Theranos and COVID-19 Testing Are Mirror-Image Cautionary Tales

© Nic Coury / AP

Last week, prosecutors and defense attorneys made opening statements in the criminal trial of Elizabeth Holmes, the former CEO of Theranos, who is accused of defrauding investors and patients with false promises of cheap, rapid blood tests. The next day, the Biden administration announced a plan to purchase 280 million cheap, rapid COVID-19 tests—an action for which some lawmakers have been advocating for more than a year. The serendipity of these two events exposes an unresolved tension in health care: How do we balance the risks of disruptive innovation with the mortal costs of administrative inertia?

Theranos and COVID-19 testing are both cautionary tales of failed medical oversight, but the morals flip from one case to the other. Each addresses, in its way, how much control the FDA should exert over laboratory tests before they come to market. COVID-19 testing epitomizes the agency’s risk-averse instincts. In the first months of the coronavirus pandemic, the FDA notoriously delayed private labs from developing their own COVID-19 tests. This allowed the coronavirus to spread mostly undetected, and demolished any early possibility of eradicating the virus in the United States. The agency has also been accused of stonewalling the approval of rapid tests for use at home. (The first over-the-counter device wasn’t authorized until December.) Now that home tests are available at drugstores, some deregulation advocates are still complaining. Germany has at least 60 such devices in circulation, for example, and some cost less than $1. The U.S. has just six, which sell for more than $10 each (when they’re in stock).

The Theranos story unfolded a few years before the pandemic as the regulatory mirror image of these events—with Big Government cast as the hero. Theranos began collecting patient samples through its Walgreens wellness centers in 2013. At its peak, in 2014 and 2015, the company was generating 890,000 results a year—tens of thousands of which the company would later admit were erroneous. Yet Theranos only ever received FDA clearance for a single type of test out of the hundreds it performed. Ultimately, it was the FDA that took the first real action against the company. By declaring its “nanotainer” blood-collection tube an uncleared medical device, regulators were able to protect thousands of additional patients from receiving potentially inaccurate diagnostic results.

At the center of both the Theranos and the COVID-testing controversies was a bureaucratic dead zone around what are called “laboratory-developed tests,” or LDTs. Because of legislative ambiguity, the makers of these tests, which are designed and used within a single location rather than sold to health-care providers around the country, can skirt careful evaluation by the FDA. Oversight comes instead from the Centers for Medicare and Medicaid Services, which carries out routine inspections of all labs every two years. This type of retrospective supervision mostly works fine; there are plenty of important LDTs in common use, including nearly all genetic tests. But in rare cases, such as Theranos’s, a lot of damage can take place between inspections, or if officials are intentionally misled. Former employees have accused Theranos of hiding its proprietary devices from inspectors, and the company eventually failed an inspection because of poor quality-control procedures. Officials from the Centers for Medicare and Medicaid Services concluded that these deficiencies put patients in immediate jeopardy, and revoked the company’s laboratory licenses in 2016 and 2017.

With the onset of the pandemic, the FDA was able to utilize special powers to close the LDT loophole. After the secretary of health and human services declared a public-health emergency on February 4, 2020, any labs that wanted to evaluate patient samples for the coronavirus with their own, homemade procedures would first need a sign-off from the FDA. The FDA commissioner at the time, Stephen Hahn, said this tighter leash on LDTs “balanced the urgent need to make diagnostic tests available with providing a level of oversight that ensures accurate tests are being deployed.” But the process that his agency put in place proved slow and cumbersome: It required pathologists to spend hundreds of hours completing documentation before using their tests for clinical care. By March 2020, the policy was relaxed in the face of widespread criticism, then abolished that August.

The FDA’s policy on COVID tests may have been a failure, but that doesn’t mean Hahn’s defense of it was empty rhetoric. The Holmes trial serves as an important counterfactual: The same emergency protections that slowed test availability in early 2020 had also blocked Theranos from deploying potentially inaccurate Ebola and Zika tests half a decade earlier. Fraud remains a real concern in any disaster. The ever-present tension between medical-testing speed and reliability even played out as an ironic side plot at the start of the Holmes trial. The proceedings were delayed on their second day after a juror was potentially exposed to the coronavirus. Although the juror reportedly received negative rapid-test results, the court decided to wait on the findings of a traditional laboratory analysis. Holmes, who once promised to upend the old-school laboratory industry with her magic device, was now at the industry’s mercy.

It has ultimately been left up to Congress to strike the right balance for regulating diagnostics. Competing bills meant to promote safety and access to laboratory testing, called the VALID and VITAL Acts, are currently winding their way through the legislative process. The VALID Act would enable the FDA to regulate a greater number of lab-developed tests, and the VITAL Act would do the opposite, preventing the FDA from overseeing LDTs at all—even during public-health emergencies. As with many contentious political issues, however, chances are good that Congress will do nothing at all.

Holmes herself was a master at exploiting political conflict. She publicly supported greater oversight by the FDA even as she flouted existing requirements. Increased scrutiny would have proved disastrous for her business; the real purpose of Holmes’s endorsement may have been to signal righteousness, engender public trust, and gobble up further investments. More recently, we’ve seen that in the midst of a deadly viral outbreak, all policy questions become imbued with moral significance. Botched testing, for example, can be seen as the “original sin” of America’s pandemic response. Any action that the FDA might take—whether it’s approving drugs for Alzheimer’s or slowing down COVID-19 vaccines for kids—gets absorbed into a grand battle between sinners and saints, disruption and stagnation. But the best public policy will have to accommodate the existence of both.

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