CEO SUMMARY: Winston Churchill famously said that “Russia is a riddle wrapped in a mystery inside an enigma.” That description could apply to Theranos, the company that claims it is poised to disrupt the entire clinical laboratory testing industry. In Phoenix, where Theranos is ramping up its clinical lab marketing and operations, competing lab companies have it under the microscope. Some say not all may be going to plan and Theranos has been asked to comment on several issues.
WHEN A COMPANY THAT GOES PUBLIC WITH ITS GOALS, regularly and repeatedly declaring its lofty ambitions to do good for mankind by disrupting the status quo and replacing it with something new and wonderful, it invites itself to be judged by its actions and what it actually delivers.
Since Theranos of Palo Alto, California, made its public debut in September 2013 with an admiring profile in The Wall Street Journal, it has been closely scrutinized by many pathologists and clinical laboratory professionals.
They have legitimate interests in the company’s stated goals for several reasons. First, as healthcare professionals that provide patient care, most pathologists and lab scientists have a genuine interest in doing what’s right for the patient. Caring for sick people and keeping well people healthy is a major reason why they chose a career in laboratory medicine.
Second, when a for-profit company makes a public declaration that its ambition is nothing short of full disruption to the existing lab testing marketplace as it exists today, it is human nature to have fears and concerns about how such developments may undermine the financial stability of the lab testing organizations where pathologists and lab professionals work today.
Put these two areas of interest together, and it becomes obvious why Theranos is a subject of importance across the lab testing industry.
Technology Is An Unknown
This is why many questions are being asked. But because Theranos operates in a highly-secretive manner, other than the enthusiastic stories it gets placed in major media outlets, the company has revealed little of substance about its proprietary diagnostic technology, the accuracy of the testing methods it has developed, and how those methodologies correlate with FDAcleared diagnostic assays in common use by clinical laboratories throughout the United States.
Because of patient safety concerns, both the public and the clinical laboratory profession have a genuine and valid interest in knowing and understanding the accuracy, reliability, and reproducibility of the innovative diagnostic technologies that the company repeatedly assures the public that it has developed.
The issue is credibility. Whether fair or not, Theranos has a credibility problem with pathologists, clinical chemists, and clinical laboratory scientists. It has itself to blame for this problem because it refuses to engage the scientific community in traditional ways. Why? Because it claims it needs to protect its proprietary technology.
Competitive Intelligence
To advance this story one step further, it is helpful for readers to understand that laboratory professionals across the United States are carefully watching its actions and sharing the tidbits of intelligence they’ve gathered. As is true of every industry, clinical lab professionals are observing, gathering stories, sharing anecdotes, and passing news of Theranos along to their colleagues. Some of this is competitive market intelligence and some of it happens during lab industry meetings.
This is happening now in Phoenix. Since Theranos opened its first specimen collection center there in late 2013, competing laboratories have regularly sent secret shoppers, employees, and even lab managers into Walgreens pharmacies to purchase lab tests and provide a specimen. They do this to assess the service provided to them as consumers and to see what a competitor is delivering.
Labs Compare Test Results
However, competing labs are also in a position to do something that consumers cannot do. Competing labs can draw blood from their secret shoppers at around the same time these employees visit a Theranos site at a Walgreens pharmacy. They can then perform the same lab tests as Theranos and compare the results. This form of competitive market intelligence has been in use for decades.
As noted above, competing labs have been surveying Theranos in this manner for more than one year now. So these labs are learning something about the level of service their employees received as consumers in a Walgreens pharmacy. In some cases, to compare for accuracy, competing labs have test results on the same individual that were reported by Theranos and by their own CLIA-licensed laboratories.
An additional source of market intelligence comes from physicians’ offices and from consumers themselves. As consumers and physicians interact with Theranos, they are sharing the positive and negative experiences with their clinical laboratory providers.
What all of this means is that-outside of Theranos-competing laboratories in Phoenix probably have the most knowledge about how Theranos is performing in the highly-competitive lab testing marketplace in Phoenix.
Measured by Its Statements
It should be noted that these competing labs are assessing Theranos against its own statements about how it will deliver clinical lab testing services that disrupt the existing industry and provide consumers with a lab testing experience that is less painful, more pleasant, and less expensive than services offered by other clinical lab companies.
In THE DARK REPORT issue of August 11, 2104, we summarized the public statements of Theranos as follows:
- No need for a venipuncture. A simple finger stick is all that is required.
- No need for 3-4 vacutainers of specimen. A micro-sample is adequate.
- Theranos’ proprietary test technology returns answers in four hours.
- Theranos says it can perform “hundreds of laboratory tests.”
- Theranos is charging just 50% of the Medicare Part B lab test fees for the tests it performs.
The following is a review of what competing laboratories see Theranos doing in Phoenix, relative to these points. Theranos has been asked to comment on each of these points. No response was provided as of press time and THE DARK REPORT is prepared to provide statements by Theranos when they are received.
Finger Stick Specimen
On the specimen collection by a “less invasive” fingerstick versus a traditional venipuncture, Theranos appears to have a mixed record. This editor has visited Theranos twice in the past 12 months to have his blood tested.
In order to do just four of the six lab tests on the test requisition, Theranos on both occasions collected my specimens by venipuncture, not by finger stick. (Also, because it declined to do two of the four tests ordered by my doctor, both times I had to visit a second laboratory-and get a second venipuncture-in order to get results for all six lab tests ordered by my physician.)
It should be pointed out that, in my experience and those of others getting testing at Theranos who shared their experiences with THE DARK REPORT, that Theranos is using multiple standard vacutainers during the venipuncture to collect the patient specimen. On these occasions, it was thus not drawing a micro sample of “25 to 50 microliters collected in a tiny vial the size of an electric fuse” as described in a Fortune story about Theranos.
Secret Shopper reports
Labs in Phoenix report similar experiences when their secret shoppers and employees go into Walgreens with test requests. THE DARK REPORT has asked Theranos to comment on why, for some consumers, it performs a venipuncture and draws multiple vacutainers of blood, versus using its advertised less-invasive needle stick and nanotainer-sized volume of specimen. How often this happens is unclear.
On a related point, multiple competing labs say that, over the past four to eight weeks, no Theranos collection center in a Walgreens has done a needle stick collection in the Phoenix area when the lab employees or the secret shoppers went in for lab testing. Some Theranos or Walgreens employees have reportedly indicated, during the purchase or collection process, that company policy changed about that time and they were directed not to collect specimens using the finger stick and were required to collect by venipuncture. Is such a policy in place? Were these isolated instances or something more? THE DARK REPORT has asked Theranos these questions.
Discordant Lab Results?
One issue that may be related to a policy of why Theranos is not using the finger stick procedure to collect specimens is that competing labs say they know of at least some instances where Theranos reported lab test results that some patients (and their physicians) recognized as being out of range or atypical. Some competing laboratories are sharing stories that physicians and patients have sent specimens to them for a second lab test to confirm results.
When the retesting was performed in these CLIA-licensed laboratories, it was determined that the lab test results reported by Theranos were discordant or discrepant to the range of results from earlier testing that was typical for that patient. These stories cannot be independently confirmed and, of course, all labs have atypical results from time to time. Theranos has been asked to comment on this situation.
Further, since Theranos has stated that these lab tests are performed as LDTs using its proprietary technology, THE DARK REPORT has asked Theranos to comment on how it follows CLIA requirements for resolving instances where a patient’s lab test results are recognized to be out of range.
It was noted in the intelligence briefing on pages 3-5 that Theranos is sending its sales representatives into physicians’ offices throughout the Phoenix area to solicit lab test referrals from these doctors. Competing labs say that they’ve heard stories that some sales representatives from Theranos are telling physicians in Phoenix that Theranos is “in network for all health plans in Arizona.”
Payer Provider Agreements
Yet, at least in checks with selected health insurers, THE DARK REPORT has been unable to determine whether there is a record of a provider agreement with Theranos. Again, Theranos has been asked to comment on this situation and has also been asked if it would be willing to provide a list of health insurers with which it currently has provider agreements.
Now that Theranos is building out its planned business infrastructure in the Phoenix metropolitan area, it enters a new phase in its business cycle. Because it is starting to deliver clinical laboratory testing services on a much larger scale than the one Walgreens store in Palo Alto, its service performance will be visible to consumers, physicians, payers, and-of course, competing clinical laboratories.
Game on for Theranos
So in a true sense, the game commences. After 18 months of an enviable public relations campaign where Theranos founder and CEO Elizabeth Holmes was given the platform in friendly venues to explain all the benefits of its innovative diagnostic technology and customer-friendly business model for lab testing, it must now deliver in the competitive marketplace.
Probably the most skeptical audience facing Theranos are board-certified pathologists. As any long-time lab professional knows, as a group, pathologists are the lab’s skeptics that want convincing evidence before accepting a new scientific premise. That’s a big challenge for Theranos.
As noted earlier, when this issue of THE DARK REPORT went to press, Theranos had not responded to the request that it comment on these specific issues. THE DARK REPORT is prepared to print the responses from Theranos when that information is received.
Theranos Stakes a Big Claim in the Grand Canyon State
WHY HAS THERANOS SELECTED ARIZONA as its first commercial market? “We are investing here because we see this as a model for what we do nationally,” stated Theranos CEO Elizabeth Holmes in a story published in The Arizona Republic on February 27, 2015.
The Republic went on to write, “That means Theranos is reaching out to doctors, health insurers, and others to spread the word about its technology. It has reached an agreement to provide lab services with Tempe-based Commonwealth Primary Care, an accountable-care organization with more than 200 doctors and other practitioners.”
In the story, Holmes stated that “Theranos also has announced an agreement with Dignity Health, a San Francisco-based hospital group that owns St. Joseph’s Hospital, Chandler Regional, Mercy Gilbert and other medical facilities. A Dignity Health spokeswoman in San Francisco on Tuesday could not provide details about the type of lab testing it orders from Theranos.”
Arizona may have been selected by Theranos as its first major market deployment for another interesting reason. Lab executives in California point out that the state has one of the toughest regulatory environments of all 50 states, with laws that are more rigorous than the federal CLIA statute. By contrast, Arizona is a state where laboratory testing services are basically regulated per the CLIA statute, making it simpler to meet federal compliance requirements.
