SUBJECT: Kaulson Laboratories, Inc.

Petitioner,

Health Care Financing Administration

DECISION ON REVIEW OF ADMINISTRATIVE

LAW JUDGE DECISION AND ORDER OF REMAND

Kaulson Laboratories, Inc. (Petitioner) appealed a January 21, 2000 decision by Administrative Law Judge (ALJ) Jill S. Clifton that the Health Care Financing Administration (HCFA) was authorized to impose the remedies of suspension and revocation of Petitioner's certificate under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), as well as the cancellation of Petitioner's approval to receive Medicare payments for its services. Kaulson Laboratories, Inc., DAB CR642 (2000) (ALJ Decision). The ALJ found that Petitioner had failed to comply with four conditions for certification for laboratories set forth in the CLIA regulations at 42 C.F.R. Part 493.

On appeal to the Board, Petitioner challenged the ALJ's findings on the CLIA conditions and also raised a preliminary issue: Petitioner argued that it had not been properly informed of the issues addressed by the ALJ, and was not afforded an opportunity to brief and to present evidence on those issues. Petitioner further argued that it had agreed to forego presenting testimony at an in-person hearing based on the issue as identified in a prehearing conference. Petitioner argued that it was never clearly informed that issues beyond the issue identified in the prehearing conference and the ALJ's order confirming the prehearing conference would be considered by the ALJ.

As explained below, we conclude that HCFA agreed at the prehearing conference to a narrower statement of the issues than the issues HCFA subsequently briefed and the ALJ reached in her decision. HCFA also agreed to forego an in-person hearing, presumably based on the nature of the agreed-upon issue to be resolved. HCFA failed to provide any explanation for the manner in which it framed the issue in the prehearing conference.

Under applicable regulations, HCFA was bound by its agreement in the prehearing conference, absent facts showing that the agreement was unreasonable or inequitable. By expanding the issues beyond the prehearing order without requiring HCFA to make such a showing, without providing written notice to Petitioner, and without obtaining a written waiver of an in-person hearing on the expanded set of issues, the ALJ failed to comply with the governing regulations. Those regulations require the ALJ to issue an order setting the issues to be resolved, and provide that agreements reached in a prehearing conference are binding on the parties. HCFA here did not object to the prehearing order within the established time period, nor subsequently seek to amend the issues, even though Petitioner, in its brief before the ALJ, objected to HCFA's having briefed issues not identified in the prehearing order.

While the ALJ may have had the authority to expand the issues, she could properly do so only in a way that complied with the governing regulations, which require written notice of the issues. No written notice was given, and most of the issues briefed by HCFA and addressed in the ALJ Decision were thus not properly before the ALJ. Moreover, even if oral notice and waiver of hearing rights were adequate (which they are not), the record does not support the ALJ's statement in her decision to the effect that Petitioner was given oral notice in a telephone conference held by her staff attorney.

The actions by HCFA and the ALJ resulted in substantial prejudice to Petitioner, which waived its right to an in-person hearing and submitted its briefs and documentary evidence without adequate notice that issues beyond those stated by HCFA in the prehearing conference would be considered by the ALJ. Moreover, HCFA still has not presented facts showing that HCFA should not be bound by its agreement in the prehearing conference, as the regulations provide.

Under the applicable regulations and the Board's guidelines, the Board has the authority to modify, reverse or remand the ALJ Decision when there has been a prejudicial error of procedure. Here, we remand the case to the ALJ for further proceedings as described below.

Applicable law and regulations

CLIA establishes requirements for all laboratories that perform clinical diagnostic tests on human specimens and provides for federal certification of such laboratories. Pub. L. No. 100-578, amending � 353 of the Public Health Service Act, codified at 42 U.S.C. � 263a et seq. CLIA further grants the Secretary of this Department broad enforcement authority, including the ability to suspend, limit, or revoke the certificate of a laboratory that is out of compliance with one or more requirements for a certificate. The purpose of the CLIA requirements is to ensure the accuracy and reliability of laboratory tests, and hence the health and safety of those tested. See H.R. Rep. No. 899, 100^th Cong. 2d Sess. 8 (1988), reprinted in 1988 U.S.C.C.A.N., 3828, 3829.

CLIA certification of a laboratory is dependent upon whether the laboratory meets the conditions of certification set out in the statute and regulations. 42 U.S.C. � 263a(f)(1)(E); 42 C.F.R. � 493.1 et seq. Each condition represents a major division of laboratory services to be offered by the laboratory or required environmental protections at the laboratory. The regulations also set forth standards, the specific components of the conditions of laboratory certification that a laboratory must meet as part of achieving compliance with applicable conditions. Failure by a laboratory to comply with even a single condition in an area of testing offered by that laboratory may be grounds for suspension or revocation of a laboratory's CLIA certificate. Ward General Practice Clinic, DAB No. 1624, at 2 (1997). HCFA may suspend, limit, or revoke the CLIA certificate of a laboratory that is out of compliance with one or more CLIA conditions, and may also impose alternative sanctions such as a directed plan of correction or monitoring by the state. 42 C.F.R.
� 493.1806.

A laboratory is entitled to a hearing before an ALJ to contest the imposition of CLIA remedies, including the suspension, limitation, or revocation of the laboratory's CLIA certificate, and may request review of the ALJ's decision by the Departmental Appeals Board. The CLIA regulations at 42 C.F.R. Part 493 incorporate by reference the hearing procedures in subpart D of Part 498 and the request for review provisions in subpart E of Part 498. 42 C.F.R.
� 493.1844.

Regarding the conduct of ALJ hearings, and the degree of notice to be afforded petitioners as to the issues under review, Part 498 of 42 C.F.R. provides in relevant part:

� 498.47 Prehearing conference.

(a) At any time before the hearing, the ALJ may call a prehearing conference for the purpose of delineating the issues in controversy, identifying the evidence and witnesses to be presented at the hearing, and obtaining stipulations accordingly.

� 498.50 Record, order, and effect of prehearing conference.

(b) Order and opportunity to object.
(1) The ALJ issues an order setting forth the results of the prehearing conference, including the agreements made by the parties as to facts not in controversy, the matters to be considered at the hearing, and the issues to be resolved.

(2) Copies of the order are sent to all parties and the parties have 10 days to file objections to the order.

(3) After the 10 days have elapsed, the ALJ settles the order.

(c) Effect of prehearing conference. The agreements and stipulations entered into at the prehearing conference are binding on all parties, unless a party presents facts that, in the opinion of the ALJ, would make an agreement unreasonable or inequitable.

� 498.52 Time and place of hearing.

(a) The ALJ fixes a time and place for the hearing and gives the parties written notice at least 10 days before the scheduled date.

(b) The notice informs the parties of the general and specific issues to be resolved at the hearing.

� 498.56 Hearing on new issues.

(a) Basic rules. (1) Within the time limits specified in paragraph (b) of this section, the ALJ may, at the request of either party, or on his or her own motion, provide a hearing on new issues that impinge on the rights of the affected party.

(c) Notice and conduct of hearing on new issues. (1) Unless the affected party waives its right to appear and present evidence, notice of the time and place of hearing on any new issue will be given to the parties in accordance with � 498.52.

(2) After giving notice, the ALJ will, except as provided in paragraph (d) of this section, proceed to hearing on new issues in the same manner as on an issue raised in the request for hearing.

� 498.66 Waiver of right to appear and present evidence.

(a) Waiver procedures. (1) If an affected party wishes to waive its right to appear and present evidence at the hearing, it must file a written waiver with the ALJ.

The standard of review by the Board on a disputed factual issue is whether the ALJ decision is supported by substantial evidence in the whole record. The standard of review on a disputed issue of law is whether the ALJ decision is erroneous. US Bio-Chem Medical Laboratories, Inc., DAB No. 1731 (2000); Board Guidelines -- Appellate Review of Decisions of Administrative Law Judges in Cases Under CLIA and Related Statutes, http://www.hhs.gov/dab/guidelines/clia.html. A prejudicial error of procedure may be a basis for modifying, reversing or remanding an ALJ decision. Id.

Background and arguments

Petitioner is a clinical laboratory located in West Caldwell, New Jersey that specializes in blood testing for lead poisoning. By letter dated December 8, 1997, HCFA advised Petitioner that its CLIA certificate and its approval to receive Medicare payments would be suspended effective December 22, 1997, for failure to meet the conditions of CLIA certification in the following four categories:

42 C.F.R. � 493.1101 Condition: Patient Test Management

42 C.F.R. � 493.1201 Condition: General Quality Control

42 C.F.R. � 493.1441 Condition: Laboratory Director High Complexity

42 C.F.R. � 493.1701 Condition: Quality Assurance

The December 8, 1997 letter, titled "Notice of Suspension of CLIA Certificate," stated that Petitioner's continued failure to correct the four conditions of certification would result in revocation of its CLIA certificate as of February 22, 1998. HCFA Exhibit (Ex.) 1. The notice indicated that HCFA's decision was based on a survey of Petitioner conducted by the New Jersey Department of Health and Senior Services (NJDHSS) on March 21, 1997, and stated that Petitioner had been informed in November 1997 that a plan of correction it submitted in August had been deemed unacceptable after review by NJDHSS. The notice referred to a 14-page statement of deficiencies resulting from the March 21, 1997 survey, which found Petitioner to be out of compliance with the four conditions of participation noted above, based on HCFA and NJDHSS's findings that Petitioner failed to comply with six specific CLIA standards for laboratories provided in the regulations. HCFA Ex. 17.

HCFA subsequently moved the effective date of the suspension of Petitioner's CLIA certificate from December 22, 1997 to January 23, 1998, to give HCFA and NJDHSS more time to evaluate the findings of a December revisit, but based on the revisit HCFA determined that Petitioner remained out of compliance with four conditions of CLIA certification. HCFA Ex. 3. HCFA informed Petitioner in a letter dated January 22 that the effective date of suspension of the laboratory's CLIA certificate and cancellation of Medicare payments remained as set for January 23, 1998. HCFA's January 22 letter did not state any specific noncompliance findings and did not refer to a statement of deficiencies or indicate that any was enclosed. Id.

Petitioner requested an ALJ hearing in a letter dated January 26, 1998. Petitioner's letter did not cite any of the deficiencies noted in HCFA's December 8, 1997 notice and did not offer any specific grounds for contesting the suspension of its CLIA certificate. Instead, Petitioner stated that it had not received a copy of the deficiencies but disagreed that it remained out of compliance. Before the ALJ, HCFA introduced a 22-page statement of deficiencies based on the revisit, dated December 29, 1997, that detailed Petitioner's failure to meet the four CLIA conditions, and referred to Petitioner's responses to the March 21, 1997 statement of deficiencies. HCFA Ex. 4. The survey found that Petitioner had failed to meet the same four CLIA conditions of participation as were noted in the March 21, 1997 statement of deficiencies. The alleged deficiencies involved the handling of patient specimens, accurate result reporting, the use of control procedures and a quality assurance program to monitor and evaluate the quality of the laboratory's total testing process, and the responsibility of the laboratory director to provide overall management and direction. In a letter dated April 27, 1998, HCFA requested that the appeal be stayed for settlement negotiations. By letter dated December 1, 1998, Petitioner reported that the settlement discussions had not been fruitful, and requested a hearing as soon as possible.

The ALJ then held a prehearing conference, on January 12, 1999, and issued an order memorializing the results of the prehearing conference that same day (ALJ Order). Regarding the issues under review, the ALJ Order stated:

The issue, as framed by the Health Care Financing Administration (HCFA) during the January 12, 1999 prehearing conference, concerns Petitioner's method of determining blood lead levels by use of a filter paper method test. HCFA asserts that a condition-level deficiency exists, justifying Petitioner's CLIA suspension, because Petitioner was unable to explain to the New Jersey State surveyors or to HCFA how it calculated the results of the test.

ALJ Order at 1.

The ALJ Order gave the parties 10 days to object to the order, consistent with 42 C.F.R. � 498.50(b)(2). HCFA did not timely object. The record shows that HCFA nonetheless briefed a broader set of issues in its initial brief, addressing all of the deficiencies found in the survey. The record also shows that Petitioner pointed out in its initial brief before the ALJ that HCFA's brief went beyond the issue stated in the ALJ Order, which Petitioner referred to as resolution of the filter paper method; HCFA's response was to state that it had no authority to rule on the scientific validity of the filter paper test. Petitioner ALJ Brief (Br.) at 1; HCFA ALJ Reply Br. at 2. The record contains no indication that HCFA specifically sought a ruling from the ALJ to permit it to expand the issues beyond the issue statement in the ALJ Order.

The "filter paper method test" referred to in the ALJ Order is Petitioner's method for preserving and testing blood specimens for lead.⁽¹⁾ Petitioner maintained that the proposed suspension of its CLIA certificate resulted from NJDHSS's disapproval of the filter paper method. Petitioner ALJ Br. at 2-4; Petitioner Ex. 9. The ALJ Decision reflects the confusion that existed over whether that disapproval was the basis for HCFA's enforcement action:

By order dated January 12, 1999, I established a schedule for the filing of documentary evidence and briefs. Regrettably, however, during the January 12, 1999 telephone prehearing conference that led to my order, HCFA mischaracterized the issue (a mischaracterization to which Petitioner acquiesced), suggesting that the controversy in this case centered on Petitioner's employment of a filter paper method test to determine blood lead levels, rather than Petitioner's alleged failure in its performance of the filter paper test to follow proper quality control standards and conditions as mandated by CLIA. Thus, my January 12, 1999 order mischaracterized the issue, indicating that the issue concerned the employment of the filter paper method, as opposed to the manner in which testing was performed. Neither party pointed out this mistake prior to submitting evidence and briefs. HCFA's opening brief focused on Petitioner's alleged failure to comply substantially with CLIA requirements. Petitioner's response brief, in contrast, contained an extensive defense of the filter paper test in general, leaving unaddressed HCFA's allegations that Petitioner had not properly performed its testing. In its reply brief, HCFA highlighted Petitioner's failure to address in its brief HCFA's specific allegations of deficiencies regarding Petitioner's performance of filter paper testing. In fact, only in Petitioner's reply brief did it begin to address the findings of the NJDHSS surveys, and then only in a cursory manner.

At my direction, the Civil Remedies Division staff attorney assigned to work with me on this case conducted another prehearing conference with the parties on September 9, 1999. The staff attorney expressed my concern that Petitioner may have relied on the "Issue" paragraph from my January 12, 1999 order when it prepared its briefs, rather than addressing the actual findings of the NJDHSS surveys and HCFA. During the conference call, the parties were given the opportunity to clarify their positions and supplement the record, either by requesting an in-person hearing or by additional written submissions and/or documentary evidence. Both parties declined the opportunity.

ALJ Decision at 3-4.

The ALJ record does not contain a tape recording or transcript of the September 9, 1999 "prehearing conference," nor does it contain any notice of the conference or any correspondence confirming or describing what was discussed during the conference.

The ALJ went on to find Petitioner out of compliance with the four CLIA conditions of participation noted in the December 8, 1997 notice of suspension and the two statements of deficiencies from March and December 1997. ALJ Decision, Findings of Fact and Conclusions of Law (FFCLs) 1-4. The ALJ found, however, that HCFA had not sufficiently established that Petitioner had failed to comply with one of the six CLIA standards noted in the statement of deficiencies. FFCL 2.a, ALJ Decision at 8-9. This standard, set forth at 42 C.F.R. � 493.1205, "Test methods, equipment, instrumentation, reagents, materials, and supplies," requires (among other things) that laboratories utilize test methods, equipment, and materials that provide accurate and reliable test results. The ALJ's finding for Petitioner on this one standard did not alter the ALJ's overall determination that Petitioner failed to comply with the four CLIA conditions of participation noted in the statements of deficiencies.

Before the Board, Petitioner took issue with the ALJ's noncompliance findings, but, as an initial matter, denied having been informed that the issue presented in the ALJ Order did not comprise the entire issues upon which its case before the ALJ turned. Petitioner asserted that neither the ALJ nor the staff attorney advised it to present arguments or evidence on issues other than the issue of Petitioner's decision to use the filter paper method. Petitioner stated that the only conference call conducted with the parties other than the January 12 prehearing conference call that resulted in the ALJ Order was what Petitioner described as a routine call to its attorney asking if Petitioner felt that a hearing would be necessary. Petitioner further argued that the staff attorney misunderstood the purpose of the September phone conference and led the ALJ to believe that Petitioner had knowingly waived an opportunity to present evidence on what Petitioner called the non-filter paper issues. Had it been aware that the ALJ was seeking argument on the issues addressed in HCFA's briefs, Petitioner argued, it would have requested an in-person hearing.

HCFA did not deny here that it had framed the issue during the prehearing conference as stated in the ALJ Order. HCFA disagreed with Petitioner's claim that it was never informed that its appeal turned on issues other than that presented in the ALJ Order, and stated that "[d]espite Kaulson's repeated protests . . . when given another chance in a conference call . . . to supplement the record after the parties' briefs were received, Kaulson once again declined." HCFA Br. at 3. HCFA further asserted that the staff attorney who convened the conference call "could not have made it any plainer to Petitioner that the ALJ felt that Kaulson's brief did not respond to much of HCFA's case and that the ALJ wanted to give the lab another chance," and that Petitioner, with its counsel, "insisted on resting on what Kaulson had already filed." HCFA Br. at 3, n.2.

Conclusion

For the reasons stated above, we conclude that there was a prejudicial error of procedure in this case. When the Board concludes that there has been a prejudicial error of procedure, the Board may modify, reverse or remand an ALJ decision. Here, we have determined to remand the ALJ Decision for the ALJ to determine whether HCFA can present facts that would make the agreement on the issue to be resolved reached in the January 12, 1999 prehearing conference unreasonable or inequitable, as required by 42 C.F.R. � 498.50(c). HCFA has 10 days from the date it receives this decision to make such a showing.

The ALJ shall then determine whether HCFA has presented facts that would make the agreement on the issue to be resolved reached in the prehearing conference as reflected in the ALJ Order unreasonable or inequitable, as required by the regulations, and must issue her determination as to whether such a showing has been made in a written ruling. If the ALJ determines that HCFA has made the required showing, then she shall begin prehearing proceedings, including issuance of an amended prehearing order stating the issues to be resolved, and afford the parties an opportunity for an in-person hearing. The issues to be considered may include any and all issues raised by the HCFA determination under review (including the one issue on which the ALJ found in favor of Petitioner).

If the ALJ determines that the parties should be bound by the original agreement on the issue to be resolved because HCFA was unable to make the required showing in accordance with our decision, then the ALJ shall issue a modified decision addressing only the one issue stated in the ALJ Order. Since the only issue addressed in the ALJ Decision that was arguably encompassed within the issue stated in the prehearing conference and the ALJ Order was the one issue on which the ALJ found in favor of Petitioner, the modified decision should incorporate the ALJ's prior analysis and finding on that issue, and reverse all remedies against Petitioner.

The Board further concludes, under the circumstances here, that the remand proceedings should be expedited to prevent further prejudice to either party. The ALJ should develop the record as she determines necessary and issue her ruling on whether HCFA has timely made the required showing within 30 days of our decision, and, if she determines that HCFA has timely made the required showing, offer the parties an opportunity for a hearing to be held within 60 days of her ruling or such later time to which both parties agree, and issue a decision within 60 days after the record closes. If the ALJ determines that HCFA cannot make the required showing, she should issue her modified decision within 30 days of having issued her ruling. We do not decide here whether HCFA would have a right to appeal any finding in the ALJ's modified decision on the one issue on which the ALJ originally found in favor of Petitioner (FFCL 2.a). HCFA did not timely appeal that finding in this proceeding.

Under the procedural regulations promulgated by HCFA that govern the conduct of ALJ hearings in CLIA cases, one of the purposes of a prehearing conference is to clarify and narrow the issues for hearing. The regulations therefore provide that the issues the parties agree to in a prehearing conference and that are memorialized in an ALJ order setting forth the results of that conference are binding on the parties, "unless a party presents facts that, in the opinion of the ALJ, would make an agreement unreasonable or inequitable." 42 C.F.R. � 498.50(c). Although the regulations permit a party an opportunity to object to a prehearing order within 10 days, HCFA did not do that here. Moreover, the ALJ Order specifically stated that it was HCFA that framed the issue during the prehearing conference. Thus, HCFA was bound by its agreement on the issues, which effectively dropped other potential deficiencies as a basis for its determination, relying instead on the issue that "concerns Petitioner's method of determining blood lead levels by use of a filter paper method test" and HCFA's assertion "that a condition-level deficiency exists, justifying Petitioner's CLIA suspension, because Petitioner was unable to explain to the New Jersey State surveyors or to HCFA how it calculated the results of the test." ALJ Order at 1.

While this statement of the issue in the ALJ Order is arguably broader than the issue of the efficacy of the test itself, since it encompasses how Petitioner calculated the results of the test, it cannot reasonably be interpreted as encompassing all of the alleged deficiencies that HCFA briefed and the ALJ addressed in her decision.

Other issues addressed in the ALJ Decision that were not encompassed within the issue statement in the ALJ Order were not properly before the ALJ, unless she found the regulatory exception applied, as required by section 498.50. Here, however, HCFA has not presented any facts that would show that it would be unreasonable or inequitable to hold it to its agreement reached in the prehearing conference. Instead, HCFA simply ignored its agreement, briefing a broader set of issues, even when Petitioner pointed out that this was inconsistent with the ALJ Order.

The essential requirement of the regulations as a whole is that parties be afforded written notice of issues to be resolved by the ALJ. While an ALJ is permitted to add issues that are "new," this must be done in accordance with the procedures at section 498.56.⁽²⁾ To expand the issues beyond the issue statement in the ALJ Order, the ALJ was at a minimum required to issue a revised order correctly stating the issues so that the parties could submit briefing on the correct issues and seek an evidentiary hearing, if desired. The revised order would necessarily state whether the procedures previously agreed upon would have to be modified as a result of the restatement of the issues, and would provide the parties 10 days to file objections. Since these procedures were not observed, the other issues addressed by HCFA in its briefing were not properly before the ALJ.

Moreover, the record before us does not support the ALJ's finding that the parties received oral notice of the expanded issues or that Petitioner knowingly waived its opportunity to present argument and evidence at an in-person hearing on those issues.⁽³⁾ The ALJ Decision states that the parties were advised during a September 1999 prehearing telephone conference convened by the staff attorney assigned to the case of the ALJ's concern that Petitioner had not addressed the allegations in HCFA's brief. As noted above, however, the record does not contain notice of such a conference, a tape recording or transcript of the conference, or any correspondence memorializing what was said during the conference. It is thus impossible to assess the parties' contentions concerning what occurred during the September 1999 conference. Even if we were to accept HCFA's version of what occurred in this conference, however, that version would not establish that Petitioner had sufficient oral notice that the issues were being expanded. HCFA asserted that the staff attorney conducting the telephone conference advised the parties that the ALJ felt that Petitioner's brief did not respond to much of HCFA's argument. HCFA did not allege that Petitioner was clearly informed that the ALJ intended to address all of the issues briefed by HCFA as issues to be resolved by the appeal, even though they went beyond the issue statement in the ALJ Order.

We also note that the ALJ's observations as to the paucity of Petitioner's arguments and evidence in response to HCFA's briefing (on issues other than that stated in the ALJ Order) are consistent with Petitioner's assertion that it was not advised of the expanded set of issues prior to or during the telephone conference, which occurred after briefing was complete. The ALJ noted the "meagerness" of the record on which she had to base her decision, and observed that "[i]n many instances, Petitioner's briefs did not touch on the allegations put forth by HCFA." ALJ Decision at 4. For two of the five CLIA standards for which the ALJ sustained HCFA's findings of noncompliance, the ALJ noted that Petitioner's defenses to HCFA's noncompliance findings were made only in its plan of correction (and not in its briefs). ALJ Decision at 6-11. Petitioner's failure to at least repeat the points it made in its plan of correction tends to support its argument that it was not aware that the ALJ would address these issues. It seems unlikely that Petitioner would not have repeated the responses to HCFA's findings that it presented in its plan of correction if it knew that those findings were still possible grounds for the ALJ to uphold the suspension of its CLIA certificate.

The fact that the issues HCFA briefed were noted in its initial notice of suspension does not establish that Petitioner was necessarily aware that those were the issues on which the ALJ's decision would be based. The record indicates that HCFA and the state survey agency had previously voiced disapproval of Petitioner's filter paper method for preserving and testing blood specimens for lead. A 1995 survey of Petitioner was critical of the filter paper method, and a HCFA statement of deficiencies based on that survey referred to an enclosure titled "Kaulson Laboratories' Use of Filter Paper Lead Method That Did Not Assure Reliable Patient Test Results." Petitioner Ex. 3A. A May 16, 1996 letter from the New Jersey Department of Health reports that the state had initially refused to endorse Petitioner's use of the filter paper method on the grounds that it had not been supported by the Centers for Disease Control, that Petitioner had voluntarily suspended filter paper testing in 1995, and that the New Jersey Department of Health thereafter advised Petitioner that it could resume filter paper testing, as data submitted by Petitioner supported its theory that the filter paper method compared well with whole blood lead testing. Petitioner Ex. 6.

Petitioner also reported that during the settlement discussions that preceded the prehearing conference and the ALJ Order, it provided HCFA with information concerning the validity of the filter paper method, which it called the major issue in the case, and asserted that those discussions resulted in the filter paper issue remaining as the only issue to be resolved. Letter from Petitioner to Staff Attorney, December 1, 1998; Petitioner Br. at 1. Petitioner also asserted that it took corrective action on all deficiencies. Petitioner Response to HCFA ALJ Reply Br. at 1. Petitioner's view of the issue in dispute was confirmed during the January 12, 1999 prehearing telephone conference, when HCFA stated the issue as concerning Petitioner's filter paper method. HCFA did not dispute the ALJ's description of how it stated the issue during the telephone conference, or disagree with Petitioner's impression that the settlement negotiations had centered on the filter paper method. Thus, although HCFA's initial notice of suspension of Petitioner's CLIA certificate, dated December 8, 1997, cited deficiencies other than Petitioner's use of the filter paper method, Petitioner had reason to believe, one year later (after a lengthy period of negotiations and the January 12, 1999 prehearing conference), that the only remaining issue "concern[ed] Petitioner's method of determining blood lead levels by use of a filter paper method test" and that HCFA's basis for the suspension was HCFA's assertion "that a condition-level deficiency exists, justifying Petitioner's CLIA suspension, because Petitioner was unable to explain to the New Jersey State surveyors or to HCFA how it calculated the results of the test." ALJ Order at 1.⁽⁴⁾ All the other issues addressed in the ALJ Decision were not properly before the ALJ because of the failure to provide the parties with notice of those issues as required by the regulations.

This failure to follow the regulations was not harmless procedural error, but instead resulted in substantial prejudice to Petitioner. The required notice provides the focus for the entire appeal by setting the issues that the parties are expected to address and informing their decisions to request or decline the opportunity for an in-person, evidentiary hearing. Here, based on the statement of the issues in the ALJ Order, Petitioner forsook its right to present evidence and to request an oral hearing to challenge HCFA's determinations regarding other alleged deficiencies. As those other deficiencies were not properly before the ALJ, we conclude that the ALJ erred as a matter of law in ruling on them.

Judith A. Ballard

Cecilia Sparks Ford

Donald F. Garrett
Presiding Board Member

1. The filter paper method involves preserving patient blood specimens in the form of drops spotted on filter paper. A disc of filter paper of measured dimension is punched out of the blood spots and put into sample cups for analysis. HCFA Ex. 19.

2. We do not necessarily imply here, however, that the expanded set of issues are "new" issues within the meaning of section 498.56. That section is directed primarily at issues arising from surveys subsequent to an initial determination by HCFA, whereas in this case all of the issues the ALJ addressed arose before HCFA's determination and before the prehearing conference. Moreover, the "new issues" provision has to be read together with the provision binding a party to the prehearing conference agreements, unless the party presents facts that, in the opinion of the ALJ, would make an agreement unreasonable or inequitable. 42 C.F.R. � 498.50(c).

3. A party that wishes to waive its right to appear and present evidence must do so in writing. 42 C.F.R. � 498.66(a).

4. The issue stated in the ALJ Order, about how Petitioner calculated the results of the test, was arguably encompassed by only one of the alleged deficiencies that HCFA briefed and that the ALJ considered in her decision, HCFA's determination that Petitioner failed to comply with the CLIA standard governing test methods, at 42 C.F.R. � 493.1205, "Test methods, equipment, instrumentation, reagents, materials, and supplies." The ALJ described this alleged deficiency as HCFA's claim "that Petitioner could not demonstrate on a continuing basis that it was calculating its filter paper lead results correctly." ALJ Decision at 8. While HCFA did not take timely exception to this FFCL, as required by the regulations, HCFA still disputed the ALJ's analysis and argued that it would have presented testimony on this issue had a hearing been held.