CLIA Lab Director Testimony Shows Risks to Pathologists

Pathologist testifies for days during trial of ex-Theranos CEO Elizabeth Holmes

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CEO SUMMARY: Elizabeth Holmes’ criminal trial is a case study for clinical lab directors in how not to run a medical lab, according to an attorney with 30 years of advising labs on CLIA-enforcement issues. During the trial, federal prosecutors cited the Clinical Laboratory Improvement Amendments multiple times. In each instance, the DOJ has presented Holmes in an unfavorable light. The defense, on the other hand, has used the CLIA regulations to shift blame away from Holmes and onto the laboratory director and lab staff, the attorney said. 

Matthew-J-Murer

FIRST OF TWO PARTS 

AS THE JURY TRIAL OF THERANOS FOUNDER ELIZABETH HOLMES CONTINUES, clinical laboratory directors are getting a series of significant lessons about the importance of following the federal regulations of the Clinical Laboratory Improvement Amendments (CLIA) of 1988. 

Pathologists who hold the position of laboratory director of a CLIA-certified laboratory understand they can be held accountable for violations of federal and state laws. In cases involving patient harm from inaccurate lab-reported test results, the pathologist can face career-ending sanctions from federal regulators. Also, patients have named CLIA lab directors in medical malpractice lawsuits as a result of inaccurate lab-reported test results. 

Federal Criminal Charges 

In the criminal fraud trial known as United States vs. Elizabeth Holmes, Holmes faces 10 counts of wire fraud and two counts of conspiracy to commit wire fraud in the U.S. District Court for the Northern District of California in San Jose. 

Understanding how to comply with CLIA and how to manage risk makes the recent testimony from the pathologist who served as the CLIA laboratory director for Theranos in the federal trial of Holmes a rare and significant teaching moment for all CLIA lab directors. 

Federal prosecutors and defense attorneys kept this pathologist, Adam Rosendorff, MD, Theranos’ former pathologist, on the witness stand for days. Under questioning, Rosendorff explained how he managed compliance with CLIA requirements and how he responded to the directives from Holmes and Theranos management that—in a number of instances—conflicted directly with his responsibilities as defined under CLIA. 

Rosendorff’s testimony provides real-world examples of situations in which the lab’s owners and executives have told the CLIA lab director to operate the lab in ways that violate CLIA regulations and may even put patients at risk of harm. 

Moreover, as a witness for the prosecution, Rosendorff’s experience at Theranos has added a new twist to the unfolding story involving Holmes and Theranos. That is because the federal CLIA regulations have become a proxy issue and a hammer for prosecutors since the trial began on Sept. 8, according to attorney Matthew J. Murer, a partner with Chicago law firm Polsinelli. 

Murer has almost 30 years of experience as a lawyer assisting clinical laboratories facing federal and state charges of violating CLIA. He also is the firm’s Health Care Department Chair. 

“What’s interesting about this case is that the federal Department of Justice  (DOJ) has claimed that Holmes and Theranos defrauded investors,” Murer said in an interview with The Dark Report. “The government’s argument is that Theranos defrauded those who invested in the lab-testing company. 

CLIA Regulations 

“The DOJ lawyers are arguing that Holmes and the company knew they had problems with their testing equipment and that they hid these issues and intentionally promoted their testing and their equipment as being reliable to investors,” Murer explained. “To bolster their case that Holmes and the company knew about the problems, the government lawyers are relying heavily on the CLIA regulations. In that way, CLIA has become a key part of their fraud case.” 

Compliance with CLIA Regs 

To make their case, both the prosecution and the defense in the Holmes trial have raised questions about how Theranos operated. The government has attempted to show the jury the various ways that the lab’s employees failed to follow the federal CLIA regulations. 

“Federal prosecutors are attempting to show that Theranos’ employees knew that something was wrong and that they lied about that,” Murer said. “To make that case, the government has relied on the lab’s CLIA issues to demonstrate that Holmes knew the lab was committing fraud.

“At the same time, the defense has tried to use CLIA to argue that Holmes is not to blame for the company’s problems,” Murer continued. “The defense attorneys have attempted to shift culpability away from Holmes and to the lab’s other employees, particularly the laboratory directors Theranos employed.

Reliance on Lab Director

“This strategy from Holmes’ defense attorneys is significant because I expect that they will ultimately argue that Holmes was relying on the lab staff, and more importantly the lab director, to correct any issues and to ensure that the lab testing was being done correctly,” he noted. 

The issue of Rosendorff’s responsibility is important because under CLIA, the laboratory director is ultimately responsible for the lab’s operations as well as the accuracy of its testing. And while the lab director is responsible for informing management about CLIA violations, the ultimate responsibility for the accuracy of the testing rests with the lab director and not management under CLIA. 

So, should the lab director resign if those warnings fail to produce changes? This question will be instructive for all clinical laboratory directors because it illustrates the dilemma of when a lab director should resign.

“At its heart, CLIA provides a full set of detailed operational and quality requirements for all clinical laboratories, and in that way, the CLIA regulations provide a framework for both compliance and liability,” Murer explained. “Under CLIA, all labs are required by federal law to comply with these specific requirements. 

“Then, if the pathologist serving as lab director doesn’t follow the requirements of CLIA, an argument can be made that there is liability for the lab and the lab director.” he noted. “The CLIA regulations support potential liability in all three possible ways. One is regulatory liability, the second is civil liability, and the third is criminal liability, which is what Holmes and Theranos are facing.

“Another reason CLIA is so important in this trial is that there hasn’t been any significant evidence of widespread patient harm,” he explained. “Therefore, there are no claims of injury and there is no liability for patient deaths. 

“Without the CLIA compliance issues, the defense might try to argue that the issues with the testing were so minor that they wouldn’t have had an impact on the investors’ decision to invest,” Murer commented. “The DOJ is going to highlight to jurors that CMS felt so strongly about Theranos’ CLIA compliance that it revoked the lab’s CLIA certificate. It will be difficult for the defense to argue that this action wouldn’t have impacted whether investors decided to invest.

 “…the defense has tried to use CLIA to argue that Holmes is not to blame for the company’s problems. The defense attorneys have attempted to shift culpability away from Holmes and to the lab’s other employees, particularly the laboratory directors Theranos employed.”

“Patient harm claims are still possible when clinical laboratory tests are involved and those lab tests were not performed properly,” Murer added. “When that happens, physicians may use those improper lab test results to guide their treatment decisions and those decisions may negatively affect patient outcomes.

“In addition, we should note that, while there were some cases of patient harm that have been reported in the press and in other public sources that the prosecution could cite, they weren’t able to present strong statistical data on the overall reliability of the testing because the government was unable to access Theranos’ lab testing database prior to the trial. And there appears to be no way for that data to be recovered,” Murer commented.

“Because the DOJ was unable to access that database, the prosecution cannot parse through all those test results and create a chart showing how many tests Theranos ran and how many were accurate versus inaccurate,” Murer stated. “The fact that the DOJ couldn’t access that database was a significant loss for the prosecution. 

“Additionally, the defense has argued that without this data there should be no mention of the lab test data during the trial,” he added. “Holmes’ defense team asked the judge to leave out any discussion of that lab test data. They asserted that mentioning the data would be unfair to the defense because any discussion of inaccurate test results would be anecdotal without being able to have all the data to contextualize what happened. Without that data, it’s too prejudicial even to bring up the existence of that data, the defense argued.” 

Lab Director is Responsible

This background on the case is important for lab directors because, as Murer pointed out, CMS has made it clear that the lab director is ultimately responsible for everything that happens in a clinical laboratory under CLIA. 

“In fact, CMS has published a document known as Brochure Number Seven, titled, ‘Lab Director,’” Murer commented. “This document is a very good starting point for any lab director because it explains the lab director’s full responsibilities.” (See sidebar, “CMS Spells Out Lab Director’s Responsibilities,” below.)

Given that CLIA has been at the heart of the case the DOJ has presented to date, the editors of The Dark Report asked Murer to put into context some of the issues raised in the federal case related to CLIA regulations during the Holmes trial. The editors highlighted eight questions that lawyers for the government and for Theranos have pursued while questioning the former CLIA lab director and other witnesses. Murer was asked to address each one. (See sidebar below, “Eight Questions for a CLIA Lawyer.”) 

Eight Questions for a CLIA Lawyer

THE ONGOING FEDERAL FRAUD TRIAL OF ELIZABETH HOLMES, founder and ex-CEO of now defunct blood-testing company Theranos, has raised important questions for all clinical lab directors. Here are eight of the most pressing questions as the trial continues in the U.S. District Court for the Northern District of California, in San Jose.

We address the first four questions in this intelligence briefing and will address the other questions in a future issue.

    1. Why is proficiency testing so important in this fraud trial?
    2. Who is responsible when a lab fails to use analyzers correctly?
    3. Who is responsible when a lab produces inaccurate test results?
    4. What obligation did the laboratory director have to issue warnings to management?
    5. What obligations did the lab director have to notify regulators?
    6. What problems arose over the CLIA lab director of record?
    7. What possible punitive actions does Elizabeth Holmes face?
    8. Is it okay for lab directors to send company materials to their private email address?

QUESTION 1: 

Why Is Proficiency Testing So Important in This Fraud Trial?

This question is significant because on Oct. 1, Rosendorff, who formerly served as lab director at Theranos, testified that the company’s proprietary finger-stick technology went through a set of proficiency-testing (PT) steps that differ from what commercial labs use, according to The Wall Street Journal (WSJ). For the Theranos devices, Rosendorff testified that he had approved an alternative assessment procedure, known as an AAP, the newspaper added. 

“PT testing and the allegations about cherry-picking data are so important in this trial because these issues go right back to what CMS says about all lab directors’ responsibilities. Lab directors have to ensure that the lab has a quality-systems approach and that it provides accurate and reliable patient test results.”

In September, Erika Cheung, a whistleblower and clinical laboratory scientist at Theranos from October 2013 through April 2014, testified that the Theranos lab manual did not say how outlier test results should be identified. To get the company’s proprietary blood-testing devices to pass quality checks, employees could decide which results to keep, essentially cherry-picking data, she testified. Also, Cheung testified that Theranos did not follow the lab’s proficiency-testing steps. 

Lab Director Resigns 

Cheung and Rosendorff resigned from Theranos over concerns about the company’s testing technology, the WSJ reported.

“PT testing and the allegations about cherry-picking data are so important in this trial because these issues go right back to what CMS says about all lab directors’ responsibilities,” Murer explained. “Lab directors have to ensure that the lab has a quality-systems approach and that it provides accurate and reliable patient test results. CMS takes those responsibilities very seriously, as we have seen many times when CMS has repeatedly quoted that language in lab deficiency reports.

“Essentially, CMS is saying that lab directors need to follow those directives at all times, when doing PT, when implementing quality control, and when monitoring quality-control efforts to ensure that all steps are followed properly at all the times,” he said. “If PT testing or quality control are not done correctly, then the lab director needs to take corrective action. CMS has published a brochure explaining how labs should conduct PT. It’s called ‘Proficiency Testing and PT Referrals Do’s and Don’ts.’ 

“Under CLIA, PT testing is unusual because if the lab fails to follow the proper procedure when testing, it creates almost automatic liability that could trigger revocation of a lab’s license,” Murer warned. “For all labs, CLIA PT regulations are designed to confirm the accuracy of all testing equipment and all testing procedures. 

Rules to Prevent PT Cheating

“The CLIA regulations include rules meant to prevent cheating in how PT is done,” he noted. “Those rules prevent labs from sharing PT specimens or sharing any information about PT with other labs. 

“It’s not unusual to hear lab staff complain about how strict CMS can be about the CLIA rules, but when Congress passed the CLIA amendments, Congress was specific about how CMS should write those rules,” Murer noted. “That’s why the CLIA rules are incredibly strict, and that’s why there is very little wiggle room when it comes to CLIA violations relating to PT testing. 

“In addition, the CLIA rules address what labs must do when running an unregulated test to demonstrate the accuracy of the testing. Essentially, the lab needs to show its homework,” he added. “By that, CMS means the lab needs to demonstrate to a high degree of statistical reliability that the lab staff has established a process to confirm the validity of each test. Once you know that, you can see why cherry-picking lab test results is so concerning. 

“Cherry-picking data is not allowed under any circumstances for two reasons,” Murer continued. “First, a laboratory doesn’t have a legitimate test if it’s cherry-picking the results. And, if it’s cherry-picking results, it doesn’t have a legitimate process for validating its test. Second, that cherry-picking of data is arguably a deceptive practice or fraud, which is not allowed, for obvious reasons.” 

QUESTION 2: 

Who Is Responsible When Lab Fails to Use Analyzers Correctly?

This question is significant because it shows how Holmes’ defense team attempted to shift blame away from Holmes and instead implicate Rosendorff, who, as the CLIA lab director, was legally responsible under CLIA for many of the problems reported at Theranos, Murer explained. 

Among those problems were inaccurate test results, the improper use of FDA-cleared lab analyzers, failure to perform PT testing properly, and the failure to report the lab’s problems to CLIA regulators. 

During the trial, witnesses testified that lab staff was diluting fingerstick drops of blood to make enough liquid so that each sample could be run on Siemens instruments used in the Theranos lab. This dilution was done in violation of the FDA’s protocols. 

Another reason this question is significant is that Siemens’ service technicians knew the instruments were being used in this fashion, but there is no public record that Siemens notified officials at CMS or at the FDA about this improper use, according to press reports. On this issue, lab directors will want to know: What should the service technicians have done in this case and what responsibility does the CLIA lab director have when an instrument is run in a manner contrary to the FDA clearance?

“The question of allegedly diluting specimens goes to the heart of the DOJ’s case,” Murer commented. “If, as the government has alleged, Theranos was diluting patient samples, then they’re changing the testing protocol, which can be a serious CLIA violation. Whenever a sample is handled in a way that deviates from the manufacturer’s instructions, and the lab can no longer verify the accuracy of testing on that analyzer, there is going to be a CLIA compliance issue. 

“That’s a problem that will probably create some form of liability for the lab director or for the lab’s owners or both,” he said. “To answer the question, I would say the lab staff is responsible for reporting failures to use lab analyzers correctly to the lab director, and the lab director would need to report that failure to lab ownership and management. 

“But the problem at Theranos is that it’s possible that the lab staff, the lab director, and the lab owners all knew they were violating CLIA by diluting specimens. I don’t know that, but it’s possible,” Murer speculated.

Liability of an IVD Vendor?

“That said, it’s still a far cry from saying that Siemens or any of its technicians would have any liability if they were aware that Theranos was diluting specimens,” he added. “I’m not aware that a service technician would have any legal obligation to report what he or she saw in the lab.

“Of course, every lab has FDA reporting requirements, but those requirements apply primarily to the lab itself, particularly the lab director,” he added. “If a manufacturer uncovers a problem with its product (e.g., it’s defective), it should be reported. But that’s different from what is alleged at Theranos. 

“I suspect that the defense raised the issue about Siemens’ service technicians in an attempt to blame somebody else,” he noted. “If so, that’s a red herring that the defense has introduced hoping that the jury will blame the technician rather than Holmes or Theranos. 

“But, again, what’s not at issue in this case is whether a company that makes specimen analyzers is at fault,” he cautioned. “The issue in this case is whether the lab’s owners knew the test results were inaccurate, and then did they lie to investors about it in order to get them to invest?” 

QUESTION 3: 

Who Is Responsible When Lab Produces Inaccurate Test Results?

This question follows the previous one because, once a lab knows its results are inaccurate, the lab director is responsible for reporting any inaccurate results in accordance with the lab’s policies, and for taking action to correct the testing or cease testing, Murer explained. In the Theranos case, however, this question goes deeper than that. 

“Who’s responsible for reporting inaccurate test results is one of the most interesting questions in this case,” Murer noted. “In the testimony, we’ve heard that Holmes and the former President and COO of Theranos, Ramesh ‘Sunny’ Balwani, opposed or negated Rosendorff’s recommendations. 

CLIA Duties Not Fulfilled

“But then, the defense presented evidence from witnesses showing that Rosendorff did not fulfill his duties under CLIA,” he added. “The defense even raised the issue that Rosendorff should be held responsible for inaccurate lab results and that those inaccurate results put patients at risk of harm. In addition, the defense suggested that Rosendorff was responsible for the lab’s failure to perform proficiency testing properly and for the failure to follow federal and state lab regulations. In my opinion, this is just another red herring. While Rosendorf may be responsible for the operation of the lab under CLIA, Theranos and Holmes had a responsibility to be honest with investors. Those are two separate issues.” 

QUESTION 4: 

What Obligation Does Lab Director Have to Issue Warnings to Lab Management?

After Murer established that Rosendorff was responsible to correct any problems in the lab that led to inaccurate test results, the next question involved Rosendorff’s responsibility to warn management. The defense argument—that Rosendorff continued as laboratory director but should have notified his superiors about the lab’s problems—is significant for all lab directors because it illustrates the dilemma of when should a lab director resign.

“…that raises the question of what obligation does Rosendorff have if he informed management and management failed to act? Should he have resigned?”

“Under CLIA, we know that the CLIA lab director has specific responsibilities to ensure that the lab produces accurate test results in a fully-compliant manner,” he said. “But then, that raises the question of what obligation does Rosendorff have if he informed management and management failed to act? Should he have resigned? 

“The answer is that the CLIA regulations are very clear,” Murer noted. “Over the years, we’ve seen a number of cases in which lab directors have raised issues with management and said they shouldn’t be held liable because they brought those issues to the attention of the labs’ owners. 

“Other lab directors have claimed that they were not involved in day-to-day operations, saying they didn’t have any knowledge about what was going on in the lab,” he explained. “In those cases, the lab directors were wrong. Everything that goes on in the lab is the ultimate responsibility of the lab director under CLIA. 

“In some cases, lab directors have argued that they knew about and reported the problems in the lab to management and/or ownership—including issues with inaccurate test results or failure to follow the PT rules,” Murer recounted from his experience. “We also know that the labs’ owners in some of those cases decided to override the lab director’s authority. But administrative law judges have consistently found that the buck stops with the lab director. 

“The ultimate responsibility for all operations in clinical labs resides with the lab director who is fully responsible for the quality of all lab testing and the accuracy of all test results,” he added. 

“So, what could Rosendorff do in that situation?” Murer asked. “In my opinion, as a lawyer who has represented labs and lab directors in these cases, when a lab director believes the lab is not being run properly, and he or she cannot get ownership to agree that the lab is not being run properly, those lab directors should resign. They should walk away because they have that responsibility. 

Ultimate Responsibility

“The title of laboratory director is not an honorific,” he emphasized. “It is a title that under CLIA carries the ultimate responsibility for the lab. Some laboratory directors have failed to understand their responsibility or they chose to ignore those responsibilities.

“I’ve seen many instances where lab directors did not fully understand that CMS would hold them personally responsible for failures in the lab—whether the failures are PT discrepancies, inaccurate lab test results, or failure to provide adequate quality control,” he warned. 

“As we’ve seen in other lab cases, CMS can bar a lab director from acting in another position as lab director for two years,” he added. “When they’re barred for two years, laboratory directors will complain that the penalty is Draconian. But whether they like or not, it’s still the penalty. They can’t shift blame to management or to the lab staff.

“The lab director is fully responsible,” he concluded. “If they can’t get the lab to a place where it needs to be, then they should resign and find another job.”

Part two of the interview with Murer will address his insights about the last four of the eight questions about the responsibilities of a CLIA laboratory director. These were issues raised during the Theranos trial by the federal prosecutors and defense attorneys that centered on the responsibilities of pathologists who serve as the laboratory director of a CLIA-certified lab.

Contact Matthew J. Murer at mmurer@polsinelli.com or 312-873-3603.

CMS Spells out Lab Directors’ Responsibilities

IN CMS BROCHURE SEVEN, titled, “Lab Director,” the federal Centers for Medicare and Medicaid Services outlined the responsibilities of each clinical laboratory director. Using a question-and-answer format, the brochure answers the first question, “What Are My Overall Responsibilities?” 

“As laboratory director, you are responsible for the overall operation and administration of the laboratory, including the employment of competent qualified personnel,” the brochure explains. “Even though you have the option to delegate some of your responsibilities, you remain ultimately responsible and must ensure that all the duties are properly performed and applicable CLIA regulations are met. It is your responsibility to ensure that your laboratory develops and uses a quality system approach to laboratory testing that provides accurate and reliable patient test results.”

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