Elizabeth A. Holmes, DAB CR6674 (2025)

DECISION

Elizabeth A. Holmes falsely told investors that her company, Theranos, Inc. (Theranos), created an innovative, accurate, fast, and affordable blood testing technology.  She also falsely told them that the United States Department of Defense (DoD) had deployed this new technology to the “battlefield” and that Theranos, in partnership with the Walgreens chain of drugstores, was about to roll out this technology to the public.  Ms. Holmes predicted substantial increases in revenue.  Based on these representations, individuals and businesses invested hundreds of millions of dollars in Theranos.

Theranos never perfected its blood testing technology.  As a result, a court convicted Ms. Holmes of wire fraud and conspiracy to commit wire fraud on investors, sentenced Ms. Holmes to more than a decade of incarceration, and ordered Ms. Holmes and a co-conspirator to pay restitution to victims of approximately $450 million.

Based on this conviction, the Inspector General (IG) of the United States Department of Health and Human Services excluded Ms. Holmes from participating in all federal health care programs for 90 years.  Ms. Holmes appealed the exclusion, arguing that her crime had nothing to do with the delivery of health care items or services.  Ms. Holmes also

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appealed the length of exclusion, arguing that the aggravating factors identified by the IG did not support a permanent exclusion.

I affirm the IG’s determination to exclude Ms. Holmes.  I reject Ms. Holmes’s argument that her criminal conduct was not connected to the delivery of health care items and services because she enticed investors through false assertions that Theranos’s blood testing technology was already in use with DoD and was going to be available to the public through one of the nation’s largest drug store chains.  Further, I affirm the 90-year length of exclusion because the IG proved the existence of four significant aggravating factors, one of which is the astounding financial loss she caused business entities that invested in Theranos.  A qualitative analysis of those factors supports the IG’s position that Ms. Holmes is insufficiently trustworthy to participate in federal health care programs.

I.  Procedural History

In an October 26, 2023 letter, the IG advised Ms. Holmes that she was going to be excluded from participation in all federal health care programs for 90 years based on her conviction of a criminal offense in the United States District Court for the Northern District of California.  The IG provided Ms. Holmes with an opportunity to respond before the IG imposed the exclusion.  IG Exhibit (Ex.) 7.  Ms. Holmes filed a response.  IG Ex. 8. 

In a December 29, 2023 notice, the IG excluded Ms. Holmes based on the criminal conviction, which the IG stated was related to fraud or other financial misconduct in connection with the delivery of a health care item or service.  IG Ex. 1 at 1.  The IG also extended the exclusion for an additional 85 years beyond the mandatory minimum length of five years due to the following alleged aggravating factors: 

• The court sentenced Ms. Holmes to 135 months of incarceration.
• Ms. Holmes’s criminal acts, or similar acts, were committed over a period of approximately five years, from about 2010 to about 2015.
• The court ordered Ms. Holmes to pay approximately $322,747,200 in restitution to one or more entities.
• The court ordered Ms. Holmes to pay $129,299,900 in restitution to one or more individuals. 

IG Ex. 1 at 1.

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On March 11, 2024, the Civil Remedies Division (CRD) received Ms. Holmes’s request for a hearing to dispute the imposition of the exclusion and the length of the exclusion. On March 21, 2024, CRD acknowledged receipt of the hearing request, informed the parties I would hold a prehearing conference, and issued my Standing Order. On April 30, 2024, and May 7, 2024, I held a prehearing conference, the substance of which I summarized in my May 21, 2024 Order Following Prehearing Conference and Setting Schedule for Prehearing Submissions.  On June 18, 2024, the IG filed a prehearing brief (IG Br.) and 13 proposed exhibits (IG Exs. 1-13).  On August 5, 2024, I held a second conference, the substance of which I summarized in my Order Following August 5, 2024 Conference and Setting Revised Schedule for Prehearing Submissions. On November 20, 2024, CRD received Ms. Holmes’s completed Informal Brief (P. Br.), a supplemental brief (P. Supp. Br.), and exhibit list.  On January 13, 2025, CRD received 49 proposed exhibits from Ms. Holmes (P. Exs. 1-49).1 The IG filed a reply brief (IG Reply), and Ms. Holmes filed a sur-reply brief (P. Sur-reply Br.).  On March 3, 2025, the IG filed a February 24, 2025 opinion of the United States Court of Appeals for the Ninth Circuit (Ninth Circuit) in Ms. Holmes’s criminal case.  

II.  Admission of Exhibits

I admit all of the proposed exhibits into the record, without objection.  Standing Order ¶ 13; see also 42 C.F.R. § 1005.8(c).  I also admit the Ninth Circuit’s February 24, 2025 opinion, filed by the IG on March 3, 2025.  I cite to it using its Federal Reporter citation.

III.  Decision on the Written Record

Neither party offered any witnesses and neither party believes an evidentiary hearing is necessary.  IG Br. at 15; P. Br. at 6.  Therefore, I issue this decision based on the written record.  Standing Order ¶¶ 12, 16; see also 42 C.F.R. § 1005.6(b)(5).

IV.  Issues

1) Whether the IG had a legitimate basis to exclude Ms. Holmes from participation in all federal health care programs under 42 U.S.C. § 1320a-7(a)(3).

2) Whether a 90-year length of exclusion is unreasonable.  

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V.  Jurisdiction

I have jurisdiction to adjudicate the issues in this case.  42 U.S.C. § 1320a-7(f)(1); 42 C.F.R. §§ 1001.2007(a)(1), 1005.2(a).

VI.  Findings of Fact, Conclusions of Law, and Analysis

1. Ms. Holmes founded a company named Theranos in 2003.  The goal of Theranos was to develop a method of improving the results of laboratory blood tests while reducing the cost of those tests.  By 2013, Theranos publicly stated that it had developed proprietary equipment that could accomplish most blood tests using only drops of blood.  Starting in 2009, Ramesh “Sunny” Balwani served in various high positions in the company.

In 2003, Ms. Holmes founded a health care and life services company called Theranos, Inc.  IG Ex. 2 at 2; P. Ex. 38 at 7.  Theranos was principally based in Palo Alto, California.  IG Ex. 2 at 3.  The primary goal of Theranos was to improve and lower the cost of medical laboratory testing through innovations in drawing, testing, and interpreting blood samples.  IG Ex. 2 at 3.  Ms. Holmes served as chief executive officer for Theranos from 2003 through 2018.  Theranos employed Ramesh “Sunny” Balwani in various top positions in the company from 2009 through 2016.  IG Ex. 2 at 2.

From 2003 to approximately 2013, Theranos attempted to develop proprietary technology that would allow most clinical laboratory tests to be completed using only a few drops of blood from a patient’s finger rather than vials of blood drawn from a patient’s arm.  IG Ex. 2 at 3.  To accomplish this, Theranos needed to create a device to collect and store the blood samples, called a “nanotainer,” and a blood analyzer machine, known variously as a “TSPU,” “Edison,” and “miniLab.”  IG Ex 2 at 3.

In 2013, Theranos publicized that its proprietary methods and technology for analyzing blood samples minimized human error and was more accurate than conventional methods.  IG Ex. 2 at 3.  In press releases, Theranos claimed that it eliminated the need for larger needles and numerous vials of blood as required by traditional laboratory testing.  IG Ex. 2 at 4.  Theranos’s website stated that its laboratory could perform tests quickly and accurately using a single drop of blood.  IG Ex. 2 at 4.  Finally, Theranos announced that it would partner with Walgreens to establish “Wellness Centers” in Walgreens retail locations, with the first to appear in late 2013 in Palo Alto, California, and Phoenix, Arizona.  IG Ex. 2 at 4-5.  The Wellness Centers would provide the public “with access to less invasive and more affordable clinician-directed lab testing from a blood sample as small as a few drops.”  P. Ex. 32 at 1.  At the time of the press release, Walgreens was the nation’s largest retail pharmacy chain in the nation.  P. Ex. 32 at 2.

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2. A federal grand jury charged Ms. Holmes and Mr. Balwani with two counts of conspiracy to commit wire fraud, and ten counts of wire fraud related to Theranos.

On June 14, 2018, a grand jury empaneled by the United States District Court for the Northern District of California (District Court) returned an Indictment charging Ms. Holmes and Mr. Balwani with two counts of conspiracy to commit wire fraud under 18 U.S.C. § 1349 and nine counts of wire fraud under 18 U.S.C. § 1343.  P. Ex. 42.

On July 28, 2020, the grand jury returned a Third Superseding Indictment (TSI) charging Ms. Holmes and Mr. Balwani with two counts (Counts 1 and 2) of conspiracy to commit wire fraud under 18 U.S.C. § 1349 and ten counts (counts 3 through 12) of wire fraud under 18 U.S.C. § 1343.  IG Ex. 2.  Count 1 charged a conspiracy to defraud investors in Theranos and Counts 3 through 8 charged wire fraud involving Theranos investors. Count 2 charged a conspiracy to induce physicians to refer patients to use Theranos’s laboratory and blood testing services under fraudulent pretenses and Counts 9 through 12 charged wire fraud through the purchase of advertisements soliciting patients and physicians for Theranos’s laboratory services.  IG Ex. 2 at 9-11.

The TSI alleged that Ms. Holmes and Mr. Balwani, through Theranos, engaged in a scheme to defraud investors by making false and misleading statements and failing to disclose material facts that they had a duty to disclose.  IG Ex. 2 at 5.  Specifically, Ms. Holmes and Mr. Balwani did the following:

• Despite knowing that Theranos’s proprietary blood analyzer had reliability problems and could not compete with large conventional blood analyzer machines, Ms. Holmes and Mr. Balwani represented to investors that Theranos’s analyzer was capable of accomplishing a full range of clinical tests using small blood samples drawn from a finger stick and producing faster results that were more accurate and reliable than those of conventional methods.  IG Ex. 2 at 5.
• Despite knowing that Theranos would only generate a few hundred thousand dollars in revenue in 2014 and 2015, Ms. Holmes and Mr. Balwani represented to investors that Theranos would generate over $100 million in 2014 and approximately $1 billion in 2015.  IG Ex. 2 at 5.
• Despite knowing, by late 2014, that Theranos’s rollout of Wellness Centers in Walgreens had stalled, in part due to Walgreens having concerns with Theranos’s performance, Ms. Holmes and Mr. Balwani represented to investors that Theranos had an expanding partnership with Walgreens and would dramatically increase the number of Wellness Centers located in Walgreens retail locations.  IG Ex. 2 at 6.

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• Despite knowing that Theranos’s revenue from DoD was limited and that Theranos’s technology had not been deployed to the “battlefield,” Ms. Holmes and Mr. Balwani represented to investors that Theranos had a profitable business relationship with DoD and that Theranos’s technology had been deployed to the “battlefield.”  IG Ex. 2 at 6.
• Despite knowing that Theranos needed Food and Drug Administration approval for its blood analyzer and tests, Ms. Holmes and Mr. Balwani represented to investors that Theranos was voluntarily seeking such approval.  IG Ex. 2 at 6.
• Despite knowing that Theranos purchased and used commercially available analyzers for patient testing, Ms. Holmes and Mr. Balwani represented to investors that Theranos used its own manufactured blood analyzer to conduct patient tests.  IG Ex. 2 at 6. 

In addition, the TSI alleged that Ms. Holmes and Mr. Balwani deceived investors by appearing to demonstrate the proprietary blood analyzer for them when, in fact, Ms. Holmes and Mr. Balwani set the analyzer into a “null protocol” to make it appear that the analyzer was working when it was not.  IG Ex. 2 at 6.  Finally, the TSI alleged that Ms. Holmes and Mr. Balwani falsely told investors that Theranos’s technology had been examined, used by, and validated by several national or multinational pharmaceutical companies and research institutions.  IG Ex. 2 at 6.

After Ms. Holmes and Mr. Balwani made these false and misleading statements, six investors invested money in Theranos using electronic wire transfers.  IG Ex. 2 at 7, 10.

3. A jury found Ms. Holmes guilty of one count of conspiracy to commit wire fraud and three counts of wire fraud involving Theranos investors.  The District Court entered a judgment of conviction against Ms. Holmes.

On December 16, 2019, Ms. Holmes moved to sever her criminal case from Mr. Balwani’s case, and, on March 30, 2020, the District Court severed the cases.  P. Exs. 44, 45.  Although prosecutors wanted those defendants tried jointly, the District Court tried Ms. Holmes and Mr. Balwani separately.  P. Ex. 43; IG Ex. 6 at 2.

Ms. Holmes pleaded not guilty to the charges in the TSI.  See IG Ex. 5 at 1.  The District Court conducted a three-month jury trial.  P. Ex. 47 at 1.  On January 3, 2022, the jury found Ms. Holmes guilty of Counts 1, and 6 through 8 of the TSI.  IG Ex. 3; IG Ex. 6 at 2.  These charges related to either conspiracy to commit wire fraud related to Theranos investors or the commission of wire fraud related to Theranos investors.  IG Ex. 3 at 1-2; IG Ex. 6 at 2.  The jury found Ms. Holmes not guilty of Counts 2, and 10 through 12, and the jury did not render a verdict on the Counts 3 through 5 and 9.  IG Ex. 3 at 1-3.

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On January 11, 2023, the District Court issued a Judgment in a Criminal Case.  IG Ex. 4.  On May 30, 2023, the District Court issued an Amended Judgment in a Criminal Case that stated Ms. Holmes was found guilty of Counts 1 and 6 through 8 of the TSI but not guilty of Counts 2 and 10 through 12 of the TSI.  IG Ex. 5 at 1.  The District Court also dismissed Counts 3 through 5 and 9.  IG Ex. 5 at 1.

4. The District Court sentenced Ms. Holmes to 135 months of incarceration.

On November 10, 2022, Ms. Holmes requested that the District Court impose no sentence of incarceration on her or, in the alternative, a period of 18 months or less.  P. Ex. 16 at 81.  Prosecutors requested a sentence of 180 months of imprisonment.  IG Ex. 9 at 37, 46.  In response, Ms. Holmes urged the District Court not to impose a lengthy period of incarceration.  P. Ex. 15 at 13-18.  On November 18, 2022, the District Court held a sentencing hearing and stated that Ms. Holmes would be sentenced to 135 months of imprisonment.  P. Ex. 48 at 133.  On January 10, 2023, the District Court sentenced Ms. Holmes to 135 months of imprisonment.  IG Ex. 5 at 2; IG Ex. 10 at 22. 

5. The District Court ordered Ms. Holmes to pay a total of $452,047,268 in restitution to 12 Theranos investors.

A jury convicted Mr. Balwani of all 12 counts in the TSI, and the District Court sentenced him to 155 months of imprisonment.  IG Ex. 6 at 2.  The District Court held oral arguments on the restitution amount for Mr. Balwani on February 17, 2023, and for Ms. Holmes on March 17, 2023.  IG Ex. 6 at 2.

On May 16, 2023, the District Court ordered Ms. Holmes and Mr. Balwani to be jointly and severally liable to pay $452,047,268 in restitution to 12 victims.  IG Ex. 6 at 1, 18. Although Ms. Holmes was not found guilty on all of the charges involving Theranos investors, the District Court noted that Ms. Holmes was convicted of conspiracy to commit wire fraud involving the investors and concluded that the law permitted her to be held responsible for restitution to all of the victims.  IG Ex. 6 at 17-18.  Further, the District Court included two victims (i.e., Walgreens and Safeway) in the restitution order who were not identified in the TSI.  The District Court found that both “are victims of Defendants’ conspiracy to defraud Theranos investors.”  IG Ex. 6 at 14.

6. The Ninth Circuit affirmed the District Court’s conviction, sentence, and order of restitution.

In early 2023, Ms. Holmes appealed the conviction, sentence, and restitution order.  P. Exs. 12-14, 49.  On April 10, 2023, the District Court denied Ms. Holmes’s request to remain free pending the completion of her appeal because the District Court found it was not likely the appeal would result in reversal or an order for a new trial.  P. Ex. 47.

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On February 24, 2025, the Ninth Circuit rejected Ms. Holmes’s arguments and affirmed the District Court’s conviction, sentence, and order of restitution.  United States v. Holmes, 129 F.4th 636 (9th Cir. 2025).

7. Ms. Holmes is subject to exclusion under 42 U.S.C. § 1320a‑7(a)(3) because she was convicted of a felony offense related to fraud in connection with the delivery of a health care item or service.

The Secretary of Health and Human Services (Secretary) must exclude an individual from participation in all federally funded health care programs when that individual:

has been convicted for an offense which occurred after August 21, 1996, under Federal or State law, in connection with the delivery of a health care item or service . . . of a criminal offense consisting of a felony relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

42 U.S.C. § 1320a-7(a)(3).  The Secretary delegated to the IG his authority to impose mandatory exclusions.  42 C.F.R. § 1001.101.

As stated in the Secretary’s regulations, the three essential elements to support a mandatory exclusion are:  (1) a conviction under federal or state law of a felony that occurred after August 21, 1996; (2) the felony is related to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct; and 3) the felony was in connection with the delivery of a health care item or service.  42 C.F.R. § 1001.101(c)(1).

As explained below, the IG has proven, by a preponderance of the evidence, that Ms. Holmes was convicted of a felony under federal law, for conduct occurring after 1996, which was related to fraud and was in connection with the delivery of a health care item or service.  Therefore, Ms. Holmes is subject to a mandatory exclusion.

1. Ms. Holmes was convicted of a felony under federal law for conduct that occurred after August 21, 1996.

For purposes of exclusion, individuals are deemed “convicted” of an offense “when a judgment of conviction has been entered against the individual or entity by a Federal, State, or local court, regardless of whether there is an appeal pending or whether the judgment of conviction or other record relating to criminal conduct has been expunged” or “when there has been a finding of guilt against the individual or entity by a Federal, State, or local court.”  42 U.S.C. § 1320a‑7(i)(1)-(2).

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Ms. Holmes admits that she was convicted of a felony offense committed after August 21, 1996.  P. Br. at 1-2; P. Supp. Br. at 1.  The record supports Ms. Holmes’s admission because a jury found Ms. Holmes guilty of four counts of violating federal law, and the District Court issued a judgment of conviction.  IG Ex. 3 at 1-2; IG Ex. 5 at 1.  Further, each of those offenses are class C felonies because they each carry a maximum penalty of 20 years of imprisonment.  See 18 U.S.C. §§ 1343, 1349, 3559(a)(3).  Finally, all of the criminal conduct occurred after 1996.  IG Ex. 2 at 9-10; IG Ex. 3 at 2. 

2. Ms. Holmes was convicted of a felony relating to fraud.

The IG may only impose a mandatory exclusion under 42 U.S.C. § 1320a-7(a)(3) if there is a felony conviction relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct.

The term “fraud” in section 1320a-7(a)(3) is “targeting fraud generally,” which means that it encompasses any type of fraud and not merely fraud involving financial misconduct.  Morgan v. Sebelius, 694 F.3d 535, 538 (4th Cir. 2012).

The words “relating to” mean that exclusion under section 1320a-7(a)(3) is not limited to individuals convicted of the generic offense of fraud (i.e., crimes with the core elements of fraud) but to all criminal conduct that has a factual relationship to fraud.  Friedman v. Sebelius, 686 F.3d 813, 821 (D.C. Cir. 2012).  This is because the words “relating to” in section 1320a-7 are “deliberately expansive” and have a broad “ordinary meaning” that is “to stand in some relation; to have bearing or concern; to pertain; refer; to bring into association with or connection with.”2 Friedman, 686 F.3d at 820; see also Yohannes Tinsae, DAB No. 3084 at 9-10 (2023).  Put another way, there only needs to be a nexus or common-sense connection to fraud for an exclusion to be imposed.  See Quayum v. U.S. Dep’t of Health & Human Servs., 34 F. Supp. 2d 141, 143 (E.D.N.Y. 1998); see also Tinsae, DAB No. 3084 at 10; Berton Siegel, D.O., DAB No. 1467 (1994).

The breadth of the term “relating to” can be seen in the Friedman case.  A corporation was convicted of “misbranding” a medication, with the intent to defraud or mislead, through marketing claims about the medication that were false.  Friedman, 686 F.3d at 816.  However, the defendants in Friedman were senior corporation officers who were only convicted of misdemeanor misbranding under the responsible corporate officer doctrine because they failed to prevent the corporation’s fraudulent marketing of the medication.  686 F.3d at 816.  Although the corporate officers were not convicted of fraud, their crime was still related to fraud for purposes of exclusion because their crime was a failure to stop the corporation from engaging in fraud.  Friedman, 686 F.3d at 824.

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There is no doubt that Ms. Holmes’s crimes are related to fraud.  Ms. Holmes was convicted of wire fraud and conspiracy to commit wire fraud.  18 U.S.C. §§ 1343, 1349. The wire fraud statute expressly includes as elements of the offense the terms “defraud” and “fraudulent.”  18 U.S.C. § 1343.  Further, as described above, Ms. Holmes’s crimes involved providing false or misleading information to potential investors to induce them to invest money in Theranos.  IG Ex. 2 at 5-7, 9-10; IG Ex. 3 at 1-2; see also Holmes, 129 F.4th at 645-47.  Therefore, Ms. Holmes’s felony offense was related to fraud.

3. Ms. Holmes’s conviction for wire fraud and conspiracy to commit wire fraud was in connection with the delivery of a health care item or service because Ms. Holmes’s fraud on investors included false representations that:  Theranos’s new blood testing technology was reliable; DoD had already deployed Theranos’s blood testing technology to the battlefield; and Theranos’s partnership with Walgreens was expanding and there would be a significant increase in the number of Walgreens drug stores that would offer Theranos’s blood testing services to the public.

The final element required to exclude an individual under 42 U.S.C. § 1320a-7(a)(3) is whether the felony offense was “in connection with the delivery of a health care item or service.”

The term “in connection with” is equivalent to the term “relating to,” discussed above.  As a result, “in connection with” similarly means that there only has to be a nexus or common-sense connection.  Quayum, 34 F. Supp. 2d at 143; see Charice D. Curtis, DAB No. 2430 at 5 (2011).  Therefore, the “in connection with” phrase is applied in the same broad manner as the “relating to” phrase.  As explained by the Friedman court:

Congress used “relating to” and “in connection with” each to denote a factual relationship–respectively, the relationship between the facts underlying a person’s conviction and conduct that would qualify as “fraud”; and the relationship between that conduct and the delivery of health care.

686 F.3d at 822.  Because the “in connection with” phrase means that there simply needs to be a factual connection between the criminal conduct and the delivery of health care items or services, exclusions under section 1320a-7(a)(3) are not limited “to offenses involving the actual delivery of healthcare.”  Curtis, DAB No. 2430 at 5.

In Curtis, an exclusion under section 1320a-7(a)(3) was upheld when a nurse administrator at a home health agency committed fraud on her employer by creating a credit card in the home health agency’s name and buying gift cards that the nurse administrator used to purchase household appliances and items for herself.  DAB No.

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2430 at 2.  The nexus or common-sense connection between the nurse administrator’s criminal conduct and the delivery of health care services was that the home health agency’s revenue stream came from providing home health services and the excluded individual was a manager with the home health agency.  Curtis, DAB No. 2430 at 5.  Therefore, the “in connection with” analysis needs only a minimal nexus to the delivery.

Curtis is not alone in finding a nexus between criminal convictions and the delivery of health care items or services based on a modest connection between the two.  In a similar case, there was a connection when a pharmacy technician was convicted of stealing money from the pharmacy’s safe because the stolen money was revenue from the sale of health care items.  Ellen L. Morand, DAB No. 2436 at 9-10 (2012).  In another case, a section 1320a-7(a)(3) exclusion was upheld based on a pharmacist’s conviction of attempted embezzlement of drugs, even though the pharmacist did not succeed in diverting the drugs from their intended use.  Kenneth M. Behr, DAB No. 1997 (2005).  Finally, a section 1320a-7(a)(3) exclusion was upheld for a pharmaceutical company executive who was found guilty of wire fraud based on false advertising as to the efficacy of a drug that the company had developed.  W. Scott Harkonen, M.D., DAB No. 2485 at 11-12 (2012).  A connection to the delivery of health care items and services was found because the pharmacy executive’s “intent in issuing the press release encompassed affecting the delivery of a health care item, regardless of whether a physician actually prescribed the drug based on the press release.”  Harkonen, DAB No. 2485 at 12.

In the present case, I must conclude that Ms. Holmes’s felony offense was committed in connection with the delivery of a health care item or service.  Although Ms. Holmes’s crime was that of wire fraud involving investors, the facts surrounding that fraud have a strong nexus to the delivery of a health care item or service.

In a general way, the nexus is established by the fact that the investors were persuaded to invest in Theranos, a “healthcare technology company,” that sought to create proprietary technology to run “comprehensive blood tests from a finger-stick and tests from micro-samples of other matrices in real-time outside of traditional lab settings.”  P. Ex. 38 at 7; see also P. Ex. 25 at 5.  Ms. Holmes’s goal was for Theranos to facilitate “frequent blood testing at the point of care, such as doctors’ offices or homes.”  P. Ex. 12 at 13-14.  Given that investors were investing in a company that makes health care technology to conduct tests on patients, a basic nexus is apparent.

However, the nexus of the criminal conduct to the delivery of a health care item or service comes further into focus when one considers Theranos’s business model, which included providing blood testing services directly or indirectly to patients.  Although Theranos may have originally indicated that its blood testing technology could be used at doctors’ offices or even homes, Theranos’s business model shifted so that patients would receive blood testing at patient service centers.  P. Ex. 38 at 15-20.  To this end, Theranos pursued a relationship with Walgreens, predicting in 2010 that “Theranos and Walgreens

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have the opportunity to capture a significant share of a market that impacts more than 80% of clinical decisions today,” and noting that “[g]eneral lab testing was a $52 billion market in 2008.”  P. Ex. 25 at 13.  Theranos predicted that blood testing at Walgreens with Theranos’s equipment would cost 40-50% less than competitors using a central laboratory.  P. Ex. 25 at 20.  Theranos also predicted that these savings would make it difficult for traditional laboratories to maintain their market share.  P. Ex. 25 at 23.  Theranos called this “[t]he Medicaid/Medicare Opportunity” because “[i]n cutting the cost of testing 70-90%, Theranos is setting a new reimbursement threshold.”  P. Ex. 25 at 23.  Theranos considered market growth for “Theranos Systems at Walgreens” to include a projection that “[t]here will be 10,000 new Medicare recipients per day every day for 20 years beginning 2011.”  P. Ex. 25 at 36.

Indeed, in 2010, Theranos entered into an agreement in which Theranos would partner with Walgreens to provide blood testing services in Walgreens retail stores.  P. Ex. 12 at 18.  The 2010 Master Purchase Agreement with Walgreens shows that delivering health care items and services (blood collecting and analyzing devices) was a major aspect of Theranos’s business model.  The Master Purchase Agreement states:

Theranos has developed, and is developing, generations of “mini-lab” devices that can run any blood test in real-time for less than the traditional cost of central lab tests. . . .

In-store blood testing from a single finger-stick could transform the role of pharmacies in healthcare.  It is estimated that 80% of physicians’ diagnoses are a result of laboratory tests.  By putting the right tools and information in the hands of clinicians at a pharmacy or other Walgreens clinical locations, Theranos could play a major role in realizing the true potential of pharmacies in improving patient health and reducing national health care costs.  In addition to driving new traffic into stores and increasing ownership of the totality of health needs for store customers, pharmacies will fundamentally improve patient outcomes, be better predictors of the health of consumers, and reduce the cost of healthcare.

* * * * *

Theranos Systems installed at Walgreens’ pharmacies and Employer Solutions Group locations could bring cutting edge, personalized, and preventative healthcare into pharmacies without the need for complex infrastructure and the overhead associated with it.  Walgreens will enable fast, efficient and scalable health services at the point-of-care; this service will

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quickly drive even more new, predictable and repeat customer traffic in stores.

P. Ex. 24 at 3.

The Master Purchase Agreement was modified in 2012.  However, even with changes to that document, Theranos and Walgreens still agreed to a relationship where Theranos provided Walgreens locations with devices for the purpose of analyzing blood samples, and Walgreens would provide the services to patients who needed to obtain the blood samples.  As stated in the 2012 Master Purchase Agreement:

Walgreens will assign to Theranos specifically trained technicians (“Walgreen Technicians”) utilizing a training and certification program provided by Theranos.  These technicians will provide laboratory patient services, as directed by Theranos during such times that Walgreens is interacting with a patient in order to provide patient services.  Walgreen Technicians will professionally handle the patients needing laboratory services.  Walgreen Technicians will draw blood using the finger stick technique; Walgreen Technicians will collect the proper other specimens according to the directions provided by Theranos. . . .  If applicable, the Walgreen Technician will collect any co-pay.

P. Ex. 35 at 10.

When entering into these agreements with Walgreens, Theranos had not yet developed fully functional blood analyzers.  In spite of this, as charged in the TSI, Ms. Holmes made the following false statements to investors to induce them to invest in Theranos:  Theranos’s blood analyzer was capable of accomplishing a full range of clinical tests using a small blood sample; Theranos was going to dramatically increase the number of wellness centers located at Walgreens retail locations; Theranos’s blood testing technology had been deployed to the battlefield by DoD; and Theranos was projected to generate approximately $1 billion in 2015.  IG Ex. 2 at 5-6.

In its sentencing order, the District Court made it clear that the criminal case record supported a finding that the investors relied on these false statements as to whether they would invest and what amount of money they would invest.  IG Ex. 10 at 16.  In another order, the District Court concluded that Ms. Holmes’s conviction would stand on appeal because the jury had heard testimony on Ms. Holmes’s various false statements to investors:

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Ms. Holmes had also made several misrepresentations that do not turn on whether the technology worked or not, such as those regarding the company’s financial status, reliance on third-party and commercially available devices, partnership with Walgreens, and validation by pharmaceutical companies. . . .  Ms. Holmes had misrepresented Theranos’s reliance on third-party devices and its expanding partnership with Walgreens, neither of which involved the question of whether Theranos devices worked as promised.  Whether the jury heard more or less evidence that tended to show the accuracy and reliability of Theranos technology does not diminish the evidence the jury heard of other misrepresentations Ms. Holmes had made to investors.

P. Ex. 47 at 5-6 (internal citations omitted).

On appeal, the Ninth Circuit summarized the criminal case record and highlighted the misrepresentations to investors that involved the deployment of Theranos equipment to the military forces and the rollout of wellness centers in the Walgreens chain:

Although Theranos had developed a relationship with [DoD] to explore the potential use of the Edison device in combat settings, that application never materialized.  General Mattis testified that the Edison device was never put into the field by the military, it was never installed on a military medevac, and it was never used to treat servicemembers on the battlefield.  But multiple C-1 and C-2 investors testified that Holmes and Balwani led them to believe otherwise. . . .  For instance, Holmes told investors that “we have also been doing a lot of work for special operations command in the context of missions in remote areas” and that Theranos had “created a distributed system that can be used in remote areas.”

Finally, the [TSI] alleged that Holmes and Balwani also misrepresented to investors the status of Theranos’s partnerships with other companies, including retailers and pharmaceutical companies.  A Walgreens representative testified that, while Holmes and Balwani were touting to investors that Theranos’s partnership with Walgreens was expanding, the partnership was actually contracting, and the pilot program was not going as hoped.  Walgreens’s decision to reduce the number of stores launching Theranos’s testing services was motivated in part by the high percentage of

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blood draws that were being performed venously (a traditional blood draw), rather than through a finger prick.

Holmes, 129 F.4th at 647.

Taken together, Ms. Holmes’s false statements to investors about Theranos’s blood testing technology, the deployment of that technology with the military, the expected roll out of wellness centers in partnership with Walgreens, and the expected significant revenue from that activity expected by 2015, are sufficient to show that Ms. Holmes’s criminal conduct had a nexus to the delivery of a health care item or service, even though her crime did not involve the actual delivery of health care items and services.  Investors provided money to Theranos in the hopes of making more money based, at least in part, on Theranos’s profitability as a provider of blood testing services.

Ms. Holmes disagrees and argues that her criminal offenses do not have a connection with the delivery of a health care item or service.  Ms. Holmes first asserts that all of the cases that the IG cited in briefing included a “tie to improper billing of a federal healthcare program.”  P. Supp. Br. at 2.  However, the imposition of an exclusion under section 1320a-7(a)(3) does not require a conviction for improper billing or health care fraud.  Curtis, DAB No. 2430 at 4.

Ms. Holmes also asserts that her criminal offenses were not in connection with the delivery of a health care item or service because the jury acquitted her of the charges in the TSI concerning the “Patient scheme,” which alleged fraud on patients and doctors.  P. Supp. Br. at 3.  Those charges alleged that Ms. Holmes, through advertisements and solicitation, encouraged and induced patients to use Theranos laboratory testing services.  P. Supp. Br. at 3.  In contrast, Ms. Holmes argues that the offenses she was convicted of committing only involved fraud on investors concerning seven categories of information:  1) the capabilities of Theranos’s inventions; 2) demonstrations of Theranos’s technology; 3) the status of Walgreens’ contract with Theranos; 4) the relationship Theranos had with DoD; 5) whether Theranos was required to get Food and Drug Administration approval as it developed its technology; 6) representations about Theranos’s technologies; and 7) representations about work with pharmacy companies.  P. Supp. Br. at 3.

While Ms. Holmes concedes that Theranos’s medical technology was central to both the investor fraud charges and charges of patient-related fraud (which she was not convicted of committing), she posits that the difference between the two is that the investor scheme only involved issues related to investing in intellectual property and not the delivery of health care services.  P. Supp. Br. at 4.  Ms. Holmes asserts that one can clearly see this dichotomy when, during sentencing, the District Court refused to apply an enhancement for creating a risk of death or serious bodily injury because the convicted offenses of investor fraud were “too attenuated to connect Ms. Holmes to the risk of death or serious bodily injury to the patients receiving Theranos’s blood tests absent more evidence.”  IG

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Ex. 10 at 18.  Despite this ruling, Ms. Holmes is concerned that the IG is really basing the exclusion on the criminal charges involving patients, which were not proven in court.  P. Supp. Br. at 4.  Ms. Holmes asserts that the IG should defer to the decisions of the jury and the District Court because they explicitly did not find fraud concerning patients and the delivery of health care items or services.3  P. Supp. Br. at 5.

Although Ms. Holmes is correct that she was not convicted of any of the charges involving wire fraud on patients, this does not affect the analysis as to whether her conviction for wire fraud involving investors was in connection with the delivery of a health care item or service.  In this decision, I do not rely on any of the disproven or unproven charges against Ms. Holmes concerning wire fraud and patients.  Rather, I conclude that the misrepresentations that Ms. Holmes made to investors had a nexus to the delivery of a health care item or service.  The District Court’s conclusion that there was insufficient evidence to find that Ms. Holmes created a risk of death or serious bodily harm to patients does not preclude a finding that the fraud Ms. Holmes committed was done in connection with the delivery of a health care item or service.

Ms. Holmes also argues that her criminal offense is related to the “chain of development, not the ‘chain of delivery.’ . . . The development of new technologies and intellectual property must not be conflated with the delivery of healthcare services.”  P. Supp. Br. at 6.  Ms. Holmes asserts that the investors were investing “in developing new technologies and business models that never existed before – not delivering healthcare services.”  P. Supp. Br. at 7.  Ms. Holmes cites the criminal case record to show that investors were interested in the valuation of Theranos based on intellectual property and not from health care services since none were offered yet.  P. Supp. Br. at 7-8.

As explained above, the District Court specifically found that investors relied on the misrepresentations alleged in the TSI when deciding to invest in Theranos.  The Ninth Circuit’s opinion agrees with that.  Ms. Holmes cannot, in this proceeding, use evidence

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from the criminal case record to collaterally attack the District Court’s finding.  42 C.F.R. § 1001.2007(d); see also Travers v. Shalala, 20 F.3d 993, 998 (9th Cir. 1994).  I have concluded that those misrepresentations create a nexus to the delivery of a health care item or service, and I do so regardless as to any other motivations that the investors may have had when investing money in Theranos.

Ms. Holmes also objects to the IG’s argument that a connection to the delivery of a health care item or service can be proven by the investment losses that Walgreens and Safeway suffered as a result of investing money in Theranos and entering into agreements with Theranos.  Ms. Holmes argues that the fraud on which an exclusion is based must be part of the charged offenses and that, in her case, the issues related to Walgreens’ and Safeway’s investments were not charged offenses but only appeared during the restitution hearing.  P. Supp. Br. at 8.  Ms. Holmes only concedes that, at the time Theranos was engaging with Walgreens and Safeway, Theranos was developing technology; however, Ms. Holmes asserts that the contracts with those companies indicated that, “performance specifications ‘have not even been characterized’ and warranties could therefore not be provided.”  P. Supp. Br. at 9.  Ms. Holmes also points to the Master Purchase Agreement with Walgreens from 2010 to show that Walgreens understood that Theranos could not yet conduct all assays on the then existing testing device and that Theranos was continually developing new generations of the device.  P. Supp. Br. at 10.  Ms. Holmes further cites portions of the record to show that she did not commit fraud on Walgreens or Safeway because successive agreements and the testimony of individuals at the trial show that those companies understood that Theranos’s technology was continually in the process of development.  P. Supp. Br. at 10-11.  Ms. Holmes characterizes Walgreens and Safeway as assessing Theranos’s intellectual property and whether it would lead to them providing point of care diagnostics.  P. Supp. Br. at 11-12.  Ms. Holmes states, “[f]ar from delivering healthcare services, technology had to be custom designed and then developed and then submitted to regulators for approval or rejection.”  P. Supp. Br. at 11.  She also states:  “Investments into the company and associated statements to investors were made in connection with development of novel technologies.”  P. Supp. Br. 12.  Summing up that argument, Ms. Homes asserts:  “Having a vision for how [Theranos’s] technology, once developed, could be applied . . . is distinct from delivering health care services.  Just as the development of a pharmaceutical drug is distinct from the delivery of the medicine it becomes by a provider, the development of technology is distinct from the delivery of laboratory services.”  P. Supp. Br. at 14.

Although I conclude that Ms. Holmes’s misrepresentations concerning a planned roll out of Theranos’s blood testing technology to Walgreens drug stores is evidence of a connection between her criminal conduct and the delivery of a health care item or service, I do not adopt the IG’s additional argument that the fraud committed on Walgreens and Safeway shows that Ms. Holmes’s criminal conviction for wire fraud involving investors created a nexus to the delivery of a health care item or service.  See IG Br. at 9-11.  The loss due to fraud involving Walgreens and Safeway were not

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specifically included in the TSI and were only included as part of the proceedings involving restitution.  See IG Ex. 2; IG Ex. 6 at 11-14.  For purposes of determining whether an exclusion was properly imposed, I only consider criminal conduct that was charged and proven.  57 Fed. Reg. 3298, 3315 (Jan. 29, 1992).  However, as explained above, the proven criminal conduct is enough to show a nexus to the delivery of a health care item or service.  Therefore, Ms. Holmes is subject to exclusion under 42 U.S.C. § 1320a-7(a)(3).

8. Ms. Holmes must be excluded from participation in all federal health care programs for a minimum of five years.

As indicated above, the record shows that Ms. Holmes was convicted, as that term is defined in 42 U.S.C. § 1320a-7(i), and that conviction meets all of the elements under 42 U.S.C. § 1320a-7(a)(3) for a mandatory exclusion.  Therefore, Ms. Holmes is subject to a mandatory minimum exclusion of five years.  42 U.S.C. § 1320a-7(c)(3)(B); see Travers, 20 F.3d at 998.

9. The IG has proven the existence of four aggravating factors that justify a length of exclusion beyond the minimum five-year requirement.

Although individuals excluded under 42 U.S.C. § 1320a‑7(a)(3) must be excluded for a minimum of five years, the statute does not preclude a longer term of exclusion.  The applicable regulations provide a list of aggravating factors that may serve as the basis for extending an exclusion beyond five years.  42 C.F.R. § 1001.102(b).  As explained below, the IG proved the existence of four aggravating factors listed in the regulations.

1. The District Court sentenced Ms. Holmes to more than one year in prison.

The regulations provide the following as an aggravating factor:  “The sentence imposed by the court included incarceration.”  42 C.F.R. § 1001.102(b)(5).  The District Court sentenced Ms. Holmes to 135 months of incarceration.  IG Ex. 5 at 2; IG Ex. 10 at 1, 22; P. Ex. 48 at 133.  Therefore, I conclude that the IG proved this aggravating factor.

2. Ms. Holmes’s acts that resulted in conviction, or similar acts, were committed for more than one year.

The regulations provide the following as an aggravating factor:  “The acts that resulted in conviction, or similar acts, were committed over a period of one year or more.”  42 C.F.R. § 1001.102(b)(2).

The TSI alleged that the scheme to defraud investors perpetrated by Ms. Holmes and Mr. Balwani lasted “[f]rom a time unknown but no later than 2010 through 2015.”  IG Ex. 2

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at 5.  Further, Count 1 of the TSI alleged that Ms. Holmes and Mr. Balwani engaged in a “Conspiracy to Commit Wire Fraud against Theranos Investors” that lasted “[f]rom a time unknown but not later than approximately 2010 through approximately 2015 . . . .”  IG Ex. 2 at 9.  The jury found Ms. Holmes guilty of Count 1, as well as three other counts in the TSI related to wire fraud against investors.  IG Ex. 3 at 1-2.  Consistent with the preceding, the District Court’s restitution order stated in the “Facts” section:  “The scheme to defraud investors lasted from 2010 through 2015 . . . .”  IG Ex. 6 at 1.

Ms. Holmes argues that her criminal acts lasted less than a year.  She focuses on the three counts of wire fraud in the TSI that the jury found her guilty of committing.  P. Supp. Br. at 22.  Ms. Holmes admits that she was convicted of false statements to investors in 2014 but asserts that the jury did not convict her of any counts in the TSI related to investments made in 2010-2013.  P. Supp. Br. at 22.

It is true that the jury found Ms. Holmes guilty of Counts 6 through 8 of the TSI, and those counts specified wire fraud on February 6, 2014, and October 31, 2014.  IG Ex. 3 at 2.  However, Ms. Holmes’s argument fails to account for the jury’s guilty verdict concerning Count 1, which alleged a conspiracy to commit wire fraud lasting from 2010 to 2015.  Therefore, I conclude that the IG proved that Ms. Holmes’s criminal acts and similar acts lasted for more than a year.

3. Ms. Holmes’s criminal acts and similar acts caused a total of more than $50,000 in financial loss to one or more entities.

The regulations provide the following as an aggravating factor:

The acts resulting in the conviction, or similar acts, caused, or were intended to cause, a financial loss to a government agency or program or to one or more entities of $50,000 or more.  (The entire amount of financial loss to such government agencies or programs or to other entities, including any amounts resulting from similar acts not adjudicated, will be considered regardless of whether full or partial restitution has been made).

42 C.F.R. § 1001.102(b)(1).

The District Court ordered Ms. Holmes and Mr. Balwani to be jointly and severally liable to pay restitution to the following entities that were victims of the wire fraud conspiracy:

Hall Group                                     $1,875,000
Lucas Venture Group                $7,570,005
Mendenhall TF Partners          $1,312,500 

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Black Diamond Ventures         $5,349,900
Peer Ventures Group                  $93,499,912
PFM Funds                                      $52,639,998
Moseley Family Holdings         $5,999,997
RDV Corporation                          $99,999,984
Walgreens                                       $40,000,000
Safeway                                           $14,500,000

IG Ex. 5 at 6; IG Ex. 6 at 18.  This restitution totals more than $320,000,000.  For purposes of this aggravating factor, the full amount of restitution is considered even though Ms. Holmes is jointly and severally liable for that amount with Mr. Balwani.  Hameedi v. Becerra, 23-CV-2654, 2024 WL 4212061 *3 (E.D.N.Y. Sept. 17, 2024).

Ms. Holmes asserts that most of the restitution was ordered to be paid to entities that were not named in the charges that the jury found her guilty of committing.  Further, Ms. Holmes points out that the loss calculation used during sentencing was different and less than the restitution ordered.  P. Supp. Br. at 20.

As an initial matter, I note that if one were to base the loss solely on the amounts of money listed in TSI Counts 6 through 8, the loss would total more than $144 million.  See IG Ex. 2 at 10; IG Ex. 3 at 2.  This is a significant sum of money to be counted as loss due to fraud and would amply support this aggravating factor.

However, the regulation quoted above states that the total loss amount includes acts resulting in conviction or “similar acts,” even if the “amounts resulting from similar acts [was] not adjudicated.”  42 C.F.R. § 1001.102(b)(1).  When promulgating this regulation, the Secretary explained that acts that have not been adjudicated cannot be used as the basis for imposing an exclusion; however, they can be used to determine loss as an aggravating factor.

Acts that have not been adjudicated are not considered in determining whether an exclusion must or should be imposed. Other acts are considered only in determining the length of the exclusion.  We are aware of numerous cases where there is evidence that an individual or entity committed many similar acts but, as a condition for entering into a plea agreement, only pled guilty to one charge.  It is part of the OIG’s responsibility to review all factors surrounding a case to determine the reasonable length of an exclusion.  The approach we have taken is not unlike sentencing in the criminal context, where a judge may consider many different acts of the defendant in setting the appropriate sentence, not just the ones that form the basis for the conviction.

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57 Fed. Reg. at 3315.

Therefore, this regulation anticipated the difference between the charges someone may be found guilty of committing and the final loss or restitution amounts a criminal court may calculate based on a broader array of conduct.

In this case, the District Court conducted a hearing on restitution and issued a lengthy order explaining why certain victims were included even though they were not mentioned in the TSI.  IG Ex. 6.  The Ninth Circuit affirmed the restitution amount ordered by the District Court.  Holmes, 129 F.4th at 664-67.  Because the restitution amounts have been ordered by the District Court, Ms. Holmes’s efforts to argue it should be a reduced amount are impermissible collateral attacks.  Michael D. Miran, DAB No. 2469 at 5 (2012).  Therefore, I conclude that the IG has proven that the loss to entities based on Ms. Holmes’s criminal acts and similar acts is more than $50,000 and constitutes an aggravating factor.

4. Ms. Holmes’s criminal acts and similar acts had a significant financial impact on one or more individuals.

The regulations provide the following as an aggravating factor:  “The acts that resulted in the conviction, or similar acts, had a significant adverse physical, mental or financial impact on one or more program beneficiaries or other individuals.”  42 C.F.R. § 1001.102(b)(3).

The District Court ordered Ms. Holmes and Mr. Balwani to be jointly and severally liable to pay restitution to the individuals that were victims of the wire fraud conspiracy as follows:

Alan Eisenman                    $99,990
Sherrie Eisenman              $49,995
Richard Kovacevich          $4,149,990
Keith Rupert Murdoch     $124,999,997

IG Ex. 5 at 6; IG Ex. 6 at 18.

Ms. Holmes argues that there is no proof that the victims listed above suffered substantial financial hardship based on their investments in Theranos.  P. Supp. Br. at 22.  Ms. Holmes states that these investors were able to take financial risks and were doing so seeking the high rewards that may come with a high-risk investment.  P. Supp. Br. at 22-23.  She asserts that these individuals were “some of the wealthiest investors in the world” whose financial condition was not impacted by the loss of their investment.  P. Supp. Br. at 23.  In essence, Ms. Holmes argues that there must be an individualized

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assessment for each victim to determine if, subjectively, there was a significant financial impact on the victim.

The IG does not provide an individualized assessment for each of the four victims, and the record does not include specific information about those victims other than the amount of money they lost due to the wire fraud conspiracy.  See IG Br. at 13.

In case decisions discussing this aggravating factor, harm resulting in death has been held to constitute a significant adverse physical impact.  Chaim Charles Steg, DAB No. 3115 at 14 (2023); Michael J. Vogini, D.O., DAB No. 2584 at 10 (2014).  Therefore, these cases are of limited value.  However, in the final rule promulgating 42 C.F.R. § 1001.102(b)(3), the Secretary stated in response to public comments that “[t]o be an aggravating factor, we agree that the impact must be more than minimal, that is, it must have been significant.”  57 Fed. Reg. 3298, 3315 (Jan. 29, 1992).

In this case, I do not believe that I need to make a specific finding as to whether the four individual victims of Ms. Holmes’s conspiracy subjectively felt a significant adverse financial impact to uphold this aggravating factor.  In particular, one of the victims, while being publicly reputed to be extremely wealthy, lost nearly $125 million.  Objectively, such a loss is so large that I can easily find its impact “is more than minimal” and that it constitutes a significant adverse financial impact.  Therefore, this aggravating factor applies in this case.

10. Ms. Holmes did not prove the existence of any mitigating factors to reduce the length of exclusion imposed by the IG.

If there are aggravating factors that justify increasing the length of exclusion to exceed five years, then the length of exclusion can be reduced if certain mitigating factors are present in a case.  42 C.F.R. § 1001.102(c).  Ms. Holmes asserts two mitigating factors:  1) a mental or emotional condition that reduced her culpability; and 2) cooperation with law enforcement authorities.  P. Supp. Br. at 29-31.  Ms. Holmes has the burden of proof to show the existence of any mitigating factors that she asserts.  See Stacey R. Gale, DAB No. 1941 (2004); Standing Order ¶ 7.  For the reasons explained below, I conclude that the record does not support the existence of either mitigating factor.

1. The record of Ms. Holmes’s criminal proceeding does not show that the District Court determined that Ms. Holmes had a mental or emotional condition that reduced her culpability.

Ms. Holmes claims the following mitigating factor applies in this case (P. Sur-reply at 4 n.1):

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The record in the criminal proceedings, including sentencing documents, demonstrates that the court determined that the individual had a mental, emotional or physical condition before or during the commission of the offense that reduced the individual’s culpability.

42 C.F.R. § 1001.102(c)(2).

Ms. Holmes bases her claim to reduced culpability for her criminal conduct on her allegations that Mr. Balwani abused her for many years, which resulted in Post-Traumatic Stress Disorder (PTSD).  P. Supp. Br. at 29-32; P. Sur-reply at 3-4.  Ms. Holmes asserts that the District Court addressed this issue in the sentencing order when it declined to apply a sentencing enhancement for being a leader in the criminal conduct.  P. Supp. Br. at 31; P. Sur-reply at 3-4.

Ms. Holmes did raise the issue of an abusive relationship in her criminal case.  Ms. Holmes filed a notice with the District Court that “she may introduce expert evidence at trial related to a mental condition bearing on guilt” involving an abusive relationship with Mr. Balwani and diagnoses of PTSD, depression, and anxiety.  P. Ex. 46.  Information about the alleged abuse appears in Ms. Holmes’s Motion for Severance (P. Ex. 45), Ms. Holmes’s testimony at trial (P. Ex. 4 at 165-198), and Ms. Holmes’s Sentencing Memorandum and Motion for Downward Departure (P. Ex. 16 at 18-25).

The District Court permitted Ms. Holmes to provide expert evidence because “the abusive context of [Ms. Holmes’s] relationship with Balwani would help explain her good-faith belief in the allegedly fraudulent statements she made, thereby negating the Government’s proof that she had the requisite intent to defraud.”  P. Ex. 43 at 11.  The District Court also stated that “[Ms. Holmes] is not arguing that she suffered from PTSD or other mental conditions during the relevant charge period that rendered her incapable of forming intent to deceive as a categorical matter.”  P. Ex. 43 at 11; see also P. Ex. 44 at 11 (District Court order noting that “counsel [for Ms. Holmes] indicated that they would not be advancing a duress defense for Ms. Holmes, and further represented that Ms. Holmes’s defense would be a lack of means rea to commit the offenses charged.”).  However, these actions by the District Court fall short of an actual finding that the alleged abuse reduced Ms. Holmes’s culpability for her criminal acts.

Ms. Holmes is correct that the District Court sustained her objection to an upward adjustment in her sentence based on her alleged role as an “organizer or leader of a criminal activity.”  IG Ex. 10 at 19.  However, the District Court did not uphold that objection based on Ms. Holmes’s assertions of an abusive relationship with Mr. Balwani.  Rather, the District Court found that the evidence only supported that Ms. Holmes and Mr. Balwani “acted as co-equals” and that Ms. Holmes did not exercise sufficient control over Mr. Balwani for her to be considered a leader in the criminal activity.  IG Ex. 10 at

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19-20.  A review of the sentencing hearing transcript did not reveal a finding that Ms. Holmes’s mental or emotional condition had a bearing on her guilt.  See P. Ex. 48.

For 42 C.F.R. § 1001.102(c)(2), the relevant inquiry is whether the District Court determined that Ms. Holmes’s alleged abuse and resulting mental condition reduced her criminal culpability.  See Patel v. Shalala, 17 F. Supp. 2d 662, 667 (W.D. Ky. 1998) (“Plaintiff has not provided any citation to the record in the criminal proceeding where the court made any finding that plaintiff was less culpable for his crimes due to a dependence on alcohol or drugs.”).  I can neither find an express statement from the District Court nor infer from any of the exhibits that the District Court found Ms. Holmes less culpable based on her claims of abuse or PTSD.  See Farzana Begum, M.D., DAB No. 2726 at 9-10 (2016).  Therefore, I conclude that the record does not support a mitigating factor under 42 C.F.R. § 1001.102(c)(2) in this case.

2. Ms. Holmes’s did not show that her alleged cooperation with surveyors from the Centers for Medicare & Medicaid Services (CMS) meets the requirements to be a mitigating factor.

Ms. Holmes claims that she cooperated with CMS officials who surveyed Theranos’s laboratory under the Clinical Laboratory Improvement Amendments of 1988 (CLIA).  She also states that one of Theranos’s laboratory directors was later the director of other laboratories that CMS cited for immediate jeopardy-level deficiencies.  Ms. Holmes states that Theranos worked with CMS to take remedial actions at Theranos’s laboratory.  However, Theranos eventually received notice of failures in its quality system, and Theranos ceased laboratory operations.  She states that all owners settled the matter by agreeing not to operate a laboratory for two years.  P. Supp. Br. at 29; P. Ex. 12 at 65-66.

To qualify as a mitigating factor, an excluded individual must show the following:

(3) The individual’s or entity’s cooperation with Federal or State officials resulted in—

(i) Others being convicted or excluded from Medicare, Medicaid and all other Federal health care programs,
(ii) Additional cases being investigated or reports being issued by the appropriate law enforcement agency identifying program vulnerabilities or weaknesses, or
(iii) The imposition against anyone of a civil money penalty or assessment under part 1003 of this chapter.

42 C.F.R. § 1001.102(c)(3).

While Ms. Holmes cites the brief filed in the appeal of her criminal case (P. Ex. 12 at 6), trial transcripts concerning her counsel’s opening and closing statements (P. Ex. 9 at 119-

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121; P. Ex. 10 at 172), and the trial transcript concerning testimony about the laboratory (P. Ex. 17 at 49), none of these documents prove that Ms. Holmes cooperated with federal officials and that her cooperation resulted in those officials taking one of the actions required by the regulations.  Evidence that federal officials took one of the actions specified in the regulations is essential to prove cooperation as a mitigating factor because that is the only way to validate the cooperation.  Stacey R. Gale, DAB No. 1941 at 10-11 (2004); see also 63 Fed. Reg. 46,676, 46,681 (Sept. 2, 1998); 57 Fed. Reg. 3298, 3315 (Jan. 29, 1992).

It is possible that Ms. Holmes cooperated with the CMS surveyors during their survey of the Theranos laboratory; however, this is not the type of cooperation that constitutes a mitigating factor in an exclusion case.  CMS found that Theranos’s clinical laboratory practices and procedures presented immediate jeopardy to patient health.  Holmes, 129 F.4th at 646.  Therefore, Ms. Holmes’s cooperation with CMS appears to be limited to an unsuccessful attempt to comply with CLIA safety requirements.

11. The 90-year length of Ms. Holmes’s exclusion is not prohibited by the applicable statute and is permitted under the Secretary’s regulations.

As a matter of law, Ms. Holmes objects to a 90-year exclusion because such an exclusion is tantamount to a permanent exclusion, which requires a conviction on two or more previous occasions.  P. Supp. Br. at 19.  Ms. Holmes argues that “[t]here would be no purpose in Congress explicitly specifying the conditions for ten year or lifetime exclusions if Congress’ intent were for the Agency to use its discretion in imposing lifetime exclusions.  If that were the case, it would say so in the law.  It doesn’t.”  P. Supp. Br. at 19.

Ms. Holmes’s reading of the statute is incorrect.  While she sees the exclusion statute as capping the length of exclusions, in fact, the statute sets various minimum lengths of exclusion when certain criteria are met.

Section 1320a-7(a) and (b) provides criteria when the Secretary must exclude individuals and criteria when the Secretary may exclude individuals and entities.  The former type of exclusion is usually referred to as a mandatory exclusion.  The statute provides mandatory minimum lengths of exclusion.  The most basic provision is as follows:

Subject to subparagraph (G), in the case of exclusion under subsection (a), the minimum period of exclusion shall be not less than five years . . . . 

42 U.S.C. § 1320a-7(c)(3)(B).  Therefore, when an individual or entity must be excluded under the mandatory exclusion provisions, the minimum length of exclusion is five years.  However, this mandatory five-year minimum is subject to subparagraph (G).

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Subparagraph (G) is the statutory provision that Ms. Holmes reads as placing a cap on the length of exclusion.  However, this is what the text of that provision actually says:

In the case of an exclusion under subsection (a) based on a conviction occurring on or after the date of the enactment of this subparagraph, if the individual has (before, on, or after such date) been convicted-

(i)   on one previous occasion of one or more offenses for which an exclusion may be effected under such subsection, the period of the exclusion shall not be less than 10 years, or

(ii)   on 2 or more previous occasions of one or more offenses for which an exclusion may be effected under such subsection, the period of the exclusion shall be permanent.

42 U.S.C. § 1320a-7(c)(3)(G) (emphasis added).  Therefore, rather than placing a limit on the original provision that mandated a minimum five-year length of exclusion, this provision is setting a ten-year mandatory minimum exclusion in certain instances and a mandatory permanent exclusion in other circumstances.

This interpretation is consistent with the Secretary’s regulations.  The regulations establish that no mandatory exclusion “will be for less than 5 years.”  42 C.F.R. § 1001.102(a).  The regulations also establish aggravating factors that are “a basis for lengthening the period of exclusion” and for mitigating factors that may “be considered as a basis for reducing the period of exclusion to no less than 5 years.”  42 C.F.R. § 1001.102(b)-(c).  The regulations then include the requirement that an exclusion will be “[f]or not less than 10 years if the individual has been convicted on one previous occasion” of an offense for which a mandatory exclusion could have been imposed.  42 C.F.R. § 1001.102(d)(1).  Finally, the regulations require a permanent exclusion if the individual has been twice previously convicted of offenses requiring mandatory exclusion.  42 C.F.R. § 1001.102(d)(2).  Therefore, “the fact that repeat offenders are subject to minimum exclusions of 10 years up to a lifetime in no way implies that an initial offender with severe aggravating factors could not expect to face an actual exclusion of more than 10 years.”  Zahid Imran, M.D., DAB No. 2680 at 14 (2016).

In the present case, Ms. Holmes does not have previous convictions and is not subject to a mandatory minimum ten-year or permanent exclusion.  She is subject to a minimum five-year exclusion.  However, that exclusion may be increased based on the aggravating factors present in this case.  The fact that the exclusion period will likely exceed Ms.

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Holmes’s biological life does not make it a section 1320a-7(c)(3)(G) permanent exclusion or an impermissible one.  As one appellate decision explains:

Congress recognized permanent exclusion as one possible length when it mandated that period for those convicted of a crime with two prior convictions.  Congress also mandated finite minimum durations of ten and five years for those convicted of a crime for which exclusion could be imposed with one prior conviction and with no prior convictions, respectively.  Thus, it is clear that Congress did not view permanent exclusion as the functional equivalent of an exclusion of finite duration . . . . 

Jeremy Robinson, DAB No. 1905 (2004) (internal citations omitted).

Here, the IG imposed an exclusion of finite duration, and I only have to assess whether the length of the period of exclusion is unreasonable based on the regulatory factors.  See Imran, DAB No. 2680 at 14.

12. The 90-year length of Ms. Holmes’s exclusion is not unreasonable based on a qualitative analysis of the aggravating factors in this case.

When considering the length of exclusion, “[t]he evaluation does not rest on the specific number of aggravating or mitigating factors or any rigid formula for weighing those factors, but rather on a case-specific determination of the weight to be accorded each factor based on a qualitative assessment of the circumstances surrounding the factors in that case.”  Farzana, DAB No. 2726 at 2.  However, an excluded individual’s age, financial condition, and employment prospects are not considered.  Robinson, DAB No. 1905; Imran, DAB No. 2680 at 14.  Ultimately, I must decide whether the 90-year length of exclusion is unreasonable, i.e., whether it is within a reasonable range based on the relevant factors.  42 C.F.R. § 1001.2007(a)(1)(ii); 57 Fed. Reg. 3298, 3321 (Jan. 29, 1992).

When conducting this analysis, it is important to note that health care providers do not have a fundamental right to participate in federal health care programs; therefore, an exclusion only needs to be rationally related to a legitimate government interest, such as patient health or protecting federal health care programs from fraud and abuse.  Parrino v. Price, 869 F.3d 392 (6th Cir. 2017).  For exclusions, the trustworthiness of the excluded individual is a key question.  See Morgan, 694 F.3d at 538 (“[T]he legislative history to § 1320-7(a)(3) as it was originally enacted indicates that it was specifically intended to protect federal programs from untrustworthy individuals.”); see also Susan Malady, R.N., DAB No. 1816 at 9 (2002).  Because the purpose of an exclusion is to

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protect federal health care programs from fraud and abuse, it is remedial and not punitive.  Manocchio v. Kusserow, 961 F.2d 1539, 1541-42 (11th Cir. 1992).

Turning to the aggravating factors in this case, Ms. Holmes was sentenced to 135 months in prison.  A prison sentence of as little as nine months is considered to be relatively substantial for exclusion purposes.  Jason Hollady, M.D., DAB No. 1855 at 12 (2002).  Ms. Holmes’s sentence is 15 times longer than the 9 months that is considered a substantial term of incarceration.  Further, when sentencing Ms. Holmes, the District Court noted that Ms. Holmes “has not clearly demonstrated acceptance of responsibility for her offenses that permit her an acceptance of responsibility reduction.”  IG Ex. 10 at 21.  When determining the sentence, the District Court stated that it “recognized that [Ms. Holmes’s] sentence must reflect the seriousness of the offense, promote respect for the law, provide just punishment for the offense, and afford adequate deterrence in criminal conduct.”  IG Ex. 10 at 22.  Given the lengthy sentence imposed on Ms. Holmes, her lack of accepting responsibility, and the purpose of the sentence, a lengthy exclusion is supported by this aggravating factor.

Ms. Holmes’s criminal acts or similar acts lasted for at least five years, which is five times longer than the minimum one year to make that an aggravating factor.  In this case, it was her participation in a conspiracy to commit wire fraud that lasted for the five-year period.  Such an extended period of engaging in fraudulent conduct weighs in favor of a lengthy exclusion.

Ms. Holmes caused a loss of approximately $320 million to business entities based on her criminal conduct, which represents 6,400 times the amount that is considered to be aggravating (i.e., $50,000).  Although a separate factor, I note that similarly, Ms. Holmes caused an adverse financial impact on an individual who lost approximately $125 million based on the conspiracy to commit wire fraud.  These amounts of loss are staggering in size.  The loss attributed to Ms. Holmes’s criminal conduct definitively supports a long exclusion to protect federal health care programs.

Ms. Holmes claims that the exclusion should be short because she is still trustworthy.  She points out that the District Court found, when assessing her release pending her appeal to the Ninth Circuit, that Ms. Holmes was not a danger to the community.  P. Supp. Br. at 27.  The District Court stated the following:

The Court will first note that it does not consider Ms. Holmes to be a danger to the community if released.  Ms. Holmes was convicted of non-violent-though nonetheless serious-crimes that primarily had the impact they did by virtue of her influence and position at Theranos.  Today, Ms. Holmes is in no position to inflict similar harms of fraud on the community, and the Court is unaware of any evidence that

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she is likely to commit acts of deception or fraud in her everyday life . . . .  The government’s recitation of the same events giving rise to Ms. Holmes’s investor and patient fraud convictions provides limited insight into the risk she poses today to the community, removed from the artifices that enabled her criminal activity.

P. Ex. 47 at 2-3.

While I defer to the District Court’s finding as to the time-period when the District Court made that finding (i.e., shortly after sentencing), I do not believe that this finding applies to a time-period beyond the one in which it was made.  The District Court reasoned, in 2023, that Ms. Holmes’s ability to commit further acts of fraud were diminished with the loss of Theranos, but such a limitation may not be true should she establish a new company following release from prison or work for an established company.  While her fraud did not involve federal health care programs, Theranos’s business model looked to billing Medicare and Medicaid for its blood testing services.  See P. Ex. 25 at 23, 36, 38.  Therefore, the IG has a rational basis for imposing an exclusion to protect major programs like Medicare and Medicaid.

Ms. Holmes also argues that her trustworthiness to participate in federal programs can be adduced from letters written by more than 130 individuals who know her.  She stated:  “These are people who know Ms. Holmes and her character, remorse, and capacity to do good.”  P. Supp. Br. at 35; P. Exs. 40-41.  However, character references are not relevant to review of the reasonableness of the length of exclusion.  I may only consider mitigating factors listed in the regulations to reduce the length of an exclusion.  Baldwin Ihenacho, DAB No. 2667 at 8 (2015).

The 90-year exclusion will prohibit Ms. Holmes from ever participating in federal health care programs.  It appears to be the scale and scope of her fraudulent activities that have caused the IG to pick such a lengthy period.  The financial loss amount is extraordinary and, on its own, would provide support for decades of exclusion.  The other aggravating factors strongly support the IG’s determination and would also support long exclusions.

Although case comparisons are of limited value, I note that, in one case, the IG imposed a 95-year length of exclusion, but the Departmental Appeals Board reduced the length to 60 years.  That case had aggravating factors of approximately $12 million in loss, criminal activity that lasted six years, a term of incarceration of 60 months, and the loss of two medical licenses.  Sushil Aniruddh Sheth, M.D., DAB No. 2491 (2012).  Although there was a reduced exclusion period in that case, the aggravating factors were not nearly as serious as the present one.  If Sheth supports a 60-year exclusion, then this case supports an exclusion significantly in excess of 60 years.

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Given that the primary goal of the exclusion is to protect federal programs from fraud, I cannot say that a 90-year exclusion in this case is unreasonable.  The IG cannot consider Ms. Holmes trustworthy to participate in federal health care programs given the size and scope of the fraud that she committed.  The Ninth Circuit’s summary of her crime is a sound reminder why the IG has taken this position:

“[O]ne tiny drop changes everything.”  That was the vision shared by Elizabeth Holmes and Ramesh “Sunny” Balwani, who set out in the mid-2000s to revolutionize medical laboratory testing through a biotechnology company called Theranos.  In the early 2010s, Theranos claimed that it could run fast, accurate, and affordable tests with just a drop of blood drawn from the prick of a finger, in contrast to traditional testing methods that require large needles to draw blood from a vein.

Investors, health care professionals and companies, and Silicon Valley spectators were captivated by the potential of Theranos’s revolutionary technology.  As a result, Holmes and Balwani were able to establish relationships with major companies, investors, and prominent figures, including high-ranking members of the United States military.

But the vision sold by Holmes and Balwani was nothing more than a mirage.

Holmes, 129 F.4th at 644.

VII.  Conclusion

I affirm the IG’s determination to exclude Ms. Holmes for 90 years from participating in all federal health care programs under 42 U.S.C. § 1320a-7(a)(3).