ENFORCEMENT

Theranos Faces More Questions and Challenges And Ramps Up Efforts to Improve Compliance

Both the Centers for Medicare & Medicaid Services (CMS) and some high ranking Democratic Committee members had some bad news for Theranos at the start of this month. The company itself issued a statement announcing “CMS has decided to impose all available sanctions regarding our lab business.” Three members of the House Energy and Commerce Committee sent the company a letter expressing concern about compliance problems and asking for a briefing on Theranos’ plans to address the issues. Meanwhile, the company took steps to improve its compliance program with new leadership.

Briefing Request from E&C Committee Leaders Even before CMS announced that the company’s latest corrective actions were insufficient, three Democratic Committee leaders sent Theranos a letter seeking more information about “how company policies permitted systematic violations of federal law and how Theranos is working with regulators to address these failures,” as well as information about the “steps Theranos is taking to correct flawed test results sent to medical professionals and patients.” The letter came from Energy and Commerce Committee Ranking Member Frank Pallone, Jr. (D-NJ), Health Subcommittee Ranking Member Gene Green (D-TX), and Oversight and Investigations Subcommittee Ranking Member Diana DeGette (D-CO).

Dated June 30, the letter referred to the CMS November 2015 inspection of Theranos’ Newark, Calif. Laboratory and the subsequent letters from CMS on Jan. 25, 2016 and March 18, 2016 detailing failures to comply with Clinical Laboratory Improvement Amendments (CLIA) requirements. The January letter had documented results of the inspection and listed the condition-level and standard-level CLIA violations and the March 18 letter notified Theranos that CMS was considering imposing sanctions. The Committee members also expressed concern about news media reports, in the Wall Street Journal in particular, that raised questions about test results involving Warfarin. Additionally, they cited an independent assessment by the Icahn School of Medicine at Mount Sinai which questioned accuracy of Theranos testing, noting that study’s inclusion of an example regarding cholesterol testing.

The leaders requested a briefing addressing the company’s efforts to comply with not only the CMS inspection letters but also the FDA 483 inspection reports issued August and September 2015. Specifically, the letter requests the briefing address changes to policies and procedures the company has made, efforts to investigate the “root cause” of compliance issues, how it identified affected patients, and how the company is helping affected providers and patients.

CMS Gives Notice of Impending CLIA Sanctions CMS issued a letter to Theranos July 7 explaining why multiple submissions made by Theranos in response to CMS’ January and March letters still do “not constitute a credible allegation of compliance and acceptable evidence of correction” of the deficiencies found in the 2015 inspection.

For example, CMS found fault with the evidence provided regarding corrective actions taken for patients whose test results were “found to have been affected by the deficient practice.” As to quality assessments, CMS said the lab failed to demonstrate what changes were made to ensure there would be no recurrence of the deficiencies. In discussion of proficiency testing, CMS questioned how the lab arrived at its conclusion that no patients have suffered harm.

CMS is proposing revocation of the lab’s CLIA certificate, effective Sept. 5, 2016. Loss of CLIA certification brings with it a prohibition against Holmes owning, operating or directing a lab for two years. Other sanctions include:

  • Effective July 15, 2016, limitation of the lab’s CLIA certificate for hematology services (the effective date is not affected by any appeal filed)
  • Effective July 12, 2016, an alternative sanction of $10,000 daily penalty until deficiencies resolved (if appeal is filed, the penalty won’t be collected until after the appeal is decided)
  • By July 12, 2016, Theranos was required to provide a list of names and addresses of all physicians and clients who used the lab’s services since January 2014 (due date applied regardless of any appeal)
  • Suspension of Medicare/Medicaid payment eligibility for hematology services effective July 15, 2016
  • Cancellation of approval for Medicare/Medicaid payment for all laboratory services effective September 5, 2016 (this takes effect regardless of any appeal filed)

Theranos Response “We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions,” Theranos CEO Elizabeth Holmes said in a statement released July 7. “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.”

Theranos got out in front of the news, not only announcing CMS’ threatened sanctions in its own statement, but also attaching a copy of the entire CMS July 7 letter, and providing a Q/A addressing several questions concerning the sanctions and their impact on operations. The company said July 8 it is “considering all its options” and didn’t indicate whether it would be filing an appeal but vowed to continue on with its mission, promising to work with CMS “non-stop to resolve the issues identified.” It addressed the issue of patient safety, stating “Patient safety and quality are our top priorities. As of now, we have not been made aware—by CMS, physicians or patients—of any harm to patient health resulting from our tests.”

Theranos’ statement also highlighted that the company does more than just lab testing, including research and development of “many technologies that are not dependent on running a clinical laboratory.” Promising to continuing building on its mission of accessible and affordable testing, the company explained: “Improving access through innovative technologies is a universal need, with growth opportunities in global and domestic vertical markets.”

The company has been active in rehabilitating its compliance image. An “Op-Ed” written by William H. Foege, MD, MPH, a member of the company’s Scientific and Medical Advisory Board and the Board of Directors declared there is “another side to the story” and discussed the reason he supports the company in its mission. Foege is a former director of the U.S. Centers for Disease Control and Prevention and former senior medical adviser for the Bill and Melinda Gates Foundation. He indicated he and others were given access to the company’s technology, data and validation reports and he believes that “the very foundation of Theranos’ inventions— and its hundreds of patents—is credible.” To demonstrate this credibility, he notes that the SMAB is assisting the company in preparing for publication of its data in peer-reviewed scientific journals and public presentations.

As we went to press, Theranos announced the appointment of a chief compliance officer, a vice president of regulatory and quality, and a Compliance and Quality Committee. Daniel Guggenheim, a health care lawyer who formerly served as assistant general counsel at McKesson Corp., will handle “day-to-day implementation and oversight of the company’s compliance program” as chief compliance officer. Dave Wurtz will oversee regulatory affairs including FDA submissions and approvals and pre- and post-marketing activities. Wurtz performed a similar role at ThermoFisher Scientific as senor director of regulatory, quality and compliance. Finally, the company’s board of directors has formed the Compliance and Quality Committee, which will work with both new executives and the board to monitor implementation of the compliance program. “Theranos understands that regulatory compliance is an essential element of any successful and innovative health care company,” said Dr. Fabrizio Bonanni, board member and chair of the Compliance and Quality Committee. “This committee will be integral to fulfilling Theranos’ commitment to bringing the highest integrity health information to every person.”

Takeaway: Theranos continues to face questions about its technology and compliance with CLIA and FDA requirements as threat of sanctions looms closer. Yet, the company remains resolute that it has sound and credible technology and is taking steps in intensify its compliance efforts.

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