Last Chance for Monopoly Claim Against Quest

(CN) - A group of labs will get one more shot at alleging that Quest Diagnostics conspired with insurance companies to corner the market, a federal judge ruled.

Rheumatology Diagnostics Laboratory, Pacific Breast Pathology Medical Corporation, Hunter Laboratories and Surgical Pathology Associates first filed the suit in late 2012 against Aetna, Blue Shield of California Life & Health Insurance, Blue Cross and Blue Shield Association, and Quest Diagnostics.

They accused the defendants of conspiring to corner the market on diagnostic testing services through licensing agreements that effectively block independent labs from providing service. Such agreements allegedly exclude the plaintiffs from five major diagnostic markets: routine clinical lab testing, anatomic pathology testing, specialty rheumatologic testing, advanced lipid testing and specialty breast pathology testing.

Though U.S. District Judge Jon Tigar in San Francisco dismissed the case with leave to amend this past summer, he refused to stay discovery before the filing of the first amended complaint on Aug. 9.

The plaintiffs have since told the court that discovery has brought them new information, so U.S. District Judge William Orrick said Friday that it would be "fair and just to allow them to amend their allegations one more time."

Orrick found several problems with the first amended complaint, or FAC, which alleges violation of the federal Sherman Antitrust Act and various California laws, including the Cartwright Act, Unfair Competition Law and Unfair Practices Act.

"The plaintiffs appear to allege both horizontal and vertical agreements in violation of section one of the Sherman Act," Orrick wrote. "They allege three separate vertical agreements between each of the insurers and Quest. They also appear to allege that the defendants are all part of a single overarching conspiracy. Judge Tigar characterized the overarching conspiracy as a horizontal agreement in the form of a 'hub and spoke' arrangement."

Without a rim - in this case the connecting proof needed to show conspiracy-however, the wheel cannot turn, according to the ruling.

"Judge Tigar dismissed this aspect of the complaint because the plaintiffs 'did not allege that any insurer knew of the others' [alleged] contracts with Quest," Orrick said. "In other words, the plaintiffs did not adequately plead an agreement that formed the 'rim' connecting the 'spokes.' The FAC suffers the same infirmity."

Specifically, Orrick found that the monopoly claims failed to provide enough information to show intent.

"While the plaintiffs allege five relevant markets, they do nothing to explain the dynamics of those markets, let alone Quest's place in those markets," he wrote. "They have not adequately alleged how big Quest is in each market or whether it has market power, what harm to competition has occurred, whether prices have exceeded or will exceed competitive levels, and how other competitors are affected. Without such information the plaintiffs fail to plead intent or a dangerous probability of achieving monopoly power."

The plaintiffs have until Nov. 18 to file an amended complaint.

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