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California State Auditor Report Number : 2015-507

Follow-Up—California Department of Public Health
Laboratory Field Services Is Unable to Oversee Clinical Laboratories Effectively, but a Feasible Alternative Exists

Introduction

Background

According to state law, the complexity of the tests that labs perform determines whether they must obtain licenses or registrations, as summarized in the text box. Of the approximately 22,100 clinical labs Laboratory Services was responsible for overseeing as of July 2015, about 2,800 were licensed and about 19,300 were registered. A license or registration is valid for one year, thus requiring annual renewal for the lab to continue operating.

Registration and Licensure Requirements for Clinical Laboratories

Sources: California Business and Professions Code, Section 1265, and Laboratory Field Services’ documents.

A lab seeking to obtain or renew a license or registration must pay a fee to Laboratory Services. Although registration fees are a set amount, each lab’s license fee is based on the volume of tests it conducts. Laboratory Services deposits the fees and other money it collects into the Clinical Laboratory Improvement Fund. The law states that the total fees Laboratory Services collects shall not exceed its costs for licensing, certifying, and inspecting labs, as well as performing other activities relating to the regulation of labs and lab personnel. For fiscal year 2013–14, Laboratory Services reported more than $6.5 million in fee revenue from licensed and registered labs.

At times, a medical professional located in California will send a specimen to a lab in another state or another country for analysis; these labs are referred to as out‑of‑state labs. State law requires that the receiving lab hold a license or registration from Laboratory Services. Further, out‑of‑state labs that Laboratory Services licenses rather than registers are subject to its periodic oversight, as described below.

State‑Mandated Responsibilities for Lab Oversight

The State has overseen labs since 1926 and has licensed labs since the 1950s. State law currently requires Laboratory Services to oversee labs by inspecting them, monitoring their proficiency testing, annually renewing their licenses and registrations, receiving and investigating complaints against them, and sanctioning those that violate laws or regulations. Laboratory Services must engage in two periodic oversight functions: conducting regular inspections and monitoring proficiency testing. According to state law, Laboratory Services must inspect each licensed lab every two years, notify the lab of any deficiencies the inspection reveals, and work with the lab to correct the deficiencies. Registered labs are not subject to routine inspections every two years under state law, but Laboratory Services may inspect them as part of complaint investigations.

Proficiency Testing Process for Licensed Clinical Laboratories

What Is Proficiency Testing?

Proficiency testing is a process clinical laboratories (labs) use to verify the accuracy and reliability of their tests.

How Does Proficiency Testing Work?

A provider distributes a specimen to a lab, which must evaluate the specimen and then submit the results to the provider. The provider has a target value for the specimen, and on receiving the lab’s assessment, the provider compares the lab’s results with its target value to determine if the lab’s evaluation was accurate.

How Often Must Labs Test?

In general, labs must engage in proficiency testing at least three times a year.

What Is a Testing Failure?

Participation is unsuccessful if the lab does not achieve a minimum score on either two consecutive tests or two out of three consecutive tests.

Sources: California Business and Professions Code, Section 1220, and Title 42, Code of Federal Regulations, Part 493.

The second type of periodic oversight Laboratory Services must perform is monitoring proficiency‑testing results. Proficiency testing provides an external evaluation of the accuracy of the labs’ test results. Licensed labs must participate because they perform complex tests; however, registered labs—which perform simple tests—are not required to participate in proficiency testing. The text box describes the proficiency testing process. Laboratory Services’ policy generally calls for it to receive and review each lab’s proficiency‑testing results at least three times a year and identify any instances of unsatisfactory performance. In those instances, according to its policy, Laboratory Services must notify the lab and require a plan of corrective action. If the planned corrective action is not acceptable or the lab’s test results do not improve, Laboratory Services can bar the lab from providing those test services.

Laboratory Services’ other oversight responsibilities include investigating complaints and issuing sanctions. State law requires Laboratory Services to investigate complaints it receives about labs and authorizes it to inspect labs as part of its complaint investigations. Further, when labs do not adhere to state law and regulations, Laboratory Services has the authority to issue sanctions that can include monetary penalties, plans of correction, and license or registration revocation. If Laboratory Services revokes a lab’s license or registration, the lab’s owner and operator are automatically barred from owning or operating a lab for two years.

Laboratory Services has offices in Richmond and Los Angeles. It divides the licensing, registration, and oversight functions it is mandated to perform between the two locations. Figure 1 is a partial depiction of Laboratory Services’ organizational structure. As the figure shows, two of Laboratory Services’ sections perform functions related to the state mandates for labs. One section, located in Los Angeles, oversees federal lab requirements, as described below.




Figure 1

Partial Depiction of Laboratory Field Services’ Organizational Structure as of February 2015

Figure 1, is an organization chart showing three of Laboratory Services’ sections; one in the Richmond office and two in the Los Angeles office. The chart also lists each section’s oversight responsibilities.

Sources: Laboratory Field Services’ organization chart dated February 18, 2015, and the California State Auditor’s analysis of functions assigned to each section.



Federal Oversight of Labs

In addition to meeting state requirements, all the labs that Laboratory Services licenses or registers must also follow federal regulations. The Clinical Laboratory Improvement Amendments of 1988 (CLIA) is a federal law enacted to ensure the accuracy and reliability of lab testing. This law extended federal regulation for the first time to all labs in the nation that perform tests on human specimens for medical diagnosis, treatment, or health assessment. The federal Centers for Medicare and Medicaid Services (CMS) has primary responsibility under CLIA for regulating approximately 250,000 labs nationwide as of November 2014. CMS meets this responsibility in part by contracting with state agencies across the country to monitor and enforce compliance with CLIA. By law, activities to enforce CLIA requirements must be self‑funded. With few exceptions, labs must apply for a CLIA certificate and pay a biennial fee to cover the cost of inspections and other regulatory activities.

CLIA groups labs into two categories—those performing simple tests, such as urine dipstick tests and finger‑stick blood tests, and those performing moderately complex to highly complex tests (complex tests). A lab’s category dictates the federal oversight to which it is subject. CLIA exempts labs from virtually all federal rules if they perform only simple tests in strict compliance with the manufacturers’ instructions. However, as Figure 2 shows, labs that perform complex tests differ from those performing simple tests in two ways: They are subject to ongoing oversight in the form of biennial inspections and proficiency testing, and they can choose their oversight body.



Figure 2

Clinical Laboratory Improvement Amendments of 1988—Requirements and Oversight

Figure 2, a venn diagram comparing federal requirements and oversight for laboratories performing simple and complex tests.

Source: Title 42, Code of Federal Regulations, Part 493.
* CMS has primary responsibility for administering the Clinical Laboratory Improvement Amendments of 1988, which it accomplishes through contracts with state agents.
† Accreditation organizations chosen to oversee a licensed clinical laboratory must be approved by CMS.



Labs that perform complex tests can choose to be monitored directly by CMS through the state agencies with which it contracts or they can voluntarily apply for accreditation from private, nonprofit, CMS‑approved accreditation organizations. Although CMS has primary responsibility for administering CLIA, it contracts with state governments to provide the federally required oversight of nonaccredited labs, as we previously mentioned. We refer to the state agencies that provide federal CLIA oversight as state agents. California, through Public Health, has entered into an agreement to act as CMS’s state agent to oversee nonaccredited labs within the State. Therefore, in addition to its responsibilities related to state clinical lab law, Laboratory Services performs CLIA‑related duties as the state agent for CMS. As Figure 1 shows, a specific section of Laboratory Services based in its Los Angeles office acts as the CMS state agent (CLIA section). We use the term Laboratory Services throughout this report to refer to the sections of Laboratory Services that perform its state‑mandated responsibilities, not its federal responsibilities per its agreement with CMS.

A lab that performs complex tests that seeks accreditation from an accreditation organization is directly overseen by that organization. If an accredited lab complies with its accreditation organization’s requirements, CMS deems it as meeting all applicable CLIA requirements. A lab seeking accreditation must also apply to and pay CMS for a CLIA certificate in addition to any fees or registration requirements imposed by its accreditation organization. Figure 3 illustrates the various entities that oversee labs and identifies whether those entities monitor compliance with state or federal lab requirements.

Scope and Methodology

California Government Code, Section 8546.1(d), authorizes the California State Auditor (state auditor) to conduct follow‑up audit work on statutorily mandated or legislatively requested financial and performance audits. In September 2008 the state auditor published a report titled Department of Public Health: Laboratory Field Services’ Lack of Clinical Laboratory Oversight Places the Public at Risk, Report 2007‑040. In March 2015 the state auditor initiated a follow‑up audit to evaluate whether Laboratory Services had improved its oversight of labs. Table 1 lists those recommendations from the 2008 report on which we followed up and our methods for assessing their implementation status.



Figure 3

Clinical Laboratory Oversight in California for Laboratories That Perform Complex Tests

Figure 3, a flowchart showing federal and state oversight of California’s nonaccredited and accredited labs that perform complex tests.

Source: California State Auditor’s analysis of state and federal oversight structures of labs.
CLIA = Clinical Laboratory Improvement Amendments of 1988.
* Labs can choose oversight by either private nonprofit accreditation organizations approved by CMS or through direct CMS oversight via the CLIA section.
† CMS contracts with states to provide federally required oversight of nonaccredited labs. Laboratory Services’ CLIA section is responsible for ensuring that California labs comply with CLIA requirements. It also reviews accreditation organizations’ performance on behalf of CMS.
‡ Laboratory Services’ facility licensing sections include offices in Richmond and Los Angeles that license and oversee labs.



Table 1

Methods Used to Review the Current Status of Recommendations From the September 2008 Audit Report 2007‑040

RECOMMENDATION METHOD
1 Laboratory Field Services (Laboratory Services) should perform all its mandated oversight responsibilities for clinical laboratories (labs) subject to its jurisdiction operating within and outside California, including but not limited to the following:
  • Inspecting licensed labs every two years.
  • Monitoring proficiency‑testing results.
  • Sanctioning labs as appropriate.
  • Reviewing and investigating complaints and ensuring necessary resolution.
  • Interviewed key Laboratory Services officials about its inspections practices and reviewed relevant laws.
  • Obtained lab inspection data and analyzed them to determine whether Laboratory Services met its mandate to inspect licensed labs every two years.
  • Performed file reviews to ascertain the reliability of the lab inspection data. We noted data reliability concerns with the data but determined our concerns would not change our conclusions.
  • Identified state oversight mandates that duplicate federal oversight requirements under the Clinical Laboratory Improvement Amendments of 1988.
  • Evaluated Laboratory Services’ proficiency testing, sanctions, and complaint investigations as described below.
2 Laboratory Services should adopt and implement proficiency‑testing policies and procedures for staff to do the following:
  • Promptly review labs’ proficiency‑testing results and notify labs that fail.
  • Follow specified timelines for responding to labs’ attempts to correct proficiency‑testing failures and for sanctioning labs that do not comply.
  • Monitor the proficiency‑testing results of out‑of‑state labs.
  • Verify labs’ enrollment in proficiency testing, and ensure that it receives proficiency‑testing scores from all enrolled labs.
  • Interviewed key Laboratory Services officials about its practices for monitoring proficiency‑testing results and reviewed laws, policies, and procedures.
  • Reviewed labs’ proficiency‑testing results and examined 10 results that were deficient to determine what actions Laboratory Services had taken to ensure the labs corrected their deficiencies.
3 To update its regulations, Laboratory Services should review its clinical lab regulations and repeal or revise them as necessary. As part of its efforts to revise its regulations, Laboratory Services should ensure that they include requirements such as the time frames it wants to impose on the lab community.
  • Interviewed key officials from Laboratory Services, the Office of the State Public Health Laboratory Director, and the California Department of Public Health (Public Health) about regulations development.
  • Obtained and reviewed Public Health’s regulations tracking logs to assess which regulations it has planned for development and the associated timelines.
4 To strengthen its complaints process, Laboratory Services should identify necessary controls and incorporate them into its complaints policies. The necessary controls include, but are not limited to, receiving, logging, tracking, and prioritizing complaints, as well as ensuring that substantiated allegations are corrected. In addition, Laboratory Services should develop and implement corresponding procedures for each control. Further, Laboratory Services should establish procedures to ensure that it promptly forwards complaints for which it lacks jurisdiction to the entity that has jurisdiction.
  • Interviewed key Laboratory Services officials regarding its complaints processes and reviewed its complaints policies and procedures.
  • Obtained complaints data and analyzed them to determine how many complaints Laboratory Services received from September 2008 through May 2015.
  • Performed file reviews to ascertain the reliability of the complaints data. We noted data reliability concerns with the data but determined our concerns would not change our conclusions.
  • Determined what actions Laboratory Services took to follow up on complaints by reviewing five open complaints. For five complaints that resulted in corrective action plans, we determined what Laboratory Services did to ensure the labs complied with the plans.
5 To strengthen its sanctioning efforts, Laboratory Services should do the following:
  • Maximize its opportunities to impose sanctions.
  • Appropriately justify and document the amounts of the civil money penalties it imposes.
  • Ensure that it always collects the penalties it imposes.
  • Follow up to ensure that labs take corrective action.
  • Ensure that when it sanctions a lab, it notifies other appropriate agencies as necessary.
  • Interviewed key Laboratory Services officials regarding its sanction policy and procedures, the sanctions it has issued, and its staffing for sanction activities.
  • Obtained sanctions data and analyzed them to determine how many sanctions Laboratory Services has issued since 2008. We noted data reliability concerns with the data but determined our concerns would not change our conclusions. We reviewed hardcopy lab files.
  • Compared sanctions data to official accounting records from Public Health and the California State Controller’s Office.
6 Public Health, in conjunction with Laboratory Services, should ensure that Laboratory Services has sufficient resources to meet all its oversight responsibilities.
  • Interviewed key officials from Laboratory Services and the Office of the State Public Health Laboratory Director about staffing, succession planning, and planned reorganization.
  • Obtained and reviewed supporting documentation.
7 Laboratory Services should work with its Information Technology Services Division and other appropriate parties to ensure that its data systems support its needs. If Laboratory Services continues to use its internally developed databases, it should ensure that it develops and implements appropriate system controls.
  • Interviewed key officials from Laboratory Services, Public Health, and the Office of the State Public Health Laboratory Director to determine the updates that Laboratory Services has made to its existing information systems and its plans, if any, to replace those systems.
  • Reviewed change logs to identify any changes Laboratory Services made to relevant information technology systems.
8 To demonstrate that it has used existing resources strategically and has maximized their utility to the extent possible, Laboratory Services should identify and explore opportunities to leverage existing processes and procedures. These opportunities should include, but not be limited to, exercising clinical lab oversight when it renews licenses and registrations, developing a process to share state concerns identified during federal inspections, and using accreditation organizations and contracts to divide its responsibilities for inspections every two years.
  • Interviewed key officials from Laboratory Services about the steps it has taken to implement Senate Bill 744 (Chapter 201, Statutes of 2009).
  • Reviewed relevant laws.
  • Determined the number of accreditation organizations that applied to Laboratory Services, the number of accreditation organizations Laboratory Services approved and the time frames for approval.
9 Laboratory Services should work with Public Health’s budget section and other appropriate parties to ensure that it adjusts fees in accordance with the annual budget act.
  • Interviewed key Laboratory Services officials and analyzed relevant laws and budget acts.
  • Reviewed Laboratory Services’ financial statements and compared them to the California State Controller’s Office’s records
  • Compared Laboratory Services’ fee adjustments from fiscal years 2009–10 through 2014–15 to the fee adjustments required by the annual budget acts and identified the differences.
  • Compared Laboratory Services’ license and registration revenue it collected for fiscal years 2008–09 through 2013–14 to its expenditures to determine whether it collected fees in excess of its operating needs.

Sources: Recommendations made in the report by the California State Auditor titled Department of Public Health: Laboratory Field Services’ Lack of Clinical Laboratory Oversight Places the Public at Risk, Report 2007‑040, September 2008, and information and documentation identified in the table column titled Method.


Assessment of Data Reliability

The U.S. Government Accountability Office, whose standards we are statutorily required to follow, requires us to assess the sufficiency and appropriateness of computer-processed information that is used to support our findings, conclusions, or recommendations. In our 2008 audit we found that Laboratory Services’ information technology systems—Health Applications Licensing system and four Microsoft Access databases, which contained data for facility licenses, registrations, and certain oversight functions—did not adequately support Laboratory Services’ oversight activities or lacked the safeguards necessary to ensure accurate and complete information.  Because of these known limitations, and because Laboratory Services had not fully implemented our 2008 recommendation to improve its information technology systems before the start of this follow‑up audit, we did not conduct a data reliability assessment on Laboratory Services’ various management data. Therefore, Laboratory Services’ computer‑processed information is of undetermined reliability for the purpose of this audit. Although this determination may affect the precision of the numbers we present, we believe we have gathered sufficient evidence in total to support our findings, conclusions, and recommendations.



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