Ken Alltucker

The Republic | azcentral.com

Theranos Founder Elizabeth Holmes faces ban from owning or operating a lab

Federal regulators also seek to revoke Theranos lab certificate in California

Analysts believe the federal sanctions would create hardship for the once-heralded lab company

Federal health regulators moved to revoke Theranos' license to operate a California lab and bar founder Elizabeth Holmes from the lab business for two years, a move that also could force the once-heralded startup to shut down its Scottsdale laboratory.

The Centers for Medicare and Medicaid Services said Friday that it would impose lab sanctions by Sept. 6, levy a civil penalty of up to $10,000 for each day of non-compliance, and forbid the blood-testing company from receiving payments from Medicare and Medicaid.

The sanctions, stemming from violations identified during an inspection of the Theranos' Newark, Calif., lab, represent a severe blow to a startup that made Arizona and its residents the main grounds to roll out proprietary — yet unapproved — testing technology. The company touted its finger-prick testing, saying that it required only a few drops of blood, making it an attractive option for health-care consumers.

Holmes said in a statement that her company takes "full responsibility" for its lab operations and safety issues and plans on "rebuilding the Newark lab from the ground up."

"While we are disappointed by CMS’ decision, we take these matters very seriously and are committed to fully resolving all outstanding issues with CMS and to demonstrating our dedication to the highest standards of quality and compliance," Holmes said in a statement released late Thursday night.

Theranos issued a follow-up statement Friday afternoon after CMS lab regulators released a 33-page document citing examples of how the testing company did not comply with lab regulations or fix violations that created "immediate jeopardy" to patient health and safety.

In the statement, Theranos said the California lab's certificate revocation does not take effect for 60 days and that the company "is considering all its options," including a possible appeal.

Report: Billionaire Theranos founder's net worth falls to zero

Although Holmes faces a ban from the lab business, the statement said Theranos plans to "continue to carry out its mission under the leadership of its founder and CEO, Elizabeth Holmes."

Working to avoid the loss of its California lab certificate appears to be critical for Theranos. All patient samples collected at Theranos' testing centers in Arizona are now sent to Theranos' lab in Scottsdale, but the Arizona lab would shut down, too, for a minimum of two years, once the California lab's certificate is revoked.

"That means the Arizona lab would cease to operate," Theranos' statement said.

The Scottsdale lab tests blood samples collected at Theranos Wellness Centers in Chandler, Scottsdale, Sun City West and Tempe.

Theranos once had a much larger constellation of testing centers in the Valley, but Arizona State University chose not to renew its lease with Theranos effective May 31, which ended testing at ASU health clinics in downtown Phoenix and Tempe.

A bigger blow came last month when Walgreens Co. closed all 40 Theranos Wellness Center locations in its metro Phoenix stores. Theranos started opening testing centers at Walgreens stores in September 2013, but the relationship frayed over questions about Theranos' testing technology and scrutiny from federal regulators.

Walgreens shuts down 40 Theranos centers in Arizona

The federal regulators found problems with Theranos' California lab in January and ordered the company to discontinue testing there until regulators approved a corrective plan. Walgreens cited those factors for terminating the relationship.

Theranos officials last month said the company is committed to Arizona, with plans to open larger, standalone retail locations.

But the federal sanctions could erode the company's finances, particularly the proposal to end Medicare payment within 60 days.

Robert Chiffelle, a veteran Phoenix health administrator familiar with CMS lab regulations, said private health insurers typically follow the lead of Medicare. That may convince Theranos customers who depend on insurance reimbursement for lab testing to get their blood drawn elsewhere.

If CMS imposes its sanctions, "You might as well drive a stake through (Theranos') heart," Chiffelle said. "This is the end of the company."

In addition to CMS sanctions, Theranos faces more than a half-dozen civil lawsuits alleging the company misled consumers in Arizona and elsewhere about its finger-prick blood draws. The company marketed them as highly accurate, but they produced results the company later voided or corrected.

Lawsuit alleges that Theranos lab tests misled consumers

In its statement Friday, Theranos said it has not been made aware "of any harm to patient health resulting from our tests."

Questions also have been raised about the Arizona Legislature's role in allowing the growth of Theranos. Gov. Doug Ducey supported legislation allowing Arizona consumers to access unlimited testing without a doctors' orders. Ducey signed the bill in April 2015 at a Theranos location in Scottsdale, saying the legislation "expands freedoms for people across the state to get the lab tests they need."

While other lab companies, including Sonora Quest, expanded direct-to-consumer testing after the legislation passed, Theranos was the company that most aggressively pushed for it, contributing language to craft the measure and hiring high-powered lobbyists such as Chuck Coughlin of Higher Ground.

Do-it-yourself lab testing without doc's orders begins

State Rep. Eric Meyer, D-Paradise Valley, said he was not aware of any complaints from doctors whose patients may have received inaccurate test results from Theranos.

If Theranos does not survive its regulatory and legal challenges, Meyer said he expects other lab providers may expand their retail lab-testing services.

Meyer said he is not sure whether lawmakers will seek to revisit the direct-access testing legislation.

"We will have to see if there is a will to revisit this and make sure the consumers are protected," Meyer said.

Arizona inspectors find Theranos lab issues