Five Key Changes Affecting Labs in the New Spending Bill

In terms of direct impact on clinical labs, the end-of-year government spending bill that Congress passed just before the Christmas recess was probably the most significant piece of federal legislation enacted in 2022.¹ Unfortunately, the big story isn’t what the bill included, but rather what it didn’t include—namely, reform of US FDA regulation of in vitro diagnostic (IVD) tests and laboratory developed tests (LDTs). Here’s a briefing of what lab managers need to know about the spending bill, including the legal changes it does contain.

LDTs Regulation & the VALID Act

The federal Food, Drug, and Cosmetic Act (FD&C Act) authorizes the FDA to regulate drugs and medical devices, but doesn’t say anything about lab tests. The agency has instead relied on its authority over devices to approve new IVD tests. In addition to stifling innovation and the development of badly needed new tests—a problem which was clearly exposed by the coronavirus test shortages during the early days of the COVID-19 public health emergency (PHE)—the FDA regulatory regime has been criticized for its arbitrariness and evasion of public rulemaking requirements pertaining to other federal regulations.

For years, the lab industry has urged Congress to adopt legislation imposing order over IVD test regulation, whether from the FDA or the Department of Health and Human Services (HHS) under its CLIA authority. After a series of false starts and failed attempts, it looked for a while like 2022 would be the year something actually got done when, in late spring, Republican and Democratic leaders proposed a new version of a bill leaving the FDA in charge, but under clear and codified legal ground rules. Under the Verifying Accurate Leading-edge IVCT Development (VALID) Act, the FDA would retain oversight over IVD tests, including via premarket review, registration and listing, test design and quality, labeling, adverse events, and corrections and removal, with actual requirements to be based on the risks posed by the particular test, with tests grouped into three tiers:²

• High-risk tests, i.e., those whose inaccurate results would be likely to cause death, serious harm, or other negative outcomes, would be subject to FDA premarket review;
• Moderate-risk tests whose inaccurate results would cause only non-life threatening or medically reversible injury or treatment delay, could be brought to market via a voluntary “technology certification” program requiring companies to demonstrate merely that they have appropriate internal test validation processes; and
• Low-risk tests would be exempt from premarket review.

VALID also permits test producers to make changes to moderate-risk tests that reach the market without undergoing premarket FDA review. Certain LDTs already on the market before the new VALID Act took effect would also be exempt from premarket review requirements. Meanwhile, the FDA could impose the regulations if the test was modified or in other circumstances.

Lab Industry Reaction to the VALID Act

Unlike earlier versions of legislation with the same name, the new VALID Act divided the lab industry. The American Clinical Laboratory Association (ACLA) and its powerful allies praised the bill and called for its passage. Others, including the Association for Molecular Pathology (AMP), objected to letting the FDA keep control over IVD tests. There were also criticisms about the bill’s being too stringent, with nonprofit and academic labs objecting to its imposition of user fees for IVD test review. There are “vast differences between large commercial test developers and individual, nonprofit laboratories at academic and other medical centers that develop LDTs,” wrote the American Society for Microbiology (ASM). “Clinical microbiology laboratories already operate on a thin margin within the health care facilities and are not profit centers.”³

The VALID Act Near Misses

For better or for worse, it looked for a while that VALID would actually pass in 2022. The first near miss occurred in the fall when lawmakers attached VALID and other FDA reform bills to legislation that Congress had to pass by Sept. 30 to keep the FDA medical device user-fee system intact. However, VALID and the other reform bills were cut at the last minute so that Congress could pass a “clean” user-fee bill.⁴

2023 Federal Health Agency Funding Levels

Agency	2023 Discretionary Funding	Change from 2022
HHS	$120.7 billion	+$9.9 billion (9%)
FDA	$3.53 billion ($6.6 billion counting user fees)	+$226 million (6.5%)
NIH	$47.5 billion	+$2.5 billion (5.5%)
CDC	$9.2 billion	+$760 million (8%)

VALID supporters rallied for one more try, attaching the bill to the $1.65 trillion end-of-year federal spending bill. But Congress again pulled the plug by excluding VALID from the final spending package at the last minute.

The 5 Changes the Spending Bill Does Contain

Although IVD test reform got dropped, the spending bill does include five significant changes likely to affect clinical labs.

1. One-Year Delay in PAMA Price Cuts & Reporting

While Congress didn’t pass the Saving Access to Laboratory Services Act (SALSA) imposing a five percent cap to future Medicare Part B lab services fee cuts under the Protecting Access to Medicare Act of 2014 (PAMA), it did for the fourth year in a row delay upcoming Clinical Laboratory Fee Schedule (CLFS) rate cuts and price data reporting for another year (see the related story).

2. Partial Relief from Physician Medicare Pay Cuts

Physicians are still getting a Medicare pay cut in 2023, but of two percent rather than the proposed 4.5 percent. The spending bill also reduces the 2024 cut to 3.25 percent. But the American Medical Association (AMA) criticized the imposition of any spending cut at all, suggesting that it may drive some physicians to stop participating in Medicare.⁵

3. Alternative Payment Model (APM) Bonus Reduction

The spending bill allows providers that participate in Advanced Alternative Payment Models (APMs) to continue to earn payment incentives for another year, but reduces the bonus amount from five percent to 3.5 percent. It also extends the current freeze on participation thresholds to qualify for APM bonuses for another year.

4. Two-Year Extension of Telehealth Relief

The spending bill extends the waivers and relaxations of Medicare telehealth reimbursement and coverage rules, which were originally scheduled to expire 60 days after the PHE, for another two years. Such provisions include:

• Not requiring providers to be licensed in the same state as the patient receiving care;
• Allowing more types of practitioners to provide telehealth services;
• Permitting audio-only telehealth services; and
• Allowing federally qualified health clinics and rural clinics to provide telehealth services.

The two-year extension buys lawmakers more time to adopt a permanent reform bill that would make at least some of the changes permanent.

5. Two-Year Extension of Hospital-at-Home Waiver

Also getting a two-year extension through 2024 is the Centers for Medicare & Medicaid Services (CMS) hospital-at-home waiver allowing for hospitals to handle emergency and inpatient cases outside of a facility. The agency granted the waiver early during the PHE to help hospitals increase their capacity to serve COVID-19 patients.

References:

1. https://www.appropriations.senate.gov/imo/media/doc/JRQ121922.PDF
2. https://www.help.senate.gov/imo/media/doc/FDASLA%20Discussion%20Draft%20May%2017%202022.pdf
3. https://asm.org/ASM/media/Policy-and-Advocacy/Letter-re-VALID-_May-2022_16.pdf
4. https://www.g2intelligence.com/despite-mdufa-setback-valid-act-is-back-on-track-for-passage/
5. https://www.ama-assn.org/practice-management/medicare-medicaid/medicare-physician-pay-cuts-underscore-need-fix-broken-system