The California-based startup continues to operate despite its certificate being revoked by federal regulators in September. As part of the appeal process, labs, including Theranos’ Scottsdale location, can remain open. Wochit
Editor’s note: This story has been updated to reflect that Theranos’ Scottsdale lab remains eligible for federal payments.
When federal regulators moved in July to shut down blood-testing startup Theranos’ labs, they cited violations that officials said posed immediate jeopardy to patients’ health.
Centers for Medicare and Medicaid Services lab inspectors moved to revoke Theranos’ lab certificate effective Sept. 5 after finding multiple deficiencies at the company’s Newark, Calif., lab. The certificate revocation also would force the shutdown of its Scottsdale lab.
But more than two weeks after the Sept. 5 shutdown date passed, the company continues to draw blood from metro Phoenix customers and process those blood samples at its Scottsdale lab.
Theranos can operate its Scottsdale lab because it has appealed the lab-certificate revocation. The appeal effectively stops the clock for Theranos, allowing the company to test patients even though federal inspectors detailed multiple violations in a 33-page report. At least one consumer alleges in a lawsuit that shoddy test results led to a heart attack.
It could be months, even years, before Theranos’ appeal is settled.
Some lab certificate-revocation cases have dragged on three years or longer, according to a review of past cases detailed in documents available on the U.S. Department of Health and Human Services website.
Attorneys who have represented health-care providers that faced similar “immediate jeopardy” findings said that laboratories are entitled to a fair review of the facts.
“It is a little bit of ‘You are innocent until proven guilty,’ ” said Julie Nelson, a Phoenix attorney who successfully represented labs that faced such regulatory challenges. “That is the whole point of appeal, that you disagree that there is an immediate jeopardy.”
Theranos says it has addressed findings
Theranos officials have said they changed the company’s lab operations to address the findings that led to sanctions.
The Palo Alto, Calif.-based company said it “has made substantial progress toward correcting the deficiencies CMS identified, including appointing new laboratory leadership, enhancing Theranos’ clinical policies and procedures and revamping training programs.”
Theranos added that the company intends to continue talks with federal lab regulators “regarding the possibility of reaching a mutually agreeable resolution to this matter.”
Regulators seek to revoke the company’s certificate under federal lab regulations known as the Clinical Laboratory Improvement Amendments, or CLIA. The federal government’s proposed ban also would bar founder Elizabeth Holmes from owning or operating a lab for a minimum of two years.
Federal regulators also moved to prohibit Theranos from receiving payments from the government health programs Medicare and Medicaid. The ban on federal payments took effect immediately for Theranos’ California lab. However, its Scottsdale lab remains eligible for federal payments while the sanctions are under appeal.
Theranos has asked an administrative-law judge to hear the company’s case on why it should keep its lab certificate. If the judge upholds regulators’ proposed revocation, Theranos can ask the HHS’ Departmental Appeals Board to review the case. A final option would be filing an action in the U.S. Court of Appeals.
Appealed lab revocation
Tempe resident Rustom Ali unsuccessfully appealed his lab revocation for more than five years. The federal government sought to revoke Ali’s certificate for a Scottsdale laboratory in April 2002. Ali sought a hearing from an administrative-law judge, who upheld the revocation nearly three years later. Ali’s appeal to the 9th U.S. Circuit Court of Appeals was unsuccessful.
As part of the lab revocation, Ali also was barred from owning or operating a lab for two years. Federal regulators rejected his application to return to the industry as a lab director in 2013 because he had not paid a fine, plus interest, of $65,000, Ali said.
“I am willing to pay that $65,000 if I get a guarantee that I will get the license back,” Ali said.
While cases like Ali’s can take years to conclude, others can be settled before they enter the appeals process, Nelson said.
Nelson said she believes that a lab facing sanctions may be more successful during an appeal if the lab is a community’s only option — a rural hospital lab, for example.
“In my experience, for settlements, there have to be some compelling facts,” Nelson said. “It is almost always an access-to-care issue in a rural area.”
However, Theranos is one of many options available to metro Phoenix consumers.
Facing significant hurdles
Once touted by Gov. Doug Ducey for its expansion plans, Theranos faces significant hurdles as it seeks to recapture momentum in Arizona. Arizona was the company’s test market for its unapproved, finger-prick blood draws.
Its Arizona expansion began in 2013 when the company began opening testing centers inside Walgreens stores. But the pharmacy chain grew wary of the relationship after Theranos voided test results and clashed with federal lab regulators. In June, Walgreens closed 40 Theranos Wellness Center locations in metro Phoenix.
Theranos now has five stand-alone retail locations across metro Phoenix, including a testing center located at its lab in Scottsdale. Most test samples collected at the company’s five area locations are processed at the Scottsdale lab. If federal regulators shut down the lab, Theranos would have to send blood samples to another certified lab for testing.
Competitors already are moving in on Theranos’ turf on direct-access testing. Sonora Quest, the largest lab in Phoenix, said it plans to open a half dozen new locations inside Arizona Safeway stores. Sonora Quest opened its first two locations inside Safeway locations last year.
Sonora Quest processes tests for doctors and hospitals across the Valley. It initially was reluctant to pursue the direct-to-consumer testing model championed by Theranos.
After Theranos convinced lawmakers to pass legislation allowing consumers to obtain lab tests without a doctor’s orders, Sonora Quest launched retail testing with a limited menu of tests.
Sonora Quest Chief Operating Officer Joyce Santis said the retail sites are an increasingly popular way for consumers to access quick, convenient tests. With Theranos losing retail locations, Sonora Quest likely is attracting more retail customers.
“I have to believe we are picking up customers from our competitors. Theranos is one of many competitors in the marketplace,” Santis said. “Since we are the market-share leader in Arizona, we have to keep our standards as high as we always have. We have always been committed to accuracy. We have always complied with federal regulations. This is just another access point we have for our customers.”