I Ask: Could Theranos Get a Health Plan Contract Today?
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
Transcript
The question is, would Theranos get contracted today with any health plan?
Speaker A:I don't have anything to deceive you on.
Speaker A:Of course I'm not deceiving you.
Speaker B:This morning you can finally see everything.
Speaker A:New documentary about Elizabeth Holmes opened in theaters.
Speaker A:In it, according to NBC News reporting, she and her partner are on calls with prospective partners about something called Theranos 2.0.
Speaker A:Whatever that is not deceiving you.
Speaker B:The trailer for the new documentary you can see everything centers on a single interaction between convicted tech founder Elizabeth Holmes and cult comedian Time.
Speaker B:She's given anyone this kind of access.
Speaker B: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 Ceranos 2.0.
Speaker A:So here's my question, not could it happen again?
Speaker A:The Theranos issue in abstract.
Speaker A: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?
Speaker A:Welcome to the Value Based Care advisory podcast.
Speaker A:I'm Alex Yarajanian, your host.
Speaker A:And before I was doing this, I was running network management and contracting operations at Humana Health Plan.
Speaker A:And this documentary is about founders myth.
Speaker A:This was an investor fraud case.
Speaker A:At the same time you're a lab and you have to get paid.
Speaker A:So who's paying for these lab services?
Speaker A:It's the payor or health plans.
Speaker A:And so my question is, what are the gates today?
Speaker A:Which one of these gates would stop a bad actor and which wouldn't?
Speaker A:That's what I'm going to talk to you about today.
Speaker A:No spoilers.
Speaker A:As to the documentary, I did see it this with a good friend of mine and I'm going to analyze the current state of due diligence in health plan contracting.
Speaker A:Just a quick refresher.
Speaker A:Theranos, as most of us remember, claimed that it could run a wide range of blood tests with just a finger prick.
Speaker A:And this essentially idea raised almost a billion dollars.
Speaker A:Many of these tests were distributed through Walgreens.
Speaker B:Do you think she was lying to Walgreens?
Speaker A:I do, yeah.
Speaker B:Are you a clinical lab specialist?
Speaker B:No.
Speaker B:Erica Chung was fresh out of Berkeley with a degree in molecular and cell biology when she went to work at Theranos.
Speaker B:She was just 22.
Speaker B:But even the novice lab tech suspected something was very wrong when she saw faulty test results sent to Walgreens patients.
Speaker B:And when did you think, I probably shouldn't be doing this?
Speaker A: ll Street Journal reporter in: Speaker A:And then CMS inspectors found serious deficiencies and revoked the lab certification and barred Holmes from owning or operating a lab for two years.
Speaker B: In: Speaker B:Nearly 1 million Theranos test results were invalidated.
Speaker B:Blood tests for the Edison tests, which Holmes told investors were ready to use on patients.
Speaker B: Holmes had told Walgreens in: Speaker B:Was that true?
Speaker A:No, certainly not.
Speaker A: In: Speaker A:She was acquitted on the patient counts.
Speaker A: for a Halfway House in August: Speaker A:Now the documentary talks about her partner, Billy Evans, doing something they're calling Theranos 2.0.
Speaker A:So let's run that through the health plan contracting Gates firm.
Speaker A:So one thing for people to know about her, which might shock you, is that Elizabeth follows rules like maniacally, like to a T. Remember, a lab doesn't get paid just because it has investors.
Speaker A:It gets paid because it has health insurance contracts.
Speaker A:Most of the time, it's insurance that's paying for it.
Speaker A:So gate number one is called clia, which is a certificate from cms.
Speaker A:And essentially it checks whether the lab runs tests consistently and correctly.
Speaker A:It doesn't decide whether the test is clinically meaningful.
Speaker A:And remember, this is the gate that actually caught Theranos.
Speaker A:Gate 2 state and FDA regs.
Speaker A:So New York and California run their own lab licensing on top of clia.
Speaker A:And New York reviews lab developed tests before they reach its patients.
Speaker A: sts under its review with the: Speaker A: So in: Speaker A:So think of that.
Speaker A:Gate three, Medicare enrollment.
Speaker A:This is where our test gets interesting.
Speaker A:So the CMS 855B form requires owners to disclose 5% or more of their interest.
Speaker A:Okay.
Speaker A:And any adverse legal history CMS can deny or revoke an enrollment when an owner or managing employee has a felony in the last 10 years that it finds detrimental to the program.
Speaker A:And financial crimes are in scope.
Speaker A:So could be a gate for the future.
Speaker A:And GATE Number four, essentially commercial contracting.
Speaker A:This is my world.
Speaker A:Lab networks are among the narrowest in the business.
Speaker A:Many plans route labs through benefit managers with their own policies.
Speaker A:You have Quest, you have LabCorp, and that's pretty much it.
Speaker A: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 LabCorp and quests of the world.
Speaker A:So could Theranos 2.0 get through with Holmes as a disclosed owner or managing employee?
Speaker A:Gate 3 is a real problem.
Speaker A:That's the system working.
Speaker A:But that's easy.
Speaker A:It's after she's committed these crimes.
Speaker A:Here's a real example.
Speaker A: In July: Speaker A:The insurer said it had reviewed the science for years.
Speaker A:About six months later, a CMS lab inspection ended it.
Speaker A:AmeriHealth Caritas signed a Medicaid deal the same month.
Speaker A:Its results were never made public.
Speaker A:The bigger point here is that Theranos was caught by a reporter and the regulator years in to the crime to the fraud.
Speaker A:The gates closest to the money, which were the investors and the payer contracts didn't do the catching.
Speaker A:That's what needs to change.
Speaker A:Think about what a lag that is.
Speaker A:And 1 million tests were invalidated and a reporter had to go find it.
Speaker A:That is just a system that is not working.
Speaker A:Think about that and the fact that her convictions didn't include any harm to the patients.
Speaker A:It was literally just for the investor fraud against the investors.
Speaker A:So what about the patients?
Speaker A:What about the health insurance?
Speaker A:All open questions.
Speaker A:Honestly, this is one of the most epic failures in corporate governance in the annals of American capitalism.
Speaker A:They did nothing to verify that her scientific claims were true.
Speaker A: get a payer contract in: Speaker A:But a weak test and you have a founder with a clean background, that person, that company could get further than it should.
Speaker A:Because most of our gates check paperwork, not performance.
Speaker A:Right?
Speaker A:Drop in the comments.
Speaker A:We'll feature the best answers on our next episode.
Speaker A:Thank you so much for tuning in and I'm Alex Yarijanian and I look forward to seeing you on our next episode.
