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Companies Behaving Badly Part 5: Blood Testing Company Deceives Patients, Investors

In 2003, a 19-year-old Stanford University dropout named Elizabeth Holmes launched Theranos, a Silicon Valley startup that promised quick blood tests at a lower cost than a traditional lab. Raising millions from private investors, Theranos claimed that just a few drops of blood sent away to their lab could be screened for a long list of health conditions, all at a cost of less than $3. By 2018, the company was bankrupt and founder Elizabeth Holmes was charged with 9 counts of federal wire fraud, as well as 2 counts of conspiracy to commit wire fraud. The company officially closed its doors in September 2018.

Real Partnership with Walgreens, False Claims of Association with Department of Defense
Business really began to boom when Theranos partnered with Walgreens in 2013. Forty Walgreens locations across the country would carry Theranos’ Edison blood testing device, which the company claimed could quickly and cheaply screen for a myriad of disease. It has been claimed that Walgreens blindly agreed to a deal without personally testing the device’s accuracy to avoid a competitor partnering with Theranos first. Soon after, questions began being raised about the accuracy of blood tests allegedly run on the Edison device. A class action lawsuit filed in California by Theranos patients alleges that the company’s tests falsely diagnosed them with diseases they didn’t have. Clinical scientists suspect that such small samples of blood (which is all Theranos claimed to have needed) would then have had to be diluted to be run on standard blood testing machines. This dilution leads to less accurate test results and is not considered acceptable practice for blood-based lab tests. Walgreens ended its partnership with Theranos and sued them for breach of contract in June 2016.

In March 2018, the Securities and Exchange Commission (SEC) released a statement saying that Elizabeth Holmes and Theranos President Ramesh “Sunny” Balwani had been charged with defrauding investors to the tune of $700 million for exaggerating the capabilities of its portable blood testing machine (The Edison) while simultaneously sending their blood samples to be tested by traditional blood testing equipment used in labs everywhere. The complaint against them also describes how Holmes and Sunny Balwani falsely claimed that its blood testing machine was being used in active combat zones in Afghanistan. The company bragged of $100 million in earnings from just this deal alone, when in reality the relationship with the DoD brought in $100,000.

Theranos Blood Labs Fail Inspections
In October 2015, an inspection of Theranos’ Scottsdale, Arizona lab turned up a number of deficiences.

That same fall, an investigation of Theranos’ Newark, California lab failed to meet safety standards. The Centers for Medicare and Medicaid Services (CMS) notified Theranos that blood testing used to determine the correct amount of blood thinner medication was inaccurate and that this flaw posed an immediate risk to “patient health and safety.” By July 2016, CMS punished Theranos by taking away their lab license, forcing them to shut down their labs for at least two years. CMS also required Theranos to pay a $30,000 fine and cut them off from Medicaid and Medicare reimbursements for its tests. 

Amid other fallouts, the biggest and final blow to Theranos came this past year. Federal prosecutors charged Elizabeth Holmes and Sunny Balwani for 11 federal counts of fraud and they were indicted in September. If found guilty on all counts, they each would face 20 years in prison.

This healthcare company and its founder, once hailed as the next Steve Jobs, managed to deceive investors, patients, and the entire country for years, simply by claims it could do things no one else could. Without attempting to test the accuracy of Theranos’ products, a major drugstore signed on and offered these faulty tests to patients searching for answers.

Any product, especially one that could impact our health and safety, should be thoroughly vetted before it is allowed to reach consumers. The fact that this fraud of a business was allowed to prosper for 15 years is beyond belief, leading us to remember the old adage “If it seems too good to be true, it probably is.”


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