Hospital Lab Takes CMS To Court in CLIA Case

California Hospital takes CMS to federal court to fight revocation of its lab’s CLIA certification

CEO SUMMARY: A California hospital challenged CMS in federal court over the threatened loss of its lab’s CLIA certificate. CMS threatened to revoke the certificate in 2007 and stop paying the hospital’s Medicare and Medi-Cal lab bills. In January, Victor Valley Community Hospital won a court injunction preventing CMS from revoking its CLIA certificate. Now the case is undergoing federal administrative review and CMS continues to press its case for revoking the lab’s CLIA certification.

SINCE SEPTEMBER 2007, Victor Valley Community Hospital in Victorville, California, has operated under the threat that its laboratory could lose its CLIA certificate at any time.

That’s the time when CMS (Centers for Medicare & Medicaid) served notice that it would revoke the laboratory’s CLIA certificate as a result of the lab’s violation of CLIA proficiency testing (PT) standards. If the hospital laboratory loses its license, it is likely the 115-bed non-profit hospital would close, said lawyer Patric Hooper of Hooper Lundy & Bookman in Los Angeles. Hooper represents the hospital in a federal court action filed against CMS.

Whether or not Victor Valley Hospital’s laboratory ends up losing its CLIA certificate, this federal court case represents an important legal challenge on behalf of laboratories hoping to get some relief from the Draconian enforcement measures levied by CMS when it determines that labs have violated PT standards. Hooper is optimistic that, when the case goes before a federal court judge, it will be resolved in favor of laboratories.

“CMS doesn’t care about your intent and whether you sent a PT specimen to another lab inadvertently or not,” Hooper said. “It doesn’t care about this incident at Victor Valley in which a lab technician referred out a PT specimen because she thought she should treat PT specimens just like ordinary patient specimens. At the Victor Valley lab, these particular specimens are always referred out to Quest Diagnostics, and that’s what this tech did.

The Will of Congress

“I think the regulatory staff at CMS believe their hands are tied,” he continued. “They believe there is no other way to interpret the statute. But Congress could never have intended such a Draconian result simply because a laboratory worker was treating PT specimens the same as they regularly treat other specimens. So, in that sense, it’s a good test case to bring before a federal judge.

“CMS recognizes its role in implementing the will of Congress and the law says an intentional referral of a PT specimen results in revocation of the lab’s CLIA certificate,” he added. “But at some point, a federal court is going to have to figure out what Congress meant by ‘an intentional referral.’ What I think Congress meant by ‘an intentional referral’ is very different from what the staff at CMS believe.

“In January, the U.S. District Court for the Central District of California granted the hospital a preliminary injunction against CMS while lawyers for both sides argue the merits of CMS’ action before an administrative law judge,” explained Hooper. “The administrative law judge is expected to rule in favor of CMS. When that happens, the laboratory is likely to again face the immediate threat of losing its CLIA license.

Hearing Is Pending

“During the time the hearing on the CLIA revocation is pending before the administrative law judge, the revocation does not go into effect,” Hooper said. “That means the hospital can operate as if nothing has happened. Based on case law that’s been developed over the years, I am not optimistic about winning at the administrative hearing level. And, the government has filed a motion for summary judgment.

“But I do believe that when a federal judge looks at this, he or she will have a different viewpoint,” Hooper explained. “That’s where the case will go next—assuming the administrative law judge upholds what CMS has done, since they almost always rule in favor of CMS. Once that ruling is made, we must go to a departmental appeals board at the federal Department of Health & Human Services.

Revocation Still Possible

“That’s the stage when it becomes a bit complicated,” continued Hooper. “If the appeals board upholds CMS’ decision, CMS will move to revoke the CLIA certificate again. So, we will need to go to the Ninth Circuit Court of Appeals in San Francisco and convince the circuit court to do what the district court has done— which is to keep the hospital operating while this action is pending.

“Essentially, what the district court did was issue an injunction stopping CMS from canceling Medicare and Medicaid payments for laboratory services,” he said. “Victor Valley Community Hospital (VVCH) is a nonprofit hospital that is just barely getting by. If they lose their laboratory license, it will be difficult to survive.”

When CMS learned of the PT violation, at the VVCH laboratory, it said it would withhold revoking the CLIA certificate if the hospital requested an administrative hearing. But CMS also said it would stop paying the hospital for Medicare and Medi-Cal clinical laboratory services.

VVCH is one of four hospitals in the High Desert about 100 miles north and west of Los Angeles. The hospital delivers about 2,000 babies annually, and its ER treats about 100 patients each day. Almost 60% of its patients are on Medicare or Medi-Cal. When issuing her injunction against CMS, U.S. District Court Judge Virginia A. Phillips said that, within four weeks of losing its ability to provide laboratory services, the hospital would need to lay off staff and the remaining hospitals in the region would have trouble providing care to all the patients in the area.

Is CMS Overreaching?

THE DARK REPORT observes that this case may provide a good test for laboratories hoping to see a stop to CMS’ current CLIA enforcement policies. As Hooper observes, the lab tech at Victor Valley’s laboratory sent the PT specimen to Quest Diagnostics Incorporated. Quest did as it is required by law and reported the PT violation to CMS. So this is also an example of how CMS is turning laboratories against each other because of their fear of CLIA enforcement. Expect other hospitals to file federal court actions in similar cases because of the extreme consequences of losing CLIA certification over an inadvertent PT violation.

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