15 April 2016

So Not a Surprise

And in what might be the last chapter of the lack of investor due diligence that is the blood testing firm Theranos, the Centers for Medicare & Medicaid Services (CMS) has announced that it will ban the top three executives at the firm from the test business:
Theranos, the high-profile clinical laboratory company, had a day of reckoning yesterday. That’s when The Wall Street Journal (WSJ) published a story revealing that Theranos was sent a letter by the federal Centers for Medicare & Medicaid Services (CMS) providing notice of sanctions.

In a letter to Theranos executives, CMS said it is prepared to:
  • revoke the company’s CLIA certificate;
  • impose a fine of $10,000 per day;
  • suspend and cancel the lab’s approval to receive Medicare payments; and
  • impose a two-year ban on the owner, operator, and laboratory director for owning or operating a clinical laboratory.
Pathologists and medical laboratory professionals will recognize that these are among the most severe sanctions that CMS can impose on a laboratory under the Clinical Laboratory Improvement Amendments (CLIA). Further, clinical pathologists who currently serve as medical directors of CLIA laboratories will find it useful to read the entire letter sent to Theranos on March 18, as it describes how CMS viewed the responses that Theranos provided following a January 25, 2016, letter from CMS describing deficiencies identified during an inspection of the Theranos CLIA lab facility in Newark, California.


“After careful review, we have determined that the laboratory’s submission does not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited during the CLIA recertification and complaint survey completed December 23, 2015, and does not demonstrate that the laboratory has come into Condition-level compliance and abated immediate jeopardy. In general, we find that the statements made in the allegation of compliance and evidence of correction: 1) failed to adequately address the deficient practice cited; 2) are incomplete and failed to meet the criteria of acceptable evidence of correction; 3) do not ensure sustained compliance; and 4) show a lack of understanding of the CLIA requirements.
Less than a year ago, Theranos had a valuation in the billions, because it was promising a new technology that would allow for inexpensive blood tests on just a drop of blood. (A little finger stick)

The technology has never worked, even under the most controlled conditions, like demonstrations to investors, but it was treated like the next big thing for reasons that have never made sense to me.

My guess is that the founder of the company, Elizabeth Holmes, dazzled people with a rather spot on impersonation of Steve Jobs (she only wears black turtle necks), which convinced people who knew better that the nothing-burger business model of dot-coms could be applied to healthcare.


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