This is an excerpt from a 1,900-word article in the July 25 issue of THE DARK REPORT. The complete article is available to paid members of the Dark Intelligence Group.
BY NOW, MANY LAB PROFESSIONALS KNOW that the Centers for Medicare and Medicaid (CMS) sent a letter to Theranos in early July that imposed multiple CLIA sanctions on the beleaguered laboratory company. The toughest sanctions are revocation of Theranos’ CLIA certificate for its Newark, CA lab, a ban on owning or operating a CLIA lab for two years for Theranos, CEO Elizabeth Holmes, its COO, and its medical director, and cancellation of Theranos’ approval to received payments from Medicare and Medicaid for lab testing services.
The next move is up to Theranos. Will it appeal the CLIA sanctions? THE DARK REPORT provides informed analysis, along with a prediction that Theranos may be preparing to abandon its clinical lab testing and direct-to-consumer strategies in favor of a new strategy involving in vitro diagnostics.
Do you think such a move is likely? If so, how will that impact the lab industry? Please share your thoughts with us in the comments below.
There are indications that Theranos intends to emphasize developing its diagnostic technologies so that it can obtain regulatory clearance. This would be logical, for a simple reason. Gaining FDA clearance for its proprietary specimen collection devices, diagnostic analyzers, and test methodologies would go a long way to restoring the confidence of both investors and the public in the lab company and its products.
Should the controversial lab company’s prime strategy now be to obtain regulatory review and clearance of its diagnostic inventions and innovations, this would be a significant departure from Theranos’ business model that the company has followed since the fall of 2013.
That’s when Theranos, based in Palo Alto, CA, announced it would provide consumers with low-cost clinical laboratory tests and charge just half of Medicare Part B lab test prices. The thrust of this business strategy was to take on the entire clinical laboratory industry directly. In fact, between 2013 and 2015, Holmes regularly commented that Theranos was determined to disrupt the entire clinical laboratory industry.
That bold talk suddenly changed last October, when The Wall Street Journal published the first of a series of devastating exposés of Theranos. The latest hammer to drop on the beleaguered lab company came on July 7. That’s when CMS sent a letter that imposed severe CLIA sanctions on Theranos.
Theranos reacted by making several important announcements last week as it struggles to find the right response to the steady stream of negative news stories that have plagued the company for the past 10 months.
Last week, for example, Theranos took steps to improve its regulatory, quality, and compliance efforts when it named two new executives to report directly to CEO Elizabeth Holmes. The two executives, experienced in medical compliance, are joining the company immediately.
On the same day, Theranos tapped Daniel Guggenheim to be Chief Compliance Officer. Before joining Theranos, Guggenheim worked as assistant general counsel for regulatory law at McKesson Corp. where he was the chief regulatory and compliance counsel and senior counsel for its pharmaceutical division. Guggenheim was thus involved with the sale of medical devices, the marketing and sale of drugs, and the sales of health care information technology.
In another move to boost compliance, last week the lab company’s board of directors created a Compliance and Quality Committee to oversee and advise the board and the company’s executives on regulatory compliance and quality systems.
After receiving its sanction letter from CMS, Theranos outlined the steps it could take to address the agency’s concerns, saying it was working closely with CMS.
In a statement issued on July 7, Theranos said, “It’s important to note that the CMS review pertained to the operations of the company’s Newark lab, not its technologies. Over the last 13 years, Theranos has developed a broad range of technologies, including small-volume sample assays, capillary collection and testing capabilities, the ability to test small-volume samples on a variety of different platforms (high-throughput and field devices), and a software suite for testing analysis and decision support. The clinical lab is just one of Theranos’ many opportunities to provide access to high-integrity, affordable and actionable health care information, and the company will continue to carry out its mission under the leadership of its founder and CEO, Elizabeth Holmes.”
Theranos also described a path it could take to move forward without testing consumers.
This Theranos statement describes how the lab company will emphasize development of its diagnostic analyzers and technologies, while jettisoning that part of the business that does the actual testing in compliance with the CLIA sanctions.
In an article published on July 8, the three journal reporters who have covered Theranos closely, John Carreyrou, Michael Siconolfi, and Christopher Weaver, wrote, “The company could appeal the sanctions to an administrative judge, which would put some [sanctions] on hold. Its odds of winning would be slim, according to legal experts and government data. Or it could withdraw from the lab-testing business altogether, focusing on developing devices. That would significantly change its mission.”
Will Holmes leave?
Given that she faces a two-year ban, Holmes could leave the company entirely, they added. In addition, they reported, federal prosecutors have been conducting a criminal probe into whether the company misled investors and regulators.