The True Costs of FDA’s Proposed LDT Rule and How Laboratories Can Prepare

“Labs need to be aware of and prepare for the coming sea-change in LDT regulation,” said Gregory A. Stein, Founder and CEO of Shadowbox. “If the FDA gets their way, innovation will come to a grinding halt and many of the most innovative labs will simply cease to exist.”

Threat of FDA’s LDT rule coming in April

The U.S. Food and Drug Administration (FDA) is expected to publish its final rule regarding laboratory developed tests (LDTs) in April. The proposed rule, discussed here and here, seeks to amend the existing definition of in vitro diagnostic products (IVDs) to include tests “manufactured” in a laboratory. This change, when finalized and implemented, will eliminate the regulatory distinction between IVDs and LDTs, and formally classify LDTs as medical devices. This means that laboratories and the tests they develop will for the first time be subject to all of FDA’s device regulations. To comply, laboratories will have to implement, develop, and maintain new policies, procedures, and systems, requiring an overwhelming investment of time, money, and other resources. FDA grossly underestimates the costs and impact of its proposed rule. So, what is the true cost to laboratories? And what should laboratories be doing to prepare for FDA regulation?

Why you need to know about FDA device regulation

Laboratories and LDTs have long been regulated by the Centers for Medicare & Medicaid Services (CMS) under the Clinical Laboratory Improvement Amendments (CLIA). Once FDA’s rule is finalized and implemented, laboratories will be required to comply with both CLIA and FDA’s device regulations. Each has different operational and administrative requirements and different standards for test development, methodology, and validation. FDA’s regulations will require labs to register and list all LDT’s, submit to the premarket review process (and generate the data necessary to support such submissions), devise new quality systems, design and perform research and clinical trials according to FDA’s requirements, and comply with labeling, medical device reporting, corrections and removals, and recordkeeping requirements.

“The elements of the proposed rule affect every aspect of test development and laboratory operations. Between compliance costs, existing and future fee schedules, and the need for additional resources, laboratories will face significant new and ongoing costs for every LDT they develop and market,” said Christine Bump, a regulatory attorney with 20 years of experience navigating FDA’s complex decision-making processes.

The exorbitant costs and risks to bring LDTs to market under the proposed rule

Most laboratories are unfamiliar with FDA’s regulations and have little to no experience interacting with the agency’s reviewers, inspectors, or other staff. Thus, laboratories will have to hire employees, consultants, or counsel with knowledge of and experience with these rules, including people with distinct clinical knowledge of FDA’s unique standards for test development, methodology, and validation. Depending on the size of a laboratory and the number of tests offered or in development, the costs to simply come into compliance with FDA’s device regulations may reach or exceed:

• Tens to hundreds of thousands of dollars to develop and implement:
  • Processes and records for medical device reports and corrections and removals;
  • Labeling processes and labels; and
  • Processes and records to comply with FDA’s Quality Management System Regulation;
• Plus, tens of thousands to millions of dollars to design and perform FDA-compliant research and clinical trials to generate data necessary to support each premarket submission;
• Plus, tens to hundreds of thousands of dollars to prepare Premarket Approval (PMA) submissions for each test (if a test is determined to be high-risk);
• Plus, tens of thousands of dollars to prepare:
  • 510(k) and De Novo premarket submissions for each test (if a test is determined to be low- or moderate-risk); and
  • PMA Annual Reports for each test approved through a PMA;
• Plus, an unknowable amount for costs to maintain records, prepare for FDA inspections, and perform required analyses for changes and modifications to each test developed by a laboratory;
• Plus, filing and administrative fees, known as user fees, which must be paid to FDA. For fiscal year 2024, device user fees include:
  • $7,653 per year to register a device establishment (i.e., a laboratory);
  • $21,760 ($5,440 for small businesses) to submit a 510(k) premarket notification to FDA;
  • $145,068 ($36,267 for small businesses) to submit a De Novo request to FDA;
  • $483,560 ($120,890 for small businesses) to submit a PMA application to FDA; and
  • $16,925 ($4,321 for small businesses) to submit the required Annual Report for devices approved through a PMA.

It is highly unlikely that laboratories, large or small, have the resources available or allocated in future budgets for even one LDT. The result being likely that these regulations threaten to put many laboratories out of business, stifle innovation, and increase already untenable healthcare costs. Many innovative and potentially lifesaving LDTs may be pulled from the market.

A draft of FDA’s final rule is already being reviewed by the Office of Management and Budget (OMB). Thus, it looks even more certain that the rule will be finalized in April. If so, the likely timeline for labs to be in compliance with the first enforcement deadline will be April 2025. While we can’t opine on the exact requirements until publication, most experts believe the final rule will be essentially the same as the proposed rule. If this assumption proves true, we expect that the severe cost and burden being imposed on laboratories will trigger lawsuits immediately to enjoin implementation. Whether such lawsuits are ultimately successful, or perhaps only delay implementation, what should laboratories be doing now to prepare?

What can labs do now?

Therefore, laboratories should at the very least:

• Take to heart the old lobbyist’s saying, “If you aren’t at the table, you are on the menu.” Independent labs need to educate themselves on the proposed rule and make it known through letters, phone calls, and meetings with their House and Senate congressional delegations what this regulation will mean in terms of lost innovation, increased costs across the care continuum, lost jobs in their district/state, and most importantly, lost lives as critical conditions go unidentified and undiagnosed.
• Become familiar with FDA’s device classification categories and associated premarket requirements, including the appropriate regulatory pathway (510(k), De Novo, or PMA). Laboratories can begin to determine whether their current tests or future offerings are likely to be classified as Class I or II (low- to moderate-risk) or Class III (high-risk). FDA recently announced its intention to reclassify many Class III, high-risk IVDs into Class II. When this reclassification process is complete, LDTs that would have been Class III devices may be Class II. Such tests would still, however, require De Novo or 510(k) premarket submissions and the generation of data to support such submissions. Laboratories can subscribe to receive updates from FDA, specifically the Center for Devices and Radiological Health, to follow announcements from the agency about IVDs, LDTs, and related policies or guidance.
• Begin to identify budget options and possible funding sources for the increased costs associated with complying with FDA’s device regulations.  
• Follow updates from laboratory and diagnostic trade associations, such as the American Clinical Laboratory Association (ACLA) and the Association for Molecular Pathology (AMP). These and other organizations oppose finalization and implementation of FDA’s rule and are advocating for alternatives to regulation of LDTs as medical devices. Though FDA’s proposed rule and other statements by the agency indicate that FDA regulation of LDTs is inevitable, alternative regulatory paradigms would be less burdensome. Laboratories should consider joining lobbying efforts to advocate for appropriate regulations that balance public good vs. potential for harm and pose fewer threats to innovation.

One more thing. Regulatory initiatives like this one, PAMA, Price Transparency, etc. don’t come out of nowhere. Even though regulating LDTs as devices is a solution without a problem, it’s important to look at the motivations that drive these regulations. Perhaps it’s time for labs to acknowledge these drivers and follow in the footsteps of the pharmaceutical and medical device industries whose industries faced and worked to address these same challenges.  The industry should finally come together to establish and self-enforce a code of operational ethics for which legitimate players can aspire and those outliers who give a black-eye to the rest of the industry can be held accountable. Otherwise, labs will ALWAYS be on the menu.

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Special thanks to Christine Bump, Penn Avenue Law and Policy, for co-authoring this important piece. We appreciate the collaboration and expertise she provided in ensuring the article was accurate and complete.