Laboratory-Developed Tests and CLIA
A laboratory-developed test (LDT) is a diagnostic test designed, validated and performed within a single laboratory, regulated under the Clinical Laboratory Improvement Amendments of 1988 (CLIA) and not through FDA premarket review.
Reviewed by Peleg Chevion, Managing Partner
As of October 10, 2026, no FDA rule treats laboratory-developed tests as medical devices. On March 31, 2025, the U.S. District Court for the Eastern District of Texas vacated FDA's May 6, 2024 rule in American Clinical Laboratory Association v. FDA, No. 4:24-cv-479, and FDA removed the words that rule added to 21 CFR 809.3(a), effective September 19, 2025, in 90 FR 45134.
Mechanism
Three federal layers govern a diagnostic test: laboratory certification, product regulation and payer coverage. State programs add a further layer.
Laboratory certification. Under 42 U.S.C. 263a(b), no person may accept materials derived from the human body for laboratory examination unless a certificate applicable to that category of examination is in effect. CMS administers the program and reports that it covers approximately 320,000 laboratory entities. Tests are categorized as waived, moderate complexity or high complexity under 42 CFR 493.5. A test absent from the Federal Register lists is treated as high complexity under 42 CFR 493.17(c)(4). A laboratory that introduces a method developed in-house must establish accuracy, precision, analytical sensitivity, analytical specificity, reportable range and reference intervals before reporting patient results under 42 CFR 493.1253(b)(2). Those characteristics are analytical; clinical validity is not among them.
Product regulation. 21 CFR 809.3(a) defines in vitro diagnostic products as reagents, instruments and systems intended for use in the diagnosis of disease, and states that they are devices under section 201(h) of the Federal Food, Drug, and Cosmetic Act. The court distinguished finished test kits from laboratory-developed test services, which it held are professional services and not devices (slip op. at 30).
Coverage. 42 U.S.C. 1395m-1(b)(1)(A) sets the Medicare payment for a clinical diagnostic laboratory test at the weighted median of private payor rates for the most recent data collection period.
State requirements. Federal certification is not the only gate. The New York State Department of Health's Clinical Laboratory Evaluation Program (CLEP) states that only laboratories holding a New York State clinical laboratory permit are authorized to test specimens originating from New York, that it is the only regulatory agency in the United States that conducts formal review of laboratory-developed tests, and that any laboratory seeking to test New York specimens must obtain CLEP approval.
Worked Example
Consider a hypothetical laboratory that builds a tumor-sequencing panel in-house. Under 42 CFR 493.17(a), each of seven criteria is scored 1, 2 or 3, and a total of 12 or less is moderate complexity while a total above 12 is high complexity. A panel scoring 2 on every criterion totals 7 × 2 = 14, which exceeds 12 and places it in high complexity; the minimum possible total is 7 × 1 = 7 and the maximum is 7 × 3 = 21.
The laboratory must hold a certificate covering high-complexity testing and must establish the performance specifications in 42 CFR 493.1253(b)(2) before reporting a result. Because the court held that the service is not a device, it needs no FDA premarket submission. It then seeks Medicare coverage through the contractor process described below.
What It Means for a Limited Partner
An allocator evaluating a diagnostics company reads four records in order: the CLIA certificate and its category, the validation file behind the performance specifications, the payer coverage position and any FDA submission. The first two are legal prerequisites under 42 U.S.C. 263a(b) and 42 CFR 493.1253(b)(2), so their absence is disqualifying, while their presence says little about clinical merit because the enumerated specifications are analytical. The third is the commercial gate, since revenue follows coverage decisions and not laboratory certification. The fourth is now optional for a laboratory service but remains the pathway for a kit sold to other laboratories and for a companion diagnostic.
The baseline can still move. H.R. 8890, the Enhancing CLIA Act of 2026, was introduced May 19, 2026 and referred that day to the House Committees on Energy and Commerce and on Ways and Means; Congress.gov records no later action as of October 10, 2026. The bill would provide that laboratory operations are regulated under CLIA and not under the Federal Food, Drug, and Cosmetic Act, and CMS and CDC published a request for information on the CLIA regulations on July 16, 2026, with comments due September 14, 2026. Diligence therefore treats the current regime as a dated finding.
In Life Sciences and Healthcare
For a diagnostics or precision-medicine company, the binding constraint is usually reimbursement evidence and not clearance. The MolDX program, developed by Palmetto GBA in 2011, completes technical assessments of published test data to determine clinical utility and coverage, and its Palmetto GBA local coverage determination L35025 states that MolDX will cover and reimburse only tests that demonstrate analytical validity, clinical validity and clinical utility at a level that meets the Medicare reasonable and necessary requirement.
Noridian, CGS and WPS list parallel MolDX: Molecular Diagnostic Tests (MDT) local coverage determinations in the Medicare Coverage Database. A companion diagnostic, defined in FDA's August 6, 2014 guidance as a device whose information is essential to the safe and effective use of a corresponding therapeutic product, remains under FDA premarket review.
Governing Authority and Sources
- 42 U.S.C. 263a, certificate requirement.
- 42 CFR 493.5, 493.2, 493.17 and 493.1253: certificates, complexity, performance specifications.
- CMS, Clinical Laboratory Improvement Amendments.
- American Clinical Laboratory Association v. FDA, Memorandum Opinion and Order, No. 4:24-cv-479-SDJ (E.D. Tex. Mar. 31, 2025).
- 90 FR 45134 (Sept. 19, 2025), Implementation of Vacatur, and FDA, Laboratory Developed Tests.
- 21 CFR 809.3 and 21 U.S.C. 321(h), in vitro diagnostic products and devices.
- FDA, In Vitro Companion Diagnostic Devices (Aug. 6, 2014).
- 42 U.S.C. 1395m-1, Medicare payment for clinical diagnostic laboratory tests.
- Noridian, Molecular Diagnostic Services and LCD L35025.
- New York State Department of Health, Clinical Laboratory Evaluation Program.
- H.R. 8890 and the CMS-CDC request for information, 91 FR 43586.
Frequently Asked Questions
What is CLIA certification and who needs it?
CLIA certification is the federal certificate a laboratory must hold to accept human specimens for testing. Under 42 U.S.C. 263a(b), no person may accept materials derived from the human body for laboratory examination without one. The certificate types are registration, waiver, provider-performed microscopy, compliance and accreditation (42 CFR 493.2), and the type needed depends on whether the laboratory performs waived, moderate-complexity or high-complexity tests (42 CFR 493.5).
Does the FDA regulate laboratory-developed tests?
Not as devices, under the law as of October 2026. The Eastern District of Texas vacated FDA's May 6, 2024 rule on March 31, 2025, holding that laboratory-developed test services are not devices under the Federal Food, Drug, and Cosmetic Act, and FDA removed the rule's added words from 21 CFR 809.3(a) effective September 19, 2025. FDA still regulates finished test kits and companion diagnostics as devices.
What is a companion diagnostic?
A companion diagnostic is an in vitro diagnostic device that provides information essential for the safe and effective use of a corresponding therapeutic product, according to FDA's August 6, 2014 guidance. Its use is stipulated in the labeling of both the diagnostic and the therapeutic. The guidance states that most will be Class III devices, although a Class II classification with a 510(k) may be appropriate in some cases.