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Despite Broad Carve-Outs, FDA Final Rule on LDTs Draws Critical Response From Lab Industry

NEW YORK – The US Food and Drug Administration's final rule released on Monday to regulate laboratory-developed tests (LDTs), while making it clear that such tests are in vitro diagnostics subject to oversight by the agency, also will allow it to exercise enforcement discretion across a broad range of tests, making it potentially less impactful than many in the lab industry may have feared.

Despite this, the initial industry response to the rule was largely critical, with many raising longstanding concerns that it will raise costs, impact lab innovation and flexibility, and harm patient care.

As part of the final rule, the FDA makes it clear that it believes its authority to regulate LDTs are provided for under the Federal Food, Drug, and Cosmetic Act (FD&C Act). It is a stand that the FDA has maintained for more than three decades but which it has declined to exercise, instead adopting what it has called a policy of enforcement discretion.

More recently, however, the agency argued that its policy of enforcement discretion was no longer appropriate given the increasing complexity of LDTs and their ubiquity throughout the healthcare system, including for the diagnoses and management of life-threatening conditions. It also noted that a number of vendors had begun offering their tests as LDTs as a way of avoiding FDA regulation, even though these tests were marketed to large and diverse customer bases much like traditional IVDs.

“LDTs are being used more widely than ever before — for use in newborn screening, to help predict a person’s risk of cancer, or aid in diagnosing heart disease and Alzheimer’s," FDA Commissioner Robert Califf said in a statement following release of the final rule. "The final rule announced today aims to provide crucial oversight of these tests to help ensure that important healthcare decisions are made based on test results that patients and healthcare providers can trust."

The FDA's efforts to claim oversight of LDTs has been controversial with much of the clinical lab industry opposed to the rule. Opponents have raised concerns that FDA oversight will hamper lab innovation and flexibility, limiting test development, and, ultimately, harming patient care. Opponents have also questioned whether the FDA has legal authority to regulate LDTs, and legal challenges to the final rule are widely expected.

The final rule, however, includes a number of carve-outs and exemptions that were contemplated in the proposed rule. Perhaps most significantly, the agency said it will continue to exercise enforcement discretion for LDTs on the market prior to the issuance of the final rule and will not generally enforce premarket review and quality systems requirements. This could help address concerns both about the expense and work required for labs to submit existing LDTs — which according to some estimates number in the hundreds of thousands of tests — for approval, as well as concerns about the FDA's ability to handle such an influx of submissions. Labs will still be required to follow certain record-keeping procedures for these tests as laid out by Part 820, Subpart M of the Code of Federal Regulations Title 21, which covers items like device master and history records, and complaint recording and evaluation.

The FDA will also exercise enforcement discretion for LDTs that have been approved by New York state's Clinical Laboratory Evaluation Program (CLEP), generally exempting these tests from premarket approval. This is significant because many LDTs offered on a national basis have CLEP approval, which is required for any LDT offered for use on specimens collected in the state.

Enforcement discretion for CLEP-approved tests could also prove a boon for large national labs, which account for a large proportion of such tests. As of September of last year, more than 10,000 LDTs had received CLEP approval, including more than 2,000 tests from Quest Diagnostics and its subsidiaries, more than 1,100 tests from Mayo Clinic Laboratories, roughly 800 tests from Laboratory Corporation of America, and roughly 600 tests from ARUP.

In a note to investors published following the release of the final rule, Evercore ISI analyst Elizabeth Anderson said that the FDA's decision to exercise enforcement discretion for CLEP-approved tests "will minimize ongoing approval costs for" Labcorp and Quest and could "ultimately drive more share to the public clinical labs." Observers have previously suggested that FDA oversight of LDTs could help push more testing to large national labs.

The FDA also said it will continue to exercise enforcement discretion for LDTs offered "by a laboratory integrated within a healthcare system to meet an unmet need of patients receiving care within the same healthcare system," generally exempting these tests from premarket review and quality systems requirements. This provision appears intended to address concerns that once under FDA oversight, laboratories would not be able to quickly develop new tests to address patient needs not already addressed by existing assays.

This has been a particular area of concern with regard to areas like pediatrics and rare diseases where the patient population for certain conditions may be too small to warrant development of traditional IVDs. Labs will be required to comply with Part 820, Subpart M record keeping for these tests, however.

Additionally, the FDA said it will exercise enforcement discretion for LDTs used within the Veterans Health Administration and US Department of Defense.

The agency said it will also continue enforcement discretion for "1976-Type LDTs," which it defines as tests that feature the "use of manual techniques (without automation) performed by laboratory personnel with specialized expertise; use of components legally marketed for clinical use; and design, manufacture, and use within a single CLIA-certified laboratory that meets the requirements under CLIA for high-complexity testing."

It will also exercise enforcement discretion for human leukocyte antigen "tests that are designed, manufactured, and used within a single laboratory certified under CLIA that meets the requirements to perform high-complexity histocompatibility testing when used in connection with organ, stem cell, and tissue transplantation to perform HLA allele typing, for HLA antibody screening and monitoring, or for conducting real and 'virtual' HLA crossmatch tests."

The rule also provides an outline for how the FDA will over a four-year period phase out its previous policy of enforcement discretion with regard to the LDTs it now plans to regulate.

The FDA also projected an expanded role for its Third Party review program under the final rule, noting that it estimates that half of the LDTs now "subject to 510(k) requirements will be reviewed under the Third Party review program."

This would represent a significant expansion of the agency's Third Party review program, which has historically drawn little interest from device developers, in part because they have been reluctant to pay additional fees for third-party review. They have also been made skeptical by past cases in which the FDA demanded additional scrutiny even after devices passed muster with third-party reviewers. The agency said it is currently "working to enhance" the program under the most recent Medical Device User Fee Act, MDUFA V.

James Boiani, an IVD, drug, and medical device life sciences attorney at Epstein, Becker & Green in Washington, D.C., said that in the final rule, the FDA had "definitely backed off" the more maximalist approach it took in its proposed rule and noted that the agency appears to be "trying to be responsive to the concerns about disruption and lack of availability of tests."

He said that while labs will incur new costs to comply with record-keeping requirements for many tests still under enforcement discretion, it will be "a much lower cost than having a full quality system and having to go through the FDA review process."

But while the continued areas of enforcement discretion are broader than many expected, initial reactions from the lab industry were nonetheless negative. In a statement, American Clinical Laboratory Association (ACLA) President Susan Van Meter said the organization "has grave concerns about this rule as a matter of both policy and law."

"The rule will limit access to scores of critical tests, increase healthcare costs, and undermine innovation in new diagnostics," she said. "The rule also exceeds FDA’s statutory authority, as Congress has never granted the agency authority to regulate laboratory developed testing services offered by laboratory professionals."

Other lab organizations including the National Independent Laboratory Association (NILA), the American Association of Bioanalysts (AAB), the Association for Diagnostics and Laboratory Medicine (ADLM), and the College of American Pathologists (CAP), expressed opposition to the final rule as well as, in some cases, skepticism about the FDA's legal authority to regulate LDTs.

Kyle Fetter, chief operating officer at lab consulting and revenue cycle management firm Xifin, said that with its final rule, the FDA appears to be tackling LDTs with a lighter touch than suggested in the proposed rule, but the agency's intentions are "still ambiguous."

"It could be extreme depending on which direction they choose to take it," he said. "You can expect that laboratories are going to challenge [the rule] like crazy."

In Congress, legislators on both sides of the Verifying Accurate Leading-edge IVCT Development (VALID) Act — the most prominent vehicle in recent years for a legislative-based approach to diagnostics reform — criticized the rule.

US Reps. Larry Bucshon, R-Ind., and Diana DeGette, D-Colo., who were among the VALID Act's strongest supporters in the House, issued a statement noting that while they are "disappointed" that the FDA moved ahead with the rule, they "recognize that FDA's action today is because Congress hasn't acted yet." The two urged Congress and industry partners to resume work on VALID.

Meanwhile, Rep. Cathy McMorris Rodgers, R-Wash., who worked against passage of VALID in 2022, said in a statement that "while the final rule is a slight improvement to the proposed rule, it will still increase costs and decrease access to diagnostics and medical tests that provide information crucial for doctors to treat their patients effectively." She called for the agency to "abandon the rule."

Ultimately, Boiani predicted, the question of LDT regulation will likely make its way back to Congress.

"Even though [FDA] was responsive to [industry] comments, I think there is still probably going to be litigation; there will certainly be pushback," he said. "And eventually Congress is going to act, either through a new law or if not through a new law then through part of the MDUFA negotiations. We'll see."