Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:

Center Clinical Laboratory, DATE: February 15, 1996

Petitioner,

Docket No. C-95-160
Decision No. CR411

-vo-

Health Care Financing
Administration.

DECISION ON REMAND

Background

The procedural history of this case is contained in my
prior decision, CR358 (1995), and in the decision of the
appellate panel of the Departmental Appeals Board, DAB
1526 (1995), which reversed my decision and remanded the
case to me for further proceedings. In its decision, the
appellate panel has set forth the interpretations of the
regulations that govern the outcome of this case. The
appellate panel concluded that I erred in setting aside
the sanctions imposed by the Health Care Financing
Administration (HCFA) on procedural grounds. The panel
determined instead that HCFA had acted properly in
imposing all of the sanctions in question. DAB 1526, at
11 - 20.

In accordance with the appellate panel's directives on
remand, I have evaluated the evidence concerning the sole
factual issue remaining in this case: whether Petitioner
had any condition-level deficiency as determined by the
State surveyors and HCFA. As the appellate panel stated
in the last paragraph of its decision,

(I]f the ALJ determines that Petitioner did

have any condition-level deficiency as

determined by the State surveyors and HCFA,

. . . [t]he ALJ merely has to affirm the principal
sanctions being imposed by HCFA: suspension,
2

revocation, and cancellation of Medicare payments.
The regulations provide, as HCFA here clarified,
that HCFA's decision to revoke [Petitioner's CLIA
Certificate] becomes effective after a hearing
decision by the ALJ upholding HCFA's decision is
issued. [42 C.F.R.] Section 493.1844(d). Moreover,
alternative sanctions, such as a directed plan of
correction, are no longer relevant since they are
designed to prevent the principal sanctions from
going into effect and therefore may themselves
continue in effect only until a suspension or
revocation becomes effective. Section

493.1810(d) (2).

DAB 1526, at 24.

The appellate panel has determined that HCFA acted
properly in imposing all of the sanctions in issue (id.
at 11 - 20), that an affirmation of the principal
sanctions imposed by HCFA depends solely on the existence
of condition-level deficiencies (id. at 24) and the other
sanctions also imposed by HCFA are no longer relevant
(id.). Accordingly, I have reviewed the record as a
whole and now make the following findings material to the
issues on remand.

Findings of Fact and Conclusions of Law

1. During February and March of 1993, the New Jersey
Department of Health, acting as agent for HCFA, surveyed
Petitioner under the Clinical Laboratory Improvement Act
(CLIA). HCFA Exhibits (Exs.) 1, 1b, 127, 128.

2. Between May 27 and June 1, 1993, HCFA imposed various
sanctions under CLIA pursuant to its determination post
survey that Petitioner's deficiencies posed "immediate
jeopardy" to patient health and safety. HCFA Exs. 127,
128; see 42 C.F.R. § 493.2 (definition of "immediate
jeopardy").

3. HCFA's determination of "immediate jeopardy" is not
reviewable in this forum. 42 C.F.R. § 493.1844(c) (6).

4. The principal sanctions HCFA imposed are the
suspension and revocation of Petitioner's CLIA
certification and the cancellation of Petitioner's
approval to receive Medicare payment. HCFA Exs. 127,
128; 42 C.F.R. §§ 493.2, .1806(b), .1807(a).

5. A condition-level deficiency means noncompliance with
one or more requirements identified as "conditions"
3

within subparts G through Q of 42 C.F.R. Part 493. 42
C.F.R. § 493.2.

6. HCFA proved that, during the time of the February -
March 1993 survey, Petitioner had condition-level
deficiencies under 42 C.F.R. Part 493, Subpart H (re
participation in proficiency testing). Pages 4 - 6,
herein.

7. HCFA proved that, during the time of the February -
March 1993 survey, Petitioner had condition-level
deficiencies under 42 C.F.R. Part 493, Subpart J (re the
management of patient tests). Pages 6 - 10, herein.

8. HCFA proved that, during the time of the February -
March 1993 survey, Petitioner had condition-level
deficiencies under 42 C.F.R. Part 493, Subpart K (re
quality control of tests). Pages 11 - 13, herein.

9. HCFA proved that, during the time of the February -
March 1993 survey, Petitioner had condition-level
deficiencies under 42 C.F.R. Part 493, Subpart P (re
quality assurance). Pages 13 - 14, herein.

10. HCFA proved that, during the time of the February -
March 1993 survey, Petitioner had condition-level
deficiencies under 42 C.F.R. Part 493, Subpart M, insofar
as they pertain to the responsibilities of laboratory
directors and supervisors. Pages 13 - 14, herein.

11. HCFA properly imposed principal sanctions against
Petitioner. Findings 4 - 10; DAB 1526, at 24.

Discussion

By way of overview, I note that all of the condition-
level deficiencies alleged and proven by HCFA are inter-
related by facts or logic. See Tr. 347 - 48. I find
persuasive HCFA's use of Petitioner's records to prove
HCFA's contention that Petitioner had incurred condition-
level deficiencies as a laboratory performing tests of
moderate or high complexity.! Petitioner had made its
records available to the surveyors during the February -
March 1993 survey, and the records randomly selected for
review by the surveyors reflected ongoing chaotic,
inconsistent, inadequate, and sometimes aberrant methods

! Petitioner has not disputed that the
regulations governing laboratories performing moderate or
high complexity tests apply to its operations.
4

for performing proficiency tests and patient tests,
identifying patient test specimens and reporting patient
test results, and performing required quality control
procedures. In the absence of any substantive or
credible rebuttal by Petitioner, the nature and extent of
such problems establish that Petitioner had violated the
conditions for performing proficiency tests (Subpart H),
management of patient tests (Subpart J), and quality
control (Subpart K).

Since there is no evidence that Petitioner had taken
meaningful steps to ascertain and correct the foregoing
condition-level deficiencies, it is reasonable to
conclude also that Petitioner has failed to meet the
condition-level requirements for quality assurance
(Subpart P) and for Petitioner's laboratory director and
supervisor to perform their duties as specified by the
regulations (Subpart M). The quality assurance condition
requires the laboratory to ensure the quality of its own
work through a continuing self-monitoring process, and
the condition pertaining to laboratory directors and
supervisors requires that these individuals effectuate
their responsibilities so that proficiency testing,
patient testing, quality control, and other requisite
procedures are implemented in accordance with CLIA
requirements. 42 C.F.R. Part 493, Subparts M and P.
Therefore, the evidence supports the conclusion that if
Petitioner had complied with the conditions for quality
assurance and for its laboratory director and supervisor
to perform their responsibilities as required by the
regulations, Petitioner should not have incurred
condition-level deficiencies for performing proficiency
tests, patient test management, or quality control.

I discuss below the condition-level deficiencies proven
by HCFA on the basis of evidence which I find to be
credible and essentially unrebutted by Petitioner.

A. Petitioner was not in compliance with the condition
of participation governing proficiency testing of
samples.

Subpart H of the regulations sets forth the condition for
the performance of proficiency tests by laboratories
performing tests of moderate or high complexity. 42
C.F.R. Part 493, Subpart H. Proficiency testing is a
system used to check a laboratory's ability to perform
certain patient tests. Tr.:900. Four times each year, a
proficiency testing organization approved by HCFA sends
out a set of five proficiency testing samples of unknown
values to the laboratory for testing by that laboratory.
Tr. 900 - 02. The regulations are specific in requiring
5

that the laboratory: 1) test its proficiency samples in
the same manner as it tests its patient specimens; 2)
test its proficiency samples the same number of times as
it routinely tests patient samples; 3) document the
handling, preparation, processing, examination, and each
step in the testing and reporting of proficiency testing
samples; and 4) maintain, for a minimum of two years, the
relevant records (including the attestation statement
documenting that the proficiency testing samples were
tested in the same manner as patient specimens). 42
C.F.R. § 493.801(b).

During the February - March 1993 survey, the surveyors
analyzed Petitioner's records concerning its performance
of proficiency chemistry tests in 1992. See, e.g., HCFA
Ex. 1 at 33; HCFA Ex. 97; Tr. 899 - 908. The surveyors
concluded that Petitioner was not performing its
proficiency tests in the same manner and with the same
frequency that it was routinely performing its patient
tests. HCFA Ex. 1 at 33. For example, in 25 out of the
27 proficiency chemistry tests reviewed by one surveyor,
Petitioner had tested its proficiency chemistry samples
more than once, even though the results from these
samples were all within the normal range. Tr. 904 - 12.
In contrast, Petitioner did not retest any patient
specimen that had attained a normal result, and
Petitioner did not consistently retest patient specimens
that attained abnormal or odd results. Id. In addition,
by comparing the contents of the proficiency test reports
and the documents Petitioner generated in preparation of
those reports, the surveyors found instances where
Petitioner reported proficiency test results which,
according to Petitioner's work papers, Petitioner had not
attained. Tr. 907 - 08.

There is no logical reason for repeatedly testing
proficiency samples having normal results, especially
when Petitioner appears to know this from its routine
practice of not testing patient specimens more than once
after attaining a normal result. Tr. 906. Nor can
Petitioner's retesting of numerous proficiency samples
having normal results be reconciled with its practice of
failing to retest patient samples even when those patient
samples have very odd or abnormal results. These
disparities in methodologies violate Petitioner's
obligation to conduct its proficiency tests in the same
manner and for the same number of times that it routinely
performs patient tests. See 42 C.F.R. § 493.801(b) and
(b) (2). In addition, the conclusion that Petitioner
violated the recordkeeping requirements of 42 C.F.R. §
493.801(b)(5) is shown by the absence of correlation
between some of the proficiency test results reported by
6

Petitioner and the documents supplied to the surveyors
for review.

Petitioner acknowledges that the regulation governing
proficiency testing requires the laboratory to process
proficiency test samples in the same manner as it does
patient specimens. P. Br. at 14. Nevertheless,
Petitioner argues that it was in compliance, even though
it did not test patient samples and proficiency testing
samples the same number of times. Id. Petitioner argues
that its practice does not violate the regulation.
Petitioner's argument is plainly wrong, however, as 42
C.F.R. § 493.801(b) (2) quite specifically requires that
proficiency samples be tested the same number of times as
patient specimens.

On the basis of the foregoing evidence and the absence of
any credible proof supporting a contrary conclusion, I
find that Petitioner violated the condition for
performing proficiency tests in the manner required by 42
C.F.R. § 493.801.

B. Petitioner was not in compliance with the condition
of participation governing patient test management.

Subpart J of the regulations sets forth the condition for
patient test management in laboratories performing
moderate or high complexity tests. 42 C.F.R. Part 493,
Subpart J. To satisfy this condition, the laboratory
must employ and maintain a system that provides for,
inter alia, the proper identification, preservation, and
processing of patient specimens, and the accurate
reporting of results. 42 C.F.R. § 493.1101. It is
incumbent upon the laboratory to ensure the reliable
identification of patient specimens as they are processed
and tested to assure that accurate test results are
reported. 42 C.F.R. §§ 493.1101, .1107.

The laboratory also must send test reports promptly to
the authorized individual who requested the test. 42
C.F.R. § 493.1109. This means, for example, that the
laboratory should have in place an adequate system for
reporting patient test results in a timely, accurate,
reliable, and confidential manner. 42 C.F.R. §
493.1109(a). The laboratory must make available to the
authorized person who requested the test the "reference"
or "normal" ranges determined by the laboratory, and the
laboratory must develop and follow written procedures for
immediately reporting any imminent life-threatening
results or "panic values" to the authorized individual
who requested the test. 42 C.F.R. § 493.1109(d), (f).
The laboratory must also retain copies of test records
7

and test reports for specified periods of time after the
results are sent promptly to the authorized individual
who requested the test. 42 C.F.R. §§ 493.1107, .1109.
For example, immunohematology test records and reports
must be maintained by the laboratory for at least five
years, and pathology test reports must be retained for a
minimum of 10 years after the date of reporting. Id.

The evidence in this case establishes that Petitioner did
not comply with the condition of participation for
patient test management, for three reasons. First,
Petitioner's practices did not assure the proper
identification of patient specimens. Second, Petitioner
failed to maintain the records required by regulation.
Third, Petitioner did not insure that test results were
promptly reported to the individual that requested them.

1. Petitioner failed to insure that patient
specimens were properly identified.

During their review of Petitioner's records and
practices, the surveyors discovered that Petitioner's
identification of culture plates was inadequate. A
surveyor testified that the markings on the culture
plates indicated only the date the culture was made and
the last three digits of the patient identification
number. Tr. 503, 505 - 07. This identification was
inadequate because, as explained at the hearing, the lab
must have a record system that permits the tracking of a
patient specimen from entry to final report. Tr. 246 -
48. However, the surveyors found it impossible at times
to confirm that patient specimens had been identified
correctly because neither the patients' names nor their
identification numbers had been entered in Petitioner's
work records. HCFA Ex. 1 at 14. Instead, Petitioner
entered in its records only the last one or two digits of
the patients' identification number, which, in its
entirety, should consist of nine digits containing also
the year, month, day, and sequence in which Petitioner
had logged in the physician's request for testing the
specimen. Id. Even though Petitioner routinely entered
the testing date and date of specimen collection in its
work records, such entries were not adequate for
accurately identifying patients from Petitioner's work
records. Id. Because in several cases specimens were
collected or tested on days that differed from those on
which the doctors gave their orders or when Petitioner
received the specimens, it was not appropriate to
construe the two dates appearing in Petitioner's work
records as the missing digits from the patient
identification numbers. Id.
8

The surveyors found also that Petitioner accepted some
urine specimens in unlabeled containers, which, even if
the patient's name had been written on the lid of the
container, presented the risk of having the contents of
the container associated with the wrong lid and wrong
patient name. Tr. 339 - 43, 351 - 52. Petitioner
admitted that it does not keep all information on the
specimen containers, but it alleges that it maintains all
the necessary information on the request forms, which are
logged in with the specimen. P. Ex. 15 at 3. However,
the request forms and log information reviewed by the
surveyors contradict Petitioner's allegations.
Petitioner's records reveal that Petitioner: 1) failed
to include in its accession number system the dates on
which specimens were collected; 2) assigned duplicate
numbers to some specimens; 3) failed to assign
consecutive numbers to specimens collected from one
collection station; 4) omitted the names and addresses of
some physicians who requested tests; and 5) failed to
indicate which of two collection stations the specimens
came from. Tr. 249 - 89.

2. Petitioner failed to keep adequate records of
its test results.

In addition to its inadequate identification of patient
specimens, Petitioner also was not in substantial
compliance with the regulation's recordkeeping
requirements under the patient test management condition.
For example, Petitioner's supervisors were unable to
produce any work records to support the parasitology
results it reported for 1992. Tr. 415 - 17; HCFA Ex. 1
at 12 - 13. The regulations require such records to be
kept for a minimum of two years. 42 C.F.R. § 493.1107.
Moreover, even though Petitioner produced its 1993 work
records for parasitology, its recordkeeping systems or
techniques were so defective that the surveyor was not
able to track various specimens from their accession
report to the actual work records. Tr. 415 - 17.

Another surveyor described similar unsuccessful attempts
to establish a correlation between Petitioner's
immunohematology reports and actual work records. Tr.
915 - 17. Petitioner is required to maintain
immunohematology records for a minimum of five years. 42
C.F.R. §§ 493.1107, .1109. During the February - March
1993 survey, the surveyor randomly selected for review
the records and reports for 10 patients tested during a
three-month period during 1992. Tr. 915 - 17. She could
not find the actual work records for five of the these 10
patients. Id.
9

Even though Petitioner later submitted a "quality control
book" (P. Ex. 6), purporting to substantiate the
performance of the tests for all 10 patients, the
surveyor noted several reasons for doubting the truth of
the information contained in the book. First, the book
was submitted only after Petitioner had received notice
of the deficiencies. Tr. 918. Moreover, the tests in
issue were done manually and not on machines. Tr. 926.
Even if a quality control test should have been run on
these types of tests, a laboratory should not do a
quality control test on actual patient specimens, because
a quality control test involves working with samples of
known values, whereas actual patient specimens have
unknown values. Tr. 918 - 22, 926, 928. The surveyor
noted also that the contents of the "book" later produced
by Petitioner is highly suspect in that it coincides in
all respects with the information the surveyor examined
in the laboratory, except that it also has information
pertaining to the other five patients (and only the five
other patients) in issue for the same time period. Tr.
918 - 22. The surveyor's observations are well-reasoned
and persuasive. By contrast, the testimony introduced by
Petitioner in defense of the existence of the "book" and
its contents appears contrived and conveniently self-
serving. See Tr. 937 - 42; P. Ex. 15 at p. 4.

3. Petitioner failed to report test results in a
timely and accurate manner.

I found persuasive also HCFA's conclusion that Petitioner
failed to meet the timely test reporting requirements of
Subpart J. One surveyor testified from the review of
Petitioner's records that some tests were completed
within 48 hours, but Petitioner took four days to report
those results. Tr. 530 - 35. With respect to the
requirement for reporting "panic values" or results
having life-threatening implications, HCFA showed that
Petitioner's records do not contain notations of what
action, if any, was taken on the reporting of "panic
values." Tr. 314. Even if Petitioner had written
policies in place for providing prompt notice of "panic
values" to doctors or other authorized individuals who
requested the tests, Petitioner's agents and employees
did not appear to follow any consistent procedures when
they were obligated to report life-threatening results.
Tr. 311 - 12. The surveyors found also many instances
where Petitioner failed to report abnormal or spurious
tests and inaccurately reported patient results. Tr. 318
- 39; HCFA Ex. 1 at 32.

Through the testimony of at least one of its witnesses,
HCFA acknowledged the various possibilities that may have
10

accounted for the grossly abnormal patient test results
reviewed during the survey: a bad test system, bad
specimens, or patients who were truly very ill. Tr.

889 - 90, 893. However, as also discussed below, if the
abnormal results were due to a bad test system or bad
specimens, Petitioner took none of the remedial actions
required by the regulations. Similarly, if the abnormal
test results accurately reflected the serious illness of
patients, Petitioner failed to contact the doctors in the
manner required by Subpart J. Tr. 890 - 91. In fact, the
records reviewed by the surveyors show that, in several
instances, abnormal results appear to have been
deliberately deleted from patient reports. Tr. 892 - 95.

HCFA's evidence shows also that Petitioner was reporting
incorrect and incomplete normal ranges, in contravention
of the regulatory requirement that pertinent "reference"
or normal ranges, as determined by the laboratory
performing the tests, be made available to those who
order or will utilize the tests. 42 C.F.R. §
493.1109(d); HCFA Ex. 1 at 20 - 23. At the hearing, one
of HCFA's witnesses testified that Petitioner reported
incorrect normal ranges for potassium in its chemistry
test results. Tr. 876 - 78. Petitioner's failure to
report the normal range of tests correctly or completely
is seen also in its reporting of only the normal ranges
for males in certain tests where the normal ranges are
gender-dependent. HCFA Ex. 1 at 22. I agree with
HCFA's interpretation that the regulation, in requiring
that the pertinent normal or "reference" ranges be made
available, means that the correct ones be made available.
See 42 C.F.R. § 493.1109(d).? Petitioner did not prove
its assertions that it reported "accepted medical ranges"
and used a "medically accepted formula" in calculating
the patient test results. See P. Ex. 15 at 5.

For the foregoing reasons, I conclude that HCFA has
proven that Petitioner had condition-level deficiencies
in the management of patient tests.

2 The reporting of incorrect and incomplete
normal ranges shows also that Petitioner violated the
conditions of quality control and quality assurance,
discussed below.
11

Cc. Petitioner was out of compliance with the condition
of participation governing quality control for labs
performing moderate or high complexity tests.

Subpart K of the regulations contains the requirements
that must be satisfied by laboratories performing tests
of moderate or high complexity in order to meet the
condition of quality control. 42 C.F.R. Part 493,
Subpart K. Quality control refers to techniques for
measuring the accuracy of tests by performing the tests
on materials for which the correct values are known. fr.
353 - 54. Under the regulations, a laboratory must
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 tests and results.

42 C.F.R. § 493.1201(b). As especially relevant to this
case, the regulation is specific that the laboratory must
perform and document its control procedures using at
least two levels of control materials each day of
testing. 42 C.F.R. § 493.1202(c) (4). In addition, the
laboratory must take remedial actions when appropriate
and document such remedial actions. 42 C.F.R. §§
493.1219, .1221.

In order to ascertain the validity of Petitioner's
quality control data, the surveyors chose to review the
control records for Petitioner's platelet testing system,
automated complete blood count (CBC) system, and
chemistry profiling system. HCFA Ex. 1 at 24. At the
very basic level, the surveyors found that many of
Petitioner's control results were illegible, and no
control results were recorded on some days. Tr. 366 -
68; HCFA Ex. 1 at 24. These facts support the conclusion
that Petitioner was not performing the required control
tests on each day of testing.

At the hearing, one of HCFA's witnesses detailed the
various problems found in the review of Petitioner's
control data for platelet testing system. Tr. 362 - 92.
She explained the significance of the information
contained in control product inserts provided by the
manufacturer, which list the true or target values for
the control material of a particular batch within a
particular lot. Tr. 357 - 58, 368 - 72. Petitioner's
control records for platelet testing were aberrant in the
following respects: 1) the recurrence of a few specific
values; 2) the appearance of the same two Low Level
control values in 12 out of 15 instances; 3) the
recurrence of consecutive identical sets of Normal Level
and High Level control results within a short period of
time; and 4) the absence of corresponding changes in the
12

High Level control values reported by Petitioner when the
lot number and target levels of the platelet controls
changed. HCFA Ex. 1 at 24 - 26; Tr. 372 - 92. Based on
these and like problems in Petitioner's control records,
I agree with the surveyors' conclusion that Petitioner's
quality control system for platelet testing was
unsatisfactory. HCFA Ex. 1 at 24 - 26.

The surveyors concluded also that Petitioner's quality
control of its CBC test system was unsatisfactory because
the accuracy of Petitioner's control data in this area
could not be verified, for several reasons. HCFA Ex. 1
at 26. At the hearing, one of the surveyors explained
the workings of a Coulter Counter analyzer, which
performs the CBC tests for Petitioner and should
automatically print out dates and sequence numbers. Tr.
395 - 98. However, the analyzer printouts provided by
Petitioner did not have the dates or proper sequence
numbers, and Petitioner had discarded the carbon copies
of its original analyzer printouts. Tr. 398 - 401; HCFA
Ex. 1 at 26. In addition, the information on the
originals was very difficult to read. Id. Without
sequencing numbers, there was no way for the surveyors to
know when the control data were generated: whether they
were generated on certain days and used for other days,
or generated on each day of patient testing as required
by the regulations. Tr. 399 - 400. Even though the
surveyor could not be certain whether Petitioner had
falsified its CBC control data, she testified that
laboratories have been known to generate multiple copies
of control results on a day when their analyzer is
operating properly, so that these control results could
be used on other days when their equipment is not
operating properly or when they do not care to run
control tests. Tr. 402 - 04. This testimony underscores
the importance of having verifiable control data in order
to satisfy the condition for quality control.

In the area of patient chemistry testing, the surveyors
discovered that Petitioner was calculating certain
results incorrectly, and was not investigating or
correcting problems that produced spurious test values.
See HCFA Ex. 1 at 20 - 23. Petitioner was using the
wrong formula to calculate low density lipoprotein (LDL),
which caused the wrong results to be reported. HCFA Ex.
1 at 22 - 23; Tr. 567 - 77. Petitioner could not
identify a reference source for the single normal LDL
range it was reporting for both sexes. Petitioner
claimed to have been relying on the same range reported
by the previous laboratory owner for the LDL tests. HCFA
Ex. 1 at 22; Tr. 565 - 68.
13

In addition, the surveyors found frequent instances of
biased results in the small sample of Petitioner's
records randomly selected for review. HCFA Ex. 1 at 21;
Tr. 542 - 62. That is to say, instead of finding patient
values equally distributed around the mean of the normal
range for a particular test (i.e., 50 percent above and
50 percent below), the surveyors found higher percentages
of results at either above the mean to create a positive
bias, or at below the mean to create a negative bias.
Thus, due to such biases, Petitioner was obtaining an
unusually high percentage of abnormal values. HCFA Ex. 1
at 21.

Even though Petitioner's records provided repeated
indications of possible malfunctioning of its test
systems or equipment (e.g., Tr. 389 - 92, 893),
Petitioner undertook no remedial action as required by
the regulations. Instead, Petitioner likely deleted
information from its test reports by manually overriding
certain machine generated data that reflected the
existence of its systemic or equipment problems. Tr. 893
- 95.

This and like evidence of record prove that Petitioner
failed to satisfy the condition of quality control.

D. Petitioner's deficiencies in proficiency testing,
patient test management, and quality control demonstrate
that Petitioner failed also to comply with the conditions
of participation governing quality assurance and those
governing laboratory directors and supervisors.

Subpart P of the regulations contains the requirements
for the condition of quality assurance. 42 C.F.R. Part
493, Subpart P. For quality assurance, the laboratory
must have ongoing monitoring and evaluation of its test
management system and quality control system. 42 C.F.R.
§§ 493.1703, .1705. For example, the regulations require
that the laboratory assess its quality control system to
determine whether its corrective actions have effectively
responded to the following: 1) problems identified during
the evaluation of calibration and control data for each
test method; 2) problems identified during the evaluation
of patient test values for the purpose of verifying the
reference range of a test method; and 3) errors detected
in reported results. 42 C.F.R. § 1705. In addition, the
laboratory must document all quality assurance activities
and make such records available to the Department of
Health and Human Services. 42 C.F.R. § 493.1721.

Subpart M of the regulations contains the requirements
for laboratory directors and supervisors to perform
14

certain specified responsibilities. In a laboratory
performing moderate and highly complex tests, a
laboratory director must provide overall management and
direction in accordance with the regulations, and his
responsibilities include ensuring that proficiency test
samples are tested as required under Subpart H, ensuring
that quality control and quality assurance programs are
established and maintained, and ensuring that all
necessary remedial actions are taken and documented. 42
C.F.R. §§ 493.1403, 493.1407, 493.1445. In a laboratory
performing highly complex tests, there must be a general
supervisor whose responsibilities include being
accessible to testing personnel, providing day-to-day
supervision of high complexity testing, and ensuring that
acceptable levels of analytic performance are maintained.
42 C.F.R. §§ 493.1459, 493.1463. In addition, the
general supervisor may be delegated the laboratory
director's responsibility for assuring that all remedial
actions are taken whenever test systems deviate from the
laboratory's established performance specifications and
ensuring that patient test results are not reported until
all corrective actions have been taken and the test
system is properly functioning. 42 C.F.R. §
493.1463(b) (1), (2).

The problems discussed in the earlier sections of this
decision and substantiated in the record support the
conclusion that Petitioner failed to comply with the
conditions for quality assurance and that its laboratory
director and general supervisor failed to perform their
responsibilities in accordance with the regulations.
Because of Petitioner's deficiencies in the areas of
proficiency testing, patient test management, and quality
control, Petitioner's integrity depended upon its
supervisor and director performing their duties properly
and undertaking meaningful quality assurance. Only by
complying with the regulatory requirements for quality
assurance and laboratory directors and supervisors found
in Subparts P and M could Petitioner have begun to
eliminate on its own the continuing systemic problems
found by the surveyors. However, whether it was
Petitioner's noncompliance with Subparts P and M that
caused the condition-level deficiencies under Subparts H,
J, and K, or vice versa, the results were the same:
Petitioner did not conduct the required self-evaluation,
was not ascertaining its own mistakes and problems, and
did not implement any of the necessary remedial actions
through its director or supervisor.

For these reasons, I conclude that Petitioner had failed
to comply with the conditions at 42 C.F.R. Part 493,
Subparts P and M.
15
Conclusion
For the reasons discussed above, I find that Petitioner
was out of compliance with a number of Medicare
Conditions of Participation. I conclude, therefore, that
HCFA was authorized to impose the principal sanctions of

revocation of Petitioner's CLIA certificate and
cancellation of Medicare payments to Petitioner.

/s/
Mimi Hwang Leahy

Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:
Gregory M. Manga, R.Ph., DATE: January 18, 1996
Petitioner,

Docket No. C-95-164
Decision No. CR409

-v-

The Inspector General.

DECISION

The I.G. excluded Petitioner from participating in
Medicare and Medicaid for ten years, pursuant to section
1128(a)(1) of the Social Security Act (Act).' I conclude
that the I.G. had authority to exclude Petitioner and
that the duration of the exclusion is reasonable.

I. Background

On July 25, 1995, the I.G. sent a notice of exclusion to
Petitioner. Petitioner requested a hearing, and the case
was assigned to me. At a prehearing conference,
Petitioner and the I.G. agreed that an in-person hearing
was not necessary, and that the case could be decided
based on written submissions, including briefs and
exhibits. The parties briefed the issues. Additionally,
the I.G. submitted three proposed exhibits with her brief
and a fourth proposed exhibit with her reply.’

Petitioner did not object to my receiving these exhibits
into evidence. Therefore, I receive into evidence I.G.
Exs. 1 - 4.

' I use the term "Medicaid" to refer to all State

health care programs described in section 1128(h) of the
Act.

? Although the I.G. offered I.G. Ex. 4, the I.G.
objected to my admitting the exhibit into evidence. The
I.G.'s objections are hereby overruled.
2

II. Issues, findings of fact, and conclusions of law

The issues in this case are whether the I.G. had
authority to exclude Petitioner, and whether the duration
of the exclusion is reasonable. I make the following
findings of fact and conclusions of law (Findings), which
I discuss, in detail, below.

1. Section 1128(a)(1) of the Act requires the Secretary
to exclude any individual who is convicted of a criminal
offense related to the delivery of an item or service
under Medicare or Medicaid.

2. Petitioner was convicted of a criminal offense
related to items or services delivered under the
Pennsylvania Medicaid program and, therefore, was
convicted of a criminal offense within the meaning of
section 1128(a)(1) of the Act.

3. The I.G. was not limited to imposing a five-year
exclusion against Petitioner.

4. An exclusion imposed under section 1128(a)(1) must be
for a minimum duration of five years.

5. Regulations provide that an exclusion of more than
five years may be imposed in any case where there exist
aggravating factors, which are not offset by mitigating
factors.

6. The I.G. proved that two aggravating factors exist.

7. Petitioner did not prove that any mitigating factors
exist.

8. The degree of untrustworthiness established in this
case proves that an exclusion of ten years is reasonable.

III. Analysis

A. The I.G.'s authority to exclude Petitioner
(Findings 1 and 2

Section 1128(a)(1) of the Act mandates the Secretary of
the United States Department of Health and Human
Services, or her delegate, the I.G., to exclude from
participation in Medicare or Medicaid any individual or
entity who is convicted of a criminal offense related to
the delivery of an item or service under Medicare or
Medicaid. Petitioner pleaded guilty to, and was
convicted of, a scheme to defraud the Pennsylvania

3

Medical Assistance Program, by knowingly and
intentionally submitting to that program reimbursement
claims for services which he had not provided. I.G. Exs.
1, 3.

The I.G. avers that the Pennsylvania Medical Assistance
Program is the Pennsylvania Medicaid program. I1.G.’s
brief at 1. Petitioner has not denied this assertion. I
conclude that the Pennsylvania Medical Assistance Program
is the Pennsylvania Medicaid program.

The offense of which Petitioner was convicted consists of
perpetrating a fraud against the Pennsylvania Medicaid
program. Conviction of such an offense has been held to
be conviction of a criminal offense as defined by section
1128(a)(1). Jack W. Greene, DAB 1078 (1989), aff'd,
Greene v. Sullivan, 731 F. Supp. 835 and 838 (E.D. Tenn.
1990). Thus, I conclude that Petitioner was convicted of
an offense within the meaning of section 1128(a)(1) of
the Act.

B. The duration of the exclusion (Findings 3 - 8)

1. Petitioner's argument that the I.G. agreed
to_impose an exclusion of five years (Finding

3)

Petitioner argues that he was excluded by the I.G. only
for a period of five years. See I.G. Ex. 4. This
argument is incorrect. The exhibit on which Petitioner
relies is the notice which the I.G. sent to Petitioner in
June 1995, proposing to exclude Petitioner. In that
proposal, the I.G. advised Petitioner that she intended
to exclude Petitioner for five years. Although the June
1995 notice was a clear statement of the I.G.’s intent as
of June 1995, it did not constitute a guarantee that the
I.G. would limit the exclusion only to five years. In
fact, as is evident from the July 25, 1995 notice of
exclusion which the I.G. sent to Petitioner, the I.G.
superseded her original intent to exclude for five years
with a ten-year exclusion. I find that no rights inured
to Petitioner from the June 1995 notice, nor do I
conclude that the I.G.’s determination to impose a
lengthier exclusion than that contemplated originally by
the I.G. deprived Petitioner of due process. The July
1995 notification gave Petitioner adequate notice of the
I.G.’s determination, and adequate opportunity to request
a hearing and to challenge the exclusion.

2. The criteria which govern the length of
exclusions imposed under section 1128(a) (1)
(Findings 4 and 5)

4

The Act mandates the I.G. to exclude, for a minimum of
five years, an individual who is convicted of an offense
described in section 1128(a)(1). Act, section
1128(c)(3)(B). Here, the I.G. excluded Petitioner for
ten years. The remaining issue, therefore, is whether
the ten-year exclusion is reasonable.

Section 1128 is a remedial statute. The purpose of an
exclusion imposed under section 1128, including an
exclusion imposed under section 1128(a)(1), is not to
punish the excluded party, but to protect the integrity
of federally funded health care programs, and the
beneficiaries and recipients of those programs, from an
untrustworthy individual. The Secretary has published
regulations which establish criteria for determining
whether an exclusion imposed under section 1128 is
reasonable. 42 C.F.R. Part 1001. The regulation which
establishes the criteria for assessing the duration of an
exclusion imposed under section 1128(a)(1) of the Act is
42 C.F.R. § 1001.102.

That regulation provides that the I.G. may impose an
exclusion of more than five years in any case where there
exist one or more aggravating factors which are not
offset by one or more mitigating factors. 42 C.F.R. §
1001.102(b), (c). The factors which may be aggravating
or mitigating are enumerated specifically in the
regulation. Id. I may not consider evidence relating to
the duration of an exclusion unless that evidence relates
to one of the aggravating or mitigating factors which are
identified in the regulation.

In a case involving an exclusion imposed under section
1128(a)(1), the presence of an aggravating factor or
factors not offset by the presence of a mitigating factor
or factors, does not automatically justify an exclusion
of more than five years. The regulations contain no
formula for assigning weight to aggravating and
mitigating factors. It is apparent both from the
regulations themselves, and from the Act's remedial
purpose, that I must explore in detail, and assign
appropriate weight to, those factors which are
aggravating or mitigating.

3. The presence of aggravating factors

(Finding 6)

The I.G. alleged that there are three aggravating factors
present in this case. The alleged aggravating factors
are that Petitioner: (1) defrauded the Pennsylvania
Medicaid program of more than $1,500; (2) committed his
criminal acts over a period of more than one year; and

5

(3) committed criminal acts which harmed recipients of
the Pennsylvania Medicaid program.

The I.G. proved the existence of two aggravating factors.
First, the undisputed evidence is that Petitioner
defrauded the Pennsylvania Medicaid program of more than
$1,500. Under 42 C.F.R. § 1001.102(b) (1), an aggravating
factor exists if an individual engages in acts resulting
in financial loss to Medicare or Medicaid of $1,500 or
more. Here, Petitioner was charged with defrauding the
Pennsylvania Medicaid program of more than $175,000.

I.G. Ex. 1 at 7. He was sentenced to pay restitution of
$200,000. I.G. Ex. 3.

Second, Petitioner committed his crime over a period of
more than one year. Under 42 C.F.R. § 1001.102(b) (2), an
aggravating factor exists if an individual engages in
criminal acts against Medicare or Medicaid of more than a
year’s duration. Here, Petitioner was charged with and
convicted of engaging in fraud against Medicaid over a
period of more than four years. I.G. Exs. 1, 3.

The I.G. did not prove the existence of the third alleged
aggravating factor. Under 42 C.F.R. § 1001.102(b) (3), an
aggravating factor exists if an individual’s crimes had a
significant adverse physical, mental or financial impact
on one or more program beneficiaries or other
individuals. The I.G. argues that this section means
that the aggravating factor is established any time it is
proved that an individual engages in crimes which have a
significant adverse financial impact on a program, such
as a State Medicaid program. The I.G.’s theory is that
such a crime deprives the program of money which might
otherwise have been spent on recipients’ medical care.
Under this theory, recipients are harmed indirectly by
crimes against the program, because they are denied
funding for needed medical care.

I disagree with this asserted interpretation of the
regulation. I read this section as establishing a basis
for finding an aggravating factor where an individual
engages in a crime that harms a beneficiary or recipient
directly, such as a crime involving physical or
psychological abuse, or a crime involving fraud against a
beneficiary or recipient. The section may be read also
as establishing a basis for an aggravating factor where
the I.G. proves that a crime directed against a program
has an actual, and not just a theoretical, adverse impact
on the beneficiaries or recipients of that program.
However, I do not read this section to mean that an
adverse impact on beneficiaries or recipients can be
6

predicated automatically based on any offense which has
an adverse financial impact on federally funded programs.

If I were to interpret this section as the I.G. reads it,
then the section would essentially duplicate 42 C.F.R. §
1001.102(b) (1). This would mean that, any time an
aggravating factor was established under 42 C.F.R. §
1001.102(b) (1), then, virtually automatically, a second
aggravating factor would be established under 42 C.F.R. §
1001.102(b) (3). It does not appear reasonable that the
Secretary would want the regulations to be read so as to,
in effect, turn the presence of a single aggravating
factor into the presence of two aggravating factors.

The I.G. has not proved that Petitioner’s crime directly
harmed beneficiaries or recipients of federally funded
programs. Moreover, even if I were to agree with the
I.G.'s theory that a financial loss to the Medicaid
program could be interpreted as an aggravating factor
under 42 C.F.R. § 1001.102(b) (3), the I.G. has not proved
that Pennsylvania’s Medicaid program was deprived of
funds that it would otherwise have paid to provide health
care to recipients, as a consequence of Petitioner’s
crime.

4. The absence of mitigating factors (Finding
wal

Petitioner did not prove the presence of any mitigating
factors. See 42 C.F.R. § 1001.102(c)(1) - (3).
Petitioner asserts that he has no prior criminal or anti-
social record, and that he engaged in fraud only as a
means of saving his business. Petitioner's brief at 1 -
2. Even if true, these assertions do not establish the
presence of any mitigating factors under 42 C.F.R. §
1001.102(c) (1) - (3).

Cc. Evaluation of the duration of the exclusion
(Finding 8)

The presence of two aggravating factors not offset by a
mitigating factor means that an exclusion of more than
five years may be reasonable. It does not direct an
exclusion of any particular length, however.

In this case, the unrebutted evidence relating to the
aggravating factors proved by the I.G. shows Petitioner
to be a highly untrustworthy individual. Petitioner
operated a pharmacy. I.G. Ex. 1 at 3. Petitioner's
fraud consisted of submitting hundreds of falsified
claims to the Pennsylvania Medicaid program for drugs
which, in fact, Petitioner had never dispensed. Id. at 3
7

- 4, 6. In order to perpetrate this fraud, Petitioner
deliberately created over 900 claims in which he inserted
false information, including recipient numbers, recipient
names, and physician license numbers. Id. at 3 - 6.
Petitioner committed this offense over a period of more
than four years, and succeeded in defrauding Medicaid of
more than $175,000.

The evidence proves that Petitioner’s crime involved a
high degree of planning and persistence. It was a
deliberate, sophisticated crime, which, for a time, was
extremely successful. I conclude from this evidence that
Petitioner is capable of engaging in extraordinarily
dishonest conduct. Under the circumstances, a ten-year
exclusion is reasonable, in order to protect federally
funded programs from the possibility that Petitioner
might perpetrate such dishonesty against these programs
in the future.

IV. Conclusion

I conclude that the I.G. was authorized to exclude
Petitioner. A ten-year exclusion is reasonable in this
case.

/s/

Steven T. Kessel
Administrative Law Judge


Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD
Civil Remedies Division

In the Case of:
John W. Crews, Date: December 5, 1997
Petitioner,

Docket No. C-97-271
Decision No. CR509

-v-

The Inspector General.

DECISION

I sustain the determination of the Inspector General (I.G.)
to exclude Petitioner, John W. Crews, from participating in
Medicare, Medicaid, Maternal and Child Health Services Block
Grant and Block Grants to States for Social Services programs
until Petitioner obtains a Nursing Home Administrator license
in the State of Virginia.' I base my decision on evidence
which proves that Petitioner surrendered his license during
the pendency in that State of a formal disciplinary
proceeding involving his Nursing Home Administrator license
that concerned his professional competence, professional
performance, or financial integrity.

BACKGROUND

In a letter (Notice) dated February 21, 1997, the I.G.
notified Petitioner that he was being excluded from
participating in Medicare and Medicaid because his license to
practice medicine or provide health care in the State of
Virginia was revoked, suspended, or otherwise lost or was
surrendered while a formal disciplinary proceeding was
pending before the licensing authority for reasons bearing on
Petitioner's professional competence, professional
performance, or financial integrity. The I.G. asserted that
Petitioner's exclusion was authorized by section 1128(b) (4)
of the Social Security Act (Act). Additionally, the I.G.

' I use the term "Medicaid" hereafter to refer to all
State health care programs from which Petitioner was
excluded.
2

advised Petitioner that his exclusion would remain in effect
until he obtained a valid license in the State of Virginia.

Petitioner requested a hearing and the case was assigned to
me for decision. The parties have each submitted written
arguments and proposed exhibits. Petitioner made a request
for the opportunity for oral argument, which I denied. Order
Denying Petitioner's Request for the Opportunity for Oral
Argument, dated October 28, 1997.

The I.G. submitted one proposed exhibit (I.G. Ex. 1) and
three attachments. I have remarked the attachments as
exhibits. I.G. Attachment 1 is now I.G. Ex. 2; I.G.
Attachment 2 is now I.G. Ex. 3; and I.G. Attachment 3 is now
I.G. Ex. 4. Petitioner did not object to my receiving the
documents submitted by the I.G. into evidence. I thus admit
I.G. Exs. 1-4 into evidence. Petitioner submitted eight
exhibits (P. Exs. 1-8) and Attachments A-F. I have remarked
the attachments as exhibits. Attachment A is now P. Ex. 9;
Attachment B is now P. Ex. 10; Attachment c is now P. Ex. 11;
Attachment D is now P. Ex. 12; Attachment E is now P. Ex. 13;
Attachment F is now P. Ex. 14. The I.G. did not object to my
receiving the documents submitted by Petitioner into
evidence. I thus admit P. Exs. 1-14 into evidence. In
deciding this case, I have considered the exhibits, the
applicable law, and the arguments of the parties.

APPLICABLE LAW

Pursuant to section 1128(b)(4) of the Act, the I.G. may
exclude "({aJjny individual or entity -- (A) whose license to
provide health care has been revoked or suspended by any
State licensing authority, or who otherwise lost such a
license or the right to apply for or renew such a license,
for reasons bearing on the individual's or entity's
professional competence, professional performance, or
financial integrity, or (B) who surrendered such a license
while a formal disciplinary proceeding was pending before
such an authority and the proceeding concerned the
individual's or entity's professional competence,
professional performance, or financial integrity."

Section 1128(c) (3) of the Act was amended by section 212 of
the Health Insurance Portability and Accountability Act of
1996 (Pub. L. 104-191). A new subparagraph, section
1128(c)(3)(E), was added, which states that the length of an
exclusion under section 1128(b)(4) "shall not be less than
the period during which the individual's or entity's license
to provide health care is revoked, suspended, or surrendered,
or the individual or the entity is excluded or suspended from
a Federal or State health care program." Prior to 1996, the
Act provided no criteria for establishing the length of
3

exclusions for individuals or entities excluded pursuant to
section 1128(b)(4). The 1996 amendments require, at section
1128(c) (3) (E), that an individual or entity who is excluded
under section 1128(b) (4) be excluded for not less than the
period during which the individual's or entity's license to
provide health care is revoked, suspended, or surrendered.
Under the 1996 amendments, no issue of reasonableness exists
where the exclusion imposed by the I.G. is concurrent with
the loss, suspension, or revocation of a State license. A
concurrent exclusion, as in Petitioner's case, is the
mandated minimum required by law.?

PETITIONER'S ARGUMENTS

Petitioner's primary argument is that he is not a provider of
health care as required by section 1128(b)(4) of the Act. He
maintains that, while his license as a nursing home
administrator involves the management and administration of a
facility which provides health care services through the
efforts of its physician and nurse staff, his duties did not
involve the provision of care directly to patients.

Petitioner also maintains that he did not surrender his
license as specified in section 1128(b) (4) (B) of the Act.
Rather, he argues that his license expired on March 31, 1996,
prior to the institution of disciplinary proceedings and
before the July 17, 1996 Consent Order in his case.

Finally, Petitioner contends that the I.G. is not required to
exclude him even if the statutory criteria are met for
exclusion under section 1128(b) (4) of the Act. Petitioner
contends that because section 1128(b) (4) was only meant "to
reach more serious offenders," the I.G. should have used
discretion and not excluded him.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. At all times relevant to this case, Petitioner was a
Nursing Home Administrator who was licensed by the Virginia
Board of Nursing Home Administrators (Board).

2. At all times relevant to this case, Petitioner held the
Nursing Home Administrator's license for Grace Lodge Nursing
Home (Grace Lodge), located in Lynchburg, Virginia.

? An issue of reasonableness will arise only if the

I.G. imposes an exclusion for a longer term than the sanction
which has been imposed by a State licensing authority. In
that event, the administrative law judge will hear and decide
the issue of whether the period of exclusion which extends
beyond the concurrent exclusion term is reasonable.
4

3. As Administrator, Petitioner was directly responsible for
the management and operation of Grace Lodge, for ensuring
that Grace Lodge was in compliance with federal and state
regulations and standards, and for ensuring that proper care
was provided to its residents.

4. On August 13-16, 1991, the Health Care Financing
Administration (HCFA) conducted an inspection of Grace Lodge
and found that it was not in compliance with federal long
term care facility requirements and Virginia nursing home
regulations. I.G. Ex. 1; P. Ex. 6.

5. On May 26-28, 1992, May 11-13, 1993, and April 20-22,
1994, the Virginia Department of Health conducted Medicaid
certification and nursing. home licensure inspections of Grace
Lodge and found that it was not in compliance with federal
long term care facility requirements and Virginia nursing
home regulations. I.G. Ex. 1; P. Ex. 6.

6. On April 26, 1995 and on February 28, 1996, the Informal
Conference Committee of the Board (Committee) met to review
allegations that Petitioner, as a result of the deficiencies
set forth in the August 16, 1991, May 28, 1992, May 13, 1993,
and April 22, 1994, HCFA Statements of Deficiencies, may have
violated § 54.1-3103 of the Code of Virginia and §
7.1(1),(2), and (3) of the regulations of the Virginia Board
of Nursing Home Administrators. I.G. Ex. 1.

7. On April 26, 1995 and February 28, 1996, the Committee
also reviewed allegations that Petitioner may have violated
§§ 7.1(6), 8.1, 8.3(A), 8.4, 8.5, and 8.8(C) of the
regulations of the Board, in that Petitioner failed to
provide proof of completion of the twenty continuing
education classroom hours required for the 1994 licensure
year. I.G. Ex. 1.

8. In its notice to Petitioner of the convening of the
February 28, 1996 conference, the Board advised Petitioner
that if the Committee found a violation and was of the
opinion that dismissal of the charges was not appropriate,
the Committee would either present its findings to the full
Board with the recommendation for disciplinary sanction in
the form of a Consent Order or refer the case for formal
hearing. I.G. Ex. 1.

9. On April 5, 1996, Petitioner, in writing, notified the
Director, Long Term Care Services, Office of Health
Facilities Regulation, Virginia Department of Health, that he
was no longer the licensed administrator of Grace Lodge as
his service as administrator terminated effective March 31,
1996. P. Ex. 2.
5

10. On July 10, 1996, Petitioner entered into a Consent
Order with the Board which found that, as a result of the
1991, 1992, 1993, and 1994 HCFA Statements of Deficiencies,
Grace Lodge was not in compliance with the applicable federal
long term care requirements and Virginia nursing home
regulations and that Petitioner had failed to provide proof
of completion of the 20 hours of continuing education
required for the 1994 licensure year. I.G. Ex. 1.

11. In the July 10, 1996 Consent Order, the Board accepted
“the SURRENDER of the license of (Petitioner) to practice
nursing home administration in the Commonwealth of Virginia
upon express condition that this Consent Order is in lieu of
further proceedings affecting the license of (Petitioner)."
I.G. Ex. 1.

12. On February 21, 1997, the I.G. notified Petitioner of
his indefinite exclusion from participation in Medicare and
Medicaid pursuant to section 1128(b)(4) of the Act.

13. Section 1128(b)(4)(B) of the Act authorizes the I.G. to
exclude an individual who voluntarily surrenders his license
to provide health care during the pendency of formal
disciplinary proceedings by the State's licensing authority
which concern the individual's professional competence,
professional performance, or financial integrity.

14. Petitioner, as a nursing home administrator, possessed a
license to provide health care within the scope of section
1128(b) (4) of the Act.

15. Petitioner surrendered his Nursing Home Administrator's
license during the pendency of a formal disciplinary
proceeding within the scope of section 1128(b)(4)(B) of the
Act.

16. Petitioner's surrender of his Nursing Home
Administrator's license was for reasons bearing on his
professional competence, professional performance, or
financial integrity within the scope of section 1128(b) (4) of
the Act.

17. The I.G. was authorized to exclude Petitioner pursuant
to section 1128(b)(4)(B) of the Act.

18. Where an exclusion is imposed pursuant to section
1128(b) (4) of the Act, the period of the exclusion shall not
be less than the period during which the individual's license
to provide health care is revoked, suspended, or surrendered.
Section 1128(c)(3)(E) of the Act.
6

19. When an exclusion is imposed pursuant to section
1128(b) (4) of the Act and the period of exclusion is
concurrent with the loss, suspension, revocation, or
surrender of a State license, then no issue of reasonableness
concerning the length of exclusion exists.

20. The exclusion imposed by the I.G. against Petitioner,
which will remain in effect until Petitioner regains a
license to provide health care in the State of Virginia, was
authorized under sections 1128(b)(4) and 1128(c)(3)(E) of the
Act.

DISCUSSION

In my review, I find that the record establishes that
Petitioner surrendered his Nursing Home Administrator's
license while a formal disciplinary proceeding was pending
before the Virginia licensing authority concerning his
professional performance, professional competence, or
financial integrity. In arriving at this determination, I
specifically reject Petitioner's contention that a Nursing
Home Administrator's license is not a license to provide
health care within the scope of section 1128(b) (4) of the
Act. It is clear from the wording of the statute that
section 1128(b) (4) encompasses entities which have licenses
to provide health care, such as nursing homes, even though
these entities provide such services only through the
employment of medical personnel such as doctors and nurses.
In view of this, it is disingenuous for Petitioner to argue
that his license does not relate to health care.

At all times relevant to this litigation, Petitioner was the
administrator of a Medicare/Medicaid long-term care facility
and, as such, was directly responsible for ensuring that
proper care was provided to its residents. In fact, one of
the overriding reasons that Virginia requires its nursing
home administrators to be licensed is to ensure that the
nursing home and its residents are properly maintained ina
healthy and safe manner. See 18 Va. Admin. Code § 95-20-470
(I.G. Ex. 2). The Board, may, among other things, suspend,
or revoke, or place on probation, a nursing home
administrator's license, if it finds that a nursing home
administrator was "conducting the practice of nursing home
administration in such a manner as to constitute a danger to
the health, safety, and well-being of the residents, staff,
or public. ..". Id. It therefore strains credulity for
Petitioner to contend that he is not licensed as a provider
of health care services where he bears the ultimate
responsibility for ensuring that health care services of the
nursing home are provided properly to residents in accordance
with relevant regulatory requirements.
7

Such conclusion is consistent with my decision in Maurice
Labbe, DAB CR488 (1997), in which I held that a nursing home
administrator who, in response to allegations by the Maine
Nursing Home Administrators Board, permanently surrendered
his license by entering into a consent agreement, was
properly subject to an exclusion under sections 1128(b) (4) (A)
and 1128(b)(4)(B) of the Act until he regained his license in
Maine. Under the terms of the consent agreement, Labbe
agreed to surrender his Nursing Home Administrator's license
and not apply for any presently offered or future offered
category of license in the State of Maine.

In Muhammad A. Malick, DAB CR463 (1997), the petitioner
operated a business which administered sonogram and blood
tests. He was found subject to exclusion under section
1128(a)(1). I rejected the petitioner's argument that he was
not subject to exclusion because he was not a health care
practitioner providing direct services to patients.
Similarly, in Ifeoma Afeonyi, DAB CR262 (1993) I held that
the I.G.'s exclusion authority under section 1128 (a) (1)
(which involves those who "deliver" health care items or
services under Medicare or Medicaid) applied to Petitioner
even though she was an owner of a medical clinic and not a
health-care practitioner. Just as the individuals in Malick
and Afeonyi who owned or operated facilities were still
subject to mandatory exclusion under section 1128(a)(1) of
the Act, Petitioner need not be licensed to directly provide
health care to nursing home residents to be subject to
exclusion under section 1128(b) (4).

I note further that, under the federal regulations for
Medicare/Medicaid certification of long term care facilities,
a nursing home is required to have an administrator who is
"(1ljicensed by the State where licensing is required." 42
C.F.R. § 483.75(d)(2)(i).? Moreover, under Virginia law, in
order to provide health care services to residents, all
nursing homes must have a duly licensed administrator. Thus,
an administrator's license is essential to provide health
care services in such facilities. Without a licensed
administrator, Grace Lodge would not be able to function in
providing health care services to its residents.

Petitioner argues that he let his license expire on March 31,
1996, and then subsequently agreed to a "surrender" of that
license. The record does not support Petitioner's contention
that his license expired. The record reflects that the
Committee met on April 26, 1995, to consider whether

3° Virginia requires that its nursing home
administrators be licensed. See 18 Va. Admin. Code § 95-20-
470 (I.G. Ex. 2).
8

Petitioner violated Virginia regulations in his management of
Grace Lodge. On January 30, 1996, such Committee sent
Petitioner notice that such proceeding would reconvene on
February 28, 1996. I.G. Ex. 1. In correspondence dated
April 5, 1996, to the Director, Long Term Care Services,
Office of Health Facilities Regulation of the Virginia
Department of Health, Petitioner notified the director that,
as of March 31, 1996, his service as administrator of Grace
Lodge terminated. such chronology does not, without more,
indicate that Petitioner's license expired and/or that it
might not be the subject of administrative sanction.
Furthermore, the Consent Order dated July 10, 1996, entered
into by the Board and Petitioner and signed by Petitioner
states that the Board "hereby accepts the SURRENDER of the
license of John W. Crews, N.H.A., to practice nursing home
administration in the Commonwealth of Virginia upon express
condition that this Consent Order is in lieu of further
proceedings affecting the license of Mr. Crews." I.G. Ex. 1.
Such language indicates that if Petitioner had not
surrendered his license, further proceedings would be
necessary, an unlikely occurrence if the license had expired
or if Petitioner did not have the right to readily retain his
licensure. More importantly, such language clearly reflects
that the circumstances surrounding Petitioner's license was
viewed as a surrender by both parties to the Consent Order.

I find that Petitioner's license was surrendered while a
formal disciplinary proceeding was pending before the Board.
During its April 26, 1995 meeting, the Committee considered
allegations that Petitioner may have violated Virginia
regulations governing his license as a Nursing Home
Administrator. I.G. Ex. 1. The January 30, 1996 letter sent
to Petitioner by the Committee indicated that the Committee
would reconvene on February 28, 1996, and that the purpose of
the Conference was to review allegations against Petitioner.
It further stated that if the Committee found a violation,
the Committee would either present its findings to the full
Board with the recommendation for disciplinary sanction in
the form of a Consent Order or refer the case for formal
hearing in accordance with §§ 54.1-110 and 9-6.14:12 of the
Code of Virginia. On July 10, 1996, Petitioner signed such
Consent Order which was accepted by the Board on that date.
I.G. Ex. 1.

Petitioner as administrator of Grace Lodge was responsible
for management of the facility, for ensuring that it was in
compliance with federal and state regulations and standards,
and for ensuring that it was properly providing services to
its residents. 42 C.F.R. § 483.75; see 22 Va. Admin. Code §
40-71-60 (P. Ex. 11); see also Ernest Valle, DAB CR309
(1994); Jerry L. Edmonson, DAB CR59 (1989). During the years
1991 through 1994, HCFA and the Virginia Department of Health
9

conducted surveys of Grace Lodge and found its operation
deficient in a number of areas including patient care. The
surveys revealed that the residents of Grace Lodge were not
given adequate medical care and that issues were raised
concerning the safety of the facility. P. Exs. 6 and 7. The
facility received from HCFA a Statement of Deficiencies after
each survey which set forth the deficiencies. I.G. Ex.1; P.
Ex. 6. The allegations that Grace Lodge was not in
compliance with federal long-term care requirements during
the period of time when Petitioner, as the licensed Nursing
Home Administrator, was responsible for ensuring the
facility's compliance, bore directly on his professional
performance or professional competence.

The entire reason and purpose for the disciplinary proceeding
initiated by the Board was to examine Petitioner's
professional competence and professional performance in light
of the specific allegations raised in the HCFA Statements of
Deficiencies. These allegations related to Petitioner's
professional performance and competence as they pertained to
his ability to properly manage Grace Lodge. Thus, the
requirements of section 1128(b)(4)(B) of the Act have been
met.

Previous decisions of the Departmental Appeals Board (DAB)
administrative law judges (ALJs) establish that a chronology
such as occurred in Petitioner's case constitutes a license
surrender within the scope of section 1128(b) (4) (B) of the
Act. An ALJ found the I.G.'s indefinite exclusion of a
provider who violated section 1128(b) (4) to be reasonable in
Dillard P. Enright, DAB CR138 (1991). In that case, the
petitioner alleged that his nursing license was not
surrendered while a formal disciplinary proceeding was
pending. Enright involved a petitioner who surrendered his
nursing license to a Nursing Board before formal findings
were made as to the allegations in a complaint filed against
him. In this decision, the ALJ found that the petitioner's
license surrender at an "informal meeting" before the Nursing
Board constituted a surrender while a formal disciplinary
proceeding was pending, within the meaning of section

1128(b) (4)(B) of the Act. The ALJ found that "(iJf
Petitioner had not surrendered his license, the Nursing Board
would have had a responsibility to resolve the issues raised

by the claims. . .. The Nursing Board, in the absence of
Petitioner's surrender of his license, was fully prepared to
go forward." Enright, at 9. Likewise, in this case, if

Petitioner had not entered into a Consent Order, the
Committee would have referred the case "for formal hearing in
accordance with § 54.1-110 and § 9-6.14:12 of the Code of
Virginia." I.G. Ex. 1.
10

Petitioner has contended that the proceeding conducted by the
Board on February 28, 1996 was not a formal disciplinary
proceeding within the meaning of section 1128(b) (4) (B) of the
Act. Petitioner states that under Virginia state law, there
are both informal and formal administrative processes.
Petitioner argues that "the informal fact finding procedures
do not rise to the level of a formal disciplinary level
proceeding . . ." and that the distinction in Virginia law
between informal and formal proceedings would be "rendered
meaningless" if the informal proceedings under Virginia law
are determined to constitute formal disciplinary proceedings
under section 1128(b) (4) (B) of the Act. Petitioner's
Memorandum in Opposition, at 9-10.

The fact that, under Virginia law, the proceedings before the
Board were not considered "formal" is not definitive or
meaningful in interpreting section 1128(b)(4)(B). This case
is governed by federal law, and the interpretation of a
federal statute or regulation is a question of federal, not

state, law. Chester A. Bennett, M.D., DAB CR64 (1990).

In John W. Foderick, M.D., DAB CR43 (1989), the ALJ stated
that "({a]jlthough section 1128(b)(4)(B) does not define the
term ‘formal disciplinary proceeding,' it is reasonable to
conclude from the face of the statute, and from legislative
history, that the law refers to a license proceeding which
places a party's license in jeopardy and which provides that
party with an opportunity to defend against charges which
might result in a license suspension or revocation. This
interpretation is consistent with the purpose of the law. . .
+ The law presumes that an individual or entity who
surrenders a health care license in the face of charges, and
in the circumstance where he has the opportunity to defend
himself, is as likely to be untrustworthy as the individual
or entity who loses a license after litigating the issue of
his or her professional competence, performance, or financial
integrity." Foderick, at 6-7.

In the present case, Petitioner surrendered his license in
the face of the Committee's investigation of allegations
involving Grace Lodge and also, his failure to provide proof
of completion of the required classroom hours for the 1994
licensure year. I.G. Ex. 1. A letter from the Board dated
January 30, 1996, notified Petitioner of the allegations and
provided him with the opportunity to respond. I.G. Ex. 1.
Petitioner was subject to the jurisdiction of the Board, and
if Petitioner had not surrendered his license, the Board
would have continued its investigation of the allegations
which could have led to sanctions including license
suspension or revocation. Prior to the completion of formal
proceedings, Petitioner entered into a Consent Order with the
Board. I.G. Ex. 1. According to the Consent Order,
11

Petitioner "consents to the following order

license to practice nursing home administration in the
Commonwealth of Virginia." Id. (emphasis added). Under the
terms of the Consent Order, Petitioner agreed to surrender
his license to the Board in lieu of the Board pursuing
further proceedings against his license.

Even were I to accept Petitioner's assertion that his license
expired, after which he did not seek relicensure, an
appellate panel of the DAB has held that the language of
section 1128(b) (4) (B) does not require actual physical
surrender of the license document. William I, Cooper, M.D.,
DAB No. 1534 (1995), at 4.‘ The appellate panel in c Cooper
upheld the ALJ's conclusion, stating that the term "license"
can mean a permission to act, as well as the document
evidencing that that permission has been conferred. Id. In
this case, I find that Petitioner, by entering into the
Consent Order, relinquished the permission conferred on him
by the Board to be a nursing home administrator under
circumstances described by section 1128(b) (4) (B).

In addition to citing section 1128(b)(4)(B) of the Act as the
basis for the exclusion against Petitioner, the I.G. has also
cited section 1128(b) (4) (A) of the Act as an alternative
basis.’ Because I have determined that the circumstances of

* The citation for the Civil Remedies Division

decision in Cooper is Dr. William I. Cooper, DAB CR381
(1995).

5 In her reply brief, the I.G. cited section
1128(b) (4) (A) of the Act as a basis for Petitioner's
exclusion. After receiving the I.G.'s brief, Petitioner
filed a Motion for Sanctions against the I.G. Petitioner
made this motion on grounds that the I.G. filed a reply brief
without authority to do so and failed to comply with the
procedures of the Departmental Appeals Board, Civil Remedies
Division. Petitioner moved that I strike the I.G.'s reply
brief in its entirety and that I refuse to consider such
brief. In the alternative, Petitioner requested the
opportunity to reply to the I.G.'s reply brief, with the
costs of such response assessed against the I.G. Further,
Petitioner moved that I prohibit the I.G. from introducing a
new legal basis for Petitioner's exclusion and a recent Civil
Remedies decision in support of its position. The I.G. did
not file a response to Petitioner's motion.

I issued a Ruling dated September 26, 1997, in which I denied

Petitioner's motion to impose sanctions against the I.G. I

permitted the I.G.'s reply brief, in its entirety, to become
(continued...)
12

Petitioner's case leave no doubt that a license "surrender"
did occur within the meaning of section 1128(b)(4)(B) of the
Act, I do not find it necessary to reach the issue of whether
Petitioner's exclusion can be sustained under section
1128(b) (4) (A) of the Act. However, were I to consider this
issue, it is likely that I would apply the appellate panel's
reasoning in Cooper and find that Petitioner's "surrender" of
his license falls also within the meaning of section

1128(b) (4) (A) of the Act.®

5(...continued)

part of the record, and I granted Petitioner the opportunity
to file a rebuttal brief to the I.G.'s reply brief. I stated
that costs of filing Petitioner's rebuttal brief would be
solely borne by Petitioner. Furthermore, I did not prohibit
the I.G. from introducing the decision of Maurice Labbe,
supra, in support of its position. Finally, I deferred
ruling on Petitioner's request that I prohibit the I.G. from
introducing a new legal basis for Petitioner's exclusion.

Petitioner filed a rebuttal brief. In its rebuttal brief,
Petitioner contended, among other things, that the I.G. cited
section 1128(b) (4) (A) of the Act as a basis for Petitioner's
exclusion for the first time in her reply brief. Petitioner
argued that, until the I.G.'s reply brief, the sole alleged
basis for Petitioner's exclusion was section 1128(b) (4) (B).
Petitioner contended that the circumstances of his case did
not meet the criteria of section 1128(b)(4)(A). Petitioner
argued also that the Labbe decision was distinguishable from
his case. Additionally, Petitioner made a request for the
opportunity for oral argument, which I denied. Order Denying
Petitioner's Request for the Opportunity for Oral Argument,
dated October 28, 1997.

® Contrary to Petitioner's contention that the
“otherwise lost" language contained in section 1128(b) (4) (A)
of the Act cannot be interpreted to refer to the surrender of
a license because a license surrender is specifically
addressed in section 1128(b)(4)(B), the appellate panel in
Cooper concluded that the broad “otherwise lost" language
used by Congress indicates that Congress intended section
1128(b) (4) (A) to encompass any loss that occurs by a means
other than revocation or suspension by a licensing authority.
Cooper, at 6. The appellate panel in Cooper moreover stated
that such an interpretation of section 1128(b) (4) (A) would
not render section 1128(b)(4)(B) superfluous. Id. In the
Cooper case, the appellate panel concluded that Dr. Cooper,
who had "surrendered" his license to practice medicine within
the meaning of section 1128(b)(4)(B) of the Act, could also
have been excluded under section 1128(b) (4) (A).
13

Finally, Petitioner contends that for the I.G. to take action
against him is unwarranted because section 1128(b)(4) of the
Act is meant to apply to "more serious offenders." This
argument is without merit. The I.G.'s use of discretion in
deciding to impose a permissive exclusion is not reviewable.
42 C.F.R. § 1005.4(c) (5); Nanette Neu, R.N., DAB CR429
(1996).

CONCLUSION
I conclude that the I.G. was authorized to exclude Petitioner
pursuant to section 1128(b) (4)(B) of the Act. I conclude

also that the term of exclusion imposed by the I.G. is
mandated by section 1128(c) (3) (E) of the Act.

/s/

Joseph K. Riotto
Administrative Law Judge