Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Complaining labs fail to resolve pleading deficiencies to support vertical conspiracy claims, (Feb 10, 2014)

By Jeffrey May, J.D.

Independent medical diagnostic testing laboratories failed to support their amended antitrust claims, alleging three separate illegal, vertical agreements between a national competitor—Quest Diagnostics, Inc.—and Blue Shield of California Life & Health Insurance Co. (BSC), Blue Cross and Blue Shield Association (BCBSA), and Aetna, Inc., the federal district court in San Francisco has ruled (Rheumatology Diagnostics Laboratory, Inc. v. Aetna, Inc., February 6, 2014, Orrick, W.).

Four California medical diagnostic laboratories engaged in the “commercial reference laboratory business” brought the action, contending that the alleged agreements harmed health care competition in California in violation of federal and California antitrust laws. Aetna and BSC are health insurance companies that serve customers throughout California. BCBSA licenses the “Blue Cross” and “Blue Shield” names to health insurance companies across the country (“Blue Plans”), such as BSC, and Blue Plans are governed by the “Blue Card policy” or licensing agreement.

The plaintiffs attempted to allege that BCBSA and Quest conspired to bar the plaintiffs and other small laboratories from providing services to BCBSA’s members on an in-network basis. They contended that changes to the “Blue Card” policy created barriers preventing smaller specialized labs from providing services to patients. However, the plaintiffs failed to adequately plead the existence of an agreement between BCBSA and Quest, the court once again ruled. The material allegations concerning the purported vertical agreement between BCBSA and Quest in the plaintiffs’ second amended complaint were virtually identical to those in the first amended complaint.

As for the agreement between BSC and Quest, Quest allegedly threatened not to renew its contract with BSC unless BSC agreed not to renew its contracts with two independent labs that were Quest’s main rivals. The plaintiffs asserted that BSC and Quest engaged in an illegal exclusive dealing arrangement. The court had earlier ruled that the plaintiffs adequately pleaded the existence of a vertical agreement between BSC and Quest. But, once again, the court concluded that they had not made sufficient allegations to show whether the BSC-Quest agreement foreclosed competition in a substantial share of the relevant markets.

The plaintiffs offered additional information. They attached the actual BSC-Quest agreement and identified lost customers. However, for each of the relevant markets, the plaintiffs still did not allege the extent of foreclosure, what size each market was, or how the agreement affected each market or its participants’ shares, the court noted. Thus, the court could not determine whether a substantial foreclosure occurred, and the allegations based on the BSC-Quest agreement had to be dismissed.

The plaintiffs also did not cure the defects in their first amended complaint regarding an alleged conspiracy between Aetna and Quest to eliminate or exclude 400 regional laboratories from Aetna’s provider network in exchange for discounts. They failed to carry their burden of proving substantial market foreclosure. It was not enough that they attached the Aetna-Quest agreement to the new complaint. Because the plaintiffs did not plead sufficient facts about the markets and their participants, or how the markets changed due to the agreement, the court could not determine the agreement’s impact on competition. The claims based on the alleged conspiracy between Aetna and Quest had to be dismissed.

The plaintiffs had three opportunities to plead the claims based on vertical agreements, and further pleading would be futile. Therefore, the defendants’ motions to dismiss causes of action based on vertical agreements were granted with prejudice.

The case is No. 12-cv-05847-WHO.

Attorneys: Anne Marie Murphy (Cotchett, Pitre & McCarthy, LLP) for Rheumatology Diagnostics Laboratory, Inc., Pacific Breast Pathology Medical Corp., Hunter Laboratories, LLC, and Surgical Pathology Associates. Craig Ellsworth Stewart (Jones Day) for Aetna, Inc. Ryan M. Sandrock (Sidley Austin, LLP) for Quest Diagnostics Inc. and Quest Diagnostics Clinical Laboratories, Inc. Jean M. Doherty (Jenner and Block LLP) for Blue Cross and Blue Shield Assn. Christopher John Kelly (Mayer Brown LLP) for California Physicians’ Services, Inc.

Companies: Rheumatology Diagnostics Laboratory, Inc.; Pacific Breast Pathology Medical Corp.; Hunter Laboratories, Inc.; Surgical Pathology Associates LLC; California Physicians’ Services, Inc.; Blue Cross and Blue Shield Assn.; Aetna, Inc.; Quest Diagnostics Inc.; Quest Diagnostics Clinical Laboratories, Inc.

Cases: Antitrust CaliforniaNews