When state regulators conducted inspections of This is especially important in health care, where the regulatory landscape changes quickly and human safety is a risk. A free inside look at Theranos salary trends based on 192 salaries wages for 99 jobs at Theranos. Don't miss out on all the great benefits an APhA membership has to offer. re Caremark Int’l Inc. Deriv. Perhaps most egregiously, Centers for Medicare and Medicaid Services Board Member Expertise. As such, directors are responsible for ensuring a company’s activities comply 2019). test on Theranos’s proprietary mini device in a demonstration to a This director … At age 19 and after only two semesters of chemical engineering classesat Stanford, Holmes dropped out to start Theranos, a privately held for-profitentity. banned Holmes and Theranos from running a blood testing lab. There is no indication that any other board member, however, was even interested uncleared medical device and prohibited Theranos from using it. Management should report on critical operations issues to the board, particularly on yellow or red flag concerns (e.g., whistleblower complaints, regulator actions). and executives for losses after the company failed to respond to a listeria The board In Bad Blood Carreyrou lays bare the toxic culture at Theranos that helped cause the company’s demise. Did I necessarily articulate … Theranos is a private health care and life sciences company with the stated mission to revolutionize medical laboratory testing through allegedly innovative methods for drawing blood, testing blood, and interpreting the resulting patient data. Plaintiffs survived a motion to dismiss because their complaint included Proving such a failure is difficult – e.g., it requires evidence of a sustained or systematic failure to exercise oversight, such as “an utter failure to attempt to assure a reasonable information and reporting system exists.”[iv]. One former lab director told ABC News that Theranos looked like it was run like a "mad scientist operation." Theranos’s CFO learned about this practice and strongly objected, Holmes fired Culture Development. Turns out, Holmes sold the company to investors through obfuscation and deception. They, like almost everyone else, were duped. board should have addressed, but did not. hacked commercial machines, which negatively impacted accuracy. Education efforts and properly staffing the board may help foster a strong culture for compliance. The lab reportedly houses proprietary blood analyzers on which Theranos was running some of its more than 240 blood tests before scaling back their use earlier this year. CMS found that unqualified personnel were allowed to handle patient blood [vi] See Caremark Liability for Regulatory Compliance Oversight, Harvard Law School Forum on Corporate Governance and Financial Regulation, Gail Weinstein, Warren S. de Weid, and Philip Richter (July 8, 2019) (available at https://corpgov.law.harvard.edu/2019/07/08/caremark-liability-for-regulatory-compliance-oversight/#respond) and Practical Guidance for Health Care Governing Boards on Compliance Oversight, Office of Inspector General, U.S. Department of Health and Human Services (April 20, 2015) (available at: https://oig.hhs.gov/compliance/compliance-guidance/docs/Practical-Guidance-for-Health-Care-Boards-on-Compliance-Oversight.pdf). sufficient inferences that the board had not undertaken any effort to ensure it Most obviously, the board must create a board-level system to oversee and monitor compliance with the company’s central regulatory and legal obligations. For example, with regard to its proprietary lab equipment Theranos testing technology and revenue projections. Blue Bell does one thing: it makes ice cream. This will help ensure critical issues and information are reported to the board. [iii] In other words, directors must make a good faith effort to implement a board-level oversight system and monitor it. oversight for the most part). Salaries posted anonymously by Theranos employees. In October 2015, a Wall Street Journal investigation exposed Silicon Valley startup Theranos for making fraudulent claims about its “breakthrough advancements” in … This is in addition to actions already taken by the SEC against Theranos and Holmes, as well as class action lawsuits by investors and patients. Board of Director Lessons from Theranos by Jamie Flinchbaugh on 01-07-20 Theranos has captured the attention of many, in part because the hype surrounding its founder reached such massive peaks, and partly because the degree of fraud is on par with 19th-century snake … ... and is barred from serving as an officer or director of any public company for ten years. [i] See, e.g., Theranos plans to hire a laboratory director to oversee one of its key facilities amid questions raised in laboratory circles about the qualifications of a physician who now runs the lab. Minutes. The Federal Though Holmes advertised Theranos as a Silicon Valley technology startup, at its core Theranos was a blood testing company with a diagnostic laboratory subject to the same regulatory compliance requirements as any other lab. Similarly, in November 2006 Holmes faked successful results of a blood implementation and effectiveness of the compliance and ethics program.”[ii], Under the seminal In re Caremark International, Inc. case, a breach of the fiduciary duty of loyalty is established by evidence that the directors knew or should have known compliance violations were occurring and took no preventative or remedial steps. Litig., 698 A.2d 959 (Del. Directors are At age 19 and after only two semesters of chemical engineering classes The pattern of inaction of the Theranos board is similar to the Blue Bell case. that Theranos’s “nanotainer” for collecting blood from finger pricks was an For example, not one health care ... “What we don’t know is how much self-delusion or group-think went on with the lab and executive teams at Theranos,” Cembrowski concluded. The former Director, Medical Biochemistry, at the University of Alberta Hospital in Edmonton, Canada, has followed the Theranos saga closely. Faced with this information, the demonstrating the devices to potential investors and pharma companies. Ch. In July 2016, CMS However, the claims later proved to be false. Holmes’s grand vision was torevolutionize blood testing and place these miniature labs in homes across theworld. multi-national pharmaceutical company. venture capital firm invested in Theranos, but board members never questioned For some Theranos … its proprietary miniature lab equipment from the commercial analyzers it used idea was to create a miniature laboratory that could perform blood tests using One victim included a microbiologist who pushed for industry standard and regulatory required environmental health and safety protections in the lab. Not one board Since then, a dermatologist named Sunil Dhawan has replaced the director, … Holmes convinced them to change their Get the latest pharmacy news in your inbox. Long story short, the technology did not work (ultimately, Theranos did not develop any new technology, it took existing technology and made it smaller). The board should require regular reports on compliance efforts for risk assessment, mitigation, complaints, investigations, and corrective actions. That’s when The […] with applicable industry, legal, and regulatory frameworks, the broad Still, the first qualification Theranos has on its website for the Newark lab-director job is "M.D. degree with a Board Certification in Pathology," the WSJ points out. Holmes, an aspiring billionaire, claimed she feared needles. When Theranos eventually appointed a lab director, it was a dermatologist who was not actually qualified to run a clinical laboratory and was mostly an absent figurehead. Provide annual (at least) education to board members on their duties regarding compliance oversight and on the substantive regulatory areas the board is responsible for overseeing. Theranos plans to hire a laboratory director to oversee one of its key facilities amid questions raised in laboratory circles about the qualifications of a physician who now runs the lab. It is important to be clear on a few things about the board’s role in the company’s failure. The Financial Times also reveals that the full-time director of Theranos's laboratory resigned at the end of last year. Holmes recruited famous diplomats, statesmen, and political and military laboratory, or medical industry experience (as a salacious aside, Holmes never cooperated with the FDA and the FDA approved its blood testing processes. Board minutes should reflect efforts to establish, implement, and continually monitor key compliance matters, and should include management reports on risks and compliance issues. Carreyrou recounted how his reporting began with a tip from a Missouri pathologist blogger and culminated in his locating the primary source, a former Theranos lab director. in asking questions or challenging Holmes. However, some lab specialists say there is a difference between the skills required to analyze tissue specimens for signs of skin cancer, for instance, and those necessary to oversee a full reference laboratory. John Carreyrou’s best seller Bad Blood: Secrets and Lies in a Silicon Valley Startup covers the whole sordid tale. There were many problems with the lab practices itself as the FDA had warned Theranos with problems like a record of acceptable suppliers or that the device did … shall be knowledgeable about the content and operation of the compliance and regulatory and accreditation required exercise aimed at identifying inaccurate Theranos also set up protocols that allowed unlicensed personnel to conduct quality control procedures and process patient samples in the lab. samples, blood was stored at the wrong temperatures, the presence of expired In March 2008, two high-level employees approached the board chair with The first time I talked to [former Theranos lab director] Alan Beam, I had a pretty good idea that this was a big story. him. Notwithstanding, Theranos, at Holmes’s or Balwani’s direction, flouted regulatory requirements. None of them participated in the fraud. serious deficiencies with Theranos’s proprietary lab equipment and lab operations. as the laboratory director," says Ed Thornborrow, medical director of the clinical labs at the University of California, San Francisco. world. Theranos was a privately held health technology corporation. Holmes, an aspiring billionaire, claimed she feared needles. whether in a for-profit or non-profit entity, directors are fiduciaries. First, no board member is facing prosecution or even the threat of indictment. Sentencing Guidelines set out the required elements of an effective compliance The employee was alleging all manner of wrongdoing. experience. So what should a board of directors do to oversee compliance? The blood-testing company has been operating its Newark, CA, lab for the past 10 months under the supervision of Sunil Dhawan, MD, a dermatologist without a degree or board certification in pathology or laboratory science. According to Cheung, Theranos was a chaotic environment. Theranos never got the FDA approval for these tests, only one test for detection of the Herpes infection. minds. Elizabeth Holmes, founder and chief executive of the blood-testing company Theranos, has been charged by the Securities and Exchange Commission with … Foremost, Theranos searches for lab director to oversee laboratory, Ambulatory Care Review and Recertification Activities, Sterile Compounding Review and Recertification Activities. Early employee Shaunak Roy indicated to Carreyrou that Holmes’s vision “bordered on science fiction,” biochemist and chief scientist Ian Gibbons told his wife Rochelle that “nothing at Theranos was working,” while lab director Alan Beam similarly … Holmes did this routinely when connections, raise funds, and gain attention. commercial analyzers, diluted small finger prick samples, and ran them on the [v] dressing. approved hiring Balwani as president and COO despite having no blood testing, Board Education. [ii] That would include the company’s only other lab, located in Arizona. patients about flawed test results. Reporting structures or processes may include: (a) forming a board committee focused solely on compliance oversight; (b) developing protocols for regular meetings with compliance and management personnel, and reporting key compliance activities to the board or committee; and (c) setting a regular schedule for the board to review and assess risk. When it became clear Holmes was willing to endanger patients by using questionable blood testing processes, some employees turned on Holmes and became whistleblowers. blood testing, by testing proficiency samples on commercial analyzers rather Wall Street Journal (11/06/15) Carreyrou, John, http://www.wsj.com/articles/theranos-searches-for-director-to-oversee-l…, APhA sponsored Professional Liability Insurance. January 25, 2016: Theranos lab in Newark, CA, is found to be a threat to patient health . protections of the business judgment rule notwithstanding. fact, the FDA had approved only a few of Theranos’s tests (Theranos skirted FDA In 1996). accomplished, but none of them had any substantial scientific or health care industry Toggle entity. search, Theranos and the Tale of the Disappearing Board of Directors, https://corpgov.law.harvard.edu/2019/07/08/caremark-liability-for-regulatory-compliance-oversight/#respond, https://oig.hhs.gov/compliance/compliance-guidance/docs/Practical-Guidance-for-Health-Care-Boards-on-Compliance-Oversight.pdf. It is these personal relationships that are the source of a rumor about how, in the past month, the pathologist who was the medical director on the Theranos CLIA certificate (believed to be the Palo Alto lab facility) has left the employ of Theranos. was informed about the compliance issues critical to the company’s operations. On February 26, he contacted a former lab director at Theranos who told him about unethical and harmful practices there. [A former Theranos] lab technician said in her deposition that company executives frequently demanded that staff “hide things from people.”“We were constantly hiding things from all sorts of people, whether it was regulators or whether it was outside vendors or even people that would come in … member looked into the firing of two high-level employees who only a few weeks responsible for oversight of a company’s compliance function. The lab’s current director is Sunil Dhawan, a dermatologist with no background in laboratory science. The focus here is on Theranos’s board of directors and their failure to govern the compliance function, which ultimately helped contribute to the company’s downfall – and what the board should have done instead. Each Theranos board member was highly So it is not clear that additional governance activity by Theranos’s board would have demonstrably prevented the course of events for the company. Blue Bell’s board, however, had no committee to address food safety issues, no processes or protocols for management to update it about food safety practices or risks, no regular schedule for considering food safety risks inherent to the industry, there was no evidence management notified the board of red or yellow flags from regulators about reported listeria problems, and there was a complete lack of any discussions about food safety in board meeting minutes – even during the time of the listeria outbreak. The ultimately $9 billion Theranos fraud demonstrates a corporate board’s vital role in compliance oversight. Balwani, 53, was employed at Theranos from September of … The blood-testing company has been operating its Newark, CA, lab for the past 10 months under the supervision of Sunil Dhawan, MD, a dermatologist without a degree or board certification in pathology … Then Theranos saw the end of another large partnership, this time with Walgreens. revolutionize blood testing and place these miniature labs in homes across the Holmes’s grand vision was to propriety blood testing equipment was basically useless. There are additional examples of serious compliance-like concerns the Barring a plea deal, which seems unlikely, Elizabeth Holmes, the founder and CEO of failed blood testing company Theranos, and president/COO Ramesh Balwani are scheduled for trial on multiple counts of criminal fraud in August 2020. Fuisz had just made contact with a Theranos employee who had just left the company, and the employee was the former lab director. to establish this type of “utter failure.” Shareholders derivatively sued the board Idaho Code §§ 30-29-830, 30-30-618. [v] Marchand v. Barnhill, 212 A.3d 805 (Del. early detection and preventative medicine. only a drop or two of blood pricked from a finger. evidence Holmes misled the board about the effectiveness of Theranos’s blood The media has reported extensively about Holmes and the downfall of Theranos, which was at one point valued at $9 billion. Less than two weeks later Holmes fired both employees. The basic © Copyright 2021, American Pharmacists Association All Rights Reserved. that fact. To fulfill their fiduciary duty, board members must be knowledgeable about the content and operations of the company’s compliance program, and develop board-level systems to ensure appropriate oversite of the implementation and effectiveness of the compliance program. Brent T. Wilson is the Deputy Chief Compliance Officer at University of Utah Health. Ensure board composition includes necessary expertise, or the board has access to necessary expertise. (“CMS”) conducted a surprise inspection of the lab in September 2015 and found The Office of Inspector General of the Department of Health and Human Services has published practical guidance for boards of health care companies, and the Blue Bell case also provides important guidance. Many examples emerged that the Theranos Board similarly made no good faith efforts to implement an oversight system and monitor it. In a letter dated March 18, the Centers for Medicare and Medicaid Services said it plans to revoke the California lab’s federal license and prohibit its owners, including Ms. Holmes and Theranos’s president, Sunny Balwani, from owning or running any other lab for at least two years. [iii] See In It was initially touted as a breakthrough technology company, with claims of having devised blood tests that required only very small amounts of blood and could be performed very rapidly using small automated devices the company had developed. Become a member today and see what APhA can do for you. at Stanford, Holmes dropped out to start Theranos, a privately held for-profit Second, Holmes maintained complete control of the board and did not tolerate dissent. earlier provided evidence that had convinced them to remove Holmes. Easy access to affordable and reliable blood testi… If convicted, each faces up to 20 years in prison. In other words, Theranos’s could not run most blood tests on its miniaturized equipment, so it hacked ethics program and shall exercise reasonable oversight with respect to the §8B2.1(b)(2)(A) (Nov. 2018). Finally, Theranos cheated on proficiency testing, a Director calls disgraced Theranos founder 'delusional' ... a former Theranos lab worker who tipped off the Centers for Medicare and Medicaid Services to look into the company. CMS required Theranos to void almost one million This will assist the board with risk identification, assessment, and knowing which questions to ask company management. When questioned in a 2018 deposition for an investor lawsuit, former Theranos lab director Dr. Adam Rosendorff commented on Theranos technology, referring to as “the miniLab.” When the source agreed to talk, Carreyrou remembered thinking, “This is going to be a big story.” Specifically, the letter cites problems with hematology, the lab's analytic systems, the technical supervisor, and the laboratory director. Theranos had also been thinking of conducting HIV tests before the former lab director talked Holmes and Balwani out of it. Theranos’s board was window program, including the board’s role: “the organization’s governing authority A top British scientist committed suicide amid fears the 32-year-old CEO of Theranos was about to fire him - because he was having trouble getting her one-prick blood tests to … disclosed to the board that she and Balwani were dating and living together). than on Theranos’s proprietary lab equipment. reagents (solutions used for blood testing), and that Theranos failed to notify This article is not about the gripping tale of deception, manipulation, and intimidation fostered by Holmes and Balwani (and other bizarre facts, such as Holmes communicating in a fake deep voice for years after starting Theranos) – Carreyrou, ABC’s Rebecca Jarvis in the podcast The Dropout, and many other talented journalists have thoroughly covered those topics. Soon afterward, a Theranos lab in California was found by the government to be a threat to patient health and safety. blood test results run on its proprietary equipment. Alan Beam was sitting in his office reviewing lab reports when Theranos CEO and founder Elizabeth Holmes poked her head in and asked him to follow her. outbreak in several factories, which caused the deaths of three customers. Theranos plans to hire a laboratory director to oversee one of its key facilities amid questions raised in laboratory circles about the qualifications of a physician who now runs the lab. No board member seemed concerned a C-suite level employee was suddenly the lab, Theranos only showed the inspectors the lab with the conventional Reporting to the Board. Holmes, who by all accounts is wildly intelligent and charismatic, was able to raise hundreds of millions of dollars for her idea, despite having no scientific or medical training. In fact, the only board member who stood up to Holmes and asked tough questions was forced to resign under a specious threat of litigation (Holmes routinely threatened to sue anyone perceived as standing in the way). "When you consider the complexities of a reference lab with an expansive test menu, it would be next-to-unheard of to have anything less than a full-time pathologist or laboratory scientist with a PhD.