CISCIPLINARYACTION
QUALITY ASSURANCi: AND 
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LABORATORIES 
INDEPENDENT CLINICAL 
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OFFICE OF INSPECTOR GENERAL 
OFFICE OF ANALYSIS AND 
INSPECTIONS 
1989 
APRIL  OFFICE OF INSPECTOR GENERAL

The mission of the Office of Inspector General (OIG) is to promote the efficiency, 
effectiveness and integrity of programs in the United States Department of Health 
and Human Servces (HHS).  It does this by developingIIethodsto detect and 
prevent fraud, waste and abuse. Created by statute in 1976, the Inspector General 
keeps both the Secretary and the Congress fully and currently informed about 
programs or management problems and recommends corrective action. The OIG 
performs its mission by conducting audits, investigations and inspections with 
approximately 1 200 staff strategicallylocated around the country. 
OFFICE OFANAL YSIS AND INSPECTIONS 
This report is produced by the Office of Analysis and Inspections (OAl), one of the 
three major offices within the OIG. The other two are the Office of Audit and the 
Office of Investigations. The OAl conducts inspections which are, tyically,
abuse. 
short-term studies designed to determine program effectivehess  efficiency and 
vulnerability to fraud or 
This study was conducted to provide the Health Care Financing Administration and 
other componentS inHHS with information ontheadequacy of Federal and State 
monitoring of independentclinicallaboratories and to determine if timely and 
appropriate action is taken to correct deficiencies. 
The report was prepared under the direction of Kaye D. Kidwell, the Regional 
Inspector General of Region IX, Office of Analysis and Inspections. Participating
this project were the following people: 
Tom Purvs, National Project Leader 
. Neil Merino, Lead Analyst 
Leonard Czajka, Program Analyst 
Deborah Harvey, Program Analyst 
, Program Analyst 
Cythia Lemesh
Suzanne Murrin, Liaison, Headquarters  QUALITY ASSURANCE AND DISCIPLINARY ACTION FOR

INDEPENDENT CLINICAL LABORATORIES

Richard P. Kusserow 
INSPECTOR GENERAL 
OAI-09-88-01050  APRIL 1989
 EXECUTIVE SUMMARY 
PURPOSE 
The purpose of this inspection was to determine (1) whether Federal and State 
monitoring of Medicare-certified independent laboratories through proficiency 
testing (PT), personnel standards and on-site inspections adequately identifies 
marginal or substandard performance and (2) whether appropriate and timely 
corrective and disciplinary actions are taken to address deficiencies. 
BACKGROUND 
Recently, Congress and the news media have raised questions about the accuracy of 
laboratory tests. These concerns have focused on employee drug tests, the Pap 
smear test for detecting cervcal cancer, blood serum tests for cholesterol levels and 
tests to detect the presence of AlDS antibodies. As a result, Congress held a series 
of hearings to gather testimony about the quality of laboratory testing and Federal 
oversight. 
In connection with his testimony at these hearings, the Inspector General publicly 
released the draft of this report. Subsequently, Congress passed the Clinical 
Laboratory Improvement Amendments (CLIA) of 1988. In accordance with our 
recommendations, CLIA of 1988 requires that the Health Care Financing 
Administration (HCFA) (1) issue uniform proficiency testing (PT) standards for all 
laboratories, (2) work with the Centers for Disease Control to issue standards for 
Pap testing and (3) issue regulations to implement intermediate sanctions for 
substandard laboratories. 
This report reflects data collection and analysis performed prior to the passage of 
CLIA of 1988. For further information regarding CLIA of 1988, see the 
recommendation section of this report. 
MAJOR FINDINGS 
Few Laboratories Are Terminated 
From 1985 through 1987, a total of 78 laboratories were terminated from Medicare 
participation either fully or for 1 or more specialties. Inadequate quality control and 
personnel deficiencies accounted for 53 full terminations and 3 specialty 
terminations. Inadequate proficiency testing performance accounted for 
22 specialty terminations.  Budget Restrictions Limit Staff Available to Monitor Laboratories 
Because of budget restrictions, HCF A now requires States to perform on-site 
inspections of only 68 percent of laboratories each year. Many laboratories are 
visited only once every 2 years. The HCF A does not target laboratories needing 
additional monitoring for more frequent surveys. 
Reporting Delays and Problems with the Survey Process Limit Effective Laboratory 
Monitoring 
States reported that effective oversight of laboratories is impeded by (1) delayed 
receipt of PT results from testing organizations, (2) use of an outmoded survey form 
and (3) Federal reluctance to take corrective action. 
Lack of Uniform Proficiency Testing Standards Causes Inconsistent Corrective 
Action 
There are currently no national standards for scoring PT results on a State-by-State 
basis. Consequently, minimum passing requirements vary, and this can lead to 
inequities. 
States Do Not Routinely Document Instances of Inappropriate Handling of 
Proficiency Testing Specimens 
Although almost 90 percent of the State survey staff interviewed believe that 
laboratories give improper special handling to PT samples, only 27 States, or 53 
evidence of this. 
percent, had 

Some Terminated Laboratories Continue to Receive Medicare Payments 
Three of 37 laboratories termnated from participation in Medicare in 1987 
continued to receive Medicare payments without interrption. 
State Surveyors Want Broader Sanction Authority 
Almost two-thirds of the State respondents believe that current sanction authority is 
inadequate for some situations and that fines and civil penalties could provide 
increased clout and flexibilty. 
Most States Do Not Have Special Regulations Covering AIDS or Pap Tests 
Most States have no special regulation of Pap or AlDS tests. Current Federal 
standards for monitoring laboratory performance for these test procedures are 
inadequate.  RECOMMENDATIONS 
The Health Care Financing Administration should: 
issue uniform PT standards for all laboratories regulated under Medicare 
and CLIA. The standards should include (1) national minimum passing 
scores for each specialty or subspecialty and (2) acceptable time frames 
for reporting PT results to States, the laboratories and HCF A; 
. work with the Centers for Disease Control to develop and implement 
regulations with appropriate standards for Pap tests for cervical cancer; 
issue regulations implementing the intermediate sanctions mandated in 
Section 4064 (d) of the Omnbus Budget and Reconciliation Act of 1987; 
issue guidelines to insure that laboratories test PT specimens in a 
routine" manner, the same as for any clinical sample; 
improve the laboratory survey process by (1) revising the laboratory 
survey instrument and interpretive guidelines to reflect state-of-the-art 
laboratory operations, (2) streamlinig the process for corrective action 
and (3) developing procedures to target laboratories for inspection based 
on prior performance and 
develop necessary procedures to insure that carriers do not pay 
laboratories or other providers that have been terminated from Medicare. 
As mentioned previously, CLIA of 1988 implemented the first three 
recommendations. Although the law partially addressed the fourth and fifth 
recommendations, full implementation is contingent upon further regulatory and 
procedural changes. The final recommendation was neither included in our draft 
report nor addressed by the legislation. 
iii  TABLE OF CONTENTS 
Page 
EXECUTIV SUMMAY 
INTRODUCTION 
FINDINGS 
Few Laboratories Are Terminated 
Budget Restrictions Limit Staff Available to Monitor 
Laboratories 
Lack of Uniform Proficiency Testing Standards Causes 
Inconsistent Corrective Action 
States Do Not Routinely Document Inappropriate 
Handling of Proficiency Testing Specimens 
Reporting Delays and Other Problems with the Survey 
Process Limit Effective Laboratory Monitoring 
State Surveyors Want to Keep Personnel Standards 
Some Terminated Laboratories Continue to Receive 
Medicare Payments 
State Surveyors Want Broader Sanction Authority 
Most States Do Not Have Special Regulations Covering 
AlDS or Pap Tests 
RECOMMENDATIONS 
APPENDIX: STATE REGULATION OF LAORATORIES  INTRODUCTION 
This inspection on quality assurance and disciplinary action for independent clinical 
laboratories is one of three related laboratory studies which the Office of Inspector 
General (OIG) is conducting. The other two studies focus on quality assurance in 
physician office laboratories and Medicare program costs associated with adopting a 
national fee schedule for the payment of outpatient laboratory servces. 
The objectives of this inspection were to determine (1) whether Federal and State 
monitoring of Medicare-certified independent laboratories through proficiency 
testing (PT), enforcement of personnel standards and on-site inspections adequately 
identifies marginal or substandard performance and (2) whether appropriate and 
timely corrective and disciplinary actions are taken to address deficiencies. 
BACKGROUND 
Clinical laboratories conduct diagnostic tests on blood, fluids and other substances 
obtained from the human body. An independent laboratory is defined under current 
regulations as one which is organizationally and financially separate from attending 
or consulting physicians' offices as well as hospitals. Many independent laboratories 
are part of national or regional chains. Approximately 4 500 of the 12 000 
federally-regulated clinical laboratories are classified as independent. 
Extensive Federal regulation of laboratories began in 1966 with the passage of 
Medicare and Medicaid and in  Laboratories Improvement 
1967 with the Clinical 
Act (CLIA). The CLIA provisions cover all laboratories engaged in interstate 
commerce. Responsibilty for regulating laboratories is shared between two 
agencies within the Department of Health and Human Servces (HHS), the Health 
Care Financing Administration (HCF A) and the Centers for Disease Control 
(CDC). A memorandum of understanding between the two agencies makes HCF A 
responsible for developing and enforcing standards, procedures and regulations 
pertaining to laboratories under either CLIA or Medicare. The CDC is responsible 
for providing scientific and technical expertise to HCF A in order to carry out these 
responsibilties. 
The College of American Pathology (CAP) operates a laboratory accreditation 
program with a set of 14 standards and an annual or biennial inspection process. 
Most CAP-accredited laboratories are in hospitals. Hospital laboratories accredited 
by CAP are deemed acceptable for accreditation by the Joint Commssion on the 
Accreditation of Healthcare Organizations (JCAHO).  Concerns About Laboratory Performance 
Recently, Congress and the news media have raised questions about the accuracy of 
laboratory tests. These concerns have focused on employee drug tests, the Pap test 
for detecting cervcal cancer, blood serum tests for cholesterol levels and tests to 
detect the presence of AlDS antibodies. As a result, Congress held a series of 
hearings in the spring and summer of 1988 to gather testimony about the quality 
laboratory testing and Federal oversight. Media and congressional interest coincide 
with longstanding efforts within HHS to define the appropriate Federal regulatory 
role for laboratory proficiency testing, personnel standards and on-site survey and 
inspection activities. 
Wall Street Journal article alleged that Pap tests failed to reveal cervcal 
A 1987 

cancer or cell abnormalities 20 to 40 percent of the time, "making the test one of the 
most inaccurate of all clinical laboratory procedures." A television news 
documentary shown in the District of Columbia area in December 
1987 publicized 
the life threatening consequences of false negative Pap test readings. This news 
program asserted that (1) untrained technologists are used in laboratories 
(2) patients die because of incorrect test results and (3) cytotechnologists who do the 
initial screening of Pap tests often must review two to three times the recommended 
volume of cases per day. 
Concern about false positive and false negative test results is also a highly publicized 
AIS 
factor in tests for the  antibody. This is so despite the fact that the incidence of 
false AlDS tests results is quite low, especially in low risk populations. Researchers 
at CDC estimate that if the 3.8 millon people in the United States who 
marry each 
year were tested for AIDS, there would be approximately 1 600 positive tests. About 
400 of these would be false positives. In addition, about 100 of the 3.8 millon tests 
would be false negatives. Additional evidence from AIDS testing in the military 
shows that the incidence of false positive test results is extremely small. 
Previous Office of Inspector General Study 
In 1981, the OIG issued an audit report with a number of findings pertaining to PT 
and enforcement of independent laboratory standards. The major findings included 
the following:

Actions to revoke a laboratory s license or to terminate Medicare 
participation for a specialty or subspecialty are subject to long delays or to 
reversals. 
. The HHS does not have an effective mechanism to remove substandard 
laboratories from the Medicare program. 
Regulators lack a single, acceptable set of national standards defining 
satisfactory PT performance.  Regulation and Oversight 
Medicare regulations require clinical laboratories to meet seven conditions of 
coverage: 
1. The laboratory conforms to all applicable State and local laws. 
2. The laboratory is under the direction of a qualified director. 
3. The laboratory is supervsed by qualified personnel. 
4. The laboratory performs only tests that it is qualified to perform 
and participates in a PT program. 
5. The laboratory has a sufficient number of properly qualified 
technical personnel for the volume and diversity of tests performed. 
6. The laboratory maintains records and facilities which are 
adequate and appropriate for the servces offered. 
7. The laboratory has satisfactory quality control procedures and practices. 
Additional CLIA regulations, which include a requirement for Federal licensing, 
apply to laboratories that receive specimens across State lines. The HCF A 
supplements Medicare and CLI regulations through interpretive guidelines. 
State regulation of laboratories varies considerably. Although approximately half 
the States have licensing laws, only a few States carr out comprehensive quality 
assurance programs. In half the States, the only standards are those required by 
Federal law and regulation. Medicare regulations require laboratories to comply 
with State laws. If Federal standards are more stringent, laboratories must meet 
these. A comparison of State regulation of independent laboratories is contained in 
the appendix. 
Proficiency Testing 
Medicare conditions of coverage require all independent laboratories to participate 
successfully in a PT program in all applicable specialties and subspecialties for which 
an approved PT program is available. Each PT program must be approved by the 
Secretary of HHS. The HCF A guidelines require State surveyors to determine that 
(a) the specimens are tested by employees who are regularly assigned to testing in 
the applicable specialty, (b) the laboratory uses its routine methods and (c) the 
laboratory actually tests the PT specimens in-house. Laboratories that do not meet 
these specifications are not in compliance with Medicare s conditions of coverage. 
Most independent laboratories participate in PT programs offered by their State 
licensing and certification agency, CAP or the American Association of Bioanalysts. 
Only a few States offer extensive PT through their State laboratories. Almost all 
States provide syphils serology testing.  Specimens are mailed by the PT organization to each laboratory on a periodic basis 
usually quarterly. The laboratory tests each specimen and returns the analysis for 
grading. Laboratories must maintain records showing the action taken for each 
shipment of PT specimens. The PT organization scores the laboratory PT analysis 
and sends the results to the laboratory and State agency. The State licensing and 
certification agency determnes if the results are satisfactory, marginal or 
unsatisfactory. 
Unsuccessful PT scores in three consecutive quarters or three out of four quarters 
should result in a specialty or subspecialty decertification recommendation from the 
State to HCF A. Before taking action to terminate, however, HCF A staff must 
document whether there are mitigating factors. A decertified laboratory may be 
reinstated only after achieving satisfactory PT performance for two consecutive 
quarters or being judged satisfactory in testing specimens onsite during two separate 
visits by State surveyors. 
In December 1987, CDC issued a proposal for departmental consideration to 
establish a uniform PT program for laboratories regulated under Medicare and 
CLIA. The purpose of the proposed PT standards  to identify laboratories whose 
is "
level of performance constitutes a threat to public health and not to provide 
educational benefits or to establish an optimum in laboratory performance.
" Private 
sector PT organzations would continue to conduct the tests for laboratories in 
accordance with the new CDC standards and test grading criteria. Laboratories 
would need to maintain an 80 percent score in the specialty or subspecialty in order 
to pass. 
Enactment of the Clinical Laboratory Improvement Amendments of 1988 
(Public Law 100-578) 
The Inspector General publicly released the draft of this report when he testified 
before Congress on pending legislation regarding laboratory regulation. 
Subsequently, Congress passed and the President signed Public Law 100-578, the 
Clinical Laboratory Improvement Amendments of 1988." This law requires, among 
other provisions, that the Secretary of HHS: 
establish uniform criteria for acceptable performance under aPT 
program; 
include in the standards a system for grading PT performance to 
determine whether a laboratory has performed acceptably for a particular 
quarter; 
require laboratories to agree to treat PT samples in the same manner as 
they treat laboratory examinations or other procedures in the ordinary 
course of business;  . perform a program of on-site proficiency testing to insure that 
laboratories continue to meet their certificate requirements; 
establish national standards for quality assurance in cytology 
services that 
include eight specific criteria pertaining to the conduct of the tests, the 
proficiency of laboratory staff and the quality of test specimen 
preparation and 
. impose intermediate sanctions, such as civil money penalties or directed 
plans of correction, in lieu of suspension, revocation and limitation 
actions when deemed appropriate. 
These six provisions are responsive to most of the findings and recommendations 
contained in the draft version of this report. 
Current Issues Regarding Laboratory Regulations 
Between the time the Inspector General released the draft of this report and 
Congress passed CLIA of 1988, HHS issued revisions to the clinical laboratory 
regulations as a Notice of Proposed Rulemaking in the Federal Register. These 
proposed regulations cover many of the issues most central to this study and to 
CLIA of 1988 insofar as they: 
place more emphasis on proficiency testing and other outcome measures 
of performance; 
emphasize responsibilties and duties of personnel rather than formal 
credentialing requirements; 
call for incorporating national PT standards (including the CDC standards 
and test grading criteria) and 
establish comprehensive guidelines for Pap smear testing. 
Since the proposed regulations are based on earlier law, they require revision before 
they can be implemented under CLIA of 1988. The findings of this report reflect 
research performed prior to issuance of the Notice of Proposed Rule Making and 
passage of CLIA of 1988. 
Comments on Draft Report 
We requested professional organizations representing the laboratory industry and 
other experts on laboratory performance to review the draft of this report. These 
reviewers generally supported the recommendations. They also made several 
suggestions for steps HHS could take to improve proficiency testing. The main  suggestions were that (1) HCFA establish requirements for laboratories to return 
PT results to PT organizations within specified timeframes, (2) any timeframes for 
getting results from PT organizations take into acount the tye of analysis required 
and not necessarily be uniform across all disciplines, (3) HCFA institute a small 
random sample of unannounced surveys in addition to focused surveys based on 
performance screens or complaints and (4) HCF A require PT programs to use 
combinations of specimen identification codes so that laboratory personnel could 
not be sure if they have received the same specimens as other laboratories. 
Laboratories would then be unable to compare their test results. 
The CAP took exception to the proposal that HCF A prepare specific guidelines for 
State agencies to insure that laboratories follow the standards for conducting 
proficiency testing in a routine maner. The CAP agrees that laboratories handle 
PT specimens differently than other test samples but alleges that "experience shows 
that special manipulations of PT samples does not move laboratories from 
unacceptable to acceptable' for regulatory purposes. We would advise caution in 
developing specific standards for this area of proficiency testing." The JCAHO also 
does not believe that promulgation of standards will necessarily insure that 
laboratories handle PT tests in a "routine" manner but suggests that selective on-site 
observations of the processing of the PT samples could overcome laboratory efforts 
to "beat the system. 
METHODOLOGY 
The OIG staff surveyed all 50 State certification agencies to determne (1) the extent 
of any problem with laboratory certification and proficiency testing and (2) whether 
adequate follow-up activity is being carried out. We conducted intervews with 
approximately 50 experts to obtain their views on the relative effectiveness of quality 
assurance programs. We obtained data from HCFA showing the number and types 
of Federally-regulated laboratories, deficiencies cited and termation actions taken 
in 1985, 1986 and 1987. We compared the HCFA data with carrer records to see 
the carriers had discontinued Medicare payments to terminated laboratories.  , " 
, '
FINDINGS 
Few Laboratories Are Terminated 
From 1985 through 1987, a total of 78 laboratories were terminated from Medicare 
participation either fully or for 1 or more specialties. Of these, 53 were full 
terminations based on recommendations from State licensing and certification 
agencies. The primary reasons for full termination were inadequate quality control 
lack of trained staff and violations of State licensure laws which were identified 
during on-site surveys. In addition, 22 laboratories were terminated in one or more 
specialties because of unsatisfactory proficiency testing performance, and 3 were 
terminated in a single specialty for inadequate quality control or personnel 
deficiencies. 
LABORATORIES TERMINATED 1985 THROUGH 1987 
NUMBER TERMINATED 
Laboratories fully terminated for licensing,

quality control and personnel deficiencies

Laboratories terminated in a specialty for 
unsatisfactory PT tests

Laboratories terminated in a specialty for 
quality control or personnel deficiencies 
SOURCE: HCFA Office of Survey and Certification 
The major reason for the low number of Medicare terminations is that HCF A and 
many State agencies view termination as the last resort, to be used only when efforts 
to bring a laboratory into compliance have failed. Very often, States are able to 
achieve compliance without recommending decertification. Either the laboratory 
will come into compliance on its own, or it will voluntarily drop a test or specialty 
area where unsatisfactory performance has been noted. In one region, where there 
have been no decertifications for several years, the HCF A laboratory specialist 
explained  Laboratories will do anything to avoid decertification. They will 
voluntarily stop performing a particular test or will contract with another laboratory 
for it. Because of this voluntary action by the laboratories, there is seldom a need 
for formal Federal compliance measures." In another region, the HCFA laboratory 
specialist explained  The value of monitoring is to establish an ongoing dialogue 
between the State and the laboratory rather than the action taken against a 
laboratory if the laboratory fails.  , "
At least 16 States indicated that they try to work with a qeficient laboratory to 
improve performance prior to initiating adverse action. For failed proficiency 
testing, many States will contact a laboratory directly to discuss solutions and warn of 
the consequences for continued failure. The number of warning letters that States 
send laboratories is many times higher than the number of termination referrals to 
HCF A. For example, Ilinois has sent out 30 to 40 warning letters during the past 
3 years, but has not recommended any terminations to HCF A. If a laboratory 
unable to improve, many States seek voluntary withdrawal. 
About half the States (24) have licensing laws and can take action independent 
the Medicare conditions of coverage. These States indicated that they prefer taking 
action under their own authority using the threat of losing State licensure as an 
incentive for compliance. Many respondents noted that such State action is faster 
and more effective because HCF A must exercise due process constraints beyond 
that of many States. Others commented that HCF A sometimes will piggyback on 
State licensure actions. 
Budget Restrictions Limit Staff Available to Monitor Laboratories 
In recent years, budgetary constraints have limted the number of State surveyors 
available to monitor laboratories. Because of the reduced number of surveyors 
HCF A modified its requirements so that States could intensify their inspections of 
other providers such as nursing homes, which are considered to pose 
greater safety 
risks to patients. The HCF A now requires States to perform on-site inspections of 
only 68 percent of laboratories each year. Nevertheless, about 10 States continue to 
conduct on-site inspections of all laboratories at least once a year. 
Data were obtained from the States showing the number of Medicare-certified 
independent laboratories in each State and the number of State staff available to 
perform Medicare-required survey and certification activities. The data show a wide 
range in the number of laboratories that an individual State surveyor monitors. For 
example, Idaho has 1 surveyor for every 6 Medicare-certified laboratories while 
7 States have 1 surveyor for 60 or more laboratories. These figures are approximate 
because some States assign health professionals other than the Medicare contract 
staff to survey laboratories. In several States, staff survey physician offce 
laboratories in addition to hospital and independent laboratories. 
Because of limited staff resources, surveyors in six States suggested targeted 
inspections based on prior survey results. Laboratories performing in a satisfactory 
manner would not be visited as often as laboratories with multple deficiencies. 
Current survey scheduling does not formally distinguish between laboratories that 
perform in a satisfactory manner and those that do not. "What is needed " said one 
surveyor  is a system in-between visiting a laboratory about one day a year or every 
other year and having a resident inspector at the laboratory.  , "
Lack of Uniform Proficiency Testing Standards Causes Inconsistent 
Corrective Action 
There are no national standards for scoring PT results by specialty or subspecialty. 
A PT organization will judge performance relative to the true value for a PT 
specimen or the best available estimate of the true value. In many cases, because 
the PT specimen is a biological sample and biological samples can vary, there is not 
a single value for that sample that can be called the "true" value. Determining true 
values is also difficult because of wide variations in methodology, instrumentation 
and standardization among clinical laboratories. In these cases, performance is 
judged relative to the largest appropriate group of laboratories using comparable 
methods. 
Efforts are underway to introduce criteria for accuracy which are considered 
clinically or medically relevant. The PT organization sets an acceptable range for 
test results which differs for each specimen. There is currently no national standard 
for what that range should be. Consequently, ranges vary from one testing 
organization to another. 
Each State establishes its own protocol for evaluating PT performance. Scoring 
varies considerably from State to State. For example, some States consider 70 
percent to be passing while other States require a passing score of 80 percent for the 
same specialty or subspecialty. This could result in the termination of a laboratory 
in one State, while a laboratory with the same level of performance in another State 
would remain certified. 
Nearly 65 percent of State respondents indicated that the lack of national standards 
for PT grading is a problem. Nearly all laboratory and national association staff also 
mentioned this issue as a problem. Several States also indicated that the actual 
grading was made more difficult. As one State sureyor noted  Grading is a big 
problem. We don t have enough time to properly score and analyze PT tests. Our 
standards should be higher than they are. At least national standards would help 
raise State levels if they are too low." In Regions VII and X, the States and the 
HCF A regional staff negotiated common standards for PT scoring. In contrast, five 
State respondents opposed national scoring standards, suggesting that States should 
have flexibilty in grading and that national standards would not necessarily lead to 
greater testing accuracy.

About 10 percent of the State respondents mentioned problems in comparing 
laboratories that use different PT organizations which have different degrees of 
complexity for the same tests. Non-State respondents, however, did not indicate this 
was a prob1em.  , " , "
States Do Not Routinely Document Inappropriate Handling of Profic;iency 
Testing Specimens 
About 90 percent of the State survey staff and other respondents believe that 
laboratories process PT samples differently than samples sent routinely from 
physician offices. Despite this widespread belief, only 27 States have collected 
evidence. State survey staff indicated that laboratories have strong incentives to 
make PT results as accurate as possible. As one State surveyor explained  As long 
as PT is used as a regulatory system, laboratories will have to handle PT samples 
differently. Common sense tells us that a laboratory wil put its best foot forward. 
Inappropriate handling of PT samples 
includes any handling which the laboratory 
would not routinely carr out with that sample. Nonroutine handling could include 
(1) having the laboratory s best analyst handle the specimen, (2) spending more time 
and effort analyzing the sample, (3) reviewing the same sample two or more times 
(4) discussing sample test results with workers in other laboratories or (5) sending 
the sample to an outside laboratory for an independent reading. 
A review of laboratories decertified over the past 3 years shows that no laboratories 
were decertified because of handling a PT sample in a manner inconsistent with the 
standards or the interpretive guidelines. One State surveyor explained  I know it 
happens, but I don t have evidence. I would fine the laboratories if I did have the 
evidence. 
States indicate that it is frequently difficult to identify special PT handling. 
Nonroutine practices such as informal consultation about a PT sample or having the 
best" analyst run it are difficult to document. Sometimes documentation of special 
handling is uncovered almost by accident. Several States reported that laboratories 
occasionally will return the PT specimen analysis to the PT organiation with 
records showing that an outside reference laboratory actually performed the testing. 
One reference laboratory said that a request from a laboratory to test an obvious PT 
sample would be refused. Another State reported that laboratories sometimes 
submit results of PT tests requiring equipment which the laboratory does not 
have--clear evidence that an outside laboratory did the test for them. Test scores for 
PT samples which do not evidence normal statistical variation offer further evidence 
that a laboratory has given special attention to the sample. 
Some laboratories destroy required records showing when a PT specimen is run 
who ran it and how often it was run. One HCF A regional laboratory specialist 
reported that biling records uncovered during a routine inspection showed that the 
laboratory had sent a PT sample to an outside laboratory for testing. When a 
follow-up visit was made to verify this, however, the records were missing. 
According to the HCF A specialist, the laboratory "got the word to correct its records 
to hide evidence of second opinions from surveyors.  , " , " , "
Reporting Delays and Problems with the Survey Process Limit Effective 
Laboratory Monitoring

Although 80 percent of State respondents believe that the current survey and 
certification process identifies problem laboratories, some problems were identified 
that limit its effectiveness. Surveyors complained about (1) delays in receiving PT 
results from the PT organizations, (2) delays in getting final action from HCF A on 
deficiencies found in the survey process and (3) an outmoded laboratory survey form. 
About 27 percent of States reported problems in timely submission of PT test results 
from PT organizations. This limited State and laboratory abilty to take corrective 
action. The CAP was identified most often as causing delays. Most States felt a 
30- to 60-day turnaround time was reasonable. Sometimes test results did not arrive 
until the next quarer, when the laboratory could be takng a new PT series. From 
the laboratory s point of view, results that are 2 or 3 months old are of less value for 
internal corrective action. According to some State and HCF A regional office staff 
CAP has improved recently in transmitting timely test results to States. 
When a State finds a deficiency as a result of an inspection, the laboratory is 
supposed to be notified withi 10 days. The laboratory then has 19 days either to 
rebut the deficiency notice or to submit a corrective action plan. Upon receipt of an 
acceptable corrective action plan, the State submits the deficiency notice and the 
plan to HCF A The laboratory usually has 45 days under the plan to correct the 
deficiency. 
Sometimes the State will make a follow-up visit to the laboratory to verify 
compliance. Because of limited resources, the State may not follow-up until the next 
scheduled inspection, which could be 1 to 2 years later. Submission of an acceptable 
plan effectively removes the finding of a deficiency at least until the next on-site 
inspection. As one State certification director noted  In order to decertify a 
laboratory, we have to move cautiously and carefully. After we cite a deficiency, the 
back and forth can go on for years. 
About one-quarter of the State respondents believe that final action by HCF A is 
subject to excessive delays. They believe that HCF A is 
overly cautious in 
decertifyng a laboratory. One State surveyor commented  HCF A usually sits on 
cases we have referred to them or they tell us to go back and resurvey the laboratory. 
Many of our cases just die on the vine." Another State surveyor said  HCF A gives 
labs a lot more opportunities than we would. Their attitude seems to be to let the 
labs get back into compliance rather than to decertify them. 
About 50 percent of the respondents said the survey process should be revised. 
They indicated that the survey instrument does not reflect advances in technology, 
particularly concerning the need to monitor automated equipment. The survey 
instrument was developed when most procedures were stil performed manually. 
The form contains many obsolete items and excludes many items that should be  inspected. For example, the form requires the laboratory to perform "linearity 
checks" to determine an analyzer s range of accuracy. Several brands of analyzers 
which are now on the market, however, do not require such checks. Any revision in 
the survey process needs to be flexible enough to take into account rapidly evolving 
laboratory technology.

About 10 percent of respondents mentioned that the survey process was overly 
concerned with paperwork rather than with substantive review. "Paperwork reviews 
can t tell you everyhing, and day-to-day practices can t be reviewed on an annual 
basis " said one State laboratory surveyor. These surveyors feel that many of the 
deficiencies cited during on-site inspections are minor problems or "paper 
compliance issues." These include such issues as lighting or certain fire and safety 
codes. At least one regional quality control officer for a laboratory chain said 
however, that the State Medicare surveyors were more flexible in interpreting survey 
requirements Jhan some professional certification organization representatives. 
State Surveyors Want To Keep Personnel Standards 
Personnel standards are one of the most controversial areas in Federal regulation of 
laboratories. Current regulations mandate credentials for every category of 
laboratory personnel from director to technician. The debate centers upon whether 
these Federal standards should be relaxed in favor of reliance on outcome 
measurement. Almost 75 percent of the State agency respondents believe that the 
Medicare conditions of coverage, which have detailed personnel standards, are 
appropriate for independent laboratories. Alost 50 percent of the respondents 
singled out the importance of maintaining the current personnel standards. Only six 
State respondents suggested that personnel standards are unrealistic or overly rigid 
and should be removed. Most of the laboratory professional associations want to 
maintain personnel standards which mandate credentialing for their specialty. 
Some Terminated Laboratories Continue to Receive Medicare Payments 
During 1987, HCF A terminated 21 independent laboratories from Medicare 
participation for deficiencies in quality control or personnel standards. 
additional 15 laboratories were terminated in a specialty because they failed 
proficiency testing. One laboratory was terminated in a specialty due to quality 
control problems. 
To determine whether the terminations were carried out, OIG staff obtained 
laboratory enrollment information from Medicare carriers servcing each of the 
37 laboratories. The carrier data indicated that no termination action had been 
taken on three (8 percent) of the laboratories. There is no indication whether 
HCF A sent the carriers termination instructions in each instance. Ordinarily, 
HCF A sends the carriers a copy of the termination letter sent to the laboratory. The  carriers must decide from the letter what action to take, whether to stop payment for 
all laboratory Medicare services or for one or more specialties. Regional HCF A 
staff stated that the letter can be confusing to carrier staff and should be replaced by 
a simple form. They also stated that they usually do not follow up with carriers when 
laboratory termination notices are issued and normally do not review carrier action 
on termnation notices when they evaluate carrier performance. 
State Surveyors Want Broader Sanction Authority 
Under current regulations, the major sanction authority for Medicare laboratories is 
decertification leading to termnation from participation. Fines, civil money 
penalties or other intermediate sanctions have not been used as remedies for 
laboratory deficiencies. 
N early two-thirds of the State respondents believe that current sanction authority is 
inadequate. Although fines were mentioned most often, there was no consensus of 
what should be included in an intermediate sanction program. Most felt that 
intermediate sanctions would be effective only if they could be imposed without the 
delays inherent in decertifyg a laboratory. 
States that license laboratories can revoke licenses for cause. Five states have the 
authority to impose fines. Surveyors from at least a third of the States suggested that 
a program of fines would provide increased flexibilty to impose sanctions for 
offenses which do not warrant termination of a specialty or outright closure of a 
facility. For example, Florida has authority to impose fines up to a maxmum of 
$500 per day for violations of licensing laws. First offense fines are 
tyically $250 
per day and second offenses $350. A New Jersey surveyor argued that fines are 
appropriate and effective, "We can impose fines up to $250 per day. I'd like to see a 
faster appeals process, but so far we have gotten a lot of cooperation and have won 
all our cases. 
The Omnbus Budget Reconciliation Act of 1987 (OBRA) mandated HCFA to 
develop regulations for intermediate sanctions that could be used with laboratories 
and other categories of providers "in lieu of termnation." Regulations to implement 
these provisions are stil under development. The CLIA 1988 also contains a 
provision regarding intermediate sanctions, as indicated on page 5. 
Most States Do Not Have Special Regulations Covering AIDS or Pap Smear 
Tests 
Because of concerns raised about the accuracy of tests for the AIDS antibody or for 
Pap smear tests for cervcal cancer, we asked whether any special regulations or 
oversight were given to these two tests. Only 20 percent of the States indicated any 
special oversight for AlDS tests and only 10 percent for Pap smears.  , "
AIDS Testing

Both Medicare and CLIA require that a laboratory enroll in proficiency testing 
when an approved program is available. Laboratories not subject to Medicare or 
CLIA regulations or to special State requirements receive no oversight. The CDC 
testing program is a research activity called the Model Performance Evaluation 
Program. It is designed to provide answers to questions about the effect of factors 
such as personnel, methodology and quality assurance on test results. It is not 
designed to evaluate individual laboratory performance. Both CDC and CAP offer 
proficiency testing for the AIDS antibody test. 
Twenty-four States have no regulations covering AlDS antibody testing, although 
legislation is pending in several. Much of that legislation deals with confidentiality 
per se. Three States require that their public 
of test results rather than with testing 

health laboratory or the testing laboratory perform a confirmatory test on all 
positives before reporting them. Three States monitor AIDS testing and send 
advisories to laboratories. Two States require special licensure. New Jersey, for 
example, requires special licensure as a precondition for AlDS testing. As part of 
the application for licensure, the laboratory must submit a testing protocol for State 
approval. The State agency conducts on-site proficiency testing before the license 
can be granted. The laboratory also must adhere to strict rules of confidentiality. 
AIS 
New York conducts all  antibody testing in its own laboratories, which must 
have a PT score of 100 percent. By comparison, Oregon, which also requires labs to 
enroll in either CDC or CAP proficiency testing, accepts a 75 percent passing score. 
Almost all professional group respondents and other experts felt that no special 
emphasis need be given to standards for AIDS testing beyond current PT 
HI 
requirements. According to CAP  testing for antibody to  is among the most 
accurate tests available today. 
Pap Tests

The Pap test is the microscopic evaluation of cells obtained from the uterine cerv 
stained according to the method originally devised by Dr. George Papanicolaou. 
Cyopathologist and cyotechnologist respondents identified several factors that lead 
to Pap test errors. The most important of these are: 
inadequate collection of the Pap smear sample by the physician and 
failure of the laboratory to reject these samples and request new ones; 
excessive cyotechnologist workloads involving as many as 200 to 300 
slides per day rather than the 80 per day as recommended by all national 
organizations of cytopathologists and cyotechnologists. This problem is 
exacerbated by cyotechnologist salaries which frequently are based on a 
per case rate. This causes some cyotechnologists to work a second shift  in a different laboratory and thus to exceed the recommended limit on 
slides reviewed; 
errors in the initial microscopic reading and laboratory failure to impose 
an adequate rescreening program; 
cyotechnologists who review the Pap smears at home, away from 
supervision of the laboratory; 
lack of adequate internal quality assurance and external proficiency 
testing programs for cyotechnologists and cyopathologists; 
physician failure to provide the laboratory with adequate diagnostic and 
clinical inormation about the patient, which can lead to an inaccurate test 
result and 
failure on the part of the physician to communicate test results to the 
patient. 
New York has the most extensive regulations for Pap tests. These include provision 
for on-site proficiency testing. Laboratories are rated on 10 smears, some positive 
and some negative. State officials hand carr the slides to the laboratory and test 
each cyotechnologist individually. Laboratories are given four chances to pass. 
From 1978 to 1984, only 10 laboratories out of approximately 1 000 failed 3 tests 
and only 1 of those 10 failed a fourth time. 
The CDC is assisting HCF A in developing standards and maintainig quality 
assurance of Pap smear test performance.  RECOMMENDATIONS 
RECOMMENDATIONS IMPLEMENTED THROUGH CLIA OF 1988 
The following three recommendations were implemented by CLIA of 1988. To fully 
accomplish these recommendations, HCF A need only implement the regulatory and 
procedural changes mandated by the law. 
RECOMMENDATION #l--UNIFORM PROFICIENCY TESTING STANDARS 
FINDING: Lack of national criteria for scoring PT results can lead to inequitable 
interpretations of laboratory performance and significant delays in corrective action. 
RECOMMENDATION: Uniform PT standards developed by CDC for all 
laboratories regulated under Medicare and CLIA should be approved and 
implemented. The standards should include (1) national minium passing scores 
for each specialty or subspecialty, (2) timeframes for reporting test results from PT 
organiations to States and laboratories, (3) consistency among PT organizations 
and (4) timeframes for States to take necessary corrective action such as warnings or 
decertification recommendations to HCF 
IMPACT: Uniform national standards for proficiency testing would lead to more 
equitable and timely corrective action for all laboratory deficiencies. 
CONGRESSIONAL ACTION: The CLIA of 1988 mandates that HHS establish 
uniform criteria for acceptable performance under a proficiency testing program. 
RECOMMENDATION #2--MONITORING PAP SMEAR AND AIDS TESTING 
FINDING: Most States have no special regulation of Pap or AIDS tests. Current 
Federal standards for monitoring laboratory performance for these two test 
procedures are inadequate. 
RECOMMENDATION: The CDC and HCFA should issue guidelines for 
cytology
and Pap tests covering (a) appropriate workload guidelines, (b) standards for the 
acceptabilty of specimens submitted to laboratories, (c) standards for patient 
information required to be submitted with specimens and (d) mandatory proficiency 
testing. 
IMPACT: Issuance of standards to insure the greatest feasible accuracy of AIDS 
and Pap smear testing would alleviate much of the current concern about the 
performance of laboratories.  CONGRESSIONAL ACTION: The CLIA of 
1988 establishes national standards for 
quality assurance in cytology servces that must include eight specific criteria in areas 
such as the conduct of the tests, the number of tests to be reviewed by any individual 
in a 24-hour period, when rescreening of specimens is necessary, the proficiency of 
laboratory staff and the quality of test specimen preparation. 
RECOMMENDATION #3--INTERMEDIATE SANCTIONS 
FINDING: Almost two-thirds of State surveyors believed that an increased range of 
sanction authority, which could be imposed without undue delays, would provide 
increased clout and flexibilty. 
RECOMMENDATION: The HCFA should complete and issue regulations 
implementing the intermediate sanctions provided for in Section 4064 (d) of OBRA 
1987 which amends Section 1846 (a) and (b) of the Social Security Act. 
IMPACT: Implementation of this authority would give States a range of sanctions to 
use in lieu of recommending termination. 
CONGRESSIONAL ACTION: The CLIA of 1988 imposes a new set of 
intermediate sanctions, such as civi money penalties or directed plan of correction 
in lieu of suspension, revocation and limtation actions when deemed appropriate. 
RECOMMENDATIONS ADDRESSED BY CLIA OF 1988 THAT STIL 
REQ 
FURTHER ACTION 
The followig two recommendations were addressed, in part, by CLIA of 1988. To 
fully accomplish these recommendations, however, HCF A will need to implement 
regulatory and procedural changes beyond those required by CLIA of 1988. 
RECOMMENDATION #4--STANDARS OF CONDUCT FOR PROFICIENCY 
TESTING 
FINDING: Although most State surveyors believe that many laboratories do not 
perform proficiency tests in a routine manner, there is little documentation to 
support this belief. 
RECOMMENDATION: The HCFA should approve and implement explicit 
standards of conduct for laboratories participating in PT. In addition, HCF A should 
(1) prepare specific guidelines for State agencies to insure that laboratories follow 
the standards for conducting proficiency tests in a "routine" manner the same as for 
any clinical sample, (2) instruct States to document instances where prohibited 
processing of PT samples takes place and (3) instruct States to conduct on-site 
observation of laboratories processing PT samples on a selective basis.  with appropriate 
IMPACT:  Close monitoring of laboratory participation in 
corrective action, would reduce instances of inappropriate handling of PT 
specimens. 
CONGRESSIONAL ACTION: The CLIA of 1988 requires that (1) a laboratory 
agree to treat PT samples "in the same manner as it treats material derived from the 
human body referred to it for laboratory examinations or other procedures in the 
ordinary course of its business" and (2) the Secretary "perform a program of on-site 
proficiency testing to insure that laboratories continue to meet their certificate 
requirements. " 
The HCFA states that the proposed regulations contain 
HCFA RESPONSE: 

explicit standards for conducting PT. Additionally, HCF A is considering a 
demonstration project to evaluate the feasibilty of on-site PT. 
RECOMMENDATION #5--LAORATORY SURVEY PROCESS 
Lack of targeting, coupled with limited staff, results in insuffcient 
FINDING: 
attention to laboratories with deficiencies. Portions of the current survey instrument 
are obsolete because they do not reflect advances in technology. 
The HCFA should (a) revise the laboratory survey 
RECOMMENDATION: 
instrument and the interpretive guidelines to reflect state-of-the-art laboratory 
practices, (b) streamline the process for insuring corrective action following a 
finding of deficiency and (c) develop procedures to target laboratories for inspection 
based on prior performance so that all laboratories with deficiencies or unusual 
problems could be inspected more frequently and laboratories without problems 
less frequently. 
A survey process which allows for targeting and adequate timeframes for 
IMPACT: 
corrective action will insure adequate monitoring even with increased workloads and 
resource limitations. 
CONGRESSIONAL ACTION: The CLIA of 1988 states that the Secretary may, on 
an announced or unannounced basis, enter and inspect laboratories which have been 
issued a required certificate and have access to all facilities, equipment, materials 
records and information determined to have a bearing on whether the laboratory is 
being operated in accordance with national quality standards. 
The HCFA concurs with this recommendation. 
HCFA RESPONSE: 
 NEW RECOMMENDATION 
The following recommendation was not included in the draft report. Because the 
finding is not addressed by CLIA of 1988, we have decided to include this 
recommendation in the final report. 
RECOMMENDATION #6--REIMBURSEMENT TO TERMINATED 
LAORATORIES 
Carriers continue to reimburse some laboratories termnated from 
FINDING: 
participation in Medicare. The HCFA performed no follow-up or verification with 
the carriers to determine if payment had been stopped. 
The HCFA should develop procedures to verify carrier 
RECOMMENDATION: 
action on laboratories terminated from Medicare. Additionally, HCF A should 
modify the way it notifies carriers of termnations. A specialty deletion check-off 
sheet to the carrier would be appropriate. 
Clear instructions and follow-up with carriers by HCFA would eliminate 
IMPACT: 
or greatly reduce overpayments to termnated laboratories.  APPENDIX

STATE REGULATION OF LABORATORIES

The following matrix identifies States that (a) license independent laboratories 
(IL), (b) regulate quality control (QC) and laboratory personnel (PERS) and (c) 
require inspections (INSP).

PERS  INSP 
ALABAMA

ALASKA

ARIZONA

ARKANSAS

CALIFORNIA

COLORADO

CONNECTICUT

DELAWARE

FLORIDA

GEORGIA

HAWAII

IDAHO

ILLINOIS

INDIANA

IOWA

KANSAS

KENTUCKY

LOUISIANA

MAINE

MARYLAND

MASSACHUSETTS

MICHIGAN

MINNESOTA

MISSISSIPPI

MISSOURI

MONTANA

NEBRASKA

NEVADA

NEW HAMPSHIRE

NEW JERSEY 
NEW MEXICO

NEW YORK 
NORTH CAROLINA

NORTH DAKOTA

OHIO

OKLAHOMA

OREGON

PENNSYLVANIA

RHODE ISLAND 
SOUTH CAROLINA

SOUTH DAKOTA

TENNESSEE

TEXS

UTAH

VERMONT

VIRGINIA

WASHINGTON

WEST VIRGINIA 
WISCONSIN

WYOMING