Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Appellate Division
In the Case of:
Center Clinical Laboratory,
Petitioner,
- v. -
Health Care Financing
DATE: July 31, 1995
Docket No. C-93-096
Decision No. 1526
FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION
The Health Care Financing Administration (HCFA) appealed
the decision by Administrative Law Judge Mimi Hwang Leahy
(ALJ Decision) to set aside sanctions HCFA imposed
against the Center Clinical Laboratory (Petitioner) under
the Clinical Laboratory Improvement Amendments of 1988
(CLIA) and implementing regulations. On May 27, 1993,
HCFA had determined, based on a survey performed by the
New Jersey State Department of Health, that Petitioner
did not meet seven CLIA conditions of certification.
These deficiencies were determined to create a situation
of "immediate jeopardy to patient health and safety."
Consequently, HCFA suspended Petitioner's CLIA
certificate effective June 1, 1993 and concurrently
suspended Petitioner's approval to receive Medicare
payment for services. HCFA also directed Petitioner to
submit a list of Petitioner's clients within 10 days and
an acceptable plan of correction to the cited
deficiencies prior to the effective date of the
suspension. When HCFA did not receive an acceptable plan
of correction by that effective date, it revoked
Petitioner's CLIA certificate, stating that the
revocation would be effective June 25, 1993.
Petitioner requested a hearing before an ALJ on the
sanctions imposed by HCFA. Following Petitioner's
hearing, the ALJ set aside HCFA's sanctions and ordered
HCFA to restore Petitioner's CLIA certificate and its
approval to receive Medicare payments. The ALJ concluded
that HCFA's decision to impose the principal sanction of
suspension of Petitioner's CLIA certificate was
"premature" and that this sanction and the others imposed
by HCFA were unauthorized under the regulations because
HCFA had imposed the sanctions in a procedurally
deficient manner. Having thus set aside on procedural
grounds all of the sanctions imposed by HCFA, the ALJ did
not reach the question of whether the seven condition-
level deficiencies cited by HCFA actually existed or
whether the deficiencies warranted the sanctions HCFA
imposed.
In HCFA's appeal to the Board, HCFA asserted that it had
complied with all of the procedures prescribed under the
CLIA statute and regulations for imposing the sanctions
in question. HCFA clarified only that since Petitioner
had requested an ALJ hearing following HCFA's decision to
revoke Petitioner's CLIA certificate, the revocation
necessarily could not become effective until the ALJ had
issued a decision upholding the suspension and
revocation.
For the reasons discussed below, we reverse the ALJ
Decision and remand this case to the ALJ to consider the
substantive grounds for these sanctions. We conclude
that HCFA complied with all procedural requirements
contemplated by the statute and regulations in imposing
the sanctions at issue here. The statute and regulations
provide wide discretion to HCFA in selecting appropriate
sanctions to respond to a laboratory's non-compliance
with CLIA requirements. Where the laboratory's
deficiencies pose an immediate jeopardy to health or
safety, the statute contemplates that HCFA may suspend
the CLIA certificate prior to an ALJ hearing, and the
regulations expressly authorize HCFA to impose an
immediate suspension (with only a five-day delayed
effective date). The ALJ erred in her decision by
ignoring this express authority under the statute and
regulations to impose an immediate suspension and by
misinterpreting the effect of procedures in the
regulations designed to apply where HCFA has decided to
impose an alternative sanction instead of an immediate
suspension. These procedures potentially require at
least a 10-day period to respond to an initial notice,
subsequent notice of imposition of the sanction, a
specified period of time for the laboratory to come into
compliance, a revisit to determine whether the laboratory
did come into compliance and, finally, where the
laboratory did not come into compliance, a notice of
principal sanction with at least a five-day delayed
effective date. These particular procedures are required
only in the imposition of an alternative sanction and
simply are not required by the regulations for imposing
the principal sanction of immediate suspension. We also
find clear authority under the regulations for the
remaining sanctions HCFA imposed.
Even if we had agreed with the ALJ that HCFA had been
procedurally deficient in some way (which we do not), we
would not agree that Petitioner had been harmed by the
deficiency, since its operations had already been
suspended under state law and had remained suspended
throughout this appeal. Finally, we question in any
event the ALJ's authority to "set aside" the principal
sanction of suspension under the very serious
circumstances raised here based solely on alleged
procedural deficiencies without first determining whether
those deficiencies were or could have been cured.
We also agree with the argument raised by HCFA in its
appeal brief that the ALJ Decision generally misconstrues
HCFA's responsibilities in determining what a laboratory
must do in order to comply with CLIA requirements and
fails to give full weight to one of the primary concerns
addressed by the CLIA legislation, the need for an
immediate response to circumstances that place patient
safety or health at risk. See HCFA Appeal Brief (Br.) at
10-13.
Our decision is based on the entire record before the ALJ
as well as the brief submitted by HCFA in support of its
request for Board review. Although Petitioner had the
opportunity to respond to HCFA's brief, it declined to do
so, relying entirely on the analysis of the issues in the
appealed ALJ decision. Neither party requested an
opportunity for an oral argument.
Statute and Regulations
The Clinical Laboratory Improvement Amendments of 1988
(section 353 of the Public Health Service Act; 42 U.S.C.
263a), henceforth referred to as "CLIA," establishes
requirements for all laboratories that perform clinical
diagnostic tests on human specimens and requires a
federal certification scheme to be applied to all such
laboratories. See 493.1800(a)(2) in 42 C.F.R. Part
493, Subpart R. 1/ CLIA certification of a laboratory is
dependent upon whether the laboratory meets the
conditions of coverage set out at 42 U.S.C.
263a(f)(1)(E) and 42 C.F.R. 493.1 et seq., in addition
to other CLIA requirements. Each "condition," as set
forth in the statutes and regulations, represents a major
division of laboratory services to be offered by the
laboratory or required environmental protections at the
laboratory. Failure by a laboratory to comply with even
a single condition represents a serious breakdown in one
of the major health care delivery or safety systems of
the laboratory, all of which are critical to ensuring the
provision of acceptable health care services and
essential for purposes of the laboratory's operations.
The CLIA statute and implementing regulations grant the
Secretary broad enforcement authority to ensure that
laboratories remain in compliance with CLIA requirements
throughout the life of their CLIA certification. This
enforcement authority includes the use of principal
sanctions affecting the laboratory's ongoing operations
(suspension, limitation, or revocation of the CLIA
certificate) where the laboratory is out of compliance
with one or more conditions of certification. Indeed,
the CLIA statute expressly provides that the Secretary
may suspend or limit the CLIA certificate prior to a
hearing, and provides that opportunity for a hearing in
that instance must be provided on an expedited basis. 42
U.S.C. 263a(i)(2). The legislative history discusses
the purpose for prehearing sanctions as follows:
The Committee included this prehearing exclusion to
allow the Secretary the opportunity to respond
promptly to situations in which a laboratory's
failure to comply may sacrifice the integrity of
test results. Where this occurs or where a
laboratory's interference with the Secretary's
ability to make a determination about laboratory
quality occurs, it is imperative that the Secretary
have the authority either to force prompt compliance
or to move quickly to protect the public health.
The Committee has been informed that, under current
law, lengthy court proceedings and appeals may
interfere with the Secretary's ability to stop a
laboratory from operating irrespective of the
seriousness of the violations.
The bill's requirement of a prompt opportunity for a
hearing is designed to limit the potential adverse
effects on a laboratory of such a pre-hearing
determination by the Secretary and to allow a timely
airing of the issues.
H.R. Rep. No. 899, 100th Cong., 2nd Sess., at 35 (1988),
reprinted in 1988 U.S.C.C.A.N. 3828, 3856.
The enforcement authority also includes the use of
alternative sanctions, which include a directed plan of
correction, state on-site monitoring, and civil money
penalties. With respect to a directed plan of
correction, the legislative history noted that:
a directed plan of correction would be particularly
appropriate where a laboratory is out of compliance
. . ., but where imposition of such a sanction in
lieu of revocation, suspension or limitation would
not place the health of patients in jeopardy.
H.R. Rep. No. 899, 100th Cong., 2nd Sess., at 33 (1988),
reprinted in 1988 U.S.C.C.A.N. 3828, 3854.
The preamble to the final regulations, moreover, states
that alternative sanctions "offer laboratories the
opportunity to come into compliance within a specified
period of time instead of immediately having their CLIA
certificates suspended, limited, or revoked, or their
Medicare approval cancelled." 57 Fed. Reg. 7223 (Feb.
28, 1992) (emphasis supplied). The Secretary may also in
prescribed circumstances enter into a civil suit to
enjoin laboratory activity that constitutes a significant
hazard to the public health.
The enforcement scheme in the regulations at 42 C.F.R.
Part 493, Subpart R affords HCFA broad discretion in
selecting the appropriate sanction to meet particular
deficiencies identified in surveys of the operations of
the laboratories. Perhaps foremost among the factors
HCFA must consider is whether the deficiencies pose an
"immediate jeopardy." 2/ When a laboratory's
deficiencies have been found to pose an immediate
jeopardy, the enforcement scheme contemplates that HCFA
will require the laboratory to take immediate action to
remove the jeopardy. Section 493.1812. Further, the
regulations specifically provide that the determination
by HCFA that a laboratory's deficiencies pose an
immediate jeopardy is solely within HCFA's discretion and
is not subject to further review. Section
493.1844(c)(6).
In order to fulfill its statutory obligation to ensure
that clinical laboratories remain in compliance with CLIA
requirements, HCFA contracts with state health
departments to conduct on-site surveys of the
laboratories to determine whether federal requirements
are met. State surveyors conduct federal surveys of
laboratories pursuant to the detailed rules in 42 C.F.R.
Part 488 entitled "Survey and Certification Procedures."
These regulations recognize that "surveyors are
professionals who use their judgment, in concert with
Federal forms and procedures, to determine compliance."
42 C.F.R. 488.26(b)(3). HCFA stated in its brief to
the Board (p. 4) that:
[t]he professional judgment of the surveyors is the
cornerstone of the survey and certification process.
Without reliance on the surveyors' expertise in the
area of their specialty, the government's efforts to
regulate laboratories . . . would fail.
The preamble to the final regulation describes the
respective roles of the state surveyors and HCFA as
follows:
The surveyors whom we employ to inspect laboratories
are laboratory professionals. They are trained
extensively by both HCFA and their respective States
in proper inspection techniques under CLIA. They
use their professional judgment and expertise in
making recommendations. . . . The surveyors'
recommendations are reviewed by the supervisory
staff of the State agency or other HCFA agents, and
are further reviewed by the HCFA Regional Office
(RO). The RO makes the final determination of
compliance or noncompliance and imposes the
sanction(s) that would in the opinion of the RO,
most likely precipitate correction.
57 Fed. Reg. 7224 (Feb. 28, 1992).
Background to the Current Appeal
The ALJ did not make specific findings of fact as such.
The underlying facts set out below are drawn either from
factual findings in the text of the ALJ Decision or from
HCFA's statement of facts in its appeal brief. HCFA
asserted that the "underlying" facts were not in dispute.
Petitioner did not file a response to HCFA's brief and,
therefore, did not dispute any of the facts described in
HCFA's statement.
Pursuant to an agreement under section 1864 of the Social
Security Act between the Secretary and the State of New
Jersey (State), the New Jersey Department of Health (DOH)
conducted an on-site survey of Petitioner during nine
days in February and March of 1993 to determine whether
Petitioner was in compliance with CLIA requirements. 3/
HCFA Exhibits 1, 1a, 1b, 127, 128. (HCFA 1, 1a, 1b, 127,
128.) After the survey and a subsequent review of the
laboratory's records were completed, DOH determined that
Petitioner had engaged in deceptive practices and
reported fictitious test results, had used improper test
procedures and incorrect normal ranges for diagnostic
tests, and had failed to protect specimens. HCFA 114, at
1-2.
This was not the first instance where Petitioner's
alleged noncompliance with laboratory regulations raised
issues about the reliability of its test results. The
State of New Jersey had surveyed Petitioner in September
1990 to ascertain whether State and federal requirements
were being met and had found deficiencies involving
unsubstantiated or altered test results. The State
notified Petitioner that recurrence of the deficiencies
would lead to adverse State licensure action, the
imposition of financial penalties, and a determination
that the laboratory was not in compliance with the
Conditions of Participation for providers of Medicare
laboratory services. ALJ Decision (Decision) 16, fn. 14;
HCFA 107.
Moreover, in January 1991, the State resurveyed
Petitioner and concluded that Petitioner was altering
control and patient test values. HCFA 110. Based on
this survey, the State sought to impose State sanctions
against Petitioner. At an informal hearing before the
State, the State and Petitioner reached an agreement
whereby Petitioner waived its right to a formal hearing
and agreed to pay in installments the $8000 penalty
assessed pursuant to State law. HCFA 110-113. Pursuant
to the January 1991 survey, the State did not recommend
that HCFA impose sanctions, and HCFA took no action
against Petitioner. Decision 16, fn. 14.
As a result of the 1993 survey findings and Petitioner's
past history of noncompliance, the State, on May 25,
1993, ordered an immediate suspension of Petitioner's
license, and entered a cease and desist order covering
all of its laboratory operations along with a fine of
$100,000. HCFA 114 at 1-2. At or about the same time,
the State also notified Petitioner that it would
recommend to HCFA that the conditions at the laboratory
posed an immediate jeopardy to the health and safety of
the patients it served, and that HCFA should take
immediate action to revoke Petitioner's CLIA
certification. A detailed statement of deficiencies and
the survey report were enclosed with this correspondence
to Petitioner. HCFA 1-b.
Upon receipt of the statement of deficiencies from DOH,
HCFA reviewed the matter and determined in a notice dated
May 27, 1993, that Petitioner failed to meet seven of the
conditions of certification under CLIA. HCFA also
concurred that the situation at the laboratory posed an
immediate jeopardy. HCFA then advised Petitioner of the
CLIA sanctions it was imposing as follows:
Accordingly, we have determined that it is necessary
to apply the principal sanction of suspension of
your CLIA registration certificate effective June 1,
1993. In addition, we are also suspending your
laboratory's approval to receive Medicare payment
for services concurrently with the CLIA suspension.
You should . . . provide a list of the names and
addresses of all physicians, providers, suppliers,
and other clients who have used some or all of the
services of the laboratory during the past year,
within ten days of this notice.
You should be aware that 42 CFR 493.1832 provides
that your clients should be notified of this action.
In addition, as an alternative sanction under this
regulation, you are directed to provide an
acceptable plan of correction to the cited
deficiencies prior to June 1st. Should you fail to
provide an acceptable plan of correction your CLIA
certification will be finally revoked. Your plan of
correction should be submitted to the New Jersey
State Health Department for review and any
implementation will be subject to State onsite
monitoring.
HCFA 127, at 2.
As of the close of business on June 1, 1993, DOH advised
HCFA that it had not received an acceptable plan of
correction; instead Petitioner simply denied the
existence of the deficiencies. Hearing Transcript (Tr.)
22-24; HCFA 128. HCFA then sent a second letter to
Petitioner informing it that:
under the provisions of 42 CFR 493.1812, we are
proceeding with the revocation of your CLIA
certification. The effective date of the revocation
will be June 25, 1993. Medicare payment suspension
remains in effect in accordance with the provisions
of 42 CFR 493.1808.
HCFA 128.
Following this and the prior May 27 notice, both of which
advised Petitioner of its right to request a hearing
before an ALJ, Petitioner requested a hearing. A five-
day hearing was held before the ALJ from April 18 through
22, 1994. The ALJ Decision appealed from here was
rendered on February 15, 1995.
HCFA argued on appeal that it acted properly in its May
27 and June 1 notices. HCFA's actions included: the
principal sanction of suspension of Petitioner's CLIA
certificate to be effective June 1st, suspension (or
cancellation) of Petitioner's approval to receive
Medicare payment for services provided, the direction to
provide a list of clients within 10 days and an
acceptable plan of correction before June 1st, and the
principal sanction of revocation of the CLIA certificate
effective June 25th. We discuss below HCFA's authority
under the statute and regulations to take each of these
actions.
Petitioner did not submit an appellate brief to the
Board, relying instead on the ALJ's findings and
Decision.
Analysis
1. HCFA acted properly in imposing all of the sanctions
in question.
A. Suspension of Petitioner's CLIA certificate with a
five-day delayed effective date
The primary error in the ALJ Decision is its failure to
recognize HCFA's clear authority to impose an immediate
suspension (with only a five-day delayed effective date)
where a laboratory's deficiencies pose immediate
jeopardy. Specifically, the regulations provide that
where a laboratory's deficiencies pose immediate
jeopardy, the effective date of a suspension need only be
five days after the date of the notice. 42 C.F.R.
493.1844(h)(1). We conclude that HCFA's effective date
here reasonably complied with the terms of this
regulation. HCFA's notice dated May 27, 1993 suspended
Petitioner's CLIA certificate effective June 1, 1993.
June 1st was five days after May 27th, and thus HCFA's
effective date complies with the regulatory time frame.
4/
There is no evidence in the preamble or the regulation
itself, moreover, that a "day" (within the "5 days"
specified by the regulation) was to be given anything
other than its plain meaning. Thus, we see no reason why
weekends or holidays within the five days should be
excluded when applying this regulation. These days would
potentially be days the laboratory could use to take
steps to bring itself into compliance. Moreover, where
an immediate jeopardy exists from a laboratory's
continued operation with cited deficiencies, we know of
no reason why HCFA should view a weekend or a holiday as
any less perilous to patient health and safety than a
week day.
The only other pertinent procedural requirement specified
for a suspension is that HCFA's notice to the laboratory
must include the "reasons" for the suspension. 42 C.F.R.
493.1844(g). 5/ HCFA here clearly complied with that
requirement. It referred to the survey performed by DOH
from February 18 to March 10, 1993 and the subsequent
State analysis of the laboratory's records. It then
identified with regulatory citations all seven of the
CLIA conditions of certification that had been found to
be out of compliance. Finally, it referred to the
recommendation from the State that the deficiencies
created a situation of immediate jeopardy to patient
health and safety. This is an adequate statement of
HCFA's reasons in our view. 6/
Aside from sections 493.1844(g) and (h), several other
sections of the regulations emphasize that HCFA has broad
discretion in selecting principal sanctions such as an
immediate suspension when the laboratory's deficiencies
pose immediate jeopardy and when there may be several
other serious factors present as well. For example:
o Section 493.1800(a)(2)(iii)(b) refers to the
Secretary's broad enforcement authority, including
suspension of the certificate of a laboratory that is out
of compliance with one or more requirements for a
certificate. (Petitioner was found to be out of
compliance with seven such requirements.)
o Section 493.1804(b)(2) specifies that HCFA may impose
one or more principal sanctions when HCFA or HCFA's agent
finds that a laboratory has condition-level deficiencies.
o Section 493.1804(d) provides that HCFA's choice of
sanction should be based on consideration of one or more
factors that include, but are not limited to, nine listed
factors. Practically every single factor listed in the
regulation could be relevant here to substantiate the
seriousness of the circumstances raised and,
consequently, the severity of sanction that would be
appropriate.
o Section 493.1806 confirms that the Secretary may
impose any of three principal sanctions including
suspension and revocation of the CLIA certificate when a
laboratory is out of compliance with one or more CLIA
conditions.
o Section 493.1814 confirms that the Secretary may
suspend or revoke the CLIA certificate without first
imposing an alternative sanction even if the laboratory's
condition-level deficiencies do not pose immediate
jeopardy.
o Section 493.1812(a) provides that where the
laboratory's deficiencies do pose immediate jeopardy,
HCFA requires the laboratory to take immediate action to
remove the jeopardy.
The preambles to the proposed and final versions of the
regulations provide further confirmation that HCFA may
impose an immediate suspension (with a five-day delayed
effective date) when a laboratory's deficiencies pose an
immediate jeopardy. Much of this confirmation was
already discussed in the background to our analysis.
Perhaps the most explicit evidence, however, is the
following statement from the preamble to the final
regulation. The preamble states:
We realize that a laboratory's failure to make
corrections very quickly in immediate jeopardy
situations will trigger the suspension or limitation
of the laboratory's CLIA certificate, thus causing
full or partial closure of the facility. However,
as noted above, the imposition of these sanctions
before a hearing is clearly authorized by section
353(i)(2) of the [Public Health Service] Act. If
laboratories are concerned with maintaining access
to testing, they should focus all efforts on the
expedited correction of their deficiencies, and not
on the receipt of an "expedited" hearing, by which
we assume the commenters mean a hearing before the
adverse action is taken. But conducting hearings
within the 5 days before principal sanctions become
effective in immediate jeopardy situations would be
virtually impossible. When there are life-
threatening deficiencies, action must be taken no
later than this.
57 Fed. Reg. 7232 (Feb. 28, 1992).
The ALJ Decision nevertheless found that HCFA was
procedurally deficient in imposing the suspension here
because it did not also provide certain additional
procedural protections ordinarily pertaining to the
imposition of alternative sanctions, which are set out in
section 493.1812(b), and with greater specificity in
sections 493.1810 and 493.1832. Indeed, the ALJ Decision
relies on procedures specified in section 493.1812(b) as
the primary basis for setting aside HCFA's suspension of
Petitioner. ALJ Decision at 6-17. However, this
provision of the regulations, which admittedly is not as
clear as it might be, simply does not apply to the
situation where HCFA decides to impose an immediate
suspension. Rather, it was designed to respond to the
type of immediate jeopardy situation where HCFA in its
discretion does not impose an immediate principal
sanction such as suspension but rather an alternative
sanction that may or may not ultimately lead to a
principal sanction. 7/ This additional flexibility for
HCFA was one of the primary changes authorized by CLIA,
and the procedures that would apply in that eventuality
are outlined in section 493.1812(b), and in other
provisions that apply specifically to alternative
sanctions such as sections 493.1810 and 493.1832. The
latter sections, like section 493.1812(b), contemplate
that there will be a "revisit" to the laboratory.
Section 493.1812(a), however, clearly does not require
HCFA to respond with procedures pertaining to an
alternative sanction in every instance of an immediate
jeopardy. In requiring a laboratory to take immediate
action under section 493.1812(a), HCFA clearly may still
impose an immediate principal sanction.
This interpretation is confirmed by section 493.1814 (and
by the wide range of other regulatory provisions
discussed previously and the preamble quotations) as well
as by CLIA and its legislative history. Indeed, section
493.1814 specifically concerns those actions available to
HCFA in the less serious situation where a laboratory's
deficiencies do not pose an immediate jeopardy, and it
explicitly still authorizes HCFA to impose a principal
sanction without recourse to a "revisit" or any other
ancillary procedure of an intermediate sanction. Section
493.1814(b) also more clearly explains that certain
ancillary procedures apply only if HCFA imposes
alternative sanctions rather than principal sanctions.
Thus, we conclude that where section 493.1812(a)
contemplates that HCFA will require the laboratory to
take immediate action to remove the jeopardy, section
493.1812(a) may reasonably be interpreted to be
authorizing HCFA to use any of the sanctions available to
it, either alone or in conjunction with other sanctions,
including principal sanctions, such as immediate
suspension or revocation, or one of the alternative
sanctions. If HCFA chooses to apply an alternative
sanction such as a directed plan of correction rather
than a principal one, then it must, however, also follow
the procedures that are outlined in section 493.1812(b),
which require suspension when compliance is not achieved
by means of the alternative sanction. (Although
alternative sanction procedures may subsequently lead to
a suspension of the CLIA certificate, HCFA of necessity
would not have already decided to impose a suspension at
the time it imposes the alternative sanction.)
However, if HCFA in an immediate jeopardy situation
chooses in its discretion to impose an immediate
principal sanction such as a suspension, it necessarily
has to apply only the procedures that the regulations
require for that sanction, which would not include, among
other things, a "revisit" to the laboratory. We have
discussed the applicable requirements from sections
493.1844(g) and (h) at length above. The imposition of a
suspension with a five-day delayed effective date
requires the laboratory to take immediate action to
remove the jeopardy as contemplated by section
493.1812(a). Moreover, as we discuss below, HCFA gave
Petitioner guidance on how to remove the jeopardy by
directing it to submit an acceptable plan of correction
prior to the effective date of the suspension and by
giving Petitioner explicit notice concerning the
conditions in the regulations that were out of
compliance. We discussed previously in footnote 6 other
aspects of the notice provided to Petitioner. The
circumstances of this case, as alleged by HCFA, would
clearly justify, in our view, HCFA's use of an immediate
suspension rather than recourse to an alternative
sanction. 8/
Finally, even if we were to agree with the ALJ that
section 493.1812(b) at least requires a "revisit" to the
laboratory even before HCFA can effectuate a principal
sanction, we find that a revisit clearly would have been
unnecessary under the circumstances here where Petitioner
had not even submitted an acceptable plan of correction,
much less a credible allegation of compliance, by the
close of June 1, 1993. Thus, HCFA would have had no
basis to conclude that the laboratory had made sufficient
changes in its operations to eliminate the immediate
jeopardy, and thus to merit a revisit, before the
suspension became effective.
Accordingly, we conclude that the ALJ erred when she
concluded that HCFA's suspension of Petitioner was
"premature" and unauthorized.
B. Cancellation of approval to receive Medicare payments
We conclude that HCFA's cancellation of Petitioner's
approval to receive Medicare payments was also fully
authorized under the circumstances here because 42 C.F.R.
493.1808(a) provides that whenever HCFA suspends the
CLIA certificate, HCFA must concurrently cancel the
laboratory's approval to receive Medicare payment for its
services. See also 42 C.F.R. 493.622. The ALJ
erroneously viewed HCFA's suspension of Medicare payments
as invalidly imposed when, in fact, the regulations make
clear that an operative CLIA certificate is a condition
precedent to the receipt of Medicare reimbursement for
services.
C. Plan of correction
In addition to imposing the principal sanctions of
suspension of Petitioner's CLIA certificate and
cancellation of Medicare payments, HCFA's notice of
May 27, 1993 directed Petitioner to send a complete
client list within 10 days of the notice (because section
493.1832 "provides that your clients should be notified
of this action") and "as an alternative sanction" under
section 493.1832, directed Petitioner to provide "an
acceptable plan of correction to the cited deficiencies
prior to June 1st."
We conclude that HCFA had authority under the CLIA
regulations to require both the client list and
submission of a plan of correction. Section
493.1844(g)(1) specifically states that where HCFA
imposes a suspension, HCFA may give notice to laboratory
clients according to procedures set forth in section
493.1832. Section 493.1844(g)(1) therefore merely
incorporates by reference the notice procedures that
would ordinarily apply for a directed portion of a plan
of correction in section 493.1832(b)(2)(i). These
procedures require a laboratory to submit a client list
to HCFA within a 10-day time frame. Thus, we conclude
HCFA's request for a client list here was clearly
authorized by section 493.1844(g)(1), which incorporates
by reference the notice procedures in section 493.1832.
We also conclude that HCFA could under these same
authorities require a laboratory to submit a plan of
correction. Section 493.1844(g)(1) expressly authorizes
HCFA to rely on procedures for client lists in section
493.1832 and in no way precludes HCFA from directing
submission of a plan of correction as well. The ALJ
erred in viewing HCFA's May 27 notice as actually
imposing an alternative sanction of a directed plan of
correction. Under section 493.1832(b)(1)(ii), what HCFA
does when imposing a directed plan of correction is to
direct a laboratory to "take specific corrective action
within specific time frames in order to achieve
compliance." Here, HCFA simply required submission of an
acceptable plan of correction. When Petitioner failed to
submit such a plan, HCFA revoked its CLIA certificate,
thus never actually directing Petitioner to take specific
corrective action within specific time frames to achieve
compliance. Since HCFA never in fact imposed this
alternative sanction, the procedures for actually
imposing it do not apply.
In any event, HCFA's directive concerning the submission
of an acceptable plan of correction served at least two
purposes under the regulatory enforcement procedures. It
gave Petitioner notice of an action it could take to
begin removing the immediate jeopardy as contemplated by
section 493.1812(a), and it required Petitioner to
initiate what ultimately could have become a directed
plan of correction to serve as an alternative sanction to
the principal sanction of revocation. We should also
note that if HCFA had given Petitioner a longer amount of
time than five days to submit an acceptable plan of
correction, the suspension would already have been in
effect on the date the plan was submitted. Even if
Petitioner could not have complied with the five-day time
frame given, it was clearly to its advantage to submit a
plan of correction at the earliest possible date
thereafter, since the revocation effective date would be
delayed until the ALJ decision. Thus, we conclude that
HCFA's decision to direct an acceptable plan of
correction with a very short time frame was under the
circumstances here consistent with HCFA's regulatory
authority to impose an immediate principal sanction of
suspension under sections 493.1844(g)(1) and (h) and
section 493.1812(a), as well as its authority to
subsequently revoke the CLIA certificate.
D. Revocation
We conclude that HCFA clearly had the authority to revoke
Petitioner's CLIA certificate based on the same grounds
as its decision to suspend the certificate and on
Petitioner's failure to submit an acceptable plan of
correction before the effective date of the suspension.
HCFA clarified in its request for review of the ALJ
Decision that, in view of Petitioner's request for an ALJ
hearing, the revocation would go into effect only should
the suspension and revocation be upheld by the ALJ.
Section 493.1844(d)(2). The mere specification of a
different effective date in the June 1st notice is not
inconsistent with the regulation since it was unclear at
that time whether Petitioner would appeal.
Thus, we conclude that HCFA has fully complied with all
procedural requirements in imposing the sanctions at
issue here.
2. Even if the imposition of any of the sanctions had
been procedurally defective, the deficiency could not
have been harmful to Petitioner under the circumstances
here, nor would it have justified setting aside the
sanctions in their entirety.
Even if we were to conclude that the imposition of any of
the sanctions in question was procedurally defective, we
would still not conclude that the deficiency was harmful
to Petitioner under the circumstances here. 9/ The
State of New Jersey had already suspended Petitioner's
license to operate its laboratory two days prior to
HCFA's May 27, 1993 notice and had provided opportunity
for a State hearing and a State hearing decision within
48 hours of the laboratory's hearing request. New
Jersey's suspension was based on findings of the same
State survey that HCFA had relied upon in imposing its
sanctions two days later. Although the record
demonstrates that the laboratory did timely request an
administrative hearing from the State on May 28th (one
day after HCFA's notice), the ALJ Decision found that at
all times since May 25, 1993, Petitioner has been unable
to operate due to the sanctions imposed under New Jersey
law. Decision at 26, 14. Under these circumstances, any
purported procedural deficiency on HCFA's part, if such
in fact existed, could not have had any impact on
Petitioner's ongoing operations. New Jersey's actions
had preceded HCFA's and caused Petitioner's entire
operations to cease. The only
way Petitioner could have established that HCFA's
procedures were harmful to its continued operation would
have been if Petitioner had been able to demonstrate that
the State suspension had been subsequently withdrawn at a
time when HCFA had improperly imposed or retained its
sanctions.
We also question whether the ALJ's remedy of setting
aside in their entirety the principal sanctions at issue
here was necessarily appropriate even if Petitioner had
been able to demonstrate that HCFA's procedures had been
deficient, without at least considering whether any
deficiency could have been cured by, for example,
modification of an effective date. The ALJ Decision
cited no authority in the CLIA statute or regulations for
setting aside principal sanctions on the procedural
grounds (such as deficiencies in notice or effective
date) here considered, nor did it identify any case law
in support of setting aside sanctions of this type for
procedural deficiency or for requiring HCFA to
demonstrate that its actions and omissions were harmless.
Aside from the lack of any explicit authority for the
ALJ's remedy, we question whether the remedy is
consistent with the overall purposes of the CLIA
legislation. While the CLIA provisions unquestionably
allow laboratories to contest survey findings on the
merits in an administrative review process, they are
perhaps primarily designed to induce a laboratory to come
into compliance with CLIA requirements during the
pendency of the review process as a response to the
principal or alternative sanctions imposed by HCFA.
Where HCFA determines that the laboratory's deficiencies
pose an immediate jeopardy (a non-reviewable decision),
the regulations contemplate that HCFA will impose
sanctions that will bring about an immediate response to
deficiencies posing the jeopardy. If a laboratory has
any question concerning the time frame for sanctions
designed to induce an immediate response, the reasons for
sanctions, or what is expected of it in response to the
sanctions, the laboratory is obliged under the regulatory
and statutory scheme to contact State officials or
appropriate HCFA officials so that it can proceed
immediately to correct the deficiencies it concedes may
exist.
In a situation where a laboratory has a history of
serious non-compliance and as many as seven alleged
condition-level deficiencies raising an immediate
jeopardy to patient health and safety, that laboratory
must be prepared to take very serious and immediate steps
to eliminate the jeopardy if it believes that it will not
be able to successfully contest the findings of
noncompliance. The procedures are simply not designed to
encourage laboratories to delay making the necessary
changes for several months until the hearing is held or
for several additional months until the hearing decision
is issued.
Moreover, HCFA cannot ultimately come in and tell a
laboratory how it must manage its operations so that it
can come into compliance. It is up to the laboratory to
determine what steps, no matter how drastic, are needed
to rectify the conditions that gave rise to the finding
of immediate jeopardy and, where appropriate, to
incorporate those steps into an acceptable plan of
correction. See 42 C.F.R. 488.18(b)(3) and 488.28(a).
We detailed in footnote 6 the various forms of notice
about potential areas of noncompliance Petitioner
received prior to HCFA's May 27th notice. Moreover, in
that notice, HCFA identified each CLIA condition that had
not been met and included the regulatory citation for
each condition. HCFA directed Petitioner to submit an
acceptable plan of correction to DOH, indicating that any
implementation would be subject to State on-site
monitoring. State officials had already imposed their
own sanctions prior to HCFA's imposition of sanctions,
providing Petitioner with the full survey report and the
"Statement of Deficiencies" (HCFA 2567). Thus,
Petitioner necessarily should have worked with these
officials as well as HCFA officials in developing an
acceptable plan of correction so that it could eliminate
the jeopardy and come into compliance simultaneously with
State and federal laws. In making its findings, HCFA had
relied on the judgment of state survey officials, which
it clearly had the right to do under the statute and
regulations.
Even if Petitioner could not have submitted an acceptable
plan of correction within five days as required, it
clearly could have done so within a very short time frame
thereafter. In authorizing a five-day delayed effective
date for a suspension, both the statute and regulations
clearly contemplate that a laboratory in immediate
jeopardy circumstances may have to cease operations
temporarily before it can make the necessary changes in
its operations to be permitted to resume operations.
Moreover, the fact that Petitioner here was required to
cease operations by the State before the federal
requirements were invoked should not have any bearing on
the procedures here set by HCFA. Contrary to what is
implied in several instances in the ALJ Decision, a
laboratory may still be required to demonstrate its
capacity and intent to comply with the CLIA requirements
even though it has been forced to cease operations either
under state or federal enforcement procedures (or, as in
the case here as of June 1, 1993, under both procedures).
In any event, the decision as to whether to reinstate a
suspended CLIA certificate is not a decision that may be
made by the ALJ or by the Board under CLIA enforcement
procedures, but by the State survey officials and HCFA
Regional Office officials. See section 493.1844(c)(3).
3. The proper appellate remedy is to remand this case to
the ALJ for a determination on the merits.
In addition to requesting that the Board reverse the ALJ
Decision, HCFA asked the Board to proceed to rule on the
merits of the deficiencies cited by HCFA and uphold
HCFA's suspension and revocation of Petitioner's CLIA
certificate and cancellation of Medicare payments.
The Board, however, when functioning in an appellate
role, does not customarily proceed to make factual
findings based on the hearing record developed by the
ALJ, since the ALJ observed the witnesses during their
testimony and the record demonstrates that witness
credibility and demeanor were a consideration. We
therefore remand this case to the ALJ so that the ALJ can
consider the substantive issues raised by Petitioner's
hearing request, and in particular, can decide whether
there were condition-level deficiencies during the
February and March 1993 survey of Petitioner.
We should add, however, that, contrary to statements made
in the ALJ Decision at 39-40, there is no reason why a
decision on the substantive issues would not be feasible
or necessary at this time. The CLIA enforcement scheme
contemplates essentially two routes for non-compliant
laboratories to take when faced with sanctions from
HCFA. They can contest the existence of the deficiencies
identified by the state surveyors and relied upon by HCFA
for the decision to sanction or they can correct the
deficiencies and thereby avoid full implementation of the
sanctions being imposed. If, as here, a laboratory
ceases operations because of state sanctions imposed
between the time it is surveyed and the time HCFA decides
to impose CLIA sanctions, that fact may have a bearing on
the laboratory's ability and inclination to correct its
deficiencies in order to avoid full implementation of the
CLIA sanctions. The closing of the laboratory, however,
has no bearing whatsoever on the issue posed to the ALJ
here: whether the laboratory had any condition-level
deficiencies at the time of the survey. That decision is
still quite feasible, and indeed absolutely necessary
under the statutory and regulatory scheme. (Furthermore,
it has particular relevance to the owners and operators
of the laboratory. No person who has owned or operated a
laboratory which has had its CLIA certificate revoked
may, within two years of the revocation of the
certificate, own or operate a laboratory for which a
certificate has been issued. 42 U.S.C. 263a(i)(3).)
Finally, we should also note that if the ALJ determines
that Petitioner did have any condition-level deficiency
as determined by the State surveyors and HCFA, the ALJ
does not have to step outside her role as adjudicator to
take on the duties of an enforcement official as she
suggested she might. Decision at 40. The ALJ merely has
to affirm the principal sanctions being imposed by HCFA:
suspension, revocation, and cancellation of Medicare
payments. The regulations provide, as HCFA here
clarified, that HCFA's decision to revoke becomes
effective after a hearing decision by the ALJ upholding
HCFA's decision is issued. Section 493.1844(d).
Moreover, alternative sanctions, such as a directed plan
of correction, are no longer relevant since they are
designed to prevent the principal sanctions from going
into effect and therefore may themselves continue in
effect only until a suspension or revocation becomes
effective. Section 493.1810(d)(2).
Conclusion
On the basis of the foregoing analysis, we reverse the
ALJ Decision, which set aside, for procedural
deficiencies, the sanctions HCFA imposed against
Petitioner, and we remand this case to the ALJ for a
decision on the substantive merits of the sanctions.
_____________________________
Judith A. Ballard
_____________________________
M. Terry Johnson
_____________________________
Donald F. Garrett
Presiding Board Member
1. All subsequent references to sections of
regulations in this decision, unless otherwise noted,
will be to sections in 42 C.F.R. Part 493, Subpart R
(1993) entitled "Enforcement Procedures." Other aspects
of the CLIA requirements are implemented elsewhere in 42
C.F.R. Part 493.
2. "Immediate jeopardy" has been defined in the
regulations as:
a situation in which immediate
corrective action is necessary
because the laboratory's
noncompliance with one or more
condition level requirements has
already caused, is causing, or is
likely to cause, at any time,
serious injury or harm, or death,
to individuals served by the
laboratory or to the health or
safety of the general public.
42 C.F.R. 493.2.
In discussing HCFA's range of choice in sanctions, the
preamble to the proposed rule states that there are
situations which almost always can be classified at face
value as being condition-level deficiencies with
immediate jeopardy. The example given in the preamble is
the situation where laboratory test results are reported
for tests that were never performed. This situation
merits being classified as "immediate jeopardy" because:
in such a fraudulent situation,
falsifying test results can yield
accuracy on only a random basis.
The danger to patients represented
by groundless test reports and the
corresponding implications for
inaccurate diagnosis and the
inability to render early and/or
correct treatment, could depending
on the actual physical state of the
patient be life threatening.
56 Fed. Reg. 13,433-13,434 (April 2, 1991).
Moreover, the preamble to the final regulations states
the following concerning the sanctions in an immediate
jeopardy situation:
If the deficiencies are determined
to pose immediate jeopardy to the
health and safety of individuals
served by the laboratory . . ., the
sanctions imposed will, of
necessity, be more severe than
those used in situations which are
less threatening, and will consist
of at least one principal sanction.
When there is not immediate
jeopardy, alternative sanctions
rather than principal sanctions
would be imposed first, thus
allowing the laboratory a longer
period of time to come into
compliance.
57 Fed. Reg. 7224 (Feb. 28, 1992).
3. In this case, DOH had a dual role. It acted as
HCFA's agent under CLIA, and it took actions on behalf of
the State of New Jersey to enforce and implement State
laws.
4. Section 493.1844(h)(1) specifically provides as
follows:
(h) Effective date of adverse
action. (1) When the laboratory's
deficiencies pose immediate
jeopardy, the effective date of the
adverse action is at least 5 days
after the date of the notice.
HCFA's use of the fifth day after the notice as the
effective date here is in our view at least a reasonable
interpretation of the language and is consistent with the
plain wording. HCFA's interpretation permits the
effective date itself to be five days after the date of
the notice as the wording seems to allow. The ALJ
nevertheless concluded that the regulation required the
effective date to be the day beyond five days after the
date of the notice. Even if the ALJ interpretation was
also a reasonable interpretation, HCFA's interpretation
was entitled to deference, since HCFA is the
administering agency for CLIA enforcement and the drafter
of the regulation. Furthermore, the ALJ did not cite to
any evidence that Petitioner had relied on a different
interpretation from HCFA's. In any event, HCFA's
interpretation was not so clearly erroneous that it
should have been the basis for setting aside the entire
suspension. The ALJ should have considered merely
modifying the effective date of the suspension by one
day.
We should add, however, that the ALJ never addressed the
requirements in section 493.1844(h)(1), but rather
addressed identical language from section 493.1812(b)
that applies only where HCFA has decided to impose an
alternative sanction in advance of any principal sanction
such as suspension, and where HCFA thereafter decides to
suspend the CLIA certificate because the alternative
sanction did not cause the laboratory to come into
compliance. It is clear from HCFA's notice here,
however, that HCFA was not imposing an alternative
sanction in advance of a suspension, but was rather
imposing an immediate suspension. Thus, the provisions
of section 493.1844(h)(1) apply.
5. Section 493.1844(g) provides as follows:
(g) Notice of adverse action.
(1) If HCFA suspends, limits, or
revokes a laboratory's CLIA
certificate or cancels the approval
to receive Medicare payment for its
services, HCFA gives notice to the
laboratory, and may give notice to
physicians, providers, suppliers,
and other laboratory clients,
according to the procedures et
forth at 493.1832. . . .
(2) The notice to the
laboratory--
(i) Sets forth the reasons for
the adverse action, the effective
date and effect of that action and
the appeal rights if any; . . .
6. If Petitioner needed further information
concerning the cited deficiencies, the survey findings or
the issue of immediate jeopardy, the regulatory
enforcement scheme contemplates Petitioner should have
contacted the appropriate state survey officials or HCFA
officials immediately. In any event, the record here
indicates that, just one day after HCFA's notice,
Petitioner was already appealing New Jersey's suspension
of Petitioner's state license based on the same state
survey results relied upon by HCFA and that Petitioner
was fully aware of the nature of the deficiencies at
issue in those proceedings. Petitioner Ex. 15. As part
of those proceedings, DOH had sent Petitioner, in advance
of HCFA's May 27th notice, both the "Statement of
Deficiencies" (HCFA 2567) and the "Survey Report." HCFA
1-b; 114. The record also demonstrates that, while the
survey was in process, which was several months in
advance of sanctions from either HCFA or New Jersey,
survey officials discussed apparent serious deficiencies
they had identified with Petitioner's management and
employees. Tr. 92. Further, the record demonstrates
that the lead surveyor telephoned Petitioner's Director
before the State sent its notice of deficiencies and
advised him that the findings were "very serious" and
that "if he wanted to ask any questions, if he had any
concerns that he wanted to meet with the [surveyors] or
with [the lead surveyor] or wanted any information to
ask." Tr. 93-94. Finally, HCFA argued that the types of
deficiencies cited, especially with reference to
fictitious patient test results and fabricated control
data, were repeat deficiencies from prior years. HCFA
Post-Hearing Br. 49.
7. The language of section 493.1812(a) and (b) is as
follows:
493.1812 Action when
deficiencies pose immediate
jeopardy
If a laboratory's deficiencies pose
immediate jeopardy, the following
rules apply:
(a) HCFA requires the laboratory
to take immediate action to remove
the jeopardy and may impose one or
more alternative sanctions to help
bring the laboratory into
compliance.
(b) If the findings of a revisit
indicate that a laboratory has not
eliminated the jeopardy, HCFA
suspends or limits the laboratory's
CLIA certificate no earlier than 5
days after the date of notice of
suspension or limitation. HCFA may
later revoke the certificate.
8. Contrary to what the ALJ Decision suggests,
moreover, the procedures attendant to an immediate
administrative suspension differ substantially from a
civil injunction against the continued operation of the
laboratory contemplated by sections 493.1846 and
493.1812(c), and HCFA might still in appropriate
instances of a "significant hazard to the public health"
decide to bring suit in a U.S. District Court rather than
or in addition to using an administrative remedy.
9. Many of the procedural deficiencies the ALJ
Decision found had occurred were not even identified by
Petitioner in its brief before the ALJ, much less alleged
by Petitioner to have caused it harm under the particular
circumstances here. See Petitioner's Post Hearing Brief
dated October 25, 1994.