May 13, 2025 | For diagnostic labs, 2025 is a “big, complicated year” that began with a milestone “win” for laboratories when a U.S. District Court decision vacated a Food and Drug Administration (FDA) final rule that would have regulated all laboratory-developed tests (LDTs) as medical devices. Despite that win, there is no shortage of concerns and challenges facing the industry, including unknowns about the final shape of the federal reconciliation package on Capitol Hill, according to Susan Van Meter, president of the American Clinical Laboratory Association (ACLA). This is on top of other big perennial problems, notably burdensome and contradictory requirements hampering innovation and the now-urgent business of reforming the universally loathed Protecting Access to Medicare Act of 2014 (PAMA).
“Particularly when a lab performs a lot of routine tests, the kind of essential services your doctor orders when you have a physical, then PAMA is a real pain point,” Van Meter says. At its investor day in March, Quest Diagnostics reported that it could possibly take a $100 million revenue hit from PAMA next year unless reform legislation halts its planned implementation, as reported by Investor’s Business Daily.
Under PAMA, the Centers for Medicare & Medicaid Services (CMS) is required to recalculate Medicare Clinical Laboratory Fee Schedule (CLFS) rates off the volume-weighted median of private payer rates and phase in those new rates over three years. An initial cut of up to 10% occurred in 2018, and again in 2019 and 2020, but after the pandemic struck Congress repeatedly stepped in to delay subsequent rounds of cuts from going into effect, says Van Meter.
“PAMA’s implementation was fundamentally flawed” from the get-go, she says. The commercial data on which the Medicare rates were based came from fewer than one percent of labs, mostly independent laboratories, including those like Quest and LabCorp with the scale to offer the lowest prices. Very few physician office laboratories, and only 25 hospital outreach labs, reported commercial rate data, so the agency’s calculation was based on “an artificially low representation of what was happening in the commercial market and the cuts were much deeper than Congress intended.”
As things currently stand, come January, Medicare payments for about 800 lab services, including the most used codes on the CLFS, will be cut by up to 15%. At the same time, clinical labs will need to report their 2019 market data upon which the 2027 Medicare rates will be set, says Van Meter.
The ACLA, for its part, has been working with sponsors of prior systemic PAMA reform legislation to secure bipartisan, bicameral bill introduction in Congress within the next few weeks, reports Van Meter, who is hopeful the PAMA reform bill will cross the finish line before the end of the year. “The big challenge is always what is the price tag and what is Congress prioritizing among must-do legislation.”
Problems with PAMA are but one of many hot topics expected to rouse lively debate at the upcoming Next Generation Dx Summit, where Van Meter will be moderating a panel discussion on lab advocacy topics. Panelists are Jonathan R. Genzen, M.D., Ph.D., M.B.A, chief medical officer of ARUP Labs; Lauren R. Silvis, senior vice president of external affairs at Tempus, Inc.; and Rachel Stauffer, principal with McDermott+ Consulting LLC. Since McDermott+ Consulting represents a point-of-care testing association and a coalition composed of mostly small but advanced diagnostics labs, PAMA reform will no doubt be top of mind for Stauffer.
Tempus is doing a lot with artificial intelligence (AI), so Silvis is expected to share her views on the regulatory environment for AI. Since the company has brought some of their tests through the FDA, she might also talk about that experience and what the future holds given the District Court’s recent decision, says Van Meter. Silvis might also have thoughts on how reimbursement policy, including for coding, should be modernized to reflect innovations in diagnostics, including tests using algorithms.
ARUP is a massive reference lab whose customers are principally hospitals, so Genzen has likely been thinking a lot about pandemic preparedness. Last fall, the company was selected by the Centers for Disease Control and Prevention (CDC) as one of its five partners in the development of a test for avian influenza A (H5N1), or bird flu, although thankfully the last human case was in February, reports Van Meter. He’ll certainly also be interested in talking about whatever potential LDT legislation Congress might then be pondering.
“The biggest thing for anybody to know is a clinical laboratory is part of the foundation of a healthy healthcare delivery system, because you can’t have informed clinical decision-making without clinical labs—whether it’s just empowering patients to understand more about their baseline health or making a really critical diagnosis and determining right treatment pathways,” Van Meter says. They provide the necessary infrastructure for personalized medicine and should therefore be “top of mind for all of us.”
Although a Texas district court vacated the FDA's LDT Final Rule on March 31, the longstanding debate about how and by whom LDTs should be regulated isn’t necessarily over, points out Van Meter. The 60-day appeal window is still open, and the ACLA is preparing for the possibility that the government may ask a higher court to review the decision.
An appeal may well not happen, she says, but that still leaves a few policy questions on the table. One is what the FDA does moving forward. “The court decision did not say that the FDA has no authority, ever, to regulate any aspect of the diagnostic tests that laboratories may develop,” Van Meter says. “It said that the government has gone too far with the rule, that LDTs are not medical devices, but professional services... so in theory the government could try to define when a laboratory is not engaged in providing a professional service but is instead actually manufacturing a medical device.”
Of course, there are various unknowns, including what FDA Commissioner Martin A. Makary, M.D., and those running the Center for Devices and Radiological Health's (CDRH) OHT7 (Office of Health Technology 7: Office of In Vitro Diagnostics), consider to be the status of tests laboratories had previously brought through the agency, securing clearances or approvals.
Companies that were in the process of seeking FDA approval when the Court made its decision also have some choices to make.
The timeline for passing the current federal reconciliation package, which aims to make major controversial funding cuts to multiple big and essential programs, continues to move forward. Although Republicans maintain a slight majority in the House, there is no room for error in achieving a party-line vote, Van Meter notes.
Bill Cassidy, M.D., a moderate Republican and chair of the Senate Health, Education, Labor, and Pensions Committee, is potentially interested in new policy that would modernize CLIA regulation, she says. The Cassidy team has engaged with the ACLA on the topic in conversations with the House Committee on Energy and Commerce. It is possible more will be known about the Committees’ interest in diagnostics legislation by the start of the Next Generation Dx Summit in mid-August.
“On the legislative front, [the ACLA has] always worked very closely with committees and jurisdictions in a bipartisan way,” says Van Meter. In 2022, the ACLA was central to dialogue around the Verifying Accurate Leading-edge IVCT Development (VALID) Act, which proposed to modernize the regulatory framework for in vitro clinical tests under the FDA and came close to being included in end-of-year legislation. The VALID Act is “no longer a viable piece of legislation in the current environment.”
The ACLA wants to ensure that any bill progressing through the legislative process respects the contours of the Texas district court’s decision rejecting FDA’s attempt to regulate LDTs as medical devices, she stresses. “If there is any modernization to current oversight for laboratory developed tests, it should clearly be under CMS,” specifically CLIA.
Separately, Van Meter adds, “our colleagues in the medical device industry may be interested in some modernization of the authorities for them.” Part of the problem all along is that the medical device authorities don’t work well for IVD diagnostics manufacturers, let alone LDTs, as the ACLA has made clear in its comments to the FDA on its proposed rule and in its briefs to the court.
AdvaMedDx, a trade association representing IVD manufacturers, has openly expressed interest in a freestanding technology certification program, perhaps under the FDA, to enable companies to iterate on their test post-market without having to bring it back to the agency. “We would fully support that for our manufacturer colleagues,” says Van Meter.
The ACLA has responded to multiple requests for information related to the use of AI by clinical laboratories, including one by Senator Cassidy and another by the National Science Foundation regarding the administration’s planned development of a federal AI action plan aiming to remove burdensome requirements that may hamper innovation, Van Meter says. Labs are using AI primarily for business operation purposes (e.g., payer engagement and documentation) but when leveraged in diagnostic tools “there is always a human [medical laboratory professional, e.g., a pathologist] involved,” as is emphasized in a policy paper published last fall.
For any regulatory apparatus under consideration, a “risk-based approach” should be one of the key principles, she says, as has long been the mantra of the ACLA. The risk, as meant here, refers to potential harm to patients. Some flexibility is also critical, she adds, since “science is moving quickly.”
A House Bipartisan Task Force on Artificial Intelligence report mirrored core principles included in an ACLA AI policy paper, including the importance of appropriate reimbursement, transparency, bias mitigation, and recognizing the value of AI as an assistive diagnostic tool, says Van Meter. But prior authorization concerns remain top of mind, specifically “how AI is being used by payers in making coverage decisions.”
Separate and apart from PAMA, coding is a major area of focus for the ACLA, says Van Meter. When new technology is being developed, “companies need to be very deliberate in their decision-making and business strategy as to which type of code to pursue.” The options include, but are not limited to, proprietary laboratory analyses codes and category I CPT (current procedural terminology) codes, and they have their pros and cons.
The ACLA has an expert in-house who spends most of her time working closely with members on coding strategy, making recommendations on behalf of industry for both codes and associated rate setting, Van Meter says.
Challenges arise when codes are being implemented due to contradictions between coding guidances offered by the American Medical Association (AMA) and CMS, “which makes it incredibly difficult to ensure you are coding accurately” to get claims approved for payment, says Van Meter. The ACLA has therefore been urging the advancement of policy that would require the National Correct Coding Initiative (NCCI), a CMS program, to use the CPT coding guidance developed by the AMA.
Meanwhile, the CMS and National Center for Health Statistics (NCHS), at the CDC, has created some headaches for clinical labs with its guidelines for coding and reporting around ICD-10 (International Classification of Diseases, 10th revision), she continues. Notably, its so-called “Excludes1” front end edits can cause labs to be denied coverage and payment for medically appropriate services simply because a second service was provided on the same date as the first one.
If a woman in the context of a pregnancy visit has routine labs done but her clinician determines she should also be tested for a sexually transmitted infection, that means one of the two services will be denied, she offers as an example. Having the patient come back another time would be an unreasonable and inconvenient solution.
Several coding issues were among recommendations the ACLA recently submitted to the Office of Management and Budget on implementation of the President Trump’s deregulatory initiative, Van Meter says. In addition to addressing conflicting coding guidance and removing Excludes notes from ICD-10 guidelines to ensure appropriate payment for medically appropriate services, it proposes removing cost barriers to clinical laboratory compliance with Health Insurance Portability and Accountability Act coding requirements.