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News Report Shows How Elizabeth Holmes Tricked VP Joe Biden into Endorsing Theranos’ Fake Blood Testing Technology

Former Vice President received an exclusive tour of a completely fake medical testing laboratory within Theranos, which he found “most impressive”

One thing clinical laboratory leaders and pathologists may still be curious about concerning the whole Theranos affair is how the company founder Elizabeth Holmes could fool so many high-ranking individuals—including then Vice President Joe Biden—into endorsing a completely fraudulent medical laboratory test process.

In “The Wild Way Elizabeth Holmes and Theranos Tricked Joe Biden,” MSN attempts to explain how Holmes and her partner, Theranos president Ramesh “Sunny” Balwani, “managed to hoodwink some of the biggest names in the political and investment world, including former President Bill Clinton, News Corp owner Rupert Murdoch, Henry Kissinger, and four-star General James ‘Mad Dog’ Mattis.”

But it was the lengths to which Holmes and Balwani went to “trick” Joe Biden into endorsing Theranos—and subsequently receive the positive press that followed—that MSN found most intriguing.

According to MSN, in July of 2015 Holmes and Balwani procured Biden’s endorsement by giving the VP a tour of a “completely fake, staged lab.”

Joe Biden with Elizabeth Holmes

“What’s most impressive to me is you’re not only making these lab tests more accessible, you’re charging historically low prices, which is a small fraction of what is charged now, while maintaining the highest standards, and empowering people whether they live in the barrio or a mansion, putting them in a position to help take control of their own health,” stated then VP Joe Biden (above with Elizabeth Holmes) in a Theranos press release. Sadly, many clinical laboratory leaders who were skeptical and outspoken about Theranos’ claims were ignored by the press. (Photo copyright: ABC News.) 

Wall Street Journal Reporter Exposes Theranos Fraud

According to a 2018 article by John Carreyrou which was part of his expose´ of Theranos published in The Wall Street Journal, “Ms. Holmes and Mr. Balwani wanted to impress Vice President Biden with a vision of a cutting-edge, automated laboratory. Instead of showing him the actual lab with its commercial analyzers, they created a fake one, according to former employees who worked in Newark. They made the microbiology team vacate a room it occupied, had it repainted, and lined its walls with rows of [Theranos] miniLabs stacked up on metal shelves.”

And the ruse worked. A 2015 Theranos press release outlined the visit at the time and stated that Biden found the facility inspiring and was impressed by the work being done by the company.

“I just had a short tour and I’m glad because you can see first-hand what innovation is all about just walking through this facility. This is the laboratory of the future,” Biden said in the press release.  

Joe Biden and Elizabeth Holmes

In 2015, then Vice President Joe Biden toured the Theranos facility with Elizabeth Holmes, observed their supposedly innovative finger stick test system, and met with several Theranos employees. Later reports exposing the fraud stated that Holmes and Balwani were desperate to obtain Biden’s approval as it would provide positive press for Theranos, a good reputation within the industry, and lure potential investors. Theranos later tweeted a photo (above) of the visit showing Biden and Holmes walking amongst numbered blood-testing machines with a huge Theranos logo banner in the background. (Photo copyright: Connor Radnovich/The Chronicle.)

Biden’s visit occurred just a few months before Carreyrou’s Wall Street Journal report questioned the efficacy of Theranos’ blood testing technology and alleged the lab testing company tried to cover up its failures and mislead investors and patients.

Prior to that hard-hitting exposé, Holmes was heralded by the media as a star in the field of medicine. She was even prominently featured on magazine covers of influential business periodicals such as Fortune, Forbes, and Inc.

Others Who Were Bamboozled by Holmes and Balwani

Biden was not the only high-profile individual who was fooled by Holmes, Balwani and their billion-dollar con job. Other high-profile people included:

Theranos ceased operations in September of 2018 amidst the exposing of the fraud and inability to locate a buyer for the company. The shutdown rendered all investments in the company worthless.   

Holmes to Receive New Hearing in Federal Court

In January of this year, Holmes was found guilty of three counts of wire fraud and one count of conspiracy to commit wire fraud for lying to investors about Theranos products. She faces up to 20 years in prison and a fine of $250,000 plus restitution for each count.

However her sentencing, originally scheduled for October 17, was delayed due to her request for a new trial based on comments by former Theranos laboratory director Adam Rosendorff, MD, that he regretted his testimony in Holmes’ fraud trial. Dark Daily covered this in “Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial.”

Holmes was granted her request and will now undergo a new hearing in federal court, which we covered in “Judge Grants Delay in Ex-Theranos’ CEO Elizabeth Holmes’ Sentencing to Consider Alleged Prosecutor Misconduct.”

And so, clinical laboratory leaders and pathologists now have a better idea as to how Joe Biden was hoodwinked and endorsed a completely fake blood testing laboratory at Theranos. Can he be blamed for his ignorance of clinical laboratory test technology? Probably not. But it makes for interesting reading.

—JP Schlingman

Related Information:

The Wild Way Elizabeth Holmes and Theranos Tricked Joe Biden

Theranos Hosts Vice President Biden for Summit on a New Era of Preventive Health Care

Joe Biden Visited Theranos, Called Elizabeth Holmes ‘Inspiring’

Biden Played Big Role in Promoting Convicted Fraudster Elizabeth Holmes and Theranos

Hot Startup Theranos Has Struggled with Its Blood-Test Technology

Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial

Ex-Theranos CEO Elizabeth Holmes Testifies She Made Mistakes, Shifts Blame for Some of the Now Defunct Clinical Laboratory Testing Startup’s Failures

Ex-Theranos CEO Elizabeth Holmes Takes Witness Stand in Her Own Defense: Admits to Using Pharma Giants’ Logos on Reports to Investors, But Claims No Intent to Deceive

Judge Grants Delay in Ex-Theranos’ CEO Elizabeth Holmes’ Sentencing to Consider Alleged Prosecutor Misconduct

Issues arose after a pathologist who once was the clinical laboratory director at Theranos suggested his testimony during the trial was misconstrued by federal prosecutors

Just when clinical laboratory directors and pathology group managers thought they could look forward to a world without an ongoing Theranos fraud trial, company founder and ex-CEO Elizabeth Holmes requested a new trial. Her request was based on comments by pathologist and former Theranos lab director Adam Rosendorff, MD, that he was remorseful about his testimony in Holmes’ fraud trial.

Dark Daily covered Holmes’ request in “Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial.”

Now, it appears the court will hear Holmes’ argument. On October 4, a federal judge agreed to delay Holmes’ sentencing to consider new evidence that was submitted to the court in a September filing and further evaluate her request for a new trial.

In that filing, Holmes claimed that Rosendorff visited her home on August 8 to express regret over his testimony. According to Holmes, Rosendorff alleged that his statements had been misconstrued by prosecutors at her trial. He stated that “he tried to answer the questions honestly, but that the prosecutors tried to make everyone look bad” and he now feels like “he had done something wrong,” The Guardian reported.

Theranos founder and ex-CEO Elizabeth Holmes

Theranos founder and ex-CEO Elizabeth Holmes (left) as she was seen entering the federal courthouse in San Jose, Calif., on Sept. 1 to argue that her trail verdict should be overturned due to new comments from pathologist and former lab director Adam Rosendorff, PhD, who expressed remorse over his original testimony. Clinical laboratory managers may want to track these new developments in the unfolding saga of Theranos and Elizabeth Holmes. (Photo copyright: AP/Daily Mail.)

Pathologist Rosendorff’s Testimony about Holmes

Rosendorff, the pathologist who served as the CLIA laboratory director at Theranos for several years, was a major witness for the prosecution in the Holmes trial which lasted nearly four months. During his four-day testimony, he contended that Holmes was cognizant of accuracy issues with Theranos’ blood-testing device and that she intentionally misled both investors and patients. 

In January, a jury found Holmes guilty of three counts of wire fraud and one count of conspiracy to commit wire fraud for lying to investors about Theranos products. The jury of eight men and four women deliberated for more than 50 hours over seven days to arrive at the verdict. She faces up to 20 years in prison and a fine of $250,000 plus restitution for each count.

In September, US District Judge Edward Davila, who presided over Holmes’ original fraud trial, declined to overturn the guilty verdict.

The new hearing regarding the issues with Rosendorff’s testimony will occur on October 17, the original date of Holmes’ sentencing. Davila stated that he has scheduled an entire day for hearing, but that he expects it to take less than the full allotted day. 

Judge Wants to Know If Former Theranos Lab Director Told the Truth

If her request for a new trial is denied, Holmes will be sentenced sometime between November and January. She is currently free on bail while awaiting her sentencing.

Regarding the latest development, Davila stated that it was unusual for a witness to appear at a convicted defendant’s home. “I will say I haven’t seen a case where this happened before,” Davila told CNN.

“What the court wants to know is, Dr. Rosendorff, do you feel the government manipulated you in the preparation or in any way in regards to your testimony?” Davila said about what will be covered in the October 17 hearing. “What I want to know is, did you tell the truth?”

After Holmes used Rosendorff’s appearance at her home to request a new trial, the former Theranos lab director filed a sworn declaration with the court on September 21 that he stands by his testimony “in every respect.”

“Nevertheless, I feel compassion for Ms. Holmes and Mr. Balwani, and even more so for the members of their families who were not responsible for their conduct but will be affected by the punishment they may receive,” he wrote.

Dark Daily covered Rosendorff’s original testimony in “Former Theranos Lab Director and Staff Testify in Ongoing Elizabeth Holmes Fraud Trial That They Voiced Concerns about Reliability and Accuracy of Edison Blood-Testing Device.”

And so, the saga of Elizabeth Holmes continues. Clinical laboratories will once again get a view into how a lab director’s responsibilities can alter testing outcomes—and fraud trials.

JP Schlingman

Related Information:

Theranos Founder Elizabeth Holmes Gets Hearing on New Trial

Judge Agrees to Delay Elizabeth Holmes’ Sentencing over Prosecutor Misconduct Concerns

Elizabeth Holmes Sentencing Reset as Judge Weighs New Trial Bid

Elizabeth Holmes Sentencing Date Delayed Amid Request for New Trial

Elizabeth Holmes’ Sentencing Date Has Been Pushed Back

Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial

Former Theranos Lab Director and Staff Testify in Ongoing Elizabeth Holmes Fraud Trial That They Voiced Concerns about Reliability and Accuracy of Edison Blood-Testing Device

Nearly One Million Patient Records of Hospitals, Health Clinics, Medical Laboratories, and other Providers Stolen in Ransomware Attack on Medical Records Company

Clinical labs should proactively investigate how a vendor will respond to a data security incident and how quickly, says expert

Clinical laboratory managers in New York and surrounding areas should be aware that  almost one million protected health information (PHI) records from as many as 28 healthcare providers appear to have been stolen from a medical records company that services these providers.

Practice Resources LLC (PRL), a company that provides billing services for dozens of hospitals and medical providers in Central New York, announced in August they were the target of a ransomware attack that occurred on April 12 of this year. The Syracuse-based organization stated that hackers may have captured personally identifiable information (PII) such as names, home addresses, treatment dates, health plan numbers, and internal account numbers of 934,138 patients.

The data breach affected the patient records of dozens of medical providers and the clinical laboratories that service them, as well as physical therapists, pediatricians, gynecologists, orthopedic surgeons, and more.

Dark Daily’s sister publication The Dark Report covered a similar 2019 data breach in “Labs Should Heed Lessons from Huge Data Breach.”

Jim Giszczak, JD

“When a lab’s vendor has some type of breach, the lab entity that provided the compromised information could have some liability related to the breach,” explained Jim Giszczak, JD (above), McDonald Hopkins, in an interview with The Dark Report over a similar data breach in 2019. “That’s why every lab should be proactive and do a review to understand each vendor’s policies, procedures, training, and response in the event of a breach. Because your lab needs to know how a vendor will respond to a data security incident, and importantly, how quickly it will respond, it’s critical for lab officials to review the contracts they have with vendors that acquire, or have access to, PHI.” (Photo copyright: McDonald Hopkins.)

Not a Scam

“Unfortunately, it’s not a scam,” stated David Barletta, President and CEO of PRL, in an interview with local Syracuse news WSYR. “This really did happen in April—there was a ransomware attack on our system. We brought in forensic accountants and forensic information teams to come and look at what happened.”

PRL sent out more than 940,000 letters to potential victims of the cyberattack in August, noting that some patients may receive more than one letter.

The complete list of “healthcare entities on whose behalf Practice Resources LLC is providing notice of data incident,” according to PRL, includes:

Although their investigation did not uncover any evidence that personal data was misused, PRL has arranged credit monitoring services free of charge for one year from the date of enrollment. The company is also offering proactive fraud assistance to help people with any questions or in case they become a victim of fraud.

“There were no patient social security numbers that were taken. No medical record information was taken,” Barletta told WSYR. “We really, just out of an abundance of caution, felt that it was necessary that we provide them with credit monitoring for a year—just in case.”

Hundreds of Thousands of Patients Affected by Breach

When PRL discovered the data breach, the company took immediate steps to secure its systems and scrutinize the nature and extent of the incident. They then hired a forensic team to investigate what patient data may have been accessed by the hackers, a process that took several months.  

“It does take a long time because each client has hundreds of thousands of patients maybe,” Barletta explained. “We have several large clients that really bore the brunt of this.”

According to Barletta, PRL bills about $450 million annually for its clients, which include some major institutions in Central New York. The New York state Attorney General’s office is investigating the hacking incident and delving into whether PRL’s data security was adequate. 

As a result of the breach, FamilyCare Medical Group, which serves more than 80 physicians and thousands of patients, lost all of its laboratory data, according to the group’s CEO, Mitchell Brodey, MD. They had to close their lab for several months while their computer system was rebuilt. During this time, all their lab work was sent to another laboratory for analysis, MSN reported

The PRL ransomware attack was what is commonly known as a third-party data breach. This type of breach occurs when sensitive data is stolen from a third-party vendor, or when their systems are used to access and steal sensitive information stored on other systems.

In the United States, the Federal Trade Commission (FTC) is responsible for enforcing federal privacy and data protection regulations. If a breach affects 500 or more individuals, the company must issue a press release and notify the FTC and all affected consumers within 60 days of the discovery of the breach.

Clinical Labs Should Proactively Review Member Agreements

In 2019, our sister publication The Dark Report covered a major data breach affecting more than 20 million patients. That breach occurred when hackers gained access to the data systems of a third-party bill collector and impacted four of the nation’s largest clinical laboratories:

At that time, The Dark Report asked James Giszczak, JD, Chair of the Litigation Department and Co-Chair of the Data Privacy and Cybersecurity Practice Group at McDonald Hopkins, to provide insight on what steps clinical laboratory leaders should take to avoid and handle data breaches.

“One important lesson from this data breach is how critical it is for clinical labs and pathology groups to be proactive in making sure they review their vendor agreements,” Giszczak stated. “In that review, labs need to know the specific measures each vendor is taking to protect the information the lab is providing to their vendors.”

Giszczak suggested that clinical laboratory leaders make sure they understand each vendor’s policies, procedures, training, and response in the event of a data breach. He reiterated that labs could have some liability related to the breach.

-JP Schlingman

Related Information:

Labs Should Heed Lessons from Huge Data Breach

Hackers May Have Breached Medical Billing Records of Nearly One Million CNY Patients

List of Healthcare Entities on Whose Behalf Practice Resources LLC Is Providing Notice of Data Incident

Practice Resources, LLC Announces Data Breach Impacting the Information of 924,138 Patients

PRL Data Incident Notification

Your Stories: The Letter from Practice Resources, LLC is Legit

Third Party Data Breach: How to Prevent and What to Do

Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial

Federal judge must rule on her bid for a new trial, after former Theranos lab director Adam Rosendorff’s statement that he regrets his testimony during her criminal fraud trial

It is a rare event for a board-certified clinical pathologist to be named in national news headlines, but that is what is happening now to Adam Rosendorff, MD, who served as the CLIA laboratory director at Theranos for several years.

Rosendorff is once more the subject of news headlines because of his recent statements expressing “regret” about his testimony for the prosecution during the trial of Elizabeth Holmes, founder and ex-CEO of now defunct Theranos. This development caused attorneys for Holmes to file a motion for a new trial.

In August, Rosendorff showed up at the residence of Elizabeth Holmes and made statements to her attorneys that are the basis for the motion to conduct a new trial.

In a recent court filing requesting the new trial, Holmes’ attorneys described Rosendorff as a “star witness” for the prosecution and pointed out, “The government mentioned him more than any other government witness in both opening and closing statements, and Dr. Rosendorff testified longer than any other government witness.”

During four days of testimony last October, Rosendorff emerged as a central prosecution witness. On the stand, he supported prosecutors’ contention that Holmes knew about the accuracy issues with Theranos’ Edison blood-testing device and intentionally mislead investors and patients.

Dark Daily covered Rosendorff’s testimony in “Former Theranos Lab Director and Staff Testify in Ongoing Elizabeth Holmes Fraud Trial That They Voiced Concerns about Reliability and Accuracy of Edison Blood-Testing Device.”

Adam Rosendorff, MD

In court testimony, Adam Rosendorff, MD (above) said, “I had frequent conversations with Elizabeth about concerns that I had in the laboratory,” and [that] she was often copied on emails discussing issues, the Wall Street Journal reported at the time. As clinical laboratory leaders who closely followed his testimony know, Rosendorff was Theranos’ laboratory director from April 2013 to November 2014. (Photo copyright: LinkedIn.)

Rosendorff Attempts to Meet with Holmes

The “Dr. Rosendorff’s Encounter at Ms. Holmes’ Home” section of the 17-page filing states Rosendorff appeared at the home of Holmes and her partner William Evans on August 8 after leaving a voicemail earlier in the evening asking for a meeting with Holmes. Rosendorff allegedly had two short conversations with Evans, who told him Holmes could not speak to anyone and asked Rosendorff to leave. Rosendorff was described by Evans as speaking in a “trembling” voice and appearing to be “in distress.”

The filing goes on to state Rosendorff told Evans “that he wanted to speak to Ms. Holmes because it would be ‘healing for both himself and Elizabeth to talk.’ He stated that ‘when he was called as a witness, he tried to answer the questions honestly but that the prosecutors tried to make everyone look bad’ and that ‘the government made things sound worse than they were when he was up on the stand during his testimony.’”

The filing continues: “Dr. Rosendorff stated that ‘Theranos was early in his and [Ms. Holmes’] career,’ that ‘everyone was just doing the best they could,’ and ‘everyone was working so hard to do something good and meaningful.’”

The section concludes, “He stated that ‘he fe[lt] guilty’ and that he ‘felt like he had done something wrong,’ apparently in connection with his testimony in Ms. Holmes’ case. He stated that these issues were ‘weighing on him’ and that “he was having trouble sleeping.’”

Rosendorff’s Regrets Unlikely to Trigger New Trial

In the filing, Holmes’ attorneys wrote, “under any interpretation of his statements, the statements warrant a new trial under Rule 33. But, at a minimum … the Court should order an evidentiary hearing and permit Ms. Holmes to subpoena Dr. Rosendorff to testify about his concerns.”

According to the Federal Rules of Criminal Procedure, Rule 33, New Trial, newly discovered evidence is grounds for seeking a new trial. 

Bloomberg, however, quoted criminal defense attorney Michael Weinstein, JD, Chair of Cole Schotz P.C.’s White-Collar Litigations and Government Investigations Practice, as saying Rosendorff’s misgivings about his testimony are unlikely to warrant a new trial.

“A witness having second thoughts and how they were generally perceived is not new in criminal trials but often don’t lead to new trials or much of anything,” Weinstein told Bloomberg. “The burden for that is simply too high.” Weinstein was not involved in the Holmes case.

CBS News reached out to Rosendorff via LinkedIn, who responded he had no comment, adding, “Do not contact me.”

Nevertheless, Holmes’ lawyers have proposed an October 3 hearing to discuss why they believe a new trial is merited. Their request for a new trial came less than a week after U.S. District Judge Edward Davila rejected the defense team’s bid to have Holmes’ January convictions thrown out, the Mercury News reported.

“The evidence does support the jury’s findings,” Davila said at a September 1 hearing in San Jose, California, in which he issued a preliminary ruling denying her bid to have the verdict thrown out.

Theranos Saga Continues

At the hearing, Holmes’ lawyer Amy Mason Saharia, JD, told Davila the defense team would make another attempt to overturn the jury’s findings based on “new evidence,” the Mercury News stated. That new evidence appears to be Rosendorff’s admission that he has regrets about his testimony in the case.

Holmes, 38, is currently free on bail, but faces up to 20 years in prison and a fine of $250,000, plus restitution on each of four counts. She will be sentenced on October 17. The court originally set her sentencing date for September 26, but agreed to delay her sentencing without giving a reason for the delay, CBS News reported.

Will former Theranos laboratory director Adam Rosendorff, MD’s, regrets alter the court’s previous decisions? Who knows? Many clinical laboratory directors and medical laboratory scientists followed Elizabeth Holmes’ nearly four-month long fraud trial with rapt interest. They will now have to wait a few more weeks to find out if the disgraced Theranos executive will get a new trial or a prison sentence. 

Andrea Downing Peck

Related Information:

Theranos Founder Elizabeth Holmes Seeks New Trial over Alleged Regrets of Key Witness

USA vs. Elizabeth Holmes: Case No. CR-18-00258-EJD MS. Holmes’ Motion for a New Trial

Elizabeth Holmes Wants a New Trial Because a Prosecution Witness is Acting Remorseful

Elizabeth Holmes Seeks New Trial, Saying Key Witness Has Regrets

Former Theranos Lab Director Emerges as Central Prosecution Witness

Elizabeth Holmes Claims Witness Remorse in New Trial Request

Elizabeth Holmes Tries and Fails to Get Jury’s Fraud Verdict Thrown Out for Good

Court Delays Sentencing for Theranos Founder Elizabeth Holmes

Former Theranos Lab Director and Staff Testify in Ongoing Elizabeth Holmes Fraud Trial That They Voiced Concerns about Reliability and Accuracy of Edison Blood-Testing Device

Multiple Blue Cross Insurers Sue Nebraska-based Clinical Laboratory Company for Alleged COVID-19 Test Price Gouging

Insurers from three states claim pandemic start-up medical lab company charged as much as $979 for SARS-CoV-2 PCR test

In an unprecedented move, Blue Cross insurers in three states are suing a clinical laboratory company in Nebraska for test price gouging during the COVID-19 pandemic. The lawsuit claims that the lab company charged as much as 10 times more than other labs for similar tests.

The interesting twist to the pricing aspect of this story is that the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) requires insurers to pay the full publicly-posted cost of COVID-19 testing. This means that, in many cases, the insurers may have no choice but to pay.

In three separate lawsuits, Blue Cross Blue Shield of Kansas City (Blue KC), Premera Blue Cross, and Blue Cross Blue Shield of Minnesota (BCBS of Minnesota) charged that Nebraska-based GS Labs charged as much as $979 for a SARS-CoV-2 PCR test, a test for which Medicare pays about $51, according to State of Reform.

Is GS Labs, which was formed by an investment firm in the early months of the COVID-19 pandemic, yet another example of unscrupulous clinical laboratory operators taking advantage of the demand for COVID-19 testing during the early years of the coronavirus pandemic? GS Labs says no. The courts will decide.

Graphic from Premera Blue Cross court documents

Taken from the Premera Blue Cross court documents, the chart above shows GS Labs’ test prices compared with Medicare reimbursement rates. “As demonstrated by the following chart, the prices GS Labs charges insurers for COVID-19 testing well exceed the reimbursement rates set by Medicare Administrative Contractors, and in some cases are nearly ten times Medicare rates,” Premera states in the documents. Nevertheless, the federal CARES Act requires insurers to pay any COVID-19 test price a clinical laboratory posts publicly on its website. (Graphic copyright: Premera Blue Cross.)

Responding to Nationwide Demand for COVID-19 Testing

In October 2020, GS Labs began offering COVID-19 tests to provide Omaha residents with “convenient and quick testing options with same-day appointments and same-day results,” according to the company’s website. In response to nationwide demand, GS Labs quickly opened more than 20 testing COVID-19 testing sites across multiple states in its first three months of operations.

Today, GS Labs operates 14 rapid COVID testing locations in Iowa (1), Minnesota (6), Nebraska (1), Oregon (1) and Washington (5), but is under fire in several states for alleged price gouging.

Blue Cross Blue Shield of Kansas City was the first insurer to file suit in July 2021, alleging unreasonable reimbursement rates. The Kansas City Business Journal reported that GS Labs responded with a counter suit a month later accusing Blue KC of a “reckless disregard for the law” and attempting to bully its way out of paying for $9.7 million in COVID-19 testing fees.

The CARES Act states that, in the absence of a contractual payment agreement, insurers are required to pay the “cash prices” testing providers post on their public websites.

Christopher Erickson, a GS Labs Partner, told The New York Times (NYT), the law is on GS Labs’ side. “Insurers are obligated to pay cash price, unless we come to a negotiated rate,” he said.

In the fall of 2021, Premera Blue Cross also filed suit in Washington state alleging the lab routinely uses deceptive practices to run multiple unnecessary COVID tests on patients at an inflated cost. “In the words of one former employee, it ‘manipulates people into thinking they need all three COVID [sic] test’ that GS Labs offers, such that ‘[p]atients are being lied to just so th[e] company can make a profit,’” court documents state.

Premera also alleges in its lawsuit that GS Labs failed to report test results in a timely manner and returned hundreds of tests that were “by its own admission, tainted by “deviat[ions] from applicable laboratory standards for testing facilities.”

“This is fraud, and it’s fraud against Premera, it’s fraud against the industry, and more importantly, it’s fraud against the customers,” Courtney Wallace, DNP, Premera’s Director of Strategic Communications, told Washington State Wire.

And earlier this year, Blue Cross Blue Shield of Minnesota sued GS Labs to recover more than $10 million in over payments made since the start of the pandemic. A BCBS of Minnesota new release states that GS Labs “consistently charged more than five times the median market rate for its most commonly administered COVID-19 diagnostic test.”

CMS Inspection Finds GS Labs Site Posed “Immediate Jeopardy”

APM Reports spent nearly a year investigating the startup lab. Its team of journalists interviewed more than 65 GS Labs customers, former employees, and public health professionals, and reviewed thousands of pages of public documents. It concluded the lab “at times delivered inaccurate results, faced backlogs, charged high prices, and pushed customers into unnecessary tests.”

The APM Reports investigators found:

  • The company was slow to inform public health officials in several states about positive cases and in a few instances reported negative results to patients who had COVID-19. Other patients never received test results or received someone else’s results.
  • Overwhelmed by the number of tests it was processing, GS Labs at one point had a month-long backlog of untested samples.
  • A 2021 Centers for Medicare and Medicaid Services inspection of GS Labs’ Omaha facility found the lab posed “immediate jeopardy,” potentially putting patients at risk for serious harm.
  • Health officials in three states found GS Labs’ work was slower and less reliable than other labs.

According to APM Reports, in an email to colleagues about flaws in GS Labs’ operation in Washington state, Melissa Pond, [then] Program Manager for Clark County Washington’s COVID-19 Response Team, wrote, “[It] makes me so angry that they brought their greed to our community. They just popped up to make money knowing they would fly under the radar as long as possible and close their doors when someone caught them!”

Providing COVID-19 Testing During a Time of Need

APM Reports noted GS Labs’ founders formed the company in the early days of the pandemic after their friends and family could not find tests following a COVID exposure.

GS Labs is a subsidiary of City+Ventures, an Omaha investment and development company. Its portfolio includes an aviation investment company, car wash chain, car dealerships, restaurants, and other businesses.

City+Ventures’ co-founders, Erickson and Danny White had no healthcare investments prior to 2020, APM Reports noted. But early that year, the two men had joined with Gabe Sullivan and Darin Jackson, MD, who currently owns Prestige Medical Laser Solutions in Omaha, to create a men’s health and anti-aging company called 88MED. During the pandemic, that company transitioned to COVID-19 testing and was renamed GS Labs. 

It is worth noting that GS Labs responded at length and in detail to the questions raised by the APM Reports investigation. It is useful reading for clinical laboratory leaders who wish to be fully informed on both sides of the controversy.

In its rebuttal, the company pointed out it had processed more than 2.1 million tests nationwide with less than 1.5% of its results being called into question. It maintained “GS Labs’ policy has never been to ‘push’ tests on anyone” and stated its cash prices “were higher than some testing providers,” but “lower than others” and reflected the company’s significant start-up costs.

GS Labs wrote, “At a time when our communities desperately needed increased COVID testing capacity, GS Labs took action to deliver that testing, investing more than $150 million in a business whose prospective success and lifespan were extremely uncertain. By filling a critical gap in COVID testing, GS Labs literally saved lives, and we are extremely proud of the service that we have provided to the communities we serve.”

GS Labs also has countersued BCBS of Minnesota, denying all prior allegations made by the insurer and alleging 21 counter claims.

Sabrina Corlette, JD, Research Professor and Project Director at Georgetown University Center on Health Insurance Reforms, has studied coronavirus testing prices. She told the NYT, “This is not like neurosurgery where you might want to pay a premium for someone to have years of experience.” She pointed out the CARES Act may provide GS Labs with the legal grounds to charge above market prices.

“Whatever price the lab puts on their public-facing website, that is what has to be paid,” she said.

GS Labs may have found a legal loophole to justify its sky-high COVID-19 testing prices, but consumers may view this behavior by a clinical laboratory company as unethical and yet another reason to be disillusioned with America’s healthcare system.

Andrea Downing Peck

Related Information:

Blue Cross and Blue Shield of Kansas City v. GS Labs, LLC

Lawsuit Seeks a Judgment to Ensure Blue KC Members Are Not Required to Pay GS Labs’ COVID-19 Testing Reimbursement Demands

Lab Files Counter Claim Against Blue KC in Price Gouging Dispute

GS Labs’ Responses to Questions from APM Reports

Blue Cross and Blue Shield of Minnesota Files Lawsuit Against GS Labs

Premera Blue Cross vs. GS Labs, LLC

Premera Sues GS Labs, Alleging COVID Price Gouging

This Lab Charges $380 for a COVID Test. Is That What Congress Had in Mind?

Testing the Limits

CMS Complaint Against Omaha GS Labs, LLC

Milestone for National Testing Laboratory: GS Labs Tests One Millionth Patient For COVID-19 As Pandemic Continues to Challenge Nation

GS Labs Countersues Blue Cross Blue Shield of Minnesota: Federal Court Filing Accuses Insurer of Antitrust Violations, Conspiring with Cartel of BCBS Affiliates, Violating CARES ACT, False Advertising and Consumer Fraud

Class-Action Lawsuit Filed on Behalf of Patients who Purchased Theranos Testing Services Seeks Damages from Elizabeth Holmes, Ramesh Balwani, and Walgreens

Damages sought include reimbursement of costs for voided clinical laboratory tests as well as an injunction ‘to prevent Theranos and Walgreens from engaging in further misrepresentations and unfair conduct’

Theranos founder and ex-CEO Elizabeth Holmes and ex-COO/President Ramesh “Sunny” Balwani have been found guilty on multiple counts of fraud and now await sentencing in federal criminal court. But the pair’s legal entanglements are not yet over. A class-action lawsuit filed on behalf of patients who purchased Theranos clinical laboratory testing services between November 2013 and June 2016 is weaving its way through the legal system.

Defendants in the civil case include Holmes and Balwani as well as Theranos, Inc., Walgreens Boots Alliance (NASDAQ:WBA) and Walgreens Arizona Drug Company.

According to JND Legal Administration, a class action administration services provider with offices in Los Angeles, Minneapolis, New York, and Seattle, the class-action lawsuit has been filed in the US District Court for the District of Arizona in Phoenix. While no court date has been set, the trial is expected to occur in 2023, a news release states.

“The lawsuit claims, among other things, that these blood testing services were not capable of producing reliable results, that the defendants concealed the blood testing services’ unreliability, that Walgreens knew that the blood testing services were unreliable and not market-ready, that the defendants conspired to commit fraud on consumers, that Theranos’ ‘tiny’ blood testing technology (blood drawn with finger pricks) was still in development, and that the customers who were subject to ‘tiny’ Theranos blood draws by Walgreens employees gave their consent to those blood draws under false pretenses,” the news release notes.

If the defendants are found liable, plaintiffs, who could number in the hundreds of thousands, could receive money or benefits. The Mercury News reported that Arizona’s attorney general had identified 175,000 consumers who purchased tests from Theranos/Walgreens at an average cost of $60 per test.

Elizabeth Holmes and Ramesh Balwani

A class-action lawsuit filed on behalf of patients who purchased Theranos blood testing services at a Walgreens or Theranos location includes as defendants company founder/CEO Elizabeth Holmes (left), ex-Theranos President/COO Ramesh “Sunny” Balwani (right), as well as Theranos, Inc., Walgreens Boots Alliance, and Walgreens Arizona Drug Company. The trial is expected to begin in 2023. It will no doubt draw the attention of clinical laboratory directors and pathologists who followed the Holmes/Balwani fraud cases very closely. (Photo copyright: The Wall Street Journal.)

Federal Court Upholds Class Certification

The Top Class Actions news site notes that in 2021 Walgreens and Balwani unsuccessfully appealed to get the class-action lawsuit against them decertified.

According to the Arizona Theranos, Inc. Litigation website, the court has certified one Class and three Subclasses:

  • Class: All purchasers of Theranos testing services, including consumers who paid out-of-pocket, through health insurance, or through any other collateral source between November 2013 and June 2016.
  • Arizona Subclass: All purchasers of Theranos testing services in Arizona between November 2013 and June 2016.
  • California Subclass: All purchasers of Theranos testing services in California, between September 2013 and June 2016.
  • Walgreens Edison Subclass: All purchasers of Theranos testing services who were subjected to “tiny” blood draws (finger pricks) by a Walgreens employee between November 2013 and March 2015.

Lieff Cabraser Heimann and Bernstein LLP—one of two law firms serving as “Class Counsel” in the litigation—states on its website that, in October 2016, US District Judge H. Russel Holland consolidated four proposed consumer class action fraud lawsuits against Theranos and appointed the San Francisco-based firm as co-lead counsel. Seattle-based Keller Rohrback LLP is co-lead counsel.

‘There Is No Money’

“The lawsuit seeks damages, including reimbursement of the amounts paid by consumers for the voided tests, as well as an injunction to prevent Theranos and Walgreens from engaging in further misrepresentations and unfair conduct,” the Lieff Cabraser website states.

In its notice to potential members of the class action, JND Legal Administration states the “defendants contend that they did not do anything wrong, and they are not liable for any harm alleged by the plaintiffs.” In addition, the notice points out, “There is no money available now, and there is no guarantee that there will be.”

Where could money come from to pay plaintiffs? Likely not from Theranos or Holmes. Though Theranos reached a peak valuation of $9 billion in 2014, it owed at least $60 million to unsecured creditors when the company was dissolved in 2018, USA Today reported. After turning over its assets and intellectual property, Theranos anticipated having only $5 million to distribute to creditors.

And Forbes reported that Holmes’ net worth dropped from $3.6 billion to $0 in 2016.

However, Balwani, who netted nearly $40 million in 2000 when he sold shares of software company Commerce One, has an estimated net worth of $90 million, according to Wealthypipo. As of 2022, Walgreens Boots Alliance is ranked number 18 on the Fortune 500 rankings of the largest United States corporations by total revenue.

The Arizona Theranos Litigation website points out that the suit does not seek damages or other relief for personal injury, emotional distress, retesting costs, or medical care costs. Any Theranos/Walgreens customer intent on pursuing such legal action would need to exclude themselves from the class action case and proceed with separate litigation. The deadline to opt out of the class-action lawsuit is September 12, 2022.

And so, though clinical laboratory directors and pathologists may have thought the saga of Theranos ended following Balwani’s conviction, it apparently continues. It is anyone’s guess what is to come.

Andrea Downing Peck

Related Information:

If You Purchased Theranos Blood Testing Services, including At a Walgreens Store, a Class Action Lawsuit May Affect Your Rights

United States District Court, District of Arizona: Second Amended Complaint, Case 2:16-cv-02138-HRH

Theranos and Elizabeth Holmes: Judge Grants Class Action in Civil Suit Led by San Jose Resident

Theranos Allegedly Voided 31,000 Test Reports Provided to Walgreens Customers

Walgreens Breaks Ties with Theranos, Will Shutter all 40 Wellness Centers

Balwani and Walgreens Lose Most Appeals in Theranos Blood Test Class Action Lawsuit

Blood-Testing Company Theranos Will Dissolve, Pay Creditors

Billionaire Profile: Elizabeth Holmes

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