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CNBC EVENTS -- Pictured: Elizabeth Holmes, Founder and CEO, Theranos speaks at the Clinton Global Initiative Annual Meeting, in New York City on September 29, 2015 -- (Photo by: Adam Jeffery/CNBC/NBCU Photo Bank)
Elizabeth Holmes, Founder and CEO, Theranos speaks at the Clinton Global Initiative Annual Meeting, in New York City on September 29, 2015. Adam Jeffery—CNBC Media, LLC

Theranos CEO Elizabeth Holmes Banned From Operating a Lab

Jul 08, 2016

Theranos, the embattled blood testing startup, has been dealt a major blow.

On Thursday evening, the company announced that it has received a notice from the Centers for Medicare and Medicaid Services (CMS), revoking its regulatory approval to operate and banning founder and CEO Elizabeth Holmes from running a lab for at least two years.

Among the sanctions are a monetary fine of an undisclosed amount and cancellation of the lab’s approval to receive Medicare and Medicaid payments for its services. The CMS's decision is a result of its inspection of Theranos's lab in Newark, Calif. last year, the company said in a press release.

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“We accept full responsibility for the issues at our laboratory in Newark, California, and have already worked to undertake comprehensive remedial actions," Holmes said in a statement. "Those actions include shutting down and subsequently rebuilding the Newark lab from the ground up, rebuilding quality systems, adding highly experienced leadership, personnel and experts, and implementing enhanced quality and training procedures."

“While we are disappointed by CMS’ decision, we take these matters very seriously and are committed to fully resolving all outstanding issues with CMS and to demonstrating our dedication to the highest standards of quality and compliance," she added.

The Newark lab's CLIA operating license will still be valid for another 60 days, though Theranos says it will not conduct any patients tests until "further notice." Theranos will "continue to work with CMS to resolve and remediate outstanding issues in the Newark lab, and will continue to provide services to its customers through its Arizona lab."

Theranos's technology came under fire in October, when the Wall Street Journal published a series of reports questioning the accuracy of the company's technology and claims. Until then, Theranos was widely praised for its ambitions to create testing technology that only requires a few drops of blood, earning it a $9 billion valuation and $400 million in private funding.

Since then, it has come under federal investigation and lost its business partnership with Walgreens, which set up testing centers in some of its stores. Recently, the company voided all tests performed using its proprietary technology in 2014 and 2015. In May, chief operating officer Sunny Balwani announced his resignation from the company.

Theranos can appeal the agency's decision, though the process would take months and the CMS hasn't had to reverse a single such decision from 2001 to the end of 2010, the Journal points out.

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