Theranos’ second lab failed a regulatory inspection, raising risk of new sanctions against beleaguered company

Elizabeth Holmes
The failed inspection could lead to sanctions against Theranos.

Theranos’ laboratory in Arizona failed a regulatory inspection last year, according to the Wall Street Journal. Citing anonymous sources, the WSJ reported Theranos kept the inspection findings hidden from investors and patients—and the situation puts the company at risk of new sanctions.

Inspectors from the Centers for Medicare & Medicaid Services (CMS) visited the facility in Scottsdale, Arizona, late in September, shortly before Theranos revealed it was closing the laboratory as part of a reorganization that cost 340 people their jobs. At the time of the inspection, the Scottsdale facility was Theranos’ only active laboratory, a situation created by the revocation of the license of its main site in California.

Theranos reportedly submitted a correction plan for the Arizona lab in November, only to have it rejected by authorities. And, as a kicker, the regulator proposed sanctions against the laboratory alongside its rejection.

With Theranos having exited medical testing to focus on developing laboratory equipment, the inspection findings don’t directly affect what is now the fallen unicorn’s core business. But with the WSJ sources stating officials can go after closed laboratories with sanctions, the fallout from the inspection could continue to dog Theranos.

It is unclear how bad the situation could be for Theranos, in part because the CMS hasn’t published its inspection report or letter threatening additional sanctions. The CMS typically publishes inspection findings within 90 days. But in this instance it has neither published the report nor explained its reasons for not doing so.

If the CMS goes ahead with the sanctions, it would open another front in its ongoing row with Theranos. Last year, the CMS barred Theranos founder Elizabeth Holmes from owning and operating the California lab as part of sanctions that revoked the facility’s license. Theranos is appealing the sanctions while focusing its slimmed-down workforce on developing a tabletop diagnostic testing device.

The company sought to add some scientific credibility to its ongoing operation this week by unveiling a technology advisory board. The collection of academics and industry executives will review Theranos’ technology initiatives.