Report link: http://www.wsj.com/articles/theranos-lab-practices-pose-risk-to-patient-health-regulators-say-1453933143?mod=LS1

Make or break depending on what Theranos’ investors decide. Obviously if they decide to pull out, it would be the end of the road, and these deficiencies are serious enough for that.

Being pulled up for one of these deficiencies at a time would be enough of a headache but more than one clinical lab director questioned for comment says five such serious deficiencies at one time is far from normal. This is also evident from CMS’ own survey of deficiencies published in Jan 2016 (see figure below).

42 C.F.R. 493.1215 (95 of 17372 or 0.5% of labs found deficient)

42 C.F.R. 493.1250 (228 of 17372 or 1.3% of labs found deficient)

42 C.F.R. 493.1441 (258 of 17372 or 1.5% of labs found deficient)

42 C.F.R. 493.1447 (54 of 17372 or 0.3% of labs found deficient)

42 C.F.R. 493.1487 (86 of 17372 or 0.5% of labs found deficient)

So according to CMS itself, each of these complaints is rare.

According to CMS’ public letter, dated Jan 26, 2016, Theranos ‘has 10 calendar [not business] days to provide CMS credible allegation of compliance and acceptable evidence of correction documenting that the immediate jeopardy has been removed and that action has been taken to correct all of the Condition-level deficiencies in question‘.

Allegation of compliance is a weird phrase. Either legalese or an error no matter, the deficiencies are what matter. Deficiencies pertaining to these conditions can be divided into 2 categories, lab systems and processes: 1215 and 1250, and lab personnel’s qualifications and work products: 1441, 1447, 1487.

To rectify just one of these deficiencies in 10 calendar days would be daunting. Rectify all 5? Could be impossible.

With respect to 1441, 1447 and 1487, respectively, CMS is saying either the qualifications of the Lab Director, the Technical Supervisor and the Testing Personnel are deficient or how they provide overall management and direction, technical supervision and perform functions are deficient. Briefly, CMS is alleging qualifications of lab personnel from top to bottom and/or how they do their work are deficient. How to rectify that in 10 days? Theranos insists they’ve been working on fixing these issues since Dec 2015 when CMS first alerted them. Task at hand is to transplant a properly functioning clinical lab in place of whatever mess of one they currently have.

1215 and 1250, i.e., hematology and analytic systems are the bread and butter of an operating clinical lab. However, each of these covers dozens of other regulations so without knowing which specific ones CMS found deficient, it’s impossible to know how serious these issues are.

Theranos insists these issues only pertain to their Newark, CA lab, not to their Arizona lab, where they claim ~90% of their tests are performed so if push comes to shove and CMS shuts down this particular lab, Theranos could still be open for business at their Arizona site.

If Theranos persuades its investors to hang in through this crisis, it could sort this out and emerge alive. If it can’t, that would spell finis.

With so many foundational issues found to be at fault, also leaves open the question of how this particular Theranos lab got CLIA accredited in the 1st place. Spells trouble for whichever accreditation organization credentialed them originally. If they were this lax here, begs the question of how much due diligence they do in credentialing other CLIA-accredited labs.