ENFORCEMENT

Theranos Announces Settlement Agreements with CMS and Arizona Attorney General

After facing federal and state government scrutiny for more than a year, Theranos has reached agreements with the Centers for Medicare & Medicaid Services (CMS) and the Arizona Attorney General to alleviate some of its legal woes.

Global Settlement with CMS
April 17, Theranos announced it had "reached a global settlement agreement with the Centers for Medicare & Medicaid Services (CMS) that resolves all outstanding legal and regulatory proceedings between CMS and Theranos."

Last summer CMS had announced it would be issuing sanctions resulting from an inspection at Theranos’ Newark, Calif. laboratory, revoking the CLIA operating certification, and barring Medicare payments for hematology and laboratory services at the facility. CMS also could have imposed $10,000 per day in penalties until the deficiencies cited in the inspection report were corrected.

Under the terms of the current agreement, however, those sanctions won’t be imposed. Instead, CMS and Theranos have agreed:

  • Theranos will not own or operate a clinical lab "within the next two years."
  • Theranos will withdraw its appeal of CMS’ sanctions against its Newark, Calif. laboratory.
  • CMS withdraws its revocation of Theranos’ CLIA certificates.
  • CMS drops the civil monetary penalties imposed on Theranos to $30,000.

Last October, Theranos issued a statement that it would be closing its clinical laboratory operations and wellness centers and was committed to developing its miniaturized, automated testing platforms, such as the miniLab which founder Elizabeth Holmes had unveiled at the American Association for Clinical Chemistry annual meeting last August. In announcing this resolution of the CMS inspection issues, the company indicated it "looks forward to working with regulatory authorities to secure approval for these innovative technologies."

Restitution for Arizona Customers
One day after announcing the global settlement with CMS, Theranos issued a statement that it had reached agreement with the Arizona Attorney General’s Office (AGO) avoiding potential consumer fraud litigation. Just a few months ago, the AGO issued a request for proposal signaling potential state consumer fraud lawsuits against Theranos related to its lab testing services. The AGO indicated in its request that it was initiating a lawsuit against Theranos and its subsidiaries alleging violations of the Arizona Consumer Fraud Act for representations related to its blood testing equipment and its Wellness Centers.

Theranos explained that under the terms of the settlement agreement with the AGO the company "will reimburse Arizona residents for all amounts they paid for Theranos blood testing services between 2013 and 2016." That amount totals $4.65 million. Payments will be made regardless of whether the customer’s tests were among those voided or corrected and whether Theranos received payment for the tests. Theranos makes no admission of liability, however. In its statement regarding the settlement the company expressed a "commitment to resolving the issue amicably on behalf of Arizonans and working collaboratively with state officials."

Takeaway: Theranos resolves legal threats hanging over the company as it pursues its commitment to focusing on developing testing technologies, rather than operating clinical labs.

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