In a rapidly shifting regulatory landscape brought on by changes from the new Trump Administration, clinical laboratories are navigating a host of challenges ranging from legal battles over testing oversight to shrinking reimbursement rates and rising operational costs. During an April 2 webinar hosted by Lighthouse Lab Services, lab policy experts and advocates came together to unpack these issues, offering insights into what lies ahead for lab owners and operators.
From the recent major legal win on vacating the U.S. Food and Drug Administration’s (FDA) oversight of laboratory developed tests (LDTs) to the financial and workforce pressures squeezing the industry, here’s a breakdown of the key takeaways and what labs should be doing now to stay ahead.
Judge Vacates Rule Granting FDA Oversight of LDTs
The clinical laboratory industry scored a major legal victory on March 31 as a federal district court in Texas ruled in favor of the American Clinical Laboratory Association (ACLA) and other plaintiffs, vacating the FDA’s final rule that sought to regulate laboratory-developed tests (LDTs) as medical devices. While this decision lifts an immediate compliance burden, Greg Stein, CEO of Shadowbox, cautioned that “this is not the end, not even the beginning of the end.”
The court’s ruling offers temporary relief, but there’s still much work ahead to ensure sustainable oversight of LDTs while preserving innovation. Those pathways could involve updating the Clinical Laboratory Improvement Amendments (CLIA) or pursuing new legislation through Congress.
Lab Market Contraction Is Real and Measurable
The panelists also explored recent market data indicating that up to 42% of diagnostic facilities, including independent labs and imaging centers, have gone out of business since 2022. While COVID-era labs closing explains some of the downturn, broader contraction within the medical lab industry is undeniable.
According to CMS and CDC databases, CLIA applications are at a 40-year low, while lab closures are at a 40-year high. For a deeper dive on lab openings and closing throughout the past 20 years, check out our in-depth webinar on the subject from last fall.
Macro Trends: Rising Costs and Financial Pressure on Labs
The broader economic climate is also creating some difficulties for laboratories on the supply front. New or expanded tariffs on Chinese goods, including lab reagents and disposables, are expected to drive up supply costs. A recent analysis estimates overall lab supply costs could rise 15% due to tariff-related inflation, according to data shared by Stein.
At the same time, uncertainty around interest rate cuts has limited access to capital needed for equipment purchases or expansion, creating an additional burden on struggling labs, noted Bil Signer, Executive Managing Director for the Washington, D.C.-based Carmen Group.
Workforce Woes: Staffing Shortages and Burnout Intensify
The healthcare labor market continues to tighten, with turnover in hospitals reaching new heights over the last five years. For labs specifically, only 213 clinical laboratory scientists (CLSs) graduated in California during 2020, notes Stein, a number that is significantly insufficient to meet demand. Recent surveys show significant burnout rate among lab professionals, creating a dangerous gap between workforce availability and patient care needs.
Persistent Challenges: Reimbursement, Prior Authorizations, and Closed Networks
Beyond continuing the conversation surrounding LDT regulation, labs continue to face serious challenges related to payer relations. These include:
- Inconsistent claim approvals and payments
- Burdensome prior authorizations
- Difficulty accessing closed or narrow networks
- Uncertainty around the future of Protecting Access to Medicare Act (PAMA) cuts, which may resurface as pressure to reduce federal spending grows
While these reimbursement headwinds are contributing to financial instability for some labs, there remains significant opportunity to grow your business with a sound understanding of these issues and the innovations needed to remain ahead of their impact, said Jon Harol, Founder of Lighthouse Lab Services.
Your Voice Matters: Advocacy and Action Still Needed
Jon Harol, Founder, LLS
Despite the win against FDA’s final rule, the panel emphasized the importance of continued engagement. A pre-written letter is available for stakeholders to send to FDA Commissioner Dr. Robert Califf to request formal removal of the rule from the Code of Federal Regulations. The letter also urges the FDA to recognize that LDTs are neither medical devices nor IVDs.
In addition to submitting letters, lab owners were encouraged to visit their state legislators and advocate directly. “Most legislators have never met a lab owner,” Harol said. “They need to hear the value of laboratory testing firsthand.”
Looking Ahead: Be Ready for What’s Next
Although the court has vacated the FDA rule for now, the Department of Justice has until late May to appeal. While compliance with the May Phase 1 deadline is not required at this time, labs should remain alert and continue preparing in case the rule is revived. Panelists noted the FDA is facing its own staffing cuts, making implementation even more difficult, but uncertainty remains.
As Stein summed it up, “What we say today may not hold true tomorrow. But being informed and involved is the best defense our industry has.”
If your lab is struggling with any of these issues or looking to stay in front of regulatory updates, we encourage you to reach out to learn more about how Lighthouse’s comprehensive lab solutions can meet your needs. Contact us today for a complimentary consultation or check out our resources for more information on commercializing your LDT under current rules.