Department of Health and Human Services DEPARTMENTAL APPEALS BOARD Civil Remedies Division |
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IN THE CASE OF | |
Edward Ming-Che Lai, M.D., |
DATE: December 17, 2001 |
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Centers for Medicare & Medicaid
Services
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Docket No.C-01-288 Decision No. CR848 |
DECISION | |
DECISION I decide that the Centers for Medicare & Medicaid
Services (CMS, formerly known as the Health Care Financing Administration
or HCFA) is not authorized to impose sanctions against Petitioner, Edward
Ming-Che Lai, M.D. I do so because I find that Petitioner was not serving
as the laboratory director of Polymedic Clinical Laboratory, Inc. (Polymedic)
in May 2000 when Polymedic failed to comply with a condition for certification
pursuant to regulations that implement the Clinical Laboratory Improvement
Amendments of 1988, 42 U.S.C. � 263a (CLIA). I. Background This case emanates from sanction determinations that CMS
made against Polymedic. The sanctions that CMS imposed against Polymedic
include revocation of Polymedic's CLIA certificate. Polymedic has not
requested a hearing to contest those sanctions. Petitioner requested a
hearing in order to challenge CMS's determination that, as a consequence
of being Polymedic's laboratory director, he was precluded from owning,
operating, or directing a clinical laboratory for at least two years from
the date that Polymedic's CLIA certificate was revoked by CMS. Petitioner
has not argued that CMS lacks a basis for revoking Polymedic's CLIA certificate
or for imposing other sanctions against it. The case was assigned to me for a hearing and a decision.
I held an in-person hearing in Los Angeles, California on August 2, 2001.
The parties each called witnesses to testify. CMS offered and I accepted
exhibits consisting of HCFA Ex. 1 - HCFA Ex. 10 (the
exhibits each were identified with the acronym "HCFA" and, therefore,
I refer to them by that acronym in order to avoid confusion). Petitioner
offered and I accepted exhibits consisting of P. Ex. 1 - P. Ex. 3. II. Undisputed facts and law The facts and law that I discuss in this section are not
disputed. Polymedic was a clinical laboratory that was located in
El Monte, California. It had obtained a CLIA certificate which allowed
it to perform clinical tests on patients' specimens. In order to maintain
its CLIA certificate, Polymedic was required to comply with CLIA conditions
of participation. The Secretary of the United States Department of Health
and Human Services (Secretary) is charged with enforcing the requirements
of CLIA. The Secretary published implementing regulations at 42 C.F.R.
Part 493 and delegated his CLIA enforcement authority to CMS. CMS assures
that clinical laboratories are inspected at regular intervals in order
to determine their compliance with CLIA requirements. CMS has the authority
to impose remedies (sanctions) against laboratories that are found not
to be complying with CLIA requirements. These sanctions may include revocation
of a laboratory's CLIA certificate in the circumstance where the laboratory
is found not to be complying with one or more CLIA conditions. On May 5, 2000, examiners employed by the California Department
of Health Services, Laboratory Field Services (LFS), acting as agents
of CMS, went to Polymedic's business address in order to conduct an inspection.
Transcript (Tr.) 29. The examiners found no laboratory operating at that
location. They then reviewed the file that the State of California maintained
on Polymedic and found nothing which indicated a change of address for
the laboratory. However, on May 22, 2000, the laboratory's owner advised
LFS that the laboratory's address had changed and that it was now located
down the street from its previous location. Tr. 30. The examiners then went to the new address that had been
supplied by the laboratory's owner in order to conduct an inspection of
those premises. However, they found no laboratory at this address. Tr.
30 - 31. The inspectors left their business cards at the new address,
along with a letter which requested that the laboratory contact them so
that they could conduct an inspection. Tr. 31 - 32. They received no response
to the letter. Id. LFS recommended that CMS revoke Polymedic's CLIA certificate.
Tr. 33. LFS based its recommendation on Polymedic's failure to comply
with the CLIA condition that is stated at 42 C.F.R. � 493.1777 (now recodified
at 42 C.F.R. � 493.1773). This section requires a laboratory to make its
premises accessible for an inspection and to provide information that
is requested of it by examiners. On October 20, 2000, CMS sent a letter to Polymedic's
owner and to Petitioner as director of Polymedic. HCFA Ex. 1. The letter
advised them that CMS was imposing sanctions against Polymedic due to
Polymedic's violation of CLIA provisions by its failure to permit immediate
access for inspection and by its failure to report a change in location.
The October 20, 2000 letter described a range of sanctions that CMS intended
to impose against Polymedic, including revocation of Polymedic's CLIA
certificate. On October 30, 2000, Petitioner responded to CMS's October
20, 2000 letter. HCFA Ex. 2. Petitioner denied that he was Polymedic's
laboratory director. He averred that he was approached by Polymedic's
owner in August 1999. He acknowledged having a meeting with Polymedic's
owner. At that meeting the owner requested Petitioner to serve as laboratory
director of Polymedic. Petitioner acknowledged agreeing verbally to the
"general terms" for becoming laboratory director. He also acknowledged
signing a form for changing the laboratory's directorship. Id.
However, according to Petitioner, his verbal agreement was never finalized
in writing and his directorship was never established officially. Id.
Petitioner attested that he had no additional contact with Polymedic's
owner until December 1999 when the owner called him. He stated that the
owner advised him that the laboratory had not received certification from
Medicare or MediCal (California's Medicaid program) and that the laboratory
would not continue in existence. Petitioner asserted that he had always
assumed that his directorship of the laboratory was not finalized because
he had not entered into a final agreement to direct Polymedic, had not
received any payment from Polymedic, and had not had any follow- up communications
with the laboratory's owner until December 1999. Id. CMS sent an additional letter to Polymedic's owner and
to Petitioner on November 16, 2000. HCFA Ex. 3. The letter noted that
mail directed to Polymedic had been returned as undeliverable. The letter
advised Polymedic's owner and Petitioner that it was a formal notice of
imposition of sanctions. The November 16, 2000 letter asserted that Petitioner
had served as director of numerous laboratories and should have known
that, by signing on as laboratory director of Polymedic, he was assuming
the directorship responsibilities for the laboratory. It asserted further
that Petitioner could not relieve himself of his responsibilities as director
by failing to fulfill his responsibilities or by not being aware of what
was happening at Polymedic. The November 16, 2000 letter confirmed that
CMS was imposing the sanctions that had been described in the October
20, 2000 letter. Additionally, it advised Petitioner that 42 C.F.R. �
493.1840(a)(8) prohibits the owner, operator, or laboratory director of
a clinical laboratory whose CLIA certificate has been revoked from owning,
operating, or directing another laboratory for at least two years from
the date of revocation. HCFA Ex. 3 at 1 - 2. III. Issues, findings of fact and conclusions of law
The issues in this case are whether:
I make findings of fact and conclusions of law (Findings) to support my decision in this case. I set forth each Finding as a separate heading. I discuss each Finding in detail.
The regulations which implement CLIA provide, at 42 C.F.R. � 493.1840(a)(8), that CMS may suspend, limit, or revoke any laboratory's CLIA certificate if CMS finds that the laboratory's owner or operator has:
The regulation does not explicitly prohibit the owner,
operator, or laboratory director of a clinical laboratory whose CLIA certificate
is revoked from owning, operating, or directing another laboratory within
a two year period from the revocation date (CMS argues
that a laboratory's director is the "operator" of that laboratory within
the meaning of CLIA and implementing regulations and Petitioner does not
challenge that position). However, that is the practical effect of the
regulation. If I find that Petitioner was the laboratory director
of Polymedic as of the dates in May 2000 when LFS attempted unsuccessfully
to inspect Polymedic, then Petitioner effectively would be prohibited
from owning or operating another clinical laboratory for at least two
years from the date Polymedic's CLIA certificate was revoked. It is unlikely
that any laboratory would allow Petitioner to serve as an owner, operator,
or director, because his ownership or operation of the laboratory would
cause that laboratory's CLIA certificate to be revoked.
CMS asserts that Petitioner has no standing to contest
any prohibition against his owning, operating, or directing a laboratory,
as a collateral consequence of the revocation of Polymedic's CLIA certificate.
CMS argues that regulations which confer hearing rights in cases involving
CLIA enforcement actions give those rights to laboratories and not to
individuals. See, e.g., 42 C.F.R. � 493.1844. CMS argues
further that the fact that there may be collateral consequences for a
laboratory's owner, operator, or laboratory director resulting from imposition
of sanctions against a laboratory does not mean that these individuals
have appeal rights. CMS post-hearing brief at 12. It is true that the regulations only grant hearings to
laboratories who are affected by sanctions and do not explicitly confer
hearing rights on laboratory owners, operators, and directors. However,
although the regulations may be silent on the subject, CLIA is not. CLIA
provides expressly that the Secretary may suspend, revoke, or limit a
laboratory's CLIA certificate only after giving "reasonable notice and
opportunity for hearing to the owner or operator of the laboratory
. . . . " 42 U.S.C. � 263a(i)(1) (emphasis added). Consistent with that statutory requirement, administrative law judges have held that CLIA provides a laboratory owner, operator, or director with a right to a hearing to contest the consequences of revocation of the laboratory's CLIA certificate. RNA Laboratories, Inc., and Ter-Zakarian Medical Clinic, DAB CR829, at 5 (2001); Carlos A. Cervera, M.D., Docket No. C-99-797, Ruling Denying HCFA's Motion to Dismiss and Granting Extension of Time for Submission of Readiness Reports, December 21, 1999; Allstate Medical Laboratory, Inc., Docket No. C-99-309, Ruling, October 6, 1999; Eugene R. Pocock, M.D., DAB CR 527 (1998). These rulings and decisions were cited favorably by an appellate panel of the Departmental Appeals Board in Sentinal Medical Laboratories, Inc., DAB No. 1762, at n.6 (2001), which observed that CMS "wisely" opted not to argue before the Board that an owner or operator of a laboratory had no right to a hearing to challenge a sanctions determination made against the laboratory. I follow these rulings and decisions and hold that Petitioner has a right to a hearing to challenge the effect that revocation of Polymedic's CLIA certificate may have on him.
CMS makes two allegations in this case. The first allegation,
which is not challenged by Petitioner, is that Polymedic violated a CLIA
condition in May 2000 when the examiners attempted unsuccessfully to inspect
Polymedic, thereby justifying CMS's determination to revoke Polymedic's
CLIA certificate. The second allegation, which Petitioner does challenge,
is that he was serving as Polymedic's laboratory director, or at least
had agreed to be Polymedic's laboratory director, at the time of the May
2000 inspection attempts. CMS argues that, based
on prima facie evidence addressing these two allegations, Petitioner is
precluded, as Polymedic's laboratory director, from owning or operating
another laboratory for the two year period that begins with CMS's revocation
of Polymedic's CLIA certificate. I do not find CMS's arguments as to its second allegation
to be persuasive, because the preponderance of the evidence supports the
conclusion that Petitioner was not performing any duties as Polymedic's
laboratory director in May 2000 and had not agreed to serve as laboratory
director as of that date. The evidence shows that Petitioner informally
agreed to become Polymedic's laboratory director in late August or early
September 1999. He acted as Polymedic's director when he executed a CLIA
certificate application on Polymedic's behalf in September 1999. But,
thereafter, he assumed none of the director's responsibilities and exercised
none of the director's authority. He entered into no agreement with Polymedic
to provide continued service to Polymedic as its laboratory director.
Polymedic failed to offer a contract to Petitioner or to negotiate the
terms of compensation with him. And, Petitioner and Polymedic's owner
came to a clear understanding in December 1999 that Petitioner would have
no further dealings with Polymedic. Under CLIA, a laboratory director has the principal responsibility
for management and operation of a clinical laboratory. 42 C.F.R. � 493.1407.
Whether an individual actually is a laboratory's director is a question
of fact. An individual may be deemed to be a laboratory's director under
two circumstances. First, the individual may be a laboratory's director
if he or she is performing the duties of the laboratory director. Second,
the individual may be a laboratory's director if that individual has agreed
to perform the duties of the laboratory director whether or not he or
she is actually performing them. Under the second test, an individual
may meet the definition of "laboratory director" even if he or she is
derelict in fulfilling the laboratory director's obligations if he or
she has agreed to serve as laboratory director. The evidence that CMS relies on to establish that Petitioner
was Polymedic's laboratory director in May 2000 consists of the three
documents that Petitioner executed on September 22, 1999, and which constitute
Polymedic's CLIA certificate application. HCFA Ex. 3. These documents
unambiguously state that Petitioner was Polymedic's laboratory director
as of that date. Id. These documents support the conclusion that
Petitioner had agreed to be Polymedic's laboratory director as of September
22, 1999 and that he was performing the director's duties on that date. It is reasonable to infer from these documents, absent
evidence to the contrary, that Petitioner continued to be Polymedic's
laboratory director after that date. I would conclude that Petitioner
had agreed to serve as Polymedic's laboratory director and was, in fact,
performing the director's duties, if these documents comprised the only
evidence in this case concerning Petitioner's relationship with Polymedic. However, the inference that Petitioner was the director
in May 2000 is rebuttable. I find that Petitioner rebutted that inference
persuasively with his credible testimony at the hearing. Tr. 138 - 179. I conclude, based on Petitioner's credible testimony,
that Petitioner was not performing any of the duties of laboratory director
in May 2000. The only action that Petitioner ever took as Polymedic's
laboratory director was to execute the CLIA certificate application documents
in September 1999. Petitioner has established, persuasively, that he did
nothing for Polymedic thereafter. Indeed, Petitioner never visited Polymedic's
facilities except for one brief visit in late August or early September
1999. I conclude also that Petitioner did not agree to serve as Polymedic's
laboratory director after September 1999. He entered into neither an oral
nor a written agreement with Polymedic to continue serving as its laboratory
director. Petitioner testified persuasively that his relationship
with Polymedic consisted only of the following: a brief visit to the laboratory
in late August or early September 1999, which included a meeting with
the laboratory's owner; a telephone conversation with Polymedic's owner
that took place shortly after Petitioner's visit to the laboratory; a
subsequent face-to-face meeting with Polymedic's owner in September 1999,
at which he signed the documents that are in evidence as HCFA Ex. 3; and,
a telephone conversation with the laboratory's owner in December 1999,
in which the laboratory's owner informed him that she would have to cease
her effort to operate the laboratory due to the laboratory's inability
to receive certification from Medicare and MediCal. Tr. at 145 - 151.
Petitioner's credible testimony is that he never spoke again with the
laboratory's owner after the December 1999 telephone conversation. Id.
at 154. I note that the testimony that Petitioner gave at the hearing
is consistent with the statement he submitted to CMS at the end of October
2000. HCFA Ex. 2. The thrust of Petitioner's testimony, which I find to
be credible, is that he may have agreed in principle to become Polymedic's
laboratory director, but that he never finalized that agreement. Petitioner
never entered into a written agreement with Polymedic to become its laboratory
director, never agreed orally to continue serving as its director after
signing the CLIA certificate application form, never agreed with Polymedic
as to his compensation, never visited the laboratory after late August
or early September 1999, and never received any compensation from Polymedic.
Petitioner performed none of the duties that are performed by a laboratory
director aside from executing Polymedic's application for a CLIA certificate
and associated documents. He assumed, based on his December 1999 conversation
with Polymedic's owner, that whatever relationship he had established
with the laboratory had ended. Id. at 150 - 154. Petitioner's execution of a CLIA certificate application
on behalf of Polymedic in September 1999 establishes that, for at least
a very brief period of time, Petitioner acted in the capacity of Polymedic's
laboratory director. He explicitly represented himself to be the laboratory
director on the application. HCFA Ex. 3. However, there is no evidence
in this case that he engaged in any actions as laboratory director subsequent
to his signing the application. Petitioner's testimony satisfies me that,
whatever he may have represented himself to be on the CLIA certificate
application, he did not come to a meeting of the minds with Polymedic's
owner to serve as Polymedic's laboratory director, nor did he perform
any of the duties of laboratory director for Polymedic aside from signing
the CLIA application form. Furthermore, even if Petitioner could have
been considered to be Polymedic's laboratory director in the autumn of
1999, that relationship ceased definitively with Petitioner's December
1999 telephone conversation with Polymedic's owner. At that time, she
told him that the laboratory would be closed and he assumed, naturally,
that any discussions concerning assuming the directorship were over. Petitioner directs several laboratories other than Polymedic.
He testified persuasively that his relationship with all of the other
laboratories that he directs is memorialized in written contracts and
that his normal practice is to request that he be compensated for his
services once he begins performing the duties of laboratory director.
Tr. at 152. It is fair to conclude that Petitioner never requested a written
director's agreement or compensation from Polymedic because he did not
consider himself to be Polymedic's director. CMS produced a record of reimbursement claims submitted
by Polymedic which establishes that the laboratory filed claims for services
for several months after September 1999. HCFA Ex. 7. But, the fact that
Polymedic may have claimed reimbursement for services after Petitioner's
late August or September 1999 meeting with Polymedic's owner does not
mean that these services were provided or claimed under Petitioner's direction.
There is nothing about the claims records produced by CMS which supports
a finding that those claims were made at Petitioner's direction. The records
document only that claims were made. See id. CMS argues that a laboratory director who fails to notify
CMS when he or she ceases serving as director continues to be responsible
for the laboratory's compliance with CLIA conditions. Under this theory,
Petitioner should be deemed to be Polymedic's laboratory director even
though he had not agreed to serve as Polymedic's director after September
1999 and even though he performed none of the director's duties after
September 1999. I do not find this argument to be persuasive. There is
no language in either CLIA or implementing regulations which provides
that a laboratory director retains the legal responsibilities of director
after he or she has severed all ties with the laboratory if he or she
does not give notice to CMS. Consequently, a failure by Petitioner to
apprize LFS that he was not serving as Polymedic's laboratory director
did not mean, as a matter of law, that Petitioner continued to serve as
the laboratory director. There is a requirement in the regulations that a laboratory
must give notice to CMS, within 30 days of the occurrence of events which
include a change of the laboratory's director. 42 C.F.R. � 493.51(a)(4).
Polymedic failed to comply with this requirement when, after notifying
CMS on September 22, 1999 that Petitioner had become its director, it
failed to notify CMS that its relationship with Petitioner had been terminated.
However, the regulation does not impose a separate duty on a laboratory
director to notify CMS when he or she terminates a relationship with a
laboratory. Presumably, CMS could revoke a laboratory's CLIA certificate
for failing to comply with the requirements of 42 C.F.R. � 493.51(a)(4).
But, that revocation would not prevent collaterally the laboratory's former
director from owning or operating another laboratory because the former
director was not the laboratory's director at the time that the laboratory
contravened the regulation's notification requirements. Moreover, failure to give notice of a change of director
was not the basis for CMS's determination to impose sanctions against
Polymedic or Petitioner. CMS advised Polymedic and Petitioner, in both
its October 20, 2000 and in its November 16, 2000 notices, that the basis
for CMS's action was Petitioner's failure to comply with 42 C.F.R. � 493.1777
(now recodified at 42 C.F.R. � 493.1773). I am not persuaded that it may be inferred by Petitioner's
failure to notify CMS timely that he no longer was the director of Polymedic
that either he had agreed to be Polymedic's laboratory director or was
serving as the laboratory director as of May 2000. That is not a reasonable
inference to make given the other facts of this case. It was unwise for
Petitioner not to have notified CMS that he would not be serving as Polymedic's
laboratory director as soon as it became apparent to him that he would
not be serving in that position. This case would never have arisen had
he done so. But, the weight of the evidence in this case strongly supports
the conclusion that Petitioner was not serving as Polymedic's laboratory
director in May 2000, regardless of his failure to give notification that
he would not be serving in that position.
The preponderance of the evidence shows that Petitioner was not serving as Polymedic's laboratory director in May 2000. Therefore, no basis exists for CMS to impose sanctions against Petitioner as the laboratory director of a laboratory whose CLIA certificate has been revoked. |
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JUDGE | |
Steven T. Kessel Administrative Law Judge
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