First looks and fast takes on LDT final rule

June 2024—The Food and Drug Administration’s final rule on laboratory-developed tests was released April 29 and published May 6. Shortly after, Compass Group laboratory leaders met online with CAP TODAY publisher Bob McGonnagle, who asked for their early reactions to what they heard and read.

Among the categories for which the FDA has indicated its intent to exercise partial enforcement discretion are LDTs manufactured and performed by a laboratory that is integrated within a health system and that meet an unmet medical need.

Here, this month, is the conversation that took place in early May. Next month we will publish our story on the final rule and the views of others.

The Compass Group is an organization of not-for-profit IDN system lab leaders who collaborate to identify and share best practices and strategies.

At the Executive War College in May, Tim Stenzel, retired director of the FDA’s Office of In Vitro Diagnostics, spoke on the laboratory-developed test final rule. His take was that it set a low bar. He thought people should feel less anxious and more reassured, in part because of the full and partial enforcement discretion categories, including the partial enforcement discretion for labs owned by a health system and for LDTs approved under New York State’s program.

Greg Sossaman, can you comment on what we heard from Tim Stenzel at the War College on April 30?

Gregory Sossaman, MD, system chairman and service line leader, pathology and laboratory medicine, Ochsner Health, New Orleans: I’ve had a dozen conversations with people about what is meant by the health system language in the final rule. We as health systems certainly welcome the enforcement discretion piece.

Many reference labs are already registered with New York State. You can picture New York State being flooded in the next few years; they’re busy already and have limited personnel. Another piece of the discussion was about the grandfathering of some LDTs. Of course, that doesn’t address the future.

He also discussed whether there is a role for legislation or lawsuits going forward. The American Clinical Laboratory Association filed a lawsuit last time around. What will happen with the lawsuit now? Many of the reference labs that were part of ACLA won’t be nearly as impacted as we thought they would, particularly with the New York State route. Is there a role for a lawsuit now? Because as Stenzel put it, it looks like nearly everybody got something out of this.

Tony Bull, what did you make of the overall atmosphere around LDTs at the War College?

Tony Bull, system administrative officer, pathology and laboratory medicine, Medical University of South Carolina: There’s a lot of angst around the topic. It was in some ways good to hear about possibly some grandfathering and softening of the rule. One of the speakers used a phrase that has stuck with me, and that’s “There is no free cheese in the mousetrap,” because a lot of this is due to enforcement discretion. I don’t know that it gives the lab industry anything solid to bank on.

Jane Pine Wood, counsel at McDonald Hopkins, was not as optimistic about the final rule as Tim was. There’s still a lot of ominous potential, she said. She outlined the very definition of LDT as being a medical device. Insofar as that is true, there will be fees in registering those LDTs; that will happen even if it’s grandfathered. She raises the more interesting specter of the FDA demand for quality systems in manufacturing, which is pretty intense.

Donna Wolk, you must use many LDTs in your work at Geisinger. Do you have a comment on the LDT rule?

Donna M. Wolk, MHA, PhD, D(ABMM), division chief, molecular and microbial diagnostics and development, Geisinger Medical Laboratories, Danville, Pa.: We support many LDTs or LDPs, based on the definition, including modified FDA-approved assays for various sample types. Technically, nasal turbinate samples, which were acceptable during the pandemic for EUA testing, are off-label for some FDA-approved respiratory testing. Once the EUA expires, they become LDTs. Our strategy was to verify samples as an LDP during the pandemic, going above and beyond the EUA criteria. I wonder how the FDA will make that conversion. Because the EUA testing is under FDA oversight, different messages are coming out.

We will have to decide which samples and assays we have to reverify and which we don’t. Many of these tests are expensive and reverifying will be costly. The downstream patient impact will also be felt if testing has to be discontinued. From our perspective, New York State laboratory scientists might be better equipped to review our verification packets for LDT, but I imagine they will be overwhelmed with applications. We are waiting to see if other deemed agents of the FDA are named.

The FDA is familiar only with IVD and has no experience in verifying LDTs or LDPs. In Pennsylvania, we already submit our verification packet to the state department of health. Now federal law is overriding state law. All our assays are approved in Pennsylvania and according to CLIA regulations, but not necessarily from the FDA view.

Where do you sit on the calm-angst spectrum?

Dr. Wolk (Geisinger): I sit in the middle. The three government agencies—CMS, CDC Division of Laboratory Systems, and FDA—all have their unique spin to the topic. It was an eye-opening experience to serve on the Clinical Laboratory Improvement Advisory Committee. It was clear that FDA had the idea that it has a role outside its oversight of industry. It’s also clear that, with rare exceptions, CMS had the previous ownership and did its job well. Personally, I didn’t think the FDA overreach would get this far. If you take away a few pop-up testing services launched during COVID that performed testing poorly, there have been very few harms. I thought the FDA overreach would burn itself out, as in the past, but here we are.

Pete Dysert, what is your reaction to what you’ve read and heard so far?

Peter Dysert, MD, chief, Department of Pathology, Baylor Scott & White Health, Dallas: The devil is in the details. It’s not clear to me how this will be enforced. I’m not sure if we’ll be required to submit the equivalent of a lab activity menu, whether CMS or CLIA will join with the FDA as part of this regular accreditation inspection process. I think there is some relief, but it’s too early to know. Only with time are we going to figure out how much additional overhead this will bring to an industry that’s already viewed as a commodity from a financial perspective—it’s about price and nothing else. I’m conflicted at this point, depending on how things get implemented. And none of us knows how the payers will translate this from a reimbursement perspective.

I remain concerned that we’re seeing the marginalization of our traditional academic enterprises introducing new technologies, leaving development largely in the hands of commercial enterprises.

Eric Carbonneau, give us your reaction to the events of the past weeks.

Eric Carbonneau, MS, MLS(ASCP), chief operating officer, TriCore, Albuquerque: We’re redoing many of our audits of our test menu, making sure we know the definitions of LDTs, and getting our PhD and medical staff on the same page of what the rulings are and what the next steps could be for all of us.

On a scale of one to 10, 10 being maximum anxiety, where are you?

Eric Carbonneau (TriCore): We’re around a seven. We’re fairly anxious, mostly because of the burden and trying to decide what tests we’re going to keep and what tests we will have to partner on. That’s the impact for us. Part of TriCore is owned by University of New Mexico, so they may try to lean into the unmet needs for one system. Even if that works, it’s one-third of TriCore’s hospital systems. We can’t fix it for one-third of the population; we have to fix it for everybody.

There’s a shortage of staff in labs, at the FDA, and in the in vitro diagnostics world. A lot of players will be competing for a relatively small number of experts.

Stan Schofield, can you sum up your thoughts on the ruling?

Stan Schofield, VP and managing principal of the Compass Group, formerly of NorDx/MaineHealth: I plowed through 410 pages of the ruling and it was painful, a lot of repetition. I came out with four or five items about New York State, preexisting, grandfathering, integrated delivery networks. And instead of being a nine or 10 on the angst scale, I’m about a five to six now. We were moving away from LDTs at NorDx because of the intellectual capital and loss of key staff after COVID. At the moment, it’s all yet to be shaken out.

The need for legal action has been diminished to a point. It may not be worth the effort or cost to try to extract something else. For the moment, we’ve avoided a train wreck, but we still have to move the freight on the rail line. It’s going to be overcrowded and slow and we’ll have to make sure the bridges ahead haven’t been washed out or weakened.

Dwayne Breining, what do you make of the recent events?

Dwayne Breining, MD, executive director, Northwell Health Laboratories, New York: The FDA threw us a bit of a curveball in New York because now another concern is whether there will be a rush of people going to New York State.

I’m in the category of concerned people. The FDA kicked the can down the road without making a clear declaration other than reasserting that it thinks this is its jurisdiction, that LDTs are medical devices. I’m not seeing much daylight there anymore. Sooner or later they’re going to realize how big the tiger is that they caught by the tail.

New York State has a list of every analyte we test, whether or not it’s an LDT, and of all the reagents and ingredients used for that testing and it’s put in the appropriate category, so we’ll continue doing that. It does raise questions, because we’re coming up on summer and in New York we get the worst real estate for the lab wherever we are. The HVAC systems can’t keep up with the heat and humidity, so every summer our main analyzers go out of spec and, by the technical reading of the regs, are LDTs. Is that where enforcement discretion will eventually go? I sure hope not. I don’t think we’ve answered any more questions with this ruling.

What’s the immediate reaction in particular among people who are doing a lot of surgical pathology and cancer diagnostics and biomarkers? Do you have a feel for how that’s being received?

Dr. Breining (Northwell): Where everyone was planning on possibly putting a full stop on some of their activities and scrambling to get their LDTs grandfathered because the thinking was that there was going to be a brick wall, that’s not happening. We have a way to proceed as we were before, but there’s still nervousness that what’s been put forward as a final rule doesn’t seem so final. It seems there are a few question marks with the enforcement discretion.

John Roback from Emory, can you comment on the ruling?

John D. Roback, MD, PhD, executive vice chair of clinical operations, vice chair of clinical pathology and laboratory medicine, and director, Emory Medical Laboratories: The topic came up today when we were discussing our strategy for digital pathology. We were a little worried by the ruling and felt the safest strategy might be to focus on scanners that have 510(k) now, which is a change for us because when we first started down this route about a year ago, we decided we would follow a validation pathway consistent with CAP guidelines, so we weren’t as worried about it. It’s changing our thought process.

How are you reacting to the AI mania that seems to be spreading like wildfire?

Dr. Roback (Emory): We’re looking at it closely. It’s hard to make a commitment now because we’ve seen a couple of commercially available products that we think, based on our internal assessment, would do a better job than what we’re doing now on things like ER/PR, HER2/neu. Emory University and its School of Medicine have a huge AI initiative. A lot of money has been put up to recruit the best and brightest academic stars in AI, and many of them have a strong interest in digital pathology. We’re also contemplating what kind of interesting products they might develop that we need to look at. We’re at the beginning of our journey, figuring out how to implement AI once we’ve digitized our slides.

We’re seeing a large number of acquisitions of systems. Labcorp has purchased Sonic’s WestPac Labs in California. Several companies that went into bankruptcy have been bought out—Labcorp bought Invitae and Bruker bought NanoString. Stan Schofield, do you agree there’s a lot of M&A activity?

Stan Schofield (formerly of Maine Health): Absolutely. COVID kept everybody under the raincoat and now everybody’s opening the raincoat because Labcorp and Quest are still flush with cash. There’s a lot of venture capital dollars in biotechnology and they’re trying to put the money to work. In many of the legacy companies we know about, there are new calls for capital funding and new rounds of funding for them to expand and become more active in mergers and acquisitions. There are a lot of calls about the medical courier space and autoimmune testing and devices, all in the last two months. Where you never heard about those topics out of Wall Street, it’s common now.

Labcorp and Quest are knocking on the doors of all the hospitals again. Nationally, 51 percent of all hospitals are still losing money. The cause is contract labor costs and no new revenue streams. More people are inviting the blood brothers in for a serious discussion. Everybody who is in a lab needs to connect with their C-suite almost daily to reestablish the value of the laboratory.

I was surprised at the War College how much intense talk there was around mergers and acquisitions. Tony Bull, what’s your take on that element?

Tony Bull (MUSC): I agree it’s turning up. I also know some of the commercial labs are hiring additional people to help in those efforts.

There is another topic I’d like to touch on, which is what appears to be the dissolving of decentralized primary care at Walgreens and Walmart. It looks like it’s starting to fizzle out. Walmart announced it will close its 51 centers. It did not see a pathway to become profitable.

Does anyone have a different experience with this long-vaunted lab in a pharmacy or grocery store model or a comment about whether it is ever going to take off?

Dr. Breining (Northwell): In New York we’ve seen it, but at a different level. It’s the urgent care industry that has more or less supplanted traditional family practice, primary care models. If you’re below a certain age, the idea of going to a family doctor or internist is a foreign concept. We’ve been surprised speaking to young women who are not concerned about having a regular Ob-gyn to see because they just move over to episodic care.

The urgent care model and freestanding EDs, where they have decent moderate-complexity lab tests on offer, will supplant everything else. Stan Schofield, do you have a contrary opinion on that?

Stan Schofield (formerly of MaineHealth): No. The hospital territory around primary care is over as far as CVS, Walgreens, and Walmart are concerned. The weak link is being able to establish primary care providers and afford them in a low-volume, high-cost environment—they can’t make it work. Providers don’t want to be associated with that brand name and/or perception as far as a professional locale or career site. The location, lack of quality people, delivery of service, and ease of access are all washed out because to do it right costs them too much and they’re bailing.

Customer service is the differentiator that many local and regional labs have that helps them stay in business. You can’t ignore that. The customer is king.

Editor’s note: The American Clinical Laboratory Association and its member company HealthTrackRx filed a lawsuit against the FDA on May 29 challenging the final rule.