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Holmes to remain at Theranos despite federal ban and gross negligence

Baffling disregard for clinical protocols led to lab shutdown and 2 year ban for CEO.

Holmes to remain at Theranos despite federal ban and gross negligence

Late last Thursday, blood testing company Theranos announced that the worst possible outcome of its troubled dealings with federal regulators had come to pass: the Centers for Medicare & Medicaid Services (CMS) had issued sanctions that, among other things, would revoke the company’s license to operate its Newark, California, laboratory and bar its high-profile CEO and founder Elizabeth Holmes from owning, operating, or directing any lab for at least two years.

The massive blow from the CMS should be no surprise for Theranos; for months, the company had been dogged by reports that its propriety testing device—said to perform hundreds of tests with just drops rather than vials of blood—didn’t work properly. Theranos was forced to void or correct years’ worth of test results, and its valuation dropped from $9 billion to $800 million. In the CMS’ 33-page letter to the company informing it of the sanctions, the agency outlined extensive problems at the California lab and the company’s inexplicable failure to fix them. And the company also faces criminal probes from the Department of Justice and the Securities and Exchange Commission over whether it misled investors and regulators plus at least eight lawsuits from ex-customers, each seeking class-action status for bogus testing.

Still, last week’s news raises the question of what will happen to the company’s other clinical laboratory in Scottsdale, Arizona, at which 90 percent of the company’s tests are processed. So far, that lab has passed regulatory muster, and the company said it will remain open for now. But, if Theranos intends to keep it running, it must split from Holmes before the sanctions take effect September 5.

In updated statements and information posted on its website, Theranos seemed to provide a clear, if not bold answer: Holmes will stay on at Theranos, even if it means abandoning its Arizona lab and focusing on its machines instead. “The clinical lab is just one of Theranos’ many opportunities to provide access to high-integrity, affordable and actionable health care information, and the company will continue to carry out its mission under the leadership of its founder and CEO, Elizabeth Holmes,” the company stated.

But, for now, shuttering its Arizona lab may merely be the back-up plan; Theranos left open the question of whether it would appeal the CMS sanctions. If it does, the sanctions will be put on hold until an administrative law judge comes to a verdict. That process can take months, during which the Arizona lab can stay open under the leadership of Holmes. However, as The Wall Street Journal notes, appeals hardly ever succeed.

In its updated statement, Theranos said it is “in contact with CMS to better understand its findings” and “will work non-stop to resolve the issues identified.” In a rare instance of transparency, Theranos provided a copy of the CMS sanction letter (PDF) on its website. In the past, the company has repeatedly shrugged off calls for data on and open discussion about its technology and tests. But, the letter offers a deeper glimpse into the troubled workings of the biotech company—plus its strained relationship with the CMS.

The 33-page letter is the latest in a months-long back-and-forth between the two. In March, the CMS wrote to Theranos stating that it planned to levy sanctions following extensive problems it documented during an investigation last year. Those problems spanned issues with quality controls, employee training, test protocols, and proper patient notifications. But the CMS gave Theranos a chance to defend itself, saying it could argue point-by-point why it didn’t deserve the punishment. The deadline for that defense was March 28.

Theranos responded with a letter dated March 28, then with a revised letter April 1, and then with three addendums dated, April 7, 18, and 26, the CMS noted. And, according to the agency’s responses, those responses were a muddled mess of incomplete answers and conflicting information.

In the sanction letter, the CMS listed out rebuttals to Theranos’ arguments, noting over and over again that for each one “[t]he laboratory's allegation of compliance is not credible and evidence of correction is not acceptable.” In one case, the agency noted that corrected records of patient reports were sloppy, with many missing documents, such as receipts of notifications that blood test results were corrected. In another involving proficiency testing (PT)—comparing the lab’s results with those from other, CMS-approved labs—Theranos answered only one of six questions.

In several other instances, the CMS noted that Theranos said it had stopped using certain tests and machines by September 17, 2015, however other documents and information the company provided suggested they were using them after that date. “These contradictory statements in the submissions call into question the reliability of the information contained in the submissions,” the agency noted on several occasions.

In one instance, Theranos apparently tried to argue that an employee was competent to perform tests after she was “informally trained” because “when asked if she [TP31] thought this training was adequate, she stated it was.” Further, because this employee and others without proper training documentation were considered competent, Theranos argued that “there is no potential patient impact.” The CMS noted that the lab director is supposed to assess competency and concluded: “The laboratory again failed to adequately address this deficiency and provide acceptable evidence of correction...”

In all, the agency concluded that because the lab failed to fix problems and continued to put patients in “immediate jeopardy,” it would impose the sanctions.

“It’s important to note that the CMS review pertained to the operations of the company’s Newark lab, not its technologies,” Theranos said in its statement. The company also noted that Holmes is still scheduled to present data on its proprietary blood testing devices August 1 at the American Association for Clinical Chemistry conference in Philadelphia.

Channel Ars Technica