California Lab Regulators Are A Tough Bunch

Other public lab companies in Golden State have run afoul of state laboratory regulations

CEO SUMMARY: By law, government regulators cannot comment publicly about the actions they take against the companies they regulate. That’s why the lab industry never learned that other public lab companies operating in California, following inspections by state authorities, were judged to have some deficiencies similar to those found at Specialty Laboratories.

BY NOW, JUST ABOUT EVERYONE in the lab industry knows that Specialty Laboratories, Inc. was hit by sanctions that included revocation of its CLIA-88 license, subject to an appeal which was filed by the troubled laboratory company last month. (See TDR, April 22, 2002.)

What most laboratorians don’t know is that California laboratory regulators have been tough on several other well-known laboratory companies in past years. What was different in most of these earlier cases is that the public lab companies were able to keep news of regulatory deficiencies from becoming public knowledge.

Undisclosed Facts

THE DARK REPORT has tracked these fascinating stories over the years, since they provide insights into the enforcement philosophies of laboratory regulators. For example, back around 1989, Nichols Institute, then an independent public company, was inspected by the California Department of Health Services (CDHS). Deficiencies were deemed serious enough that Nichols Institute was required to develop an acceptable plan of correction (POC) and was subject to state inspections for a two-year period, ending around 1991. News of this situation was kept confidential and never became public knowledge.

Another situation occurred in the 1998-99 time period. CDHS lab regulators cited the Van Nuys laboratory owned by SmithKline Beecham Clinical Laboratories (SBCL) for deficiencies. This was prior to SBCL’s acquisition by Quest Diagnostics Incorporated. SBCL ceased certain lines of testing at that facility and was forced to send those specimens to its lab in Dublin, California until the deficiencies in Van Nuys were corrected.

An even more interesting case involved PharmChem, Inc., the drugs-of-abuse testing company. In recent years, while it was still based in Menlo Park, California, PharmChem was caught in the regulatory cross-hairs of CDHS lab officials. Of the deficiencies cited, some mirrored those at Nichols in 1989 and Specialty Labs in 2002, most notably the use of “unlicensed personnel” to perform and supervise testing.

Since a number of public lab companies have experienced similar episodes with California lab regulators, Specialty Lab’s case is exceptional specifically because sanctions reached the point of license revocation.

As with other labs cited by CDHS inspectors, PharmChem had Ph.D.s, some with board certifications in diagnostic specialties, working in the lab, but not holding a license as a clinical laboratory scientist (CLS) under California regulations. Since these Ph.D.s lacked the CLS license, CDHS regulators found the lab to be in violation of state regs requiring CLS- licensed individuals “to perform and supervise” testing.

One unique feature of PharmChem’s dispute with its regulators involved the interpretation of state lab regulations covering “patients.” Unlike earlier years, CDHS regulators began defining the individual who provided a drugs-of-abuse test specimen as a patient. Based on this new interpretation, CDHS then cited PharmChem for deficiencies under regulations intended to address clinical laboratory testing, despite the company’s activities in drugs-of-abuse testing.

Legislative Branch Appeal

Executives at the laboratory tell THE DARK REPORT that the situation escalated to the point where regulators actually drafted a “cease and desist.” To resolve the issue, this laboratory company went to the state legislature, pled its case, and gained relief through passage of legislation clearly defining the differences for regulating clinical laboratory testing as distinct from drugs-of-abuse testing. In recent years, this lab company relocated its testing activities outside the state of California.

THE DARK REPORT has been told that the same regulators involved in this case are also involved in the Specialty Laboratories case. As noted above, THE DARK REPORT has documented serious regulatory actions between the California Department of Health Services and Nichols Institute, SBCL, PharmChem, and, most recently, Specialty Laboratories.

Each was a public lab company at the time that regulators identified deficiencies during inspections. Taken collectively, this is factual evidence that, at some level, the fundamental relationship between certain lab companies in the state and CDHS lab enforcers is probably not amicable.

Little Information Available

Since a number of public lab companies have experienced similar episodes with California lab regulators, Specialty Lab’s case is exceptional specifically because sanctions reached the point of license revocation. The differences are difficult to judge, since few details about the deficiencies have been disclosed by either lab regulators or Specialty Laboratories.

But each of these earlier cases does support a conclusion that aspects of California’s lab regulatory environment have become unwieldy. Changes in laboratory technology, such as molecular and genetic diagnostics, and the growing shortage of technically-trained laboratorians, may have outmoded existing regulations which were created years ago to address a different set of problems.

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