Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

)
In the Case of: )
) Date: March 3, 2008
Jackson Dialysis Center, )
(CNN: 11-2740), )
) Docket No. C-05-533
Petitioner, ) Decision No. CR1744
)
v. )
)
Centers for Medicare & )
Medicaid Services. )
oo )
DECISION

Petitioner, Jackson Dialysis Center, violated 42 C.F.R. § 405.2140 on June 22, 2005.
Termination of Medicare coverage for services provided by Petitioner was required.

I. Background

Petitioner was an outpatient dialysis facility located in Jackson, Georgia, that was
certified to participate in Medicare under the End-Stage Renal Disease (ESRD) Program
as an ESRD facility providing renal dialysis and related services and supplies. Petitioner
was subject to an unannounced, complaint survey by surveyors from the Georgia
Department of Human Resources, Office of Regulatory Services (the state agency) on
June 20, 21, and 22, 2005. The report of the survey in the form ofa “Statement of
Deficiencies” (SOD) (Form CMS-2567) dated June 27, 2005, was forwarded to the
Centers for Medicare & Medicaid Services (CMS). CMS Exhibit (Ex.) 1. CMS notified
Petitioner by letter dated July 1, 2005, with the SOD attached, that the survey found
Petitioner in violation of five conditions of participation; that deficient practices at the
facility were pervasive and presented immediate jeopardy for patients; that no plan of
correction was requested and no revisits would be authorized; and that Petitioner’s
Medicare coverage was terminated and no further Medicare payments would be made for
patients “whose plans of care begin on or after August 8, 2005.” CMS Ex. 2.

2

Petitioner requested a hearing by letter dated August 30, 2005. The case was assigned to
me for hearing and decision on September 2, 2005, and a Notice of Case Assignment and
Prehearing Case Development Order (Prehearing Order) was issued at my direction on
that date. On September 6, 2005, Petitioner moved for an expedited hearing. I convened
telephonic prehearing conferences on September 9 and 12, 2005, the substance of which
are memorialized in my Order dated September 13, 2005. During the conferences, CMS
indicated no objection to the motion for expedited hearing; the motion was granted; an
expedited schedule for case development was agreed to, amending the schedule
established by the Prehearing Order; and the parties agreed to convene the hearing on
October 31, 2005, in Atlanta, Georgia. On October 20, 2005, Petitioner moved to stay
proceedings pending completion of a Georgia State administrative proceeding against
Petitioner’s license.’ I denied the motion for stay by Order dated October 21, 2005.

A hearing was convened in this case on October 31 and November | through 3, 2005, in
Atlanta, Georgia. A 988-page transcript of proceedings (Tr.) was prepared. CMS offered
exhibits (CMS Exs.) 1 through 32. CMS Exs. | through 28, 30, and 31 were admitted as
evidence. CMS Exs. 29 and 32 were not admitted. Petitioner offered and I admitted
exhibits (P. Exs.) 1 through 7, 9 through 41, 45, 50 through 52, and 54 through 56.
Petitioner’s Exs. 8, 42 through 44, 46, and 53 were not admitted.

Petitioner filed a post-hearing brief on January 5, 2006 (P. Brief). CMS filed a post-
hearing brief on January 6, 2006 (CMS Brief). The parties filed post-hearing reply briefs
on February 3, 2006 and on February 6, 2006 (P. Reply and CMS Reply, respectively).
On February 6, 2006, CMS also filed a motion for leave to offer additional exhibits or to
reopen the hearing. On February 15, 2006, Petitioner filed an opposition to the CMS
motion. The motion is denied for the reasons discussed in the analysis section of this
decision.

II. Discussion
A. Findings of Fact
The following findings of fact are based upon the exhibits admitted. Citations to exhibit

numbers related to each finding of fact may be found in the analysis section of this
decision if not indicated here.

' Petitioner must have a state license in order to operate according to the motion.
Motion for Stay 94 3 & 7.
3

On June 22, 2005, Petitioner’s employee terminated a patient’s dialysis without
wearing a protective gown. Tr. 434; CMS Ex. 1, at 18.

On June 22, 2005, Petitioner’s employee terminated a patient’s dialysis without
wearing a protective eye and mouth shield. Tr. 434; CMS Ex. 1, at 18.

On June 22, 2005, three of Petitioner’s employees, while cleaning dialysis
machines, failed to empty the bucket on the machines that collected the fluid
discharge from the dialysis process. Tr. 350, 434; CMS Ex. 1, at 18.

Termination of dialysis exposes staff to the blood of the patient undergoing
dialysis.

Failure of staff to wear a protective gown and eye and mouth shield while
terminating dialysis exposes staff to a patient’s blood and blood borne disease. Tr.
509-10; Tr. 604-08, 618, 621-22.

Failure of staff to properly dispose of the contents of dialysis machine discharge
buckets and then properly clean the buckets poses a risk for cross-contamination
and the transmission of HIV, hepatitis, and other infectious diseases to staff and

patients. Tr. 509-10; Tr. 604-08, 618, 621-22.

Petitioner failed to provide a sanitary and safe environment for patients and staff
on June 22, 2005.

CMS notified Petitioner by letter dated July 1, 2005, that Petitioner’s Medicare
coverage was terminated and no further Medicare payments would be made for
patients “whose plans of care begin on or after August 8, 2005.” CMS Ex. 2.
Petitioner requested a hearing by letter dated August 30, 2005.

B. Conclusions of Law

Petitioner’s request for hearing was timely and I have jurisdiction.

Petitioner violated the condition for coverage established by 42 C.F.R. § 405.2140
related to physical environment.

Termination of Medicare coverage for services provided by an ESRD facility is
required when the facility is found to have violated a condition for coverage.
4

4. No period for correction of a violation of a condition for coverage is permitted
prior to termination of Medicare coverage.

5. Petitioner’s violation of the condition for coverage established by 42 C.F.R. §
405.2140 required termination of Medicare coverage for services provided by
Petitioner as an ESRD facility.

C. Issue
The issue in this case is:

Whether there is a basis for the termination of Petitioner’s
eligibility to receive reimbursement from Medicare as a
supplier of ESRD services to Medicare eligible patients.

D. Relevant Law

The Social Security Act (the Act) provides for Medicare coverage, i.e., benefits, for
patients who suffer ESRD. Act, section 1881(a) (42 U.S.C. § 1395rr(a)). Section
1881(b)(1)(A) authorizes the payment of benefits on behalf of qualified beneficiaries for
renal dialysis services and related supplies, including self-dialysis and support services
provided by an ESRD facility. Medicare benefit payments on behalf of qualified ESRD
beneficiaries may be paid directly to renal dialysis facilities’ that meet such requirements
as the Secretary establishes by regulation. The Act further provides in section 1881(g)(1):

In any case where the Secretary —
(A) finds that a renal dialysis facility is not in substantial compliance
with requirements for such facilities prescribed under subsection
(b)(1)(A),
(B) finds that the facility’s deficiencies do not immediately
jeopardize the health and safety of patients, and
(C) has given the facility a reasonable opportunity to correct its
deficiencies,

? An “ESRD facility” is a facility approved to furnish at least one specific ESRD
service. A “renal dialysis facility” is an ESRD facility that is freestanding, i.e., not part of
a hospital, that is approved to furnish dialysis services directly to a dialysis patient. 42
C.F.R. § 405.2102; SOM § 2280C.
5

the Secretary may, in lieu of terminating approval of the facility, determine
that payment under this title shall be made to the facility only for services
furnished to individuals who were patients of the facility before the
effective date of the notice.

A decision of the Secretary to restrict payments becomes effective only after notice to the
public and the facility as the Secretary prescribes by regulation, and continues until the
facility achieves substantial compliance with statutory and regulatory requirements or
until the Secretary terminates approval of the facility to receive Medicare payments. Act,
section 1881(g)(2). An ESRD facility dissatisfied with the Secretary’s determination to
restrict payments and/or terminate approval of the facility to receive Medicare payments
has a right to a hearing as provided by section 205(b) of the Act and judicial review as
provided by section 205(g) of the Act. Act, section 1881(g)(3).

The regulations the Secretary promulgated regarding coverage of ESRD services are
found at 42 C.F.R. Part 405, Subpart U (§§ 2100-2184). Sections 405.2130 through
405.2140 of 42 C.F.R. set forth the general requirements for and description of the
facilities required for delivery of ESRD services that may be compensable under
Medicare. Sections 405.2160 through 405.2164 set forth the specific requirements for
facilities that provide ESRD dialysis services. 42 C.F.R. § 405.2100(b). Section
405.2180(a) provides that failure of an ESRD supplier to meet one or more conditions of
coverage required by the regulation will result in termination of Medicare coverage for
ESRD services by that supplier.’ If the condition violated is failure of the ESRD provider
to participate in “network activities” or pursue “network goals” as required under 42
C.F.R. § 405.2134, then coverage may be reinstated when CMS determines that the
supplier is making “reasonable and appropriate” efforts to satisfy the condition. 42
C.F.R. § 405.2180(b). If any other condition is violated, reinstatement cannot occur until
CMS finds that the reason for termination has been removed and there is “reasonable
assurance that it will not recur.” 42 C.F.R. § 405.2180(c). The regulations authorize
CMS to impose an alternative sanction, i.e., a sanction other than termination, when the
ESRD supplier fails to participate in network activities or pursue network goals as
required by the condition established by 42 C.F.R. § 405.2134 and the failure to comply
with that condition does not jeopardize patient health and safety. 42 C.F.R. §
405.2181(a). Alternative sanctions are not authorized for violations of other regulatory

* An ESRD facility does not have a “provider” agreement with the Secretary and
is, by definition, a “supplier” of services. See 42 C.F.R. §§ 400.202, 405.2180.
However, the Act specifies that a renal dialysis facility is treated as a “provider” of
services for purposes of section 1878 of the Act, which relates to the Provider
Reimbursement Review Board. Act, § 1881(b)(2)(D).
6

conditions. CMS is required to give the facility and the public notice of the imposition of
a sanction and the effective date of the sanction at least 30 days after the date of the
notice. 42 C.F.R. § 405.2182(a).

Termination of Medicare coverage for the ESRD services is an “initial determination
appealable” under 42 C.F.R. Part 498, i.e., a hearing by an ALJ with review by the
Departmental Appeals Board (the DAB or the Board).* 42 C.F.R. § 405.2182(b). The
hearing before an ALJ is a de novo proceeding. Anesthesiologists Affiliated, et al, DAB
CR65 (1990), aff'd, 941 F.2d 678 (8" Cir. 1991); Emerald Oaks, DAB No. 1800, at 11
(2001); Beechwood Sanitarium, DAB No. 1906 (2004); Cal Turner Extended Care
Pavilion, DAB No. 2030 (2006); The Residence at Salem Woods, DAB No. 2052 (2006).
The Board has addressed the allocation of the burden of persuasion and the burden of
production or going forward with the evidence in past cases, in the absence of specific
statutory or regulatory provisions. Application of the Board’s analysis and approach is
not disputed in this case and is appropriate. When a penalty is proposed and appealed,
CMS must make a prima facie case that the facility has failed to comply substantially
with federal participation requirements. “Prima facie” means generally that the evidence
is “(s)ufficient to establish a fact or raise a presumption unless disproved or rebutted.”
Black’s Law Dictionary 1228 (8" ed. 2004). In Hillman Rehabilitation Center, DAB No.
1611, at 8 (1997), aff'd Hillman Rehabilitation Center v. HHS, No. 98-3789 (GEB) (D.
N.J. May 13, 1999), the Board described the elements of the CMS prima facie case in
general terms as follows:

HCFA [now known as CMS] must identify the legal criteria to which it
seeks to hold a provider. Moreover, to the extent that a provider challenges
HCFA’s findings, HCFA must come forward with evidence of the basis for
its determination, including the factual findings on which HCFA is relying
and, if HCFA has determined that a condition of participation was not met,
HCFA’s evaluation that the deficiencies found meet the regulatory standard
for a condition-level deficiency.

DAB No. 1611, at 8. Thus, CMS has the initial burden of coming forward with sufficient
evidence to show that its decision to terminate is legally sufficient under the statute and
regulations. To make a prima facie case that its decision was legally sufficient, CMS
must: (1) identify the statute, regulation or other legal criteria to which it seeks to hold

* Imposition of an alternative sanction is not subject to appeal under 42 C.F.R.
Part 498. 42 C.F.R. § 405.2184 (2005).
7

the provider; (2) come forward with evidence upon which it relies for its factual
conclusions that are disputed by the Petitioner; and (3) show how the deficiencies it found
amount to noncompliance that warrants an enforcement remedy.

In Evergreene Nursing Care Center, DAB No. 2069 (2007), the Board explained as
follows:

CMS has the burden of coming forward with evidence related to disputed
findings that is sufficient (together with any undisputed findings and
relevant legal authority) to establish a prima facie case of noncompliance
with a regulatory requirement. If CMS makes this prima facie showing,
then the [skilled nursing facility] must carry its ultimate burden of
persuasion by showing, by a preponderance of the evidence, on the record
as a whole, that it was in substantial compliance during the relevant period.
(Citations omitted)

CMS makes a prima facie showing of noncompliance if the evidence CMS
relies on is sufficient to support a decision in its favor absent an effective
rebuttal. Hillman Rehabilitation Center, DAB No. 1663, at 8 (1998), aff'd,
Hillman Rehabilitation Ctr. v. HHS, No. 98-3789 (GEB) (D. N.J. May 13,
1999); see also Guardian Health Care Center, DAB No. 1943 (2004). A
facility can overcome CMS’s prima facie case either by rebutting the
evidence upon which that case rests, or by proving facts that affirmatively
show substantial compliance. Tri-County Extended Care Center, DAB No.
1936 (2004). “An effective rebuttal of CMS’s prima facie case would mean
that at the close of the evidence the provider had shown that the facts on
which its case depended (that is, for which it had the burden of proof) were
supported by a preponderance of the evidence.” Jd. at 4 (quoting Western
Care Management Corp., DAB No. 1921 (2004)).

DAB No. 2069, at 7-8.
E. Analysis

There is no question that Petitioner in this case was a supplier of ESRD services and it
was approved to receive payment through Medicare for dialysis services and supplies
provided to Medicare-eligible ESRD patients. There is also no dispute that Petitioner was
subject to an unannounced complaint survey by state agency surveyors on June 20, 21,
and 22, 2005, the results of which are reported in the SOD dated June 27, 2005. CMS
Ex. 1. There is no dispute that CMS notified Petitioner by letter dated July 1, 2005, that
the survey found Petitioner in violation of five conditions for coverage: 42 C.F.R.
8

§ 405.2136,’ Governing Body and Management; 42 C.F.R. § 405.2139, Medical Records;
42 C.F.R. § 405.2140, Physical Environment; 42 C.F.R. § 405.2161, Director of a Renal
Dialysis Facility; and 42 C.F.R. § 405.2162, Staff of a Renal Dialysis Facility. It is also
not subject to dispute that the CMS notice advised Petitioner that the deficient practices at
the facility were considered by CMS to be pervasive and that they presented immediate
jeopardy for patients; that CMS was not requesting or allowing a plan of correction and
no revisits would be authorized to determine whether Petitioner corrected the alleged
deficiencies; and that Petitioner’s Medicare coverage was terminated and no further
Medicare payments would be made for patients “whose plans of care begin on or after
August 8, 2005.” CMS Ex. 2; Joint Stipulation.

1. Alternative sanctions are not available and Petitioner is not entitled
to a period for correction prior to termination.

Section 1881(a) of the Act requires that the Secretary promulgate regulations establishing
requirements that renal dialysis facilities must meet in order to be eligible to receive
payment for services rendered to Medicare-eligible ESRD patients. Section 1881(g)(1)
authorizes the Secretary to restrict payments for a supplier of ESRD services that does not
meet the conditions established in the regulations as an alternative to the sanction of
terminating such a supplier’s participation. In promulgating the regulations in this area,
the Secretary chose to authorize an alternative sanction only when the ESRD supplier
fails to participate in network activities or pursue network goals. The Secretary has not
authorized the use of an alternative sanction in the event of a violation of any other
condition.°

* The notice listed “42 C.F.R. § 405.3136 Governing Body and Management.”
CMS Ex. 2, at 1. However, because there is no “42 C.F.R. § 405.3136,” I conclude that
this is a clerical or typographical error. The referenced title of the section, “Governing
Body and Management,” is actually the title of the condition established by 42 C.F.R.
§ 405.2136. Accordingly, I conclude that the notice actually was intended to and, but for
a clerical or typographical error would have been listed as 42 C.F.R. § 405.2136.
Petitioner has alleged no prejudice related to adequacy of the notice in this regard; I
conclude there is no prejudice; and I find that the notice was adequate.

® The notice of “final rule” for 42 C.F.R. § 405.2180 recognizes that during the
rule-making process Congress granted the Secretary authority to impose alternative
sanctions for other condition-level violations, that the option was under consideration, but
not included in the final rule. 53 Fed. Reg. 36,274, 36,276 (Sep. 19, 1988).
9

In the case before me, the five conditions alle

gedly violated do not include failure to

participate in network activities or failure to pursue network goals. Thus, no alternative
sanctions are possible in this case and, if I conclude that Petitioner has violated a
condition for coverage, then termination is the only available sanction. Furthermore, 42

C.F.R. § 405.2180(a) provides:

Except as provided in § 405.2181, failure of a supplier of ESRD services to

meet one or more of the conditi

ons for coverage set forth in this subpart U

will result in termination of Medicare coverage of the services furnished

by that supplier.

(Emphasis added.) As already noted, the exception provided by § 405.2181 permits an
alternative sanction where the condition violated is failure to participate in network
activities or failure to pursue network goals and does not apply in this case. The plain
language of § 405.2180(a) mandates termination in the event I find even a single

condition-level violation. The regulation goe:

s on to provide:

If termination of coverage is based on failure to meet any of the other
conditions specified in this subpart, coverage will not be reinstated until
CMS finds that the reason for termination has been removed and there is

reasonable assurance that it wil

42 C.F.R. § 405.2180(c). The language of § 4

not recur.

05.2180 is clear. The regulatory scheme

specifically established for a renal dialysis facility requires that, if a condition for
coverage established in 42 C.F.R. Part 405 (except for failure to participate in network

activities or pursue network goals) is violate
services will be terminated and coverage wi
removed and reasonable assurance that it will

, Medicare coverage for the ESRD facility’s
1 not be reinstated until the violation is
not recur is accepted by CMS. I find

nothing in the regulatory history that would cause me to reach a different conclusion. See

53 Fed. Reg. 36,274, 36,276 (Sep. 19, 1988).

Petitioner argues in this case that CMS erred

y failing to grant a period in which

Petitioner might remedy or correct the allege

violations or deficiencies before CMS

decided to terminate Medicare coverage. Petitioner asks, if I find a condition-level
violation but no immediate jeopardy, that I direct CMS to give Petitioner an opportunity
to submit a plan of correction and conduct a revisit survey to determine whether
Petitioner has achieved compliance with all conditions. P. Brief at 7. Petitioner’s

argument that it should be granted a period in

which to take corrective action prior to
10

termination is based upon its reading of the State Operations Manual (SOM),’ a policy
document issued by CMS to guide state surveyors in conducting surveys and processing
related documents. P. Brief at 4-7. Petitioner specifically cites SOM §§ 3010A and 3012
to support its argument. P. Brief at 5-6. Several parts of the SOM provide policy
guidance regarding ESRD providers. SOM sections 2270 through 2287B are specifically
applicable to the ESRD program. Appendix H of the SOM sets forth surveyor
instructions and interpretive guidelines specific to ESRD facilities. SOM sections 3220
et. seg. cover expansion of ESRD facilities, among other topics. SOM section 5170
provides guidance for conducting complaint investigations against ESRD providers.

SOM section 2284, titled “Termination Procedures,” directs the reader to SOM Chapter 3.
Chapter 3 of the SOM indicates that its procedures are to be used if adverse action is
likely to be initiated against a provider or supplier. SOM § 3000A. SOM section 3005B,
titled “Termination of Coverage of Supplier Services Subject To Certification,”
recognizes that section 1881(b) of the Act, which establishes the ESRD program, grants
the Secretary authority to establish conditions of coverage for suppliers of services and
that implicit within that authority is the authority to determine that such conditions are not
met. Section 3005B also recognizes that while a “termination” of coverage for a
supplier’s services is not the same as termination of a provider agreement, the net effect is
the same with regard to the supplier’s eligibility to receive payment by Medicare for its
services. Thus, procedures for certifying supplier noncompliance parallel those for
certifying provider noncompliance. Section 3010A, referred to by Petitioner, provides a
definition of “immediate jeopardy.”

SOM section 3012 sets forth termination procedures when there is noncompliance with
one or more conditions of participation or conditions for coverage and the deficiencies
cited limit the capacity of the provider or supplier to furnish an adequate level or quality
of care. It is this section of the SOM that Petitioner cites for the proposition that it must
be given an opportunity to submit a plan of correction and achieve compliance before
CMS can terminate. P. Brief at 5. CMS counters that it has the discretion as to whether
or not to offer the facility an opportunity to correct if a condition-level deficiency is cited.
I find neither position to be well-founded.

7 Available at http://www.cms.hhs.gov/Manuals/IOM/list.asp, Publication No.
100-07. Updates to the SOM sections applicable at the time of the survey in this case
were Rev. 1, 05-21-04 and earlier.

11

I note that SOM section 3012 is not specific to ESRD facilities and, in fact, does not
specifically mention to which providers or suppliers it applies. The section, by its terms,
applies to both providers who have conditions of participation and suppliers who have
conditions for coverage. The general termination procedures established by the section
are applicable to multiple types of providers and suppliers under Medicare. The section
also specifically states:

Compliance with Conditions; i.e., condition level deficiencies, can never be
certified based upon a PoC (plan of correction) or acceptable progress since
the law specifically requires that all CoPs (conditions of participation) or
CoCs (conditions of compliance) must be met.

SOM § 3012.* A note at the end of the section indicates that time-frames are maximum
and that the CMS Regional Office may terminate more quickly as long as the regulatory
requirement for notice of the public and provider are satisfied. If the general provisions
of SOM section 3012 actually apply to ESRD providers, then my reading of the section is
consistent with the CMS interpretation that it has the discretion to terminate more quickly
than provided in that section, even if there is no allegation of immediate jeopardy, and
that all the section requires CMS to do is observe the regulatory notice requirements.

Iam disposed to take an even more restrictive view of the Act and regulations,
specifically 42 C.F.R. § 405.2180(a), than CMS advocates. In section 405.2180(a), the
choice of the phrase “will result in termination” in the event of even one condition-level
violation is critical. If the Secretary intended to delegate to CMS authority to do
something other than terminate in the face of a condition-level violation, than this would
have been the most likely place for such a delegation to be made or referenced. Although
the general language of SOM section 3012 and 3044, which has to do generally with
terminating suppliers, can be read to suggest that CMS has such discretion, CMS
identifies no statutory or regulatory authority granting it discretion not to terminate
coverage for ESRD services in the face of a condition-level violation.” It is fundamental

* T recognize that Petitioner does not argue that it is sufficient that it make
“acceptable progress.” Rather, Petitioner argues that it should be allowed to submit a
plan of correction and achieve compliance within a reasonable period.

° CMS cites 42 C.F.R. §§ 488.24(b) and 488.28 in support of its position that it
has discretion to permit or deny an opportunity to correct condition-level deficiencies.
The CMS reading of these regulations is fundamentally flawed. First, these regulatory
provisions are for general application and do not include a delegation for CMS to offer an

(continued...)
12

that CMS cannot by a policy directive amend or supercede one of the Secretary’s
regulations. My reading of the regulation is consistent with the language of the second
clause of 42 C.F.R. § 405.2180(c), which specifies that “coverage will not be reinstated
until CMS finds that the reason for termination has been removed and there is reasonable
assurance that it will not recur.” The second clause would not have been necessary if a
procedure was contemplated whereby CMS could allow a provider a period for correction
and to achieve substantial compliance without loss of coverage. Rather, my reading is
that the regulation clearly contemplates that when there is a condition-level violation,
coverage ceases and cannot be reinstated until the conditions specified by the regulation
are satisfied and the Secretary has reasonable assurance that the reason for the prior
termination will not recur.

My conclusion is that neither Petitioner nor CMS are correct in their positions about
whether an ESRD provider can be permitted to submit a plan of correction and have an
opportunity to achieve compliance when there is a finding of a condition-level deficiency.
The Secretary’s regulation mandates termination of coverage for an ESRD facility’s
services when even one condition-level deficiency exists and such coverage may not be
reinstated until the cause of the deficiency is removed and reasonable assurance exists

°(...continued)
ESRD provider an opportunity to correct a condition-level deficiency and thereby avoid
the termination mandated by 42 C.F.R. § 405.2180. Second, even if these general
regulatory provisions were viewed to control over the specific ESRD regulations, they do
not give CMS discretion to offer a period for correction of a “condition-level deficiency.”
The language of 42 C.F.R. § 488.28 specifically limits its application to cases where there
are no condition-level deficiencies identified on survey. Subsection (a) specifically states
that it applies when a provider or supplier is found to deficient with respect to “one or
more of the standards. ...” 42 C.F.R. § 488.28(a). The language of 42 C.F.R. §
488.28(b) specifies that the provisions of the regulation only apply when deficiencies
identified on survey “neither jeopardize the health and safety of patients nor are of such
character as to seriously limit the provider’s capacity to render adequate care” — the
definition of “condition-level” deficiency established by 42 C.F.R. § 488.24(b).
Subsection (c) further specifies that it is limited to a situation where a survey finds that a
supplier is not in compliance with “one or more of the standards.” 42 C.F.R. § 488.28(c).
13

that such deficiency will not recur.'” Thus, if I find one condition-level violation existed,
Medicare coverage for Petitioner’s ESRD services is terminated based on that condition-
level violation.

2. Petitioner violated the condition for coverage established by 42
C.F.R. § 405.2140, and termination of coverage is required.

CMS alleges that Petitioner violated the following conditions for coverage: 42 C.F.R.

§ 405.2136, Governing Body and Management (Tag V110)''; 42 C.F.R. § 405.2139,
Medical Records (Tag V230); 42 C.F.R. § 405.2140, Physical Environment (Tag V255);
42 C.F.R. § 405.2161, Director of a Renal Dialysis Facility (Tag V420); and 42 C.F.R.

§ 405.2162, Staff of a Renal Dialysis Facility (Tag V430). CMS also alleges 12 standard-
level deficiencies, which are included within the condition-level violations. CMS Ex. 1.
Condition-level deficiencies are those that “are of such character as to substantially limit
the provider’s or supplier’s capacity to furnish adequate care or which adversely affect
the health and safety of patients.” 42 C.F.R. § 488.24(b). As already noted, violation of a
condition of coverage is grounds for termination while violation of a standard is not.

a. Factual Background.

It is necessary to establish the factual background for this case to understand the result.
The state agency received a complaint through the Southeastern Kidney Council, Inc.
CMS Ex. 1, at 1; CMS Ex. 8; Tr. 140. The complaint referral dated June 9, 2005,
indicates that a complainant contacted the Kidney Council and represented that her
mother was a patient at Petitioner’s facility and did not want to make the complaint
herself. The complainant was the daughter of Patient 5. Tr. 140-42. Specific allegations
of the complaint were that there was often no nurse in the facility while patients received

'° The regulatory requirement for termination with reinstatement only if the
violation that caused termination is corrected with reasonable assurance it will not recur,
puts a heavy burden upon Petitioner to ensure no condition-level violation and no break in
Medicare payments. The procedure is clearly stated and with no hint that the Secretary
intended to create another procedure that would permit a facility to correct a deficiency,
except those specific deficiencies already mentioned, while maintaining Medicare
coverage.

'' The “Tag” identifier relates to SOM, Appendix H, Part V — “The Interpretive
Guidelines,” which sets forth the CMS guidance to surveyors. Each standard and
condition established by the regulations is identified in the SOM by a unique number
from 100 through 497 preceded by “V.”
14

dialysis, with the nurse arriving two hours after dialysis started; facility staff did not
remove all fluid from patients; Petitioner did not submit appropriate paperwork to the
complainant’s mother’s insurance company so that her Medicare premium could be paid;
for a long time the facility had no oxygen available for patient emergencies although they
had oxygen at the time of the complaint; and staff told her mother that when they had no
oxygen they locked the doors to keep the state survey agency out of the building. CMS
Ex. 8. There is no evidence that anyone contacted the complainant or her mother to
clarify the allegations or to obtain further information to permit a more focused or
thorough investigation.

Based on the complaint, a state agency surveyor, Rebecca Warthen, went to the facility
on June 20, 2005, to conduct an unannounced complaint investigation. Surveyor Warthen
went alone on June 20, 2005. The survey was continued on June 21 and 22, 2005, as a
full recertification survey because it was concluded that the complaint was substantiated.
Ms. Warthen was joined in conducting the survey on June 21 and 22, by surveyor Cheryl
Scott.

Ms. Warthen testified that on June 20, 2005, at 7:25 a.m., she walked into the lobby or
patient waiting area of Petitioner’s facility. The patient waiting area was empty, but Ms.
Warthen believed that she heard dialysis machines running in another room.'’* Ms.
Warthen went to the window between the lobby and reception office, and advised the
man sitting there that she was there to do a survey and wanted to see the charge nurse.
Ms. Warthen identified the man as Fred Deveroe, the facility water technician. Mr.
Deveroe left the reception office and did not return. Ms. Warthen attempted to open the
door between the lobby and the treatment area and found it locked. She rang a bell on the
intercom near the door but there was no answer. Surveyor Warthen testified that Patient 1
entered the facility waiting room from outside and also rang the bell and knocked on the
door and there was no answer. Patient 1 told Ms. Warthen that the door is always locked.
Ms. Warthen testified that Patient 1 told her that when she was there for dialysis the
registered nurse (RN) generally did not arrive until around 8:30 a.m. to 8:45 a.m., and that
a Patient Care Technician (PCT) administered her heparin rather than the RN. Tr. 97-
103. Patient 1 also told her that between November 2004 and August 2005 she only had

Ms. Warthen testified in response to my questions that she could hear the
dialysis machines running, with a sound like a refrigerator running, throughout the
morning of June 20, 2005. Tr. 157-58. She also testified that when she entered the
treatment floor she could tell the patients she saw were being dialyzed. Tr. 159. On
cross-examination she agreed that the sound of the machines would be the same whether
the patients were on dialysis or dialysis was complete and they were being reinfused with
their blood. Tr. 173-74.
15

one pre-assessment by the RN, and that in the week prior to the survey she had been in
the hospital for pneumonia for which she needed four doses of antibiotic, but that she
only received one dose through Petitioner. Tr. 107-09.

According to Ms. Warthen, at approximately 7:50 a.m. (approximately 25 minutes after
her arrival), Dallas Davis, an employee, came to the door of the reception area and
advised her that the RN was present and would be right with her but that they were in the
middle of an emergency that the RN was handling. Ms. Warthen testified that she could
hear machines running and she heard no alarm sounding that might have indicated an
emergency with the dialysis equipment. Tr. 110. She testified that at 8:10 a.m.
(approximately 45 minutes after her arrival), RN Kathryn Harrison, Petitioner’s Director
of Nursing, allowed her to enter the treatment area. Ms. Warthen testified that Nurse
Harrison apologized for keeping her waiting and explained that she had been working on
an emergency with the water system. Tr. 111. After meeting Nurse Harrison, Surveyor
Warthen went to the treatment floor where she interviewed eight patients, asking
specifically whether the nurse had been there when they were put on dialysis that morning
and who gave them their heparin.'* Surveyor Warthen testified that six patients told her
that the nurse was not present when they were put on dialysis that morning and that the
nurse normally arrives around 8:30 a.m. Tr. 113, 200-01. She testified that seven of the
patients told her that a PCT normally administers heparin. Tr. 112-13.

Ms. Warthen testified that in her opinion she was told inconsistent stories by Petitioner’s
staff about what was going on the morning of June 20, 2005, and why she was not
immediately admitted to the treatment floor. She testified that, based upon the different
stories she was told, her interviews with patients, and the fact she heard no alarms that
morning, she concluded that there was no water problem that prevented staff from
admitting her immediately. Tr. 147. Ms. Warthen agreed on cross-examination that
emergencies with the water system in a dialysis clinic can occur; but she found no
documentation in any patient record that any patient’s dialysis was interrupted on June 20
due to an emergency. However, she agreed that some patients did tell her that they
received their blood back that morning, indicating that dialysis was interrupted. Tr. 148-
50.

‘3 Ms. Warthen interviewed Patient | in the lobby and seven patients on the
treatment floor, Patients 2, 3, 4,5, 10, 11, and 12.
16

Surveyor Chery! Scott joined Surveyor Warthen for the second and third days of the
survey. She testified that Patients 2 and 3 told her during interviews that Nurse Harrison
usually did not arrive until after 8:00 a.m. Tr. 346-47.

b. The weight of the evidence is that RN Kathryn Harrison was
present when the surveyor arrived on June 20, 2005.

The surveyors concluded based upon the complaint, Surveyor Warthen’s observations on
the morning of June 20, 2005, and the statements of some patients, that Nurse Harrison
was not at the facility when Surveyor Warthen arrived on June 20. Whether or not Nurse
Harrison was at the facility when Surveyor Warthen arrived is hotly contested and
consumed much of the attention of counsel on both sides. Nevertheless, the surveyors’
conclusion that Nurse Harrison was not present only provided the basis for the alleged
standard-level violation of 42 C.F.R. §§ 405.2136(c)(3)(i) (Tag V134)'* and one of the
five alleged condition-level violations, specifically § 405.2162 (Tag V430).'°

Part of the original complaint filed with the state was that there was no nurse on duty
when dialysis began and heparin was administered. There is no doubt that Surveyor
Warthen was aware of the complaint. Tr. 95. She admitted in response to my questioning
that there was no way for her to monitor all the exterior doors to the facility. She could
offer no explanation for why more surveyors were not sent to the facility the first day to
monitor the coming and going of staff in an effort to validate the complaint that a nurse
was often not present when dialysis began. Tr. 323-25.

The CMS position that Nurse Harrison was not present when Surveyor Warthen arrived at
the facility on June 20, is not based upon the surveyor’s personal observation that Nurse
Harrison was not present, but rather upon an inference that Nurse Harrison was not
present because the nurse did not more promptly meet and greet Surveyor Warthen. The
other evidence CMS relies upon for the proposition that Nurse Harrison was not present
are hearsay statements of various patients who told the surveyors that Nurse Harrison was
not present on June 20 and other days when dialysis began. Although hearsay is
admissible in this administrative proceeding, the weight to be afforded hearsay is always
in issue, particularly where, as here, the opposing party objects to the probative value of
the hearsay. The hearsay from the patients is particularly troublesome, because it is not

‘4 This standard-level violation is one of five cited under the condition-level
violation of 42 C.F.R. § 405.2136 (Tab V110).

'S The surveyors also cited the included standard-level violation of 42 C.F.R.
§ 405.2162(b)(1).
17

recorded in written statements prepared or adopted by the patients, but is rather in the
form of summaries by the surveyors who spoke with the patients. Petitioner rightly
objects to my giving weight to the hearsay statements of the patients because Petitioner
had no opportunity to test the credibility of the patients or their statements by face-to-face
cross-examination and I had no opportunity to see the witnesses when judging their
credibility. Tr. 69-74.

CMS complains that it was not permitted to have certain patients testify by telephone,
because Petitioner objected to taking their testimony in that manner’® and I concluded it
necessary to avoid any due process issue arising from depriving Petitioner of face-to-face
confrontation of fact witnesses against it.'’ Tr. 59-81. Post-hearing CMS seeks to reopen
the record so that I may receive six depositions, three of which were patients CMS
wanted to examine during the hearing by telephone. CMS Motion for Leave to Offer
Additional Exhibits/Request to Reopen Hearing, dated February 6, 2006. Petitioner
objects to my receipt as evidence and consideration of the depositions post-hearing.
Petitioner’s Brief in Opposition to CMS Motion for Leave to Offer Additiona
Exhibits/Request to Reopen Hearing, dated February 15, 2006. The CMS motion to
reopen the record is denied. Given my disposition of this case, I find it unnecessary to
reopen the record for the receipt of additional evidence.'*

'© Petitioner filed its objection on October 27, 2005, four days prior to the hearing,
asserting the importance of in-person testimony to permit assessment of the witnesses’
credibility. Thus, CMS was not surprised by the objection at hearing.

'T | did not rule that the witnesses could not testify, only that their testimony would
not be received by telephone. Tr. 80-81. Subpoenas were issued at CMS’s request on
October 21, 2005, for witnesses Strickland, Knight, and Simpson, but the evidence does
not show that CMS effected service or sought enforcement. CMS did not request
prehearing that the hearing be convened in Jackson, Georgia, nearer to Petitioner’s
facility and the location of the witnesses CMS sought to have testify. CMS also did not
request, until hearing, the opportunity to depose the witnesses.

'S The evidence CMS offered post-hearing includes depositions of three patients,
the same three CMS failed to produce at hearing, and three repairmen who worked on
Petitioner’s air conditioning system. CMS wants me to consider the depositions of the
repairmen, believing they negate Petitioner’s claim that Nurse Harrison was working on a
water problem the morning of June 20, 2005. All the depositions were taken in
conjunction with the state proceedings against Petitioner, which commenced after the
hearing in this case. CMS should have recognized before the hearing that the three
dialysis patients it wanted to call as witnesses might have difficulty traveling. CMS

(continued...)
18

I note, however, that even had I received testimony from the patients CMS proposed for
me to hear," it is not clear that such testimony would outweigh the evidence Petitioner
offered to show Nurse Harrison was in fact present the morning of June 20 when dialysis
began. Nurse Harrison testified that she arrived at the facility on June 20 at 5:08 a.m.;
that there has never been a time when patients arrived before her; that Fred Deveroe
opens the facility at 5 a.m.; that she usually arrives between 5:10 and 5:15 a.m.; and that
she keeps her own time records (P. Ex. 1). Tr. 628-33. She also testified that she always
loads the heparin on the dialysis machines and that she is the only person who can do so
because she has the only key to the drug cabinet; she does not, however, put all the
patients on the dialysis machine or start the dialysis process. Tr. 633-35. Petitioner also
produced three patients who testified that RN Harrison was always present when they
were put on dialysis and that she was there when they were put on dialysis on June 20,
2005. Tr. 808-11; 824-25; and 835. Given all the evidence and considering the
testimony CMS proffered from the three patients CMS failed to produce, I find Nurse
Harrison and the testimony of the patients who did appear at hearing to be credible and
more weighty than either the proffered testimony or the hearsay to the contrary.
Accordingly, I conclude the evidence sufficient to establish that Nurse Harrison was
present the morning of June 20, 2005, as Petitioner alleges.

c. The condition-level violation of 42 C.F.R. § 405.2140 (Tag
V255) — Physical Environment.

The fact that Nurse Harrison was present when the surveyor arrived on June 20, 2005,
and that she may have always been present while patients were on dialysis, does not mean
that Petitioner prevails in this case. To the contrary, the evidence shows that Petitioner
was in violation of the condition for coverage established by 42 C.F.R. § 405.2140 (Tag
255) and termination of Petitioner’s participation in Medicare as an ESRD supplier and
Medicare coverage for ESRD services it provided was required.

'S(._ continued)
should have requested depositions or that the hearing be convened nearer to Petitioner’s
facility, but failed to do so. Further, CMS should have known from the allegations of the
SOD (e.g., CMS Ex. 1, at 1, 11, 30-32), and its interview of Surveyor Warthen, that
Petitioner took the position that RN Harrison could not more promptly greet Surveyor
Warthen the morning of June 20 because she was working on the water system. If CMS
believed it important to rebut Petitioner’s arguments, CMS should have called the
repairmen to testify at the hearing in this case, but CMS failed to do so. Post-hearing
motions to reopen are no substitute for prehearing preparation.

'° CMS’s proffer of the testimony of its witnesses is at Tr. 64-65.
19

The regulation requires that an ESRD facility maintain a physical environment that is
functional, sanitary, safe, and comfortable for patients, staff, and the public. The
condition includes standards: (a) the building must be constructed, equipped, and
maintained to ensure safety of patients, staff and the public; (b) the space must be
functional, sanitary, and comfortable for patients and includes, inter alia, the requirement
for policies and procedures for preventing and controlling hepatitis and infections and for
safe and comfortable dialysis with patient privacy, appropriate emergency medical
supplies, and safe storage of dialysis supplies; (c) the facility must use appropriate
technique to avoid cross-contamination; and (d) the facility must have written policies
and procedures for handling emergencies that might threaten the health or safety of
patients. 42 C.F.R. § 405.2140.

The surveyors allege in this case that the condition for coverage was violated because
Petitioner’s staff failed to use techniques to prevent cross-contamination and Petitioner
failed to provide emergency supplies. CMS Ex. 1, at 18. The CMS expert, Glenda
Payne, opined that both rose to condition level violations. Tr. 509. I find that the
condition for coverage was violated by the former and that it is unnecessary to discuss the
latter.

It is not disputed that on June 22, 2005, Surveyor Scott saw an employee terminating a
patient’s dialysis without wearing a protective gown; she observed an employee
terminating a patient’s dialysis without wearing a protective eye and mouth shield; and
she saw three employees cleaning the dialysis machines but failing to empty the bucket
on each machine that collected the fluid discharge from the dialysis process. Tr. 350,
434; CMS Ex. 1, at 18. The CMS expert testified that the fact that the buckets were not
clean was a serious deficiency because it posed the risk for cross-contamination and
transmission of hepatitis. Tr. 509-10. Petitioner’s expert, Katrina Russell, agreed that the
cited conduct amounted to a deficiency. Tr. 604. However, she noted that such a
deficiency is common and, in her experience, not the basis for a facility losing its
Medicare certification. Tr. 604. She further commented that staff can get complacent and
not pay attention to infection control practices and it is a challenge for a facility to
monitor and remind staff to use protective equipment. Tr. 604. Ms. Russell declined to
comment about whether or not the errors or omissions observed by Surveyor Scott
amounted to a condition-level violation, but she opined that the deficiency cited was
correctable through staff education and a system for monitoring staff. Tr. 607-08. On
cross-examination, she agreed that the buckets that were not emptied and cleaned posed
the risk for the spread of hepatitis, HIV, and other infectious diseases. Tr. 618. On
redirect, she stated that the failure to empty the buckets was a deficient practice and she
noted that the risk extended to staff, including cleaning staff. Tr. 621-22.

20

Petitioner does not deny the observations of Surveyor Scott. Rather, Nurse Harrison
suggested that the failure of the employee to wear protective equipment should be
excused because it was hot that day and the air conditioning was not working. She
asserted that technicians normally wear lab coats and eye and mouth shields. Tr. 759; P.
Brief at 21. Nurse Harrison explained that she could not address the observation of
Surveyor Scott regarding the buckets. However, she explained that the buckets are open
and that normally they would be emptied after the technician primes the artificial kidney
and the dialysis lines and blood lines. She testified that the bucket should be emptied
between patients, and, in this case, no patient went on a machine with a bucket that had
not been emptied, because there were only two patients for dialysis on the second shift.
She also testified that the buckets Surveyor Scott observed would have been emptied
sometime later in the day after the surveyor left. She did not dispute Surveyor Scott’s
observation that staff had already placed fresh or clean supplies on the machines,
apparently before the machines were completely cleaned. Tr. 760-61. Petitioner
presented no evidence as to when the buckets were emptied and cleaned on June 22,
2005.

Petitioner argues in post-hearing briefing that the deficiencies observed and cited by
Surveyor Scott were easily correctable and “not grounds for de-certification nor an
immediate jeopardy finding.” P. Brief at 22. Petitioner further argues the deficiencies
were really the result of the oppressively hot conditions at Petitioner’s facility on June 22,
2005. P. Reply at 7.

The condition for coverage requires that Petitioner maintain a physical environment that
is functional, sanitary, safe, and comfortable” for patients, staff, and the public.
Petitioner does not dispute that staff did not use protective gear while terminating a
patient’s dialysis. There is no dispute that terminating dialysis exposed the staff member
to blood. There is also no question that Surveyor Scott observed staff placing clean
dialysis supplies on dialysis machines while potentially contaminated buckets of liquid
remained on those machines. Petitioner’s own expert testified that there was a risk for
cross-contamination of equipment, a risk for spreading infectious diseases, and a risk of
harm to staff exposed. These lapses occurred despite the fact that the surveyor was
present and observing, giving credence to Petitioner’s expert’s opinion that staff had
become complacent with infection control (Tr. 604) and that Petitioner was understaffed
with licensed personnel to supervise the facility (Tr. 618). I conclude that Petitioner’s
facility was neither safe nor sanitary and, thus, Petitioner did not satisfy the condition for

2° T note that the surveyors did not cite Petitioner for operating without air
conditioning, causing patients and staff to suffer the oppressively hot conditions to which
Petitioner alludes.
21

coverage established by the regulation. Whether Petitioner or its expert believe that the
deficiencies are readily correctable is not the issue. The evidence shows that Petitioner’s
facility was not sanitary or safe for patients or staff and there was a violation of the
condition for coverage.

Ill. Conclusion

For the foregoing reasons, I conclude that Petitioner violated a condition for coverage and
termination of Medicare coverage for services provided by Petitioner was required.

/s/
Keith W. Sickendick
Administrative Law Judge


Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of: )
)
Stat Lab I, Inc., ) Date: February 27, 2008

(CLIA No. 19D0990153), )
)
Petitioner, )
)

-Vv.- ) Docket No. C-07-486

) Decision No. CR1743
Centers for Medicare & Medicaid )
Services. )
)

DECISION

I grant summary judgment in favor of the Centers for Medicare & Medicaid Services
(CMS) and against Petitioner, Stat Lab I, Inc. In doing so I sustain CMS’s determination
to impose remedies against Petitioner under the Clinical Laboratory Improvement
Amendments of 1988 (CLIA). Summary judgment is appropriate as there are no genuine
issues of material fact in dispute and the controlling issues may be resolved as a matter of
law. Petitioner’s CLIA certificate is revoked effective the date of this decision due to the
prior CMS suspension of the certificate based on a finding of immediate jeopardy. By
operation of law, the owners and operators of Petitioner are prohibited from owning,
operating, or directing a laboratory for two years pursuant to 42 U.S.C. § 263a(i)(3) in
consequence of the revocation of Petitioner’s certificate. The two-year prohibition runs
from the date of the revocation of the laboratory’s certificate pursuant to 42 U.S.C.

§ 263a(i)(3), which is the date of this decision.

I. Background
Petitioner is a clinical laboratory located in Baton Rouge, Louisiana. This matter arose as

a result of a re-certification survey and subsequent revisit survey of Petitioner’s
laboratory by the Louisiana Department of Health and Hospitals (State agency).
2

On December 11, 2006 (December survey), the State agency concluded a re-certification
survey of Petitioner’s laboratory where conditions within the laboratory were found to
pose an immediate jeopardy to patients. The State agency issued a statement of
deficiencies (SOD) dated December 11, 2006. CMS reviewed the survey report and
concurred that Petitioner was not in compliance with three condition-level participation
requirements. By letter dated January 16, 2007, CMS served notice on Petitioner of its
proposed sanctions.

On January 26, 2007, Petitioner submitted its Credible Allegation of Compliance listing
various actions it would take to address the deficiencies. An on-site revisit to verify
Petitioner’s allegation of compliance and evidence of correction was conducted by the
State agency on February 8, 2007, and its survey findings were issued in an SOD dated
February 8, 2007. The State agency found that Petitioner had failed to adhere to its
allegation of compliance, that it had failed to achieve full compliance, and that the
immediate jeopardy situation still existed.

CMS concurred with the State agency’s findings and, by letter dated April 3, 2007, served
Petitioner notice of proposed sanctions which included: (1) canceling Petitioner’s
approval to receive Medicare payments, effective April 9, 2007; (2) suspending
Petitioner’s CLIA certification and denial of its laboratory’s application for a certificate
of compliance, effective April 9, 2007; and (3) revocation of Petitioner’s CLIA certificate
of compliance pending a decision from an Administrative Law Judge (ALJ).' Petitioner
was also notified that if revocation of its CLIA certificate was effectuated, the owner and
operator (including director) of the laboratory would be prohibited from owning or
operating a laboratory for at least two years from the date of revocation pursuant to 42
U.S.C. § 263a(i)(3) and 42 C.F.R. § 493.1840(a)(8).

By letter dated May 31, 2007, Petitioner timely requested a hearing before an ALJ to
challenge the February 8, 2007 revisit findings and CMS’s determination. The case was
assigned to me on June 22, 2007 for hearing and decision. A prehearing order was issued
on June 22, 2007, directing the parties to file prehearing exchanges. On September 24,
2007, CMS filed a motion and memorandum in support of summary judgment (CMS
Brief). CMS’s memorandum was accompanied by seven exhibits, CMS exhibits (CMS
Exs.) 1-7. Petitioner filed its opposition brief on October 22, 2007 ( P. Response)

' Because Petitioner filed an appeal, the revocation of the laboratory’s CLIA certificate
does not become effective until the date of an ALJ decision upholding the basis of the remedy.
42 C.F.R. §§ 493.1840(e), 493.1844(d)(2).

? Pp. Ex. 7 and P. Ex. 8 consist of affidavits from David Deshotels, Petitioner’s owner,
and Samuel Parker, Petitioner’s Laboratory Director and Technical Consultant as of January 24,

(continued...)
3

accompanied by eight exhibits, Petitioner exhibits (P. Exs.) 1-8. CMS submitted its
reply brief (CMS Reply) to Petitioner’s opposition, filed November 5, 2007. Petitioner
followed with a sur-reply (P. Reply) received on November 21, 2007.

For the reasons set forth below, I find that summary judgement is appropriate. Based on
the record before me, arguments of the parties, and applicable law and regulations, I find
that there are no material issues of fact in dispute requiring an evidentiary hearing, and
that CMS is entitled to judgment as a matter of law.

Il. Applicable Law and Regulations

The purpose of CLIA is to ensure the accuracy and reliability of laboratory tests, and
therefore, the public health of all Americans. See H.R. Rep. No. 899, 100th Cong. 2d
Sess. 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. CLIA establishes
requirements for all laboratories that perform clinical diagnostic tests on human
specimens in addition to providing for federal certification of such laboratories. Pub. L.
No. 100-578, amending § 353 of the Public Health Service Act, codified at 42 U.S.C.

§ 263a et seq.

Under CLIA, the Secretary of the United States Department of Health and Human
Services (Secretary) is authorized to inspect clinical laboratories and, in effect, license
them to perform tests. CLIA prohibits a clinical laboratory from soliciting or accepting
specimens for testing unless it has first received from the Secretary a certificate
authorizing it to perform the specific category of tests which the laboratory intends to
perform. 42 U.S.C. § 263a(b). Additionally, CLIA directs the Secretary to establish
standards to assure that clinical laboratories certified by the Secretary perform tests that
are valid and reliable. 42 U.S.C. § 263a(f).

The Secretary has exercised his authority under 42 U.S.C. 263a(f) and issued regulations
implementing CLIA. These are codified at 42 C.F.R. Part 493. The regulations establish
both conditions and standards of participation under CLIA. Each condition-level
requirement of the regulations represents a major division of laboratory services to be
offered by the laboratory or establishes an important environmental protection for the
laboratory. RNA Laboratories, Inc., DAB No. 1820, at 3 (2002). Standards of

*(...continued)
2007.

> For purposes of the record I receive CMS Exs. 1-7 and P. Exs. 1-8. Although I may
cite to some of these exhibits in this decision for the purpose of describing undisputed material
facts, I do not make findings as to the exhibits’ evidentiary weight. In issuing summary
judgment I rely only on the undisputed material facts and I make no evidentiary findings.
4

participation are set forth as specific quality requirements which must be met by a
laboratory in order to meet the more general requirements of conditions of participation.
Thus, standards are subparts of the more broadly stated conditions. A failure by a
laboratory to comply with one or more standards may be so serious as to constitute a
failure to comply with the condition of which the standards are a subpart. Vijay Sakhuja,
M.D., DAB No. 1958 (2005).

The Secretary’s regulations confer broad authority on CMS to ensure that laboratories
perform as Congress intended, including authority to inspect and sanction laboratories
that fail to comply with the regulatory requirements. CMS or its designee conduct
validation inspections to determine a laboratory’s compliance with CLIA requirements.
A laboratory’s failure to comply with even a single applicable condition is a ground for
CMS to impose one or more principal or alternative sanctions. 42 C.F.R. § 493.1806(a);
see also Edison Medical laboratories, Inc., DAB No. 1713 (1999). Principal sanctions
include suspension, limitation, or revocation of a laboratory’s CLIA certificate. 42 C.F.R.
§ 493.1806(b). Alternative sanctions which CMS may impose include a directed plan of
correction, state monitoring, and/or a civil money penalty (CMP). 42 C.F.R.

§ 493.1806(c). Additionally, if a laboratory which has approval to receive Medicare
payment for its services is out of compliance with one or more CLIA conditions, CMS
may cancel the laboratory’s approval to receive Medicare payment for its services. 42
C.F.R. § 493.1806(a). Generally, the suspension, limitation, or revocation of a CLIA
certificate is not effective if appealed, until the ALJ makes a decision. However, when
CMS declares immediate jeopardy, there is no delay in the suspension, limitation, or
revocation of the offending laboratory’s CLIA certificate. 42 C.F.R. § 493.1844(d)(2).

A laboratory is entitled to a hearing before an ALJ to contest the imposition of CLIA
remedies. 42 C.F.R. § 493.1844(a). The determination as to which alternative sanctions
to impose and the determination that a laboratory’s deficiencies pose immediate jeopardy
are not appealable. 42 C.F.R. § 493.1844(c). The CLIA regulations incorporate by
reference the hearing procedures and the request for review provisions in 42 C.F.R. Part
498, subparts D and E. 42 C.F.R. § 493.1844(a).

III. Issues, findings of fact and conclusions of law
A. Issues:
1. Whether summary judgment is appropriate;

2. Whether Petitioner failed to comply with one or more conditions of
participation under CLIA; and
5

3. Whether CMS had the authority to impose sanctions against Petitioner.
B. Findings of fact and conclusion of law

I make findings of fact and conclusions of law (Findings) to support my decision in this
case. I set forth each Finding below as a separate heading. I discuss each Finding in
detail.

1. Summary judgment is appropriate in this case.

Pursuant to 42 C.F.R. § 1844(f) it is presumed that Petitioner has a right to a hearing in
this case. See Garden City Medical Clinic, DAB No. 1763 (2001), citing 42 U.S.C.

§ 263a(i)(1) and 42 C.F.R. § 493.1844(a). However, an ALJ may decide a case on
summary judgment, without an evidentiary hearing, when either there are no disputed
issues of material fact and the only questions that must be decided involve application of
law to the undisputed facts; or, the moving party must prevail as a matter of law even if
all disputed facts are resolved in favor of the party against whom the motion is made.

A party opposing summary judgment must allege facts which, if true, would refute the
facts relied upon by the moving party. See, e.g., FED. R. CIV. P. 56(c); Lebanon Nursing
and Rehabilitation Center, DAB No. 1918 (2004). Appellate panels of the Departmental
Appeals Board (Board) have long recognized the availability of summary judgment and
the Board’s interpretative rule has been recognized by the Sixth Circuit Court of Appeals.
Crestview Parke Care Center v. Thompson, 373 F.3d 743, 750 (6th Cir. 2004). To defeat
an adequately supported summary judgment motion, the non-moving party may not rely
on the denials in its pleadings or briefs, but must furnish evidence of a dispute concerning
a material fact - a fact that, if proven, would affect the outcome of the case under
governing law. Matsushita Elec. Industrial Co. v. Zenith Radio, 475 U.S. 574, 586 n.11
(1986).

In deciding a summary judgment motion, an ALJ may not make credibility
determinations or weigh conflicting evidence but must instead view the entire record in
the light more favorable to the nonmoving party, drawing all reasonable inferences from
the evidence in that party’s favor. Brightview Care Center, DAB No. 2132 (2007);
Madison Health Care, Inc. DAB No. 1927 (2004).

CMS has moved for summary judgment arguing it is entitled to judgment as a matter of
law as there are no material facts in dispute with respect to all three of the cited condition-
level deficiencies: (1) Petitioner resumed coagulation testing on February 5, 2007
without authorization from either the State agency or CMS in violation of 42 C.F.R.

§ 493.1250; (2) between January 24, 2007 and February 8, 2007 Petitioner was without a
6

laboratory director in violation of 42 C.F.R. § 493.1403; and (3) between January 24,
2007 and February 8, 2007 Petitioner was without a Technical Consultant in violation of
42 C.F.R. § 493.1409.

Petitioner argues that there are material facts in dispute as to each of the alleged
condition-level deficiencies identified and that Petitioner was actually in compliance with
all CLIA requirements at the time of the February 8, 2007 revisit survey. Petitioner bears
the burden of showing that there are material facts that are disputed. Everett
Rehabilitation and Medical Center, DAB No. 1628 (1977). If Petitioner cannot show that
there exists some genuine issue for trial, then summary judgment is appropriate and CMS
must prevail as a matter of law. Moreover, in this case the CMS citation of condition-
level deficiencies makes Petitioner’s task of overcoming summary judgment even more
burdensome. CMS imposed the principal sanction of suspension of Petitioner’s CLIA
certificate which will become a revocation of that certificate if I affirm the CMS action.
Any one of the three condition-level deficiencies if proved may be sufficient to sustain
the suspension by CMS. Therefore, if there is no disputed, material fact and no genuine
issue for trial as to even one of the condition-level deficiencies, summary judgment may
be entered as to that deficiency. The issue then is whether the one deficiency is sufficient
to support CMS’s decision to impose the remedy, i.e. , whether the remedy is warranted
given the deficiency.

As previously noted, three condition-level deficiencies are alleged in this case: (1)
violation of 42 C.F.R. § 493.1250; (2) violation of 42 C.F.R. § 493.1403; and (3)
violation of 42 C.F.R. § 493.1409. Section 1250 sets the conditions for a laboratory to
monitor and evaluate the overall quality of the analytic systems it employs. Section 1403
establishes conditions to be met by the individual holding the laboratory director position
in a laboratory performing moderate complexity testing with specific reference to
technical supervision of laboratory operations and personnel, including management
responsibilities. See also 42 C.F.R. § 493.1407. Section 1409 provides the conditions
that must be met by the individual holding the technical consultation position in a
laboratory that performs moderate complexity testing

I have reviewed the record and arguments before me and conclude that there are no
material issues of fact regarding at least one of the condition-level violations and
therefore, judgment should be entered for CMS on those violations as a matter of law.’

* T note that on further analysis of the other condition-level deficiencies I might also have
found no genuine issues for trail. However, because the violation for analytic systems under 42
C.F.R. § 493.1250 is serious enough to justify the remedy imposed by CMS and the eventual
revocation of Petitioner’s CLIA certificate, for reasons of judicial economy I see no reason to

(continued...)
7

2. Petitioner was out of compliance with the condition of analytic
systems as set forth in 42 C.F.R. § 493.1250.

During the on-site visit to Petitioner’s laboratory on February 8, 2007, the State agency
determined that Petitioner failed to demonstrate compliance with the CLIA condition of
analytic systems. CMS states that coagulation testing at Petitioner’s laboratory had been
discontinued as of January 25, 2007, yet Petitioner resumed coagulation testing for eight
patients from February 5-7, 2007 without prior authorization. CMS Brief at 5.

Petitioner does not deny that it was advised of the serious nature of its deficiencies by
CMS notice dated January 16, 2007, and that the laboratory’s CLIA certificate was being
suspended effective January 22, 2007, based on the finding of immediate jeopardy. P.
Response at 2; P. Ex. 2. Petitioner does not deny that it resumed coagulation testing on
February 5, 2007. P. Response at 5. Petitioner does not deny that it failed to seek prior
authorization for the resumption of testing from either the State agency or CMS. P.
Response at 5-6. Finally, Petitioner does not deny that eight patients were tested at its
laboratory from February 5-7, 2007, after its coagulation testing had been discontinued.

n fact, Petitioner admits numerous times in the record before me, including in the sworn
affidavits of its owner David Deshotels, and its laboratory director, Samuel Parker, that it
did resume coagulation testing on February 5, 2007 - without obtaining prior approval
from CMS of the policy it had implemented to resume testing. P. Request for hearing -
Allegation of Compliance 1; P. Exs. 7, 8. In defending its action, Petitioner claims that it
was not informed during the December survey that the laboratory required authorization
to resume coagulation testing once the issue had been corrected. P. Request for hearing -
Allegation of Compliance 1. Petitioner states that even its laboratory technician was
unaware that CMS required authorization or approval before resuming testing that may
have been considered performed in error during the December survey. Jd; see also P.
Exs. 7, 8.

Petitioner argues that there was no prohibition applicable to or communicated to
Petitioner regarding its resumption of coagulation testing, and argues that there is no clear
regulatory requirement of such approval. P. Response at 3, 5. Petitioner admits that
coagulation testing was suspended as of January 25, 2007, due to its need to implement
an established policy to determine Platelet Poor sampled. P. Response at 5. Petitioner’s
Credible Allegation of Compliance states that it suspended testing of all coagulation
testing until it could establish proper quality controls. P. Response at 5; P. Ex. 3.
Petitioner admits that once it implemented a policy to determine Platelet Poor samples

4(...continued)
spend further time or resources upon an analysis of Petitioner’s alleged violation of 42 C.F.R.
§§ 493.1403 and 493.1409.
8

and established appropriate polices, and in-serviced personnel regarding quality controls,
it resumed coagulation testing. P. Response at 5. P. Ex. 7. However, Petitioner failed to
obtain prior approval from CMS of the policy it implemented to resume testing.

Here, Petitioner wants CMS or the State agency to assume responsibility for this serious
lapse and protests that neither agency provided Petitioner with oral or written instructions
stating that prior authorization was required in order for Petitioner to resume testing. P.
Response at 5. Petitioner further argues that there was no basis for CMS to assert that
Petitioner was obligated to obtain prior approval before resuming testing as its Credible
Allegation of Compliance gave no indication that such approval would be sought. P.
Response at 6.

Even accepting Petitioner’s claim that its actions were done in good faith, Petitioner has
failed to offer any evidence to rebut CMS’s allegations, nor has it directed me to any facts
that point to a material issue for hearing. Petitioner admits that it failed to obtain prior
approval from CMS as to the policy it implemented to determine Platelet Poor samples
prior to the laboratory resuming testing. P’s Request for hearing at 1-2.

Petitioner’s arguments reflect its apparent inability to grasp the critical point. The
purpose of CLIA and the implementing regulations is to ensure public health and safety
by ensuring that laboratories provide accurate and reliable test results. Under CLIA
regulations, the test is not merely whether small errors were made or whether patients
were harmed. Rather, it is whether the laboratory established and followed general
quality procedures for monitoring and evaluating the quality of the analytical testing
process of each testing method to assure the accuracy and reliability of patient test results
and reports. By failing to wait to be checked by the State agency before retesting patients
and reporting patient test results, Petitioner violated the standard established by 42 C.F.R.
§ 493.1250.

The law is clear: laboratories that do no meet CLIA conditions may not be certified for
participation in the CLIA program. 42 U.S.C. § 263a(b); see also 68 FR 3640, January
24, 2003:

[A]// laboratories, regardless of whether they receive payment from the
Medicare or Medicaid programs must have a current and valid CLIA
certificate to test human specimens (emphasis added).

CMS’s task, as delegated to it by the Secretary, is ensuring consistent performance by
laboratories that are issued CLIA certificates. 42 U.S.C. § 263a(f). It was the intent of
Congress, with the enactment of the CLIA legislation, to make certain that federal
oversight of clinical laboratories would be strengthened thus assuring that test results
obtained in those laboratories were accurate and reliable. See H.R. Rep. No. 899, 100th
9

Cong. 2d Sess. 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3829. Congress did
not intend laboratories to be self-regulating. In fact, just the opposite was plainly the
goal. In addressing laboratory tests, the committee reported that:

These tests are critical to proper patient care when properly used and when
the test are accurate and reliable. Whey they are inaccurate or unreliable,
however, the consequences are improper treatment, unnecessary mental and
physical anguish for patients, and higher health care costs. Because of the
critical role played by laboratory testing in the delivery of health services
and in maintaining good health, patients expect such tests to be done
properly and rely heavily on others to make sure that is the case. Patients
assume, quite reasonably, that their interests and the public health are being
protected by appropriate government agencies.

Id. at 3831. Further in the text of the committee’s report, additional emphasis appears:
“Federal regulation is reasonable and appropriate to promote public health and welfare
and protect commerce.” Jd. at 3839.

Based on Petitioner’s admissions, and in viewing the record before me in a light most
favorable for the Petitioner, and in drawing all inferences favorable to Petitioner that the
record can reasonably support, I find as matters of fact that when Petitioner resumed
coagulation testing on February 5, 2007, it did so without proper prior authorization.
Petitioner therefore failed to demonstrate compliance with CLIA requirements as of the
February 8, 2008 revisit survey. I therefore conclude as a matter of law that this
constituted a violation of 42 C.F.R. § 493.1250 during this period.

As noted earlier, having found Petitioner in violation of at least one condition-level, I
need not decide whether Petitioner was out of compliance with the condition of
Laboratory Director and Technical Consultant, moderate complexity testing as set forth in
42 C.F.R. §§ 493.1403 and 493.1409.

3. Because Petitioner was out of compliance with at least one condition,
CMS is authorized to impose sanctions.

If, on inspection, a laboratory is found to have condition-level deficiencies that pose
immediate jeopardy, CMS must require immediate action to remove the jeopardy and
may impose alternative sanctions. If the deficiency remains on revisit, CMS may suspend
or limit and later revoke the laboratory’s CLIA certificate. CMS is also delegated
authority to bring a civil suit for injunction against a laboratory in specified circumstances
where there is immediate jeopardy. 42 C.F.R. § 493.1812.
10

Failure by a laboratory to comply with even a single applicable condition can represent a
critical breakdown in one of the major health care delivery or safety systems of the
laboratory. Ward General Practice Clinic, DAB No. 1624, at 2 (1997). Therefore,
violation of just one condition-level deficiency can be grounds for a principal sanction,
including revocation of a laboratory’s CLIA certificate. 42 C.F.R. § 493.1804(b); Edison
Medical Laboratories, Inc., DAB No. 1713 (1999).

Petitioner avers that in light of its history of cooperation and the general nature of its
defense, the penalties proposed by CMS should be reduced. Petitioner states that the
revocation of its CLIA certification and cancellation if its Medicare participation in
addition to the ongoing suspension are too severe. Petitioner proposes instead that its
CLIA certificate remain suspended for a period of two years as of April 9, 2007. P.
Response. at 10.

There is nothing in the regulations which gives me authority to review CMS’s exercise of
its discretionary authority. To put that point another way: I may not substitute my
judgment for that of CMS where condition-level noncompliance has been found and
where CMS chooses to impose one or more of the principal sanctions provided by the
regulations. The applicable regulation makes it clear that the existence of condition-level
noncompliance establishes a rational basis for imposing remedies against Petitioner.

The existence of the one condition-level deficiency in this case is sufficient to support the
principal sanction of suspension and revocation of Petitioner’s CLIA certificate. The
purpose of the Act is to ensure “the accuracy and reliability of laboratory tests, and hence
the public health of all Americans.” H.R. Rep. No. 899, 100th Cong. 2d Sess. 8, 18
(1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. The complete and admitted failure
of Petitioner to obtain prior approval before it resumed coagulation testing on February 5,
2007 creates a significant risk of inaccuracy and unreliability detrimental to the health of
the American public. As noted, I can make this determination without the need to assess
and discuss the other two condition-level deficiencies. Petitioner has made no argument
nor proffered any evidence that would lead to a different result.

4. The other arguments raised by Petitioner are unavailing to mitigate the
sanctions imposed.

Petitioner has raised several subsidiary points, including its claim: (1) that insufficient
time was afforded Petitioner to correct deficiencies and fully implement its corrective
action plan before the state conducted a surprise revisit survey on February 8, 2007; (2)
that CMS failed to investigate adequately the circumstances surrounding each allegation
of noncompliance during the February 2007 survey; (3) that CMS and the State agency
were unfair and discriminatory in their enforcement of the CLIA regulations against
Petitioner; (4) that CMS and the State agency imposed unnecessary harsh sanctions
11

against Petitioner when it was in substantial compliance with its Credible Allegation of
Compliance; and (5) that CMS and State agency refused to consider substantial evidence
supporting Petitioner’s compliance with its Credible Allegation of Compliance.

First, with respect to the sanctions imposed, since Petitioner failed to comply with
conditions of participation, CMS is authorized to impose principal sanctions, including
revocation of the laboratory’s CLIA certificate. 42 C.F.R. § 493.1806(b). CMS may also
cancel the laboratory’s approval to received Medicare payment for its services. 42 C.F.R.
§ 493.1807. The agency’s decision not to accept Petitioner’s plan of correction as
outlined in its Credible Allegation of Compliance are not “initial determinations” and
therefore are not reviewable. 42 C.F.R. § 493.1844.

Second, neither Congress nor the Secretary has placed a time limit on CMS’s exercise of
its enforcement authority under CLIA. Imposing such a time limit could undermine
CMS’s ability to carry out the enforcement purposes of CLIA - to protect individuals
against substandard testing of specimens, to safeguard the public against health and safety
hazards, and to motivate laboratories to comply with CLIA requirements to provide
accurate and reliable test results.

Finally, Petitioner’s complaints about CMS and the State agency are irrelevant to the
question of the laboratory’s compliance. Petitioner provides no basis in law or facts that
supports those arguments, which are well beyond my authority to address in any case.

IV. Conclusion

For the foregoing reasons, I grant summary judgment in favor of CMS and against
Petitioner, and in doing so sustain CMS’s imposition of its sanctions against Petitioner.

/s/
Richard J. Smith
Administrative Law Judge