Schein, Patterson, and Benco Sued for Price Fixing

February 05, 2016

The recap:

Henry Schein, Patterson, and Benco have allegedly been fixing prices for years according to court documents, and dentists are finally taking notice. Clinicians across the country are suing these companies for colluding to squash smaller supply vendors and keep prices high. These marked up prices may have cost dental clinics tremendously, and could be making worse the financial pressure that practices are already facing. Based on numbers in court papers, it’s possible that they owe more than $2 billion to dentists in the US.

How powerful are they?

The Big 3, as they’re sometimes called, together control over 80% of the market (worth $7 billion). They partner with virtually all of the major manufacturers and sell their products directly to dentists. And now, they’re being sued by dentists for keeping prices artificially high by breaking federal law, allegedly.

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So what are they accused of doing?

The Big 3 pulled their sponsorship of a Texas Dental Association meeting after the TDA partnered with an online competitor. The large companies then allegedly forced manufacturers and other distributors to quit doing business with their competitors in order to keep prices high. If true, this violates state and federal law. Benco ended up paying a settlement of $300,000 to the state of Texas. The online distributor has now filed suit against the Big 3 in federal court, claiming that they violated national antitrust laws.

This isn’t the first time that Schein has come under scrutiny for these kinds of violations – a lawsuit alleging collusion and antitrust violations in 2012 went to arbitration.

Dentists taking a stand:

This time, dentists are taking direct action. Ordinary dentists across the country have filed nearly a dozen lawsuits against Schein, Patterson, and Benco. The lawsuits are already starting to get a bit of attention. It’s a big deal. If the prices of dental supplies were propped up by violating federal law, the dentists want their money back plus damages.

Many dentists today are looking elsewhere for lower-cost supplies and have a number of other options available. Some smaller distributors have full lines of products, and a handful of online sites offer steep discounts to its users. Supply Clinic was recently created as an online marketplace, to bring buyers and sellers of all stripes onto the same platform. It’s awfully hard to fix prices when your prices are listed transparently.

How much could they owe dentists?

If the lawsuits hold up in court, the Big 3 could potentially be ordered to pay their customers a hefty settlement. The numbers used in court papers indicate that the Big 3 took home profit margins as high as 11%, while similar companies in the medical space (McKesson, Cardinal Health, etc.) had profit margins “between 0.2 and 1.5 percent.” The documents accuse the Big 3 of fixing prices since at least January of 2012.

That’s an additional markup of about 10%. Now a bit of quick math: a 10% markup of 80% of the market over four years equals $2.24 billion. That’s a payout of over $12,000 to every dentist in the USA, and that’s before additional damages.

Only time will tell whether or not Henry Schein and the rest of the Big 3 should be worried. But now, it’s not just distributors taking legal action; it’s dentists, too.

An update on the lawsuit is available here.

A post on the more recent, related FTC complaint is available here

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