FDA to rescind laboratory developed test rule

FDA decided to rescind the LDT rule after declining to appeal a district court decision vacating it. The rule reflected FDA’s latest attempt to regulate LDTs under the same framework as IVDs, which FDA considers medical devices under FDCA.

The rule

LDTs are tests developed and validated for use in a single laboratory. For many years, FDA had exercised enforcement discretion over most LDTs, claiming to have authority to regulate them but declining to do so in most cases. In finalizing the rule, FDA cited the increased use and growing complexity of LDTs, which according to FDA were increasingly open to cybersecurity vulnerabilities and being used across multiple settings like IVDs to inform or direct critical treatment decisions. The rule came shortly after Congress, in 2022, failed to pass the Verifying Accurate Leading-Edge IVCT Development (VALID) Act, which would have regulated certain LDTs under a new pathway.

Under the rule, FDA proposed to regulate LDTs as medical devices. It proposed a phase-in approach that would gradually have ended enforcement discretion and ultimately have required most LDTs to obtain premarket approval or clearance. FDA issued the rule even though there already existed a certification framework for laboratories and their tests under the Clinical Laboratory Improvement Amendments (CLIA), which the Centers for Medicare & Medicaid Services (CMS) administers, and also under various counterpart state laws. CLIA and its state counterparts consider LDTs to be services, not medical devices.

The ruling

Almost immediately, the American Clinical Laboratory Association and the Association for Molecular Pathology sued FDA, alleging that it lacked authority under FDCA to regulate LDTs as medical devices since Congress gave CMS the authority to regulate LDTs as services under CLIA.

The U.S. District Court for the Eastern District of Texas agreed emphatically, finding that services, including LDTs developed, validated, and offered within single laboratories, did not meet the definition of a medical device under FDCA. The Court explained that FDCA was designed to regulate things—physical things that moved in interstate commerce—and that FDA’s attempt to conflate such things with professional services performed by laboratories was inconsistent with the development and language of FDCA and CLIA.

The recission—and the future

There was little doubt that FDA would rescind the final rule because the Court’s decision left the Agency with little choice. In vacating the rule and remanding it to FDA, the Court was clear: “There is no likelihood that FDA can justify its decision on remand, given that the final rule exceeds its authority under the FDCA.” FDA’s decision was made all but certain after the Administration declined to appeal the Court’s decision.

Looking ahead, there are some noteworthy things to consider:

• Will FDA try to regulate parts or other variations of LDTs? The Court’s ruling was definitive but also narrow—addressing only LDTs that were developed and validated for use in a single laboratory. FDA may therefore attempt to distinguish the ruling to still regulate LDT-adjacent concepts. For example, FDA may try to further regulate access to or requirements applying to already-FDA-regulated tangible component parts of LDTs, such as unique sample collection devices and analyte specific reagents that a laboratory uses in developing an LDT. FDA may also contend that a test itself is outside the scope of the Court’s ruling—for example, a test that’s offered in multiple laboratories, that uses shared software to analyze results, or that’s used in conjunction with other devices as part of a broader system.
• What will happen to LDTs already approved or cleared by FDA? Despite its longstanding enforcement discretion FDA has approved or cleared some LDTs, such as companion diagnostic tests that are eligible for higher reimbursement because of their approval or clearance. The Court’s ruling could subject to scrutiny FDA’s basis for earlier approving or clearing LDTs, especially in light of the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo. The likelihood, though, is low, provided there’s a reasonable basis to distinguish an already-approved LDT from those addressed in the Court’s ruling (whether based on test algorithms, collection methods, development by multiple entities, sharing of bioinformatics, or otherwise). Additionally, there aren’t obvious plaintiffs and clear litigation pathways. Companies considering whether to nonetheless “delist” an approved or cleared LDT should think carefully about the potential consequences, including any implication on coverage and reimbursement.
• How will the Court’s ruling affect the commercialization and reimbursement of LDTs? FDA’s decision to rescind the rule is unlikely to affect the framework for reimbursing and commercializing LDTs, at least in the near term. Most LDTs are not approved or cleared by FDA because of its longstanding enforcement discretion, and the existing market and reimbursement framework have developed accordingly. Except for particular tests such as companion diagnostics (as noted above), CMS generally does not account for FDA approval or clearance in making Medicare coverage or payment decisions about LDTs.
• What will happen to pending approval or clearance submissions? Companies with pending LDT approval or clearance submissions might wonder whether FDA will still review their submissions—or is even allowed to—in light of the Court’s ruling. We expect that FDA will continue to review LDT submissions provided again there’s a reasonable basis to distinguish an LDT from those addressed in the Court’s ruling. And laboratories themselves may take different approaches to seeking FDA approval or clearance. Some may interpret the Court’s ruling as providing flexibility to develop LDTs without concern for FDA oversight, while others, particularly laboratories developing complex LDT variations and new business models, may still want to pursue FDA’s medical device regulatory pathway.
• Who will regulate LDTs, if not FDA? Congress could act to regulate LDTs, of course, as it tried to do in 2022 with the VALID Act, but we expect that’s less likely at this time. In the meantime, CMS and the states will continue to regulate the clinical laboratories that develop the category of LDTs addressed in the Court’s ruling. It is possible, too, that some states may enact or evolve their own programs to account for the increased complexity of LDTs, by, for example, requiring premarket review (like the LDT review by the New York State Department of Health) or refining the concept of a “single laboratory.” This could potentially raise new tensions around which agencies are best suited and have the authority to regulate LDTs distinguishable from those addressed in the Court’s ruling, especially if FDA attempts to regulate them too.

Authored by Blake Wilson, Erkang Ai, Brooke Bumpers, and Randy Prebula.