CMS Bars Theranos’ California Lab from Medicare Program

Elizabeth Holmes dropped out of college to start up Theranos. Now Theranos and Holmes have been dropped from the Medicare program. Theranos has confirmed that the Centers for Medicare & Medicaid Services (CMS) had issued sanctions that included the loss of its CLIA certification for its laboratory in Newark, Calif., barring Medicare payments for any hematology and laboratory services performed at the Newark facility, and the concurrent barring of Holmes from being involved with laboratory operations for at least two years.

The company is also subject to a $10,000 daily penalty starting July 12 until it corrects all the deficiencies cited by the CMS in prior inspection reports.

Being barred from the Medicare program is one of the most serious consequences that can be experienced by a health care provider.

Many hospitals that have been barred from participation have closed their doors altogether.

The Palo Alto-based Theranos engaged in the corporate version of a stiff upper lip, noting in a series of statements that it intended to carry on.

“While it was obviously difficult to hear the outcome of the CMS findings, we will work non-stop to resolve the issues identified,” the company said. It noted that its laboratory in Scottsdale, Ariz., was compliant with CLIA and would continue to operate. Any tests that may come through its handful of patient centers currently operating in California would be sent to an unnamed third-party reference lab for testing. Theranos did not say whether it intended to appeal the CMS decision, which could lead to a temporary stay of the sanctions. Given the congested state of the federal administrative law courts that handle such matters, an appeal could take a year or more to be resolved.

For now, Theranos stated it would continue on and perhaps even find a niche for its services other than consumer-friendly lab tests.

Theranos also confirmed that Holmes would not only remain at its helm as CEO, she would still deliver a widely anticipated presentation at the annual meeting of the American Association of Clinical Chemistry discussing how Theranos’ testing platform and technology works.

And the company has suggested it would focus on areas other than lab testing. “[Our] research and development unit has developed many technologies that are not dependent on running a clinical laboratory,” it said. “The company will continue to build infrastructure and build on its mission of improving access through affordable diagnostic testing, and its proprietary technologies and accessible business model. Improving access through innovative technologies is a universal need, with growth opportunities in global and domestic vertical markets.”

The fall from grace for Theranos began even more swiftly than its ascent. After the company was valued last year at $9 billion and Holmes was the subject of a New Yorker magazine profile, an investigation by the Wall Street Journal concluded that Theranos testing platform, which claimed to perform hundreds of lab tests with just a few drops of blood, was barely functional. Eventually, the company confirmed that it was performing tests on other commercial lab platforms and that it had issued tens of thousands of test results that had been inaccurate. The CMS has so far rejected its plan of action to make corrections.

Takeaway: Theranos has suffered another huge blow against its attempts to remain an ongoing business concern.