As predicted by Fortune Magazine in its coverage of Theranos, with its expansion into Phoenix, the lab company is getting its closest scrutiny from pathologists and medical technologists

Recent developments in Phoenix, Arizona, make it clear that Theranos has chosen this desert metropolis to be the launching pad for its much-publicized proprietary clinical laboratory testing business.

The highly-secretive company, which claims to have more market value than either Quest Diagnostics Incorporated (NYSE: DGX) or Laboratory Corporation of America (NYSE: LH), is now building the infrastructure needed to operate as a local medical laboratory company in Phoenix.

Theranos Has CLIA Laboratory in Scottsdale

The April 20 issue of The Dark Report presented two exclusive intelligence briefings about Theranos and its business plans. The company now has its “wellness centers” operating in about 41 Walgreens pharmacies throughout the Phoenix metropolitan area. It has opened a clinical laboratory facility in Scottsdale and is currently working to acquire its CLIA certification. When certified, this lab facility will allow Theranos to perform testing locally, eliminating the need to transport all specimens to its CLIA lab in Fremont, California.

The Dark Report is the first national source to report that competing medical laboratories across Phoenix are raising questions about the ability of Theranos, at least at this point in time, to deliver the level of patient/customer service, speedy delivery of lab test results, and high accuracy that it has touted in numerous national news stories. (Dark Daily readers interested in obtaining a copy of this issue of The Dark Report should email: info@darkreport.com. A limited number of copies are still available.)

Prior to publishing its April 20 issue, The Dark Report asked Theranos to comment on several developments claimed by some competing clinical labs in the Phoenix area. As of this date, Theranos has not responded to these inquiries.

One of the new insights that The Dark Report is first to report is that Theranos is expanding its stated business plan that primarily emphasized providing direct access lab tests to consumers walking into Walgreens retail stores. Yes, it offers this service to walk-up consumers in those locations, but it is also sending sales representatives into physicians’ offices throughout the Phoenix metro to solicit the lab test referrals of these doctors.

Marketing Clinical Lab Testing Services to Office-based Physicians

By marketing directly to physicians in Phoenix, Theranos has immediately made itself a full-fledged competitor to existing lab companies and hospital lab outreach programs. For this reason, it might be said that Theranos is now “under the microscope” of lab competitors. Such scrutiny has the potential to be problematic for a company that has a reputation for being highly secretive, and for requiring employees and vendors to sign tough non-disclosure agreements.

Such scrutiny happens because competing clinical labs have a source of intelligence unavailable to Wall Street investors and professional journalists. It is their couriers who visit physician offices daily to pick up specimens and interact with staff. It is their phlebotomists who have served the same physicians and patients for years and thus have strong personal relationships.

Consequently, the employees from competing labs interact daily with these physicians and patients. They know office gossip and problems associated with how lab specimens are collected and transported, along with issues associated with the testing of these specimens and how the results are reported.

Arizona Governor Doug Ducey signed House Bill 2645

Last month, Arizona Governor Doug Ducey signed House Bill 2645, Laboratory Testing Without Order, into law. Beginning in July, consumers in Arizona will be able to order any lab test directly from a licensed laboratory without a physician’s order. The law was signed by Governor Ducey in the Scottsdale offices of Theranos. Present was Theranos CEO Elizabeth Holmes, who is shown standing at far left behind Governor Ducey. At far right is Representative Heather Carter, who sponsored the bill. (Photo by Howard Fischer of Capitol Media Services and copyright Arizona Daily Star.)

There is another aspect to this situation which gives competing medical laboratories a window of the level of service and the accuracy of the lab test results being reported by Theranos on patients it tests in the Phoenix metro. As noted above, many of these clinical labs have served the same physicians and same patients for years, even decades. Within their laboratory information systems, these labs have cumulative lab test data on these patients.

What this means is that, were Theranos to report unusual lab test results on a patient, that patient’s physician may choose to retest the patient with a different clinical lab, or might even split samples between Theranos and the incumbent lab serving that physician’s office. The physician, and the incumbent lab, would then be in a position to critically assess the accuracy—or inaccuracy—of the lab test results reported by Theranos.

Competing Medical Laboratories Are Sharing Stories

On this point, The Dark Report wrote that “Competing labs [in Phoenix in recent months] say they know of at least some instances where Theranos reported lab test results that some patients (and their physicians) recognized as being out of range or atypical. Some competing laboratories are sharing stories that physicians and patients have sent specimens to them for a second lab test to confirm results. When the retesting was performed in these CLIA-licensed laboratories, it was determined that the lab test results reported by Theranos were discordant or discrepant to the range of results from earlier testing that was typical for that patient. These stories cannot be independently confirmed and, of course, all labs have atypical results from time to time. Theranos has been asked to comment on this situation.”

As noted earlier, Theranos was asked about this matter and has not yet responded to The Dark Report.

Pathologists and clinical laboratory managers who are familiar with the media coverage about Theranos know how the company places great emphasis on the fact that it needs only a finger stick collection with a small quantity of specimen. Not only does Theranos claim that the finger stick procedure is less painful than the conventional venipuncture, but its proprietary technology only requires a small volume of blood. As described last year by Fortune Magazine, “The company has performed as many as 70 different tests from a single draw of 25 to 50 microliters collected in a tiny vial the size of an electric fuse, which [Theranos CEO Elizabeth] Holmes has dubbed a ‘nanotainer.’ Such a volley of tests with conventional techniques would require numerous tubes of blood, each containing 3,000- to 5,000-microliter samples.”

Reports That Many Specimen Collections Are by Venipuncture

Given the importance of a finger stick collection with a micro-specimen to the business plan and competitive—even disruptive—differentiation that Theranos has emphasized during media interviews with company officials, some lab competitors in Phoenix paint a different picture. Competing clinical labs in Phoenix are saying that, starting around mid-February, their secret shoppers have been unable to get a finger stick collection at Theranos wellness centers in the Walgreens pharmacies.

Instead, these labs say that their secret shoppers have been drawn by venipuncture and the conventional volume of blood was collected, sometimes in several vacutainers. These labs question whether Theranos company policy may have changed to stop, at least temporarily, use of the finger stick collection. The Dark Report addressed this situation, writing that competing labs have said: “Some Theranos or Walgreens employees have reportedly indicated, during the purchase or collection process [with secret shoppers from competing labs], that company policy changed about that time and they were directed not to collect specimens using the finger stick and were required to collect by venipuncture. Is such a policy in place? Were these isolated instances or something more? The Dark Report has asked Theranos these questions.”

To date, The Dark Report states that no response on this matter has been received from Theranos.

However, there are examples that indicate Theranos did perform finger stick collections in Phoenix and Palo Alto, California in recent days. One example involves a patient who visited a Theranos wellness center in Palo Alto in the previous 10 days. She reported to Dark Daily that her lab specimens were collected by finger stick. For a metabolic panel, a CBC with automated differential, and a lipid test, this individual said that two finger sticks were needed to collect the micro-specimens to perform those three clinical laboratory tests.

Similarly, just last week, a lab competitor in Phoenix said that a patient showed up at one of its patient service centers with a lab test requisition. This patient reported that he had been to a Theranos wellness center at a Walgreens earlier that day. To do a CBC and a metabolic panel ordered by his physician, the Theranos representative had used a finger stick to collect a microspecimen followed by a venipuncture to collect a conventional amount of blood.

So why was this individual now visiting a second lab? He needed an RPR with reflex (Rapid Plasma Reagin), which Theranos does not offer. The competing lab used a venipuncture to collect the specimen needed to perform the RPR test ordered by the patient’s physician. The competing lab described the patient as “very perturbed” about “being stuck twice [at Theranos] and then needing” to go to yet a second clinical lab and be stuck a third time.

Medical Directors of CLIA Labs Have Theories

Pathologists who are Medical Directors of competing CLIA labs are discussing amongst themselves the possibility that the stories about fewer finger stick collections at Theranos wellness centers in Phoenix may be related to the company’s proprietary LDTs. Theranos has stated that it uses its proprietary lab testing technology under federal law and FDA requirements for laboratory-developed tests (LDTs). This was described in the Fortune Magazine story about Theranos. Fortune reporter Roger Parloff wrote: “Theranos, which does not buy any analyzers from third parties, is therefore in a unique position. While it would need FDA approval to sell its own analyzers to other labs, it doesn’t do that. It uses its analyzers only in its own CMS-certified lab. All its tests are therefore LDTs, effectively exempt from FDA oversight.”

In Phoenix, some CLIA lab directors at competing labs have said that, when a lab’s LDT produces atypical results, CLIA requires the laboratory to follow procedures to identify the root cause of errors, then take corrective action. These pathologists speculate that stories about fewer finger stick collections at Theranos may be related to the company’s efforts to follow CLIA requirements in cases where a laboratory-developed test generated atypical results.

These pathologists say this would be a particularly sensitive issue for Theranos during the time when it is believed the company is working to obtain its CLIA certification for the Scottsdale lab facility, and the Arizona state CLIA assessors would be preparing for their inspection of the lab. The Dark Report has asked Theranos to comment on the policies it has in place, as required by CLIA, for investigating a lab error, making corrective action, and, if necessary, issuing an amended report to any physicians and patients affected by such an error. Theranos has not responded to this request.

Theranos Enjoys Plenty of High-profile Media Coverage

There is some irony in the scrutiny of Theranos as it launches its first major business development initiative in Phoenix. In the 18 months since it attracted national attention with coverage in The Wall Street Journal, and a press release announcing its agreement to put Theranos wellness centers in more than 8,000 Walgreens pharmacies nationwide, Theranos has enjoyed a superb public relations campaign. Not only has much of the American public become aware of Theranos and its CEO, Elizabeth Holmes, but it has become a high-interest topic with pathologists, clinical chemists, and all medical laboratory professionals. And why not? Theranos has trumpeted its plans to disrupt the entire clinical laboratory testing industry.

Because the company has repeatedly told the world that it intends to put existing clinical laboratory operations out of business with its paradigm-shifting proprietary lab testing technology, pathologists and clinical laboratory scientists across the United States have taken the company at its word and consider it a threat. Thus, is it any surprise that, as Theranos moves forward with its plans to capture market share in Phoenix, it is “under the microscope” from almost every pathologist and clinical laboratory scientist in the Phoenix metropolitan region?

There is another attribute of pathologists and clinical laboratory scientists that will probably play a role in the Theranos story as it moves forward. These are detail-oriented, meticulous professionals who have high standards for the quality of care and accuracy of the test results their labs report to physicians and patients. Thus, whenever a new competitor appears, including Theranos, these lab professionals will hold it to a high standard of performance and quality.

Theranos Regularly Discusses Its High Standard of Quality

Theranos asserts that its proprietary lab test technology is capable of a high standard of performance and quality. To this point, following its interview with Theranos CEO Elizabeth Holmes, The Wall Street Journal wrote: “Theranos’s technology eliminates multiple lab trips because it can ‘run any combination of tests, including sets of follow-on tests,’ at once, very quickly, all from a single microsample. Ms. Holmes estimates that patients and doctors will receive readouts in ‘as little as two hours’ and can even do so before an office visit based on their physician’s recommendation for better, or at least less ad hoc, consultations.”

Having read this statement and others like it from Theranos officials quoted in such media outlets as Fortune, Wired, Smithsonian Magazine, USAToday, and New Yorker, it is only human nature that curious laboratory scientists in Phoenix are watching Theranos to see how it delivers lab testing services in clinical settings—not a direct access test to a consumer visiting a retail pharmacy. Moreover, because these pathologists and clinical chemists have decades experience with diagnostic technologies used in clinical care, they are uniquely positioned to recognize when competing labs deliver top-quality service and accuracy, as well as when they do not.

Fortune Predicted Tough Scrutiny by Pathologists, Lab Scientists

In this respect, as it expands its competitive footprint in Phoenix, Theranos will undergo tough scrutiny from competing laboratories. In fact, Fortune Magazine was accurate on precisely this point. In its coverage of Theranos, it wrote that “This strategy may be inviting a hell of a battle with the health industry, where the incentives are rigged against startups and the empire usually finds a way of striking back. Witness the medical-practice regulations that make medicine a cartel against competitors. Pathologists, lab scientists and technicians won’t be pleased if their jobs go the way of travel agents.”

Dark Daily readers with comments, questions, insights, and experiences involving Theranos and the physicians and patients using the lab company’s services can contact the editor in confidence at: info@darkreport.com

Related Information:

Law Lets Arizonans Order Their Own Lab Tests

Ducey Signs Legislation to Allow Lab Testing Without a Doctor’s Order

This CEO Is Out For Blood

Blood, Simpler: One woman’s Drive to Upend Medical Testing

What’s New at Theranos? Lab Firm Expands in AZ

Theranos: Many Questions, But Very Few Answers

Ignoring Lab Industry, Theranos Goes Its Way

My Visit to Walgreens For Theranos Lab Tests

Theranos Won’t Discuss Disruptive Lab Technology