Lab Is Fined for Botching Pap Smear Test Results : Health: Tarzana facility must pay $558,000. It also surrenders license and agrees to inform clients they may be rescreened.

A Tarzana medical laboratory that was closed earlier this year for misinterpreting the results of many pap smear tests has agreed to pay a $558,000 fine and surrender its license to screen the tests, according to state health officials.

The settlement of the lawsuit filed by the state of California also requires Central Pathology Services Medical Group and its sister firm, Central Diagnostic Laboratory, to offer free rescreenings of all pap smear tests analyzed since 1984.

The pap smear test is used to detect medical problems in women, including cervical cancer, which kills an estimated 7,000 women in the United States every year.

Before it was closed in April under pressure from the state, Central Pathology screened nearly 700,000 pap smears a year, more than half the number of screenings in Southern California. Central Pathology ceased operating after a health inspection found that the lab had misinterpreted 21% of a random selection of 1,103 pap smears.

The state filed suit in May in Los Angeles Superior Court, asking for $3 million in damages. Named as defendants were Central Pathology and Central Diagnostic, along with Dr. Allen Levy, a pathologist who owned both firms.

Central Diagnostic used Central Pathology to evaluate pap smear tests, but since April, Central Diagnostic has been sending smears to other independent labs. Central Diagnostic was not fined as a result of the settlement.

Another condition of the settlement prohibits the top officials at Central Pathology from ever owning or operating a laboratory that provides pap smears tests and other cytology services in California. Those officials include Levy, Dr. Cyrus Milani, a lab director, and Harry Sagheb, secretary of the board of directors.

Martin Cooper, a spokesman for Central Pathology, said Levy believed the charges against him and his firms had been exaggerated, but chose to settle to put the incident behind him. Cooper said that some of 4,742 rescreenings uncovered previously undiagnosed problems, but none of the cases were found to be cancerous.

The settlement was reached Friday, when the department’s deputy director and chief counsel, Diane Shell Campbell, signed the agreement. Copies of the settlement agreement obtained by The Times indicate that Levy and Sagheb signed on Nov. 3.

State officials said the crucial part of the settlement is the agreement by both Central Diagnostic and Central Pathology, whose offices are located in Tarzana, to notify their clients that rescreenings are available. The officials said they had been dissatisfied with the effort the firms had made previously on their own to contact former clients.

Central Pathology will be allowed under the settlement to deduct the cost of the rescreenings from the fine. But state officials said they do not expect the entire fine to be used in paying for the medical tests.

A Newport Beach medical firm, MetWest Inc., has agreed to purchase Central Diagnostics and has applied for licenses to operate with the Department of Health Services. The application is under review, a spokeswoman for the department said.