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From Antitrust Law Daily, June 10, 2015

No injury shown from alleged abuse of market power in lab test pricing

By Linda O’Brien, J.D., LL.M.

In an action by consumers against a provider of clinical laboratory services for allegedly exploiting its dominant market share to charge supra-competitive prices on the sale of routine diagnostic tests, the consumers failed to allege sufficient facts that they were injured by the provider’s alleged anticompetitive practices or that the provider’s conduct foreclosed competition in a substantial share of the relevant market, the federal district court in San Francisco has decided (Eastman v. Quest Diagnostics Incorporated, June 9, 2015, Orrick, W.).

Quest Diagnostics is the largest provider of clinical laboratory services to hospitals, clinics, physicians, and patients in the United States. Colleen Eastman, Christi Cruz, and Carmen Mendez—consumers that paid Quest for routine diagnostic testing services—filed a complaint, alleging that Quest used its dominant market power to charge supra-competitive prices on the sales of routine diagnostic tests that are billed directly to health plans and out-of-network patients, in violation of Section 2 of the Sherman Act and California’s Unfair Competition Law (UCL), Unfair Practices Act (UPA), and Cartwright Act. Quest moved to dismiss the complaint.

Standing. The court determined that the plaintiffs lacked standing, since they failed to sufficiently allege that they were injured as a result of Quest’s conduct. The plaintiffs did not state what portion of their co-payment or deductible related to testing performed by Quest or that their payments were higher as a result of Quest’s anticompetitive conduct. Although they alleged that they made payments to Quest to fulfill their co-payment and deductible obligations, the plaintiffs did not identify their health plans or the amount that was paid to Quest. Thus, they did not sufficiently show that they suffered an injury-in-fact, since there were no allegations that Quest’s conduct had any impact on the amount the plaintiffs’ paid for Quest’s services.

Monopolization. The plaintiffs alleged that Quest monopolized and suppressed competition in the health plan/outpatient market through three exclusionary practices: (1) offering discount pricing or “kickbacks” to medical providers to induce them to refer all routine diagnostic testing to Quest regarding of pricing or testing quality; (2) colluding with two major private health insurers — Blue Shield of California and Aetna — to suppress competition for patient billing; and (3) acquiring competitors in order to eliminate competition. The plaintiffs contended that Quest’s three exclusionary practices were actionable if their combined effect was to foreclose a substantial share of the relevant market.

The court found that the three alleged exclusionary practices did not sustain the plaintiffs’ monopolization claims because they failed to sufficiently plead that the practices, independently or in combination, caused antitrust injury or foreclosed competition in a substantial share of the health plan/outpatient market. Following Rheumatology Diagnostics Lab, Inc. v. Aetna, Inc., Case No. 12-cv-05847-JST, (N.D. Cal. 2013), in which monopolization claims similar to the instant case were dismissed, the court noted the plaintiffs’ allegations that Quest’s discounts to medical providers allowed Quest to charge monopoly prices were conclusory and did not show antitrust injury. The plaintiffs’ allegations that Quest’s large payments to Blue Shield and Aetna to induce them to exclude competitors from their networks were also insufficient to state a monopolization claim, since the complaint did not allege how Quest maintained its market position or how competition fared in relation to Quest as a result of those payments.

Furthermore, the plaintiffs’ allegations that Quest’s acquisition of competitors Unilab Corporation in 2003 and Dignity Health in 2013 allowed it to increase its market share to become the largest competitor in the market did not establish foreclosure of a substantial share of the relevant market. In the court’s view, Quest’s acquisition of Unilab was approved by the FTC after certain divestitures by Quest, leaving competition in the market virtually unchanged. Additionally, the acquisition of Dignity Health only increased Quest’s market share by a relatively insubstantial three percent.

Unfair practices. To state a claim under the UPA, a plaintiff must allege the defendant’s sales prices, cost of the products, and cost of doing business in order to show injury as a result of the alleged below-cost pricing. In this case, the plaintiffs did not plead Quest’s prices, costs, or costs of doing business. According to the court, the complaint’s allegations that Quest sold testing services in the physician billing market at below cost in order to suppress competition in the health plan/outpatient market were purely speculative. Since the plaintiffs failed to plead an actionable injury, their allegations were insufficient to state a UPA claim.

UCL. The plaintiffs alleged that Quest violated the “unfair” and “illegal” prongs of the UCL. Since those claims were derivative of the failed monopolization and unfair practices claims, they should also be dismissed, the court concluded.

The case is No. 3:15-cv-00415-WHO.

Attorneys: Robert Stephen Berry (Berry Law PLLC) for Colleen Eastman. Allison Winifred Reimann (Sidley Austin LLP) for Quest Diagnostics Incorporated.

Companies: Quest Diagnostics Incorporated

MainStory: TopStory Antitrust CaliforniaNews

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