Another FDA Power Grab

T he comment period for the Food and Drug Administration’s latest power grab has just concluded. Roughly 20,000 comments were submitted addressing the FDA’s proposed rule which explicitly asserts its long-claimed authority to regulate laboratory-developed tests (LDTs) as medical devices. Many of these comments — including one from the Competitive Enterprise Institute where I am a senior fellow — and a Paragon Health Institute paper I wrote argue that the FDA lacks statutory authority to regulate LDTs, would be unwise to do so, and is ill equipped to undertake the task.

The Federal Food, Drug, and Cosmetic Act (FDCA) gives the FDA broad authority to regulate medical devices “intended for use in the diagnosis of disease.” The agency mandates a pre-market review of diagnostic test kits manufactured by one entity and sold for use elsewhere.

The FDA has also asserted for at least 30 years that this includes the authority to regulate LDTs — tests that are designed, manufactured, and used within a single laboratory — as devices. Many academic and public-health labs, for example, developed tests for rare genetic conditions seen in their patient populations, cancer markers, and emerging infectious diseases such as HIV when no other tests were available.

But until recently, the FDA, citing “enforcement discretion,” has rarely regulated LDTs. LDTs have instead been regulated under the Clinical Laboratory Improvement Amendments of 1988 (CLIA), under which laboratories that are certified to perform high-complexity testing — the highest of three levels of complexity under CLIA — may develop and use LDTs.

LDTs are performed billions of times a year in approximately 12,000 CLIA certified high-complexity laboratories and generate billions of dollars in revenue. Exempting LDTs from FDA oversight gives specialized labs flexibility to rapidly create new tests for rare diseases and emergent situations.

Despite the FDA’s claims to the contrary, there is little evidence that LDTs are less reliable or accurate than FDA-approved tests. And awaiting the FDA’s review and clearance of new tests can delay critical testing with disastrous results.

Early in the Covid-19 pandemic, the FDA ceased its usual exercise of enforcement discretion that previously made LDTs readily available. The agency instructed academic and public-health labs to stop using Covid-19 tests they had developed and insisted that tests go through the FDA emergency-use-authorization (EUA) process. While EUA processes are less stringent than normal FDA approval and would expedite the approval of commercially distributed products, they would slow down the availability of LDTs that had previously escaped FDA attention under enforcement discretion. Unfortunately, the only EUA the FDA initially granted was for the Centers for Disease Control and Prevention’s test. Despite evidence that the CDC test was unreliable, the FDA persisted in requiring test EUAs that it seemed unwilling to grant. Testing was essentially unavailable during February 2020 as Covid-19 spread around the country.

It is doubtful that the FDA has statutory authority to regulate LDTs. The 1976 Medical Device Amendments to the FDCA do not mention laboratories, laboratory tests, or laboratory-testing services.

The FDCA describes devices as physical objects or articles that are “introduced into interstate commerce for commercial distribution” to third parties. In contrast, LDTs are developed in-house for use in a single laboratory to generate results for medical practitioners. LDTs are more like services that incorporate proprietary methodologies and protocols — a form of “medical practice” that the FDA is prohibited from regulating — than physical objects. The statutory language suggests that regulated devices have to be distributed beyond a single laboratory. LDTs are, by definition, developed and used within a single laboratory.

The FDA’s assertion of authority to regulate LDTs must overcome the fact that the FDCA is silent on this authority and contains multiple sections that undermine the FDA’s claim. In recent cases, the Supreme Court has confirmed that if an administrative agency tries to address an issue of great “economic and political significance” it “must point to ‘clear congressional authorization’ for the power it claims.”

Laboratories have openly developed LDTs that physicians used to diagnose and treat large numbers of patients for nearly 50 years. Yet the FDA has almost never regulated LDTs. As the Supreme Court noted in 2014, “when an agency claims to discover in a long-extant statute an unheralded power to regulate ‘a significant portion of the American economy,’ we typically greet its announcement with a measure of skepticism.” Congress has repeatedly proposed, but never passed, legislation which would explicitly empower the FDA to regulate LDTs, suggesting Congress doubts the FDA’s authority under the FDCA.

Moreover, it is unlikely that the FDA has the capacity to clear the thousands of existing LDTs along with reviewing new LDTs. The U.S. Government Accountability Office (GAO) found that laboratories had great difficulty navigating FDA’s EUA requirements during the pandemic, and the FDA was overwhelmed. GAO reported that almost two years into the pandemic, the FDA had not reviewed nearly half of the EUA test requests it received. The review procedures called for in the proposed FDA rule are more extensive than the expedited EUA reviews that the FDA had so much trouble carrying out.

The FDA acknowledges that its rule will impose significant compliance costs on laboratories that offer LDTs — $35.5 billion over the multi-year phase-in and additional recurring costs of $4.2 billion — leading some laboratories to exit the market or discontinue certain LDTs they offer. Ninety percent of the laboratories offering LDTs are small businesses. The new rule would impose annualized costs per small laboratory that are 22.9 percent of receipts, which, the FDA admits, will cause many to “exit the market or reduce operations.” If the prospect of a lengthy and costly FDA process discourages labs from creating innovative new tests or tweaking FDA-approved tests to make them better, patients will lose access to valuable tests for unmet clinical needs or where FDA-approved tests are inadequate.

The FDA’s proposed rule is ill-advised and likely exceeds the agency’s statutory authority. Changing the FDA’s longtime, default practice of enforcement discretion should come from Congress, which will have to ensure that proposals to regulate LDTs actually improve public health and preserve the development of lifesaving innovation.