CMS Shuts Missouri Lab Due to ‘Immediate Jeopardy’

Lab company served 2,500 nursing homes in 11 states, but CMS ordered it to cease testing

CEO SUMMARY: CMS ordered Gamma Healthcare to close its two labs, revoked the owners’ CLIA licenses, prohibited them from operating a lab for two years, and ordered payment of more than $55,000 in civil penalties. The two lab facilities had been running COVID-19 and other tests for about 2,500 nursing homes in 11 states. This forced nursing homes and long-term care facilities in those Midwest states to find other labs to serve elderly patients during the pandemic.

LAST FALL, ANOTHER IMPORTANT PROVIDER OF CLINICAL LABORATORY TESTING to nursing homes and skilled nursing facilities went out of business. This time it was Gamma Healthcare, which operated lab facilities in Popular Bluff and Springfield, Missouri.

Consequently, Medicare beneficiaries in 11 states lost access to lab testing services, particularly those beneficiaries living in nursing homes. This comes on top of the numerous lab companies serving nursing homes that went out of business in recent years due to substantial reductions to Medicare Part B clinical lab test prices as mandated by the Protecting Access to Medicare Act (PAMA). The drop in Medicare revenue put these labs into financial distress and led to their bankruptcies or closures.

In the case of Gamma Healthcare, the immediate cause of the lab’s closing were orders by the federal Centers for Medicare and Medicaid Services (CMS) requiring the lab company to close its laboratory testing operations. CMS revoked the licenses for the labs’ owners to operate the two facilities, prohibited them from operating a lab for two years, and ordered the lab to pay a civil penalty of $55,666. 

By closing the two lab facilities that had been running COVID-19 and other tests for about 2,500 nursing homes in 11 states, the federal agency left patients without a lab provider. Since then, nursing home and long-term care facilities in Arkansas, Illinois, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, Tennessee, and Texas have scrambled to find other clinical laboratories to fill the gap.

Judge Declined to Intervene 

In an attempt to remain open, Gamma Healthcare filed a temporary restraining order against CMS on Oct. 23. Less than a week later, the Associated Press reported that U.S. District Judge M. Douglas Harpool refused to intervene in the case after Gamma Healthcare’s lawyers asked the judge to keep both lab facilities open. 

In response, CMS argued that two of Gamma Healthcare’s analyzers produced false-negative test results on more than 25% of known-positive COVID-19 samples over several months and that the regulators found multiple false-positive COVID-19 test results, the AP noted. 

Gamma Healthcare’s troubles began just over one year ago when on June 22, 2020, inspectors from CMS conducted an inspection at the Poplar Bluff lab. In an eight-page report of deficiencies that CMS issued the next day, the inspectors cited eight failures in the lab related to COVID-19 testing. 

Lab Inspections Conducted 

In what CMS calls a 2567 report, the agency listed deficiencies such as: 

  • Failure to have a laboratory director who meets CMS’ qualification requirements. 
  • Failure to arrange analyzers to prevent contamination of patient specimens.
  • Failure to set policies and procedures for COVID-19 testing. 
  • Failure to have a policy to address COVID-19 specimen acceptability, submission, handling, and rejection. 
  • Failure to ensure analyzer verification procedures were adequate before running COVID-19 PCR tests.
  • Failure to ensure all personnel have appropriate training for COVID-19 testing.

On July 1, 2020, CMS inspectors went to Gamma Healthcare’s facility in Springfield. In their second 2567 report, the inspectors cited four deficiencies, including failure to set performance specifications for interfering substances before reporting patient test results, failure to ensure that technical personnel performed test methods as required for accurate and reliable results, and failure to ensure that staff identified problems and potential problems for COVID-19 patient testing.

The report explained that during a review of the laboratory’s validation reports for an analyzer, CMS found that the Springfield lab failed to verify specificity for interfering substances for COVID-19 testing before testing patient samples on April 7, 2020. Between April 7 and July 1, 2020, some 26,239 patients were tested for COVID-19, the report noted. 

“Interview with the technical supervisor #2 on July 1, 2020, confirmed the laboratory failed to establish performance specifications for interfering substances before reporting patient test results,” the report stated.

That same technical supervisor, the report added, told CMS’ inspectors that on June 29 the laboratory contacted the technical support staff of the analyzer’s manufacturer and confirmed that its positivity rates required corrective action.

As a result of issuing those reports in late June and early July 2020, CMS required Gamma Healthcare to correct all 12 deficiencies within 60 days. 

A Back-and-Forth Dispute

From late June until late October 2020, a back-and-forth dispute occurred between Gamma Healthcare and CMS. Over those four months, CMS sent at least 15 documents and letters to the lab’s senior management requesting confirmation that the deficiencies were corrected, according to documents CMS provided to The Dark Report. 

Gamma Healthcare filed a temporary restraining order against CMS on Oct. 23 in a last-ditch effort to stave off the potential loss of its license to operate under the Clinical Laboratory Improvement Amendments (CLIA) of 1988. Judge Harpool denied that request on Oct. 28. 

Negotiations continued between CMS and the labs’ managers into the spring of this year. On May 25, 2021, CMS entered into a settlement agreement in which Gamma Healthcare waived all appeal rights to contest suspension of the laboratory’s CLIA certificate, cancellation of the laboratory’s approval to receive Medicare and Medicaid payments, revocation of the laboratory’s CLIA certificate, and civil monetary penalties of $21,410 per day for Oct. 3 through Oct. 6, 2020. Also, CMS agreed to reduce the financial penalty by 35%, but still required Gamma Healthcare to pay $55,666 by June 25. 

No Comment

All requests by The Dark Report to principals of Gamma Healthcare went unanswered. Following a request for comment, Blake H. Reeves, a shareholder in the Polsinelli law firm in Kansas City, Mo., who represented Gamma Healthcare in its dispute with CMS, responded by email in June. “My client would prefer not to comment at this time other than to say Gamma Healthcare’s complaint for injunctive relief filed in federal court in October was one of several efforts aimed at preventing CMS from suspending its certificates to operate,” he wrote. “Unfortunately, the litigation was unsuccessful, and GHC is now winding down its lab business operations.” 

Gamma Healthcare was an important provider of lab testing to thousands of nursing homes. It was part of a company founded in 1981 that, along with clinical laboratory testing, also provided services in portable radiology services and medical waste management. Because no principal of the company was willing to talk about its problems, the specific reasons for the problems with COVID-19 testing identified by CMS inspectors are unknown.

Medicare Fee Cuts a Factor?

It is reasonable to assume that the multi-year cuts to Medicare clinical lab test payments triggered by PAMA shrank the company’s cash flow in recent years to a level below its costs. As that happened, the lab managers may have cut corners to keep the lab operating with a hope that better days were to come. 

However, that also meant the lab may have been operating in a sub-standard fashion, which the CMS inspection team recognized when it first arrived in the spring of 2020.

CMS Issues Notice of Final Sanctions 

ON JUNE 10, 2021, the Division of CLIA Laboratory Improvement and Quality of the federal Centers for Medicare and Medicaid Services (CMS) sent two Notice of Final Sanctions to the management of Gamma Healthcare in Missouri. 

CMS addressed one Notice of Final Sanctions to the senior management of Gamma’s lab in Poplar Bluff, including Laboratory Director David L. Smalley, PhD, four owners of the lab, and Jerry Murphy, Chairman of the Board. 

In the notice, CMS explained that sanctions were imposed “based on the finding of condition-level non-compliance that resulted in the determination of immediate jeopardy to health and safety.

“Due to the revocation of Gamma Healthcare Inc.’s CLIA certificate, you, as the owner(s), operator(s), or director of the laboratory at the time it was found to be in non-compliance, are barred from owning, operating, or directing any laboratory, in fact or by proxy, for a period of two years from the date of the revocation, or until May 26, 2023,” the notice stated.

Also on June 10, CMS sent a similar Notice of Final Sanctions to the Springfield facility addressed to Laboratory Director Stacy Walz, PhD, previous Laboratory Director M. Keith Burson, to Jerry Murphy, and to other owners. 

That letter restates the demand for payment of $55,666 and the bar from owning or operating a lab for two years. It’s unclear if each lab needs to pay that amount or if that amount would cover the civil penalties for both facilities. 

CMS did not say whether it had received the payment as scheduled on June 25.



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