Problems at Theranos Described in Balwani Trial

Balwani case again raises questions of when CLIA laboratory directors should act on suspicious results

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CEO SUMMARY: Former Theranos President and COO Ramesh Balwani is now being tried in federal court in San Jose, Calif. As with the earlier trial of Elizabeth Holmes, questions will arise about whether executives or clinical lab directors bear ultimate responsibility for lab test results. Balwani’s lawyers have painted him as an investor who ceded decisions to Holmes, but testimony and his own text messages contradict that argument.

CLINICAL LABORATORY DIRECTORS MONITORING THE FRAUD AND CONSPIRACY TRIAL against Ramesh “Sunny” Balwani—former President and Chief Operating Officer at now-defunct Theranos—may find themselves experiencing déjà vu.

Balwani’s trial, which started on March 22 in San Jose, Calif., has echoed the prior proceedings against Theranos’ founder, Elizabeth Holmes. Balwani is charged with 10 counts of wire fraud and two counts of conspiracy to commit wire fraud—the same charges Holmes faced. 

So far, Balwani’s proceedings have received far less media fanfare and public attention than Holmes’ blockbuster trial. However, eyebrows raised during Balwani’s trial when a former Theranos laboratory director testified that getting accurate results from the company’s Edison blood analyzer was akin to a coin toss.

Readers of The Dark Report should focus on testimony in the Balwani case that concerns duties required under the Clinical Laboratory Improvement Amendments of 1988 (CLIA).

As with Holmes, the government alleges that Balwani knew that the Edison analyzer did not work and that he should have informed investors about the poor accuracy of the equipment. 

Undoubtedly Balwani is hoping for a different outcome than Holmes given she was convicted on four of 11 counts in January. (See TDR, “Jury Finds Elizabeth Holmes Guilty in Four of 11 Criminal Counts,” Jan. 10, 2022.) 

Holmes faces up to 20 years in prison for each conviction when she is sentenced in September. 

‘I Am Responsible’–Balwani

The big question for the jury will be whether Balwani made decisions hand-in-hand with Holmes—his girlfriend during much of their time together at Theranos—or whether he was merely an investor who let Holmes steer things, as his defense team has postulated. 

Jurors saw text messages between Balwani and Holmes that seem to bely his defense strategy. In one text to Holmes, Balwani wrote, “I am responsible for everything at Theranos,” NBC Bay Area reported.

“While many questions remain about Balwani’s role in the Theranos scheme, he definitely wielded a lot of power at the company,” according to a March 2022 profile on Balwani by The Cut, a website affiliated with New York magazine.

“Most former Theranos employees and investors didn’t seem to know he and Holmes were dating, but they did know him as an overbearing manager with little knowledge of the science behind Theranos’ machines,” The Cut added.

On the other hand, Constance Cullen, an immunology expert who helped lead test development at pharmaceutical firm Schering-Plough, testified during the trial that she never met or spoke to Balwani. 

Cullen was asked by her superiors in 2009 to evaluate Theranos’ technology, in theory to potentially help Theranos approach investors. Cullen said it was Holmes whom she interacted with. Schering-Plough was acquired by Merck in 2009.

During the Holmes trial, The Dark Report noted eight areas that CLIA lab directors should pay close attention to based on testimony. (See TDR, “CLIA Lab Director Testimony Shows Risks to Pathologists,” Nov. 8, 2021, and “In Theranos’ Trial, CLIA Laboratory Director Has a Starring Role,” Nov. 29, 2021.)

One of those concerns surfaced again early in the Balwani trial: Under CLIA, what obligation does a laboratory director have to notify regulators about problems in the lab?

Inaccurate Lab Test Results

During Holmes’ trial, prosecutors sought to prove that lab employees knew Edison results were inaccurate, and thus executives also must have known. Her defense pushed back that the lab director holds ultimate responsibility for test results and that executives rely on their laboratory director’s CLIA expertise.

How those opposing views will play out in the Balwani trial is not yet clear.

Nevada State Public Health Laboratory director Mark Pandori, PhD, who served as Theranos’ lab director from December 2013 to May 2014, took the stand during Balwani’s trial. He testified that receiving accurate results for some tests run through the Edison machine was like “flipping a coin.”

“When you are working in a place like Theranos, you’re developing something new. And you want it to work,” Pandori stated, according to KRON-TV. “Quality control remained a problem for the duration of my time at the company. There was never a solution to poor performance.”

Pandori noted double-digit failure rates for common blood tests in March 2014, including for:

  • Vitamin D tests—18% failure rates.
  • Total T4 thyroid test—23%.
  • Free T4 thyroid test—20%.
  • Prostate-specific antigen test—29%. 

Lab Director Obligations

Clinical laboratory directors may want to ask themselves what they would do in similar circumstances. Try to convince the lab’s owners, perhaps in vain, that the results are inaccurate or, instead, file complaints with lab regulators? 

Perhaps more importantly, what would a lawyer’s response to the director’s actions be in the event of legal action against a clinical laboratory?

CLIA puts all aspects of a lab’s operations under a director’s responsibility, according to a 2006 Centers for Medicare and Medicaid Services publication, titled, “Laboratory Director Responsibilities,” known as Brochure #7.

“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,” the brochure states. “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.”

Medical lab directors should consider how their own view of CLIA responsibilities meshes with testimony on how Theranos operated. 

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