By letter dated September 10, 1999, Petitioner notified me that he had filed a suit in Federal District Court in which he requested that the District Court assume jurisdiction over this matter. In a letter sent at my direction, dated October 1, 1999, the parties were informed of my determination that Petitioner had failed to show good cause for reopening the evidentiary record. The parties were further informed that, absent an order from a court of competent jurisdiction, I would proceed to issue my decision in this case. At no time have I received any direction from any court to relinquish my jurisdiction over this case. Accordingly, I am issuing this decision.

I base my decision in this case on the governing law, the evidence in the record, and on the parties' arguments. Any argument raised by the parties but not specifically addressed in this decision has been rejected. I use the following format for the Analysis section of my decision. The main headings and subheadings, set out in bold face type, represent my findings of fact and conclusions of law. The descriptive text under each heading or subheading is my rationale for such finding.

III. Conclusion

I sustain the determination of HCFA to impose the collateral sanction against Petitioner, the former director of SMLI, from owning or operating another laboratory for two years in accordance with 42 U.S.C. § 263(I)(3) and 42 C.F.R. § 493.1840(a)(8).

II. Analysis

A. Petitioner was the laboratory director of SMLI at all relevant times when the identified deficiencies set forth in HCFA Form 2567 took place, and was responsible for the overall operation and administration of SMLI.

Petitioner admits, in his posthearing brief at 1, that he was hired as the laboratory director of SMLI in October 1995, and continued in such position until SMLI ceased operations on December 31, 1997.⁽⁸⁾ The CLIA regulations place the primary responsibility for the operation and management of the laboratory upon its director. This individual is responsible for the "overall operation and administration of the laboratory, including the employment of personnel who are competent to perform test procedures, and record and report test results promptly, accurate [sic], and proficiently and for assuring compliance with the applicable regulations." 42 C.F.R. § 493.1407 (emphasis added). The director is the principal person (other than the owner) at the laboratory who is responsible to ensure that CLIA requirements are met. He or she is accountable if the laboratory performs in a manner inconsistent with the regulatory requirements of CLIA. Moreover, HCFA can suspend, limit or revoke the CLIA certificate of a laboratory if it finds that its director was formerly a director or owner of a laboratory that had its CLIA certificate revoked within the preceding two years. This is one of the enforcement mechanisms that ensures that laboratories meet the CLIA requirements and patients of such laboratories receive accurate test results. To do otherwise, would place the health and safety of such patients at risk.

Petitioner attempts to obscure his responsibility under the CLIA regulations by stating he was an employee of SMLI and did not have an ownership interest in the laboratory. P. Posthearing Br. at 9; P. Posthearing Response Br. at 11-12. He argues that he was without authority to take corrective actions in the laboratory, and that other personnel at the laboratory hid information from him and limited his access to the laboratory. P. Posthearing Br. at 9-14. As counsel for HCFA points out in her reply brief, however, Petititioner had full access to the laboratory for a period of time and could have made the same determinations concerning the laboratory practices that were made by the survey examiners.⁽⁹⁾ HCFA Reply Br. at 14. Moreover, Petitioner admitted that he was aware generally of the findings of the examiners and that the cited deficiencies were "real and sound[ed] very bad." Tr. 857. I asked Petitioner a series of questions at the hearing regarding the findings of the examiners and why he had not known of the deficient practices or taken action to prevent them. Tr. 856-63. In response for the most part, Petitioner blamed his failure to act on others hiding information from him or lying to him. Id. His excuses and explanations for his failure to carry out his responsibilities as the laboratory director of SMLI lack credibility and are clearly self-serving. Consequently, I find Petitioner's arguments to be unpersuasive, without merit, and they are rejected.

The CLIA obligations on a laboratory director are clear and explicit. Moreover, CLIA defines "operator" as the person or persons who "oversee all facets of the operation of a laboratory and who bear primary responsibility for the safety and reliability of the results of all specimen testing performed in that laboratory." 42 C.F.R. § 493.2 (emphasis added). The term "operator" may include the director of the laboratory. Id. "Owner" is defined as any person who owns any interest in a laboratory except for an interest in a laboratory whose stock and/or securities are publicly traded. Id. While both the owner and the director of the laboratory are held accountable by statute and regulation when the laboratory fails to comply with CLIA, the director, rather than the owner, is responsible for operating the laboratory.⁽¹⁰⁾

Petitioner was a laboratory director of three laboratories at the same time he was director of SMLI.⁽¹¹⁾ Tr. 822, 842-43. He has had extensive experience with the CLIA regulations and either knew or should have known what his obligations were. Tr. 845- 47, 853. In fact, under the CLIA regulations, it is mandatory that the laboratory have a director who meets the qualifications for such position and carries out the responsibilities of such position. He was employed for that specific purpose and received whatever compensation that was provided to him for carrying out those responsibilities. If he became aware that he was not able to meet his responsibility under the CLIA regulations as laboratory director, then his choice of action was simple -- resign as laboratory director. In fact, Petitioner admitted that he could have resigned when he was made aware that the laboratory was receiving questionable specimens from individuals (called marketers, who received a kickback from the laboratory) for the purpose of allowing the laboratory to bill either Medicare or Medicaid for testing such specimens. Tr. 835. Rather than resign, Petitioner's self serving testimony was that he hoped to change the practice of the laboratory and that he felt he had an obligation to the patients of the laboratory. Tr. 835.⁽¹²⁾

There is no requirement under CLIA that the laboratory director remain under circumstances where he or she cannot meet the CLIA obligations. Petitioner had multiple options to correct the problems in the laboratory. The laboratory could not operate under CLIA without a director; so, any threatened departure on his part would have likely led to a change in his ability to perform his responsibilities under CLIA or have resulted in the closure of the laboratory or the employment of a new director. In addition, he could have filed a complaint either with the State of California or HCFA regarding the deficient practices he believed were occurring at the laboratory. If Petitioner was truly concerned about the patients whose specimens were tested at the laboratory, he would have exercised one or more of these options. To the contrary, he did not exercise any of these options and stayed with SMLI until its closure.

B. Application of the CLIA regulations to Petitioner does not violate his constitutional rights.

As discussed above, Petitioner admitted at the hearing that he had the option to resign from SMLI. Nevertheless, in his posthearing brief, Petitioner ignores this option, instead implying that he had no choice but to remain at SMLI, powerless to change any improper practices that might have been occurring there. Based on the premise that, as a mere employee, it would have been impossible to carry out the duties of a laboratory director under CLIA, Petitioner argues that any attempt to enforce those regulations would violate his constitutional right to due process. He argues that, as applied to him, the regulations are unconstitutional because they are vague or indefinite, shocking and oppressive, and apply unequally to him. As I explained in the previous section, I have concluded that Petitioner's status as an employee-laboratory director, as opposed to an owner-laboratory director, is irrelevant to determining what the CLIA statute and regulations require of him. Similarly, the employee/owner distinction has no bearing on Petitioner's constitutional claims. Therefore, Petitioner's constitutional arguments are without merit and I reject them.⁽¹³⁾

Petitioner argues that the CLIA regulations are unconstitutional because they lack definiteness. P. Posthearing Br. at 5. Petitioner cites several cases for the proposition that a statute must not be impossible to satisfy. Id. Petitioner's argument appears to be that a statute that is impossible to satisfy is insufficiently definite. His position is that, as an employee-laboratory director, he was not in a position to dictate policy to the owners and/or corporate officers of SMLI. Thus, according to him, the CLIA requirements are impossible to satisfy. As I have discussed in the previous section, I strongly disagree with the premise of Petitioner's argument. On the contrary, I firmly believe Petitioner had both the opportunity and the duty to bring any operating problems to the attention of the owners of SMLI or, if necessary, to the appropriate State or federal authorities. For this reason, I conclude that 42 C.F.R. § 493.1407 is not subject to challenge as being impossible to fulfill.

Petitioner argues that the regulations are void for vagueness, apparently because, in his view, they do not specify how an employee-laboratory director is to gain the cooperation of a laboratory's owners if the director uncovers improper or fraudulent practices. P. Posthearing Br. at 6. There is no constitutional or other requirement that HCFA's regulations must specify the precise steps a laboratory director is to take to carry out his or her responsibilities under CLIA. Common sense dictates the conclusion that no set of regulations could prescribe a course of action for every situation in which a laboratory director might find him or herself. The CLIA regulations are not invalid for their failure to do so.

Petitioner argues additionally that if a laboratory director discovers wrongdoing at his or her laboratory and is unable to correct it, he or she could not be required to report the wrongdoing to HCFA or the State agency, because to do so would violate the laboratory director's constitutional right against self-incrimination. Id. Petitioner argues that, in such a situation, the laboratory director will subject him or herself to the statutory two-year ban on operating another laboratory. Id. The statutory ban to which Petitioner points is part of a remedial, civil scheme to protect the beneficiaries of federal health care programs. It is not a criminal punishment. As such, the Fifth Amendment right against self-incrimination is inapplicable. See, e.g., Helvering v. Mitchell, 303 U.S. 391, 402 (1938). Moreover, Petitioner's argument assumes facts not in the record. No HCFA witness testified as to whether it is HCFA policy to apply the two-year ban to a laboratory director who has acted in the role of a whistle-blower. Further, it is not clear whether a laboratory director who resigns his or her position and then turns whistle-blower would even be regarded as the director of the offending laboratory. Thus, even if Petitioner's constitutional right against self-incrimination were at issue, it would be purely speculative for me to conclude that the CLIA regulations would be applied in a manner that would violate a laboratory director's right against self-incrimination. I decline to enter into such speculation.

Petitioner argues that the CLIA regulations violate the due process clause because they are shocking and oppressive. P. Posthearing Br. at 6. Petitioner contends that to apply the two-year ban on operating a laboratory to an employee-laboratory director is so unfair that it shocks the conscience. Id. at 6-7. I disagree. Instead, I conclude that it would lead to an absurd result if a laboratory director could avoid his or her responsibilities to ensure that a laboratory operates in accordance with CLIA requirements on the grounds that he or she was only an employee, and then avoid the consequences of such failure. Every laboratory director who was not an owner would make such an argument to avoid the consequences of the statue and regulations. Such a result would clearly be to the disadvantage of the patients of the laboratory, whom the CLIA regulations were designed to protect.

Petitioner argues finally that the regulations are invalid because they do not apply equally to laboratory directors and other laboratory employees. Id. at 7-8. It is true that the statute and regulations provide for a sanction of laboratory directors that is not applicable to other employees. However, the regulations also assign special responsibilities to the laboratory director. It is the laboratory director, not other employees, who is responsible for the overall operation of the laboratory. Thus, if there are problems at the laboratory, it is reasonable to hold the laboratory director, and not the other employees, responsible. If the laboratory director is not comfortable with assuming these responsibilities, then the laboratory director is free to seek some other type of employment. Indeed, the untenable underlying assumption in all of Petitioner's so-called constitutional arguments is that he is entitled to continue to collect the compensation of a laboratory director--i.e. that he should not be forced to resign his position to avoid CLIA sanctions--without discharging the accompanying responsibilities. I do not find it unfair in the least to hold a laboratory director responsible for failures at the laboratory in a situation like the present case, where Petitioner took little action to discharge his duties, but continued to collect his paycheck, even as evidence of problems at SMLI continued to mount. As I discuss in the next section of this decision, the evidence presented by HCFA indicates that deficiencies at SMLI were so widespread that it is difficult to imagine that Petitioner was exercising any of his CLIA responsibilities.

C. Petitioner failed to rebut HCFA's prima facie showing that SMLI was out of compliance with CLIA conditions of participation.

In testimony at the hearing, as well as in documentary evidence offered as exhibits, HCFA offered extensive evidence demonstrating that SMLI failed to comply with CLIA conditions of participation. HCFA's evidence shows a pattern of noncompliance that was pervasive in scope and presented potential risks to patient health and safety. At the hearing and in post-hearing briefs, Petitioner has wholly failed to rebut HCFA's evidence of noncompliance. In fact, Petitioner's own consultant acknowledged that the deficiencies cited by HCFA were justified. Tr. 644. In essence, it appears that Petitioner made a tactical decision not to contest HCFA's factual findings of noncompliance, but instead to rely on his legal challenges to the procedures HCFA followed in moving to invoke the two-year ban on owning or operating a laboratory against Petitioner.⁽¹⁴⁾ Based on the record before me, I must conclude that HCFA proved the existence of numerous deficiencies at SMLI.⁽¹⁵⁾

1. SMLI was out of compliance with the condition governing successful participation in proficiency testing.

Section 493.803(a) of the regulations requires that a laboratory performing tests of moderate complexity or high complexity must successfully participate in a proficiency testing program approved by HCFA for each specialty, subspecialty, and analyte or test in which the laboratory is performing tests. Proficiency testing consists of an external monitoring program that measures how accurately a laboratory is testing patient samples. Tr. 74. A laboratory enrolls with a proficiency testing organization, which will send the laboratory three challenges each year. Id. Each challenge will usually consist of five different unknown samples for each analyte which the laboratory tests. Id. The laboratory is to test the proficiency test samples along with their patient samples, record the results, and return the results to the proficiency testing organization, which will grade the laboratory's results by comparing them with the results achieved by other laboratories enrolled in the program. Id. at 74-75. Successful participation in proficiency testing requires that a laboratory must pass with a score of at least 80 percent. Id. at 75.

Mr. Barr testified that, based on his examination of the scoring documentation returned to SMLI by the proficiency testing organization, he concluded that SMLI failed to perform at the required 80 percent level for a large number of analytes in several subspecialties of testing. Mr. Barr testified that, in the subspecialties of bacteriology, general immunology, routine chemistry, and endocrinology, SMLI failed in one or more testing events to achieve a score of 80 percent or better. Tr. 76-79; see also HCFA Ex. 1, at 5-9. Petitioner offered no evidence to rebut Mr. Barr's conclusions. Accordingly, I conclude that HCFA proved that SMLI failed to participate successfully in proficiency testing, as required by 42 C.F.R. § 493.803(a).

Moreover, as particularly relevant to Petitioner's responsibilities as laboratory director, Mr. Barr testified that, during the survey, SMLI was unable to produce any documentation showing that any remedial action was taken to identify and address the reasons for the unsuccessful proficiency testing results. Tr. 81-82. The laboratory directory is responsible for undertaking such corrective action. Id. at 82; see also 42 C.F.R. § 493.1407(e)(4).

Finally, SMLI's failure to achieve acceptable results in proficiency testing casts serious doubt on the reliability of its patient test results. See Tr. 76. For this reason, I conclude that the deficiencies proved by HCFA are of such a character as to substantially limit SMLI's capacity to furnish adequate care. Accordingly, I find that SMLI was out of compliance with the condition of participation for successful participation in proficiency testing.

2. SMLI was out of compliance with the condition of participation for patient test management.

Section 493.1101 of the regulations sets forth the condition of participation for patient test management. The condition requires that each laboratory performing moderate or high complexity testing, or both, employ and maintain a system that provides for proper patient preparation; proper specimen collection, identification, preservation, transportation, and processing; and accurate result reporting. The laboratory's system must assure optimum patient specimen integrity and positive identification throughout the preanalytic (pre-testing), analytic (testing), and postanalytic (post-testing) processes and must meet the standards of the subpart as they apply to the testing performed. HCFA presented evidence of extensive problems at SMLI relating to patient test management.

To ensure specimen integrity and identification during the pre-testing process, the standard at 42 C.F.R. § 493.1103 requires that a laboratory have and follow written policies and procedures for patient preparation, specimen collection, specimen labeling, specimen preservation, etc. Mr. Barr testified that, in spite of numerous requests from the surveyors, personnel at SMLI were unable to produce copies of written policies and procedures for specimen collection, labeling, and identification. Tr. 90-91. The surveyors were never shown such written policies, either for laboratory clients or for in-house use. Id. Mr. Barr testified that it is the laboratory director's responsibility to ensure that written policies and procedures are in place and that such policies are appropriate, as attested by the laboratory director's signature. Id. at 92.

Mr. Barr found further evidence that SMLI did not provide such policies or procedures to its clients, i.e., the physicians or clinics that referred tests to SMLI. Mr. Barr concluded, from his examination of SMLI's records for the period April through September 1997, that 92 percent of the patients' records indicated that the laboratory had received an insufficient quantity of a patient's specimen to perform the requested tests.⁽¹⁶⁾ Id. at 94. Normally, laboratories provide a client book to referring physicians to educate them as to how specimens must be collected. Id. at 95. Given that SMLI personnel could not produce any such documentation, and given the high rate of untestable specimens submitted, I infer, as did Mr. Barr, that SMLI did not have or follow such procedures and that no procedures were transmitted to referring physicians. I therefore conclude that SMLI was out of compliance with the standard governing procedures for specimen submission and handling.

HCFA also presented evidence that SMLI was out of compliance with the standard governing test requisition. Section 42 C.F.R. § 493.1105 requires that a laboratory perform tests only at the written or electronic request of an authorized person. An authorized person is usually a physician. Tr. 97. Mr. Barr testified that, in 39 out of 44 records which he examined, SMLI had performed additional tests which were not requested by the physician.⁽¹⁷⁾ Id. Additionally, in 42 of the 44 records, the test requisition failed to include either the name of the authorized person requesting the test or a contact person to enable the reporting of imminently life threatening laboratory results, as is required by 42 C.F.R. § 498.1105(b). Id. at 137-38. Finally, on every one of the 44 test requisitions, the date of specimen collection was questionable. Id. at 141. Section 498.1105(d) of the regulations requires that the requisition include the date the specimen was collected.

Mr. Barr's testimony demonstrated that similar documentation problems persisted into SMLI's testing operations. Just as the test requisitions failed to note the date of specimen collection, SMLI's testing records failed to include the date on which the specimen was received in the lab and also, in 32 of 44 records, failed to show the date or dates on which testing was performed. The failure to record these dates constitutes a violation of 42 C.F.R. § 493.1107(b) and (d). Moreover, when dates could be identified, there were discrepancies which called into question the reliability of SMLI's test results. For example, for certain patients, SMLI's records indicated that test results were not reported until up to four months after the date that a specimen was supposedly received in the lab. See, e.g., Tr. 165-67. In other instances, the report date precedes the supposed collection date. See, e.g., Tr. 199-200.

In the post-testing phase, Mr. Barr testified that SMLI failed to keep records of instrument printouts and test results for two years, also in violation of 42 C.F.R. §§ 493.1107 and 1109. Tr. 155-56, 186. Moreover, SMLI could not document that it had sent test reports only to authorized persons (Tr. 185), nor that it had notified the authorized person in instances where test results were critical or "panic" values (Tr. 202-03).⁽¹⁸⁾

The widespread lack of documentation, as well as the discrepancies that were found in the documents that did exist, led the surveyors to conclude that SMLI lacked an adequate system to ensure that test results were reported in a timely, accurate, and reliable manner, as required by 42 C.F.R. § 493.1109(a). Tr. 190-91. I agree with the surveyors' conclusion that Petitioner, as SMLI's director, bears significant responsibility for this systematic failure. See Tr. 191.

The apparent system-wide failure of SMLI to maintain documentation of its testing processes calls into question the reliability of all its test results. For this reason, SMLI's deficiencies are of such a character as to substantially limit SMLI's capacity to furnish adequate care. Accordingly, I find that SMLI was out of compliance with the condition of participation for patient test management.

3. Petitioner was out of compliance with the condition of participation for general quality control.

Section 493.1201 of the regulations requires that a laboratory establish and follow written quality control procedures for monitoring and evaluating the quality of the analytical testing process of each method to assure the accuracy and reliability of patient test results and reports. Quality control in a laboratory is performed by analyzing control samples along with patient samples for each type of test the laboratory performs. See Tr. 221-22. Control samples are produced by commercial manufacturers, who supply the samples in kits with a guide that specifies the range of acceptable results for the control samples, depending upon the test equipment and methodology the laboratory is using. Tr. 223. In most subspecialties of testing, a laboratory is required to include at least two levels of control for each day (24 hours) of testing. Tr. 221. See also 42 C.F.R. § 493.1218(b). For hematology, a laboratory is required to include at least two levels of control for each eight hours of testing. Tr. 222. See also 42 C.F.R. § 493.1253. In the event that the laboratory's result for a given control is not within an acceptable range, the laboratory would be expected to take some remedial action to identify and correct the problem with its equipment or methodology. Tr. 224-25, 227-28.

Mr. Barr testified that, as was the case with the condition of participation for patient test management, SMLI's documentation of its quality control activities was seriously deficient. First of all, SMLI could not produce any written procedures or protocols for quality control. Tr. 217. Second, SMLI failed to produce documentation that quality control samples were run on each day of testing. Tr. 218-19, 228-29, 257. Third, in the few instances where quality control was documented, SMLI could not document that any remedial action was taken when the controls were not within acceptable ranges. Tr. 232-33. Moreover, no documentation was provided that SMLI personnel re-evaluated patient test results in those instances where the control results were outside the acceptable ranges. Tr. 233-36. Mr. Barr testified that the creation and implementation of quality control procedures, including remedial actions, are items ultimately within the responsibility of the laboratory director. Tr. 233-35. The regulations confirm that quality control is among the laboratory director's responsibilities. See 42 C.F.R. § 493.1407(e)(5).

I conclude that HCFA proved that SMLI lacked documentation of its quality control policies and practices. This lack of documentation in and of itself represents a deficiency. The lack of documentation also raises serious questions as to whether SMLI performed the required quality control in any systematic way. I find that the lack of quality control documentation at SMLI creates significant uncertainty about the reliability of SMLI's patient test results. See Tr. 258. For this reason, I conclude that the deficiencies established by HCFA are of such a character as to substantially limit SMLI's capacity to furnish adequate care. Accordingly, I find that SMLI was out of compliance with the condition of participation for general quality control.

4. SMLI was out of compliance with the condition of participation for quality assurance.

Section 493.1701 of the regulations requires that a laboratory establish and follow written policies and procedures for a comprehensive quality assurance program to monitor and evaluate the ongoing and overall quality of the total testing process at the laboratory. The quality assurance program must evaluate the effectiveness of the laboratory's policies and procedures; identify and correct problems; assure the accurate, reliable, and prompt reporting of test results; and assure the adequacy and competency of staff. 42 C.F.R. § 493.1701.

Again, as was the case with other participation requirements, Mr. Barr found that SMLI lacked documentation that quality assurance was being carried out. According to Mr. Barr, SMLI was unable to produce any written policies and procedures for quality assurance, nor did the laboratory have any documentation that quality assurance activities were being carried out. Tr. 281-82. Mr. Barr opined that it was the lack of a quality assurance program which resulted in the widespread breakdowns in SMLI's systems, including proficiency testing, patient test management, and quality control, as outlined above. Tr. 283-84. I agree with HCFA's contention that, had any quality assurance measures been taken, SMLI personnel might have been able to detect these problems and prevent them from recurring.

The regulations specify that quality assurance is a key responsibility of the laboratory director. See 42 C.F.R. § 493.1407(e)(5). The preamble to the regulations reinforces that the director is expected to assume responsibility for quality assurance:

Although all laboratory personnel must be involved in quality assurance activities, the laboratory director, regardless of the laboratory's level of testing, is ultimately responsible for the overall management of the laboratory QA program.

57 Fed. Reg. 7100 (Feb. 28, 1992). Thus, I agree with HCFA that Petitioner bears responsibility for SMLI's failure to document and implement an adequate quality assurance program.

Based on the lack of documentation found by the surveyors, I find that SMLI had no quality assurance program in place. This conclusion is reinforced by the laboratory's breakdowns in proficiency testing, patient test management, and quality control. As I have previously concluded, each of these breakdowns substantially limited SMLI's ability to provide adequate care. Because an adequate quality assurance program might have rectified these breakdowns, I conclude that the lack of such a program itself likewise substantially limited SMLI's ability to provide adequate care. Accordingly, I conclude that SMLI was out of compliance with the condition of participation for quality assurance.

5. SMLI was out of compliance with the condition of participation for laboratory director.

As I have discussed in my analysis of each of the previous conditions of participation, Petitioner, as laboratory director of SMLI, bears direct or indirect responsibility for many of the deficiencies that led to my concluding that SMLI failed to comply with the conditions of participation. Section 493.1403 of the regulations requires the laboratory director to provide overall management and direction for the laboratory.⁽¹⁹⁾ The widespread and serious failures at SMLI are convincing evidence that Petitioner failed to provide the required management and direction at SMLI.

The standard at 42 C.F.R. § 493.1407 lists the specific areas over which a laboratory director is expected to exercise responsibility. That section also provides that, if the laboratory director delegates any of his or her duties to others, the director "remains responsible for ensuring that all duties are properly performed." 42 C.F.R. § 493.1407(b). Thus, the laboratory director retains responsibility for any deficiencies that occur as a result of a laboratory's employees' failure to carry out their duties properly.

In the present case, my earlier discussion reflects the fact that SMLI was out of compliance with the conditions of participation for proficiency testing, patient test management, quality control, and quality assurance. I agree with HCFA's argument that these failures, in and of themselves, demonstrate that the corresponding elements of the standard for Laboratory Director Responsibilities were out of compliance. Thus, for the reasons discussed above, I conclude that SMLI was out of compliance with 42 C.F.R. § 493.1407(e)(3)(iii)(test performance), 42 C.F.R. § 493.1407(e)(4)(proficiency testing), and 42 C.F.R. § 493.1407(e)(5)(quality control and quality assurance).

HCFA also presented evidence that SMLI was out of compliance with the standard at 42 C.F.R. § 493.1407(e)(1), due to Petitioner's failure to ensure that the testing systems employed by the laboratory deliver quality laboratory services. Mr. Barr testified that for all the laboratory equipment cited at page 217 of HCFA Ex. 1, SMLI staff were unable to produce any preventive maintenance protocols or documentation that preventive maintenance was done. Tr. 263. Without any assurance that preventive maintenance was being performed on SMLI's equipment, Petitioner could not be certain that the equipment was capable of producing accurate results. I find this evidence persuasive of the fact that Petitioner failed to exercise his oversight responsibilities to ensure that SMLI's maintenance activities were documented. The lack of documentation also gives rise to an inference that the required maintenance may not have been done at all. For these reasons, I conclude that SMLI was out of compliance with 42 C.F.R. § 493.1407(e)(1).

The number and seriousness of the deficiencies found by the surveyors are convincing evidence that Petitioner was not adequately carrying out his duties as laboratory director. I conclude that Petitioner's failings in carrying out his duties were likely to substantially impair SMLI's ability to provide adequate care. Accordingly, I find that SMLI was out of compliance with the condition of participation governing the laboratory director.

For all the reasons discussed above, I conclude that HCFA proved, and Petitioner failed to rebut, that SMLI was out of compliance with the conditions governing participation in the Medicare program. Therefore, HCFA proved that it had a factual basis on which to revoke SMLI's CLIA certificate and to invoke against Petitioner the two-year ban against owning or operating a laboratory.

Petitioner has raised a number of additional legal challenges in an attempt to prevent the application of these remedies. In the following sections of this decision, I discuss why I conclude that these arguments are essentially attempts to avoid the consequences of the serious deficiencies at SMLI by relying on legalistic technicalities.

D. I reject Petitioner's argument that the survey of SMLI was fatally defective because of the surveyors' alleged failure to follow survey procedures.

Petitioner argues that I should reject the extensive findings of deficiencies by the state surveyors because, according to Petitioner, the surveyors failed to follow the appropriate survey procedures as established in HCFA guidelines. Specifically, Petitioner contends that Mr. Barr ended the survey of SMLI without conducting an exit conference. According to Petitioner, HCFA guidelines require that an exit conference be conducted.

There is no provision in the regulations governing laboratories which compels HCFA or its designee to conduct an exit conference with a laboratory at the completion of a survey of that laboratory. Ban Laboratories, DAB CR576 (1999); see 42 C.F.R. § 493.1773. According to Petitioner, however, HCFA guidelines require that an exit conference be conducted. Petitioner attached to his brief a copy of a document entitled, "Appendix C Survey Procedures and Interpretive Guidelines for Laboratories and Laboratory Services" (P. Attach. 1). Petitioner describes the source of this document as the HCFA Web site. The document appears to be an excerpt from one of HCFA's procedure manuals, though it is not possible to tell which manual. Regardless of the source, however, it is clear that the plain language of the guidelines does not support Petitioner's argument that an exit conference is required. On the contrary, the sections on which Petitioner relies are consistent with the regulations, contemplating that there will be occasions on which exit conferences will not be conducted.

The first provision of the guideline cited by Petitioner contains the following statement: "explain that the laboratory can schedule an Exit Conference to discuss survey findings." P. Attach. 1 at C-9. This statement encourages surveyors to offer facilities an opportunity for an exit conference; it does not state that an exit conference must be conducted. Similarly, the guideline specifically addressing the exit conference states:

When an Exit Conference is held, it is to inform the facility's staff of your observations and findings and to solicit additional information from the facility.

Id. at C-18 (emphasis added). The use of the word "when" in the guideline makes explicit that there will be some occasions when an exit conference is not held. Thus, my reading of the HCFA guidelines produced by Petitioner is that the guidelines do not require that an exit conference be conducted at the end of every survey.

However, even if I had concluded that the guidelines required an exit conference at every survey, I would still not find that the failure to conduct such a conference would invalidate the survey findings. Appellate panels of the Departmental Appeals Board have frequently held that a procedural defect in a survey is not a sufficient basis for overturning a finding of noncompliance during that survey. Hillman Rehabilitation Center, DAB No. 1663 (1998); see also Indiana Department of Public Welfare, DAB No. 781 (1986). An appellate panel of the Board has stated that:

[T]he substance of the compliance findings . . . must take precedence under the statute, not whether a particular process or protocol was followed in compiling evidence regarding compliance.

Golden State Manor Rehabilitation Center, DAB No. 1597 (1996). While that case involved a long-term care facility, rather than a clinical laboratory, the panel's observations about the intent of the statute, which is to protect the health and safety of program beneficiaries are equally applicable to the CLIA provisions. For these reasons, I conclude that even if an exit conference were required under the regulations or guidelines, the failure to provide the exit conference would not necessarily invalidate otherwise credible findings of noncompliance.

Notwithstanding, I would be concerned if Petitioner had shown that it was deprived of notice by HCFA or by the California Department of Health of the findings of deficiencies or the basis for those findings. Petitioner argues that he has been deprived of due process by the failure to grant an exit conference and by other defects, such as the alleged failure to serve the proper party with the Statement of Deficiencies and the notice of imposition of remedies. However, for the reasons explained in the following section, I conclude that Petitioner has not pointed to anything which would establish that he was deprived of adequate notice of these findings.

E. Petitioner received adequate notice of HCFA's findings of noncompliance and was afforded adequate due process throughout these proceedings.

Petitioner argues that the present proceedings are fatally defective because HCFA failed to serve the proper party with the Statement of Deficiencies. P. Posthearing Br. at 27. According to Petitioner, under California law, HCFA was required to serve the Statement of Deficiencies on the individual registered with the California Department of Corporations to accept service on behalf of SMLI. Id. That individual, according to Petitioner, was Rolando Alcayde, a co-owner of SMLI. Id. However, as Petitioner's own witness testified, Mr. Alcayde had fled the country. See Tr. 601. Thus, it is apparently Petitioner's contention that HCFA would be precluded from imposing sanctions on SMLI unless HCFA could somehow manage to obtain service on Mr. Alcayde in the Phillippines. This is an absurd suggestion.

First of all, enforcement proceedings under the CLIA statute and regulations are governed by federal, not State law. The federal regulations governing notice of CLIA proceedings do not require that HCFA obtain personal service, whether on corporations or other individuals. Instead, the regulations require only written notice and an opportunity to respond. See 42 C.F.R. § 493.1810. In the present case, notice of these proceedings was mailed to Ms. Madamba, who appeared to be a co-owner of SMLI, and to Petitioner, SMLI's laboratory director. That both of these individuals received actual notice of HCFA's determination to impose sanctions against SMLI is demonstrated by the fact that each of them timely filed a request for a hearing to contest HCFA's determination.

Moreover, Petitioner has had the opportunity, in the course of these proceedings, to appear at an in-person hearing to give testimony, to call witnesses on his behalf, and to cross-examine the witnesses called by HCFA. Petitioner has also had the opportunity to submit extensive briefs setting forth his legal arguments. There is simply no basis to contend that Petitioner has, in any way, been deprived of due process.

F. I reject as inconsistent with the purposes of the CLIA regulations Petitioner's arguments that SMLI's CLIA certificate cannot be revoked by HCFA because, prior to the HCFA's notice of the proposed revocation on February 3, 1998: 1) the CLIA certificate had expired on January 31, 1998; and 2) SMLI had ceased operations on December 29, 1997.

Petitioner raises two separate but related procedural arguments against imposition by HCFA of the revocation of SMLI's CLIA certificate. First, Petitioner argues that since SMLI voluntarily ceased operations on December 31, 1997,⁽²⁰⁾ there was no "immediate jeopardy" in existence when HCFA sent its Statement of Deficiencies to Petitioner on January 21, 1998. P. Posthearing Br. at 31. Petitioner appears to be arguing that, absent a continuing showing of "immediate jeopardy", HCFA has no regulatory basis to revoke the CLIA certification of SMLI. In a related second argument, Petitioner contends that since SMLI's compliance certificate had expired on January 31, 1998,⁽²¹⁾ there is no procedure in 42 C.F.R. § 493 for the revocation of an expired CLIA certificate. P. Posthearing Response Br. at 19. I will address each of these arguments below.

On January 21, 1998, LFS sent to SMLI the Statement of Deficiencies, HCFA Form 2567, from its survey of the laboratory to determine whether it met the CLIA requirements. P. Ex. 8. A number of deficiencies were identified, which were determined to pose immediate jeopardy to patients of the laboratory. Id. SMLI was further advised that due to the seriousness of the deficiencies and its failure to meet the CLIA requirements for testing that LFS had recommended to HCFA a certification of non-compliance with the following sanctions: suspension and/or revocation of the CLIA certificate; cancellation of all Medicare and Medicaid payments and civil money penalties. Id. Petitioner, by letter dated February 7, 1998 to LFS, indicated he received the January 21 letter on January 26, 1998, and that he was no longer the laboratory director of SMLI, which ceased operations and testing on December 29, 1997.⁽²²⁾ P. Ex. 9. In this letter, Petitioner also denied the allegations in the HCFA 2567 pertaining to him as laboratory director and indicated that corrective action was not necessary in light of the closure of the laboratory. Id. HCFA, upon review of the submission of LFS on February 3, 1998, informed Petitioner, as laboratory director of SMLI, that: 1) it had amended the HCFA 2567 to reflect a new condition that was not met; 2) it had not received any response to the notice of immediate jeopardy; and 3) it had decided to impose various sanctions against the laboratory's CLIA certificate, including revocation of SMLI's CLIA certificate. HCFA Ex. 2. In response to communications from Petitioner, and from one of SMLI's owners, HCFA, on February 24, 1998, concluded that there was "no evidence that corrective actions have been taken to remove jeopardy and correct all Condition-level deficiencies . . ." and, consequently, HCFA decided to impose the sanctions set forth in the February 3, 1998 letter. HCFA Ex. 4.

I find no merit in Petitioner's argument that HCFA is precluded from initiating action to revoke SMLI's certificate of compliance because the laboratory ceased operations and testing on December 29, 1998. In essence, Petitioner is arguing that no public interest is being served by revoking the CLIA certificate of a non operating laboratory and any immediate jeopardy arising from its prior deficiencies of the CLIA requirements ends with its cessation of operations. I will concede that cessation of operations and testing of patient specimens ensured that physicians and patients who relied on the quality and accuracy of SMLI's test results in making health care decisions would not have to be concerned about future operations once the laboratory ceased operations. However, the harm resulting from potentially inaccurate arising from SMLI's past practices documented in the HCFA Form 2567 still exits despite SMLI's cessation of operations. HCFA requires the laboratory owner/operator to engage in actions under a directed plan of correction that will lead to the notification of persons or entities that relied on test results emanating from the laboratory at the time the deficient practices were shown to exist. See HCFA Ex. 2 at 3 [42 C.F.R. §§ 493.1832(b) and 493.1844(g)(1)].

In addition to notification of users of the laboratory services, HCFA imposes accountability on the owners and operators of SMLI to ensure that the individuals who were in a position to prevent the deficient practices recited in the HCFA Form 2567 are not in a position to continue those practices in other CLIA laboratories. To ensure that such circumstances do not occur, CLIA regulations provide, as has been stated previously, that the present owners and operators (including the laboratory director) are prohibited from owning or operating another laboratory for at least two years from the date of revocation of the CLIA certificate of the sanctioned laboratory.

Cessation of the laboratory's operations while subject to a CLIA survey, or after receipt of the survey findings in the HCFA Form 2567, does not excuse the laboratory operators or owners from the two-year sanction against owning or operating a CLIA laboratory once a CLIA certificate is revoked. Section 6256(c) of HCFA's Special Procedures for Laboratories instructs HCFA's regional offices how to proceed when a CLIA laboratory ceases operations during the pendency of an action leading to the revocation of a CLIA certificate. HCFA Ex. 33.⁽²³⁾ In such circumstances, the regional offices are instructed to proceed with the revocation despite the laboratory's withdrawal from CLIA where the HCFA regional office decides that a laboratory owner or operator should be subject to the two-year prohibition against owning or operating a laboratory, which sanction is triggered by the revocation of the laboratory's CLIA certificate. Id. Ms. Mary Jew, HCFA's CLIA Team Leader, provided the following testimony relating to the rationale behind HCFA's pursuit of a two-year prohibition against Petitioner:

[SMLI] had serious deficiencies. It was immediate jeopardy. And just the fact that the laboratory closed doesn't mean that the deficiencies have been corrected, nor can a laboratory say that they withdraw from the CLIA program or close the laboratory just to avoid sanctions.

. . . [T]he intent of the [CLIA] regulations was that if a laboratory has been operating and putting out poor quality results, or not operating as they should, then the people who are held responsible, specifically the owner and operator, which includes the director, are responsible.

. . . [The purpose of the regulation was to prevent] irresponsible people [from] being able to then go and open another laboratory. It's sort of like, . . . a small measure, but some measure, of preventing a continuation of bad practices.

Tr. 504-505.

The issue of closure of the laboratory has been addressed previously in California Medical Associates Laboratory, DAB CR76 (1997). The administrative law judge, in circumstances similar to those present in this case, held that:

[n]othing in the Act nor the regulations prohibits HCFA from imposing sanctions even if a laboratory ceases operations voluntarily. Indeed, if laboratories were allowed to circumvent the imposition of sanctions by closing down for a period of time, and then reopening when they saw fit, without correcting the deficiencies cited by the State agency, the government's enforcement powers could be seriously eroded. This clearly would be contrary to the intent of the applicable statutory and regulatory provisions.

Id. at 7.

As HCFA counsel points out in her posthearing brief at page 65, the public interest in terms of the health and safety of the patients who rely to their potential detriment on the accuracy of specimen test results of CLIA laboratories warrants an action by HCFA against the laboratory director and/or owner under whose directorship the deficiencies cited in the HCFA Form 2567 occurred. I agree. SMLI's voluntary closure of its operations in December 1997 provides no basis to alter HCFA's application of the two-year sanction against Petitioner's owning or operating a CLIA laboratory in the future.

The CLIA regulations contemplate circumstances where the compliance certificate of the laboratory expires during the pendency of a HCFA sanction action arising from failure of the laboratory to meet the regulatory standards. 42 C.F.R. § 493.49 of the CLIA regulations sets forth the requirements for a certificate of compliance. As indicated above, SMLI's certificate of compliance was effective on February 1, 1996, and expired on January 31, 1998, for failure to pay the renewal fees. In circumstances of noncompliance with the CLIA regulations where HCFA initiates an enforcement action, section 493.49(e) of the regulations provides that the subject laboratory retains its certificate of compliance or a reissued certificate of compliance until a decision is made by an administrative law judge. While it appears from Ms. Jew's testimony (Tr. 514) that HCFA was aware that the compliance certificate had expired when it issued its notification letters to SMLI and Petitioner, HCFA never reissued the compliance certificate as contemplated in the above-cited regulation for purposes of the an eventual hearing before an administrative law judge.⁽²⁴⁾ Despite this regulatory requirement, HCFA notice letters, dated February 3, 1998 and February 24, 1998, sent to Petitioner and the attorney of one of the owners of SMLI, failed to reference either the closure of the laboratory on December 29, 1997, or the expiration of the compliance certificate on January 31, 1998. See HCFA Exs. 2-4. Nor do such letters indicate that HCFA ever reissued the compliance certificate after it expired for purposes of this proceeding. Id. Petitioner argues that HCFA's failure to adhere to this procedural requirement presents a fatal flaw -- there is no compliance certificate in existence which can be revoked as a consequence of the cited deficiencies in the HCFA Form 2567 and, consequently, the two-year sanction against owning and operating a laboratory cannot be applied against Petitioner.

I do not agree that failure to reissue the compliance certificate is a fatal flaw or insulates Petitioner from the regulatory sanctions arising from his laboratory directorship at SMLI. Petitioner was advised by LFS on January 21, 1998, prior to expiration of the CLIA compliance certificate, that revocation of such certificate was contemplated based on the survey results of SMLI contained in the Statement of Deficiencies and that the two-year prohibition against owning or operating a laboratory would result, based on the revocation of the certificate. See P. Ex. 8. At this point in time, LFS was acting as HCFA's agent in the first step of the process leading to implementation of the principal and alternative sanctions arising from SMLI's cited deficiencies of the CLIA regulatory standards. Such notification by LFS in essence placed a constructive hold on SMLI's compliance certificate pending the outcome of the enforcement proceeding. The subsequent expiration of the compliance certificate on January 31, 1998 for failure to pay renewal fees, as explained by Ms. Jew at the hearing, did not remove the certificate from the CLIA database, and it could be reissued once the fees were repaid. Tr. 515-518. The only way to remove the certificate from the database, in the circumstances of a pending enforcement action, would be revocation of the certificate. Id.

Section 493.49(e)(2) of the CLIA regulations provides that when there is an appeal of a proposed revocation of a compliance certificate, the laboratory retains such certificate until a decision is made by the administrative law judge. This is a technical requirement only, and failure to reissue the certificate earlier in the sanction process has no import on the legitimacy of the sanction process. The due process rights of the Petitioner have not been abridged by HCFA's failure to reissue the certificate earlier in the sanction process. The compliance certificate has to be technically reissued prior to effectuation of my decision so that a basis exists for such revocation, as it pertains to Petitioner, the laboratory director of SMLI. That is an effectuation issue that HCFA must address, and occurs after my decision is issued providing a basis for revocation of the compliance certificate.⁽²⁵⁾

G. Under the CLIA regulations, the sanctions against Petitioner are effective with my decision.

Petitioner argues that the sanction HCFA proposes to enforce against him, namely the two-year ban on owning or operating a CLIA laboratory, should be stayed pending his exhaustion of his administrative remedies, and throughout the period of judicial review. See P. Posthearing Br. Regarding HCFA Actions After ALJ Decision. HCFA argues that the statute and regulations clearly intend that CLIA sanctions be enforced once they have been upheld by an administrative law judge. See HCFA Reply to Petitioner's Posthearing Brief Regarding HCFA Actions After ALJ Decision. I am convinced that enforcing sanctions upon my decision coincides more closely with the purposes of the CLIA statute and regulations than staying such sanctions throughout the appeals process.

First of all, the plain language of the regulation states that the principal sanctions of suspension, limitation, or revocation of a laboratory's CLIA certificate are "not effective until after a hearing decision by an ALJ is issued." 42 C.F.R. § 493.1844(d)(2)(emphasis added).⁽²⁶⁾ Although this language is phrased in the negative, the implication is clear that such sanctions are effective when the ALJ decision is issued. This interpretation of the regulation is also consistent with the intent expressed by the Secretary in the preamble to the regulations.

In those cases in which judicial review is authorized by law, it is available only after an [administrative law judge] hearing. It cannot and should not delay imposition of sanctions. To permit a noncomplying laboratory to continue to operate until all appeals were exhausted would be dangerous to the health and safety of the individuals served by the laboratory. It would also be inconsistent with section 1846(b) of the Act, which requires the Secretary to minimize the time between the identification of violations and the imposition of sanctions.

52 Fed. Reg. 7002, 7233 (Feb. 28, 1992). The Secretary's reasoning, although specifically applicable to noncomplying laboratories, rather than to laboratory directors, is equally applicable in the present case. Where an administrative law judge has found that HCFA is authorized to revoke a laboratory's CLIA certificate, the CLIA statute presumes that the director of that laboratory, when he or she acts as an operator, poses a risk to patient health and safety. The statute therefore imposes a two-year ban on such directors owning or operating another CLIA laboratory. To delay imposition of the two-year ban pending completion of all possible appeals and judicial review would pose the same dangers and would create the same discrepancy with the statute discussed in the preamble.

Therefore, based on the language of the regulations and the regulatory intent as described in the preamble, I conclude that, upon my issuing this decision, HCFA is authorized to impose the two-year ban against Petitioner owning or operating any CLIA laboratory.

Edward D. Steinman

Administrative Law Judge

1. CLIA defines a "laboratory" or a "clinical laboratory" as a facility for the biological, microbiological, serological, chemical, immuno-hematological, hematological, biophysical, cytological, pathological, or other examination of materials derived from the human body for purposes of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings. See 42 U.S.C. § 263a(a).

2. An appellate panel of the Departmental Appeals Board has emphasized that the burden of persuasion set forth in Hillman applies only where the evidence proffered by both sides is "in equipoise." Oak Lawn Pavilion, Inc., DAB No. 1638, at 16-17 (1997). In such cases, the burden of persuasion would be on Petitioner.

3. The civil money penalty was imposed against the laboratory owners, and is not an issue in this case.

4. As will be subsequently discussed, Petitioner argues that based on SMLI's cessation of operations and the lapsing of SMLI's CLIA certificate on December 31, 1997, due to failure to pay CLIA fees, the collateral sanction should not be imposed against him. For the reasons cited in my decision, I find these arguments unpersuasive. See infra at 28-30.

5. One of the owners of SMLI, Nida Madamba, engaged counsel, Clinton T. Bailey, who also responded to HCFA's notice of proposed sanctions. The other owner, Rolando Alcayde, was never located by HCFA, other than service at an address in Santa Ana, California. There was some testimony suggesting that Mr. Alcayde had left the U.S. for the Phillippines. Tr. 601.

6. Petitioner's February 9, 10, and 13, 1998 submissions are referenced in HCFA's February 24 letter, but are not otherwise in the record.

7. The matters were initially separately docketed. For purposes of administrative efficiency, I consolidated the cases into a single docket number.

8. Petitioner stresses that as the laboratory director he was an employee of SMLI and never had any ownership interest in the laboratory. P. Posthearing Br. at 9.

9. Petitioner testified that he initially visited SMLI five or more times per month in the first two months of its operation in 1996. Tr. 826. For the next year and half, he averaged two to three times per month. Tr. 827. After the change in ownership in March 1997, and when he noticed an increase in the volume of the specimens and some questionable practices, and until the laboratory closed in December 1997, he averaged five to six times per month, and then, in the latter part of 1997, up to ten times per month at SMLI. Tr. 826-832. He also relied on his consultant Edd Epstein and his nephew Ron Lieberworth to deal with the problems at the laboratory. Tr. 828.

10. For moderate complexity testing, as was done by SMLI, the CLIA regulations prescribe the qualifications that a director must possess in order to manage and direct laboratory personnel and the performance of moderate complexity tests. 42 C.F.R. § 493.1405. There is no dispute that Petitioner possesses the necessary qualifications to be a director as that term is defined in the regulations. See Tr. 261-62.

11. In addition to SMLI, Petitioner was the director of the following laboratories: Medical Diagnostic Laboratory; Santa Monica Clinical Laboratory; and American Healthnet Laboratories. P. Ex. 17. Petitioner also testified he was director of "Park Slope." Tr. 843. By CLIA regulation, the director cannot direct more than five laboratories at one time. 42 C.F.R. § 493.1407(d).

12. Despite this alleged commitment to patient care, Petitioner admitted that he had resigned as laboratory director of Park Slope because "[t]hey would say that they would pay me, but I think that would not be the truth, and I don't want to work for nothing." Tr. 844.

13. As an administrative law judge, I adjudicate cases under a delegation of authority from the Secretary. In this capacity, I am required to follow all substantive rules and regulations duly promulgated by the Secretary. Country Club Manor II, DAB CR433 (1996); see also Dyer v. Secretary of Health and Human Services, 889 F.2d 682, 685 (6^th Cir. 1989). Accordingly, I lack the authority to declare any of the CLIA regulations unconstitutional. In the present case, my authority is not at issue, because Petitioner's constitutional arguments are unfounded almost to the point of being frivolous.

14. Though not necessary to my decision in this case, I would reach an even broader conclusion. Based on my observation of Petitioner's demeanor during his testimony at the hearing, I am convinced that it is more likely than not that Petitioner has no knowledge or documentation that would tend to disprove the facts as to which HCFA has established a prima facie case.

15. In this section of my decision, I discuss in detail the failure of SMLI to comply with five conditions of participation. HCFA asserted that SMLI had failed to comply with two additional conditions: Laboratories performing moderate complexity testing, testing personnel (42 C.F.R. § 493.1421); and Inspection of laboratories requesting or issued a certificate of compliance (42 C.F.R. § 493.1777). See HCFA Posthearing Br. at 55-57, 62. In suport of its contention that SMLI failed to comply with these conditions, HCFA relied on essentially the same evidence that I discuss in analyzing the five conditions below. While I conclude that this evidence supports HCFA's findings of noncompliance as to the additional conditions, I do not discuss them in detail.

16. The testimony was that the abbreviation "QNS," which stands for "quantity not sufficient" is a laboratory shorthand for a specimen that is unacceptable for testing. Tr. 94.

17. In addition to instances where SMLI performed tests not requested by a physician, there were instances where SMLI failed to perform requested tests. Tr. 265-66.

18. In fact, in some instances, it appears that it would have been impossible to notify any authorized person, as some of the test requisitions came from fictitious addresses. Tr. 237-39.

19. The regulation also requires that a laboratory director meet specified qualification requirements. HCFA does not allege that Petitioner failed to meet the qualifications required for laboratory directors. Tr. 261-62.

20. In correspondence to LFS dated February 7, 1998, Petitioner indicated that SMLI "ceased operations and testing 29 December 1997." P. Ex. 9.

21. SMLI had been issued a certificate of compliance (which is valid for two years) for moderate complexity testing which was to expire on January 31, 1998. HCFA Ex. 37. Since SMLI had failed to pay the fees required for renewal, the certificate of compliance was not renewed and expired on January 31, 1998. Tr. 514. By regulation (42 C.F.R. § 493.49(a)(2)), no compliance certificate will be issued until the laboratory remits the certificate fee.

22. Petitioner also sent a letter to HCFA on January 30, 1998, responding to the Statement of Deficiencies, in which he indicated the laboratory was closed and that the closure was the "only corrective measure that appears available at this time." P. Ex. 15.

23. The record is unclear whether the source of HCFA Ex. 33 is the State Operations Manual (SOM) or a Regional Office Manual (ROM). Apparently, the two manuals were consolidated in about March of 1998. HCFA's witness, Ms. Jew, testified that the SOM provision applicable to the States is consistent with the ROM direction regarding cessation of laboratory operations. The provisions pertaining to withdrawal from CLIA are the same. See Tr. 505-508.

24. The instructions provided to the regional offices by HCFA indicate that the notice letter should reflect any changed circumstance involving the subject laboratory, such as its closure prior to issuance of the notice letter. See HCFA Ex. 33.

25. HCFA counsel pointed out in her posthearing brief at page 7 that SMLI's CLIA certificate was revoked effective November 30, 1998, following a settlement with Nida Madamba, a co-owner of SMLI, who, like Petitioner, had filed a request for hearing. I am unaware whether, for purposes of such revocation, HCFA reissued the compliance certificate.

26. I agree with HCFA that it is appropriate to look to the regulations governing principal sanctions of the laboratory for guidance in situations where it is the laboratory director, and not the laboratory itself, that has appealed HCFA's imposition of sanctions. The two-year ban on owning or operating a laboratory is imposed as a matter of law when a laboratory's CLIA certificate has been revoked. Thus, the regulations governing revocation proceedings ought to govern.