FDA’s Proposed Rule for Oversight of Laboratory Developed Tests: Part II: FDA’s Proposed Phaseout Policy – Key Considerations & Open Questions

After an over decade-long discourse amongst interested stakeholders, on October 3, 2023, FDA unveiled its proposed rule and policy to increase oversight over LDTs. 

If finalized as proposed, FDA would implement a new “phaseout policy” that would, across five stages and within four years, apply the same regulatory requirements applicable to in vitro diagnostics (IVDs) on the majority of clinical laboratories offering tests as LDTs. Once implemented, tests offered as LDTs that do not meet the applicable regulatory requirements, including premarket review and the quality system regulation, may be expected to come off the market.

In our first post in this Insight series, we recapped the underpinnings of the proposed rule and policy, including the significant discussions contained in the proposed rule on (1) the rationale for the agency’s proposed phaseout policy and (2) FDA’s legal authority for issuing the rule.

In this Insight, we provide our full analysis of FDA’s proposed five-stage phaseout policy and the open questions that remain.

Detailed Analysis of FDA’s Phaseout Policy

Scope of Tests Subject to FDA’s Phaseout Policy

FDA’s proposal contemplates that “IVDs offered as LDTs” would be subject to enforcement through the phaseout policy

Tests Subject to the Phaseout Policy
“IVDs offered as LDTs”	“IVDs that are manufactured and offered as LDTs” by high-complexity laboratories that are certified under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), whether or not they fall within “FDA’s traditional understanding of an LDT.”
“FDA’s traditional understanding of an LDT”	FDA has generally considered an LDT to be “an IVD that is intended for clinical use and that is designed, manufactured, and used within a single” high-complexity laboratory certified under CLIA.

 

As compared to past proposals to increase FDA oversight of LDTs, the proposed phaseout policy contemplates considerably fewer exemptions from enforcement. Specifically, the proposed rule contemplates four types of tests that would not be subject to the phaseout policy and would not generally be subject to enforcement –

Tests Excluded from the Phaseout Policy & Oversight
“1976-type” LDTs	Tests that (1) involve use of manual techniques (without automation) performed by laboratory personnel with specialized expertise, (2) use components legally marketed for clinical use, and (3) meet FDA’s traditional understanding of an LDT (e.g., immunohistochemistry (IHC) tests that meet these criteria).
Human Leukocyte Antigen (HLA) Tests	HLA tests designed, manufactured, and used by a single laboratory certified under CLIA that meet the requirements to perform high-complexity histocompatibility testing when used in connection with organ, stem cell, and tissue transplantation to perform HLA allele typing, for HLA antibody screening and monitoring, or for conducting real and “virtual” HLA crossmatch tests.
Tests for Forensic (Law Enforcement) Purposes	FDA maintains that it has a “longstanding enforcement discretion approach” for tests intended solely for forensic (law enforcement) purposes, irrespective of whether such tests are offered as an LDT.
Tests used for Public Health Surveillance	FDA maintains that tests exclusively used for public health surveillance are distinct where (1) they are intended solely for use on systematically collected samples for analysis and interpretation of health data in connection with disease prevention and control and (2) test results are not reported to patients or their healthcare providers.

 

Significantly, absent is any type of “grandfathering” provision allowing for existing tests offered as LDTs (or a subset thereof) to abstain from having to meet some or all of FDA’s regulatory requirements. Further, notably absent are any similar provisions for low-risk tests, tests for rare diseases, LDTs for unmet needs, low-volume LDTs, or tests offered as LDTs from specific entities, such as academic medical centers (AMCs).

Last, the proposed rule emphasizes that FDA has enforced and intends to continue to actively enforce its regulatory requirements for the following categories of tests – 

Tests that Remain Under Active Oversight
Direct-to-Consumer (DTC) Tests	Tests intended for “consumer use (without meaningful involvement by a licensed healthcare professional).”
Tests Intended for Emergency Use	Tests intended for emergencies, potential emergencies, or material threats declared under Section 564 of the Federal Food, Drug, and Cosmetic Act (FDCA).
Tests Intended as Blood Donor Screening or HCT/P Donor Screening Tests	Tests intended as blood donor screening or human cells, tissues, and cellular and tissue based products (HCT/Ps) donor screening tests required for infectious disease testing, or for determination of blood group and Rh factors.

 

FDA’s Proposed Phaseout Timeline & Key Considerations

The proposed rule sets forth a timeline to phase-in FDA’s premarket and post-market regulatory requirements for most IVDs offered as LDTs (as described above) within four years of publication of a final phaseout policy. The final phaseout policy is intended to be issued in the preamble of the final rule.

In developing the proposed phaseout policy, FDA cites five factors that it has considered – 

The public health importance of “better assuring the safety and effectiveness of IVDs offered as LDTs;”

The “desire to avoid undue disruption to the testing market;”

The “time it may take for laboratories to come into compliance with FDA’s requirements;”

FDA’s “need for adequate resources to implement the phaseout policy in a manner that does not undermine expectations with regards to premarket review timing (per the [current] Medical Device User Fee Amendments (MDUFA) V agreement);” and

Keeping the policy simple so that it can be “easily understood and implemented.”

The proposed rule structures the phaseout policy in five stages with regulatory requirements kicking in at the beginning of each phase. Notably, FDA contemplates that Stage 4 of the proposed phaseout policy can begin as early as October 1, 2027. In order for Stage 4 of the proposed phaseout policy to begin on such date, FDA would need to issue the final rule and policy by April 1, 2024.

Below we summarize the five stages of the proposed phaseout policy and highlight key considerations corresponding to each stage – 

• Stage 1: One year later
  •  New regulatory requirements enforced: 
    • Medical device reporting (MDR)
    • Reports of corrections and removals
  • FDA’s rationale: FDA would like to prioritize collection of information to identify and monitor risks, such as performance and quality issues, associated with LDTs.
  • Key considerations: FDA maintains in the proposed rule its discretion to “pursue enforcement action at any time against violative IVDs when appropriate” regardless of the phaseout timeline. Reports submitted to FDA may inform the agency’s decision whether to investigate or pursue such actions.
• Stage 2: Two years later
  • New regulatory requirements enforced: All regulatory requirements other than MDR, reports of corrections and removals, quality system requirements, and premarket review requirements. These requirements include:
    • Investigational use requirements
    • Establishment registration and device listing
    • Labeling, including Unique Device Identification (UDI)
  • FDA’s rationale: Obtaining facility registration and device listing information may help FDA to obtain an initial understanding of the universe of IVDs offered as LDTs to help the agency prepare for premarket review of such tests. FDA also indicates that requiring compliance with these requirements earlier than prior proposals provides for a simpler policy to implement.
• Key considerations:

• FDA maintains its position that is has always expected compliance with FDA’s investigational use requirements for LDTs despite its general enforcement discretion approach for such tests; however, it has included these requirements in the phaseout policy as FDA believes that laboratories often have not followed such requirements. We note that while some investigational uses of LDTs may require FDA review through submission of an Investigational Device Exemption (IDE) application, many IVD studies do not require an IDE to proceed.
• There is an annual establishment registration fee for device establishments, and there are no waivers or reductions for small establishments, businesses, or groups for this fee. The annual registration user fee for fiscal years 2023 and 2024 is $7,653.
• Best practices for advertising and promotion should be implemented; however, many medical device principles of advertising and promotion will become applicable in later stages of the phaseout policy once FDA clearance or approval has been obtained.

• Stage 3: Three years later
  •  New regulatory requirements enforced: 
    • Quality system (QS) requirements
  • FDA’s rationale: FDA believes that compliance with QS requirements is essential to ensure the quality and validity of IVDs offered as LDTs, and that three years is “adequate time for laboratories to come into compliance with QS requirements.” 
  • Key considerations:
    • For IVDs offered as LDTs for which all manufacturing activities occur within a single high-complexity CLIA-certified laboratory, FDA would expect compliance with solely a subset of QS requirements –
      • Design controls (21 C.F.R. § 820.30)
      • Purchasing controls, including supplier controls (21 C.F.R. § 820.50)
      • Acceptance activities (receiving, in-process, and finished device acceptance (21 C.F.R. §§ 820.80 & 820.86)
      • Corrective and preventative actions (21 C.F.R. § 820.100)
      • Records requirements (21 C.F.R. Part 820, Subpart M)
    • For all other IVDs offered as LDTs that are subject to the phaseout policy, FDA would expect compliance with all QS requirements three years after finalizing the phaseout policy.
    • FDA has proposed to amend its device QS regulation (21 C.F.R. Part 820) to more closely align with international consensus standards (87 Fed. Reg. 10119 (February 23, 2022)). FDA indicates that it intends to finalize the amendment to the QS regulation expeditiously such that the amended QS requirements would be in effect before the beginning of Stage 3 of the proposed phaseout policy.

Stage 4: 3.5 years later (but not before October 1, 2027)

• New regulatory requirements enforced: For high-risk IVDs offered as LDTs –
  • Premarket Approval (PMA)
  • Humanitarian Device Exemption (HDE) 

FDA’s rationale: FDA believes that 3.5 years is sufficient for laboratory developers to determine whether their tests require PMAs, and if so, to plan and prepare their PMA submissions (or HDE submissions, if applicable). In addition, FDA aligns this stage to start no sooner than the beginning of the next user fee cycle in fiscal year 2028.

Key considerations:

• Under the proposed policy, if a PMA has been submitted within the 3.5 year timeframe for an IVD offered as an LDT, FDA would generally not enforce against such test until FDA completes its review of the application.
• Compliance with QS requirements is needed to support approval of a PMA, and as such, laboratory developers of high-risk tests should be particularly mindful of addressing QS requirements, including design controls, early.
• It is often unclear, in particular for novel tests, whether a test would be considered by FDA to be sufficiently high-risk as to warrant a PMA. As the 3.5 year mark approaches, FDA may become resource constrained, which may impact the agency’s ability to provide timely feedback on the applicable regulatory framework for a sponsor. Accordingly, laboratory developers should seek counsel early to determine the applicable regulatory pathway for their test.
• PMA applications are currently subject to a substantial user fee. While the application fees are subject to the next round of user fee negotiations, the user fees for a PMA in fiscal year 2024 are as follows.
  
  

Application Type	Standard Fee	Small Business Fee*
PMA	$483,560	$120,890**
Annual fee for periodic reporting on a Class III device	$16,925	$4,231

 

* Small businesses with an approved Small Business Determination with gross receipts or sales of $100 million or less are eligible for a reduced fee.

** Small businesses with an approved Small Business Determination with gross receipts or sales of $30 million or less are eligible to have the fee waived on their first PMA.

• Stage 5: Four years later (but not before April 1, 2028)
  • New regulatory requirements enforced: For moderate risk and low risk IVDs offered as LDTs that require premarket submissions – 
    • Premarket notification (510(k))
    • De Novo classification 
  • FDA’s rationale: FDA determined that low- and moderate-risk devices should have an additional six months to allow FDA time to focus first on high-risk IVDs offered as LDTs. FDA also acknowledges that a greater number of IVDs are subject to the 510(k) requirements.
  • Key considerations:
    • Under the proposed policy, if a 510(k) or De Novo request has been submitted within the four-year timeframe for an IVD offered as an LDT, FDA would generally not enforce against such test until FDA completes its review of the submission.
    • Of IVDs that require marketing submissions, FDA regulates the vast majority of such IVDs as low to moderate risk tests. Accordingly, it is anticipated that a large volume of submissions for marketing authorization would be filed with the FDA at the four-year mark, and FDA will possibly become resource-constrained as that time approaches.
      • In the proposed rule, FDA encourages laboratory developers “to begin early and work towards compliance with requirements sooner than the end of the specified timeframes.”
      • During the COVID-19 pandemic when FDA resources became strained, certain pre-submission meetings were halted and others delayed by FDA. As such, beginning work early may be of particular importance for laboratory developers looking for feedback from FDA prior to submitting for marketing authorization.
      • To ensure a submission receives appropriate attention, particularly from senior management who are often critical to resolve review issues identified from lead reviewers, laboratory developers should consider whether their tests are eligible and would benefit from FDA’s Breakthrough Devices Program or Safer Technologies Program (SteP).
  • 510(k) submission and De Novo requests are currently subject to a substantial user fee. While the application fees are subject to the next round of user fee negotiations, the user fees for fiscal year 2024 are as follows:
    
    

Application Type	Standard Fee	Small Business Fee*
510(k)	$21,760	$5,440
De Novo Classification Request	$145,068	$36,267

 

* Small businesses with an approved Small Business Determination with gross receipts or sales of $100 million or less are eligible for a reduced fee.

Questions Raised by FDA’s Proposed Policy

FDA Requests for Comments

While FDA’s proposed phaseout policy does not include provisions seen in past proposals that would provide for regulatory flexibility for certain subsets of LDTs, FDA specifically requests comments for a number of these – 

• Grandfathering: FDA anticipates that it will receive feedback that FDA should, for some or all currently marketed LDTs, continue its current general “enforcement discretion” approach, particularly with respect to premarket review and some or all QS requirements. FDA requests that such commentators provide a public health rationale to support their position, including any data and ideas that might help address the public health concerns FDA noted in the proposed rule. 
• Small Laboratories: FDA recognizes that its phaseout approach may have a greater impact on small laboratories with lower annual receipts and asks that commentators provide a public health rationale for having a longer phaseout period for such entities, along with an alternative recommended timeline. 
• Academic Medical Centers (AMCs): FDA requests comments from stakeholders on the following:
  • The characteristics of AMC laboratories and how such characteristics distinguish AMC laboratories from other laboratories;
  • What regulatory requirements should apply to tests manufactured by AMC laboratories, and if regulatory flexibility is offered, whether there should be any limitations to such flexibility; and
  • The public health rationale and evidence to support providing regulatory flexibility for tests manufactured by AMC laboratories.

In addition, FDA specifically requests public comment on the following – 

• Other circumstances warranting regulatory flexibility:
  • FDA seeks public comment on whether regulatory flexibility would be appropriate for IVDs offered as LDTs for public health scenarios beyond the policies the agency had implemented for certain COVID-19 and Monkeypox tests at the beginning of each declared emergency. 
  • FDA is also seeking public comment on whether there would be unintended consequences that result from the proposed phaseout policy to certain patient populations (e.g., Medicare beneficiaries, rural populations, etc.) and what steps could be taken to mitigate those consequences.
• Leveraging other Accreditation or Validation Programs: FDA is interested in and seeks comments on leveraging programs such as the New York State Department of Health Clinical Laboratory Evaluation Program (NYSDOH CLEP) or other programs within the Veterans Health Administration.
  • FDA would like to know whether it should apply none or only some of its regulatory requirements where such programs are leveraged. Specifically, FDA would like information on the characteristics of and activities within these programs to justify this approach, and whether there are any additional considerations that should be taken into account. 

Additional Open Questions

We continue to unpack the proposed rule and policy and its impact on the diverse groups of stakeholders affected. The proposed rule and policy leaves a number of significant questions open, including (but not limited to) the following – 

• Scope of the phaseout policy:
  • What LDTs are not “manufactured and offered” within the meaning of the proposed enforcement policy? If finalized as proposed, how and when will FDA enforcement priorities shift to address LDTs that are not “manufactured and offered” by a high-complexity laboratory?
  • Will FDA change course and allow currently marketed tests (or a subset thereof) to be grandfathered?
  • Will FDA change course and offer continued regulatory flexibility to any other subset of LDTs (e.g., LDTs for unmet needs, tests for rare diseases, LDTs manufactured by AMCs)?
  • Does FDA’s proposed policy strike the appropriate balance to advance the public health? What additional regulatory flexibilities would advance the public health?

• Implementation of the phaseout policy:
  • Will the phaseout policy allot sufficient time for laboratory developers to come into compliance with FDA’s regulatory requirements, and in particular, FDA’s amended QS requirements, including design controls, when finalized?
  • Will FDA become resource-constrained and to what degree as a result of the phaseout policy, and how will this affect the following?
    • The next round of user fee negotiations, which will precede when LDTs are called in for premarket review in Stages 4 & 5 of the proposed phaseout policy;
    • The timeline for premarket review of all new or modified IVDs, including conventional IVDs which do not benefit from the continued “enforcement discretion” afforded to IVDs offered as LDTs during the pendency of FDA’s review; and
    • Whether FDA will limit access to its Q-Submission Program as a result of resource constraints.
  • How will FDA leverage third parties for premarket review of LDTs and/or inspection of laboratory developers?
  • Following Stage 5, should a De Novo request for an IVD offered as an LDT need to be denied / be converted to a 510(k) on account of another De Novo request being granted during the pendency of review, what impact, if any, will this have on the continued “enforcement discretion” allotted to such test during the pendency of the FDA’s review of the submission?
  • Should the Stage 4 or 5 deadline for submitting a premarket submission fall early in a fiscal year, will FDA extend the timeframe for laboratory developers to obtain Small Business Certification prior to the beginning of that fiscal year, given the high-volume of requests that may need to be processed by FDA?

• Application of regulatory requirements to LDTs:
  • Will FDA exercise additional regulatory flexibility with respect to any regulatory requirements (e.g., labeling, UDI requirements, etc.) for all or some LDTs?
  • The Consolidated Appropriations Act, 2023 codified the concept of predetermined change control plans (PCCPs) to modernize and streamline the manner in which post-clearance or approval modifications can be made. How can PCCPs be applied to LDTs or subsets of LDTs in a manner to advance the public health?
  • What guidance or additional resources will FDA make available over the course of the phaseout period to laboratory developers?

• Impact of the phaseout policy on other relevant laws and policies:
  • What impact will the proposed phaseout policy have on the approach currently being piloted for oncology companion diagnostics?
  • What impact will the proposed rule have on analyte specific reagents (ASRs) and research use only (RUO) products?
  • Will the proposed LDT regulatory regime have an impact on the Sunshine Act, which is applicable to medical devices that require FDA authorization, and require LDT companies to submit disclosures regarding payments and transfers of value made to physicians and other practitioners?
  • Will the proposed regulatory changes have an impact on the process for coverage and reimbursement, whether among private payors or government programs, like Medicare or Medicaid?

Lastly, and significantly, the fate of the rule and policy will depend on the priorities of the Administration as well as Congress. Moreover, it is to be seen the extent the rule, when finalized, is challenged in the courts.

The deadline for submission of comments on the proposed rule (unless extended) is December 4, 2023. 

If you have questions on the proposed rule or its potential impact, or would like assistance in submitting a comment, please contact the authors or a member of the Goodwin Life Sciences Regulatory & Compliance team.