The health of ailing biotech start-up Theranos took a turn for the worst last week, when the Centers for Medicare & Medicaid Services imposed numerous sanctions on the firm following a review last year of its laboratory operations, which uncovered numerous compliance violations.

First, a bit of background: Founded in 2003 by CEO Elizabeth Holmes, the healthcare technology company quickly became a Silicon Valley darling—valued at more than $9 billion—for its self-proclaimed “breakthrough advancements” in blood-testing technologies. Theranos claims that it has come up with a way for laboratories to run a broad range of medical tests using micro amounts of blood, rather than the traditional method of drawing several test tubes of blood through a needle in a vein.

Theranos’ promising future took a blow last year, however, after a Wall Street Journal exposé called its claims into question, alleging that the company is not using its proprietary technology for most of the tests it offers. After the story broke, the Securities and Exchange Commission, the Department of Justice, and federal health regulators launched civil and criminal investigations.

According to a CLIA (Clinical Laboratory Improvement Amendments) recertification and complaint survey that CMS conducted on Theranos last year, “the laboratory was found to be out of compliance with five CLIA condition-level requirements, in addition to numerous CLIA standard-level requirements,” CMS stated in a 33-page letter sent to Theranos last week, which the company voluntarily made publically available.

In January 2016, CMS provided Theranos with a list of the deficiencies it identified, resulting in the finding of “immediate jeopardy to patient health and safety,” according to CMS. In its letter, CMS required the laboratory to take immediate action to remove this jeopardy and “bring any unmet condition-level requirements into compliance.”

One month later, Theranos responded to the inquiry, but “after careful review, we determined that the laboratory’s submission did not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited,” the letter stated.  

Specifically, the sanction letter described in grave detail more than two dozen occasions in which “the laboratory's allegation of compliance is not credible and evidence of correction is not acceptable.”  

In one example, Theranos said it had stopped using certain testing and machines by September 2015, even though other documentation provided by the laboratory states otherwise. “These contradictory statements in the submissions call into question the reliability of the information contained in the submissions,” CMS said.

Additionally, CMS pointed to personnel “being untrained or incompletely trained prior to testing and reporting patient results.” In one example, Theranos argued that an employee was competent to perform tests following “informal” training, simply because the employee said she believed the training was adequate. “[I]t should be noted that it is the laboratory director's responsibility to make this determination,” CMS said.

Sanctions imposed

Based on its findings, CMS said it was issuing several sanctions, including revoking Theranos’ license to operate its Newark, Calif., laboratory and prohibiting Holmes from owning, operating, or directing a lab for at least two years from the date of revocation, meaning that its Scottsdale, Ariz., lab would cease to operate.

In a statement, the company said it is working closely with CMS to resolve the sanctions, which it has 60 days to appeal. “The company is considering all its options and has been in contact with CMS to better understand its findings,” Theranos said.

“We accept full responsibility for the issues at our laboratory in Newark, Calif., and have already worked to undertake comprehensive remedial actions,” Holmes said. “Those actions include shutting down and subsequently rebuilding the Newark lab from the ground up, rebuilding quality systems, adding highly experienced leadership, personnel and experts, and implementing enhanced quality and training procedures.”

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