Theranos squares away CMS, Arizona disputes to the tune of $4.6M

Elizabeth Holmes
Theranos has agreed not to run a lab for two years, but the company has already switched its focus to a blood-testing device that can be used outside a lab.

Theranos has ended two legal battles in two days—the company has promised the Centers for Medicare & Medicaid Services it will not run a lab for two years and settled with the Arizona Attorney General to pay up $4.65 million to residents who had paid for Theranos blood tests.

In July, CMS imposed sanctions on Theranos after surveying the company’s lab in Newark, California. In the 2015 inspection, regulators found “deficient practices” at the Newark lab that "pose immediate jeopardy to patient health and safety."

The sanctions included banning the lab’s owners and operators from running a lab for two years and revoking its CLIA certificates. While the sanctions would not take effect for 60 days, the agency levied a civil penalty of $10,000 for each day of noncompliance. Theranos would appeal the sanctions “immediately,” the company said at the time.

In exchange for Theranos’ not operating a lab until 2019, CMS has reduced the monetary penalty to $30,000 and will not pull the company’s CLIA certificates, according to a statement announcing the settlement Monday.

Meanwhile, Theranos announced Tuesday that it had reached an agreement with the Arizona Attorney General that it would reimburse Arizona residents for $4.65 million—the total they had paid for Theranos tests between 2013 and 2016. The company also said it will not run a lab in Arizona for two years.

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Reports questioning Theranos’ lab practices and the validity of its blood testing tech emerged in 2015. Since then, the company has lost its early partner and validator, Walgreens, which is suing Theranos for breach of contract, and is also facing an investor class-action lawsuit. A U.S. district judge upheld fraud claims brought in the suit on Tuesday.

Giving up lab operations for two years would have been a blow for a company founded on fingerprick blood testing. But last summer, Theranos unveiled a new device, the MiniLab, a tabletop blood-sample processor that can be used outside a lab. And in October, the company pivoted to the new device, ditching its old technology, closing its labs and Theranos Wellness Centers in California, Arizona and Pennsylvania, and slashing 40% of its employees.

“Theranos exited the clinical lab and retail business last year, and is focusing on its miniaturized, automated testing platforms and related chemistries,” Theranos said in a statement Monday.

Last month, a Wall Street Journal report exposed a deal wherein Theranos offered additional shares to investors in return for promises not to sue the company. The agreement covers investors who participated in Theranos’ latest financing rounds. And earlier this month, it was revealed that CEO Elizabeth Holmes is $25 million in debt to the company from an agreement in which she agreed to buy shares and pay for them later. But under the agreement, Theranos is able to forgive the debt or cancel the shares.