Leveraging Regulatory Clarity in LDTs to Drive Laboratory Innovation

Laboratory-developed tests (LDTs) are essential for providing specialized diagnostic solutions that meet diverse health care needs in a timely manner. The regulation of LDTs has been debated for over a decade, with the FDA claiming oversight of LDTs as medical devices. However, a recent federal court ruling reaffirmed the Clinical Laboratory Improvement Amendments (CLIA) enforced by CMS (Centers for Medicare & Medicaid Services), as the primary authority for LDT oversight. 

This decision reinforces the established framework for laboratories to develop their LDTs as clinical laboratory services. While this decision validates CLIA’s role, the history of this debate begs some practical considerations to inform both immediate decisions and long-term strategies.

Regulatory update 

In March 2025, a federal district court vacated the FDA’s LDT Final Rule, with the agency opting not to appeal. The FDA is now moving to formally rescind this rule via the EO 12866 review. Until a new legislative or regulatory framework is established, oversight of LDTs remains under CLIA and applicable state programs. Clinical laboratories should monitor developments closely as they unfold.

This article examines the evolving LDT regulatory environment and offers practical strategies for clinical laboratories to remain competitive, innovative, and compliant. 

The expanding role of LDTs

LDTs are crucial for expanding access to innovative, high-quality laboratory services by rapidly translating scientific discoveries into clinical care. Less burdened by the lengthy regulatory review timelines associated with in vitro diagnostic (IVD) products, LDTs allow laboratories to respond quickly to emerging health threats, rare disease diagnostics, and evolving clinical needs. 

This agility empowers earlier detection, precise monitoring, and personalized treatment approaches—often in areas where no FDA-cleared or commercially available IVDs exist. 

Developing and validating an LDT is typically a fraction of the cost of commercializing an IVD, as the manufacturer must pass higher costs to the laboratory. Many lower-complexity, FDA-cleared tests in high-volume laboratories are low-margin and benefit from predictable reimbursement under the Clinical Laboratory Fee Schedule (CLFS), updated by CMS using private-payer-rate surveys under PAMA (Protecting Access to Medicare Act of 2014). 

These issues are magnified for molecular testing where nearly one-third (27 percent) of claims are denied. US laboratories average only about 7 percent operating margin, reminding us that many tests are only marginally profitable or run at a loss. 

Patient access implications

Low-margin or loss-leader lab tests can quietly shrink patient access, leading to fewer local options, longer turnaround, and limited menus—particularly in smaller, independent, or rural laboratories—where reimbursement fails to cover actual costs. 

Navigating resources and laboratory economics 

CLIA’s application to LDT oversight has long provided a highly manageable standard. Since CLIA is enforced by CMS, it naturally aligns services with pricing, payment, and reimbursement. 

Some critics argue that LDTs give larger, well-financed laboratories an advantage, enabling them to adopt advanced diagnostic technologies that smaller labs may struggle to develop, validate, and commercialize. 

However, FDA oversight of LDTs would generally exacerbate this inequality, requiring even greater resources for development and validation, further reducing the number of labs who could offer these services. 

The significant capital, staffing, and time required to bring an IVD through clearance or approval create barriers that only the largest corporations can routinely overcome—effectively sidelining smaller, innovative laboratories. This not only constrains the diversity of solutions entering the market but also delays the availability of cutting-edge technologies for patients. 

A system that drives better patient access to innovative diagnostics over fairness or profit is most reasonable. Expecting low-volume labs to compete with high-volume labs on a cost per test basis is unrealistic. High-volume labs are best positioned to lower costs with batch and workflow efficiencies, especially with NGS-based technologies tied to consumable scales (e.g., flow cells or chips). 

Given the history of reimbursement cuts for lab services, margins quickly erode when labs lack adequate test volumes to optimize capacity. 

While broader availability can improve patient access, laboratory economics must support sustainability of service. Striking a careful balance is critical. 

The priority must be a regulatory framework that ensures quality while fostering innovation. Patients deserve timely, affordable access to the best, diagnostics science can deliver—not a system that rewards market incumbency or high-margin profit over public health. 

Quality assurance under CLIA 

While CLIA has a proven track record in ensuring the quality and accuracy of laboratory services, increasing complexity in diagnostic technologies (e.g., genomics, AI, and more) raises questions about the framework’s ability to provide sufficient oversight for development, particularly for smaller labs moving into high-complexity areas. 

Many of these questions seem to arise from potential gaps in the development and validation of these LDT services, something that many smaller labs may lack experience with, especially when they have built test menus around simple verification of IVD tests offered on-label and without modification.

Resources for quality and compliance:

The College of American Pathologists is widely recognized as a gold standard accreditation for clinical labs, offering checklists, guidelines, and proficiency testing programs. 

The Association for Molecular Pathology (AMP) focuses on the advancement, practice, and science of molecular pathology and provides educational programs and guidelines for molecular labs. 

The Clinical and Laboratory Standards Institute (CLSI), develops consensus-based standards and guidelines for laboratory testing and related healthcare practices, used globally as reference methods. 

In simple terms, clinical laboratories should:

• Develop tests tailored to the needs of their ordering physicians, based on a prior performance criteria 
• Validate test performance according to pre-established criteria 
• Continuously monitor test performance against original analytical claims of their test 

Collaborations for overcoming barriers 

Collaborations with life science tools providers or academic institutions helps labs share the financial and operational burden of research and early development. However, it’s critical the lab be active in the development of the test. 

Small laboratories sometimes forget a simple truth: when you build and offer an LDT, your lab can be considered the manufacturer. This means the lab defines intended use, controls design inputs, validates, maintains, and monitors performance. 

By adopting the operational mindset of a device company, labs can minimize inspection surprises, better address future regulatory changes, and scale easier. 

Collaborations for LDTs range from developing a test based on an existing FDA-cleared or approved diagnostic device to building on Research Use Only (RUO) products.

Actionable strategies for resilient, competitive labs

To thrive under current and evolving conditions, clinical laboratories must proactively adapt. Here are some practical, actionable steps to ensure resilience and growth:

1. Implement advanced technologies: Use scalable technologies like multiplex proteomics platforms to increase throughput and reduce costs. For instance, Pictor’s PictArray™ system allows labs to process up to 96 samples in under four hours. By adopting scalable solutions, labs can future-proof their operations.
2. Leverage existing CPT codes: Align new tests with established CPT codes to simplify reimbursement and maintain cash flow. For instance, Pictor's platform is designed for labs to develop tests that integrate seamlessly with CPT billing pathways, allowing labs to expand diagnostic offerings, while minimizing financial and administrative hurdles tied to applying for new codes.
3. Automate through LIMS: Implement laboratory information management systems to accelerate data management and reduce errors. Automation streamlines reporting workflows, enabling quicker turnaround times and improved efficiency—key operational benchmarks in cost-constrained environments.
4. Continuously monitor regulatory guidance: Proactively tracking guidance from the Centers for Medicare & Medicaid Services (CMS) and other regulatory bodies to anticipate and adapt to change before new regulations take effect.
5. Expand through collaboration: Tackle resource gaps by collaborating with academic partners or life science tools companies to enable shared innovation, and operational efficiency, further accelerating development timelines for advanced tests.

Expanding access in underserved communities

Clinical labs bear a broader responsibility to expand access to high-quality diagnostics in underserved regions. 

Portable, cost-effective platforms like Pictor’s PictImager™, support decentralized testing solutions and break down geographic and financial barriers, ensuring wider access to critical diagnostic and screening tools. 

Government grants, external funding, and partnerships with healthcare organizations can further support efforts to bring equitable testing to remote and rural communities.