Executive Summary

The Food and Drug Administration (“FDA” or “agency”) intends to issue a notice of proposed rulemaking in August 2023 that will “make explicit” that laboratory developed tests (LDTs) are devices under the federal Food, Drug, and Cosmetic Act (FDCA).

While FDA has historically maintained the position that it has the authority to regulate LDTs as medical devices (specifically as in vitro diagnostics or “IVDs”), the agency has exercised enforcement discretion for LDTs developed within a single laboratory that are validated pursuant to the Clinical Laboratory Improvement Amendment (CLIA) standards. Should FDA end this enforcement discretion and decide to regulate LDTs going forward, industry will see a change in the landscape of laboratory testing in the United States. Such a change will also almost certainly lead to litigation that could further shape FDA’s authorities over LDTs and other products as well. While the contents of the proposed rulemaking are still unknown, lab industry stakeholders should be thinking ahead with respect to how their businesses may be impacted depending on the ultimate outcome of the regulatory status of LDTs.

Introduction

A recent notice on the Biden administration’s Unified Agenda of Regulatory and Deregulatory Actions (“Unified Regulatory Agenda”) indicates that FDA is moving ahead with a plan to tackle LDT regulation.[1] There have also been signals of some congressional support for FDA to move forward with oversight of LDTs, with the House Appropriations Committee stating the following in a recent draft report accompanying a Committee markup:

Though it is uncertain what the proposed regulation could hold and how it might evolve based on stakeholder feedback, it has the potential to change the landscape of laboratory testing in the United States and will almost certainly lead to litigation that could further shape FDA’s authorities over LDTs and other products as well.

Background

While there is no nationwide public tracking system of LDTs, in 2021, it was estimated that 3.3 billion IVD tests, including both LDTs and FDA-cleared IVD tests, were run annually.[3] The LDT industry, individually, has exploded both in the United States and across the world, with the global market value estimated at over $4.5 billion in 2021.[4]

For several decades now, FDA has maintained that LDTs are “articles” (IVD products) subject to FDA jurisdiction[5] but that LDTs would not be subject to IVD regulation as a matter of enforcement discretion.[6] The LDT product category has never been formally defined, but FDA consistently posits informally that an LDT is a test that is “designed, manufactured, and used within a single laboratory.”[7] While FDA has acknowledged that many tests offered as LDTs would not meet this definition, it has declined to take action against many such tests.[8] Some members of the lab community argue that these tests are not products subject to FDA regulatory authority under the FDCA but rather are laboratory “services” that are subject to the CLIA and thus exempt from FDA regulation.[9]

Regardless, FDA has continued to take the position that it has jurisdiction and unfettered discretion to limit the scope of its enforcement discretion over these tests. Periodically, FDA has issued warning letters stating that certain kinds of tests, e.g., direct-to-consumer LDTs[10] and certain pharmacogenomic LDTs,[11] were carved out of its enforcement discretion policy for LDTs (to the undoubted surprise of some labs). Sometimes, FDA has issued guidance documents attempting to do the same. Most notably, a 2007 draft guidance on IVD multivariate index assays (MIAs) indicated that LDTs, which were incorporating certain MIA software algorithms, were not considered within the scope of LDTs subject to enforcement discretion.[12] Despite this, “dry lab” algorithmic tests have proliferated under the LDT framework and are now an integral part of medicine.[13] At other times, FDA has addressed concerns regarding certain LDTs in other ways, such as pressuring manufacturers to address how the test components they sell are being used by lab customers, or relying on its jurisdiction over products that are used with the test but are not the test itself, such as sample transport and collection kits being distributed outside the lab (and thus not used solely “within the lab”) to restrict the use of these tests.[14]

Based on this muddled history, the regulatory status of LDTs and companies’ decisions regarding their development and use have been clouded by uncertainty and have demanded some measure of risk tolerance.

There have been attempts by both FDA and Congress to offer clarity by creating new regulatory frameworks. FDA’s most notable and comprehensive attempt to date was its 2014 initiative that sought to develop a regulatory framework through FDA guidance under its existing authorities, applying a risk-based regulatory structure that proposed a multi-year phased-in approach to LDT regulation, replacing traditional enforcement discretion.[15] This proposal, however, was ultimately retracted just prior to the end of the Obama administration. There have also been several unsuccessful attempts by Congress to enact legislation that would expressly give FDA authority over LDTs.[16] The most recent attempt to meet its demise was the 2022 VALID Act.

Since the 2022 VALID Act failed to pass, FDA representatives have made public statements discussing the possibility of action through notice-and-comment rulemaking. This intended agency action was recently confirmed in the Unified Regulatory Agenda, which announced that FDA “would propose to amend the Food and Drug Administration’s regulations to make explicit that laboratory developed tests (LDTs) are devices under the Federal Food, Drug, and Cosmetic Act” in August 2023.[17]

Key Considerations

The vague Unified Regulatory Agenda description—while seemingly answering the question of “Will FDA act on LDTs this year?”—also raises many questions. We address a few key considerations for the lab industry below.

What will the proposed framework include?

It is not clear whether FDA intends to propose a full regulatory framework versus something more limited that asserts jurisdiction and perhaps a lighter-touch regulation subjecting LDTs to certain basic requirements (like registration and listing of tests so FDA knows they are being offered, complaint investigations, and adverse event reporting). Such requirements would allow the agency to collect new information to further evaluate issues with LDT safety and performance and support the development of a full regulatory framework. Also unclear is whether FDA’s experience with COVID-19 LDTs, which proliferated during the pandemic under enforcement discretion and then came under FDA review, could influence FDA’s approach.[18]

How can FDA handle the influx of regulatory activities?

Another practical area to address will be funding because it is unreasonable to expect that FDA—which is currently staffed to review a limited number of LDTs and only inspect traditional IVD manufacturers—could simply switch on regulations without an influx of funding for additional resources to support the expansion of its oversight to LDTs. Funding, of course, comes from Congress, through direct line items for FDA’s budget and through user fee authorizations, which are made every five years (with the next round due in 2027).[19] So even if FDA acts through regulation without the involvement of Congress, congressional action will ultimately be required for the effective implementation of any new regulations.

Funding aside, FDA could take various approaches to regulation. It is possible that FDA might use its 2014 guidance proposal as a starting place for discussions or simply adopt the framework of the most recent version of the VALID Act, in part or in its entirety. The agency might seek to leverage current third-party reviewers, including laboratory accreditation bodies with which many labs are currently familiar, especially considering that FDA already accredits organizations to perform reviews in other contexts (e.g., third-party 510(k) reviews, requirements under the Mammography Quality Standards Act, and the Medical Device Single Audit Program).[20] Another possibility is that FDA could look to state regulators to play more of a role, as they do in New York State, which currently requires approval of many LDTs under its Clinical Laboratory Evaluation Program (CLEP).[21]

What are the prospects for regulation? Is the proposal part of a broader strategy to establish FDA jurisdiction or prompt congressional action?

FDA has laid out its legal basis for regulating LDTs in prior statements, but the specific issue has not yet been challenged in the courts. Although there are many facets to jurisdictional arguments, as noted above, the principal issue arguably would be whether LDTs constitute “articles” that can be regulated as medical devices or “laboratory services” that can be regulated solely under CLIA, with many laboratory stakeholders taking the latter position.[22] One noticeable trend in recent FDA litigation has been a lack of deference by the courts to the agency’s interpretation of its authorities. This is evidenced by several court losses that disrupted regulatory activities that were decades old and considered “well-settled” by regulatory standards.[23] Another consideration is that although FDA has “reserved the right” to regulate LDTs as an entire product category for decades in various informal statements, the decision not to do so formally could raise questions for a court, as could the repeated consideration and rejection of legislation by Congress (namely, the VALID Act) that would expressly authorize FDA to regulate LDTs.[24]

If there was litigation and FDA squarely lost, it could potentially lead to LDT proliferation or to disarray as FDA looks for more indirect means to regulate (e.g., through IVD manufacturers that sell components to laboratories, or leaning into authorities over specimen collection devices to prevent access to LDTs). If FDA squarely won, the agency would have a much greater ability to design a regulatory framework that meets its vision. And if there was a split decision, meaning FDA won on some points but not others, it could create even greater uncertainty around LDT status than there is today.

From a litigation perspective, strategically, FDA may benefit from taking an incremental approach to regulating LDTs—for example, the agency may elect to put forth a severable proposal that allows for focused litigation on issues like jurisdiction and transparency, which might be more favorably perceived by courts than a broader overhaul of the regulatory framework. This approach also could help motivate congressional action, encouraging stakeholders that are against regulation by FDA rulemaking to come to the negotiating table and support legislation versus leaving it to the hands of the courts and FDA (the VALID Act has been reintroduced in the House, though there is no calendar to act on the bill currently).[25] It also is possible that the use of a notice-and-comment rulemaking approach could support some greater deference by the courts than issuance by the agency of written guidance; even with courts’ diminished deference to the agency, the procedural protections offered with rulemaking under the Administrative Procedure Act are likely to be better received.

How could regulations impact IVD companies?

If labs are held to the same standards for bringing LDTs to market as IVD manufacturers are for bringing IVDs to market, labs may be incentivized to look for FDA-approved solutions from IVD manufacturers as opposed to pursuing their own regulatory authorizations, which could enhance the market for FDA-cleared and approved test systems.

Beyond this, however, the opening of regulatory discussions around laboratory diagnostics could provide an opportunity to revisit aspects of FDA regulation more broadly, such as pathways to approval, if IVD companies choose to seize it. One of the concerns that has supported the continuance of LDT enforcement discretion all of these years is that regulation could stifle innovation, particularly with the need for novel diagnostics and those that serve smaller populations where testing volumes could not support the investment required to work through the current regulatory structure. There have been discussions in the past for a “transitional IVD” pathway for emerging diagnostics that could provide an accelerated clearance approach,[26] providing, for example, a faster introduction to the market based on analytical claims coupled with postmarket data requirements to confirm clinical validity. If IVD stakeholders take the opportunity to advocate for improving diagnostics regulation as a whole instead of simply imposing the same FDA requirements they face on clinical laboratories, it could potentially provide tremendous tailwinds for the FDA-regulated diagnostics industry and its ability to successfully innovate.

Also, the proposed notice-and-comment rulemaking, regardless of the rule’s final form, could provide an impetus to change the regulatory approach that FDA has used to constrain LDTs to date, which (though not particularly successful based on their proliferation) has created costs and expenses for laboratory companies and has prohibited labs and manufacturers from collaborating to make better tests. FDA’s approach has often been to restrict manufacturers from speaking and collaborating with labs about how manufacturer products might be used in LDTs, or designing products that could facilitate the development of specific LDTs. [27] Currently, if a manufacturer of reagents, instruments, or software were to collaborate in LDT development or production, the lab’s test would generally fail the “single lab” requirement from FDA’s perspective and also open the manufacturer to possible FDA allegations that it violated the FDCA by promoting an unapproved use for a medical device.

However, if a group of innovative labs and manufacturers could develop better tests than a single lab director working alone (which is not an unreasonable hypothesis), creating a mechanism that would allow these collaborations may yield substantial benefits to public health. And if labs are treated as FDA-regulated manufacturers, then there should be no reason to restrict the previously mentioned “manufacturer-to-manufacturer (lab)” discussions about the development and validation of FDA-regulated tests.

What tailwinds could benefit companies?

There are several potential business areas that could see benefits from LDT regulation. As noted above, IVD companies that market FDA-cleared and -approved test systems could be significant beneficiaries with a greater demand for their products. Larger laboratory systems with the resources to adapt to the new regulatory standards could be as well. Typically, a regulatory change of this magnitude would trigger consolidation in the market, with private equity and strategic investors acquiring smaller labs to benefit from economies of scale and share clinical development, quality, and regulatory resources. Similarly, IVD manufacturers and labs may initiate joint ventures or partnerships with one another through which labs can leverage IVD company expertise in navigating FDA’s requirements, and IVD manufacturers can benefit from labs’ scientific and practical expertise.

Service providers also may benefit from additional FDA oversight of LDTs. Contract manufacturing and development organizations that currently cannot manufacture customer diagnostic kits for LDTs due to FDA policies discussed above could presumably provide these services to a significant number of new lab customers that would now be treated the same as other FDA-regulated manufacturers. Providers of regulatory and quality services with FDA expertise also may experience an increase in demand for their services. Additionally, if FDA were to take an accredited body route to reviews, such organizations would be presented with a new growth opportunity.

What industry sectors are likely to experience headwinds from enhanced FDA oversight of LDTs?

Companies that derive significant revenues from research use only (RUO) or investigational use only (IUO) sales to clinical laboratories for use with LDTs may be forced to modify their business models and invest in FDA compliance infrastructure in the event of a new LDT regulatory framework. Labs that derive significant revenues from LDTs will face challenges as well. Considerable investment may be required for these companies to implement the necessary quality and regulatory infrastructure to comply with expectations for FDA-regulated companies.

What happens if FDA doesn’t win a challenge to its authority?

As noted above, if FDA is challenged in court, and the courts find that the FDCA does not authorize FDA to regulate LDTs, this will not necessarily end FDA’s efforts to regulate LDTs. FDA could fall back on more draconian attempts to regulate LDT components and sample collection products that labs must acquire to perform LDTs. States may seek to fill the void in FDA oversight by implementing their own regulatory schemes to oversee these tests. For example, New York has already implemented its own requirements. Labs seeking to access the New York testing market must submit LDTs for approval by NY CLEP. Also, beyond this, payors have been more explicit in favoring FDA-approved tests,[28] and this economic pressure will not abate simply because FDA regulation is not required.

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We will continue to update you on FDA’s LDT activities as they occur.

***

Hailey Genaw, a Summer Associate (not admitted to the practice of law) in Epstein Becker Green’s Washington, DC, office, contributed to the preparation of this Insight.

ENDNOTES

[1] Medical Devices; Laboratory Developed Tests, 21 C.F.R. 809 (proposed June 2023), available at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=0910-AI85.

[2] The draft report of the House Appropriations Committee is available at https://docs.house.gov/meetings/AP/AP00/20230614/115870/HMKP-118-AP00-20230614-SD003.pdf.

[3] The Role of Lab-Developed Tests in the Vitro Diagnostics Market, Pew (Oct. 22, 2021), https://www.pewtrusts.org/en/research-and-analysis/reports/2021/10/the-role-of-lab-developed-tests-in-the-in-vitro-diagnostics-market.

[4] The Worldwide Laboratory Developed Test Industry is Expected to Reach $7+ Billion by 2028 -ResearchAndMarket.com, Business Wire (Sept. 27, 2021),https://www.businesswire.com/news/home/20210927005385/en/The-Worldwide-Laboratory-Developed-Test-Industry-is-Expected-to-Reach-7-Billion-by-2028—ResearchAndMarkets.com.

[5] See, e.g., FDA Response to Citizen Petition, FDA-1992-P-0405 (Oct. 22, 1992), https://downloads.regulations.gov/FDA-1992-P-0047-0001/attachment_1.pdf (denying the petition and finding that LDTs are medical devices).

[6] See Congressional Research Service, FDA Regulation of Laboratory-Developed Tests (LDTs) (2022), https://crsreports.congress.gov/product/pdf/IF/IF11389.

[7] Laboratory Developed Tests, FDA (Sept. 27, 2018), at https://www.fda.gov/medical-devices/in-vitro-diagnostics/laboratory-developed-tests; see also FDA, Draft Guidance for Industry, Food and Drug Administration Staff, and Clinical Laboratories: Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs) (2014), https://www.fda.gov/media/89841/download.

[8] See id.

[9] See American Clinical Laboratory Association Citizen Petition, FDA-2013-P-0667, (July 17, 2013), https://www.regulations.gov/document/FDA-2013-P-0667-0001.

[10] See, e.g., FDA Warning Letter to Inova Genomics Laboratory (Apr. 4, 2019), https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/inova-genomics-laboratory-577422-04042019 (warning that allowing patients to directly access their test results “could lead to patients inappropriately increasing, decreasing, or stopping their medication without their physician’s involvement . . . .”).

[11] See, e.g., id. (noting that it chose to issue a warning letter to Inova due to the rise in pharmacogenetics and the concern that the tests could “impact[] treatment decisions by providing false promise [to patients] . . . .”).

[12] FDA Draft Guidance for Industry, Food and Drug Administration Staff, and Clinical Laboratories: In Vitro Diagnostic Multivariate Index Assays (2007), https://www.fda.gov/media/71492/download.

[13] For example, as noted by the Clinical Laboratory Improvement Advisory Committee (CLIAC), “[a] test based on [Next Generation Sequencing] methodology has both a wet lab and a dry lab component, i.e., the bioinformatics and the test has to be [subject to] an integrated validation of those components.” https://www.cdc.gov/cliac/docs/addenda/cliac0419/10a_ngs_workgroup_report.pdf. Algorithms integrating machine learning and artificial intelligence also exist for a variety of different tests and disease states.

[14] See FDA Warning Letter to Spot on Sciences, Inc. (Apr. 12, 2016); see also Form FDA-483 Notice to Theranos (Sept. 16, 2015), https://www.fda.gov/files/about%20fda/published/Theranos–Inc.–Newark–CA-483-Issued-09-16-2015.pdf.

[15] See FDA Draft Guidance for Industry, Food and Drug Administration Staff, and Clinical Laboratories: Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs) (2014), https://www.fda.gov/media/89841/download.

[16] See VALID Act of 2018: Discussion Draft, 115th Cong. (2018); H.R. 6102, 116th Cong. (2020); H.R. 4128, 117th Cong. (2021); H.R. 2369, 118th Cong. (2023).

[17] Medical Devices; Laboratory Developed Tests, 21 C.F.R. 809 (proposed June 2023), https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=0910-AI85.

[18] See FDA Press Release on Agency Updates to Test Policies (Nov. 15, 2021), https://www.fda.gov/news-events/press-announcements/coronavirus-covid-19-update-fda-updates-test-policies-help-ensure-accuracy-and-reliability-tests-and.

[19] Congressional Research Service, The Food and Drug Administration (FDA) Budget: Fact Sheet (2022), https://crsreports.congress.gov/product/pdf/R/R44576 (“FDA’s total program level, the amount that FDA can spend, is composed of discretionary appropriations from two different sources: annual appropriations (i.e., discretionary budget authority, or BA) and user fees paid by the regulated industry (e.g., drug manufacturers).”).

[20] See, e.g., 510(k) Third Party Review Program, FDA, https://www.fda.gov/medical-devices/premarket-submissions-selecting-and-preparing-correct-submission/510k-third-party-review-program (last visited June 22, 2023).

[21] New York State Department of Health, Clinical Laboratory Evaluation Program: A Guide to Program Requirements and Services (2022), https://www.wadsworth.org/sites/default/files/WebDoc/CLEP_Program_Guide.pdf.

[22] See, e.g., American Clinical Laboratory Association Citizen Petition, FDA-2013-P-0667 (Jun 4, 2013), https://www.regulations.gov/document?D=FDA-2013-P-0667-0001 (in which FDA asserted that LDTs are medical devices because (a) they involve components, “either produced within the laboratory or purchased from other device manufacturers that (b) are intended for use in the ‘diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease.’”).

[23] See, e.g., Genus Medical Technologies v. FDA, No. 20-5026 (D.C. Cir. 2021) (invalidating FDA’s long-standing conclusion that “devices” also met the definition of a “drug”); Catalyst Pharms., Inc. v. Becerra, 14 F.4th 1299 (11th Cir. 2021) (invalidating FDA’s long-standing interpretation of orphan drug exclusivity).

[24] See, e.g., FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) (describing the consideration of legislative history, including rejection of bills that would have clearly extended jurisdiction over tobacco to FDA, the Supreme Court determined FDA lacked jurisdiction to regulate tobacco). Though Brown & Williamson is distinguishable in that FDA itself said it lacked authority to regulate tobacco on other occasions (which is not the case with LDTs), it does illustrate how repeated rejection of legislation may be factored into judicial analysis.

[25] H.R.2369, 118th Cong. (2023).

[26] See FDA, MDUFA III Commitment Letter (Apr. 8, 2012), https://www.fda.gov/media/83244/download.

[27] For example, FDA’s guidance on research use only (RUO) or investigational use only (IUO) products, which are routinely used by labs to develop tests, suggests that discussion of LDT development is prohibited. FDA Distribution of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only: Guidance for Industry and Food and Drug Administration Staff (2013), 9. Similarly, FDA’s Analyte Specific Reagent regulation for reagents used in developing LDTs has extensive restrictions on advertising and promotion that could suggest potential uses (or ways to use) the reagents, and limits their composition so that the IVD manufacturer could not simply combine two ingredients, even if requested by a clinical laboratory, as that might suggest development of a two-analyte LDT. 21 C.F.R. §§ 809.30, 864.4020.

[28] E.g., CMS Memorandum: National Coverage Determination for Diagnostic Laboratory Tests using Next Generation Sequencing (NGS) for Medicare Beneficiaries with Germline (Inherited) Cancer, Next Generation Sequencing (NGS) for Medicare Beneficiaries with Advanced Cancer (July 27, 2020) (finding that an NGS test must have FDA clearance or approval to qualify for coverage under the Determination), available at https://www.cms.gov/medicare-coverage-database/view/ncacal-decision-memo.aspx.

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