Trufide Labs (CLIA No.: 45D2108334), DAB CR5515 (2020)

DECISION

The Centers for Medicare & Medicaid Services (CMS) determined that Trufide Labs (Petitioner or Trufide) did not comply with a condition for laboratories under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) and therefore imposed principal sanctions of suspension and revocation of Petitioner’s CLIA certificate, and cancellation of Petitioner’s approval to receive Medicare reimbursements for its services, as well as an alternative sanction of a civil money penalty.  Petitioner requested a hearing to dispute these sanctions.  For the reasons discussed below, I affirm the remedies imposed by CMS in this matter.

I. Background

On December 29, 2015, CMS received an initial CLIA Application for Certification from Petitioner’s predecessor.  CMS Exhibit (Ex.) 5.  On April 28, 2016, Petitioner contracted with a third party to establish and manage its laboratory.  Petitioner’s (P.) Ex. D.  In May 2016, Petitioner submitted an application for certification to CMS to disclose a change of ownership and to change its name to Trufide Labs.  CMS Ex. 6; P. Ex. E.  CMS issued a Certificate of Registration and CLIA certification number to Petitioner with an effective

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date of February 2, 2016.  CMS Ex. 1 at 2; P. Ex. B.  On November 1, 2016, Petitioner entered into an agreement with a different third party to establish and manage its laboratory.  P. Ex. J. 

On December 6, 2016, CMS conducted a survey of Petitioner’s facilities.  CMS Ex. 4.  Petitioner had no machinery or equipment with which it could perform laboratory testing.  Id. at 5.  Instead, the facility consisted of office space used for billing.  Id.  On December 14, 2016, CMS notified Petitioner it was not in compliance with 42 C.F.R. § 493.1771 (Condition:  Inspection) and that the laboratory did not meet the CLIA definition of a laboratory.  CMS Ex. 1.

As principal sanctions, CMS canceled the laboratory’s approval to receive Medicare payments for laboratory services, suspended the laboratory’s CLIA certificate, revoked the laboratory’s CLIA registration certificate, and denied its CLIA Certificate of Accreditation.  Id. at 5.  As an alternative sanction, CMS imposed a civil money penalty of $197,870 ($19,787 for each of the ten months Petitioner was not in compliance).  Id. at 4.  The CLIA certificate suspension and cancellation of approval to receive Medicare payments sanctions took effect December 29, 2016 because CMS found the laboratory’s non-compliance presented “an imminent and serious risk to human health.”  Id. at 5.The revocation of Petitioner’s CLIA registration certificate was held pending the filing of a request for hearing by Petitioner or its failure to adhere to the alternative sanctions.  Id.

Petitioner timely requested a hearing before an administrative law judge to dispute these sanctions.  Administrative Law Judge Scott Anderson was initially designated to hear and decide this case.  On February 15, 2017, Judge Anderson issued an Acknowledgment and Pre-hearing Order (Pre-hearing Order), which required each party to file a pre-hearing exchange consisting of a brief and any supporting documents.  On August 25, 2017, this matter was transferred to me. 

Pursuant to Judge Anderson’s Pre-hearing Order, CMS filed its brief and motion for summary judgment (CMS Br.) and ten proposed exhibits (CMS Exs. 1-10).  Petitioner filed a brief (P. Br.) and offered 12 exhibits (P. Exs. A-L).  Neither party objected to the exhibits offered by the opposing party.  Therefore, I admit CMS Exs. 1-10 and P. Exs. A-L.  Both parties requested cross-examination of the opposing party’s witnesses, but because the record before me compels me to grant CMS’s motion for summary judgment as explained below, I need not proceed to a hearing in this matter.

II. Issue

The issue in this case is whether CMS had a legal basis to impose sanctions on Petitioner.

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III. Jurisdiction

I have jurisdiction in this matter pursuant to 42 C.F.R. § 493.1844(a)(2), (b).

IV. Discussion

 A. Applicable Legal Authority

CLIA establishes conditions that laboratories must meet to be certified to perform clinical diagnostic testing on human specimens and to bill for services under the Medicare program.  42 U.S.C. § 263a; 42 C.F.R. part 493.  To be certified, a laboratory must meet the conditions of certification set out in the statute and regulations.  42 U.S.C. § 263(a)(f)(1); 42 C.F.R. part 493.  A condition represents a major division of laboratory services or required environmental protections; each condition is broken down into more detailed standards that laboratories must meet to comply with the overall condition.  White Lake Family Med., P.C., DAB No. 1951 at 2 (2004); RNA Labs., Inc., & Ter-Zakarian Med. Clinic, DAB No. 1820 at 1 (2002).

The statute gives the Secretary of Health and Human Services broad enforcement authority, which the Secretary has delegated to CMS.  CMS or its designee conducts periodic inspections to determine a laboratory’s compliance with CLIA requirements.  42 C.F.R. § 493.1777.  CMS may suspend, limit, or revoke the CLIA certificate of a laboratory that is out of compliance with one or more conditions and may also impose alternative sanctions.  42 C.F.R. § 493.1806; White Lake, DAB No. 1951 at 7.  Failure to comply with even a single condition may be grounds for suspension or revocation of a laboratory’s CLIA certificate.  RNA Labs., DAB No. 1820 at 2, citing Ward Gen. Practice Clinic, DAB No. 1624 at 2 (1997).  Noncompliance with even one standard, if sufficiently serious, may justify a condition-level deficiency.  Edison Med. Labs., Inc., DAB No. 1713 at 1-2. (1999).

 B. Findings of Fact and Conclusions of Law

 1. Summary judgment is appropriate.

CMS filed a motion for summary judgment opposed by Petitioner. Summary judgment is appropriate when the record shows that there is no dispute of material fact and the moving party is entitled to judgment as a matter of law.  Senior Rehab. & Skilled Nursing Ctr., DAB No. 2300 at 3 (2010).  The moving party must show there are no genuine issues of material fact requiring an evidentiary hearing and that it is entitled to judgment as a matter of law.  Id.  If the moving party meets its initial burden, the non-moving party must “come forward with ‘specific facts showing that there is a genuine issue for trial . . . .’”  Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574 (587) (1986).  “To defeat an adequately supported summary judgment motion, the non-moving party may

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not rely on the denials in its pleadings or briefs, but must furnish evidence of the case under governing law.”  Senior Rehab., DAB No. 2300 at 3 (citations omitted).

To determine whether there are genuine issues of material fact for hearing, I must view the evidence in the light most favorable to the non-moving party, drawing all reasonable inferences in that party’s favor.  Id.  My role in deciding a summary judgment motion differs from my role in resolving a case on the record; I will not assess credibility or evaluate the weight of conflicting evidence.  Holy Cross Vill. at Notre Dame, DAB No. 2291 at 4-5 (2009).

Here, because Petitioner concedes it was not a functional laboratory at the time of inspection and instead argues that CMS improperly read the regulations when it imposed sanctions, the issues I must resolve in this case are matters of law that do not require weighing conflicting evidence or assessing credibility of witnesses.  Accordingly, summary judgment is appropriate.

2. Petitioner was not a functional laboratory at the time of inspection and therefore failed to meet the condition at 42 C.F.R. § 493.1771.

The applicable regulations require a laboratory issued a CLIA certificate to meet certain conditions, which include complying with inspection requirements.  42 C.F.R. § 493.1771.  All laboratories issued a CLIA certificate are subject to basic inspection requirements.  42 C.F.R. § 493.1773.  Laboratories that have requested a certificate of compliance must undergo an initial inspection to assess compliance with these requirements.  42 C.F.R. § 493.1777. 

The regulations define a laboratory as a facility for the “examination of materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings.”  42 C.F.R. § 493.2.  In addition, any “[f]acilities only collecting or preparing specimens (or both) or only serving as a mailing service” are expressly precluded from the regulatory definition of a laboratory.  Id.

It is undisputed that at the time of the survey in December 2016, Petitioner was not operating as a laboratory.  CMS Ex. 2 at 1- 2; P. Ex. L at 4; P. Br. at 8.  Petitioner’s facility had no equipment necessary to provide any of the services that would be performed by a laboratory.  CMS Ex. 9 at 3.  Instead, the facility served as a billing site.  CMS Ex. 4 at 1; CMS Ex. 9 at 3, 4; CMS Ex. 10 at 2.  Petitioner did not process patient specimens at that location, but instead received patient specimens and then mailed those specimens to another entity to process and conduct the actual laboratory testing.  CMS Ex. 9 at 4; CMS Ex. 10 at 2.  Acting as a collection and mailing location is insufficient to meet the definition of a laboratory under the Secretary’s regulations.  42 C.F.R. § 493.2.

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Petitioner was therefore not a functional laboratory at the time of the survey and thus failed to meet the requirements for the condition at 42 C.F.R. § 493.1771. 

3. Because Petitioner failed to meet the condition at 42 C.F.R. § 493.1771, CMS had a legal basis to impose sanctions. 

CMS may impose sanctions on a laboratory out of compliance with one or more CLIA conditions.  42 C.F.R. § 493.1806(a).  The regulations set forth nine factors CMS may consider to choose an appropriate sanction, including “[w]hether the deficiencies pose immediate jeopardy” and “[t]he nature, incidence, severity, and duration of the deficiencies or noncompliance.”  42 C.F.R. § 493.1804(d).  The three principal sanctions available to CMS under CLIA are suspension, limitation, or revocation of any type of CLIA certificate.  42 C.F.R. § 493.1806(b).  Alternative sanctions include a civil money penalty.  42 C.F.R. § 493.1806(c)(3).  CMS may impose alternative sanctions in addition to principal sanctions.  42 C.F.R. § 493.1804(c)(1).  Upon the suspension or revocation of a CLIA certificate, “CMS concurrently cancels the laboratory’s approval to receive Medicare payment for its services.”  42 C.F.R. § 493.1808(a).

As soon as CMS or its agent discovers a failure to meet a condition, a basis exists for imposing a suspension, limitation, or revocation.  See id.  Therefore, as long as CMS has proven the existence of a condition-level deficiency at any point in time after a laboratory began operating under a CLIA certificate, CMS may impose a principal sanction of suspension or revocation.

Here, as I have already discussed, CMS properly determined Petitioner was not operating a functional laboratory at the time of inspection, and made this determination after Petitioner received its CLIA certificate.  The failure to operate a functional laboratory is a condition-level deficiency.  42 C.F.R. § 493.1771.  CMS therefore had the legal authority to select and impose the principal and alternative sanctions it imposed against Petitioner. 

 4. I need not address CMS’s argument that Petitioner made misrepresentations in obtaining its CLIA certificate.

Noncompliance with even a single condition is grounds for CMS to impose sanctions.  Therefore, I need not address CMS’s argument that Petitioner obtained its CLIA certificate of registration through misrepresentation because I have found Petitioner’s failure to operate a laboratory pursuant to the statute and its regulations provided the basis for CMS’s principal and alternative sanctions.

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5. Petitioner’s claim that it was not required to be operational at the time of the survey is without merit.

Petitioner contends the regulations did not expressly require it to be fully operational when its CLIA certificate was issued, and instead contemplate a start-up period during which it would be improper for CMS to impose penalties for noncompliance.  P. Br. at 7.1 This argument is plainly without merit.  Contrary to Petitioner’s claim, the regulations contemplate laboratories first becoming operational and only then applying for a CLIA certificate, evidenced by the fact that CMS issued a certificate to Petitioner in this case with retroactive effect – CMS issued Petitioner a CLIA certificate on August 3, 2016, but provided a retroactive effective date of February 2, 2016.  P. Ex. B; P. Ex. L at 3.  There would be no reason to provide a period of retroactive billing if CMS anticipated Petitioner would engage in a start-up period only after it received a certificate. 

And, as CMS correctly observes, the primary goal of the regulations is to protect the public by ensuring laboratories provide correct and accurate results.  CMS Br. at 6, citing Clinical Immuno Diagnostic Lab, Inc., DAB No. 2036 at 9 (2006).  This goal would be utterly stymied if laboratories were allowed to first receive a CLIA certificate and then engage in a months-long odyssey to engage a third-party entity to actually establish the laboratory and make it operational.  Petitioner’s reading of the regulations, aside from lacking textual support, strains credulity and would result in a profoundly unsafe regulatory environment. 

Finally, Petitioner argues it should not be held liable for the delay caused by the third party with which it contracted to equip and set up its laboratory operations.2 P. Br. at 6-7. At the time of the December 6, 2016 survey, Petitioner asserts it actively sought to establish a functioning laboratory, but was hindered from having a functioning laboratory by the various third parties. 

Even if Petitioner correctly faults the actions of others and bears no fault in its failure to set up and operate its laboratory within the purview of the regulations, I may not set aside CMS’s lawful exercise of its discretion based on principles of equity.  See, e.g., Central

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Kan. Cancer Inst., DAB No. 2749 at 10 (2016); see also James Shepard, M.D., DAB No. 2793 at 9 (2017).  As CMS points out, if Petitioner’s attempt to set up and operate a laboratory was obstructed by the actions of its partners, then it should have simply surrendered its CLIA certificate and re-applied when its laboratory was fully operational.  CMS Br. at 8.  Further, if Petitioner believes it has an actionable claim against a third party for breach of contract or tortious interference, such claims sound in state court or as diversity matters in federal court, and fall well outside my jurisdiction. 

V. Conclusion

For the reasons explained above, I affirm CMS’s suspension and revocation of Petitioner’s CLIA certificate, cancellation of Petitioner’s approval to receive Medicare reimbursements for its services, and the alternative sanction of a civil money penalty.

1. Petitioner does not even speculate as to how long such a period should be, though I infer it believes such a period would encompass the four months it operated without performing any laboratory services whatsoever before CMS inspected its facility. Of course, no provision of law or regulation supports this notion.
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2. Petitioner first contracted with ManaCare Health, LLC, in April 2016 to establish and manage its laboratory. P. Br. at 2; P. Ex. D. While CMS issued a CLIA certificate to Petitioner on August 3, 2016, the arrangement between Petitioner and ManaCare failed to produce a functioning laboratory. P. Ex. B; P. Ex. L at 3. By mid-August 2016, Petitioner declared ManaCare to be in breach and explored partnering with other third parties to establish and manage its laboratory. P. Ex. L at 3; P. Br. at 2, 6.
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