Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:
Center Clinical Laboratory, DATE: February 15, 1995
Petitioner,

Docket No. C-93-096
Decision No. CR358

-v-

Health Care Financing
Administration.

eee eee ee reer

DECISION

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

The administrative actions at issue ensued from a survey
conducted by HCFA's agent under CLIA, the New Jersey
Department of Health (State agency), during February and
March of 1993. HCFA Exhibits (Ex.) 1, la, 1b, 127, 128.
HCFA agreed with the State agency that Petitioner failed
to meet various conditions of coverage necessary for CLIA
certification. HCFA Ex. 127. Between May 27 and June 1,
1993, HCFA imposed various sanctions on what HCFA called
a "fast-track" pursuant to its determination that
Petitioner posed "immediate jeopardy" to patient health
and safety.’ HCFA Posthearing Brief (Br.) at 8. After

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

a situation in which immediate corrective

action is necessary because the laboratory's

noncompliance with one or more condition level

requirements has already caused, is causing, or

is likely to cause, at any time, serious injury

or harm, or death, to individuals served by the
(continued...)
2

deciding to suspend Petitioner's CLIA certificate while
imposing an "alternative sanction"? and directing
Petitioner to submit its list of clients for notice of
the sanctions, HCFA then revoked Petitioner's CLIA
certificate either on June 1 or June 25 of 1993.3 HCFA
Br. at 2; HCFA Ex. 127, 128. Petitioner timely filed a
request for hearing.

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

1(,..continued)
laboratory or to the health or safety of the
general public. This term is synonymous with
imminent and serious risk to human health and
significant hazard to the public health.

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

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

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

4 The transcript of hearing (Tr.) incorrectly
designates Leslie A. Weyn as an attorney who appeared on
behalf of the Department of Health and Human Services.
Tr. 2. Ms. Weyn is a staff attorney with the
Departmental Appeals Board of HHS. She was present at
the hearing as an assistant to me and did not have any
representational role in this case.
3

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

ISSUES AND CONCLUSIONS
All issues resolved in this decision relate to HCFA's
authority to impose the following sanctions against

Petitioner under the facts of this case:

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

B. imposing the "alternative sanction" of
directing Petitioner to provide an "acceptable

plan of correction .... prior to June 1st," or
have its CLIA certificate revoked (HCFA Ex.
127);

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

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

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

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

With respect to HCFA's authority to impose the foregoing
sanctions in this case, I have concluded that:
4

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

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

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

4. HCFA's actions of June 1, 1993, purporting to
revoke Petitioner's CLIA certificate and cancel

Petitioner's approval to receive Medicare payment
also exceeded its authority under the regulations.

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

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

ANALYSIS OF LAW AND FACTS

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

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

You are out of compliance with these conditions
as evidenced by the State survey February 18 -
March 10, 1993, and subsequent State analysis
of your records. The State has recommended to
our office that these deficiencies, which
result from the pervasive occurrence of
management sanctioned fictitious patient test
results and fabricated control data, has
created a situation of immediate jeopardy to
patient health and safety.
5

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

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

HCFA Ex. 127.

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

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

I do not have jurisdiction to review the merits of HCFA's
determination that a laboratory's deficiencies pose
immediate jeopardy. 42 C.F.R. § 493.1844(c) (6).
6

However, I have the authority to review HCFA's imposition
of sanctions after it determines immediate jeopardy. See
42 C.F.R. § 493.1844(b) (1), (3).

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

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

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

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

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

42 C.F.R. § 493.1812(a), (b). As defined by the
Secretary's regulation and noted in HCFA's May 27, 1993
letter, the suspension or limitation of a CLIA
7

certificate constitutes a "principal sanction." 42
C.F.R. § 493.1806(b) .*

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

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

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

Even after HCFA has taken the requisite steps that would
permit it to suspend the laboratory's CLIA certificate,
this principal sanction may be put into effect "no

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

6 Criminal sanctions are available as well,
whether or not there is immediate jeopardy. An
individual who is convicted of intentionally violating
any CLIA requirement may be imprisoned or fined. 42
C.F.R. §§ 493.1800(a) (3) (i), 1806(e).
8

earlier than 5 days after the date of notice of
suspension or limitation." 42 C.F.R. § 493.1812(b).
However, there is no prohibition against putting these
sanctions into effect after a longer period.

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

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

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

When HCFA determines that a laboratory's deficiencies
pose immediate jeopardy, HCFA may not suspend the
laboratory's CLIA license until after HCFA has required
the laboratory to take immediate action to remove the
jeopardy and then found, pursuant to a revisit survey,
that the laboratory has not eliminated the jeopardy. 42
C.F.R. § 493.1812(a), (b). I do not read HCFA's letter
dated May 27, 1993 as meeting HCFA's obligation to direct
Petitioner to take those specific actions that would
immediately remove the jeopardy. 42 C.F.R. §
493.1812(a). HCFA's letter proceeded from summarizing
the State agency's recommended findings of immediate

jeopardy to HCFA's announcing: “Accordingly, we have
determined that it is necessary to apply the principal
sanction of suspension... ." HCFA Ex. 127.7 HCFA's

letter then informed Petitioner that suspension had been
imposed and would take effect on June 1, 1993. HCFA Ex.

7 HCFA itself described its May 27, 1993 letter
as having "specified the non-compliant regulations and
the conclusion that fictitious patient test results and
fabricated control data created a situation of immediate
jeopardy to the patient health and safety." HCFA Ex.
128.
9

127. The contents of the letter are insufficient to meet
the remedial purposes of 42 C.F.R. § 493.1812.

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

This undated letter indicates that a "Statement of
Deficiencies (HCFA 2567)" (HCFA Ex. 1 at 1 - 6) prepared
by the State agency surveyors also was sent to Petitioner
as an enclosure and that the State had made a
determination of imminent jeopardy due to fictitious,
unsubstantiated, or unreliable patient test results.

HCFA Ex. 1b. However, even assuming that the undated
letter was sent prior to May 27, 1993 and that HCFA's
agent may require Petitioner to take those immediate
actions necessary for the removal of imminent jeoparay,®
the State agency's letter did not tell Petitioner the
actions that must be taken by Petitioner to remove the
jeopardy. The undated letter merely told Petitioner
that, if Petitioner disputed the correctness of the cited
deficiencies, Petitioner could forward a "credible
allegation of compliance" to HCFA. HCFA Ex. 1b.

The information sent by the State agency and HCFA to
Petitioner concerning the immediate jeopardy
determination does not obviate the need for HCFA to
require Petitioner to remove the jeopardy alleged by
HCFA. See 42 C.F.R. § 493.1812(a). HCFA sent Petitioner
its letter dated May 27, 1993, and the State agency
indicated that it was sending Petitioner the "Statement
of Deficiencies (HCFA 2567)" and the "Survey Report"
under separate covers.*® However, the information

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

HCFA's agents are separately defined in the regulations.
See 42 C.F.R. § 493.2.

° The State's undated letter does not mention
that it was enclosing a copy of the more detailed "Survey
Report" also prepared by the State surveyors (HCFA Ex. 1

(continued...)
10

contained in both the "Survey Report" and "Statement of
Deficiencies" is at variance with the conclusions
summarized by HCFA in its May 27, 1993 explaining its
finding of immediate jeopardy.

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

In the State's May 25, 1993 letter to notify Petitioner
of the State's findings and the imposition of sanctions
under State law, the State asserted management
involvement in "deceptive practices." HCFA Ex. 114.!°

9(...continued) .
at 7 to 34). See HCFA Ex. 1b. However, the State sent a
copy of the "Survey Report" with another letter to
Petitioner dated May 25, 1993. HCFA Ex. 114.

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

10 In this case, the New Jersey Department of
Health had a dual role. It acted as HCFA's agent under
CLIA, and it took actions on behalf of the State of New
Jersey to enforce and implement State laws. I have been
referring to the New Jersey Department of Health as the
"State agency" when it acted as HCFA's agent. I refer to
(continued...)
11

The letter summarized the State of New Jersey's dealings
with Petitioner. HCFA Ex. 114. The State noted that the
alteration of control data had been observed during the
surveys of 1990 and 1991, and that the State had assessed
civil monetary penalties against Petitioner for these
infractions in 1991. HCFA Ex. 114.

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

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

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

Without doubt, HCFA may draw its own conclusions or adopt
opinions that the State agency made known to HCFA but did
not share with Petitioner. See HCFA Ex. la at 2.”
However, the information made available to Petitioner on
or about May 27, 1993 does not adequately inform
Petitioner of the remedial actions that must be taken by
Petitioner to remove the jeopardy perceived by HCFA. I
trace the cause of HCFA's conduct in this action to the
State agency's recommendation that "HCFA take appropriate
action to remove that jeopardy," (HCFA Ex. la at

2) (emphasis added), by immediately precluding
Petitioner's operation and by revoking Petitioner's CLIA
certificate (HCFA Ex. 1b). HCFA appears to have accepted
and followed the literal terms of those recommendations.

10(.. .continued)
it as "the State" or "the State of New Jersey" when I
discuss actions it took on behalf of the State government
to enforce the State's rights.

i The evidence does not show that the State
agency shared with Petitioner the State agency's
transmittal memo to HCFA (HCFA Ex. la). Moreover, HCFA's
conclusions of May 27, 1993 are also not fully consistent
with the transmittal report.
12

Such recommendations were inconsistent with the
requirements of the Secretary's regulations, which
obligate HCFA to give Petitioner appropriate notice of
the necessary remedial actions and entitle Petitioner to
a reasonable opportunity to remove the jeopardy before
HCFA proceeds to close down Petitioner's operation as a
means for removing the jeopardy. See, e.g., 42 C.F.R. §§
493.1804(a) (3), 1812(a).

I am aware that the State agency believed Petitioner's
managers were flouting federal law, as well as the laws
of at least two States. For example, the State agency
told HCFA in its transmittal report that Petitioner's
managers had “irrevocably betrayed the public trust and

. . . Gemonstrated that they are contemptuous of all
laboratory laws and regulations," and "much of
[Petitioner's] testing was performed in violation of New
York State's laboratory laws." HCFA Ex. la at 2.

Without doubt, the State agency was entitled to convey
those opinions to HCFA in May of 1993, and HCFA could
reasonably choose to believe the opinions of its agent
when, as HCFA acknowledged at hearing, HCFA had had no
direct dealings with Petitioner. E.g., Tr. 34 - 35, 38 -
39." However, given the surveyors' comments in the
"Survey Report" and "Statement of Deficiencies" that were
transmitted to both HCFA and Petitioner (e.g., Tr. 14, 17
- 18, 32, 38 - 39), HCFA should have been aware of the
possibility that Petitioner's management may not have
known how the deficiencies found in 1993 had occurred or
their full extent. Therefore, Petitioner's management
may have needed HCFA's assistance to eliminate quickly
any resultant jeopardy perceived by HCFA. If HCFA had
followed the requirements of 42 C.F.R. § 493.1812 on May

2 At hearing, I had the opportunity to evaluate
the demeanor of Petitioner's witnesses and to consider
whether there was a basis for the State agency's opinion
of Petitioner's management. I was not persuaded that
Petitioner or its managers were contemptuous of laws and
regulations, or that they had irrevocably betrayed the
public trust. Nor was I persuaded that the New Jersey
Department of Health, had the expertise or authority to
determine whether Petitioner was performing tests in
violation of New York State's laboratory laws. See HCFA
Ex. la at 2. In fact, there was no evidence that
Petitioner was operating in New York or obliged to follow
New York's laboratory laws, even assuming that HCFA or
the State of New York had authorized the New Jersey
Department of Health to evaluate whether New Jersey
laboratories are in compliance with New York laws.
13

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

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

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

The unique facts in this case especially necessitated
HCFA's issuing clear directives to Petitioner on how HCFA
expected Petitioner to eliminate the jeopardy that
allegedly existed at or about the time of its May 27,
1993 sanction notice. In addition to those discrepancies

3 HCFA contends that it would have conducted a
revisit survey immediately if it had received an
acceptable plan of correction. HCFA Br. at 45. As
discussed below, the evidence does not support the
existence of any intent on HCFA's part (as of May 27,
1993, when it issued its sanction notice) to obtain an
"acceptable plan" from Petitioner or to conduct a
resurvey.
14

already discussed above, I note also that the State of
New Jersey had imposed various State sanctions against
Petitioner pursuant to State law on May 25, 1993. The
State summarily suspended Petitioner's license to operate
as of May 25, 1993, it ordered Petitioner to cease and
desist from all laboratory operations "effective
immediately," and it assessed a fine of $100,000 against
Petitioner. HCFA Ex. 114. There is no evidence that
Petitioner had a license from another state. Petitioner
has been closed since the end of May 1993. E.g., Tr.
935.

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

If HCFA concluded otherwise, I cannot disturb that
conclusion. However, it behooves HCFA to explain the
nature of the immediate jeopardy it perceived after the
State of New Jersey had suspended Petitioner's license
and placed it under a cease and desist order, and
Petitioner had closed its operations. It behooves HCFA
also to explain by what means it expected Petitioner to
eliminate any immediate jeopardy perceived by HCFA when
Petitioner was unable to operate as a laboratory in New
Jersey, was not operating as a laboratory in New Jersey,
and did not appear to have a license to operate as a
laboratory elsewhere. Since the regulation contemplates
the possibility of a revisit survey for HCFA to verify
the elimination of the jeopardy (assuming that HCFA had
truly discerned some immediate jeopardy that remained to
be eliminated after May 25, 1993 and gave Petitioner the
opportunity to remedy it), HCFA also should have
explained how it could have resurveyed a laboratory to
ascertain compliance when that laboratory could not
operate and had closed. See 42 C.F.R. § 493.1812(b). No
such explanation was made in HCFA's notice letters to
Petitioner or in the proceedings before me. Under the
Secretary's regulations, a determination of immediate
jeopardy does not serve as an excuse for revoking a
laboratory's CLIA certificate, as indicated by HCFA's
actions in this case.
15

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

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

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

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

The regulation HCFA applied against Petitioner was 42
C.F.R. § 493.1812 (e.g., HCFA Br. at 2), which did not
take effect until February 28, 1992. 57 Fed. Reg. 7237
(1992). Even if the regulation could be applied
retrospectively to sanction Petitioner for the results of
the 1990 and 1991 surveys, the evidence does not
establish that any notice of immediate jeopardy was
issued to Petitioner pursuant to the 1990 or 1991
16

surveys. Nor does the evidence establish that HCFA had
required the laboratory to take immediate action to
remove any immediate jeopardy that may have resulted from
the 1990 or 1991 deficiencies.“

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

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

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

HCFA sent no notice to Petitioner referencing the results
of these two surveys.
17

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

Cc. HCFA's decision to impose the alternative
sanction of directing Petitioner to submit an
"acceptable plan of correction. . . prior to
June ist" was improper, and the "alternative

sanction" imposed by HCFA was unauthorized.

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

An alternative sanction may be imposed in lieu of, or in
addition to, a principal sanction. 42 C.F.R. §
493.1806(c). In this case, HCFA imposed what it styled

According to testimony at the hearing, the
CLIA laws require that laboratories be inspected at least
once every two years. Tr. 53. Several months prior to
February of 1993, HCFA sent out a letter to state
agencies asking that priority be given to surveying
various types of laboratories, including those that had
been found out of compliance with conditions of
participation in CLIA. Tr. 14. Gerda Duffy, the
surveyor in charge of the team that surveyed Petitioner
during February and March of 1993, testified to the
shortage of staff (three people in addition to herself)
to conduct CLIA inspections of the approximately 100
laboratories in New Jersey. Tr. 49, 53. As a result of
the shortage of staff, she and her department use the
priority instructions issued by HCFA. Tr. 54 - 55. Ms.
Duffy claimed to have known of Petitioner's compliance
history when the New Jersey Department of Health decided
to survey Petitioner in the winter of 1993. Tr. 55.
18

an "alternative sanction" in addition to those principal
sanctions it imposed. HCFA Ex. 127.

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

As applicable to this case, 42 C.F.R. § 493.1810
({ijmposition and lifting of alternative sanctions)
required HCFA to issue two distinct types of notices to
Petitioner. Subsection (a) required HCFA to issue a
"notice of noncompliance and of proposed [alternative]
sanction"; subsection (c) required HCFA to issue a
"notice of imposition of [alternative] sanction." 7
There are non-duplicative requirements specified in each
of these subsections for the timing and contents of these
two different types of notices; both must be sent out
even if immediate jeopardy is involved.

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

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

" §gince the regulation is titled "[i]mposition
and lifting of alternative sanction," I construe its
subparts as dealing only with alternative sanctions.
19

purposes specified in the regulations applicable to
alternative sanctions.

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

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

In this case, HCFA failed to send out a notice of
noncompliance and of proposed alternative sanction. HCFA
also did not provide Petitioner with a minimum of 10 days
to respond to such a notice. Instead, HCFA notified
Petitioner of the noncompliance in the same May 27, 1993
letter that imposed an "alternative sanction." Even in
imposing an "alternative sanction" in its May 27, 1993
letter, HCFA failed to give Petitioner notice "at least 5
days before the effective date of sanction," June 1,
1993. 42 C.F.R. § 493.1810(c)(2)(i) (emphasis added) ;
HCFA Ex. 127. The words used in the regulation cannot be
read as authorizing HCFA to impose an "alternative
sanction" that takes effect on the day of the notice
20

letter and lasts less than five days thereafter. HCFA
Ex. 127 (see reference to "prior to June ist").

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

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

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

This undated letter does not notify Petitioner that
Petitioner has a minimum of 10 days to respond under 42
C.F.R. § 493.1810(a) (6). More importantly, even if the
undated letter had been sent to Petitioner at the
earliest possible date and contained something that could
be considered a proposal to impose an alternative
21

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

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

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

into compliance.

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

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

The chronology of events in this case does not permit the
inference that HCFA was using its "alternative sanction"
to achieve the goal specified by 42 C.F.R. § 493.1812(a).
I note by way of example that the "alternative sanction"
imposed by HCFA on May 27, 1993 referenced a deadline of
"prior to June 1st" while the suspension HCFA had already
decided to impose was scheduled to take effect
immediately after the deadline, on June 1st. In addition
to the previously discussed problems with the State's
22

undated letter and enclosure to Petitioner, there was
also no evidence showing how or when the letter dated May
27, 1993 from HCFA's regional office in New York City was
delivered to Petitioner's address in New Jersey, or
whether it was delivered in sufficient time for
Petitioner to have provided HCFA with anything prior to
June 1, 1993. This is especially problematic when three
of the four days permitted by the terms of HCFA's letter
had been taken up by an intervening Saturday (May 29),
Sunday (May 30), and legal holiday (Memorial Day, May
31). See HCFA Br. at 46.

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

I find disingenuous HCFA's arguments that "(t]he
enforcement regulations allow five days to correct
immediate jeopardy situations without regard to holidays
or weekends," (HCFA Br. at 46), and "(t]he regulations
prescribe that, when immediate jeopardy exists, HCFA may
require the laboratory to take immediate action to remove
the jeopardy within five days from HCFA's notice." HCFA
Br. at 43 (emphasis original). First, HCFA's letter did
not even provide Petitioner with the five days HCFA now
asserts the regulations prescribe. (May 27 to "prior to
June 1" does not equal five days.) Also, it makes no
sense for HCFA to think that Petitioner could have
remedied any immediate jeopardy during those days when
HCFA's notice letter was in transit and before Petitioner
learned of HCFA's determinations or requirements. The
State agency surveyors did not conduct what is commonly
called an "exit conference" with Petitioner at the close
of the February/March, 1993 survey; nor had they
otherwise informally explained their conclusions to
23

Petitioner. HCFA Br. at 48." In addition, no
regulation specifies that immediate jeopardy must be
eliminated by a laboratory within five days of the day a
notice letter is dated. Nor do the regulations specify
any deadline that must be imposed by HCFA when it
requires immediate remedial action.

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

I have already noted that, on May 25, 1993, the State of
New Jersey had summarily suspended Petitioner's license
and ordered Petitioner to cease and desist from all

8 HCFA argues that the regulations do not require
an "exit conference," that the lead surveyor had made
herself available to answer questions from Petitioner's
Director before the State sent its Statement of
Deficiencies to Petitioner, and that Petitioner had
received several years of notice and warning (i.e., since
the 1990 survey) to stop creating fictitious results and
data. HCFA Br. at 48 - 49. HCFA's arguments still raise
the question of the reasonableness of HCFA's actions.

For example, it does not seem reasonable to set a
deadline of less than five days for an "acceptable plan"
if HCFA were aware that the State agency had chosen not
to conduct an "exit conference" for the 1993 conference
and Petitioner's Director had chosen not to discuss the
deficiencies prior to Petitioner's receiving written
notice of them. Nor does it seem reasonable for HCFA to
expect Petitioner to know (for purposes of submitting an
“acceptable plan" prior to June 1st) how immediate
jeopardy was created in 1993 by the same alleged
deficiencies that apparently had not created immediate
jeopardy in 1990 or 1991.
24

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

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

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

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

If a laboratory has deficiencies, that are not

at_the condition level, the following rules
apply:

(a) Initial action. The laboratory

must submit a plan of correction that
is acceptable to HCFA in content and

time frames.

42 C.F.R. § 493.1816 (emphasis added). Thus, HCFA's
reference to an "acceptable plan of correction" in its
May 27, 1993 letter is at least inconsistent with its
25

assertions that Petitioner's deficiencies were at the
condition level and caused immediate jeopardy.

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

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

Tr. 22 - 23, 47.

9 I conclude that HCFA introduced Mr. Lamming's
testimony analyzing Petitioner's subsequently filed
request for hearing as a possible "plan of correction"
because HCFA is aware of the problems associated with
writing Petitioner a letter on May 27, 1993 to require a
response "prior to June 1st." Mr. Lamming's testimony
concerning the hearing request was elicited by HCFA
without even an allegation that the responsible decision-
maker, Annemarie Schmidt, had undertaken the analysis
described by Mr. Lamming.
26

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

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

HCFA Ex. 1b (emphasis added).

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

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

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

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

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

In addition, as an alternative sanction under
this regulation, you are directed to provide an
acceptable plan of correction to the cited
deficiencies prior to June ist.
28

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

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

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

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

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

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

2 HCFA's requirement for the submission of an
"acceptable plan of correction" prior to June 1, 1993,
bears no resemblance to the other alternative sanctions
authorized by law (i.e. civil monetary penalties and the
suspension of Medicare payments).
29

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

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

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

42 C.F.R. § 493.1832(b)(1). These requirements were not
satisfied by HCFA in this case. HCFA gave no notice of
the sanction and no opportunity for Petitioner to respond
in accordance with 42 C.F.R. § 493.1810. Placing the
onus on Petitioner to submit a plan of correction prior
to June 1, 1993 that would be acceptable to HCFA does not
satisfy the requirement, under 42 C.F.R. §
493,1832(b) (1) (ii), that HCFA direct the laboratory to
take specific corrective action.

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

(c) Duration of directed plan of correction

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

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

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

42 C.F.R. § 493.1832(c). With respect to the duration or
termination of any directed plan of correction, 42 C.F.R.
§ 493.1934(c) is consistent with 42 C.F.R. § 493.1812 in
30

also not permitting HCFA to decide on suspending
Petitioner's CLIA certificate on the same day that HCFA
imposes a directed plan of correction.

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

intent, HCFA's failure to follow the requisite regulatory
steps shows that the "alternative sanction" HCFA imposed
against Petitioner was unauthorized as a directed plan of
correction.

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

In addition, if it intended to impose onsite monitoring
as an authorized alternative sanction, HCFA was required
to notify Petitioner of the proposal to impose the onsite
monitoring sanction, permit Petitioner at least 10 days
to respond, and then notify Petitioner of the decision to
impose this alternative sanction at least five days
before the effective date of the sanction where immediate
jeopardy is found. 42 C.F.R. § 493.1836(b)
(incorporating the requirements of 42 C.F.R. § 493.1810).
HCFA did not follow any of these procedures. Therefore,
I conclude that HCFA's reference to the onsite monitoring
of an "acceptable plan" also does not constitute an
authorized alternative sanction.
31

E. HCFA's "suspending [Petitioner's) approval
to receive Medicare payment for services

- +. ." was an invalidly imposed principal
sanction, and HCFA has not imposed a directed
portion of a plan of correction within the meaning
of the regulations.

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

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

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

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

493.1832(b) (2) (ii).

21 By definition, a directed portion of a plan of
correction involves only the submission and use of a list
of the sanctioned laboratory's clients. 42 C.F.R. §
493.1832(b)(2). Therefore, the “acceptable plan of
correction" required by HCFA cannot be considered a
directed portion of a plan of correction.
32

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

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

In this case, no alternative sanction of civil monetary
penalty has been imposed by HCFA, and I have already
found that HCFA has not imposed an alternative sanction
of State onsite monitoring. However, HCFA's May 27, 1993
letter mentions three matters in succession:

1) suspending Petitioner's approval to receive Medicare
payment for services concurrently with the CLIA
suspension; 2) directing Petitioner to provide a list of
clients within 10 days of the May 27, 1993 notice letter;
and 3) the provision in 42 C.F.R. § 493.1832 referencing

2 The regulation at 42 C.F.R. § 493. 1844(g) is in
accord. It states in relevant part:

If HCFA suspends, limits, or revokes a
laboratory's CLIA certificate or cancels the
approval to receive Medicare payment for its
services, HCFA... may give notice to
physicians, providers, suppliers, and other
laboratory clients, according to the procedures
set forth at § 493.1832.
33

notice to Petitioner's clients. HCFA Ex. 127. HCFA's
reference to these three matters raises the question of
whether HCFA was properly imposing a directed portion of
a plan of correction in conjunction with having imposed
the alternative sanction of suspending Petitioner's
Medicare payments, as authorized by 42 C.F.R. §
493.1832(a).

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

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

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

On the remaining question of whether HCFA's cancellation
of Petitioner's approval to receive Medicare payment was
authorized, I begin by noting that the legitimacy of this
principal sanction is dependent upon the validity of
HCFA's suspension of Petitioner's CLIA certificate. 42
C.F.R. § 493.1808. I have already discussed, in part
I.B. of this decision, the reasons why HCFA's suspension
34

of Petitioner's CLIA certificate was improper and
invalid. Therefore, HCFA's resultant cancellation of
Petitioner's approval to receive Medicare payment
concurrent with the suspension of the CLIA certificate is
“also invalid and not authorized by 42 C.F.R. § 493.1808.

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

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

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

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

In its letter, HCFA cited 42 C.F.R. § 493.1812 as
authority for its decision to revoke Petitioner's CLIA
certificate. However, HCFA implemented its revocation
decision in a manner not permitted by that regulation.
Even assuming that HCFA had imposed a valid alternative
sanction in this case pursuant to 42 C.F.R. §
493.1812(a), the expiration date of the alternative
sanction cannot immediately result in a decision by HCFA
to revoke Petitioner's CLIA certificate as indicated in
HCFA's June 1, 1993 letter.% The regulation cited by

2% The regulation at 42 C.F.R. § 493.1840(a) (7)
authorizes the suspension, limitation, or revocation of a
CLIA certification when the laboratory's owner, operator,
or employee(s) fails to comply with an alternative
sanction imposed under Subpart R. However, HCFA did not
Claim to have relied on this subsection. In addition, as
I have already discussed, what HCFA called an
"alternative sanction" is not cognizable under Subpart R.

(continued...)
35

HCFA plainly states that, if the jeopardy still persists
after HCFA has satisfied its obligations (i.e., directed
immediate action to remove the jeopardy, imposed an
alternative sanction to help bring about compliance,
conducted a revisit, and found that the jeopardy has not
been eliminated), HCFA must first consider suspending or
limiting the CLIA certificate before it may "later"
revoke the certificate. 42 C.F.R. § 493.1812(a), (b).
As discussed above, HCFA altered the process and
prematurely decided on May 27, 1993 to suspend
Petitioner's CLIA certificate effective June 1, 1993. On
June 1, 1993, HCFA further abrogated the regulatory
process and procedures by using the expiration of its
"alternative sanction" as reason for imposing the
revocation sanction against Petitioner.

In addition, contrary to regulation, HCFA made the
revocation effective prior to an administrative law judge
decision in this case. The regulation provides that, if
HCFA has not determined immediate jeopardy and the
laboratory appeals, no principal sanction (i.e., no
suspension, limitation, or revocation of a laboratory's
CLIA certificate) may go into effect prior to the
administrative law judge's issuance of a hearing decision
upholding the suspension or limitation. 42 C.F.R. §§
493.1840(d), .1844(da)(2). Where HCFA has found immediate
jeopardy and the laboratory appeals, only the suspension
and limitation of a CLIA certificate may go into effect
during the pendency of an appeal.” 42 C.F.R. §
493.1844(da)(2)(ii). There exists no exception to the
rule that, if a hearing request has been filed, HCFA may
not revoke a CLIA certificate until after an
administrative law judge upholds the revocation ina
decision issued pursuant to hearing. 42 C.F.R. §§

3(,..continued)
The basic requirements of 42 C.F.R. § 493.1812 are not
obviated when HCFA ties the failure to comply with an
alternative sanction to immediate jeopardy. See 42
C.F.R. § 1840(d). Ina later portion of this decision, I
will discuss also the absence of any regulation
permitting HCFA to revoke a CLIA certificate prior to an
administrative law judge's decision upholding the
revocation.

2% If an administrative law judge's decision
upholds a suspension imposed because of immediate
jeopardy, that suspension becomes a revocation. 42
C.F.R. § 493.1844(d) (4) (ii).
36

493.1840(e), .1844(d)(2).% If the continuation of any
activity by the laboratory during the administrative
appeal process constitutes a significant risk to public
health, HCFA may file suit in federal court to restrain
or enjoin such activity. 42 C.F.R. § 493.1812(c).

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

2% The regulation titled "[{e]ffective date of
adverse action" is also in accord. It states, in
relevant part:

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

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

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

Here, HCFA's June 1, 1993 letter indicates that it chose
a revocation date of June 25, 1993, which suggests the
possibility that HCFA no longer perceived any immediate
jeopardy as of June 1, 1993. See 42 C.F.R. §
493.1844(h) (2) and my previous discussions of the
sanctions imposed by the State of New Jersey on May 25,
1993. HCFA later stated in its post-hearing brief that
it revoked Petitioner's CLIA certificate on June 1, 1993,
which is not in compliance with any regulation.
37

through verification of Petitioner's compliance. E.g.,
HCFA Br. at 2, 8, 43. In fact, the revocation should not
have gone into effect in this case.

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

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

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

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

27 HCFA used the term "medicare payment
suspension." HCFA Ex. 128. However, because it cited 42
C.F.R. § 493.1808 as authority, I find that HCFA was
canceling Petitioner's approval to receive Medicare
payment concurrent with HCFA's revocation of Petitioner's
CLIA certificate.
38

deviate from the timetables and processes specified in
those regulations whenever it thought its deviation
harmless in the context of bringing about a result
allegedly deserved by a laboratory.

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

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

I noted earlier, as a corollary matter, that the State of
New Jersey summarily suspended Petitioner's license on
May 25, 1993 and ordered Petitioner to cease and desist
from all laboratory operations immediately. Such
evidence fails also to indicate a need for HCFA to
shortcut the rights and remedies specified by the
Secretary's regulations after it asserted the existence
of immediate jeopardy on May 27, 1993. In short, there
was no legal or logical justification for HCFA to have
preempted the timetables or procedures specified by the
regulations applicable to this case.
39

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

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

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

I will not adjudicate the issue of whether HCFA, in
analyzing information provided to it by the State agency,
correctly found condition level deficiencies based on the
survey conducted during February and March of 1993.
There is no need to do so given what has taken place
since May of 1993. Whether or not condition level
deficiencies existed in February and March of 1993,
Petitioner has been closed since May of 1993. E.g., Tr.
935. As a practical matter, HCFA's concern for the
general public welfare and the existence of jeopardy to
patients should have been alleviated by Petitioner's
closure.
40

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

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

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

CONCLUSION AND ORDER

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

If HCFA believes that, despite Petitioner's closure since
May of 1993, HCFA needs to make determinations on new
41

issues (such as if or which sanctions should be imposed
forthwith in lieu of those I have vacated), HCFA may file
a remand motion for my consideration pursuant to 42
C.F.R. § 498.56(d).

/s/

Mimi Hwang Leahy

Administrative Law Judge