Non-binding Guidance: FDA’s Proposed Rule on Laboratory Developed Tests

This installment of Ropes & Gray’s podcast series Non-binding Guidance focuses on FDA’s proposed rule that would affirm the Agency’s position that laboratory developed tests (“LDTs”) are in vitro diagnostic products regulated as medical devices under the Federal Food, Drug, and Cosmetic Act (“FDCA”). In this episode, hear from Greg Levine, Josh Oyster, and Beth Weinman, industry-leading attorneys from Ropes & Gray’s life sciences regulatory and compliance team based in Washington, D.C., as they discuss FDA’s proposal to phase out the enforcement discretion policy it has historically applied to most LDTs.

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Transcript:

Greg Levine: Hi, I’m Greg Levine, head of the life sciences regulatory and compliance practice group in Ropes & Gray’s Washington, D.C. office. Welcome to Non-binding Guidance, a podcast series focused on current trends in FDA regulatory law, as well as other important developments affecting the life sciences industry. I’m joined today by my partner, Josh Oyster, from the life sciences regulatory and compliance group based in Washington, D.C., and Beth Weinman, also based in Washington, D.C., counsel in our group and a former enforcement litigator from FDA’s Office of the Chief Counsel. Today, we’ll discuss FDA’s proposed rule that would affirm the Agency’s position that laboratory developed tests (or “LDTs”) are in vitro diagnostic products regulated as medical devices under the Federal Food, Drug, and Cosmetic Act (“FDCA”). We’ll also discuss FDA’s proposal to phase out the enforcement discretion policy that the Agency has historically applied to most LDTs.

Let’s dive in.

We have previously published a client alert titled “Regulation Without Legislation: FDA Proposes Rule to Regulate Laboratory Developed Tests and End Historical Enforcement Discretion Policy,” which walks through some of the nuts and bolts of this issue. We will not repeat all of that here, but the alert is available in the Insights section of our website for those who are interested.

Overview of the Proposed Rule and Phaseout of Enforcement Discretion

Greg Levine: Let’s turn to a brief overview of the proposed rule and what FDA is talking about in terms of phasing out enforcement discretion. Josh, why don’t we start by talking about what this is, and what it will mean.

Josh Oyster: Sure—thanks, Greg. FDA’s proposed rule would amend the definition of the term “in vitro diagnostic products” in FDA regulations to clarify that in vitro diagnostic products (or “IVDs”) are medical devices under the Federal Food, Drug, and Cosmetic Act, including when the manufacturer of the IVD is a laboratory. The change to the regulations themselves is really quite simple—it’s literally one sentence—but the real intrigue of the proposed rule comes from the preamble and its discussion of how FDA plans to phase out enforcement discretion that has historically applied to most LDTs.

Greg Levine: Before we get into that—FDA’s position for decades has been that the statutory definition of device in the Federal Food, Drug, and Cosmetic Act already encompasses laboratory developed tests. Why, then, would they need to amend their regulations to say that? Beth, can you give your thoughts on that topic?

Beth Weinman: Sure. Not everybody agrees with FDA—that’s really what it boils down to. Clinical laboratories have long argued that FDA lacks authority under the Federal Food, Drug, and Cosmetic Act, despite the industry’s articulated view. They say that labs are providing services, not manufacturing FDA-regulated products. Additionally, in the Trump administration in the summer of 2020, the HHS Office of General Counsel issued a legal opinion asserting that FDA could not require pre-market clearance of LDTs without going through notice and comment rulemaking. That opinion has been revoked under the current administration, but absent statutory clarification, notice and comment rulemaking gives FDA the strongest footing to give its interpretation on the force of law—and the clarifying rule on the books reduces the potential for conflicting legal opinions on LDTs every time political control of the White House changes hands.

Greg Levine: Thank you for that. Now, Josh, let’s return to talking about the proposed rule, and particularly the preamble to the proposed rule where FDA discusses its proposal to phase out enforcement discretion. What is it that FDA is proposing to do, and why are they making this change, or proposing to make this change?

Josh Oyster: FDA talks in the proposed rule preamble about how the LDTs of today are very different from those of the past. For example, modern LDTs are more sophisticated, they may use automation, they rely on complex software, and they’re also being manufactured and used in high volumes for diverse patient populations. They’re more often being relied upon to inform critical treatment decisions and disease diagnoses. Because of this evolution in the LDT landscape, and because FDA has identified some concerns in recent years with specific tests that have raised questions about accuracy and reliability of these LDTs, FDA is proposing to phase out its enforcement discretion approach so that IVDs manufactured by a laboratory would generally be regulated the same as all other IVDs. FDA proposes to accomplish this in a five-stage phaseout process over the course of four years.

FDA would phase in regulation beginning with basic reporting requirements for medical device reports (“MDRs”) and device correction and removal reports—those requirements coming into effect one year after FDA ends the general enforcement discretion. And then, increasingly rigorous requirements would come into effect in later years until finally, pre-market review is phased in, first for high-risk devices at the three-and-a-half-year mark, and then, for all remaining devices at the four-year mark. FDA also proposes that certain categories of LDTs would continue to receive enforcement discretion, such as what FDA calls “1976-Type LDTs,” where the 1976 reference is a callback to when the Medical Device Amendments to the Food, Drug, and Cosmetic Act were first enacted. FDA would also continue to apply enforcement discretion to certain human leukocyte antigen tests, and certain tests solely for forensic law enforcement purposes or for public health surveillance purposes.

Greg Levine: Thanks, Josh. Let’s back up briefly and talk a little more about this enforcement discretion topic. Beth, could you comment on what enforcement discretion means, first of all—what is its basis? And what issues have been raised by FDA’s application of it?

FDA’s Historical Position

Beth Weinman: Yes, sure—this is important. FDA, like many other agencies, has long taken the position that it can set its own enforcement agenda, that it can prioritize enforcement in certain areas, and it can decide to avoid enforcement altogether in other areas. Its ability to decide when to take enforcement action was challenged, and has been affirmed, in the 1984 Supreme Court case Heckler v. Chaney. FDA decided generally to exercise enforcement discretion with respect to a category of IVDs that were manufactured and used entirely in a laboratory—it’s the category that FDA used to call “home brew tests,” and that today we call “laboratory developed tests.” Although the Agency has generally not enforced applicable provisions under the FDCA and implementing regulations with respect to LDTs in most situations, over the years it has informally carved out certain kinds of tests from the scope of enforcement discretion, and it’s warned particular labs that their tests were illegally marketed. It’s done this in the area of direct-to-consumer tests, and also tests that are designed and used for public health emergencies, as examples. But FDA hasn’t published generally applicable guidance documents clarifying these policies.

I think it’s fair to ask, “Does announcing enforcement discretion policies in this way, including through actually taking enforcement action, provide fair notice and due process to laboratories?” Without clearly articulating when enforcement will be appropriate, notwithstanding the current policy of discretion, the Agency could face pushback if it starts taking enforcement action against certain types of LDTs that are not clearly outside the scope of the existing enforcement discretion based on past practice before the time that enforcement is phased in under the finalized rule.

Comparison to Prior FDA Proposals

Josh Oyster: Thanks, Beth. Greg, you’ve been following this issue for years. Can you talk about how the current proposal compares and contrasts with the prior regulatory frameworks that FDA has proposed for LDTs?

Greg Levine: Yes. In 2014, FDA had issued draft guidance announcing that it was going to end its historical policy of enforcement discretion for LDTs, and it outlined the first of what has now been several frameworks to phase in their regulation. As things turned out later—we talk about this more in our client alert—the FDA decided not to finalize that proposed framework. In 2017, it issued this other white paper-type document on a possible approach to LDT regulation and understanding that there was a push now for a legislative approach rather than something purely administrative.

Key Commonalities

What these proposals have had in common over the years are concerns that the modern LDTs are not like the “home brew.” “Home brew,” that old terminology, really gives you the sense that this is something you’re cooking up in your one lab for use just in your local lab, and that was the original concept when FDA announced enforcement discretion over LDTs. And this concern that there’s lack of independent review of clinical validity, in particular clinical validity of the LDTs, there are separate regulations under the CLIA [the Clinical Laboratory Improvement Amendments] enforced primarily by CMS, that look at the proficiency of a lab and how accurately they can perform a test. But for the clinical validity of that test, FDA is very concerned, and that’s not evaluated by any independent body. FDA has been concerned about reports of potential harm due to inaccurate or unsafe LDTs, and now, they’re very concerned, as well, about some of the advanced technologies, some of the software algorithms and things that are used. All of these proposals go over those concerns.

All the proposals have a phased-in type of structure, where they prioritize, first of all, trying to identify potentially harmful LDTs. As you mentioned before for the current proposal, the initial focus is on medical device reports, which means adverse event reports, and recalls and the safety-related things, first and foremost. Then, FDA wants to get a handle on actually what tests are out there. They want to have labs have to register with the Agency, and then, eventually, they phase in all the way to pre-market reviews. So, in broad strokes, these things are in common among the proposals.

Key Differences

A lot of the specifics differ, and they differ in some key ways. The timeframes differ. The original 2014 draft guidance was to phase in over nine years. Now, of course, that proposal was made nine years ago, so now, not surprisingly, we’ve got a shorter timeframe—we’re looking at four years, as you mentioned, for the current one.

Different approaches, also, to certain areas of potential exemptions from what would be regulated by the FDA. You mentioned some before, like forensic tests and so on, that FDA all along has said would continue to be exempt from regulation. Also, public health surveillance tests, certain tests used in connection with organ, stem cell and tissue transplantation, and then, the “1976-Type”—like the real “home brew,” old-fashioned kind of LDTs—FDA is saying still would be subject to enforcement discretion. But, unlike some of the other earlier proposals, FDA is not currently creating separate approaches to low-risk tests, tests for rare diseases, or tests that meet unmet clinical needs. What FDA has said in the current proposal is that they think that those things can be handled through the risk-based systems and regime that they have for medical devices in general. Then, also, with regard to rare diseases, for example, there are existing pathways for humanitarian use devices and humanitarian device exemptions for those that are used in smaller populations.

Another topic that’s treated differently here compared to some of the previous proposals is grandfathering of laboratory developed tests that have been on the market. Some of the earlier proposals would have explicitly grandfathered, or allowed to continue to be marketed, LDTs that had been on the market previously. Here, FDA is proposing not to have a grandfathering provision, but they have asked for comments on that topic from the public.

Another big area that’s not so much different in the current proposal, but is one that has continued to raise questions, is academic medical centers. Academic medical centers are very strenuously arguing that FDA regulation of what they do in the laboratory is going to be a public health disaster. The FDA is not accepting that argument so far—in their proposals, they’ve said that academic medical centers would be treated like any other lab. But in this most current proposal, they are requesting comments on this topic. FDA, in my view, seems skeptical of trying to have a different system for academic medical centers, but they are open to hearing more about the issue and are requesting comments on it.

VALID Act Comparisons

Greg Levine: The other thing we should talk about, I think, is what are the differences between the current proposed rule and the legislative efforts—the current one being the VALID Act, which is the one that has the most traction. This has been going through Congress for years, and we thought maybe it was going to happen in the Food and Drug Omnibus Reform Act (“FDORA”) amendments at the end of 2022, but then it dropped out. So, let’s talk about that comparison, Josh. Can you just tell us what is similar, what is different between the legislation or proposed legislation, and what FDA is proposing to do?

Josh Oyster: Absolutely. There are some parallels that can be drawn, but really, the two are very distinct. The Verifying Accurate, Leading-edge IVCT Development (“VALID”) Act, as you mentioned, has been introduced in Congress numerous times and debated in Congress. It would essentially create an entirely new framework for the regulation of a new category of medical products called “in vitro clinical tests” (“IVCTs”). These IVCTs would essentially encompass both traditional in vitro diagnostics and LDTs today, and they would be overseen by FDA’s device center. The VALID Act would create this new regime that affects the entire diagnostics industry. In contrast, FDA’s proposed rule would just apply the existing medical device regulatory framework to LDTs. So, it’s a very different ball of wax, so to speak, from the outset.

Key Similarities

In some of the similarities between the proposed rule and the VALID Act, like FDA’s proposed rule, the VALID Act emphasizes the importance of analytical validity, clinical validity, and the safety of products being brought to market. Similar to FDA’s existing risk-based framework for medical devices that applies to IVDs, the VALID Act would establish different risk-based categories of tests and offer various corresponding pre-market review pathways, such as full pre-market review for high-risk IVCTs, abbreviated review for moderate-risk IVCTs, and certain exemptions from review for lower-risk IVCTs. The new framework would also establish notification and listing requirements for developers, labeling requirements, test design and quality requirements, and requirements to report corrections, removals, adverse events, and things like that—all of those are existing requirements that apply to in vitro diagnostics and other medical devices.

Key Differences

We’ve covered the similarities, so what are the key differences? The VALID Act would also offer a new Technology Certification Pathway, which is an entirely new concept by which developers of eligible IVCTs could apply for a technology certification order. In general, what this means is the scope of an order here would apply to multiple IVCTs that use a similar technology. If such an order were granted, the developer could modify or develop additional tests within the scope of that order without needing to get individual review of each test. The VALID Act would also grandfather in a subset of currently marketed tests, whereas, as previously mentioned, the proposed rule contains no such grandfathering criteria.

Likely Congressional Reaction

Josh Oyster: The VALID Act most recently reintroduced in Congress in March 2023—before FDA’s proposed rule came out—hadn’t really seen any action in Congress. Greg, what do you think happens now? Does the VALID Act get picked back up? Does FDA’s proposed rule light a fire under Congress to actually get a legislative solution done?

Greg Levine: I think so. I think, in part, this is FDA’s challenge to Congress to say, “Hey, if you’re not going to move, we’re not going to wait around forever. We’re going to go forward with our proposal.” I’m not saying that they’re not serious about implementing their proposal—I think they will go forward with it if Congress doesn’t do something. But I do think this will put more pressure on Congress to try to proceed with the legislation. It’s interesting—it’s not a political issue in the traditional kind of Democrat/Republican breakdown way, but there are different constituencies pushing and pulling that have made it difficult. Given the choice between FDA just going forward on its own and the potential for challenges to that proposal and everything else, I think there’s probably widespread agreement that it would be preferable to have legislation as opposed to administrative-only action on this, and so, we’ll see if it moves forward.

Potential for Litigation

Now, I alluded there to some of the challenges and things that might occur next if FDA were to finalize this rule, and one is the potential for litigation. It’s been no secret that the lab industry, clinical labs, have raised the specter of litigation on this topic in the past. So, Beth, why don’t we turn to you. Could you give us a sense of what litigation might look like? And also, when could one bring this kind of case in court?

Beth Weinman: Sure. As you suggested, I think most people are expecting litigation in the form of challenges to the new rule, if it is finalized. The preamble to the rule anticipates some of those challenges, and we can talk about that. Big picture, as we’ve discussed today, labs have long argued that the statutory definition of device does not cover LDTs, and, as I said before, that they provide services and do not offer FDA-regulated products. In this vein, we can expect that labs or others that sue would argue that FDA’s current attempted rulemaking is not the appropriate way to effectuate a massive change in regulatory authority. Labs will argue that the major questions doctrine requires that administrative agencies point to clear congressional authorization when they make decisions of profound significance, and they’ll argue that the existing statutory authority that the Agency relies on is not sufficiently clear to enable FDA to regulate LDTs in the way that it’s now seeking to do. So, that is a major argument that I think we can expect to see.

On a second argument, arguments have been made that CLIA is sufficient regulation for these types of tests, and there’s no need for FDA oversight. The preamble articulates the public health need for FDA oversight, making the argument that CLIA doesn’t address and ensure performance, clinical validity, and manufacturing controls for test components.

Another argument that is often, or has been, lodged is that the Act doesn’t regulate LDTs because they’re not actually “introduced into interstate commerce,” and the requirement that a 510(k) be submitted prior to an introduction into interstate commerce can’t be enforced for that reason. Arguments have been made that “commercial distribution” means something more than just “being out there on the market,” that it requires movement from one place to another. Other arguments that have been made are that state labs and academic medical centers at state universities are not “persons,” so they can’t be subject to certain requirements in the act that are applicable to persons, like registration enlisting. An argument has also been that labs don’t “hold” lab developed tests for sale in the sense that the act contemplates, and so, can’t be reached in that way. So, those are some of the arguments that I think we’ve seen articulated in the trade press, in comments, and the arguments in the preamble to address them.

On timing, certainly if FDA were to proceed with any enforcement action, the authority for that enforcement could be immediately challenged, so timing wouldn’t be an issue. But there is a question: Must a company wait for enforcement? Especially when that enforcement is going to be phased in over time, is there a way to challenge the law sooner? We don’t have time to really get into the nuts and bolts of this without making this podcast an hour long, but the key legal question that would be addressed is ripeness, under the standard from the 1967 Abbott v. Gardner case, which includes a required “hardship” element for a case to be ripe. Those seeking pre-enforcement review would need to show a “direct and immediate” impact of FDA’s action, such that the regulation requires an “immediate and significant change” in the plaintiff’s conduct of their affairs, with a threat of serious penalties attached to noncompliance, and this, truthfully, could present a hurdle to challengers. For example, one year from finalization of the rule—the first removal of enforcement discretion, if we want to speak about it that way—labs will need to have an infrastructure in place for MDR and recall reporting. The Agency will start enforcing those requirements, and the question is: Is that a change with direct and immediate impact? Other requirements such as pre-market review, they have even longer phase-in periods, so again, it’s not clear how litigants are going to show a direct and immediate impact.

Greg Levine: Beth, just to clarify what you’re saying, you’re not saying that once these requirements are in effect, there’s a question whether that’s a direct and immediate effect? You’re saying, I think, that the question is, “Can I go to court now and have the court review that a year from now that I’m going to have to have that kind of a system in place?” Am I understanding that right?

Beth Weinman: That’s exactly right. If enforcement is not even possible for a year, can the work that you’re doing now and the risk of enforcement after a year be considered direct and immediate impact?

Greg Levine: Very interesting. Thank you so much.

Josh Oyster: Before we go, it’s worth mentioning—we haven’t said it yet—comments on FDA’s proposed rule are currently due December 4.

Greg Levine: Well, that’s all the time we have for today. Thank you, Josh and Beth, for joining me for this discussion. And thank you to all of our listeners for tuning in. For more information about our life sciences regulatory and compliance practice, you can visit our practice page at www.ropesgray.com. You can listen to Non-binding Guidance and other RopesTalk podcasts through our website, or you can subscribe wherever you listen to podcasts, including on Apple and Spotify. Thank you again for listening–we’ll see you next time.