CEO SUMMARY: Having ignored the profession of laboratory medicine for nearly all of its 13-year corporate life, Theranos suddenly began engaging with expert laboratorians last month. The timing of this new outreach coincides with public disclosure that CMS proposed the severest sanctions against Theranos, including revocation of the Theranos CLIA certificate. An expanded scientific advisory board was announced, as was a commitment for Holmes to address the AACC this summer.
NEW CHAPTERS CONTINUE TO BE WRITTEN in the ongoing saga of Theranos, the once-vaunted lab testing company that said its ambition was nothing less than to disrupt the entire clinical laboratory industry.
Now facing the most severe sanctions that the federal Centers for Medicare & Medicaid Services can impose, per the CLIA 1988 law, Theranos finds itself at the point of:
- Having its CLIA certificate revoked;
- Losing its right to be paid by the Medicare and Medicaid programs; and,
- Having its CEO, COO, and medical director banned from owning or working at Theranos or any clinical laboratory for up to two years.
And this is just the latest of the news for the now-controversial lab company.
Over the past eight months, The Wall Street Journal and other media sources have published a steady stream of news stories about Theranos that describe problems, internal failures, and unhappy business partners.
As if that parade of news exposés was not enough, last month the Journal disclosed that Theranos is the subject of an investigation by the Department of Justice and a separate probe by the Securities and Exchange Commission. Officials at Theranos have acknowledged the existence of these two investigations.
Of all these corporate crises now shaking Theranos, the one with the biggest impact in the short term is the revocation of the Theranos CLIA license by CMS. Thus, executives at Theranos are scrambling to resolve this problem and stave off imposition of the sanctions that CMS described in a letter it sent to Theranos in March.
Since the CMS letter proposing specific sanctions was made public in April, Theranos has taken a series of actions that—when viewed in the context of its corporate behavior over the past three years—is a significant reversal of its policy of non-engagement with the profession of laboratory medicine.
CMS CLIA Sanctions
What might be behind this change in corporate policy? One easy answer is that Theranos has a limited amount of time to make its argument to CMS that the sanctions should not be imposed.
Thus, company officials are hurrying to demonstrate that they can engage with the clinical laboratory profession. This would seem to include becoming more transparent about its diagnostic technology, and, through this increased engagement, help resolve the “severe deficiencies” CLIA inspectors observed in its Newark, California, laboratory to a degree where CMS might moderate the pending sanctions and allow Theranos to retain its CLIA certificate.
Probably the single biggest sign that Theranos realizes what danger it is in is the fact that founder and CEO, Elizabeth Holmes, is suddenly willing to present data and take questions from the biggest international gathering of clinical chemists.
Holmes to Speak at AACC
Last month, it was announced that Theranos CEO Elizabeth Holmes would speak at the Annual Scientific Meeting & Clinical Lab Expo of the American Association of Clinical Chemistry in Philadelphia. On August 1, Holmes will appear for a 90-minute session to present scientific and technical data and answer questions from the audience.
It is without precedent to now have Holmes step in front of an audience of clinical chemists, clinical pathologists, and other experts who are highly-trained and highly-experienced in laboratory medicine to explain the data and science behind the diagnostic technology that Theranos has developed and has touted as disruptive to clinical lab testing as it exists today.
In many respects, Holmes is about to walk into the proverbial den of lions. It will put her face-to-face with the people who are best-equipped to understand Therano’s proprietary lab testing technology, along with all the factors and complexity that often cause even well-run labs to produce test results that are unreliable or inaccurate and must be repeated to ensure optimal patient care.
Moreover, the “den of lions” metaphor is accurate for another reason. For almost three years, Theranos has repeatedly criticized the current state of clinical laboratory testing—all the while asserting that its proprietary clinical lab test technology is superior in many respects.
Personification of Theranos
And since only Holmes has spoken publicly for Theranos during these three years, she is the personification of Theranos for the clinical laboratory profession. Thus, the frustrations—even anger—of thousands of clinical laboratory scientists may be on display during Holmes’ presentation at AACC this summer. (However, because lab scientists are typically reserved and polite, it is likely Holmes will be extended much courtesy by those in the audience.)
Of course, Holmes has to be aware of this pool of ill-will that Theranos created among the medical laboratory profession. So, assuming she is as smart as the media has made her out to be in their fawning coverage of Theranos in recent years, Holmes will do her homework.
That may be the reason why, within days of the disclosure of the CMS sanction letter in April, Theranos announced that it had expanded its scientific advisory board. The names of the full board are presented on here. Four of the new board members are clinical chemists who are past presidents of AACC.
Theranos Faces CMS Sanctions for CLIA Violations, Is Also Subject of Investigations by DOJ, SEC
“WHEN IT RAINS, IT POURS” was the famous advertising tag line for Morton Salt. It may also be an apt metaphor for the array of crises that now beset Theranos, the high-profile lab test company based in Palo Alto, California.
In the space of just eight weeks, the American public has learned about three developments—each of which has the potential to bring down the company that was once the darling of the media and Wall Street.
Probably the biggest crisis confronting Theranos at the moment is that the federal Centers for Medicare & Medicaid Services has put Theranos on notice that it is prepared to impose the most severe sanctions possible under the CLIA 1988 law.
Many pathologists and lab administrators are aware that Theranos received a letter from CMS, dated March 18, 2016, that is the next-to-final step before sanctions for violations of CLIA are imposed.
The title of the CMS letter says it succinctly: “Proposed Sanctions–Conditions Not Met Immediate Jeopardy. Imposition Notice to Follow if Proposed Sanctions are Imposed.” (See TDR, May 2, 2016.)
Multiple Sanctions Imposed
CMS has given Theranos notice that, per the CLIA 1988 law, it is prepared to impose sanctions against the Theranos CLIA certificate, including the following:
- Revocation of the Theranos CLIA certificate
- Cancellation of the laboratory’s approval to receive Medicare payments for all laboratory services
- “Also, upon revocation of a laboratory’s CLIA certificate… [two federal laws] …prohibit the owners or operator(s) (including the laboratory director…) from owning or operating (or directing) a laboratory for at least two years.”
It was reported that a CMS inspection team visited the Theranos laboratory in Newark, California on November 20, 2015, and identified severe deficiencies, some described by CMS as “findings of immediate jeopardy to patient health and safety.”
Theranos responded to the survey findings in a document it submitted to CMS on December 23, 2015.
SEC investigates Theranos
A second crisis for Theranos is the disclosure that it is being investigated by the Department of Justice. This news was published on April 18 by The Wall Street Journal.
The journal wrote that, “Federal prosecutors have launched a criminal investigation into whether Theranos Inc. misled investors about the state of its technology and operations, according to people familiar with the matter.”
The third crisis was also announced in that same story on that same date. The journal revealed that the Securities and Exchange Commission was now investigating Theranos. The journal said, “In addition to the criminal probe, the Securities and Exchange Commission is examining whether Theranos made deceptive statements to investors when it solicited funding, according to people familiar with the matter.”
Theranos did provide a statement about these matters to The Wall Street Journal. Theranos was quoted as saying, “The company continues to work closely with regulators and is cooperating fully with all investigations.”
The CMS regulatory enforcement action, in conjunction with the DOJ and SEC investigations, show how Holmes, personally, and Theranos as a corporate entity, are facing significant consequences as these three agencies pursue regulatory, civil, and criminal cases in these matters.
COO Balwani Leaves Firm
Another corporate decision was announced on May 17. Theranos disclosed that its long-time President and COO, Ramesh “Sunny” Balwani, was departing the company. He was described as a “top associate” to Holmes. Some lab scientists believe this action is one more concession to CMS as part of the Theranos campaign to persuade federal regulators to ease the CLIA sanctions that loom against the company.
There may be more to Balwani’s departure, however. The following day, on May 18, The Wall Street Journal once again made national headlines with its story that Theranos was in the process of correcting lab test reports for tens of thousands of patients who were tested during 2014 and 2015. According to the Journal, these reports were produced on Theranos’ proprietary analyzer, known as “Edison” within the company.
‘Most Dramatic Steps Yet’
Moreover, the Journal attributed this action, long overdue under CLIA requirements, as a response to the pending CLIA sanctions. Journal reporter John Carreyrou wrote, “The move is part of Theranos’ attempt to persuade the agency not to impose stiff sanctions it threatened in the aftermath of its inspection of the company’s Newark, California, laboratory. The voided and revised test results are one of the most dramatic steps yet taken by Theranos.”
All of these test reports were produced while Balwani was President and COO of Theranos. Thus, the timing of his departure from Theranos may be associated with the decision to send out the correct lab test reports.
Collectively, will all these actions by Theranos be enough to persuade officials at CMS to moderate the proposed CLIA sanctions in a significant way? “Not likely!” respond some prominent clinical pathologists when asked that question by THE DARK REPORT. They all point out that no appeal has ever overturned an action by the agency to impose sanctions under CLIA that has gotten this far in the process.
Theranos Now Correcting ‘Tens of Thousands’ of Reports
IT WAS ANOTHER NATIONAL MEDIA BOMBSHELL falling on Theranos. On May 19, The Wall Street Journal reported that Theranos was in the midst of sending tens of thousands of corrected lab test reports to patients and physicians.
In its coverage, the Journal said that Theranos executives were telling CMS officials that they were in the midst of issuing these corrected reports. Theranos “was voiding some results and revising others, according to the person familiar with the matter,” said the Journal.
The lab test reports being corrected were primarly produced on Theranos’ proprietary Edison lab analyzer, noted the Journal. The tests had been performed during 2014 and 2015.
The lab test recall would be among the largest ever to happen in the United States. The Journal said, “Company records reviewed during the inspection showed that the California lab ran about 890,000 tests a year. The inspection found that Edison machines in the lab often failed to meet the company’s own accuracy requirements.”
Apparently, only some types of lab tests were involved in the recall. The Journal described this situation, stating, “Theranos has told regulators that it used the Edison for 12 types of tests out of more than 200 offered to consumers and stopped using the devices altogether in late June 2015, the person familiar with the matter said.”