Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Cal.: Physicians claiming injuries from hushed medical debt reporting did not have federal antitrust standing, (Jan 3, 2025)

By Justin Marcus Smith, J.D.

The physicians failed to allege that they were direct participants in the relevant market for providing and receiving medical-debt information for the purpose of reporting it on consumer credit reports.

Physicians who complained that the three main credit bureaus engaged in an unlawful horizontal agreement to restrain trade with respect to medical debt reporting had Article III standing, but not federal antitrust standing, held the federal district court in Sacramento, California. Inasmuch as changes to medical debt reporting may make some patients less likely to pay their bills, the physicians alleged personal pocketbook injury sufficient to perfect Article III standing. However, with respect to federal antitrust standing, the physicians failed to allege that they were participants in the relevant market. Nor did the physicians allege how they would either qualify as exceptional “direct victims” of the alleged conspiracy or the “necessary means” for carrying it out. In the absence of federal antitrust jurisdiction, the court declined to exercise supplemental jurisdiction over the physicians’ state antitrust claim. The court accordingly dismissed the physicians’ claims, without prejudice, and with explicit leave to amend (Adams v. Experian Information Solutions, Inc., No. 2:23-cv-01773-DJC-MJ (E.D. Cal. Jan. 2, 2025)).

Background. A California dermatologist and a New Jersey emergency medical practice (collectively, the physicians) brought a putative class action complaint against the three main credit bureaus (credit reporting agencies or CRAs): Experian Information Solutions, Inc.; Equifax, Inc.; and, TransUnion. The physicians alleged the CRAs illegally combined to restrain trade, in violation of both federal and state antitrust laws, by: 1) agreeing to no longer report medical debts under $500; and, 2) to not report medical debt unless it is more than a year old. The physicians claimed violations of Section 1 of the Sherman Act, 15 U.S.C. § 1; they sought damages and injunctive relief under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26; and, they raised a claim under the Cartwright Act, Cal. Bus. & Prof. Code § 16750.

The physicians alleged one relevant market, i.e., the market for providing and receiving medical-debt information for the purpose of reporting it on consumer credit reports. The physicians alleged two conspiracies: a “reporting-amount conspiracy” and a “report-timing conspiracy.” In March 2022, the CRAs allegedly announced, via a press release, “joint measures” covering the conspiracies and later jointly issued instructions to those reporting medical debt information to report only debts of at least $500 that are at least a year old, defined as 365 days past the date of first delinquency with the original creditor. The court granted the CRAs’ Fed. R. Civ. P. 12(b)(6) motion to dismiss.

Alleged injury. The physicians complained that they did most of their business with patients for amounts under $500, whereas reporting such unpaid debts to the CRAs will now be “pointless” because of the alleged conspiracies. The physicians said reporting was no longer useful for encouraging patients to pay their bills, so they would now have to resort to costlier collection methods, like using accounts-receivable services or spending more in-house time on collection. The physicians said the end result was less payment of medical bills and costlier collection. The physicians said they were more likely to not collect at all given that many patients wait to see a bill on their credit report before paying it, and, given the year waiting time, insurers who require claims to be filed within a year will deny payment.

Article III standing. Insofar as the CRAs’ R. 12(b)(6) motion raised arguments about the physicians’ Article III standing, the court applied R. 12(b)(1) in construing the motion as raising a facial attack on standing that called the sufficiency of the plaintiffs’ allegations into question. Accordingly, the court found the physicians alleged a “personal pocketbook injury” based on costlier collection of unpaid medical bills. The court observed that such personal pocketbook injuries have always been enough for Article III standing, even if they are only a “trifle.”

The CRAs countered here that the physicians’ allegations only suggested that CRA reporting changes might lead to some patients choosing not to pay their bills. The CRAs said this was both too attenuated and did not trace the harm back to the CRAs, because it turned on the independent choices of third-party patients, but the court said both of these arguments failed. First, the harm was not too attenuated simply because it involved several “links” as long as they were not too hypothetical or tenuous to be plausible. Plausibility was what mattered, and here, there were only three total steps in the causal chain: 1) debt collectors must decide to report medical debt to the CRAs; 2) patients have knowledge of the threat of a bad credit score based on that reporting; and, 3) on the basis of that knowledge, patients decide to pay their bills when they otherwise would not. The court cited that the Ninth Circuit has found cases with five causal chain steps to be plausible.

As to traceability, the strength of the links in the chain matter, and here, in the Article III context, the physicians’ theory did not fail on the basis of third-party decisions. That was so inasmuch as the physicians alleged the third-party debt collectors and patients would behave in predictable ways, based on the CRAs’ incentives or instructions, in response to attendant economic incentives. The court described how the Equifax website actually made the physicians’ point that credit reporting “often drives” consumers to pay their debts. The court concluded the physicians met their injury-in-fact burden, at least for Article III standing. The court accordingly declined to dismiss the action for lack of Article III standing.

Antitrust standing. The court reached the opposite conclusion with respect to antitrust standing. The court said it addressed the federal claim as the sole basis for jurisdiction. Although the physicians showed requisite injury, the court concluded they failed to plausibly connect that injury to the alleged horizontal agreement to stop reporting some medical debts. The court reasoned that the pleadings did not show that the physicians were directly involved in providing information to the CRAs, nor did the physicians claim to have any control over whether third-party agencies actually share such information with the CRAs. Under this federal antitrust standing analysis, it mattered whether independent third parties were determining whether to report information to the CRAs. Moreover, the complaint indicated that the injury clearly flowing from the allegedly unlawful conduct would be suffered by those who buy credit reports. The physicians did not allege they buy or even use credit reports in deciding whether to accept patients. The physicians only claimed sufferance of a “devalued service” that would no longer prompt patients to pay their debts. The physicians were not involved in the alleged transaction.

Last, the physicians did not suffer injury in the relevant market. Although the physicians claimed to be participants, the court noted they were not customers of the CRAs; they were not competing with them; and, the physicians did not assert that they were a target of CRA conduct. The physicians only claimed that they conducted a transaction in the relevant market by providing information about medical debt to the CRAs in exchange for a CRA service that encourages patients to pay their bills. The court concluded that was not enough to say that the physicians were participants of, or suffered injury in, the relevant market. Furthermore, the court noted the physicians did not fall under the exception of being a “direct victim” of the alleged conspiracy or the “necessary means” for carrying it out. Most importantly, the physicians lacked direct interaction with the defendants. The pleadings also indicated there were other, more direct victims, for example, those who buy credit reports. The court said it did not need to explore remaining factors because the absence of antitrust injury was dispositive.

Amendment. The court granted the physicians leave to amend because the case was still at an early stage and had not yet had the benefit of the court’s ruling.

No supplemental jurisdiction. The court declined to exercise supplemental jurisdiction over the physicians’ California Cartwright Act claim in the absence of original jurisdiction on the federal Sherman Act claim, but dismissal of the Cartwright Act claim was without prejudice.

The Case is No. 2:23-cv-01773-DJC-MJ.

Judge: Calabretta, D.

Attorneys: Bennett Rawicki (Hilgers Graben PLLC) for Derrick Adams. Bryan Gant (White & Case LLP) for Experian Information Solutions, Inc. McGregor Scott (King & Spalding) for Equifax Inc.

Companies: Experian Information Solutions, Inc.; Equifax Inc.

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