SUBJECT: Rustom Ali, Jahan Ferdous, and
Scottsdale Medical Laboratory,

Petitioner,

Centers for Medicare & Medicaid Services

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

Rustom Ali and Jahan Ferdous appealed a February 18, 2005 decision by Administrative Law Judge (ALJ) Keith W. Sickendick. Rustom Ali, Ph.D., Operator of Scottsdale Medical Laboratory, DAB CR1280 (ALJ Decision). ⁽¹⁾ The ALJ Decision upheld the action by the Centers for Medicare & Medicaid Services (CMS) revoking the certificate of registration issued to Scottsdale Medical Laboratory under the Clinical Laboratory Improvement Amendments of 1988 (CLIA). CMS's action was based on a review by the Arizona Department of Health (the State agency) finding three condition-level deficiencies at Scottsdale Medical Laboratory (Scottsdale).

[Page 2] As explained below, we uphold the ALJ's conclusion that revocation of Scottsdale's CLIA certificate was authorized because Scottsdale failed to comply with two CLIA conditions of participation. We also uphold the ALJ's conclusion that Petitioners Ferdous and Ali as well as Robert Gilsdorf, the laboratory director, are banned from owning, operating, or directing a laboratory subject to CLIA for a period of two years from the effective date of the ALJ Decision. Since the revocation of Scottsdale's CLIA certificate is sustainable based on Scottsdale's failure to meet either one of two CLIA conditions, we modify the ALJ Decision to not rely on his conclusions that Petitioners Ferdous and Ali, as well as Dr. Gilsdorf and a laboratory employee, individually or collectively, were guilty of misrepresentation in obtaining Scottsdale's certificate of registration and that this is an independent basis for revocation.

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 health and safety of those tested. See H.R. Rep. No. 899, 100^th Cong. 2d Sess. 8 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3829.

Generally, a laboratory that intends to perform tests of high and/or moderate complexity must initially apply for a certificate of registration which is effective for two years or until an initial program compliance inspection is conducted by CMS or its agent. ⁽²⁾ 42 C.F.R. �� 493.43 and 493.45. ⁽³⁾ If upon initial compliance inspection, a laboratory is found to be in compliance [Page 3] with the applicable conditions of certification set out in subparts H, J, K, M, P, and Q of Part 493, the laboratory is issued a certificate of compliance. Each condition represents a general requirement that must be met for certification. Standards are the specific components of the conditions, and failure to meet one or more standards may be so serious as to constitute a failure to comply with the conditions of certification. Edison Medical Laboratories, Inc., DAB No. 1713, at 2 (1999).

Failure by a laboratory to comply with even a single applicable condition may be grounds for suspension or revocation of the CLIA certificate of registration and denial of the laboratory's application for a certificate of compliance. 42 C.F.R. �� 493.45(d) and 493.1806(a). Pursuant to 42 U.S.C. � 263a(i)(3), once a laboratory's CLIA certificate has been revoked, the owner and operator of the laboratory is prohibited from owning or operating a laboratory for two years.

CMS may also impose alternative sanctions on a laboratory. 42 C.F.R. � 493.45(d). Alternative sanctions may include a directed plan of correction, a civil money penalty (CMP), and suspension of Medicare payment for tests in some or all specialties or subspecialties performed after the effective date of the sanction. 42 C.F.R. � 1806(c). CMS must give a laboratory at least 10 days to respond to CMS's written notice of the condition-level noncompliance that it has identified and of the sanction or sanctions that it proposes to impose. 42 C.F.R. �� 493.45(f) and 493.1810(a) and (b).

A laboratory or, under circumstances specified in 42 U.S.C. � 263a(i)(1)), a laboratory owner or operator 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 determination as to which alternative sanctions to impose, the amount of any CMP and the determination that a laboratory's deficiencies pose immediate jeopardy are not appealable. The CLIA regulations incorporate by reference the hearing procedures and the request for review provisions in 42 C.F.R. Part 498, subparts D and E. 42 C.F.R. � 493.1844.

Standard of Review

The standard of review on factual issues is whether the ALJ decision is supported by substantial evidence in the whole record. The standard of review on issues of law is whether the ALJ decision is erroneous. An error of procedure may be a basis for modifying, reversing or remanding an ALJ decision if the [Page 4] error is prejudicial. 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

A CLIA laboratory registration certificate was issued to Scottsdale on May 24, 2001. A complaint survey of Scottsdale completed on August 16, 2001 found that Scottsdale was in violation of three condition-level requirements. After two revisit surveys, the State agency found that Scottsdale was "marginally" in compliance with CLIA requirements. An initial certification survey of Scottsdale completed on December 17, 2001 found Scottsdale not complying with three condition-level requirements. The three condition-level requirements were Patient Test Management (42 C.F.R. � 493.1101), Laboratory Director (42 C.F.R. � 493.1403), and Quality Assurance (42 C.F.R. � 493.1701). In a letter dated February 8, 2002 addressed to Dr. Gilsdorf as well as to Petitioners Ferdous and Ali, CMS gave notice that it proposed to impose sanctions based on the three condition-level deficiencies found by the surveyors. ⁽⁴⁾ The proposed sanctions included a directed plan of correction, a CMP, revocation of Scottsdale's CLIA certificate of registration, and cancellation of Scottsdale's approval to receive Medicare payments. CMS's letter stated that Scottsdale had until February 18, 2002 to submit written evidence or other information as to why these sanctions should not be imposed. By letter dated February 28, 2002, CMS stated that it had reviewed submissions received from Scottsdale but had determined that these submissions confirmed that Scottsdale was not in compliance with the applicable condition-level requirements at the time of the December 17, 2001 survey. CMS stated that it was therefore imposing the following sanctions: a directed plan of correction of cease testing, effective February 23, 2002; a CMP in the amount of $3,000 per day, effective February 23, 2002 until the revocation of Scottsdale's CLIA certificate becomes effective; cancellation of Scottsdale's approval to receive Medicare and [Page 5] Medicaid payments, effective February 23, 2002; and revocation of Scottsdale's CLIA certificate, effective April 9, 2002. CMS also stated that if a request for hearing was filed by April 9, CMS would not collect the CMP or revoke Scottsdale's CLIA certificate until an ALJ hearing that upholds CMS's determination. Petitioners Ferdous and Ali timely requested a hearing by an ALJ, challenging the CMS determination.

The ALJ addressed two of the three condition-level deficiencies which were the basis for the sanctions imposed by CMS. The ALJ concluded that Scottsdale violated 1) the requirement for Patient Test Management at section 493.1101, and 2) the requirement for Quality Assurance at section 493.1701. Conclusions of Law 8 and 9. The ALJ concluded that these violations were a sufficient basis for the revocation of Scottsdale's CLIA certificate. Conclusion of Law 10. The ALJ also found as an independent basis for revocation of Scottsdale's CLIA certificate that Petitioners Ferdous and Ali (and/or an employee of Scottsdale) were guilty of misrepresentation in obtaining the certificate of registration for Scottsdale. Conclusions of Law 4 and 5. In addition, the ALJ found that Petitioner Ali was both an owner and an operator of Scottsdale and that he as well as Petitioner Ferdous and Scottsdale's laboratory director were subject to the two-year ban on owning, operating, or directing a laboratory subject to CLIA. Conclusions of Law 23, 24, and 26. The ALJ reversed CMS's decision to impose a CMP of $3,000 per day for the period February 23, 2002 to April 9, 2002. CMS did not appeal the ALJ Decision. We therefore do not review the ALJ's reversal of the CMP. ⁽⁵⁾

Below, we set out the factual bases and Petitioners' arguments regarding the two condition-level deficiencies found by the ALJ and discuss why Petitioners' arguments are unavailing. Next, we explain why we do not reach the issue of whether there was misrepresentation in obtaining Scottsdale's CLIA certificate of registration that was an independent basis for revocation. We then explain why we reject Petitioners' argument that Petitioner Ali was not subject to the two-year ban because he was neither an owner nor an operator of Scottsdale. Finally, we explain why we reject Petitioners' procedural arguments.

[Page 6] I. Patient Test Management

Section 493.1101 requires, as a condition of certification, that each laboratory performing moderate complexity and/or high complexity testing-

must employ and maintain a system that provides for proper patient preparation; proper specimen collection, identification, preservation, transportation, and processing; and accurate reporting. This system must assure optimum patient specimen integrity and positive identification throughout the preanalytic (pre-testing), analytic (testing), and postanalytic (post-testing) processes and must meet the standards as they apply to the testing performed.

The ALJ concluded that Petitioners violated this condition by violating the standards at sections 493.1107(d), 493.1109(a) and 493.1109(b). Conclusion of Law 8. The ALJ Decision states that Petitioners "do not deny the accuracy of the facts alleged by the surveyors," but that Petitioners argued only "that the deficiencies were corrected or were minor errors that did not amount to a deficiency after correction." ALJ Decision at 18; see also Findings of Fact 15 and 16. The ALJ found that "Petitioners' assertions reveal systemic errors which were only corrected when the surveyors caught them" and that "there is clearly a condition-level deficiency that represented a threat to the health and safety of patients who had specimens tested at Scottsdale." ALJ Decision at 18.

Petitioners assert that, contrary to what the ALJ stated, they disputed facts alleged by the surveyors. P. Appeal Br. at 2. In support, Petitioners cite Table 2 of their post-hearing brief as well as a similar table in their post-hearing reply brief (Table 3). The tables list most of the test report errors cited by the surveyors, each of which is classified as "Existed but corrected" or "Did not exist." Some of the errors classified as "Did not exist" are also classified as "Should not have been cited." It is unclear from the tables what, if any, factual allegations in the survey reports are disputed; indeed, the tables appear to be an admission that there were problems with some of the test reports. ⁽⁶⁾ Moreover, on appeal, Petitioners point to no evidence [Page 7] in the record that contradicts the surveyors' factual findings. Accordingly, we find no error in the ALJ's treating the surveyors' factual findings as undisputed.

Petitioners make other arguments that are not specifically addressed in the ALJ Decision. ⁽⁷⁾ We discuss their arguments with respect to each of the three standards at issue below.

Section 493.1107(d) (Tag D3041). This section provides, "The record system must include the records and dates of all specimen testing, including the identity of the personnel who performed the test(s), which are necessary to assure proper identification and accurate reporting of patient test results." The surveyors found that Scottsdale failed to accurately document test dates for three of 13 test reports examined. Specifically, the surveyors found that 1) the final test report for patient 738 indicated that the test for electrolytes was run on November 9, 2001 although the "technical supervisor demonstrated" that the test was actually run on November 8, 2001; 2) the final test report for patient 881 showed that tests for routine chemistry were run on December 3, 2001 and tests for electrolytes were run on December 20, 2001, but the patient log indicated that the specimen was received on November 30, 2001; and 3) the final test report for patient 906 indicated that the specimen was received by the laboratory on December 7, 2001 and that all testing was done on December 6, 2001, while the patient log indicated that the specimen was received on December 5, 2001. ⁽⁸⁾ ALJ Decision at 17, citing CMS Ex. 22, at 2-3.

Petitioners argue that the surveyors improperly relied on the test report dates to find a violation of the regulatory standard [Page 8] because the regulation does not require that the date of testing be on the test report. P. Reply Br. at 8-9. Petitioners also assert that information on a laboratory worksheet recording the order in which specimens are run, known as the "cup number," can be matched up with the specimen number and cup number on the instrument printout in order to determine the date a particular specimen was actually tested. P. Reply Br. at 8; Tr. at 381-386. Surveyor Diane Eckles acknowledged that Petitioner Ali had shown her at the survey how to determine the test date for the specimen for patient 881 using this method. Tr. at 130-131. However, she stated that this was not sufficient documentation to comply with the regulatory standard because "it just was not clear enough and specific enough to me to really verify that this was actually that patient." Tr. at 131. ⁽⁹⁾

Petitioners are correct that the regulation does not specify where the date of specimen testing must be recorded. Since Scottsdale chose to record the testing dates on its test reports, however, CMS properly found that recording incorrect dates on these reports violated the regulation. Moreover, we conclude that the date on the instrument printout did not satisfy the requirement for a "record system" that includes the date of specimen testing because the test date for a particular patient specimen could not be determined from the face of the printout. Petitioner Ali testified that after the survey Scottsdale changed its practice so that after the comparison described above was performed, the test date was cut off of a copy of the instrument printout and attached to the patient's test requisition. Tr. at 384-386. Even if this met the regulatory standard, however, it [Page 9] is irrelevant since the salient question here is whether Scottsdale had the requisite record system at the time of the survey. Moreover, the survey findings support a conclusion that some of the dates that were recorded were not accurate. Accurate recording is important because, as Surveyor Eckles indicated, specimens can be "compromised" if they are not processed in a timely manner. See Tr. at 36, 38. Accurate reporting is also important to ensure that a laboratory performed quality control (e.g., calibrated its test equipment) on the days that the tests were run. See Tr. at 52.

Section 493.1109(a) (Tag D3050). This section provides that "[t]he laboratory must have adequate systems in place to report results in a timely, accurate and reliable manner." The surveyors found that 1) patient 824 had a final report showing a lymphocytes result of 53.2, but the instrument printout showed 52.3, and 2) patient 906 had a final report showing a "sed rate" of 11 but the laboratory log book showed a sed rate of 38. ALJ Decision at 18, citing CMS Ex. 22, at 3.

Petitioners acknowledge that the final test reports for patients 824 and 906 did not correctly report the actual results; however, Petitioners assert that there was no evidence of any actual harm to either patient. P. Appeal Br. at 7-8; P. Reply Br. at 10. A showing of actual harm is not required to find a violation of the requirement that a laboratory have adequate systems in place to report accurate results. Even the existence of a potential for actual harm would frustrate the underlying purpose of CLIA to ensure public health and safety by requiring that laboratories provide accurate and reliable test results. Petitioners do not dispute that the inaccurate test results found by the surveyors posed a potential for actual harm. While Petitioners describe the errors as due merely to data entry problems (see P. Appeal Br. at 7-8; P. Ex. 36), the source of the errors does not diminish their potential for harm.

Petitioners also argue that the violations cited here did not qualify as a deficiency because they were "minimal" compared to the violations cited in Millennium Clinical Laboratories, Inc., DAB No. 1212 (2004), where the finding of a deficiency under section 493.1109(a) was based on "critical values, many analytes, many patients for duration of a few months." P. Appeal Br. at 13; P. Reply Br. at 11. It is irrelevant that the deficiency finding here was based on fewer specific examples of errors than in Millenium as long as the errors reflect the lack of a system to prevent or detect such errors. Petitioners do not allege that they had an adequate system in place at the time of the December 17, 2001 survey.

[Page 10] Section 493.1109(b) (Tag D3056). This section provides that "[t]he test report must indicate the name and address of the laboratory location at which the test was performed, the test performed, the test result and, if applicable, the units of measurement." The surveyors found that test reports for patients 768, 776 and 730 did not include the name and address of the reference laboratory that performed certain tests included on the reports. ALJ Decision at 18, citing CMS Ex. 22, at 4.

Petitioners argue that the surveyors incorrectly characterized the laboratories at which the tests were performed as reference laboratories. This term is not defined in the regulations but is used to mean a laboratory that receives specimens from another laboratory in order to perform certain tests that the referring laboratory is not certified to perform. See Sonali Diagnostic Laboratory, DAB No. 2008 (2006). According to Petitioners, Scottsdale regularly performed the types of tests in question. Petitioners allege that Petitioner Ali prepared the tests for analysis at Scottsdale but that, finding the testing instrument suddenly out of order, he "took the test tubes to a neighboring lab and took reading of calibrator, controls and patient specimens and came back to the facility, processed the data and reported the results." ⁽¹⁰⁾ P. Appeal Br. at 10; see also Tr. at 306-309. The ALJ did not rely on the surveyors' use of the term "reference laboratory," however. The ALJ Decision simply says that the three test reports cited by the surveyors did not show that some of the tests were performed at another laboratory. ALJ Decision at 18. The ALJ correctly found that these facts are sufficient to establish a violation of section 493.1109(b), which requires that the test report specify "the name and address of the laboratory location at which the test was performed . . . ." While Petitioners allege that some of the steps of the testing process were performed at Scottsdale, they acknowledge that the test was actually run on an instrument located at another laboratory. The laboratory that performs this critical step of the testing process is reasonably viewed as the laboratory at which the test was performed.

Petitioners also argue that section 493.1109(b) applies only where a laboratory has multiple sites, not where a laboratory refers a specimen to a reference laboratory for tests. P. Reply [Page 11] Br. at 10. Petitioners note that the regulation at section 493.1111, which pertains specifically to the referral of specimens, does not require that the referring laboratory's final report include the name and address of the reference laboratory. Id. The Board rejected the same arguments in Sonali Diagnostic Laboratory, stating as follows:

On its face, section 493.1109(b) requires the test report to indicate the name and address of the laboratory location at which the test was performed. Nothing in the requirement limits its application to a laboratory with multiple locations. Moreover, requiring this information for all laboratories is consistent with the underlying purpose of the requirement, which is to enable "the individual requesting and/or utilizing the test results to require additional test information to aid in result interpretation and treatment of patients ." 57 Fed. Reg. 7002, 7055-7056 (Feb. 28, 1992). The fact that section 493.1111 pertains specifically to referral of specimens does not mean that no other provision applies to the situation where specimens are referred. We see no conflict between the requirement in section 493.1111 that the referring laboratory notify the person who orders a test of the name and address of each laboratory location at which a test was performed and reading section 493.1109(b) to require that the referring laboratory's final report include the name and address of any reference laboratory that performed a test.

Sonali at 17-18 (emphasis in original, footnote omitted). ⁽¹¹⁾ Contrary to what Petitioners allege, moreover, CMS's witness Gary Yamamoto did not testify that the regulation applies only to multiple sites of a facility with a single CLIA license, but simply offered this as an example of a situation to which the regulation applies. Tr. at 293-294.

Petitioners also argue that the "number and seriousness" of the standard-level deficiencies is insufficient to support finding a [Page 12] condition-level deficiency under section 493.1101. P. Reply Br. at 14. As indicated above, even Scottsdale's violation of a single standard by failing to accurately record test dates had serious implications. Thus, we see no error in the ALJ's conclusion that there was a condition-level deficiency based on the following analysis:

A laboratory such as Scottsdale is in the business of receiving specimens from physicians, conducting testing upon those specimens, and then returning final reports of testing to the physicians. Physicians rely upon those reports to make treatment decisions, and the purpose of CLIA is to ensure that both the testing and report results are reliable so that physicians' decisions are the best possible. Petitioners hope to characterize their reporting errors as minor and having little impact once corrected. However, Petitioners' assertions reveal systemic errors which were only corrected when the surveyors caught them. Given the facts of this case, there is clearly a condition-level deficiency that represented a threat to the health and safety of patients who had specimens tested at Scottsdale.

ALJ Decision at 18.

Thus, we affirm the ALJ's conclusions regarding Scottsdale's failure to comply with the condition for patient test management.

II. Quality Assurance

Subpart P of Part 493 contains one condition and 10 standards related to quality assurance for moderate and/or high complexity testing. Section 493.1701 requires, as a condition of certification, that each laboratory performing such testing-

must establish and follow written policies and procedures for a comprehensive quality assurance program that is designed to monitor and evaluate the ongoing and overall quality of the total testing process (preanalytic, analytic, postanalytic). The laboratory's quality assurance program must evaluate the effectiveness of its policies and procedures; identify and correct problems; assure the accurate, reliable and prompt reporting of test results; and assure the adequacy and competency of the staff. As necessary, the laboratory must revise policies and procedures based upon the results of those evaluations. The laboratory [Page 13] must meet the standards as they apply to the services offered, complexity of testing performed and test results reported, and the unique practices of each testing entity. All quality assurance activities must be documented.

Section 493.1703, the standard for patient test management assessment, states in pertinent part:

The laboratory must have an ongoing mechanism for monitoring and evaluating the systems required under subpart J, Patient Test Management. The laboratory must monitor, evaluate, and revise, if necessary, based on the results of its evaluations, the following:

* * * * *

(d) The completeness, usefulness, and accuracy of the test report information necessary for the interpretation or utilization of test results;

* * * * *

(f) The accuracy and reliability of test reporting systems, appropriate storage of records and retrieval of test results.

The ALJ concluded that Scottsdale violated the quality assurance condition in section 493.1701 by violating sections 493.1703(d) and 493.1703(f). ⁽¹²⁾ Conclusion of Law 9. The ALJ indicated that it was not necessary for him to consider the surveyors' findings that Scottsdale violated three additional standards. ALJ Decision at 19. The ALJ noted that the surveyors based their finding of a violation of section 493.1703(d) on the same undisputed facts that supported their finding of a violation of sections 493.1109(a) and 493.1107(d). Id., citing CMS Ex. 22, at 14. The ALJ also noted that the surveyors based their finding of a violation of section 493.1703(f) on the same undisputed facts that supported their finding of a violation of section 493.1109(a). Id., citing CMS Ex. 22, at [Page 14] 14. The ALJ observed that "Petitioners complain that CMS did not give them another chance by evaluating their February 2002 plan of correction and allegation of compliance." Id. at 19. The ALJ stated, however, that "CMS has the discretion to revoke the certificate of registration in this case rather than imposing alternative sanctions intended to bring Petitioners into compliance with participation requirements." Id. at 20, citing 42 C.F.R. �� 493.1804, 493.1806, and 493.1814. The ALJ indicated that CMS properly exercised its discretion here since Scottsdale "was found to have similar record keeping and reporting problems" to those in Sonali Diagnostic Laboratory, another laboratory operated by Petitioner Ali. ⁽¹³⁾ Id. at 19-20.

Petitioners argue that the ALJ erred in upholding CMS's finding of a violation of the quality assurance condition in section 493.1701 based on facts which constitute a violation of another CLIA condition. In support of this argument, Petitioners cite the following statement in CMS's interpretive guidelines: "Standard level deficiencies written in one subpart cannot be the basis for a condition in another subpart." P. Appeal Br. at 9- 11 and P. Reply Br. at 12, citing SOM, App. C, VII.C. This provision is inapposite here, however. The surveyors found that Scottsdale violated the condition at section 493.1701 based on their findings that Scottsdale violated standards under section 493.1701, not under another condition. To the extent that Petitioners intended to argue instead that CMS could not properly rely on the same facts to support deficiency findings with respect to more than one condition of participation, nothing in the cited language precluded CMS from doing so. Indeed, it is reasonable to draw an inference from the facts on which CMS relied to find a violation of section 493.1101, the condition for patient test management, that Scottsdale was not performing quality assurance regarding its record systems, as required by the condition at section 493.1701. That inference was sufficient [Page 15] to shift the burden to Petitioners to show that Scottsdale was performing such quality assurance.

Petitioners argue, however, that the facts alleged by the surveyors in finding a violation under section 493.1109(a) (that the date of specimen testing shown on the test reports was wrong) do not support finding a violation under section 493.1703(d) because the facts do not pertain to the accuracy of test reports. P. Reply Br. at 14. We disagree. Section 493.1703(d) requires monitoring of "[t]he completeness, usefulness, and accuracy of the test report information necessary for the interpretation or utilization of test results . . . ." The date of specimen testing is an indicator of the "accuracy of the test report information" and is "necessary" for the "utilization of test results" since test results may be compromised if the specimen is not timely processed. See Tr. at 36, 38. In any event, the ALJ also found, and Petitioners do not dispute, that the facts alleged by the surveyors in finding a violation under section 493.1107(d) (that the values for several specimens tested were wrong) support finding a violation under section 493.1703(d).

Petitioners also argue that Scottsdale complied with section 493.1703 since Scottsdale was monitoring the accuracy of test results at the time of the December 17, 2001 survey. P. Reply Br. at 13-14, citing P. Ex. 36. The document cited by Petitioners indicates that Scottsdale had developed a quality assurance method of reviewing 10 random test reports for data entry errors and wrong dates every two weeks, but shows the "Date of Review" for the period 10/1/01 through 2/1/02 as "02/01/02." Thus, the document does not show that quality assurance was being done prior to the December 17, 2001 survey. Moreover, the report for the December 17, 2001 survey specifically finds that a monitoring "policy had been developed but had not been implemented" as of the date of that survey; this finding was based on an interview with the technical consultant and on the lack of documentation of quality assurance reviews. CMS Ex. 22, at 14-15. The fact that Scottsdale's plan of correction shows a completion date of "2/1/02" for instituting a monitoring process is consistent with the survey report finding. See P. Ex. 25, at 17.

Thus, we affirm the ALJ's conclusions regarding Scottsdale's failure to comply with the condition for quality assessment and in particular with the standard for patient test management assessment.

[Page 16] III. Misrepresentation

Pursuant to 42 U.S.C. � 263a(i)(1), the Secretary may suspend, revoke, or limit a laboratory's CLIA certificate, if after "reasonable notice and opportunity for hearing," it is found that the owner, operator, or any employee of a laboratory has been guilty of misrepresentation in obtaining the certificate. See also 42 C.F.R. � 493.1840(a)(1). The ALJ found that Petitioners Ferdous and Ali (and/or an employee of Scottsdale) were guilty of misrepresentation in obtaining the certificate of registration for Scottsdale and that this was an independent basis for revocation of Scottsdale's CLIA certificate. Conclusions of Law 4 and 5. Although the ALJ noted that a CMS witness testified that "had Petitioner Ali's involvement been known to CMS at the time of its notices, misrepresentation would have been cited as an additional basis for revocation," the ALJ observed that "CMS does not specifically allege in either its February 8, 2002 notice or its February 28, 2002 notice that misrepresentation on the application in this case is a basis for revocation . . . ." ALJ Decision at 14-15. The ALJ found, however, that CMS alluded to this issue in its February 8, 2002 notice and that it was clear from Petitioners' request for hearing that they understood that CMS was raising this issue. The ALJ also stated that evidence was taken at the hearing on this issue and that Petitioners addressed this issue in their post-hearing brief. The ALJ thus concluded that "Petitioners had adequate notice and opportunity to present evidence on the issue of whether the owner, operator, or an employee of Scottsdale was guilty of a misrepresentation in the application process, which is an independent basis for revocation of the laboratory's CLIA certificate." Id. at 15.

Petitioners argue that they did not have notice of this issue prior to the issuance of the ALJ Decision. Specifically, Petitioners contend that CMS never alleged misrepresentation as a basis for revocation of Scottsdale's CLIA certificate, that neither Petitioners' hearing request nor their post-hearing brief raised this issue, and that the ALJ did not identify this as an issue in the case prior to the decision. P. Appeal Br. at 2, 5-6; P. Reply Br. at 2-3.

Whether CMS's initial determination to revoke Scottsdale's certificate was based on alleged misrepresentation is not determinative of whether it was proper for the ALJ to also uphold the revocation on the independent ground of misrepresentation. As CMS points out, the ALJ may consider new issues under 42 C.F.R. � 498.56, even if CMS has not made initial or reconsidered determinations on them. Section 498.56(c) [Page 17] provides that notice of any new issues "will be given to the parties in accordance with section 498.52," which, in turn, provides for written notice of "the general and specific issues to be resolved at the hearing." Here, there is no indication that the ALJ gave written notice under section 498.52(b) that he was considering the issue of whether the certificate could be revoked based on misrepresentation. However, the ALJ's discussion of the misrepresentation issue indicates that he did not consider this to be a new issue but, rather, an issue of which Petitioners already had adequate notice, as indicated by certain submissions and evidence of record cited by the ALJ. We do not need to decide whether there was adequate notice since we uphold the ALJ's conclusions that Scottsdale failed to meet two CLIA conditions, either one of which provides a basis for the revocation and the other sanctions upheld by the ALJ. Since that basis is sufficient, on appeal we modify the ALJ Decision to not rely on Conclusions of Law 4 and 5.

IV. Whether Petitioner Ali was an owner or operator of Scottsdale and thus subject to the two-year ban in 42 U.S.C. � 263a(i)(3)

Pursuant to 42 U.S.C. � 263a(i)(3), the owners and operators of a laboratory that has its CLIA certificate revoked are not eligible to own or operate another CLIA laboratory for two years. The term "owner" is defined in section 493.2 as "any person who owns any interest in a laboratory except for an interest in a laboratory whose stock and/or securities are publicly traded." The term "operator" is defined in section 493.2, in pertinent part, as "the individual or group of individuals who oversee all facets of the operation of a laboratory and who bear primary responsibility for the safety and reliability of the results of all specimen testing performed in that laboratory."

The ALJ concluded that Petitioner Ali was both an owner and an operator of Scottsdale within the meaning of the CLIA regulations (Conclusions of Law 23 and 24) and that he was thus subject to the two-year ban (Conclusion of Law 26). ⁽¹⁴⁾ The ALJ based his [Page 18] conclusion that Petitioner Ali was an owner of Scottsdale on his findings that Scottsdale was created at a time when Petitioner Ali was married to the owner of record, Petitioner Ferdous, and that the laboratory (located in Arizona) was community property under Arizona law. See ALJ Decision at 16. The ALJ explained his conclusion that Petitioner Ali met the definition of "operator" as follows:

Facts supporting my conclusion that Petitioner Ali was also an operator are: from September 6, 2001 (CMS Ex. 18) through the December 17, 2001 survey (CMS Ex. 25), Petitioner Ali was the only person listed on the laboratory's personnel report other than Director Gilsdorf, and Petitioner Ali was listed as performing all functions in the laboratory except those of Director and Clinical Consult (a position he was not qualified to fill); Petitioner Ali contracted with Dr. Gilsdorf for Dr. Gilsdorf to be the director (CMS Ex. 19); the former director, Dr. Holland, submitted his resignation to Petitioner Ali; Petitioner Ali signed the lease for the laboratory space (Tr. 472); Petitioner Ali owned all the laboratory equipment; Dr. Gilsdorf only visited the laboratory once every two weeks and Petitioner Ali could not recall how much time he actually spent at the laboratory (Tr. 476); and, finally, Petitioner Ali asserted in testimony that his wife was the operator of Scottsdale (Tr. 432), but admitted he was not sure she was qualified to do any testing and that her primary responsibilities involved meeting sales people and buying things (Tr. 435). Surveyor Eckles testified that when she visited the laboratory, it appeared to her that Petitioner Ali was doing everything in the laboratory. Tr. 88-89, 151-52. It is clear from the facts that Petitioner Ali previously owned, operated, and directed other laboratories, but his wife had no such experience. Further, Dr. Gilsdorf's biweekly visits were not sufficient to oversee all testing and reporting going on at Scottsdale and Petitioner Ferdous was not qualified to oversee laboratory operations. Thus, by process of elimination, only Petitioner Ali was operating Scottsdale, most of the time. I note that the [Page 19] regulations do not preclude the possibility that there may be multiple operators of a laboratory and that it is consistent with the facts that both Dr. Gilsdorf and Petitioner Ali both fulfilled duties as operators.

ALJ Decision at 24-25.

Petitioners take exception both to the ALJ's conclusion that Petitioner Ali was an owner and to the ALJ's conclusion that Petitioner Ali was an operator. P. Appeal Br. at 2-3. With respect to the former, Petitioners argue that Arizona common law "permits waiver of the ownership to the other party." Id. at 2. Petitioners argue in the alternative that State law is not relevant for purposes of CLIA. P. Reply Br. at 4. Petitioners also argue that Petitioner Ali was not an operator since he did not have "the authority/power . . . to change the policy and procedures of the laboratory." P. Reply Br. at 23. According to Petitioners, at the complaint survey, CMS would not accept Petitioner Ali's signature "to approve the policy and procedures of the laboratory." Id. Petitioners acknowledge that Petitioner Ali "was involved in all testing alone . . . , participated in [proficiency testing] samples and [was] involved in assisting surveyors during surveys," but assert that these duties were those of a laboratory technologist, not an operator. P. Post-hearing Br. at 23 (cited in P. Appeal Br. at 14).

Petitioners' arguments are unavailing. The CLIA regulations require that a laboratory's procedures (including each change in a procedure) be approved and signed by the director. 42 C.F.R. � 493.1211(d) and (f). Thus, it appears that the surveyors would not accept Petitioner Ali's signature on the procedures because he was not the laboratory director and that this had no bearing on whether he was an operator. Moreover, Petitioners do not dispute the testimony of Surveyor Eckles, to which the ALJ referred, that Petitioner Ali "had overall management or direction of the testing being done, the reports being sent out, talking with doctors who send specimens in." Tr. at 89. This description is consistent with the definition of "operator" in section 493.2. That Petitioner Ali also did work that could have been done by a laboratory technologist, such as testing for the regular patient workload and the proficiency testing program, does not mean that he was not also acting as the laboratory operator.

Accordingly, we conclude that there is substantial evidence in the record to support the ALJ's conclusion that Petitioner Ali was an operator of Scottsdale and we affirm Conclusions of Law 24 and 26. Since this is a sufficient basis for finding that the [Page 20] two-year ban applies to Petitioner Ali, we do not reach the question of whether the ALJ properly found that Petitioner Ali was an owner of Scottsdale as well (Conclusion of Law 23).

V. Petitioners' Procedural Arguments

Below, we address procedural arguments raised by Petitioners before the ALJ and again on appeal. The ALJ did not specifically address these arguments in his decision. ⁽¹⁵⁾

• Petitioners argue that the surveyors found only standard-level deficiencies and that CMS modified the survey report to show condition-level deficiencies and "coerced the state agency to accept it." P. Appeal Br. at 9; see also id. at 1-2; P. Reply Br. at 5. According to Petitioners, Surveyor Eckles admitted at the hearing that she found only standard-level deficiencies and that there was no regulatory basis for finding condition-level deficiencies. Her testimony, however, clearly indicates that she told Petitioner Ali at the end of the survey that the surveyors had found only standard-level deficiencies but that these needed to be discussed with CMS. Tr. at 357-358. ⁽¹⁶⁾ Even if the surveyors had believed that there were only standard-level deficiencies, this does not undercut CMS's conclusion that Scottsdale had two condition-level deficiencies. In order to fulfill its statutory obligation to ensure that clinical [Page 21] laboratories remain in compliance with CLIA requirements, CMS contracts with state health departments to conduct on-site surveys of the laboratories to determine whether federal requirements are met. State surveyors conduct federal surveys of laboratories pursuant to the detailed rules in 42 C.F.R. Part 488 entitled "Survey and Certification Procedures." Section 488.11 makes clear that the function of the State agency is to "make recommendations" to CMS, not to make the final determination regarding a laboratory's compliance. Thus, CMS may accept or reject the surveyors' recommendations after reviewing the survey findings. Moreover, the ALJ is not bound by CMS's determination that one or more standard-level violations constitute a condition-level deficiency but rather conducts a de novo review of the findings on which CMS's determination to impose sanctions is based. See, e.g., Emerald Oaks, DAB No. 1800, at 16 (2001).

• Petitioners argue that CMS violated 42 U.S.C. � 263a(h) by imposing both principal and alternative sanctions "together." P. Appeal Br. at 4; P. Reply Br. at 17. Petitioners do not explain their argument, but appear to rely on the language in section 263a(h)(1) that states:

If the Secretary determines that a laboratory which has been issued a certificate under this section no longer substantially meets the requirements for the issuance of a certificate, the Secretary may impose intermediate sanctions in lieu of the actions authorized by subsection (i) of this section [which authorizes principal sanctions].

CMS's implementing regulations have interpreted this section as permitting CMS to impose one or more intermediate sanctions (referred to as "alternative sanctions") "in lieu of or in addition to principal sanctions." 42 C.F.R. � 493.1806(c); see also section 493.2 (defining the term "Alternative sanctions" as "sanctions that may be imposed in lieu of or in addition to principal sanctions"). The regulations thus permit the imposition of both principal sanctions and alternative sanctions based on the same deficiency or deficiencies. See Sonali at 22-23.

• Petitioners argue that CMS violated the regulations by denying Scottsdale the opportunity to correct its deficiencies prior to revocation. P. Reply Br. at 18, citing 42 C.F.R. �� 493.1810(b) and (d)(1) and 493.1814(b). Scottsdale was not entitled to an opportunity to correct under the regulations, however. Section 493.1810(a)(6) provides that where CMS gives a laboratory notice that it has identified condition-level [Page 22] noncompliance, CMS must allow at least 10 days for the laboratory to respond to the notice. During that period, the laboratory may submit "written evidence or other information against the imposition of the proposed sanction or sanctions." 42 C.F.R. � 493.1810(b). Contrary to what Petitioners assert, this is not a "corrective period," but rather means that the laboratory can avoid the proposed sanction(s) by providing information that causes CMS to conclude that the findings of noncompliance are wrong. CMS may allow up to 12 months for a laboratory to correct condition-level deficiencies that do not pose immediate jeopardy if CMS has proposed only alternative sanctions. See 42 C.F.R. � 493.1814(b)(1) and (d). These regulations are inapposite here, however, since CMS also proposed the principal sanction of revocation.

• Petitioners argue that requiring Scottsdale to cease testing as part of the directed plan of correction was contrary to the purpose of a directed plan of correction. P. Appeal Br. at 5; P. Reply Br. at 19. Section 493.1832(b)(1)(ii) provides that when imposing a directed plan of correction, CMS "[d]irects the laboratory to take specific corrective action within specific time frames in order to achieve compliance[.]" ⁽¹⁷⁾ Petitioners' argument appears to be that the cease testing order precluded Scottsdale from taking the corrective action. We need not reach this question here, however, since we conclude that, instead of ordering cease testing as part of a directed plan of correction, CMS could have imposed a suspension effective on the same date. Thus, Scottsdale was in the same position regarding its ability to test (i.e., it was no longer permitted to test) as if a suspension, rather than the cease testing order, had been imposed. See Sonali at 27. (CMS could not have imposed the CMP beginning February 23, 2002 if it had made the suspension effective on that date, but the ALJ reversed the CMP here.)

• Petitioners argue that the State agency violated a requirement in the State Operations Manual (SOM) that it mail the survey report to the laboratory within 10 days of completion of the survey. P. Reply Br. at 15 (apparently referring to sections 6130 and 6282 of the SOM, currently available at http://63.241.27.79/manuals/107_som/som107c06.pdf). According to [Page 23] Petitioners, the survey report "was issued . . . two months after the notice of imposition of sanction." Id. As the Board has previously stated, however, the SOM provisions on which Petitioners rely do not establish a prerequisite for imposing a sanction. Sonali at 24, n.24. Moreover, as in that case, "Petitioners do not allege that they were unaware of the deficiencies found in the survey before they received the survey report. Thus, while the best practice would have been to give Petitioners the survey report within the timeframe indicated in the State Operations Manual, Petitioners were not prejudiced by the delay." Id.

• Petitioners argue that the State agency did not provide adequate notice of the certification survey which took place on December 17, 2001. Petitioners state that Scottsdale received the notice on December 15, 2001, and that the laboratory director could not be present during the survey because he could not reschedule surgery and patient appointments on such short notice. P. Reply Br. at 15. CLIA itself provides, however, that "[t]he Secretary may, on an announced or unannounced basis, enter and inspect, during regular hours of operation, laboratories which have been issued a certificate under this section." 42 U.S.C. � 263a(g)(1) (emphasis added). See also 42 C.F.R. � 493.1773(a) and (e) and 493.1777(a). In any event, Petitioners do not allege that the laboratory director could have provided any information to the surveyors which would have changed their findings.

Thus, we find that none of Petitioners' procedural challenges provides a basis for reversing the revocation of Scottsdale's CLIA certificate.

Conclusion

Based on the foregoing discussion, we affirm the ALJ's decision to uphold CMS's revocation of Scottsdale's certificate of registration and we affirm and adopt the ALJ's Findings of Fact and Conclusions of Law except with respect to Conclusions of Law 4, 5 and 23. By operation of 42 U.S.C. � 263a(i)(3), Petitioners Ferdous and Ali as well as Dr. Gilsdorf are subject [Page 24] to the two-year prohibition on owning or operating a CLIA-certified laboratory.

Cecilia Sparks Ford

Sheila Ann Hegy

Judith A. Ballard
Presiding Board Member

1. We have changed the caption of this case to reflect the fact that Rustom Ali and Jahan Ferdous both requested a hearing on behalf of Scottsdale Medical Laboratory as well as in their individual capacities.

2. A laboratory performing only simple laboratory tests or provider-performed microscopy (PPM) procedures is not required to obtain a registration certificate.

3. The CLIA regulations were amended in January 2003. We cite to the regulations that were in effect during the relevant time period and appear in 42 C.F.R. Part 493 (2000). Those regulations refer to the Health Care Financing Administration, or HCFA, the former name of CMS. See 66 Fed. Reg. 35,437 (July 5, 2001). We use CMS throughout this decision to refer to the federal agency.

4. The letter also stated that information from the proficiency testing program in which Scottsdale was enrolled showed that Scottsdale had unsatisfactory scores for several analytes for the third testing event of 2001 and that "[t]his is additional evidence of your laboratory's failure to comply with CLIA requirements." CMS Ex. 22, at 2. The alleged facts would constitute a violation of the requirement for successful participation in an approved proficiency testing program at 42 C.F.R. � 493.803.

5. Our not reviewing this should not be read as our necessarily agreeing with the ALJ.

6. At the hearing, Petitioner Ali offered explanations of how some of the errors occurred. See, e.g., Tr. at 392-394 (person doing data entry misread date on test requisition). Tr. at 392-394. In identifying the source of the errors or in asserting that the errors were corrected, Petitioners acknowledge that the errors existed.

7. Petitioners were not represented by counsel, and some of their arguments before the ALJ, as well as on appeal, were not clear.

8. The ALJ Decision says that the laboratory patient log (rather than the final test report) shows that all testing was done on December 6, 2001. ALJ Decision at 17. The cited exhibit, however, is the survey report, which says that the "final test report shows all tests were performed on 12/6/01." CMS Ex. 22, at 3.

9. Petitioners assert that Surveyor Eckles lacked "integrity and credibility" because she investigated a complaint that Petitioners contend was spurious. P. Reply Br. at 21. According to Petitioners, the complaint involved an alleged delay in processing specimens but Scottsdale did not start testing specimens until after the complaint was received. The complaint was received in mid-June of 2001. Tr. at 36. The ALJ found that Scottsdale began testing human specimens in early August 2001. Finding of Fact 7. Since Scottsdale's certificate of registration was issued on May 24, 2001 (see P. Ex. 1), however, Surveyor Eckles reasonably assumed that the laboratory had begun such testing when she received the complaint in mid-June 2001. Moreover, simply because, on two occasions, she found the door to the laboratory locked and a sign in the window saying that the laboratory was closed (see Tr. at 37) does not mean that she should have concluded that the laboratory had not begun testing human specimens.

10. Although Petitioners point out that CMS did not include copies of the test reports in its exhibits, Petitioners do not allege that they were unable to identify the test reports in question.

11. In Sonali Diagostic Laboratory, the Board also noted that CMS's current interpretive guidelines indicate that the regulation requires the name and address of a reference laboratory. See Sonali at 18. (The "Interpretive Guidelines for Laboratories" are located in Appendix C of CMS's State Operations Manual.) The current version of the guidelines is available at http://www.cms.hhs.gov/clia/).

12. Petitioners correctly observe that, contrary to what the ALJ Decision states, these are two "D tags" under the standard in section 493.1703, not two standards. P. Reply at 12-13. Thus, Petitioners contend that the violation of section 493.1703 is insufficient in "number and seriousness" to support a condition-level deficiency. Id. at 14. We conclude, however, that the ALJ reasonably upheld CMS's finding of a condition-level deficiency since proper monitoring and evaluation of the accuracy of test report information and test reporting systems are critical to ensuring that laboratories provide accurate and reliable test results. See Tr. at 147 (testimony of Surveyor Eckles that "[q]uality assurance is . . . an overall look at the laboratory . . . a way for the laboratory to make sure that their . . . test reports are accurate . . .").

13. In Sonali Diagnostic Laboratory, the Board affirmed the ALJ Decision upholding CMS's revocation of Sonali's CLIA certificate.

As discussed later, we find no merit in Petitioners' exception to the ALJ's finding that Petitioner Ali was an operator of Scottsdale.

14. The ALJ also found that Petitioner Ferdous was an owner of Scottsdale and that Dr. Gilsdorf was an operator of Scottsdale, and that both were subject to the two-year ban. Conclusion of Law 26. Petitioner Ferdous did not dispute this before the ALJ, and Dr. Gilsdorf was not a party to the proceedings before the ALJ (although the ALJ found that Dr. Gilsdorf had notice of this issue from CMS). ALJ Decision at 23. The two-year ban began on February 18, 2005, the date of the ALJ Decision appealed here, since that was when the revocation of Scottsdale's certificate was effective. See Conclusion of Law 25.

15. Petitioners also argue, apparently for the first time on appeal, that CMS did not provide notice "at least 15 days before the effective date of the sanction," as required by section 493.1810(c)(2)(ii). P. Appeal Br. at 4; P. Reply Br. at 16. The Board's guidelines provide that we will not address issues that could have been presented to the ALJ but were not, and we follow that guideline in this instance. (We note in any event that Petitioners' argument that "only" 15 days' notice was insufficient (P. Appeal Br. at 4) misapprehends the meaning of "at least 15 days," which means that 15 or more days is adequate notice.)

16. Ms. Eckles also testified that the finding of condition-level deficiencies was made after it became "obvious" that there were "repeat deficiencies." Tr. at 358. Petitioners argue that there were no repeat deficiencies in the standards with which the ALJ found Scottsdale out of compliance under the condition for patient test management. P. Appeal Br. at 9; P. Reply Br. at 5. The ALJ did not rely on the existence of any repeat deficiencies in determining that this was a condition-level deficiency, however.

17. Petitioners also appear to argue that Scottsdale had 12 months to correct its deficiencies under the directed plan of correction. P. Appeal Br. at 5. Although CMS could have issued a directed plan of correction that gave Scottsdale 12 months to take corrective action (see 42 C.F.R. � 493.1832(c)), CMS did not do so here and was not required to do so.