Reference no: EM132241316

Federal regulators have threatened a series of stiff sanctions against Theranos, the embattled blood-testing company, including closing down its flagship laboratory and potentially barring its chief executive from owning or operating its labs for two years.

The sanctions, which have not been made final, were included in a strongly worded letter from officials from the Centers for Medicare and Medicaid Services. It is the latest blow to the credibility of Theranos and Elizabeth Holmes, its chief executive, who seemingly became a self-made billionaire by promising to upend the clinical testing industry.

The government officials proposed a series of sanctions against the company, including the revocation of the company’s certification for its California laboratory, its primary operation, and suspension of its eligibility to receive payments under the Medicare insurance program.

If the laboratory’s certification were to be revoked, Ms. Holmes and Theranos’s chief operating officer, Ramesh Balwani, would be barred from owning or operating any laboratory for at least two years, the letter said.

In its response to the agency, dated April 1, Theranos said that it had hired new leadership for the laboratory and “would be able to ensure the deficient practices will not recur” through “robust new quality systems” and “intense oversight.” It also said it had stopped running a number of tests that inspectors had expressed concerns about.

The company said it had not received notice of the regulators’ final decision. A spokeswoman for Medicare declined to comment.

Regulators, including those from Medicare as well as the Food and Drug Administration, have also raised repeated concerns about the technology. While approving one of Theranos’s tests last summer, the F.D.A. made clear it needed more evidence that the technology was ready for prime time. The Medicare letter follows an inspection the agency performed last fall that found problems at the lab.

She insisted Theranos had made changes aimed at addressing regulators’ concerns over the accuracy of its tests. “We’ve taken comprehensive corrective measures over the past several months,” she said. If Medicare chooses to impose sanctions on the company, she said, Theranos will continue to work with regulators to address its concerns.

Theranos, the creation of Ms. Holmes, epitomized the promise of Silicon Valley to transform — or disrupt, to use its own lingo — all of health care. Having dropped out of Stanford University to found the company in 2003, Ms. Holmes claimed to have created a whole new way to perform multiple tests using a few drops of blood from a finger prick, which would be less painful and less costly than conventional blood tests.

Her vision of bringing laboratory testing to the masses, including allowing customers to order tests without a doctor’s order, attracted some well-known venture capitalists. The company earned a stunning $9 billion valuation and an abundance of news media attention. Ms. Holmes graced the cover of numerous magazines, including T: The New York Times Style Magazine.

A scathing report in The Wall Street Journal last October put an end to the fairy tale and Theranos scrambled to respond to the news media’s sudden turn. The company’s fall from grace came to symbolize the overreach of Silicon Valley and the hype that surrounds unproven technology.

While Ms. Holmes has continued to defend the company in as many forums as she can, the lack of hard information about whether the technology worked has only increased the skepticism surrounding her company.

Examiners from Medicare inspected Theranos’s laboratory in Newark, Calif., last fall and found numerous deficiencies, one of which they said posed “immediate jeopardy to patient health and safety.”

That particular deficiency related to Theranos’s test for the clotting ability of blood, a measurement used to help determine the correct dose of the blood-thinning drug warfarin. Too much warfarin can cause internal bleeding while too little can leave a patient vulnerable to a stroke. The inspection report, which was recently made public by Medicare, said that all 81 results provided to patients from that test from April to September of last year were inaccurate.

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Theranos said in response to regulators that it had voided the results of those tests. Ms. Buchanan said the company, after talking to the patients and doctors involved, did not believe any patients had been harmed.

The regulators also said that the director of the laboratory was not qualified and some other personnel were inadequately trained. At the time of the inspection, the laboratory director was a local dermatologist who continued to run his medical practice while also supervising the lab.

After receiving the regulators’ findings in January, Theranos submitted a plan to correct the problems in February. But in proposing the sanctions, the new letter from the regulators says that the company’s response “does not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited.”

Among other things the letter said some documents referred to in Theranos’s submission were missing. It also said the company had not provided enough information to justify its conclusions regarding whether patients were affected.

Philip D. Cotter, a consultant to laboratories, said the letter to Theranos was “definitely on the more serious end of the spectrum,’’ making it more likely that some sanctions would be imposed.

“It wouldn’t be impossible to turn this around but the response they would have had to turn in by March 28 would have had to be pretty convincing,’’ said Dr. Cotter, a principal at ResearchDx in Irvine, Calif.

Medicare suspended, revoked or limited the certifications of about 50 clinical laboratories in 2015, a small fraction of the labs it oversees.

Theranos is now doing all of its tests in a separate laboratory in Arizona, which is not being threatened with loss of its certification. However, that laboratory uses standard equipment purchased from other vendors, not Theranos’s proprietary testing technology. Also, if Ms. Holmes were to be barred from owning any laboratory, it would raise questions about whether Theranos could continue to own and operate the Arizona lab.

Question: Provide a full detailed paragraph by building a case study that discusses the causes of Theranos' downfall. Focus specifically on the secrecy and hubris surrounding the rise and fall of Theranos.