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Some Hospitals Under Financial Stress Ask Patients for Payment of Certain Procedures in Advance of Care

Request for money upfront comes at a time when many patients already struggle with medical debt  

In its reporting of healthcare trends gathering momentum, a national newspaper caused quite a stir this spring when it published a story documenting how some hospitals now require patients to pay in advance of specified surgeries and procedures. Hospitals are recognizing what clinical laboratories have long known—a larger proportion of Americans do not have the cash to pay a medical bill.

“It costs [hospitals] time and money to collect after the fact. So, if they can get it upfront, they will” said Wall Street Journal (WSJ) reporter Melanie Evans, during a podcast about her article, “Hospitals Are Refusing to Do Surgeries Unless You Pay in Full First.”

Hospitals and surgery centers are requesting advanced payment for elective procedures such as knee replacements, CT scans, and childbirth procedures, according to an Advisory Board daily briefing.

“In some cases, they may also have a contract with an insurance company. And in that contract are terms that stipulate hospitals need to collect deductibles or co-insurance before a procedure,” Evans added.

According to Bankrate’s 2024 Annual Emergency Savings Report, nearly half of all American’s would be unable to pay cash for an unplanned $1,000 bill. Therefore, one wonders why hospitals would attempt to extract payments from patients in advance of medical visits and clinical laboratory testing. Wouldn’t that just reduce the number of patients electing to undergo needed surgeries and other costly procedures? Nevertheless, it appears that many hospitals struggling financially are doing just that, according to The Wall Street Journal.

Genetic testing laboratories have a similar problem because of high-deductible health plans ($5K/year for individual, $12K/year for family). It means that many patients, even with insurance, struggle to pay a $1,000 to $5,000 bill for a genetic test.

Requesting payment from patients before healthcare visits is not new. However, the practice is on the rise and comes at a time when consumers are already struggling to make ends meet.

“Hospitals collected (in Q1 2024) about 23% of what patients owed them before they set foot in a hospital or doctor’s office. That’s up from about 20% in the same period a year earlier,” said reporter Melanie Evans (above) of The Wall Street Journal, referring to data from 1,850 hospitals analyzed by Kodiak Solutions. Genetic testing laboratories experience similar challenges getting paid due to many people struggling with high deductible health plans. (Photo copyright: LinkedIn.)

Price Transparency Behind Upfront Payments

According to a recent KFF survey of US families, “about half of adults would be unable to pay an unexpected medical bill of $500 in full without going into debt.”

Regardless, asking for payment for nonemergency care has become more common as people increasingly choose health plans with high-deductibles and amid the push for greater price transparency, according to Richard Gundling, Senior Vice President, Content and Professional Practice Guidance at Healthcare Financial Management Association (HFMA), in an interview with Advisory Board.

“It’s very common if not the norm” for hospitals to give patients a cost estimate and ask for advance payment, Gundling stated during the interview.

In fact, healthcare providers and insurers are required to shared charges and estimates as part of newly implemented federal rules. According to the American Hospital Association (AHA) those statutes and rules include:

  • The Hospital Price Transparency Final Rule (effective January 2021) which requires hospitals to publicly post “standard charges” via machine readable files.
  • The No Surprises Act which mandates the sharing of “good faith estimates” with uninsured/self-pay patients for most scheduled services and also requires insurers to provide explanation of benefits to enrollees.

According to Consumer Reports, hospitals are finding consumers less reliable payers than insurance companies. “No one would say, ‘Pay up or we won’t treat you.’ But we’re saying that, ‘You have a large out-of-pocket cost, and we want to know how are you going to pay for it,’” explained Jonathan Wiik, Vice President of Health Insights at FinThrive, a revenue cycle management company.

Razor Thin Hospital Margins

For their part, hospitals, health systems, and medical practices wrote off $17.4 billion in bad debt in 2023, Kodiak Solutions, an Indianapolis-based healthcare consulting and software company, reported in a news release.

Providers collected less than half—47.6%—of what patients owned them for care in 2022 and 2023, down from 54.8% in 2021, according to Kodiak’s report, “Drawing the Line on Patient Responsibility Collection Rates.”

“With the amounts that health plans require patients to pay continuing to grow, provider organizations need a strategy to avoid intensifying pressure on their already thin margins,” said Colleen Hall, Senior Vice President, Revenue Cycle, Kodiak, in the news release.

“Patient collections have become an increasingly difficult challenge for hospitals due primarily to a shift in payer mix. Because of rising deductibles and increased patient responsibility, the percentage of healthcare provider revenue collected directly from patients increased to more than 30% from less than 10% over 10 years,” the HFMA noted.

Thus, the financial tension being experienced by both patients and providers, and the need for patients to prepay for some treatment, are extreme challenges. The situation may call for clinical laboratory leaders to not only focus on quality testing and efficient workflow, but also affordability and access to services.

—Donna Marie Pocius

Related Information:

Why Hospitals Now Require Patients to Prepay for Treatment

Hospitals are Refusing to Do Surgeries Unless You Pay in Full First

Some Hospitals Are Billing Patients in Advance. Here’s Why.

More Hospitals Want Patients to Pay in Advance. Is That Radical Transparency or Unfair to Patients?

Americans’ Challenges with Health Care Costs

Fact Sheet: Hospital Price Transparency

Should You Ever Prepay a Hospital Bill?

Insured Patients Account for More than Half of Bad Debts Written Off by Provider Organizations in 2023, According to Kodiak Solutions Analysis

Drawing the Line on Patient Responsibility Collection Rates

Patients as Payers: Five Ways to Improve the Patient Experience

Healthcare Debt in the U.S.: The Broad Consequences of Medical and Dental Bills  

Pharmacy Benefit Management Company Executives Testify Before Congress on Drug Pricing Practices and Market Manipulation

Because of their big share of patient prescriptions, the three largest PBMs are about to undergo scrutiny via Congressional reports and looming lawsuits that call out questionable practices

Pharmacy benefit managers (PBMs) are finding themselves under scrutiny from both Federal Trade Commission (FTC) investigations into drug pricing as well as recent Congressional hearings into anticompetitive practices.

Because of how PBMs have captured the lion’s share of patient prescriptions away from retail pharmacies in the United States during the past 15 years, pathologists and clinical laboratory managers may want to track how Congress and federal antitrust regulators respond to this development. The issue is the high cost of prescription drugs for patients and the role of PBMs in keeping drug prices high to optimize their profits.

On July 23, the House Committee on Oversight and Accountability held a hearing with top executives from the three largest PBMs to investigate the increasing drug prices and ever-shrinking options available to prescription drug customers. House members heard testimony from Adam Kautzner, PharmD, President of Express Scripts; David Joyner, President of CVS Caremark; and Patrick Conway, MD, CEO of Optum Rx—top executives from the three PBMs that control “approximately 80% of the US prescription market,”Healthcare Dive reported.

House representatives pressed the executives for “steering patients to pharmacies the PBM owns and favoring more expensive brand-name drugs on their formularies, or list of covered drugs, which result in higher rebates paid to them by drugmakers,” Healthcare Dive noted.

In his opening remarks of the full committee hearing, which was titled “The Role of Pharmacy Benefit Managers in Prescription Drug Markets Part III: Transparency and Accountability,” Committee Chairman James Comer (R-Ky) noted that the Committee had “obtained over 140,000 pages of documents and communications exposing Pharmacy Benefit Managers’ (PBMs) anticompetitive policies and their role in rising drug prices,” according to a press release.

In its final report, the Committee on Oversight and Accountability found that “PBMs inflate prescription drug costs and interfere with patient care for their own financial benefit.”

Though hearings on PBMs have been increasing, the last time PBM executives testified on the Hill was before the Senate Committee on Finance in 2019, according to Healthcare Dive.

Spread pricing and rebates benefit PBMs and have helped the three largest PBMs monopolize the pharmaceutical market … these self-benefitting practices only serve to help their bottom line rather than patients,” said Chairman James Comer (above) during a meeting of the federal Committee on Oversight and Accountability. “PBMs have been allowed to hide in the shadows for far too long. I look forward to the Oversight Committee continuing to work in a bipartisan fashion to shine a light on how these PBMs have undermined community pharmacies, raised prescriptions drug prices, and jeopardized patient care.” Clinical laboratory executives may want to track efforts by Congress to rein in PBMs so as to reduce the cost of prescription drugs to patients. (Photo copyright: US Federal Government/Public Domain.)

Turning up the Heat on PBMs

The spotlight began to grow on PBM practices back in 2023. Since then, PBMs have been the focus of three congressional hearings. The late July meeting came just hours after Chairman James Comer, R-KY, presented his report following a 32-month-long investigation “into how PBMs raise prices and reduce consumer choice,” Healthcare Dive reported.

Comer’s research found that “PBMs have used their position as middlemen to cement anticompetitive policies which have increased prescription drug costs, hurt independent pharmacies, and harmed patient care,” according to a press release announcing the upcoming hearing with the executives of the three largest PBMs.

Comer’s report uncovered “300 examples of the three PBMs preferring medications that cost at least $500 more per claim than a safe alternative medication excluded from their formularies,” Healthcare Dive noted.

Coming Lawsuits, Public Opinion

While the Congressional hearings put pressure on the three PBMs, a new threat looms on the horizon—multiple lawsuits—including one from the FTC “over their tactics for negotiating prices for drugs including insulin, after a two-year investigation into whether the companies steer patients away from less-expensive medicines,” The Wall Street Journal reported. 

State attorney generals and independent pharmacies are lining up with lawsuits targeting PBM’s questionable business practices as well, Healthcare Dive reported.

While PBMs maintain their innocence, public opinion differs. An independent survey from KFF found that approximately three out of 10 individuals surveyed reported not taking a prescribed medicine due to expensive costs.

“This includes about one in five who report they have not filled a prescription or took an over-the counter drug instead (21%), and 12% who say they have cut pills in half or skipped a dose because of the cost,” KFF reported.

Further, 82% of those surveyed described the cost of prescription drugs to be unreasonable. Still, 65% described the costs as being easily affordable, with the biggest challenge going to those with a household income of less than $40,000.

PBMs Push Back

In response to the backlash, the PBMs brought their own report to Congress, prepared by global consulting firm Compass Lexecon. It showed that “PBMs pass through almost all rebates to plan sponsors and have operating margins below 5% in recent years,” Healthcare Dive reported.

During their testimony, Conway said that Optum Rx saves over $2,000 per person annually. Kautzner claimed Express Scripts brought $64 billion in savings to patients last year and kept “out-of-pocket costs on a per-prescription basis at $15, despite brand manufacturers raising drug prices on 60% of those products,” Healthcare Dive reported.

Joyner said CVS Caremark experienced “little or no competition” from the pharmaceutical industry for brand name drugs. He blamed the pharmaceutical industry for drug pricing increases, Healthcare Drive reported.

“Let me be clear, we do not contribute to the rising list prices. Hampering our ability to negotiate lower drug cost … would only remove an essential tool and our ability to deliver lower cost for medications,” Joyner told the Congressional committee.

House representatives were not moved.

“On one hand we have PBMs claiming to reduce prescription drug prices and on the other hand we have the Federal Trade Commission, we have major media outlets like The New York Times, and we have at least eight different attorneys generals, Democrats and Republicans, who all say PBMs are inflating drug costs,” said Raja Krishnamoorthi (D-Ill), Healthcare Dive reported.

“This is why just about every state now is taking up PBM reform,” Comer said. “There’s a credibility issue.”

Because there has been a parallel concentration of market share for clinical laboratory testing among a handful of billion-dollar national lab corporations, clinical laboratory managers may want to follow these events. They are examples of federal regulators investigating the business practices of a major healthcare sector while, at the same time, members of Congress look for ways to lower healthcare costs. Prescription drugs is a high-profile target.

At some future point, the cost of genetic testing could also become a target when Congress seeks other healthcare sectors in their goal to control medical expenses.

—Kristin Althea O’Connor

Related Information:

PBMs Battle Bipartisan Scrutiny as Lawmakers Eye Industry Reform

Public Opinion on Prescription Drugs and Their Prices

Comer Announces Hearing with PBM Executives on Role in Rising Health Care Costs

Comer: Pharmacy Benefit Managers Must be Held Accountable for Role in Rising Drug Prices

Comer Releases Report on PBMs’ Harmful Pricing Tactics and Role in Rising Health Care Costs

Hearing Wrap Up: Oversight Committee Exposes How PBMs Undermine Patient Health and Increase Drug Costs

Video of Hearing: The Role of Pharmacy Benefit Managers in Prescription Drug Markets Part III: Transparency and Accountability

Final Report: The Role of Pharmacy Benefit Managers in Prescription Drug Markets

FTC to Sue Drug Managers over Insulin Prices

FTC Slams Pharmacy Benefit Managers in First Report from Ongoing Investigation

Ex-Theranos Founder and CEO Elizabeth Holmes Reduced Her Prison Sentence by Nearly Two Years

Good behavior in federal prison by the disgraced founder of the now-defunct clinical laboratory company earned her the reduction in her original sentence of 11 years

Elizabeth Holmes, founder of failed clinical laboratory blood analysis company Theranos, continues to serve a lengthy term in prison after being convicted of multiple counts of fraud in 2022. However, now comes news that good behavior at her federal prison has shortened her sentence by nearly two years, according to NBC News.

The latest reduction took Holmes’ release from December 2032 to August 2032 in her “11-plus-year (135 month) prison sentence for wire fraud and conspiracy,” NBC reported, adding that Holmes, though Theranos, “defrauded investors out of hundreds of millions of dollars.”

Holmes entered FPC Bryan, a federal prison camp in Bryan, Texas, to begin serving her term in May 2023.

“Holmes had her sentence computation done within the first 30 days of arriving at Bryan,” Forbes reported. Given Good Conduct Time (GCT), Holmes was given 608 days off calculated from the start of her sentence. “If she were to incur a disciplinary infraction, some of those days can be taken away. Most all prisoners receive 54 days per year of GCT based on the sentence imposed,” Forbes added.

The Federal Bureau of Prisons (BOP) can additionally shave off up to a year through its Residential Drug Abuse Program (RDAP). “To qualify, the prisoner must not have a disqualifying offense, such as terrorism or gun charge, and voluntarily provided information that they had a drug or alcohol problem prior to their arrest. This disclosure has to be done prior to sentencing during the pre-sentence interview and must be also documented in the Presentence Report, a detailed report used by the BOP to determine things like classification and programming for the prisoner,” Forbes noted.

Additionally, the federal First Step Act, which President Trump signed into law in 2018, enables Holmes to “earn up to 365 days off any imposed sentence by participating in prison programming such as a self-improvement classes, a job, or religious activities,” Forbes reported.

Given the opportunities to shave time off her sentence, Holmes may ultimately serve just 66 months of her original 135 month sentence in federal prison.

Elizabeth Holmes (above) taken backstage at TechCrunch Disrupt San Francisco 2014 when Holmes was at the height of her fame and popularity. At this point, Theranos’ Edison blood testing device had not yet been shown to be a fake. But evidence was mounting as clinical laboratory scientists and anatomic pathologists became aware of the technology’s shortcomings. (Photo copyright: Max Morse/Wikimedia Commons.)

Fall of a Silicon Valley Darling

Theranos boasted breakthrough technology and became an almost overnight sensation in Silicon Valley when it burst onto the scene in 2003. Holmes, a then 19-year-old Stanford University dropout, claimed Theranos would “revolutionize the world of blood testing by reducing sample sizes to a single pin prick,” Quartz reported.

The height of the company saw Theranos valued at $9 billion, which came crashing down when the Wall Street Journal reported in 2015 that questionable accuracy and procedures were being followed by the company, CNN reported.

In “After AACC Presentation, Elizabeth Holmes and Theranos Failed to Convince Clinical Laboratory Scientists and the News Media about Quality of Its Technology,” Dark Daily’s Editor-in-Chief Robert Michel reported on Holmes’ presentation at the American Association of Clinical Chemistry (AACC) annual meeting in 2016, after which the clinical laboratory scientists in attendance were highly skeptical of Holmes’ claims.

“From the moment Holmes concluded her presentation and stepped off the podium on Monday afternoon, she, her company, and her comments became the number one subject discussed by attendees in the halls between sessions and in the AACC exhibit hall,” Michel wrote, adding, “The executive team and the investors at Theranos have burned through their credibility with the media, the medical laboratory profession, and the public. In the future, the company’s claims will only be accepted if presented with scientific data developed according to accepted standards and reviewed by credible third parties. Much of this data also needs to be published in peer-reviewed medical journals held in highest esteem.”

A follow-up Dark Daily ebriefing concerning Theranos covered a fraud settlement with the Securities and Exchange Commission (SEC), sanctions from the Centers for Medicare and Medicaid Services (CMS), investor lawsuits, consumer lawsuits, and a settlement with Walgreens over claims about Theranos’ Edison portable blood analyzer. Theranos’ web of lies was unraveling.

Theranos Saga Continues

Ultimately, investors who had jumped in early with financial support for Theranos were defrauded of hundreds of millions of dollars and Holmes was sentenced to 11 years/three months behind bars. 

“Theranos had only ever performed roughly a dozen of the hundreds of tests it offered using its proprietary technology, and with questionable accuracy. It also came to light that Theranos was relying on third-party manufactured devices from traditional blood testing companies rather than its own technology,” CNN added.

The company shut down in 2018.

And so, the Elizabeth Holmes saga continues with reductions in her prison sentence for “good behavior.” The irony will likely not be lost on the anatomic pathologists, clinical laboratory scientists, and lab managers who followed the federal trials.

—Kristin Althea O’Connor

Related Information:

Elizabeth Holmes Sees More Months Trimmed from Prison Release Date

Theranos Founder Elizabeth Holmes’ Prison Sentence Keeps Getting Shorter

Hot Startup Theranos Has Struggled with Its Blood-Test Technology

Elizabeth Holmes Shaves More Time Off Her Sentence

The Infatuation with Elizabeth Holmes’ Prison Term

After AACC Presentation, Elizabeth Holmes and Theranos Failed to Convince Clinical Laboratory Scientists and the News Media about Quality of Its Technology

Previously High-Flying Theranos Provides Clinical Laboratories and Pathology Groups with Valuable Lesson on How Quickly Consumer Trust Can Be Lost

Disgraced Theranos Founder Elizabeth Holmes to Serve 11 Years, Three Months in Prison, Ending the Latest Chapter in the Story of the Failed Clinical Laboratory Company

Judge will decide the restitution Holmes must pay to defrauded Theranos investors at future court date; Ex-COO Ramesh “Sunny” Balwani to be sentenced next month

Clinical laboratory leaders and anatomic pathologists who closely followed the fraud trial of Elizabeth Holmes may have wondered how the Theranos founder and ex-CEO would be punished for her crimes. Now we know.

On Friday, a federal court judge sentenced Holmes to 135 months—11.25 years—in prison in the culmination of her conviction on three felony counts of wire fraud and one count of conspiracy, according to NBC Bay Area News.

Late into the four-hour sentencing hearing, Holmes tearfully spoke, according to a twitter post by NBC reporter Scott Budman, who was in the courtroom. “I am devastated by my failings,” Holmes said. “I have felt deep pain for what people went through because I have failed them … To investors, patients, I am sorry.”

Davila ordered Holmes to surrender to authorities on April 27 to begin her time behind bars. She is free until that time. Her upcoming prison term caps off one of the biggest downfalls ever of an American entrepreneur.

[We first published this article in our Dark Daily E-Briefings newsletter. Sign up for free here to stay informed on the lab industry’s most important news and events.]

Elizabeth Holmes

Elizabeth Holmes (above), founder and former CEO of Theranos, the now defunct clinical laboratory company, as she enters the federal courthouse in San Jose, Calif., prior to her sentencing on Friday. In January, Holmes was convicted on three counts of wire fraud and one count of conspiracy. Last summer, Theranos’ former CLIA laboratory director, pathologist Adam Rosendorff, MD, expressed remorse over his testimony which led to Holmes’ defense team requesting a new trial. The judge denied that request and allowed the sentencing of Holmes to proceed as scheduled. (Photo copyright: Jim Wilson/The New York Times.)

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Defense Lawyers Plan to Appeal

Dean Johnson, JD, a California criminal defense lawyer, told NBC Bay Area News during live coverage of the hearing on Friday that Holmes’ defense team will appeal her conviction.

“I have no doubt there will be an appeal in this case,” Johnson said.

Judge Edward Davila, who oversaw Holmes’ trial and sentencing hearing in US District Court in San Jose, Calif., estimated that the total loss for Theranos investors was $121 million. Investors had committed funds to support the company’s flawed Edison blood testing technology. A separate restitution hearing for Holmes will be scheduled for a later date.

Beyond the sentencing, Holmes, 38, will be saddled by infamy for the rest of her life, with her past reputation as a charismatic innovator ruined.

In “Theranos Ex-CEO Elizabeth Holmes Convicted on Three Counts of Wire Fraud and One Count of Conspiracy to Commit Fraud after Seven Days of Jury Deliberations,” we covered how a jury convicted Holmes in January on four charges of investor and wire fraud after a four-month trial. She faced up to 20 years in prison on each of those counts.

Another Theranos executive, former Chief Operating Officer and President Ramesh “Sunny” Balwani, faces sentencing on Dec. 7. A jury found Balwani guilty of two counts of conspiracy and 10 counts of wire fraud in July.

“The judge [said] evidence shows Elizabeth Holmes was leader of the company, but not necessarily the leader of the criminal acts,” Budman tweeted. Those words clearly pointed to Balwani, who Holmes’ defense team had painted as exerting control over her and the company.

Prosecutors Sought a Stiffer Sentence for Holmes

Prosecutors had asked Davila to sentence Holmes to 15 years in prison, arguing that her conviction represented “one of the most substantial white collar offenses Silicon Valley or any other district has seen,” according to NBC Bay Area News, which cited court documents. The government also wanted her to pay $803 million in restitution.

Holmes’ defense team, however, wished for no prison time at all, instead asking that Holmes serve time under house arrest. “If a period of confinement is necessary, the defense suggests that a term of 18 months or less, with a subsequent supervised release period that requires community service, will amply meet that charge,” her lawyers wrote in a court filing.

Prior to the sentencing, Davila received 130 letters supporting Holmes and asking for leniency, NPR reported. Among them was a note from William “Billy” Evans, Holmes’ partner.

“If you are to know Liz, it is to know that she is honest, humble, selfless, and kind beyond what most people have ever experienced,” Evans wrote, NPR reported. “Please let her be free.”

Holmes and Evans have a 16-month-old son together, and she is pregnant with the couple’s second child. Her first pregnancy caused her trial to be rescheduled. Prior to last week’s sentencing, some reporters covering the trial speculated that because Holmes was the mother of an infant—and now pregnant again—the judge might be more lenient in sentencing. The 11-year, four-month sentence indicates that the judge was not much influenced by that factor.

Last Minute Pitch for New Trial Failed

Holmes’ legal wranglings continued until the very end.

On Nov. 7, Davila denied her motion for a new trial. Holmes’ lawyers had argued that key prosecution witness Adam Rosendorff, MD—a pathologist who was former laboratory director at the company—expressed remorse about his own 2021 testimony during an attempt to visit Holmes’ residence on August 2022. Dark Daily covered this event in “Clinical Pathologist Once Again at the Center of a National News Story as Theranos Founder Elizabeth Holmes Seeks New Trial.”

However, Rosendorff later told the court that he stood by his testimony about problems with Theranos’ blood testing technology.

In denying the request for a new trial, Davila wrote, “The court finds Dr. Rosendorff’s statements under oath to be credible,” according to The Washington Post.

From Teen Founder to Disgraced Entrepreneur

Holmes founded Theranos in 2003 at age 19 while she was attending Stanford University as a chemical engineering major. She dropped out of Stanford as a sophomore to focus on her new company.

Theranos claimed its technology—known as Edison—could perform diagnostics tests using a finger prick and a micro-specimen vial instead of a needle and several Vacutainers of blood. The company said it could return results to patients and clinicians in four hours for about half of the cost of typical lab test fees.

However, the promise of this technology began to unravel in 2015 following an investigative article by The Wall Street Journal that revealed the company ran only a handful of tests using its technology, instead relying on traditional testing for most of its specimen work.

Following The Journal’s exposé, the Centers for Medicare and Medicaid Services (CMS) sanctioned Theranos and Holmes in 2016. Meanwhile, the US Securities and Exchange Commission (SEC) investigated Holmes for raising hundreds of millions from investors by exaggerating or making false statements about the company’s technology and financial performance.

In 2018, the US Department of Justice (DOJ) indicted Holmes and Balwani, and Theranos closed shortly after.

Convictions Validated Pathologists’, Hospital Lab Leaders’ Concerns

Fortunately, the Theranos saga has not stunted investment in healthcare technology startups. Spending was in the tens of billions in 2021, although that number has dropped this year as the COVID-19 pandemic has waned, according to TechCrunch. Nevertheless, it is safe to assume that healthcare tech investors are scrutinizing scientific data from startups more thoroughly because of the Theranos fraud case.

Meanwhile, the saga of Theranos continues to leave a bad taste in the mouths of many clinical laboratory managers and pathologists. That’s because, during the peak period of adulation and spectacular news coverage about Elizabeth Holmes and her plans to totally disrupt the clinical laboratory industry, hospital and health system CEOs believed that they would be able to downsize their in-house medical laboratories and obtain lab tests from Theranos at savings of 50% or more. Consequently, during the years 2013 through the end of 2015, some hospital lab leaders saw requests for capital investment in their labs denied or delayed.

One example of how hospital CEOs embraced news of Theranos’ blood testing technology took place at the Cleveland Clinic. Elizabeth Holmes did such a good job selling the benefits of the Edison technology, then-CEO, Toby Cosgrove, MD, placed Theranos at number three on its list of top ten medical innovations for 2015.

In later years, Cosgrove admitted that no one at Cleveland Clinic or its pathologists were allowed to examine the analyzers and evaluate the technology.

It was for these reasons that the demise of Theranos was welcomed by many hospital lab administrators and pathologists. The fact that two of Theranos’ senior executives have been convicted of fraud validates many of the serious concerns that medical laboratory professionals had at that time, but which most major news reporters and media ignored and failed to report to the public.

Scott Wallask

Related Information:

Theranos Founder Elizabeth Holmes Sentenced to More than 11 Years in Prison

Elizabeth Holmes Is Sentenced to More than 11 Years for Fraud

Theranos Ex-CEO Elizabeth Holmes Convicted on Three Counts of Wire Fraud and One Count of Conspiracy to Commit Fraud after Seven Days of Jury Deliberations

Prosecutors Push 15-year Sentence for Theranos’ CEO Holmes

Elizabeth Holmes Sentenced to 11 Years in Prison for Theranos Fraud

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

Bid for New Trial Fails, Elizabeth Holmes Awaits Sentencing

Ramesh “Sunny” Balwani Convicted by a Jury on 12 Counts of Fraud in Theranos Trial

Hot Startup Theranos Has Struggled with Its Blood-Test Technology

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

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

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

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

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

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

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

Elizabeth Holmes and Ramesh Balwani

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

Federal Court Upholds Class Certification

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

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

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

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

‘There Is No Money’

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

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

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

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

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

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

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

Andrea Downing Peck

Related Information:

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

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

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

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

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Billionaire Profile: Elizabeth Holmes

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