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.
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.
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.
Survey respondents can give their opinions about the proposed VALID and VITAL acts
Two bills are pending in Congress, and each is written to change the current regulatory scheme for laboratory-developed tests (LDTs) and in vitro clinical tests (IVCTs). The bills go by the acronyms of the VALID Act and VITAL Act. Many clinical laboratories offering LDTs today may be unaware of the details within each bill as currently written.
That existing regulatory arrangement will change if one of the two pending bills in Congress were to pass and be signed into law. That proposal is known as the Verifying Accurate Leading-Edge IVCT Development Act, or VALID Act. It is a bipartisan, 245-page bill that proposes FDA oversight of LDTs and is making its way through both the Senate and the House of Representatives.
A smaller, seven-page counterproposal is also before the Senate called the Verified Innovative Testing in American Laboratories Act, or VITAL Act. The VITAL Act would keep LDTs under CLIA but mandate updates to CLIA’s rules to account for modern tests.
Readers: Are you in favor of more or less regulation of LDTs? Take this quick survey and let us know what you think. Dark Daily wants to know your thoughts about LDT oversight. Click here to take our six-question survey. Results of this survey will be reported in a coming Dark Daily e-briefing.
Alert pathologists and clinical laboratory managers know that behind every bill proposed in Congress is a party with a vested interest that brought the issue to a senator or representative. Once enacted into law, a new bill changes the status quo, generally to the benefit of the private interests that requested that bill. This is true of both the VALID Act and the VITAL Act.
The table at the bottom of this briefing compares the provisions of each act and is current as of March 28.
Who Opposes VALID Act?
The VALID Act is garnering more attention than the VITAL Act.
On March 22, the American Association for Clinical Chemistry (AACC) sent out an email message urging its members to oppose the VALID Act.
“Let your legislators know that that if VALID becomes law, your institution and other hospitals and small commercial laboratories could be forced to stop providing LDTs,” wrote Patricia Jones, PhD, DABCC, FACB, Chair of AACC’s Policy and External Affairs Core Committee. The AACC has long criticized the VALID Act..
On the other side of the debate, Philadelphia-based The Pew Charitable Trusts, a nonprofit that in part analyzes publics policy, has come out in support of the VALID Act’s proposed requirements.
Two bills are pending in Congress about the future of LDT regulation.
“Although the [current] LDT regulatory process offers labs significant flexibility and enables a more rapid response to public health needs when no FDA-cleared or -approved test exists, the relative lack of oversight for LDTs puts the health of patients at risk,” Pew wrote in an October 2021 report on LDTs.
The Advanced Medical Technology Association also supports the VALID Act, as do many manufacturers of in vitro test kits and large commercial labs. Proponents also believe FDA regulation is needed for IVCTs because they are similar to medical devices and bring with them patient safety concerns.
The American Clinical Laboratory Association and the National Independent Laboratory Association (NILA) have not taken formal positions on the VALID Act.
Congress Could Roll VALID Act into MDUFA Vote to Win Passage
There may be an effort to attach the VALID Act to the authorization vote for the Medical Device User Fee Agreement V (MDUFA), according to a February health legislation alert from law firm Akin Gump Strauss Hauer & Feld based in Washington.
MDUFA funding provides resources to the FDA’s medical device review program. Congress is set to receive final MDUFA V recommendations in April.
Nineteen healthcare and lab industry groups, including the American Medical Association, AACC, AMP, and NILA, sent a joint letter to four Congress members on Feb. 23 requesting they deliberate the VALID Act separately and not as part of MDUFA.
Again, please complete this survey and tell us what you think about FDA regulation of LDTs, as defined in the VALID Act, compared to continuing LDT oversight via a modernized CLIA in the VITAL Act.
—Scott Wallask
Comparison of VALID Act and VITAL Act
VALID Act
VITAL Act
Full act name
Verifying Accurate Leading-Edge IVCT Development Act
Verified Innovative Testing in American Laboratories Act
Bill numbers
House Bill H.R.4128 Senate Bill S.2209
Senate Bill S.1666
Sponsors
Sen. Michael Bennet (D-CO) , Sen. Mike Braun (R-IN), Rep. Larry Bucshon, MD (R-IN), Sen. Richard Burr (R-NC), and Rep. Diana DeGette (D-CO)
Sen. Rand Paul (R-KY)
Provisions
Developers shall apply for premarket approval of IVCTs if there is insufficient evidence of analytical validity or clinical validity or if it’s reasonably possible an IVCT will cause serious adverse health effects.
Applications shall include a summary of test data and scientific evidence to support analytical and clinical validity of the test.
Through a technology certification, developers can submit an IVCT to the FDA for review, and if granted, the certification allows them to develop similar tests without going back for review each time.
The FDA must establish a program for rapid review of breakthrough IVCTs that provide effective treatment of life-threatening diseases
The federal government should work to ensure that regulatory oversight of laboratory tests does not limit patient access, impede innovation, or limit a test’s sustainability as a result of being unduly burdensome or beyond the fiscal capacity of the laboratory to reasonably validate and perform.
No aspects of LTDs shall be regulated under the FDA.
No later than 180 days after enactment of the bill, the secretary of health and human services shall report to the Senate’s Committee on Health, Education, Labor, and Pensions about recommendations to update clinical lab regulations and provide an assessment of LDT use during the 2020 pandemic response.
Exemptions
IVCTs being marketed before the VALID Act goes into effect
Low-risk tests
IVCTs that are granted emergency use
No new exemptions
Review timelines
The FDA shall make a decision no later than 90 days after an application is submitted.
No new requirements noted.
Sources: VALID Act and VITAL Act bills. Information is current as of March 28, 2022.
Medical laboratories and anatomic pathologists may need to squeeze into narrow networks to be paid under value-based schemes, especially where Medicare Advantage is concerned
Pathologists have likely heard the arguments in favor of value-based payment versus fee-for-service (FFS) reimbursement models: FFS encourages providers to order medically unnecessary procedures and lab tests. FFS removes incentives for providers to order patient services more carefully. Fraudsters can generate huge volumes of FFS claims that take payers months/years to recognize and stop.
Studies that favor value-based payment schemes support these claims. But do hospitals and other healthcare providers also accept them? And how is value-based reimbursement really doing?
To find out, Chicago-based thought leadership and advisory company 4Sight Health culled data from various organizations’ reports that suggest value-based reimbursement shows signs of growth as well as signs of stagnation.
Value-Based Payment Has Its Ups and Downs
Healthcare journalist David Burda is News Editor and Columnist at 4Sight Health. In his article, “Is Value-Based Reimbursement Mostly Dead or Slightly Alive?” Burda commented on data from various industry reports that indicated value-based reimbursement shows “signs of life.” For example:
More doctors are accepting pay-for-performance payments: 44.5% in 2020, up from 42.3% in 2018, according to an American Medical Association (AMA) biennial report on physician participation in value-based reimbursement, titled, “Policy Research Perspectives: Payment and Delivery in 2020.”
On the other hand, Burda reported that value-based reimbursement also has these declining indicators:
39.3% of provider payments “flowed” through FFS plans in 2020 with no link to cost or quality. This was unchanged since 2019. (HCPLAN report)
19.8% of FFS payments to providers in 2020 were linked to cost or quality, down from 22.5% in 2019. (HCPLAN report)
88% of doctors reported accepting FFS payments in 2019, an increase from 87% in 2018. (AMA report)
Does Today’s Healthcare Industry Support Value-based Care?
A survey of 680 physicians conducted by the Deloitte Center for Health Solutions suggests the answer could be “not yet.” In “Equipping Physicians for Value-Based Care,” Deloitte reported:
“Physician compensation continues to emphasize volume more than value.
“Availability and use of data-driven tools to support physicians in practicing value-based care continue to lag.
“Existing care models do not support value-based care.”
Deloitte analysts wrote, “Physicians increasingly recognize their role in improving the affordability of care. We repeated a question we asked six years ago and saw a large increase in the proportion of physicians who say they have a prominent role in limiting the use of unnecessary treatments and tests: 76% in 2020 vs. 57% in 2014.
“Physicians also recognize that today’s care models are not geared toward value,” Deloitte continued. “They see many untapped opportunities for improving quality and efficiency. They estimate that even today, sizable portions of their work can be performed by nonphysicians (30%) in nontraditional settings (30%) and/or can be automated (18%), creating opportunities for multidisciplinary care teams and clinicians to work at the top of their license.”
Hospital CFOs Also See Opportunities for Value-based Care
This could be problematic for clinical laboratories, according to Robert Michel, Editor-in-Chief of Dark Daily and our sister publication The Dark Report. According to Guidehouse, “Nearly 60% of health systems plan to advance into risk-based Medicare Advantage models in 2022.”
Medicare Advantage (MA) enrollments have escalated over 10 years: 26.4 million people of the 62.7 million eligible for Medicare chose MA in 2021, noted a Kaiser Family Foundation brief that also noted MA enrollment in 2021 was up by 2.4 million beneficiaries or 10% over 2020.
The graph above is taken from the Kaiser Family Foundation report, “Medicare Advantage in 2021: Enrollment Update and Key Trends.” According to the KFF, “In 2021, more than four in 10 (42%) Medicare beneficiaries—26.4 million people out of 62.7 million Medicare beneficiaries overall—are enrolled in Medicare Advantage plans; this share has steadily increased over time since the early 2000s.” Since MA employs narrow networks for its healthcare providers, it’s likely this trend will continue to affect clinical laboratories that may find it difficult to access these providers. (Graphic copyright: Kaiser Family Foundation.)
“The shift from Medicare Part B—where any lab can bill Medicare on behalf of patients for doctor visits and outpatient care, including lab tests—to Medicare Advantage is a serious financial threat for smaller and regional labs that do a lot of Medicare Part B testing. The Medicare Advantage plans often have networks that exclude all but a handful of clinical laboratories as contracted providers,” Michel cautioned. “Moving into the future, it’s incumbent on regional and smaller clinical laboratories to develop value-added services that solve health plans’ pain points and encourage insurers to include local labs in their networks.”
Medical laboratories and anatomic pathology groups need to be aware of this trend. Michel says value-based care programs call on clinical laboratories to collaborate with healthcare partners toward goals of closing care gaps.
“Physicians and hospitals in a value-based environment need a different level of service and professional consultation from the lab and pathology group because they are being incented to detect disease earlier and be active in managing patients with chronic conditions to keep them healthy and out of the hospital,” he added.
Value-based reimbursement may eventually replace fee-for-service contracts. The change, however, is slow and clinical laboratories should monitor for opportunities and potential pitfalls the new payment arrangements might bring.
