The vision care plan industry’s vertical monopoly

October 27, 2014

There is no question that certain vision care plans have dominated the eyecare market for the last two decades. Nearly 100 million Americans are covered by just two of these plans. As they have become dominant and integrated into new lines of business, they increasingly are coercing optometrists, ophthalmologists, independent laboratories, and consumers-the result higher, prices less choice, and reduced competition.

Editor's note: This piece is a guest perspective, and it appears in the "Opinion" section of our publication.

There is no question that certain vision care plans have dominated the eyecare market for the last two decades. Nearly 100 million Americans are covered by just two of these plans.1,2 As they have become dominant and integrated into new lines of business, they increasingly are coercing optometrists, ophthalmologists, independent laboratories, and consumers-the result higher prices, less choice, and reduced competition.

The most significant antitrust case against a vision care plan comes from nearly 20 years ago.  In 1996, the Department of Justice Antitrust Division filed its only lawsuit against Vision Service Plan (VSP).3 The Department of Justice alleged that the “nation’s largest vision care insurance plan” was reducing price competition through “most favored nation” clauses, a contracting provision designed to ensure that VSP would get the most favorable rates from providers, thus reducing fees to competing vision care plans. While seen as a victory by the agency, the parties settled the matter by limiting only certain VSP conduct, including the usage of most favored nation clauses. The settlement agreement expired after five years in 2001.

Controlling every step of production

Since that 1996 case, vision care plans have faced limited scrutiny and have expanded the scope of their businesses through vertical mergers and contractual arrangements. Large plans such as Davis Vision, EyeMed (Luxottica), and VSP have acquired or opened retail stores, laboratories, and frame manufacturers, granting them control of the entire chain of vision care production. To quote Luxottica, such vertically integrated structures are “one of the competitive advantages underpinning the Group’s past and future successes.”4 These transactions have received limited attention from the federal antitrust agencies. In fact, the federal government has approved recent transactions without a full assessment of the likelihood of anticompetitive harm.5 Yet, as noted in a 2012 Bain & Company report on independent optometry, vision care plans are purposefully applying pressure to independent eyecare providers through “aggressive… marketing strategies.”6 The reason? To increase plan profits by forcing consumers into a vertically integrated monopoly.

Union American Eye Care Providers initiates anti-trust complaint against vision care plans

According to 2008 report by Consumers Digest, such aggressive tactics and vertical integration by vision care plans “could present problems to consumers”7 by limiting choice, lowering quality, and raising prices. One of the most common practices is the restriction of services an independent eyecare provider may offer. Patients of certain vision care plans are allowed to select an independent optometrist or ophthalmologist for their examination; however, that eyecare provider may be prevented from providing lenses, frames, or contact lenses to that patient. And the eyecare provider may be limited to only using the vision care plan’s laboratory. The patient is forced to make these secondary purchases through an entity owned or controlled by the vision care plan, regardless of the patient’s or doctor’s preference. Such practices restrict choice and can often cost consumers more money. Along with limiting choice, vision care plans are also specifically targeting independent providers’ patients. Some plans are directly contacting patients in an effort to switch them from their independent eye doctor to plan-employed or plan-associated eye care professionals and locations.

The vision care plans’ conduct can also reduce competition. Before consolidation and vertical integration, providers could offer plan beneficiaries a wide range of vision care services and secondary sales. With vision care plans consolidating power and forcing patients into an integrated system, these plans are effectively restricting the ability of independent providers to provide routine vision care, laboratory services, or secondary sales to plan beneficiaries.

 

Recent cases

Fortunately, the state and federal antitrust agencies are beginning the focus on these types of exclusionary conduct. In the 2010 case FTC v. Transitions Optical, the Federal Trade Commission barred Transitions Optical, now a subsidiary of Essilor, from engaging in exclusive dealing at “every level of the photochromic lens distribution chain.”8 Under Transitions’ plan, the company was able to illegally maintain monopoly power by restricting the sale of competing photochromic products. While the case is limited to the photochromic lens market, such conduct requires a degree of vertical integration providing an outline for more eyecare antitrust-related cases.

GA Supreme Court rules in favor of optometrists 

Providers have also had success at the state level challenging vision care plan practices under state competition and access laws. In the 2013 case of Spectera, Inc. v. Wilson, the Supreme Court of Georgia ruled in favor of independent optometrists finding that Spectera’s conduct “limits independent participating providers.”9 Plaintiff optometrists sued Spectera, claiming that independent participating provider (IPP) agreements violated Georgia’s Patient Access to Eye Care Act. Using the IPPs, Spectera limited independent optometrists from assembling lenses and frames and prohibited optometrists from providing contact lenses. The court agreed with plaintiffs that such IPP agreements limited consumer choice and thus were in violation of the Patient Access to Eye Care Act. Patient access to eyecare laws are becoming more prominent throughout the United States.10 In 2014 alone, both Kansas and Vermont passed similar patient access to eyecare laws limiting the control of vision care plans over provider practices.11

Most recently, independent Acuity Optical Laboratories filed suit in federal court against Davis Vision.12 The complaint alleges that Davis Vision’s contractual provider agreements contain an anticompetitive mandatory laboratory requirement that forces providers to use Davis Vision’s owned laboratories. As a “must-have” vision care plan in Chicago, area providers can ill afford to lose access to Davis Vision beneficiaries, forcing them to accept the mandatory laboratory requirement. By lessening provider choice and access to independent laboratories, the mandatory laboratory provision also lowers the quality of lenses and raises prices on consumers.12 Moreover, the conduct has caused significant foreclosure in the independent laboratory industry.12

Given the recent success in litigation, the tide may slowly be turning on the practices of the integrated vision care plans within the eyecare industry. Interested groups, federal and state agencies, independent laboratories, eyecare providers, and representative organizations, such as the newly formed Union of American Eye Care Providers, are beginning to openly challenge vision care plan conduct. With this renewed interest in the eyecare industry, it is incumbent upon eyecare professionals, businesses, and industry experts to continue to support procompetitive solutions and limits on vision care plan consolidation. Eyecare professionals and industry participants should continue to seek advice and challenge deceptive and anticompetitive practices within the industry.

If you have any examples of your patients being harmed by these or other vision care plan practices, please e-mail info@theaado.org. To support or learn more about the Union of American Eye Care Providers, please visit http://www.uaecp.org.

Maximize profits with managed vision care

 

References

1. VSP website. Available at https://www.vsp.com /about-vsp.html. Accessed 9/23/2014.  2. Goodman A. There’s More to Ray-Ban and Oakley than Meets The Eye. Forbes.com (July 16, 12:42 PM), http://www.forbes.com/sites/agoodman/2014/07/16/theres-more-to-ray-ban-and-oakley-than-meets-the-eye/. Accessed 10/22/2014.

3. U.S. v. Vision Service Plan, Case No. 94-cv-02693 (D.D.C. 1996). Available at http://www.justice.gov/atr/cases/f0700/0764.htm.  Accessed 10/22/2014.

4. Luxottica website. Vertical Integration and Activities.  Available at http://www.luxottica.com/en/company/our-way/our-business-model/vertical-integration-and-activities. Accessed 10/22/2014.

5. Luxottica Group.  Luxottica Group Announces Early Termination of U.S. Antitrust Waiting Period For Oakley Acquisition (Aug. 24, 2007). Available at http://www.luxottica.com/sites/luxottica.com/files /2007_08_24_-_us_antitrust-oakley.pdf.  Accessed 10/22/2014.

6. Spaulding E. Do You see what we see? The future of independent optometry. Bain & Co. (2012).

7. Baker L. Investigative Report: Optical Illusion. Consumers Digest. 2008 July. Available at http://www.consumers digest.com/special-reports/optical-illusion.

8. FTC v. Transitions Optical. Docket No. C-4289 (FTC Apr. 22, 2010). Available at

. Accessed 10/22/2014.

9. Spectera, Inc. v. Wilson. Case No. S12G1935 (Ga. S.Ct., Oct. 7, 2013).

10. Ark. Code Ann. § 23-99-201; Ala. Code § 27-56-1; Colo. Rev. Stat. § 10-16-107; Me. Rev. Stat. 24-A: Maine Insurance Code 792, § 4314; W. Va. Code R. § 33-25E-1.

11. McCarthy C. New laws restrict MVC plan contracts with ODs in Kansas and Vermont. Optometry Times. Available at http://optometrytimes.modernmedicine.com/optometrytimes/news/new-laws-restrict-mvc-plan-contracts-ods-kansas-and-vermont?page=0,0&contextCategoryId=140. Accessed 10/22/2014.

12. Verified Petition for Preliminary Injunction, Declaratory Judgment, Damages, and Permanent Injunctive Relief, Acuity Optical Laboratories, LLC v. Davis Vision Inc., Case No: 14-cv-3231 (C.D. Ill. July 29, 2014).