CEO SUMMARY: During the trial, a pathologist who formerly was CLIA lab director at Theranos testified about the little regard Theranos executives had for federal proficiency testing regulations labs must follow to retain their CLIA license. Another point of contention was how this pathologist had sent himself copies of emails to document management decisions designed to override his responsibility to fulfill his requirements as the CLIA laboratory director.
RECENTLY, A PATHOLOGIST MADE NATIONAL HEADLINES FOR SEVERAL DAYS because of his testimony in the federal court case against Elizabeth Holmes, the discredited founder and ex-CEO of Theranos, the defunct medical laboratory company. At the same time, this pathologist’s testimony under oath is a teaching moment for any pathologist who is on the license of a CLIA laboratory as lab director.
The pathologist who was grilled on the witness stand was Adam Rosendorff, MD. He served as the laboratory director for Theranos from April 2013 through December, 2014. During this 21-month period, Theranos used a lab testing agreement with Walgreens to gain national attention. Theranos then launched testing operations using a number of Walgreens pharmacies in Palo Alto, Calif., and Phoenix, Ariz., as patient service centers to collect blood specimens from consumers and patients. (See TDR, “Theranos Won’t Discuss Disruptive Lab Technology,” and “Walgreens to Go National with Lab Tests in Retail Stores,” Sept. 30, 2013.)
As many pathologists and lab administrators know, Theranos quickly became a national—if not global—sensation. Elizabeth Holmes was universally lauded as a clever entrepreneur poised to successfully disrupt the entire clinical laboratory industry. She claimed Theranos could provide consumers and patients with a better medical laboratory test, at a price just 50¢ on the Medicare dollar, using a drop of blood, and with results delivered in two hours.
The false edifice came tumbling down in October 2015. That was when Wall Street Journal (WSJ) reporter John Carreyrou’s first exposè of the problems at Theranos was published. By then Rosendorff had been gone from Theranos for 10 months.
Pathologist’s Time at Theranos
Yet, his time at Theranos covered the period when Holmes was working to demonstrate that the company’s proprietary diagnostic technology could deliver. It also included the period when Theranos first began providing testing to consumers and to physicians who referred their patients to Theranos for lab tests.
As the CLIA lab director on the Theranos license, Rosendorff had “responsibility for the overall operation and administration of the laboratory,” as described in CLIA regulations.
For federal prosecutors, Rosendorff is the witness who can testify to facts and details of how Holmes and her team ignored evidence of serious problems with lab tests at Theranos in ways that violated federal and state clinical laboratory laws. This testimony is expected to support the criminal charges filed against Holmes by the federal Department of Justice (DOJ.)
The opposite is true of the defense. Holmes’ lawyers argue that Rosendorff, as the CLIA lab director, was responsible for many of the problems, ranging from ongoing instances of inaccurate test results to improper use of FDA-cleared lab analyzers, and failure to properly perform proficiency testing and self-report the lab’s problems to CLIA officials.
However, it is important to remember that the criminal charges filed against Holmes in this case are not directly relatted to the failures of the clinical laboratory to comply with state and federal laws or the inaccurate lab tests reported to physicians, patients and consumers.
Rather, the criminal charges against Holmes are two counts of conspiracy to commit wire fraud and nine counts of wire fraud.
The same charges were filed against Ramesh “Sunny” Balwani, former Theranos Chief Operating Officer and ex-boyfriend of Holmes who will be tried separately. As noted in a DOJ press release, “According to the indictment, the charges stem from allegations that Holmes and Balwani engaged in a multi-million-dollar scheme to defraud investors, and a separate scheme to defraud doctors and patients.”
Essentially, one important strategy of the defense during this trial is to blame the pathologist who served as laboratory director for many of the serious problems in specimen testing at the clinical laboratory operated by Theranos.
These issues were identified by WSJ reporter Carreyrou and later by CLIA officials from the federal government who visited the Theranos laboratory facility. (See TDR, “Is Theranos Kowtowing to CMS over CLIA Sanctions?” May 23, 2016.)
Proficiency Testing Issues
Rosendorff, who is board-certified in clinical pathology, first took the stand in the week of Sept. 24. At that time, the jury heard him testify about how the staff at Theranos had little regard for the federal proficiency testing regulations that labs must follow diligently.
Rosendorff testified about Theranos’ failure to comply with proficiency testing. He also testified that he sent himself copies of emails to document management decisions designed to override his responsibility to fulfill his requirements as the CLIA laboratory director.
Rosendorff’s role in this trial highlights why the position of laboratory director in a CLIA-certified laboratory has significant risk. In his testimony for the prosecution, Rosendorff describes, in detail, how his advice, recommendations, and attempts to fulfill the requirements of CLIA certification were opposed or negated by Holmes and her COO, Bulwani.
However, during cross-examination, Holmes’ defense attorneys presented emails, documents, and testimony from witnesses that, they asserted, show Rosendorff did not fulfill his duties in a compliant manner. Defense attorneys claimed that it was Rosendorff who should be held responsible for the inaccurate lab test results which put patients at risk of harm—as well as the failure to properly perform proficiency testing and follow federal and state lab regulations.
Pathologists would find a review of the questions asked of Rosendorff by attorneys for the defense useful for understanding how a hostile attorney can attack a lab director who oversaw a laboratory’s operation during a time when it had serious problems and was reporting lab test results that put patients at risk of harm.
New Lab Director Hired
Another development in the Holmes trial will be of interest. Following the resignation of Rosendorf as laboratory director, Theranos replaced him with a new laboratory director in early 2015. The new lab director was Sunil Dhawan, MD, who, as the WSJ reported, was a “dermatologist without a degree or board certification in pathology or laboratory science.”
On Oct. 15, Dhawan appeared in court to testify. The jury learned that Dhawan got his position as laboratory director of Theranos because he was “the longtime dermatologist of Theranos’ ex-COO, Sunny Balwani.”
In its coverage of Dhawan’s testimony, Ars Technica wrote, “Dhawan agreed to serve as Theranos’ lab director so long as it didn’t interfere with his day job as a dermatologist or his family life. ‘The time commitment is very minimal,’ Balwani assured him.”
Never Cashed His Checks
In its story, Ars Technica wrote that “Dhawan testified that he went to Theranos twice and that he worked a total of five to ten hours between November 2014 and June 2015. During that time, he basically signed whatever Balwani sent him. Theranos agreed to pay him $5,000 per month, though Dhawan says he never cashed any checks and once asked to be paid in stock options instead.”
This court testimony indicates that Holmes, Balwani, and the management team at Theranos operated for months without a board-certified clinical pathologist as the laboratory director on the lab’s CLIA license. Even more surprising, Dhawan’s statements indicate that the lab director of record at Theranos during this time was not present daily in the clinical laboratory to oversee ongoing operations and compliance with CLIA requirements.
This fact would seem to strengthen the argument of the prosecution that Holmes and Balwani did oversee the operation of the laboratory—unquestionably during the time that Dhawan was laboratory director. Testimony by several prosecution witnesses, including at least three whistleblowers, describes how serious problems with the performance of the lab’s testing instruments were brought to the attention of Holmes and Balwani.
This testimony also included—as noted earlier—how several experienced medical laboratory professionals, along with the lab director, told Holmes and Balwani about specific problems and matters concerning the lab’s non-compliance with CLIA requirements.
Proving the Fraud Charges
The prosecution will use this testimony and associated evidence to support the criminal charges that Holmes and Balwani (when his trial commences) committed the type of wire fraud described in the indictments. Prosecutors will assert that Holmes and Balwani knew that their company was incapable of delivering what was promised to investors and represented to the public and to regulators. Thus, these representations while raising capital were violations of federal law.
Further, as noted above, the evidence, the testimony, and the line of questioning by both the prosecution and defense about how the Theranos lab operated offers invaluable insights into risks that can confront laboratory directors of CLIA-certified labs. In an upcoming issue, The Dark Report will provide analysis of the testimony and comments from attorneys experienced in compliance with CLIA and other federal and state laws.
Details Emerge about the Safeway, Walgreens Deals with Theranos; a Med Tech Testifies
MANY FASCINATING DETAILS HAVE COME TO LIGHT during the trial of Elizabeth Holmes, founder of Theranos, who is on trial facing two counts of conspiracy to commit wire fraud and nine counts of wire fraud. If convicted, Holmes faces as much as 20 years in prison.
Last week, for example, executives from two national retail chains—Safeway and Walgreens—admitted that they did not closely examine Theranos’ blood testing device before committing to investing in the clinical laboratory company and using the machine to test patients’ blood.
Theranos persuaded executives from both retail chain stores to believe the clinical lab company’s claims about its testing technology.
According to reporting in The Wall Street Journal (WSJ) on Oct. 13, court testimony indicated that it was Theranos’ assertions that it had undertaken years of due diligence and consultations with attorneys and medical experts that had convinced both Safeway and Walgreens to enter into agreements with Theranos.
“What was missing from the diligence, according to court testimony over the past two days, is that neither company spent significant time studying the Theranos device itself and testing it for reliability or accuracy,” the newspaper added. Ultimately, negotiations between the two chain stores and Theranos collapsed, the WSJ added.
But this reporting is only one of the many stories coming from the trial. In its reporting of the trial, Ars Technica reported in September that staff at Theranos routinely cherry-picked data to make the lab company’s results look better than they were. In fact, the court heard testimony that Theranos’ Edison device failed at least 25% of the time, Ars Technica added.
When she took the stand in September, Erika Cheung, a company whistleblower, said the Theranos lab manual did not say how outliers should be identified. Therefore, to get the company’s proprietary blood-testing devices to pass quality checks, employees could decide which results to keep, she testified. Essentially the staff was cherry-picking data, she added. Cheung is a Clinical Laboratory Scientist who worked at Theranos from October 2013 through April 2014.
The WSJ quoted Cheung saying, “It was very concerning in a research context because once that translates to a patient setting, it’s giving you a good indication that the [the lab testing] system isn’t working reliably enough to feel confident and comfortable in running patient samples.”