Theranos: A Medical Fraud Case for the Record Books

Health and Gender Policy Brief #138 | By: S, Bhimji | October 18, 2021

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Policy Summary

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Elizabeth Holmes, founder, and CEO of Theranos was on top of the world a decade ago. After just two semesters at Stanford, the dropout partnered with Ramesh Balwani (her BF) to develop a ground-breaking medical device that could run hundreds of medical tests on a tiny amount of blood obtained with a pinprick. She aspired to be the next Steve Jobs and emulated him in every respect.

Just 8 years ago, she was running a company worth $10 billion but today she is on trial with her partner, Balwani, for running one of the biggest scams in the world of medical testing.

In 2002, Holmes (19) was in China when she met Balwani (37) and soon they became business partners and lovers. They came up with an idea that they would change medicine for the better by doing two things: 1) develop a small medical appliance that could quickly run hundreds of medical tests within minutes and 2) the machine would only use a tiny amount of blood- that was obtained from a finger prick.

It is important to note that existing technology requires blood drawn from the arm with a needle and that outside of the most common dozen medical tests that take less than 60 mins, most laboratory tests take days. Holmes and Balwani were offering a technology that was fast, automated, and cheap.

With this idea in mind, Holmes recruited big-time investors to become part of her business. Some of the investors who sat on her board included Henry Kissinger, James Mattis, and George Shultz. Companies like Safeway and Walgreens paid hundreds of millions of dollars to have this technology in their stores to benefit their patients.

At its peak in 2013-14, Theranos was worth close to $10 billion and Holmes and Balwani were living the good life. Money from investors was pouring in, and both partners were on the front cover of every business magazine. They were hobnobbing with the most famous and richest business people on planet earth. In one email to Holmes, Balwani, said, “They’re not investing in our company, they’re investing in our destiny.”

Everything was going according to plans- or was it?

Policy Analysis

In 2014, a whistleblower shocked the world by revealing the extent of fraud that was taking place at Theranos. Firstly, Theranos never succeeded in developing a machine that could do all the hundreds of tests that they bragged about. The rates of false positives and false negatives were high leaving investors and patients very unhappy. Further staff revealed that the machine had never been verified for quality control, reliability, and reproducibility.

Of major concern was that Theranos was using third-party proprietary machines to do the testing and hid these machines when investors came to check the Theranos facility.

Also of importance was that the finger prick test never worked and Theranos was using blood drawn from the arm- as has been done for nearly a century. Yet, Holmes and Balwani continued to sell their technology and duped more investors; they never mentioned the flaws in their machine.

Everything at Theranos was surrounded by secrecy and intimidation. No one was allowed to speak about the incorrect medical tests. New lies were created to cover old lies.

The moment the inner workings about Theranos were published in the Wall Street Journal, the company started to spiral down. Initially, Holmes denied the newspaper report about her company. But within 3 years, both Holmes and Balwani were charged with criminal fraud for having allegedly made false claims and misleading investors about the efficiency of their groundbreaking blood-testing technology.

Photo taken from: Stat News

The case is expected to finish sometime in Dec 2021. If found guilty she faces at least 20 years in prison. Balwani faces a separate trial in Jan of 2022. And it is unlikely that the investors will see any of their money back- Holmes and Balwani lived a lavish lifestyle sparing no expenses.

In 2018, the FBI shut the company down and Holmes is facing numerous lawsuits from investors. Her trial is presently taking place in California and it is expected that she will claim that her boyfriend Balwani abused her, which led her to make all the wrong decisions.