CMS Imposes Sanctions on Diagnostics Company Theranos

July 8, 2016
Lab testing technology startup Theranos announced it was officially being sanctioned by CMS, including a fine, revocation of the license for the company’s California lab and a two-year ban on company executives from operating or owning a lab.

Theranos, the Palo Alto, Calif.-based lab testing technology company, issued a statement announcing that the company was officially being sanctioned by the Centers for Medicare and Medicaid Services (CMS).

The sanctions, which stem from a survey by U.S. regulators of the company’s Newark, California laboratory last year, cap almost a year of public scrutiny into the company’s lab testing practices. The decision by CMS penalizes company executives, imposes a fine and revokes the license of the company’s California lab. As part of the sanctions, according to the announcement from Theranos, the company’s CEO and founder Elizabeth Holmes as well as other company executives are banned from owning, operating or directing a lab for at least two years.

In the announcement, Theranos stated that while the revocation would not take effect for 60 days, the company will not conduct any patient testing in the Newark lab until further notice. “During this period, the company will continue to work with CMS to resolve and remediate outstanding issues in the Newark lab, and will continue to provide services to its customers through its Arizona lab,” the company stated.

According to Theranos, the sanctions specifically include:

Revocation of the laboratory’s CLIA certificate which, as dictated by the regulations, includes a prohibition on owners and operators of the lab from owning, operating or directing a lab for at least two years from the date of revocation

Limitation of the laboratory’s CLIA certificate for the specialty of hematology

A Civil Money Penalty

A Directed Portion of a Plan of Correction

Suspension of the laboratory’s approval to receive Medicare and Medicaid payments for any services performed for the specialty of hematology

Cancellation of the laboratory’s approval to receive Medicare and Medicaid payments for all laboratory services

“We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions. 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,” Elizabeth Holmes, Theranos founder and CEO, said in a statement. “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.”

The company has been under fire since a Wall Street Journal report last October suggested that the company’s inventions, including its Edison blood analyzer and its nanotainer, were only used on a small number of tests sold to patients.

And, as previously reported by Healthcare Informatics, the company has been in hot water with U.S. regulators since back in October when the U.S. Food and Drug Administration founds flaws in the process that Theranos used to validate its blood-testing products. In two inspection reports, the FDA referred to the company’s capillary tube nanotainer (CTN), a blood specimen collection device, as an “uncleared medical device.”

In January, CMS sent a letter to Theranos citing “deficient practices” at the company’s northern California lab which pose “immediate jeopardy to patient health and safety,” as previously reported by HCI.

The CMS letter dated January 25th, which was posted online, states that the company has 10 days to provide “acceptable evidence of correction.” The document specifically cites problems with hematology, analytics systems, the laboratory director, the technical supervisor and laboratories performing high complexity testing that were found during an inspection late last year at the company’s Newark, California lab.

Theranos asked for an extension from CMS in February, which CMS granted.

More recently, in a letter dated March 18, CMS officials cited concerns that Theranos continued to fail compliance requirements and CMS proposed sanctions against the company, including revoking the license for its Newark, CA, lab and banning Holmes from Theranos for at least two years, as reported in HCI.

Theranos lost its biggest customer, Walgreens, a month ago due the possible sanctions. With regard to Walgreens ending its business relationship with Theranos, Brad Fluegel, Walgreens senior vice president and chief health care commercial market development officer, said in a statement at the time, “In light of the voiding of a number of test results, and as the Centers for Medicare and Medicaid Services (CMS) has rejected Theranos’ plan of correction and considers sanctions, we have carefully considered our relationship with Theranos and believe it is in our customers’ best interests to terminate our partnership.”

The Wall Street Journal also has reported that the company is being investigated by federal prosecutors as part of a possible criminal investigation.

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