Theranos Closes Labs to Focus on Technology

Theranos announced that it will shut down its laboratory operations in the wake of the Centers for Medicare and Medicaid's (CMS) sanctions resulting from the 2015 inspection of its Newark, Calif., laboratory.

In July, CMS rejected the company's proposed corrective action as failing to "constitute a credible allegation of compliance and acceptable evidence of correction" of the deficiencies cited in the inspection. CMS's proposed sanctions include:

• Revocation of the lab's CLIA certificate;

• Cancellation of its approval to receive Medicare/Medicaid payment for lab services;

• Penalties of $10,000 per day until deficiencies are resolved; and

• Banning Theranos founder Elizabeth from Holmes owning, operating or directing a lab for two years.

CMS also asked the lab for a list of the names and addresses of all physicians and clients who used its services since January 2014. Theranos had taken steps to appeal those sanctions before this announcement.

On Oct. 5, the company released a statement saying "[a]fter many months spent assessing our strengths and addressing our weaknesses, we have moved to structure our company around the model best aligned with our core values and mission." That structure includes closing clinical labs and wellness centers affecting over 300 employees in Arizona, California and Pennsylvania.

The company will now focus on developing technology—namely the miniLab, which Holmes detailed at the AACC annual meeting in August. The miniLab is a compact device (2.5 cubic feet) containing a mini-robot that processes single-use cartridges with a Theranos Virtual Analyzer remotely dictating protocols for processing. "Our ultimate goal is to commercialize miniaturized, automated laboratories capable of small-volume sample testing, with an emphasis on vulnerable patient populations, including oncology, pediatrics, and intensive care," according to the company's Oct. 5 statement.

Takeaway: Theranos is an excellent example of how CMS sanctions and the negative publicity they bring can cause a lab to shift strategic direction.