Theranos Strikes Deal With Pennsylvania Insurer; Begins Obtaining FDA Clearances

Upstart laboratory Theranos keeps chugging along, inking its first deal with a major payer and obtaining federal regulatory approval for its unique testing system.

The California-based Theranos announced earlier this month it has entered into a deal with Harrisburg, Pa.-based Capital BlueCross, which insures more than 725,000 lives and is the dominant payer in the central portion of the Keystone State.

Under the terms of the agreement, Theranos will provide test services to Capital BlueCross enrollees at two draw centers operated by Capital BlueCross. Theranos will also build additional centers in the state. It will begin providing full reference lab services in Harrisburg starting this month, officials for both firms said in response to questions submitted by Laboratory Industry Report. Theranos also expected to hire additional employees in Pennsylvania, but the traditionally closed-mouth company declined to provide specifics.

Theranos will offer Capital BlueCross enrollees a suite of 285 mostly basic tests, with pricing at 50 percent below current Medicare rates and posted on the Theranos website. Theranos uses a proprietary technology to draw a minute amount of blood for testing without the use of needles.

Such rates are contrary to the relative lack of price transparency for consumers elsewhere; a 2014 study by the health care pricing firm Castlight Health found that prices for simple tests such as lipid panels varied by more than 400 percent depending on the city where it was being offered, ranging from $19 to $89. A Theranos lipid panel is $9.21.

"Our partnership with Capital BlueCross is centered on a common mission— to provide access to high-quality, affordable health care, so that people everywhere can own their health and take action to live their best lives," said Theranos Chief Executive Officer Elizabeth Holmes in a statement. Theranos and Capital BlueCross officials say the collaboration is expected to see savings that are "very significant," although it would take some time for that to materialize.

The move into Pennsylvania will diversify Theranos' business base. Most of its current testing operations are in Arizona, where it operates 41 centers on the sites of Walgreens retail pharmacies. It operates one other near its California headquarters in Palo Alto. Company officials say millions of tests have been performed at these centers to date, although some sources have indicated that activity at the Arizona centers has been relatively sluggish.

Meanwhile, Theranos also announced that it had received clearance from the U.S. Food and Drug Administration (FDA) for its testing platform and for its herpes simplex 1 virus IgG assay. The company has pledged to obtain FDA approval for its technology and all of its tests.

"FDA review is a uniquely rigorous process we undertook voluntarily because we remain deeply committed to ensuring that our systems and all of our laboratory developed tests are of the highest quality," Holmes said.

Forecasting future growth for Theranos has been difficult, given its tendency toward being closed-mouthed. "Our base understanding is that (its testing platform) is a nano- tech-based approach, but the company has been very secretive on this front and has been unwilling to share any details through peer-reviewed publications," Evercore ISI analyst Michael Cherny wrote in a recent report. "We also have zero idea as to how much money has been spent to develop the platform, what is the planned rollout for additional CLIA-labs, or what is the current capacity for the company to be able meet its customer targets related to the multi-hour turnaround time it promises."

Takeaway: Despite industry skepticism regarding Theranos' business model, the company is continuing to move forward with developing business deals.