SUBJECT:

Sentinel Medical Laboratories, Inc.,

Petitioner,

Health Care Financing Administation

FINAL DECISION ON REVIEW OF

ADMINISTRATIVE LAW JUDGE DECISION

Dr. Sol Teitelbaum (Petitioner), the former director of Sentinel Medical Laboratories, Inc. (Sentinel, the laboratory), appealed a June 27, 2000 decision by Administrative Law Judge (ALJ) Edward D. Steinman sustaining the determination of the Health Care Financing Administration (HCFA) prohibiting Dr. Teitelbaum from owning or operating another laboratory for two years, including serving as laboratory director. Sentinel Medical Laboratories, Inc., DAB CR679 (2000) (ALJ Decision). The determination followed the revocation of Sentinel's certificate under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), as well as the cancellation of Sentinel's approval to receive Medicare payments for its services. In his decision, the ALJ found that Sentinel had failed to comply with five conditions for certification set forth in the CLIA regulations at 42 C.F.R. Part 493.

On appeal to the Board, Petitioner raised only legal objections to the ALJ Decision. The record in this appeal includes the parties' submissions and the transcript of oral argument conducted by telephone on September 25, 2000, as well as the record before the ALJ. As explained below, we affirm the ALJ Decision.

Applicable law and regulations

CLIA establishes requirements for all laboratories that perform clinical diagnostic tests on human specimens and provides for federal certification of such laboratories. Pub. L. No. 100-578, amending � 353 of the Public Health Service Act, codified at 42 U.S.C. � 263a et seq. The purpose of the CLIA requirements is to ensure the accuracy and reliability of laboratory tests, and hence the public health of all Americans. See H.R. Rep. No. 899, 100^th Cong. 2d Sess. 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. CLIA certification of a laboratory is dependent upon whether the laboratory meets the conditions of certification set out in the statute and regulations. 42 U.S.C. � 263a(f)(1)(E); 42 C.F.R. � 493.1 et seq. Each condition represents a major division of laboratory services to be offered by the laboratory or required environmental protections at the laboratory. CLIA grants the Secretary of this Department broad enforcement authority, including the ability to suspend, limit, or revoke the certificate of a laboratory that is out of compliance with one or more requirements for certification.

The requirements of the statute are implemented in regulations at 42 C.F.R. Part 493. The regulations set forth standards, the specific components of the conditions of certification that a laboratory must meet to achieve compliance with applicable conditions. The regulations confer broad authority on HCFA to assure that laboratories perform as Congress intended, including authority to inspect and sanction laboratories that fail to comply with the regulatory requirements. HCFA may suspend, limit, or revoke the CLIA certificate of a laboratory that is out of compliance with one or more CLIA conditions, and may also impose alternative sanctions such as a directed plan of correction or monitoring by the state. 42 C.F.R. � 493.1806.

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

(3) Ineligibility to own or operate laboratories after revocation.

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

42 U.S.C. � 263a(i).

The regulations specifically include the laboratory director as an "operator" of a laboratory, if specified criteria are met. 42 C.F.R. � 493.2. The regulations require that any laboratory conducting moderate or high complexity testing must have a laboratory director who meets specific qualifications and has clear and specific responsibilities. 42 C.F.R. �� 1403, 1405, 1407. Requirements include being a medical or osteopathic doctor, being certified in pathology and having requisite laboratory supervisory experience and/or training. The laboratory director is designated in the regulations as being --

responsible for the overall operation and administration of the laboratory, including the employment of personnel who are competent to perform test procedures, and record and report test results promptly, accurate, [sic] and proficiently and for assuring compliance with the applicable regulations.

42 C.F.R. � 493.1407.

The director's responsibilities also include ensuring that appropriate test methodologies are used, that verification procedures are followed, that proficiency testing is complied with, that appropriate corrective actions are taken as necessary, that the laboratory follows quality control and quality assurance programs, etc. Id. The regulations subject to adverse action any laboratory that employs an individual who owned or operated a laboratory that had its CLIA certificate revoked within the previous two years. 42 C.F.R. � 493.1840(a)(8).

A laboratory is entitled to a hearing before an ALJ to contest the imposition of CLIA remedies, and may request review of the ALJ's decision by the Departmental Appeals Board. The CLIA regulations incorporate by reference the hearing procedures in subpart D of Part 498 and the request for review provisions in subpart E of Part 498. 42 C.F.R. � 493.1844.

The Board's standard of review on a disputed issue of law is whether the ALJ decision is erroneous. US Bio-Chem Medical Laboratories, Inc., DAB No. 1731 (2000); Board Guidelines -- Appellate Review of Decisions of Administrative Law Judges in Cases Under CLIA and Related Statutes (http://www.hhs.gov/dab/guidelines/clia.html).

Procedural Background

Laboratory field examiners from the California Department of Health Services, acting as agents for HCFA, began a complaint survey of Sentinel in August 1997. They terminated the survey on December 4, 1997 after Sentinel failed to supply records and other information the inspectors had requested. As a result of the inspectors' findings, HCFA by letter dated February 3, 1998 to Sentinel and its director, Dr. Teitelbaum, found Sentinel out of compliance with seven CLIA conditions of participation, and proposed sanctions including revocation of Sentinel's CLIA certificate, cancellation of its approval to receive Medicare payments, and imposition of a civil money penalty. The letter also notified Petitioner that if Sentinel's CLIA certificate was revoked, he would not be permitted to own or operate a laboratory, including being a laboratory director, for two years from the date of revocation of Sentinel's certificate. ALJ Decision at 3-5.

By letter dated February 7, 1998, Petitioner indicated that Sentinel had voluntarily ceased operations on December 29, 1997. Upon reviewing that letter and other submissions, HCFA decided by letter of February 24, 1998 to impose the sanctions it had outlined three weeks earlier. These included revocation of Sentinel's CLIA certificate, as well as barring any laboratory from hiring Petitioner, without substantial penalty, for two years. The proposed implementation date of these sanctions was April 14, 1998. Id.

Both Sentinel and Petitioner filed requests for a hearing and their appeals were consolidated. Subsequently, Sentinel, through one of its owners, Nida Madamba, withdrew its request for a hearing, and revocation of Sentinel's CLIA certificate was effectuated on November 30, 1998. Petitioner continued to pursue a right to a hearing on the two-year prohibition on his owning or operating a clinical laboratory.⁽¹⁾ Judge Steinman convened a hearing from November 30 through December 3, 1998. Before and during the hearing, HCFA objected to permitting Petitioner to proceed with his appeal, contending that a laboratory director had no separate standing, without the inclusion of the laboratory itself, to appeal the sanctions imposed on the laboratory or the two-year prohibition on his owning or operating another laboratory. Judge Steinman overruled HCFA's objections. Id. at 6-7.

In his decision, the ALJ rejected Petitioner's principal argument, that even though he was unquestionably Sentinel's laboratory director, he should not be held liable for Sentinel's deficiencies because he was only an employee of Sentinel, without authority to take or order actions necessary to bring the laboratory into compliance with CLIA standards. Pointing out that Petitioner was the laboratory director for three, possibly four, other CLIA laboratories and "knew or should have known what his obligations were," the ALJ found that if Petitioner was unable to perform his functions as a laboratory director, he should have resigned. Id. at 9-10. The ALJ rejected as self-serving Petitioner's testimony that he stayed on the job due to his obligation to the patients Sentinel served, in the face of his admission that he was aware of numerous questionable practices by the laboratory. Id.

The ALJ went on to dismiss Petitioner's arguments concerning the unconstitutionality of the CLIA regulations, rejecting his claims that they were vague, violated his right to due process, were "shocking and oppressive," and were applied in a discriminatory fashion. Id. at 10-13. The ALJ found that Petitioner's rights and duties under the regulations were clearly described, that he was being accorded full due process, that a two-year prohibition on his owning or operating another laboratory for his failure to perform his required duties was appropriate and in no way shocking or oppressive, and that there was no evidence that the sanctions were being applied in a discriminatory fashion. Id. at 8-13, 24.

The ALJ also rejected several contentions raised by Petitioner concerning the alleged failure to follow survey procedures, failure to receive adequate notice and other due process contentions. The ALJ also rejected the contention that since Sentinel ceased operations in December 1997, HCFA was precluded from imposing sanctions against either Sentinel or Petitioner. Id. at 24-30.

Regarding the substance of HCFA's deficiency findings, which were generally not contested during the hearing, the ALJ found that Sentinel was out of compliance with the CLIA conditions of participation for patient test management, general quality control, quality assurance, and the conditions for its laboratory director and for successful participation in proficiency testing.⁽²⁾ The ALJ found that HCFA through extensive evidence demonstrated that Sentinel had failed to comply with CLIA conditions of participation, and that HCFA's evidence showed a pattern of noncompliance that was pervasive in scope and presented potential risks to patient health and safety. Id. at 13.

The ALJ Decision indicates that HCFA revoked Sentinel's CLIA certificate because of serious deficiencies in its operations that posed immediate jeopardy to the health and safety of the patients whose specimens it was paid to test. Id. at 6. Among its violations, Sentinel failed to demonstrate that it was capable of conducting accurate tests of human specimens, performed additional tests not requested by the physicians, and performed tests based on test requisitions from fictitious addresses. Id. at 17, n.18. Over 90 percent of patient records that the state surveyors examined showed that Sentinel had received an insufficient quantity of a patient's specimen to perform the requested tests. Id. at 16. Sentinel had no quality assurance program in place, as required by the CLIA regulations, and its staff were unable to produce any preventive maintenance protocols or documentation that it performed preventive maintenance on laboratory equipment. ALJ Decision at 20, 21. The evidence before the ALJ also showed that Sentinel was receiving questionable specimens from individuals for the purpose of allowing the laboratory to bill either Medicare or Medicaid for testing such specimens, and that these individuals received kickbacks from the laboratory. Id. at 9.

The ALJ's recitation of the evidence, which Petitioner did not dispute, also demonstrates that these deficiencies were not isolated occurrences but ongoing problems that Sentinel failed to correct despite ample notice via repeated requests for information from the state survey agency following its initial complaint survey of Sentinel in August 1997. Sentinel's failure to respond to these requests led the state survey agency to terminate its survey of Sentinel on December 4, 1997. Petitioner himself failed to respond to a December 27, 1997 letter to him from the survey team leader providing Sentinel one more chance to supply the needed documentation, and informing Petitioner that failure to supply the requested information by December 29, 1997, would result in an action to suspend or revoke Sentinel's CLIA certificate. Despite these warnings, there was no evidence that the laboratory ever took any action to correct the identified deficiencies. Id. at 4-5.

The ALJ also noted that Petitioner was Sentinel's laboratory director during this entire period; as such, he bore primary responsibility for the overall operation and administration of the laboratory and for assuring compliance with the applicable regulations. Id. at 8-10, citing 42 C.F.R. � 493.1407.⁽³⁾

The ALJ Decision indicates that Petitioner did not fulfill his mandated responsibilities. Petitioner did not dispute the ALJ's finding that he took little action to discharge his duties (but continued to collect his paycheck), even in the face of growing evidence of the problems at Sentinel. Id. at 13. Nor did Petitioner take issue with the ALJ's observation that it was "difficult to imagine that Petitioner was exercising any of his CLIA responsibilities," given how widespread Sentinel's deficiencies were. Id. Petitioner also admitted to being aware that Sentinel was paying kickbacks to individuals who provided questionable specimens for the purpose of allowing the laboratory to bill Medicare or Medicaid for testing such specimens. Id. at 9.

The ALJ thus sustained HCFA's imposition of the two-year ban on Petitioner owning or operating another laboratory, effective on the date of the ALJ Decision, June 27, 2000.

Before the Board, Petitioner did not dispute the existence of numerous, serious deficiencies at Sentinel justifying the revocation of its CLIA certificate.⁽⁴⁾ Petitioner made no effort to rebut what the ALJ described as extensive evidence of a pattern of noncompliance with CLIA requirements that was pervasive in scope and presented potential risks to patient health and safety. ALJ Decision at 13. Nor did Petitioner dispute that he had failed to fulfill his assigned responsibilities as Sentinel's laboratory director.

Instead, Petitioner attacked the constitutionality of the CLIA provisions and argued that the effectiveness of the two-year ban on his owning or operating another laboratory should be stayed until his appeal has been heard in federal court. Petitioner's arguments may be summarized as follows:

• The CLIA statute and regulation authorizing HCFA to bar the director of a sanctioned laboratory from directing any other clinical laboratory for two years are unconstitutional when applied to an employee laboratory director who is not the owner of the sanctioned laboratory. Barring him from his livelihood for two years based on Sentinel's CLIA deficiencies was shocking and oppressive for violating the principle of respondeat superior which, Petitioner argued, forbids holding an employee liable for the acts of his employer. Petitioner argued that, as Sentinel's employee, he was powerless to effect changes needed to correct Sentinel's deficiencies and comply with CLIA standards. He argued that the regulation as applied to him was unconstitutionally vague for failing to identify what actions an employee laboratory director must take if he is unable to force his employer to comply with CLIA standards.
  
  
• HCFA may not impose the sanction against him until he has received a hearing on his constitutional arguments. Because the ALJ concluded that he was not authorized to declare the CLIA regulations unconstitutional, the ALJ should have "recused" himself from the case and remanded it to federal court, the body authorized to overrule the statute or regulations on constitutional grounds. Petitioner's Brief (Br.) at 5. Petitioner further argued that, if the Board concludes that it, like the ALJ, is not authorized to declare the CLIA statute and regulations unconstitutional, then the Board should stay HCFA's action against him, so that he may argue his case in federal court.

As discussed below, we conclude that we are not empowered to declare the CLIA statute or regulations unconstitutional. However, we address Petitioner's arguments to the extent they suggest that HCFA applied otherwise valid provisions in an unconstitutional manner. We then go on to briefly address Petitioner's attacks on the validity of the CLIA provisions, arguments which Petitioner characterized as based on the Constitution; we agree with the ALJ's determination that they are without merit. Finally, we sustain the ALJ's finding regarding the timing of the two-year period during which a laboratory may not be certified if it hires Petitioner as its laboratory director.

1. The ALJ and the Board are not authorized to declare the
CLIA statute and regulations unconstitutional.

It is well established that administrative forums, such as this Board and the Department's ALJs, do not have the authority to ignore unambiguous statutes or regulations on the basis that they are unconstitutional. A legislative rule is binding on the agency that issues it. 1 Kenneth Culp Davis and Richard J. Pierce, Jr., Administrative Law Treatise, � 6.5 (3^rd ed. 1994), citing U.S. v. Nixon, 418 U.S. 683 (1974) (where the court noted that the executive branch was bound by the terms of a regulation it had issued, even though it was within its power to change that regulation). Federal courts have refused "to recognize in administrative officers any inherent power to nullify legislative [or executive] enactments because of personal belief that they contravene the [C]onstitution." Gibas v. Saginaw Mining Co., 748 F.2d 1112, at 1117 (6^th Cir. 1984) (citation omitted). Thus, courts have noted that challenges to the constitutionality of an agency regulation lie outside the cognizance of that agency, and that generally, an ALJ is bound by the regulations promulgated by his administrative agency. Howard v. FAA, 17 F.3d 1213, 1218 (9th Cir. 1994); Stieberger v. Heckler, 615 F.Supp. 1315, 1386 (S.D.N.Y. 1985), citing D'Amico v. Schweiker, 698 F.2d 903 (7th Cir. 1983). Challenges to the constitutionality of a statute or a regulation promulgated by an agency are generally beyond the power or the jurisdiction of an agency. Gilbert v. National Transportation Safety Board, 80 F.3d 364, at 366-67 (9^th Cir. 1996); Howard v. FAA, supra. Accordingly, this Board (like the ALJ) has no authority to reverse the action against Petitioner on the basis that the CLIA statute or regulations are unconstitutional.

2. Petitioner was required to exhaust his administrative remedies.

The absence of authority to invalidate the CLIA regulations, however, did not require the ALJ to terminate proceedings so that Petitioner could take his appeal to federal court for review of his constitutional arguments. The Supreme Court has held that, when a constitutional challenge is made in an enforcement action, the doctrine of exhaustion of administrative remedies requires that the administrative agency resolve all matters within its domain before the matter may be taken to federal court to proceed with any constitutional challenge. "The basic purpose of the exhaustion doctrine is to allow an administrative agency to perform functions within its special competence--to make a factual record, to apply its expertise, and to correct its own errors so as to moot judicial controversies." Parisi v. Davidson, 405 U.S. 34, 37 (1972) (citations omitted).

We reject the notion, raised by Petitioner, that the ALJ erred by following this long-established doctrine. We note that a federal district court has already declined to hear Petitioner's constitutional arguments during pendency of the ALJ proceeding. Sol Teitelbaum, M.D. v. U.S. Dept. of Health and Human Services, Ruling Granting Defendant's Motion to Dismiss; Denying Plaintiff's Motion for Summary Judgment as Moot; and Dismissing Action with Prejudice for Lack of Jurisdiction, SA CV 99-1040 (C.D. Cal. April 12, 2000). The court stated that the judicial review provision of 42 U.S.C. � 263a(k) is not triggered until exhaustion of the administrative review process. The court also found that Petitioner's "'constitutional' claims do not operate to trump or 'short circuit' what [Petitioner] may regard as an unfavorable administrative process." Id. at 2.

The statute cited by the court, 42 U.S.C. � 263a(k), provides for the federal court of appeals to review "final" agency decisions imposing CLIA sanctions. The CLIA regulations provide that revocation of a CLIA certificate (including revocation based on the laboratory's owner or operator having owned or operated a laboratory that had its CLIA certificate revoked during the preceding two years) is an initial determination, which (if appealed) becomes final only after being upheld by the ALJ and then (if further appealed) by the Board. 42 C.F.R. � 493.1844(a), (d)(4).⁽⁵⁾

3. Petitioner was not denied due process.

Although we do not have the power to declare a statute or regulation unconstitutional, we must, by necessity, evaluate some aspects of a claim of unconstitutionality to the extent it challenges the manner in which HCFA has interpreted or applied a regulation. Petitioner contended that the CLIA regulations as "applied to him as an employee laboratory director . . . are unconstitutional because they do not meet the standard of definiteness, they are vague, they are shocking, oppressive and violate due process . . . and they are not applied equally to all other employees of the laboratory." Petitioner's Br. at 7. The regulations are vague, Petitioner argued, for failing to identify what actions he could take to force his employer to comply with CLIA standards. Petitioner also argued that he was denied notice and an opportunity to be heard because the ALJ did not have authority to overrule the CLIA statute and regulations on the basis of Petitioner's constitutional challenges.

We find no merit in Petitioner's arguments. First, Petitioner has received ample due process from the Department. He received timely and adequate notice of the charges at issue; HCFA's challenge to his request for a hearing was rejected by the ALJ;⁽⁶⁾ and he was given a full opportunity to present relevant evidence as well as to contest HCFA's evidence at an extensive hearing, during which he was represented by the person of his choosing. He thus has received notice and an opportunity to be heard as required by the Supreme Court case that Petitioner cited, Garfield v. U.S. ex. rel. Goldsby, 211 U.S. 249 (1908). Moreover, as we discussed above, Petitioner was not entitled to take his claims to federal court before completing the administrative appeal process before the ALJ and this Board.

We also sustain the ALJ's determination that Petitioner's rights and duties were clearly spelled out. The regulations clearly list the responsibilities of the laboratory director, including assuring compliance with applicable regulations. Moreover, the statute and regulations put Petitioner on notice that failure to discharge his responsibilities could result in his being barred from directing CLIA laboratories for a period of two years. As the ALJ noted, rather than continue to tolerate the existence of CLIA deficiencies, Petitioner could have resigned as laboratory director. His resignation might have left Sentinel unable to continue operations, as the CLIA regulations require that the laboratory have a qualified laboratory director as a condition of the CLIA certificate. Petitioner's assertion that HCFA could have or would have held him responsible for Sentinel's deficiencies even if he had resigned (Tr. at 44-45) was pure conjecture, and nothing in the record indicates that such a concern informed Petitioner's decision to remain at Sentinel.

4. Petitioner's reliance on the principle of respondeat superior is without merit.

Petitioner's principal argument was that the CLIA regulations are unconstitutional because they violate the principle of respondeat superior by holding an employee laboratory director liable for the actions of his employer laboratory. Petitioner described respondeat superior as the "law of the land," arguing that Congress could not have intended to violate such established law and that any regulations which did were therefore unconstitutionally shocking. Petitioner's Br. at 7. He also argued that barring him from his chosen profession for two years was unconstitutionally oppressive. However, the principle of respondeat superior is inapplicable here and provides no basis for reversing the CLIA action against Petitioner.

Respondeat superior is a common law doctrine "whereby a master is liable for his servant's torts committed in the course and scope of his employment." Burger Chef Systems, Inc. v. Govro, 407 F.2d 921, 925 (8^th Cir. 1969), citing Restatement of Agency, � 219. However, it is not a doctrine intended to protect employees. The authority for HCFA's action here springs not from common law tort principles, but from an act of Congress that specifically applies to the operator, as distinguished from the owner, of a CLIA laboratory. 42 U.S.C. � 263a(i). The statute does not hold the operator liable for damages, as in a tort action, but simply precludes eligibility to be the owner or operator of a laboratory for a period of time, where the owner or operator has proven himself untrustworthy or incompetent in the past. This is a remedial action intended to protect the public health. Congress's disjunctive use of the terms "owned" and "operated" in the section providing for the two-year ban clearly means that the operator of the laboratory may be someone other than the owner. HCFA was thus reasonable in including laboratory director within the regulatory definition of "operator," where the laboratory director oversees all facets of the operation of a laboratory and bears primary responsibility for the safety and reliability of the results of all specimen testing performed in the laboratory. 42 C.F.R. �� 493.2, 493.1407.

The evidence before the ALJ does not support Petitioner's contention that he was a mere victim of the machinations of Sentinel's owners. Petitioner did not dispute the ALJ's finding that he failed to fulfill his responsibilities specified in the CLIA regulations, including responsibility for assuring compliance with applicable regulations. One of HCFA's deficiency findings supporting revocation of Sentinel's CLIA certificate was that Sentinel failed to comply with the condition of participation for its laboratory director, Petitioner himself. Petitioner did not take issue with the ALJ's observation that in light of the widespread violations at Sentinel, of which Petitioner was aware, it was difficult to imagine that Petitioner was exercising any of his CLIA responsibilities. ALJ Decision at 9, 13. During 1997, which included the period during which Sentinel was being surveyed, Petitioner, who was also the laboratory director of three or four other clinical laboratories, visited Sentinel on an average of only two to three times per month through March, after which he visited the laboratory from five to six times per month and then, in the latter part of the year, up to ten times per month. ALJ Decision at 8, n.9. Thus, we question whether respondeat superior would in any circumstances offer Petitioner any relief, since the evidence suggests that Petitioner himself contributed to Sentinel's CLIA deficiencies, by not exercising the necessary oversight mandated by the regulations.

Additionally, the principle of respondeat superior, even if it were applicable, would offer no sanctuary to Petitioner in the face of a federal statute specifically providing a remedy affecting persons other than a laboratory's owners. Courts have held that congressional enactments can take precedence over principles of common law, including the principle of respondeat superior. Price v. Westmoreland, 727 F.2d 494 (5^th Cir. 1984). The Supreme Court has stated that "the power of Congress to change the common-law rule is not to be doubted." United States v. A & P Trucking Co., 358 U.S. 121, at 124 (1958).⁽⁷⁾ Petitioner's argument that Congress could not have intended to hold non-owners responsible for a laboratory's deficiencies flies in the face of the plain language of the CLIA statute. Petitioner did not cite any legislative history to support this contention, and furthermore offered no evidence to document his claim that at the time that Congress passed CLIA, it was unusual for laboratory directors not to be owners of the laboratories they operated.

5. The timing of the action against Petitioner was appropriate.

HCFA's action against Petitioner became effective upon issuance of the ALJ Decision; shortly thereafter, HCFA contacted other laboratories that employed Petitioner as laboratory director and warned them that their CLIA certificates would be revoked if they continued to employ Petitioner as their laboratory director. Tr. at 29. Petitioner argued that HCFA could not take action against him until HCFA's action had been upheld in federal court, the only body authorized to declare the CLIA statute and regulations invalid on constitutional grounds.

The CLIA regulations provide that suspension, limitation or revocation of a CLIA certificate "is not effective until after a hearing decision by an ALJ is issued." 42 C.F.R. � 493.1844(d)(2).⁽⁸⁾ The clear meaning of this provision is that, where a petitioner has requested an ALJ hearing, HCFA's action becomes effective upon issuance of an ALJ decision upholding that action. Because the same regulation also provides for the right to appeal an ALJ decision to the Board, the only reasonable reading of the regulation as a whole is that HCFA's action under CLIA, once upheld by an ALJ, is not postponed or stayed by further appeal to the Board. Accordingly, the ALJ did not commit an abuse of discretion, as Petitioner argued, by providing for the CLIA action to become effective upon issuance of his decision.

Permitting HCFA's action to take effect without delay upon issuance of the ALJ Decision is consistent with CLIA's purpose of ensuring the health and safety of persons undergoing laboratory tests. As HCFA noted in the preamble to the CLIA regulations, undue delay in the imposition of CLIA sanctions could mean further risk to the health and safety of the patients the laboratory serves and, in some instances, risk to the health of the general public. 57 Fed. Reg. 7224-25 (February 28, 1992).

During the oral argument, Petitioner cited provisions of the Administrative Procedure Act (APA) and the Federal Rules of Appellate Procedure (FRAP) in support of his argument that HCFA was without authority to take action against Petitioner upon issuance of the ALJ Decision. This action, however, is governed by the specific provisions of the CLIA regulations intended to govern CLIA actions, rather than by the more general provisions cited by Petitioner. Additionally, the cited provisions by their terms do not appear to be applicable here.

Petitioner relied on the APA, at 5 U.S.C. � 704, which provides that an agency may provide that its action is inoperative pending an appeal to a superior agency authority (such as this Board).⁽⁹⁾ Tr. at 21. Here, however, the applicable regulations provide that HCFA's action is not rendered inoperative by an appeal to the Board. Moreover, the subsequent section of the APA, 5 U.S.C. � 705, which Petitioner did not cite, states that an agency may postpone the effective date of its action pending judicial review (which this agency has chosen not to do), which clearly means that an agency is not required to postpone enforcement of sanctions pending judicial review.

Petitioner also cited 28 U.S.C. �� 2112 and 1296 and FRAP 15(b) during the oral argument. Section 2112(4) authorizes federal courts to stay the effective date of an agency order. That has not happened here, and, Petitioner's attempt to seek relief from HCFA's action was rejected by a federal court because Petitioner had not exhausted his administrative remedies. Section 1296 provides that the U.S. Court of Appeals for the Federal Circuit shall have jurisdiction "over a final decision under chapter 5 of title 3 . . . of an appropriate agency (as determined under section 454 of title 3)." Petitioner did not explain how this provision, even if applicable, could be interpreted to delay HCFA's action here. And finally, FRAP 15(b)(1) states that "application to enforce an agency order must be filed with the clerk of a court of appeals authorized to enforce the order." The language of FRAP Rule 15 as a whole makes clear that "applicants" filing such applications are not federal agencies but rather individuals affected by agency action, and that the federal agencies are deemed respondents who may file a response to such applications. This rule thus addresses non-agency parties who seek to enforce agency orders. It does not require that HCFA go to court in order to effectuate a determination that has already been upheld by an ALJ.

Petitioner's theory, that imposition of the statutory two-year prohibition on his owning or operating a laboratory must be stayed until a federal court has rejected his constitutional challenges, would enable clinical laboratories and laboratory directors (as well as health care providers facing exclusion from the Medicare and Medicaid programs) to delay for long periods of time the imposition of sanctions merely by raising constitutional claims beyond the authority of the Board. This is an absurd result which would thwart Congress's intent in passing CLIA of ensuring the accuracy and reliability of laboratory tests, and hence the public health of all Americans. See H.R. Rep. No. 899, 100^th Cong. 2d Sess. 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. Enforcing CLIA sanctions upon issuance of the ALJ decision upholding those sanctions is consistent with the concern expressed by Congress in enacting CLIA. The Committee on Energy and Commerce stated that it was "concerned about cases remaining in litigation for months or years while substantial violations remain uncorrected." H.R. Rep. No. 899, 100^th Cong. 2d Sess. 33 (1988), reprinted in 1988 U.S.C.C.A.N. 3854.

Conclusion

For the reasons discussed above, we uphold the ALJ Decision. We affirm and adopt each of the ALJ's findings of fact and conclusions of law.

Judith A. Ballard

M. Terry Johnson

Marc R. Hillson
Presiding Board Member

1. The ALJ opted to keep Sentinel as the captioned petitioner rather than substituting Petitioner.

2. The ALJ found that HCFA's evidence of these five deficiencies also supported HCFA's determination that Sentinel failed to comply with two additional conditions, the conditions for testing personnel in laboratories performing moderate complexity testing, and for inspection of laboratories requesting or issued a certificate of compliance. However, the ALJ did not discuss these findings in detail. ALJ Decision at 14, n.15.

3. By regulation, Petitioner's responsibilities at Sentinel included: overseeing proficiency testing and taking any corrective action necessary to address Sentinel's failure to pass proficiency tests; the establishment and maintenance of Sentinel's quality control and quality assurance programs (which the ALJ found were non-existent at Sentinel); and the employment of personnel competent to perform their duties. 42 C.F.R. � 493.1407. To the extent Petitioner delegated any of his duties to others, he remained responsible for ensuring that all of those duties were properly performed. 42 C.F.R. � 493.1407(b).

4. During the oral argument, Petitioner suggested that the problems at the laboratory were not as bad as argued by HCFA in its briefs, because HCFA had not sought a court order to close the laboratory immediately, as permitted by the CLIA statute and regulations. Transcript (Tr.) at 42-43. However, Petitioner did not specifically dispute any of the ALJ's factual findings concerning Sentinel's deficiencies.

5. As we explain later in this decision, HCFA's determination, while not final for purposes of judicial review prior to completion of the administrative appeals process, was effective upon issuance of the ALJ Decision.

6. HCFA contended before the ALJ that a laboratory director has no independent right to a hearing under the CLIA regulations, and argued that because Sentinel withdrew its challenge to the imposition of sanctions, Petitioner had to accept the two-year prohibition against him owning or operating a laboratory. The ALJ found that this would be a violation of Petitioner's right to due process, since he would be barred from the right to employment in his chosen field for two years without any recourse as regards challenging HCFA's findings. ALJ Decision at 6. The Department's ALJs have consistently ruled that a laboratory director has an independent right to a hearing, and HCFA wisely did not make this argument before the Board. See 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 (attached); Allstate Medical Laboratory, Inc., Docket No. C-99-309, Ruling, October 6, 1999 (attached); and Eugene R. Pocock, M.D., DAB CR527, at 5 (1998). We note that CLIA requires that HCFA, prior to taking action to revoke a laboratory's CLIA certificate, must offer the opportunity for a hearing to the laboratory's owner or operator, which includes the laboratory director. 42 U.S.C. � 263a(i)(1); 42 C.F.R. � 493.2.

7. In this respect, the federal court decision that Petitioner cited is not applicable here. Jackson Marine Corp. v. Blue Fox, 845 F.2d 1307, at 1310 (5^th Cir. 1988) ("Although established rules of respondeat superior operate to impute fault up the employment hierarchy, these rules do not operate in the inverse to impute fault down the employment hierarchy."). That case involved application of this common law doctrine to resolve an issue that arose under other common law principles, the principles of maritime law. Jackson Marine Corp. provides no authority to conclude that Congress may not impose remedies against persons other than the owner of a laboratory.

8. In cases involving lesser, or alternative, sanctions (other than civil monetary penalties), and sanctions in situations posing immediate jeopardy, the imposition of sanctions on a laboratory is not delayed because the laboratory has appealed and the hearing or the hearing decision is pending. 42 C.F.R. � 493.1844(d)(1), (2)(ii).

9. 5 U.S.C. � 704 provides:

Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review. A preliminary, procedural, or intermediate agency action or ruling not directly reviewable is subject to review on the review of the final agency action. Except as otherwise expressly required by statute, agency action otherwise final is final for the purposes of this section whether or not there has been presented or determined an application for a declaratory order, for any form of reconsideration, or, unless the agency otherwise requires by rule and provides that the action meanwhile is inoperative, for an appeal to superior agency authority.

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Appeals Board
Civil Remedies Division

Docket No. C-99-797

Date: Dec 21, 1999

In the Case Of: Carlos A. Cervera, M.D.,
Director, San Fernando Diagonostic Laboratory, Inc.
Petitioner

V.

Health Care Financing Administration.

RULING DENYING HCFA'S MOTION TO DISMISS AND GRANTING EXTENSION OF TIME FOR SUBMISSION OF READINESS REPORTS

In its motion, dated December 3, 1999, HCF contends that Dr. Cervera does not have the right to an appeal in a matter involving sanctions taken by HCF under the Clinical Laboratory Improvement, Amendments of 1988 (CLIA), against San Fernando Diagnostic Laboratory, Inc. HCF persists in its contention even though the letter imposing sanctions against the laboratory, dated June 17, 1999, was addressed to Dr. Cervera, and even though the sanctions proposed included a two year ban on his owning or directing a laboratory.

On August 1.0, 1999, Dr. Cervera appealed the HCF determination, and asked that his letter be considered a request for a hearing. Dr. Cervera essentially argued that he never acted as Director of the laboratory in question, that to his knowledge the laboratory never opened, and that he did not have a contract with the laboratory, among other statements in his letter.

The issues raised by this motion have been fully addressed by Judge Steinman in his order in Allstate Medical Laboratory, Inc, Docket No. C-99-309, October 6, 1999. (Copy attached). I adopt Judge Steinman's rationale in Allstate. In particular, I find that Dr. Cervera is an "affected party" within the meaning of 42 C.F.R. � 498.2, and that to cite Dr. Cervera as laboratory director and prohibit him from owning or operating a laboratory for two years, while at the same time denying him the same right to a hearing that the laboratory has raises significant issues of fairness and due process.

Accordingly, HCF's motion is denied.

The parties are instructed to promptly submit the report of readiness to present evidence as per my September 30, 1999 Order in this case. Since recent correspondence has demonstrated that the parties are having some difficulties regarding communicating with each other I will extend the date of filing this report to January 10, 2000. L will set up a prehearing conference in this matter during the week of January 24, 2000.

It is so ordered.

Marc R. Hillson
Administrative Law Judge

Addressees:

John B. Ramirez, President
American Association of Medical Professionals
2236S El Toro Road, Suite 186
Lake Forest, California 92630

Carlos A. Cervera, M.D.
14100 East Francisquito Avenue, Suite 1
Baldwin Park, California 91706

and

Brenda F. Kohn, Esq.
DHHS - Region IX
Federal office Building
50 United Nations Plaza, Room 420
San Francisco, California 94102

ATTACHMENT II:

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Departmental Appeals Board
Civil Remedies Division

In the Case of: Allstate Medical Laboratory, Inc.,

Petitioner,
v.

Health Care Financing Administration.

Docket No. C-99-309
DATE: October 6, 1999

RULING

The purpose of this ruling is to decide whether Pantaleon de Jesus, M.D., the director of Allstate Medical Laboratory, Inc., has a right to a hearing and, if so, the scope of that hearing right.

Forr the reasons set forth below, I have determined that Dr. de Jesus has a right to a hearing, which flows from the sanctions imposed by HCFA against Allstate Medical Laboratory, Inc. (Allstate). Accordingly, I deny HCFA's Motion to Dismiss.

Backqround

In a January 8, 1999 letter (Notice), HCFA informed Dr. de Jesus and Allstate that because it had not received any response from de Jesus as to why certain proposed sanctions should not be imposed, it was imposing the following sanctions as proposed in earlier letter dated December 23, 1998 [see footnote 1 below].

(1) a directed Plan of Correction of cease testing effective December 28, 1998, and submission of a client list of all clients since February 20, 1998;

(2) a civil money penalty of $10,000 per day for December 28 through December 30, 1998 for a total of $30,000;

(3) suspension of the laboratory's CLIA certificate and cancellation of Medicare and Medicaid payments effective December 31, 1998; and

(4) revocation of the laboratory's CLIA certificate effective February 21, 1999.

HCFA informed Dr. de Jesus further that, upon revocation of the laboratory's CLIA certificate, he would be prohibited from owning, operating, or directing a laboratory for at least two years from the date of the revocation. HCFA noted that Dr. de Jesus was currently directing five other laboratories besides Allstate, which was in itself a violation of the CLIA regulations.

Dr. de Jesus filed a request for hearing dated February 11, 1999 [see footnote 2 below]. His letter did not make any reference to the January 8, 1999 Notice letter sent by HCFA to Allstate, but stated at the end that it was a "formal request for a hearing on HCFA's actions affecting Dr. de Jesus." In his letter, Dr. de Jesus asserted, among other things, that "he [was] not responsible for the deficiencies listed in the survey report."

HCFA filed a motion to dismiss Dr. de Jesus, hearing request. In the alternative, and in accordance with numbered paragraph 2.D. of my June 18, 1999 Order, HCFA also filed its report of readiness to present evidence for adjudication of the case. Dr. de Jesus filed a response brief in which he opposed HCFA's motion.

The Parties' Positions

HCFA asserts that, under the CLIA statute and the regulations, Dr. de Jesus as an individual and in his capacity as the laboratory director is not a proper party to contest any of the sanctions imposed against the laboratory and does not otherwise have any right to a hearing to challenge the two-year prohibition against his owning or operating a laboratory. HCFA argues that only the laboratory is a proper party to challenge the sanctions imposed by HCFA. In response, Dr. de Jesus argues that he is an "affected party" under 42 C.F.R. � 498.2 and has the right to a hearing, which right flows from the sanctions imposed by HCFA against the laboratory. Dr. de Jesus relies on Eugene R. Pocock, M.D., DAB CR527 (1998) to support his contention that a person who is alleged to be an "operator" of a laboratory under the regulations has a direct right to appeal the prohibition against owning or operating (or directing) a laboratory for at least two years, resulting from a CLIA revocation.

DISCUSSION

I have considered the arguments of the parties and the applicable statutory and regulatory provisions. My analysis begins with an examination of HCFA's Notice dated January 8, 1999. HCFA's Notice is addressed to "Pantaleon De Jesus, M.D., Director" and "Allstate Medical Laboratory, Inc." Thus, on its face, the Notice names Dr. de Jesus as one of the addressees, and refers to him in his capacity as the laboratory director.

The principal sanction affecting Dr. de Jesus as an individual is that he is now prohibited from owning or operating (or directing) a laboratory for at least two years from the date of Allstate's CLIA certificate revocation, which became effective February 21, 1999. Dr. de Jesus' ability to have any meaningful involvement with any other laboratory as a director is now effectively suspended for a two-year period.

In its brief, HCFA recognizes that under 42 U.S.C. � 263a(i)(1), reasonable notice and opportunity for hearing must be given to the owner or operator of the laboratory before a laboratory's certificate may be suspended, revoked, or limited. HCFA contends, however, that the statute does not give any hearing rights to laboratory owners and operators who become prohibited from owning or operating other laboratories for two years following a CLIA certificate revocation. See 42 U.S.C. 263a(i)(3). HCFA asserts that only laboratories have been afforded hearing rights under-the CLIA statute and regulations.

In light of my analysis in Pocock, I find that HCFA's assertion that only laboratories are the proper parties to request a hearing to challenge HCFA's sanctions is without merit. The fact that the statutory provision at 42 U.S.C. � 263a(i)(1) references the laboratory's owner or operator signifies that these individuals have standing and would be parties in interest in proceedings which affect a laboratory's CLIA certificate. Simply put, in an administrative proceeding such as the one before me, a laboratory is merely a legal entity. For this reason, a laboratory and its owner and operator are essentially one and the same for purposes of contesting any adverse actions initiated by HCFA. A laboratory's owner and/or operator are the only individuals who could possibly represent its interests. Accordingly, I conclude that a laboratory, its owner, and its operator, all have equal standing and all possess a right to be heard on sanctions imposed by HCFA against the laboratory. I conclude further that a laboratory owner or operator has a right to a hearing to challenge the mandatory two-year prohibition against owning or operating a laboratory, as set forth in 42 U.S.C. � 263a(i)(3).

Moreover, I disagree with HCFA's argument that Dr. de Jesus is not an "affected party" within the meaning of 42 C.F.R. � 498.2. The regulation at 42 C.F.R. 498.2 defines the term "affected party" as follows:

. . . a provider, prospective provider, supplier, prospective supplier, or practitioner that is affected by an initial determination or by any subsequent determination or decision issued under this part . . . .

Because Dr. de Jesus is a physician, there can be no dispute that he is also a "practitioner." HCFA's determination to impose sanctions against Allstate adversely affects Dr. de Jesus' rights since, as a result, he will be prohibited for two years from owning or operating a laboratory. Thus, due to HCFA's sanctions, Dr. de Jesus can be characterized as a "practitioner that is affected by an initial determination issued under this part," and therefore falls within the definition of "affected party" under 42 C.F.R. � 498.2. Because Dr. de Jesus is an "affected party," he is entitled to a hearing under 42 C.F.R. �� 498.40 and 498.42.

It is nonsensical to state that when the statute and the regulations refer to adverse actions taken against the "laboratory", that no individual has a right to a hearing. HCFA's attempt to "play down" the role of a laboratory's owner or operator in the context of appealing adverse actions is contrary to what is reasonable or fair. A laboratory's owner and operator play essential roles in the functioning and conduct of the laboratory. To exclude a laboratory's owner and operator from having hearing rights would cause an outcome that is unacceptable and raises questions of fairness and due process.

The regulation at 42 C.F.R. � 493.2 defines the term "operator" to include "[a] director of the laboratory if he or she meets the stated criteria." HCFA, in its Notice, has named Dr. de Jesus, indicating that he is the director of the laboratory. Were I to accept HCFA's position that Dr. de Jesus, as Allstate's director, is not a proper party and is without any right to a hearing, he would be precluded from asserting in these proceedings that he is not an "operator," as that term is defined in the regulations.

In conclusion, as I interpret 42 C.F.R. � 498.2, Dr. de Jesus has the status of an "affected party" and therefore, has a right to a hearing under 42 C.F.R. � 498.40. The scope of Dr. de Jesus's hearing right encompasses the following issues:

1) whether or not Dr. de Jesus is an "operator" as defined in the regulations;

2) whether any of the laboratory activities which are alleged to be deficiencies were in violation of federal regulatory standards for a laboratory;

• whether any of the alleged deficiencies, if proven, are

subject to sanctions; and

4) whether any of the alleged deficiencies occurred while Dr. de Jesus was an operator, assuming he is found to be an operator.

Edward D. Steinman
Administrative Law Judge

Addressees:

Alan I. Kaplan, Esq.
Silver & Freedman
Attorneys at Law
1925 Century Park East, Suite 2100
Los Angeles, California 90067-2722

and

Brenda F. Kohn, Esq.
Assistant Regional Counsel
DHHS - Region IX
50 United Nations Plaza, Room 420
San Francisco, California 94102

ATTACHMENT II RULING FOOTNOTES:

(1) In its earlier letter dated December 23, 1998, HCFA informed Dr. de Jesus and Allstate that it concurred with the State agency's November 12, 1998 survey findings and its recommendations, and would be imposing sanctions against Allstate. HCFA recounted that at the November 12, 1998 survey, the State agency had found Allstate to be out of compliance with several conditions under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), as well as numerous standard-level deficiencies. Based on these findings, the State agency had determined that immediate jeopardy to patient health and safety existed and directed Allstate to take immediate action to remove the jeopardy situation. HCFA stated in this letter that "due to your failure to remove jeopardy and correct all cited deficiencies, and your failure to properly report a change in ownership within the 30 day time frame as required by 42 C.F.R. � 493.51," it would impose the sanctions of a civil money penalty, directed plan of correction, suspension and revocation of Allstate's CLIA certificate, and cancellation of Allstate's approval to receive Medicare payments. HCFA stated further that under 42 U.S.C. � 263a(i)(3) and 42 C.F.R.� 493.1840(a)(8), the present owner or operator (including director) would be prohibited from owning or operating (or directing) a laboratory for at least two years from the date of the CLIA certificate revocation. HCFA concluded the letter by giving ten calendar days to Allstate to submit any written evidence or other information against the imposition of the proposed sanctions.

(2). Allstate, through its owner, also filed a request for hearing dated January 14, 1999, which contested only the imposition of the CMP. As a result, revocation of Allstate's CLIA certificate became effective February 21, 1999.