Theranos denouement: CMS closes lab, fine, 2-year ban on Holmes (breaking)

click to enlargeBreaking News. Theranos has been slapped very soundly by the Centers for Medicare & Medicaid Services (CMS) for violations arising from operations at their Newark, California laboratory. The fine is not disclosed. CMS has revoked the lab’s certificate and also prohibits the owners and operators of the lab from operating a lab for at least two years. That means that Elizabeth Holmes, the CEO, her management and anyone immediately involved with the Newark lab is effectively out of a job.

As the Theranos press release was issued well after hours Thursday night US Eastern Time, there’s no mention of the board actually removing her, but that is another shoe that this Editor expects to drop sooner, not later. COO Sunny Balwani was removed in May [TTA 19 May] Who is not tainted who can actually run the company? Is there a capable person in the industry who wants to touch it? As has been revealed, Ms Holmes still controls the company [TTA 27 Apr].

The revocation will be in effect in 60 days, according to the Wall Street Journal*, but the Newark lab has been closed. There is no mention of the Palo Alto lab which was also under scrutiny [TTA 20 Apr].

The details appear to be lifted or nearly lifted from the CMS order, and are quoted directly from the Theranos release:

– Revocation of the laboratory’s CLIA certificate which, as dictated by the regulations, includes a prohibition on owners and operators of the lab from owning, operating or directing a lab for at least two years from the date of revocation
– Limitation of the laboratory’s CLIA certificate for the specialty of hematology (CLIA=regulations under the Clinical Laboratory Improvement Amendments–Ed.) 
– A Civil Money Penalty
– A Directed Portion of a Plan of Correction
– Suspension of the laboratory’s approval to receive Medicare and Medicaid payments for any services performed for the specialty of hematology
– Cancellation of the laboratory’s approval to receive Medicare and Medicaid payments for all laboratory services

There will be more. A denouement is when the plot strands finally begin to draw together and matters are resolved. We’re not there yet.

  • CMS is not the only Federal agency examining Theranos–there are FDA, DOJ and SEC investigations pending, as well as by health authorities in California. Their legal counsel, David Boies, has certainly been and will be earning his pay. (Who’s bullying now, Mr Boies?). Ms Holmes’ utter, complete financial control of the company may put her in the cross-hairs of DOJ and SEC.
  • There’s no business left. Walgreens Boots, which marketed Theranos’ tests in their Arizona stores, formally bailed on the company in June.
  • Theranos voided two years of now-tainted test results in May. What doctor or patient in their right mind would bring their blood testing to them?

Once valued at $9 billion and the headliner among Unicorns, their value today is possibly $9.

This Editor will close as she did in May:

One must wonder if founder Ms Holmes is considering the fit and finish of orange turtlenecks, or residency in a country with no US extradition treaty. For the company, the flat spin above is likely non-recoverable. Sadly, Clipper Theranos will crash down on other, far more honest innovative companies lined up on the runway.

Additional coverage by MedCityNews–Neil Versel reflects on the defiance in Ms Holmes’ statement. Matthew Herper in Forbes speculates on Ms Holmes’ future role in the company. * For WSJ, search on headline if paywalled: U.S. Regulator Bans Theranos CEO Elizabeth Holmes From Operating Labs for Two Years–the story has been updated. (And this story will be updated as it develops.).

 

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