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Theranos' Future Unclear After CMS Sanctions

CMS is banning the lab testing company's founder and CEO Elizabeth Holmes from the business for at least two years. And that's just the tip of the iceberg when it comes to sanctions.

Elizabeth Holmes Theranos
Theranos and its founder Elizabeth Holmes were once Silicon Valley stars, touting a technology supposedly able to find disease in a single drop of blood. (Image courtesy of Theranos)

Chris Newmarker 

The U.S. Centers for Medicare & Medicaid Services has come through with tough sanctions against Theranos, a once-vaunted blood testing company laid low amid a swirl of questions around its technology.

Sanctions include CMS fining the company, and cancelling reimbursements for the Newark, CA, lab that was the center of CMS's investigation, the Palo Alto, CA-based company said in a late night news release on Thursday. Most striking of all, the owners and operators of the lab are banned from the business for at least two years from the date of revocation. That includes founder and CEO Elizabeth Holmes, whom Forbes once listed as worth $4.5 billion during Theranos' better days. 

A Theranos spokeswoman did not immediately answer questions about Holmes' future.

The fine is $10,000 a day for each day of noncompliance effective July 12, according to CMS. The agency said in a summary of its sanctions: "Sanctions cannot be avoided by the closure of the lab, discontinuation of testing, voluntary withdrawal from CLIA programs, or changes in certificate to a lower level of testing."

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The company in a statement said it is shutting down the Newark lab until further notice, even though the revocation does not take effect for 60 days. Theranos' Arizona lab will remain open. Holmes in the news release said Theranos is taking additional actions including "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." 

"While we are disappointed by CMS' decision, we take these matters very seriously and are committed to fully resolving all outstanding issues with CMS and to demonstrating our dedication to the highest standards of quality and compliance," Holmes said. 

It was hard to see, though, how Holmes would be able to stay on. 

"I think the company will have to show [Ms. Holmes] the door somehow, which might not be possible under the current governance. This is so rare, and essentially unprecedented in a company of this size, that it is hard to know exactly how they will proceed. Personally, I believe she is obligated to step down immediately," Geoffrey Baird, a laboratory medicine professor at the University of Washington, told The Wall Street Journal

Things could get even worse for the company, too. It already lost its main business partnership last month when Walgreens announced it was severing ties and booting the struggling blood-testing company out of 40 of its Arizona drugstores. The federal court system's Pacer document locator shows at least five class action lawsuits filed against the company in California and Arizona since the start of June. And the company is reportedly under investigation by the U.S. Justice Department and the SEC. 

Theranos was once a Silicon Valley darling, with Holmes' bold vision of reliable tests conducted off only a single drop of blood from a finger prick. Things started to unravel, though, in October after a Wall Street Journal exposé called into question the accuracy of Theranos' tests. Things got worse from there. A CMS report in January described hematology testing practices at Theranos's Newark, CA-based lab as "deficient," saying they posed "immediate jeopardy to patient health and safety." Two months after that, a study in the Journal of Clinical Investigation found that Theranos's blood tests were unable match the accuracy of more conventional tests. Another Wall Street Journal article claims the company knew its technology had problems, but still used it on patients. CMS has since disclosed that the company failed 87% of its quality-control tests for one hormone test.

The company, though, is apparently still hiring. A LinkedIn job posting seeks a "bright and motivated" executive assistant to support the general counsel. Safe to say, whoever lands the job will have a lot to do. 

CMS's July 7 letter to Theranos, below, includes a laundry list of the company's repeated failures to address deficiencies at the Newark lab: 

CMS's July 7 Letter to Theranos

Chris Newmarker is senior editor of Qmed. Follow him on Twitter at @newmarker.

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