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Here’s what Theranos customers need to know

What a critical inspection means for the company and for patients

Photo by Lisa Lake/Getty Images

A warning letter that the US Centers for Medicare and Medicaid Services sent to Theranos last week could have serious consequences for the blood testing company, which has been valued at $9 billion. Theranos' Newark, California, laboratory poses "immediate jeopardy to patient safety," the regulatory agency said. But even now, the details of the deficiencies found at Theranos' lab are uncertain, because CMS has yet to release a full lab inspection report. So we asked some experts to explain what's going on — and what Theranos customers should do.

Theranos customers should see their doctors

The CMS letter outlined a number of problems flagged by surveyors at the Newark lab during an inspection that ended in December. Specifically, the letter cites problems with hematology, the lab's analytic systems, the technical supervisor, and the laboratory director. For some Theranos customers, that news should be of concern. People who recently got a blood test at a Theranos facility should see their doctors, says James Nichols, a pathologist at Vanderbilt University and the government relations committee chair for the American Association for Clinical Chemistry.

"Watch out glossy, slick advertising and overinflated promises!"

Patients should "consult their physicians and have their future bloodwork analyzed by a reputable laboratory," Nichols said. Labs that "actively share their methods and performance with ordering physicians" tend to fall in that category.

The CMS report comes from Theranos' California lab, not the Arizona one where the company says "over 90 percent" of its tests are processed. If a blood test was processed at the Arizona lab, customers shouldn't be "overly concerned," says Ted Schutzbank, technical director of the specialized testing and microbiology laboratories for the St. John Providence Health System in Michigan. If the testing was done in California, however, "I would probably be concerned about the accuracy of the results I received," he says.

What will happen to Theranos?

The letter states that Theranos has to provide CMS with "acceptable evidence of correction" within 10 days. On Wednesday, when the letter was released to the public, the company said that it had already implemented a number of changes. If CMS decides that Theranos' plan isn't good enough, however, the lab could lose its certification. Theranos could also lose approval for Medicare payments. Because private insurers tend to follow the government's lead, this most likely would result in a complete shutdown of Theranos' lab. "Your lab essentially has to shut down, unless you can get people to pay you cash," Schutzbank says. "It’s basically a death sentence for the lab."

The lab director could be barred from operating a lab for two years

If the lab closes, the director mentioned in the report could face some serious consequences. Ultimately, that's who CMS will hold responsible for problems at that lab, Nichols says. The director "faces the full brunt of the law. When a lab shuts down, the laboratory medical director can't hold a license to [direct a lab] for two years."

And then there's the issue of Theranos' fate as a whole. Federal regulations state that the owner of a lab that lost its certification can also be barred from owning or operating other labs for two years:

"No person who has owned or operated a laboratory which has had its certificate revoked may, within 2 years of the revocation of the certificate, own or operate a laboratory for which a certificate has been issued under this section."

In this case, the regulation could mean that Theranos — or the people behind Theranos — would be forced to shut down all laboratories. "I would interpret that to mean any laboratory, in any state" would have to shut down, Nichols says. But the likelihood of that happening is extremely slim at this point. None of the experts we spoke with could remember hearing of a company shutting down multiple labs because of deficiencies in a single location. And even if it did happen, Theranos would probably find a way to spin off its technologies and assets into a different business. We emailed CMS and Theranos about this. CMS declined to comment on the record. Theranos spokesperson Brooke Buchanan told us that our question was "a hypothetical that I'm not going to get into at this time."

The letter also mentioned a potential "$10,000 per day" fine. That might not seem like a lot for a company valued at $9 billion, but it could add up. That's because the fine would be retroactive, Nichols says. "It’s not from the point in time that you get the sanction." Instead, the fine goes backwards in time and covers the period that the lab was non-compliant. That period isn’t mentioned in the letter, but the fine could cover anything from months to years, he says.

"The letter shows that the laboratory was mismanaged," says Schutzbank, who also performs lab inspections for the CMS-accredited College of American Pathologists. "I’ve never personally known anyone who has received that kind of letter from CMS, and I’ve been in this lab business since 1983."

"The laboratory was mismanaged."

As part of its response to the inspection, Theranos has made personnel changes at the lab, including adding a new lab director who's also an associate medical director of UCLA’s Clinical Laboratories, Theranos wrote in an emailed statement. That could be enough to fix the problems relating to the lab's director, says Stephen Master, chief of clinical chemistry at Weill Cornell Medical College. "That would be the kind of thing that I think would satisfy CMS on the lab director deficiency — although it would depend on the new lab director being empowered to make the necessary changes."

Theranos needs to be more forthcoming

In addition to the deficiencies relating to Theranos' staff, CMS found deficiencies with the lab's "analytics systems" and "hematology." This means that the lab had problems relating to its blood analyzers and the way it studies blood cells.1 And it's the problems with the lab's hematology, in particular, that CMS said put patients' safety at risk, Theranos wrote in a statement. But "the finding does not apply to the whole lab," the company added.

Hematology can also refer to the study of blood as it relates to blood, bone marrow, and lymphatic conditions. But that’s probably not what the term means in this case, Master says. "In a clinical lab such as Theranos that isn't doing anatomic pathology, meaning that they don’t have M.D. pathologists looking at slides to make diagnoses based on morphology." Rather, it likely means testing blood, and perhaps other body fluids, to characterize components like red blood cells, white blood cell counts, and platelets.

"CMS is bringing out the big guns."

Whether the issue with the blood analyzers affected the machines Theranos bought from other companies or its own inventions isn't clear. But given that CMS told The Verge that its surveyors had never inspected Theranos' inventions during previous inspections, it's possible that the upcoming inspection report will include information about those machines for the first time. If so, we may soon find out a lot more about the accuracy and reliability of Theranos' proprietary tests.

"Whatever it is, it's clearly serious enough that CMS is bringing out the big guns," Master says. "Even if they're just using commercial equipment from other vendors, this would still indicate that there are significant problems in their lab operations."

It's unclear how long it might take for CMS to review Theranos' plan. In the meantime, the company will have to deal with the fallout from the letter. Already, Pennsylvania health insurer Capital BlueCross has asked Theranos to stop drawing blood from customers who visit its Capital Blue retail store in Enola, Pennsylvania. Those blood samples were being tested in the Newark lab, according to The Wall Street Journal. In addition, the drugstore chain Walgreens told Theranos on Thursday to stop sending lab tests to the California lab; the startup operates 40 Theranos Wellness Centers inside Walgreens stores. The drugstore chain has also suspended lab services at its Palo Alto store.

"We look forward to continuing to work with Walgreens to provide access to reliable, high-quality, and low-cost lab testing services," Theranos told The Verge following Walgreens' announcement. "This is an issue that many other labs have faced, and we have been and will fix it quickly and completely, working with our regulators as we always do."

"We look forward to continuing to work with Walgreens."

Last week, Theranos said that the findings at the Newark facility don't relate to the company's Arizona lab. But Theranos' Arizona lab doesn't have a completely clean slate either. In April 2015, an inspector found that the personnel at the then two-month-old lab couldn't produce data showing that it had verified that the lab's commercial instruments were working correctly before using them on patient samples. When The Verge showed the lab inspection report to Schutzbank a few months ago, he told us that Theranos' actions demonstrated "extremely sloppy procedure; every clinical lab always performs verification studies on all analytical instruments and the tests performed on those instruments" before using them to return results to patients.

Theranos currently boasts of having run more than 3.5 million tests. If the company wants to restore customers’ faith in its tests, it will have to do more than make vague promises and dismissive statements about the government’s findings. The only way Theranos can recover from this is if it opens itself up to the scrutiny of the public and outside experts.