/>iThis year, we have seen several monumental events that already are, or potentially could be, pivotal to the future of the Laboratory Developed Test (“LDT”) industry – first, the issuance of the U.S. Food & Drug Administration (“FDA” or the “Agency”) final rule in May, which established a staged plan that will phase out FDA’s previous policy of enforcement discretion for LDTs; second, the overturn of the Chevron Doctrine in Loper v. Raimondo in late June; and third, the recent election of Donald Trump as the forty-seventh president of the United States. And of course there are the legal challenges—difficult to predict with the maelstrom of news over the past few months. However, we now have the context necessary to assess these challenges and make some informed predictions about their future. While a host of legal theories have been lobbed at the rule, they each underscore a common sentiment—agencies should not be able to create their own authority, a position strengthened by the overturn of Chevron and election of Trump.
I. Challenges in Texas District Courts
Shortly after the final rule was announced, on May 29, the American Clinical Laboratory Association (“ACLA”) filed a lawsuit (the “ACLA Complaint”) in the U.S. District Court for the Eastern District of Texas, asking the court to vacate the rule and enjoin its enforcement.[1] Three months later, on August 19, the Association for Molecular Pathology (“AMP”) and pathologist, Michael Laposata, filed a similar lawsuit (the “AMP Complaint”) in the U.S. District Court for the Southern District of Texas, requesting similar relief. It was surely no accident that these suits were brought in the Fifth Circuit—a favored jurisdiction for challenging agency actions.
The litigation (collectively, the “Complaints”) is the most recent foray in a decade-long debate over appropriate regulatory oversight for LDTs and the balance between ensuring patient safety and fostering innovation in diagnostic testing to ensure patient access. Here, we will consider what the Complaints say and—perhaps more importantly—what they don’t say.
a. Overview of the Complaints
The Complaints allege that FDA’s final rule violates the Administrative Procedure Act (the “APA”) because it (i) exceeds its statutory authority under the Food, Drug, and Cosmetics Act (the “FDCA”) and (ii) fails to adequately respond to industry comments submitted during the proposal period, arguing that the only appropriate path for FDA to regulate LDTs is through specific legislation rather than unilateral regulatory action.
On the first point, ACLA and AMP contend that the rule must be vacated under APA § 706(2)(C) because Congress never granted FDA the authority to regulate LDTs as medical devices.[2] The FDCA grants FDA the authority to regulate in vitro diagnostic (“IVD”) products, which the Agency interprets to include LTDs—but the plaintiffs claim that this interpretation is incorrect and represents severe regulatory overreach, as it includes intangible services provided by clinical laboratories, which should fall under the purview of the Centers for Medicare and Medicaid Services (“CMS”) as mandated by the Clinical Laboratory Improvement Amendments (“CLIA”), not FDA’s medical device regulations. This argument highlights a key difference in perspectives between FDA and industry players like ACLA and AMP—FDA sees the rule as regulating only the tests themselves (as clarified in the final rule’s lengthy preamble), while the plaintiffs see the rule as also regulating the services that come along with these tests.
The lawsuits also challenge the FDA’s allegedly “arbitrary and capricious” process in issuing the final rule, asserting that the rule must be vacated under APA § 706(2) because the Agency did not adequately address the over 6,500 comments received during the proposal stage and failed to provide a sufficient rationale for its regulatory approach by allegedly relying on “poor-quality, mischaracterized, and admittedly ‘largely anecdotal’ reports.” Given that FDA spent a full 122 pages in the Federal Register responding to over 300 categories of comments, this challenge is clearly something the Agency had hoped to avoid.[3]
In its challenge, AMP also argues that FDA’s rule improperly regulates the practice of laboratory medicine by restricting providers’ ability to utilize LDTs according to each patient’s needs. Since the FDCA mandates that FDA regulate medical products “without directly interfering with the practice of medicine,”[4] and—as AMP claims—the final rule “unlawfully interfere[s] with the practice of medicine,” the argument continues that FDA will have violated its own mandate by issuing the rule.[5]
Beyond the strictly legal challenges to FDA’s final rule, the Complaints warn of harmful downstream fallout that, the organizations claim, ultimately poses a threat to public health and safety. Specifically, the plaintiffs argue that by effectively trying to fit a square peg into a round hole—imposing an unsuitable regulatory framework on LDTs—FDA will inflate costs, stifle innovation, squeeze out small and rural laboratories (which are crucial to the communities that they serve), and ultimately disrupt the delivery of vital diagnostic services to patients. The plaintiffs emphasize that LDTs are essential for precision medicine, public health responses, and innovative therapeutic developments—particularly in specialized and rare disease areas where LDTs play a crucial role—and should not be constrained by the rigid regulatory structures designed for traditional medical devices.
While the Complaints present an intriguing legal query on the limits of FDA authority as it relates to the APA, what the Complaints don’t say may be even more interesting.
b. Potential Legal Challenges Left Unaddressed
Notably, ACLA and AMP chose to challenge FDA’s rule under the APA but left other legal potential legal challenges—primarily Constitutional ones—on the table. Though FDA’s final rule includes a considerable amount of justification and preemptive defense (an apparent attempt to diffuse, or at least get ahead of, potential legal challenges), the rule is—at least in theory—still vulnerable to challenge. Since the beginning of the regulatory debate of FDA’s LDT oversight, the Agency’s overreach of its statutory authority in violation of APA § 706(2)(C) is, of course, the hook that has been most popular among opposing parties. This theory has a strong backing not only because—to state the obvious—regulated parties are not keen on the idea of over-regulation, but also because, from a checks-and-balances perspective, reviewing courts can in some ways modulate agency power.[6]
c. Potential Legal Challenges
But there are a number of Constitutional challenges that the plaintiffs did not utilize in their Complaints, including challenges invoking the First Amendment, Fifth Amendment, Interstate Commerce Clause, and/or Non-Delegation Doctrine.
- First Amendment: Under the First Amendment, as raised in some of the comments to the proposed rule published last fall, challengers could claim that FDA’s rule infringes on the free speech rights of laboratories and healthcare providers. Specifically, challengers could argue that the rule (i) unlawfully compels speech by requiring laboratories to make specific disclosures in their communications about LDTs; (ii) unlawfully restricts laboratories’ commercial speech in promoting their LDT products; and/or (iii) unlawfully restricts scientific speech by limit providers’ ability to consult with laboratories about test results before premarket review.[7]
- Fifth Amendment: As an alternative Constitutional theory, challengers could argue that the final rule implicates an unlawful “taking” of laboratories’ property (i.e., ability to develop and distribute LDTs) in violation of the Fifth Amendment’s Takings Clause. Here, as raised in one comment to the proposed rule, challengers could argue that the rule amounts to a “taking” because “it would disadvantage smaller, more specialized laboratories to the benefit of larger laboratories and AMCs … [and] significantly diminish the value of property without a valid public purpose.”[8]
- Interstate Commerce Clause: Further still, challengers could argue that, in issuing the final rule, FDA has overstepped its authority to regulate interstate commerce under Article, Section 8, Clause 3 of the Constitution. Although plaintiffs do touch on the argument that FDA’s regulation of LDTs, which are (by definition) developed, validated, and used within a single laboratory, does not sufficiently affect interstate commerce to warrant federal regulation, they do not complete the argument by suggesting that authority to regulate LDTs should fall to the states.[9]
- Non-Delegation Doctrine: Finally, under the so-called “Non-Delegation Doctrine” (which interprets Article 1, Section 1 of the Constitution), challengers could present an argument based on the same allegation of statutory overreach that forms the basis of the plaintiffs’ current APA § 706(2)(C) challenge—that FDA is attempting to regulate LDTs without the statutory authority to do so. Under this approach, challengers would argue that FDA’s regulation of LDTs constitutes an unconstitutional delegation of legislative power—in other words, FDA has unilaterally taken authority from Congress, rather than receiving a delegation of authority from Congress via statute.[10]
Outside of the Constitutional arena, challengers may choose to file a suit under the Unfunded Mandates Reform Act (the “UMRA”). This potential legal challenge would mirror the allegation asserted in Comment 103 to the proposed rule, that FDA failed to “identify and consider a reasonable number of regulatory alternatives and from those alternatives select the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule avenue” in issuing the final rule.[11]
II. Looking Ahead
The FDA’s final rule marks a significant regulatory change with broad implications for laboratories, healthcare providers, and patients. Given the complexity and constituency of the industry, the rule is vulnerable to litigation from a number of different angles. We have already seen two challenges that focus on FDA’s statutory authority and rulemaking procedure under the APA but could see additional challenges on Constitutional or other legal grounds in the near future. And would-be challengers are working with a significant amount of political momentum following the overturn of the Chevron Doctrine this summer and the election of Donald Trump earlier this month—two events that appear to be part of a larger trend in favor of limiting agency power.
This summer, the conservative-majority Supreme Court handed down a monumental win for regulated industry when it overturned the long-standing Chevron Doctrine in Loper v. Raimondo. Accordingly, lower courts are no longer required to defer to an agency’s interpretation of a silent or ambiguous statute (e.g., whether FDA’s authority to regulate devices under the FDCA includes LDTs), which means that the Southern and Eastern Texas District Courts—which are already keen on limiting federal agency power—now have more leeway to do just that. This makes the chances that at least one of the Texas courts will overturn, or at least soften, FDA’s LDT rule all the more likely.
Couple that with a second Trump administration and the chances of the rule surviving, at least in its entirety, begin to look slimmer. After all, the former Trump administration addressed the LDT issue directly when it issued a legal opinion explicitly stating that the FDCA does not give FDA the authority regulate LDTs. Now, industry groups, including ASCP (the same group that penned an Amicus Brief in support of the ACLA Complaint) and the College of American Pathologists (“CAP”), are urging the President-elect to rescind the rule, so it could be lights out for LDT regulation before either of the Texas courts gets around to making a decision. Trump could choose to rescind the rule in one of two ways—he could rescind the rule directly (although the legal basis for doing so is hazy to say the least)[12] or he could direct one of his appointed cabinet members to do so.
However, given the laundry list of other federal shake-ups Trump has promised, it seems likely that he may opt for inaction on the LDT issue. In this case, all eyes will be on the Eastern and Southern Texas District Courts, where—as we have established—industry challengers stand a decent chance at victory, based on the Fifth Circuit’s political leanings. And let’s not forget, if a pro-industry decision is issued at the District Court level, FDA would have to appeal the decision for it to even reach the Fifth Circuit , which seems unlikely given the new administration’s strong stance toward deregulation. Further, given the political leanings of the Fifth Circuit and the current Supreme Court bench, the rule stands a slim chance no matter how far up the chain it may be taken—which, again, seems incredibly unlikely.
Ultimately, it cannot be denied that FDA’s LDT rule faces serious headwinds going into 2025. We will be keeping a close on eye on the early actions of the Trump administration, as well as the Texas courts, which are expected to issue decisions in February, and will continue update this article, as necessary, as more information comes to light.
The next article in our series will focus on whether federal legislation might fill the void that would be left if and when the LDT rule is overturned. As we covered in our previous article, Congress has been trying to pass a statutory framework for LDT oversight through various iterations of the Verifying Accurate Leading-Edge IVCT Development (“VALID”) Act for the better part of eight years, but has not yet found the bipartisan support needed to push it through. We will take a closer look at whether increased pressure from industry participants for Congressional action[13] will be enough to push the VALID Act, or similar legislation, across the finish line.
FOOTNOTES
[1] Last month, the American Society for Clinical Pathology (“ASCP”) filed an Amicus Brief in support of ACLA’s position.
[2] The plaintiffs could have supported their APA § 706(2)(C) challenges with a more fulsome invocation of the so-called “Major Questions Doctrine” —a judicial rule of interpretation, established by the Supreme Court in West Virginia v. EPA, which says that if an agency seeks to decide an issue of “vast economic and political significance,” its action must be supported by clear congressional authorization. While ACLA only briefly mentions that the rule “implicates” the doctrine, AMP elaborates a bit more by explaining (in a footnote) that the sheer cost of compliance for regulated entities—more than $4.5 billion in annual recurring costs—places the final rule “squarely” within the doctrine, but ultimately AMP pulls focus from the doctrine, relying instead on arguments that it claims stand “even if this weren’t a classic major questions case (which it is).” At the risk of speculation, the plaintiffs may not have wanted to rest their arguments too heavily on the Major Questions Doctrine because of the Supreme Court’s relative inconsistency in applying its own doctrines (e.g., the Court’s inconsistent application of the so-called “Chevron Doctrine” and its ultimate reversal under Loper v. Raimondo).
[3] See 89 Fed. Reg. 37311-37433.
[4] FDCA § 1006; Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341, 350 (2001).
[5] FDA’s final rule addresses this point extensively, claiming that the rule would not, in fact, regulate and/or interfere with the practice of medicine and that commenters’ definition of “practice of medicine” is overly broad.
[6] Although the extent to which courts allow agencies to push the boundaries of statutory authority varies by jurisdiction, courts generally have a radar up for agencies that try to create their own authority.
[7] FDA’s final rule addresses this point extensively and claims that the rule is protected under the First Amendment’s “compelling government interest” exception.
[8] FDA’s final rule addresses this point and claims that the rule does not implicate the Takings Clause because the rule aims to protect public health and safety by ensuring the accuracy and reliability of LDTs, and allows all laboratories to continue offering LDTs, provided they comply with the new regulatory requirements, which are phased in over several years.
[9] FDA’s final rule addresses the potential interstate commerce argument extensively and points out that the interstate commerce hook is not required for FDA to have jurisdiction because the FDCA’s definition of “device” does not contain an interstate commerce element.
[10] Although FDA mentions the fact that Congress has delegated the authority to regulate devices (and therefore, LDTs), it does not directly address potential challenges under the Non-Delegation Doctrine.
[11] FDA’s final rule addresses this point and claims that, on one hand, the UMRA does not apply because the rule is not likely to result in a federal mandate and, even if the UMRA did apply, FDA did assess all regulatory options and select the least burdensome avenue.
[12] Under Franklin v. Massachusetts, certain presidential actions are not subject to the notice-and-comment requirements of the APA. However, since Franklin was handed down in 1992, courts have been narrowing the precedent by placing conditions on exactly which types of presidential action are subject to the APA and which are not—leaving the current legal ground on this issue shaky at best. However, we can ascertain at least the following from the piecemeal legal framework—to determine whether the APA applies to presidential action depends on, at least, whether the action is direct (i.e., not implemented by an agency subordinate pursuant to a presidential directive), whether the president “has final constitutional or statutory responsibility for the final step necessary for the agency action directly to affect the parties,” and whether the vesting statute places limitations on the president’s rulemaking power. See Can a President Amend Regulations by Executive Order?, Congressional Research Service (July 18, 2018).
[13] For example, a group of industry leaders, including CAP, academic medical centers, diagnostic manufacturers, laboratories, and patient groups, recently formed a coalition (the “Coalition for Effective Diagnostics”) and is now calling on Congress to enact a comprehensive diagnostic testing reform package to address LDT oversight.
