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