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From Antitrust Law Daily, February 13, 2018

Quest avoids lab test pricing monopoly claims

By Nicole D. Prysby, J.D.

Consumers failed to allege sufficient facts to establish that they were injured by a provider of clinical laboratory services for allegedly exploiting its dominant market share to foreclose competition and charge supra-competitive prices on the sale of routine diagnostic tests, the Ninth Circuit Court of Appeals held. The consumers’ monopolization claims failed because they did not allege facts sufficient to show that Quest’s actions had an appreciable impact on the market, constituted collusion, or unreasonably restricted competition. Their tying claims failed because they did not plead facts sufficient to show that providers were coerced into accepting the Quest tying (Eastman v. Quest Diagnostics, Inc., February 12, 2018, per curiam).

Background. Quest Diagnostics is the largest provider of clinical laboratory services to hospitals, clinics, physicians, and patients in the United States. Three consumers who 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 were billed directly to health plans and out-of-network patients in violation of the Sherman Act. The consumers’ prior complaints were dismissed. The district court then dismissed their second amended complaint for failure to state a claim and the consumers appealed.

Monopolization claim. The consumers failed to allege a plausible monopolization claim under the Sherman Act, because monopolization requires more than the possession of monopoly power; it requires willful acquisition of that power. In other words, the Sherman Act is not directed against aggressive competition, but against conduct that destroys competition itself. The consumers alleged three exclusionary practices by Quest: (1) exclusive dealing with medical providers; (2) collusion with health plans; and (3) acquisition of competitors.

With respect to exclusive dealing with medical providers, the consumers’ claim fell short because they did not allege facts sufficient to support an inference that the exclusive dealing had an appreciable impact on the market. For example, they did not allege how many medical providers have entered into agreements with Quest or how those arrangement how impacted other laboratories in the market.

The consumers also failed to sufficiently allege collusion, in that they did not demonstrate foreclosure of a substantial share of the market due to the dealings between the health plans and Quest. They only alleged that three laboratories were excluded from the Aetna and Blue Shield networks as a result of agreements with Quest. They did not allege the market shares of those laboratories, what portion of Aetna and Blue Shield testing is performed out of network, how many laboratories remain in the Aetna and Blue Shield networks, or even what portion of Aetna and Blue Shield diagnostic testing is actually performed by Quest.

The consumers’ allegations related to Quest’s acquisitions of competitors were also insufficient. The court noted that Quest’s acquisition of Unilab Corporation in 2003 was approved by the FTC after certain divestitures by Quest, leaving competition in the market virtually unchanged. The acquisition of Berkeley HeartLab in 2011 and Dignity Health in 2013 increased Quest’s market share by only 6.6 percent. Therefore, the consumers failed to establish an unreasonable restriction of competition.

Tying claim. The consumers also failed to plausibly establish per se tying under the Sherman Act, because they failed to adequately plead coercion. Although the consumers alleged that the only viable economic option for medical providers was to accept the alleged Quest tying, the consumers failed to allege facts supporting this conclusion, such as the difference in pricing between medical providers who refer testing to Quest, and those who do not.

The case is No. 16-15793.

Attorneys: R. Stephen Berry (Berry Law PLLC) for Colleen Eastman. Richard D. Raskin (Sidley Austin LLP) for Quest Diagnostics Inc.

Companies: Quest Diagnostics Inc.

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