Laboratory Corp. of America Holdings (LH, Financial) stock is under pressure, as the company's stock fell 0.25% in midday trading on Tuesday. The drop comes after an announcement that the company, known as LabCorp, is being sued in a class-action lawsuit. The lawsuit, filed last week, alleges that the company has been overcharging customers for diagnostic tests.
The case, filed in Greensboro's Middle District of North Carolina, states that the company overcharges customers with rates exceeding fair market rates. The lawsuit, filed by Wolf Popper LLP on behalf of patients, states that the company charges market rates for patients with insurance and overcharges patients that don't have insurance.
The complaint states that invoices are "intentionally deceptive and misleading."
In a 39-page complaint, Wolf Popper alleges that LabCorp does not inform patients of insurance discounts and aggregates all charges into one invoice. The claims state that multiple tests are lumped into one and third-party payments are also included in the invoice.
Patients are not informed of tests covered by their insurance in the invoice.
The plaintiffs are seeking punitive damages as well as compensation for overpayment by their clients. The claim suggests that the invoice complicates billing and masks tests that are not covered by insurers.
LabCorp does not comment on lawsuits against the company that are pending litigation. The company has stated that it will work to defend itself and believes that its billing practices are lawful.
LabCorp is scheduled to hold a May 11 shareholders meeting. The company submitted a proxy statement to the Securities and Exchange Commission (SEC) showing that CEO David King received a 2.1% pay rise in 2016. Stock awards account for the majority of compensation, with King earning $10.85 million in 2016. Stock accounted for $7.68 million of King's salary.
The company also promoted Gary Huff to CEO of LabCorp Diagnostics at the end of March. The branch is one of two of the company's main business segments.
“Having been instrumental in shaping our strategic approach to providing health care systems and delivery networks with a growing portfolio of comprehensive solutions, Gary is well positioned to guide the Diagnostics business forward in a rapidly changing health care environment," said King.
Huff started his career with the company before departing and rejoining the company in 2016. Huff has been in the health care industry for 24 years and joined the company as senior vice president of LabCorp Diagnostics.
He has been the chief operating officer and CEO of other laboratory companies in recent years.
LabCorp stock has struggled to maintain profitability over the previous 30-day period, remaining largely flat with a current decline of 0.52%. The company's stock is up over 6% since the start of the year, with the big announcement of the purchase of a 1,600-employee firm.
The news helped push the company's stock higher in February. The deal includes the acquisition of Pathology Associates Medical Laboratories LLC. Terms of the deal remain undisclosed at this time. The deal is expected to begin the closing process in 2017 with the final closing expected in 2018.
LabCorp officials state that there will be no changes to operations or services until the acquisition is complete.
Disclosure: Jacob Maslow does not own any stakes in the listed companies.
Start a free seven-day trial of Premium Membership to GuruFocus.
