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The National Law Review — LDT Final Rule Series: Part 2 – Response to the Rule

The National Law Review — LDT Final Rule Series: Part 2 – Response to the Rule

In this second installment of our nine-part deep-dive into the U.S. Food & Drug Administration (“FDA” or “the Agency”) final rule on Laboratory Developed Tests (“LDTs”) – which established a staged plan that will phase out the Agency’s previous policy of enforcement discretion for LDTs – we are taking a closer look at the response to the rule, not only from laboratories and other industry stakeholders but also from members of the legislature. The long and short of it is – people are not happy!

The highly anticipated final rule (which we covered in greater detail in our previous article went into effect on May 6and made two pivotal changes to the regulatory framework for LDTs. First, it amended the regulatory definition of “In Vitro Diagnostic (‘IVD’) Products” to include LDTs. And second, it established a four-year, five-step regulation rollout to sunset FDA’s previous policy of enforcement discretion for LDTs. Under this rollout, LDT manufacturers will be required to comply with different categories of FDA’s device regulations based on a staged timeline, with the first requirements (i.e., adverse event reporting requirements) taking effect May 6, 2025, and the final requirements (i.e., premarket clearance for low- and medium-risk tests) taking effect May 6, 2028.

I. Industry Concessions and Feedback

FDA made some pretty notable concessions in the final rule by carving out eight categories of LDTs for which it will exercise some degree of enforcement discretion; however, this figurative olive branch was not enough to prevent a widely expected legal challenge from the American Clinical Laboratory Association (the “ACLA”) and public dissatisfaction from other newly regulated laboratories and industry stakeholders.

a. The Regulatory Exceptions

In response to the over 6,500 comments received on the proposed rule, many of which raised concerns over limited access to and stifled innovation of diagnostic products, the final rule establishes eight categories of LDTs for which FDA will continue to exercise some level of enforcement discretion. Predictably, each enforcement discretion category appears to have been directly influenced by industry input.

Most notably, the final rule exempts currently-marketed LDTs (i.e., LDTs that were first marketed prior to the publication of the final rule) from FDA’s premarket review requirements and the majority of the Quality System regulations (aside from certain recordkeeping and inspection requirements). The enforcement discretion policy for these so-called “grandfathered” LDTs was not outlined in the proposed rule but, based on clearly-communicated industry concern that subjecting currently-marketed LDTs to FDA’s device regulations (after decades of enforcement discretion) would impede access to a large number of critical diagnostics, FDA seemingly determined that this carve-out was a worth-while compromise to soften the blow of the final rule for newly regulated industry participants.[1]

In furtherance of this strategy to soften the regulatory blow, FDA carved out seven additional categories of LDTs for which it will exercise some level of enforcement discretion. These categories include—in order of perceived impact on the diagnostic industry at large—(i) LDTs manufactured and performed by a laboratory integrated within a healthcare system to meet an “unmet need” of patients receiving care within the same healthcare system; (ii) non-molecular antisera LDTs for rare red blood cell (“RBC”) antigens where such tests are manufactured and performed in blood establishments, including transfusion services and immunohematology laboratories and where there is no alternative available to meet the patient’s need for a compatible blood transfusion; (iii) human leukocyte antigen (“HLA”) tests intended to facilitate transplantation, subject to certain conditions; (iv) LDTs approved by New York State’s Clinical Laboratory Evaluation Program (“CLEP”); (v) LDTs manufactured and performed within the Veterans Health Administration (“VHA”) or the Department of Defense (“DoD”); (vi) so-called “pre-1976 LDTs;” and (vi) LDTs intended for forensic use.

b. The Industry Response

A number of laboratories and other industry stakeholders have issued formal responses to the final rule and, while many of these statements acknowledge the mitigating effect that FDA’s enforcement discretion carve-outs may have against the threat of decreased access and stifled innovation, the overwhelming consensus from the industry is that FDA should recall its rule and wait for Congress to act. And last week, ACLA took these sentiments a step further by filing a lawsuit to vacate and enjoin the final rule.

i. Most Negative Treatment

Beginning with the hardest blow to FDA’s final rule, ACLA officially challenged the rule in federal court on May 29 in the Eastern District of Texas. This action was preceded by a brief, but clear, statement on the final rule, in which ACLA maintained its pre-rule position that LDT services are not “devices” under the Food, Drug, and Cosmetics Act (the “FDCA”).[2] ACLA’s whopping 450-page complaint expands on this theory and, more specifically, claims that FDA has exceeded its statutory authority by attempting to regulate not just LDTs themselves, but also LDT services, resulting in “limit[ed] access to scores of critical tests, increase[s] health care costs, and undermin[ing of] innovation in new diagnostics.”[3] Throughout the complaint, ACLA expounds on these points,[4] which is interesting because FDA, in its lengthy preamble, positioned the rule as regulating LDTs themselves and not the CLIA-regulated testing services that accompany them. Nevertheless, the fate of FDA’s ability to regulate LDTs through the final rule (or at all) may very well turn on this case, so all eyes will be on the Eastern District of Texas—which happens to be a favored jurisdiction for challenging agency actions. We will cover the complaint in greater detail in the next installment of this series.

Other industry participants—stopping short of filing a lawsuit—have instead opted to pen critical public statements in response to the final rule. For example, ARUP Laboratories, the National Independent Laboratory Association (“NILA”), and the American Association of Bioanalysts (“AAB”)[5] have presented familiar arguments, such as FDA’s lack of statutory authority to regulate LDTs and the inappropriateness of applying FDA’s medical device regulations to LDTs due to the “unique and essential” nature of LDTs compared to general IVDs. These stakeholders have also presented familiar recommendations, arguing that LDTs should be regulated only pursuant to an explicit mandate from Congress and/or that LDTs should be regulated by CMS under the CLIA regulations, rather than by FDA under the medical device regulations.

ii. Predominantly Negative Treatment

Other industry stakeholders have chosen to recognize FDA’s enforcement discretion carve-outs as a step in the right direction, but largely conclude that these exceptions are simply insufficient.

For example, the American Hospital Association (the “AHA”) issued a statement acknowledging that FDA’s policy of partial enforcement discretion for LDTs developed in health systems for “unmet needs” will allow patients with rare diseases to continue to access potentially life-saving diagnostics. However, the organization ultimately concluded that this concession does not go far enough—AHA’s statement ends with a quote from Executive Vice President, Stacy Hughes, who voices her concern that “many vital tests developed in hospitals and health systems may be subjected to unnecessary and costly paperwork” and that “this will cause a substantial reduction in patient access to innovative and targeted diagnostic tests.”[6]

Taking a closer look, AHA’s stance on FDA’s “unmet need” qualifier (as well as FDA’s decision to exercise limited rather than full enforcement discretion) is unsurprising, given that the organization previously called for the complete exemption of all LDTs developed in hospitals and health systems. This initial call for complete exemption from FDA regulation was centered on a familiar legal argument—agency overreach.[7] Accordingly, in its response to the proposed rule earlier this year, AHA urged Congress to take legislative action to exempt hospitals and health systems fully from FDA’s device regulations and likewise urged FDA to continue exercising full enforcement discretion for LDTs developed by hospitals and health systems.[8]

Similarly, the President of the College of American Pathologists (“CAP”), Dr. Donald Karcher, issued a statement expressing approval of FDA’s carve-out for currently-marketed LDTs—which CAP had recommended in response to the proposed rule (although CAP’s recommendation contemplated a policy of complete, rather than limited, enforcement discretion). However, like many of his contemporaries, Dr. Karcher ultimately concluded that FDA needs to make “additional changes needed to ensure both patient safety and access to accurate and innovative testing.”[9]

The President of the Association for Diagnostics and Laboratory Medicine (“ADLM”), Dr. Octavia Palmer, issued a similar statement in which she expressed appreciation for the intent of the grandfathering exception, but warned that the carve-out could end up having unintended consequences, such as stifling innovation.[10] More specifically, Dr. Palmer warned that the grandfathering provision “may discourage labs from modifying their laboratory developed tests or introducing new and better testing services to replace grandfathered tests, since the new tests would then be subject to additional oversight.” Additionally, she criticized the unrealistic timeline with which FDA plans to phase in regulation and dubbed FDA’s regulation of LDTs as “duplicative” in light of the current CLIA regulations.

Friends of Cancer Research also issued a statement, which included remarks from the organization’s President and CEO, Jeff Allen, that were considerably more positive about the benefits of FDA’s enforcement discretion carve-outs than those of his peers. Specifically, Allen cited the exceptions for CLEP-approved LDTs, LDTs intended to address unmet needs, and currently-marketed LDTs, and opined that “[t]his flexibility in implementation of the final rule is based on significant public input and will help FDA implement consistent oversight to ensure that tests meet performance requirements no matter where they are developed.” [11] However, like the other industry stakeholders, Allen stated that he ultimately believes that Congress should implement a framework for regulating LDTs, rather than allowing FDA to regulate this space on its own.

iii. Neutral Treatment

Finally, a small number of industry stakeholders reported neutrally on the final rule, which may be attributable to the fringe benefit the new policy could offer to certain corners of the industry—the potential for a revenue stream under the 510(k) Third Party Review Program (the “510(k) Program”). For example, the Association for the Advancement of Blood and Biotherapies (“AABB”) penned an extensive, and objective, overview of the final rule’s key provisions and ended the statement by plugging its own services as a third-party review organization.[12] This response to the rule is quite a change in tune for AABB, which last December submitted a nine-page letter requesting that FDA make a host of changes to the proposed rule.[13] AABB’s considerably less critical response to the final rule could very well be motivated by the organization’s desire to go on record in support of (or at least not in opposition to) FDA’s policy now that it has been finalized—after all, an estimated fifty percent of LDTs subject to premarket review will be reviewed under the 510(k) Program, so this could be a substantial business opportunity for FDA-certified review organizations.

II. Legislative Response

Responses to the final rule by members of Congress have, for the most part, been predictably split along party lines—with disapproval coming largely from the right and support coming from the left. In line with commentary from industry stakeholders, Congressional commentary in opposition to the final rule has largely focused on the legal issue of agency overreach and the dual threat of decreased patient access and stifled diagnostic innovation.

Of course, legislative commentary on this topic is particularly meaningful, given Congress’s unsuccessful attempts to overhaul the diagnostic testing space in recent years. Most notably, and most recently, Reps. Larry Bucshon (R-IN) and Diana DeGette (D-CO) introduced the 2023 Verifying Accurate Leading-Edge IVCT Development (“VALID”) Act, which would have adopted a new category of FDA-regulated products, called In Vitro Clinical Tests (“IVCTs”), and would have given FDA the specific statutory authority to regulate these so-called IVCTs.[14] Importantly, the IVCT category would have encompassed both LDTs and general IVDs. Although the VALID Act was considered as part of the Senate proposals for the new user fee reauthorization in 2022, it ultimately was not passed.

In discussions preceding and following the introduction of the VALID Act, Congress and FDA were able to agree on one thing—it would be best for FDA to regulate diagnostic products, specifically LDTs, according to a Congressionally-developed statutory framework, rather than on its own. However, in the extensive preamble to the new rule, FDA made very clear that, in the face of Congressional inaction, and in response to increasingly sophisticated, and increasingly underperforming, LDTs, the Agency had to act to protect patient safety.

Some members of Congress have publicly recognized this difficult position for FDA. For example, during a House subcommittee meeting in March, Rep. Anna Eshoo (D-CA) expressed support for FDA’s action in this space, given the circumstances, acknowledging that “this is the sixth year for Congress to be grappling with the VALID Act and we have not acted … we have to accept that.”[15] Similarly, in response to the final rule, VALID Act co-sponsors, Reps. Bucshon and DeGette, issued a joint statement, expressing their disappointment that FDA decided to move forward with its “burdensome rule based on an inflexible statute that was never designed to regulate in vitro diagnostics,” but, in the same breath, plainly acknowledging that FDA’s action was due to Congressional inaction and that “Congress had not given FDA the tools it needs to appropriately carry out its public health mission.” [16] The joint statement ended with an appeal to FDA, and to the industry, to work together and pass the VALID Act (in lieu of the regulatory structure implemented by FDA’s final rule).

Some legislators, however, took a more hardline approach. For example, Sen. Bill Cassidy (R-LA) issued a condemning statement the very same day the rule was released, saying that the final rule reduces patient access to critical laboratory tests and undermines future diagnostic innovation. [17] From a legal standpoint, Cassidy argued that FDA has exceeded its statutory authority and called on Congress to “take action to clarify the regulatory structure for diagnostic tests.”[18] These sentiments reflect those voiced in Cassidy’s request for information earlier this year, in which he asked interested stakeholders to provide insight on over twenty specific questions related to the regulation of diagnostics—a request, according to Cassidy, intended to enable Congress to “modernize current regulations to support innovation while ensuring these clinical tests are safe and effective to use.”[19]

The same day, Rep. Cathy McMorris Rodgers (R-WA)—Chair of the House Energy and Commerce Committee, which held a hearing on the proposed rule in March—also issued a statement criticizing the final rule.[20] Rodgers called the rule “the latest example of executive branch overreach” and called on FDA to abandon the rule in order to avoid increased costs and decreased access to “diagnostics and medical tests that provide information crucial for doctors to treat their patients effectively.”

Two weeks later, three Republican Congress members—Sen. Rand Paul (R-KY), Rep. Brad Finstad (R-MN), and Rep. Dan Crenshaw (R-TX)—took it a step further by introducing a Join Resolution formally expressing Congressional disapproval for the final rule under the Congressional Review Act (the “CRA”).[21] The press releases issued alongside the Joint Resolution were unsurprisingly political in nature, calling the final rule “yet another brazen power grab by FDA under the direction of President Biden” (which is an interesting criticism that seems to miss the fact that FDA has publicized its intent to regulate LDTs for over a decade).[22] Under the CRA, a Joint Resolution is the first step in the process of overturning an agency’s rule. However, in order to effectively repeal a final rule, a Joint Resolution must be signed by the president or adopted by a two-thirds majority of Congress within sixty days of the rule’s submission to Congress for review. Given the Biden administration’s well-publicized patient safety initiative[23] and the cumbersome two-thirds vote needed to overcome a presidential veto, it does not appear likely that legislators opposed to the final rule will actually be able to repeal it through the CRA. Nonetheless, the introduction of the Joint Resolution in both the House and the Senate sends a clear message and may be laying the groundwork for future Congressional action against the rule.

III. Takeaway

In the wake of the final rule, opposing voices have proven to be much louder—and much more numerous—than those in favor. And it comes as no surprise that we are hearing predominantly from parties who have the most to lose. While FDA’s rule provides a much-needed, and familiar, regulatory structure for LDTs, as well as potential business opportunities ancillary to FDA’s regulatory oversight (e.g., through the 510(k) Program), there is no denying that the new requirement of full, or even partial, compliance with FDA’s medical device regulations will result in enormous cost (and, in some cases, the inability to compete) for LDT manufacturers across the country. Despite FDA’s broad industry concessions, these manufacturers, as well as the organizations and elected officials who represent them, are unified in the position that, from a legal standpoint, the Agency has severely overreached its statutory authority. Further, they warn that the downstream effects of this overreach, including limited diagnostic access and stifled diagnostic innovation, present a very real threat to patients on a national scale.

With formal legal challenges filed in both the judicial and legislative arenas (i.e., ACLA’s complaint and Sen. Paul’s Joint Resolution), the fate of FDA’s final rule is anything but certain. In our next installment of this series, we will take a closer look at ACLA’s complaint, which highlights these legal and practical challenges to the rule, as well as potential grounds for additional challenges. Stay tuned!