SUBJECT:

Comprehensive Care Center of Plantation Key; Hartsville Convalescent Center; Key West convalescent Center INC.; & Marathon Manor,

Petitioner,

Centers for Medicare & Medicaid Services.

Docket No.C-05-233; C-05-234; C-05-235; C-05-236 Consoliated Docket No.: C-05-233
Decision No. CR1366

DECISION

Petitioners' ⁽¹⁾ certificates to operate laboratories for the testing of human specimens, issued by the Centers for Medicare & Medicaid Services (CMS) pursuant to the Clinical Laboratory Improvement Amendments of 1988 (CLIA), ⁽²⁾ are revoked effective the date of this decision.

I. Background

Petitioners are long-term care facilities participating in the federal Medicare program. Petitioners Plantation Key, Key West, and Marathon, participate in the Florida Medicaid program. Petitioner Hartsville participates in the Tennessee Medicaid program. Each of the Petitioners also operates laboratories pursuant to CLIA certificates issued by CMS. Joint Stipulation of Fact, dated June 15, 2005; Petitioners' Initial Brief (P. Brief) at 1-2. CMS notified Petitioners ⁽³⁾ that their CLIA certificates were being revoked effective March 23, 2005, and that they would receive no reimbursement from Medicare for services performed after March 22, 2005. CMS, citing 42 C.F.R. � 493.1840(a)(8), advised Petitioners that the basis for the revocation of their CLIA certificates is their common ownership with another laboratory which had its CLIA certificate revoked January 12, 2005, and which did not appeal that revocation. See Requests for Hearing with attached CMS notices; CMS Exs. 3, 5, 7, 9.

On March 10, 2005, Petitioners individually requested hearings by an administrative law judge (ALJ). The cases were assigned the individual docket numbers C-05-233; C-05-234; C-05-235; and C-05-236. All four cases were assigned to me for hearing and decision on either March 23 or 24, 2005. On April 21, 2005, at my direction, the cases were consolidated for hearing and decision under the single docket number. On June 14, 2005, the parties were notified that the consolidated case was set for hearing on August 2 and 3, 2005. On July 13, 2005, the parties jointly moved to cancel the scheduled hearing, waiving their rights to an oral hearing, and requesting that the consolidated case be resolved on the written record. On July 15, 2005, I granted the parties' motion and accepted their waiver of oral hearing, subject to 42 C.F.R. � 498.66(b)(1).

The parties filed their opening briefs on September 15, 2005. CMS filed CMS Exs. 1-14 and Petitioners filed P. Exs. 1-6. No objections have been timely made to any of the exhibits filed and all are accepted as evidence. CMS filed a reply brief on September 30, 2005. No reply brief has been received from Petitioners.

II. Findings of Fact and Conclusions of Law

A. Findings of Fact

1. Robert M. Becht is the sole stockholder of the Petitioner laboratories. CMS Exs. 1, 4 at 18, 6 at 17, 8 at 2, 10 at 20, 11, 13, 14.

2. Robert M. Becht was the sole stockholder and owner of Eastern Ozarks Regional Health System, which had its CLIA certificate revoked effective January 12, 2005. CMS Exs. 1, 3 at 1, 5 at 1, 7 at 1, 9 at 1, 14.

3. Robert M. Becht was automatically ineligible to own or operate any laboratory subject to CLIA for two years following the revocation of the CLIA certificate of Eastern Ozarks Regional Health System on January 12, 2005. 42 U.S.C. � 263a(i)(3).

4. Petitioner laboratories have no eligible stockholders or owners. CMS Exs. 1, 4, 6, 8, 10, 11, 13, 14.

B. Conclusions of Law

1. The CMS determination to revoke a CLIA certificate for noncompliance based on 42 C.F.R. � 493.1840(a)(8), is an appealable initial determination pursuant to 42 C.F.R. � 493.1844(b)(1).

2. Petitioners filed timely requests for hearing.

3. I have jurisdiction.

4. There is a basis for revocation of Petitioners' CLIA certificates pursuant to 42 C.F.R. � 493.1840(a)(8).

5. Petitioners' CLIA certificates are revoked effective the date of this decision. 42 C.F.R. � 493.1844(d)(2).

III. Discussion

A. Applicable Law

CLIA establishes requirements for all laboratories that perform clinical diagnostic tests on human specimens and provides 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. The purpose of CLIA is to ensure the accuracy and reliability of laboratory tests and, hence, the public health of all Americans. See H.R. Rep. No. 100-899, at 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. CLIA grants the Secretary of Health and Human Services (the Secretary) broad enforcement authority, including the ability to suspend, limit, or revoke the CLIA certificate of a laboratory that is out of compliance with one or more requirements for certification. 42 U.S.C. � 263(i)(1). The Secretary has exercised his authority under 42 U.S.C. � 263a(f) and issued regulations implementing CLIA. See 42 C.F.R. Part 493.

The Secretary's regulations delegate to CMS broad authority to ensure that laboratories perform as Congress intended, including authority to inspect and sanction laboratories that fail to comply with the regulatory requirements. CMS certification of a laboratory under CLIA is dependent upon whether the laboratory meets the conditions for certification set out in the statute and regulations. 42 U.S.C. � 263a(f)(1); 42 C.F.R. � 493.1 et. seq. Pursuant to the enforcement provisions of the regulations, CMS may suspend, limit or revoke any type of CLIA certificate: based on actions of the laboratory's owner, operator, or employees; based on improper referrals in proficiency testing; or based on exclusion from Medicare by the Office of the Inspector General. 42 C.F.R. � 493.1840. There are eight grounds specified by the regulation for suspension, limitation, or revocation of a laboratory's CLIA certificate related to actions of the laboratory's owner, operator, or employees. Title 42 C.F.R. � 493.1840(a) provides:

(a) Adverse action based on actions of the laboratory's owner, operator or employees. CMS may initiate adverse action to suspend, limit or revoke any CLIA certificate if CMS finds that a laboratory's owner or operator or one of its employees has--

(1) Been guilty of misrepresentation in obtaining a CLIA certificate;

(2) Performed, or represented the laboratory as entitled to perform, a laboratory examination or other procedure that is not within a category of laboratory examinations or other procedures authorized by its CLIA certificate;

(3) Failed to comply with the certificate requirements and performance standards;

(4) Failed to comply with reasonable requests by CMS for any information or work on materials that CMS concludes is necessary to determine the laboratory's continued eligibility for its CLIA certificate or continued compliance with performance standards set by CMS;

(5) Refused a reasonable request by CMS or its agent for permission to inspect the laboratory and its operation and pertinent records during the hours that the laboratory is in operation;

(6) Violated or aided and abetted in the violation of any provisions of CLIA and its implementing regulations;

(7) Failed to comply with an alternative sanction imposed under this subpart; or

(8) Within the preceding two-year period, owned or operated a laboratory that had its CLIA certificate revoked. (This provision applies only to the owner or operator, not to all of the laboratory's employees.)

Cancellation of Medicare payments is required when CMS suspends or revokes a laboratory's certificate. 42 C.F.R. � 493.1842(a).

CLIA provides at 42 U.S.C. � 263a(i)(1) that a laboratory's certificate may be suspended, revoked, or limited only after reasonable notice and opportunity for hearing to "the owner or operator of the laboratory." The implementing regulations provide that a laboratory or prospective laboratory dissatisfied with an initial determination listed in 42 C.F.R. � 493.1844(b) is entitled to a hearing before an ALJ. 42 C.F.R. � 493.1844(a). The hearing procedures found in subpart D of Part 498 are incorporated by reference. 42 C.F.R. � 493.1844(a)(2). The "suspension, limitation, or revocation of the laboratory's CLIA certificate . . . because of noncompliance . . ." is the first listed initial determination subject to hearing before an ALJ. 42 C.F.R. � 493.1844(b)(1). The imposition of alternative sanctions is also an initial determination subject to appeal (42 C.F.R.� 493.1844(b)(3)), but the determination as to which alternative sanctions to impose and the amount of the CMP to be imposed are not. 42 C.F.R. �� 493.1844(b)(3) & (c)(4). The general rule is that suspension, limitation, or revocation of a CLIA certificate is not effective if appealed, and not imposed until the ALJ issues a decision, unless CMS declares immediate jeopardy, and then there is no delay in the suspension or limitation of the offending laboratory's CLIA certificate. ⁽⁴⁾ 42 C.F.R. � 493.1844(d)(2). Section 498.74 of 42 C.F.R. provides that, absent appeals to the Departmental Appeals Board or the U.S. District or Circuit Courts, my decision is final.

In addition to sanctions directed against laboratories, CLIA provides the following with respect to the owners and operators of noncompliant laboratories:

No person who has owned or operated a laboratory which has had its certificate revoked may, within 2 years of the revocation of the certificate, own or operate a laboratory for which a certificate has been issued under this section.

42 U.S.C. � 263a(i)(3).

The implementing regulations do not include any express provision implementing or imposing this two-year prohibition against an offending owner or operator. ⁽⁵⁾ However, the regulation does provide that CMS may suspend, limit, or revoke a laboratory's CLIA certificate if it finds that the owner or operator has -

[w]ithin the preceding two-year period, owned or operated a laboratory that had its CLIA certificate revoked. (This provision applies only to the owner or operator, not to all of the laboratory's employees.)

42 C.F.R. � 493.1840(a)(8).

The allocation of the burden of persuasion in an appeal of CMS's sanctions was analyzed by the Departmental Appeals Board (the Board) in Hillman Rehabilitation Center, DAB No. 1611 (1997), aff'd, Hillman Rehabilitation Center v. HHS, No. 98-3789 (GEB) (D.N.J., slip op. May 13, 1999). The Hillman analysis was applied by the Board in Edison Medical Laboratories, Inc., DAB No. 1713 (1999), an appeal of CLIA sanctions. The parties have advanced no argument that would cause me to use a different approach to allocating the burden of persuasion in this case. Accordingly, CMS has the burden of coming forward with sufficient evidence to prove a prima facie case. The Petitioners then have the ultimate burden of showing by a preponderance of the evidence that they were not out of compliance with CLIA requirements. Regarding the imposition of sanctions, the issue to be resolved by the ALJ is not whether CMS properly exercised discretion in imposing either principal or alternative sanctions, but rather, whether a basis existed for the imposition of sanctions under governing statutory and regulatory authorities based upon the evidence before the ALJ, i.e., the ALJ resolves these issues de novo. Cf. Emerald Oaks, DAB No. 1800 (2001).

B. Issue

Whether there is a basis for the revocation of Petitioners' CLIA certificates.

C. Analysis

It is first necessary to resolve the issue of jurisdiction. CMS suggests in its opening brief (page 7), and argues specifically in its reply brief (page 2, footnote 3), that applicability of the two-year ban of 42 U.S.C. � 263a(i)(3) is not an appealable initial determination of CMS within the meaning of 42 C.F.R. � 498.3. I concur with that statement of law. However, the CMS determination to revoke a CLIA certificate for noncompliance with CLIA requirements and cancellation of Medicare payments for services, are both clearly appealable initial determinations pursuant to 42 C.F.R. � 493.1844(b)(1) and (4). In these cases, CMS proposes to revoke the laboratories' CLIA certificates pursuant to 42 C.F.R. � 493.1840(a)(8) for noncompliance with CLIA because their owner is ineligible under CLIA. CMS also cancelled Petitioners' authority to receive Medicare payments for services after March 22, 2005. Thus, I reject any suggestion that Petitioners have no right to a hearing or that I lack jurisdiction to adjudicate these cases.

CMS asserts in its opening brief that there is no question that the four Petitioner laboratories were all owned by Robert M. Becht. Mr. Becht also owned and operated Eastern Ozarks Regional Health System. Eastern Ozarks Regional Health System had its CLIA certificate revoked. CMS argues that the two-year ban on owning and operating another laboratory provided by 42 U.S.C. � 263a(i)(3) is automatic, causing Mr. Becht to be ineligible to own or operate any laboratory for two years following the revocation of the CLIA certificate of Eastern Ozarks Regional Health System. CMS Opening Brief (CMS Brief) at 1-2, 5-8; CMS Exs. 1, 4, 6, 8, 10, 11, 13, 14.

In its opening brief, Petitioners clarify that the proposed revocation of their CLIA certificates is based upon the "alleged revocation" ⁽⁶⁾ of the CLIA certificate of "County Medical Services of Arkansas, Inc., d/b/a Eastern Ozarks Regional Health System," a hospital and clinical laboratory located in Cherokee Village, Arkansas. P. Brief at 1-2. Petitioners assert that County Medical Services of Arkansas, Inc., was the owner and operator of the clinical laboratory at the Eastern Ozarks Regional Health System which had its CLIA certificate revoked by CMS on January 12, 2005. P. Brief at 3; P. Ex. 1. Petitioners argue that County Medical Services of Arkansas, Inc., is not the owner or operator of their laboratories and, in fact, that corporation is no longer in operation. Petitioners argue that they are the owners and operators of their clinical laboratories and that they are not the parent corporations of County Medical Services of Arkansas, Inc., or vice versa. P. Brief at 3; P. Ex. 1. The crux of Petitioners' argument is that all five laboratories were owned by individual corporate entities that have the status of separate legal "persons" within the meaning of federal law, specifically 1 U.S.C. � 1. P. Brief at 3-4. Petitioners admit that all five corporations have a common shareholder, ⁽⁷⁾ but argue that CMS must show that the common shareholder, and not the corporations, owned and operated the laboratories. Petitioners assert that there is no evidence that the common shareholder actually owned and operated the laboratories and the evidence is not such that the corporate veil may be pierced. Petitioners further assert that the fact that there is only one shareholder is insufficient for CMS to pierce the corporate veil. P. Brief at 4.

Although Mr. Becht never admits in his affidavit at P. Ex. 1 that he is the sole shareholder of all five corporations, that is clearly the case and he is the real party in interest in this matter. CMS Exs. 1, 4, 6, 8, 10, 13. Contrary to the argument of Petitioners' counsel, piercing the corporate veil in the sense of the state court cases cited is not an issue in this case, because "owner" is defined by the CLIA regulations to include shareholders of all but publicly traded corporations.

Owner means any person who owns any interest in a laboratory except for an interest in a laboratory whose stock and/or securities are publicly traded. (That is e.g., the purchase of shares of stock or securities on the New York Stock Exchange in a corporation owning a laboratory would not make a person an owner for the purpose of this regulation.)

42 C.F.R. � 493.2 (emphasis in original). Petitioners do not assert or present evidence that they have other eligible owners or that Mr. Becht has divested his ownership in the corporations.

Based upon all the evidence, I conclude that, pursuant to 42 U.S.C. � 263a(i)(3), Mr. Becht is ineligible to own or operate a CLIA laboratory for a period of two years beginning January 12, 2005, with the revocation of the CLIA certificate of County Medical Services of Arkansas, Inc., d/b/a Eastern Ozarks Regional Health System, and ending on January 11, 2007. Mr. Becht was the sole stockholder and owner of County Medical Services of Arkansas, Inc., d/b/a Eastern Ozarks Regional Health System and the four petitioning laboratories in this case. Thus, there is a basis for the revocation of the CLIA certificates of the laboratories in this case pursuant to 42 C.F.R. � 493.1840(a)(8).

IV. Conclusion

For the foregoing reasons the CLIA certificates of Petitioners are revoked effective the date of this decision. 42 C.F.R. � 493.1844(d)(2).

Keith W. Sickendick

Administrative Law Judge

1. Petitioners' exhibit (P. Ex. 1) reflects that the full and correct names for Petitioners are Plantation Key Convalescent Center, Inc., d/b/a Plantation Key Convalescent Center (Plantation Key); Key West Convalescent Center, Inc., d/b/a Key West Convalescent Center (Key West); Nursing Centers Unlimited, Inc., d/b/a Hartsville Convalescent Center (Hartsville); and Marathon Manor, Inc., d/b/a Marathon Manor (Marathon).

2. Codified as 42 U.S.C. �� 263a et seq.

3. CMS notices to Plantation Key, Hartsville, and Key West are dated January 24, 2005, and the CMS notice to Marathon is dated February 7, 2005. CMS exhibits (CMS Exs.) 3, 5, 7, 9.

4. Immediate jeopardy has not been alleged in these cases.

5. This prohibition is a statutory disability rather than a sanction as that term is used in CLIA and its implementing regulations. Black's Law Dictionary (6^th ed. 1990) defines disability as the "want of legal capability to perform an act" while a sanction is "a penalty or punishment provided as a means of enforcing obedience to a law." Disability seems the more apt characterization of the "ineligibility" to own or operate imposed by the statute. Furthermore, the regulations are very specific in listing the sanctions that CMS may impose and the two-year ineligibility ban provided by the statute is not included. See 42 C.F.R. �� 493.1, 493.1806-1807.

6. Despite Petitioners' use of this phrase, there is no question that the laboratory certificate of County Medical Services of Arkansas, Inc., d/b/a Eastern Ozarks Regional Health System was revoked on January 12, 2005. P. Ex. 1.

7. CMS Ex. 13.