California Agency Problems Deepened Valencia Branch Laboratory Saga

Effectiveness of Laboratory Field Services unit was previously questioned by California state auditor

CEO SUMMARY: Adding a new twist in the ongoing saga of the CLIA compliance failures at the Valencia Branch Laboratory in California are insights from a former clinical laboratory director familiar with the industry in California. He observed that problems at California’s Laboratory Field Services (LFS) office are known to the state legislature, following an audit of LFS conducted by the California State Auditor’s Office in 2015. 

IS IT A CONFLICT OF INTEREST when a state-owned COVID-19 testing laboratory is inspected by the same state’s department of health, yet is allowed to continue testing patients despite the findings of serious CLIA deficiencies, including deficiencies that expose patients to “immediate jeopardy”?

This is one of the serious questions surrounding the State of California’s operation of its Valencia Branch Laboratory (VBL), a large clinical lab facility built and operated by PerkinElmer to perform COVID-19 tests. It opened in the fall of 2020 and news reporters quickly began publishing stories about serious problems within the lab. Lab whistleblowers were the source of this information, including a whistleblower who was one of the first laboratory directors at VBL. (See TDR, “Whistleblowers Disclose Issues in Calif.’s Valencia COVID-19 Lab,” March 1, 2021.)

As The Dark Report previously noted, each chapter in this unfolding saga has left many lab administrators curious as to how VBL remained open after inspections turned up deficiencies that put patients in immediate jeopardy. (See TDR, “Questions Remain about California’s Valencia Lab,” March 14, 2022.)

“I believe that the biggest flaw that this project exposed is the idea that the California governor decided that it was necessary for the state government to get into the clinical laboratory business in competition with private enterprise,” commented a pathologist and former lab director in California who asked not to be named. 

Any discussion about VBL inevitably leads back to California Gov. Gavin Newsom, who proposed the idea for the state-funded laboratory to increase the daily volume of COVID-19 tests. Newsom authorized the state to sign a no-bid contract—worth as much as $1.7 billion—with PerkinElmer in Waltham, Mass., to build and operate the clinical laboratory.

“That fact alone emphasizes the problems that can arise when government runs a business enterprise in which it has no experience or expertise,” the former lab director told The Dark Report. 

State Inspection Questions

Based on his extensive experience in the lab industry in California, the former lab director offered strong opinions about possible weaknesses in the California Department of Public Health’s (CDPH) Laboratory Field Services (LFS) unit, which inspects clinical laboratories. 

The LFS and CDPH have taken heat in the VBL situation because few details have been released about exactly how VBL corrected serious deficiencies after state inspections uncovered them.

“The Valencia Branch Laboratory underwent multiple thorough inspections by both Laboratory Field Services and the College of American Pathologists,” CDPH’s press office told The Dark Report previously. “After multiple visits to the laboratory and numerous correspondences, these inspections have both been closed with no sanctions imposed and with full accreditation by CAP.”

LFS has a recent history of its effectiveness being questioned. In September 2015, the California State Auditor’s Office issued a report that concluded LFS was unable to oversee clinical laboratories effectively but that alternative approaches were available for LFS to take.

14 Recommendations

The auditor’s report made 14 recommendations to the state legislature and CDPH as to how to address the problems at LFS. Eleven of those have been fully implemented, while three remain partially complete after years of delays, as follows:

  • LFS to address staffing issues by preparing a recruitment and retention proposal and succession plan, and by implementing a planned reorganization.
  • LFS to ensure its information technology and data systems have all necessary safeguards, contain accurate and complete data, and support its program needs. 
  • LFS to ensure it can provide effective oversight of labs by updating its regulations to ensure consistency with existing state law.

The latest deadline for these corrections is winter of 2022, according to a Sept. 2021 update from the state auditor. 

“One of the problems we’ve seen in California is that the departments that do the inspections of clinical laboratories often are poor-performing bureaucracies,” the former lab director said. 

Months for LFS to Reply

He also complained that when other clinical lab directors have called LFS with urgent questions, it can take months to get a reply. In addition, LFS can be months behind clinical laboratory license renewals, he added. 

“It’s been that way for many years,” he said. “What that means is that when a lab is cited for being in immediate jeopardy of harming patients, it will still take a long time for that report to get released to the public.”

Long waits for responses from CDPH lab staff and for state lab inspection reports about VBL stand in contrast to a renewal of the agreement to operate the state lab. In October 2021, the contract automatically renewed with PerkinElmer for $1.7 billion, according to CalMatters, a nonprofit news organization.

“That contract appeared to get renewed almost automatically,” the former lab director commented. “Essentially, the CDPH was sweeping its own findings of immediate jeopardy under the rug.”

As The Dark Report and other publications have reported over many years, when CMS or state officials issue an inspection report that cites a lab for immediate jeopardy of patient harm, those deficiencies need to be fixed within a matter of days or sometimes weeks. “There’s no way a lab with patient safety issues would be allowed to operate for months without addressing those deficiencies,” the former lab director noted. 

Deficiencies at Theranos

The inspections at ill-fated Theranos offer a case in point. In December 2015, CMS conducted a CLIA inspection at the Theranos lab in Newark, Calif. Inspectors found serious deficiencies, including some that put patient safety in jeopardy. 

On March 18, 2016, CMS notified Theranos’ executives of sanctions that could include revoking the lab’s CLIA certificate, imposing fines of $10,000 per day, suspending or canceling the lab’s approval to receive Medicare payments, and imposing a two-year ban on the owner and laboratory director. (See Dark Daily, “CMS Notifies Theranos of CLIA Sanctions That Include Revoking Clinical Laboratory’s CLIA License and a Two-Year Ban on Holmes, Balwani, and Dhawan,” April 14, 2016.)

“Theranos was cited for being in immediate jeopardy of patient harm and had to fix the problems that CMS found right away,” the former lab director commented. “After Theranos fought those findings and didn’t fix the problems in time, CMS shut down the lab.”

Valencia Lab Still Operates

VBL was cited for significant deficiencies, but the lab still operates under a contract with the state, he added. 

“Somehow the Valencia lab is continuing to operate because CDPH’s Laboratory Field Services section decided that the lab had fixed the problems—at least in the view of CDPH,” he said. “And those problems were fixed at about the same time as the lab contract renewal. All of that history raises the question of what the state and federal inspectors are doing, if anything, about the Valencia lab.”

It appears that the ongoing cloud over the quality and reliability of the Valencia Branch Laboratory’s COVID-19 test results is about to become moot. On March 31, PerkinElmer announced in a filing that the State of California had terminated its contract to run the VBL. Details of this development follow here. 

Was Valencia Branch Lab a Success or Failure?

IT TURNS OUT THAT THE STATE OF CALIFORNIA WAS PAYING PERKINELMER $37.78 per COVID-19 PCR test, according to a study conducted and published by CalMatters, which describes itself as a “non-profit, non-partisan newsroom.”

CalMatters wrote that California “then charges schools $21 and community organizations $55 per test.” For comparision, CalMatters noted that an independent lab company in California, SummerBio, was charging $12 per COVID-19 test to the Los Angeles School District. CalMatters also provided useful insights into COVID-19 test pricing in California, as follows:

According to [L.A. Unified] district documents, 22 companies were evaluated through an expedited bidding process and SummerBio offered the lowest price by far, between $38 and $166 less than other diagnostics companies, including major players like Curative and Fulgent. 

The state paid PerkinElmer about $740 million for testing in the past year. Most of the cost is recouped through federal funds and health insurance payments, according to the state health department. In contrast, LA Unified is projected to spend $350 million for the entire school year, and tests far more people per week than the Valencia lab. The district will also recoup the costs through federal school reopening grants and federal emergency funds.



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