Lawsuits Allege LabCorp, Quest Overcharged Uninsured Patients

Separate cases in federal courts allege uninsured consumers are overcharged

CEO SUMMARY: Court documents filed in U.S. District courts in New Jersey and North Carolina provide details about how each of the two lab companies set lab test prices differently—as much as 10 times higher—for cash-paying patients than for patients who have Medicare, Medicaid, or commercial health insurance plans. In court filings, plaintiffs allege that lab testing is highly profitable and that insurers pay well above labs’ costs. The plaintiffs also argue that the defendant labs should disclose lab test fees before testing.

First of Two Parts: Section One

TWO OF THE NATION’S LARGEST CLINICAL LABORATORY COMPANIES face separate lawsuits in which uninsured consumers complain that the companies overcharged them for medical laboratory testing services by two to three—and sometimes as much as 10—times higher than what the companies charged consumers whose health insurers fully covered their testing.

The lawsuits are proceeding in federal courts against Laboratory Corporation of America and Quest Diagnostics, according to Robert C. Finkel, an attorney with Wolf Popper, a law firm in New York. An expert in consumer and financial fraud, Finkel represents the defendants and is pursuing class-action status for both cases.

What makes these two lawsuits interesting for pathologists and clinical lab administrators is that they both deal with transparency and whether prices should be made available to patients in advance of service. Transparency in the prices hospitals, physicians, labs, and other healthcare providers charge patients is a trend that continues to gain momentum—in part because so many patients have high-deductible health plans.

Court documents plaintiffs filed in both cases provide details about how each of the lab company defendants set lab test prices differently—and typically substantially higher—for cash-paying patients than for patients who have Medicare, Medicaid, or commercial health insurance plans.

The information in the court filings offers insights into the alleged pricing strategies of both laboratory companies. It may also help pathologists and clinical laboratory administrators understand why patients and consumers support state and federal efforts to pass laws requiring price transparency for healthcare services, including medical laboratory tests.

In this first part of a two-part series, THE DARK REPORT provides information about the lawsuit Finkel filed against Quest on behalf of 19 plaintiffs who allege violations of consumer fraud statutes in eleven states. The second part will cover the details of Finkel’s lawsuit against LabCorp and will be in a future issue of THE DARK REPORT.

Plaintiffs’ Common Claims

This intelligence briefing is presented in two sections. The first section addresses the common claims that plaintiffs raise in the two lawsuits. The second section follows and provides more information about the charges in the lawsuit against Quest and how the court has ruled on pretrial motions.

Two issues raised in both lawsuits are likely to be most concerning, not just for Quest and LabCorp, but also for all clinical laboratories. First, the Quest lawsuit charged that lab testing is highly profitable and that health insurers, Medicare, and other third parties pay well above the costs Quest, LabCorp, and other labs incur to do such testing.

Potential for More Price Cuts

While most clinical labs would dispute this charge, if a court issued a ruling or affirmed this claim to be true—that payers pay labs well above labs’ costs—such a finding could cause many payers to further reduce reimbursement for clinical laboratory tests, as labs have seen over the past several years.

A second issue of concern for all labs is how court documents challenge whether LabCorp or Quest has the right to charge more to some consumers than to others and not disclose those charges before the testing is done. In both cases, court documents allege that both Quest and LabCorp have list prices for clinical lab tests that are as much as 10 times higher than the negotiated rates that Medicare, Medicaid, and third-party commercial insurers pay.

This issue of disclosing what consumers will be charged before testing could be a problem for all labs because, if consumers make such demands, labs would need to verify that consumers are eligible for insurance payments for such tests and that such testing is covered.

Complicating this process is that consumers owe varying amounts for lab testing (and for all healthcare services) because most consumers are responsible for deductibles and coinsurance payments at the point of care, thus making each consumer’s billed amount different.

Different Lab Test Prices

In both court cases, court documents show that—for the same tests—LabCorp and Quest routinely charged different rates for different customers. For the consumers in each case, LabCorp and Quest charge rates that often are called the “undiscounted retail rate,” the “fee schedule rate,” the “list price,” and the “chargemaster rate,” according to court filings. In this intelligence briefing, the term list price refers to the highest rates that both companies charge.

At the heart of both cases is that the plaintiffs do not dispute that the defendant lab companies have the right to charge high rates, court papers show. Rather, plaintiffs assert that each lab company should get their patients’ consent before demanding payment, and—if there is no written agreement to pay list prices—the companies’ rates must be limited to reasonable prices, according to the lawsuit.

The legal argument in this case is based on a fact that the plaintiffs (as individual patients) have no contract with Quest or LabCorp. Therefore, the plaintiffs and the lab companies “are subject to a contract either implied-in-law or implied-in-fact,” the lawsuit says. Under such an implied contract, the lab companies are entitled to recover only a reasonable price for clinical lab testing services, according to the lawsuit.

Financial Responsibility

Further, the lawsuit argued, neither clinical lab company attempts to make such arrangements with patients until after the testing is done, the insurance billing process is completed, and the patient is found to be financially responsible for the lab tests that were performed.

In the case against Quest, the lawsuit says, “Although the list prices are exorbitant amounts intended only as a tool for negotiating with equally sophisticated third-party payers and are generally not paid, Quest remains unwilling to meaningfully negotiate the amount owed by its least-sophisticated consumers who lack any real bargaining power.”

In the case against LabCorp, the lawsuit said the lab company could advise its patients in advance and get their consent to charge list prices, as the company does for Medicare patients when coverage denial is expected.

Such consent is completed through Medicare’s Advanced Beneficiary Notice (ABN) form, wrote the plaintiffs’ attorney. “Indeed, absent such disclosure, there is no meeting of the minds as to price,” the court papers added. “Without a meeting of the minds, LabCorp must be limited to charging reasonable, market prices.”

In Separate Federal District Court Cases, Each Clinical Lab Company Denies Charges

BOTH QUEST DIAGNOSTICS AND LABORATORY CORPORATION OF AMERICA (LabCorp) deny the allegations filed in two pending U.S. district court cases over complaints that the companies overbilled patients who were uninsured or underinsured.

In separate complaints, plaintiffs in these cases charged that the companies overcharged them for laboratory testing services by two to three—and sometimes as much as 10 times—more than what the companies charged patients with more comprehensive insurance coverage.

Quest denied the allegations filed by attorney Robert C. Finkel of the firm Wolf Popper on behalf of 19 patients from 11 states, court filings showed. The plaintiffs’ case against Quest is pending in U.S. District Court of New Jersey. On Nov. 8, Quest filed a 171-page answer to the amended complaint in which the company denied the plaintiffs’ allegations and denied liability. Also, Quest asserted that a class action was not appropriate in this case.

In its court documents, LabCorp also denied the plaintiffs’ allegations. On Oct. 4, LabCorp filed a 285-page answer to an amended complaint, saying that the company denied “each and every allegation” in the complaint that Robert C. Finkel filed in on behalf of 14 plaintiffs from eight states. That case is pending in U.S. District Court for the Middle District of North Carolina, Greensboro division. Discovery is scheduled to begin next month and filings in the case will continue at least through next year.

LabCorp said the amended complaint violates federal civil procedures because it seeks to present an argument and conclusion to which no response is required. “LabCorp expressly states that all purported statements and conclusions of purported law are denied for purposes of this answer, and legal arguments and discussions of legal authority are expressly reserved for future motions and arguments,” court documents showed.

Also, LabCorp did not answer the allegations contained in one of the counts in the amended complaint because the court dismissed that count in an order issued in August. “For this same reason, LabCorp does not answer the allegations contained in counts three through 11 based on aggregate billing or nondisclosure of current procedural terminology codes as those allegations also relate to claims that have been dismissed …,” the documents showed. “To the extent LabCorp must provide an answer to these allegations, LabCorp denies those allegations ….”

If there are any headings or footnotes in the amended complaint that constitute an allegation, LabCorp denied those charges, the court documents showed. “LabCorp further denies any remaining allegations of the complaint, if not expressly admitted herein,” the documents added.

‘Are Rates Unreasonable?’

For its part, Quest has argued that the plaintiffs failed to state a claim for breach of implied contract because Quest never agreed to charge the consumers a negotiated third-party rate, nor did it omit the price. Quest also said the plaintiffs failed to demonstrate that the chargemaster rates were unreasonable. Therefore, the court should dismiss the plaintiffs’ claims of an implied contract, the company said.

Quest also argued that the consumer-protection claims should be dismissed and that the plaintiffs’ request that the court set reasonable rates for lab tests was improper. In addition, Quest argued that the plaintiffs’ claims of consumer fraud and deceptive billing were prevented under a legal theory called the “learned professional rule.”

Collection for Unpaid Bills

One other problem for uninsured consumers in both cases is that the lab companies send uncollected charges to collection agencies when bills are unpaid after a certain time, the court documents charged.

Once the lab tests are completed, patients of both Quest and LabCorp have limited recourse and are forced to pay the charged amounts or be subject to collection efforts, lawsuit alleged. Such efforts include being barred from receiving clinical lab tests from the two companies in the future, threats of the debt being sold to a collection agency, and the risk of a negative report being submitted to credit rating agencies, it added.

In May 2018, Finkel filed an amended complaint against Quest in the U.S. District Court of New Jersey on behalf of all Quest patients in the United States who were charged fees for clinical lab testing “that were in excess of the reasonable market rates” for such tests, the lawsuit alleged. These 19 patients from 11 states either were not insured or their insurer denied coverage for the tests their physicians ordered, court papers show.

Also, these patients did not have an agreement with Quest that established the fees that the patients needed to pay, and, as a result, these patients were treated differently from the way Quest treated patients who had commercial health insurance, Medicare, Medicaid, and other coverage from other third-party payers that negotiated reasonable and customary rates with Quest, the court filings alleged.

The plaintiff-consumers were charged Quest’s list prices, the lawsuit said, adding the list prices, “far exceed the usual and customary rate for the services provided.”

‘Usual and Customary’

The usual and customary rates are the market rates that health insurers and other third parties, such as Medicare, typically paid for the same services, the lawsuit explained. In the lawsuit, the plaintiffs charged Quest with unjust enrichment and unfair and deceptive trade practices in violation of state law.

The rates that Quest charged for uninsured or underinsured consumers are “a grossly excessive markup on Quest’s cost to provide the services,” the court documents said.

The patients who are uninsured or underinsured make up less than 1% of Quest’s clinical lab testing volume, but contribute up to 3% of Quest’s net revenue, the court papers showed. The list prices that Quest charges these plaintiff-consumers are “up to 10 times higher than the negotiated rates” that insurers and other third parties pay, it added.

“While healthcare service providers such as Quest maintain exorbitant list prices for their services, those list prices are never paid by sophisticated third parties,” the lawsuit explained. “The list prices are solely a starting point to negotiate with third-party payers (e.g., insurance companies) who obtain huge discounts, and for charging patients whose insurance denies coverage or are uninsured (e.g., the class members).”

The court documents showed that 1% of Quest’s patients are uninsured or whose health insurers have denied payment for Quest’s tests when the patients’ physicians have ordered those tests. For these patients, “there is no express agreement as to the appropriate price and Quest chooses to bill the patient at its exorbitant list rate,” the documents explained.

The patients who are uninsured or underinsured make up less than 1% of Quest’s clinical lab testing volume, but contribute up to 3% of Quest’s net revenue, the lawsuit showed. The list prices that Quest charges these plaintiff-consumers are “up to 10 times higher than the negotiated rates” that insurers and other third parties pay, it added.

What’s more, Quest’s list prices are substantially higher than what other lab companies get paid for similar testing services, the lawsuit charged. “For instance, when comparing the list prices Quest charged plaintiffs to the median third-party payer rate across the United States (as reported by the Centers for Medicare and Medicaid Services in relation to Medicare’s 2017 rates), the implied markup averaged 3.32 times the third-party payer rates, with a median of 3.18 times,” it added.

Last year, what Quest charged these patients was even higher, the lawsuit alleged. “Comparing the same list prices to the 2018 Medicare rates, which are equal to the median third-party payer rates … the implied markup averaged 5.29 times the 2018 rates, with a median of 5.23 times,” it added.

Complicating the process of determining rates is that the amounts commercial insurers pay Quest are considered to be proprietary and highly confidential, the documents showed. Early in the Quest case, a judge denied plaintiffs’ application for discovery of those rates after Quest argued that they were proprietary.

“These market-based rates are therefore unavailable to patients and physicians, which creates an opaque marketplace that fails to reflect the true value of the services being invoiced,” the lawsuit argued. On the other hand, the amounts that Medicare and Medicaid pay are available, it added.

Quest’s Average Payments

In the documents, the lawsuit showed an average payment per requisition. In 2017, Quest processed some 164 million clinical lab test requisitions and reported $7.71 billion in net revenue for the year, producing an average payment per requisition for four groups of payers: insurers, government payers, client payers, and patients. Among the four groups, patients paid the highest average payments, court documents alleged.

For this comparison, the court papers defined client payers as those who pay wholesale rates that are billed on a negotiated fee schedule, including physicians, hospitals, accountable care organizations, integrated delivery networks, and other laboratories and institutions. These client payers contribute 37% of Quest’s clinical lab testing volume but only 29% of its revenue, showing that the negotiated rates client payers pay are below that of other third-party payers, the lawsuit explained. In the lawsuit, the average payment per requisition for each of the four groups of payers is reported as follows:

  • Health insurers (including the amounts Quest collected from patients for coinsurance and deductibles): $51.01,
  • Government payers: $53.28,
  • Client payers: $36.85,
  • Patients: $141.04.

Seeking Restitution

Because the group of patients do not have an “express contract” that establishes the fees to be paid, these consumers were charged amounts “in excess of the reasonable market rates” for lab tests, the lawsuit explained. They are seeking restitution equal to the amount of overcharge, which the court papers defined as the difference between the amount paid and the reasonable market rate.

Under causes of action, the case against Quest lists 14 counts as follows:

  • Count 1: A declaratory judgment based on principles of implied contract,
  • Count 2: Breach of implied contract or unjust enrichment on behalf of some plaintiffs,
  • Counts 3 through 14 relate to violations of consumer protection and unfair competition laws in Arizona, California, Colorado, Florida, Illinois, Maryland, Michigan, Nevada, New Jersey, North Carolina, and Pennsylvania.

Quest did not respond to a request for comment. LabCorp said it did not comment on such cases. Details of LabCorp’s case will be covered in an upcoming issue of The Dark Report as part two in this series.

Rulings That Affect Labs

Some useful insights can be drawn from these court documents. First, today there are patients willing to file legal challenges when they believe they have been overcharged by a clinical laboratory. Second, these two lawsuits, as they move through the federal court system, could result in rulings and judgements that would require all labs to change pricing policies.

Contact Robert Finkel at 212-451-9620 or


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