Theranos CEO and founder Elizabeth Holmes. (credit: Max Morse for TechCrunch)

Late last Thursday, blood testing company Theranos announced that the worst possible outcome of its troubled dealings with federal regulators had come to pass: The Centers for Medicare & Medicaid Services (CMS) had issued sanctions that, among other things, would revoke the company’s license to operate its Newark, California laboratory and bar its high-profile CEO and founder Elizabeth Holmes from owning, operating, or directing any lab for at least two years.

The massive blow from the CMS should be no surprise for Theranos; for months, the company had been dogged by reports that its propriety testing device—said to perform hundreds of tests with just drops rather than vials of blood—didn’t work properly. Theranos was forced to void or correct years’ worth of test results and its valuation dropped from $9 billion to $800 million. In the CMS’ 33-page letter to the company informing it of the sanctions, the agency outlined extensive problems at the California lab and the company’s inexplicable failure to fix them. And the company also faces criminal probes from the Department of Justice and the Securities and Exchange Commission over whether it misled investors and regulators, plus at least eight lawsuits from ex-costumers, each seeking class-action status for bogus testing.

Still, last week’s news raises the question of what will happen to the company’s other clinical laboratory in Scottsdale, Arizona, at which 90 percent of the company’s tests are processed. So far, that lab has passed regulatory muster and the company said it will remain open for now. But, if Theranos intends to keep it running, it must split from Holmes before the sanctions take effect September 5.