FDA Moves Forward on Laboratory Developed Tests while Stakeholders and Congress Weigh Next Steps

Digital health companies, investors, and other healthcare organizations should follow policy developments with a strategic lens towards their market opportunities for key potential growth and risk mitigation.

On April 29, 2024, after more than a decade of debate, Congressional activity, and proposed regulatory action, the Food and Drug Administration (FDA) finalized a rule asserting its authority to regulate laboratory developed tests (LDTs) as medical devices (“Final Rule”). The Final Rule, while more flexible than the agency’s September 2023 proposal, marks the most significant step taken with regard to federal regulation of LDTs to date.

Notable changes in the final rule include allowing most LDTs marketed prior to the final rule’s issuance to remain on the market under enforcement discretion, along with additional enforcement discretion for LDTs manufactured and performed within a single health care system and LDTs approved by New York State’s Clinical Laboratory Evaluation Program. While these policies significantly scale back the short-term impact of the proposal on laboratories and health systems, FDA is largely pushing forward on its timeline for the regulation of most LDTs. It remains to be seen what steps Congress may take to respond to FDA and outside stakeholder concerns.

Background

LDTs are considered by FDA to be “in vitro diagnostic (IVD) products intended for clinical use and that are designed, manufactured, and used within a single laboratory that is certified under the Clinical Laboratory Improvement Amendments (CLIA) and meets the regulatory requirements under CLIA to perform high complexity testing.” While FDA has long regulated other IVDs as medical devices, the agency has exercised enforcement discretion over the vast majority of LDTs, with limited exceptions. Meanwhile, under the Clinical Laboratory Improvement Amendments (CLIA) of 1988, the Centers for Medicare and Medicaid Services (CMS) has regulated laboratory operations.

While the rule only appends nine words to the end of the existing definition of in vitro diagnostic products to include “when the manufacturer of these products is a laboratory”, this brevity belies the monumental shift the rule brings to the diagnostic testing regime in the United States.

Under the final rule and subject to the agency’s new enforcement discretion policy described below, most LDTs manufactured going forward will be subject to medical device requirements, including premarket review for high-risk devices, registration and listing, labeling, and reporting requirements. With these new requirements will come significant costs for test developers, product lead times, and other compliance factors to consider.

FDA’s Justification for Action Builds on Growing Concerns, Draws Scrutiny from Industry

FDA explained in its final rule that when the agency began regulating medical devices, LDTs were generally made in small volumes by small community laboratories, and were intended for use in diagnosing rare diseases, or were similar to well-characterized, standard tests, and thus should not be subject to additional regulatory requirements from the agency. Explaining now that “the LDT landscape has evolved significantly since 1976,” FDA justifies its current action by citing the growing complexity of LDTs, a broader use of tests, including for diagnosing serious medical conditions, and an uptick in reliability concerns observed by FDA, including when reviewing medical literature and individual LDTs during the COVID-19 public health emergency.

Nevertheless, clinical laboratories, academic medical centers, and health care providers leveled heavy criticism at the proposed rule, raising questions about FDA’s legal authority, the particulars of the agency’s cost-benefit analysis, and its capacity to regulate products as it proposed.

As a fundamental matter, critics of the rule argued, FDA does not have the authority to regulate LDTs because LDTs are processes, appropriately regulated by CLIA, and are not devices under the purview of FDA. Commenters pointed out that the definition of “device” in Federal Food, Drug, and Cosmetic Act does not include mention of laboratory developed tests. FDA pushed back against these concerns, arguing that IVDs were defined as medical devices in the Medical Device Amendments of 1976 under a plain text reading of the statute and under the agency’s historic interpretation of the law. Additionally, the agency cited legislative history from House and Senate committee reports suggesting that Congress intended diagnostics to be included in the device definition, and never intended to carve out laboratories.

Critics of the rule also argued that FDA’s cost-benefit analysis was flawed, and further complained that tests currently on the market would be removed due to increased costs imposed on laboratories, especially among small independent laboratories and in academic medical centers, which routinely design and develop LDTs for use for their patient populations. Commenters argued that in many cases, patients would have access to fewer tests and small labs would be forced to close. While FDA defended its cost-benefit analysis, it responded to some concerns about costs and regulatory burden affecting patient access by issuing targeted enforcement discretion approaches described below.

Many commenters praised FDA’s proposal for leveling the playing field between laboratories and non-laboratory IVD manufacturers, and for taking steps to increase accuracy of LDTs. Some also encouraged FDA to oppose efforts to increase or extend enforcement discretion further.

FDA Moves Forward with Implementation Timeline, with New “Targeted Enforcement Discretion” Policies Intended to Assuage Critics

FDA’s final rule will, largely as proposed, move forward on a four-year implementation timeline. In the preamble to the rule, FDA laid out its planned phase-out of its general enforcement discretion policy, which corresponds with phasing in the following new regulatory requirements:

• One year after finalization, FDA will alter its enforcement discretion to apply medical device reporting requirements, correction and removal reporting requirements, and quality systems requirements for complaint files to LDTs;
• Two years after finalization, FDA will alter its enforcement discretion to apply requirements not otherwise covered by the phaseout policy, including with regard to registration and listing, labeling, and investigational use to LDTs;
• Three years after finalization, FDA alter its enforcement discretion and expect laboratories to come into compliance with all quality systems requirements;
• Three and a half years after finalization, FDA will alter its enforcement discretion to require “high risk” LDTs (those that may be eligible for class III device classification) to submit pre-market approval applications; and
• Four years after finalization, FDA will alter its enforcement discretion to require “moderate risk” LDTs (those that may be eligible for class II device classification) and “low risk” LDTs (those that may be eligible for class I device classification) to go through premarket requirements, such as a 510(k) or de novo

While phasing out general enforcement discretion, in its final rule, FDA issued new “targeted enforcement discretion policies,” largely exempting certain tests from regulatory measures. These policies, not previously included in the proposed rule, include:

• Grandfathering: FDA generally will not enforce premarket review and most quality systems requirements for currently marketed LDTs that were on the market prior to the issuance of the final rule, so long as those LDTs are not modified or only modified in limited ways;
• Health System Labs Serving Unmet Needs: FDA generally will not enforce premarket review requirements and most quality systems requirements for LDTs manufactured and performed by a lab integrated within a health care system to meet the unmet need of patients receiving care within the same health care system (i.e., where an FDA-approved IVD is not otherwise available);
• New York State: FDA generally will not enforce premarket review requirements for LDTs approved under the New York State Clinical Laboratory Evaluation Program;
• Veterans Health Administration/Department of Defense: FDA generally will not enforce requirements for LDTs manufactured and performed within the Veterans Health Administration or the Department of Defense;
• Transfusion and immunohematology laboratories: FDA will generally not enforce premarket review and quality systems requirements for non-molecular antisera LDTs for rare red blood cell antigens where such tests are manufactured and performed in blood establishments, such as transfusion services and in hematology labs, if there is no alternative available to meet a patient’s need for a compatible blood transfusion.

FDA was careful to note in its final rule that the agency’s phaseout approach and timeline will not change with regard certain LDTs that weren’t previously included under enforcement discretion, including blood donor screening tests, direct-to-consumer tests, and tests used in public health emergencies. These tests are not currently subject to general enforcement discretion, and FDA will continue to enforce all applicable requirements on such tests, though stakeholders should note that FDA also released two new draft guidance documents on April 29, explaining its current thinking on tests used in public health emergencies.

Will Congress Step In?

Although the targeted enforcement discretion policies appear intended to assuage the vocal concerns of clinical laboratories, health systems, and others, FDA notes in the final rule that these policies are subject to change, and being included in an enforcement discretion policy does not confer legal status on these LDTs. With outstanding concerns as well as continued questions about FDA’s authority, stakeholders may once again turn to Congress or the courts to stop or alter FDA’s approach.

Members of Congress have on more than one occasion entered the fray in the debate over LDT regulation, citing concerns about an uneven playing field between IVD device manufacturers and laboratories and increasing reliance on LDTs for medical procedures.

Most notably, in 2021, a bipartisan, bicameral coalition of members proposed the Verifying Accurate Leading-edge IVCT Development (VALID) Act. Under VALID, most LDTs and IVDs on the market at the time of enactment would be grandfathered and exempt from pre-market review requirements, much like the targeted enforcement discretion policy included in the final rule. However, a grandfathering policy codified in statute would provide greater certainty for stakeholders. Additionally, VALID included a more flexible risk-based framework, under which low- and moderate-risk tests would be subject to lower regulatory standards, and created a technology certification process under which multiple tests could be marketed under the scope of one FDA approval. While leaders of relevant House and Senate Committees discussed including a modified version of VALID in the Food and Drug Omnibus Reform Act of 2022 (FDORA), a package of dozens of FDA policies passed in December 2022, they ultimately failed to come to agreement to include VALID in the final legislation.

Throughout Congress’s consideration of the issue, FDA expressed strong support for legislation clarifying a risk-based structure for regulating LDTs, like the one included in VALID. Top FDA officials frequently reminded members of Congress that failure to act would likely prompt the agency stepping forward with a proposal of its own, which would be less flexible given the limited tools available to the agency to regulate devices. From the agency’s perspective, a new legislative pathway would provide further clarity to its authority to regulate LDTs, while providing a nimbler framework and additional resources.

Perhaps as it was intended, FDA’s rule has gotten the attention of Congressional leaders. Most recently, on March 21, 2024 the House Committee on Energy and Commerce held a hearing with stakeholders to discuss regulatory approaches for LDTs, and appeared divided on the FDA’s rule. Committee Chair Rep. Cathy McMorris Rodgers (R-WA), sharply criticized the rule at the hearing, arguing that it was overly burdensome. Meanwhile, the Committee’s top-ranking Democrat, Rep. Frank Pallone, Jr. (D-NJ), praised the rule and backed up FDA’s claim that its authority to regulate LDTs was granted by Congress when it passed the Medical Device Amendments of 1976. While there were clear differences about the scope and necessity of the rule, there was considerable bipartisan support among members and several stakeholder witnesses for working toward a legislative approach like VALID. Also in March, Sen. Bill Cassidy (R-LA), the ranking Republican on the Senate Health, Education, Labor, and Pensions (HELP) Committee, a critic of FDA’s rule, issued a request for information seeking stakeholder input on LDTs.

In the immediate hours after the final rule was released, Rep. Rodgers and Sen. Cassidy reiterated their opposition to the rule, both criticizing it as going beyond FDA’s statutory authority, with Cassidy arguing that “Congress needs to take action to clarify the regulatory structure for diagnostic tests.” Rep. Diana DeGette (D-CO), an original cosponsor of the VALID Act, agreed that the rule was “burdensome,” and presented the VALID Act as a solution that “would create rational oversight to ensure patients get accurate results.”

Going forward, Congress may choose from several different options that could alter the course of the rule’s implementation. Under the Congressional Review Act, Congress may overturn a final rule through expedited procedures by passing a joint resolution through both the House and the Senate, though this would be subject to a veto by President Biden. Alternatively, Congress may once again attempt to legislate its own path for regulation of LDTs. Congressional leaders may also conduct oversight of FDA’s implementation of the rule, or wait to see how any litigation from stakeholders plays out. Regardless of the immediate path chosen, Congress will find itself reckoning with these issues ahead of the expiration of Medical Device User Fees in 2027, when key resources for regulating diagnostic tests will need to be reauthorized.

Litigation Remains Likely

Prior to issuance of the final rule, at least one organization made clear its intention to sue FDA if the Agency attempts to regulate LDTs writ large as medical devices. Such litigation could seek to enjoin enforcement of the final rule, in whole or in part, in which case leaving Congress a bigger window in which to act. Other issues currently pending before the Supreme Court, including the questions around the Chevron deference and FDA’s authority to regulate medical products, may play into LDT-related litigation as well, again putting pressure on Congress to act.

Conclusion

While this rule is a milestone for LDT regulation, this is far from the end of the conversation for industry, FDA, and Congress. Stakeholders should be prepared to respond to additional policy changes and opportunities. Entities developing LDTs should consider new requirements and adjust their strategy and compliance plans to address these changes.