Theranos, CMS Reach Legal Settlement

April 18, 2017
Theranos, CMS Reach Legal Settlement
Source: Warchi/Getty Images

More than a year after CMS first began warning diagnostic company Theranos of what it deemed to be deficient laboratory practices, the two entitites have reached a legal agreement that will see Theranos pay a $30,000 fine and will be barred from operating a clinical laboratory for two years.

The settlement, announced by the company yesterday, reduced the penalties Theranos could have faced had CMS prevailed against the company in court. As part of the settlement, CMS has withdrawn its revocation of the company’s Clinical Laboratory Improvement Amendments (CLIA) operating certificates.

In a statement, Theranos said the settlement was consistent with its revised business model. The company noted that it ended its clinical lab and retail operations last year, focusing instead on its miniature automated testing platforms and related chemistries—such as its miniLab customizable sample processing unit, announced by CEO Elizabeth Holmes last year at the 68th American Association of Clinical Chemistry (AACC) Annual Scientific Meeting & Clinical Lab Expo in Philadelphia.

“The Company looks forward to working with regulatory authorities to secure approval for these innovative technologies,” Theranos said.

The tabletop miniLab unit is designed to integrate into a single miniature platform the company’s different testing methods—including hematology, immunology, clinical chemistry, immunochemistry, and nucleic acid amplification—using a small sample of blood.

In shifting its focus to miniLab, Theranos closed its Newark, CA, and Scottsdale, AZ, labs and shut five retail blood-drawing sites or “Wellness Centers.” The company also disclosed plans to eliminate 43% of its workforce—about 340 jobs—in California, Arizona, and Pennsylvania.

CMS is one of numerous federal and state agencies that have investigated the business model and diagnostic tests of Theranos, which once claimed that its diagnostic technology could run scores of tests using drops of blood.

In January 2016, Karen Fuller, manager of CMS’ State Oversight and CLIA Branch, sent Theranos director Sunil Dhawan, M.D., a letter declaring: “The deficient practices of the laboratory pose immediate jeopardy to patient health and safety.”

Six months later in July, CMS imposed sanctions on the company that included revoking the CLIA certificate of Theranos’ Newark laboratory and banning the company’s Holmes and other “owners and operators” of the company from owning, operating, or directing a lab for at least 2 years.

Theranos responded in August by notifying CMS of its intent to appeal the sanctions—an appeal the company said it will withdraw as part of the settlement. At the same time, Theranos signaled its interest in settling with the agency: “While the appeal is pending, Theranos intends to continue communicating with CMS regarding the possibility of reaching a mutually agreeable resolution to this matter.”

The CMS sanctions came a month after Walgreens ended its relationship with Theranos, shutting down all 40 Theranos Wellness Centers in its Arizona stores and saying it will no longer offer the company’s services.

Walgreens has since sued Theranos, accusing it of breach of contract and seeking $140 million in damages. The company has insisted it has done nothing wrong and fired back at the retailer: “Through its mishandling of our partnership and now this lawsuit, Walgreens has caused Theranos and its investors significant harm.”

In addition to CMS, the U.S. Attorney’s Office in San Francisco, and the U.S. Securities and Exchange Commission, are among agencies that have opened investigations into Theranos’ practices.

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