In LabCorp Case, Judge Upholds Some Claim

Judges in two different lab-test pricing lawsuits have allowed both cases to move forward to trial

CEO SUMMARY: In a federal lawsuit against Laboratory Corporation of America, plaintiffs who were uninsured or underinsured charged the lab company with engaging in “business practices that trick and harass customers into paying excessive prices.” Plaintiffs made this and other claims in court documents alleging that LabCorp overcharged them by two to five and as much as 10 times more than the lab company charged patients who had Medicare or commercial health insurance.

Third in a Series

LAST MONTH, IN THEIR LAWSUIT against Laboratory Corporation of America, plaintiffs began the discovery phase. The case is being tried in U.S. District Court for the Middle District of North Carolina, Greensboro Division.

The discovery phase of the trial began as a result of Chief District Court Judge Thomas D. Schroeder’s ruling in August that the case against LabCorp could go forward on two issues.

The first issue is that the plaintiffs have an implied contract that allows them to know what they would be charged for lab testing before the testing is done. The second issue is that LabCorp’s billing and collection practices violated consumer protection laws in eight states: Alabama, California, Florida, Maryland, New Jersey, North Carolina, Tennessee, and Texas.

Judge Dismissed One Claim

In the same decision, Schroeder ruled in LabCorp’s favor when he dismissed the plaintiffs’ claim that they had a right to recover the alleged overcharges based on their assertion that they had an implied contract with the publicly-traded laboratory company.

By dismissing one claim and upholding the other two claims, Schroeder’s ruling is similar to one a judge in New Jersey made in a comparable case that other plaintiffs filed against Quest Diagnostics. In both cases, the plaintiffs’ lawyer is Robert C. Finkel, an attorney with the law firm of Wolf Popper in New York.

Plaintiffs Sue Quest, LabCorp

Finkel filed the two cases on behalf of 33 plaintiffs in 19 states. In the case against Quest, Finkel brought the lawsuit in U.S. District Court in New Jersey on behalf of 19 plaintiffs in 11 states. In North Carolina, there are 11 plaintiffs from eight states. Each case is proceeding on a similar schedule in that discovery has begun and the cases will proceed throughout 2020.

In Quest’s case, U.S. District Judge Esther Salas issued an order in September denying some of Quest’s motions to dismiss plaintiffs’ claims and granted some of Quest’s motions to dismiss other claims. Salas’ ruling is similar to Schroeder’s in that she found that the plaintiffs alleged sufficient facts to support their theory of unfair trade practices based on alleged excessive pricing.

The fact that judges in two different courts have issued rulings favorable to the plaintiffs on certain claims common in both lawsuits may be a sign that plaintiffs’ claims of being overcharged have some merit. It’s also noteworthy that the two lab companies have yet to persuade either judge to dismiss the lawsuits.

Both LabCorp and Quest denied the allegations of overcharging and moved to dismiss the cases. Quest did not respond to a request for comment. LabCorp said it does not comment on pending litigation.

In the first of two parts in this series, The Dark Report covered the plaintiffs’ charges in both federal lawsuits. (See “Lawsuits Alleging Overcharges to Proceed in Two Courts in 2020,” TDR, Dec. 16, 2019; and “Lawsuits Allege LabCorp, Quest Overcharged Uninsured Patients,” TDR, Nov. 25, 2019.)

One Claim Dismissed

In August, when Schroeder dismissed the plaintiffs’ complaint about the right to recover any alleged overcharges, he noted that he had dismissed this claim in an earlier ruling. In response to that earlier ruling, the plaintiffs filed a 142-page amended complaint in August 2018.

“Plaintiffs once again assert a theory of unjust enrichment never before recognized by a North Carolina court,” Schroeder wrote in his ruling last summer. Once a person has received the services in question and paid for those services, that person cannot sue for unjust enrichment unless there was a mistake or fraud, he added.

The significant issue in the LabCorp case is that the plaintiffs alleged that they did not have a prior agreement about price and that the lab company charged them the list price for testing services, which they claimed was too high.

What LabCorp charges patients varies greatly, and the list prices tend to be much higher than other rates LabCorp charges patients covered by Medicare, Medicaid, or through commercial insurance, Schroeder wrote in his ruling.

This issue is important for all clinical laboratories in that physicians often order lab tests for patients without an agreement about what the lab would charge.

“At the time the services were rendered, none of these plaintiffs had an express agreement with LabCorp to pay the list prices LabCorp subsequently charged,” Schroeder wrote.

As a result, the plaintiffs never agreed to a price before the testing was done.

Therefore, Schroeder cited the plaintiffs’ argument that LabCorp’s right to charge what it charged “was limited to an implied-contract recovery of the ‘reasonable value’ of the services rendered.”

In addition, Schroeder wrote, “Further, plaintiffs seek a declaration that LabCorp’s list prices exceed the ‘reasonable value’ of its services.” During the discovery and the trial itself, the two sides will argue over what is a reasonable rate to charge uninsured or underinsured patients.

In this case, an underinsured patient is one whose insurance does not cover the full cost of LabCorp’s testing.

Judge Outlines Hurdles In Alleged Overbilling

AFTER DISMISSING ONE CHARGE AND ALLOWING OTHER CHARGES TO GO FORWARD in a lawsuit plaintiffs filed against Laboratory Corporation of America, a federal judge issued a caution about the merits of the remaining arguments in the case.

In a ruling in August, Chief District Court Judge Thomas D. Schroder wrote that the plaintiffs have a high bar to prove that LabCorp’s practices amount to unfair or deceptive trade practices.

The case is in U.S. District Court for the Middle District of North Carolina, Greensboro Division, on two issues: First, that the plaintiffs have an implied contract that allows them to know what they would be charged for lab testing before the testing is done, and second that LabCorp’s billing and collection practices violated consumer protection laws in eight states.

In an amended complaint, the 11 plaintiffs in the case claimed that they were overcharged, and that LabCorp sent them threatening letters if they did not pay. In his ruling, Schroeder said he did not hear any persuasive argument against the plaintiffs’ claims that LabCorp violated the consumer protection laws in the eight states.

But then, Schroeder added a disclaimer of sorts. “To be clear, plaintiffs will ultimately have the considerable burden of showing that LabCorp’s list prices were so excessive, and its billing practices so coercive, that—together with LabCorp’s nondisclosure of price—LabCorp’s billing practices were sufficiently ‘egregious or aggravating’ as to be an unfair or deceptive trade practice.”

An Implied Contract

The plaintiffs claim they have an implied-in-fact contract or a quasi-contract, Schroeder wrote. LabCorp argued against this claim, saying that the plaintiffs’ implied-in-fact contract theory fails because, “North Carolina law requires a meeting of the minds for formation of a valid and enforceable agreement.”

In addition, LabCorp argued that to the extent that there was an agreement on price, that agreement only could have been on the list price that LabCorp always charges consumers who are uninsured or underinsured.

“Plaintiffs contend that it is possible to have an implied-in-fact contract absent agreement on price, and that the remedy for a breach of such an implied-in-fact contract is the ‘reasonable value of the services’ contracted for,” Schroder explained.

In denying LabCorp’s request to dismiss the claim, Schroeder said the lab company did not make a persuasive argument against the plaintiffs’ charge.

Moreover, Schroder wrote, “In the amended complaint, plaintiffs’ overcharging claim is not merely an accusation that LabCorp’s prices are excessive, but that ‘LabCorp has a number of business practices that trick and harass customers into paying excessive prices.’”

‘Manipulative Billing’

The plaintiffs argued that in addition to charging excessive rates for lab testing, LabCorp used “aggressive and manipulative billing and collection techniques for services that are critical to a patient’s health,” Schroeder wrote.

As Schroeder explained, the plaintiffs’ case hinges on several of LabCorp’s practices. First, the plaintiffs alleged that LabCorp declines to disclose its prices until after patients have been tested, he wrote.

Then, the plaintiffs alleged, “LabCorp charges them amounts grossly exceeding the reasonable value of the services rendered and coerces them into paying the inflated prices by threatening to damage their credit ratings and to foreclose them from using LabCorp’s services in the future,” he added.

LabCorp had cited other cases in which businesses had similar practices, but Schroeder rejected that argument. “These additional elements distinguish LabCorp’s alleged business practices from the transactions at issue in [another case], as well as from plaintiffs’ arguments in the prior round of briefing, where the argument was simply that the prices at issue were too high,” said the judge.

While the claims on these issues deserve a trial, Schroeder also explained that the plaintiffs’ arguments against LabCorp represent a significant hurdle for the patients.

Contact Robert Finkel at 212-451-9620 or rfinkel@wolfpopper.com.

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