Biden’s Lab-Developed Test Proposal

clinical laboratories. Susan has a deep healthcare policy and advocacy background, which includes over seventeen years leading the federal relations wing of the Healthcare Association of New York State, which represents New York's hospital and health system, and most recently was the executive director of adam DX, where she directed policy and advocacy for manufacturers of in vitro diagnostic clinical tests.

I'm looking forward to our conversation today because there's a lot going on in the clinical lab space, whether it's FDA regulatory policy or CMS payment policy. We'll dive into those topics today, So Susan, Welcome to the Votes in Verdicts podcast.

focusing on advanced diagnostics. They include companies such as Tempests, Exact Sciences, Neogenomics, Myriad, and many others, and all together again about forty members. We also have a category of associate membership that principally includes IVD manufacturers, so companies such as Abbott, BDH, Logic, Roche, Siemen's, ThermoFisher and others. Really gives us a nice expansive view of the whole diagnostics ecosystem.

But principally we're focused on advocating for policy to really expand patient access to innovative diagnostics for clinical laboratories.

that later, but also oversight of diagnostics. And at that time Senator Burr and Senator Murray were really driving a very active discussion on the Hill on the Valid Act, which was a piece of legislation that it would have established a diagnostic specific regulatory apparatus separate and apart from medical device and that this would have been one kind of cohesive regulatory framework. So we were heavily involved in that when I started. As we know, the Valid Act

did not cross the finish line, but this issue persists. Sure, we'll talk a little bit more about what's happened post Valid Act. But the way to think about ACLA priorities is that we have four key pillars of our work. The first pillar is reimbursement, so we focus on ensuring that we are representing the industry well when it comes to securing new codes and appropriate crosswalks or gap fills for payments for new tests and technologies, and of course

we'll talk about PAMMA and PAMA reform. Under reimbursement, we also spend quite a lot of time engaging with MAX on local coverage determinations and then of course private payers on coverage and payment policy. Second main pillar of our work is regulatory, so that's both with regard to KLEA and as we know, the KLIAK has put forward several dozen recommendations over the last year that CMS and HHS more broadly might consider, so we've been heavily involved there.

Also under the regulatory umbrella we have our engagement with the f A third category or pillar of our work is preparedness and infrastructure. So when I came on board, COVID was winding down, but then we had another public health emergency that was EMPOCS, and our laboratory stepped up to partner and support the public health labs in the country to dramatically augment capacity for IMPOS testing. We're very proud of that work. So our work on preparedness and

infrastructure continues. We do have a set of recommendations that we actually develop with the Johns Hopkins Center for Health Security. We're very proud of. It's a proposal for a national Diagnostics Action Plan, So we're continuing to work on that. And the last pillar of our work is in public affairs, and I'll just draw attention to a campaign that we started last year called the Power of Knowing, and that's all about ensuring that policymakers understand the foundational role that

diagnostics play in inform clinical decision making. You know, we really like to underscore for US disease awareness months or days how important that clinical laboratory testing really is to making sure that parent patients are diagnosed appropriately and set on the right course for treatment and monitoring of treatment to ensure the best outcomes.

address rare diseases and that's tremendously important. So it could be perhaps a small patient population, but these tests are essential in ensuring that we're identifying disease and again helping to drive clinical decision making. LDTs are also part of you know, routine tests, so when you take a regular annual physical, you'll have a number of core tests that will help your clinician just really ascertain how your overall

health is. And then of course LDTs are and I think, uh, you know critically here for this discussion we're going to have about the role of the f d A LDTs are really a way where we see innovation being driven in diagnostics broadly, LDTs have the capacity to respond quickly, whether it's to a public health emergency or to ensure that the latest scientific understanding of a disease, of characteristics

of a disease. I'm sure we'll talk a little bit about biomarkers, but how do we translate the latest scientific discoveries into diagnostics to really help drive patient care. So when I think about how foundational laboratory developed tests are to driving precision medicine, you know that's going to be a significant area of focus for all of us moving forward. Right. LDTs are really rather replaceable again when it comes to really reflecting the latest science in a diagnostic.

is that experience. But more broadly, the issue has been that for many, many years, the FDA has indicated that it has authority to regulate LDTs and is simply exercising its enforcement discretion, that is not actively providing oversight. What that does is creates gray area and uncertainty in the market for diagnostic test developers, for laboratories developing tests. So you know, when you have that gray area, you might see a reluctance from companies to jump into a space

to develop some testing when it's essential for patients. So we started having a conversation with the agency a few years ago about how to address that gray area. Right, It's not to say there isn't robust oversight now. Right, Every ACLA member is a KLi lab, all of our

members are accredited by the College of American Pathologists. There's a lot of other oversight that's in place to de facto many of our labs, if not most of our labs are caring for patients that are in New York, so they're subject to New York States requirements in addition to requirements that need to be made for coverage, for example, by the moldex program. So there is a significant amount of oversight that should reassure folks about the performance of tests.

But because of that gray area, we thought it was really important to significantly engage on any efforts for diagnostics reform, and look, the FDA has been focused for a lot of years and thinking about how to move from an enforcement discretion position to having more active oversight. We wanted to be part of those conversations on legislation and think that's important because we do see a role for the FDA potentially, but only if it's done via legislation to

craft a diagnostic specific overall framework. That's critically important.

out another way forward. And now it's fast forward to twenty twenty three. September of twenty twenty three, the FDA released a proposed role to provide a framework or at least maybe there's a short wave putting it bring LDTs into the Medical Device Framework. And so that common period opened and closed October through December, and now we're waiting on some I guess my final role at some point, which many think is probably the first half of this year.

So ACLA provided some comments, as did others, and there are plenty of comments from hospitals, labs, diagnostic manufacturers, patient groups, and we can get into that a little bit later, but focusing on what ACLA wrote in terms of the comments, Oh, what is it about the role of LDTs in guiding patient care that makes the Device framework, which is what FDA wants to bring LDTs under. What about that framework makes makes it a poor fit? And why this is the wrong direction for the FDA.

lose a significant number of tests on test menus. You are going to lose the ability to swiftly take the latest advances in science and apply it to diagnostics to really drive personalized care. And the med device authorities are rather inflexible. So let's consider an example of precision oncology testing. Right, I'll genericize it somewhat, but we have several members that have taken tests through the agency, so they have cleared or approved assays in the cancer space. They also maintain

an LDT. And the reason they maintain the LDT is because they're able to swiftly iterate upon that latest discovery. Right, they've discerned there's an impact that a new that understanding of a biomarker has on you know, improved diagnosis, improved decision making around treatment. You want to update that test so that you're delivering that latest scient ticket advancement to

patients and providers. That's what patients deserve. Unfortunately, the medical device authorities don't allow for that kind of iteration on tests and that's really important. So you're going to be you're going to have this lack of innovation meeting patients and that's really essential. So that's a very very important issue, a policy issue, and this is about putting patients first and ensuring we're supporting innovation. Let me give you another

example too, right. I had mentioned that LDTs are really important for uh, you know, ensuring that we are ascertained what disease condition might be afflicting a patient. And there are scores of rare diseases small patient populations and ldt's sort of a really important role here. If we contemplate sort of what's the economic decision making that goes into

developing a test and taking it through the agency. You need to consider what's the cost of developing the tests, the clinical study is necessary to prepare a submission, and the cost of the submission itself if it's a five to ten K. But if we're talking about rare disease, you know, more likely that's going to be a PMA or DENOVO and the fee is somewhere over four hundred

thousand dollars. That's not insignificant when you're talking about the potential to have revenue being rather modest, given these tests are going to be applied to a really small segment of the patient population. So we have a member company that has several hundred LDTs and they tell that for half of their ldt's, the annual revenue for each one of those tests is less than the cost of a

five to ten k fee. So you can see if you apply the medical device authorities broadly, you're going to have labs face some really difficult questions about which tests they can afford to keep. On those menus, we want to be able to do the right thing and make sure that ldt's are able to meet the needs of small patient populations. They're critically important patients. We want to make sure that they've got the treatments available to them that they deserve, and you need to have a diagnostic

to drive that. So those are a couple of key examples why the inflexibility of the medical device authorities are really dramatically unsuited or ill suited for diagnostics generally.

You know, we've seen over the last year and a half with passage of the Inflation Reduction Act and the negotiation pieces, there's a lot of litigation from the companies that are impacted through the negotiation process. So are you likely to see that play out if the FDA finalizes the rule?

guide patient care. So laboratories that develop and perform LDTs are providing a professional health service. That's really key. They're not acting as manufacturers. They are not distributing devices. So

LDTs are professional services, they're not devices. Right. If you think about how a lab is sort of integrated into patient care, it can often be the case that our member laboratories and the professionals they are in are providing advice and guidance to clinicians as they think about, you know, what tests should I order?

as well. Right, we want to make sure that we're confirming at that the test is accurately interpretive, quantified entered into the LIS. There's often conversations between our member company, laboratorians that are delivering that service with the clinician who had ordered to test, to ensure that they understand the results and are best able to leverage those results to drive the right patient care decision. So, in short, we

do not believe the LDA has the authority. That's largely rooted in the fact that ldt are not medical devices, but they are in fact professional services.

to respond to these different views? And while we haven't seen Congress make progress in the past, you think that this proposal will be a catalyst for action this year. Granted it's an election year, so that's kind of tough, but can you walk us through what it is you're trying to accomplish within the legislative process.

It would have had a transition period that allowed for multiple areas of notice and comment rulemaking over an extended period of time to allow for appropriate prepar preparation of implementation.

And it would also have included a number of new attributes that are unavailable today under current law to the Agency, including something called technology certification, which broadly speaking, would have been a pathway for test developers to secure the approval of a suite of tests after the Agency had considered a single assay within that suite of tests, and it would have allowed for agreed upon change control protocols to be made after the test was on the market with

notification back to the agency. So that concept of being able to pull in the latest scientific advancements and knowledge and have that be reflected in tests is something that would have been embraced through this technology certification pathway. We had a lot of favorable and productive discussions with the Agency throughout negotiations on the Hill on the valid Act. Again,

we felt we made really strong progress. So we think that was a very positive step forward, and I will say we would certainly prefer that type of framework to

what the FDA is doing now. When the Valid Act did not cross the finish line at the end of twenty twenty two, you know, we reconvened with the agency with other stakeholders, talked to bipartisan by cameral committees on these issues, and really encouraged everyone to reconvene again go back to the Hill right that legislation is the right direction.

We were also very close there and we know kind of what those key attributes really need to be in the legislation, and so we're continuing to encourage that right we as we work with the agent and see we did provide robust comments to this proposed rule, but we are encouraging them to withdraw the rule, and for the reasons that we've mentioned that having to do with policy issues, ensuring patient access, having the latest technology but reflected in

tests available to patients, and addressing this legal issue that we mentioned that legislation is the right pathway forward. So we're going to continue to encourage that be the direction forward. And I think that you mentioned a lot of stakeholders

that have weighed in. You know, we've been reading a lot of the comment letters that have been posted, and there are a number of other organizations like US that are reflecting on the importance for Congress to be involved here right to have the right pathway forward, the ideal pathway forward be through legislation.

will tell. But I do want to circle back to a comment you made earlier about the cost is associated with compliance. You get touched on it a bit. Can you just walk us through some of the economic and clients' costs under the device framework, because we did see the FDA put forward a number in terms of what the cost might be, and I wonder if that's how they get to that number that's even close? You know, is this going to impact certain labs disproportionately than others.

benefits as they conceive of them. Right, you know, if you look at one there's one key assumption that's that's driving their understanding of the performance of LDTs. It's a single study that has since been refuted by some of the original authors. That does not make for a strong analysis. So again in our comment letter, we've got a really detailed assessment and make some recommendations here. But when we think about the cost, which I think is really your question,

how do we think about the cost here? So for laboratories, if you look at the timeline under the proposed rule, there are some requirements that take place within the first year. For example, it's adverse events reporting. There would be obviously some compliance costs associated with that, but the big cost would come in meeting the requirement that is three and a half years out, which is submission of all high

risk tests that are Ldt's right. So a laboratory needs to be taking a look at their menu now and determining which tests they believe would be considered high risk tests. There's a question and on the table about would the FDA, by the way, make available to laboratories pre submission meetings to help answer the question about thinking about risk of tests. But so if the lab makes a decision about which

of its test menus are high risk tests. Then you need to make a further decision about for which of those will you prepare us submission for the agency. There is cost obviously associated with that. There are a dearth of regulatory experts that are available to industry and to the agency as well, that are available to really help

pull those submissions together. I had reflected some moments ago about thinking about what about those LDTs for which the annual revenue is less than a five ten K submission, And I think for many of these high risk tests, you know, we would be again talking about pm AS or Denovo's. So it's the cost associated with the preparation of the submission that includes, you know, hiring the regulatory experts, and then there's the cost associated with the fee. But

you know, this isn't all dollars and cents. When we think about the potential for labs to have to curtail menus, that's the cost to patients, right and public health, and

that has us worried here. So you know, in short, we think again there's an underestimation of cost and overestimation of benefit based on the timeline and characteristics of that proposed rule, So it'll it'll affect labs differently depending upon the menus that they have in place, the proportion of tests that are LDTs, the proportion of those that are high risk tests. But in general, that's how we think about the costs and broadly, what are our concerns associated with the.

animal drugs, biologics, and medical devices. And so we are going to be approaching another round of the UFA reauthorizations. Do you think the FDA has the resources to do this? Number? One, is it possible that the way this is laid out and the rule that the funding could be addressed through, that you'd signal that these labs now have to comply with some of these new rules, and you need the expertise to get there. FD is going to be competing

for the same talent and the same resources. So I do wonder what the resource impact is going to be for the agency that's supposed to provide the oversight of all of this.

right as proposed. You know, one of the things we'll be really looking for when this final rule comes out if there is any change with regard to timeline, the potential for grandfathering right just as a reminder for folks that or maybe just to be instructive if listeners don't know this, But under the proposed rule, the FDA is not suggest grandfathering any tests that are on the market

right now. So perhaps it looks to grandfathering or again lengthening that timeline to try to address the resource issue. But we do express in our comments, and again other stakeholders have expressed concerns about the capacity of the agency to implement this role as proposed. We do have significant concerns there, and you mentioned the medical device user fees and negotiations. You know, we're living under MADUFA five right now.

You know, by the time you would get to the point where you're approaching submissions for those high risk tests I mentioned, you know, three and a half years out at least under the proposed role timeline, you're already in the process as industry like ACLA would be, other industry groups would be of starting those negotiations for MADUFA six.

Right So, I certainly think these issues are going to blend together, and you're you know, you're right about the synergies therein does that give Congress a further impetus to move on legislation, You know, it could be the case. We'd certainly like to see legislation, as you know, sooner rather than later. We think we know what those key components really should be and need to be right to address the needs of patience and innovation.

impact might be for labs in this space. So it's definitely going to be on our radar screen moving forward. I do want to spend a couple of minutes so talking about the other side of this, which is how labs get paid for tests and whether the reimbursement system that we have now is appropriate, and go back in time, there was a bit of a shift in terms of diagnostic payment and an attempt to maybe harmonize or move the payment system in line with what we were seeing

in the private sector. So that was around twenty fourteen. So the issue seems to be right now is that the attempt by Congress to change the payment system might not have worked, and that that law, the Protecting Access to Medicare Act, was part of a broader healthcare bill that wasn't just about diagnostic payment. It was about a whole host of issues, including position payment, among other things. So can you just walk us through the history here. What is it about PAMA that Congress tried to do?

And when we look at some of the challenges, now, are they a result of drafting or is it a result of the administration and current administration implementing it in a way that Congress didn't intend.

percent of labs across the country. And when we think about labs, right, we think about three key segments. It's commercial laboratories, hospital laboratories, and physician office laboratories. And just to put a real fine point on this, the total number of hospitals that provided survey data were fewer than twenty five not twenty five percent, but twenty five hospitals.

We had five thousand hospitals in the country. So, in short, there was a real dearth of data, and the data were skewed towards large commercial laboratories, and the net effect was that when CMS determined what the Medicare rates would be, it led to very significant draw ups and reimbursement. And you couple that with the requirements under PAMA for scheduled reductions of up to a certain percentage. That led to

three years of reductions of up to ten percent. It's rather significant for an industry when you think about how big the clinical lab fee schedule is. You know, it's roughly about ten billion dollars a year, or somewhere less than three percent of total Part B spending, right, So it's a modest system compared to the whole of Part B spending. So when you're talking about reductions that are

so large, they can be tremendously harmful. So ACLA encouraged CMS to administratively make changes to the policies to pull in more data, particularly from hospital labs. There were some modest modifications there, but nothing significant enough. ACLA actually filed suit against the agency, indicating that CMS acted in an arbitrary and capricious fashion and determining how the rates would

be set. The US District Court of Appeals for the DC Circuit in the summer of twenty twenty two actually agreed with ACLA on the merits that harm was done. There was arbitrary and capricious decision making on some of the policy used to determine rates, but there is judicial preclusion on suing on the rates themselves. Therefore, the court did not require a remedy. So that's why legislation is

really important for us. So we have worked hand in glove with a group of bipartisan bio cameral leaders and all the health committees, so three health committees Senate, Finance, House, Energy and Commerce, Houseways and Means to develop legislation that we think is a really moderate and responsible pathway forward to ensuring that CMS has what it needs through a statistical sampling model recommended by MEDPACK to pull in information about what commercial rates really are and to then apply

those to set Medicare rates, and it would not eliminate reductions called for in the law, but would mitigate them. So put a cap on increases, a cap on decreases, right protects the Medicare program, gives greater stability and predictability to clinical labs. We think that's the right thing when it comes to thinking about access and infrastructure and innovation. So this bill is the Saving Access to Laboratory Services

Act or SALSA. I have to back up for a moment and really appreciate the work that's been done by Congress to show that it understands that PAMA is the wrong direction. Right. So last year was the most recent time in November, when Congress acted to delay what would have been the next round of PAMMA cuts and data reporting, so they would have been up to fifteen percent cuts on about eight hundred tests. So that marked the fourth time that Congress has acted and the fifth time that

cuts have been delayed. So really, in short, you know, you're seeing that there's a bipartisan understanding that there are flaws in PAMA that need to be corrected.

authorization is essential. So the administration recently took an important step in the right direction of putting guardrails around insurers, around most insurers, not all insurers, in terms of their prior auth practices, making requirements for transparency on policies, making processes electronic, which should be helpful, including the sharing of information around patient documentation. But much more is really needed to ensure that we have a more streamlined system that

allows patients to get the care that they deserve. One thing we're looking at. In particular, is how the OIG has rightfully pointed out recently that we're seeing that Medicare advantage plans covered lives have diminished access to covered services compared to those similarly situated patients in the fee for

service program. That bears greater attention and focus. So we want to continue to work with the administration to tighten some of the guardrails and work with Congress because there are members in both chambers, on both sides of the aisle that are really interested in making sure that prior off is not a barrier to patients getting the care that they need. We need to think about the role

of clinical laboratories and healthcare delivery system we pay. We play an essential role, but one where we often do not engage directly with patients. So that adds a layer of difficulty for clinical labs when it comes to securing some of the information that's necessary to meet prior off demands. So that's something that we're going to be ensuring policymakers really understand. So, you know, a step in the right

direction from the administration. We're looking forward to continuing to work with them and engage robustly with Congress to put you know, further guardrails around prior off and I'll just mention kind of one final issue, which is preparedness. Right. I mentioned at the top of our discussion that preparedness and infrastructure is an important workstream for ACLA. Congress has yet to reauthorize the Pandemic All Hazards Preparedness Act. We're

encouraging them to do so. There are some provisions where able to get into those packages, and the House and Senate to recognize the importance of diagnostics in preparedness. But discussions continue off of the hill as well. You know, we have the opportunity to engage with the Administration, HHS, various agencies there in the new Office of Preparedness in the White House to make sure we have a continuity of conversation about what is needed to prepare and respond

to challenges. One thing that we are encouraging, we think we're making some progress, is that we have pre event agreements or arrangements put in place with commercial labs and government to facilitate rapid response in the event there is an emergency. So we're going to continue to focus there. So that's just a couple of other priorities among many.