SUBJECT:

RNA Laboratories, Inc.,

and,

Ter-Zakarian Medical Clinic,

Petitioner,

Centers for Medicare & Medicaid Services.

Docket No.C-01-336

Docket No.C-01-337
Decision No. CR829

DECISION

I sustain the determinations of the Centers for Medicare & Medicaid Services (CMS, formerly known as the Health Care Financing Administration or "HCFA") to impose sanctions pursuant to the Clinical Laboratory Improvement Amendments (CLIA), 24 U.S.C. � 263a and implementing regulations at 42 C.F.R. Part 493, against Petitioners, RNA Laboratories, Inc. (Petitioner RNA) and Ter-Zakarian Medical Clinic (Petitioner Ter-Zakarian). These sanctions consist of the following:

1. Revocation of each Petitioner's CLIA certificate effective the date of this decision;

2. Cancellation of each Petitioner's approval to receive Medicare payments for services that the laboratory performed on or after December 9, 2000; and

3. Imposition of alternative sanctions against each Petitioner consisting of civil money penalties.

During the two-year period which follows the revocation of the CLIA certificate of Petitioner RNA or Petitioner Ter-Zakarian, CMS may revoke the CLIA certificate of any laboratory that is owned or operated by a person who owned or operated Petitioner RNA or Petitioner Ter-Zakarian. Effectively, my decision precludes Hovanes Ter-Zakarian, M.D., the owner of Petitioner Ter-Zakarian and the medical director of Petitioners RNA and Ter-Zakarian, from owning or operating another laboratory during the two-year period which follows the revocation of the CLIA certificates of Petitioners RNA and Ter-Zakarian.

I base my decision in these cases on my findings that Petitioners did not comply with regulatory conditions which governed their participation in CLIA. CMS established a prima facie case, which Petitioner did not rebut, that Petitioners RNA and Ter-Zakarian each failed to comply with conditions of participation that are stated at 42 C.F.R. �� 493.801 and 493.1403.

I. Background

The facts and law that I recite in this background section are not disputed by the parties.

These two cases involve enforcement actions taken against Petitioners by CMS pursuant to CLIA and regulations that are published at 42 C.F.R. Part 493. A laboratory must comply with CLIA participation requirements in order to be eligible for payment from the federal Medicare program for services that it provides to beneficiaries of that program. 24 U.S.C. � 263a; 42 C.F.R. Part 493.

CLIA participation requirements are set forth in applicable regulations at 42 C.F.R. Part 493 as conditions and standards of participation. A condition of participation is a broadly stated general requirement that a laboratory must meet in order to qualify to participate under CLIA. A standard of participation sets forth the specific requirements which must be met by a laboratory in order to satisfy the more general requirement of a condition of participation.

The Secretary of the United States Department of Health and Human Services (Secretary) is charged with enforcing the requirements of CLIA. The Secretary has delegated his CLIA enforcement authority to CMS. The regulations at 42 C.F.R. Part 493 establish sanctions that CMS may impose against a laboratory that fails to comply with one or more CLIA conditions. CMS may impose principal sanctions against a noncompliant laboratory which include revocation of that laboratory's CLIA certificate. 42 C.F.R. � 493.1806(b). It may also impose alternative sanctions against a noncompliant laboratory in lieu of or in addition to principal sanctions. 42 C.F.R. � 493.1806(c). CMS may also cancel a laboratory's approval to receive Medicare payments for its services, where the laboratory is found not to be complying with one or more CLIA conditions. 42 C.F.R. � 493.1807(a). Additionally, CMS may suspend or revoke a laboratory's CLIA certificate if that laboratory is owned or operated by an individual who, within the previous two years, owned or operated a laboratory whose CLIA certificate was revoked. 42 C.F.R. � 493.1840(a)(8).

Each Petitioner is a clinical laboratory that is located in the Los Angeles, California area. Petitioner RNA's mailing address is in North Hollywood, California, and Petitioner Ter-Zakarian's mailing address is in Santa Monica, California. Petitioner Ter-Zakarian is owned by Dr. Ter-Zakarian. Dr. Ter-Zakarian serves as the medical director of Petitioner Ter-Zakarian in addition to being its owner. Dr. Ter-Zakarian also served as the medical director of Petitioner RNA. Petitioner RNA was owned by a corporation that was owned by Dr. Ter-Zakarian's brother, Vahe Ter-Zakarian.

Each Petitioner was inspected on behalf of CMS in order to determine its compliance with CLIA requirements. CMS determined that each Petitioner failed to comply with CLIA conditions of participation. CMS determined to impose principal sanctions against each Petitioner which included revocation of that Petitioner's CLIA certificate and cancellation of each Petitioner's authority to receive payments for Medicare services performed by that Petitioner. CMS also determined to impose alternative sanctions against Petitioners. These included imposition of civil money penalties against each Petitioner.

A laboratory that is dissatisfied with a determination by CMS to impose sanctions against it may request a hearing before an administrative law judge to contest CMS's determination. 42 C.F.R. � 493.1844(a)(3). Hearing requests were filed on behalf of Petitioners RNA and Ter-Zakarian. Each of these requests was assigned a separate docket number and each case was assigned to me. I decided to conduct a consolidated hearing in these two cases inasmuch as they involved similar issues and common evidence. I did not formally consolidate the cases due to the fact that the parties requesting hearings in the two cases were not the same entities.

After the hearing requests were filed, Dr. Ter-Zakarian asserted through his counsel that he was the real party in interest in the hearing request filed by Petitioner Ter-Zakarian. Dr. Ter-Zakarian sought to challenge - insofar as it might apply to him - a statement in CMS's notice of remedies to Petitioner Ter-Zakarian which advised Dr. Ter-Zakarian, in his capacity as director and owner of Petitioner Ter-Zakarian, that CLIA and implementing regulations prohibit the owners, operators, and directors of a laboratory whose CLIA certificate is revoked from owning, operating, and directing any laboratory for at least two years from the date of the revocation. Notice from CMS to Dr. Ter-Zakarian as director and owner of Petitioner Ter-Zakarian, dated December 7, 2000.

I reserved deciding whether Dr. Ter-Zakarian had a hearing right independent of that of Petitioner Ter-Zakarian. I conducted an in-person hearing in Los Angeles, California, on March 21 and 22, 2001 in which I permitted both Petitioners and Dr. Ter-Zakarian to participate. I recessed the hearing until March 27, 2001 when I received additional testimony by telephone. At the hearing I received into evidence exhibits from CMS which are identified as HCFA Ex. 1 - HCFA Ex. 18. I received exhibits into evidence from Petitioners which are identified as P. Ex. 1 - P. Ex. 23. I also identified but did not receive into evidence exhibits from Petitioners which are identified as P. Ex. 24 and P. Ex. 25.

II. Issues, findings of fact and conclusions of law

A. Issues

The issues in this case are whether:

1. Dr. Ter-Zakarian has a right to a hearing;

2. Petitioner RNA or Petitioner Ter-Zakarian failed to comply with a CLIA condition or conditions of participation; and

3. A basis exists to sustain the imposition of principal and alternative sanctions against either Petitioner RNA or Petitioner Ter-Zakarian based on that Petitioner's failure to comply with a CLIA condition or conditions of participation.

B. Findings of fact and conclusions of law

I make findings of fact and conclusions of law (Findings) to support my decisions in these cases. I set forth each Finding below as a separately numbered heading.

1. Dr. Ter-Zakarian has a right to a hearing.

CMS's notice, in which it announced its intention of imposing sanctions against Petitioner Ter-Zakarian, was addressed to Dr. Ter-Zakarian as "Director and Owner." Letter from CMS to Dr. Ter-Zakarian dated December 7, 2000. It contained the following statement:

We remind you that once revoked, CLIA regulations at 42 U.S.C. 263a(i)(3) and 42 C.F.R. 493.1840(a)(8) prohibit the owners, operators and director of the laboratory from owning, operating and directing any laboratory for at least two years from the date of the revocation.

Id. Dr. Ter-Zakarian asserts that this language is a sanction determination that is aimed at him, personally, and that he is entitled to a hearing to contest that determination.

CMS asserts that Dr. Ter-Zakarian has "no standing" to contest any prohibition against his owning, operating, or directing a laboratory that might result as a collateral consequence of the revocation of the CLIA certificates of Petitioner RNA or Petitioner Ter-Zakarian. CMS's posthearing brief at 33. CMS does not elaborate on this assertion.

Other administrative law judges have held that a laboratory owner or director has a right to a hearing to challenge revocation of a laboratory's CLIA certificate. Carlos A. Cervera, M.D., Docket No. C-99-797, Ruling Denying HCFA's Motion to Dismiss and Granting Extension of Time for Submission of Readiness Reports, December 21, 1999; Allstate Medical Laboratory, Inc., Docket No. C-99-309, Ruling, October 6, 1999; Eugene R. Pocock, M.D., DAB CR527 at 5 (1998). These rulings and decision have been cited favorably by the Departmental Appeals Board in Sentinel Medical Laboratories, Inc., DAB No. 1762 at n.6 (2001). I follow these rulings and decisions and hold that Dr. Ter-Zakarian has a right to a hearing to challenge the effect that a revocation of Petitioners' CLIA certificates may have on him.

In their post hearing brief Petitioners made the suggestion that I should "defer ruling on. . . [CMS's] sanction action pending a separate hearing for Dr. Ter-Zakarian . . . ." Petitioners' post hearing brief at 21. Petitioners did not elaborate on this suggestion and I am unsure as to what they are requesting. I have given Dr. Ter-Zakarian a hearing in this case. Although I reserved deciding what hearing rights he was entitled to until after the in-person hearing, I allowed him to participate in that hearing and to give testimony and present evidence. Petitioners have not asserted that there are issues that affect Dr. Ter-Zakarian that have not been aired fully or that they or Dr. Ter-Zakarian have been denied the opportunity to present relevant evidence.

2. Petitioners RNA and Ter-Zakarian failed to comply with the CLIA condition of participation that is stated at 42 C.F.R. � 493.801.

The CLIA condition of participation that is set forth at 42 C.F.R. � 493.801 provides for mandatory enrollment of a clinical laboratory in an approved proficiency testing program and governs the manner in which a laboratory will conduct its proficiency testing. The purpose of proficiency testing is to measure the competence of a laboratory's clinical testing. Tr. at 74. The CLIA condition of participation which governs proficiency testing states explicitly that a laboratory must test its proficiency testing samples in the same manner as it tests patients' specimens. 42 C.F.R. � 493.801(a). A laboratory must perform its proficiency testing exactly as it tests patients' specimens if proficiency testing is to be a measure of the laboratory's competence. Proficiency testing would be meaningless if a laboratory tested its proficiency testing samples differently from patient specimens because, under that circumstance, proficiency testing would not measure the laboratory's competence to handle patient test specimens.

Testing proficiency testing samples in the same manner as patients' specimens means that the proficiency testing samples must be integrated fully into the laboratory's testing regime. The requirement for full integration is spelled out in the standards that are stated at 42 C.F.R. � 493.801(b). The laboratory must use the same techniques to test proficiency testing samples and patient specimens. 42 C.F.R. � 493.801(b)(1). A laboratory must not test proficiency testing samples a greater or fewer number of times than it tests patient specimens. 42 C.F.R. � 493.801(b)(2). The laboratory must not collaborate with any other individual or entity in the performance of proficiency testing. 42 C.F.R. � 493.801(b)(3). It must maintain complete and accurate documentation of all proficiency testing. 42 C.F.R. � 493.801(b)(5).

Both Petitioner RNA and Petitioner Ter-Zakarian enrolled in an approved proficiency testing program that is operated by the American Association of Bioanalysts Proficiency Testing Service (AAB). Petitioner RNA and Petitioner Ter-Zakarian received the same proficiency testing samples from AAB at the same times. At regular intervals throughout the year, AAB sends to all of its enrollees a group of five proficiency testing samples for each of the tests for which proficiency testing is required. Each laboratory that is enrolled with AAB receives identical samples from AAB for each test for which the laboratory is enrolled for proficiency testing. Tr. at 69 - 70. I take notice of the fact that the AAB refers to each mailing of samples to enrolled laboratories as an "event."

Each laboratory that receives proficiency testing samples from AAB for an event is required to perform its proficiency testing within a specified period of time and to mail its testing results back to AAB. AAB provides each enrolled laboratory with a form that the laboratory completes in conjunction with its proficiency testing. The laboratory inserts appropriate codes to indicate the reagents it used to perform its tests and the type of equipment that it used. It also verifies the name of the individual who performed the proficiency testing. Tr. at 71 - 72.

CMS alleges that Petitioners RNA and Ter-Zakarian failed to comply with the CLIA condition at 42 C.F.R. � 493.801 in that these laboratories failed to test proficiency testing samples in the same manner as patients' specimens. More specifically, CMS asserts that Petitioners failed to comply with several of the standards that are a part of this condition and that their failures to comply with these standards were so egregious as to comprise a failure by each of them to comply with the overall condition.

CMS made a prima facie case to support its allegations which Petitioners did not rebut. The evidence offered by CMS establishes such a high degree of irregularity in the manner in which Petitioners conducted their proficiency testing as to establish a failure by Petitioners to comply with the overall condition of participation that is stated at 42 C.F.R. � 493.801(a).

Most significantly, the evidence shows that Petitioners engaged in prohibited inter-laboratory communications about proficiency test samples prior to reporting test results. Additionally, the evidence demonstrates other failures by one or both of Petitioners to conduct proficiency tests in the same manner as they tested patients' specimens. These additional failures included failure by Petitioner RNA to document the handling, preparation, processing, examination, and each step of proficiency testing and failure by Petitioner Ter-Zakarian to test proficiency test samples the same number of times that it tested regular patient test samples.

a. Petitioners RNA and Ter-Zakarian engaged in prohibited inter-laboratory communications about proficiency testing.

A laboratory which is engaged in proficiency testing:

must not engage in any inter-laboratory communications pertaining to the results of proficiency testing sample(s) . . . .

42 C.F.R. � 493.801(b)(3).

It is important that a laboratory conduct its proficiency testing honestly. Communications between laboratory personnel about ongoing proficiency testing frustrates the premise of proficiency testing that proficiency testing samples are to be tested in the same manner as are patients' specimens. Proficiency testing results that have been tainted by inter-laboratory communications are not a meaningful measure of a laboratory's competence to do testing. Tr. at 75.

The evidence offered by CMS establishes that, for the third proficiency testing event in 1999, Petitioner RNA and Petitioner Ter-Zakarian submitted identical proficiency testing results for all five samples tested in each of nine different categories of tests. Tr. at 90 - 91; 94; HCFA Ex. 9 at 5 - 6. Both laboratories reported identical test results for all five samples tested in each of the testing categories of: cholesterol, glucose, triglycerides bicarbonate, chloride, creatinine, potassium, sodium, and, urea nitrogen. Ids. In total, Petitioner RNA and Petitioner Ter-Zakarian reported identical testing results for 45 separate samples tested in nine separate categories. Ids.

The evidence of identical proficiency testing results on so many tests is powerful circumstantial proof that Petitioners engaged in prohibited communications with each other in conducting proficiency testing. As is made clear by the expert testimony of Dennis Jay, Ph.D., the technical director of AAB's proficiency testing program, there is no rational explanation for the identical test results submitted by Petitioners other than prohibited communication between the two laboratories. That is so given: the identical results reported by the two laboratories in 45 separate instances; and, the presence of many variables that logically would render extraordinarily unlikely the submission of identical results in so many instances without a prohibited information exchange occurring between the two laboratories. Tr. at 60, 70 - 101.

Dr. Jay has extensive experience in laboratory operations. In his capacity as the technical director of AAB's proficiency testing program he has reviewed numerous proficiency testing reports submitted by many laboratories. The essential point that Dr. Jay made in his testimony is that, based on his experience, two independently operated laboratories generally would not be likely to produce identical proficiency testing results for any given sample.

A proficiency testing score may be affected by the chemical reagent that the laboratory uses to perform testing. Tr. at 73. It might be affected by the make of analyzer which a laboratory uses to process a particular type of test. Id. The test result may be affected by temperature within an analyzer. Id. at 76. It might be affected by the skills of the technician who performs the test. Id. It may also be affected by the physical environment of the laboratory in which the test is performed. Id.

Given all of these variables, there is a high likelihood that test results will vary among samples tested within a single laboratory and among samples tested between different laboratories. Tr. at 77. Indeed, the proficiency testing program operates on the assumption that identical results would be an aberration and not the norm. AAB has acknowledged the high likelihood of variance by deciding that there is no such thing as one "correct" proficiency testing result. AAB grades an individual proficiency testing score based on the proximity of that score to a mean score for the sample at issue. Tr. at 72 - 73. A "passing" score on a proficiency test is one that falls within grading limits that are calculated based on the mean score. Id.

It is highly implausible that two laboratories could produce identical test results for multiple samples in a range of tests without communicating with each other about test results. See Tr. at 98 - 101. When two laboratories produce identical test results in multiple samples and in different tests the logical inference to be drawn is that they collaborated in obtaining or reporting the results.

The inference that Petitioners engaged in prohibited communications is reinforced by their close geographic and management relationship. Dr. Jay's experience is that two laboratories which produce identical proficiency testing scores on multiple samples invariably are located in close physical proximity to each other. In this case the two laboratories were located only a few miles from each other and had the same medical director, Dr. Ter-Zakarian.

The inference of collaboration between Petitioner RNA and Petitioner Ter-Zakarian also is reinforced by the failure of Petitioner RNA to produce any analyzer printouts which would show actual testing results. The absence of such documents lends support to a conclusion that Petitioner RNA did not actually conduct proficiency testing on the samples for which it reported identical findings as were obtained by Petitioner Ter-Zakarian.

Petitioners did not offer persuasive evidence or arguments that rebutted the evidence introduced by CMS showing a prohibited exchange of information between Petitioner RNA and Petitioner Ter-Zakarian. Petitioners argue, first, that Dr. Jay's testimony is not credible because it is based on "bad science." They assert that his testimony must be disregarded because it is "anecdotal" and not based on any statistical analysis. I agree with Petitioners that no evidence was offered by CMS which establishes the statistical probability that the 45 identical test results were tainted by collusion. But, I do not agree with Petitioners that statistical analysis is necessary to reach the conclusion that a prohibited exchange of information lay behind the identical test results.

Dr. Jay's testimony was credible and persuasive. I find here, as I did in Stanley Boykansky, M.D., DAB CR690 (2000), that Dr. Jay's opinion is based not on statistical evidence but on his practical experience and knowledge of laboratory operations. It is not necessary to establish the statistical probability of two laboratories producing identical results in any given test in order to find that it is highly unlikely that they would produce those identical results independently. Dr. Jay testified persuasively that the many variable factors that could affect test results made it extraordinarily unlikely that two laboratories independently would produce so many identical test results. Dr. Jay's opinion was buttressed by his experience. Dr. Jay testified that he had never found identical proficiency testing results in specified tests except with laboratories that were located in close geographic proximity to each other. Tr. at 96.

Second, Petitioners argue that, in fact, Petitioner Ter-Zakarian conducted its proficiency tests successfully for the third testing event in 1999. As evidence for that assertion they point to analyzer printouts that were generated by Petitioner Ter-Zakarian that confirmed the proficiency test values that this Petitioner reported. P. Ex. 5 at 20 - 28. However, the likelihood that Petitioner Ter-Zakarian may actually have performed its proficiency tests begs the question of whether it engaged in prohibited communications with Petitioner RNA. Petitioners have not produced any credible evidence showing that Petitioner RNA independently came up with the identical test results that were obtained by Petitioner Ter-Zakarian in 45 separate tests.

Third, Petitioners argue that Petitioner RNA performed its proficiency testing independently of Petitioner Ter-Zakarian for the third testing event in 1999. They argue that Petitioner RNA scored successfully for 115 values on chemical analytes that were not reported or tested by Petitioner Ter-Zakarian. They reason that it would be illogical for Petitioner RNA to conduct these tests independently from Petitioner Ter-Zakarian but then to engage in prohibited communications with Petitioner Ter-Zakarian concerning the 45 tests in which identical results were obtained by the two laboratories.

I find this argument to be unpersuasive. The fact that Petitioner RNA may have performed some of its proficiency testing independently from Petitioner Ter-Zakarian is not a basis to conclude that it performed all of its proficiency testing independently.

b. Petitioner RNA failed to comply with documentation and record keeping requirements in its conduct of proficiency testing.

A clinical laboratory is required to:

document the handling, preparation, processing, examination, and each step in the testing and reporting of results for all proficiency testing samples. The laboratory must maintain a copy of all records, including a copy of the proficiency testing program report forms used by the laboratory to record proficiency testing results . . . .

42 C.F.R. � 493.801(b)(5).

The evidence offered by CMS establishes that Petitioner RNA failed to produce documents which were necessary to verify the accuracy of its proficiency testing. HCFA Ex. 5 at 4; Tr. at 265. Petitioner RNA concedes that it has not produced the analyzer reports that would show actual proficiency testing results. Petitioners' post hearing brief at 10. It suggests that its failure to do so is not a significant failure to comply with CLIA requirements because it produced the testing report forms that it used to record proficiency testing results.

However, the regulation requires a laboratory to produce all of its records and to document each step in the testing and reporting of proficiency testing results. 42 C.F.R. � 493.801(b)(5). Production of a partial set of records does not satisfy this requirement. Moreover, the records that are missing are precisely the records that would be necessary to establish whether Petitioner RNA performed proficiency testing honestly. The analyzer reports contain the raw data and test results that a laboratory produces when it conducts a proficiency test. In the absence of this information, there is no way to verify the accuracy of Petitioner RNA's testing report forms.

c. Petitioner Ter-Zakarian did not test proficiency testing samples the same number of times that it routinely tested patient samples.

The proficiency testing requirements include the requirement that a clinical laboratory:

must test [proficiency testing] samples the same number of times that it routinely tests patient samples.

42 C.F.R. � 493.801(b)(2).

The purpose of this requirement is to assure that proficiency testing samples do not receive special handling by a laboratory but are integrated into the laboratory's regular workload. That makes proficiency testing a true measure of a laboratory's testing competence.

CMS presented a prima facie case that established a pattern in the way Petitioner Ter-Zakarian conducted its proficiency testing. When Petitioner Ter-Zakarian conducted proficiency testing it often ran tests of proficiency testing samples multiple times. In contrast, Petitioner Ter-Zakarian routinely tested patients' specimens only once. For example, evidence introduced by CMS shows that, in the third proficiency testing event of 1999, Petitioner Ter-Zakarian ran proficiency tests for routine chemistry twice (back to back) on October 21, 1999 and then tested them a third time later on that same day. HCFA Ex. 11 at 13 - 16. It tested proficiency testing samples for glyco-hemoglobin twice on October 19, 1999 whereas it tested patient samples only one time on that date. Id. at 17 - 19; see Tr. at 256. Evidence introduced by CMS shows that Petitioner also ran proficiency tests more times than it ran patients' specimens for samples tested in the other 1999 proficiency testing events and in the 2000 proficiency testing events as well. HCFA Ex. 5 at 4 - 6; HCFA Ex. 10 at 12 - 20; HCFA Ex. 12 at 4 - 8; HCFA Ex. 13 at 5 - 9.

From this evidence I infer that Petitioner Ter-Zakarian was concerned that it might not be conducting proficiency tests competently and, so, ran them multiple times. See Tr. at 258. I also infer that Petitioner Ter-Zakarian often and egregiously contravened the requirement that it test proficiency testing samples and patients' specimens the same number of times.

Petitioners argue that Petitioner Ter-Zakarian tested proficiency testing samples in the same manner as it tested patients' specimens because it used the same equipment and testing techniques for both types of tests. Petitioners' post hearing brief at 14 - 15. This argument does not address the allegations or the evidence offered by CMS. The issue here is whether Petitioner invalidated proficiency testing by testing proficiency testing samples more times than it tested patients' specimens. It is not whether Petitioner used different types of equipment or techniques to perform proficiency tests than it used to test patients' specimens.

d. The failures by Petitioner RNA and Petitioner Ter-Zakarian to conduct proficiency testing in the same manner as the testing of patients' specimens were so egregious as to be failures by these Petitioners to comply with the condition of participation that is stated at 42 C.F.R. � 493.801(a).

The failures by Petitioners RNA and Ter-Zakarian to comply with standards of participation set forth at 42 C.F.R. � 493.801(b) were so egregious as to be failures by these two Petitioners to comply with the overall condition that is stated at 42 C.F.R. � 493.801(a). These failures so compromised the proficiency testing results that Petitioners reported that they made proficiency testing useless as measures of the laboratories' competency.

Petitioners RNA and Ter-Zakarian did not conduct proficiency testing honestly during the third event in 1999. Their collaboration in producing test results renders meaningless the results that they submitted. Indeed, for the 9 tests and the 45 samples that are at issue it is not possible to discern whether Petitioner RNA conducted proficiency testing at all. Petitioner RNA's failure to maintain its original testing data made it impossible to verify what that Petitioner did or did not do as proficiency testing. And, the fact that Petitioner Ter-Zakarian tested proficiency testing samples two or three times whereas it tested patients' specimens only once invalidated the results that this Petitioner obtained on its proficiency tests.

Petitioners argue that the deficiencies established by CMS are only minor standard level deficiencies. I disagree with this contention for the reasons that I have just stated. Petitioners' deficiencies fundamentally affected the validity of their proficiency testing.

Petitioners also argue that CMS did not make a prima facie showing that Petitioner RNA sent any proficiency testing samples to Petitioner Ter-Zakarian for analysis or that Petitioner Ter-Zakarian sent any proficiency testing samples to Petitioner RNA for analysis in violation of the requirements of 42 C.F.R. � 493.801(b)(4). They argue that Petitioners may not be found to have contravened the condition at 42 C.F.R. � 493.801(a) inasmuch as CMS did not establish an unlawful referral of proficiency testing samples from one Petitioner to the other.

I am not persuaded by this argument. The improper exchange of information between Petitioners would be an unlawful "referral" of proficiency testing samples under the holdings of Oakland Medical Group, DAB No. 1755 (2000) and Stanley Boykansky, M.D., DAB No. 1756 (2000). But, I do not need to find an unlawful referral of proficiency testing samples by one Petitioner to the other in order to find that these Petitioners failed to comply with the CLIA condition that is set forth at 42 C.F.R. � 493.801(a). The egregious failures by both Petitioners to comply with the standard that is set forth at 42 C.F.R. � 493.801(b)(1), by Petitioner RNA to comply with the standard that is set forth at 42 C.F.R. � 493.801(b)(5), and by Petitioner Ter-Zakarian to comply with the standard that is set forth at 42 C.F.R. � 493.801(b)(2), is sufficient basis for me to find condition-level noncompliance by these Petitioners.

3. Petitioners RNA and Ter-Zakarian failed to comply with the CLIA condition of participation that is stated at 42 C.F.R. � 493.1403.

The condition of participation that is set forth at 42 C.F.R. � 493.1403 requires a clinical laboratory to have a director who is responsible for the overall management and direction of the laboratory. It requires that the laboratory director provide management and direction that comports with standards set forth at 42 C.F.R. � 493.1407. Under this latter regulation a laboratory director must, among other things, assure that proficiency testing is conducted in compliance with the requirements of all applicable regulations.

The laboratory director is the individual who bears responsibility for assuring that a clinical laboratory meets the quality control standards that are at the heart of CLIA requirements. Tr. at 280 - 281. Ultimately, the laboratory director is the person who assures that a clinical laboratory does a competent job testing patients' specimens. It is no exaggeration to say that the success or failure of a laboratory director in discharging his or her responsibilities may have life or death consequences for many patients who rely on a laboratory to perform clinical testing of their specimens.

CMS introduced evidence which establishes a prima facie case that both Petitioners RNA and Ter-Zakarian failed to comply with the condition governing the performance of the laboratory director. The evidence supports findings of egregious failures by Petitioners to comply with the standards that are set forth at 42 C.F.R. � 493.1407. I may infer from this evidence of noncompliance that the failures of Petitioners to comply with these standards were so serious as to violate the overall condition governing the position of laboratory director.

I find that Petitioners failed to rebut this evidence. Indeed, Petitioners offered no meaningful response to CMS' allegations and evidence except to aver that they complied with the condition governing proficiency testing. As I discuss above, at Finding 2, Petitioners did not comply with the condition governing proficiency testing. The failures by Petitioners to comply with the proficiency testing condition also are failures to comply with the laboratory director condition because these failures establish the absence of proper management of the laboratories' activities. Furthermore, the unrebutted evidence offered by CMS with respect to Petitioner Ter-Zakarian establishes that this Petitioner's management failures involved more than its failures to conduct proficiency testing according to the requirements of 42 C.F.R. � 493.801.

a. Petitioner RNA did not comply with the laboratory director condition.

CMS offered evidence to establish a prima facie case that Petitioner RNA did not comply with the laboratory director condition. In the case of Petitioner RNA, the prima facie evidence of its failure to comply with the laboratory director condition is its failure to comply with the proficiency testing condition. As I discuss above, at Finding 2, Petitioner RNA engaged in a prohibited exchange of information with Petitioner Ter-Zakarian and failed to maintain records of its proficiency testing. I find that this evidence establishes a failure by Petitioner RNA's laboratory director to exercise the oversight and management responsibilities that are his responsibilities.

Petitioner RNA did not rebut this prima facie evidence of its failure to comply with the laboratory director condition. At Finding 2, I discuss why I do not find to be persuasive Petitioner's arguments which address allegations that it did not comply with the proficiency testing condition. Petitioner makes the additional assertion with respect to the laboratory director condition that it was the fault of Petitioner RNA or its owner, and not of the laboratory director if Petitioner RNA failed to produce proficiency testing documentation. I find this argument not to be persuasive because creation and preservation of records of proficiency testing were tasks that were within the scope of the laboratory director's responsibilities.

b. Petitioner Ter-Zakarian did not comply with the laboratory director condition.

CMS offered evidence that Petitioner Ter-Zakarian failed to comply with the laboratory director condition by failing to comply with the condition governing proficiency testing. Additionally, CMS offered evidence to show that Petitioner Ter-Zakarian failed in other respects to comply with the laboratory director condition. This additional evidence consisted of the following:

� Petitioner Ter-Zakarian was conducting patients' specimen tests for TSH. However, its laboratory director had not enrolled it in a proficiency testing program for this substance, in violation of the requirements of 42 C.F.R. �� 493.1407(e)(4) and 493.801(a). HCFA Ex. 2 at 25.

� Petitioner Ter-Zakarian had received proficiency testing reports for the third proficiency testing event of 1999 which showed that the laboratory had tested unsuccessfully for creatinine, one of the samples in the proficiency testing event. However, it failed to produce any evidence to show that its laboratory director had reviewed and evaluated these reports or had undertaken any corrective action, in violation of the requirements of 42 C.F.R. � 493.1407(e)(4)(iii). HCFA Ex. 25 at 27.

� Petitioner Ter-Zakarian's laboratory director permitted staff to run proficiency tests multiple times. However, he established no quality controls which instructed staff as to how to distinguish correct from erroneous proficiency test results. Furthermore, he permitted results to be reported which did not accurately state the findings that were produced by his laboratory's proficiency testing. For example, in the first proficiency testing event of 1999, instrument printouts produced readings of 177 and 136 for a total cholesterol test. Yet, Petitioner Ter-Zakarian reported a result of 172 for that test. HCFA Ex. 13 at 2. This and other examples constituted evidence of a failure by the laboratory director to implement quality control requirements as is required by 42 C.F.R. � 493.1407(e)(5). HCFA Ex. 2 at 29 - 30.

The evidence offered by CMS is prima facie proof that Petitioner Ter-Zakarian did not comply with the laboratory director condition. It establishes a wholesale failure by Petitioner's laboratory director to manage or direct the laboratory in compliance with applicable requirements. Petitioner offered no evidence which persuasively rebutted the proof offered by CMS and I find, therefore, that Petitioner Ter-Zakarian failed to comply with the laboratory director condition.

4. CMS withdrew its allegations that Petitioners failed to comply with the CLIA condition of participation that is stated at 42 C.F.R. � 493.1773.

In its posthearing brief, CMS urges that I find that Petitioners RNA and Ter-Zakarian failed to comply with the requirements that are set forth at 42 C.F.R. � 493.1773. However, at the in-person hearing, I asked counsel for CMS what allegations CMS intended to pursue and counsel offered the following statement:

they [CMS] found the condition for inspection [the condition stated at 42 C.F.R. � 493.1773] - at that time, that has - is not going to be addressed because ultimately the laboratory did supply more information.

Tr. at 16. This statement by counsel is ambiguous but it may be interpreted reasonably to mean that CMS was not pursuing allegations that it had made concerning Petitioners' failure to comply with the requirements of 42 C.F.R. � 493.1773. I interpreted the statement to mean that and so did Petitioners.

In light of that I find that CMS withdrew its allegations that Petitioners failed to comply with the CLIA condition of participation that is stated at 42 C.F.R. � 493.1773. However, this withdrawal has no affect on my decision in this case inasmuch as it is unnecessary that CMS establish that Petitioners failed to comply with more than one CLIA condition in order for there to be a basis for CMS to impose the remedies that CMS determined to impose.

5. A basis exists to impose remedies against Petitioners RNA and Ter-Zakarian.

CMS determined to impose the following remedies against Petitioners RNA and Ter-Zakarian:

� Cancellation of each Petitioner's approval to receive reimbursement from Medicare for tests performed for Medicare beneficiaries;

� Revocation of each Petitioner's CLIA certificate; and,

� Alternative sanctions consisting of civil money penalties.

CMS may impose each or all of these remedies that in any instance where a laboratory has failed to comply with one or more CLIA conditions. 42 C.F.R. �� 493.1814; 493.1834. There is a basis for imposition of these remedies here in that I have found that Petitioners each failed to comply with CLIA conditions.

I have no authority in these cases to decide whether any of the remedies that CMS determined to impose is appropriate. CMS's choice of remedy, as opposed to its authority to impose a remedy, is not an issue which I may hear and decide. See, e.g.,42 C.F.R. � 493.1844(b)(3). A laboratory's right to a hearing, or that of a laboratory's owner or operator, is a right to assert that a basis does not exist to impose remedies.

CMS's remedy determinations do not directly affect Dr. Ter-Zakarian. However, there is a significant indirect consequence for Dr. Ter-Zakarian which results from my decision to uphold the revocation of Petitioners' CLIA certificates. The due process implications of this indirect effect are the basis for my decision to grant Dr. Ter-Zakarian a hearing. See Finding 1 above.

Applicable regulations provide for the revocation of a laboratory's CLIA certificate where that laboratory's owner or operator owned or operated a laboratory whose CLIA certificate has been revoked within the preceding two-year period. 42 C.F.R. � 493.1840(a)(8). The regulation does not specifically prohibit such an individual from owning or operating a laboratory. However, that is the practical effect of the regulation. Thus, CMS may revoke the CLIA certificate of any laboratory that Dr. Ter-Zakarian owns or operates within a two-year period from the date of revocation of the CLIA certificate of Petitioner RNA or of Petitioner Ter-Zakarian.

6. I deny Petitioners' motions.

Prior to the hearing of this case Petitioners made four motions. These motions are: (1) Petitioners' Motion to Exclude Evidence of Identical or Very Similar Proficiency Testing Events as Improper "Probability of Guilt" Evidence; (2) Petitioners' Motion to Preclude Dennis W. Jay, Ph.D., DABCC, from Giving Testimony Concerning Statistical Analysis and Probability; (3) Petitioner Ter-Zakarian Medical Clinic's Motion to Dismiss for Lack of Jurisdiction; and (4) Petitioners' and Real Party in Interest Request for Consideration of Due Process Violations. I reserved deciding these motions. Petitioner withdrew motion (3) and has renewed its request that I decide motions (1), (2), and (4).

I now deny these motions. I have dealt with Petitioners' arguments concerning motions (1) and (2) above, at Finding 2. I find that neither Petitioners nor Dr. Ter-Zakarian has been denied due process and, therefore, I deny motion (4).

Steven T. Kessel

Administrative Law Judge