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Secrets of the Youngest Female Health Care Ex-Billionaire And How the FDA Can Stop the Next Theranos

Health Letter, December 2016

By Sarah Sorscher, J.D., M.P.H.

Image: Krista Kennell/Shutterstock.com

Just a year ago, Elizabeth Holmes was being hailed as the world’s youngest self-made female billionaire.

Today, her net worth has been estimated at zero. Theranos, the technology company Holmes helped to found over a decade ago, was slammed on Nov. 28, 2016, with a class action lawsuit filed by shareholders alleging that the company consistently and deliberately misled investors about its products’ capabilities. The company had announced in October that it would close its clinical labs and wellness centers, laying off 340 employees in three states.

Theranos has been rocked by scandal since the fall of 2015, whenThe Wall Street Journal first broke the story that the company’s blood-testing technology was allegedly delivering inaccurate test results. But while Holmes and her employees have suffered financially, patients who trusted the Theranos tests have been exposed to far greater risks.

Holmes’ company was founded on a simple and appealing concept: blood tests that use just a few drops of blood from a tiny finger prick rather than larger vials of blood drawn from a vein. The company offered many high-stakes tests, including screening for cancer and assessments used to adjust blood-thinning medication to prevent stroke. Holmes aggressively publicized her company’s testing products as a revolutionary new approach to blood testing that would upend the health care status quo by making personal health data more widely accessible.

Yet Holmes was also notoriously secretive with the company’s technology, declining to discuss the testing process with reporters and largely avoiding the publication of data in peer-reviewed scientific journals.

FDA loopholes

One of the reasons Theranos was able to avoid disclosing the details of its procedure for so many years was that the company took advantage of a regulatory loophole that allowed it to evade oversight by the Food and Drug Administration (FDA).

Companies that market commercial diagnostic tests must undergo FDA pre-market review, a process that opens their procedures up to scrutiny by federal reviewers and, to a lesser extent, the public. Yet the FDA has traditionally not required such review for laboratories that conduct blood testing in-house.

While they are not currently reviewed by the FDA, laboratories that perform diagnostic testing are inspected by the Centers for Medicare and Medicaid Services (CMS). Unfortunately, routine CMS inspections do not assess whether the diagnostics being used are accurate.

The FDA overlooked these so-called “laboratory-developed tests” because they were traditionally very simple tests made available on a limited basis. But the laboratory industry has grown, and some of these laboratory-developed tests are more complex, have a nationwide reach and provide important information that can significantly affect patient care.

The FDA has been trying for years to bring the laboratory testing industry under better oversight. Yet the agency’s efforts to regulate in this area have been hampered in part by political pressure. The 2012 FDA Safety and Innovation Act included a provision requiring the FDA to provide notice to Congress prior to publishing any plan to regulate these tests. It took two years after the act was passed for the agency to publish a draft plan, and it has yet to finalize the draft.

Federal investigation

The FDA became interested in Theranos’ testing technology after the company voluntarily sought FDA clearance for one of its blood tests used to detect antibodies to the herpes virus. The herpes test was cleared by the FDA in July 2015.

While the FDA did eventually clear the herpes test, FDA officials maintained concerns about the reliability and accuracy of Theranos’ testing procedures. In August 2015, one month after the herpes test was cleared, the FDA inspected the Theranos facility and found deficiencies in its processes for handling customer complaints, monitoring quality and vetting suppliers. The Wall Street Journal has reported that federal officials also told Theranos employees during this inspection that the company had failed to demonstrate that many of its tests were accurate, and would have to submit new data if it wished the FDA to clear additional tests. After speaking with agency officials, Theranos agreed that it would no longer ship its “nanotainer” vials — tiny vials used to hold small amounts of blood collected from a finger prick — for any tests other than the herpes test cleared by the FDA.

The FDA inspection was publicized by The Wall Street Journal in October 2015 as part of a series of critical investigative reports hammering the company for its testing problems. Over the next two months, CMS also investigated the Theranos facility and found many serious deficiencies, including the results of quality control checks showing that Theranos’ proprietary tests were not reliable because nearly a third produced data that fell outside the range that Theranos considered acceptable.

The following July, CMS revoked Theranos’ license and banned Holmes from the blood-testing business for at least two years. In a letter, CMS explained that these sanctions were needed because Theranos continued to put patients in “immediate jeopardy,” had failed to make clear when it had stopped using the inaccurate tests, and failed to keep clear records documenting the patient test results that had been voided and corrected.

But federal intervention came too little, too late for many patients. Operating its secretive but unproven technology without FDA oversight, Theranos had been permitted to use its unreliable testing for nearly two years, yielding tens of thousands of unreliable test results that were eventually voided or revised. And the company had in some cases concealed these voided test results for months before informing the individual doctors and patients who should have been informed of bad test results immediately.

In the meantime, patients mistakenly believed that they could be at risk for cancer, diabetes or other serious conditions. At least one patient stopped taking his blood-thinning medication based on a Theranos test result.

Had Theranos been required to undergo premarket FDA review for all of its tests, these tens of thousands of patients might have been spared the disruption caused by the voided results.

A larger battle with industry

Federal agencies have largely been successful in shutting down Theranos. The company is no longer conducting blood testing, and last summer it withdrew its application for FDA approval of a test for the Zika virus. The Zika virus is known to produce severe birth defects if pregnant women are infected; in some cases, a woman may terminate pregnancy rather than give birth to a baby with these birth defects.

But while the Theranos battle is largely over, the FDA does not seem to be faring as well in the larger fight to bring into check a testing industry grown out of control. An FDA report published in 2014 details 20 case studies involving laboratory-developed tests that may have caused harm to patients. Based on the unreliable results from these tests, patients underwent aggressive antibiotics treatment, did not receive necessary cancer medications and may have been offered a dangerous treatment for heavy metal poisoning. In one case, a woman terminated her pregnancy after testing positive for a rare genetic birth defect, only to find out in post-abortion testing that the fetus was normal.

With a new administration assuming power in January, it remains unclear whether the FDA’s efforts to regulate this burgeoning industry will continue to move forward. What is clear is that until the FDA finalizes — and implements — its plan to regulate the laboratory-developed testing industry, there will be little the agency can do to prevent a future lab testing company from duping Americans with inaccurate tests.