Reimbursement and Liability Implications of Not Pursuing an Emergency Use Authorization for COVID-19 Laboratory-Developed Tests

September 2, 2020
Firm Publication

In an unprecedented move touted as necessary to address the COVID-19 testing shortage, the U.S. Department of Health and Human Services (HHS) made a brief statement on August 19 that effectively rescinded the federal Food and Drug Administration (FDA) guidance requiring clinical labs to seek an emergency use authorization (EUA) and/or submit data to the FDA in conjunction with offering laboratory-developed tests (LDTs).  HHS’s statement does not eliminate FDA authority to regulate LDTs, but requires the FDA to do so only after notice-and-comment rulemaking, which is unlikely to occur anytime soon. While HHS’s statement has implications well beyond COVID-19, its immediate impact is to allow clinical labs to conduct and adjust their COVID-19 testing without FDA oversight.

Clinical labs, however, can still seek and operate under an EUA for an LDT. Before throwing the FDA guidance away, clinical labs that are providing (or are considering providing) COVID-19 LDTs need to carefully consider both the reimbursement and liability implications of not seeking an EUA. Both commercial payor and uninsured coverage and reimbursement for COVID-19 testing and liability protections under recent legislation are tied to an active or pending EUA; and, liability protections are certainly beneficial when developing and relying on new testing platforms.

Background on FDA Regulation of Laboratory-Developed Tests

An LDT is a type of in vitro diagnostic test that is designed, manufactured and used within a single laboratory. In vitro diagnostic tests that are manufactured and sold to various laboratories or providers (e.g., point of care tests) are not LDTs.

HHS’s invalidation of the FDA’s LDT guidance absent notice-and comment-rulemaking is the latest in a longstanding debate about the authority of the FDA to regulate LDTs as medical devices under the federal Food, Drug and Cosmetic Act (FDCA). As explained on its website, although the FDA has long taken the position that it has the authority to regulate LDTs and has taken strides to regulate certain LDTs in the past, it has ultimately rarely used that authority. Periodically, bills are introduced, like the recently introduced Verifying Accurate, Leading-edge IVCT Development Act (VALID Act), to clarify and lend structure to FDA oversight of LDTs, though to date no legislation has been enacted.  HHS’s move also amplifies the ongoing debate as to whether the responses of key oversight agencies, like the FDA, to the pandemic are being influenced by politics.

For public health emergencies specifically, the FDA has historically exercised more authority over LDTs because “they are developed to diagnose serious or life-threatening diseases or conditions that not only have serious implications for individual patient care, but also for analyses of disease progression and public health decision-making.”  As a result, the FDA encouraged development but still took the position that LDTs should not be used for clinical diagnoses without the FDA’s approval, clearance, or authorization during an emergency declaration.

Coincidentally, before the LDT policy shift, the FDA provided some flexibility in its guidance related to COVID-19 testing.  The FDA’s previous guidance provided clinical labs with three pathways for performing COVID-19 LDTs in advance of obtaining an EUA. Labs authorized to perform high-complexity tests were permitted to begin using LDTs without an EUA so long as the lab provided proof of validation to the FDA and submitted an EUA request within 15 days of doing so. Furthermore, clinical labs that were state-approved to use LDTs could forgo seeking an EUA.

Lastly, clinical labs were permitted to use LDTs for the detection of COVID-19 antibodies if they provided proof of validation and certain other information to the FDA. Because labs no longer have to seek an EUA to utilize LDTs for COVID-19 testing, the FDA’s ability to capture and review testing data is limited to clinical labs that voluntarily submit to the process.  However, without an EUA, clinical labs may be more nimble in their ability to improve and pivot their testing processes to market conditions and supply shortages.

Reimbursement Implications for Not Seeking an EUA

Not seeking an EUA is likely to have a cascading effect on clinical lab reimbursement for COVID-19 LDTs during the COVID-19 public health emergency (PHE). Certain pieces of legislation have tied coverage expectations for COVID-19 tests to those that are provided pursuant to an FDA approval or an actual or pending EUA.

The Family First Coronavirus Act (FFCRA) as amended by the Coronavirus Aid, Relief and Economic Security Act (CARES Act), requires most commercial payors to cover medically appropriate COVID-19 diagnostic tests, without requiring cost sharing, prior authorization or medical-management limitations. Effectively, FFCRA requires commercial payors to reimburse laboratories even if they are not in-network with the payor – a big advantage given how challenging it can be for some laboratories to get a participation agreement with commercial payors.  There is a catch though – the only COVID-19 tests that qualify for these FFCRA reimbursement protections are those that meet one of the following criteria:

  1. Is approved, cleared, or authorized under section 510(k), 513, 515, or 564 of the FDCA.
  2. The developer has requested or intends to request, EUA under section 564 of the FDCA, unless and until the EUA has been denied or the developer does not submit a request within a reasonable timeframe [i.e., 15 days based on FDA guidance].
  3. Is developed in and authorized by a state that has notified the Secretary of HHS of its intention to review tests intended to diagnose COVID–19.
  4. Another test that the HHS Secretary determines appropriate in guidance.

To date, we are not aware of any COVID-19 LDTs that would fall under categories A (FDA approved), C (state-authorized) or D (other HHS authorized), with one potential exception: tests reviewed by New York which the FDA authorized to validate tests back in May. As a result, absent an EUA – at least until HHS develops a list of qualifying tests or the state applies to review tests – clinical labs that use LDTs for COVID-19 detection have no guarantee that their services will be reimbursed by commercial payors.

In-network laboratories may be able to negotiate rates for COVID-19 LDTs, but they still could be subject to cost sharing, prior authorization and medical-management measures.  Out-of-network clinical laboratories may struggle to get their claims paid on an out-of-network basis.  From a reimbursement standpoint, the easiest path to ensuring payment from commercial payors for COVID-19 LDTs is still to obtain an EUA.

Notably, this is not simply a commercial payor reimbursement issue.  The Health Resources and Services Administration (HRSA) Uninsured Program provides reimbursement to clinical labs performing COVID-19 tests on uninsured individuals. The coverage for COVID-19 testing under the HRSA Uninsured Program uses the same definition discussed above, suggesting that a laboratory may not submit a claim for a COVID-19 LDT absent an active or pending EUA without running afoul of the terms and conditions of the HRSA Uninsured Program, at least until further guidance suggests unapproved COVID-19 LDTs qualify for one of the categories above.

Liability Implications for Not Seeking an EUA

In addition, a clinical laboratory will not be able to qualify for federal protection from liability for damages arising from the use of unapproved LDTs.  The Public Readiness and Emergency Preparedness  Act (PREP Act) provides a liability shield for certain providers who, during a public health emergency, furnish unapproved or unauthorized items or services deemed to be “covered countermeasures” (as detailed in the PREP Act declaration) in the event that private claims for personal injury or property damages are lodged against those providers.

The COVID-19 PHE covered countermeasures include the development and administration of unapproved items and services, such as LDTs; clinical labs are one of many types of providers eligible for protection. However, this protection does not apply to claims arising from the use of unapproved LDTs absent an active or pending EUA. Considering the potential for LDTs, by their very nature, to produce inaccurate results (e.g., false negatives) which could lead an infected individual to infect others, being ineligible for PREP Act protection could have costly ramifications.

Takeaways for Clinical Laboratories

Clinical labs’ cost-benefit analyses on the importance of obtaining an EUA will differ depending on their type of testing, patient population, and participation status with commercial payors.  Ultimately, it is simply important for clinical laboratories to know and understand the implications of not obtaining an EUA for COVID-19 LDTs so they can make an informed choice.

For more information on this or other clinical-laboratory or COVID-19 issues, we encourage you to reach out to the authors or to any attorney in our healthcare practice group.