Quest has not yet commented on the lawsuit, which was filed by three individuals who had clinical laboratory tests performed by the nation’s largest public lab company
In California last Thursday, three California residents filed a class action lawsuit charging Quest Diagnostics Incorporated (NYSE: DGX) with acquiring competitor medical labs, paying kickbacks to physicians, and developing exclusionary agreements with health insurers to monopolize the market for clinical laboratory testing in Northern California.
Filed in U.S. District Court for the Northern District of California, the complaint cites violations of the federal Sherman Act and the California Unfair Competition Law, Unfair Practices Act, and the Cartwright Act on behalf of California residents Christi Cruz of San Jose, Colleen Eastman of Hollister, and Carmen Mendez of, Milpitas. All three plaintiffs have used Quest laboratories and paid Quest Diagnostics Incorporated of Madison, New Jersey, for those testing services, the complaint says.
Lawsuit About Clinical Lab Testing Services Filed in Federal Court
The complaint was filed in the court’s San Francisco Division. In the court papers, lawyers for the three plaintiffs explain that injury to competition is manifest in three ways: above-competitive prices, inferior quality of testing, and reduction in choice among providers of routine diagnostic testing. “There is ample evidence that Quest has controlled prices in the relevant market in Northern California since at least 2011,” the complaint explains.
As of the close of business Friday, there was no public statement by Quest Diagnostics about the class action lawsuit. Clinical pathologists and medical laboratory managers will likely see the lab company issue a public statement about this lawsuit within the next week or two.
In their class action lawsuit, the three plaintiffs accuse Quest Diagnostics of four counts as follows:
• Count I Monopolization—Section Two of the Sherman Act
• Count II Violation of California Unfair Competition Law
• Count III Violation of California Unfair Practices Act
• Count IV Violation of the California Cartwright Act
Medical Lab Company Alleged to Have Worked with Health Insurers
In the complaint, plaintiffs’ lawyers R. Stephen Berry of Berry Law PLC; J. Ross Wallin of Grais & Ellsworth, LLP; and Colleen Duffy-Smith of Morgan Duffy-Smith & Tidalgo LLP, explain that Quest Diagnostics has worked with health insurers in California, including Aetna and Blue Shield of California, to exclude competitor laboratory companies and to charge above-competitive prices and “make monopoly margins for so-called ‘pull through’ testing and other testing billed directly to health plans or outpatients.”
Quest has gained significant market power for physicians’ lab test services in Northern California where Quest Diagnostics has market share for plan and outpatient billing of at least 70% by revenue, the complaint alleges. To gain this level of market share, Quest Diagnostics has engaged in anticompetitive practices that include exclusionary physician kickbacks, exclusionary agreements with large “aligned” insurers, and acquisition of competitors, the complaint alleges.
The complaint concludes by saying, “As a result of its long-term and persistent pattern of kickbacks, exclusionary contracting with aligned health insurers, and acquisitions to advance its overall scheme to monopolize, Quest has injured, and continues to injure, competition in the relevant market for plan/outpatient billing.” The lawyers requested a jury trial.
National Lab Sued Several Times in California
Has California become an Achilles heel in the marketing and business strategies of the national public medical laboratory companies? It could be argued that this latest lawsuit, along with two earlier lawsuits filed against Quest Diagnostics and other labs in the Golden State, show that at least some competing lab companies (the plaintiffs in the three legal actions) believe that the actions of the defendant labs named in the three lawsuits violate the law.
The first of these three lawsuits was settled in 2011. During that year, Quest Diagnostics, Laboratory Corporation of America, and several other smaller clinical lab companies entered into settlement agreements with the California Attorney General to resolve a whistleblower lawsuit that alleged that the defendant lab companies violated California law in how they billed Medi-Cal, the state’ Medicaid program, for medical laboratory testing services. The settlement amounts totaled about $300 million and some of the plaintiff lab companies reserved their rights in the settlement agreements. (See Dark Daily, “Quest Diagnostics Discloses Pending Agreement to Pay California $241 Million to Settle Medi-Cal Medical Laboratory Test Pricing,” May 20, 2011.)
The second of these three lawsuits was filed in 2012. In this case, Quest Diagnostics, Aetna, Blue Cross Blue Shield Association, and Blue Shield of California were sued in federal court in California by Rheumatology Diagnostics Laboratory, Pacific Breast Pathology Medical Corp., Hunter Laboratories, and Surgical Pathology Associates for allegations that the defendants violated California’s anti-business statutes. Court filings by the plaintiff labs stated that the defendants acted “to monopolize and otherwise restrain competition in the sale of routine, molecular, and specialty testing services in California.”
Quest Diagnostics, Aetna, Blue Cross Blue Shield Association, and Blue Shield of California have denied the charges and were successful in getting most of the plaintiff’s claims dismissed in this case. However, the judge has allowed the case to go forward on one charge and a trial date is set for later this year.
Class Action Lawsuit Is Third Case Filed Against Plaintiff in Recent Years
Thus, this new class action lawsuit filed against Quest Diagnostics represents the third—and latest—legal challenge for the nation’s largest clinical laboratory company. Further, since the issues in this class action lawsuit involve allegations of violations of several federal and state laws governing anti-business and anti-competitive behavior associated with lab test pricing strategies and managed care contracting practices, it is highly probable that pathologists and clinical laboratory executives working in labs that compete against Quest Diagnostics will be closely watching the outcome of this case.
—by Joseph Burns