Court Dismisses Labs’ Lawsuit Against Aetna Alleging Improper Exclusion From Network

A federal trial court has dismissed a lawsuit filed by several independent clinical laboratories in California accusing Quest Diagnostics of conspiring with large health insurers to exclude competing labs from in-network designation (Rheumatology Diagnostics Laboratory Inc. v. Aetna Inc., N.D. Cal., No. 3:12-cv-5847, 6/25/13). The U.S. District Court for the Northern District of California said claims filed by Rheumatology Diagnostics Laboratory Inc. and other excluded laboratories, which alleged the conspiracy was designed to drive competing labs out of business, failed to plausibly allege that the defendants conspired to restrain trade or that Quest monopolized the relevant markets in violation of the Sherman Act or California’s Cartwright Act. The court specifically found allegations of a conspiracy among the defendants were inadequate and that claims that defendants engaged in an unreasonable restraint of trade or were monopolizing or attempting to monopolize the laboratory services market were not adequately supported. Judge Jon S. Tigar granted the defendants’ motions and dismissed the plaintiffs’ complaint with leave to replead. Challenged Conduct Rheumatology Diagnostics Laboratory Inc., Pacific Breast Pathology Medical Corp., Hunter Laboratories LLC, and Surgical Pathology Associates sued Blue Shield of California Life & Health Insurance Co. (BSC), Blue Cross and Blue Shield Association (BCBSA), Aetna Inc., and Quest Diagnostics Inc., alleging that they had conspired to allow Quest to monopolize markets for specialized testing. According to the plaintiffs, Quest has 70 percent of the market in Northern California for outpatient laboratory testing. BCBSA in 2012 revised its licensing agreement for BCBS plans or “Blues plans” to require labs to submit claims to a patient’s home Blues plan. This requires labs to develop claims submissions processes for each Blues plan area nationwide and cross-reference each patient to the appropriate plan coverage area, regardless of where the patient’s sample was drawn or where the lab is located. According to the plaintiffs, this made it impossible for independent labs to obtain in-network status for each BCBS plan where a patient may need to submit a claim. The plaintiffs alleged that this makes them lose business to the only two in-network labs for all Blues plans, the largest of which is Quest Diagnostics. The new licensing agreement also changed how claims are paid to out-of-network labs. Instead of paying a lab directly, even when the lab has a valid assignment of benefits from the patient, BCBSA’s agreement mandates only payment directly to the patient. This, the independent lab plaintiffs alleged, forces them to absorb extra costs chasing down those payments and engaging in collections against patients. Exclusion From Market The result of these two changes to the licensing agreement, the plaintiffs contended, is to drive the Blues plans in every state into nearly exclusive arrangements with Quest, which has a national presence, because specialty labs located in other states are unable to negotiate in-network status with all 38 Blues plans. In fact, the plaintiffs alleged, many Blues plans simply refuse to add other labs to their network, and a few have open, exclusive contracts with Quest. The plaintiffs alleged that it is no accident that Quest gets all BCBS business under the contract changes and that BCBSA and Quest initiated this policy change together. The plaintiffs also complained that Aetna, at Quest’s behest, dropped 400 regional labs from in-network status. While Aetna denied Quest’s request for an exclusive contract in return for steep discounts, the plaintiffs alleged, it did agree to kick out Quest’s main competitors (including Hunter Labs) and to give Quest a right of first refusal that permits Quest to control what labs are allowed in-network status. The plaintiffs also alleged that Aetna discourages doctors from using independent labs even when their patients’ policies allow for it. For its part, the plaintiffs alleged that BSC accepted a 10 percent discount on Quest’s services to exclude two of its competitors from the Blue Shield network. The plaintiffs contended that the combined effect of these contractual practices is to drive them from the market because they cannot compete with Quest’s reimbursement rates as out-of-network labs. They alleged that Quest conspired with both insurers to restrain trade in an attempt to monopolize specialty lab testing and that they are directly harmed—along with competition among all labs for business through the insurers—as a result. The plaintiff labs alleged that the insurers and Quest violated the Sherman Act, California’s Cartwright Act, and California’s unfair competition law and committed intentional and negligent interference with the plaintiffs’ prospective business. The plaintiffs also alleged that Quest violated California’s Unfair Practices Act by engaging in predatory pricing and agreements with doctors that violate the anti-kickback statutes. The defendants on Feb. 7, 2013, moved to dismiss the complaint for failure to state a claim. Conspiracy Claims Fall Short In dismissing case, the judge concluded that the plaintiffs failed to sufficiently argue that the insurers conspired with each other to enter into agreements with Quest; that the 10 percent discount Quest provided BSC for kicking two competitors out of its network harmed any labs other than the two excluded competitors; that Aetna’s policies are damaging enough to competitors to be illegal, given that Aetna only insures 9 percent of people in America; that Quest has a monopoly or monopoly power in the markets identified; and that BCBS conspired with Quest in formulating its policy to exclude out-of-state labs from its network. The plaintiffs have 45 days from the date of dismissal to file an amended complaint. The complete ruling from the judge is available at http://scholar.google.com/scholar_case?case=15610249581814621311&q=rheumatology&hl=en&as_sdt=2,26&as_ylo=2013.