Theranos laboratories: directors, inspections and sanctions, 2014–2017

analysisTheranos provided blood tests to the public and operated a clinical laboratory from 2011 to 2016, Holmes testified. CMS records identify a laboratory at 7333 Gateway Boulevard, Newark, California (CLIA 05D2025714), with Elizabeth Holmes and Ramesh Balwani as owners, and a laboratory at 1365 N Scottsdale Road, Scottsdale, Arizona (CLIA 03D2077896), directed by Daniel Young in 2017; there was also a laboratory in Palo Alto. Patients suing in Arizona alleged that 90 percent of Theranos's testing was done in Scottsdale, which analysed only venous blood samples. ^{1 2 3 4 5}

analysisThe laboratory directors' roles were contested at trial. Adam Rosendorff and Mark Pandori were former directors whose testimony Balwani challenged on appeal; Rosendorff, a pathologist, testified that he quit because the technology did not work, a laboratory-industry newsletter reported. His successor, the dermatologist Sunil Dhawan, testified, according to business news coverage, that Balwani, who knew him personally, recruited him in 2014 for what an email called "mostly an on-call consulting role", that he visited the laboratory twice and worked five to ten hours between November 2014 and the summer of 2015, and that he never cashed his $5,000 monthly checks; the coverage noted that he met the federal and state requirements for the post. The defence showed that Lynette Sawyer had been added to the licence as co-director in November 2014; she testified that she never set foot in the laboratory, according to a laboratory-industry newsletter. ^{6 7 8 9 10}

analysisKingshuk Das took over in 2016: Theranos told CMS on February 12, 2016 that he had been appointed, and CMS treated him as director from March 11, 2016. He worked at Theranos until June 2018 and, according to trial reporting, testified that he voided every test run on the Edison devices in 2014 and 2015. ^{11 2 6 7}

analysisFDA investigators inspected the Newark site as a medical-device manufacturer from August 25 to September 16, 2015 and issued a Form FDA-483, addressed to Balwani as President, stating that Theranos was shipping an uncleared device, which it treated as Class I exempt, between California, Arizona and Pennsylvania; press reports identified it as the Nanotainer blood-collection tube. When the reports were released in October 2015, a life-sciences news site said they called the Nanotainer an uncleared Class II device and listed 13 concerns. Theranos responded that it had been moving from laboratory to FDA guidelines for several years and was working with regulators; earlier that month it had announced that it would stop using finger-prick samples for all tests except a herpes test the FDA had cleared. ^{1 2 3}

analysisThe superseding indictment alleged that Holmes and Balwani told investors that Theranos did not need FDA approval and was applying voluntarily, when the FDA had required it to seek clearance or approval since late 2013; the verdicts on the investor counts are set out in the account of the criminal case. ⁴

analysisCMS surveyed the Newark laboratory in 2015; the on-site work ended on November 20 and the survey on December 23, 2015. It found the laboratory out of compliance with five Condition-level requirements, and on January 25, 2016 notified Theranos that its hematology deficiencies amounted to immediate jeopardy to patient health and safety. On March 18, 2016 CMS proposed revoking the laboratory's certificate and a $10,000-a-day penalty, finding many of Theranos's claims of correction not credible, including the lack of documentation that corrected reports had been issued, and citing the failure to meet the requirements for a high-complexity laboratory director. Having confirmed that California bars unlicensed personnel from operating moderately complex instruments, CMS questioned whether, if Theranos's written procedures were inconsistent with state requirements, they could ensure that only licensed staff performed tests; in July it also rejected Theranos's explanation that the lack of a full-time, on-site director had slowed its corrections, since the survey-period director remained director until March 11, 2016. ^{1 2}

analysisTheranos concluded that every result reported from its TPS 3.5 instruments might have affected patients and voided them all. In May 2016 it issued corrected reports for every test run on its own technology in 2014 and 2015; Das estimated 50,000 corrected reports, while Theranos counted 31,000 voided or corrected tests and confirmed it had known of quality issues since September 2015. Members of the House Committee on Energy and Commerce told CMS in July 2016 that Theranos had voided two years of Edison results affecting thousands of patients. A technology news site had reported in May 2016 that the SEC, federal prosecutors and the Pennsylvania and Arizona health departments were investigating the company; those federal inquiries led to the 2018 SEC actions and indictment. ^{1 3 4 5}

analysisOn July 7, 2016 CMS found the laboratory still out of compliance and imposed sanctions: revocation of its CLIA certificate and cancellation of its Medicare approval from September 5, 2016, a limit on hematology testing and payments from July 15, a civil money penalty of $10,000 a day from July 12, and a directed plan of correction requiring a list of all physicians and clients served since January 2014. Medicare cancellation would apply even if Theranos appealed, which it could do within 60 days. Before the sanctions Theranos had made several correction submissions, all rejected, and it had voided two years of Edison results and issued corrected reports; it appealed the sanctions, and Theranos said in April 2017 that the appeal would be withdrawn under the settlement described below. ^{1 3 4 6}

analysisThe July letter also said that on revocation the laboratory's owners and operators, including its director, would be barred from owning or operating a laboratory for at least two years, and listed Holmes and Balwani as owners and Dhawan as director. That bar was tied to the revocation, which CMS withdrew in the 2017 settlement with Theranos, although a 2017 news report said Holmes had been barred in 2016. ^{1 6}

analysisAccording to an online encyclopaedia, Theranos withdrew a request for emergency clearance of a Zika test in August 2016, announced in October 2016 that it would close its laboratories and Wellness Centers and lay off about 40 percent of its staff, and in January 2017 cut a further 41 percent, about 155 people, closing its last testing facility after a second failed inspection. CMS's 2017 registry is consistent with that inspection: it lists sanctions against the Scottsdale laboratory for Condition-level non-compliance with immediate jeopardy, including suspension of its certificate and Medicare payments from February 4, 2017 and cancellation of Medicare approval from March 28, 2017. ^{1 2}

analysisIn April 2017 Theranos announced a settlement of all proceedings with CMS: it would stay out of the blood-testing business for at least two years, CMS withdrew the revocation of its certificates and cut the penalty to $30,000, and Theranos withdrew its appeal. The terms are Theranos's own account as reported; the report dates the withdrawn appeal to September 2015, before the sanctions existed, which appears to be an error. ³

analysisArizona acted separately. Patients alleged that state health inspectors had found multiple deficiencies at the Scottsdale laboratory in April 2015, which Theranos called routine and said had been fixed within days or weeks. In April 2017 the Arizona Attorney General sued under the Consumer Fraud Act, alleging that between 2013 and 2016 Theranos sold about 1,545,339 tests to about 175,940 Arizona consumers and voided or corrected about 834,233 of 7,862,146 results, and that it misrepresented its testing. Theranos denied the allegations but entered a consent decree to pay $4,652,000 in restitution, $200,000 in penalties and $25,000 in fees; the Attorney General began mailing refunds in December 2017 and describes the settlement as closed. ^{4 5}