Friday, February 6, 2015

Contact lens scrum ends in a whimper

A bill banning the practice of setting minimum prices for contact lenses died in committee this week. 1-800-Contacts pushed SB #2016 after leading contact lens manufacturer Johnson & Johnson established a "floor price" for the sale of its contact lens to patients. The bill was opposed by the state Optometrists Association and multiple ophthalmologist from around the state. 1-800-Contacts is based in Utah. The company is the Goliath of the online contact lens industry as it enjoys over a 70% market share.


The Senate Public Health Committee conducted a hearing on the bill on January 29. All of the powerhouse lobbyists watched in the Peanut Gallery: the Clay Firm, Butler Snow, the Thompsons, and Capitol Resources Group. The bill was prompted by JJ's new pricing policy that sets a minimum price for its contact lens products. The standard contract between JJ and re-sellers states that a re-seller violates the contract if it sells any contact lenses below the minimum price. The contract  states JJ will terminate the agreement and remove all JJ products from the re-seller if such a violation took place. 1-800-Contacts argued this new policy removed the power to set its own prices.


Senator Brice Wiggins introduced SB #2016. 1-800-Contacts drafted this bill and similar legislation in 14 states this year although none have passed. The relevant portion of the bill applies to section 75-24-5 of the Mississippi Code and states:

 (n) Acts, policies or practices by contact lens suppliers and/or manufacturers that restricts product distribution from any channel of trade, fixes prices, or sets a minimum resale price, whether through unilateral policy or by agreement, or otherwise limits free and open competition among retailers.

The law only covers misleading or false advertising and deceptive trade practices. It does not cover the pricing of goods or services in any field except insurance and that is a very limited exception.* It also provides rights and remedies to those injured by covered unfair trade practices. Pricing agreements are not mentioned anywhere in the current statute.



The Mississippi Optometric Association said contact lenses are medical devices and that the CDC recommended last year that contact lenses are to be provided "under a doctor's care." MOA said nearly one million Americans seek treatment for keratitis, a "condition caused by improper use of contact lenses." Its not to be confused with Rabbititis.  MOA said patients buying contact lenses online are more likely to suffer from keratitis than those who purchase them from a doctor.

Both MOA and 1-800-Contacts said federal law requires re-sellers to obtain prescriptions before providing contact lenses to consumers. MOA and JJ said 1-800-Contact lenses had sold them without the required prescriptions but provided no proof of the claim.

Several committee members and MOA charged that they were never consulted about the bill before it was introduced. The optometrists also accused 1-800-Contacts of misleading the committee by stating the optometrists support the bill. Dr. David Richardson said that the law would aid a company concerned with "increasing market share and profit" instead of helping patients as there was no doctor-patient relationship.

1-800-Contact's Jay Magure, Vice-President of Government Relations, likened the purchase of contact lenses to pharmacy prescriptions. He said the proposed law did not interfere with the doctor-patient relationship. A patient gets a prescription from a doctor and chooses his own pharmacy. However, Senator Hob Bryan compared the purchase of contact lenses to the purchase of a crown. He said a crown required a doctor's care in order to benefit the patient and said contacts were similar in that nature. Magure said there are no generic versions of contact lenses and 95% of Mississippi patients do not have a more affordable alternative to purchasing contacts from their doctors.



 Mr. Magure accused JJ of fixing prices and limited "choice" for consumers. He said some prices rose "three-fold" after JJ created a "price floor". However,Dr. Carol Alexander, Director of Communications for J&J vision products, said 58% of JJ consumers enjoyed a price reduction after it created the minimum price. She said the pricing was more honest and easier to understand as the company stopped using gimmicks such as rebates. Senator Terry Burton asked Mr. Magure if there was any other manufacturer that set a "floor price". Mr. Magure conceded there were. The Supreme Court and federal law have deemed such minimum pricing to be legal (See the Monsanto case.).  

Dr. Alexander said the contract was an agreement between the manufacturer and the re-seller. She accused 1-800-Contacts of asking the state to interfere in that private relationship.  She said the company is free to sell contact lenses on the internet. However, she said it must comply with the terms of the agreement if it wishes to sell the JJ's contact lenses. She said the minimum price was lower than many of the prices set by 1-800 contacts and that the company had made no move to lower the prices of contacts it sold online (See documents posted below for examples.). However, 1-800-Contacts said the new minimum prices were higher than the previous prices in an exhibit provided to the Senators (see documents posted below). The exhibit does not state what 1-800-Contacts' prices are.

The committee did not take a vote on the bill.  It was not brought up for a vote this week and died when the deadline for approving bills in committee passed. 

 Kingfish note: That was the news, now for the opinion. The typical eye doctor in Mississippi sells contact lenses and eyeware as part of his practice. Indeed, it comprises 60% of the revenue in the typical practice. What will happen if this bill is passed is not exactly rocket science or as complex as a Nick Saban defense. The eye doctor will be forced to seek revenue from other areas if the revenue from contact lenses declines. There is only one area where that will happen: the cost of the office visit and other services.

A normal office visit without insurance is $125 or so.  Many offices visits are covered by insurance. However, insurance companies limit what they pay as well. The doctor will probably either raise his prices across the board or have tiered pricing. A patient will thus pay one price for an examination if he buys his contacts from the doctor. He will pay a higher price for the visit if he purchases them somewhere else.

Then there is the matter of the freedom of contract. The courts and Congress have allowed manufacturers to set their minimum prices. Rainbow revokes franchises all the time from franchisees who get cute and sell their vacuum cleaners on Ebay at cut-rate prices. What 1-800-Contacts is trying to do is engage in crony capitalism. It wants the government to dictate to its wholesaler what the terms of its contracts can be. In other words, 1-800-Contacts wants Vinny and Bruno from the Attorney General's office to pay a visit to Johnson & Johnson when it can't get its way with its suppliers. This bill would have granted special favors to one industry (or rather one company) that is denied to any other industry under the same law. The bill died and probably won't be revived this year.

What was also interesting was watching who the lobbyists were in this fight.  Capital Resources Group represented the Mississippi Optometric Association.   The Clay Firm managed to represent both 1-800-Contacts and the Mississippi Academy of Eye Physicians and Surgeons. Beth Clay, the matriarch of the Clay Firm is also listed as the Executive Director of the MS Academy of Eye Surgeons and Physicians (the opthalmologists' trade association.).  However, several opthalmologists submitted and read letters to the committee that were strongly opposed to the bill. MAEPS did not submit any official statements on the proposed legislation.  Nothing like a Cla-Cla food fight. The fight is an interesting one: the freedom to set prices v.  the freedom to make contracts. 

 *The insurance section of the law only prohibits carriers from raising the premiums of soldiers who deploy out of state and seek to have their policies continued or reinstated

Letters and statements from Mississippi doctors on bill.



 Industry statements on bill and copy of  JJ contract


31 comments:

Anonymous said...

Clay firm was representing both sides on this issue?

Anonymous said...

I'm confused - so J & J CAN set minimum prices for their lenses in MS now? I assume the consumer is getting screwed here somehow.

Who's screwing the buyers - 1-800-Contacts or the state's optometrists/ophthalmologists? It sounds like they, along with J & J, are pushing the prices up, and 1-800-Contacts wants to continue to sell at the lowest price they can.

Berial said...

Agree with 10:16.

This sounds like a loss for contact wearers. While I agree that 1-800 was trying to help its own business, it's in the business of selling contacts cheap. J&J can sell contacts to 1-800 for (made up numbers) 50$ and by contract force 1-800 to never sell them for less than $60. The same contract goes out to the Doctors selling the contacts and since everyone is going to at minimum pay $60 there is no real reason to go to 1-800.

The economic forces are STILL being manipulated here with J&J forcing the price UP.

The real difference I see is J&J is using contract law to get it's way, while 1-800 was trying to get a special law for itself to cut that ability out of contract law in MS.

Anonymous said...

J&J needs a minimum price in order to pay kick backs to the eye doctors, thus the support of the eye doctors in this practice. Did you really believe you lived in a world of free markets?

Anonymous said...

You can also thank Senator David Parker from Olive Branch. He opposed this bill because he is an OPTOMETRIST He needs someone that lives in Senate District 19 to run against him.

Anonymous said...

Senator Parker is on the Public Health Committee that killed the bill. More than likely, he's getting a kickback from J & J!

Anonymous said...

Asking Govt to intervene in this market problem is not the solution.

But if you think that the brick and mortar service providers are not in cohoots with J & J to reduce the price advantages offered the consuming public by the mail order and online providers then you must be smoking some really good weed.

J & J makes their biggest margins suppling the low volume Mom & Pop optometric shops. Damn right that both groups benefit by fixing minimum prices.

As for stupid Hob's thinking there is some sort of equivalency between wearing contact lens and getting a crown. That is laughable.

And if you are paying $125 Kingfish to get a prescription for contacts then get your ass out of those opto-boutiques and do some shopping around because you can find cheaper exams than that in Jackson.

Anonymous said...

Do you think government is supposed to regulate and minimize the effect monopolies have on citizens?!? The government is only for the free market when competing economic interests increase total campaign contributions.

Anonymous said...

I'm guessing 12:01's pro-monopoly beliefs lead him to believe that John Oliver's isn't funny and that he instead a lazy comedian who should get his "ass out of those [internet-boutiques]-and do some shopping" for faster connection speeds.

https://www.youtube.com/watch?v=fpbOEoRrHyU

Kingfish said...

Sums it up perfectly:

The real difference I see is J&J is using contract law to get it's way, while 1-800 was trying to get a special law for itself to cut that ability out of contract law in MS.

Yup. A private contract. A contract between two businesses. There is nothing stopping 1-800-Contacts from finding another manufacturer or lining up investors that will fund the creation of one if there is indeed a market for it.

I do pay a particular price when I go to the eye doctor. He sets it and I am free to accept it or go somewhere else. I happen to have a great eye doctor so I am willing to pay his prices and that is my choice. You proved my point for me, however as you said there were cheaper ones. Yup. Choice.

JJ is free to set their own prices and should be able to do so.

Its quite simple. I'm against crony capitalism. Some of you are not.

Anonymous said...

Been ordering my contacts from www.DaySoft.com for years. Less than $20.00 for 64 daily wear shipped to the door. The company is owned and run by the man that invented the soft lens. Best I have ever worn and I won't ever use anything else! Contacts are a rip off. NONE were designed to be worn more than one day. Greedy bastards figured out there is $$ in the cleaning solutions, etc.

Anonymous said...

Why is the contact lens industry singled out here. I think that is the real problem. How many of you are typing on an Apple product? I didn't see you blink an eye when all iPhone prices are the same. Or NorthFace, Costas, should I continue? A company had the right to place a minimum price in their product to maintain that products value. What's wrong with that? I'm sure that 1-800 gets a lower wholesale price anyway due to the volume they purchase. Support your hometown businesses, not some out of state internet business. They don't care abot Mississippi.

NOT a Stupid iPhone CULTIST said...

When my hometown business charges me double, triple, quadruple or more for the exact same product as one can find online I realize that they may care a whole lot about Mississippi but they don't give a damn about my budget.

Anonymous said...

Eye Doctors in Mississippi--build offices, equip them, employ staff, pay taxes, buy cars, groceries, supplies, support local Chambers and baseball teams, buy Girl Scout Cookies, join Lions Clubs, serve as Boy Scout Troop Leaders, deacons and elders and vestry members.

1-800 in Utah--no economic churn in Mississippi, no community involvement, not even a box of S'Mores. GOOSE EGG.

Anonymous said...

I have been using the same optometrist in my small town for 10 years. I trust him. He goes to my church. I value my eyesight. If I want to buy a purse, I'm willing to risk it online, but contacts? I'd rather be sure. I know that IF I bought them online and had a problem, he's who would help me get it fixed, not some online company.

Anonymous said...

Contact Lens are medical devices, often having very complex designs to aid patients with challenging vision problems, some are even medicated with prescription pharmaceuticals. Contact lens should be fitted by eye doctors and patients wearing them should be routinely monitored by eye doctors.

Anonymous said...

On the lobbying issue. You said who the Clays and Capital Resources represent, but who did Butler Snow and the Thompsons represent? And, it is unusual for a lobbyist to represent two groups on the same issue? Not sure how that works if one group is for and one is against?

Anonymous said...

KF, your comment at 12:23 is spot on. This type of issue plays out a few times per year at the Capitol. You never know which ones will break which way.

Anonymous said...

2:17 and 2:47 - Pshhaw! - I go to my local optometrist too. He goes to the same church as me. We both hire local employees, pay taxes, etc. He has told me he understands why I buy online. As he puts it, "I order my inventory online as well; it's just that some of my out-of-state suppliers won't do business with me if I try to get you a better deal."

Anonymous said...

Interesting.... Beth Clay represents both clients and gets away with out anyone noticing. Thanks KF for pointing this out. This is not the first time the "matriarch" has doubled down.

Capitol Throb said...

Whole lotta dinero TWO be MADE 8:09 in keeping status the status quo.

Anonymous said...

You said it, Kingfish! This bill was crony capitalism in its purest form. 1-800 trying to use government to force JJ to get their way. Contracts are the fairest way to conduct business, and government should not interfere with that process.

Anonymous said...

Am I reading this correctly, Clay firm represented both sides??? Is this even legal? If so it is grossly unethical and certainly exposes them to law suits from both parties.

Are you certain of this Kingfish?

Kingfish said...

Was paid about the same by both clients so i fail to see the conflict.

Anonymous said...

MS Rules of Professional Conduct for Attorneys.

Anonymous said...

@9:28---That is right- Mrs. Clay is an attorney

Anonymous said...

First of all, the contact lens industry is a unique one. For a consumer to purchase contacts they must first get a prescription from their eye doctor. Ultimately the doctor is who chooses which brand their patient wears. That being said, you can't really compare this price floor to what Apple does. A consumer can choose between an iPhone, a Samsung phone, a Motorola phone or some other. They have that choice. The same consumer, however, cannot choose which brand of contacts to wear. Sure they can make a request from their doctor, but the doctor still makes the choice.

Contact lens manufacturers understand this all too well. If they give eye doctors some sort of incentive, like being able to sell contacts to all their patients, then eye doctors will tend to choose a brand of contacts that benefits them. An eye doctor's interest should be in the health of their patient, not how many year-supplies of contacts they can sell. There is a major conflict of interest in the eye industry.

Secondly, what this article does not mention is that J&J are not the only manufacturers who have implemented this so-called "Unilateral Pricing Policy". BOth Alcon and B&L have also implemented UPP on some of their lenses. These three manufacturers combined make up almost the entire CL market. "Unilateral" indeed. This is clearly price fixing, which is illegal.

Anonymous said...

02/12/2015 4:19. There are numerous lenses available on the market manufactured by companies other than the three you listed. The contact lens manufacturers you listed will gain no market share by the introduction of UPP. And their revenues will be unchanged because they are still wholesaling their lenses to suppliers ( both doctors and online retailers) at the same price as before. Therefore the benefit for manufacturers is having their products distributed through doctor's offices at a higher rate. The reason lens manufacturers desire this is so patient complication rates and compliance on wear schedules will improve. Two things that online retailers do not care one iota about.

Anonymous said...

The benefit for manufacturers is having their products PRESCRIBED at a higher rate. That's what this is about. When prescriptions go up, sales go up.

Don't be so naive to think that manufacturers care about patients. If they care about patients sticking to wear schedules it is only because they want them to buy more boxes per year. Eye doctors, yes, are likely to care. But manufacturers only care about profit. We are talking about Johnson and Johnson, Novartis and Valeant Pharmaceuticals.

Anonymous said...

The rate at which the particular lenses are prescribed will not increase ad a result of UPP. If the manufacturers and docs were actually in cahoots there is a MUCH easier way to funnel sales to the docs. That would be to develop private label lenses that are unique to doctor offices. Conspiracy theories abound though. And it should also be noted that eye docs in the state remained neutral in on this bill until they were misrepresented by online retailers as FOR it.

Anonymous said...

he said it the best, this is capitalism in disguise

Yup. A private contract. A contract between two businesses. There is nothing stopping 1-800-Contacts from finding another manufacturer or lining up investors that will fund the creation of one if there is indeed a market for it.

I do pay a particular price when I go to the eye doctor. He sets it and I am free to accept it or go somewhere else. I happen to have a great eye doctor so I am willing to pay his prices and that is my choice. You proved my point for me, however as you said there were cheaper ones. Yup. Choice.

JJ is free to set their own prices and should be able to do so.

Its quite simple. I'm against crony capitalism. Some of you are not.

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