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Beware Theranos – Key Considerations When Forming a Clinical Laboratory Partnership


Prior to its downfall, Theranos was a Silicon Valley and media darling. From 2003 to 2015, Theranos raised more than $700 million and had a peak valuation of $10 billion. Now, its founder and former Chief Executive Officer Elizabeth Holmes is on trial for 12 counts of fraud and conspiracy to commit wire fraud. While not every laboratory transgression will result in such notoriety, clinical laboratories and their partners should be mindful of the laboratories and people with whom they do business.

However, accurately evaluating the promises made by a prospective laboratory partner can be challenging. From outside an organization, it is difficult to know if a clinical laboratory is operating legitimately and in full compliance with applicable laws and regulations. Failing to perform sufficient and accurate due diligence on a laboratory partner can result in a variety of issues, including but not limited to False Claims Act and Anti-Kickback/Stark violations, HIPAA breaches, as well as other criminal and civil actions.

When entering an arrangement with a clinical laboratory, clear lines of responsibility and expectations are paramount. The parties should discuss various components of the contemplated arrangement, such as which entity will perform the billing and who will collect and maintain the Test Requisition Forms. Compliance with applicable laws and regulations – particularly those regarding fraud and abuse and patient confidentiality – should also be discussed. Entities should be aware that a data breach at their laboratory partner could trigger HIPAA’s mandatory breach notification procedures.

Additionally, both entities should understand and agree on their shared goal – that the service and testing itself is a benefit to the patient. The arrangement should not depend on the promise or opportunity of increased reimbursement or referrals. Similarly, it is important to set up systems to monitor how the laboratory services are marketed to ordering providers. Additional safeguards may be necessary if the laboratory is using call centers or permits telemedicine visits by ordering providers.

Contact a Morris, Manning & Martin healthcare lawyer for assistance with your clinical laboratory partnership or any other arrangement.