Tens of thousands of dentists across the U.S. could share in a proposed $80 million legal settlement with the industry's largest distributors, including St. Paul's Patterson Cos., over allegations of long-running anticompetitive conduct in the $10 billion market for dental products.
Patterson Cos. said in a securities filing Friday it has set aside $28.3 million to settle its portion of a class-action lawsuit filed against it and its two largest competitors in federal court in New York. Under the proposed settlement, the publicly traded company denies allegations that it conspired with its competitors to fix prices and punish groups that didn't fall into line.
"Patterson emphatically denies any wrongdoing," a spokesperson for the Fortune 500 company said Monday via e-mail. "We made a business decision to resolve the matter and avoid the distraction, time, expense, and resources required to litigate so that we may focus on what we do best — serving our customers."
Plaintiffs attorney Eric Cramer of Berger Montague said the parties are looking forward to presenting the settlement to a federal judge for approval. The lawsuit says it is seeking to represent a class of up to 142,000 dental practices, orthodontists' offices and labs that have bought products from the three largest dental-supply distributors since 2008. Most of the businesses are sole-proprietor offices.
The lawsuit involves allegations that the nation's largest dental-supply distributor, Henry Schein Inc. of New York, illegally conspired with No. 2 supplier Patterson to keep prices stable in the market for dental supplies. Schein controls 41 percent of the U.S. market, while Patterson has 34 percent. Schein has set aside $38.5 million to settle the case. The No. 3 supplier, Benco Dental of Pennsylvania, has 10 percent of the market and has agreed to settle the case for roughly $13.2 million.
"We are pleased to have resolved this case against Henry Schein, Patterson, and Benco for $80 million on behalf of the proposed nationwide class of dentists and dental labs," Cramer said Monday via e-mail. "The settlement, if approved, would provide immediate cash payouts to the members of the proposed class as recompense for their having allegedly been overcharged by the defendant dental product distributors."
Dental offices tend to buy everything from latex gloves to exam chairs from large, centralized distributors like Patterson, rather than the individual manufacturers themselves, comprising a $10 billion industry for dental supplies. The distributors currently take a profit margin of 35 percent, which has grown each year since 2005 — including during the Great Recession, when demand for dental supplies actually declined, the lawsuit says.
The U.S. dental-supply distribution business has been hit with dozens of lawsuits since 2012 alleging different but closely linked forms of illegal anticompetitive conduct. The settlements announced in the past week would resolve the allegations in 35 individual cases pending in the Eastern District of New York, plus the allegations of the class that they seek to represent.
The dentists in the settlement claim they paid more than they should have because Patterson, Schein and Benco jointly set their prices so that dentists paid the same amount "no matter who they buy it from" and therefore "we all get paid," the lawsuits say, quoting from an e-mail from a Schein regional manager. The companies also agreed not to "poach" one another's customers, and to conspire to block the entry of lower-priced distributors.
Lawsuits from those lower-cost distributors are still pending in various courts, including one against Schein that is before the U.S. Supreme Court on a procedural question related to arbitration.
Meanwhile the Federal Trade Commission filed a complaint against the three companies in February alleging that they illegally agreed not to do business with group-purchasing organizations that bought supplies on behalf of smaller dental practices. That case is ongoing, as is a related investors' lawsuit that says Patterson harmed shareholders between June 2015 and February of this year by failing to disclose the illegal conduct.