FTC Dental Supplier Antitrust ActionPublications - Client Alert | April 2, 2018
Henry Schein, Patterson, and Benco Dental, the leading suppliers of dental equipment, again face allegations of conspiring to strangle competition. This time, the Federal Trade Commission (FTC Docket 9379) alleged, in an administrative complaint filed in February 2018, that the nation’s three largest dental equipment suppliers conspired to restrain competition by refusing discounts to buying groups consisting of solo and small‑group dental practices.
According to the FTC, the three defendants – Henry Schein Inc., Patterson Companies Inc. and Benco Dental – control more than 85% of distributor sales of dental products and services nationwide, a market with estimated annual sales of approximately $10 billion.
The defendants made it a practice, according to the FTC, to grant discounts to volume buyers such as dental support organizations (“DSOs”) and multiple office practices (the “Practice Giants”), effectively putting small practices and solo practitioners at a significant competitive disadvantage. When these small, independent practices banded together in buying groups to purchase at the same volumes as the Practice Giants (permitting independents to remain effective competitors with the Practice Giants), the big three dental suppliers, not only refused to do business with them, but were alleged to have regularly cross-checked with each other to ensure that they were all holding the line in shutting out the buying groups, thereby forcing the small, independent practitioners to buy at prices substantially higher than those offered the Practice Giants. The FTC alleges the price differential threatened the vigor of competition in the relevant market.
The FTC’s complaint contains detailed allegations relating to specific conversations, email communications, and other documents to support the complaint’s allegations. It was filed only after a lengthy investigation and a review of internal documents from the Practice Giants. The defendants in the FTC action have filed responses, generally denying the allegations in the dispute. See, eg, Schein Answer. Should the action proceed, all parties will be entitled to conduct discovery into the allegations and defenses, and will likely result in evidence being sought from other players in the dental field, from suppliers to independent dentists, and others.
The FTC seeks broad injunctive and other relief against the defendants, including a 15 year cease and desist order, an antitrust compliance plan, an independent monitor, and other relief. An administrative trial is currently scheduled to begin on Oct. 16.
This FTC complaint is only the latest, perhaps most serious challenge, in a veritable barrage of antitrust conspiracy allegations against Henry Schein and its too-cozy rival dental suppliers. In the summer of 2017, Schein settled with the Texas Attorney General, which had alleged that the same cast of conspirators had pressured manufacturers to boycott a new, on-line entrant into the dental supply marketplace. This new rival threatened to sell at lower prices and, thus, threaten the profit margins of the co-conspirators.
The antitrust laws permit suits, not only by government agencies such as the FTC or the attorneys general, but also by private parties harmed by the anticompetitive conduct. One such private litigant, SourceOne Dental Inc., filed a lawsuit in September of 2015 alleging that Henry Schein, Patterson, and Benco conspired to undermine SourceOne’s efforts to organize groups of dentists and sell to them online. Schein allegedly settled for a payment of approximately $3.2 million.
If the FTC is correct and prevails in its action, there would be greater competition in the sales of dental supplies to smaller dental practices, allowing these practices to remain independent and competitive in the furnishing of dental services to the public.
Just as SourceOne had a private claim against Schein (and the others), so the smaller independent dental practices (or their buying groups) might seek their own private remedies under the antitrust laws. A victorious plaintiff in an antitrust suit may recover its actual damages trebled plus its attorney fees, attractive incentives for private litigants to seek redress.
Kutak Rock is a nation‑wide law firm offering antitrust and other legal services to clients in health care and other industries and in particular has represented numerous dental professionals, their practices, and related dental organizations in numerous litigation matters, regulatory disputes, and related proceedings and transactions. For more information on this and other healthcare or antitrust matters, please contact one of the authors or any of our Government Disputes, Healthcare or Antitrust Group attorneys. For other recent Client Alerts on legal matters of interest in the dental field, click here.