filings.toolsItem 1. Business
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Item 1. Business
Business
General
Henry Schein, Inc. is a solutions company for health care professionals powered
by a network of people and
technology. We
believe we are the world’s largest provider of health care products and services primarily to office-
based dental and medical practitioners, as well as alternate sites of care.
Our philosophy is grounded in our
commitment to help customers operate a more efficient and successful business so
the practitioner can provide
better clinical care.
With more than 88 years of experience distributing health care products, we have built a vast set of small,
mid-sized
and large customers in the dental and medical markets, serving more than one
million customers worldwide across
dental practices and laboratories and physician practices, as well as government,
institutional health care clinics and
other alternate care clinics.
We are headquartered in Melville, New York,
employ more than 19,000 people (of which approximately 9,800 are
based outside the United States) and have operations or affiliates in 31 countries and
territories, including the
United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
the Czech Republic, France, Germany,
Hong Kong SAR, Ireland, Israel, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, the Netherlands, New
Zealand, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland,
Thailand, United Arab Emirates
and the United Kingdom.
This broad global footprint has evolved over time through our organic success as well
as
through contribution from strategic acquisitions.
Our business extends far beyond our supply chain capabilities across
the globe. We provide a wide breadth
of products, value-added solutions and support to customers, including
consumables and equipment. Through
Henry Schein One, we offer dental practice management, patient engagement
and demand creation software
solutions. We also offer a broad range of financial services for our customers to help them operate and expand their
business operations. We believe our hands-on consultative approach to support practice decision-making is a key
differentiator for our business.
We offer
a comprehensive selection of more than 120,000 branded products
and Henry Schein private brand
products in stock, as well as more than 180,000 additional products
available as special-order items.
As the market continues to evolve toward solutions that offer ease and convenience for
ordering products and
communicating with our solutions teams, we are investing in digital enhancements
to our e-commerce platforms
and our web capabilities.
We have established over 3.5 million square feet of space in 28 strategically located distribution centers around the
world to enable us to better serve our customers and increase our operating
efficiency.
Our infrastructure allows us
to provide rapid and accurate order fulfillment. Historically, approximately 99% of items have been shipped
without back ordering and were shipped on the same business day the order
is received.
Due to the significant
increase in demand for personal protective equipment (“PPE”), as a result
of the COVID-19 pandemic, during the
year ended December 26, 2020, approximately 93% of items ordered
were shipped without back ordering and 90%
were shipped on the same business day the order was received.
As the demand for PPE stabilizes, we expect our
percentage of items shipped without back ordering and shipped on the
same day to return to historic levels.
This
infrastructure, together with broad product and service offerings at competitive
prices, and a strong commitment to
customer service, enables us to be a single source of supply for our customers’
needs.
We conduct our business through two reportable segments: (i) health care distribution and (ii) technology and
value-added services.
These segments offer different products and services to the same customer base.
The health care distribution reportable segment aggregates our global
dental and medical operating segments.
This
combined dental and medical segment distributes consumable products,
small equipment, laboratory products, large
equipment, equipment repair services, branded and generic pharmaceuticals,
vaccines, surgical products, diagnostic
tests, infection-control products
and vitamins.
Our global dental group serves office-based dental practitioners,
dental laboratories, schools, government and other institutions.
Our global medical group serves physician offices,
urgent care centers, ambulatory care sites, emergency medical technicians, dialysis centers, home health,
federal
and state governments and large enterprises, such as group practices and integrated
delivery networks, among other
providers across a wide range of specialties.
While our primary go-to-market strategy is in our capacity as a
distributor, we also manufacture certain dental specialty products in the areas of implants, orthodontics
and
endodontics. We have achieved scale in these global businesses primarily through acquisitions as manufacturers of
these products typically do not utilize a distribution channel to serve customers.
As an alternative to branded product options, we also market under our own
private label portfolio of cost-effective,
high-quality consumable merchandise products for our dental and medical customers.
Sales of our private label
products generally achieve gross profit margins that are higher than the average margin on the other
products we
sell.
Our global technology and value-added services group provides software,
technology and other value-added
services to health care practitioners.
Henry Schein One, the largest contributor of sales to this category, offers
software systems for dental practitioners. This segment also includes a
small medical software business known as
MicroMD. In addition, we offer physicians a broad suite of electronic health records,
integrated revenue cycle
management, and patient communication services. Finally, our value-added practice solutions include financial
service offerings, which include practice finance solutions such as credit card billing
and facilitation of customer
loans (on a non-recourse basis) to acquire equipment and technology, as well as solutions to broker dental practice
transitions. We do not take on the liability of such loans but instead receive an origination fee for coordinating
loans between practice customers and third-party banking groups.
Recent Developments
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent
Developments” herein for a discussion related to the COVID-19
pandemic and recent corporate transactions.
Industry
The global health care distribution industry, as it relates to office-based health care practitioners, is fragmented and
diverse.
The industry ranges from sole practitioners working out of
relatively small offices to mid-sized and large
group practices ranging in size from a few practitioners to several hundred
practices owned or operated by dental
support organizations (DSOs), hospital systems, or integrated delivery networks
(IDNs).
Due in part to the inability of office-based health care practitioners to store and manage
large quantities of supplies
in their offices, the distribution of health care supplies and small equipment to office-based health
care practitioners
has been characterized by frequent, small quantity orders, and a need for
rapid, reliable and substantially complete
order fulfillment.
The purchasing decisions within an office-based health care practice are typically
made by the
practitioner, hygienist or office manager.
Supplies and small equipment are generally purchased from
more than
one distributor, with one generally serving as the primary supplier.
The health care distribution industry continues to experience growth due
to demand driven by the aging population,
increased health care awareness and the importance of preventative care,
an increasing understanding of the
connection between good oral health and overall health, improved access
to care globally, the proliferation of
medical technology and testing, new pharmacology treatments and
expanded third-party insurance coverage,
partially offset by the effects of unemployment on insurance coverage and technological improvements,
including
the advancement of software and services, prosthetic solutions and telemedicine.
In addition, the non-acute market
continues to benefit from the shift of procedures and diagnostic
testing from acute care settings to alternate-care
sites, particularly physicians’ offices and ambulatory surgery centers.
We believe that consolidation within the industry will continue to result in a number of distributors, particularly
those with limited financial, operating and marketing resources, seeking
to combine with larger companies that can
provide growth opportunities.
This consolidation also may continue to result in distributors seeking
to acquire
companies that can enhance their current product and service offerings or provide
opportunities to serve a broader
customer base.
In addition, customer consolidation will likely lead to multiple locations
under common management and the
movement of more procedures from the hospital setting to the physician
or alternate care setting as the health care
industry is increasingly focused on efficiency and cost containment.
This trend has benefited distributors capable
of providing a broad array of products and services at low prices.
It also has accelerated the growth of HMOs,
group practices, other managed care accounts and collective buying
groups, which, in addition to their emphasis on
obtaining products at competitive prices, tend to favor distributors capable
of providing specialized management
information support.
We believe that the trend towards cost containment has the potential to favorably affect
demand for technology solutions, including software, which can enhance
the efficiency and facilitation of practice
management.
Competition
The distribution and manufacture of health care supplies and equipment is
highly competitive.
Many of the health
care products we sell are available to our customers from a number of suppliers.
In addition, our competitors could
obtain exclusive rights from manufacturers to market particular products.
Manufacturers also could seek to sell
directly to end-users, and thereby eliminate or reduce our role and that of other
distributors. In certain parts of the
dental end market, such as those related to dental specialty products,
manufacturers already sell directly to end
customers.
In North America, we compete with other distributors, as well as several
manufacturers, of dental and medical
products, primarily on the basis of price, breadth of product line, e-commerce
capabilities, customer service and
value-added products and services.
In the dental market, our primary competitors in the U.S. are the Patterson
Dental division of Patterson Companies, Inc. and Benco Dental Supply
Company.
In addition, we compete against
a number of other distributors that operate on a national, regional and
local level. Our primary competitors in the
U.S. medical market, which accounts for the large majority of our global medical
sales, are McKesson Corporation
and Medline Industries, Inc., which are national distributors.
We also compete with a number of regional and local
medical distributors, as well as a number of manufacturers that
sell directly to physicians.
With regard to our dental
software, we compete against numerous companies, including the Patterson
Dental division of Patterson
Companies, Inc., Carestream Health, Inc., Open Dental Software, Inc., PlanetDDS
LLC, Good Methods Global Inc.
(d.b.a. CareStack) and Curve Dental, LLC.
In other software end markets, including revenue cycle
management,
patient relationship management and patient demand generation, we
compete with companies such as Vyne
Therapeutics Inc., EDI-Health Group, Inc. (d.b.a. Dental X Change, Inc.),
Weave Communications,
Inc., Solutionreach, Inc., ZocDoc, Inc., LocalMed Inc. and Prosites Inc.
The medical practice management and
electronic medical records market is very fragmented and we compete with
numerous companies such as the
NextGen division of Quality Systems, Inc., eClinicalWorks, Allscripts Healthcare Solutions, Inc., and Epic Systems
Corporation.
Outside of the U.S., we believe we are the only global distributor of supplies
and equipment to dental practices, and
our competitors are primarily local and regional companies.
We also face significant competition internationally,
where we compete on the basis of price and customer service against
several large competitors, including the
GACD Group, Proclinic SA, Lifco AB, Planmeca Oy and Billericay Dental
Supply Co. Ltd., as well as a large
number of other dental and medical product distributors and manufacturers
in international countries and territories
we serve.
Competitive Strengths
We have more than 88 years of experience in distributing products to health care practitioners resulting in strong
awareness of the Henry Schein
®
brand.
Our competitive strengths include:
A focus on meeting our customers’ unique needs
.
We are committed to providing customized solutions to our
customers that are driven by our understanding of the end markets we
serve and reflect the technology-driven
products and services best suited for their practice needs. We are committed to continuing to enhance these
offerings through organic investment in our products and our teams, as well through as
the acquisition of new
products and services that may help us better serve our customers.
Direct sales and marketing expertise.
Our sales and marketing efforts are designed to establish and solidify
customer relationships through personal or virtual visits by field sales representatives,
frequent direct marketing and
telesales contact, emphasizing our broad product lines, including exclusive
distribution agreements, competitive
prices and ease of order placement, particularly through our e-commerce
platforms.
The key elements of our direct
sales and marketing efforts are:
Field sales consultants.
We have over 3,450 field sales consultants, including equipment sales specialists,
covering major North American, European and other international
markets.
These consultants complement
our direct marketing and telesales efforts and enable us to better market, service
and support the sale of
more sophisticated products and equipment.
Marketing.
During 2020, we marketed to existing and prospective office-based health care
providers
through a combination of owned, earned and paid digital channels, as well
as through catalogs, flyers,
direct mail, and other promotional materials.
Our strategies included an emphasis on educational content
through webinars and content marketing initiatives.
We continue to enhance our marketing technology to
improve our targeting capability and the relevance of messaging and offers.
Telesales.
We support our direct marketing effort with approximately 2,250 inbound and outbound
telesales representatives, who facilitate order processing, generate new
sales through direct and frequent
contact with customers and stay abreast of market developments and
the hundreds of new products,
services and technologies introduced each year to educate practice personnel.
Electronic commerce solutions.
We provide our customers and sales teams with innovative and
competitive e-commerce solutions. We continue to invest in our e-commerce platform to offer enhanced
content management so customers can more easily find the products
they need and to enable an engaging
purchase experience, supported by excellent customer service.
Social media.
Our operating entities and employees engage our customers and
supplier partners through
various social media platforms, which are an important element of our
communications and marketing
efforts. We continue to expand our social media presence to raise awareness about issues, engage
customers beyond a sale and deliver services and solutions to specialized
audiences.
Broad product and service offerings at competitive prices.
We offer
a broad range of products and services to our
customers, at competitive prices, in the following categories:
Consumable supplies and equipment.
We offer over 120,000 Stock Keeping Units, or SKUs, to our
customers.
We offer over 180,000 additional SKUs to our customers in the form of special order items.
Technology and other value-added products and services.
We sell practice management, patient
engagement, and patient demand creation software solutions to our
dental customers.
Our practice
management solutions provide practitioners with electronic
medical records, patient treatment history,
billing, accounts receivable analyses and management, appointment
calendars, electronic claims processing
and word processing programs, network and hardware services, e-commerce
and electronic marketing
services, sourcing third party patient payment plans, transition services
and training and education
programs for practitioners. We also sell medical software for practice management, certified electronic
health records (“EHR”) and e-Prescribe medications and prescription solutions
through MicroMD®.
We
have approximately 800 technical representatives supporting customers
using our practice management
solutions and services.
As of December 26, 2020, we had an active user base of approximately
94,500
practices and 374,000 consumers, including users of AxiUm, Dentally®, Dentrix
Ascend®, Dental
Vision®, Dentrix® Dental Systems, Dentrix® Enterprise, Easy Dental®, EndoVision®, Evolution® and
EXACT®, Gesden®, Julie® Software, Oasis, OMSVision®,
Orisline®, PerioVision®,
Power Practice®
Px, PowerDent,
and Viive®
and subscriptions for Demandforce®, Sesame, and Lighthouse360®
for dental
practices and DentalPlans.com®
for dental patients; and MicroMD® for physician practices.
Repair services.
We have over 140 equipment sales and service centers worldwide that provide a variety of
repair, installation and technical services for our health care customers.
Our over 2,000 technicians provide
installation and repair services for: dental handpieces; dental and
medical small equipment; table top
sterilizers; and large dental equipment.
Financial services.
We offer our customers solutions in operating their practices more efficiently by
providing access to a number of financial services and products
provided by third party vendors (including
non-recourse financing for equipment, technology and software
products; non-recourse patient financing;
collection services and credit card processing) at rates that we believe are generally
lower than what our
customers would be able to secure independently.
We also provide consulting services, dental practice
valuation and brokerage services.
Commitment to superior customer service
.
We maintain a strong commitment to providing superior customer
service.
We frequently monitor our customer service through customer surveys, focus groups and statistical
reports.
Our customer service policy primarily focuses on:
Exceptional order fulfillment
.
We ship an average of approximately 128,000 cartons daily.
Historically,
approximately 99% of items have been shipped without back ordering and
were shipped on the same
business day the order is received.
Due to the significant increase in demand for PPE, as a result
of
COVID-19, during the year ended December 26, 2020, approximately
93% of items ordered were shipped
without back ordering and 90% were shipped on the same business day
the order was received.
As the
demand for PPE stabilizes, we expect our percentage of items shipped without
back ordering and shipped
on the same day to return to historical levels.
Comprehensive ordering process
.
Customers may place orders 24 hours a day, 7 days a week via e-
commerce solutions, telephone, fax, e-mail, and mail.
Integrated management information systems
.
Our information systems generally allow for centralized management
of key functions, including accounts receivable, inventory, accounts payable, payroll, purchasing, sales,
order
fulfillment and financial and operational reporting.
These systems allow us to manage our growth, deliver superior
customer service, properly target customers, manage financial performance and
monitor daily operational statistics.
Cost-effective purchasing
.
We believe that cost-effective purchasing is a key element to maintaining and enhancing
our position as a competitively priced provider of health care products.
We continuously evaluate our purchase
requirements and suppliers’ offerings and prices in order to obtain products at the
lowest possible cost.
In 2020,
our top 10 health care distribution suppliers and our single largest supplier accounted for approximately
30% and
4%, respectively, of our aggregate purchases.
Efficient distribution
.
We distribute our products from our strategically located distribution centers.
We strive to
maintain optimal inventory levels in order to satisfy customer demand
for prompt delivery and complete order
fulfillment.
These inventory levels are managed on a daily basis with
the aid of our management information
systems.
Once an order is entered, it is electronically transmitted to the distribution
center nearest the customer’s
location for order fulfillment.
Products
The following table sets forth the percentage of consolidated net sales
by principal categories of products offered
through our health care distribution and technology reportable segments:
December 26,
December 28,
December 29,
2020
2019
2018
Health care distribution:
Dental products
(1)
58.4
%
64.2
%
67.4
%
Medical products
(2)
35.8
29.8
28.3
Total
health care distribution
94.2
94.0
95.7
Technology
and value-added services:
Software and related products and
other value-added products
(3)
5.1
5.2
4.3
Total
excluding Corporate TSA revenues
99.3
99.2
100.0
Corporate TSA revenues
(4)
0.7
0.8
-
Total
100.0
100.0
100.0
(1)
Includes infection-control products, handpieces, preventatives, impression materials, composites, anesthetics, teeth, dental implants,
gypsum, acrylics, articulators, abrasives, dental chairs, delivery units and lights, X-ray supplies and equipment, personal protective
equipment, equipment repair and high-tech and digital restoration equipment.
(2)
Includes branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products, X-ray products,
equipment, personal protective equipment, and vitamins.
(3)
Consists of practice management software and other value-added products, which are distributed primarily to health care providers, and
financial services on a non-recourse basis, e-services, continuing education services for practitioners, consulting and other services.
(4)
Corporate TSA revenues represents sales of certain products to Covetrus under the transition services agreement entered into in
connection with the Animal Health spin-off, which ended in December 2020.
Business Strategy
Our objective is to continue to expand as a global value-added provider
of health care products and services to
office-based dental and medical practitioners by increasing their efficiency and success.
To accomplish this, we
will apply our competitive strengths in executing the following strategies:
Increase penetration of our existing customer base.
We have over 1 million customers worldwide and we
intend to increase sales to our existing customer base and enhance our position
as their primary supplier.
We believe our offering of a broad range of products, services and support, including software solutions
that can help drive improved workflow efficiency and patient communications for
practices, coupled with
our full-service value proposition, helps us to retain and grow our customer
base.
Increase the number of customers we serve.
This strategy includes increasing the productivity of our field
sales consultants and telesales team, as well as using our customer
database to focus our marketing efforts
in all of our operating segments.
In the dental business, we provide products and services to
independent
practices, mid-market groups, and large DSOs as well as community health centers and government
sites of
care.
Leveraging our broad array of assets and capabilities, we offer solutions to address these
new
markets.
In the medical business, we have expanded to serve customers
located in settings outside of the
traditional office, such as urgent care clinics, retail, occupational health and home health settings.
As
settings of health care shift, we remain committed to serving these practitioners
and providing them with
the products and services they need.
Leverage our value-added products and services.
We continue to increase cross-selling efforts for key
product lines utilizing a consultative selling process.
In the dental business, we have significant cross-
selling opportunities between our dental software users and our dental distribution
customers.
In the
medical business, we have opportunities to expand our vaccine, injectables
and other pharmaceuticals sales
to health care practitioners, as well as cross-selling electronic health record
and software when we sell our
core products.
Our strategy extends to providing health systems, integrated
delivery networks and other
large group and multi-site health care organizations, including physician clinics, these same value
added
products and services.
As physicians and health systems closely align, we have increased
access to
opportunities for cross-marketing and selling our product and service portfolios.
Pursue strategic acquisitions and joint ventures.
Our acquisition strategy is focused on investments in
companies that add new customers and sales teams, increase our geographic
footprint (whether entering a
new country, such as emerging markets, or building scale where we have already invested in businesses),
and finally, those that enable us to access new products and technologies.
Markets Served
Demographic trends indicate that our markets are growing, as an
aging U.S. population is increasingly using health
care services.
Between 2020 and 2030, the 45 and older population is expected
to grow by approximately 11%.
Between 2020 and 2040,
this age group is expected to grow by approximately 22%.
This compares with expected
total U.S. population growth rates of approximately 7%
between 2020 and 2030 and approximately 12% between
2020 and 2040.
In the dental industry, there is predicted to be a rise in oral health care expenditures as the 45-and-older segment of
the population increases.
There is increasing demand for new technologies that allow
dentists to increase
productivity, and this is being driven in the U.S. by lower insurance reimbursement rates.
At the same time, there is
an expected increase in dental insurance coverage.
We support our dental professionals through the many SKUs that we offer, as well as through important value-
added services, including practice management software, electronic claims
processing, financial services and
continuing education, all designed to help maximize a practitioner’s efficiency.
In the medical market, there continues to be a migration of procedures from
acute-care settings to physicians’
offices and home health settings,
a trend that we believe provides additional opportunities for us.
There also is the
continuing use of vaccines, injectables and other pharmaceuticals in alternate-care
settings.
We believe we have
established a leading position as a vaccine supplier to the office-based physician
practitioner.
Additionally, we seek to expand our dental full-service model and our medical offerings in countries where
opportunities exist.
Through our “Schein Direct” program, we also have the
capability to provide door-to-door air
package delivery to practitioners in over 190 countries around the world.
For information on revenues and long-lived assets by geographic area, see
Note 18 – Segment and Geographic Data
of “Notes to Consolidated Financial Statements.”
Seasonality and Other Factors Affecting Our Business and Quarterly Results
We experience fluctuations in quarterly earnings.
As a result, we may fail to meet or exceed the expectations of
securities analysts and investors, which could cause our stock price
to decline.
Our business is subject to seasonal and other quarterly fluctuations.
Revenues and profitability generally have been
higher in the third and fourth quarters due to the timing of sales of seasonal
products (including influenza vaccine,
equipment and software products), purchasing patterns of office-based health care practitioners
and year-end
promotions. Revenues and profitability may also be impacted by
the timing of certain annual and biennial dental
tradeshows where equipment promotions are offered. In addition, some dental practices
delay equipment purchases
in the U.S. until year-end due to tax incentives.
Revenues and profitability generally have been lower in the first
quarter, primarily due to increased sales in the prior two quarters.
We expect our historical seasonality of sales to
continue in the foreseeable future.
Governmental Regulations
We strive to be substantially compliant with the applicable laws, regulations and guidance described below, and
believe we have effective compliance programs and other controls in place to ensure substantial
compliance.
However, compliance is not guaranteed
either now or in the future, as certain laws, regulations and guidance
may
be subject to varying and evolving interpretations that could affect our ability to comply, as well as future changes,
additions, and enforcement approaches, including in light of political changes.
For example, President Biden’s
administration has authorized and encouraged a freeze on certain federal
regulations that have been published but
are not yet effective, as well as a review of all federal regulations issued during President Trump’s administration.
Changes with respect to the applicable laws, regulations and guidance described
below may require us to update or
revise our operations, services, marketing practices, and compliance programs
and controls, and may impose
additional and unforeseen costs on us, pose new or previously immaterial
risks to us, or may otherwise have a
material adverse effect on our business.
Government
Certain of our businesses involve the distribution, importation, exportation,
marketing and sale of, and third party
payment for, pharmaceuticals and medical devices, and in this regard, we are subject to extensive local, state,
federal and foreign governmental laws and regulations, including as applicable
to our wholesale distribution of
pharmaceuticals and medical devices, and as part of our specialty home medical supply
business that distributes and
sells medical equipment and supplies directly to patients.
The federal government and state governments have also
increased enforcement activity in the health care sector, particularly in areas of fraud and abuse, anti-bribery
and
corruption, controlled substances prescribing, medical device regulation, and data
privacy and security standards.
Government and private insurance programs fund a large portion of the total cost of medical care,
and there have
been efforts to limit such private and government insurance programs, including efforts,
thus far unsuccessful, to
seek repeal of the entire United States Patient Protection and Affordable Care Act,
as amended by the Health Care
and Education Reconciliation Act, each enacted in March 2010, as amended
(the “ACA”).
In addition, activities to
control medical costs, including laws and regulations lowering reimbursement
rates for pharmaceuticals, medical
devices, and/or medical treatments or services, are ongoing.
Many of these laws and regulations are subject to
change and their evolving implementation may impact our operations and our
financial performance.
Our businesses are also generally subject to numerous other laws and regulations
that could impact our financial
performance, including securities, antitrust, consumer protection, anti-bribery
and anti-kickback, customer
interaction transparency, data privacy,
data security, government contracting and other laws and regulations.
Failure to comply with law or regulations could have a material adverse effect on our business.
Operating, Security and Licensure Standards
Certain of our businesses involve the distribution, importation, exportation,
marketing
and sale of, and third party
payment for, pharmaceuticals and medical devices, and in this regard we are subject to various local,
state, federal
and foreign governmental laws and regulations, including as applicable
to our wholesale distribution and sale of
pharmaceuticals and medical devices, and, as part of our specialty home medical
supply business that distributes
and sells medical equipment and supplies directly to patients.
Among the United States federal laws applicable to
us are the Controlled Substances Act, the Federal Food, Drug, and Cosmetic
Act, as amended (“FDC Act”), and
Section 361 of the Public Health Service Act, as well as laws regulating the
billing of and reimbursement from
government programs, such as Medicare and Medicaid, and from commercial payers.
We are also subject to
comparable foreign regulations.
The FDC Act, the Controlled Substances Act, their implementing regulations,
and similar foreign laws generally
regulate the introduction, manufacture, advertising, marketing and promotion,
sampling, pricing and
reimbursement, labeling, packaging, storage, handling, returning or recalling,
reporting, and distribution of, and
record keeping for, pharmaceuticals and medical devices shipped in interstate commerce, and states
may similarly
regulate such activities within the state.
Furthermore, Section 361 of the Public Health Service Act, which
provides
authority to prevent the introduction, transmission or spread of communicable
diseases, serves as the legal basis for
the United States
Food and Drug Administration’s (“FDA”) regulation of human cells, tissues and cellular and
tissue-based products, also known as “HCT/P products.”
The Federal Drug Quality and Security Act of 2013 brought about significant
changes with respect to
pharmaceutical supply chain requirements.
Title II of this measure, known as the Drug Supply Chain Security Act
(“DSCSA”), is being phased in over a period of ten years, and is intended
to build a national electronic,
interoperable system to identify and trace certain prescription drugs as they
are distributed in the United States.
The law’s track and trace requirements applicable to manufacturers, wholesalers, repackagers and dispensers (e.g.,
pharmacies) of prescription drugs took effect in January 2015, and continues to be
implemented.
The DSCSA
product tracing requirements replace the former FDA drug pedigree requirements
and pre-empt certain state
requirements that are inconsistent with, more stringent than, or in addition
to, the DSCSA requirements.
The DSCSA also establishes certain requirements for the licensing and operation
of prescription drug wholesalers
and third-party logistics providers (“3PLs”), and includes the eventual
creation of national wholesaler and 3PL
licenses in cases where states do not
license such entities.
The DSCSA requires that wholesalers and 3PLs
distribute drugs in accordance with certain standards regarding the recordkeeping,
storage and handling of
prescription drugs.
The DSCSA requires wholesalers and 3PLs to submit annual reports
to the FDA, which include
information regarding each state where the wholesaler or 3PL is licensed, the
name and address of each facility and
contact information.
According to FDA guidance, states are pre-empted from imposing
any licensing requirements
that are inconsistent with, less stringent than, directly related to, or covered
by the standards established by federal
law in this area.
Current state licensing requirements concerning wholesalers will
remain in effect until the FDA
issues new regulations as directed by the DSCSA.
In addition, with respect to our specialty home medical supply
business, we are subject to certain state licensure laws (including state pharmacy
laws), and also certain
accreditation standards, including to qualify for reimbursement from
Medicare and other third-party payers.
The Food and Drug Administration Amendments Act of 2007 and
the Food and Drug Administration Safety and
Innovation Act of 2012 amended the FDC Act to require the FDA to promulgate
regulations to implement a unique
device identification (“UDI”) system.
The UDI rule phased in the implementation of the UDI
regulations,
generally beginning with the highest-risk devices (i.e., Class III medical devices)
and ending with the lowest-risk
devices.
Most compliance dates were reached as of September 24, 2018,
with a final set of requirements for low
risk devices being reached on September 24, 2022, which will complete
the phase in.
The UDI regulations require
“labelers” to include unique device identifiers (“UDIs”), with a content
and format prescribed by the FDA and
issued under a system operated by an FDA-accredited issuing agency, on the labels and packages of medical
devices (including, but not limited to, certain software that qualifies as a medical device
under FDA rules), and to
directly mark certain devices with UDIs.
The UDI regulations also require labelers to submit certain information
concerning UDI-labeled devices to the FDA, much of which information is publicly
available on an FDA database,
the Global Unique Device Identification Database.
The UDI regulations and subsequent FDA guidance regarding
the UDI requirements provide for certain exceptions, alternatives and time extensions.
For example, the UDI
regulations include a general exception for Class I devices exempt from the Quality
System Regulation (other than
record-keeping requirements and complaint files).
Regulated labelers include entities such as device
manufacturers, repackagers, reprocessors and relabelers that cause a device’s label to be applied or modified, with
the intent that the device will be commercially distributed without any subsequent
replacement or modification of
the label, and include certain of our businesses.
Under the Controlled Substances Act, as a distributor of controlled substances,
we are required to obtain and renew
annually registrations for our facilities from the United States Drug Enforcement
Administration (“DEA”)
permitting us to handle controlled substances.
We are also subject to other statutory and regulatory requirements
relating to the storage, sale, marketing, handling, reporting, record-keeping
and distribution of such drugs, in
accordance with the Controlled Substances Act and its implementing regulations,
and these requirements have been
subject to heightened enforcement activity in recent times.
We are subject to inspection by the DEA. Certain of our
businesses are also required to register for permits and/or licenses with, and
comply with operating and security
standards of, the DEA, the FDA, the United States Department of Health
and Human Services (“HHS”), and
various state boards of pharmacy, state health departments and/or comparable state agencies as well as comparable
foreign agencies, and certain accrediting bodies, depending on the type of
operations and location of product
distribution, manufacturing or sale.
These businesses include those that distribute, manufacture and/or repackage
prescription pharmaceuticals and/or medical devices and/or HCT/P products, or
own pharmacy operations, or
install, maintain or repair equipment.
In addition, Section 301 of the National Organ Transplant Act, and a number of comparable state laws, impose civil
and/or criminal penalties for the transfer of certain human tissue (for example,
human bone products) for valuable
consideration, while generally permitting payments for the reasonable costs
incurred in procuring, processing,
storing and distributing that tissue.
We are also subject to foreign government regulation of such products.
The
DEA, the FDA and state regulatory authorities have broad inspection and enforcement
powers, including the ability
to suspend or limit the distribution of products by our distribution centers,
seize or order the recall of products and
impose significant criminal, civil and administrative sanctions for violations of
these laws and regulations.
Foreign
regulations subject us to similar foreign enforcement powers.
EU Regulation of Medicinal and Dental Products
EU member states regulate their own healthcare systems, as does EU law.
The latter regulates certain matters,
most notably medicinal products and medical devices. Medicinal products are defined,
broadly, as substances or
combinations of substances having certain functionalities and may not include
medical devices. EU “regulations”
apply in all Member States, whereas “directives” are implemented by the
individual laws of member states.
On medicines for humans, we are regulated under Directive No. 2001/83/EC
of 6 November 2001 and EU
Regulation No. 726/2004 of 31 March 2004.
These rules provide for the authorization of products, and regulate
their manufacture, importation, marketing, and distribution.
It implements requirements which may be
implemented without warning, as well as a national pharmacovigilance
system under which marketing
authorizations may be withdrawn, and includes potential sanctions for breaches
of the rules, and on other bases
such as harmfulness or inefficiency.
EU Regulation No. 1223/2009 of 30 November 2009
on cosmetic products
requires that cosmetic products (which
includes dental products) be safe for human health when used under normal
or reasonably foreseeable conditions of
use and comply with certain obligations which apply to manufacturer, importer and distributor. It includes market
surveillance, and non-compliance may result in the recall or withdrawal of
products, along with other sanctions.
In the European Union, the EU Medical Device Regulation No. 2017/745
(“EU MDR”) covers a wide scope of our
activities, from dental material to X-ray machines, and certain software.
It was meant to become applicable three
years after publication (in May 2020). However, on April 23, 2020, to allow European Economic Area
(“EEA”)
national authorities, notified bodies, manufacturers and other actors to focus
fully on urgent priorities related to the
COVID-19 pandemic, the European Council and Parliament adopted Regulation
2020/561, postponing the date of
application of the EU MDR by one year (to May 2021).
In the meantime, rules provided for by Directive No.
90/385/EEC of 20 June 1990
on the approximation of the laws of the member states relating to active implantable
medical devices
remain applicable (in particular to certain software).
The EU MDR significantly modifies and intensifies the regulatory compliance
requirements for the medical device
industry as a whole.
Once applicable, the EU MDR will among other things:
Strengthen
the
rules
on
placing
devices
on
the
market
and
rein
force
surveillance
once
they
are
available;
Establish
explicit
provisions
on
manufacturers’
responsibilities
for
the
follow
-
up
of
the
quality,
performance and safety of devices placed on the market;
Improve
the
traceability
of
medical
devices
throughout
the
supply
chain
to
the
end
-
user
or
patient
through
a
unique identification number;
Se
t
up
a
central
database
to
provide
patients,
healthcare
professionals
and
the
public
with
comprehensive
information on products available in the EU;
Strengthen
rules
for
the
assessment
of
certain
high
-
risk
devices,
such
as
implants,
which
may
have
to
undergo an additional check by experts before they are placed on the market; and
Identify importers and distributors and medical device products through
registration in a database
(EudaMed not due until 2022 and after).
In particular, the EU MDR imposes stricter requirements for the confirmation that a product meets the regulatory
requirements, including regarding a product’s clinical evaluation and a company’s quality systems, and for the
distribution, marketing and sale of medical devices, including post-market surveillance.
Medical devices that have
been assessed and/or certified under the EU Medical Device Directive may
continue to be placed on the market
until 2024 (or until the expiry of their certificates, if applicable and earlier);
however, requirements regarding the
distribution, marketing and sale including quality systems and post-market surveillance
have to be observed by
manufacturers, importers and distributors as of the application date.
Other EU regulations that may apply under appropriate circumstances
include EU Regulation No. 1907/2006 of 18
December 2006
concerning the Registration, Evaluation, Authorisation and
Restriction of Chemicals
, which
requires importers to register substances or mixtures that they import
in the EU beyond certain quantities, and the
EU Regulation No. 1272/2008 of 16 December 2008 on classification, labelling
and packaging of substances and
mixtures (“CLP Regulation”), which sets various obligations with respect
to the labelling and packaging of
concerned substances and mixtures.
Furthermore, compliance with legal requirements has required and may in the future
require us to delay product
release, sale or distribution, or institute voluntary recalls of products we sell,
each of which could result in
regulatory and enforcement actions, financial losses and potential reputational
harm.
Our customers are also
subject to significant federal, state, local and foreign governmental regulation, which
may affect our interactions
with customers, including the design and functionality of our products.
Certain of our businesses are subject to various additional federal, state,
local and foreign laws and regulations,
including with respect to the sale, transportation, storage, handling and
disposal of hazardous or potentially
hazardous substances, and safe working conditions.
In addition, certain of our businesses must operate in
compliance with a variety of burdensome and complex billing and
record-keeping requirements in order to
substantiate claims for payment under federal, state and commercial healthcare
reimbursement programs.
Certain of our businesses also maintain contracts with governmental agencies
and are subject to certain regulatory
requirements specific to government contractors.
Antitrust and Consumer Protection
The federal government of the United States, most U.S. states and many
foreign countries have antitrust laws that
prohibit certain types of conduct deemed to be anti-competitive, as well as consumer
protection laws that seek to
protect consumers from improper business practices.
At the U.S. federal level, the Federal Trade Commission
oversees enforcement of these types of laws, and states have similar government
agencies. Violations of antitrust or
consumer protection laws may result in various sanctions, including criminal
and civil penalties.
Private plaintiffs
may also bring civil lawsuits against us in the United States for alleged
antitrust law violations, including claims for
treble damages.
EU law also regulates competition and provides for detailed rules
protecting consumers.
Health Care Fraud
Certain of our businesses are subject to federal and state (and similar
foreign) health care fraud and abuse, referral
and reimbursement laws and regulations with respect to their operations.
Some of these laws, referred to as “false
claims laws,” prohibit the submission or causing the submission of false or fraudulent
claims for reimbursement to
federal, state and other health care payers and programs.
Other laws, referred to as “anti-kickback laws,” prohibit
soliciting, offering, receiving or paying remuneration in order to induce the referral
of a patient or ordering,
purchasing, leasing or arranging for, or recommending ordering, purchasing or leasing of, items or services
that are
paid for by federal, state and other health care payers and programs.
Certain additional state and federal laws, such
as the federal Physician Self-Referral Law, commonly known as the “Stark Law,” prohibit physicians and other
health professionals from referring a patient to an entity with which the physician
(or family member) has a
financial relationship, for the furnishing of certain designated health services
(for example, durable medical
equipment and medical supplies), unless an exception applies.
The fraud and abuse laws and regulations have been subject to heightened
enforcement activity over the past few
years, and significant enforcement activity has been the result of “relators” who
serve as whistleblowers by filing
complaints in the name of the United States (and if applicable, particular states)
under applicable false claims laws,
and who may receive up to 30% of total government recoveries.
Penalties under fraud and abuse laws may be
severe, and could result in significant civil and criminal penalties and costs,
including the loss of licenses and the
ability to participate in federal and state health care programs, and could
have a material adverse effect on our
business.
Also, these measures may be interpreted or applied by a prosecutorial,
regulatory or judicial authority in
a manner that could require us to make changes in our operations or incur substantial
defense and settlement
expenses.
Even unsuccessful challenges by regulatory authorities or private
relators could result in reputational
harm and the incurring of substantial costs.
Most states have adopted similar state false claims laws, and these
state
laws have their own penalties, which may be in addition to federal False Claims
Act penalties, as well as other
fraud and abuse laws.
With respect to measures of this type, the United States government (among others) has expressed concerns
about
financial relationships between suppliers on the one hand and physicians
and dentists on the other.
As a result, we
regularly review and revise our marketing practices as necessary to facilitate
compliance.
We also are subject to certain United States and foreign laws and regulations concerning the conduct of our foreign
operations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery
Act, German anti-corruption laws
and other anti-bribery laws and laws pertaining to the accuracy of our internal
books and records, which have been
the focus of increasing enforcement activity globally in recent years.
While we believe that we are substantially compliant with applicable fraud and
abuse laws and regulations, and
have adequate compliance programs and controls in place to ensure substantial
compliance, we cannot predict
whether changes in applicable law, or interpretation of laws, or changes in our services or marketing practices in
response to changes in applicable law or interpretation of laws, or failure
to comply with applicable law, could have
a material adverse effect on our business.
Affordable Care Act
The United States Patient Protection and Affordable Care Act, as amended by the
Health Care and Education
Reconciliation Act, each enacted in March 2010, as amended (the “ACA”),
increased federal oversight of private
health insurance plans and included a number of provisions designed
to reduce Medicare expenditures and the cost
of health care generally, to reduce fraud and abuse, and to provide access to increased health coverage.
The ACA
also materially expanded the number of individuals in the United States with health
insurance.
The ACA has faced ongoing legal challenges, including litigation seeking
to invalidate and Congressional action
seeking to repeal some of or all of the law or the manner in which it has been
implemented. In 2012, the United
States Supreme Court, in upholding the constitutionality of the
ACA and its individual mandate provision requiring
that people buy health insurance or else face a penalty, simultaneously limited ACA provisions requiring Medicaid
expansion, making such expansion a state-by-state decision. In addition, one of
the major political parties in the
United States remains committed to seeking the ACA’s legislative repeal, but legislative efforts to do so have
previously failed to pass both chambers of Congress.
Under President Trump’s administration, a number of
administrative actions were taken to materially weaken the ACA, including,
without limitation, by permitting the
use of less robust plans with lower coverage and eliminating “premium support”
for insurers providing policies
under the ACA. The Tax Cuts and Jobs Act enacted in 2017 (the “Tax Act”), which contains a broad range of tax
reform provisions that impact the individual and corporate tax rates, international
tax provisions, income tax add-
back provisions and deductions, also effectively repealed the ACA’s
individual mandate by zeroing out the penalty
for non-compliance.
In the most recent ACA litigation, the federal Fifth Circuit Court
of Appeals found the
individual mandate to be unconstitutional, and returned the case to the District Court
for the Northern District of
Texas for consideration of whether the remainder of the ACA could survive the excision of the individual
mandate.
The Fifth Circuit’s decision was appealed to the United States Supreme Court.
The Supreme Court heard
argument on the appeal on November 10, 2020, and a decision is anticipated soon.
Any outcome of this case that
changes the ACA, in addition to future legislation, regulation, guidance
and/or Executive Orders that do the same,
could have a significant impact on the U.S. healthcare industry.
An ACA provision, generally referred to as the Physician Payment Sunshine
Act or Open Payments Program (the
“Sunshine Act”),
imposes annual reporting and disclosure requirements for drug
and device manufacturers and
distributors with regard to payments or other transfers of value made to certain
covered recipients (including
physicians, dentists and teaching hospitals), and for such manufacturers and distributors
and for group purchasing
organizations, with regard to certain ownership interests held by physicians in the reporting
entity.
The Centers for
Medicare and Medicaid Services (“CMS”) publishes information from these
reports on a publicly available website,
including amounts transferred and physician, dentist and teaching hospital
identities.
Amendments expanded the
law to also require reporting, effective January
1, 2022, of payments or other transfers of value to physician
assistants, nurse practitioners, clinical nurse specialists, certified registered
nurse anesthetists, and certified nurse-
midwives, and this new requirement will be effective for data collected
beginning in calendar year 2021.
The
Sunshine Act pre-empts similar state reporting laws, although we or our subsidiaries
may be required to report
under certain state transparency laws that address circumstances not covered by
the Sunshine Act, and some of
these state laws, as well as the federal law, can be ambiguous.
We are also subject to foreign regulations requiring
transparency of certain interactions between suppliers and their customers.
In the United States, government actions to seek to increase health-related price
transparency may also affect our
business.
Another notable Medicare health care reform initiative, the Medicare Access
and CHIP Reauthorization Act of
2015 (“MACRA”), enacted on April 16, 2015, established a new payment framework,
which modified certain
Medicare payments to “eligible clinicians,” including physicians, dentists and
other practitioners.
Under MACRA,
certain eligible clinicians are required to participate in Medicare through the Merit-Based
Incentive Payment
System (“MIPS”) or Advanced Alternative Payment Models (“APMs”), through
which Medicare reimbursement to
eligible clinicians includes both positive and negative payment adjustments
that take into account quality,
promoting interoperability, cost, and improvement
activities.
Data collected in the first MIPS performance year
(2017) determined payment adjustments that began January 1, 2019.
MACRA standards continue to evolve, and
represent a fundamental change in physician reimbursement that is expected
to provide substantial financial
incentives for physicians to participate in risk contracts, and to increase physician
information technology and
reporting obligations.
The implications of the implementation of MACRA are uncertain
and will depend on future
regulatory activity and physician activity in the marketplace.
New payment and delivery system reform programs,
including those modeled after such federal program, are also increasingly being
rolled out at the state level through
Medicaid administrators, as well as through the private sector, which may further alter the marketplace
and impact
our business.
Recently, in addition to other government efforts to control health care costs, there has been increased scrutiny on
drug pricing and concurrent efforts to control or reduce drug costs by Congress, the
President, executive branch
agencies and various states. At the state level, several states have adopted
laws that require drug manufacturers to
provide advance notice of certain price increases and to report information
relating to those price increases, while
others have taken legislative or administrative action to establish prescription
drug affordability boards or multi-
payer purchasing pools to reduce the cost of prescription drugs.
At the federal level, several related bills have been
introduced and regulations proposed which, if enacted or finalized,
respectively, would impact drug pricing and
related costs.
As a result of political, economic and regulatory influences, the health care distribution
industry in the United
States is under intense scrutiny and subject to fundamental changes.
We cannot predict what further reform
proposals, if any, will be adopted, when they may be adopted, or what impact they may have on us.
EU Directive on the pricing and reimbursement of medicinal products
EU law provides for the regulation of the pricing of medicinal products which are
implemented by EU member
states (Directive No. 89/105/EC of 21 December 1988
relating to the transparency of measures regulating the
pricing of medicinal products for human use and their inclusion in the scope of national health insurance
systems
).
Member states may, subject notably to transparency conditions and to the statement of reasons based upon
objective and verifiable criteria, regulate the price charged (or its increases) for authorized
medicines and their level
of reimbursement, or they may freeze prices, place controls on the profitability
of persons responsible for placing
medicinal products on the market, and include or exclude the medicine on
the list of products covered by national
health insurance systems.
EU law does not expressly include provisions like those of the Sunshine Act in
the United States, but a growing
number of EU member states (such as France since 2011) have enacted laws to increase the transparency
of
relationships in the healthcare sector. The scope of these laws varies from on member state to another and may, for
example, include the relations between healthcare industry players and
physicians or their associations, students
preparing for medical professions or their associations, teachers, health
establishments or publishers of prescription
and dispensing assistance software.
Regulated Software; Electronic Health Records
The FDA has become increasingly active in addressing the regulation of
computer software and digital health
products intended for use in health care settings.
The 21st Century Cures Act (the “Cures Act”), signed into law on
December 13, 2016, among other things, amended the medical device definition
to exclude certain software from
FDA regulation, including clinical decision support software that meets certain
criteria.
On September 27, 2019,
the FDA issued a suite of guidance documents on digital health products, which
incorporated applicable Cures Act
standards, including
regarding the types of clinical decision support tools and other software that are
exempt from
regulation by the FDA as medical devices, and continues to issue new guidance
in this area.
Certain of our
businesses involve the development and sale of software and related products
to support physician and dental
practice management, and it is possible that the FDA or foreign government
authorities could determine that one or
more of our products is a medical device, which could subject us or one
or more of our businesses to substantial
additional requirements with respect to these products.
In addition, our businesses that involve physician and dental practice management
products, and our specialty home
medical supply business, include electronic information
technology systems that store and process personal health,
clinical, financial and other sensitive information of individuals.
These information technology systems may be
vulnerable to breakdown, wrongful intrusions, data breaches and malicious
attack, which could require us to
expend significant resources to eliminate these problems and address related
security concerns and could involve
claims against us by private parties and/or governmental agencies.
For example, we are directly or indirectly
subject to numerous and evolving federal, state, local and foreign laws and
regulations that protect the privacy and
security of personal information, such as the federal Health Insurance Portability
and Accountability Act of 1996,
as amended, and implementing regulations (“HIPAA”), the Controlling the Assault of Non-Solicited Pornography
and Marketing Act, the Telephone Protection and Electronic Protection Act of 1991, Section 5 of the Federal Trade
Commission Act, the California Privacy Act (“CCPA”), and the California Privacy Rights Act (“CPRA”) that
becomes effective on January 1, 2023.
Laws and regulations relating to privacy and data protection are
continually
evolving and subject to potentially differing interpretations. These requirements
may not be harmonized, may be
interpreted and applied in a manner that is inconsistent from one jurisdiction
to another or may conflict with other
rules or our practices.
Our businesses’ failure to comply with these laws and regulations could expose
us to breach
of contract claims, substantial fines, penalties and other liabilities and expenses,
costs for remediation and harm to
our reputation.
Also, evolving laws and regulations in this area could restrict
the ability of our customers to obtain,
use or disseminate patient information, or could require us to incur significant
additional costs to re-design our
products to reflect these legal requirements, which could have a material
adverse effect on our operations.
Also, the European Parliament and the Council of the European Union adopted
the pan-European General Data
Protection Regulation (“GDPR”), effective from May 25, 2018, which increased
privacy rights for individuals in
Europe (“Data Subjects”), including individuals who are our customers, suppliers
and employees.
The GDPR
extended the scope of responsibilities for data controllers and data processors,
and generally imposes increased
requirements and potential penalties on companies, such as us, that offer goods or
services to Data Subjects or
monitor their behavior (including by companies based outside of Europe).
Noncompliance can result in penalties of
up to the greater of EUR 20 million, or 4% of global company revenues, and
Data Subjects may seek damages. EU
member states may individually impose additional requirements and penalties
regarding certain matters, such as
employee personal data.
With respect to the personal data it protects, the GDPR requires, among other things,
company accountability, consents from Data Subjects or other acceptable legal basis to process the personal data,
breach notifications within 72 hours, data integrity and security, and fairness and transparency regarding the
storage, use or other processing of the personal data.
The GDPR also provides rights to Data Subjects relating
notably to information, access, modification, erasure and transporting
of the personal data.
In the United States, the CCPA, which increases the privacy protections afforded California residents, became
effective January 1, 2020.
The CCPA generally requires companies, such as us, to institute additional protections
regarding the collection, use and disclosure of certain personal information
of California residents.
Compliance
with the new obligations imposed by the CCPA depends in part on how particular regulators interpret and apply
them, and because the CCPA is relatively new,
and its implementing regulations were released in August of
2020,
there remains some uncertainty about how the CCPA will be interpreted by the courts and enforced by the
regulators. If we fail to comply with the CCPA or if regulators assert that we have failed to comply with the CCPA,
we may be subject to certain fines or other penalties and litigation,
any of which may negatively impact our
reputation, require us to expend significant resources, and harm our business.
Furthermore, California voters
approved the CPRA on November 3, 2020, which will amend and
expand the CCPA, including by providing
consumers with additional rights with respect to their personal information,
and creating a new state agency to
enforce the CCPA and the CPRA.
The CPRA will come into effect on January 1, 2023, applying to information
collected by businesses on or after January 1, 2022.
Other states, as well as the federal government, have increasingly
considered the adoption of similarly expansive
personal privacy laws, backed by significant civil penalties for non-compliance.
While we believe we have
substantially compliant programs and controls in place to comply with
the GDPR, CCPA and CPRA requirements,
our compliance with these measures is likely to impose additional costs on us,
and we cannot predict whether the
interpretations of the requirements, or changes in our practices in response
to new requirements or interpretations of
the requirements,
could have a material adverse effect on our business.
We also sell products and services that health care providers, such as physicians and dentists, use to store and
manage patient medical or dental records.
These customers, and we, are subject to laws, regulations and industry
standards, such as HIPAA and the Payment Card Industry Data Security Standards, which require the protection of
the privacy and security of those records, and our products may
also be used as part of these customers’
comprehensive data security programs, including in connection with their efforts to comply with
applicable privacy
and security laws.
Perceived or actual security vulnerabilities in our products or services,
or the perceived or actual
failure by us or our customers who use our products or services to comply
with applicable legal or contractual data
privacy and security requirements, may not only cause us significant reputational
harm, but may also lead to claims
against us by our customers and/or governmental agencies
and involve substantial fines, penalties and other
liabilities and expenses and costs for remediation.
Various
federal initiatives involve the adoption and use by health care
providers of certain electronic health care
records systems and processes.
The
initiatives include, among others, programs that incentivize physicians
and
dentists, through MIPS, to use EHR technology in accordance with certain
evolving requirements, including
regarding quality, promoting interoperability, cost and improvement activities.
Qualification for the MIPS
incentive payments requires the use of EHRs that are certified as having certain
capabilities designated in evolving
standards adopted by CMS and by the Office of the National Coordinator for Health
Information Technology
of
HHS (“ONC”).
Certain of our businesses involve the manufacture and sale
of such certified EHR systems and
other products linked to government supported incentive programs.
In order to maintain certification of our EHR
products, we must satisfy these changing governmental standards.
If any of our EHR systems do not meet these
standards, yet have been relied upon by health care providers to receive
federal incentive payments, we may be
exposed to risk, such as under federal health care fraud and abuse laws,
including the False Claims Act.
For
example, on May 31, 2017, the U.S. Department of Justice announced a $155
million settlement and 5-year
corporate integrity agreement involving a vendor of certified EHR systems, based
on allegations that the vendor, by
misrepresenting capabilities to the certifying body, caused its health care provider customers to submit false
Medicare and Medicaid claims for meaningful use incentive payments
in violation of the False Claims Act.
Moreover, in order to satisfy our customers, our products may need to incorporate increasingly complex
functionality, such as reporting functionality.
Although we believe we are positioned to accomplish this, the
effort
may involve increased costs, and our failure to implement product
modifications, or otherwise satisfy applicable
standards, could have a material adverse effect on our business.
Other health information standards, such as regulations under HIPAA, establish standards regarding electronic
health data transmissions and transaction code set rules for specific electronic
transactions, such as transactions
involving claims submissions to third party payers.
Failure to abide by these and other electronic health data
transmission standards could expose us to breach of contract claims,
substantial fines, penalties, and other liabilities
and expenses, costs for remediation and harm to our reputation.
Additionally, as electronic medical devices are increasingly connected to each other and to other technology, the
ability of these connected systems to safely and effectively exchange and use exchanged
information becomes
increasingly important.
For example, on September 6, 2017, the FDA issued final
guidance to assist industry in
identifying specific considerations related to the ability of electronic medical
devices to safely and effectively
exchange and use exchanged information.
As a medical device manufacturer, we must manage risks including
those associated with an electronic interface that is incorporated into a
medical device.
There may be additional legislative or regulatory initiatives in the future
impacting health care.
E-Commerce
Electronic commerce solutions have become an integral part of traditional health
care supply and distribution
relationships.
Our distribution business is characterized by rapid technological
developments and intense
competition.
The continuing advancement of online commerce requires
us to cost-effectively adapt to changing
technologies, to enhance existing services and to develop and introduce a
variety of new services to address the
changing demands of consumers and our customers on a timely basis, particularly
in response to competitive
offerings.
Through our proprietary, technologically-based suite of products, we offer customers a variety of competitive
alternatives.
We believe that our tradition of reliable service, our name recognition and large customer base built
on solid customer relationships, position us well to participate in
this significant aspect of the distribution business.
We continue to explore ways and means to improve and expand our Internet presence and capabilities, including
our online commerce offerings and our use of various social media outlets.
International Transactions
United States and foreign import and export laws and regulations require us to
abide by certain standards relating to
the importation and exportation of products.
We also are subject to certain laws and regulations concerning the
conduct of our foreign operations, including the U.S. Foreign Corrupt Practices
Act, the U.K. Bribery Act, German
anti-corruption laws and other anti-bribery laws and laws pertaining to
the accuracy of our internal books and
records, as well as other types of foreign requirements similar to those
imposed in the United States.
While we believe that we are substantially compliant with the foregoing laws
and regulations promulgated
thereunder and
possess all material permits and licenses required for the conduct
of our business, there can be no
assurance that regulations that impact our business or customers’ practices
will not have a material adverse effect
on our business.
See “
” for a discussion of additional burdens, risks and regulatory developments
that may
affect our results of operations and financial condition.
Proprietary Rights
We hold trademarks relating to the “Henry Schein
®
” name and logo, as well as certain other trademarks.
We intend
to protect our trademarks to the fullest extent practicable.
Employees and Human Capital
At Henry Schein, our employees are our greatest asset.
We employ more than 19,000 full-time equivalent
employees, including approximately 2,250 telesales representatives, over
3,450 field sales consultants, including
equipment sales specialists, 2,000 installation and repair technicians, 3,550 warehouse
employees, 800 computer
programmers and technicians, 675 management employees and 6,300 office, clerical
and administrative employees.
Approximately 49% of our workforce is based in the United States and
approximately 51% is based outside of the
United States.
Approximately 13% of our employees are subject to collective bargaining agreements.
We believe
that our relations with our employees are excellent.
We refer to our employees as Team
Schein Members, or “TSMs.”
Our TSMs are the cornerstone of the Company.
Our success is built on the engagement and commitment of our team, which
is dedicated to meeting the needs of
our customers, supplier partners, fellow TSMs, stockholders and society.
We are committed to supporting the
personal and professional development of our TSMs, as well as providing competitive
benefits and a safe, inclusive
workplace, and believe that these measures help us to retain our TSMs
and attract new TSMs.
As part of this
commitment, we have, among other things:
Developed a strong collaborative workplace culture.
We believe our TSMs’ ability to effectively
communicate and cooperate across functional and departmental teams positively
impacts our performance.
Each TSM’s performance is evaluated annually, based on a measure of Team Schein values, with a focus
on open communication.
Our team’s performance as a whole is evaluated via a culture survey, conducted
every two years, distributed to all TSMs, which, among other things,
addresses collaboration.
The results
from our culture surveys are reviewed by senior leaders, reported to the Board
of Directors and used to
implement programs and processes designed to further enhance our culture.
We are currently in the
process of further developing our collaborative culture by, among other things, strengthening our existing
commitment to diversity and inclusion, as further described below.
Committed to
enhance our
Diversity
and Inclusion
(“D&I”) initiatives.
We
believe
a
diverse workforce
fosters innovation and cultivates an environment filled with unique
perspectives.
As a result, D&I helps us
meet the needs of customers around the world.
We collect feedback through hosting roundtables where our
senior
leaders
actively
listen
to
our
TSMs
on
topics
related
to
D&I,
and
the
insights
learned
are
used
to
guide
our
efforts
to
support
a
diverse
and
inclusive
environment.
To
guide
our
efforts
and
education
related to
D&I, we
have established
an Executive
Diversity and
Inclusion Council
with engagement
from
our Board of Directors and Executive Management Committee. This
Council drives the Company’s overall
D&I strategy.
In 2020, we launched
a D&I learning
program to educate our
TSMs on critical
D&I related
topics, and management is incentivized to advance our D&I efforts.
Additionally, we promote engagement
by
utilizing
our
Employee
Resource
Groups
as
an
inclusive
and
diverse
vehicle
for
all
TSMs
to
share,
connect, learn, and develop both personally and professionally.
We believe that these efforts will serve as a
critical
stepping stone
as
we
continue to
strengthen our
D&I
initiatives in
an
effort
to
meet
the
evolving
needs of our customers, supplier partners, TSMs, stockholders and society.
Committed to the professional development of our TSMs.
We have invested in education and skill building,
and provide formal and informal learning opportunities to our TSMs.
All TSMs globally are offered a
broad suite of talent and professional development training programs
targeted to specific learning
opportunities based on their current and potential future role within
the Company.
We also offer
over 50
organizational and development training courses designed to aid in the overall development
and
advancement of skills and competencies to enable organizational success.
Supported talent development and succession planning.
Talent planning efforts are an integral part of our
commitment to ensure a strong leadership pipeline across the organization. We continuously identify a
group of potential management successors as part of our succession planning
process.
Our senior leaders
work to develop our TSMs’ talent and focus the team to execute our
long-term strategic plans.
Our Board
of Directors is provided with periodic updates regarding our
talent development and succession planning
efforts, participates in professional development activities with our TSMs and receives
formal
documentation on these topics annually.
Supported TSM health and safety.
We offer competitive health and wellness programs and other benefits to
eligible TSMs.
In addition to employee health, we are committed to providing
a safe and secure work
environment for all TSMs.
In response to the COVID-19 pandemic, in March 2020, we implemented
certain policy and procedure changes in an effort to protect our TSMs and customers,
and to support
appropriate health and safety protocols.
While TSMs at our manufacturing and distribution facilities, as
well as field sales consultants and equipment service technicians, have
continued to work onsite or in the
field to provide vital services to our customers, most TSMs in administrative
functions have effectively
worked remotely since mid-March.
To support the health and safety of our TSMs, we, among other things,
implemented extensive cleaning and sanitation processes and face
mask policies to protect TSMs at our
manufacturing and distribution facilities, instituted social distancing
and face mask policies for our field
sales consultants and equipment service technicians and adopted broad work-from-home
initiatives for
TSMs in administrative functions. In connection with this shift to remote working,
we made investments in
equipment, technology, and security upgrades to help protect our information and enhance our team’s
ability to work remotely.
Additionally, to help the team manage stress during the pandemic, we, among
other things, established a “COVID-19 Resource Center” to provide a central
location for all
communications to support the health of TSMs and their families, and hold
virtual Global Town Halls for
all TSMs.
Available Information
We make available free of charge through our Internet website,
, our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, statements
of beneficial ownership of
securities on Forms 3, 4 and 5 and amendments to these reports and statements
filed or furnished pursuant to
Section 13(a) and Section 16 of the Securities Exchange Act of 1934
as soon as reasonably practicable after such
materials are electronically filed with, or furnished to, the United States Securities
and Exchange Commission, or
SEC.
Our principal executive offices are located at 135 Duryea Road, Melville, New
York
11747, and our
telephone number is (631) 843-5500.
Unless the context specifically requires otherwise, the terms the
“Company,”
“Henry Schein,” “we,” “us” and “our” mean Henry Schein, Inc., a Delaware
corporation, and its consolidated
subsidiaries.
Information about our Executive Officers
The following table sets forth certain information regarding our executive officers:
Name
Age
Position
Stanley M. Bergman
Chairman, Chief Executive Officer, Director
Gerald A. Benjamin
Executive Vice President, Chief Administrative Officer, Director
James P.
Breslawski
Vice Chairman, President, Director
Michael S. Ettinger
Senior Vice President, Corporate & Legal Affairs and Chief of Staff, Secretary
Mark E. Mlotek
Executive Vice President, Chief Strategic Officer, Director
Steven Paladino
Executive Vice President, Chief Financial Officer, Director
Walter Siegel
Senior Vice President and General Counsel
Stanley M. Bergman
has been our Chairman and Chief Executive Officer since 1989 and a director
since 1982.
Mr. Bergman held the position of President from 1989 to 2005.
Mr. Bergman held the position of Executive Vice
President from 1985 to 1989 and Vice President of Finance and Administration from 1980 to 1985.
Gerald A. Benjamin
has been our Executive Vice President and Chief Administrative Officer since 2000 and a
director since 1994.
Prior to holding his current position, Mr. Benjamin was Senior Vice President of
Administration and Customer Satisfaction since 1993.
Mr. Benjamin was Vice
President of Distribution
Operations from 1990 to 1992 and Director of Materials Management
from 1988 to 1990.
Before joining us in
1988, Mr. Benjamin was employed for 12 years at Estée Lauder, Inc., in various management positions where his
last position was Director of Materials Planning and Control.
James P. Breslawski
has been our Vice Chairman since 2018, President since 2005 and a director since 1992.
Mr.
Breslawski was the Chief Executive Officer of our Henry Schein Global Dental
Group from 2005 to 2018.
Mr.
Breslawski held the position of Executive Vice President and President of U.S. Dental from 1990 to 2005, with
primary responsibility for the North American Dental Group.
Between 1980 and 1990, Mr. Breslawski held
various positions with us, including Chief Financial Officer, Vice President of Finance and Administration and
Corporate Controller.
Michael S. Ettinger
has been our Senior Vice President, Corporate & Legal Affairs, Chief of Staff and Secretary
since 2015.
Prior to his current position, Mr. Ettinger served as Senior Vice President, Corporate & Legal Affairs
and Secretary from 2013 to 2015, Corporate Senior Vice President, General Counsel & Secretary from 2006 to
2013, Vice President, General Counsel and Secretary from 2000 to 2006, Vice President and Associate General
Counsel from 1998 to 2000 and Associate General Counsel from 1994
to 1998.
Before joining us, Mr. Ettinger
served as a senior associate with Bower & Gardner and as a member of
the Tax Department at Arthur Andersen.
Mark E. Mlotek
has been our Executive Vice President and Chief Strategic Officer since 2012.
Mr. Mlotek was
Senior Vice President and subsequently Executive Vice President of the Corporate Business Development Group
between 2000 and 2012.
Prior to that, Mr. Mlotek was Vice President, General Counsel and Secretary from 1994 to
1999 and became a director in 1995.
Prior to joining us, Mr. Mlotek was a partner in the law firm of Proskauer
Rose LLP,
counsel to us, specializing in mergers and acquisitions, corporate reorganizations and tax law from
1989
to 1994.
Steven Paladino
has been our Executive Vice President and Chief Financial Officer since 2000.
Prior to holding
his current position, Mr. Paladino was Senior Vice President and Chief Financial Officer from 1993 to 2000 and
has been a director since 1992.
From 1990 to 1992, Mr. Paladino served as Vice President and Treasurer and from
1987 to 1990 served as Corporate Controller.
Before joining us, Mr. Paladino was employed in public accounting
for seven years, most recently with the international accounting
firm of BDO USA, LLP.
Mr. Paladino is a
certified public accountant.
Walter Siegel
has been our Senior Vice President and General Counsel since 2013.
Prior to joining us, Mr. Siegel
was employed with Standard Microsystems Corporation, a publicly
traded global semiconductor company from
2005 to 2012, holding positions of increasing responsibility, most recently as Senior Vice President, General
Counsel and Secretary.
Other Executive Management
The following table sets forth certain information regarding other Executive
Management:
Name
Age
Position
David Brous
President, Strategic Business Units Group and
Asia Pacific & Brazil Dental
Brad Connett
President, U.S. Medical Group
Jonathan Koch
Senior Vice President and Chief Executive Officer, Global Dental Group
Lorelei McGlynn
Senior Vice President, Chief Human Resources Officer
James Mullins
Senior Vice President, Global Services
Christopher Pendergast
Senior Vice President and Chief Technology Officer
Michael Racioppi
Senior Vice President, Chief Merchandising Officer
René Willi, Ph.D.
President, Global Dental Surgical Group
David Brous
has been our President, Strategic Business Units Group and Asia
Pacific & Brazil Dental since 2019.
Mr. Brous joined us in 2002 and has held many positions within the organization, including leading and managing
the Corporate Business Development Group and the International Healthcare Group
(managing our International
Animal Health business, International Medical business and Australia
/ New Zealand Dental business).
Brad Connett
has been our President of the U.S. Medical Group since 2018.
Mr. Connett joined us in 1997 and
has held a number of increasingly responsible positions at the Company.
Throughout his career, he has received
numerous industry honors, including the John F. Sasen Leadership Award from the Health Industry Distributors
Association (HIDA), in recognition of his service to the industry, and induction into the Medical Distribution Hall
of Fame by Repertoire Magazine.
Jonathan Koch
has been our Senior Vice President and Chief Executive Officer of our Global Dental Group since
Prior to joining us, for the years 2006 to 2018, Mr. Koch was a senior executive at Covance,
the drug
development services business of Laboratory Corporation of America.
In his last role at Covance, Mr. Koch was
the Executive Vice President and Group President of Covance Clinical Development & Commercialization
Services.
Prior to that, Mr. Koch was Executive Vice President and Group President of Covance Research and
Development Laboratories from 2015 to 2017.
Mr. Koch was also President of Covance Central Laboratory
Services from 2010 to 2015,
and Vice President at Covance, with various responsibilities, from 2006 to 2010.
Prior
to Covance, Mr. Koch held senior leadership roles of increasing responsibility while employed with Charles River
Laboratories from 1998 to 2006.
Lorelei McGlynn
has been our Senior Vice President, Global Human Resources Officer since 2013.
Since joining
us in 1999, Ms. McGlynn has served as Vice President, Global Human Resources and Financial Operations from
2008 to 2013, Chief Financial Officer, International Group and Vice President of Global Financial Operations from
2002 to 2008 and Vice President, Finance, North America from 1999 to 2002.
Prior to joining us, Ms. McGlynn
served as Assistant Vice President of Finance at Adecco Corporation.
James Mullins
has been our Senior Vice President of Global Services since 2018.
Mr. Mullins joined us in 1988
and has held a number of key positions with increasing responsibility, including Global Chief Customer Service
Officer.
Christopher Pendergast
has been our Senior Vice President and Chief Technology Officer since 2018.
Prior to
joining us, Mr. Pendergast was the employed by VSP Global from 2008 to 2018, most recently as the Chief
Technology Officer and Chief Information Officer.
Prior to VSP Global, Mr. Pendergast served in roles of
increasing responsibility at Natural Organics, Inc., from 2006 to 2008, IdeaSphere Inc./Twinlab Corporation from
2000 to 2006, IBM Corporation from 1987 to 1994 and 1998 to 2000
and Rohm and Haas from 1994 to 1998.
Michael Racioppi
has been our Senior Vice President, Chief Merchandising Officer since 2008. Prior to holding
his current position, Mr. Racioppi was President of the Medical Division from 2000 to 2008 and Interim President
from 1999 to 2000, and Corporate Vice President from 1994 to 2008, with primary responsibility for the Medical
Group, Marketing and Merchandising departments.
Mr. Racioppi served as Senior Director, Corporate
Merchandising from 1992 to 1994.
Before joining us in 1992, Mr. Racioppi was employed by Ketchum
Distributors, Inc. as the Vice President of Purchasing and Marketing.
He currently serves on the board of National
Distribution and Contracting and previously served on the board of Health
Distribution Management Association
and Health Industry Distributors Association (HIDA).
René Willi, Ph.D.
has been our President, Global Dental Surgical Group, Henry Schein Inc., since 2013.
Prior to
joining Henry Schein, Dr. Willi held senior level roles with Institut Straumann AG as Executive Vice President,
Surgical Business Unit from 2005 to 2013.
Prior to Straumann, he held roles of increasing responsibility
in
Medtronic Plc’s cardiovascular division from 2003
to 2005 and with McKinsey & Company as a management
consultant from 2000 to 2003.
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