Loyola University Chicago School of Law, JD 2017
Loyola University Chicago School of Law, JD 2018
Theranos, the American health-tech and medical-lab-services company, recently hired two executives to oversee regulatory compliance standards. The executives were hired following Theranos receiving multiple sanctions from U.S. regulators about the company’s allegedly flawed and inaccurate blood tests. While compliance programs and compliance officials are important and it is critical that the company has adopted a new compliance initiative, is it too little too late for Theranos?
Theranos, founded in 2003, is headquartered in Palo Alto, California. Its laboratories are located in Newark, California and Scottsdale, Arizona. The company offers testing for various illnesses and claims their technology can diagnose these illnesses with only a few drops of blood. The technology, termed the Edison device, draws a sample of blood from the patient’s finger. In September 2013, Theranos partnered with Walgreens to offer in-store blood tests at various locations. In 2014, the company was valued at $9 billion.
However, in October 2015, several current and former employees of the company came forward stating the company’s Edison device might be providing inaccurate results. Following these allegations, a formal complaint was filed with New York State Department of Health and forwarded to CMS. In addition to the Edison device providing allegedly inaccurate results, there were reports that Theranos was conducting most of their blood tests on traditional machines used by competitors rather than using the company’s Edison devices.
Moreover, the FDA concluded the Edison device was an “uncleared medical device” and ordered Theranos to limit its use to only one of the 200 tests Theranos offered. Additionally, Theranos informed federal regulators the company decided to void two years of test results conducted by use of the Edison device.
But the troubles did not stop there as Theranos was cited for more deficiencies by CMS earlier this year involving the procedures and testing results at the Newark, California lab. Specifically, Theranos was cited for “doing tests with unqualified personnel, for long delays in notifying patients of flawed test results and for storing blood samples at the wrong temperatures.” On July 7, 2016, Theranos was informed their CLIA certificate was revoked. In addition to the revocation, the company faced sanctions including preventing owners and operators from owning or operating a lab for two years, suspension of approval to receive Medicare and Medicaid payments, and a civil monetary penalty. These most recent sanctions resulted in Theranos closing its laboratory in Newark, California.
In early August 2016, Theranos had presented new technology and data on a Zika test and stated the test was being submitted to the FDA to obtain emergency authorization to use its Zika-virus test. However, shortly thereafter, inspectors discovered that some of the Zika data collection failed to meet an essential regulation used to prevent patient harm. Following this discovery, Theranos withdrew its Zika test from consideration for emergency clearance from the FDA.
For a company like Theranos in the medical industry with a high-flying image, one would expect these numerous violations to have been addressed by strong compliance control measures the first time. Or the second. Or the third. So what went wrong? Theranos apparently had no meaningful compliance program in place to help detect these issues as well as develop corrective actions and controls to manage future risk.
As alluded to earlier, Theranos has just until recently hired two outside executives to oversee regulatory, quality, and compliance standards. One of the executives will be responsible for obtaining FDA clearances and approvals, marketing new products, and looking into medical-device quality systems. The second executive will be the chief compliance officer and is entrusted with the task of making sure Theranos complies with all state and federal laws. Additionally, Theranos has created a compliance and quality committee.
While all of this seems to show Theranos is learning from their past mishaps, these new individuals, especially the compliance officer, must implement a successful compliance program. Additionally, these executives must get the owners and top management on board with the compliance program. The compliance program will not be successful if the top-level executives fail to invest in it.
Without clear policies and procedures, a mechanism for auditing and monitoring, and training and education, Theranos, like all companies regulated by complex laws, will be in danger of failing again. These new executives have a very tough task ahead of them and only time will tell if even a successful compliance program can put Theranos on the right track.