Theranos Faces CMS Sanctions for Possibly Unfixable Problems

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

April 15 — The CMS's “brutal” letter warning the blood-testing company Theranos Inc. of potential sanctions for noncompliance implies that the deficiencies can't be fixed, an attorney told Bloomberg BNA April 14.

The letter from the Centers for Medicare & Medicaid Services outlined sanctions that include suspending Medicare payments, shutting down Theranos's California laboratory and barring its chief executive from owning or operating a laboratory for two years.

In excerpts from the March 18 letter titled “Proposed Sanctions—Conditions Not Met Immediate Jeopardy” that Bloomberg BNA obtained April 14, CMS told Theranos the proposed sanctions were a result of an inspection conducted in November that found the company was out of compliance with requirements of the Clinical Laboratory Improvement Amendments (CLIA) of 1988. It also referred to “Theranos' inadequate response to deficiencies.”

“The letter is the most brutal one you could ever imagine seeing,” Mark Mansour, an attorney with Mayer Brown, in Washington, told Bloomberg BNA in an April 14 phone interview. “It's as bad an indictment as there is. And it's hard for a company to get over it when it leaves such an impression with a regulatory agency. The stigma would be awful for the company.”

Theranos Cites Improvements

A Theranos spokeswoman told Bloomberg BNA by phone April 15 that the company had responded to the letter and that it had made improvements through staff changes at the lab and enhanced quality systems, policies and procedures. “Theranos hasn't been sanctioned by the CMS, and it is continuing to have communications with the regulators,” she said.

The CMS said in the letter that it could finalize the sanctions after evaluating Theranos's response and that the decision was appealable, although Mansour said, “That doesn't go well very often.”

‘Rock Star' Luster Turned to Brass

Theranos was initially hailed as a breakthrough company for its hand-held technology that could conduct a range of medical tests with just a finger prick’s worth of blood in place of vials taken from veins. The company reached a valuation of $9 billion.

Its founder Elizabeth Holmes became a life sciences “rock star” who appeared on magazine covers, was singled out as an example of the widespread benefits of patents at a congressional event by the director of the Patent and Trademark Office (9 LSLR 483, 5/1/15 ) and was able to hire a former Hillary Clinton policy adviser as the company's general counsel (9 LSLR 546, 5/15/15 ).

But the accolades stopped after the Wall Street Journal published articles in October 2015 questioning the accuracy of Theranos' tests based on comments it obtained from former employees (9 LSLR 1211, 10/30/15).

The CMS informed Theranos in a Jan. 27 letter that its CLIA survey had found problems at Theranos' Newark, Calif., lab that had the potential to jeopardize patient health (10 LSLR 03, 2/5/16). A CMS inspection report made public by the agency on March 31 further detailed quality control problems at the lab, including not keeping freezers at the temperatures required by manufacturers, lack of proper documentation, missing signatures on paperwork and unqualified personnel.

Response Found Inadequate

In the March 18 letter, the CMS noted that Theranos had submitted a plan in February to correct the problems found in the inspection. But the CMS letter said the company response “does not constitute a credible allegation of compliance and acceptable evidence of correction for the deficiencies cited.”

The letter noted that some of the documents cited as being included in Theranos's submission were missing and that Theranos had made conclusions without providing enough information to justify them.

The proposed sanctions outlined in the letter include:

  •  revocation of the lab's CLIA certificate within 60 days of when the sanctions are imposed;
  •  limitation of the lab's certificate for the specialty of hematology effective eight days from the notice of the imposition of sanctions, regardless of whether or not Theranos files for an appeal hearing;
  •  suspension of the lab's approval to receive Medicare payments for any services performed in the speciality of hematology effective eight days after the date of the imposition of sanctions; and
  •  cancellation of the lab's approval to receive Medicare payments for all laboratory services effective 60 days from the notice of the imposition of sanctions.


The letter listed as an alternative sanction a civil money penalty of $10,000 for each day of noncompliance accruing starting five days from the date of the imposition of sanctions and continuing until the lab gets into compliance. The daily penalty won't be stopped by the filing of an appeal hearing, the letter indicated.

Finally, the CMS said that upon revocation of the lab's certificate, its owner, operator and laboratory director at the time of the deficiencies would be prohibited from owning, operating or directing a lab for at least two years from the date of revocation.

Systemic Problems

“What the letter paints is a picture of an organization that is trying to respond but that doesn't have a handle on how to deal with a government regulatory agency,” Mansour told Bloomberg BNA.

“Theranos received an eight-day extension to respond, and when a company asks for that CMS assumes that the company has all of its ducks in a row. And when it gets an incomplete response, the impression the company leaves is that it didn't have the answers and slapped something together.”

Mansour added, “The letter appears to signify that the CMS thinks that the problems are systemic.”

Theranos has moved its testing to a lab in Arizona that doesn't use Theranos equipment. While the company could theoretically continue to do testing in Arizona if the CMS removes the California lab's CLIA certification, it's unclear what effect CMS's barring Holmes from owning a lab would have on the company's continued operation.

To contact the reporter on this story: John T. Aquino in Washington at

To contact the editor responsible for this story: Randy Kubetin at

For More Information

The excerpts from the CMS letter are at

Request Health Care on Bloomberg Law