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VALID Act Likely to Slow Test Development, but Impact Will Vary Across Lab Industry


NEW YORK – Having last month passed out of the Senate Health, Education, Labor, and Pensions (HELP) committee as part of a larger legislative package, the Verifying Accurate Leading-edge IVCT Development (VALID) Act, could at last formally give the US Food and Drug Administration authority over laboratory-developed tests, or LDTs.

But while the bill, which could become law later this year, would erase any ambiguity about the FDA's role in regulating LDTs, many observers believe it would also dampen labs' test development activity.

This effect will be unevenly distributed, though. For some segments of the LDT business, the law will likely amount to a relatively minor inconvenience or even a boon. For others it could prove an existential challenge.

The VALID Act aims to resolve decades-long questions around the FDA's authority to regulate laboratory-developed tests by placing them within the agency's purview. The legislation creates a risk-based framework for in vitro clinical test (IVCT) regulation, with high-risk tests, such as novel assays, required to go through premarket review, while lower-risk tests could go to market after passing through technological certification. VALID would grandfather in LDTs currently in clinical use.

The law will almost certainly impact lab test development, but the severity of that impact will depend on the details of the bill's implementation and the nature of the lab in question.

"The best way to think about it is to break it down by the different lab settings we are talking about," said Gary Gustavsen, a partner and managing director at consulting firm Health Advances.

Gustavsen divided the space into three main lab types — specialty commercial labs like Exact Sciences and Guardant Health that develop small numbers of high-complexity, high-priced assays; large reference labs like Quest Diagnostics and Laboratory Corporation of America; and hospital labs.

He suggested that VALID  would have relatively little impact on the first two types of labs were it to become law but that it could significantly stifle test development at the third category of laboratory.

With regard to specialty commercial labs, Gustavsen noted that while many of these outfits have historically offered their tests as LDTs, they nonetheless have to generate large amounts of clinical study and health economic data to convince doctors to use and payors to cover their assays.

"My view, and what we have heard from a lot of our clients who are working at specialty commercial labs, is that they are not as worried about VALID because they have to put so much evidence behind their tests to reach the threshold of clinician and payor adoption that it is way above and beyond what the FDA is looking for," he said.

He said that such companies have under current law often not pursued FDA approval because they don't view the agency's imprimatur as particularly necessary or useful.

"You'll hear 'Oh, physicians really want to see FDA approval,' but that isn't really what they need to see," he said. "They need to see the clinical data and they need to know it is paid for by payors."

He cited the example of Exact Sciences' (formerly Genomic Health's) Oncotype Dx and Agendia's competing Mammaprint test, noting that while the former is an LDT, it has broader payor coverage and clinician adoption than the latter, which is FDA-cleared.

Gustavsen said that while the law will likely entail some additional administrative work for specialty diagnostics firms, they "aren't overly concerned about it."

SVB Securities analyst Puneet Souda said that the law could, in fact, prove beneficial for specialty labs that are able to meet FDA's requirements by providing a barrier to entry.

"They will have to produce clinical evidence and datasets that help them get approval, which then enhances the position of the market players that have FDA approval," he said.

Gustavsen suggested that large reference labs like Quest and Labcorp will also take the passage of VALID in stride.

"They have the resources to navigate the ins and outs [of the new regulations]," he said. He added that these labs also have order volumes high enough that it would still make sense to invest in test development even with the increased demands VALID would place on the process.

The American Clinical Laboratory Association's relatively muted response to VALID tracks with Gustavsen's analysis. The organization, which represents many of the country's large reference labs, has suggested changes to the law but has not forthrightly opposed it as it has moved through the current Congress.

In March, Tom Sparkman, ACLA's senior VP for government affairs and policy, told 360Dx that the organization saw VALID as "really the only proposal that has broad enough support in Congress and among other stakeholders to be potentially viable."

Hospital concerns

Gustavsen was less sanguine about what the law could mean for test development in hospital laboratories, especially at mid-sized and smaller institutions.

"That's where the problem is," he said, noting that hospital labs commonly develop tests to meet physician needs not already addressed by an existing assay.

"These LDTs are providing timely patient access to key tests that otherwise might not exist commercially," he said. "Those are the tests that are probably at the greatest danger of attrition, because [hospital labs] probably don't have the resources that will be required to both navigate what is going on with the new requirements and also to register their tests [under VALID]."

Gustavsen noted that the American Hospital Association has been a vocal critic of the bill. In a June letter to the Senate HELP Committee, the organization raised concerns that as currently written, VALID "could lead to a loss of patient access to many critical tests and could dramatically slow down advances in hospital and health system laboratory medicine."

The association suggested that Congress instead prioritize oversight of "manufacturers and commercial laboratories selling and distributing test kits" and " direct-to-consumer tests and tests used outside of the physician-patient context." It also asked legislators to expand the law's definition of low-risk tests to include most LDTs "developed and performed by CLIA-regulated laboratories that are integrated as part of hospitals and health systems providing direct medical care to patients."

AHA declined to comment for this story.

The American Association for Clinical Chemistry, whose membership includes many pathologists and laboratory scientists working at academic hospitals and medical centers, has also come out strongly against the bill.

In an email, Stephen Master, AACC president and chief of the division of laboratory medicine at Children's Hospital of Philadelphia, said that if VALID passes, "it is likely that only labs with the financial resources and regulatory infrastructure to support FDA submissions will develop new tests" and added that it is "likely that lab-developed tests that directly benefit certain hospital populations will no longer be developed."

William Morice, president of Mayo Clinic Laboratories and chair of the Department of Laboratory Medicine and Pathology at Mayo as well as chair of ACLA's board of directors, said that more than half of more than 3,000 tests offered at Mayo are LDTs, most of which the lab has developed in response to requests from the clinicians it serves.

Morice said that while VALID "is a big deal," he didn't think it would prevent Mayo from continuing to develop tests in response to clinical need, though he did say it would likely increase the costs of producing those tests given that the lab would need to hire new staff and institute new procedures to be compliant with the law.

Those increasing costs would come at a time when both private and government insurers are squeezing lab reimbursements. More than VALID alone, this combination of a new regulatory framework that increases costs and declining test reimbursement "could really start to decrease the availability of tests," Morice said.

He cited recently instituted legislation to reform the Protecting Access to Medicare Act as something that could help alleviate the cost pressures labs are already facing.

While Morice expects Mayo will continue to develop tests as needed, VALID could hamper test development at labs with less resources, he said.

He suggested that this could lead to more collaboration between smaller, less resourced hospital and independent labs and major centers like Mayo.

"You may have smaller labs that have ideas around developing tests… and they will need to work with places like a Mayo Clinic or another integrated hospital system," he said. "I think it will probably drive some new partnership and collaboration opportunities."

Morice said VALID might also push labs like Mayo to explore test development partnerships with in vitro diagnostic companies, the idea being that having taken a test through FDA, it could make sense to sell it as a widely distributed kit.

"It increases the likelihood that we would work together," he said, noting that Mayo already has a collaboration with Thermo Fisher Scientific around diagnostics development. "You might see more things like that where test manufacturers are wanting to participate with academic medical centers and clinical laboratories on the development process."

Gustavsen agreed that if VALID were to pass, smaller labs will need to collaborate more frequently with larger institutions, "whether that's a commercial lab like Labcorp or maybe the biggest academic center in their region."

He said, however, that there may also be situations where "some of these tests just aren't getting done.

"If the infrastructure isn't there to figure out how to partner with a [larger lab] some patients may fall through the cracks," he said. "I think that is a worry, that patient access will be hampered. Plenty of labs will find a way to deal with it, but some might not. Or, maybe those labs will figure it out eventually, but there will be enough of a lag that it impacts patient care."

Impact on specialty testing

Then there are specialty labs in areas like allergen testing and toxicology where the overwhelming majority of tests offered are LDTs.

Jay Weiss, president of Brentwood, Tennessee-based allergy testing lab Allermetrix, said that his company uses LDTs almost exclusively.

"We test for about 500 antigens for allergy antibodies, and every time we make a new antigen, that is a new LDT, basically," he said.

He noted that while several IVD firms make allergy tests, these tests span a much smaller menu of allergens than Allermetrix offers. He said the lab typically develops new tests in response to physician requests and that it currently has five to 10 new tests it is considering for development.

VALID would allow labs to grandfather in existing LDTs, but Weiss said it wasn't clear whether Allermetrix would continue to develop new tests following the law's passage and implementation.

Like Morice, he cited the combination of falling reimbursement and the potential new expenses created by VALID.

"Reimbursement is continuing to go down, and expenses continue to go up, so somewhere in the middle there we are going to get squeezed to where the cost of adding new tests is going to be something that we can't afford," he said.

Test development "will be the kind of thing where we will do it once and we'll figure out how much is involved," Weiss said. "If there is a lot involved, that would deter us just because of the expense involved."

Based on his recent interactions with FDA for a COVID-19 test his lab submitted for Emergency Use Authorization, Weiss isn't optimistic.

"It was very frustrating," he said. "Working with the FDA back in the 1990s, you could actually talk voice-to-voice with people. During this COVID period, and maybe it was because it was COVID, you couldn't have a conversation with anybody. All you could do was have email traffic back and forth."

Toxicology testing is another area where LDTs predominate, as labs frequently add new tests to their menus to address the appearance of new drugs.

Robert Middleburg, laboratory director at Horsham, Pennsylvania-based toxicology outfit NMS Labs said that 99 percent of the company's tests are LDTs, many of them running on liquid chromatography and/or mass spectrometry.

"You have to be nimble to be able to adapt to the world changing around you, and the kinds of compounds we are looking for don't really allow for the kinds of simplistic tests used in hospitals," he said. "We need to use fairly specialized tests."

As currently written, VALID includes a number of provisions that could keep the development process feasible for independent labs like Allermetrix and NMS as well as hospital and academic labs without the resources of a Mayo Clinic.

The bill provides exemptions for diagnosing rare diseases or conditions and for custom or low-volume tests.

For the rare disease exemption, the bill sets a threshold of "use for a diagnostic purpose for a disease or condition [that affects] not more than 10,000 (or such other higher number determined by the Secretary) individuals in the United States per year," provided the test is not meant for screening or for diagnosing a contagious disease with a potential public health impact.

For the custom or low-volume exemption the bill sets a threshold of "a test system performed for not more than 5 patients per year (or such other higher number determined by the Secretary)," and "for which no other in vitro clinical test is commercially available in the United States."

VALID also includes a "technology certification" pathway through which labs can launch low-risk tests without going through premarket review. Depending on how the law is implemented, this pathway could allow a lab to bring large numbers of tests to market on a given technological platform without premarket review once it has received a technology certification order. This could prove particularly significant for labs like Allermetrix or NMS, which use the same technology platform for many of their tests.

"We have one platform where we run everything, and the addition of an antigen or allergen is really just a matter of adding one reagent into the system," Weiss said.

Middleberg agreed that the technology certification route could prove useful in theory, but said that uncertainty around what the specific provisions of VALID mean and how they might ultimately be implemented makes it difficult to assess the law's likely impact.

"I've read it, but I'd be lying to you if I said I fully understand what [it] means," he said. "So, we don't know what [the law] means. We don't know what it's going to look like. We don't know what it is going to cost. We don't know how it is going to hamper our ability not only to develop new tests but also to modify tests we [already] offer. We are all working blind."