Regulation Versus Overregulation of LDTs: Permitting Innovation While Ensuring Verification

Authored by Anthony Del Rio and Celia Rose Perez. Reprinted from Health Care Law Monthly (Issue 06, Volume 2016) with permission. Copyright ©2016 Matthew Bender & Company, Inc., a member of the LexisNexis® Group. All rights reserved.

"Don't decide on a dog based on looks, much like with people, looks and first impressions can be deceiving." – Elizabeth Holmes, founder of Theranos

In 2003, Elizabeth Holmes, who left Stanford before graduating, founded Theranos, a company which received a valuation of $9 billion prior to facing significant regulatory hurdles. The company recently reported to regulators that it voided two years of results from its Edison blood-testing devices, which was the main basis for the $9 billion valuation.[1] Theranos uses a "breakthrough" technology based on the ability to run dozens of blood tests from a fingerstick instead of a syringe of blood. Until recently, Theranos has operated in secrecy, refusing to divulge its methodology. This means there is virtually no peer-reviewed information about its technology and very few comparisons between laboratory results generated by Theranos labs and those of industry lab standards such as LabQuest. The federal government is currently looking beyond first impressions and investigating Theranos and its technology for accuracy and reliability issues. In this case, a critical issue is under whose purview the investigation should reside: the Centers for Medicare & Medicaid Services or the Food and Drug Administration? Although the Theranos matter is very high profile, it serves well to demonstrate the complexities currently facing entities that develop and utilize laboratory testing and the challenges facing regulators to strike a balance between promoting innovation and protecting consumers.

This article will address: (i) laboratory-developed tests; (ii) how such tests are currently regulated; (iii) new draft guidance and proposed rules from the United States Food and Drug Administration regarding the oversight and regulation of modern day laboratory-developed tests; (iv) why such draft guidance and proposed rules should be rejected; and (v) why the Clinical Laboratory Improvement Amendments of 1988 should be amended to account for the rapidly evolving, modern-day laboratory developed tests.

I. Laboratory Developed Tests

The United States Food and Drug Administration ("FDA") defines a laboratory developed test ("LDT") as a "type of in-vitro diagnostic test"'[2] that is designed, manufactured, and used within a single laboratory.[3] Laboratory-developed testing services are often performed on blood, urine, tissue or other types of specimens at the request of an individual doctor. These services offer no physical product and instead provide clinical information to a physician and patient. Such testing services are widely employed by doctors in their "clinical decision making and disease management, particularly in the context of personalized medicine."[4] In fact, the Centers for Disease Control and Prevention ("CDC") has estimated that 6.8 billion laboratory tests are administered each year and that clinical laboratory tests influence approximately 70% of health care decisions.[5] The ability of laboratories to develop custom diagnostic tests has been critical to the growth of personalized medicine.

Currently, although the FDA has regulatory authority over in-vitro diagnostic tests, the FDA has not historically exercised its enforcement authority over LDTs. It was not until 1996 that FDA announced in the Federal Register that it believed it had authority to regulate laboratory-developed tests, but it was not going to exercise that power as a matter of discretion. In the absence of FDA regulation for the last twenty years, LDT efficacy and validity has been evaluated by the Centers for Medicare & Medicaid Services ("CMS") under CLIA (defined below) regulations. Under CLIA, a laboratory must establish certain performance characteristics regarding analytical validity for the use of an LDT in the laboratory.[6] Analytical validation under CLIA evaluates the performance of a test in terms of accuracy and consistency of results. However, the accuracy of a laboratory's LDTs, as well as the actual practices and protocols the laboratory uses in evaluating its LDTs, are only reviewed during Medicare and accreditation surveys, which typically occur every two years.

Practically speaking, this means LDTs are developed, utilized, and evaluated on a laboratory-specific basis. When a laboratory develops a new LDT, the accuracy of that LDT is not evaluated by a regulatory body until that laboratory is surveyed, and it is only evaluated with regards to that specific laboratory. Although LDTs are evaluated specifically for each individual laboratory, the protocols and practices for LDTs are shared across laboratories, and so a particularly useful LDT will spread across laboratories (although the LDT will continue to be evaluated for accuracy specifically within each individual laboratory).

This has played out in the Theranos example presented in the introduction. Theranos developed proprietary LDTs and utilized them in running laboratory tests, but it was only after-the-fact that federal regulators began reviewing Theranos' laboratory results and the accuracy of Theranos' LDTs. Theranos recently told CMS that it issued tens of thousands of corrected blood-test reports to doctors and patients, voiding some results and revising others, suggesting that some patients received erroneous results that may have influenced health decisions made with doctors.[7]

II. Clinical Laboratory Improvement Amendments of 1988

The Clinical Laboratory Improvement Amendments of 1988 ("CLIA") regulate all laboratory testing performed on specimens derived from humans in the United States, except for clinical trials and basic research.[8] CLIA governs the accreditation, inspection and certification process for laboratories to ensure the accuracy, reliability and timeliness of test results, regardless of where a test is performed. The final CLIA regulations were first published in 1992, phased in through 1994, and amended in 1993, 1995 and 2003. Currently, CLIA covers approximately 251,000 laboratory entities. CLIA requires the United States Department of Health and Human Services ("HHS") to certify laboratories performing non-research testing. CMS has primary jurisdiction over CLIA, but as detailed below, the FDA, CDC and individual state agencies also carry out specific roles to assure laboratory services. Fees from the regulated facilities cover all costs of administering the CLIA program, including certificate and survey costs.

A. CDC Oversight

The CDC's responsibilities under CLIA include: (i) providing analysis, research and technical assistance; (ii) developing technical standards and laboratory practice guidelines; (iii) conducting laboratory quality improvements studies; (iv) monitoring proficiency testing practices; (v) developing and distributing professional information and educational resources; and (vi) management the Clinical Laboratory Improvement Advisory Committee (CLIAC).[9] CLIAC provides scientific and technical advice and guidance to HHS.[10] The Committee includes diverse membership across laboratory specialties, professional roles (laboratory management, technical, physicians, nurses) and practice settings (academic, clinical, public health), and includes a consumer representative.

B. FDA Oversight

The FDA is responsible for (i) categorizing tests based on complexity, (ii) developing rules/guidance for CLIA complexity categorization, and (iii) reviewing requests for Waiver by Application, which are submitted if a party believes its test meets the statutory criteria for a CLIA waiver.[11] A CLIA categorization is determined after the FDA has cleared a pre-market approval submission. LDTs are waived based on the premise that they are simple to use and there is little chance the test will provide the wrong information or cause harm if the test is completed incorrectly. A Waiver by Application may also be made if a sponsor believes the FDA mistakenly categorized a test. Such application must demonstrate in clinical studies conducted at the intended use sites that the test is accurate and poses little to no risk of incorrect results. Tests that are cleared by the FDA for over-the-counter or home use are automatically assigned a waived categorization.[12]

For moderate and high complexity tests, the FDA will determine a categorization by reviewing the package insert test instructions and using a criteria "scorecard" to categorize a test as moderate or high complexity. Tests are graded for complexity by assigning scores of 1 (lowest complexity) through 3 (highest complexity) for each of the seven criteria on the scorecard, which are: (i) Knowledge, (ii) Training and Experience, (iii) Reagents and Materials Preparation, (iv) Characteristics of Operational Steps, (v) Calibration, Quality Control, and Proficiency Testing Materials, (vi) Test System Troubleshooting and Equipment Maintenance, and (vii) Interpretation and Judgment. The seven criteria scores are added together and tests with a score of twelve or less are categorized as moderate complexity, while tests with a score above twelve are categorized as high complexity.

C. CMS Oversight

CMS is responsible for issuing laboratory certificates, which are dependent on the FDA's complexity determination of the particular laboratory. The agency also (i) collects user fees, (ii) conducts inspections/surveys, (iii) enforces regulatory compliance, (iv) monitors laboratory performance on CLIA proficiency testing ("PT"), and (v) approves private accreditation organizations that perform inspections/surveys and approves state exemptions.[13] Under CLIA, laboratory tests and clinical laboratories must obtain a certificate before accepting materials derived from the human body for the purpose of providing information for the diagnosis, prevention, or treatment of any disease or the impairment of, or assessment of the health of human beings.

All issued certificates are effective for two years and include the following: (i) Certificate of Waiver, which is issued to a laboratory that performs only waived tests; (ii) Certificate for Provider Performed Microscopy ("PPM") procedures, which is issued to a laboratory in which a physician, mid-level practitioner or dentist performs specific microscopy procedures for a patient; (iii) Certificate of Registration, which is issued to a laboratory to allow it to conduct non-waived (moderate and/or high complexity) testing until the laboratory is surveyed for compliance with CLIA regulations; (iv) Certificate of Compliance ("COC"), which is issued to a laboratory after an inspection that finds the laboratory to be in compliance with all applicable CLIA requirements; and (v) Certificate of Accreditation, which is issued to a laboratory on the basis of the laboratory's accreditation organization approved by the Health Care Finance Administration (which is part of HHS).[14]

While CLIA's framework is designed to reduce the risk of potential harm and ensure patients receive the same high-quality clinical lab testing, accreditors under CLIA do not evaluate test validation prior to marketing, nor do they assess the clinical validity of an LDT (i.e., the accuracy with which a test identifies, measures or predicts the absence or presence of a clinical condition in a patient). According to the FDA, CLIA alone does not ensure that LDTs are properly designed, consistently manufactured and are safe and effective for patients. The FDA is concerned that Theranos is just one of many companies that may be harming patients due to ineffective and insufficient regulatory oversight of LDTs.

III. FDA's Assertion of Authority Under the Medical Device Amendments of 1976

Congress enacted the Medical Device Amendments ("MDA") in 1976, which amended the Food, Drug and Cosmetic Act of 1938 ("FDCA"), to create a comprehensive system for the regulation of medical devices intended for use in humans. With the FDCA, Congress authorized the FDA to protect the public health by regulating the safety and effectiveness of "any food, drug, device, or cosmetic" that is "introduce[ed] into interstate commerce."[15] At the time of the 1976 amendments, the definition of "device" was amended to make explicit that the definition encompasses in vitro diagnostic testing. However, while the FDA has used its medical device authority over the years to review and oversee tests developed by outside entities that are then sold to laboratories, the agency has not actively regulated LDTs over the past 40 years. At the time the MDA was enacted, most LDTs were relatively simple tests provided by local community laboratories and were typically used and interpreted directly by physicians and pathologies who were treating patients in the facility performing the test.

The FDA has recently determined that, with rapid advances in technology and new, innovative business models, the landscape for LDTs has changed dramatically since 1976 and increased regulatory authority is warranted.[16] The Agency asserts that LDTs are now often independent of the health care delivery entity and are frequently manufactured with components and instruments that are not legally marketed for clinical use. LDTs today also rely more heavily on high-tech instrumentation and software to generate results and interpretations, which may be used in laboratories that are independent of the healthcare delivery entities. These rapid changes and advancements in LDTs may create problems associated with high-risk LDTs, such as: (i) producing claims that are not adequately supported with evidence; (ii) lack of appropriate controls, which may yield erroneous results; and (iii) falsification of data. The FDA is concerned that new LDTs may cause patients to forgo treatment created by false negative results, or initiate unnecessary treatment from false positive results, and the agency now wishes to activelyregulate the clinical validity of LDTs as "devices" under the FDCA.[17]

IV. FDA's Draft Guidance

On October 3, 2014, the FDA issued two draft guidance documents for 120-day comment period, titled, "Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs)" and "FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs)" (collectively, the "Guidance").[18] If the draft Guidance is published in final form, the FDA has proposed a nine-year time frame to phase in full LDT regulations. The Guidance describes FDA's priorities for enforcing premarket and postmarket requirements for LDTs as well as the process by which FDA intends to phase in specific enforcement of FDA regulatory requirements over time. The Guidance identifies groups of LDTs that will be: (i) exempt from regulation entirely; (ii) only required to meet notification and adverse event reporting requirements; and (iii) required to meet notification, adverse event reporting, applicable premarket review, and other regulatory requirements. According to the Guidance, CLIA regulations do not (i) assure the safety and effectiveness of LDTs, (ii) require adverse event reporting (making it difficult for regulators to detect devices that are inaccurate, ineffective or unsafe), (iii) require removal or unsafe devices from the market, (iv) assess quality manufacturing of devices, and (v) require informed consent for patients who participate in LDT clinical studies, nor do they establish procedures for the conduct of such studies.[19]

Through the Guidance, FDA proposes a risk-based, phased-in approach, along with continued exercise of enforcement discretion for certain regulatory requirements and types of LDTs. The agency would classify LDTs and based on the classification, phase in certain requirements over a nine-year period after the Guidance is finalized. Specifically, the proposed framework would include: (i) either notification to FDA of LDTs manufactured by a laboratory or registration and listing; (ii) Medical Device Reporting Requirements ("MDR") for LDTs (e.g., adverse event reporting); (iii) continued enforcement discretion with respect to premarket review requirements for low-risk LDTs, "Traditional LDTs", LDTs used for rare diseases, and "LDTS for Unmet Needs"; (iv) risk-based, phased in approach to enforcing the premarket review requirements for other high-risk and moderate risk LDTs; (v) use of clinical literature to support a demonstration of clinical validity; (vi) facilitation of third-party review for many moderate risk LDTs; and (vii) phased-in approach to enforcing quality system regulation. Under this plan, the FDA intends to provide a complimentary system to CMS's current regulatory scheme, so the agencies can work collaboratively to protect patients. The FDA's proposal will directly and significantly impact an estimated 2,000 laboratories offering approximately 11,000 LDTs, as well as a large number of tests currently in development. However, if FDA's proposal takes effect, it will likely end up doing more harm than good by creating unnecessary, burdensome regulations and stifling innovation in the healthcare sector.

V. FDA's Draft Guidance Should Be Withdrawn

Many parties, both private and public, have taken the position that the FDA's Guidance should be withdrawn. The primary arguments for withdrawal of the Guidance are: (A) the FDA lacks authority to regulate LDTs under the FDCA because LDTs are (i) not "devices" under 21 U.S.C. § 321(h) , and (ii) they are not introduced into interstate commerce under 21 U.S.C. § 360(k) ; (B) it is improper for the FDA to unilaterally attempt to regulate through Guidance, and LDT regulation should be enacted via legislative action; and (C) implementation of the FDA's Guidance would substantially burden the healthcare system and would actually hinder LDT improvement and innovation.

A. FDA Lacks Authority to Regulate LDTs

In issuing the Guidance, FDA oversteps its authority for several reasons. LDTs are not "devices" under the FDCA. The term "device" is defined as an "instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory. …"[20] Laboratory developed testing services do not fit this definition—they are not commercially distributed tangible goods or physical products. Instead, they are in-house tests that provide a service through proprietary methodologies. The FDA asserts that Congress included "reagent" in the definition as an all-encompassing measure intended to include LDTs.[21] However, a testing service is not a "reagent" and is actually a chemical substance or mixture. In fact, the inclusion of "reagent" in the definition serves to further confirm that the FDA intended to only include physical products and articles in the definition of device. Had Congress intended to include LDTs in the definition of "device" under the FDCA, it would have done so explicitly.

The FDCA makes plain that laboratory-developed testing services do not fall within FDA's delegated authority.[22] Tests providing information to a doctor or consumer are fundamentally different products than traditional medical devices, which actually deliver therapy to, or are implanted in a patient. There is no need to speculate why Congress did not bring laboratory-developed testing services under FDA's authority in the FDCA. When Congress expressly considered and addressed the unique issues posed by LDT services, it opted to do so in a different statute (CLIA) administered by a different agency (CMS). Clinical labs have been regulated by the federal government in various ways since the Clinical Laboratory Improvement Act was enacted in 1967, but at no time was there any suggestion of the FDA's ability to regulate laboratory developed testing services. Congress passed the CLIA amendments in 1988 precisely because Congress did not share FDA's interpretation of the MDA. Neither CLIA's statutory text nor its legislative history make any reference to preexisting FDA authority to regulate LDTs, or sweeping authority to regulate such services as "medical devices."[23]

LDTs should not be considered devices, nor should they be considered to move in interstate commerce. Under the FDCA and the Section 510(k) regulation, the premarket controls of the FDCA apply only to devices that move in interstate commerce and are commercially distributed.[24] As tests are sold to laboratories, hospitals or physicians' offices in interstate commerce, they must be typically cleared or approved by the FDA through the premarket notification or premarket approval processes. However, LDTs do not move in interstate commerce, nor are they distributed, delivered or placed into the market. Although the specimens and samples used in performing LDTs may move in interstate commerce, the actual LDTs themselves do not. FDA's own definition of LDTs even concedes that the tests are designed, manufactured and used within a single laboratory.[25]

B. Legislative Action Is More Appropriate

Due to the complexity of the issue, how widespread LDTs are, and the ultimate impact LDT regulation will have on the healthcare system, many feel that the FDA's Guidance is an inappropriate avenue to regulate LDTs. If implemented, because of the increased cost (both financially and in terms of time) to develop and utilize LTDs that the Guidance would create, the Guidance could substantially curtail the development and use of LDTs, which would reduce the healthcare system's ability to both respond to new diseases and to utilize more advanced techniques in identifying potential ailments through laboratory analysis. This argument has been most explicitly vocalized by Congress itself, where the FDA's Guidance has come under direct fire from congressional representatives, including Representative Michael Burgess (R-Texas) and House Appropriations Committee Chair Harold Rogers (R-Kentucky).[26]

Most recently, in mid-April, the House Appropriations Committee included language in the report accompanying the FDA's recent appropriation bill that specifically directed the FDA to "suspend further efforts to finalize the LDT guidance" because the Guidance "puts forth a proposed regulatory framework that is a significant shift in the way LDTs are regulated" and "circumvents the normal rulemaking process."[27] The House Report went on to state that such changes deserve public input and that Congress is working with stakeholders and constituents in order to pass legislation that will address a new pathway for regulation of LDTs.[28] There has not yet been visible legislative action since the release of the report.

C. The Guidance Stifles Innovation

The laboratory and medical community have taken the position that the current FDA Guidance will result in substantial regulatory uncertainty, and such uncertainty will significantly curtail innovation. In fact, Representative Burgess, who was previously a practicing physician, has stated that the FDA's proposal "may not just stifle, but eliminate innovation."[29] Specific historical examples that laboratories have pointed to as LDTs that could not have been developed under the proposed Guidance include tests for various cancer biomarkers and HIV tests (which were developed several years before FDA-approved test kits reached the general market).[30] In particular, the Guidance poses a serious risk of administrative duplication and inconsistent standards set forth by the federal agencies. Premarket review by the FDA will impose new and arguably unnecessary requirements and costs to clinical laboratories, hospitals and physicians. In addition, premarket review will create unnecessary hurdles that will result in substantial lag time in development of new LDTs, which have historically been able to be quickly developed to address new and emerging infectious diseases.

VI. Conclusion

LDTs play an important role in our healthcare system and serve as a key tool to healthcare providers ranging from solo primary care physicians to large multi-hospital academic medical centers. Currently, CLIA provides a workable framework under which these entities' laboratory tests are evaluated and regulated. The FDA has unilaterally proposed a new regulatory framework that healthcare providers, laboratories, and legislators feel is arguably impermissible and would be burdensome on the healthcare system and potentially damaging to patient care.

However, the increasing complexity of and reliance on LDTs is a reality that will eventually necessitate refinement and improvement of our current regulatory framework. Healthcare entities and laboratories should review and consider the FDA's Guidance, and consider reaching out to their congressional representatives if they feel implementation of the Guidance would negatively impact their operations and patient care. Through collaboration, a multi-stakeholder group may be able to drive either statutory or regulatory amendment to CLIA that can help to improve clinical validity and ensure the quality of LDTs without substantially burdening the healthcare system.