Isn't Theranos currently going down in flames?

There a lot of money currently invested in attacking Theraros. That's no indication that the company has a problem but that it threatens established interests.

because Theranos tests were much less accurate than standard medical tests, perhaps to the point of outright fraud.

A company for that's true wouldn't lobby for the FDA to regulate their tests. Nothing that happened indicates that Theranos believes that they aren't confident that the FDA will approve their test.

Why wouldn't they have such incentive?

Prices are fixed by the Medicare reinbursement rate and other insurance companies paying that rate. Lab companies in the existing market can't win by offering lower prices than their competitors. That changes through the direct to consumer sales that Theranos is doing.
At the point where the governments believes tests can be done more cheaply they reduce reinbrusements rates. As a result the labs don't focus on developing technogy to get cheaper testing and the basic way testing is done is the same at it was four decades. They have incentives to develop better tests and tests for new things but they don't have real incentives to reduce the prices.

Theranos is completely right in their lobbying agenda of pushing for direct to consumer sales to produce a functioning marketplace and push for patients rights to see the exact results of their medical tests while asking the FDA to regulate them.