SUBJECT:

Dimensions Medical Laboratory, Inc.,

Petitioner,

Centers for Medicare & Medicaid Services.

DECISION DISMISSING THE HEARING REQUEST AND

I dismiss the hearing request and amended hearing request filed by and on behalf of Petitioners Faye and Bourham Wazzan. Principles of res judicata apply to bar a hearing as to the merits of this case. Additionally, Petitioners raised an issue which I do not have authority to hear and decide.

I. Background

This case originated with a notice sent by the Centers for Medicare & Medicaid Services (CMS) on October 12, 2004 (October notice) to the following individuals and entity: Sukoo Whang, M.D.; Bourham Wazzan, Ph.D.; Faye Wazzan; and Dimensions Medical Laboratories, Inc. (Dimensions). CMS informed these individuals and entities that it had determined to impose alternative and principal sanctions against Dimensions pursuant to the Clinical Laboratory Improvement Amendments of 1988 (CLIA), 42 U.S.C. � 263a, and implementing regulations at 42 C.F.R. Part 493.

Dimensions operates a clinical laboratory (the laboratory) in Northridge, California. Dr. Whang is the laboratory's director. Dr. Bourham Wazzan and Mrs. Faye Wazzan are the owners and proprietors of Dimensions and the laboratory. The October notice alleged that the laboratory had failed to comply with ten CLIA conditions of participation. It alleged, additionally, that the noncompliance was so egregious as to constitute immediate jeopardy for individuals whose specimens were tested by the laboratory.

In the October notice, CMS announced that it would impose alternative and principal sanctions against Dimensions and the laboratory. Alternative sanctions included a directed plan of correction and suspension of the laboratory's authority to conduct tests pending a final decision by an administrative law judge on the merits of the noncompliance findings. Principal sanctions, which would become effective only if a final adverse decision was issued by an administrative law judge, included revocation of the laboratory's CLIA certificate and a civil money penalty. The October notice advised Dr. Whang and Dr. and Mrs. Wazzan that, as director and owners of the laboratory, they would be prevented from owning, operating, or directing a clinical laboratory for at least two years from the date of revocation of the laboratory's CLIA certificate.

The October notice afforded the laboratory an opportunity to submit documentation to CMS showing why sanctions should not be imposed. On November 5, 2004, the laboratory submitted a document entitled "Additional Evidence to Support Plan of Correction and Response to . . . [the California Department of Health Services, Laboratory Field Services'] Review of Allegation of Compliance October 6, 2004." ⁽¹⁾ CMS found the laboratory's submission to be unacceptable. On December 16, 2004, it sent a second notice (December notice) to Dr. Whang, Dr. and Mrs. Wazzan, and to Dimensions, advising them of its conclusions and reaffirming CMS's intent to impose alternative and principal sanctions.

In early January 2005, Mrs. Wazzan filed a hearing request in which she requested a hearing for herself, as "owner," and for Dr. Wazzan, Dr. Whang, and the laboratory. The hearing request was laconic, not specifying the basis for requesting a hearing except to aver that:

For the purposes of preserving our rights on appeal, we dispute each finding and each allegation . . . [CMS] used to support the sanctions described in. . . [its December notice].

The case was assigned to me for a hearing and a decision. On April 6, 2005, I conducted a pre-hearing telephone conference. During that call, counsel for Dr. and Mrs. Wazzan represented that Dimensions and the laboratory would not contest CMS's findings of noncompliance and remedy determinations. He advised me additionally that he did not represent Dr. Whang. During the conference call, counsel for Dr. and Mrs. Wazzan also advised me that his clients would be filing an amended hearing request that addressed the specific issues that they wanted to have heard and decided. The amended hearing request was received by my office on April 28, 2005. In the amended hearing request, Dr. and Mrs. Wazzan argued that CMS wrongfully refused to accept the laboratory's plan of correction. They did not challenge the findings of noncompliance that led to CMS's October determination to impose alternative and principal sanctions against Dimensions and the laboratory.

On May 24, 2005, I issued a pre-hearing order in which I dismissed the original hearing request insofar as it applied to Dimensions or the laboratory. See Order Dismissing, in Part, Petitioner's Request for Hearing, and Establishing Exchange and Hearing Dates. I set deadlines for pre-hearing exchanges by the parties and a date for an in-person hearing. I also stated that I would take no action respecting the original hearing request as it applied to Dr. Whang until I ascertained whether he was, in fact, interested in pursuing his rights to a hearing.

CMS filed its pre-hearing exchange in early September 2005. I then conducted a second telephone pre-hearing conference on October 3, 2005. At this second conference, I advised the parties that it appeared that CMS's determination to impose alternative and principal sanctions against Dimensions and the laboratory might be administratively final as a consequence of Dimensions not seeking a hearing from CMS's determination, and my dismissal of that part of the original hearing request that pertained to Dimensions and the laboratory. I observed that, as a consequence, the doctrines of res judicata or collateral estoppel might apply where other parties sought to argue the same defenses or issues that might have been raised by Dimensions. I noted particularly, that CMS's determination that Dimensions was not in compliance with CLIA conditions and its imposition of remedies against Dimensions based on that determination might be immune to challenge from other parties. I also expressed skepticism that the issues raised by Dr. and Mrs. Wazzan in their amended hearing request - and in particular, their challenge to CMS's determination not to accept a plan of correction from Dimensions - was open to challenge even if the principles of res judicata and/or collateral estoppel did not apply to the case.

In light of these expressed concerns, I deferred deadlines for Dr. and Mrs. Wazzan and Dr. Whang to file pre-hearing exchanges. I also postponed the scheduled hearing without setting a new date. I directed CMS to file a brief - which could be in the form of a motion for dismissal or a motion for summary judgment - addressing the concerns that I had raised at the October 3, 2005 pre-hearing conference. I gave Dr. and Mrs. Wazzan the opportunity to reply to any filing made by CMS. Finally, I gave Dr. Whang an opportunity to reply to any filing made by CMS. However, I noted that Dr. Whang had never entered an appearance in the case nor had he expressed any interest in pursuing his hearing rights. Order dated October 5, 2005.

On October 5, 2005, I sent an order to show cause to Dr. Whang directing him to advise me whether he wished to remain a party to the case. ⁽²⁾ In order to assure that Dr. Whang made an informed judgment I sent along with the order copies of the hearing requests and the orders that I had issued previously. On October 14, 2005 Dr.Whang responded to the order to show cause by stating that he did not wish to participate in the case. I, therefore, dismissed the original hearing request insofar as it named him as a party. As a consequence, the only parties remaining in the case are Dr. and Mrs. Wazzan.

On November 1, 2005, CMS filed a motion to dismiss the hearing requests filed by Dr. and Mrs. Wazzan. Alternatively, it asked for summary judgment against these parties. Dr. and Mrs. Wazzan responded to the motion on December 6, 2005. On December 20, 2005, CMS filed a reply brief.

CMS submitted proposed exhibits consisting of CMS Exhibits (Exs.) 1 - 50 in support of its position in this case. Petitioners submitted proposed exhibits marked as P. Exs. A - E. It is unnecessary that I cite to these exhibits here, inasmuch as none of the material facts asserted by CMS are disputed by Petitioners. However, I am receiving the parties' exhibits into the record of the case solely for purposes of creating a record in the event of any possible appeal of my decision.

II. Issues, findings of fact and conclusions of law

A. Issue

The issue in this case is whether Dr. Wazzan or Mrs. Wazzan have a right to a hearing either to contest the findings of noncompliance made by CMS or its remedy determinations.

B. Findings of fact and conclusions of law

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

There is no dispute as to any of the facts that I discuss below. For that reason, I do not find it necessary to receive into evidence any of the exhibits that CMS submitted with its pre-hearing exchange. I note, moreover, that the bulk of CMS's proposed exhibits address an issue that I find not to be part of this case - the compliance of Dimensions and the laboratory with CLIA requirements - and they are, for that reason, irrelevant.

1. CMS's determination that Dimensions and the laboratory failed to comply with CLIA requirements and its determination to impose remedies against Dimensions and the laboratory are administratively final.

Regulations gave Dimensions and the laboratory the right to request a hearing before an administrative law judge to challenge CMS's findings of noncompliance and its determination to impose remedies against those entities. However, by failing to pursue those rights, Dimensions' and the laboratory allowed the determinations of noncompliance and the imposition of remedies to become administratively final. At this juncture there is no issue as to Dimensions' or the laboratory's compliance with CLIA requirements. Nor is there any issue as to whether CMS had the authority to impose remedies against these entities. CMS's determinations are final and they may not be appealed.

2. Dr. and Mrs. Wazzan are barred by principles of res judicata from challenging CMS's determinations of noncompliance and to impose remedies.

I conclude that principles of res judicata bar Dr. and Mrs. Wazzan from challenging CMS's determination that Dimensions and the laboratory failed to comply with CLIA requirements. Additionally, principles of res judicata bar Dr. and Mrs. Wazzan from challenging CMS's authority to impose alternative and principal sanctions in this case. All necessary prerequisites for applying the doctrine of res judicata are present here. There is privity between Dr. and Mrs. Wazzan, Dimensions, and the laboratory. All of the issues raised by Dr. and Mrs. Wazzan that I have the authority to hear and decide were raised, or could have been raised, by Dimensions and the laboratory. All of these issues have been adjudicated and are now administratively final by virtue of my dismissing the original hearing request as it applies to those entities.

Dr. and Mrs. Wazzan, in their capacity as owners of Dimensions and the laboratory, have a right to hearing to challenge the basis for CMS's determination to impose remedies against Dimensions and the laboratory. That right is not stated in regulations. See 42 C.F.R. �� 493.1844, 498.2, 498.3. However, CLIA provides an owner and an operator of a clinical laboratory with the independent right to a hearing to challenge the basis for imposition of a remedy against the laboratory. 42 U.S.C. � 263(a)(i)(1). The Departmental Appeals Board and administrative law judges have recognized that right and have afforded hearings to owners and operators of clinical laboratories separately from the laboratories. Sentinal Medical Laboratories, Inc., DAB CR679 (2000), aff'd, DAB No. 1762 (2001); Edward Ming-Che Lai, M.D., DAB CR848 (2001).

But, the right to an independent hearing does not necessarily give a laboratory owner or operator the right to litigate an issue that has been adjudicated previously. Here, the issues of Dimensions' and the laboratory's compliance with CLIA and CMS's authority to impose remedies against these entities have become administratively final by virtue of Dimensions and the laboratory's decision not to challenge CMS's determinations. The issue of whether Dimensions and the laboratory complied with CLIA requirements is settled. So also is the issue of whether CMS may impose remedies to address that noncompliance.

The doctrine of res judicata operates to bar litigation of a claim where the merits of the claim previously have been finally adjudicated and where there is a privity of interest between the party who brought the original claim and the party who seeks to have the claim adjudicated in another proceeding. There clearly is privity between Dr. and Mrs. Wazzan, Dimensions, and the laboratory. It is undisputed that Dr. and Mrs. Wazzan are Dimensions' sole owners and shareholders. Dr. Wazzan is Dimensions' president. Dr. and Mrs. Wazzan exercise all decision making authority for Dimensions and the laboratory. Moreover, Dr. and Mrs. Wazzan have raised no issues that are unique to their status as owners and operators of Dimensions and the laboratory. Nothing that they have alleged consists of an assertion that could not have been made by Dimensions and the laboratory, or which addresses an issue that is separate from those that became administratively final with the withdrawal of the hearing request that Mrs. Wazzan filed on behalf of Dimensions and the laboratory.

The amended hearing request filed by Dr. and Mrs. Wazzan does not dispute that the laboratory failed to comply with CLIA conditions. Rather, it contends that Dimensions' and the laboratory's November 5, 2004 submission to CMS "constituted credible evidence of compliance and/or acceptable evidence of correction for all of the deficiencies cited at the . . . [compliance] survey." Amended hearing request at 1. In making this assertion, the Wazzans seem to argue that, whatever the state of the laboratory's compliance may have been as of the compliance survey, it was corrected before CMS made its final determination to impose remedies. That is an assertion that Dimensions and the laboratory could have made on their own behalf. It is unclear from the original hearing request whether Dimensions and the laboratory ever sought to advance that argument. But, whether they did or not, that argument was extinguished when they withdrew their request and I dismissed the hearing request as it applied to them.

I am not suggesting here that Dr. and Mrs. Wazzan's hearing rights are hollow. All that I hold here is that their right to challenge CMS's noncompliance determination and its determination to impose remedies was extinguished when Dimensions and the laboratory abandoned their own challenge and CMS's determinations became administratively final. Indeed, there are issues other than the issues of compliance and authority to impose remedies that are unique to Dr. and Mrs. Wazzan that these individuals might have raised but did not. For example, it is potentially always an issue whether a person whom CMS identifies to be an "owner" or an "operator" of a clinical laboratory actually is that laboratory's owner or operator. See Edward Ming-Che Lai. Neither Dr. nor Mrs. Wazzan raised that issue here.

In opposing CMS's motion for dismissal Dr. and Mrs. Wazzan assert that alternative sanctions consisting of civil money penalties may not be imposed against them personally, in their capacity as owners or operators of Dimensions and the laboratory. ⁽³⁾ They contend that, as a matter of law, liability for sanctions imposed against an entity - the laboratory and its corporate owner - may not run to the shareholders of the corporation or to those individuals who direct the corporation's operations.

Dr. and Mrs. Wazzan made this assertion because they received a letter that CMS sent to them on October 4, 2005 in their capacity as owners of Dimensions and the laboratory. The letter recites that the determinations of noncompliance and the imposition of sanctions against Dimensions and the laboratory are administratively final. It recites further that civil money penalties totaling $30,000 have been imposed against the laboratory. The letter states that:

If you do not pay the outstanding Civil Money Penalty balance, we will refer this matter to the United States Department of Treasury for collection. The U.S. Department of Treasury applies a full range of collection actions, including referral to a debt collections center, private collection agency or U.S. Department of Justice for litigation. In addition, such actions may include interception of federal payments to you.

In addition, you are advised that you must pay all outstanding Civil Money Penalty amounts including any applicable interest before you can be reinstated into the CLIA program in the capacity of owner, operator or director of any laboratory after the prohibition period.

Opposition to motion to dismiss, Exhibit E at 2.

The letter, and the arguments made by Dr. and Mrs. Wazzan, potentially raise the issue of whether CMS has the authority to compel the owner of a laboratory to pay a civil money penalty that is imposed against a laboratory. That in turn potentially raises the issue of whether I have the authority to hear and decide Dr. and Mrs. Wazzan's assertion that CMS lacks the authority to make them liable personally for civil money penalties imposed against Dimensions or the laboratory.

I do not have to address these potential issues here. ⁽⁴⁾ In this case, and despite the contents of the October 4, 2005 letter, CMS imposed civil money penalties against the laboratory only. That is made clear by CMS's October and December notices. And, it is made clear also by CMS in its reply brief:

To be clear: The civil money penalty was imposed against . . . [Dimensions and the laboratory] - not against the owners of . . . [Dimensions and the laboratory] . . . The notices sent by CMS concerning the sanctions imposed against the laboratory are addressed to the owners of the laboratory at the laboratory's business address not only because this is routine CMS practice, but also because the owners of the laboratory are in the best position to ensure that the laboratory receives and, as required, acts upon CMS'[s] notices.

CMS's reply brief at 2.

I am not holding in this decision that CMS's findings of noncompliance and the remedies that it imposed against Dimensions and the laboratory are wholly without consequence for Dr. and Mrs. Wazzan. CMS has made it clear that it does not seek to impose civil money penalties against these individuals personally. However, Dr. and Mrs. Wazzan are now effectively barred, by operation of law, from owning or operating another clinical laboratory for a two-year period from the date of revocation of the laboratory's CLIA certificate. See 42 C.F.R. � 493.1840(a)(8). Dr. and Mrs. Wazzan are barred by the doctrines of administrative finality and res judicata from challenging that latter consequence.

3. I do not have the authority to decide whether CMS wrongfully failed to accept the plan of corrections that was filed by Dimensions and the laboratory.

As I discuss above, at Finding 2, the gravamen of the amended hearing request filed by Dr. and Mrs. Wazzan appears to be that Dimensions and the laboratory corrected all outstanding deficiencies prior to the date when CMS implemented remedies against the laboratory. However, the hearing request may also be read as asserting that CMS was required, as a matter of law, to accept the plan of correction filed by Dimensions and the laboratory, and was barred from taking any remedial action against these entities by virtue of the entities' filing a plan of correction.

If that is Dr. and Mrs. Wazzan's argument, I have no authority to hear and decide it. Whether CMS accepts or does not accept a plan of correction is a discretionary act that is not one of the actions that constitutes an initial determination that give rise to a right to a hearing. See 42 C.F.R. � 493.1844(b).

4. Dismissal of Dr. and Mrs. Wazzan's hearing request and amended hearing request is appropriate inasmuch as principles of res judicata operate to bar them from a hearing as to the merits of CMS's determination of noncompliance and its remedy determination.

It is appropriate to dismiss the hearing request and amended hearing request filed by and on behalf of Dr. and Mrs. Wazzan. All issues that they have raised are issues that are barred from additional litigation by the principles of res judicata. Consequently, there is nothing left to be heard in this case.

Steven T. Kessel

Administrative Law Judge

1. The California Department of Health Services, Laboratory Field Services is the State agency that inspected the laboratory for compliance with CLIA requirements.

2. I also sent a letter to Dr. Whang, on September 29, 2005, in which I requested him to advise me whether he was pursuing his right to a hearing.

3. The alternative sanctions imposed by CMS against Dimensions and the laboratory include civil money penalties of $10,000 per day for noncompliance with CLIA requirements beginning on October 17, 2004 and extending through October 20, 2004, the date when CMS suspended the laboratory's authority to conduct clinical tests.

4. I note that neither CLIA nor implementing regulations suggest that the owner of a laboratory is personally liable for a civil money penalty that is imposed against the laboratory. Indeed, the regulation governing civil money penalties pursuant to CLIA, 42 C.F.R. � 493.1844, provides only that civil money penalties may be imposed against a laboratory. It is devoid of any language that suggests that the owner of a laboratory may be personally liable for a civil money penalty that is imposed against the laboratory.