After 9 months of scandal, the U.S. Centers for Medicare & Medicaid Services (CMS) notified Theranos founder Elizabeth Holmes that she has now been banned from owning or operating any diagnostic laboratory for two years.
Based on its supposedly pioneering development of a hand-held device that could test for hundreds of potential medical issues with just a pinprick amount of blood, Theranos became Silicon Valley’s hottest bio-tech start-up in the summer of 2015 with a private market valuation of $9 billion.
The company’s 32-year-old fashionista CEO, Elizabeth Holmes, gained huge credibility by attracting adulation through former President Bill Clinton and the Clinton Foundation for creating one of the most revolutionary cost savers in the history of healthcare.
Ms. Holmes promise of such disruptive technology attracted the backing of major venture capitalists, including Larry Ellison, former CEO of Oracle. She also assembled a very powerful Board of Directors that included; former Secretary of State George Shultz; Chairman of Bechtel Group Riley P. Bechtel; former Wells Fargo Chairman and CEO Richard Kovacevich; former Senators Sam Nunn and Bill Frist; former Secretary of State Henry Kissinger; and former Secretary of Defense William Perry.
In a huge milestone for its Edison blood testing system, the U.S. Food and Drug Administration approved Theranos’ hardware, software, and blood-drawing equipment on July 2, 2015. The action was seen as a strong endorsement of the efficacy of the company’s revolutionary breakthrough methods.
Everything looked like “rainbows and unicorns” until a former employee claimed that the company had faked its performance tests to get FDA approval for Edison test machines and eligibility for reimbursement payments from Medicare and Medicaid.
Ms. Holmes responded that the disgruntled former employee had been fired and was just lashing out in a vindictive misunderstanding.
But Breitbart News reported on October 29, 2015 that Ms. Holmes admitted during an interview from a tech conference held at Laguna Beach’s Montage Hotel, just weeks before the company was scheduled to go public, that the company had “multiple proprietary testing devices” and they were no longer using “Edison for anything and haven’t for a few years now.”
With scandal in the air and most of Theranos’ Board of Directors resigning, panicked FDA and CMS regulators sent battalions of investigators to review the company’s approval process and lab operations.
By April 2016, the U.S. Attorney’s Office and Securities and Exchange Commission (SEC) had opened criminal and civil probes into Theranos blood-testing, just days after reports that the Centers for Medicare & Medicaid Services were proposing to shutter its labs and ban its founder from the medical testing business.
Theranos has now admitted that they had no effective proprietary technology for blood testing and that the company has thrown out all the tests conducted on its Edison in-house equipment during 2014 and 2015.
The company claims it has sent “tens of thousands of corrected blood test reports to doctors and patients,” according to the Wall Street Journal. But under federal law, if one or more patient death resulted, Theranos officers and directors will likely be subject to criminal prosecution.
In addition to Ms. Holmes being banned, Theranos has been fined an undisclosed amount and has lost its eligibility to receive payments from federal health insurance programs for lab services due to losing its CLIA certification (all specialties except hematology) for its only open lab in Newark, CA.