CMS Notifies Theranos of CLIA Sanctions That Include Revoking Clinical Laboratory’s CLIA License and a Two-Year Ban on Holmes, Balwani, and Dhawan

Wall Street Journal obtained copy of letter sent by CMS to Theranos, dated March 18, 2016, that notified its executives of sanctions that include revocation of Theranos’ CLIA license and a process by which the medical lab company can appeal

Theranos, the high-profile clinical laboratory company, had a day of reckoning yesterday. That’s when The Wall Street Journal (WSJ) published a story revealing that Theranos was sent a letter by the federal Centers for Medicare & Medicaid Services (CMS) providing notice of sanctions.

In a letter to Theranos executives, CMS said it is prepared to:

• revoke the company’s CLIA certificate;

• impose a fine of $10,000 per day;

• suspend and cancel the lab’s approval to receive Medicare payments; and

• impose a two-year ban on the owner, operator, and laboratory director for owning or operating a clinical laboratory.

Dated March 18, the letter is addressed to Sunil Dhawan, MD, Director; Elizabeth Holmes, Owner; and Ramesh Balwani, Owner. (more…)

Prior to IPO Pathology Company Aurora Diagnostics Gets New $335 Million Credit Line

Anatomic pathology firm hopes proposed sale of stock will bring in up to $150 million

Anatomic pathology company Aurora Diagnostics, Inc., of Palm Beach Gardens, Florida, just announced a new credit facility that will give it access to as much as $335 million should all conditions be met. Aurora Diagnostics hopes to raise $150 million from an initial public offering (IPO) of its stock, for which it filed registration documents in April.

Aurora Diagnostics was founded in June 2006, by former Ameripath, Inc., executives James New and Marty Stefanelli and was originally funded by Summit Partners and GSO Capital Partners. Over the past four years, Aurora Diagnostics says it has acquired 17 pathology practices. Its revenue for 2009 totaled $171 million, with EBIDTA (earnings before interest, depreciation, taxes, and amortization) of $28 million and net income of $9 million.


James Peter, M.D., Ph.D., Founder of Specialty Laboratories, Dies of Cancer

Peter Built His Company into a Major National Esoteric Laboratory

One of laboratory medicine’s most successful scientist-entrepreneurs died last Friday, October 30, 2009. James B. Peter M.D., Ph.D., Founder of Specialty Laboratories, Inc., died in his home in Santa Monica, California of complications from cancer. He was 76 years old.

A native of Omaha, Nebraska, it was 1958 when Peter earned his M.D. from St. Louis University. He then went to the University of Minnesota where he earned a Ph.D. in Biochemistry in 1963. It was here that he worked with Professor Paul D. Boyer, Ph.D., a laureate for the 1997 Nobel Prize in chemistry. Peter also worked with Boyer at UCLA. At UCLA, Peter served as Professor, Clinical Professor, and College of Letters and Sciences Advisory Board Member. He had a strong interest in clinical chemistry and immunology.


California Whistleblower Lawsuit Ensnares Major Lab Companies

Allegations of false claims implicate discounted client billing practices

It’s the first major whistleblower lawsuit in the laboratory industry in recent years. On March 20, California State Attorney General Edmund G. Brown Jr. announced that his state had joined a qui tam lawsuit that alleges a number of laboratories have filed false claims on a “massive” scale, thus defrauding the California Medi-Cal program of “hundreds of millions of dollars.”

The unusual twist in this whistleblower lawsuit is that it was originally filed by the owner of a California-based laboratory. In 2005, Chris Reidel, owner and CEO of Hunter Laboratories, in Campbell, California, initiated the legal action, alleging what AG Brown characterized as “massive Medi-Cal fraud and kickbacks. Medi-Cal is the state’s Medicaid health program for the poor.

The original lawsuit filed by Reidel seeks to recover at least $100 million. However, one of his attorneys, Joe Cotchett, of the San Francisco-based law firm of Cotchett, Pitre & McCarthy, believes the state’s actual losses could be more than $1 billion. The lawsuit is pending in San Mateo Superior Court and was filed under seal in 2005.


Molecular Diagnostics News for Hospital Laboratories

When the Golden Gate Chapter of CLMA conducted its sixth annual Spring Fling conference at the Hotel Monaco in San Francisco, California, last Saturday, it offered an outstanding agenda for Bay Area lab managers.

Opening the conference was Robert L. Michel, Editor of The Dark Report and Dark Daily. Next on the podium was Alan Wu, Ph.D., who is the Director of Laboratories at San Francisco General Hospital, with a highly entertaining discussion of the role of forensic toxicology and his participation in several high-profile court cases over the past 15 years. He was followed by Rodney W. Forsman, Administrative Director of Outcomes at Mayo Medical Laboratories. Forsman’s remarks were the subject of your last Dark Daily briefing, Mayo Medical Lab Executive Highlights Market Opportunities for Hospital Laboratories.

The content of these presentations was excellent, and that was equally true of the next speaker, Ronald A. Blum, Ph.D., Director of Marketing for Specialty Laboratories. Blum spoke on the subject of molecular diagnostics and is uniquely qualified in this field. Since 1996, he has played in integral role at Specialty Laboratories in evaluating new molecular technologies and developing selected technologies for introduction into the clinical marketplace.

For community hospital labs, Blum had good news. First, he observed that molecular testing is the fastest-growing segment of the laboratory test menu, with growth rates of 15% to 20% annually. This compares with annual growth of about 5% for routine testing. Next, Blum discussed why the market segments for esoteric testing and anatomic pathology represent good opportunities for hospital laboratories. In both of these two segments, national laboratory companies do not dominate. According to Blum, about 50% of esoteric testing done in the United States is provided by regional and local laboratories. For anatomic pathology, approximately 79% of these services continue to be provided by regional and local laboratories. Thus, these markets have yet to be dominated by national laboratory companies.

While discussing the range of molecular tests, including target amplification, signal amplification, mass arrays, and the multiplex assay technology from Luminex Corporation, Blum singled out mass arrays for specific comment. “It is likely that mass arrays will be the most dynamic source of change in molecular testing,” observed Blum. “That is because a mass array can be designed to survey multiple locations across the entire genome. Mass arrays will offer an attractive combination of competitive costs, a degree of automation in looking at multiple markers, and the ability to highlight results that will be of highest interest to the clinician.”

Blum also observed that intellectual property and patent issues were making it increasingly difficult to package published research into clinically-useful molecular assays. “Since the 1990s, universities and research centers have become more active at protecting their discoveries by filing patents and have limited the licensing of their research,” he said. “As a result of this development, Specialty Laboratories hired its first full-time, in-house patent attorney last year, specifically to deal with intellectual property issues. But even more resources are needed to help us keep pace. We are actively looking to add a second full-time, in-house attorney to help with intellectual property issues.”

In closing, Blum was enthusiastic in his recommendation that community laboratories look for opportunities to establish a molecular diagnostics program. “First, aging baby boomers will create increased demand for health services. Second, emerging molecular tests give ever more precise diagnostic accuracy to clinicians. These are just two reasons why molecular diagnostics has a bright future,” declared Blum. “Local laboratories should evaluate their opportunities very carefully because of the high barriers to entry. One useful strategy is to partner with experts capable of helping your laboratory avoid pitfalls while developing an effective molecular diagnostics testing program.”