Theranos to Appeal Severe Government Sanctions

In a statement issued Thursday, the blood-testing company Theranos, which has stretched the adjective "beleaguered" to its very limits, said it would appeal the harsh penalties the Centers for Medicare & Medicaid Services levied on it last month in response to what the agency called life-threatening deficiencies at the company's California lab.

Theranos said it has filed an intent to appeal the sanctions with CMS.

"Theranos is not conducting patient testing at its Newark facility," the statement said. "In addition, since CMS originally announced the imposition of sanctions, Theranos has made substantial progress toward correcting the deficiencies CMS identified, including appointing new laboratory leadership; enhancing Theranos’ clinical policies and procedures; and revamping training programs.

"While the appeal is pending, Theranos intends to continue communicating with CMS regarding the possibility of reaching a mutually agreeable resolution to this matter."

CMS had previously said Theranos could “begin negotiations” with the agency. Any agreement would be based on the ability of Theranos to “remove immediate jeopardy” to patients, the agency said, as well as other factors, such as the severity of the lab's deficiencies and “the overall compliance history of the laboratory.”

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The penalties CMS imposed on Theranos include revoking the blood-testing company’s license to operate the Newark, California lab and barring founder and CEO Elizabeth Holmes from owning, operating or directing a lab for at least two years. CMS also canceled the Newark lab’s approval to receive payments from Medicare and Medicaid.

When the penalties were announced in July, laboratory medicine experts called them unusually harsh.

Dr. Norman Paradis, a professor of medicine at Dartmouth, who has consulted for both diagnostic startups and biomed investors, said the magnitude of the penalties could be one-of-a-kind.

“I’ve never heard of a penalty this severe,” he said. “I’m surprised that they could not have avoided this in light of the new involvement of experienced people and renowned attorneys.”

In April, Theranos hired a number of experts for its medical advisory board. High-powered lawyer David Boies represents the company and also serves on its board.

Earlier this month, Holmes attempted a fresh start by giving a much-anticipated presentation at the annual meeting of the American Association for Clinical Chemistry. That was a gathering of the very sort of experts who had expressed skepticism about the company's central claim -- that it could perform dozens of tests by collecting just a few drops of the patient's blood from a finger prick. The FDA has approved only one of those assays, for the herpes simplex virus.

But rather than using the presentation to produce data verifying its technology, Holmes unveiled a new portable testing device called a miniLab, which was underwhelming to those present.

The Wall Street Journal has reported the company is facing at least eight lawsuits related to that original, controversial and mysterious technology, called "Edison," which Theranos says is now obsolete. In May, the company voided or corrected tens of thousands of blood tests from 2014-15.

Per federal regulations, if Theranos loses its appeal, which will go to an administrative law judge, it can file a request for review by an appeals board. If it loses that one, it will have 60 days to request judicial review with the U.S. Court of Appeals.

Experts who have commented on the case have said if no settlement can be reached, companies almost never win these things.

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In the meantime, Theranos is still operating its remaining lab, in Arizona. But how brisk can business be? Walgreens withdrew from its partnership with the company, shutting down dozens of Theranos blood-draw centers in the pharmacy chain's Arizona stores. That leaves just a handful of collection sites for customers to patronize.

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