Last week was not a great week for the blood diagnostics company Theranos. The startup, valued at $9 billion, has staked its reputation on tests that use just a finger-prick’s worth of blood—cheaper, less painful, and more convenient than anything else in health care. And they might have succeeded, if it weren’t for those meddling kids…er, journalists.

An exposé in the Wall Street Journal alleges that the company’s proprietary diagnostics technology wasn’t actually up to the task of doing 30 or more different tests with just a single drop of blood. Instead, the article says the company was diluting blood to greater volume, so it could run on machines bought from other companies. The real doozy, if true, is that the company could have been hiding inconsistencies in the tests that validated its proprietary technology.

Whether or not that obfuscation happened is still up in the air. But it is certainly true that Theranos is famously cagey about sharing its data with outsiders (in the service of protecting its intellectual property). Diagnostics experts have criticized that policy all along; that data is what shows whether a test is accurate and reliable enough to use on real patients.

But Theranos isn’t required to show its data to anyone except the occasional government inspector, because it is regulated by a special set of rules that effectively let clinical labs police their own tests. Called the Clinical Laboratory Improvement Amendments, these regulations were meant to strike a balance between in-lab innovation and government-sanctioned safety. But as diagnostic tests evolve, the FDA worries that the rules are too permissive to protect patients. The agency is proposing updates that could prevent abuses like the ones Theranos has been accused of, and worse. But the new rules could also destroy diagnostic research’s pace of innovation, and gut the health care industry of many of its successful tests.

CLIA’s Beginnings

Theranos’ story could end with the Wall Street Journal. Ironically, CLIA has its origins in the same newspaper. In 1987, a Journal investigation exposed serious issues at many labs conducting pap smears, a critical test in health care for women. Exhausted and overworked lab technicians were missing the signs of cervical cancer, and as a result returning a disproportionate number of false negatives. Many women who were told they were cancer-free were not.

The Journal articles prompted the government to issue CLIA, which updated earlier laws. “The amendments came about when the government realized that lab testing was basically the Wild West,” says Stephen Master, chief clinical pathologist at Weill Cornell Medical College in New York.

CLIA exists for patient safety. But it also exists so labs can churn out new tests as fast as they can think of them. Rather than review every single test, the rules essentially review the lab. “Does your lab director have the right credentials? Do your reagents have stickers for expiration? Where are your records for training, records for competency? You need to be able to show you validate tests, quality control, proficiency testing,” says Master. Basically, if the lab has a good pedigree, the government agrees to think the tests it conducts are probably OK.

Every new test gets a “complexity rating,” assigned by the Department of Health and Human Services. Ranging from “highly complex” to “waived,” this rating dictates the qualification level of the personnel required to administer the test. A physician or nurse has to administer the highest complexity tests, and those tests have to return to their home lab to be analyzed. At the other end, people can give the simplest ones, waived tests—such as those that measure insulin or test for pregnancy—to themselves.

But diagnostics companies eventually realized that CLIA, designed to close a loophole, had actually opened one. “Originally these were academic medical centers coming up with new way of testing,” says Master. “Someone at some point realized it was great business model.”

Theranos apparently recognized that opportunity, too. Its strategy is all about patient access, so it wants waived status for its tests—and in fact received it for its herpes simplex I test. Make tests easy and accessible to patients, even at severely discounted prices, and any company stands to make a lot of money—and potentially revolutionize healthcare.

Theranos and CLIA

Looked at one way (the Journal’s allegations notwithstanding), Theranos was operating roughly as CLIA intended: innovating new tests to improve patient care. Looked at another way, the company used CLIA as a back door to get to market—which seems more and more like the correct interpretation now that, according to the Journal, the company is having major issues with the rest of its non-waived tests.

Interestingly, the FDA had already been scrutinizing cases of CLIA misuse—but companies like Theranos aren’t its main target. “In the past six to seven years the FDA has made a lot of talk about regulating lab-developed tests,” says Timothy Hammill, a clinical pathologist at UCSF. “They have seen tests developed in a lab under CLIA, but the test is no good, or is being misused.”

The thing that tipped the FDA off wasn’t blood. It was genetics. In recent years, as genetic testing has become more sophisticated, companies have started using complicated algorithms to assign disease risk based on genetic markers. “The FDA got really nervous when it got into the territory of highly complex genetic or proteomic tests where an algorithm is used to make a diagnosis,” says Master. One early example of this was the home genetic testing service 23andMe, which claimed that its tests could provide useful biomarkers against disease. The FDA put the kibosh on it. The FDA wants a way to inspect these algorithms to make sure they do what they say they are doing.

Now, Theranos isn’t exactly what the FDA was targeting. But if the agency’s rules go hard enough after genetic algorithms they could also make it very hard for Theranos to do any of the sort of subterfuge they’ve been accused of. In fact, the rules could make it hard for any lab to develop any new tests.

Fixing the System

Last October, the FDA released a draft guidance for increasing its oversight of lab developed tests. The strictest version of those would require lab tests to go through a process similar to that for medical devices or pharmaceuticals. These would probably catch trangressions like the ones Theranos is accused of, but they would also disrupt a lot of important tests already in use. “Unfortunately, it always happens that there are one or two bad apples that cause the majority of problems for everyone else,” says James Nichols, medical director of clinical chemistry and point of care testing at Vanderbilt University Medical Center in Nashville.

Clinicians warn that extreme changes to CLIA could result in many tests on the market getting pulled, leaving primary care physicians restricted in the resources they use to diagnose and treat patients. The costs of clearing new regulations could also get passed along to consumers.

Lab groups have pushed back against the FDA, and it appears that the agency is ruminating its way to a more lenient, but still effective, regulation.

However, some in the industry think a better compromise would simply require more transparency. For example, making companies publicly post data from their proficiency and validation tests (which ensure tests are both accurate and precise) or publish research in peer reviewed journals. “The majority of tests are producing high quality results,” says Nichols. Weeding out the bad actors means better inspections, better quality assurance. “It’s about being open, open to their peers,” he says.

Perhaps not coincidentally, lack of openness was the biggest complaint critics had about Theranos prior to the Journal’s exposé (and is the source of most told-you-sos in the stories’ wake). And the flurry of recent stories hasn’t changed that. Theranos still won’t share its data.

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Fixing the Laws That Let Theranos Hide Data Won’t Be Easy