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New Report Reveals That Medicare Part A Fund May Be Tapped Out By 2028, Triggering Calls for Congress to Address This Problem

Experts say it is time to change Medicare financing, even as large numbers of baby boomers continue to enroll in the program each year

Medicare’s fund for payment of inpatient hospital care is expected to be tapped out in 2028. That’s according to a new report from Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds (2022 Medicare Trustees Report). That’s somewhat better than running out of money for inpatient care in 2026, which was what Medicare announced in last year’s Medicare Trustees Report.

Either way, if Medicare is allowed to run dry, millions of patients (most among the elderly) may be unable to receive critical care, including clinical laboratory testing and pathology.

“The Hospital Insurance (HI) Trust Fund, or Medicare Part A, which helps pay for services such as inpatient hospital care, will be able to pay scheduled benefits until 2028, two years later than reported last year. At that time, the fund’s reserves will become depleted,” the 2022 Medicare Trustees Report states, which draws its data from a US Treasury Department fact sheet.

Catastrophe in the Making

Kerry Weems, Executive Chairman at Value Based Healthcare Investors Alliance and former Administrator for the Centers for Medicare and Medicaid Services (CMS) said federal lawmakers are apparently waiting to deal with a “catastrophe” in 2028 instead of a “crisis” in 2026. Weems shared his views in an article he penned for 4Sight Health, a Chicago-based healthcare strategy company, titled, “Dead Seniors Save Congress from Tough Decisions.”

“The progressively worse imbalance of expenditures versus revenues will exhaust the trust funds in 2028,” Weems wrote, adding that one of two payment scenarios will likely happen:

  • Medicare may pay bills on a “discounted basis,” which means if expected revenues are 85% of expenditures, then Medicare would pay bills at 85% of the amount, or
  • Medicare may put bills aside until it has the money from tax dollars.

“And then (Medicare would) pay them on a first-in-first-out basis,” Weems wrote, adding, “At the time of insolvency, that current Administration would have to pick its poison.”

For hospital clinical laboratory leaders and pathologists who provide care to Medicare beneficiaries, neither approach would be satisfactory. And a solution for funding Medicare Part A beyond 2028 needs to be crafted to ensure hospitals are paid on a timely basis.

But what should it be?

James Capretta, Senior Fellow at the American Enterprise Institute
 
“Medicare’s two-part insurance and trust fund design may have made sense in the mid-1960s, but it no longer does. Modern coverage is not bifurcated in this way and imposing stricter financial control over facility spending than clinician and outpatient services can distort the policy-making process, and thus also patient care,” wrote James Capretta (above), Senior Fellow at the American Enterprise Institute, in his analysis of the 2022 Medicare trustees report, published in Health Affairs. If Medicare truly does run out of money, millions of elderly people may lose access to critical healthcare services, including clinical laboratory testing. (Photo copyright: American Enterprise Institute.)

Medicare Funding Scheme is ‘Flawed’

According to the Kaiser Family Foundation (KFF), the amount of money Medicare needs to cover the deficit between 2028 through 2031 (the period studied in the trustees’ projections), is estimated at $247.4 billion.

Medicare is supported by employers and employees, who each pay a 1.45% tax on earnings, KFF explained. Balancing the fund supporting Medicare Part A requires either an increase of .70% of taxable payroll or a 15% reduction in benefits, KFF estimated.

“Medicare will not cease to operate if assets are fully depleted, because revenue will continue flowing into the fund from payroll taxes and other sources,” KFF noted.

However, the current set-up of Medicare trust funds (one for Part A and another funded differently for Medicare Part B, which includes outpatient coverage such as medical laboratory tests), is “flawed” and needs updating to enable reform.

That’s according to analysis written by James Capretta, a Senior Fellow at the American Enterprise Institute and Member of the Advisory Board of the National Institute for Health Care Management in Washington, DC, published in Health Affairs. He added that by dividing its coverage, Medicare may not be addressing the big picture in patient care.

Baby Boomers, COVID Challenge Medicare

Furthermore, Medicare faces challenges brought on by an aging population and increasing enrollees.

Baby Boomers (born between 1946 and 1964) will qualify for Medicare by 2030 and potentially leave the workforce, depleting their payroll tax contributions to the program, KFF pointed out.

Also, Medicare reform needs to reflect the impact of the COVID-19 pandemic. An analysis of 114,000 COVID-19-associated deaths from May to August 2020 showed 78% of the people were age 65 and older, according to the federal Centers for Disease Control and Prevention (CDC).

“Medicare beneficiaries whose deaths were identified as related to COVID-19 had costs that were much higher than the average Medicare beneficiary prior to the onset of the pandemic,” the 2022 Medicare Trustees report noted.

“The surviving Medicare population had lower morbidity, on average, reducing costs by an estimated 1.5% in 2020 and 2.9% in 2021. This morbidity effect is expected to continue over the next few years but is assumed to decrease over time before ending in 2028.”

In his 4Sight Health article, Weems suggested that the Medicare reform deadline was bumped to 2028 from 2026 due to fewer people living and able to access Medicare in coming years.

“Let’s honor those seniors by using the time for real Medicare reform,” Weems wrote.

Hospital laboratory managers and pathologists will want to keep a watchful eye on Congress’ handling of the 2022 Medicare Trustees Report. Though it is unlikely the nation’s decision-makers will act on the report during an election year, pressure to develop a solution to meet the funding needs of Medicare Part A hospital care beyond 2028 will start to build in 2023.

Donna Marie Pocius

Related Information:

2022 Medicare Trustees Report

2021 Medicare Trustees Report

Fact Sheet: 2022 Social Security and Medicare Trustees Reports

Dead Seniors Save Congress from Tough Decisions

FAQs on Medicare Financing and Trust Fund Solvency

Medicare’s Supplementary Medical Insurance Fund: A Growing Burden on Taxpayers

Maryland’s Statewide Value-Based Payment Models Benefit both Healthcare Providers and Patients

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.

Nicole Stallings of the Maryland Hospital Association
“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.
  • 53% reduction in hospital-acquired conditions (goal was 30% reduction over five years).
  • 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.   

JP Schlingman

Related Information:

Meaningful Value-Based Payment Reform, Part 1: Maryland Leads the Way

Meaningful Value-Based Payment Reform, Part 2: Expanding The Maryland Model to Other States

The National Implications of Maryland’s All-Payer System

The Total Cost of Care Model: Uniquely Maryland, Uniquely Successful

CMS and Maryland Announce Joint Initiative to Modernize Maryland’s Health Care System to Improve Care and Lower Costs

Maryland All-Payer Model to Deliver Better Care and Lower Costs

CMS: Maryland All-Payer Model

CMS: Maryland Total-Cost-of-Care Model

Maryland’s All-Payer Model Results

Evaluation of the Maryland Total Cost of Care Model: Implementation Report

Maryland Total Cost of Care Model Reduced Spending by $365 Million in First Year

Transition from Fee-for-Service to Value-Based Reimbursement for Hospitals, Physicians, and Clinical Laboratories Continues, Albeit Slowly, Reports Say 

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:

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

In his 4sight Health article, Burda reported on data from a “Guidehouse Center for Health Insights’ analysis of a 2021 Healthcare Financial Management Association (HFMA) survey of more than 100 health systems CFOs that found that most said they are still interested in seeking value-based payment arrangements this year.”

According to the HFMA survey, among the arrangement CFOs indicated, 59% expressed interest in Medicare Advantage value-based payment contracts.

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.

Graph of Medicare Advantage Enrollment
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.

—Donna Marie Pocius

Related Information:

Is Value-Based Reimbursement Mostly Dead or Slightly Alive?

APM Measurement Progress of Alternative Payment Models: 2020-2021 Methodology and Results Report   

Policy Research Perspectives: Payment and Delivery in 2020

Equipping Physicians for Value-Based Care: What Needs to Change in Care Models, Compensation, and Decision-Making Tools

Nearly 60% of Health Systems Pursuing Risk-Based Medicare Advantage Models in 2022, Guidehouse Analysis Shows

Medicare Advantage in 2021: Enrollment Update and Key Trends

CMS’ Latest Value-Based Reimbursement Model Explores Geographic Direct Contracting for Medicare and Focuses on Costs and Quality

Private Labs in South Africa Voluntarily Agree to Lower Prices for COVID-19 PCR Tests following Investigation by Country’s Competition Commission

In an out-of-court settlement, two commercial clinical laboratory companies also agreed to reduce their prices for rapid antigen tests as well

How clinical laboratory companies were pricing their COVID-19 tests caught the attention of government authorities in South Africa. Government agencies in that country are establishing what they view as fair clinical laboratory pricing for private COVID-19 PCR (polymerase chain reaction) and rapid antigen tests without turning to litigation or fines.

The Competition Commission (Commission) is an organization charged with reviewing and acting on business practices in South Africa. In a December 11, 2021, news release, the Commission said it had reached a “ground-breaking agreement” with two private laboratories—Ampath and Lancet—to reduce their COVID-19 PCR test prices from 850 South African rand (R850) to R500 (from US$54.43 to US$31.97).

As of December 12, a third private laboratory company that also had been investigated, PathCare, had not agreed to the court settlement, Daily Maverick reported.

Also effective are lower prices for rapid antigen tests, the Commission said in a separate December 23 news release.

COVID Test Prices ‘Unfairly Inflated’

The changes in PCR test prices in South Africa followed a formal complaint by the Council for Medical Schemes which alleged the private pathology labs [the term for clinical laboratories in South Africa] were “supplying” COVID-19 PCR tests at “unfairly inflated, exorbitant, and/or unjustifiable” prices, Daily Maverick reported.

Tembinkosi Bonakele

The clinical laboratory companies “exploited consumers by earning excessive profits on essential products or services,” Tembinkosi Bonakele (above), Commissioner of the South Africa Competition Commission, told the Daily Maverick. “It is always encouraging for companies to voluntarily consider reducing prices, especially where the public is detrimentally affected by the prices, as to avoid protracted litigation,” he added. (Photo copyright: Sowetan Live.)

According to the Daily Maverick, as part of the investigation, which began in October 2021, the Commission asked the private clinical laboratory companies for financial statements and costs of COVID-19 testing.

“We did, then, further interrogation in order to strip out what we saw was potentially padding the costing and unrelated costs. And on the basis of that, we came to the figure of R500,” James Hodge, told the Daily Maverick. Hodge is Chief Economist, Economic Research Bureau, and Acting Deputy Commissioner at the Competition Commission South Africa.

 For its part, Lancet, Johannesburg, said in a statement that it “Appreciates the spirit of constructive engagement with the Commission which has resulted in an outcome that best serves the people of South Africa as they confront the fourth COVID wave. We are sensitive to the plight of the public and agree that reducing the COVID-19 PCR price is in best national interest.”

Clinical Laboratory Test Prices: Market Dynamics

So, were the prices too high? In the US, clinical laboratories are reimbursed considerably more by Medicare for COVID-19 testing (about $100), as compared to the South Africa private clinical lab prices.

Also, the Centers for Medicare and Medicaid Services (CMS) said in a statement that effective January 2021 it included in that rate an incentive of $25 to labs that provide results within 48 hours.

Medical laboratories are reimbursed $75 for a high throughput COVID-19 test when results are reported beyond 48 hours, CMS added.

Antigen Tests Prices Also Reduced

The Commission said that during its review of COVID-19 PCR test pricing it received a Department of Health Republic of South Africa complaint about prices for rapid antigen test pricing as well.

After another Commission review, PathCare, Lancet, and Ampath agreed to reduce prices for rapid antigen tests to a maximum of R150 or $9.74 (from a range of R250 to R350 or $16.28 to $22.79), a news release noted.

By comparison, Abbott’s BinaxNOW COVID-19 Antigen Self Test is priced at $23.99, on Abbott’s website as well as online at Walgreens.

“The reduction of COVID-19 rapid antigen test prices will help alleviate the plight of consumers and widen accessibility and affordability of COVID-19 rapid antigen testing, which is a critical part of the initiatives to avoid escalation of the pandemic,” said Bonakele in the news release, which also stated that the Commission would receive financial statements from the three labs every few months.

The Commission also is reviewing a “large retail pharmacy chain’s” rapid antigen prices, which “follows a complaint lodged by the Department of Health (DOH), on December 14 2021, against service providers delivering COVID-19 Rapid Antigen tests in South Africa to consumers,” Cape Town Etc reported. The specific pharmacy chain was not identified.

Data Show COVID Plight in South Africa

More than 21.6 million COVID-19 tests have been offered by healthcare providers in South Africa, and 3.5 million cases were detected, according to the Department of Health, Republic of South Africa.

In January, The New York Times reported:

  • 28% of South Africans are fully vaccinated.
  • 33% of residents have had one vaccine dose.
  • One in 17 people was diagnosed with COVID-19.
  • One in 632 had died from the infection.
  • COVID-19 deaths total 92,830.

Considering those data, one wonders if the South African government acted fast enough on test pricing.

For medical laboratory leaders, it’s important to recognize that not only are lab services in the spotlight during the COVID-19 pandemic, business practices and prices also are being monitored by officials in this country.

Donna Marie Pocius

Related Information:

Urgent Media Briefing on the Announcement of a Ground-Breaking Agreement on PCR Test Prices

PathCare Also Agrees to an Immediate Price Reduction of COVID-19 PCR Tests

Big Three Private Pathology Groups Agree to Another Price Reduction

Major Pathology Labs Agree to Lower Price of COVID-19 PCR Tests to R500

Lancet Laboratories Agreement with Competition Commission of South Africa

CMS Changes Medicare Payment to Support Faster COVID-19 Diagnostic Testing

Private Pathology Groups to Reduce COVID-19 Rapid Antigen Test Price to No More than R150

Tracking Coronavirus in South Africa: Latest Case Count

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

Four-star general Jim Mattis testified that he eventually “didn’t know what to believe about Theranos anymore,” The Wall Street Journal reported

Former-Theranos CEO Elizabeth Holmes was known for her obsession with Steve Jobs, imitating not only the late Apple CEO’s well-known management style, but also his wardrobe choices. However, clinical laboratory managers and pathologists will not be surprised to learn that—in testimony during Holmes’ federal fraud trial—Theranos’ former laboratory director told jurors Holmes’ “confident demeanor” disappeared when she was told her revolutionary blood-testing technology “didn’t work,” KPIX5 TV reported.

During two days of testimony in San Jose, Calif., pathologist Adam Rosendorff, MD, told jurors that in the days leading up to the 2013 launch of the Edison blood-testing device he warned Holmes in emails and in person that the product wasn’t ready to be deployed commercially.

“I told her that the potassium was unreliable, the sodium was unreliable, the glucose was unreliable, [and] explained why,” testified the clinical pathologist. “She was very nervous. She was not her usual composed self. She was trembling a bit, her knee was tapping, her voice was breaking up. She was clearly upset,” he added.

KPIX5 TV reported that Holmes had told Rosendorff the laboratory could substitute conventional federal Food and Drug Administration (FDA)-approved devices as needed.

Rosendorff left his position with Theranos in November 2014. According to KPIX5, he told jurors, “I felt pressured to vouch for [medical laboratory] tests that I did not have confidence in. I came to believe that the company believed more about PR and fundraising than about patient care. The platform was not allowing me to function effectively as a lab director.”

Adam Rosendorff, MD

Former Theranos Laboratory Director Adam Rosendorff, MD (above), testified in the federal fraud trial of Theranos founder and ex-CEO Elizabeth Holmes that he considered filing a whistleblower lawsuit against his employer because of his concerns about the Edison blood-testing device’s lack of reliability and accuracy of test results. “I wanted to get the word out about what was happening at Theranos,” the clinical pathologist told jurors, the Wall Street Journal reported. (Photo copyright: LinkedIn.)

In continuing testimony, Rosendorff acknowledged that tension increased between himself and Holmes and Theranos’ Chief Operating Officer Ramesh “Sunny” Balwani over Rosendorff’s concerns about the reliability and accuracy of the lab’s test results. At one point, he asked Balwani in an email if his name could be removed from the Theranos CLIA lab license so he would not be legally responsible for the lab’s problems.

Balwani’s own fraud trial begins in January 2022.

Former Theranos Lab Director Considered Filing a Qui Tam Lawsuit

According to the Wall Street Journal (WSJ), Rosendorff testified he forwarded work emails to his personal email account to protect himself in case the federal government investigated Theranos. He also considered filing a whistleblower lawsuit against the company.

“I wanted to get the word out about what was happening at Theranos,” he testified, the Wall Street Journal reported.

The government’s first witnesses were former Theranos employees:

Gangakehedkar testified that Holmes knew about reliability issues with the Edison blood-testing device, yet pressured staff to move forward with the Walgreens roll out.

Theranos’ partnership with Walgreens ended in 2016, after Theranos voided years of test results performed on its machines.

In “Former Theranos Chemist Says Elizabeth Holmes Was Aware of Testing Failures,” the WSJ reported that Gangakhedkar resigned from Theranos in September 2013, taking with her Theranos documents and copies of emails in which she expressed her concerns to Holmes and others about continuing problems with Theranos’ lab tests.

“I was scared that things would not go well,” Gangakhedkar testified, her voice breaking at one point. “I was afraid I would be blamed.”

As foreshadowed during the trial’s opening statements, Holmes’ defense team plans to argue that their client did not intend to defraud investors but believed her blood-testing technology—portrayed as capable of running more than 200 tests using a finger-stick sample of blood—would revolutionize the healthcare industry.

In his opening remarks to the jury, Lance Wade, JD, a member of the Holmes defense team from Williams and Connolly LLP, told jurors that evidence will show Theranos investors were “incredibly sophisticated and knew the risks” and were actually pushing to invest in Theranos. The reality of the case, he said, is “far more human and real, and oftentimes, I hate to say it, technical and complicated and boring” than what the federal government has suggested, Forbes reported.

Four-star General Jim Mattis (ret.) Testifies

According to the Wall Street Journal, former Defense Secretary Jim Mattis testified he joined the Theranos board in the summer of 2013, at which time he invested $85,000 in the company. He said he had first met Holmes in San Francisco in 2011. At the time, Mattis, a Marine Corps four-star general, was leading the US military’s Central Command (CENTCOM) and that, according to testimony, he recognized the Edison device’s potential for use on the battlefield.

Mattis testified he and other Theranos board members were surprised to learn in 2015 that Theranos was using blooding testing equipment from competing companies.

“There came a time when I didn’t know what to believe about Theranos anymore,” he told jurors, according to the WSJ. Mattis resigned from the board in 2016, after learning he would be nominated as Secretary of Defense in the Trump administration.

Courtroom sketch

The courtroom sketch above shows former Defense Secretary four-star general Jim Mattis testifying Wednesday at the criminal trial of Theranos founder Elizabeth Holmes in San Jose, Calif. (Graphic copyright: Vicki Behringer.)

Theranos Investors

Theranos, which reached a peak valuation of $9 billion, received nearly $1 billion in funding from private investors, including from some well-known people. In “Theranos Trial Jurors to Weigh Whether Investors Were Dupes or Savvy Speculators,” according to the WSJ, the startup’s top investors included:

  • The Walton family—$150 million—heirs to the Walmart fortune;
  • Fox News Corp Executive Chairman Rupert Murdoch—$125 million—who sold his shares back to the company in 2017 for $1;
  • Former Education Secretary Betsy DeVos and her family—$100 million;
  • The Cox family, owner of Atlanta-based media and automotive company Cox Enterprises—$100 million;
  • Media investor Carlos Slim—$30 million;
  • Greek shipping magnate Andreas Dracopoulos—$25 million;
  • The Oppenheimer family—$20 million;
  • Riley Bechtel, former Chairman of Bechtel Corp.—$6 million;
  • Estate attorney Daniel L. Mosley—$6 million; and
  • New England Patriots owner Robert Kraft—$1 million.

As Holmes’ fraud trial heats up, Dark Daily will continue its coverage. In “Text Messages Between Theranos Founder Elizabeth Holmes and Ex-Boyfriend Ramesh “Sunny” Balwani Grab Headlines in Early Days of Fraud Trial,” we reported that Holmes’ defense team revealed plans to claim “intimate partner abuse” by Holmes’ then boyfriend, Theranos Chief Operating Officer Ramesh “Sunny” Balwani.

And in “On-demand Video Service Hulu Gets Underway on TV Miniseries Documenting Rise and Fall of Former Theranos CEO Elizabeth Holmes,” we covered Hulu’s plan to produce the “The Dropout,” a limited series chronicling Holmes’ rise and fall from Founder and CEO of $9 billion tech company Theranos to criminal defendant.

The trial is expected to last until mid-December, with jurors hearing testimony on Tuesdays, Wednesdays, and Fridays. For clinical laboratory scientists, each day of testimony should bring a new round of surprises so stay tuned.

Andrea Downing Peck

Related Information

Elizabeth Holmes Trial: Live Updates

Theranos Trial Jurors to Weigh If Investors Were Dupes or Savvy Speculators

Elizabeth Holmes’ Lawyer Says She Made ‘Mistakes,’ But ‘Failure Is Not a Crime’

Former Theranos Chemist Says Holmes Was Aware of Testing Failures

Elizabeth Holmes Confident Demeanor Vanished When Told Tests Didn’t Work, Former Lab Director Tells Jury

Elizabeth Holmes Trial: Jim Mattis Tells Jury He Came to Doubt Theranos Technology

Text Messages Between Theranos Founder Elizabeth Holmes and Ex-Boyfriend Ramesh “Sunny” Balwani Grab Headlines in Early Days of Fraud Trial

On-demand Video Service Hulu Gets Underway on TV Miniseries Documenting Rise and Fall of Former Theranos CEO Elizabeth Holmes

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