Federal agents allege ‘healthcare fraud abuses erode the integrity and trust patients have with those in the healthcare industry’
Here’s yet another example of how federal and state law enforcement agencies intend to further crack down on fraud involving COVID-19 testing, financial relief programs, vaccination cards, and other pandemic-related programs.
The United States Department of Justice (DOJ) announced it has charged the owners of a Calif. clinical laboratory—as well as 19 other defendants—for their roles in fraudulent billing, kickbacks, and money laundering schemes to defraud Medicare of more than $214 million.
Imran Shams and Lourdes Navarro—owners of Matias Clinical Laboratory, Inc., in Baldwin Park, Glendale, Calif.—which was doing business as Health Care Providers Laboratory, Inc. (Matias)—were charged along with the other defendants with participating in fraud that took place in nine federal court districts.
The indictment alleges the pair paid kickbacks to marketers to obtain specimens and test orders. The lab company owners then laundered their profits through shell corporations in the US, transferred the money to foreign countries, and used it to purchase “real estate, luxury items, and goods and services for their personal use,” according to court documents.
“While millions of Americans were suffering and desperately seeking testing and treatment for COVID-19, some saw an opportunity for profit,” said Assistant Attorney General for the Criminal Division Kenneth A. Polite Jr., JD, during a news conference at the Justice Department, The New York Times reported.
“The actions of these criminals are unacceptable, and the FBI, working in coordination with our law enforcement partners, will continue to investigate and pursue those who exploit the integrity of the healthcare industry for profit,” said Luis Quesada of the Federal Bureau of Investigation’s (FBI) Criminal Investigative Division in a press release.
“Throughout the pandemic, we have seen trusted medical professionals orchestrate and carry out egregious crimes against their patients all for financial gain,” said Assistant Director Luis Quesada (above) of the FBI’s Criminal Investigative Division in a DOJ press release. “These healthcare fraud abuses erode the integrity and trust patients have with those in the healthcare industry, particularly during a vulnerable and worrisome time for many individuals.” Clinical laboratories throughout the US should be aware of increased scrutiny to Medicare billing by the DOJ. (Photo copyright: El Paso Times.)
According to the DOJ’s Summary of Criminal Charges, “Matias” Clinical Laboratory also “performed and billed Medicare for urinalysis, routine blood work, and other tests, despite the fact that Shams had been excluded from all participation in Medicare for several decades.” The indictment alleges that Shams and Navarro fraudulently concealed Sham’s role in the clinical laboratory and his prior healthcare-related criminal convictions.
“She always tried to follow the law and provide appropriate and quality testing services to the laboratory’s patients. She looks forward to clearing her name in court,” Werksman said.
However, both Navarro and Shams have a checkered past with law enforcement agencies. According to a State of California Department of Justice news release, in 2000, the two were convicted in California on felony counts of Medi-Cal fraud, grand theft, money laundering, and identity theft for using the names of legitimate physicians without permission and filing thousands of false claims with the state for medical tests never performed.
The Calif. Attorney General’s Division of Medi-Cal Fraud and Elder Abuse (DMFEA) seized approximately $1.1 million in uncashed warrants, which were returned to the Medi-Cal program. Since the 2000 case, Shams has been barred from filing for Medicare reimbursement, the New York Times reported.
Other Felony Indictments and Criminal Complaints for Healthcare Fraud
In a separate case, the DOJ announced Ron K. Elfenbein, MD, 47, of Arnold, Md., was charged by indictment with three counts of healthcare fraud in connection with an alleged scheme to defraud the US of more than $1.5 million in claims that were billed in connection with COVID-19 testing. Elfenbein is owner and medical director of Drs Ergent Care, LLC, which operates as FirstCall Medical Center. Elfenbein allegedly told his employees to submit claims to Medicare and other insurers for “moderate-complexity office visits” even though the COVID-19 test patients’ visits lasted five minutes or less.
And in April, the DOJ filed a criminal complaint against Colorado resident, Robert Van Camp, 53, for allegedly forging and selling hundreds of fake COVID-19 vaccination cards, which he sold to buyers and distributors in at least a dozen states.
“Van Camp allegedly told an undercover agent that he had sold cards to ‘people that are going to the Olympics in Tokyo, three Olympians and their coach in Tokyo, Amsterdam, Hawaii, Costa Rica, Honduras,’” the DOJ said in a news release, CNBC reported.
Van Camp also allegedly told that agent, “I’ve got a company, a veterinary company, has 30 people going to Canada every f— day, Canada back. Mexico is big. And like I said, I’m in 12 or 13 states, so until I get caught and go to jail, f— it, I’m taking the money, (laughs)! I don’t care,” the DOJ stated.
Clinical laboratory directors and pathologists know these fraud charges provide another example of how the misdeeds of a few reflect on the entire healthcare industry, potentially causing people to lose trust in organizations tasked with providing their healthcare.
No explanation for the delay was provided by court after nine weeks of testimony in the prosecution of the former clinical laboratory executive
Former Theranos president/chief operating officer Ramesh “Sunny” Balwani’s often-delayed fraud trial was scheduled to resume on May 27 with a full day of defense witness testimony. It will now be delayed until June 7.
According to NBC Bay Area, a court assistant announced the delay but did not provide a reason for the postponement. A copy of the clerk’s notice posted on Twitter by Law360 also provided no further details. Pathologists and clinical laboratory managers must now wait several more months to learn what may be next revealed in testimony during this trial.
It is also yet one more delay in Balwani’s trial. His original trial date was January 2022 before being rescheduled for February. The needs for COVID-19 pandemic protocols further delayed the start multiple times until opening arguments began March 22 in a federal court room in San Jose, Calif.
One part of the trial has concluded. On May 20, the government rested its case against Balwani, who faces 12 counts of wire fraud and conspiracy to commit wire fraud while serving as second in command at Theranos, the now defunct Silicon Valley medical laboratory startup.
Former Theranos president and COO Ramesh “Sunny” Balwani (above) faces 12 charges of wire fraud and conspiracy to commit wire fraud while serving as chief operating officer of Theranos, the company that boldly declared it would disrupt the clinical laboratory testing industry. His trial, which began in March in US District Court in San Jose, Calif., is now delayed until June 7, when his defense attorneys will begin their first full day of witness testimony. (Photo copyright: Stephen Lam/Reuters/The New York Times.)
According to The Wall Street Journal (WSJ), nine weeks of testimony in US District Court in San Jose, Calif., included testimony from 24 witnesses. Prosecutors aimed to convince jurors Balwani controlled much of the day-to-day decision-making at Theranos and was a full participant in the fraud scheme.
NBC Bay Area stated prosecutors worked to link Balwani to two key decisions:
The rollout of the failed Edison blood testing device in Walgreens, and
The company’s improper use of the Pfizer logo on a report to Walgreens executives that appeared to validate Theranos’ technology.
Before this latest postponement, Balwani’s attorneys had begun their client’s defense by putting a naturopathic physician from Arizona on the stand. The witness testified to sending more than 150 patients to Theranos and to using the company’s blood tests for herself, the WSJ reported.
Bloomberg reported that prosecutors followed the previous outline used to gain the conviction of Elizabeth Holmes, founder and former CEO of Theranos, with many of the same witnesses from her trial reappearing on the stand to testify in the Balwani trial.
Prosecutors primarily focused their case on the injury to investors, which has angered some former Theranos customers.
“I feel like I belong to a group of people who were on the receiving end of a crime,” said Erin Tompkins—a Theranos customer who testified against both Holmes and Balwani—outside the courthouse shortly after finishing her testimony in the Balwani case, Bloomberg reported.
According to CNBC, Tompkins testified she was misdiagnosed as having HIV after having her blood drawn from a Theranos device at a Walgreens in Arizona.
“Despite the dedication and support of prosecutors, patient witnesses have been treated as peripheral” compared to the investors, Tompkins told Bloomberg. “We were defrauded because we trusted them with our blood and however many dollars for the test. But we weren’t robbed of millions of dollars.”
Susanna Stefanek, editorial manager at Apple Inc. who served on the Holmes jury, told Bloomberg, “[The prosecution] didn’t really prove that these patients were persuaded to get these blood tests by something she said or did, or even the advertising. The connection between Elizabeth Holmes and the patients was not that strong to us.”
Proving Patient Fraud
Michael Weinstein, JD, a former federal prosecutor turned Chair of White-Collar Litigation and Government at Cole Schotz in New Jersey, told Bloomberg that to convict Balwani of patient fraud, prosecutors must prove Balwani knew what was going on inside Theranos and that his misrepresentations caused patients to suffer.
“The government wants to show there was an inconsistency between what he was learning internally versus what he was saying externally,” Weinstein said.
With the Balwani trial likely to conclude this month, clinical laboratory directors and pathologists who have closely followed Theranos’ rise and fall should prepare for the final chapter in the saga.
By shifting away from fee-for-service, the state encouraged collaboration between hospitals and physicians to improve care and lower costs
Maryland “leads the way” in value-based payment reform, according to a series of articles published in Health Affairs. “The evidence is clear,” the article declares, “Maryland’s application of uniform prices within global budgets lowers total care costs, reduces unnecessary utilization, and incentivizes proactive preventive and chronic disease management care. Can other states implement Maryland-like payment models and achieve similar financial success?” It’s a fair question.
It is widely-known that clinical laboratory testing is integral to early and accurate diagnosis, and, under Maryland’s current reimbursement model, hospital/health system C-suite administrators have recognized that a robust clinical laboratory service is invaluable to showing progress toward cost containment and patient outcomes goals. But how did that come about? And what can other states learn from Maryland’s success?
Focusing on Better Patient Outcomes at Reduced Costs
Maryland’s current value-based payment arrangement set its first roots back in 2014. That is the year when the state of Maryland and the federal Centers for Medicare and Medicaid Services (CMS) announced a “new initiative to modernize Maryland’s unique all-payer rate-setting system for hospital services aimed at improving patient health and reducing costs,” declared a press release at that time.
Dubbed Maryland’s “All-Payer Model,” the press release went on to say, “This initiative will replace Maryland’s 36-year-old Medicare waiver to allow the state to adopt new policies that reduce per capita hospital expenditures and improve health outcomes as encouraged by the Affordable Care Act. Under this model, Medicare is estimated to save at least $330 million over the next five years.” Did that happen? Apparently so.
The state designed its “All-Payer Model” hospital payment system to render reimbursements based on populations served and the quality of care provided. The program focused on better patient outcomes and higher quality care at a reduced cost, instead of concentrating on the volume of care. The system incentivized hospitals to prevent readmissions, infections, and other potentially avoidable events.
“By shifting away from traditional fee-for-service payment, Maryland’s new model encourages collaboration between hospitals and physicians to improve patient care, promotes innovative approaches to prevention, and accelerates efforts to avoid unnecessary admissions and readmissions,” said pediatrician Joshua Sharfstein, MD, Vice Dean for Public Health Practice and Community Engagement at the Johns Hopkins Bloomberg School of Public Health in a 2014 CMS press release.
Sharfstein was the Secretary of Maryland’s Department of Health from 2011 to 2014.
Then, in 2019, Maryland implemented the successor to the state’s “All-Payer Model” dubbed the “Total-Cost-of-Care (TCOC) Model.”
According to the CMS, whereas the All-Payer Model “established global budgets for certain Maryland hospitals to reduce Medicare hospital expenditures and improve quality of care for beneficiaries,” the TCOC “builds on the success of the Maryland All-Payer Model by creating greater incentives for healthcare providers to coordinate with each other and provide patient-centered care, and by committing the State to a sustainable growth rate in per capita total cost of care spending for Medicare beneficiaries.”
The TCOC began on January 1, 2019, and runs through December 31, 2026.
“Our focus is really on the health of our communities,” Nicole Stallings of the Maryland Hospital Association told State of Reform. “We don’t have a public hospital system, we don’t have tiered hospitals, we don’t have hospitals that are having to close because we are able to spread cost really equitably across our system. Equity being a core pillar is something that we know is critically important to maintain. We want to see more alignment there as we now try to tackle these population health goals. But we believe there’s more collaboration happening here than anywhere else,” she added. Clinical laboratories have an important role to play in population health. (Photo copyright: Center Maryland/Vimeo.)
Results of Maryland’s All-Payer-Model Program
In general, an all-payer system allows a state to manage healthcare prices via rate setting where all healthcare payers, including the government, private insurers, and employer healthcare plans, pay similar prices for services provided at individual hospitals.
When it announced the results of the five-year All-Payer-Model program, Maryland’s Health Services Cost Review Commission—the state agency responsible for regulating cost and quality of hospital care in Maryland—declared the program’s targets had been achieved. They included:
1.92% average annual growth per capita in hospital revenue (goal was to be less than or equal to 3.58%).
$1.4 billion cumulative Medicare savings in hospital expenditures.
Below national average for hospital readmissions of Medicare patients within five years.
All of Maryland’s 47 acute-care hospitals paid based on health populations served—not number of services rendered—with 98% of total hospital revenue under Global Budget Revenue (GBR) payment method.
In addition, the Maryland HSCRC report indicated that innovative care was a key tenet of the model and that hospitals benefitted from being given the ability to:
Invest in new healthcare programs that improve collaboration with other providers in the community.
Implement new clinical protocols, patient safety techniques, and follow-up procedures for high-risk patients at hospital discharge.
Create hubs of care to triage needs, coordinate important services, and ensure patients in need are connected to services outside the hospital.
After the success of the Maryland All-Payer Model, the state’s Total-Cost-of-Care Model program continued to focus on healthcare cost savings to Medicare. But it introduced population health improvement activities across the entire healthcare delivery system.
Future of Maryland’s Total-Cost-of-Care Model Program
Maryland’s TCOC Model program seeks more than $1 billion in Medicare savings by the end of 2023, or the fifth performance year of the program. According to the CMS Innovation Models webpage, Maryland’s TCOC Model includes the following three programs:
The Hospital Payment Program, where each hospital receives a population-based payment amount which covers all hospital services provided during a year.
The Care Redesign Program, which allows hospitals to make incentive payments to nonhospital healthcare providers who partner with hospitals to provide care.
The Maryland Primary Care Program, which incentivizes primary care providers to offer advanced care services to their patients.
An analysis of the first two years of the TCOC program found some significant improvements particularly in the areas of care management, access, and continuity.
In the first performance year of Maryland’s TCOC model, the state reduced spending by $365 million, relative to national trends, according to a Mathematica implementation report.
Part of the success of the model is due to its use of global, fixed budgets that are set for every hospital. Rates are established by an independent commission which prevents cost shifting and provides a more equitable system for patients where they pay the same price for the same service at all hospitals throughout the state, Mathematica noted.
“We believe [global budgets are] a real distinguishing factor, because unlike the rest of the country, our hospitals aren’t paid more to do more,” said Nicole Stallings, told State of Reform. Stallings is Chief External Affairs Officer and Senior Vice President, Government Affairs and Policy at the Maryland Hospital Association (MHA).
Expanding Maryland’s All-Payer-Model Program to Other States
In 2016, CMS established the Center for Medicare and Medicaid Innovation (CMMI) to identify ways to improve healthcare quality and reduce overall costs in the Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) programs. Maryland’s All-Payer model has produced the most savings out of any of the projects and experimental payment programs researched by CMMI. The success of Maryland’s programs prompted CMMI to look at expanding similar programs in other states.
Reductions in hospital costs combined with improved outcomes can only benefit patients and the healthcare industry in the long run. Since clinical laboratory testing is integral to early diagnoses and treatment of diseases, under Maryland’s current reimbursement model a robust clinical laboratory service is invaluable for succeeding at cost containment and patient outcome goals.
Company was accused of manipulating clinical laboratory reports from previous COVID-19 tests to forge new results, and sending “negative” test results to patients even though their tests had never been completed
National COVID-19 testing chain Sameday Health (a.k.a., Sameday Technologies) will pay $22.5 million—and its contracted doctor an additional $3.9 million—to settle a case with the City of Los Angeles and the Los Angeles County Attorney’s Office over alleged falsifying, faking, and failing to deliver more than 500 COVID-19 test results to consumers.
According to an announcement from the Los Angeles City Attorney’s Office, the settlements require Sameday Health and physician Jeffrey Toll, MD, to pay restitution and civil penalties, and to comply with permanent injunctions prohibiting them from participating in the alleged activities that led to the City Attorney’s investigation.
“If you get a negative test, you assume it’s safe to go to work, visit family and friends, or take a vacation. But the victims of this alleged scheme might unknowingly have spread COVID to others or failed to receive timely and appropriate care themselves,” Los Angeles City Attorney Mike Feuer, JD, said in the announcement.
“We’ve intervened to protect consumers in numerous major COVID-related matters, but this may be the most significant consumer protection case to emerge from the pandemic,” he added.
Los Angeles City Attorney Mike Feuer, JD, (above) teamed with Los Angeles CountyDistrict Attorney George Gascón to reach a $26 million settlement with Sameday Health of Venice, Calif., and its contracted physician over phony COVID-19 test results. “It’s beyond outrageous that anyone would falsify COVID tests, as we allege happened here,” Feuer said in a statement. Clinical laboratories will want to note the fervor at which state officials are pursuing million-dollar settlements in COVID-19 fraud cases. (Photo copyright: California Globe.)
The LA City Attorney’s Complaint Against Sameday Technologies
Sameday Technologies, which operates under the name Sameday Health, has 55 COVID-19 testing sites throughout the country, with 16 locations in Los Angeles County, including five in the city.
The complaint released by the LA City Attorney’s Office states that consumers “paid a premium to get a rapid COVID-19 PCR test from Sameday Technologies, Inc. (Sameday), a Venice, Calif.-based start-up turned national chain that promised reliable COVID-19 test results in 24- hours or less.”
Sameday did not own its own clinical laboratory and its primary third-party vendor labs “were only required to aim to deliver results to Sameday’s consumers within 24-hours or 48-hours of the laboratory receiving the consumers’ testing samples from Sameday, along with all of the paperwork and information necessary to track, process, and report the result.
“But Sameday, unable to meet its 24-hour guarantee, sent hundreds of customers fake test results and laboratory reports stating that they had tested negative for COVID-19, when in reality Sameday’s laboratories had not run (and in many cases had not even received) the consumers’ tests,” the attorneys’ complaint states.
In addition to forging and falsifying hundreds of test results, the LA City Attorney’s Office alleges Sameday committed insurance fraud by partnering with a doctor to steer insured customers into three-minute-long medically unnecessary consultations. Using a virtual call center of physicians, the attorney’s office states, Sameday “submitted claims to insurance companies with codes that falsely represented the length of the consultations, misrepresented the purpose of the tests and consults, and sometimes sought reimbursement for calls that never even happened.” The state maintains Sameday in one year made “millions of dollars” from California-based insurance claims alone.
Additional Settlement with LA-based Medical Internist
In a statement provided to the Los Angeles Times, Sameday Health stated it was founded in September 2020 “to make fast, reliable, COVID testing available to everyone.
“In the early days, amidst the chaos of massive surges in demand for services, and shortages in supplies, we failed to meet the standards for excellence our customers deserve,” the company said. “We have corrected the problems that arose back in 2020 and have made significant investments in compliance and systems to ensure that we meet our customers’ expectations. We agreed to settle with the City Attorney and the LA District Attorney in order to move forward and to allow the 1,200 men and women of Sameday to place their focus on providing top-level service to the communities we serve.”
Sameday’s founder and CEO Felix Huettenbach also is named in the settlement, having agreed to join with Sameday in paying $9.5 million in restitution and $13 million in penalties and to no longer access any test result or medical records belonging to any Sameday Health customers.
The Los Angeles Times reported that a separate $3.9 million settlement was reached with Jeffrey Toll, MD, a Los Angeles-based internist who serves as Medical Director for concierge medical practice Good Life Medical Services.
Feuer and Los Angeles County District Attorney George Gascón maintain Toll was a partner in Sameday Health’s alleged insurance fraud. In their complaint, they state patient phone calls would last two to three minutes and cost insurers about $450. In exchange, Toll allegedly gave Sameday Health a large portion of the profits, the complaint alleges.
Toll’s attorney D. Shawn Burkley, JD, of Werksman Jackson and Quinn LLP denied any wrongdoing, telling the Los Angeles Times, “We settled the matter, but we do not believe that Dr. Toll did anything that was unethical.”
Settlements with Toll and Sameday Health must still be approved by a judge.
Patients to Receive Refunds for PCR Clinical Laboratory Tests
In late April, Feuer announced that Californians who paid out of pocket for PCR tests from Sameday Health between October 1 and December 31, 2020, are expected to be issued refunds from the company as part of the settlement, Patch reported.
More than 800 million COVID-19 tests have been performed in the United States since the pandemic began in 2020, according to Our World in Data statistics. Though incidents of fraud have been rare, clinical laboratory managers and pathologists who read Dark Daily will be aware of the growing number of state and federal fraud investigations being opened since the COVID-19 pandemic began to wane.
The settlement with Sameday Health may serve to put other pandemic startups—and their clinical laboratories—on notice that deceitful and fraudulent practices will likely not go unnoticed by federal or state agencies.
Even as Balwani’s trial moves ahead, Hulu’s miniseries ‘The Dropout’ chronicles the pair’s romance and the company’s downfall while providing controversial subject matter for various media outlets
Unlike Theranos founder Elizabeth Holmes’ criminal trial for fraud which generated daily headlines across the nation, the related fraud trial of ex-Theranos COO Ramesh “Sunny” Balwani is not getting the same news coverage. Therefore, media have shifted their reporting to Balwani’s personal relationship with the Holmes, which is clearly having its moment in the media spotlight.
The release of the Hulu miniseries “The Dropout”—which chronicles Holmes’ failed attempt to revolutionize the clinical laboratory industry by developing a device capable of performing multiple clinical blood tests using a finger-stick of blood—created the initial media and TV-viewer buzz.
Now a diverse range of media, including Fortune, The New York Post, and The Guardian, are turning their attention to the former Theranos executives’ private relationship during the time when they were in charge at the failed medical laboratory company.
As “The Dropout” outlines, Holmes gained celebrity status after dropping out of Stanford University at age 19 and founding Theranos in 2003. Years later, when Theranos claimed its Edison blood-testing device could conduct hundreds of blood tests using a finger-prick of blood, the startup’s valuation soared to nearly $9 billion in 2014, making Holmes a billionaire based on her 50% stake in the company, Investopedia reported.
In “What Happened to Elizabeth Holmes and Sunny Balwani? Where the Shamed Theranos Execs are Today,” Fortune used the release of “The Dropout” to publish an update on Holmes and Balwani. The magazine notes Holmes’ family connections—she was a descendant of the founders of America’s first yeast company and the daughter of a former Enron executive and congressional aide—helped her early efforts at fundraising for Theranos.
Fortune also stated that Holmes’ “pedigreed background” enabled her to attract “luminaries” such as former Secretary of State Henry Kissinger and former CDC Director William Foege to the Theranos board and gained her access to high-profile investors.
In U.S. District Court Northern District of California, ex-Theranos president and COO Ramesh “Sunny” Balwani (above) faces charges for allegedly defrauding patients and investors about Theranos. His defense team has attempted to distance their client from the day-to-day decision-making in the clinical laboratory company, while prosecution witnesses are attempting to show Balwani not only invested money in the startup but orchestrated many of the company’s actions. Balwani has pleaded not guilty to all charges. (Photo copyright: David Paul Morris, Fortune.)
Theranos, Holmes Cloaked in Secrecy, according to Fortune
While Holmes sought the spotlight when promoting Theranos, Fortune maintains the company’s work culture and Holmes herself were clocked in secrecy. The article states Holmes hired bodyguards to serve as her chauffeurs, installed bulletproof glass in her office windows, and did not allow workers in separate departments to discuss projects with one another.
Balwani met Holmes in 2002 while both were studying in Beijing as part of a Mandarin language summer program. He was 37 and married at the time, while Holmes was an 18-year-old high school student. Balwani was attending an MBA program at the University of California, Berkeley, which he entered after selling his shares in software company Commerce One in 2000 for nearly $40 million.
The New York Post reported Balwani sold the upscale Silicon Valley home he previously shared with Holmes for $15.8 million this past January. The 6,800-square-foot, five-bedroom, seven-bathroom house in Atherton, Calif., is a one-acre property, which The Post states was purchased by the couple for $9 million in 2013. Balwani bought out Holmes’ 50% stake in 2018.
Aron Solomon, a Chief Legal Analyst for legal marketing firm Esquire Digital, is not surprised by the interest in all things Theranos-related.
“We are seeing a ton of interest following the Holmes trial, and I don’t think it’s going to go away,” he told The Guardian.
Potential Reason for Delay in Holmes’ Sentencing
Holmes was convicted in January on four counts of fraud, but she is not expected to be sentenced until September. Amanda Kramer, JD, a partner in the White Collar Defense and Investigations practice at Covington and Burling, LLP, and a former federal prosecutor, suggests that Holmes’ sentencing date may have been delayed until after Balwani’s trial due to the potential for new information to come to light.
“It’s not typical for a case to be sentenced eight months out, but this is not a typical case in many senses,” Kramer told NPR. “And some facts established in Balwani’s trial might prove to be relevant in Holmes’ sentencing.”
So, it appears clinical laboratory directors and pathologists may find more interesting insights about the problems at Theranos emerging from court testimony when it is time for Holmes to be sentenced and during the remaining days of Balwani’s trial. Stay tuned. Dark Daily will continue to bring you the relevant facts of the case.
Defense attorneys attempted to describe Balwani as simply an investor in Theranos, but prosecutors used the defendant’s own text messages to debunk that claim
Clinical laboratory directors and pathologists following the criminal fraud trial of ex-Theranos President and COO Ramesh “Sunny” Balwani may be experiencing a case of déjà vu as the former executive of the now-defunct blood-testing company has his day in court.
Even as Balwani’s defense team attempted to distance their client from the company’s day-to-day decision-making activities, prosecutors followed an almost identical script from the previous fraud trial of Theranos founder Elizabeth Holmes conducted earlier this year. That trial led to her conviction on four counts of defrauding investors.
As was the case in the Holmes trial, text messages between the two Theranos top executives (Balwani and Holmes) are again center stage in the San Jose, Calif., courtroom of U.S. District Judge Edward Davila.
Balwani Texts Reveal an ‘Unhappy’ Man Under Pressure
Balwani, 56, worked alongside Holmes at Theranos from 2009 to 2016. He purchased $5 million in stock in the company and helped finance the startup by underwriting a $13 million loan. Like Holmes, Balwani faces a dozen counts of fraud and conspiracy to commit wire fraud.
Jurors in the Balwani trial were shown a collection of private text messages between Balwani and Holmes—who also was his girlfriend at the time—that shed light on their business and personal relationships.
“I am responsible for everything at Theranos,” Balwani wrote in a text exchange with Holmes, NBC Bay Area reported. “I worked six years day and night to help you … sad about where we are,” he wrote.
“I am very unhappy because my work sucks,” Balwani told Holmes in another text. NBC Bay Area also reported on other text messages that discussed meeting new investors, meeting revenue goals, and potentially buying a corporate plane.
Just like former Theranos CEO/founder Elizabeth Holmes, former Theranos president/COO Ramesh “Sunny” Balwani (above) faces a dozen counts of fraud and conspiracy to commit wire fraud. Clinical laboratory directors will be particularly interested in the outcome of these trails since the responsibility of CLIA-laboratory directors to report anomalies in medical laboratory testing played a key part in defense testimony. (Photo copyright: The Guardian.)
Defense Counterattacks with Expert Testimony
Balwani’s defense team launched a counterattack the following day when witness Constance Cullen, PhD, a former immunologist at Schering-Plough, stated on cross examination that she dealt only with Holmes and never met Balwani or other Theranos executives, NBC Bay Area reported.
During Holmes’ trial, Cullen testified that Holmes had used the Schering-Plough logo without authorization on studies presented to potential investors which aimed to validate Theranos’ blood-testing technology.
Balwani’s defense team previously described him as a Theranos “shareholder” in an effort to distance him from executive decisions that allegedly misled Theranos investors about the startup’s revenues and accuracy of the company’s “revolutionary” Edison blood-testing device, which Theranos claimed could perform hundreds of clinical laboratory tests using a finger-prick of blood.
According to additional NBC Bay Area coverage of the trial, a former Walgreens executive testified he worked closely with Balwani during the drugstore chain’s failed multiyear partnership with Theranos, which included a $50 million investment to bring in-store medical laboratory testing to its pharmacies.
“As a person who was an investor and essentially serving as the chief operations officer, Sunny Balwani absolutely was intimately involved in the Walgreens relationship and all the relationships Theranos had,” chief legal analyst for Esquire Digital and editor of Today’s Esquire, Aron Solomon, JD, told NBC Bay Area in a video interview.
NBC Bay Area reported that prosecutors introduced text messages between Balwani and Holmes in which Balwani admitted he did not inform Walgreens that third-party equipment—not the Theranos Edison device—was being used for much of the actual clinical laboratory testing done in Walgreens stores.
Prosecutors Claim Balwani, Holmes Worked ‘Together’ to Defraud Investors
Earlier in April, government lawyers responded to claims from Holmes’ defense team that Judge Davila should set aside the convictions in Holmes’ fraud case because evidence at trial did not support a guilty verdict, Fortune reported.
The prosecutors countered in a court filing that the “overwhelming weight of the evidence admitted at trial supports the jury’s conviction” of conspiracy to commit wire fraud and fraud on Theranos investors.
Prosecutors maintained the Holmes trial was “replete with examples” of Holmes and Balwani “working together and conspiring to effectuate a scheme to defraud investors.” The two “were constantly in communication via email, text message, and in-person meetings” about the company’s laboratories, financials, patient blood-testing, and relationships with Walgreens, investors, and visits by regulators, the Fortune article noted.
Holmes was convicted on January 3, 2022, on three counts of wire fraud and one count of conspiracy to commit wire fraud. Her sentencing date is September 26. She faces up to 20 years in prison but remains free on bond while awaiting sentencing. Balwani’s trial is ongoing.
Clinical laboratory managers and pathologists following the Theranos saga with interest should expect more revelations in the weeks to come. Balwani’s trial, which began in March, is expected to last at least three months.
