Theranos Inc.’s Chief Executive Officer Elizabeth Holmes was banned for two years from owning or operating laboratories by U.S. regulators, a major blow against the controversial blood-testing startup that’s come under scrutiny for risking patient harm with unreliable tests.

Related: Walgreens ditches Theranos

The once high-flying Silicon Valley company was also penalized for an undisclosed amount and lost its eligibility to get payments from federal health insurance programs for lab services, according to a statement late Thursday from Theranos, citing a notice it received from the Centers for Medicare and Medicaid Services. The closely-held firm is shutting down its Newark, California, lab and plans to rebuild it, Holmes said.

The sanctions follow an inspection of the lab by federal health regulators that found failures so severe as to jeopardize patients’ health. In May, Theranos said it was canceling or altering tens of thousands of results, including two years of results on some of the company’s proprietary machines. Last month, Democrats in the U.S. House of Representatives sent a letter to Theranos asking for more information about the company’s problems.

The federal health regulator’s sanctions against the lab don’t take effect for 60 days. The company is ending any patient testing in the Newark lab for now, but will continue to provide services through its Arizona facility while it works with CMS to “resolve and remediate” outstanding issues during the period, Theranos said in the statement.

The sanctions follow a stunning fall from grace for the company, which at one time commanded a $9 billion private valuation. Holmes had been profiled as a wunderkind after dropping out of Stanford University to found Theranos, with promises to revolutionize the blood-testing industry -- dominated by Quest Diagnostics Inc. and Laboratory Corp of America Holdings -- with cheap, less-painful tests that used only a finger-prick of blood and could be run on what the company had said were its breakthrough analyzers.

Jeopardizing patients

Regulators have had doubts for some time. In January, CMS sent Theranos a scathing letter detailing deficiencies at its Newark lab that the department said was putting patients’ health and safety in “immediate jeopardy.”

Soon after, Theranos told the agency that there was “no evidence of systemic errors” at its lab and that “no patient impact is expected.” In March, the agency said the company hadn’t backed up those claims and threatened fines and potentially sanctioning company executives from working in the industry for as long as two years.

In recent months, as Theranos has faced questions over whether its technology worked, it has said that it stopped using its own devices and is submitting individual tests for FDA approval. Three class action lawsuits have been filed against the company, claiming consumer fraud and false advertising.

Instant Insights /

Theranos CEO Holmes banned from operating lab for 2 years

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