Theranos Chief Executive Officer Elizabeth Holmes was banned for two years from owning or operating laboratories by U.S. regulators, a devastating blow for the controversial blood-testing startup that’s come under scrutiny for risking patient harm with unreliable tests.
The once high-flying Silicon Valley company was battered with sweeping sanctions from the Centers for Medicare and Medicaid Services, which regulates clinical laboratories. They include the revocation of a key lab certificate, penalties of an undisclosed amount and cancellation of payments from federal health insurance programs for lab services. Holmes, in a statement late Thursday, said Theranos is committed to resolving its issues.
The entrepreneur is left with few options to save her startup. Theranos had already lost a key partner last month when national pharmacy chain Walgreens Boots Alliance said it would end their relationship and close its 40 blood-testing centers, leaving Theranos with just five testing locations. The sanctions followed an inspection of Theranos’ Newark, California, lab by federal health regulators, which found failures so severe as to jeopardize patients’ health and forced the company to cancel or alter tens of thousands of results.
A ban is an exceptional and rare sanction, and recovering from such severe punishment will be an uphill battle, according to Ira Loss, a senior health-care analyst at the Washington Analysis research firm.
“It’s serious — can they come back? It’ll be tough, it’ll be very tough,” Loss said by phone. “They need to become a real company instead of whatever it is they are now, which is something short of that.”
The Newark lab’s certificate revocation doesn’t take effect for 60 days, Theranos said. The company plans to shut down the lab and rebuild it, and will continue to provide services through its Arizona facility.
The company said in the statement that it’s “committed to fully resolving all outstanding issues with CMS and to demonstrating our dedication to the highest standards of quality and compliance.”
In response to questions about whether Holmes would step down; whether the company would cut its workforce; and whether Theranos still plans to present some data on its technology at the American Association for Clinical Chemistry’s annual meeting on Aug. 1, spokeswoman Lauren Vroom said by email that Theranos hasn’t made any announcements.
It’s been a stunning fall from grace for a company that at one time commanded a $9 billion private valuation. Holmes had been profiled as a wunderkind after dropping out of Stanford University to found Theranos, with promises to revolutionize the blood-testing industry — dominated by Quest Diagnostics Inc. and Laboratory Corp of America Holdings — with cheap, less-painful tests that used only a finger-prick of blood and could be run on what the company had said were its breakthrough analyzers.
One option for Theranos would be to appeal CMS’s decision within 60 days, which would delay some sanctions, including the ban and the license suspension. The company could first argue its case to an administrative law judge, and then to the departmental appeals board. If those decisions went against the firm, Theranos could then opt to take its case to a U.S. Court of Appeals. Theranos hasn’t said if it will appeal.
The startup faced increased scrutiny over whether its technology worked following an investigation from the Wall Street Journal last year. In January, CMS sent Theranos a scathing letter detailing deficiencies at its Newark lab that the department said was putting patients’ health and safety in “immediate jeopardy.”
Soon after, Theranos told the agency that there was “no evidence of systemic errors” at its lab and that “no patient impact is expected.” In a March 18 letter, CMS told Theranos that it hadn’t backed up those claims and threatened fines and a ban. The letter, posted by the Wall Street Journal in April, gave the company 10 days to respond.
The Palo Alto-based startup has since tried to take steps to improve its business, including the creation of a scientific advisory board with physicians from prominent hospitals and the addition of board members.
Three class action lawsuits have been filed against the company, claiming consumer fraud and false advertising. It’s also been subject to investigations by the Securities and Exchange Commission, the U.S. Attorney’s Office in San Francisco, and federal and state health regulators. And last month, House Democrats in Washington sent a letter to Theranos asking for more information about the company’s problems.
Chitra Somayaji contributed
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