CMS tells embattled Theranos CEO to shape up or ship out: WSJ

Theranos CEO Elizabeth Holmes

Regulators have had a lot of strong words for Theranos CEO Elizabeth Holmes lately, and now, they're sending a new message to the leader of the embattled testing company: Get out.

The Centers for Medicare and Medicaid Services (CMS) want to revoke the license for the company's Newark, CA-based lab and prevent Holmes and Theranos President Sunny Balwani from owning or operating any other lab for at least two years, the agency said in a March 18 letter seen by The Wall Street Journal. Under those sanctions, Holmes and Balwani would be banned from the company's only other lab, which is located in Arizona.

CMS gave Theranos 10 days to pony up evidence as to why Balwani and Holmes and its California lab shouldn't be penalized. Theranos has responded and the CMS is reviewing its answer, a person familiar with the matter told the newspaper.

A lot is riding on the company's response. If CMS isn't satisfied with Theranos' answer, it will impose the sanctions. Some of those would take effect right away, or within 8 days. Others, including the one that would revoke the company's California lab's license, would take about two months to go through.

Theranos could appeal CMS' decision. But that process could take months, the WSJ points out, and those appeals have an unsuccessful track record. The agency hasn't lost a single related case from 2001 through the end of 2010.

Still, Theranos is putting on a brave face. "Due to the comprehensive nature of the corrective measures we've taken over the past several months, which has been affirmed by several experts, we are hopeful that CMS won't impose sanctions," spokeswoman Brooke Buchanan told the newspaper. "But if they do, we will work with CMS to address all of their concerns."

Theranos' Palo Alto, CA, headquarters--Courtesy of Theranos

The latest regulatory fallout adds to the company's laundry list of woes. In January, CMS published a 45-page letter slamming Theranos for unsound practices at its Newark lab. The agency uncovered 5 violations during an earlier inspection of the facility, it said, including one that posed "immediate jeopardy to patient health and safety."

CMS required Theranos to submit a game plan for how it would fix the problems. Theranos sent the agency its idea but the agency wasn't satisfied with the company's response. CMS declined to comment about the issue to the WSJ.

Even though some experts say that the government taking away a lab's license is rare, CMS doesn't seem to be worried about taking dramatic action. The agency's proposed penalties are some of the most severe in its power, Sidley Austin Lawyer Barbara Cammarata told the newspaper, which could spell out even more problems for Theranos. "They're in a lot of trouble," Cammarata said.

- read the WSJ story (sub. req.)