Department of Heaith and Human Services

DEPARTMENTAL APPEALS BOARD

Civil Remedies Division

In the Case of:

California Medical Associates

Laboratory, DATE: May 30, 1997
Petitioner,
-~ Ven Docket No. C-96-261

Decision No. CR476
Health Care Financing
Administration.

DECISION

I sustain the determination of the Health Care Financing
Administration (HCFA) to impose the principal sanctions of
suspension of Petitioner's certificate to perform testing under
the Clinical Laboratory Improvement Amendments of 1988

(CLIA), Public Law 100-578 (42 U.S.C. § 263a) and cancellation of
all Medicare payments under Title XVIII of the Social Security
Act for services furnished by the laboratory.

On March 24, 1995, the California Department of Health Services,
Laboratory Field Services (the State agency) conducted a CLIA
survey of Petitioner and identified 10 condition-level
deficiencies. As a result of that survey, and pursuant to the
recommendation of the State agency, HCFA notified Petitioner by
letter dated June 20, 1995 that it was suspending the
laboratory's CLIA certificate effective June 26, 1995 and
cancelling all Medicare payments to the laboratory as of that
date. HCFA's letter noted that the deficiencies found by the
State posed a threat to and immediately jeopardized patient
health and safety. Petitioner was advised that it could avoid
the proposed sanctions by submitting a credible allegation of
compliance and evidence documenting that the immediate jeopardy
had been removed and that the laboratory had taken action to
correct all of the condition-level deficiencies.

HCFA received a plan of correction from Petitioner dated July 24,
1995. The State agency conducted a revisit of the laboratory on
December 1, 1995 to verify compliance. The surveyors found that
immediate patient jeopardy had been removed, but found that the

laboratory remained out of compliance with three CLIA conditions,
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and in addition, many of the standard level deficiencies cited at
the March 24, 1995 survey were also found to be uncorrected. By
letter dated January 12, 1996, HCFA advised Petitioner that it
would initiate action to impose revocation of Petitioner's CLIA
certificate and cancellation of approval to receive Medicare
payments for all laboratory services if credible documentation
that all deficiencies had been corrected was not submitted to the
State agency within 10 days. In addition, the letter noted that
Petitioner had failed to pay outstanding fees of $2991 to the
CLIA program, and that this failure, if not corrected within 10
days, could constitute an independent basis for suspension,
revocation, or limitation of the laboratory's certificate.

By letter dated February 1, 1996, HCFA again wrote Petitioner
advising that the principal sanctions of suspension of the
laboratory's CLIA certificate and cancellation of approval to
receive Medicare payments were being imposed effective February
21, 1996, and further, that Petitioner's CLIA certificate would
be revoked effective April 6, 1996 unless a timely hearing
request was received prior to that date.

Petitioner paid the outstanding CLIA fees and submitted a second
credible allegation that it was in compliance. On March 4, 1996,
the State agency conducted a second on-site revisit to verify
compliance. During the revisit, the laboratory was found still
out of compliance with the three condition-level deficiencies
noted during the two prior surveys as well as out of compliance
with several of the standards cited during both the March 24 and
December 1, 1995 surveys.

By letter dated March 12, 1996, HCFA formally advised Petitioner
that because of its continued failure to correct outstanding
deficiencies, HCFA was imposing the principal sanctions of
suspension of the laboratory's CLIA certificate and cancellation
of all Medicare payments for laboratory services, which was to
become effective on May 16, 1996, if a hearing was not requested
prior to that date. Medicare payments would be cancelled
effective April 1, 1996, regardless of whether Petitioner
requested a hearing. Petitioner was also advised that if the
determination to suspend the laboratory's CLIA certificate was
upheld on appeal, information regarding the suspension would
appear in the Laboratory Registry of CLIA sanctions for the
calendar year of the suspension, and the general public would te
notified through a notice published in a local newspaper.

On May 14, 1996, Petitioner submitted another allegation of
compliance. HCFA reviewed the allegation of compliance, found 1t
to be lacking in specificity and documentation, and by letter
dated June 3, 1996, notified Petitioner that it was upholding its
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prior determinations.' Petitioner filed its request for hearing
on April 16, 1996, appealing HCFA's final determination issued on
March 12, 1996.

This case was originally assigned to Administrative Law Judge
Jill Clifton who held telephone prehearing conferences on June 20
and July 2, 1996. By Order dated July 3, 1996, Judge Clifton
summarized the prehearing discussion as follows:

Petitioner admits that it had condition-level deficiencies
during the State agency survey in March 1995. Petitioner
admits further that, despite making many corrections and
improvements, it still had condition-level deficiencies
which had not been corrected at the time of State agency
revisits in December 1995 and March 1996. Petitioner
contends, however, that because it acknowledged the
deficiencies, and had ceased much of its laboratory testing
and-was willing voluntarily to cease the remainder of its
laboratory testing, it is unfair to sanction Petitioner with
suspension.

Since it appeared that there were no facts in dispute, Judge
Clifton directed the parties to brief the issue of whether
Petitioner's voluntary cessation of laboratory testing, and
willingness to cease all laboratory testing, prevents HCFA from
going forward with the suspension of Petitioner's CLIA
certificate. The parties have subsequently exchanged those
briefs and documentary evidence in support thereof. There has
been no objection to the proposed documentary evidence raised by
either party.

This case was reassigned to me on April 24, 1997 for hearing,
related proceedings, and decision. I find too that there are no
facts in dispute in this matter. Furthermore, the issue of law
stated above as framed by Judge Clifton with the agreement of the
parties is such that oral argument is unnecessary. I have
determined also that an in-person hearing is not necessary. I
will decide this case on the basis of the record before me, the
stipulations of the parties as to the facts, the parties'
arguments, and the applicable law.

There being no objection by the parties, I hereby admit into
evidence Petitioner's exhibits (P. Ex.) 1 through 13 and HCFA
exhibits (HCFA Ex.) 1 through 8.

! Because Petitioner submitted payment of outstanding
CLIA fees, 42 C.F.R. § 493.1840(a)(3) was removed by HCFA as a
basis for suspension of its CLIA certificate. Because of this
revision to HCFA's proposed sanctions, Petitioner was given a new
notification of its hearing rights within 60 days of the March
12th letter. HCFA Brief at 7.
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I. Issue, findings of fact, and conclusions of law

The issue in this case is whether Petitioner's voluntary
cessation of laboratory testing, and willingness to cease all
laboratory testing, prevents HCFA from going forward with the
suspension of Petitioner's CLIA certificate.

In sustaining HCFA's position that it may proceed with sanctions
against Petitioner despite Petitioner's admission of the
existence of condition-level deficiencies and voluntary cessation
of laboratory testing, I make the fcllowing findings of fact and
conclusions of law (Findings), which I discuss in detail below:

1. HCFA or its designee is authorized to conduct a validation
inspection of any accredited or CLIA-exempt laboratory.

2. Where HCFA or its designee conducts an inspection of a
laboratory and where, based on the inspection, HCFA determines
the laboratory to be deficient in complying with CLIA
requirements, HCFA may impose sanctions against the laboratory.

3. Where HCFA determines that a laboratory is not complying
with a condition or conditions of participation under CLIA, HCFA
may impose sanctions which may include: cancelling the
laboratory’s approval to receive Medicare payments for its
services; suspension of the laboratory's CLIA certificate; and
revocation of the laboratory’s CLIA certificate.

4. On and before March 24, 1995, and continuing thereafter at
all times relevant hereto, Dr. Anthony S. Awad was the
owner/operator of Petitioner, California Medical Associates
Laboratory, and was certified to perform testing under CLIA.
HCFA Exs. 2, 3.

5. The statute at 42 U.S.C. § 263a(i)(1) and its implementing
regulations at 42 C.F.R. Part 493 set forth participation
requirements and penalties for noncompliance with those
requirements.

6. Petitioner admits that the laboratory was not in compliance
with 10 condition-level requirements as of the date of the
initial survey, March 24, 1995, to-wit:

(1) Patient test management; moderate or high complexity
testing, or both (42 C.F.R. § 493.1101);

(2) Microbiology (42 C.F.R. § 493.1225);
(3) Syphilis serology (42 C.F.R. § 493.1239);
(4) General immunology (42 C.F.R. § 493.1241);

(5) Routine chemistry (42 C.F.R. § 493.1245);
5
(6) Endocrinology (42 C.F.R. § 493.1247);
(7) Hematology (42° C.F.R. § 493.1253);

(8) Laboratories performing moderate complexity testing;
laboratory director (42 C.F.R. § 493.1403);

(9) Laboratories performing high complexity testing;
Laboratory Director (42 C.F.R. § 493.1441); and

(10) Quality assurance; moderate or high complexity, or both
(42 C.F.R. § 493.1701).

7. Petitioner remained out of compliance with condition-level
requirements as determined by survey revisits on December 1, 1995
and again on March 4, 1996 and as stated at 42 C.F.R. § 493.1101;
42 C.F.R. § 493.1403; and 42 C.F.R. § 1701.

8. Petitioner did not correct its failure to comply with CLIA
conditions of participation.

9. Petitioner has a history of not complying with CLIA
requirements.

10. Because of the continued failure of Petitioner to correct
outstanding deficiencies cited since the March 24, 1995 survey,
HCFA was authorized to impose the principal sanctions of
suspension of Petitioner's CLIA certificate and cancellation of
Petitioner's approval to receive Medicare payments for its
laboratory services.

11. HCFA's choice of sanctions was neither arbitrary,
capricious, nor an abuse of its discretion.

12. As a matter of law, HCFA's authority to impose principal
sanctions is in no way constrained or affected by Petitioner's
admission of wrongdoing, its efforts to come into compliance, or
its cessation of all testing.

II. Discussion
A. Governing law

The Secretary of the United States Department of Health and Human
Services (Secretary) has published regulations which implement
CLIA. 42 C.F.R. Part 493. In these regulations, the Secretary
has established both performance criteria for clinical
laboratories and procedures for assuring that clinical
laboratories comply with statutory requirements.

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

A laboratory that is dissatisfied with a determination by HCFA to
impose sanctions against it may request. a hearing before an
administrative law judge to contest HCFA'’s determination. 42
C.F.R. § 493.1844. In most circumstances, a determination to
suspend, limit, or revoke a CLIA certificate will not become
effective until after a decision by an administrative law judge
upholding HCFA’s determination to impose such a remedy. 42
C.F.R. § 493.1844(d)(2)(i). However, if HCFA determines that a
laboratory’s failure to comply with CLIA requirements poses
immediate jeopardy to patients, then HCFA’s determination to
suspend or limit a laboratory's CLIA certificate will become
effective in advance of a hearing and decision by an
administrative law judge, after HCFA gives notice to the
laboratory of its determination. 42 C.F.R. § 493.1844(d) (2) (ii).
Where an administrative law judge decides to uphold a
determination by HCFA to suspend a laboratory’s CLIA certificate,
based on a finding that the failure by the laboratory to comply
with CLIA requirements poses immediate jeopardy to the health and
safety of patients, then the suspension automatically becomes a
revocation of the laboratory's CLIA certificate. 42 C.F.R. §
493.1844(d) (4).

B. Relevant Findings
Finding 10

The facts in Findings 1 through 9 are uncontroverted, and
accordingly, will not be addressed herein.

Petitioner does not appear to challenge the Secretary's authority
to impose principal sanctions but argues rather that the
Secretary should not exercise that authority in this case.
Petitioner's argument is essentially that imposition of sanctions
against it is unfair, arbitrary, and capricious.

Petitioner notes that it made a good faith effort to correct
deficiencies by: (1) correcting conditions such that immediate
jeopardy was removed; (2) offering voluntarily "a shut down of
the whole operation and testing"; (3) purchasing new laboratory
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equipment; and (4) taking steps to acquire new space.
Petitioner's Brief at 7..

Petitioner notes further that the sanctions imposed constitute "a
very harsh punishment" that may affect Dr. Awad's entire medical
practice in light of the fact that publication of the sanctions
will occur in local media. Petitioner's Brief at 8, 9.

Moreover, Dr. Awad contends that he was not the medical director
for at least a portion of the time in question (although he
admits he was the owner/operator of the laboratory at all times)
and that most of the laboratory's problems were due to
inadequacies on the part of his employees. Petitioner's Brief at
8, 10.

I find little merit in, or sympathy for, the arguments advanced
by Petitioner. First, it is well established by the evidence of
record and by Dr. Awad's own admission that Petitioner was out of
compliance with major conditions of participation. Further, the
record shows that Petitioner remained out of compliance for a
period well in excess of one year as found on three on-site
survey visits or revisits. Given these circumstances, the iaw is
clear that the Secretary may impose principal sanctions against
Petitioner. HCFA may impose one or more sanctions specified in
42 C.F.R. § 493.1806(a) when a laboratory is found out of
compliance with one or more CLIA conditions. Subsection (b) of
that regulation further provides that HCFA may impose any of
three principal CLIA sanctions, which are: suspension,
limitation, or revocation of any type of CLIA certificate.
Likewise, the Act at 42 U.S.C. § 263a(i)(1) provides for the
principal sanction of suspension, revocation, and limitation of a
laboratory's CLIA certificate when that laboratory is found not
to be in compliance with the provisions of the statute and its
implementing regulations. HCFA has the authority to impose the
principal sanction of suspension given the facts of this case.
Further, 42 C.F.R. § 493.1808 provides that when HCFA takes
action to suspend or revoke a CLIA certificate it concurrently
cancels the laboratory's approval to receive Medicare payment for
its services.

Finding 11

Having established that HCFA has the authority to impose the
sanctions proposed in this case, I next examine whether that
action was "unfair" as alleged by Petitioner, or put another way,
whether HCFA's choice of sanctions was arbitrary, capricious, or
an abuse of discretion.

Under the regulations, while HCFA has the authority to impose
principal sanctions, it also has the authority to impose one or
more alternative sanctions in lieu of, or in addition to, the
principal sanctions. 42 C.F.R. § 493.1806(c). HCFA has
discretion in which sanction or sanctions to impose. That is not
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to say, however, that HCFA is free to select whichever sanction
it desires. On the contrary, 42 C.F.R. § 493.1804(d) provides
guidance to HCFA as to some of the factors which must be
considered in choosing a sanction.

In this case, at least one of the primary reasons that HCFA
sanctioned Petitioner was because of Petitioner's failure to
correct deficiencies ever a prolonged period of time. In its
notice to Petitioner dated March 12, 1996, HCFA advised
Petitioner that it was imposing principal sanctions due to
Petitioner's continued failure to correct outstanding
deficiencies cited during the March 24, 1995 survey. HCFA Ex. 6.

I recognize that HCFA has been granted a considerable amount of
discretion in selecting which sanctions it will impose. So long
as that discretion is exercised in a manner consistent with the
general purposes of the legislation, i.e. --

(1) to protect all individuals served by laboratories
against substandard tésting of specimens;

(2) to safeguard the general public against health and
safety hazards that might result from laboratory activities;
and

(3) to motivate laboratories to comply with CLIA
requirements so that they can provide accurate and reliable
test results; 42 C.F.R. § 493.1804(a).

and, so long as those sanctions are based on factors set forth in
the Act and its implementing regulations, HCFA's determination as
to which sanctions to impose cannot be said to be arbitrary,
capricious, or an abuse of its discretion. Under these
circumstances, HCFA's exercise of discretion will be found to be
reasonable, and its decision will not be disturbed. Given
Petitioner's repeated and admitted noncompliance in this case, I
find that HCFA acted within its statutory authority in imposing
the sanctions in this case.

Finding 12

Finally, with respect to Petitioner's argument that HCFA should
have considered the laboratory's efforts to comply, Petitioner's
admission of wrongdoing, and Petitioner's voluntary offer to
"shut down," I conclude that HCFA did consider Petitioner's
efforts to comply, and found those efforts wanting.

The fact that Petitioner admitted noncompliance, yet failed to
comply and continues to fail to comply was considered by HCFA in
its imposition of sanctions. This clearly is not a mitigating
circumstance under the regulations.
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Further, nothing in the Act nor the regulations prohibits HCFA
from imposing sanctions even if a laboratory ceases operations
voluntarily. Indeed, if laboratories were allowed to circumvent
the imposition of sanctions by closing down for a period of time,
and then reopening when they saw fit, without correcting the
deficiencies cited by the State agency, the government's
enforcement powers could be seriously eroded. This clearly would
be contrary to the intent of the applicable statutory and
regulatory provisions.’

It is important to note here, however, that again HCFA is
exercising its statutory discretion in a manner it deems
consistent with its duty to protect the public health and safety,
and it is treating this Petitioner in the same manner it would
treat others similarly situated, in accordance with the Act, the
regulations, and its own policy. Accordingly, I find that HCFA's
determination to impose sanctions against Petitioner is in no way
constrained or limited by Petitioner's admission of wrongdoing
or his offer to voluntarily cease laboratory testing.

III. Conclusion
I conclude that HCFA is authorized to impose sanctions against
Petitioner, including suspending Petitioner's CLIA certificate

and canceling Petitioner's authority to receive reimbursement
from Medicare.

/s/

Stephen J. Ahlgren

Administrative Law Judge

2 Counsel for HCFA notes that it is HCFA's longstanding

policy, as set forth in HCFA's Regional Office Manual, section
5406, Rev. 61, to proceed with sanctions against a laboratory
which discontinues testing where it is determined that the action
is necessary to protect the public, for example by appropriate
notification through media and the Laboratory Registry, which is
the case with respect to Petitioner. HCFA Brief at 13, 14. As
can be seen from Petitioner's brief, it is precisely that public
notification to which it most objects.