Facing major penalties, Theranos could be forced to change business
- Theranos would have to shut down operations at its Arizona laboratory if the penalties issued by the Centers for Medicare and Medicaid Services (CMS) for testing violations at the blood-testing company's other Newark, CA site take effect, according to a statement issued by the company late Friday.
- As part of the sweeping sanctions imposed by CMS last week, the Newark lab is set to be stripped of its CLIA certification on September 5. Revocation of that certification would prevent Theranos from operating any labs for a 2-year period, meaning the Arizona lab "would cease to operate."
- Theranos can appeal the CMS sanctions before an administrative law judge, in which case the penalties and their attendant implications would not take effect until a judge upholds CMS' decision.
Breaking somewhat from its typically secretive nature, Theranos late last Friday shared a copy of CMS' July 7 letter notifying the company of the imposition of sanctions stemming from violations at its Newark laboratory.
As part of those penalties, Theranos founder and CEO Elizabeth Holmes was banned from owning and operating a medical lab for at least 2 years, which understandably headlined media coverage (including that of BioPharma Dive). But the revocation of the Newark lab's CLIA certification, if upheld, would also have a severe impact on Theranos' business.
In a statement which included a link to CMS' letter, Theranos acknowledged that losing the CLIA certification would mean the company could not operate its Arizona lab, where most test samples are currently analyzed. (Theranos also uses a third-party reference lab to process some tests).
Theranos has halted patient testing at its Newark site and currently continues to offer testing services at its Arizona lab for the time being.
It is not clear how Theranos might proceed if all of CMS' sanctions take effect. Losing the capability to test blood samples would be a substantial blow to the business model Theranos has pitched and a major setback for its attempt to revolutionize diagnostics through its proprietary Edison device.
Theranos suggested it could continue to function even without having its own labs.
"Clinical lab services is one of Theranos’ business units. Its research and development unit has developed many technologies that are not dependent on running a clinical laboratory," the company said.
And it doesn't appear Elizabeth Holmes is ready to step down from the business she built.
"The company will continue to carry out its mission under the leadership of its founder and CEO, Elizabeth Holmes," the statement issued Friday noted. But CMS' sanctions, if upheld, would seemingly necessitate Theranos withdraw from the blood-testing business if Holmes was to remain at the head of the company.
CMS' letter notifying Theranos of the 2-year ban on its owners and operators from running a lab was also addressed to Ramesh "Sunny" Balwani, Theranos' former chief operating officer, and Sunil Dhawan, the director of the Newark lab.
Additionally, the letter gave more detail on Theranos' violations. A CMS inspection found the Newark lab to be out of compliance with five CLIA condition-level requirements. Theranos twice submitted a response to CMS detailing corrective actions it claimed had fixed the deficiencies cited by the regulator.
However, the July 7 letter imposing sanctions show CMS found Theranos' responses hard to effectively evaluate and flagged conflicting dates and information.
For instance, Theranos had first told CMS that it stopped using its proprietary devices for patient testing on July 25, 2015. A subsequent submission said the devices were "fully retired" by early August 2015.
The letter shows Theranos used its proprietary testing system for 12 tests between 2013 and 2015. But quality control records submitted by Theranos did not cover the full range of those dates.
Theranos had told CMS it had voided or revised test results from its proprietary device for both 2014 and 2015, part of its effort to avoid the sanctions CMS just imposed.
"The laboratory did not provide any evidence that the [quality control] and patients results from 2013 were reviewed or voided. This brings into question whether other information provided by the laboratory in its first or second submission to CMS is reliable," the report said.
Theranos said it would work with the CMS to "resolve and remediate" the issues at the Newark lab. Meanwhile, Holmes plans to present data on Theranos' finger-prick technology at the American Association for Clinical Chemistry’s annual meeting on August 1.
But Theranos didn't originally have enough data to submit, and is still collecting information from studies it started in May for the presentation, according to a new report from the Wall Street Journal.
Theranos has 60 days (until September 5) to appeal the CMS penalties. Given their severe nature, the next two months could prove pivotal in determining what Theranos' business will look like moving forward.
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