By Kirell Lakhman

The Federal Trade Commission Wednesday said it is "challenging" LabCorp's acquisition of Westcliff Medical Laboratories, saying the deal "would harm competition in Southern California."

As I reported in May, LabCorp had said it will spend $57.5 million to buy all of the assets of Westcliff, a clinical lab based in Santa Ana, Calif., which is seeking Chapter 11 bankruptcy protection. The deal closed June 16.

Now, the FTC is raising questions about the acquisition.

In a Dec. 1 statement, the agency said the buy "violates antitrust laws and would lead to higher prices and lower quality in the Southern California market for the sale of clinical laboratory testing services to physician groups."

“We find reason to believe that the acquisition of Westcliff by LabCorp will raise prices for health care for millions of people in Southern California,” the FTC said in the statement. “We should not lose sight of the critical fact with which we all agree: this merger merits further scrutiny.”

The FTC's complaints, delivered following a 4-1 vote condemning the deal, alleges the acquisition "would leave only two significant laboratories" — Quest and LabCorp — "in Southern California competing to provide critical testing services to most physician groups."

LabCorp, Westcliff, and Quest "currently serve the vast majority of the physician groups in the region," and the Westcliff acquisition "would leave LabCorp and Quest in control of approximately 89 percent of the market," the FTC said.

Indeed, FTC said the acquisition "would make it more likely that LabCorp and Quest would increase prices."

"By eliminating competition from Westcliff … the transaction would deprive physician groups of leverage to keep prices low for clinical laboratory testing services," the agency added.

The complaint went on to say "it is unlikely that a new competitor" to the two reference lab giants "would enter or expand" into the Southern California market "sufficient to restore the competition lost as a result of LabCorp’s acquisition of Westcliff."

On June 25, nine days after the Westcliff acquisition closed, LabCorp said it would hold the lab's assets "separate and apart" from the rest of the reference lab "while the agency investigated the transaction," according to the FTC.

The FTC has scheduled a trial before the agency's Administrative Law Judge on May 2, 2011, and it is filing an "action" in federal court to "prevent LabCorp from integrating the Westcliff assets while the case is being tried."

According to Thetimesnews.com, which is based in LabCorp's home city of Burlington, NC, the complaint "does not mean LabCorp has violated the law, only that the law could be or have been violated."

Reuters reported Wednesday that the Westcliff deal "did not undergo antitrust review before closing because of its small size."