Antitrust Law Daily Wrap Up, ADVERTISING—D. P.R.: Health plan's incorrect notices regarding medical labs' participation not false advertising, (Mar 3, 2016)

By Edward L. Puzzo, J.D.

Notifications to patients insured by a Medicare Advantage plan that incorrectly stated that certain medical laboratories were no longer participating providers in the health care plan did not give rise to a Lanham Act false advertising claim, according to the federal district court in San Juan, Puerto Rico (Asociacion De Laboratorios Clinicos, Inc. v. Medical Card Systems, Inc., March 2, 2016, Gelpi, G.).

Medical Card Systems, Inc. (MCS) sells and operates health plans, including Medicare Advantage plans that are managed care plans for Medicare beneficiaries. Plaintiff and several clinical laboratories contracted with MCS to be participating providers in their health care plans, each signing Preferred Provider Organization (PPO) Agreements.

In 2014, MCS sent letters to patients stating that the plaintiff labs were no longer part of MCS’ Medicare Advantage Network. Patients of the clinical labs were effectively forced to seek services elsewhere in order to avoid incurring significant out-of-pocket expenses. The labs claimed that, because of several procedural flaws, their participation in the Medicare Advantage Network under the PPO Agreement was never effectively terminated, and they remain legally in-network. It followed, they claimed, that MCS' representations to the contrary were untrue, and that those representations were actionable false advertising under the Lanham Act.

The Lanham Act’s proscription against false advertising, the magistrate explained in his report and recommendation, is limited to misrepresentations in “commercial advertising or promotion.” That term was defined as (1) commercial speech (2) made with the intent of influencing potential customers to purchase the speaker’s goods or services (3) by a speaker who is a competitor of the plaintiff in some line of trade or commerce and (4) disseminated to the consuming public in such a way as to constitute “advertising” or “promotion.

Defendant MCS argued that their notification to patients met none of these requirements. The magistrate did not agree that all of the requirements for commercial speech were lacking, but agreed that some of the requirements were not met.

Commercial speech. The magistrate viewed this requirement as met, since the notice involved straightforward information about the contours of a commercial relationship between the labs and the MCS health plans.

Commercial competition. MCS argued they were not in commercial competition with plaintiffs. In rejecting this basis for dismissal, the magistrate noted that non-competitors may sue under § 43(a) for false advertising, under Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), so it cannot be that only a competitor’s speech may form the basis for such an action.

Intent of soliciting business. MCS argued that it was not plausible that they were seeking to solicit business for themselves by telling patients that the labs were no longer part of their network. The notices were only sent to patients already enrolled in one of MCS' plans, so they could not be reasonably viewed as solicitations of potential customers. The labs countered that the notices were promotional in that they essentially instructed the recipient patients to patronize a new, covered clinical laboratory. Even assuming this to be true, the magistrate stated, the test was whether the representations were intended to induce potential customers to purchase the speaker’s, that is MCS', goods or services. That was not the case here. The magistrate agreed with MCS' assertion that there was no world in which a customer would be more likely to enroll in MCS’ plan because certain clinical laboratories were not part of its network. Thus, the requirement that commercial advertising be "made with the intent of influencing potential customers to purchase the speaker’s goods or services" was not met.

The court, accepting the magistrate's report and recommendation to grant MCS’ motion to dismiss, ruled that the plaintiff labs failed to adequately allege that MCS made false or misleading representations intended to influence potential customers to purchase their goods or services. Therefore, their false advertising claims failed and were dismissed with prejudice.

The case is Civil Action No. 3:15-cv-01099-GAG-BJM.

Attorneys: Luis Enrique Romero-Nieves (Cuevas Kuinlam, Marquez & O'Neil) for Asociacion de Laboratorios Clinicos, Inc. Roberto Santana-Aparicio (Del Toro & Santana) for Medical Card Systems, Inc. and MCS Advantage Inc.

Companies: Asociacion De Laboratorios Clinicos, Inc.; Medical Card Systems, Inc.; MCS Advantage Inc.

Cases: Advertising PuertoRicoNews