Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Quest avoids lab test pricing monopoly claims for second time, (Nov 30, 2015)

By Linda O’Brien, J.D., LL.M.

For the second time, 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 federal district court in San Francisco has held (Eastman v. Quest Diagnostics Incorporated, November 25, 2015, Orrick, W.).

Quest Diagnostics is the largest provider of clinical laboratory services to hospitals, clinics, physicians, and patients in the United States. In January 2015, 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 Cartwright Act and Unfair Competition Law (UCL).

In June 2015, the court granted Quest’s motion to dismiss the complaint for failure to show injury from Quest’s alleged anticompetitive practices. After the plaintiffs filed an amended complaint, Quest again moved for dismissal.

Market power. The court determined that the plaintiffs’ expert analysis of test pricing in Northern California was insufficient to establish causal antitrust injury. A monopolization claim under Section 2 of the Sherman Act has three elements: (1) the possession of monopoly power in the relevant market; (2) the willful acquisition of that power; and (3) causal antitrust injury.

The plaintiffs alleged that Quest has cost advantages over competitors based on economies of scale realized from multiple acquisitions and used those cost advantages to offer medical providers large discounts as inducements to refer all routine diagnostic testing to Quest. According to the court, the expert’s data was derived from data concerning all routine diagnostic testing in the plan/outpatient market in Northern California and not from Quest’s routine diagnostic testing. Thus, the analysis did not show what Quest’s prices were or how they compared to competitive prices.

Moreover, the plaintiffs’ allegations that Quest overcharged in the plan/outpatient market was contrary to their allegations that Quest benefited from its substantial economies of scale and large cost advantages over competitors. Such allegations indicated that Quest underpriced its competitors.

Collusion. Additionally, the plaintiff failed to state a claim that Quest’s agreements with major private health insurers Blue Shield of California and Aetna foreclosed competition in the plan/outpatient market. Although the plaintiffs identified three competitors that were allegedly eliminated as a result of those agreements with Blue Shield and Aetna, the plaintiffs did not allege what their market shares were or the number of other competitors in the relevant market. Furthermore, the plaintiffs’ allegations of the percentage of available enrollees in Blue Shield and Aetna did not provide information regarding the competition and dynamics of the relevant market to show foreclose of a substantial share of that market.

Acquisitions. Finally, the plaintiff failed to plausibly allege any specific anticompetitive effects from Quest’s three acquisitions over the course of ten years, whether viewed in isolation or in combination. 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 a relatively insubstantial 6.6 percent. The mere pleading of the occurrence of one acquisition that was cleared by the FTC and two others that resulted in minimal market share increases was insufficient to state a claim, 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

Cases: Antitrust CaliforniaNews