Feds Seek Severe Sanctions Against Theranos and Holmes

Theranos founder Elizabeth Holmes in 2015. (Stuart Isett/Fortune Global Forum)

Theranos' beleaguered founder, Elizabeth Holmes, may be banned from heading or working in her own labs, and her company's license to operate its laboratory in Newark, California may be revoked.

Despite Theranos' assurances to the contrary, federal regulators say the company has not fixed deficiencies at the lab, some of which the government classified as life-threatening, identified in a November inspection.

The news broke in the Wall Street Journal, which has broken just about all of the news on Theranos' decline since last fall.

'(W)e have determined that the laboratory's submission does not constitute a credible allegation of compliance and acceptable evidence of correction ..." the agency wrote to Theranos in a letter dated March 18, portions of which were posted online by the Journal.

As a result, CMS is threatening to ban founder Elizabeth Holmes and president Sunny Balwani from lab operations for at least two years, the Journal says. CMS is also threatening to revoke the Newark lab's federal license, which means the lab will no longer be allowed to perform any testing.

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The letter to Theranos has not yet been made public, but you can read excerpts from it here or below. Those portions do not mention Holmes.

Here are the basics from the Journal's reporting and the excerpts from the CMS letter it has posted. (Read The Wall Street Journal article here, or below, for further detail.)

  • CMS has concluded Theranos failed to adequately fix 43 of 45 deficiencies that the agency found in its November inspection of the Newark lab. CMS said earlier this year that certain problems with the lab's "hematology" required immediate correction because "serious injury or harm, or death" would likely result, otherwise. CMS later released the specifics of the problems it found, including incorrect results on a test called "prothrombin time," which measures how long it takes for blood to clot. These inaccuracies could have led doctors dangerously astray in changing the dosage  for patients taking Coumadin.
  • Theranos had until March 28 to make its case to CMS as to why the agency's recommended sanctions shouldn't be carried out. Company spokesperson Brooke Buchanan says Theranos has done just that and is waiting to hear back from CMS. A spokesperson for CMS said she couldn't comment.
  • The threatened sanctions, aside from the ones mentioned above, include potentially fining Theranos $10,000 per day until the lab is in compliance with all regulations. The company would also no longer be eligible to receive Medicare or Medicaid payments for lab services.
  • CMS also wanted Theranos to submit a list of doctors and patients who have been tested at the Newark lab from January 14 to the present. Theranos said in early March that it had already contacted "any affected patients" who had been subject to inaccurate tests. Theranos' Buchanan said today that CMS was "asking for even more detail" regarding patients, and that has now been submitted.
  • If CMS responds negatively to the response Theranos sent in March, the company can avail itself of two levels of appeal before the sanctions take effect, during which time it could keep its license and keep Holmes and Balwani active while a decision is reached.
  • CMS said Theranos cannot avoid penalties by closing the lab or ceasing to perform tests.

http://online.wsj.com/public/resources/documents/cms20160412.pdf

http://www.wsj.com/articles/regulators-propose-banning-theranos-founder-elizabeth-holmes-for-at-least-two-years-1460570869

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This post has been corrected. Originally, it stated that Theranos currently has 10 days to respond to CMS, when in fact the company has already responded.

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