CMS draws blood, says Theranos poses 'immediate jeopardy to patient health'

One-time media darling Theranos continues to unravel following a critical October story in the The Wall Street Journal. The Silicon Valley company was supposed to represent the future of diagnostics due to its apparent ability to conduct diagnostics using just a drop or two of blood thanks to its so-called nanotainers. It now faces fines of up to $10,000 per day and suspension from Medicare payments.

In the latest blow, the Centers for Medicare & Medicaid Services published a letter to Theranos director Dr. Sunil Dhawan saying that the diagnostics company's Newark, CA, laboratory is not in compliance with the agency's CLIA regulations, and "based on the Condition-level requirement at 42 C.F.R. § 493.1215, Hematology, it was determined that the deficient practices of the laboratory pose immediate jeopardy to patient health and safety."

Based on 5 violations of the Code of Federal Regulations uncovered during an onsite CLIA recertification and complaint survey in November and December, Theranos could face financial penalties of up to $10,000 per day, cancellation of Medicare payments, and suspension of the lab's CLIA certificate.

"Three of the condition-level deficiencies are related to personnel, such as documentation and oversight; one is related to analytic systems; and the one referenced above to hematology," Theranos said in a statement. "CMS found that within hematology, certain policies, procedures, and associated events did not meet the relevant standards."

Theranos has 10 days to comply with the regulations or else the penalty phase will begin. It must document the systematic changes made and how they are being monitored to ensure the deficient practices do not recur, the letter says.

All violations cited are in the section of CMS' laboratory requirements called Quality System for Nonwaived Testing. Scrutiny of Theranos will only increase if the FDA follows through on its plans to require approval of more diagnostics.

"We are still reviewing the report, but we addressed many of the observations during the survey and are actively continuing to take corrective action. A full plan of correction will be submitted to CMS within days," Theranos said in a statement, adding that the findings do not affect its Scottsdale, AZ, lab, where the company processes more than 90% of its tests.

The company has faced increasingly severe blowback ever since a critical story October in The Wall Street Journal that questioned the validity of its mysterious diagnostic technology. Embattled Theranos CEO Elizabeth Holmes responded forcefully, telling the audience at the next week's WSJD Live conference that "I've never seen The Wall Street Journal as a tabloid magazine."

The WSJ reported news of the impending CMS letter earlier this week, just prior to its publication.

Indeed, subsequent events (many of them reported in the publication) have certainly favored the WSJ's account of Theranos as an overhyped company with famous financial backers but little transparency and questionable technology.

The blowback has included the cancellation of an alliance with Safeway ($SWY) worth $350 million and the freeze of Theranos' partnership with Walgreens ($WBA), which has around 40 stores in Arizona and California that include Theranos "wellness centers."

In addition, the FDA revealed that following an inspection of Theranos facilities in August and September, it found that the company's design for its capillary tube "nanotainer" blood-collection devices was "not validated under actual or simulated use conditions."

Subsequent reporting has also revealed that some Big Pharma companies and venture capital firms sought to partner with or invest in Theranos over the years but backed away after the diagnostics company was unable or unwilling to convince them of the validity of its technology.

In July, Theranos earned FDA approval for its fingerstick test for herpes simplex 1 virus, making it the company's first FDA-approved test out of the hundreds that it makes available.

- read the CMS letter
- read the relevant sections of the Code of Federal Regulations
- here's Theranos' statement