Big Three Dental Supply Companies Expect Settlement in Antitrust Suit

Michael W. Davis, DDS

0 Shares

In February, the Federal Trade Commission alleged that Benco Dental Supply, Henry Schein, and Patterson Companies violated US antitrust laws and filed two actions against them. On August 30, Henry Schein announced a settlement in a prior and separate action, Dental Supplies Antitrust Litigation, No. 1:16-CV-oo696-BMC-GRB, in the United States District Court for the Eastern District Court of New York. 

Henry Schein anticipates a charge out of settlement of $38.5 million, pre-tax, for its costs. The proposed settlement is still contingent upon the agreement of Benco and Patterson, as well as the court’s approval. Benco has announced that it has reached a settlement in principle, while Patterson’s agreement is expected shortly, with a $28.3 million pre-tax reserve set aside for it. The companies all assert that the settlements are not admissions of liability. 

“We categorically and emphatically deny any wrongdoing, and we have made a business decision in the best interests of the company to engage in settlement discussions to avoid long, distracting litigation and the additional use of resources,” said Stanley M. Bergman, chairman of the board and CEO of Henry Schein. “We have a long history of serving customers with integrity and honesty, and we have earned our reputation for doing business ethically in a competitive business environment.”

A spokesman for Benco noted that while the lawsuit’s claims are without merit and that there has been no finding of any violation of law, the settlement allows the company to avoid the time, expense, and inherent uncertainty of litigation while moving forward. 

The Markets

One-year stock trading for Henry Schein (NASDAQ: HSIC) reached a year’s high on September 11, 2017, of $88.79/share. Its low was on March 1, 2018, of $63.44/share. The close on August 31, 2018, was $77.68/share.

One-year stock trading for Patterson Companies (NASDAQ: PDCO) reached a year’s high on September 12, 2017, of $40.65/share. Its low was on March 29, 2018, of $21.40/share. The close on August 31, 2018 was $22.55/share. 

The NASDAQ composite index reached its year high at the close of trading August 31, 2018, of 8109.54. Its low for the one year period was on September 8, 2017, at 6360.19. As a privately held company, Benco isn’t listed on any public exchange. Obviously, both Schein and Patterson have not kept pace with the NASDAQ composite index and performed poorly in relation to other companies on the exchange. 

The Litigation

The more pressing antitrust action is the US Federal Trade Commission in the matter of Benco/Schein/Patterson. The government presented interesting evidence in the provisionally redacted public version of: Federal Trade Commission in the matter of Benco Dental Supply Company/Henry Schein Inc./Patterson Companies, Inc., Docket # 9379:

“32. Benco and Schein entered into an agreement to refuse to provide discounts to or compete for Buying Groups no later than July 2012.

  1. Historically, Benco had a policy of refusing to sell or provide discounts to Buying Groups. Schein had historically worked with some Buying Groups, but began pursuing an anti-Buying Group strategy. This change followed frequent inter-firm communications between Benco’s ______ and Schein’s ______ prior to July 2012.
  2. ______ and other top Schein executives began instructing its sales force to avoid selling to Buying Groups. As a result, Schein refused to provide discounts to or compete for the business of new Buying Groups.
  3. In July 2012, Benco suspected that Schein was offering discounts to a Buying Group named ______. On July 25, 2012, ______ contacted Benco for a dental supply agreement and informed Benco that it had purchased products from Schein and worked directly with ______. ______, a Benco executive who oversaw its Buying Group policy, forwarded ______’s email inquiry to ______, stating: “Better tell your buddy ______ [______] to knock this shit off.” ______ responded: “Please resend this e-mail without your comment on top so that I can print & send to ______ [______] with a note. The good news is: perhaps they’re looking to us because Schein told them NO. That works for me.” A few days after this exchange, ______ rejected ______.
  4. Patterson joined the agreement to refuse to provide discounts to or otherwise compete for Buying Groups no later than February 2013.
  5. In February 2013,Benco suspected that Patterson was offering discounts to a Buying Group in New Mexico. On February 8, 2013, ______ emailed Patterson’s ______, ______:

       “Just wanted to let you know about some noise I’ve picked up from New Mexico. FYI: Our policy at Benco is that we do not recognize, work with, or offer discounts to buying groups (though we do work with corporate accounts) and our team understands that policy.”

  1. Historically, Patterson did not have the same policy as Benco, and Patterson executives had not instructed its sales force to refuse to recognize, work with, or offer discounts to Buying Groups.
  2. On February 8, 2013, ______ upon receiving ______’s email, ______ forwarded ______’s email to two other Patterson executives: then- ______, ______, ______ and ______. ______ responded to ______’s email later that day: “Thanks for the heads up. I’ll investigate the situation. We feel the same way about these.”
  3. Like Benco and Schein, top Patterson executives began instructing its sales force to avoid selling to Buying Groups no later than February 2013. As a result, Patterson refused to provide discounts to or compete for the business of new Buying Groups.
  4. On February 26, 2013, in response to an inquiry from a Benco regional manager about the ______ Buying Group, ______ stated: “I just sent [______] a note about it. Don’t want to call because it might be construed as price fixing.”
  5. In late February 2013, pursuant to the agreement, each of the Respondents refused to submit a bid for a customer called ______ (“______”), as each of the Distributors believed it to be a Buying Group.
  6. In a February 27, 2013 e-mail, Patterson’s ______ instructed his sales team to reject ______, stating that both Benco and Schein were also rejecting Buying Groups: “Confidential and not for discussion..our 2 largest competitors stay out of these as well. If you hear differently and have specific proof please send that to me.” ______ also stated in an email to ______ on February 27, 2013: “I’m concerned that Schein and Benco sneak into these co-op bids and deny it.”
  7. Benco, Schein, and Patterson executives then began communicating about whether ______ was, in fact, a Buying Group.
  8. First, on March 25, 2013, ______ called ______, at ______’s request. During the call, which lasted approximately 8.5 minutes, the executives ______ discussed ______, and informed ______ that Benco would not bid on ______. Following the call, ______ and ______ continued exchanging text messages about ______ and whether it qualified as a Buying Group. On March 27, 2013, ______ informed ______ by text message that Benco had determined ______ was not a Buying Group, but a corporate dental practice, and that Benco would bid for ______’s business:

“______: Did some additional research on the deal, seems like they have actually merged ownership of all the practices. So it’s not a buying group, it’s a big group. We’re going to bid. Thanks.””

The government’s evidence points toward a conspiracy to fix prices by the nation’s big three dental suppliers, which control approximately 85% of the dental market. The evidence also gives a distinct appearance that corporate dentistry chains were given discounts, while small practice buyers’ clubs were discriminated against in the marketplace. 

Conclusion

It’s uncertain if the alleged antitrust violations by our nation’s largest dental supply companies have been fully reflected in their stock prices. They have definitely underperformed the market. Many of their customers have lost confidence in their ethical business practices and have sought alternative vendors.

These suppliers have responded by shakeups in their management teams. In June, Henry Schein named James P. Breslawski vice chair of the company in addition to his role as president, while Jonathan Koch joined as senior vice president and chief executive officer, global dental group. Also in June, Donald J. Zurbay joined Patterson Companies as chief financial officer. 

Dr. Davis practices general dentistry in Santa Fe, NM. He assists as an expert witness in dental fraud and malpractice legal cases. He currently chairs the Santa Fe District Dental Society Peer-Review Committee and serves as a state dental association member to its house of delegates. He extensively writes and lectures on related matters. He may be reached at mwdavisdds@comcast.net or smilesofsantafe.com.

Related Articles

FTC Sues Three Dental Suppliers for Conspiracy

FTC Complaint Against Dental Suppliers Now Online

Vertical Integration in the Dental Industry

 

 

 

 

 

 

buy ivermectin where to buy ivermectin for humans
where to buy viagra where can i buy viagra
cialis online buy cialis online