SUBJECT:

Canal Medical Laboratory,

Petitioner,

Centers for Medicare & Medicaid Services

DECISION

Canal Medical Laboratory (Petitioner) challenges the Centers for Medicare & Medicaid Services' (CMS's) determination to impose penalties including revocation of its physician laboratory's certificate issued under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), 42 U.S.C. �� 263a et seq., cancellation of its approval to receive Medicare and Medicaid payments for its services, and a civil money penalty (CMP). For the reasons set forth below, I conclude that CMS has shown a basis to revoke Petitioner's CLIA certificate and cancel Petitioner's approval to receive Medicare and Medicaid payments for its services. I find that CMS is authorized to impose a per day CMP only from August 9, 2003 through August 26, 2003.

I. Background

Petitioner is a physician's office laboratory owned by John Angelo, D.O., Professional Medical Corporation, and doing business as Canal Medical Laboratory in New Orleans, Louisiana. Transcript (Tr.) at 575. Petitioner provides laboratory services for several primary care medical clinics also owned by Dr. Angelo. Tr. at 591 - 592. The Louisiana Department of Health and Hospitals (State agency) scheduled a recertification survey of Petitioner, and the survey was completed on June 6, 2003 (June 6 survey) by both the State agency and CMS surveyors. ⁽¹⁾ The surveyors determined that Petitioner had condition-level deficiencies that posed immediate jeopardy. ⁽²⁾ Petitioner abated the immediate jeopardy by voluntarily ceasing to do routine chemistry, endocrinology, and hematology testing. Tr. at 190, 305- 306.

By letter dated July 24, 2003, CMS notified Petitioner of its determination that Petitioner was not in compliance with CLIA requirements and that both principal and alternative sanctions would be imposed if Petitioner failed to come back into compliance. The principal sanctions to be imposed were cancellation of the laboratory's approval to receive Medicare payments for laboratory services effective August 28, 2003, and revocation of the laboratory's CLIA certificate effective September 23, 2003. CMS Exhibit (CMS Ex.) 1A. In addition to the principal sanctions, CMS advised Petitioner it would impose an alternative sanction of a CMP in the amount of $2000 per day for each day of noncompliance with an effective accrual date starting on August 9, 2003. Id.

In the meantime, on August 2, 2003, Petitioner submitted its Plan of Correction for the June 6 recertification survey findings. On August 26, 2003, the State agency conducted a revisit survey and determined that Petitioner had failed to correct the CLIA condition-level deficiencies identified in the June 6 survey. Petitioner timely filed an appeal on August 29, 2003.

I held a hearing in this case on May 18 - 20, 2004, in New Orleans, Louisiana. Testifying for CMS were: Daniel Hesselgesser and Sandra Pearson, CMS surveyors; Victoria Margin, State agency surveyor; and Staci Glueck, State agency CLIA coordinator. The following persons testified for Petitioner: Malcolm Sutter III, Petitioner's general manager; Kevin Royal and Charlene Miller, former members of Petitioner's testing staff; Mali Salih, Ph.D.; Anthony Jones, Petitioner's technical consultant; and John Angelo, D.O., M.D., Petitioner's owner and laboratory director. At the hearing, the parties stipulated to the admission of Petitioner's exhibits (P. Exs.) 1 and 5 - 9, and CMS Exs. 1, 1A, 2 - 26, 26A, and 27 - 51. My findings in this case are based on the witnesses' testimony, the exhibits of record, and the applicable law.

II. 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 section 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. 3829, 3839.

CLIA requires, among other things, that the Secretary of Health and Human Services (Secretary) establish certification requirements for any laboratory that performs tests on human specimens and certify, through the issuance of a certificate, that a laboratory meets certification requirements. 42 U.S.C. � 263a.

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 regulations specify the specific conditions of certification that a laboratory must meet to achieve compliance. The regulations confer broad authority on CMS to ensure that laboratories perform as Congress intended, including authority to inspect and sanction laboratories that fail to comply with the regulatory requirements. Pursuant to CLIA, the Secretary delegated to CMS the authority to suspend, limit, or revoke the CLIA certificate of a laboratory that is out of compliance with one or more CLIA conditions and to impose alternative sanctions such as a directed plan of correction, monitoring by the state, or a CMP. 42 C.F.R. � 493.1806.

The regulations establish both conditions and standards for participation under CLIA. Conditions of participation are set forth as broadly stated general requirements which must be met in order for a laboratory to qualify under CLIA. Standards of participation are set forth as specific quality requirements which must be met by a laboratory in order to meet the more general requirements of conditions of participation. Thus, standards are subparts of the more broadly stated conditions. A failure by a laboratory to comply with one or more standards may be so serious as to constitute a failure to comply with the condition of which the standards are part.

A number of the regulatory provisions regarding conditions and standards have been revised. The effective date for the amended regulations began on April 24, 2003. 68 Fed. Reg. 3640-01 (January 24, 2003). The revisions relate primarily to the form and structure of the regulations rather than their substance. See, e.g., 42 C.F.R. Part 493, Subparts J and K; 68 Fed. Reg. 3640-01 (January 24, 2003). ⁽³⁾ Neither the preamble, nor the comments to the amendments, nor the amended regulations suggest the amendments are to be retroactive. Id. Therefore, the proper regulations for deciding this case are those that were in effect at the time of the survey when the challenged deficiencies were cited. There is a presumption that administrative rules should not be applied retroactively unless their language specifically requires that application. See Bowen v. Georgetown Univ. Hosp., 48 U.S. 204, 208 (1988); Comprehensive Mental Health Center of Baton Rouge, DAB No. 1774 (2001); Lakewood Plaza Nursing Center, DAB No. 1767 (2001). The Statement of Deficiencies (SOD) and the cited deficiencies in this case are based on the old regulations. Both parties agree the old regulations apply. Tr. at 185; Petitioner's Brief (P. Br.) at 14. I find that no injustice will accrue by my application of the older regulations in this case. ⁽⁴⁾

Both the statute and regulations provide for the imposition of principal sanctions (including suspension, limitation, or revocation of a laboratory's CLIA certificate and cancellation of all Medicare payments for services performed by the laboratory). See 42 U.S.C. � 263a(i); 42 C.F.R. �� 493.1806(a) , 493.1807(a), 493.1840, and 493.1842. CMS can also impose alternative sanctions including a CMP against laboratories found to be noncompliant with the CLIA requirements. See 42 U.S.C. � 263a(h); 42 C.F.R. �� 493.1806(c) and 493.1834. In addition, CLIA provides that when a laboratory's CLIA certificate is revoked, its owner(s) and operator(s), including the Director, are prohibited from owning, operating, or directing a laboratory for at least two years from the date of revocation. 42 U.S.C. � 263a(i)(3); 42 C.F.R. �� 493.2, 493.1840(a)(8).

The burden of proof in an appeal of CMS's sanctions is governed by the decision in Hillman Rehabilitation Center, DAB No. 1611 (1997), aff'd Hillman Rehabilitation Center v. U.S. Dept. of Health and Human Services, No. 98-3789 (D.N.J. May 13, 1999). CMS has the burden of providing evidence sufficient to establish a prima facie case. Petitioner then has the burden of coming forward with evidence sufficient to establish by a preponderance of the evidence the elements of its defense or affirmative arguments. In CLIA cases, the finding of even one condition-level deficiency authorizes revocation of a laboratory's CLIA certificate. 42 C.F.R. � 493.1806; Immuno Biogene, Inc., et al., DAB No. 1946 (2004); Edison Medical Laboratories, Inc., DAB No. 1713 (1999).

III. Issue

The issue in this case is whether CMS's action of suspension and revocation of Petitioner's CLIA certificate and cancellation of Medicare and Medicaid payments for laboratory services furnished by Petitioner, and imposition of a CMP are authorized under the applicable CLIA statute and regulations as set forth in 42 U.S.C. � 263a and 42 C.F.R. Part 493.

IV. Findings of Fact and Conclusions of Law

A. Preliminary Comments

During a recertification survey ending June 6, 2003, CMS determined that Petitioner was out of compliance with seven condition-level CLIA requirements. CMS Ex. 1. As CMS advised Petitioner in CMS's notice letter of July 24, 2003, CMS had determined that Petitioner was out of compliance with the following conditions of participation:

�42 C.F.R. � 493.803(a) [Tag D 2016] - successful participation in proficiency testing;

�42 C.F.R. � 493.1245 [Tag D 4280] - routine chemistry;

�42 C.F.R. � 493.1247 [Tag D 4289] - endocrinology;

�42 C.F.R. � 493.1253 [Tag D 4296] - hematology;

�42 C.F.R. � 493.1403 [Tag D 6000] - laboratory director;

�42 C.F.R. � 493.1409 [Tag D 6033] - technical consultant; and

�42 C.F.R. � 493.1701 [Tag D 7000] - quality assurance.

Whether from the overlapping nature of the former regulations or by design, CMS's charging document, the SOD, which took six weeks to prepare, alleged several factual deficiencies and used them to allege seven condition-level deficiencies. ⁽⁵⁾ The overlap of conditions and many cross-references in the SOD made discerning the evidence especially difficult in this case. When one looks at Petitioner's actual proven laboratory failures, a relatively more benign picture of the laboratory emerges. Nonetheless, the essential question is whether the laboratory's failures that CMS did establish with credible evidence can support revocation of Petitioner's CLIA certificate. Petitioner argues they do not, but I find otherwise. As explained more fully below, Petitioner's most serious deficiencies revolve around: (1) Petitioner's failure to successfully participate in proficiency testing and to review and remediate proficiency testing results, and (2) Petitioner's laboratory director's failure to ensure the laboratory maintained acceptable levels of analytical performance for each test system.

I make Findings of Fact and Conclusions of Law (Findings) to support my decision in this case. I set forth my Findings in bold lettered and numbered statements and thereafter discuss how I arrived at the Finding(s). In this decision, I have not discussed all the noncompliance alleged by CMS. See Immuno Biogene, Inc., DAB No. 1946 (2004). I conclude that Petitioner failed to meet two conditions of participation, and thus, CMS's proposed sanction of revoking Petitioner's CLIA certificate is fully supported.

B. Petitioner failed to meet the CLIA condition-level requirement of successful participation in proficiency testing.

According to 42 C.F.R. � 493.803 (Condition: Successful participation), each laboratory performing tests of moderate complexity and/or high complexity must "successfully" participate in a proficiency testing program approved by CMS for each specialty, subspecialty, and analyte or test for which the laboratory is certified under CLIA. If a laboratory fails to participate successfully for a given specialty, subspecialty, analyte or test, CMS imposes sanctions, as specified in subpart R of Part 493. ⁽⁶⁾

Each laboratory that performs tests of moderate complexity must participate in a proficiency testing program approved by CMS. 42 C.F.R. � 498.803(a). Laboratories receive five samples from the testing organization for each analyte performed by the laboratory for each of the three periodic events of testing per year. Laboratories must integrate the proficiency testing samples into patient testing and return their results to the testing organization for scoring. As required, Petitioner participated in a proficiency testing program approved by CMS; i.e., the program run by the American Academy of Family Physicians (AAFP). CMS Ex. 1, at 43.

A score of 80% for an analyte in routine chemistry is required for satisfactory performance in proficiency testing for that analyte. 42 C.F.R. � 493.841(a). Section 493.841(f) of 42 C.F.R. defines unsuccessful performance as "failure to achieve satisfactory performance for the same analyte for two consecutive testing events or two out of three consecutive testing events . . . ."

Petitioner in the second event of 2002 received an unsatisfactory score of 60% for uric acid (an analyte in routine chemistry) testing. CMS Ex. 32, at 25; Tr. at 247. For the first event in 2003, Petitioner obtained a score of 40% in uric acid. CMS Ex. 32, at 56; Tr. at 248. Thus, Petitioner clearly failed to achieve satisfactory performance - 80% - in uric acid analyte testing in two out of three consecutive testing events. Thus, Petitioner failed to achieve successful performance in uric acid testing and was out of compliance with the condition for successful participation in proficiency testing. 42 C.F.R. � 493.803(a).

A CMS-approved organization such as AAFP grades the participating laboratories by reviewing the results submitted by all of its member laboratories with consideration given for the instruments and methods used by the submitting laboratories and determining whether there is a consensus range for the results for the instruments and methods used. Tr. at 351. If the organization cannot obtain a statistically significant consensus for the instruments and methods used by a laboratory, the organization considers the laboratory's results for the analyte as "ungraded" and gives the laboratory a default score of 100%. Tr. at 205.

At the hearing, Petitioner responded to CMS's deficiency allegation by presenting an expert witness, Dr. Mali Salih, Ph.D., who testified that the results from Petitioner's uric acid proficiency test should not have been graded by AAFP because there was an insufficient number of Hitachi 717 chemistry analyzers, which was used by Petitioner, submitting samples for the test results to be meaningful. Tr. at 504 - 505. That is, even though the results were graded, there were not ten similar Hitachi 717 instruments in the testing events when Petitioner's uric acid analyte score fell below 80%. P. Ex. 8; Tr. at 421. Dr. Salih testified that the small size of the sample that participated in the proficiency testing using the Hitachi 717 meant that the results should not have been graded. Tr. at 504 - 505; P. Ex. 8. If results had not been graded, then Petitioner would have received the default score of 100% for the uric acid analyte.

I find Dr. Salih to be a knowledgeable expert witness and his testimony to be credible. I find Dr. Salih's testimony, however, to be unresponsive to the clear evidence that Petitioner's testing organization found Petitioner had failed to test successfully the uric acid analyte. Dr. Salih did not testify, and Petitioner could not show through review and remediation of its proficiency testing results, that it had actually accurately tested the uric acid analyte. The answer to Dr. Salih's testimony is that, even if AAFP had given Petitioner a default 100% score, Petitioner has not shown that it can accurately test for uric acid, and accuracy in testing is the rationale behind the requirement for proficiency testing. White Lake Family Medicine, P.C., DAB No. 1951 (2004). Unsuccessful uric acid testing alone is sufficient to find that Petitioner failed the condition of proficiency testing because uric acid is a critical analyte. Tr. at 288.

C. Petitioner failed to meet the CLIA condition-level requirement of laboratory director.

1. Petitioner failed to meet the CLIA standard of laboratory director by not reviewing ungraded proficiency testing scores.

At this point, I will discuss other issues related to Petitioner's proficiency testing that were cited as a deficiency by CMS under the "laboratory director" condition. CMS cited Petitioner under 42 C.F.R. � 493.1407(e)(4)(iii) for the laboratory director's failure to review and oversee verification of the reports of Petitioner's "ungraded" proficiency test results. I note that the applicable older regulations related to the laboratory director require that "all proficiency testing reports received are reviewed by the appropriate staff to evaluate the laboratory's performance and to identify any problems that require corrective action; and that an approved corrective action plan is followed when any proficiency testing results are found to be unacceptable or unsatisfactory." 42 C.F.R. � 493.1407(e)(4)(iii) and (iv). The older regulations do not define the term "unacceptable."

Petitioner does not contend that Dr. Angelo, its laboratory director, ensured that all proficiency testing reports received were evaluated in order to identify any problems that required corrective action. Rather, Petitioner argues that the older regulations applicable in this case do not specifically require a laboratory to review the "ungraded" proficiency testing results that received a default score of 100%. As stated in the most recently adopted regulations, a laboratory "must verify the accuracy" of the ungraded proficiency testing results. 42 C.F.R. � 493.1236(b)(2), as amended January 24, 2003. Petitioner contends that it should not have been cited for not doing something - reviewing the "ungraded" proficiency testing results - when it had no idea it was required to do so. Petitioner's reply Brief (P. R. Br.) at 9.

I do not find Petitioner's arguments on this issue to be persuasive. First, Petitioner had so many "ungraded" proficiency testing results for each testing event that the laboratory director should have been alerted to problems, perhaps with its instruments and/or methods used for the testing. For example, for the first testing event for 2002, Petitioner submitted proficiency testing results for 70 different tests, while only 41 tests were graded. CMS Ex. 32, at 4 - 14. For the second testing event in 2002, Petitioner submitted proficiency testing results for 76 tests and only 41 tests were graded. CMS Ex. 32, at 19 - 50. Similarly, for the first testing event for 2003, out of 81 testing results sent to AAFP by Petitioner for grading, only 42 were graded. CMS Ex. 32, at 50 - 61. In the main, for hematology, the following blood tests were not graded for Petitioner during most of the testing events in 2002 or 2003: white blood cell count, red blood cell count, hemoglobin, hematocrit, platelet count, granulocytes, monocytes, lymphocytes, eosinophils, basophils, MCVs, and RDW. ⁽⁷⁾ CMS Ex. 32. Similarly, for a number of tests in routine chemistry, such tests as alkaline phosphatase, ALT/SGPT, amylase, ALT/SGOT, and GGT, Petitioner's proficiency testing results were ungraded in all the testing events for 2002 and 2003. In effect then, Petitioner's proficiency testing, although Petitioner received many 100% default scores, did very little to show the laboratory's competency to perform testing on the various analytes it tested frequently.

Dr. Angelo, Petitioner's laboratory director, should not have simply rested on default grading as complying with the requirement to evaluate the laboratory's performance because so many of his proficiency test results were "unacceptable." According to CMS Surveyor Pearson, each proficiency testing event comes with a summary book that goes through each analyte, peer review scores, and what other laboratories obtained on the same piece of equipment. Tr. at 205 - 206. She opined that a laboratory should review the book and its own results to assure the laboratory's results are within the expected ranges. Id.; Tr. at 346 - 347. CMS contended that Petitioner did not even have the proficiency testing summaries on site. Tr. at 254 - 255.

Further, Petitioner had been previously instructed, as a result of prior surveys, to review its ungraded proficiency testing results. Although Dr. Angelo testified that he had never been told that he needed to review the ungraded proficiency tests (Tr. at 582 - 584), Petitioner was cited in June 1998 for having "no documentation of remedial action taken when proficiency testing results were not passing or when the scores were passing but a sample had been missed." CMS Ex. 37, at 64 - 65. More to the point, surveyors cited Petitioner in July 2001 for failing "to have a policy and procedures for the defining and evaluating of unacceptable (ungraded proficiency testing analytes) results obtained for proficiency testing samples." CMS Ex. 39, at 20 - 21; See, also, CMS Ex. 39, at 11 (Petitioner's accepted plan of correction notes that the technical consultant will "implement procedures for the review of proficiency testing to include documentation of remedial actions for any unacceptable analyte and test event scores . . . .") It was incumbent on Petitioner's laboratory director to review all ungraded proficiency testing results and be able to show CMS surveyors the actions he had taken to assure that, if the analytes had been graded, Petitioner's results would have been accurate. Tr. at 208 - 209.

Petitioner was told during the June 6 survey exit interview with the surveyors that Petitioner needed to review its ungraded proficiency test results. Tr. at 194, 534. Petitioner had until August 26, 2003, when the surveyors returned, to do something with its ungraded proficiency test results. Petitioner made little progress to that effect. Tr. at 348. At the very least, Petitioner should have been able to show the surveyors that it had reviewed its uric acid testing and had done remedial work to assure that such testing was valid even if only one or two other laboratories used Petitioner's type of instrument and methods to test uric acid. The laboratory purchased two remedial tests to demonstrate satisfactory performance but failed to participate in the events. CMS Ex. 26; Tr. at 250. ⁽⁸⁾

Pursuant to the CLIA regulations, the laboratory director is responsible for ensuring that "[a]n approved corrective action plan is followed when any proficiency testing results are found to be unacceptable or unsatisfactory." 42 C.F.R. � 493.1407(e)(4)(iv). This Dr. Angelo did not do. Petitioner failed to meet this laboratory director standard and several other standards as discussed below to such an extent that Petitioner failed to meet the condition of laboratory director.

Petitioner argues that unsuccessful proficiency test results for uric acid alone do not establish a sufficient basis for revocation of a laboratory's license. Tr. at 394. Petitioner further contended, without reference to record evidence, that it suspended uric acid testing on patients once its unsatisfactory score was received. Therefore Petitioner contends, there was no harm to patients. P. Br. at 14 - 15. My finding is not that unsuccessful proficiency test results for the uric acid analyte alone supports revocation of Petitioner's CLIA certificate in this case, although failing only one condition can support revocation. 42 C.F.R. � 493.1804(b); Edison Medical Laboratories, Inc., DAB No. 1713 (1999). My finding is that Petitioner's failure to meet the condition of proficiency testing and the condition of laboratory director fully supports revocation of Petitioner's CLIA certificate.

2. Petitioner failed to meet a CLIA standard of laboratory director by failing to follow manufacturers' instructions for control agents. 42 C.F.R. � 493.1445(e)(6) .

The laboratory director must ensure the establishment and maintenance of acceptable levels of analytical performance for each test system. 42 C.F.R. � 493.1445(e)(6). CMS alleged that Petitioner failed to establish its own in-house mean and standard deviations for several control agents as required by the agents' manufacturers. CMS Ex. 1, at 25. CMS and State agency surveyors testified about the concept of a "range of means." Tr. at 60 - 61, 199 - 200, and 264. The manufacturers of a control material will send that material to a laboratory with instructions containing an expected mean value and a range in which the mean value must fall. This is a wider range than should be used by the laboratory for control, however, because different laboratories use different reagents and instruments and have different operating conditions. If the manufacturer's instructions tell the laboratory to set its own mean and a two standard deviation range for the control, the laboratory must do so. The laboratory's determined mean and range should fall within the manufacturer's stated expected range. Id.

Petitioner used the ACS-180 analyzer for thyroid panels, among other tests. Tr. at 252. Petitioner did not define the quality control reference ranges for one of the quality control materials the laboratory was using on the instrument. Tr. at 260. The laboratory used the control manufacturer's stated target values instead of establishing its own mean and range of means. Id. The manufacturer's package insert for the Ligand Plus 1, 2, 3 control states that the laboratory "should establish your mean and expected range for each constituent of this lot of quality control material in parallel with a previous lot of quality control material." CMS Ex. 19, at 2.

Petitioner pointed out at the hearing and in its post-hearing briefing that a laboratory can purchase special assayed agents and that the regulation at 42 C.F.R. � 493.1218(d)(1) permits the stated values of an assayed control material to be used as the target values if the stated values correspond to the methodology and instrumentation employed by the laboratory and are verified by the laboratory. Tr. at 66 - 67; P. Ex. 5, at 1326; P. Br. at 17 - 18. Petitioner's employees testified that Petitioner purchased and paid more for special assayed agents and that for unassayed controls, the laboratory established its own in-house ranges. Tr. at 466, 535. Petitioner provided no proof, however, with an invoice or other documentation, that it did not need to establish its own mean and expected range of means for the Ligand Plus 1, 2, 3 control or that it had verified the control's target values. ⁽⁹⁾

As another example, in November 2002, Petitioner began running a new test, called the CKMB, for a heart enzyme. Tr. at 463. This test was run on Petitioner's Hitachi instrument. Thermo DMA is a control agent used for this test. Tr. at 198. Based on the manufacturer's instructions, Petitioner was required to establish its own in-house control values for Thermo DMA. CMS Ex. 17, at 17 - 18; Tr. at 199 - 200. Petitioner's witness, technician Kevin Royal, testified that the Hitachi cumulated quality control data, and he monthly printed out the instrument's accumulated reports. He affirmed that, in his testing, he used the ranges that were developed in-house by the machine. Tr. at 464. ⁽¹⁰⁾ Technician Royal also testified that Petitioner had documents showing its own determination of the mean for Thermo DMA. Id. Petitioner, however, referred to no verifying data or examples of the laboratory's accumulated data nor an explanation of how its method satisfied the requirement in the manufacturer's instructions for Thermo DMA. For this reason, I find that Petitioner failed to follow the manufacturer's instructions with respect to this test control.

Surveyor Margin testified that Petitioner failed to establish its own mean and range of means for the Hematronix, Inc. controls, also to be used with the ACS-180 analyzer. Tr. at 262 - 263. In her testimony, she referred to CMS Ex. 19, at 10 - 15, to support her conclusion about Petitioner's failure. After review of the exhibit, I frankly cannot determine how the referred-to exhibit led her to her conclusion. I find that CMS failed to make a prima facie case with respect to the Hematronix, Inc. controls. CMS also provided no testimony and referred to no exhibits to support the alleged failure of Petitioner, as set forth in the SOD, to develop an in-house mean and range of means for a new hematology quality control agent called Streck and another quality control agent called Lead Care for blood testing of lead levels. CMS Ex. 1, at 17. Thus, neither did CMS make a prima facie case with respect to these quality control materials.

Nonetheless, for purposes of the Ligand Plus 1, 2, 3 control and the Thermo DMA, per the manufacturers' instructions, a laboratory had to establish its own in-house mean and two standard deviation range and Petitioner did not. Tr. at 198 - 200, 260; CMS Ex. 17, at 17 - 38; CMS Ex. 19, at 2. Further, Petitioner concedes that it had two reagents where it used the manufacturer's ranges but where it should have calculated its own. P. R. Br., at 5.

By failing to ensure that the laboratory was following manufacturers' instructions with respect to establishing the in-house means and two standard deviation range for control materials used, Petitioner's laboratory director failed to ensure the laboratory had established and maintained acceptable levels of analytical performance for each test system. Thus, Petitioner failed to meet the standard for laboratory director set out at 42 C.F.R. � 493.1445(e)(6).

3. Petitioner failed to meet the CLIA standard for laboratory director as set forth at 42 C.F.R. � 493.1445(e)(6) by failing to keep accurate records and being unable to assure that reagents and controls were used properly.

According to CMS, the manufacturer of Thermo DMA includes a package insert for CKMB quality control stating that reconstitution of controls is only good for seven days. CMS alleges that Petitioner's control vials had been reconstituted on April 30, 2003 and were still in use on June 6, 2003, a period of over 35 days. CMS Ex. 1, at 7; Tr. at 148 - 149. CMS's surveyor Sandra Pearson admitted, however, that if the controls had in fact been that old, they would not have run properly on the machine. Tr. at 221. ⁽¹¹⁾ Petitioner's staff denied that old controls would have been used. Tr. at 449 - 450. The fact that the CKMB controls actually came within range corroborates Petitioner's assertion that the controls may have been properly reconstituted. Nonetheless, as Surveyor Pearson acknowledged, the real problem was that the label on the vial was incorrect. Petitioner did not dispute that the label was incorrect, but argued that an incorrect label on a vial is not a basis to suspend a laboratory's certificate when the reagents themselves were satisfactory. I find that an incorrect label on a control vial prevents Petitioner from being able to assure the accuracy and reliability of patient test results. If a laboratory actually fails to follow the manufacturer's instructions and does not validate their deviations from the instructions, then the accuracy and reliability of test results cannot be verified. Tr. at 134.

Surveyor Pearson also testified that she had reviewed reagents in Petitioner's refrigerator and the inventory lists taped to the refrigerator. She found reagents in use by Petitioner that were not on the inventory list. Tr. at 149; CMS Ex. 1, at 8. During Surveyor Pearson's testimony, CMS referred to CMS Ex. 17, and she explained that the exhibit did contain Petitioner's "inventory lists that the laboratory had tacked up to the refrigerators in the laboratory." Tr. at 139. Several of the inventory lists did not contain either a date when the reagent was opened or a date when the reagent was discarded. See, e.g., CMS Ex. 17, at 4, 6, 8, and 10. If a laboratory fails to document the date the reagent was opened and its expiration date, a laboratory cannot determine if it is following manufacturer's instructions or using expired reagents. Tr. at 133. The incomplete reagent inventory lists also manifest a failure of the laboratory director to ensure the establishment and maintenance of acceptable levels of analytical performance for each system, as required to meet the laboratory director standard at 42 C.F.R. � 493.1445(e)(6).

4. Petitioner failed to meet the CLIA laboratory director standard set out at 42 C.F.R. � 493.1445(e)(6) by failing to validate new reagents appropriately.

CMS alleged Petitioner had used up to four different manufacturers' reagents (Thermo DMA, Amresco, Equal Diagnostics, and Sigma) for chemistry tests with no validation of the methods. CMS Ex. 1, at 18. Surveyor Pearson testified that a review of Petitioner's reagents showed that for the same analyte, Petitioner used three or four different manufacturers' reagents. She said that when a new reagent is introduced, the control value becomes an unknown and that Petitioner should have validated the use of the new lot numbers and different manufacturers' reagents to assure that the method really worked with the different reagents on the Hitachi instrument. Surveyor Pearson testified that when Petitioner initiated a new lot number of controls for the direct bilirubin and creatinine tests on the Hitachi, Petitioner validated them against the previous lot number of controls. Tr. at 145. When Petitioner ran the controls and the controls were out of target range, instead of remediating, Petitioner went back to the prior lot and took the ranges from the prior lot, jeopardizing the validity of test results. Tr. at 147. Petitioner's method exhibited another failure of Petitioner to meet the standard for laboratory director requiring that the director ensure the establishment and maintenance of acceptable levels of analytical performance for each test system. 42 C.F.R. � 493.1445(e)(6).

5. Petitioner failed to meet the CLIA laboratory director standard at 42 C.F.R. � 493.1445(e)(6) by failing to verify that working stock reagents, when not reused, were capped when not in use as recommended by the manufacturer.

CMS's SOD also alleges, based on the surveyors' observations, that even though manufacturers' instructions for the Hitachi instrument's working reagents require that the reagents be capped when they were not in use and would be stable for seven days when stored at 2 - 8 degrees centigrade, Petitioner's staff left the bottles uncapped. CMS Ex. 1, at 7 - 8. The CMS surveyor observed that the working stock reagents on Petitioner's Hitachi chemistry analyzer were not capped when not in use. Nor were the working solution bottles kept capped. CMS Ex. 1, at 7 - 8; CMS Ex. 17, at 17 - 21; CMS Ex. 26, at 4 - 5; Tr. at 133. Petitioner's Technician Royal testified that patient samples were run overnight and his practice was to throw away the reagent and recalibrate fresh reagents before the next run of tests, obviating the need to keep the reagents capped. Tr. at 450 - 451. Even if Technician Royal did use the reagent only once, some documentation of that practice was required. Petitioner did not refer to any documentation of its practice of throwing away reagents after one use. Petitioner's laboratory director, thus, did not ensure the establishment and maintenance of acceptable levels of analytical performance of each test system as required by 42 C.F.R. � 493.1445(e)(6).

6. Petitioner failed to meet the CLIA laboratory director standard at 42 C.F.R. � 493.1445(e)(6) by failing to have sufficient blood in its EDTA vacutainers to assure accurate testing.

CMS alleges that Petitioner was using insufficient amounts of blood in patient samples for testing. Surveyor Pearson testified that Petitioner was accepting or using 2 ml tubes, or EDTA vacutainers, of patient blood samples to do hematology blood testing. EDTA vacutainers contain a liquid anticoagulant called EDTA. According to Surveyor Pearson, the manufacturer of the EDTA vacutainers requires the EDTA tubes to be at least three-quarters filled with blood for hematology testing and 1/4 filled for lead testing. She also averred that the laboratory used the incorrect 2 ml EDTA vacutainer tubes and the use of the smaller tubes required that the tubes be at least three-quarters filled with patient specimen and the laboratory was filing them less than one-quarter full. Tr. at 134 - 135; CMS Ex. 6; CMS Ex. 1, at 8.

With respect to lead testing, the Lead Care blood lead testing system package insert states that if a laboratory is using blood collection tubes containing EDTA, the laboratory must make sure that tubes are at least one-quarter full. CMS Ex. 6, at 4. CMS alleges that for four of six patient samples listed under lead testing, the tubes had not been filled to ensure adherence to package inserts. CMS Ex. 1, at 8. According to Surveyor Pearson, there is a liquid anticoagulant in the tube and an insufficient ratio of blood to anticoagulant could cause erroneous test results. Tr. at 134 - 135. Surveyor Pearson credibly testified that Petitioner failed to follow manufacturer's requirements for specimen acceptability for patient testing in that she watched the laboratory do lead testing on June 4, 2003, and four out of the six patient specimens in EDTA vacutainer tubes were less than one-quarter full as required by the manufacturer's package insert. CMS Ex. 1, at 8; CMS Ex. 6, at 4; Tr. at 134 - 136.

Even if blood from tubes Surveyor Pearson observed had been used with other tests as someone on Petitioner's staff apparently told Surveyor Pearson during the survey (CMS Ex. 1, at 8), this does not respond to the manufacturer's requirement that the blood sample for lead level testing be enough to fill an EDTA vacutainer at least one-quarter full. Petitioner also argues that Surveyor Pearson was unable during her cross-examination to point precisely to the one-quarter mark on a tube. Tr. at 197 - 198. Surveyor Pearson, nonetheless, noted that the tubes had very little blood in them. I find she could tell the tubes had insufficient blood samples even if she could not precisely mark the one-quarter point on the sample tube. I find the preponderance of the evidence is that the surveyor observed a less than optimum amount of blood sample in the tubes she observed. Testing with an insufficient amount of blood sample evidences Petitioner's failure to meet the standard of laboratory director that requires the director to ensure the establishment and maintenance of acceptable levels of analytical performance for each test system. 42 C.F.R. � 493.1445(e)(6).

7. The laboratory director's failure to meet the CLIA standards with respect to proficiency testing and ensuring establishment and maintenance of acceptable levels of analytical performance for each test system as discussed above in findings 1 - 6 of Section IV.C of this Decision, constitutes Petitioner's failure to meet the condition of laboratory director.

The ultimate responsibility for oversight of the laboratory falls on the laboratory director. He or she sets policy for quality assurance, selects methodologies for the laboratory, and implements validation of those methods to ensure accurate and reliable testing in the laboratory. 42 C.F.R. � 493.1445; Tr. at 143, 580. Even if the laboratory director delegates responsibilities, the director remains responsible for ensuring that all duties are properly performed. Dr. Angelo's failure to review and remediate the laboratory's proficiency testing scores, including the ungraded scores, and several failures to establish and maintain acceptable levels of performance for each test system manifest Petitioner's failure to meet the CLIA condition of laboratory director. Dr. Angelo could not assure that Petitioner's testing would not have an adverse impact on patient test results. Tr. at 286.

D. CMS failed to make a prima facie case or to prove by a preponderance of the evidence many of the alleged deficiencies.

1. The preponderance of the evidence is that Petitioner did not report patient blood tests when the Coulter hematology instrument was not within quality control range.

One CMS surveyor, Daniel Hesselgesser, made several allegations that proved to be haphazardly determined and groundless. I find his testimony generally not credible. Several of his allegations, as discussed below, were shown on cross-examination to have been simply incorrect and CMS failed to rehabilitate his testimony on redirect. For example, CMS alleged that thousands of patient blood tests had been reported when the Coulter instrument was allegedly out of quality control range. In particular, Surveyor Hesselgesser determined that 4898 complete blood counts (CBCs) for patients had been performed and reported by Petitioner from January 2003 - May 2003 and the laboratory could not assure the accuracy and reliability of the reports. CMS Ex. 1, at 4 - 5; Tr. at 25. Based on his cross-examination, Surveyor Hesselgesser misunderstood the rules under which the test results were reported.

To meet the quality control requirements for hematology, the laboratory must comply with 42 C.F.R. �� 492.1201 - 1221. All quality control activities must be documented and require two levels of controls that are within range. 42 C.F.R. � 493.1256(d)(3)(i). All that is required by the applicable regulations is that two controls be within range. As finally acknowledged by Surveyor Hesselgesser during cross-examination, in all instances complained of, Petitioner's two controls were within range.

Petitioner's laboratory policy was to follow a process of using 'Westgard Rules' so that even if a control was out of range on certain days, patient testing was appropriate. Tr. at 83 - 84, 92 - 94. According to Petitioner's former employee, Technician Royal, the 'Westgard Rules' provide that if two controls are within two standard deviations from the expected value and the other control is within three standard deviations and the deviations do not represent a trend or a successive event, the testing results can be reported. Tr. at 441. It became clear during Surveyor Hesselgesser's cross examination that he had misunderstood the import of the two and three standard deviations of the 'Westgard Rules.' Tr. at 87 - 94. He conceded that there was nothing wrong with Petitioner reporting out test results for any of the 21 days listed in the SOD as being problematic. On redirect, Surveyor Hesselgesser testified that one needed to look at the overall effect and shift in trends of quality control, but he gave no explanation of what overall trend he was referring to in this case. Tr. at 119. I find that his testimony was not rehabilitated.

2. The preponderance of the evidence is that Petitioner did not fail to do preventative maintenance on the Coulter instrument.

CMS alleges that Petitioner did not do preventative maintenance on its Coulter instrument that was used for hematology. CMS Ex. 1, at 4. CMS claims Petitioner had no maintenance records for the instrument dated after November 8, 2001, when it was initially set up. CMS's SOD states that the surveyors were told by testing personnel that routine maintenance was done but Surveyor Hesselgesser observed that the instrument's sampling probe and all areas around it were encrusted with mineral deposits and the lines still had blood on them. Id. at 5; Tr. at 27 - 31. Surveyor Hesselgesser concluded that the mineral deposits and remaining blood resulted from the absence of routine maintenance. Id. In fact, Petitioner had records of maintenance on the Coulter and had properly done maintenance. Tr. at 445, 473 - 474, 551 - 552; CMS Ex. 3. Moreover, the Coulter machine was not operational at the time of the survey, a Coulter representative was at the laboratory during the survey to repair the machine, and, as explained by Petitioner's Technician Royal, the instrument was encrusted with mineral deposits and blood because the instrument had shut down quickly and the deposits could not be cleaned out. Tr. at 446 - 447; see also Tr. at 76.

3. CMS failed to make a prima facie case that Petitioner did not appropriately do start-up procedures on the Coulter instrument.

CMS also alleges in the SOD that Petitioner's testing personnel failed to perform monitoring of pressure checks, a required daily start-up procedure on the Coulter instrument. CMS Ex. 1, at 5. Surveyor Hesselgesser did not explain how CMS arrived at this allegation, nor how a failure to monitor pressure checks was a failure to establish and follow written quality control procedures for assuring the accuracy of test results. He did refer to CMS Ex. 5 and explained that during an instrument start-up, which was required by Coulter, the instrument goes through various diagnostic function checks to ensure that the instrument is working properly. He testified that the Coulter's start-up records showed the instrument was flagging under the "ramp and precision" test. He referred to CMS Ex. 5 as Petitioner's Coulter start-up records.

I reviewed CMS Ex. 5. I shall assume the "H" and "L" on the records refer to high and low and suggest that something is out of range. Yet, Surveyor Hesselgesser did not explain how the exhibit supported his allegation. He just assumed that Petitioner ignored the flags. Tr. at 40. There is no record evidence that Surveyor Hesselgesser asked any laboratory personnel about the flags. Tr. at 448, 476 - 477.

Surveyor Hesselgesser also testified that Petitioner's testing personnel were not monitoring the pressures for the Coulter instrument, and that the Coulter's start-up records from April 5, 2003 to May 27, 2003, for 34 out of 35 testing days, showed that the start-up ramp and precision tests were out of range and failed to correlate with post-calibration data. Tr. at 28; CMS Ex. 1, at 5. In his testimony, Surveyor Hesselgesser referred to CMS Ex. 4, which includes over 200 inexplicable computer printout pages. Tr. at 36. Surveyor Hesselgesser attempted to explain CMS Ex. 4 in his testimony by stating that the Coulter service representative who was at Petitioner's laboratory during the survey had obtained these printouts and "qualified service representatives are able to use this and the advanced users are able to use this information to be able to troubleshoot an instrument on a much-more minute detail." Tr. at 37. Surveyor Hesselgesser did not testify that he was an advanced user or could otherwise interpret the data. He testified the instrument was "putting out multiple flags" showing the instrument was not working properly. Tr. at 38. He did not explain in what ways CMS Ex. 4 showed "multiple flags" or how it manifested non-compliance with CLIA regulations. Id.

4. The preponderance of the evidence is that Petitioner appropriately used a 10% bleach solution on the Coulter hematology testing instrument.

CMS also alleges that Petitioner's staff was running a 10% bleach solution as a cleanser reagent on the Coulter instrument each day of testing and that, per instrument representatives, bleach should only be used as a troubleshooting tool in isolated cases. CMS Ex. 1, at 5. ⁽¹²⁾ Surveyor Hesselgesser referenced a caution in the Coulter manual that states "[d]o not aspirate bleach; bleach can damage the flow cell." CMS Ex. 33, at 28. In his testimony, he also referred to CMS Ex. 33, at 51, which repeats the caution. Tr. at 32 - 33. In my review of the exhibit, however, I found that the instrument manual on the next few pages sets out instructions for cleaning procedures where bleach is to be used. CMS Ex. 33, at 52 - 53. In fact, throughout the manual's cleaning procedures, bleach solutions are referred to as cleaning agents. CMS Ex. 33. Surveyor Hesselgesser did not explain this discrepancy in his testimony.

Petitioner responded to Surveyor Hesselgesser's allegation by arguing that the Coulter manual is referring to a 50%, not 10%, bleach solution as damaging the flow cell. CMS Ex. 32, at 55; Tr. at 112 - 113. Further, the Coulter machine was inoperable at the time of the survey and Petitioner had been using the 10% bleach solution as a troubleshooting tool as accepted by the manufacturer. Tr. at 448.

5. The preponderance of the evidence is that Petitioner did manually review slides when warranted.

CMS alleged that on April 21, 2003, 25 CBCs for patients were run on Petitioner's Coulter instrument and 25 were flagged by the instrument as showing some abnormality. CMS accused Petitioner of performing only nine manual differentials or reviews of the flagged abnormalities. CMS Ex. 1, at 16 - 17; CMS Ex. 4, at 125 - 175; Tr. at 52.

There was considerable disagreement during the hearing about what a manual differential entails. Tr. at 50, 456 - 457. Petitioner's former employee, Technician Royal, testified that a slide smear is made for every blood sample that comes into the laboratory. If the testing instrument flags an abnormality, Petitioner's staff manually looks at the sample's slide and, if the slide does not fall outside the laboratory's defined criteria, a more detailed review will not be done. If the slide looks abnormal or is flagged on a second run, the staff will do a manual morphology or complete manual review of the slide. The staff refers to a manual morphology as a manual differential. Tr. at 456 - 457. Technician Royal credibly testified that Petitioner's staff did a slide review on every flagged abnormality but did a manual differential only on those samples where warranted. Id. He also testified that, if the instrument flagged an inordinate number of abnormalities, he would run the samples through the instrument a second time. Tr. at 457. On cross-examination, Surveyor Hesselgesser acknowledged that not all slide reviews required a manual differential in the sense that term was used by Petitioner's personnel. Tr. at 116, 120 -121.

Surveyor Hesselgesser had also testified that a Coulter run with 25 flags would indicate a problem because a Coulter would rarely flag 25 specimens during a single run or single day of testing. According to him, the damaged flow cell could have caused the inordinate number of flags. Tr. at 57, 113. CMS referenced no evidence in the record that showed Petitioner's Coulter instrument had a damaged flow cell. This is another example of Surveyor Hesselgesser jumping to an unwarranted conclusion and further supports my finding that his testimony was not credible.

6. CMS failed to make a prima facie case that Petitioner missed a life threatening CBC report by not doing a complete manual differential on a flagged test.

As part of CMS's allegations about Petitioner's failure to do manual differentials, CMS determined that for one of the CBC tests that had been flagged by the Coulter instrument as potentially abnormal, a patient with a large number of "blasts" and, thus, possible leukemia, was overlooked. CMS Ex. 4, at 133; CMS Ex. 13, at 182 - 183. During cross-examination, Surveyor Hesselgesser acknowledged that this patient who may have had leukemia had a normal white blood count and a person with a normal white blood count would "not normally" have leukemia. Tr. at 99.

7. The preponderance of the evidence is that patient test results were not reported out on a day that 33 controls had been run on the Coulter hematology testing instrument.

Surveyor Hesselgesser also testified that Petitioner had improperly reported patient test results on a day when the Coulter instrument had run controls 33 times. His allegation was incorporated in CMS's SOD. Tr. at 43; CMS Ex. 13, at 114 - 118. Surveyor Hesselgesser later acknowledged during his testimony that the day on which 33 controls had been run on the instrument was June 2, 2003, a day during the survey when the Coulter instrument was not working, the Coulter representative was present at the laboratory, and no patient testing was done. Tr. at 77, 82.

8. The preponderance of the evidence is that no one on Petitioner's staff or otherwise associated with the laboratory manipulated data on the Coulter instrument.

As another example of Petitioner's alleged failure to comply with CLIA requirements, CMS alleged that Petitioner's testing personnel were deleting quality control values from the Coulter testing system. CMS Ex. 1, at 16; CMS Ex. 4; Tr. at 43, 82. CMS apparently concluded this because a review of an error log suggested that quality control had been performed up to 33 times per day to get the quality control to come into range. See finding number 7 of Section IV.D., above. CMS concluded the staff deleted the values from the data base and hard copy records were destroyed. On the contrary, based on Surveyor Hesselgesser's testimony and cross-examination, I find that he again leaped to some unwarranted conclusions.

There is no argument that the Coulter instrument was not working at the time of the survey. Tr. at 31. Petitioner's former Technician Royal admitted that Petitioner had problems with the Coulter instrument and had not run any patient samples on the instrument for a week or so prior to the survey. Tr. at 434. Technician Royal testified he did not know how the database was destroyed and denied that any quality control records were destroyed. Technician Royal speculated that the Coulter service representative in doing validation studies, may have caused the database to be deleted. Tr. at 415 - 416; 440 - 441.

CMS also alleged that a review of a "latron log" and "error log" for the Coulter instrument from April 3 to June 2, 2003, showed that the log had been back-dated to give the appearance that the latron control had been performed on each day of testing. The SOD states that "in review with Coulter representatives, the only way the dates cannot follow chronological order is if the operator has manipulated the instrument date." CMS Ex. 1, at 16. CMS did not provide the names of the alleged Coulter representatives, did not call them to testify, and did not even identify who at CMS had spoken to the representatives. I find, therefore, that the non-chronological nature of the log reviewed by the surveyors resulted from the problems with the Coulter instrument itself and that no operator on Petitioner's staff back-dated any records. Tr. at 416, 431, 553.

9. The preponderance of the evidence is that Petitioner performed proper maintenance on the ACS-180 testing instrument.

The ACS-180 instrument manual states that there are defined frequencies when the laboratory should check the water probe, the aspirate probe, and the water filter. Tr. at 251; CMS Ex. 44, at 4. The manual further requires that "the automated cleaning procedure should be performed at least once every 24 hours at the end of your laboratory's peak workload or every 1500 test cycles." CMS Ex. 44, at 5; Tr. at 252. According to CMS, if the laboratory did required maintenance, the maintenance was not documented. Tr. at 251 - 252.

I find that the ACS-180 instrument was in fact maintained frequently enough prior to the surveyors' revisit; it was maintained prior to patient testing on all days when patient testing occurred. All required maintenance was performed. Malcolm Sutter testified that the ACS-180 instrument was operated in batches and not every day. He stated, further, that maintenance was performed before any control or calibration or patient samples were run on the machine. Tr. at 416 - 420; P. Ex. 5, at 593 - 621; CMS Ex. 29. I make my finding because, as conceded by the surveyor, weekly maintenance would not need to be performed if the instrument was not being run. Tr. at 400.

10. The preponderance of the evidence is that Petitioner did not perform patient testing when room temperature and humidity levels would have adversely affected such testing.

CMS alleged as part of the June 6 survey that Petitioner was not maintaining the Coulter instrument reagents per manufacturer's instructions because the reagents were placed on a workbench directly under an open air-conditioning vent. CMS Ex. 1, at 5 - 6. For blood testing of lead levels, the Coulter's manufacturer states that the instrument must be kept away from air-conditioning and heating vents to avoid affecting testing results. Tr. at 131. Petitioner cleared this particular allegation by the time of the revisit survey on August 26. CMS Ex. 26.

Surveyor Pearson also testified that the laboratory's temperature and humidity were not being monitored correctly for the Coulter instrument, the Rapid Plasma Reagent (RPR) testing area, and the lead level testing instrument. Tr. at 223. Surveyor Pearson was concerned because the wall thermometer had increments of only five degrees. The temperature reports made by the laboratory, however, stated the temperature in one degree increments. Surveyor Pearson admitted Petitioner had another thermometer in the laboratory's counter drawer but stated that the testing personnel did not use that thermometer. Tr. at 223 - 224; CMS Ex. 1, at 6. She did not explain how she came to that conclusion. Contrary to the surveyor's claim, laboratory temperatures appear to have been properly read and documented. P. Ex. 6, beginning at 423; Tr. at 513. In fact, the lead level testing instrument would not work if the ambient temperature were out of range. Tr. at 225 - 226; CMS Ex. 6, at 5. Further, the testing personnel told Surveyor Pearson that RPR testing was not done when the temperature was too cold. Tr. at 225. This appears to be a correct response for the testing personnel to have made rather than an erroneous one as alleged by CMS. CMS Ex. 1, at 6.

11. The preponderance of the evidence is that Petitioner's staff could accurately perform RPR testing.

RPR testing is a syphilis serology test. The manufacturer's package inserts for RPR require the operator to do rotator checks, needle drop checks, and monitor the open vial stability date on the antigen suspension. Tr. at 131. CMS alleged, and Surveyor Pearson testified, that Petitioner's employee, Charlene Miller, who did RPR testing, was unfamiliar with the needle drop procedure done during the testing. Tr. at 153. The needle drop is required when antigen suspension is added to the test sample and is done through a needle. Id. Surveyor Pearson added that Petitioner's employee was not following the manufacturer's instructions. Id. at 154. CMS has repeatedly alleged that Ms. Miller did not understand why her deviations from the manufacturer's instructions were inaccurate and did not consider her deviations a serious violation. CMS Ex. 28, at 5 - 9; Tr. at 520- 526. Neither do I. Although Ms. Miller had doubled the amounts for the material at issue, she had not changed the ratio. Tr. at 520. For RPR testing, counting 60 drops per one ml rather than 30 drops per one-half ml is exactly the same ratio and, therefore, does not constitute a difference between the manufacturer's recommendation and the laboratory's procedures. Moreover, Ms. Miller testified that Surveyor Pearson did not watch her do the needle drop procedure; she left the room. Tr. at 519 - 521; see also Tr. at 468 - 469.

E. Petitioner failed to make substantial progress in correcting its condition- level deficiencies by the time of the revisit survey.

Surveyor Pearson testified that, depending on the seriousness of deficiencies found in a laboratory, CMS will follow either a "90-day termination" or a "23-day termination." In a 90-day termination, a situation when immediate jeopardy is not found, the laboratory is given an opportunity to submit a plan of correction. If the plan is acceptable, a state surveyor will return to the laboratory and assess compliance about 45 days after the first survey. Tr. at 170. The state agency will make a compliance revisit in 15 days for a 23-day termination which is an immediate jeopardy situation. Id.

During the June 6 survey, CMS had determined that immediate jeopardy existed at Petitioner's laboratory because the Hitachi and Coulter instruments were not functioning according to manufacturers' specifications, resulting in potential harm to patients. According to CMS, Petitioner had similar problems during prior surveys and the situation had deteriorated. Tr. at 177 - 178.

At the end of the June 6 survey in this case, CMS allowed Petitioner to cease testing in chemistry, hematology, and endocrinology to eliminate immediate jeopardy. CMS Ex. 1, at 1. This allowed Petitioner to be on the longer 90-day correction track. Tr. at 187 - 188. According to CMS, the longer 90-day time period gave Petitioner the opportunity to fix its problems; to "put out more capital outlay, get the machines fixed." Tr. at 189.

During the exit interview, the surveyors told Dr. Angelo and Anthony Jones about the problems they had discovered at the laboratory. At that point, Petitioner could have started implementing some corrections. Tr. at 235, 353. For example, Petitioner could have gotten its equipment fixed or replaced, run quality control, reviewed and run proficiency testing samples, and done split sample testing with patient samples sent to reference labs and then comparing results. Tr. at 230 - 231. CMS determined that Petitioner should have been able to get a substantial start on correcting its problems in a month's time. Tr. at 235.

At the time of the revisit survey, on August 26, Petitioner's Coulter and Hitachi instruments were still non-functioning and could not produce accurate and reliable results. Tr. at 179, 333. Surveyor Margin testified that during the June 6 survey, she had advised both the laboratory director and the technical consultant that once the quality control and reference ranges were established and the laboratory did remedial training for personnel and set up mechanisms to identify and correct problems, the laboratory could begin quality control testing. Tr. at 302. CMS had expected Petitioner to have contacted its proficiency testing organization to acquire event summaries so that Petitioner could have reviewed its ungraded proficiency testing analytes. Tr. at 254 - 258. The event summaries were not at the laboratory at the time of the revisit survey. Id. at 250. CMS also found that Petitioner had neither computed means and a range of means for the control of Ligand Plus 1, 2, 3 nor completed staff training for establishing in-house means and range of means. Tr. at 274, 297, 334. Moreover, although Petitioner had obtained two remedial proficiency tests for uric acid and had gone through the remedial forms sent to it by the laboratory's proficiency testing organization, Petitioner had not done the uric acid proficiency tests. Tr. at 348, 370.

Petitioner argues that it did not have time to make corrections because it was expecting to receive a directed plan of correction. There seems to be little disagreement that the surveyors told Dr. Angelo during the exit interview that Petitioner would receive a directed plan of correction. Tr. at 228, 356, 560, 578. ⁽¹³⁾ Moreover, CMS took an inordinate amount of time to send the SOD and notice letters to Petitioner. Although the surveyors held an exit conference with Dr. Angelo and Mr. Jones and explained what deficiencies they had encountered, CMS did not send the SOD and notice letter to Petitioner until July 24, 2003, nearly seven weeks later. Petitioner was in the midst of the 90-day time period during which it was to remediate its deficiencies or have its certificate revoked. Over half of that time had passed when Petitioner learned precisely what deficiencies were alleged.

After the exit conference, Petitioner contacted CMS several times during the seven-week period after the June 6 survey to ask about the directed plan of correction. Tr. at 561. CMS's delay in sending the SOD and Petitioner's view that it would be told what it needed to do to come back into compliance certainly disadvantaged Petitioner to some extent in its attempt to return to compliance. Nonetheless, I find that Petitioner had information from the beginning of the period about some of the most crucial deficiencies the surveyors had found; for example, Petitioner's Coulter and Hitachi instruments were not working correctly and Petitioner had not reviewed and evaluated its ungraded proficiency testing. Petitioner had made some attempts to respond to CMS's concerns (Tr. at 586 - 587), but by August 26, at nearly the end of the 90-day period, Petitioner had made little or no progress in getting the Coulter and Hitachi reliably working in a sustained manner or replaced, or in reviewing the ungraded proficiency tests.

After receiving the SOD, Petitioner, within ten days, submitted a plan of correction. Tr. at 360, 368. The plan was discussed and negotiated with State agency personnel. Around August 14, the State agency accepted Petitioner's plan of correction. Tr. at 360; CMS Ex. 50, at 1 - 3. The accepted plan of correction contained the expected date for Petitioner's completion of the items on the plan; that is, July 31, 2003. ⁽¹⁴⁾ There is some question in the record about who assigned the date of July 31 as the completion date. Petitioner suggests that CMS told it to use that date. Tr. at 542. CMS counters that Petitioner established that date. Tr. at 369, 381. If July 31 provided insufficient time for Petitioner, I would have expected Petitioner to say so at the time of the discussions but there is no record evidence to that effect. Apparently, Petitioner did indicate that it would only be able to bring up the Hitachi instrument in stages. Tr. at 546 - 547. Nonetheless, Petitioner indicated to Ms. Glueck of the State agency that it would only take a few days to do so. Tr. at 375.

Petitioner contends that items in its plan of correction that state it "will" do a correction indicates it will do the item in the future. P. Br. at 5. Petitioner's argument is unpersuasive. The expected completion date on a plan of correction is simply that, the expected completion date. The timetable would be meaningless if "will" referred to any time in the future.

F. CMS's principal sanctions of canceling Medicare payments and revoking Petitioner's CLIA certificate are authorized under the regulations and the facts of this case.

CMS may cancel a laboratory's approval to receive Medicare payments if the laboratory is out of compliance with a condition-level requirement or the laboratory fails to correct all of its deficiencies within the time frames specified in an accepted plan of correction. 42 C.F.R. � 493.1842. Plus, this principal sanction may be applied prior to a hearing that has been requested by a laboratory. Id. Because I have found that Petitioner was out of compliance with two condition-level requirements and failed to correct its deficiencies within the time frames specified in its plan of correction, I find that CMS appropriately applied the principal sanction of canceling Medicare payments.

The regulations provide that when a laboratory has condition-level deficiencies that pose immediate jeopardy, the laboratory must take immediate action to remove the jeopardy. This Petitioner did by ceasing testing on July 6 on the Coulter, Hitachi, and ACS-180. CMS may also impose alternative sanctions to bring the laboratory into compliance. 42 C.F.R. � 493.1812(a). If, on a revisit survey, the laboratory has not eliminated the jeopardy, CMS suspends or limits the laboratory's CLIA certificate no earlier than five days after the date of notice of suspension or limitation. CMS may later revoke the certificate. 42 C.F.R. � 493.1812(b).

If a laboratory has condition-level deficiencies that do not pose immediate jeopardy, CMS "may" cancel the laboratory's approval to receive Medicare payment for its services and/or CMS "may" suspend, limit, or revoke the laboratory's CLIA certificate. 42 C.F.R. � 493.1814(a)(1) and (a)(2).

Although it is unclear whether CMS considered Petitioner to have removed immediate jeopardy (by ceasing testing on July 6), CMS refers to the re-establishment of immediate jeopardy after the August 26 survey. CMS Reply Brief (CMS R. Br.) at 2, 6. Yet, the non-immediate jeopardy level CMP remained in effect. 42 C.F.R. � 493.1834(d)(2). If CMS had determined that Petitioner's deficiencies again presented immediate jeopardy, CMS would have been required to suspend Petitioner's CLIA certificate five days after notice of suspension (42 C.F.R. � 493.1812(b)), at which time the CMP would have stopped accruing. 42 C.F.R. � 493.1810(d)(2). CMS's September 5, 2003 notice to Petitioner after the August 26 survey (CMS Ex. 26A) mentions nothing about immediate jeopardy. The notice advises Petitioner that payment for Medicare and Medicaid services will be cancelled effective August 28, 3003, and that CMS will revoke Petitioner's CLIA certificate as of September 23, 2003, more than five days later. CMS's notice letter mentions nothing about "suspending" Petitioner's CLIA certificate. Of course, after Petitioner filed an appeal herein, CMS could not revoke Petitioner's certificate until I issue a decision. 42 C.F.R. � 493.1840(e).

Two other factors confuse the issue as to whether CMS considered Petitioner's laboratory to present an immediate jeopardy situation after the survey on August 26. First, at the hearing, CMS counsel stipulated that it would limit the running of the CMP from August 9 to September 23, 2003, the date of revocation indicated in CMS's September 5 notice letter. CMS also said the amount of the CMP would be limited to $62,000, which is the amount indicated for 31 days, not for the 45 days from August 9 to September 23. Tr. at 606 - 610. However, without explanation, CMS's posthearing brief in this matter refers to the effective revocation date as September 9 (more in line with an immediate jeopardy situation) and indicates that CMS agreed to only impose the per day CMP from August 9 to September 9, 2003. CMS Br. at 6, n.2. The second confusing factor is that, as far as I can tell, CMS did not suspend Petitioner's CLIA certificate at any time. Technically, Petitioner could have continued testing until the date of this decision. Petitioner ceased all testing, however. Tr. at 593. I assume Petitioner stopped testing because it would no longer receive Medicare or Medicaid payments, which accounted for 80% of its receipts. Id. at 591 - 592.

Nevertheless, I will assume for purposes of this finding only that 42 C.F.R. � 493.1814 concerning condition-level deficiencies, but not immediate jeopardy, applies. In these circumstances, a laboratory is generally accorded twelve months to correct such deficiencies before action is taken to suspend, limit, or revoke the laboratory's CLIA certificate. 42 C.F.R. � 493.1814. However, CMS could have, but was not required to. impose the principal sanctions of canceling Medicare payments and suspending, limiting, or revoking Petitioner's CLIA certificate. Id.

The enforcement mechanisms set forth in the CLIA regulations are stated to have the following purposes: (1) to protect all individuals served by laboratories against substandard testing 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. CMS's determination to impose sanctions is based on one or more of the following: deficiencies identified by CMS and unsuccessful participation in proficiency testing. Id.

The essential question, then, is whether imposition of the penalty of revocation is appropriate given that immediate jeopardy was not specified and so many of CMS's allegations from June 6 were not proved. As Petitioner points out, CMS considered its penalties by looking at the totality of circumstances of all the alleged deficiencies. Tr. at 400. I find there are valid reasons for imposing the revocation penalty. Petitioner had been out of compliance at a condition-level in surveys in 1998 and 2001. Petitioner's prior failures were similar in each survey. Tr. at 175 - 177. Petitioner had stalled on making corrections because of monetary concerns and had not made progress toward correcting its deficiencies. Tr. at 301, 604. Both condition-level failures, that of proficiency testing and laboratory director, are failures that could impact individuals served by Petitioner because it could result in substandard testing of specimens.

With regard to Petitioner's proposal that, in lieu of revoking its CLIA certificate, I require CMS to allow another organization to survey Petitioner (P. Br. at 1), I note that no section in the statute or regulations provides me with the authority to require such action.

G. The CMP imposed by CMS after August 26, 2003, could serve no remedial purpose and is not authorized.

CMS has argued throughout this case that I have no jurisdiction to review the imposition of the CMP. Up until the last day of the hearing, CMS contended that the CMP would run at $2000 per day until my decision in this case. I found such a result to be clearly contrary to the intent of the applicable statute, as explained below. Running a CMP without regard to its supposed remedial purpose would certainly discourage appeals and could result in the bankruptcy of a laboratory appealing CMS's findings. CMS's argument is also contradicted by 42 C.F.R. � 493.1814(b)(3), which indicates an alternative sanction can run for twelve months at most. At the hearing, CMS conceded the issue of the continuously accruing CMP and indicated it would limit the CMP to those days from August 9, 2003 to September 23, 2003, the date revocation would have been effective had Petitioner not appealed. Tr. at 606 - 610. As noted above, CMS further limited the CMP to the period between August 9 and September 9, 2003. CMS Br. at 6, n.2.

CMS has based its argument that I lack jurisdiction to review the CMP on 42 C.F.R. � 493.1844(c), which states that actions that are not initial determinations are not subject to appeal. The regulation states specifically that the following are not initial determinations:

The determination as to which alternative sanction or sanctions to impose, including the amount of a civil money penalty to impose per day or per violation. 42 C.F.R. � 493.1844(c)(4).

The determination that a laboratory's deficiencies pose immediate jeopardy. 42 C.F.R. � 493.1844(c)(6).

The amount of the civil money penalty assessed per day or for each violation of Federal requirements. 42 C.F.R. � 493.1844(c)(7).

CMS's argument ignores the regulation at 42 C.F.R. � 493.1804(a), where the Secretary has specified three remedial purposes for the imposition of sanctions against CLIA laboratories:

(1) To protect all individuals served by laboratories against substandard testing of specimens.

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

(3) To motivate laboratories to comply with CLIA requirements so that they can provide accurate and reliable test results.

In this case, the sanction of revocation is consistent with CLIA because it serves the remedial purposes of protecting individuals against substandard testing by Petitioner and safeguarding the general public against health and safety hazards that might result from their activities. 42 C.F.R. � 493.1804(a). In contrast, I conclude that following CMS's decision that it would no longer allow Petitioner to remediate, after the August 26 revisit survey, the CMP in this case did not serve a remedial purpose and therefore is contrary to section 1846 of the Act and CLIA.

A CMP is an "alternative sanction" that the Secretary has authorized CMS to impose pursuant to 42 C.F.R. � 493.1806(c). The Secretary has specifically granted a laboratory a right to appeal the imposition of a CMP pursuant to 42 C.F.R. � 493.1834(e)(2) (laboratory has 60 days from the date of receipt of the notice of intent to impose a CMP to request a hearing). Further, 42 C.F.R. � 493.1844(b)(3) defines the imposition of an alternative sanction as an initial determination subject to appeal and review. While 42 C.F.R. � 493.1844(c)(4) provides that the CMS choice of alternative sanctions and the amount of the CMP are not reviewable, this regulation does not deprive a petitioner of the right to hearing on the issue of whether imposition of a CMP as an alternative sanction is consistent with section 1846 of the Act, CLIA, and implementing regulations. Section 1846(a) of the Act (42 U.S.C. � 1395w-2) (applicable to those laboratories that are Medicare providers) and 42 U.S.C. � 263a(h) (applicable to all laboratories subject to CLIA) authorize the Secretary to impose intermediate sanctions ⁽¹⁵⁾ against a laboratory in violation of CLIA. Section 1846(b)(1) of the Act mandates that the Secretary "develop and implement" a range of intermediate sanctions and "appropriate procedures for appealing determinations related to the imposition of such sanctions." Section 1846(b)(2)(A) of the Act also provides that "[t]he provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty . . . ." Section 1128A(c)(2) of the Act requires that a party have notice and a right to hearing before a CMP may be imposed. Title 42 U.S.C. � 263a(h)(3) requires that the Secretary develop procedures that provide for notice and appeal of "determinations relating to the imposition of intermediate sanctions." The applicable statutes clearly require that in the procedures for imposing intermediate sanctions, the Secretary accord a laboratory the right to appeal the imposition of an intermediate sanction.

The right to appeal was recognized by the drafters of 42 C.F.R. � 493.1844(d)(4) in a response to a comment about appealing a CMP amount:

the amount of a civil money penalty to impose per day or per violation is not an initial determination and therefore is not subject to appeal; rather, the imposition of an alternative sanction, (in this case a civil money penalty) is the action that is subject to appeal.

57 Fed. Reg. 7218, 7229 (Feb. 28, 1992).

Thus, I conclude that I have jurisdiction to determine whether, on the facts of this case, it was lawful for CMS to impose the intermediate sanction or alternative sanction of a CMP against Petitioner after any possible remedial purpose as set forth at 42 C.F.R. � 493.1804(a) had lapsed. Although CMS is authorized to impose a CMP when condition-level deficiencies are found, the CMP must serve a remedial purpose. CMS cannot credibly claim that this CMP was related to the remedial purpose of motivating Petitioner to come into and remain in compliance with CLIA requirements (42 C.F.R. � 493.1804(a)(3)) after it had determined that no action on the part of Petitioner (other than appeal CMS's findings) would forestall revocation of Petitioner's CLIA certificate. Accordingly, I conclude that the imposition of a CMP after August 26, 2003, did not have a remedial purpose and therefore may not lawfully be imposed or approved in this case.

V. Conclusion

Based on Petitioner's failure to meet the CLIA condition-level requirements of proficiency testing and laboratory director, CMS is authorized to revoke Petitioner's CLIA certificate, deny Medicare payments for services, and impose a per day $2000 CMP, but only for the time period of August 9, 2003 through August 26, 2003.

Anne E. Blair

Administrative Law Judge

1. As a result of a survey in 1998, Petitioner had ceased testing in microbiology. Tr. at 175. For the survey at issue, Petitioner sought recertification in microbiology. CMS had required the State agency to contact CMS if Petitioner sought recertification in microbiology. CMS surveyors, therefore, accompanied the State agency surveyors for the subject survey of Petitioner. Tr. at 182 .

2. In this decision, I have italicized the words condition and standard to clarify that I am referring to requirements in the regulations.

3. As stated in the comments to the amendments, the Secretary has determined that:

This regulation contains revisions to Part 493 of Title 42 of the CFR. We have renamed, reorganized, and consolidated similar requirements into one section, deleted duplicate requirements, and reworded numerous requirements to maintain and/or clarify their original intent, making the revised regulation easier to read and understand. In addition to specific changes to subparts I, J, K, M, and P, applicable technical and conforming changes were also made to other subparts. The organization of this regulation now reflects the flow of a patient specimen through the laboratory, that is, from receipt of the specimen with the test request through test performance and test result reporting. In addition, this final rule more accurately describes the testing requirements and laboratory assessment activities.

4. The former regulations' condition of "Quality Assurance" at 42 C.F.R. � 493.1701 duplicates other requirements in the old regulations that were carried over to the new regulations. To prevent prejudice to Petitioner by applying the older regulations, I advised CMS that I would not consider "Quality Assurance" to be an additional condition-level requirement.

5. For example, the requirement to follow manufacturer's instructions is a standard within the condition of Quality Control. 42 C.F.R. � 493.1203. The conditions for Routine Chemistry at 42 C.F.R. � 493.1245, Endocrinology at 42 C.F.R. � 493.1247, and Hematology at 42 C.F.R. � 493.1253 refer to and require a laboratory to follow the requirements at 42 C.F.R. � 493.1203. Rather than charge Petitioner with not meeting the Quality Control condition, CMS alleged condition-level deficiencies for Routine Chemistry, Endocrinology, and Hematology. CMS Ex. 1.

6. The former CLIA regulations use several adjectives/adverbs to describe the adequacy of a laboratory's participation in proficiency testing; e.g., "unsuccessful" or "unsatisfactory" or "unacceptable." "Unsuccessful" and "unsatisfactory" proficiency testing are expressly defined in the regulations. See, e.g., 42 C.F.R. � 493.841(b).

7. Petitioner's results for white blood cell count, red blood cell count and hemoglobin were graded for the last testing event for 2002. CMS Ex. 32, at 34.

8. Petitioner claims that one of the CMS surveyors broke the Hitachi chemistry instrument during the June 6 survey. Tr. at 537 - 539. I discuss this particular surveyor in Section IV. D.1. of this Decision, below. The record evidence is suggestive, but not clear, that CMS Surveyor Hesselgesser had worked on the instrument during the survey. Tr. at 117, 454 - 455, 521 - 522, and 537 - 539. I find the preponderance of the evidence is that Surveyor Hesselgesser did attempt to retrieve data from the machine. Even if the surveyor broke the machine, however, Petitioner is not relieved of the obligation to either repair the instrument or find another way to assure CMS that it could accurately test for uric acid and other routine chemistry analytes.

9. CMS alleged with respect to a number of conditions that Petitioner's technical and testing personnel were not familiar with the quality control concepts of "mean and range of means" nor were they aware that they needed to establish in-house quality control ranges. CMS Ex. 1, at 17, 18, and 19. I find that Petitioner's technical staff was aware of the concept but failed to incorporate the principle in all required situations. Tr. at 465, 535.

10. I found technician Kevin Royal's testimony to be generally credible. He testified favorably for Petitioner even though Petitioner had asked him to resign at the end of the June 6 survey. Tr. at 554. Since he was not the laboratory director or technical consultant with supervisory responsibility for the laboratory, he had no incentive to lie or exaggerate for Petitioner's sake.

11. I found Surveyor Pearson to be a knowledgeable and credible witness. In considering the weight to be given her testimony, however, I took into consideration the extent to which she may have been influenced by her co-surveyor, Daniel Hesselgesser, whom I found to be not credible. Tr. at 212 - 213; See also Section IV.D.1. of this Decision, below.

12. CMS alleged the Coulter representative told a surveyor that, based on the condition of the instrument, he would not trust its testing. CMS Ex. 1, at 5. CMS made no effort to clarify whether the representative was referring to the instrument in general or in its current broken state. Moreover, notwithstanding several references to a Coulter representative in the SOD, CMS did not supply the name of the representative nor call the representative to testify. I assigned little weight to this hearsay evidence. See also, Tr. at 227 - 228, 555.

13. The regulation suggests to me that CMS should have sent at least a partial directed plan of correction. The regulation states:

If CMS does not impose a directed plan of correction as an alternative sanction for a laboratory that has condition-level deficiencies, it at least imposes a directed portion of a plan of correction when it imposes any of the following alternative sanctions:

(1) State onsite monitoring.

(2) Civil money penalty.

(3) Suspension of all or part of Medicare payments.

42 C.F.R. � 493.1832(a) (italics added).

14. Petitioner also questions why it was not simply decertified in routine chemistry and hematology and allowed to do other testing. The record is not clear that Petitioner discussed this possibility with the State agency or CMS. Tr. at 231. Moreover, a laboratory cannot correct its deficiencies simply by ceasing to perform those tests and procedures in which it was found to be deficient. Ward General Practice Clinic, DAB CR451 (1996), aff'd, Ward General Practice Clinic, DAB No. 1624 (1997).

15. Section 1846(b)(2)(A) of the Act lists the authorized intermediate sanctions: directed plans of correction; CMPs not to exceed $10,000 per day; payment for costs of onsite monitoring; and suspension of payments due the provider under the Act. These are referred to as "alternative sanctions" in the regulations. The regulations indicate that the phrases "intermediate sanctions" and "alternative sanctions" are synonymous. 42 C.F.R. � 493.2.