Home 5 Clinical Diagnostic Insider 5 Laboratory Industry Split on Anticipated Impact of FDA’s LDT Regulation Framework

Laboratory Industry Split on Anticipated Impact of FDA’s LDT Regulation Framework

by | Feb 19, 2015 | Clinical Diagnostic Insider, Diagnostic Testing and Emerging Technologies, Reimbursement-dtet

The laboratory industry has now had a few weeks to mull over the U.S. Food and Drug Administration’s (FDA’s) framework for increasing its regulation of laboratory-developed tests (LDTs), and the reaction is decidedly mixed. Commercial diagnostics companies are projecting a much more optimistic tone, with analysts noting public testing companies have been factoring an increased regulatory environment into their strategies and are well-positioned to make the transition. Directors in the academic and hospital laboratory sector, on the other hand, have said the outlined framework is a “nightmare” that will have a “crippling” effect on their operations and will negatively impact clinical laboratory care. DTET spoke to stakeholders throughout the industry to better understand the anticipated impact of the expanded regulation. Evolution of LDTs Raised FDA Concern “While CLIA oversight has played an important role in ensuring clinical labs are operating appropriately, it has not necessarily ensured that LDTs are properly designed, consistently manufactured, and are safe and effective for patients,” writes Philip Desjardins, former FDA lawyer and current counsel at Arnold & Porter (Washington, D.C.) in an August advisory. The need for oversight, the FDA believes, stems from the perceived increasing risk patients face resulting from the expanded complexity and […]

The laboratory industry has now had a few weeks to mull over the U.S. Food and Drug Administration’s (FDA’s) framework for increasing its regulation of laboratory-developed tests (LDTs), and the reaction is decidedly mixed. Commercial diagnostics companies are projecting a much more optimistic tone, with analysts noting public testing companies have been factoring an increased regulatory environment into their strategies and are well-positioned to make the transition. Directors in the academic and hospital laboratory sector, on the other hand, have said the outlined framework is a “nightmare” that will have a “crippling” effect on their operations and will negatively impact clinical laboratory care. DTET spoke to stakeholders throughout the industry to better understand the anticipated impact of the expanded regulation. Evolution of LDTs Raised FDA Concern “While CLIA oversight has played an important role in ensuring clinical labs are operating appropriately, it has not necessarily ensured that LDTs are properly designed, consistently manufactured, and are safe and effective for patients,” writes Philip Desjardins, former FDA lawyer and current counsel at Arnold & Porter (Washington, D.C.) in an August advisory. The need for oversight, the FDA believes, stems from the perceived increasing risk patients face resulting from the expanded complexity and availability of LDTs since the agency was given explicit authority over diagnostic tests over 35 years ago. Desjardins says that the FDA’s previous decision to exercise enforcement discretion stemmed from the fact that LDTs were initially low-volume tests or limited to a small population, similar to “standard diagnostic devices,” required manual techniques by lab personnel, and were typically used and interpreted directly by clinicians working within a single institution that was responsible for the patient. However, Desjardins notes that is not the case today. Now LDTs are often used in laboratories that are independent of the health care delivery entity, are “frequently” manufactured with components and instruments that are not legally marketed for clinical use, and tend to rely on automated instruments and software to generate results, he says. What Is Known As expected by many in the diagnostics industry, the outlined framework includes provisions for LDTs to be evaluated using a risk-based approach, which will rely upon the existing medical device classification system. Some factors the FDA will consider in assessing risk include the disease and population of intended use, whether the device will be used for screening or diagnosis, the nature of clinical decisions affected by results, and consequences of erroneous results. The FDA intends to continue to exercise enforcement discretion for LDTs used solely for law enforcement purposes and certain LDTs used for transplantation. Light regulatory requirements, including registration and listing and adverse event reporting, will be expected for low-risk LDTs, LDTs for rare diseases, “traditional LDTs” (similar to those available in 1976 when enforcement discretion first began), and “LDTs for Unmet Needs,” when no FDA-approved or cleared equivalent device is available. Registration and listing, adverse event reporting, plus premarket review and quality systems regulation (QSR) requirements will be expected for moderate- and high-risk LDTs, although the timeline for enforcement will differ based on risk. Stakeholders were pleased that the FDA addressed some previous concerns expressed by the laboratory and diagnostics industry, namely that notifying the FDA of an LDT does not trigger the medical device tax and that the FDA intends to continue its enforcement discretion for currently available tests undergoing agency review of premarket submissions. Also encouraging was that the FDA “generally intends to rely on the scientific literature to support clinical validity if appropriate.” Outstanding Questions But despite some clarification, many outstanding questions remain. “The new LDT notification documents address but do not answer several critical issues,” writes Bruce Quinn, M.D., Ph.D., senior health policy adviser at the law firm Foley Hoag, in a life science alert. “While high-risk tests would be first to be subject to premarket review, there is little to illuminate precisely how FDA intends to assess risk, which intended use and diagnostic claims will be permissible or feasible, or what types and amounts of evidence will be required in premarket review.” The definition of high-risk has large repercussions, not only in designating the regulatory pathway but also the timeline for initial enforcement. “All stakeholders on every conceivable side of this issue have tried to define just what is high-risk, and I have been party to this for over a decade of conversations,” said Mark Grodman, chief executive officer of BioReference Laboratories, on an August earnings call. “I will tell you that there hasn’t in this entire time ever been a concurrence, consensus, or resolution of this definition.” Laboratory experts have also raised the question about the need for additional submissions if modifications to the test or operational process changes are made following FDA-approval or clearance. Edward Ashwood, M.D., CEO of ARUP Laboratories (Salt Lake City), cites the rapidly evolving space of clinical sequencing as a particular area of concern for this. “Is what database you compare the sequence to part of the test?” questions Ashwood. “Are improvements to the database considered changing the test even if you are not changing the instrument or the chemistry?” Additionally, there are serious questions if the notoriously slow FDA can handle the dramatic increase in submissions expected to come with LDT regulation. Grodman calculates that there are about 11,000 laboratories in the country that perform complex testing in the United States that may perform as many as 100,000 to 200,000 discrete assays. This volume of submissions, he says, is a “huge undertaking” for an agency that typically clears 25 discrete assay premarket approvals annually. Industry Split on Impact Critics cite the costs of additional compliance work, lengthier time to market, and challenges to implementing test improvements as potential negative effects expanded regulation could have on the diagnostics industry, all of which could ultimately impact care and stifle research and innovation. Concern is perhaps greatest among academic and hospital laboratories. Weeks before the FDA’s congressional notification, laboratory directors from 20 academic centers sent a letter to the Office of Management and Budget in opposition to FDA regulation of LDTs. The group—collectively representing thousands of LDTs—questions the FDA’s authority to regulate the tests, calling them “services, not devices,” which are part of the “practice of medicine.” “This is a very difficult framework to work in,” Ashwood, the lead author of the letter, tells DTET. “They are treating us as manufacturers and are not considering that we are clinical labs.” The clinical care aspect of testing, Ashwood believes, will suffer as a result of the regulation. He says the approval-related costs will make it unfeasible for all current tests to be translated into the FDA regime, thereby limiting access to testing. For other tests, the increased “lag time” from submission to approval will effectively withhold advances in technology and biological understanding from clinical care. “An academic laboratory may have a test menu of 100 tests that require a premarket submission, and that number is not out of the realm of possibility,” explains Ashwood. “Then there is the cost of that submission, which could be tens of thousands of dollars per test. Who is going to bear the cost of that submission?” It will also take extensive time to prepare submissions. Ashwood says academic laboratories run LDTs in a “service mode” and don’t systematically review outcomes for all patients tested. Doing so requires institutional review board approval and patient consent, which may become necessary to demonstrate clinical validity to the FDA. Given the expenditure of effort, time, and money for submissions, make-or-buy decisions will need to be made for each test. The decision to buy a kit is not always decided by price, Ashwood tells DTET. Utilization of kits can be limiting in terms of the rapidity with which new variants can be added to molecular tests. As an example, Ashwood cites BRAF. The first FDA-approved BRAF test, which Ashwood says cost $18 million to develop, is limited to assessment of one variant. LDTs can detect more variants and can more quickly incorporate new variants as the understanding of clinical significance grows. Kit manufacturers are incented to sell the test for as long as possible to recoup research and development (R&D) costs. While the FDA’s regulation of LDTs is touted by in vitro diagnostic device manufacturers as leveling the playing field, Ashwood says it holds the potential to create an environment of “monopolies for obsolete FDA-approved tests.” “The FDA stamp freezes a test in time,” Ashwood says. “Three of every four R&D dollars in my lab are spent on improvements of older assays, and some of them aren’t that old. With this framework we won’t be able to take advantage of rapid improvements in technology. Can you imagine if we receive approval, launch a test, and then have to submit another 510k in six months and wait for review before we can use the improved test?” Analysts for the commercial laboratory sector are more optimistic, saying the framework allays uncertainty and that many large companies have already factored an increased regulatory environment into their strategies. Illumina, for example, already had plans to ramp up the number of products it brings through the FDA process, says Bryan Brokmeier, vice president and senior equity analyst of life science tools and diagnostics at Maxim Group. The company was pursuing the strategy in advance of the LDT regulation plans in order to accelerate clinical adoption of sequencing. Nationally available, widely used LDTs from companies such as Myriad Genetics, Genomic Health, and Foundation Medicine may be best positioned to enter the new regulatory paradigm. Experts say these existing tests, with established clinical utility and payer coverage, will be able to fairly easily file FDA submissions and may commercially benefit from a higher bar for new entrants to enter the market. This sentiment was echoed by CEOs from these companies during quarterly earnings calls held in August. Foundation Medicine’s CEO, Mike Pellini, said his company welcomes the adoption of rigorous standards for LDTs. “From the early days, our company has been working in anticipation of an increased FDA oversight of LDTs. . . . We are already designing and building our QSR compliance lab, which will support the development and processing of FDA-approved tests and is expected to be completed next year,” he said. “A hidden benefit might be that as we transition to value-based pricing, it is easier to achieve with the clinical validation that comes from FDA approval,” says William Quirk, senior research analyst at Piper Jaffray & Co. “I am optimistic based on payer comments that there will be improvement in reimbursement for tests that have clinical utility and I would argue also economic utility. The up-front premarket costs [with increased regulation] are higher, but companies will need that clinical validation anyways to convince physicians to use the test. For those that can keep an eye on costs and the economics of the test, innovative companies will continue to push diagnostics forward.” Takeaway: Reaction is mixed to the FDA’s proposal to regulate LDTs. While many labs are concerned about the impact on their ability to develop and modify tests, others say they have already factored increased regulation into their business models. Side Box: Lyme Disease Assay Highlights Questions About LDT Quality A public back-and-forth between the U.S. Centers for Disease Control and Prevention (CDC) and Advanced Laboratory Services (ALS; Sharon Hills, Pa.) highlights concerns over the level of validation needed for LDTs. This past spring, the CDC issued a clear warning to patients and clinicians to use only the 83 FDA-approved diagnostics for Lyme disease. The CDC recommends a two-step testing process: first, an FDA-cleared enzyme immunoassay, followed by confirmatory Western blot in immunoassay-positive or equivocal cases. ALS offers an LDT that uses a novel culture method to identify Borrelia burgdorferi, the spirochete that causes Lyme disease ($595 for the basic culture and $695 for the monoclonal Immunostaining for Borrelia burgdorferi only). The CDC reviewed this LDT and has “serious concerns about false-positive results caused by laboratory contamination and the potential for misdiagnosis.” Side Box: Timeline for LDT Enforcement If implemented as the framework indicates, enforcement will be phased in over a nine-year period. The clock will start ticking following issuance of the final guidance, which is now estimated to be January 2016. Milestones include:
  • »Descriptions of class I, II, and III tests will likely take 18 months to 24 months after guidance is finalized.
  • »Enforcement of premarket review and QSR requirements for the highest-risk LDTs may begin in 2017.
  • »2019 through 2021—Phased-in enforcement of premarket review and QSR requirements for Class III LDTs.
  • »2021 through 2025—Phased-in enforcement of premarket review and QSR requirements for Class II LDTs.
While designation of risk affects the timeline, William Quirk from Piper Jaffray said individual company filings can accelerate the timeline for the entire sector. For instance, Myriad is expected to accelerate the timeline for other BRCA test providers (like Ambry, Counsyl, LabCorp, and Quest) by filing its BRACAnalysis as a companion diagnostic for olaparib. Similarly, Illumina’s expected filing for the verify assay will accelerate the timeline for other prenatal test providers like Natera and Sequenom.

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