RSS Feed I Ask: Could Theranos Get a Health Plan Contract Today?
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PocketCasts PocketCasts Key Takeaways
- Existing healthcare regulatory gates like CLIA and state lab licensing predominantly check administrative paperwork rather than testing actual scientific performance.
- Medicare enrollment requirements demand the disclosure of owners and legal history, which creates a significant barrier for convicted felons like Elizabeth Holmes.
- Commercial insurers and investors historically failed to detect early Theranos fraud, relying instead on journalists and CMS inspections years into the misconduct.
- The stark disconnect between public innovation narratives and private regulatory realities allowed nearly a million patient test results to be invalidated.
- While a revived Theranos venture with Elizabeth Holmes at the helm would face steep hurdles today, companies with clean-background founders and weak scientific validation still risk slipping through payer contracting gates.
I ask whether Theranos could be contracted by health plans today, and I argue that our current gates often check paperwork rather than test performance. I walk through four gates: CLIA certification, state and FDA rules, Medicare enrollment checks, and commercial payer contracting. I note that CLIA and state reviews eventually caught Theranos, but payers and investors did not detect the fraud. I explain that a reporter and regulators exposed the problem years into the misconduct, which shows a dangerous lag. I say the system needs earlier and stronger checks on test validity and real performance. I invite listeners to share their thoughts and questions in the comments.
I recount the arc of Theranos as I observed it and as the documentary presents it. I describe Elizabeth Holmes’s claim that a finger‑prick device could deliver a wide range of blood tests faster and cheaper. I relate how internal staff raised concerns, how a Wall Street Journal investigation revealed inconsistencies, and how federal inspectors found grave laboratory deficiencies that led to mass invalidation of results and regulatory penalties. I explain the criminal outcome: convictions for investor fraud, acquittals on patient counts, and the subsequent sentence adjustments. I also recount the documentary material that shows Holmes and her partner discussing a purported Theranos 2.0, and how the film offers intimate access to their lives while leaving unresolved questions about motive and responsibility. My narration emphasizes the disconnect between the public story of innovation and the private realities uncovered by regulators and reporters. I close by stressing the human costs: nearly a million invalidated tests and unanswered questions about how the system allowed that divergence to persist for years.
Takeaways:
- I argued that existing regulatory gates like CLIA and state lab licensing often check paperwork rather than actual test performance.
- I noted that Medicare enrollment requires disclosure of owners and legal history but may not reliably bar determined bad actors.
- I emphasized that many payer and investor gates failed to detect Theranos fraud early, allowing dangerous delays before exposure.
- I recounted how journalists and CMS inspections ultimately exposed the company, demonstrating a significant lag between payments and regulatory detection.
- I warned that weak scientific verification enables companies with seemingly clean founders to obtain payer contracts despite invalid test results.
Companies mentioned in this episode:
- Theranos
- NBC News
- The Wall Street Journal
- Walgreens
- Humana Health Plan
- Capital Blue Cross
- AmeriHealth Caritas
- LabCorp
- Quest Diagnostics
Frequently Asked Questions
Could Theranos get a health plan contract today?
While a direct reboot with Elizabeth Holmes would likely face insurmountable hurdles due to her felony convictions and Medicare enrollment screening, companies with clean-background founders and weak scientific verification can still potentially secure payer contracts because current gates often prioritize paperwork over performance.
What regulatory gates do healthcare labs have to pass through?
Labs must navigate four primary gates: CLIA certification for operational consistency, state and FDA regulations, Medicare enrollment background checks via CMS, and commercial payer contracting.
What role did commercial insurers play in the original Theranos scandal?
Private insurers like Capital Blue Cross and AmeriHealth Caritas contracted with Theranos after reviewing claims, but these commercial gates failed to detect the underlying fraud before journalists and federal inspectors intervened.
What were the legal consequences for Elizabeth Holmes?
Elizabeth Holmes was convicted in 2022 on multiple counts of wire fraud and conspiracy tied to investors, receiving a prison sentence that was later adjusted, though she was acquitted on patient-related counts.
00:00 - Cold Open: News Clips
00:15 - Documentary on Elizabeth Holmes Debuts
01:19 - Host Introduction
02:00 - Analyzing Due Diligence in Health Plan Contracting
02:39 - Inside the Lab: Erica Chung’s Early Doubts
04:41 - The Four Contracting Gates
05:39 - Gate Three — Medicare Enrollment & CMS 855B Disclosure
06:09 - Gate Four — Commercial Contracting: Lab Networks and Payer Power
08:19 - An Epic Failure of Corporate Governance
08:30 - Could Theranos 2.0 Get Through?
Elizabeth Holmes: I don't have anything to deceive you on. Of course, I'm not deceiving you.
Newscaster: morning you can finally see everything.
Elizabeth Holmes: It's because I don't have anything to hide
Alex Yarijanian: new documentary about Elizabeth Holmes opened in theaters . In it, according to NBC News reporting, she and her partner are on calls with prospective partners about something called Theranos 2.0, whatever that is.
CBS News: I'm not deceiving you The trailer for the new documentary You Can See Everything centers on a single interaction between convicted tech founder Elizabeth Holmes and cult comedian
Speaker 16: time she's given anyone this kind of access.
Rebecca Keegan: He moves in with Holmes and her partner and their two children for this 34-day period, and is documenting everything from them walking on the beach together holding hands to them sort of plotting a Theranos 2.0.
Alex Yarijanian: So here's my question. Not could it happen again, the Theranos issue, in abstract.
Alex Yarijanian: literally, if a lab company walked in the door tomorrow with the same pitch, could it get credentialed, enrolled in Medicare, signed to commercial payer contracts?
Alex Yarijanian: Welcome to the Value-Based Care Advisory Podcast. I'm Alex Yarijanian, your host. And before I was doing this, I was, running network management and contracting operations at Humana Health Plan. And - this documentary is about founder's myth.
Alex Yarijanian: This was an investor fraud case. At the same time, you're a lab, and you have to get paid. So who's paying for these lab services? it's the payor or health plans. And so my question is: what are the gates today? Which one of these gates would stop a bad actor, and which wouldn't?
Alex Yarijanian: That's what I'm gonna talk to you about today. No spoilers as to the documentary. I did see it this with a, a good friend of mine, and I'm going to analyze the current state of due diligence in health plan
Alex Yarijanian: contracting Just a quick refresher. Theranos, as most of us remember, claimed that it could run a wide range of blood tests with just a finger prick. And this, essentially idea, raised almost a billion dollars. many of these tests were distributed through Walgreens
Newscaster: do you think she was lying to Walgreens? I do, yeah. Are you a clinical lab specialist? No. Erika Cheung was fresh out of Berkeley with a degree in molecular and cell biology when she went to work at Theranos. She was just 22, but even the novice lab tech suspected something was very wrong when she saw faulty test results sent to Walgreens patients.
Newscaster: And when did you think, "I probably shouldn't be doing this"?
Alex Yarijanian: what happened was that a Wall Street Journal reporter in twenty fifteen broke the news, and then CMS inspectors found serious deficiencies and revoked the lab certification and barred Holmes from owning or operating a lab for two years.
CBS News: In 2016, after a series of surprise inspections, federal regulators shut down the company's laboratory, saying it posed immediate jeopardy to patient health and safety. Nearly one million Theranos test results were invalidated.
Speaker 8: Blood tests for the Edison. Tests which Holmes told investors were ready to use on patients. But Elizabeth Holmes had told Walgreens in 2010 that it had developed this device that was capable of running any blood test from a few drops pricked from a finger in real time in less than half the cost of traditional labs.
Speaker 8: Was that true? No, certainly not.
Alex Yarijanian: In twenty twenty-two, a jury convicted her on three counts of wire fraud and one of conspiracy, all tied to investors. She was acquitted on the patient counts. Her sentence was cut to a hundred and twenty-three months this year after she was approved for a halfway house in August twenty twenty-seven.
Alex Yarijanian: Now, the documentary talks about her partner, Billy Evans, doing something they're calling Theranos two point oh,. So let's run that through the health plan contracting gates.
Billy Evans: So one thing for people to know about her, which might shock you, is that Elizabeth follows rules like maniacally, like to a T.
Alex Yarijanian: Remember, a lab doesn't get paid just because it has investors. It gets paid because it has health insurance contracts. Most of the time it's insurance that's paying for it. So gate number one is called CLIA, C-L-I-A, which is a certificate from CMS, and essentially it checks whether the lab runs tests consistently and correctly.
Alex Yarijanian: It doesn't decide whether the test is clinically meaningful. And remember, this is the gate that actually caught Theranos. Gate two, state and FDA regs. So New York and California run their own lab licensing on top of CLIA, and New York reviews lab-developed tests before they reach its patients. FDA tried to bring those tests under its review with a twenty twenty-four rule, but a federal court vacated it in twenty twenty-five.
Alex Yarijanian: So in twenty twenty-six, most novel diagnostics still launch as lab-developed tests with CLIA as the main backdrop. So think of that. Gate three, Medicare enrollment. This is where our test gets interesting. So the CMS-855B form requires owners to disclose five percent or more of their interest, okay, and any adverse legal history.
Alex Yarijanian: CMS can deny or revoke an enrollment when an owner or managing employee has a felony in the last ten years that it finds detrimental to the program, and financial crimes are in scope. So could be a gate for the future. and gate number four, essentially commercial contracting. This is my world. Lab networks are among the narrowest in the business.
Alex Yarijanian: Many plans route labs through benefit managers with their own policies. You have Quest, you have LabCorp, and that's pretty much it. And, that's that's why health plans have been really hesitant to contract with so many different labs because they have negotiating power with LabCorps and Quests of the world.
Alex Yarijanian: So could Theranos two point O get through? With Holmes as a disclosed owner or managing employee, gate three is a real problem. That's the system working, but that's easy. it's after she's committed these crimes.
Alex Yarijanian: the bigger point here is that Theranos was caught by a reporter and a regulator years in to
Alex Yarijanian: the crime, to the fraud. The gates closest to the money, which were the investors and the payer contracts, didn't do the catching. That's what needs to change. Think about what a lag that is, and one million tests were invalidated, and a reporter had to go find it.
Alex Yarijanian: That is just a system that is not working. Think about that. And the fact that her convictions didn't include any harm to the patients, it was literally just for the investors, fraud against the investors. So what about the patients? What about the health insurance? All open questions, honestly
CBS News: This is one of the most epic failures in corporate governance in the annals of American capitalism.
CBS News: They did nothing to verify that her scientific claims were
CBS News: true.
Alex Yarijanian: So could Theranos 2.0 get a payer contract in 2026 or 2027 when she gets out of her prison? With a felony conviction at the top, probably not without a fight. But a weak test and, you have a founder with a clean background, that person, that company could get further than it should because most of our gates check paperwork, not performance, right? Drop in the comments. We'll feature the best answers on our next episode.
Alex Yarijanian: Thank you so much for tuning in, and I'm Alex Yarijanian, and I look forward to seeing you on our next episode